<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration No. 333-32147
PROSPECTUS
3,000,000 Shares
[CORIXA LOGO]
Common Stock
---------------------------
All of the shares of Common Stock (the "Common Stock") offered hereby (the
"Offering") are being sold by Corixa Corporation ("Corixa" or the "Company").
Prior to the Offering, there has been no public market for the Common Stock of
the Company. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "CRXA."
---------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------------
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 Discounts and Proceeds to
to Public Commissions (1) Company (2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................... $13.00 $0.91 $12.09
- ------------------------------------------------------------------------------------------------
Total (3)...................... $39,000,000 $2,730,000 $36,270,000
================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the underwriters (the "Underwriters")
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $800,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock on the same terms and conditions
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 $44,850,000, $3,139,500 and
$41,710,500, respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters, subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York on or
about October 7, 1997.
---------------------------
LEHMAN BROTHERS
INVEMED ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
OCTOBER 2, 1997
<PAGE> 2
Corixa's Core Technologies
[Graphic of syringe and components of vaccine contained therein]
Corixa's T cell vaccine approach, which includes three proprietary core
technologies, targets the prevention and treatment of cancers and certain
infectious diseases.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by an independent public
accounting firm and will make available copies of quarterly reports for the
first three quarters of each fiscal year containing interim unaudited financial
information.
The Company has applied for trademark registration for CORIXA(TM) and the
stylized Corixa logo. This Prospectus also contains trademarks and trade names
of other companies.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including information under "Risk Factors." The Common Stock
offered hereby involves a high degree of risk. Unless otherwise indicated, the
information in this Prospectus (i) assumes that the Underwriters' over-allotment
option will not be exercised, (ii) assumes the issuance of 445,139 shares of
Common Stock to be issued upon the net exercise of outstanding warrants upon the
closing of the Offering, (iii) reflects the filing of the Company's Amended and
Restated Certificate of Incorporation ("Restated Certificate of Incorporation"),
authorizing a class of 10,000,000 shares of undesignated Preferred Stock and
effecting the 1-for-3.3 reverse stock split with respect to the Common Stock and
(iv) gives effect to the automatic conversion of all outstanding shares of
Series A Preferred Stock and Series B Preferred Stock into an equal number of
shares of Common Stock upon the closing of the Offering. Certain terms are
defined in the Glossary of Scientific Terms on page 74 of this Prospectus.
THE COMPANY
Corixa Corporation ("Corixa" or the "Company") is focused on the discovery
and early clinical development of vaccine products that induce specific and
potent pathogen- or tumor-reactive T lymphocyte ("T cell") responses for the
treatment and prevention of cancers and certain infectious diseases. The Company
employs the following three proprietary core technology platforms, which
together comprise the elements the Company believes are necessary for effective
T cell vaccines: (i) microsphere delivery systems that specifically activate
appropriate T cell responses; (ii) adjuvants that specifically enhance
appropriate T cell responses; and (iii) disease-specific antigens that are
essential to elicit appropriate T cell responses. The Company's strategy is to
dedicate its resources to vaccine discovery and to establish corporate
partnerships as early in the development process as possible for all aspects of
product development and commercialization. Corixa believes this research- and
partner-driven approach creates significant scientific, operational and
financial advantages for the Company and accelerates the commercial development
of new therapeutic and prophylactic T cell vaccines, as well as related
diagnostic products. The Company has entered into corporate partnerships with
nine pharmaceutical, biotechnology and diagnostic companies, including
SmithKline Beecham Biologicals S.A. ("SmithKline Beecham"), Pasteur Merieux
Connaught, a subsidiary of Rhone-Poulenc Group ("PMC") and Abbott Laboratories
("Abbott").
Although commercially available vaccines can prevent infection by a variety
of pathogens such as bacteria, viruses and parasites through antibody-based
immune responses, these responses are not sufficient to eliminate cancers or
certain infectious diseases. Moreover, commercially available vaccines do not
address therapeutic treatment of such diseases. To induce an effective immune
response against such diseases, T cells must be activated. Although Corixa's
technological approach is unproven in humans, the Company believes that the
integration of its three proprietary core technologies will result in the
activation of a protective immune response, and that this integration may be
essential for truly effective vaccines against cancers and certain infectious
diseases. The markets for such vaccine products are extensive, particularly in
oncology, given that current treatments such as chemotherapy and radiation
therapy may not lead to lasting cure or prevention.
Since its inception, Corixa has developed a diverse portfolio of potential
products and corporate partnerships based on the breadth of its proprietary core
technologies and its expertise in antigen discovery. Products based on the
Company's technologies are currently in the discovery, preclinical or early
clinical investigation stages, with the exception of a certain diagnostic
product, the sale of which has resulted in immaterial revenues to date.
- VACCINES. The Company currently has four cancer vaccine programs and
one infectious disease vaccine program. The Company has established
corporate partnerships with SmithKline Beecham for the development of
vaccines for breast and prostate cancer and for tuberculosis. In
addition, the Company is sponsoring Phase I clinical trials for Her-2/neu
peptide vaccines in breast and ovarian cancer, as well as pursuing a lung
cancer vaccine program.
3
<PAGE> 4
- ADJUVANTS. Corixa has identified a protein, known as Leishmania
elongation Initiating Factor ("LeIF"), which functions as a potent
adjuvant for enhancing immune responses. The Company has established a
corporate partnership with PMC for the use of LeIF as a novel adjuvant to
be used in vaccines for influenza, respiratory syncytial virus, HIV,
tuberculosis and malaria.
- DIAGNOSTICS. The Company pursues corporate partnerships for cancer
and infectious disease diagnostics to complement its therapeutic research
efforts and to expand its scientific platform. The Company has
established corporate partnerships for the development of diagnostics to
detect certain infectious diseases, including tuberculosis, with a number
of diagnostic companies, including Abbott, DiaMed S.A. ("DiaMed") and
Centocor UK Limited, a division of Centocor, Inc. ("Centocor").
- OTHER PRODUCTS. The Company believes that its three core
technologies create additional product opportunities outside of its
primary focus on vaccine development. The Company has established
corporate partnerships for the development of products for adoptive
immunotherapy of cancer with CellPro, Incorporated ("CellPro"), products
for the treatment of certain autoimmune diseases with ZymoGenetics, Inc.,
a wholly-owned subsidiary of Novo Nordisk A/S ("ZymoGenetics"), products
based on LeIF as an immunomodulator with Vical Incorporated ("Vical") and
certain animal health products with Heska Corporation ("Heska").
Corixa's objective is to leverage its proprietary core technologies,
research expertise and intellectual property to become the leading
research-based biotechnology company focused on the discovery of T cell
vaccines, utilizing corporate partnerships to accelerate and fund product
development and commercialization. Key elements of the Company's strategy
include: (i) integrating its three proprietary core technologies into
therapeutic and prophylactic vaccine products; (ii) establishing corporate
partnerships for vaccine products prior to the initiation of Phase II clinical
trials to reduce the costs and risks of product development and to enhance
commercial opportunities; and (iii) partnering each of its proprietary core
technologies to commercial entities to improve such entities' own existing or
development-stage vaccines, and to create new, non-vaccine products, including
diagnostics. The Company also seeks to obtain technologies that complement and
expand its existing technology base and has licensed or acquired product and
marketing rights from a number of research and academic institutions. To date,
substantially all of Corixa's revenues have resulted from corporate
partnerships, other research, development and licensing arrangements, research
grants and interest income, and only minimal revenues have been generated from
the sale of one diagnostic product.
Corixa believes that one of its key competitive advantages is its antigen
discovery program, through which the Company identifies antigens that are either
uniquely expressed or markedly over-expressed, and may therefore represent the
most effective antigens for a particular vaccine. Approximately half of Corixa's
scientific personnel are dedicated to antigen discovery. The Company's antigen
discovery activities include, among others, tumor tissue procurement and tumor
propagation, expression cloning and immunological characterization of candidate
tumor vaccine antigens. The Company has filed numerous patent applications
seeking both composition of matter and vaccine and diagnostic method of use
claims that cover approximately 160 gene sequences that are either uniquely
expressed or markedly over-expressed by breast cancer cells, approximately 60
gene sequences that are either uniquely expressed or markedly over-expressed by
prostate tumor cells or prostate tissue, and approximately 70 gene sequences
that are expressed by Mycobacterium tuberculosis.
Corixa is a principal stockholder in, and has received licenses in the
field of cancer vaccines from, GenQuest, Inc. ("GenQuest"), a privately-held
functional genomics company engaged in discovery of new genes related to the
transformation of normal cells into cancer cells and research of novel genes
that are uniquely expressed by cancer cells. The Company believes its
relationship with GenQuest will enable the identification of additional genes
that are uniquely expressed by cancer cells and are useful in the Company's
research programs.
The Company's principal executive offices are located at 1124 Columbia
Street, Suite 200, Seattle, Washington 98104 and its telephone number is (206)
667-5711. The Company was founded and incorporated in Delaware on September 8,
1994.
4
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,000,000 shares
Common Stock to be outstanding after the
Offering(1)................................ 11,244,331 shares
Nasdaq National Market symbol................ CRXA
Use of proceeds.............................. To fund research and development and for
working capital and general corporate
purposes. See "Use of Proceeds."
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION
(SEPTEMBER 8, YEAR ENDED SIX MONTHS ENDED
1994) TO DECEMBER 31, JUNE 30, INCEPTION TO
DECEMBER 31, ------------------- ------------------ JUNE 30,
1994 1995 1996 1996 1997 1997
------------------ ------- ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Collaborative agreements....... $ -- $ 2,411 $ 4,402 $ 1,731 $6,939 $ 13,752
Government grants.............. -- 304 1,403 626 554 2,261
-------- ------- ------- ------- ------ --------
Total revenues.......... -- 2,715 5,805 2,357 7,493 16,013
Operating expenses:
Research and development(2).... 867 7,040 9,995 4,708 7,104 25,006
General and administrative .... 205 532 781 438 779 2,297
-------- ------- ------- ------- ------ --------
Total operating
expenses.............. 1,072 7,572 10,776 5,146 7,883 27,303
Income (loss) from operations.... (1,072) (4,857) (4,971) (2,789) (390) (11,290)
Interest income, net............. 83 691 476 213 235 1,485
Other income(3).................. -- 16 348 174 187 551
-------- ------- ------- ------- ------ --------
Net income (loss)................ $ (989) $(4,150) $(4,147) $(2,402) $ 32 $ (9,254)
======== ======= ======= ======= ====== ========
Pro forma net income (loss) per
share(4)....................... $ (0.50) $ 0.00
======= ======
Shares used in computing pro
forma net income (loss) per
share(4)....................... 8,343 8,536
======= ======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale..................... $15,047 $ 50,517
Working capital.............................................................. 12,798 48,268
Total assets................................................................. 20,030 55,500
Long-term obligations, less current portion.................................. 5,086 5,086
Deficit accumulated during development stage................................. (9,295) (9,295)
Total stockholders' equity................................................... 11,872 47,342
</TABLE>
- ---------------
(1) Excludes (i) 1,187,614 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 30, 1997, 378,334 of which are fully
vested, at a weighted average exercise price of $0.71 per share, (ii)
694,512 shares of Common Stock issuable upon exercise of warrants expected
to remain outstanding after the Offering at a weighted average exercise
price of $8.04 per share, (iii) an aggregate of 1,031,039 shares reserved
for future issuance under the Company's Amended and Restated 1994 Stock
Option and Restricted Stock Plan (the "1994 Plan"), 1997 Employee Stock
Purchase Plan (the "Purchase Plan"), and 1997 Directors' Stock Option Plan
(the "Directors' Plan"), each of which was approved by the Board of
Directors of the Company on July 25, 1997 and (iv) 3,029 shares of Common
Stock issued after June 30, 1997 in connection with a collaboration
agreement. See "Management -- Stock Option Plans" and "Description of
Capital Stock."
(2) Included in research and development expenses for the period from inception
(September 8, 1994) to December 31, 1994 is $428,059 related to the purchase
of in-process research and development.
(3) Other income includes proceeds received for management and administrative
services.
(4) See Note 1 of Notes to Financial Statements for information regarding the
computation of pro forma net income (loss) per share.
(5) As adjusted to reflect the sale of the 3,000,000 shares of Common Stock
offered hereby at the initial public offering price of $13.00 per share
after deducting underwriting discounts and commissions and estimated
Offering expenses and the receipt of the net proceeds therefrom. See "Use of
Proceeds."
5
<PAGE> 6
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Accordingly, prospective investors should consider carefully the
following factors, together with the information contained in this Prospectus,
in evaluating the Company and its business before purchasing the shares of
Common Stock offered hereby. This Prospectus contains forward-looking statements
that involve risk and uncertainty. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below and other factors
discussed elsewhere in this Prospectus. See "Special Note Regarding
Forward-Looking Statements."
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT
Corixa is at an early stage in the development of its therapeutic,
prophylactic and diagnostic products. To date, almost all of the Company's
revenues have resulted from payments made under agreements with its corporate
partners, and the Company expects that most of its revenues for the foreseeable
future will continue to result from existing and future corporate partnerships,
if any. The Company has generated only minimal revenues from diagnostic product
sales and no revenues from therapeutic product sales since inception. Vaccine
products that may result from the Company's research and development programs
are not expected to be commercially available for a number of years, if at all,
and it will be a number of years, if ever, before Corixa will receive any
significant revenues from commercial sales of such products. There can be no
assurance that the Company will receive anticipated revenues under existing
corporate partnerships, that the Company will be able to enter into any
additional corporate partnerships or that the Company will ever achieve
consistent profitability. See "Business -- Corixa's Products in Development."
UNCERTAINTIES RELATED TO TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company's technological approach to the development of therapeutic and
prophylactic vaccines for cancers and certain infectious diseases is unproven in
humans. Products based on the Company's technologies are currently in the
discovery, preclinical or early clinical investigation stages, and to date,
neither the Company nor any of its corporate partners have conducted any
clinical trials that incorporate the Company's proprietary microsphere delivery
systems or its proprietary adjuvants. In addition, no therapeutic vaccines for
cancer or infectious diseases targeted by the Company have been successfully
commercialized by the Company or others. There can be no assurance that the
Company will be able to successfully develop effective vaccines for such
diseases in a reasonable time frame, if ever, or that such vaccines will be
capable of being commercialized. In addition to its internal development
programs, the Company in-licenses and acquires technologies to enhance its
product pipeline. There can be no assurance that any in-licensed technologies
will prove to be effective or will result in the successful development of
commercial products. See "Business -- Corixa's Core Technology Platforms" and
"-- Patents and Proprietary Technology."
A majority of Corixa's programs are currently in the discovery stage or in
preclinical development, and only two of the Company's therapeutic vaccine
products have advanced to Phase I clinical trials. The Company's vaccines have
not been demonstrated to be safe or effective in clinical settings. There can be
no assurance that any of the Company's programs will move beyond its current
stage of development. For example, in a Company-funded early safety trial of the
Muc-1 antigen conducted by the University of Pittsburgh, the Company did not
observe a level of efficacy sufficient to support further product development.
Assuming the Company's research does advance, certain preclinical development
efforts will be necessary to determine whether any product is safe to enter
clinical trials. Under certain of the Company's existing corporate partnerships,
the respective corporate partner has primary responsibility for the clinical
development of a product. There can be no assurance that any such corporate
partner will pursue clinical development in a timely or effective manner, if at
all. If such a product receives authorization from the United States Food and
Drug Administration ("FDA") to enter clinical trials, then it may be, and in the
case of vaccine products will be, subjected to a multi-phase, multi-center
clinical study to determine its safety and efficacy. It is difficult to predict
the number or extent of clinical trials required or the period of mandatory
patient follow-up. Assuming clinical trials of any product are successful and
other data are satisfactory, the Company or its applicable corporate partner
will submit an application to the FDA and appropriate regulatory bodies in other
countries
6
<PAGE> 7
to seek permission to market the product. Typically, the review process at the
FDA takes several years, and there can be no assurance that the FDA will approve
the Company's or its corporate partner's application or will not require
additional clinical trials or other data prior to approval. Furthermore, even if
regulatory approval is ultimately obtained, delays in the approval process could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there can be no assurance that any
product can be produced in commercial quantities at a reasonable cost or that
such product will be successfully marketed. See "Business -- Corporate
Partnerships," "-- Certain License Agreements" and "-- Government Regulation."
DEPENDENCE ON AND MANAGEMENT OF EXISTING AND FUTURE CORPORATE PARTNERSHIPS
The success of Corixa's business strategy is largely dependent on its
ability to enter into multiple corporate partnerships and to effectively manage
the numerous relationships that may exist as a result of this strategy. Corixa
has established significant relationships with several corporate partners as of
the date of this Prospectus. For example, the Company has entered into three
collaboration and license agreements with SmithKline Beecham for the research,
development and commercialization of vaccine products aimed at the prevention
and/or treatment of tuberculosis, breast cancer and prostate cancer. In
addition, Corixa has established corporate partnerships with CellPro and
GenQuest, among others. A large percentage of the Company's revenues during the
year ended December 31, 1997 will be derived from research and development and
other funding under such corporate partnerships, and the termination of any of
these corporate partnerships would have a material adverse effect on the
Company's business, financial condition and results of operations. Several of
the Company's corporate partners have entered into agreements granting them
options to license certain aspects of the Company's technology. There can be no
assurance that any such corporate partner will exercise its option to license
such technology. The Company has also entered into corporate partnerships with
several companies for the development, commercialization and sale of diagnostic
products incorporating the Company's proprietary antigen technology. There can
be no assurance that any such diagnostic corporate partnership will ever
generate significant revenues. Furthermore, Corixa is currently engaged in
discussions with a number of pharmaceutical and diagnostic companies with
respect to potential corporate partnering arrangements covering various aspects
of the Company's technologies. However, due in part to the early stage of
Corixa's technologies, the process of establishing corporate partnerships such
as the Company's collaborations with SmithKline Beecham is difficult,
time-consuming and involves significant uncertainty, and there can be no
assurance that such discussions will lead to the establishment of any new
corporate partnership on favorable terms, or at all, or that if established, any
such corporate partnership will result in the successful development of the
Company's products or the generation of significant revenues.
Because Corixa enters into research and development collaborations with
corporate partners at an early stage of product development, the Company's
success is highly reliant upon the performance of its corporate partners. Under
existing corporate partnership arrangements, the Company's corporate partners
are generally required to undertake and fund certain research and development
activities with the Company, make payments upon achievement of certain
scientific milestones and pay royalties or make profit-sharing payments when and
if a product is commercialized. The amount and timing of resources to be devoted
to activities by its existing or future corporate partners are not within the
direct control of the Company, and there can be no assurance that any of the
Company's existing or future corporate partners will commit sufficient resources
to Corixa's research and development programs or the commercialization of its
products. If any corporate partner fails to conduct its activities in a timely
manner, or at all, the Company's preclinical or clinical development related to
such corporate partnership could be delayed or terminated. There can be no
assurance that the Company's corporate partners will perform their obligations
as expected. There can also be no assurance that the Company's current corporate
partners or future corporate partners, if any, will not pursue existing or other
development-stage products or alternative technologies in preference to those
being developed in collaboration with the Company, or that disputes will not
arise with respect to ownership of technology developed under any such corporate
partnership. Finally, there can be no assurance that any of the Company's
current corporate partnerships will not be terminated by its corporate partners
or that the Company will be able to negotiate additional corporate partnerships
in the future on acceptable terms, or at all.
7
<PAGE> 8
Because the success of the Company's business is largely dependent upon its
ability to enter into multiple corporate partnerships and to effectively manage
the numerous issues that arise from such partnerships, management of these
relationships will require, at a minimum, significant time and effort from
Corixa's management team and effective allocation of the Company's resources to
multiple projects, as well as an ability to obtain and retain management,
scientific and other personnel sufficient to accomplish the foregoing. There can
be no assurance that Corixa's need to simultaneously manage a number of
corporate partnerships will be successful, and the failure to effectively manage
such corporate partnerships would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Corixa's Strategy," "-- Corporate Partnerships" and
"-- Relationship with GenQuest, Inc."
DEPENDENCE ON IN-LICENSED TECHNOLOGY
In addition to its dependence on existing and future corporate
partnerships, Corixa's success is also dependent on its ability to enter into
licensing arrangements with commercial or academic entities to obtain technology
that is advantageous or necessary to the development and commercialization of
Corixa's products. The Company is party to various license agreements that give
it rights to use certain technologies in its and its corporate partners'
discovery, research, development and commercialization activities. Disputes may
arise as to the inventorship and corresponding rights in inventions and know-how
resulting from the joint creation or use of intellectual property by the Company
and its licensors or scientific collaborators. Additionally, many of the
Company's in-licensing agreements contain milestone-based termination
provisions. The Company's failure to meet any significant milestones in a
particular agreement could allow the licensor to terminate such agreement. There
can be no assurance that the Company will be able to negotiate additional
license agreements in the future on acceptable terms, if at all, that any of its
current license agreements will not be terminated or that it will be able to
maintain the exclusivity of its exclusive licenses. In the event the Company is
unable to obtain or maintain licenses to technology advantageous or necessary to
the Company's business, Corixa and its corporate partners may be required to
expend significant time and resources to develop or in-license similar
technology, and there can be no assurance that the Company and its corporate
partners will be successful in this regard. If the Company cannot acquire or
develop necessary technology, it may be prevented from commercializing certain
of its products. Any such event would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Corixa's Strategy," "-- Certain License Agreements" and
"-- Scientific Collaborators."
DEPENDENCE ON PROPRIETARY TECHNOLOGY AND UNCERTAINTY OF PATENT PROTECTION
Corixa's success will depend in part on its ability and that of its
corporate partners to obtain and enforce their respective patents and maintain
trade secrets, both in the United States and in other countries. As of June 30,
1997, Corixa owned or had licensed eight issued United States patents that
expire at various times between December 2008 and February 2014, 55
corresponding issued foreign patents, 76 pending United States patent
applications, as well as 19 corresponding international filings under the Patent
Cooperation Treaty and 111 pending foreign national patent applications. There
can be no assurance that the Company, its corporate partners or its licensors
have or will develop or obtain rights to products or processes that are
patentable, that patents will issue from any of the pending applications owned
or licensed by the Company or its corporate partners, that any claims allowed
will issue, or in the event of issuance, will be sufficient to protect the
technology owned by or licensed to the Company or its corporate partners. The
Company has licensed certain patent applications from Southern Research
Institute ("SRI") related to the Company's microsphere encapsulation technology,
one of which is currently the subject of an opposition proceeding before the
European Patent Office. There can be no assurance that SRI will prevail in this
opposition proceeding or that any patents will issue in Europe related to such
technology. There can also be no assurance that the Company's or its corporate
partners' current patents, or patents that issue on pending applications, will
not be challenged, invalidated, infringed or circumvented, or that the rights
granted thereunder will provide proprietary protection or competitive advantages
to Corixa. Patent applications in the United States are maintained in secrecy
until patents issue, patent applications in certain foreign countries are not
generally published until many months or years after they are filed, and
publication of technological developments in the scientific and patent
literature often occurs long after the date of such developments. Accordingly,
the
8
<PAGE> 9
Company cannot be certain that it or one of its corporate partners was the first
to invent the subject matter covered by any patent application or that it or one
of its corporate partners was the first to file a patent application for any
such invention.
Patent law relating to the scope and enforceability of claims in the fields
in which Corixa operates is still evolving. The patent positions of
biotechnology and biopharmaceutical companies, including the Company, are highly
uncertain and involve complex legal and technical questions for which legal
principles are not firmly established. The degree of future protection for the
Company's proprietary rights, therefore, is highly uncertain. In this regard,
there can be no assurance that independent patents will issue from each of the
76 pending United States patent applications referenced above, which include
many interrelated applications directed to common or related subject matter. In
addition, there may be issued patents and pending applications owned by others
directed to technologies relevant to the Company's or its corporate partners'
research, development and commercialization efforts. There can be no assurance
that Corixa's or its corporate partners' technology can be developed and
commercialized without a license to such patents or that such patent
applications will not be granted priority over patent applications filed by
Corixa or one of its corporate partners.
The commercial success of Corixa depends significantly on its ability to
operate without infringing the patents and proprietary rights of third parties,
and there can be no assurance that the Company's and its corporate partners'
technologies do not or will not infringe the patents or proprietary rights of
others. A number of pharmaceutical companies, biotechnology companies,
universities and research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the technologies
owned, optioned by or licensed to the Company or its corporate partners. In
addition, the Company is unable to determine the patents or patent applications
that may materially affect the Company's or its corporate partners' ability to
make, use or sell any products. The existence of third party patent applications
and patents could significantly reduce the coverage of the patents owned,
optioned by or licensed to the Company or its corporate partners and limit the
ability of the Company or its corporate partners to obtain meaningful patent
protection. If patents containing competitive or conflicting claims are issued
to third parties, the Company or its corporate partners may be enjoined from
pursuing research, development or commercialization of products or be required
to obtain licenses to these patents or to develop or obtain alternative
technology. There can be no assurance that the Company or its corporate partners
will not be so enjoined or will be able to obtain any license to the patents and
technologies of third parties on acceptable terms, if at all, or will be able to
obtain or develop alternative technologies. If the Company or any of its
corporate partners is enjoined from pursuing its research, development or
commercialization activities or if any such license is or alternative
technologies are not obtained or developed, the Company or such corporate
partner may be delayed or prevented from commercializing its products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
There can be no assurance that third parties will not independently develop
similar or alternative technologies to those of the Company, duplicate any of
the technologies of the Company, its corporate partners or its licensors, or
design around the patented technologies developed by the Company, its corporate
partners or its licensors. The occurrence of any of these events would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Litigation may also be necessary to enforce patents issued or licensed to
the Company or its corporate partners or to determine the scope and validity of
a third party's proprietary rights. Corixa could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if Corixa participates in patent suits brought against or initiated by
its corporate partners or if Corixa initiates such suits, and there can be no
assurance that funds or resources would be available to the Company in the event
of any such litigation. Additionally, there can be no assurance that the Company
or its corporate partners would prevail in any such action. An adverse outcome
in litigation or an interference to determine priority or other proceeding in a
court or patent office could subject the Company to significant liabilities,
require disputed rights to be licensed from other parties or require the Company
or its corporate partners to cease using certain technology, any of which may
have a material adverse effect on the Company's business, financial condition
and results of operations.
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Corixa also relies on trade secrets and proprietary know-how, especially in
circumstances in which patent protection is not believed to be appropriate or
obtainable. Corixa attempts to protect its proprietary technology in part by
confidentiality agreements with its employees, consultants and advisors. These
agreements generally provide that all confidential information developed or made
known to the individual by Corixa during the course of the individual's
relationship with the Company will be kept confidential and not disclosed to
third parties except in specific circumstances. These agreements also generally
provide that all inventions conceived by the individual in the course of
rendering services to the Company shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for any breach, or that the Company's
trade secrets will not otherwise become known or be independently discovered by
its competitors, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Corixa's Core Technology Platforms," "-- Patents and Proprietary
Technology" and "-- Scientific Collaborators."
MANAGEMENT OF GROWTH
The Company's future growth may cause a significant strain on its
management, operational, financial and other resources. The Company's ability to
manage its growth effectively will require it to implement and improve its
operational, financial, manufacturing and management information systems and to
expand, train, manage and motivate its employees. These demands may require the
addition of new management personnel and the development of additional expertise
by management. Any increase in resources devoted to product development and
marketing and sales efforts without a corresponding increase in the Company's
operational, financial, manufacturing and management information systems could
have an adverse effect on the Company's performance. The failure of the
Company's management team to effectively manage growth could have a material
adverse effect on the Company's business, financial condition and results of
operations.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; FLUCTUATIONS IN FUTURE
EARNINGS
Corixa has experienced significant operating losses in each year since its
inception on September 8, 1994. As of June 30, 1997, the Company's accumulated
deficit was approximately $9.3 million. The Company may incur substantial
additional operating losses over at least the next several years. Such losses
have been and may continue to be principally the result of the various costs
associated with the Company's discovery, research and development programs,
preclinical studies and clinical activities. Substantially all of the Company's
revenues to date have resulted from corporate partnerships, other research,
development and licensing arrangements, research grants and interest income. The
Company's ability to achieve a consistent, profitable level of operations is
dependent in large part upon entering into agreements with corporate partners
for product discovery, research, development and commercialization, obtaining
regulatory approvals for its products and successfully manufacturing and
marketing commercial products. There can be no assurance that the Company will
be able to achieve consistent profitability. In addition, payments under
corporate partnerships and licensing arrangements will be subject to significant
fluctuations in both timing and amounts, resulting in quarters of profitability
and quarters of losses by the Company. Therefore, the Company's results of
operations for any period may fluctuate and may not be comparable to the results
of operations for any other period. See "-- Dependence on and Management of
Existing and Future Corporate Partnerships" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial capital resources after the Offering
in order to conduct its operations. The Company's future capital requirements
will depend on many factors, including, among others, the following: continued
scientific progress in its discovery, research and development programs; the
magnitude and scope of these activities; the ability of the Company to maintain
existing and establish additional corporate partnerships and licensing
arrangements; progress with preclinical studies and clinical trials; the time
and costs involved in obtaining regulatory approvals; the costs involved in
preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims; the potential need to develop, acquire or license new technologies and
products; and other factors not within the Company's control. The Company
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intends to seek such additional funding through corporate partnerships, public
or private equity or debt financings and capital lease transactions; however,
there can be no assurance that additional financing will be available on
acceptable terms, if at all. Additional equity financings could result in
significant dilution to stockholders after the Offering. If sufficient capital
is not available, the Company may be required to delay, reduce the scope of,
eliminate or divest one or more of its discovery, research or development
programs, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company believes
that the net proceeds from the Offering, its existing capital resources,
committed payments under its existing corporate partnerships and licensing
arrangements, equipment financing and interest income will be sufficient to fund
its current and planned operations for at least 18 months following the
Offering. However, there can be no assurance that such funds will be sufficient
to meet the capital needs of the Company. In addition, a substantial number of
the payments to be made by Corixa's corporate partners and other licensors are
dependent upon the achievement by the Company of development and regulatory
milestones. Failure to achieve such milestones would have a material adverse
effect on the Company's future capital needs. In addition, the Company has
entered into an option agreement with one of its corporate partners pursuant to
which such corporate partner has agreed to pay certain consideration in exchange
for exclusive options to license two of Corixa's early-stage antigen discovery
programs in two cancer targets. If such options are exercised, then at the
election of the corporate partner, such consideration will either be credited
against future milestone payments or converted into Common Stock of Corixa. In
the event either or both of such options are not exercised or extended prior to
February 28, 1998 with respect to one cancer target and August 31, 1998 with
respect to the other cancer target, the Company will be required to repay the
amounts paid by such corporate partner for such option(s) over a three-year
period beginning in March 2000. See "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business -- Corporate Partnerships."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the principal members of its scientific
and management staff, the loss of whose services might significantly delay or
prevent the Company's achievement of its scientific or business objectives.
Competition among biotechnology and biopharmaceutical companies for qualified
employees is intense, and the ability to retain and attract qualified
individuals is critical to the Company's success. There can be no assurance that
the Company will be able to attract and retain such individuals currently or in
the future on acceptable terms, or at all, and the failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company does not maintain "key person"
life insurance on any officer, employee or consultant of the Company.
Corixa also has relationships with scientific collaborators at academic and
other institutions, some of whom conduct research at the Company's request or
assist the Company in formulating its research and development strategy. These
scientific collaborators are not employees of the Company and may have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability to the Company. The Company has limited control
over the activities of these scientific collaborators and, except as otherwise
required by its license, consulting and sponsored research agreements, can
expect only limited amounts of time to be dedicated to the Company's activities
by such individuals. Failure of any such persons to devote sufficient time and
resources to the Company's programs could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
these collaborators may have arrangements with other companies to assist such
companies in developing technologies that may prove competitive to those of
Corixa. See "Management," "Business -- Corporate Partnerships," "-- Certain
License Agreements" and "-- Scientific Collaborators."
INTENSE COMPETITION
The biotechnology and biopharmaceutical industries are intensely
competitive. Several biotechnology and biopharmaceutical companies, as well as
certain research organizations, currently engage in or have in the past engaged
in efforts related to the development of vaccines for the treatment and
prevention of cancer and various infectious diseases, as well as the development
of diagnostic products for infectious disease indications.
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Many companies, including Corixa's corporate partners, as well as academic and
other research organizations, are also developing alternative therapies to treat
cancer and infectious diseases and, in this regard, are competitive with the
Company. Moreover, technology controlled by third parties that may be
advantageous to the Company's business may be acquired or licensed by
competitors of the Company, thereby preventing the Company from obtaining such
technology on favorable terms, or at all.
Many of the companies developing competing technologies and products have
significantly greater financial resources and expertise in discovery, research
and development, manufacturing, preclinical and clinical testing, obtaining
regulatory approvals and marketing than Corixa or its corporate partners. Other
smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies.
Academic institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for discovery, research, clinical development and
marketing of products similar to those of the Company. These companies and
institutions compete with the Company in recruiting and retaining qualified
scientific and management personnel as well as in acquiring technologies
complementary to the Company's programs. Corixa and its corporate partners will
face competition with respect to product efficacy and safety, the timing and
scope of regulatory approvals, availability of resources, reimbursement
coverage, price and patent position, including potentially dominant patent
positions of others. There can be no assurance that competitors will not develop
more effective or more affordable products, or achieve earlier patent protection
or product commercialization than the Company and its corporate partners, or
that such competitive products will not render the Company's products obsolete.
See "Business -- Competition."
LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS
Corixa does not have significant manufacturing facilities. Although the
Company currently manufactures limited quantities of certain antigens and
adjuvants, including LeIF, to conduct preclinical studies and to supply
corporate partners, the Company intends to rely on third party contract
manufacturers to produce large quantities of such substances for clinical trials
and product commercialization. Additionally, the Company may be required to rely
on contract manufacturers to produce antigens, adjuvants and other components of
its products for research and development, preclinical and clinical purposes.
Corixa's vaccines and other products have never been manufactured on a
commercial scale, and there can be no assurance that such products can be
manufactured at a cost or in quantities necessary to make them commercially
viable. There can be no assurance that third party manufacturers will be able to
meet the Company's needs with respect to timing, quantity or quality. If the
Company is unable to contract for a sufficient supply of required products and
substances on acceptable terms, or if it should encounter delays or difficulties
in its relationships with manufacturers, the Company's preclinical and clinical
testing would be delayed, thereby delaying the submission of products for
regulatory approval or the market introduction and subsequent sales of such
products. Any such delay may have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, contract
manufacturers that the Company may use must continually adhere to current Good
Manufacturing Practices ("GMP") regulations enforced by the FDA through its
facilities inspection program. If the facilities of such manufacturers cannot
pass a pre-approval plant inspection, the FDA premarket approval of the
Company's products will not be granted.
LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
The Company currently has no sales, marketing or distribution capability.
The Company intends to rely on its current and future corporate partners, if
any, to market its products; however, there can be no assurance that such
corporate partners have effective sales forces and distribution systems. If the
Company is unable to maintain or establish such relationships and is required to
market any of its products directly, the Company will have to develop a
marketing and sales force with technical expertise and with supporting
distribution capabilities. There can be no assurance that the Company will be
able to maintain or establish such relationships with third parties or develop
in-house sales and distribution capabilities. To the extent that the Company
depends on its corporate partners or third parties for marketing and
distribution, any revenues
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received by the Company will depend upon the efforts of such corporate partners
or third parties, and there can be no assurance that such efforts will be
successful.
GOVERNMENT REGULATION
The preclinical testing and clinical trials of any products developed by
the Company or its corporate partners and the manufacturing, labeling, sale,
distribution, export or import, marketing, advertising and promotion of any new
products resulting therefrom are subject to regulation by federal, state and
local governmental authorities in the United States, the principal one of which
is the FDA, and by similar agencies in other countries. Any product developed by
the Company or its corporate partners must receive all relevant regulatory
approvals or clearances before it may be marketed in a particular country. The
regulatory process, which includes extensive preclinical studies and clinical
trials of each product in order to establish its safety and efficacy, is
uncertain, can take many years and requires the expenditure of substantial
resources. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval or clearance. In addition, delays or rejections may be
encountered based upon changes in regulatory policy during the period of product
development and/or the period of review of any application for regulatory
approval or clearance for a product. Delays in obtaining regulatory approvals or
clearances would adversely affect the marketing of any products developed by the
Company or its corporate partners, impose significant additional costs on the
Company and its corporate partners, diminish any competitive advantages that the
Company or its corporate partners may attain and adversely affect the Company's
ability to receive royalties and generate revenues and profits. There can be no
assurance that, even after such time and expenditures, any required regulatory
approvals or clearances will be obtained for any products developed by or in
collaboration with the Company.
Regulatory approval, if granted, may entail limitations on the indicated
uses for which the new product may be marketed that could limit the potential
market for such product, and product approvals, once granted, may be withdrawn
if problems occur after initial marketing. Furthermore, manufacturers of
approved products are subject to pervasive review, including compliance with
detailed regulations governing GMP. Failure to comply with applicable regulatory
requirements can result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to renew marketing
applications and criminal prosecution.
The Company is also subject to numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals, the environment
and the use and disposal of hazardous substances, used in connection with the
Company's discovery, research and development work, including radioactive
compounds and infectious disease agents. In addition, the Company cannot predict
the extent of government regulations or the impact of new governmental
regulations which might have an adverse effect on the discovery, development,
production and marketing of the Company's products, and there can be no
assurance that the Company will not be required to incur significant costs to
comply with current or future laws or regulations or that the Company will not
be adversely affected by the cost of such compliance. See
"Business -- Government Regulation."
PRODUCT LIABILITY EXPOSURE AND POTENTIAL UNAVAILABILITY OF INSURANCE
Inherent in the use of the Company's product candidates in clinical trials,
as well as in the manufacturing and distribution of any approved products, is
the risk of financial exposure to product liability claims in the event that the
use of such products results in personal injury. There can be no assurance that
the Company will not experience losses due to product liability claims in the
future. Corixa has obtained limited product liability insurance coverage;
however, there can be no assurance that such coverage is adequate or will
continue to be available in sufficient amounts or at an acceptable cost, or at
all. There can also be no assurance that the Company will be able to obtain
commercially reasonable product liability insurance for any product approved for
marketing. A product liability claim, product recall or other claim, as well as
any claims for uninsured liabilities or in excess of insured liabilities, may
have a material adverse effect on the Company's business, financial condition
and results of operations.
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NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that any products successfully developed by the
Company or its corporate partners, if approved for marketing, will ever achieve
market acceptance. The Company's products, if successfully developed, will
compete with a number of traditional drugs and therapies manufactured and
marketed by major pharmaceutical and other biotechnology companies, as well as
new products currently under development by such companies and others. The
degree of market acceptance of any products developed by the Company or its
corporate partners will depend on a number of factors, including the
establishment and demonstration of the clinical efficacy and safety of the
product candidates, their potential advantage over alternative treatment methods
and reimbursement policies of government and third-party payors. There can be no
assurance that physicians, patients or the medical community in general will
accept and utilize any products that may be developed by the Company or its
corporate partners, and the lack of such market acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations.
UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT; UNCERTAINTY RELATED TO HEALTH
CARE REFORM
In both domestic and foreign markets, sales of the Company's or its
corporate partners' products, if any, will depend in part on the availability of
reimbursement from third-party payors such as government health administration
authorities, private health insurers, health maintenance organizations, pharmacy
benefit management companies and other organizations. Both the federal and state
governments in the United States and foreign governments continue to propose and
pass legislation designed to contain or reduce the cost of health care, and
regulations affecting the pricing of pharmaceuticals and other medical products
may change or be adopted before any of the Company's or its corporate partners'
products are approved for marketing. Cost control initiatives could decrease the
price that the Company receives for any product it or any of its corporate
partners may develop in the future and may have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
third-party payors are increasingly challenging the price and cost-effectiveness
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, including
pharmaceuticals. There can be no assurance that the Company's or its corporate
partners' products, if any, will be considered cost effective or that adequate
third-party reimbursement will be available to enable Corixa or its corporate
partners to maintain price levels sufficient to realize a return on their
investment. In any such event, the Company may be materially adversely affected.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and there can be no assurance that an active trading market for
the Common Stock will develop or be sustained upon completion of the Offering.
The initial public offering price of the Common Stock was determined by
negotiations between the Company and the representatives of the Underwriters.
The primary factors considered in determining such initial public offering
price, in addition to prevailing market conditions, were the Company's
historical performance and capital structure, estimates of business potential
and earnings prospects of the Company, an assessment of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses. The
securities markets have, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. These fluctuations often substantially affect the market
price of a company's common stock. The market prices for securities of
biotechnology companies have in the past been, and can in the future be expected
to be, especially volatile. The market price of the Company's Common Stock may
be subject to substantial volatility depending upon many factors, including
announcements regarding the results of discovery efforts, preclinical and
clinical activities, technological innovations or new commercial products
developed by the Company or its competitors, changes in government regulations,
changes in the Company's patent portfolio, developments or disputes concerning
proprietary rights, changes in existing corporate partnerships or licensing
arrangements, the establishment of additional corporate partnerships or
licensing arrangements, the progress of regulatory approvals, the issuance of
new or
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changed stock market analyst reports and/or recommendations, and economic and
other external factors, as well as operating losses by the Company, fluctuations
in the Company's financial results and the degree of trading liquidity in the
Common Stock. These factors could have a material adverse effect on the
Company's business, financial condition and results of operations and the price
of the Common Stock in the public market. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Underwriting."
CONTROL BY EXISTING STOCKHOLDERS
Following the completion of the Offering, executive officers and directors
of the Company, together with entities affiliated with them, will beneficially
own approximately 56.0% of the Common Stock of the Company (approximately 53.9%
if the Underwriters' over-allotment option is exercised in full). These
stockholders, acting as a group, will continue to be able to control the
election of all members of the Company's Board of Directors and to determine all
corporate actions after the Offering. The voting power of these stockholders
could also have the effect of delaying or preventing a change in control of the
Company. See "Principal Stockholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock (including shares
issued upon the exercise of outstanding options and warrants) in the public
market following the Offering could adversely affect the market price for the
Common Stock. Such sales could also make it more difficult for the Company to
sell its equity or equity-related securities in the future at a time and price
that the Company deems appropriate. Upon completion of the Offering and based on
the shares outstanding as of June 30, 1997, the Company will have outstanding an
aggregate of 11,244,331 shares of Common Stock, assuming (i) the issuance of
445,139 shares of Common Stock upon the net exercise of outstanding warrants
expected to be exercised upon the closing of the Offering, (ii) no exercise of
warrants for 694,512 shares of Common Stock expected to remain outstanding after
the closing of the Offering and (iii) no exercise of options after June 30,
1997. Of these outstanding shares of Common Stock, the 3,000,000 shares sold in
the Offering will be freely tradable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), by persons
other than "affiliates" of the Company, as defined in Rule 144 under the
Securities Act. The remaining 8,244,331 shares of Common Stock outstanding upon
completion of the Offering and held by existing stockholders will be "restricted
securities" as that term is defined by Rule 144 and Rule 701 under the
Securities Act ("Restricted Shares"). Sales of Restricted Shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the Common Stock. The holders of 8,051,548 Restricted Shares,
including all officers and directors of the Company, are subject to "lock-up"
agreements with the Underwriters and/or the Company providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of the shares of Common Stock owned by them or that could be purchased
by them through the exercise of options to purchase Common Stock of the Company
for a period of 180 days after the effectiveness of the registration statement,
of which this Prospectus is a part (the "Registration Statement"), without the
prior written consent of Lehman Brothers Inc. on behalf of the Underwriters
and/or the Company, as applicable. The Company has agreed with the
representatives of the Underwriters not to release any holders from such
agreements without the prior written consent of Lehman Brothers Inc. on behalf
of the Underwriters. Such lock-up agreements may be released at any time as to
all or any portion of the shares subject to such agreements at the sole
discretion of Lehman Brothers Inc. Of the 8,051,548 shares of Common Stock that
will first become eligible for sale in the public market 180 days after the
effectiveness of the Registration Statement, 1,522,149 shares will be
immediately eligible for sale without restriction under Rule 144(k) or Rule 701
under the Securities Act and 6,524,854 shares will be immediately eligible for
sale subject to certain volume and other restrictions pursuant to Rule 144. As
of 180 days after the effectiveness of the Registration Statement, 163,357
shares of Common Stock will remain subject to the Company's right of repurchase
pursuant to stock purchase agreements and therefore will not be available for
sale under Rule 144 until such right of repurchase lapses. Beginning immediately
after the closing of the Offering, 12,593 shares will be available for sale
under Rule 144 upon the exercise of outstanding warrants, and beginning 180 days
after the closing of the Offering, 681,919 shares will be available for sale
under Rule 144 upon the exercise of outstanding warrants. Shortly after the
effectiveness of the Offering, the Company
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intends to register 2,218,653 shares of Common Stock reserved for issuance under
its stock option and stock purchase plans or currently subject to outstanding
options. In addition, holders of 7,925,862 shares of Common Stock and the
holders of warrants to purchase 694,512 shares of Common Stock may require the
Company to register their shares of Common Stock under the Securities Act, which
would permit such holders to resell a certain number of their shares without
complying with Rule 144. If such holders, by exercising their demand or
piggyback registration rights, cause a large number of securities to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Common Stock. If the Company were to
include in a Company-initiated registration shares held by such holders pursuant
to the exercise of their piggyback registration rights, such sales could have a
material adverse effect on the Company's ability to raise needed capital. See
"Shares Eligible for Future Sale" and "Description of Capital
Stock -- Registration Rights of Certain Holders."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue up to 10,000,000 shares
of Preferred Stock and fix the rights and preferences thereof without any vote
or further action by the stockholders, eliminate the right of stockholders to
act by written consent without a meeting and eliminate cumulative voting in the
election of directors. The rights of holders of Common Stock will be subject to,
and may be adversely affected by, the rights of holders of any Preferred Stock
that may be issued in the future. These provisions may make it more difficult
for stockholders to take certain corporate actions and could have the effect of
delaying or preventing a change in control of the Company. Certain provisions of
Delaware law and Washington law applicable to the Company could also delay or
make more difficult a merger, tender offer or proxy contest involving the
Company. Such provisions include Section 203 of the Delaware General Corporation
Law, which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years unless
certain conditions are met, and Chapter 23B.19 of the Washington Business
Corporation Act, which prohibits a corporation operating in Washington from
engaging in certain significant business transactions with a person or group of
persons who beneficially own 10% of the voting securities of such corporation
for a period of five years unless certain conditions are met. After the
five-year period, such significant business transaction must still comply with
certain fair price provisions of such statute. See "Management" and "Description
of Capital Stock -- Anti-Takeover Effects of Delaware and Washington Law."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The principal purposes of the Offering are to obtain additional capital,
create a public market for the Company's Common Stock and facilitate future
access by the Company to public equity markets. As of the date of this
Prospectus, the Company plans to spend approximately $29.0 million for research
and development expenses through the end of fiscal year 1998. A portion of the
net proceeds of the Offering will support such research and development efforts.
The Company currently expects to use the remainder of the net proceeds from the
Offering for working capital and general corporate purposes. A portion of the
proceeds may also be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies; however,
there are no plans, negotiations or discussions with respect to any such
transactions at the present time. Pending use of the net proceeds for the above
purposes, the Company intends to invest such funds in short-term
interest-bearing government and other investment grade securities. Accordingly,
the Company's management will retain broad discretion as to the allocation of
the net proceeds from the Offering and subject to certain exceptions will be
able to use and allocate such net proceeds without first obtaining stockholder
approval.
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ABSENCE OF DIVIDENDS
The Company has not declared or paid dividends on its Common Stock since
its inception and does not anticipate declaring or paying cash dividends to its
stockholders in the foreseeable future. See "Dividend Policy."
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution of $8.79 in the pro forma net tangible book value per share
of Common Stock from the initial offering price set forth on the cover of this
Prospectus. Substantial additional dilution will occur upon exercise of
outstanding options and warrants to purchase the Common Stock. See "Dilution."
Additionally, in the event SmithKline Beecham elects to exercise either one of
its options to license Corixa's early-stage antigen discovery programs in
cancer, the Company may be required to issue shares of its Common Stock to
SmithKline Beecham, and additional dilution will occur as a result of any such
issuance. See "Business -- Corporate Partnerships -- Vaccines." Dilution will
also occur in the event the Company elects to exercise its right to purchase a
significant majority of the outstanding shares of GenQuest, Inc.'s capital
stock. See "Business -- Relationship with GenQuest, Inc."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements." Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Corixa or its corporate partners, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: uncertainties
related to the early stage of the Company's research and development programs;
uncertainties related to the effectiveness of the Company's technology and the
development of its products; dependence on and management of existing and future
corporate partnerships; dependence on in-licensed technology; dependence on
proprietary technology and uncertainty of patent protection; management of
growth; history of operating losses; future capital needs and uncertainty of
additional funding; dependence on key personnel; intense competition; the
Company's lack of manufacturing and marketing experience and reliance on third
parties to perform such functions; existing government regulations and changes
in, or the failure to comply with, government regulations; and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including, without limitation, under the
captions "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. Corixa disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
17
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby are estimated to be $35,470,000 ($40,910,500 if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated Offering expenses. The
principal purposes of the Offering are to obtain additional capital, create a
public market for the Company's Common Stock and facilitate future access by the
Company to public equity markets. The Company currently believes that it will
spend approximately $29.0 million for research and development expenses through
the end of fiscal 1998, approximately $15.0 million of which will be from the
net proceeds of the Offering and approximately $14.0 million of which will be
from committed payments under the Company's existing collaborative agreements
and licensing arrangements (assuming no additional funding from such existing
agreements and arrangements and no new collaborative agreements or licensing
arrangements are executed). The Company currently expects to use the remainder
of the net proceeds for working capital and general corporate purposes. The
Company may also use a portion of such net proceeds to acquire or invest in
businesses, products and technologies that are complementary to those of the
Company, although no such acquisitions are planned or negotiated as of the date
of this Prospectus, and no portion of the net proceeds has been allocated for
any specific acquisition. Pending such uses, the net proceeds will be invested
in short-term, interest-bearing, government and other investment grade
securities. The Company believes that the net proceeds from the Offering, its
existing capital resources, committed payments under its existing collaborative
agreements and licensing arrangements, equipment financing and interest income
will be sufficient to fund its current and planned operations for at least 18
months following the Offering.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including progress of the Company's discovery,
research and development programs, the number and breadth of these programs,
achievement of milestones under corporate partnerships and licensing
arrangements, the ability of the Company to establish and maintain corporate
partnerships and other licensing arrangements and the progress of the
development efforts of the Company's corporate partners. Such factors also
include the pace and amount of any acquisitions or investments, competing
technological and market developments that make the Company's technologies and
products relatively less attractive to corporate partners, the costs involved in
enforcing patent claims and other intellectual property rights and the costs and
timing of obtaining necessary regulatory approvals.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock
and does not anticipate paying cash dividends in the foreseeable future.
18
<PAGE> 19
CAPITALIZATION
The following table sets forth as of June 30, 1997: (a) the actual
capitalization of the Company; (b) the pro forma capitalization of the Company,
giving effect to the automatic conversion of all outstanding shares of the
Company's Preferred Stock into Common Stock and the filing of the Company's
Restated Certificate of Incorporation to authorize 40,000,000 shares of Common
Stock at a par value of $0.001 per share and 10,000,000 shares of Preferred
Stock at a par value of $0.001 per share upon the closing of the Offering; and
(c) the pro forma capitalization as adjusted to reflect (i) the sale of the
3,000,000 shares of Common Stock offered hereby at the initial public offering
price of $13.00 per share after deducting underwriting discounts and commissions
and estimated Offering expenses and (ii) the issuance of 445,139 shares of
Common Stock upon the net exercise of outstanding warrants upon the closing of
the Offering. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and related Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion................ $ 5,086 $ 5,086 $ 5,086
Stockholders' equity (1):
Preferred Stock, $0.001 par value; 23,100,000 shares
authorized, 5,151,181 shares issued and outstanding,
actual; 10,000,000 shares authorized, none issued and
outstanding, pro forma and pro forma as adjusted...... 5 -- --
Common Stock, $0.001 par value; 40,000,000 shares
authorized, 2,648,011 issued and outstanding, actual;
7,799,192 issued and outstanding, pro forma;
11,244,331 issued and outstanding, pro forma as
adjusted.............................................. 3 8 11
Additional paid-in capital............................... 25,624 25,624 61,091
Receivable for warrants.................................. (932) (932) (932)
Deferred compensation.................................... (3,533) (3,533) (3,533)
Deficit accumulated during development stage............. (9,295) (9,295) (9,295)
------- ------- -------
Total stockholders' equity............................ 11,872 11,872 47,342
------- ------- -------
Total capitalization.................................. $16,958 $16,958 $52,428
======= ======= =======
</TABLE>
- ---------------
(1) Excludes (i) 1,187,614 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 30, 1997, 378,334 of which are fully
vested, at a weighted average exercise price of $0.71 per share, (ii)
694,512 shares of Common Stock issuable upon exercise of warrants expected
to remain outstanding after the Offering at a weighted average exercise
price of $8.04 per share, (iii) with respect to the actual and pro forma
capitalization, 445,139 shares of Common Stock issued upon the net exercise
of outstanding warrants upon the closing of the Offering, (iv) an aggregate
of 1,031,039 shares reserved for future issuance under the 1994 Plan, the
Purchase Plan and the Directors' Plan and (v) 3,029 shares of Common Stock
issued after June 30, 1997 in connection with a collaboration agreement. See
"Management -- Stock Option Plans" and "Description of Capital Stock."
19
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company at June 30, 1997 was
approximately $11,872,068, or $1.52 per share (after giving effect to the
conversion of all outstanding shares of Preferred Stock into Common Stock). Pro
forma net tangible book value per share is equal to net tangible assets
(tangible assets of the Company less total liabilities) divided by the number of
shares of Common Stock outstanding as of June 30, 1997 (after giving effect to
the conversion of all outstanding shares of Preferred Stock into Common Stock).
Pro forma net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of Common Stock in the Offering
and the pro forma net tangible book value per share of Common Stock immediately
after the completion of the Offering. After giving effect to the sale of the
3,000,000 shares of Common Stock offered by the Company at the initial public
offering price of $13.00 per share, the receipt of net proceeds therefrom, and
the issuance of 445,139 shares of Common Stock upon the net exercise of
outstanding warrants upon the closing of the Offering, the pro forma net
tangible book value of the Company as of June 30, 1997 would have been
$47,342,068, or $4.21 per share. This represents an immediate increase in pro
forma net tangible book value of $2.69 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $8.79 per share to
new investors purchasing shares of Common Stock in the Offering. The following
table illustrates this per share dilution as of June 30, 1997:
<TABLE>
<S> <C> <C>
Initial public offering price............................... $ 13.00
Pro forma net tangible book value before the Offering..... $ 1.52
Increase per share attributable to new investors.......... 2.69
-----
Pro forma net tangible book value after the Offering........ 4.21
-----
Dilution in pro forma net tangible book value to new
investors................................................. $ 8.79
=====
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1997
after giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock and the net exercise of outstanding warrants expected to
be exercised upon the closing of the Offering, the difference between the
existing stockholders and the purchasers of shares in the Offering at the
initial public offering price of $13.00 per share (before deducting underwriting
discounts and commissions and estimated Offering expenses) with respect to the
number of shares purchased from the Company, the total cash consideration paid
and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 8,244,331 73.3% $ 20,425,793 34.4% $ 2.48
New stockholders.................... 3,000,000 26.7 39,000,000 65.6 13.00
---------- ----- ---------- -----
Total..................... 11,244,331 100.0% $ 59,425,793 100.0%
========== ===== ========== =====
</TABLE>
The foregoing computations exclude 1,187,614 shares of Common Stock
issuable upon exercise of stock options outstanding as of June 30, 1997 under
the 1994 Plan, 378,334 of which were fully vested, at a weighted average price
of $0.71 per share and 694,512 shares of Common Stock issuable upon exercise of
warrants expected to remain outstanding after the Offering at a weighted average
exercise price of $8.04 per share. In addition, there are currently an aggregate
of 1,031,039 shares of Common Stock reserved for future issuance under the 1994
Plan, the Purchase Plan and the Directors' Plan. See "Management -- Stock Plans"
and "Description of Capital Stock."
20
<PAGE> 21
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statement of operations data for each of the two years ended December 31, 1996,
and the period from September 8, 1994 (date of inception) to December 31, 1994
(the "Inception Period") and the balance sheet data at December 31, 1995 and
1996 are derived from the financial statements of the Company, which have been
audited by KPMG Peat Marwick LLP or Ernst & Young LLP, independent accountants
and auditors, and which are included elsewhere herein and are qualified by
reference to such Financial Statements and Notes relating thereto. The selected
financial data with respect to the balance sheet at December 31, 1994 is derived
from financial statements audited by KPMG Peat Marwick LLP which are not
included herein. The financial data for the six month periods ended June 30,
1996 and 1997 and the period from September 8, 1994 (date of inception) to June
30, 1997 are derived from unaudited financial statements which are included
elsewhere herein. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the financial position and the results of operations
for these periods. Operating results for the six months ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1997. The financial data is qualified in its entirety
by, and the data should be read in conjunction with, Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements, including the related Notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
INCEPTION YEAR ENDED SIX MONTHS ENDED
(SEPTEMBER 8, 1994) DECEMBER 31, JUNE 30, INCEPTION TO
TO DECEMBER 31, ------------------- ------------------ JUNE 30,
1994 1995 1996 1996 1997 1997
------------------- ------- ------- ------- ------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Collaborative agreements......... $ -- $ 2,411 $ 4,402 $ 1,731 $6,939 $ 13,752
Government grants................ -- 304 1,403 626 554 2,261
------- ------- ------- ------- ------- --------
Total revenues............ -- 2,715 5,805 2,357 7,493 16,013
Operating expenses:
Research and development(1)...... 867 7,040 9,995 4,708 7,104 25,006
General and administrative....... 205 532 781 438 779 2,297
------- ------- ------- ------- ------- --------
Total operating
expenses................ 1,072 7,572 10,776 5,146 7,883 27,303
Income (loss) from operations...... (1,072) (4,857) (4,971) (2,789) (390) (11,290)
Interest income, net............... 83 691 476 213 235 1,485
Other income(2).................... -- 16 348 174 187 551
------- ------- ------- ------- ------- --------
Net income (loss).................. $ (989) $(4,150) $(4,147) $(2,402) $ 32 $ (9,254)
======= ======= ======= ======= ======= ========
Pro forma net income (loss) per
share(3)......................... $ (0.50) $ 0.00
======= =======
Shares used in computing pro forma
net income (loss) per share(3)... 8,343 8,536
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
--------------------------------- 30,
1994 1995 1996 1997
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale.... $11,064 $10,773 $11,933 $15,047
Working capital............................................. 10,939 9,743 10,101 12,798
Total assets................................................ 14,334 12,340 15,185 20,030
Long-term obligations, less current portion................. -- 816 1,175 5,086
Deficit accumulated during development stage................ (989) (5,126) (9,298) (9,295)
Total stockholders' equity.................................. 14,038 10,264 11,225 11,872
</TABLE>
- ---------------
(1) Included in research and development expenses for the Inception Period is
$428,059 related to the purchase of in-process research and development.
(2) Other income includes proceeds received for management and administrative
services.
(3) See Note 1 of Notes to Financial Statements for information regarding the
computation of pro forma net income (loss) per share.
21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis contains certain forward-looking statements
relating to future events or the future financial performance of the Company.
Such statements are only predictions and the actual events or results may differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors" as well as those discussed elsewhere in
this Prospectus. The historical results set forth in this discussion and
analysis are not necessarily indicative of trends with respect to any actual or
projected future financial performance of the Company. This discussion and
analysis should be read in conjunction with the Financial Statements and the
related Notes thereto included elsewhere in this Prospectus. See "Special Note
Regarding Forward-Looking Statements."
OVERVIEW
Corixa's objective is to be the leader in the discovery and
commercialization of T cell vaccine products for the treatment and prevention of
cancers and certain infectious diseases. The Company's strategy is to dedicate
its resources to vaccine discovery and to establish corporate collaborations as
early in the development process as possible for all aspects of product
development and commercialization, including research, clinical development,
obtaining regulatory approval, manufacturing and marketing. Corixa believes that
this research- and partner-driven approach creates significant scientific,
operational and financial advantages for the Company and accelerates the
commercial development of new therapeutic and prophylactic T cell vaccines. To
date, approximately 86% of the Company's revenue has resulted from payments from
such collaborative agreements. In particular, the Company has entered into
significant corporate partnerships with SmithKline Beecham with respect to
tuberculosis and cancer vaccine products pursuant to which the Company will
receive up to an aggregate of $65.3 million, of which up to $23 million is
payable under the breast cancer collaboration, up to $23 million is payable
under the prostate cancer collaboration and up to $19.3 million is payable under
the tuberculosis collaboration. A substantial amount of such funding is required
to be used for research and development activities pursuant to the terms of such
collaborations. SmithKline Beecham may terminate either or both of the breast
and prostate cancer programs in the event the Company does not meet certain
scientific milestones after the second anniversary of the effective date of the
respective agreements and may terminate the tuberculosis agreement by failing to
exercise the option thereunder. See "Business -- Corporate Partnerships --
Vaccines." Additionally, approximately 14% of the Company's revenue has resulted
from funds awarded through government grants. As of June 30, 1997, the Company
had total stockholders' equity of $11.9 million.
Corixa has entered, and intends to continue to enter, into collaborative
agreements as early in the vaccine development stage as possible. The Company
believes that this active corporate partnering strategy enables Corixa to
maintain its focus on its fundamental strengths in vaccine discovery and
research, capitalizes on its corporate partners' strengths in product
development, manufacturing and commercialization, and significantly diminishes
the Company's financing requirements. When entering into such corporate
partnering relationships, the Company seeks to cover its research and
development expenses through research funding, milestone payments and option,
technology or license fees, while retaining significant downstream participation
in product sales through either profit-sharing or product royalties paid on
annual net sales. Revenues recognized from inception through June 30, 1997 under
the Company's collaborative agreements were approximately $13.8 million.
The Company has experienced significant operating losses in each year since
its inception. As of June 30, 1997, the Company's accumulated deficit was
approximately $9.3 million. The Company may incur substantial additional
operating losses over at least the next several years. Such losses have been and
may continue to be principally the result of the various costs associated with
the Company's discovery, research and development programs, and preclinical and
clinical activities. Substantially all of the Company's revenues to date have
resulted from corporate partnerships, other research, development and licensing
arrangements, research grants and interest income. The Company's ability to
achieve a consistent, profitable level of operations is dependent in large part
upon entering into collaborative agreements with corporate partners for product
discovery, research, development and commercialization, obtaining regulatory
approvals for its
22
<PAGE> 23
products and successfully manufacturing and marketing commercial products. There
can be no assurance that the Company will be able to achieve consistent
profitability. In addition, payments under collaborative agreements and
licensing arrangements will be subject to significant fluctuations in both
timing and amounts, resulting in quarters of profitability and quarters of
losses by the Company. Therefore, the Company's results of operations for any
period may fluctuate and may not be comparable to the results of operations for
any other period.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and 1996
Total Revenues
Revenues increased to $7.5 million for the six months ended June 30, 1997,
from $2.4 million for the same period in 1996. This increase was attributable
primarily to license revenues resulting from the agreements with SmithKline
Beecham. Revenue of approximately $831,000 was recognized during the six months
ended June 30, 1997 in conjunction with the collaboration agreement with
GenQuest. Revenue under government grants received in 1997 is expected to be
slightly less than that received in 1996.
Research and Development Expenses
Research and development expenses increased to $7.1 million for the six
months ended June 30, 1997, from $4.7 million for the same period in 1996. The
increase was primarily attributable to increased payroll and personnel expenses
incurred as the Company hired additional research and development personnel,
increased purchase of laboratory supplies, increased equipment depreciation and
facilities expenses in connection with the expansion of the Company's research
efforts, and the inclusion of the research and development portion of amortized
deferred compensation expense associated with the grant of certain stock
options. This non-cash compensation expense will continue to be recognized over
the vesting period of such options, typically four years. See Note 1 of Notes to
Financial Statements. Research and development expenses of approximately $1.0
million were incurred during the six months ended June 30, 1997 in conjunction
with the GenQuest collaboration agreement. The Company expects research and
development expenses to increase in the future to support the expansion of its
research and development activities.
The Company and GenQuest have entered into a call option agreement under
which the Company has the right to purchase a significant majority of the
outstanding capital stock of GenQuest in exchange for shares of the Company's
Common Stock at a purchase price determined in accordance with a formula
specified in the call option agreement. The Company has not made a decision as
to whether it will exercise the option. If the Company were to exercise the
option, the Company would be required to fund any future development efforts of
GenQuest which would result in the Company incurring research and development
expenses without the corresponding revenue currently provided by GenQuest.
General and Administrative Expenses
General and administrative expenses increased to $779,000 for the six
months ended June 30, 1997, from $438,000 for the same period in 1996. The
increase was primarily due to increased expenses related to business development
and the general and administrative portions of the amortized deferred
compensation expense associated with the grant of certain stock options. See
Note 1 of Notes to Financial Statements. The Company expects general and
administrative expenses to increase in the future to support the expansion of
its business development activities, and increased expenses associated with
being a public company.
Interest Income, Net
Interest income, net increased to $235,000 for the six months ended June
30, 1997, from $213,000 for the same period in 1996. This increase was due to an
increase in interest income resulting from higher average cash balances in the
first six months of 1997 which was partially offset by an increase in interest
expense resulting from higher capital lease balances outstanding in 1996. The
Company expects interest income, net to increase in 1997 due to an increase in
average cash balances as a result of the consummation of the Offering.
23
<PAGE> 24
Other Income
Other income increased to $187,000 for the six months ended June 30, 1997,
from $174,000 for the same period in 1996. The 1997 balance consists of $162,500
and $24,000 in proceeds from management and administrative services agreements
with GenQuest and the Infectious Disease Research Institute ("IDRI"), a
not-for-profit, grant-funded private research institute, respectively, pursuant
to which the Company provides services with respect to corporate management,
accounting and financial matters, recordkeeping, personnel administration and
human resources, and treasury services as required by such agreements.
Deferred Compensation
Deferred compensation of approximately $3.9 million was recorded in the six
months ended June 30, 1997, representing the difference between the exercise
prices of 645,004 shares of Common Stock subject to options granted during the
six months ended June 30, 1997 and the deemed fair value of the Company's Common
Stock on the grant dates. Deferred compensation expense of $371,210 attributed
to the shares was amortized during the six months ended June 30, 1997. The
remaining deferred compensation will be amortized to operating expense over the
vesting periods of the options.
Years Ended December 31, 1996, 1995 and Inception Period
Revenues
Revenues increased to $5.8 million in 1996, from $2.7 million in 1995. This
increase was attributable primarily to increased collaborative agreement
funding. Revenue under collaborative agreements increased to $4.4 million in
1996, from $2.4 million in 1995. Funds received from government grants increased
to $1.4 million in 1996, from $304,000 in 1995, and revenue under government
grants received in 1997 is expected to be slightly less than that received in
1996. The Company did not recognize any revenue during the Inception Period.
Research and Development Expenses
The Company's research and development expenses increased to $10.0 million
in 1996, from $7.0 million in 1995, and $867,000 in the Inception Period
(approximately $428,000 of which resulted from acquired in-process research and
development). The increases were primarily due to greater expenses associated
with additional personnel hired to support the Company's growing research
efforts and related purchases of research materials and laboratory supplies.
General and Administrative Expenses
The Company's general and administrative expenses increased to $781,000 in
1996, from $532,000 in 1995, and from $205,000 in the Inception Period. Such
expenses increased as a result of the increase in compensation and benefits paid
relating to the hiring of additional personnel.
Interest Income, Net
Interest income, net decreased to $476,000 in 1996, from $691,000 in 1995.
This decrease was due to higher outstanding capital lease balances in 1996
resulting in greater interest expense. Interest income, net was $83,000 in the
Inception Period.
Other Income
Other income increased to $348,000 in 1996, from $16,000 in 1995 due to
proceeds of $300,000 and $48,000 from management and administration agreements
with GenQuest and IDRI, respectively, pursuant to which the Company provides
services with respect to corporate management, accounting and financial matters,
recordkeeping, personnel administration and human resources, and treasury
services as required by such agreements. No other income was received during the
Inception Period.
24
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception through
collaborative agreements, government grants, private placements of equity
securities and capital leases. Through June 30, 1997, the Company's operations
have used cash of $6.0 million. The private placements of equity securities have
provided the Company with aggregate gross proceeds of approximately $20.1
million. The Company has drawn down $3.8 million through capital lease
financings and $3.0 million from an advance under a collaborative agreement. As
of June 30, 1997, the Company had approximately $15.0 million in cash, cash
equivalents and securities available-for-sale.
The Company has invested $5.2 million in property and equipment since
inception, including equipment acquired under capital lease financings of $3.8
million. The Company expects capital expenditures to increase over the next
several years as it expands its facilities and acquires scientific equipment to
support the planned expansion of research and development efforts.
As of June 30, 1997, the Company had net operating loss carryforwards of
approximately $6.6 million available to offset federal and state income taxes.
Research and development tax credit carryforwards for the Company were estimated
to be approximately $900,000 for federal income tax purposes. If not utilized,
the federal net operating loss and research and development tax credit
carryforwards will expire at various times through 2009. See Note 6 of Notes to
Financial Statements.
The Company believes that the net proceeds from the Offering, its existing
capital resources, committed payments under its existing collaborative
agreements and licensing arrangements, equipment financing and interest income
will be sufficient to fund its current and planned operations for at least 18
months following the Offering. The Company intends to enter into additional
corporate collaborations which will provide funding for all or a part of the
Company's research and development activities. The Company's future capital
requirements will depend on many factors, including, among others, the
following: continued scientific progress in its discovery, research and
development programs; the magnitude and scope of these activities; the ability
of the Company to maintain existing and enter into additional corporate
collaborations and licensing arrangements; progress with preclinical studies and
clinical trials; the time and costs involved in obtaining regulatory approvals;
the costs involved in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims; and the potential need to develop, acquire or license
new technologies and products and other factors not within the Company's
control. The Company intends to seek additional funding through corporate
collaborations, licensing arrangements, public or private equity or debt
financings and capital lease transactions; however, there can be no assurance
that additional financing will be available on acceptable terms, if at all. If
sufficient capital is not available, the Company may be required to delay,
reduce the scope of, eliminate, or divest one or more of its discovery, research
or development programs, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Future Capital Needs; Uncertainty of Additional Funding."
25
<PAGE> 26
BUSINESS
INTRODUCTION
Corixa focuses on the discovery and early clinical development of a novel
class of therapeutic and prophylactic vaccines. Although commercially available
vaccines can prevent infection by a variety of pathogens such as bacteria,
viruses and parasites through antibody-based immune responses, these responses
are not sufficient to eliminate cancers or certain infectious diseases,
including tuberculosis and Acquired Immune Deficiency Syndrome ("AIDS"). To
induce an effective immune response against these diseases, pathogen- or
tumor-reactive T lymphocytes ("T cells") must be stimulated. In particular,
cytotoxic T lymphocytes ("CTL") -- specialized T cells that have the ability to
recognize and kill pathogen-infected tissue or tumor cells -- must be activated.
Corixa's therapeutic and prophylactic T cell vaccines represent a new
approach to the treatment of cancers and certain infectious diseases. The
markets for such vaccine products are extensive, particularly in oncology, given
that current treatments such as chemotherapy and radiation therapy may not lead
to lasting cure or prevention. Immunologists and molecular biologists recently
have identified certain previously unknown molecular signals that are
responsible for T cell recognition of pathogen and/or tumor-associated proteins
referred to as antigens. Corixa's vaccine products are designed to exploit these
recent developments by using each of the three components of its core technology
platform -- proprietary microsphere delivery systems, adjuvants and
antigens -- to force the immune system to recognize antigens in such a manner
that potent T cell, particularly CTL, responses are induced. The Company's
vaccines consist of proprietary antigens which may be encapsulated in
biodegradable and biocompatible microspheres combined with a proprietary
adjuvant, which is a molecule or substance capable of non-specifically enhancing
or boosting an immune response.
SCIENTIFIC BACKGROUND
A variety of prophylactic vaccine products are commercially available for
the prevention of certain infectious diseases. However, these products do not
address therapeutic treatment of such diseases. The majority of current vaccines
trigger a protective antibody response capable of destroying an invading
pathogen in the event the patient is exposed to the pathogen in the future.
Antibodies are products of specialized immune system cells called B lymphocytes
("B cells") that recognize and attach to antigens and trigger the non-specific
elimination of the pathogen. Antigens are components of the invading pathogen
that are recognized by cells of the immune system. Current vaccines are made up
of whole organisms that contain antigens or antigens themselves, which can be
peptides, proteins or carbohydrates. Such vaccines are formulated by combining
antigens with an adjuvant, an immune system booster.
The immune response begins when antigens are processed by a specialized
immune system cell called an antigen presenting cell ("APC"). Antigens are
processed by APCs through two distinct pathways, the Class I and Class II
Pathways. The antibody response produced by current vaccines results from
antigen processing only through the Class II Pathway. The Class II Pathway
breaks down antigens into specific peptides which are then presented on the
surface of an APC via major histocompatibility ("MHC") Class II proteins.
Antigen presentation via MHC Class II proteins results in activation of
CD4-positive helper T cells. These cells produce immune system hormones called
cytokines that serve to "help" with the generation of various components of both
cellular and antibody-based immune responses. Depending on the specific
cytokines that helper T cells produce, the helper T cell response is classified
as either Th1 or Th2. Th1 responses help generate and activate CTL and lead to
antibody production by B cells and possible pathogen elimination.
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Class I Antigen Presentation Pathway
[GRAPHIC]
Class II Antigen Presentation Pathway
[GRAPHIC]
Such antibody production can be sufficient to prevent or eliminate pathogen
infection in the case of certain diseases. However, antibody responses alone are
not sufficient in other diseases, such as cancer. In these other diseases, a
cellular immune response that includes the generation of CTL is necessary in
order to achieve protective immunity. While stimulation through the Class II
Pathway can lead to Th1 responses helpful in generating CTL, CTL activation
cannot occur without antigen presentation through the Class I Pathway. The Class
I Pathway breaks down antigens into specific peptides which are then presented
on the surface of an APC via MHC Class I proteins. Antigen presentation via MHC
Class I proteins results in generation and activation of CTL. The Company
believes that CTL are necessary to eliminate tumors and various pathogens that
antibodies alone cannot destroy.
Corixa has shown in preclinical studies that CTL are capable of eliminating
either tumors or certain pathogens in settings where antibody responses fail.
Such CTL are not only capable of preventing disease when they are activated
prior to pathogen infection but are also able to eliminate disease or a tumor
once the infection has taken place or, in the case of cancer, once a tumor has
developed.
The Company believes vaccines that can activate specific T cell responses
form the basis for a new class of products that may be used either in the
treatment or prevention of disease. Until recently, scientists lacked sufficient
understanding to design vaccine formulations capable of promoting T cell immune
reactivity against tumors or certain pathogens. The Company has incorporated
recent advances in the understanding of the molecular mechanism controlling how
antigens are normally presented to T cells and designed vaccine formulations
which incorporate disease-specific antigens into biodegradable and biocompatible
microspheres that give rise to potent CTL responses. The Company's antigen
discovery program has resulted in isolation of antigens from a variety of tumor
types and from infectious disease pathogens for which no vaccines currently
exist. Furthermore, the Company has discovered a novel adjuvant that has been
shown in preclinical studies to significantly enhance the efficacy of
microsphere formulated vaccines through the stimulation and activation of Th1
helper T cells and CTL. Corixa believes that its three proprietary core
technologies -- microsphere-mediated antigen delivery, novel adjuvants and
proprietary antigen discovery -- form the basis for the successful development
of such products.
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CORIXA'S STRATEGY
Corixa's objective is to be the leader in the discovery and
commercialization of T cell vaccine products for the treatment and prevention of
cancers and certain infectious diseases. The Company's strategy is to dedicate
its resources to vaccine discovery and to establish corporate partnerships as
early in the development process as possible for all aspects of product
development and commercialization, including research, clinical development,
obtaining regulatory approval, manufacturing and marketing. Corixa believes that
this research-and partner-driven approach creates significant scientific,
operational and financial advantages for the Company and accelerates the
commercial development of new therapeutic and prophylactic T cell vaccines.
Principal elements of the Company's strategy are as follows:
Integrate the Company's Core Technologies. The Company believes that the
integration of its three proprietary core technologies may be essential to
providing effective vaccines for cancers and certain infectious diseases. These
technologies consist of: (i) proprietary delivery systems; (ii) potent, novel
adjuvants; and (iii) novel, specific antigens. Corixa believes that its three
component approach is unique among entities currently undertaking the
development of vaccines and has developed or acquired proprietary rights in each
of these technologies. Corixa also believes that integrating one or more of its
delivery systems, adjuvants or antigens with certain other companies'
proprietary technology may improve such companies' existing or
developmental-stage vaccine products.
Establish Corporate Partnerships at an Early Stage. Corixa intends to enter
into corporate partnerships as early in the vaccine development process as
possible. For those products that show promise in the preclinical or clinical
stage, the Company will seek a corporate partner no later than prior to the
initiation of Phase II clinical trials. The Company believes that this active
corporate partnering strategy provides three distinct advantages: (i) it permits
Corixa to focus on its fundamental strengths in vaccine discovery and research;
(ii) it capitalizes on the corporate partner's strengths in product development,
manufacturing and commercialization; and (iii) it significantly reduces Corixa's
financing requirements. When entering into such corporate partnering
relationships, the Company seeks to cover its research and development expenses
through research funding, milestone payments and option, technology or license
fees, while retaining significant downstream participation in product sales
through either profit-sharing or product royalties paid on annual net sales.
Partner Discrete Core Technologies and Non-Vaccine Products. Because the
Company believes that certain other companies' vaccine products may be enhanced
by components available from Corixa, the Company seeks to establish corporate
partnerships with major commercial entities for each of its proprietary core
technologies. For example, the Company may partner its proprietary antigens with
companies who have developed their own delivery and adjuvant technologies.
Similarly, Corixa believes that it can partner the Company's novel LeIF adjuvant
with a variety of vaccine companies that may have vaccine antigens but lack an
adjuvant with the appropriate Th profile. Corixa also believes it can partner
its antigen delivery technology with companies whose vaccines currently lack
sufficient recognition in vivo. Corixa further believes that certain of the
antigens it discovers may lead to the development of useful non-vaccine
products, particularly diagnostics, and the Company intends to establish
non-exclusive collaborations with a variety of diagnostic companies to generate
near-term royalty or other revenues.
CORIXA'S CORE TECHNOLOGY PLATFORMS
Corixa seeks to discover and develop products that consist in whole or in
part of its three proprietary core technologies: (i) microsphere antigen
delivery systems that specifically activate helper T cells and CTL; (ii)
adjuvants that specifically enhance helper T cell and CTL responses; and (iii)
disease specific antigens that are essential to elicit appropriate T cell
responses.
Microsphere Antigen Delivery Systems
Corixa has demonstrated in preclinical studies that potent antibody and CTL
responses can be generated against antigens using the Company's proprietary
microsphere antigen delivery system. The Company has determined that CTL
generated as a result of microsphere-mediated antigen presentation are capable
of
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killing antigen positive cells either in vitro (in test tubes) or in preclinical
studies of immune function. For example, injection of microsphere-encapsulated
tumor antigens in animals generated an immune response that prevented growth of
antigen positive tumors when such animals were later challenged with a lethal
dose of tumor cells. The immune cells responsible for this microsphere-mediated
tumor rejection were shown to be antigen specific CTL. Immunization with naked
(not encapsulated) antigens did not activate CTL responses, nor was such
immunization able to result in protective immunity in animals later challenged
in the same manner.
Corixa believes that microsphere-mediated antigen delivery may be superior
in terms of versatility, stability, safety and cost to other approaches which
circumvent the antigen presentation pathways, including the use of various gene
therapies as well as liposome or recombinant-protein lipid formulations.
Microspheres of the particular size range used by the Company are taken up only
by APCs. This is not true for formulations containing genes or lipids, where
significant amounts of the delivered product are taken up by non-APCs or lost in
the blood stream or elsewhere in the body. Microsphere delivery of antigens may
also avoid certain safety issues associated with gene therapy. Because Corixa
uses microspheres that are produced from FDA-approved, synthetic co-polymers,
there is no immune response to the microsphere itself, in contrast to the immune
response that can occur to other proteins encoded by viral or bacterial vectors
used in gene therapy. Additionally, a single, microsphere formulation may be
useful in multiple vaccine products. This avoids the repetitive costs associated
with construction, manufacture and testing of different gene therapy vectors or
recombinant protein-lipid formulations for different target indications.
Furthermore, Corixa believes that its microsphere vaccine preparations will be
stable as freeze-dried formulations, resulting in a multi-year shelf-life.
The Company has an exclusive worldwide license to a number of patents and
pending patent applications from SRI covering the composition, use and
production of microspheres for augmenting immune responses. In addition, the
Company has an exclusive worldwide license to antigen delivery technology from
the Dana-Farber Cancer Institute ("Dana-Farber") comprising patent applications
claiming the composition and use of microspheres of a particular size range for
the purpose of activating CTL. The Company is also internally developing certain
microsphere technology. See "-- Certain License Agreements" and "-- Patents and
Proprietary Technology."
Adjuvants
Adjuvants are formulations and/or additives that are routinely combined
with vaccines to boost immune responses directed against the antigens in such
vaccines. Because current vaccines depend upon the generation of antibody
responses to injected antigens, commercially available adjuvants have been
developed largely to enhance such antibody responses. To date, there are no
adjuvants that have been approved for use in humans which augment helper T cell
and CTL responses.
Corixa has identified a protein, known as LeIF, that functions as a potent
adjuvant for enhancing immune responses directed at T cell vaccine antigens.
LeIF is a protein produced by the parasite Leishmania, which is carried by
sandflies and causes both a skin and visceral disease known as Leishmaniasis. In
cell culture studies conducted by the Company, LeIF has been found to have
potent immune system stimulatory effects, both for cells from individuals who
have been exposed to the parasite and from individuals who have not been so
exposed.
Preclinical studies conducted by Corixa indicate that LeIF is a unique
protein stimulator of a Th1 response. Additional research conducted by the
Company has confirmed that the cell within the immune system that responds to
LeIF is an APC. APCs stimulated with LeIF produce large quantities of a certain
cytokine and a certain cell surface protein, both of which are molecular signals
required for the generation of potent CTL responses. Corixa has conducted
further research to determine whether LeIF functions as an adjuvant for T cell
vaccines. In prelinical studies, use of microsphere-encapsulated tumor antigens
together with LeIF resulted in tumor regression, even when administered to
animals with established tumors. In all cases, tumor regression was shown to
correlate with the in vivo development of tumor antigen reactive CTL. As a
result, Corixa's research suggests that immunity induced by the combination of
microsphere-
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encapsulated antigens and the LeIF adjuvant is both antigen specific and
long-lived. Treated animals were still able to reject lethal doses of antigen
positive tumors when challenged more than four months after therapy.
Corixa believes that the use of LeIF as an adjuvant will greatly enhance
the efficacy of its T cell vaccines. The Company also believes that LeIF,
together with microsphere-encapsulation technology, may be useful in developing
therapeutic products from current prophylactic vaccines due to the ability of
the Company's technologies to promote potent Th1 and CTL responses. Corixa has
granted licenses to or options to license its LeIF technology to several
corporate partners, including SmithKline Beecham, PMC, Vical and Heska. See
"-- Corporate Partnerships -- Adjuvants" and "-- Other Products in Development."
THROUGH A VARIETY OF PROPRIETARY METHODS,
CORIXA IMMUNOLOGICALLY "SIEVES" FOR ANTIGENS
AGAINST CANCERS AND OTHER INFECTIOUS DISEASES.
GRAPHIC
NOVEL AND
DISEASE-SPECIFIC
ANTIGENS
Antigen Discovery
Corixa's ability to discover and patent multiple antigens allows it to
select those which will work most effectively in a given vaccine (i.e., are
recognized by the greatest percentage of individuals, stimulate the strongest
immune response and are expressed by the greatest percentage of pathogen strains
or tumor types). To capitalize on this ability, over half of Corixa's scientific
personnel are devoted to antigen discovery. Discovery approaches and
technologies used by the Company in both tumor and infectious disease vaccine
development include: (i) tumor tissue procurement and SCID mouse tumor
propagation; (ii) differential display; (iii) cDNA subtraction; (iv) expression
cloning; (v) pathogen protein purification; (vi) antigenic peptide stripping;
and (vii) immunological characterization of candidate tumor vaccine antigens.
The Company's discovery approaches map patient immune responses to ensure that
discoveries focus on
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identification of pathogen and tumor proteins that are recognized by the human
immune system and are therefore antigenic. See "-- Vaccine Antigen Discovery
Methodologies."
The culmination of Corixa's antigen discovery research is the isolation of
pathogen genes that encode those antigens with significant potential to be
effective components of vaccines. Such antigens (in the form of either
recombinant proteins or biosynthetically produced peptides) are then formulated
in microspheres for vaccination. Multiple pathogen and/or tumor gene and protein
sequences have been discovered by the Company. As of June 30, 1997, the Company
had filed numerous patent applications seeking both composition of matter and/or
vaccine and diagnostic method of use claims to: (i) approximately 160 gene
sequences that are either uniquely expressed or markedly over-expressed by
breast cancer cells; (ii) approximately 60 gene sequences that are either
uniquely expressed or markedly over-expressed by prostate tumor cells or
prostate tissue; and (iii) approximately 70 gene sequences expressed by
Mycobacterium tuberculosis.
There can be no assurance that patents will issue from any of the pending
applications, or that if issued, such patents will not be challenged,
invalidated or circumvented by third parties, or that the rights granted under
any issued patents will provide adequate proprietary protection or competitive
advantages to the Company. The Company's three core technologies are at an early
stage of development. There can be no assurance that any of such technologies
will prove to be safe and effective, and products which may result from the
Company's research and development programs are not expected to be commercially
available for a number of years, if at all. See "-- Patents and Proprietary
Technology," "Risk Factors -- Uncertainties Related to Early Stage of
Development" and "-- Uncertainties Related to Technology and Product
Development."
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CORIXA'S PRODUCTS IN DEVELOPMENT
Corixa has a number of products in various stages of development, many of
which are the subject of collaborations with corporate partners. The following
table sets forth the type of product currently in development, the
application(s) for the particular product, its present stage of development and
the identity of the Company's corporate partner, if any, for such product
application.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
CORIXA'S PRODUCTS IN DEVELOPMENT
- ---------------------------------------------------------------------------------------------------
PRODUCT APPLICATION DEVELOPMENT PHASE(1) PARTNER
- ---------------- ------------------------------ --------------------- --------------------------
<S> <C> <C> <C>
VACCINES Breast/Prostate Cancer Research SmithKline Beecham
Vaccines Biologicals S.A.
Two Cancer Vaccine Targets Research SmithKline Beecham
Biologicals S.A.
Her-2/neu Peptide Vaccines for Phase I Clinical Not currently partnered
Breast and Ovarian Cancer Trials
Lung Cancer, Lymphoma and Research Not currently partnered
Other Vaccines
Tuberculosis Vaccines Preclinical Studies SmithKline Beecham
Biologicals S.A.
ADJUVANTS LeIF as an Adjuvant for Preclinical Studies Pasteur Merieux Connaught
Certain Infectious Disease
Vaccines
DIAGNOSTICS Trypanosoma cruzi Development DiaMed S.A.
Trypanosoma cruzi - Diagnostic Development Centocor UK Limited
and Blood Screen
Tuberculosis Development Abbott Laboratories
Leishmaniasis Early Stage Various diagnostic
Commercialization companies
Tick-Borne Diseases Preclinical Studies Not currently partnered
OTHER PRODUCTS Adoptive Immunotherapy - Preclinical Studies CellPro, Incorporated
Cancer
Certain Autoimmune Diseases Research Novo Nordisk A/S/
ZymoGenetics, Inc.
Cancer; LeIF Gene as an Research Vical Incorporated
Immunomodulator
Certain Technologies for Development Heska Corporation
Companion Animal Health
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) "Research" indicates the discovery or creation of prototype products and
includes antigen discovery, immunomodulator discovery and
characterization.
"Development" indicates testing of prototype diagnostic assays in a
particular format and testing of such products.
"Preclinical Studies" indicates product scale up, formulation and further
testing in animals, including toxicology.
"Phase I Clinical Trials" are performed to evaluate the safety of a vaccine
and its ability to stimulate an immune response.
"Early Stage Commercialization" indicates sales to third parties for use in
diagnostic applications which have resulted in immaterial revenues to
date.
Vaccine Products
Breast and Prostate Cancer Vaccines. Breast and prostate cancer are
currently among the most widespread malignant diseases in women and men,
respectively. According to industry sources, over 525,000 patients were
diagnosed with breast cancer and over 625,000 patients were diagnosed with
prostate cancer in Europe, Japan and North America in 1995. A large percentage
of these patients undergo chemotherapy, radiation therapy and surgery, yet the
vast majority are likely to relapse with malignant disease within ten years
following surgical intervention. Corixa believes that its vaccines will
initially be useful in those patients who have undergone surgery.
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The Company has identified over 300 gene sequences that are either uniquely
expressed or markedly over-expressed in breast tumors and/or prostate tumors or
tissue. Analysis of comparative expression of such genes in multiple tumor
specimens and in normal tissue has resulted in patent filings on approximately
220 gene sequences which the Company believes may be valuable for inclusion in
vaccine products. The Company has begun the immunological characterization of
these gene sequences with the goal of selecting several antigens for use in
vaccines for breast and prostate cancer. In March 1997, Corixa entered into
corporate partnerships with SmithKline Beecham in the areas of breast and
prostate tumor vaccines. See "-- Corporate Partnerships -- Breast and Prostate
Cancer Vaccines."
Her-2/neu Peptide Tumor Vaccines. According to New Medicine, Inc., over
525,000 new breast cancer patients and 80,000 new ovarian cancer patients are
diagnosed in Europe, Japan and North America each year. Of these patients,
approximately 50% markedly over-express the gene Her-2/neu on the surface of
their respective breast and ovarian carcinomas. To date, in in vitro studies
with animal and human cells, peptides from the Her-2/neu protein have been shown
to generate potent T cell immune responses. In vitro data indicate that cells
from different patients respond to different Her-2/neu peptides. Consequently,
the Company is currently developing a "cocktail" approach to vaccine
formulation, combining multiple peptides in a single vaccine. The Company
believes that a "cocktail" of peptides may be useful as a therapeutic vaccine
for breast and ovarian cancer patients whose tumors over-express Her-2/neu.
In July 1996, pursuant to certain contractual obligations, Corixa, together
with the University of Washington, filed an investigational new drug application
to begin a clinical trial of three different Her-2/neu peptide vaccines in
breast and ovarian carcinoma patients. This Phase I clinical trial began
accruing patients in September 1996. Safety is the primary endpoint of this
clinical trial, which consists of up to 60 patients who will each receive
monthly vaccinations for a period of six months. Secondary endpoints of the
trial focus on the ability of such vaccination to lead to demonstration of
anti-Her-2/neu immune reactivity and/or clinical response. This clinical trial
currently uses naked Her-2/neu peptides together with granulocyte macrophage
colony stimulating factor as an adjuvant. The Company is also conducting
preclinical studies with microsphere-encapsulated formulations of Her-2/neu
peptides and LeIF as an adjuvant as a prelude to adding these components of its
proprietary core technology to either the current clinical trial or, if required
by the FDA, a separate Phase I clinical trial. Corixa has an exclusive worldwide
license to Her-2/neu peptide vaccine technology from the University of
Washington. See "-- Certain License Agreements."
Lung Cancer, Lymphoma and Other Vaccines. Building on the Company's initial
progress in cancer antigen discovery aimed at the development of breast and
prostate tumor vaccines, Corixa has initiated additional discovery programs in
several other tumor types, including lung cancer and Non-Hodgkin's lymphoma
("NHL"). According to industry sources, both lung cancer and NHL have mortality
rates well above the normal mortality rates for cancers generally, with five
year mortality rates of 86% and 49%, respectively. Lung cancer is now the
leading cancer killer in Europe, Japan and North America, with incidence in 1995
in those countries estimated at approximately 520,000 people. NHL incidence in
the developed world was estimated at 137,000 in 1995. Due to the magnitude and
severity of such diseases, and the absence of effective therapies in these
areas, Corixa has begun to undertake antigen discovery and vaccine development
efforts in these tumor types using approaches similar to those it uses in breast
and prostate cancer. See "-- Corixa's Vaccine Antigen Discovery Methodologies."
Additionally, Corixa is currently engaged in discussions with several
pharmaceutical companies with respect to potential corporate partnering
arrangements in the areas of lung cancer, leukemia and lymphoma vaccines. There
can be no assurance, however, that such discussions will lead to the
establishment of any new corporate partnerships on favorable terms, or at all.
See "Risk Factors -- Dependence on and Management of Existing and Future
Corporate Partnerships."
Tuberculosis Vaccines. Tuberculosis ("Tb"), caused by infection with
Mycobacterium tuberculosis ("Mtb"), results in more deaths than any other
infectious disease in the world. The market for potential Tb vaccines is
extensive. According to industry sources, there are an estimated 8.8 million new
cases of Tb worldwide. Once believed to be eradicated in the United States, Tb
is now growing in prevalence. From 1985 to 1992, the number of cases increased
20% in the United States and the percentage of patients with antibiotic
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<PAGE> 34
resistant mycobacteria increased from less than 1% to more than 25% in some
areas of the country. Corixa's goal is to develop specific prophylactic vaccines
for both conventional and drug-resistant strains of Mtb.
Corixa has identified over 60 novel candidate Tb gene products that
specifically trigger appropriate helper T cell responses in vitro. These gene
products are the subject of multiple patent applications filed by the Company
covering compositions of matter and vaccine and diagnostic methods of use. The
in vitro tests have led to the selection of several candidate vaccine antigens.
Some of these antigens have been skin-tested in both infected-healthy and
infected-diseased individuals in South America to determine which antigens are
recognized by both patient populations. Results from such tests, together with
continued analysis of patient T cell responses, has led to the commencement by
Corixa of preclinical studies for both therapeutic and prophylactic vaccine use.
In October 1995, the Company entered into a corporate partnership with
SmithKline Beecham for the development of Tb vaccines. Based on the Company's
progress, the research phase of this corporate partnership was recently extended
for an additional one year period. See "-- Corporate
Partnerships -- Tuberculosis Vaccines."
Adjuvants
Corixa has discovered a gene from the parasite Leishmania that codes for
the protein LeIF, which is capable of stimulating Th1 helper and CTL responses.
The Company has demonstrated in preclinical studies that when combined with
certain target antigens, LeIF induces a stronger antibody response directed
against the target antigen than was induced by such antigen alone.
Co-administration of LeIF with various T cell vaccines in preclinical studies
for both infectious disease and tumors results in enhanced generation of anti-
vaccine reactive CTL.
Corixa currently produces LeIF as a recombinant protein in bacteria. The
Company anticipates that it will use LeIF in its proprietary vaccine
formulations and will also out-license LeIF for incorporation as an adjuvant in
vaccines outside of the Company's cancer and infectious disease targets. In
December 1996, the Company entered into a corporate partnership with PMC. This
corporate partnership provides PMC with the option to license LeIF for use with
vaccines in five different infectious disease indications. See "-- Corporate
Partnerships -- Adjuvants."
Diagnostic Products
The Company believes that many of the antigens it has discovered in the
fields of cancer and infectious disease also have applications in the diagnosis
of disease. Antigens are used in diagnostic tests to determine whether an
individual possesses antibodies against the antigen. The presence of such
antibodies indicates that the individual is infected by the pathogen. Infectious
disease diagnostic products for the following indications are currently under
development at Corixa:
Trypanosoma cruzi ("T. cruzi"). T. cruzi is an intracellular blood and
tissue parasite endemic to South America, Central America and Mexico that is
most commonly transmitted by blood transfusion. T. cruzi is responsible for the
development of Chagas' disease, which can develop into fatal infectious heart
disease. Current diagnostic procedures to determine blood exposure to T. cruzi
infection are based on the detection of patient antibodies that react with crude
extracts of this parasite. These tests often produce false results due to their
inability to distinguish antibodies against T. cruzi from antibodies against
other infectious agents. The Company has discovered and evaluated in vitro a
number of peptides encoded by genes of the T. cruzi parasite for their ability
to serve as highly specific and sensitive reagents for detection of T. cruzi.
Corixa has licensed its T. cruzi antigen technology for the development of both
blood screen and point-of-care diagnostic tests to several diagnostic companies,
including DiaMed and Centocor. See "-- Corporate Partnerships -- Diagnostic
Products."
Tuberculosis. Corixa believes that many antigens currently under
investigation by the Company could be useful in the development of novel
diagnostics to determine whether patients have been infected with Mtb. Current
diagnostic assays to determine Mtb infection are expensive and labor intensive.
The majority of patients exposed to Mtb receive chest x-rays, and attempts are
made to culture the bacterium in vitro from sputum samples. Mtb grows poorly and
slowly outside the body, which can produce false negative test results.
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In addition, standard skin tests are not ideal in detecting infection and cannot
be used in areas of the world where patients receive childhood vaccination with
bacterial strains related to Mtb. The Company is developing a combination of
proprietary antigens that may be used in detecting the presence and degree of
Mtb infection. The Company has granted to Abbott a non-exclusive license to
certain of its Tb antigen technologies and intends to pursue additional
out-licensing opportunities for this product. See "-- Corporate Partnerships --
Tuberculosis Vaccines."
Leishmaniasis. The parasite Leishmania causes a systemic disease of the
liver, spleen and bone marrow called Leishmaniasis that can be fatal if not
treated. The disease is endemic to Southern Europe, the Middle East, Africa,
China and India, as well as Central and South America. The largest United States
population infected with Leishmania are military personnel and veterans who were
exposed to the parasite while stationed in the Middle East during the Gulf War.
Leishmania has also become a leading cause of opportunistic infection in AIDS
patients in Southern Europe. Currently, the most reliable test for this parasite
infection is an extremely costly and potentially dangerous procedure requiring
the collection of bone marrow from patients and microscopically searching for
evidence of such infection. Corixa has identified and patented a Leishmania
antigen that is useful in determining whether patients are infected with the
parasite. Corixa has licensed its Leishmania diagnostic technology to various
diagnostic companies on a non-exclusive basis. The Company is currently
negotiating with other diagnostic companies who have expressed interest in
developing either rapid physician office or field-based diagnostics using the
Company's patented technology. See "-- Corporate Partnerships -- Diagnostic
Products."
Tick-Borne Diseases. There are multiple diseases, such as Lyme disease,
caused by pathogens harbored by several tick species in North America. Recent
scientific investigation has identified two tick-borne pathogens, Ehrlichia and
Babesia microti, which can lead to Lyme disease-like infections and which can
also cause death. No diagnostic tests currently exist for these pathogens.
Corixa has identified multiple genes encoded by these pathogens that the Company
believes may form the basis of novel diagnostic products and has begun
discussions with diagnostic companies that have expressed interest in this
field.
Other Products in Development
Adoptive Immunotherapy Products. Because T cells, and CTL in particular,
are generally believed to be essential for the generation of protective immunity
against tumors, scientists and clinicians have for many years studied the
potential of using CTL obtained from patients and grown outside the body (ex
vivo) for use in treating patients with advanced cancer. CTL grown ex vivo have
been shown to be effective in shrinking and/or eliminating tumors, both in
animal models and in clinical trials. This therapeutic approach, called adoptive
immunotherapy, has been limited by its dependence on the ability to grow
sufficient numbers of tumor antigen reactive CTL or other T cell populations ex
vivo for re-infusion into cancer patients. Corixa believes that several of its
core technologies will be useful in the development of adoptive immunotherapy
procedures for cancer treatment, and the Company has identified multiple tumor
antigens that can be used to stimulate in vitro growth of tumor-reactive CTL. In
addition, the Company's microsphere and adjuvant technologies have been
demonstrated to enhance the in vitro generation and growth of tumor antigen
reactive CTL. In November 1995, Corixa entered into a license and collaborative
research agreement with CellPro which provides CellPro with exclusive access to
Corixa's microsphere antigen delivery, adjuvant and antigen discovery technology
for CellPro's use in the discovery and development of products for the adoptive
immunotherapy of cancer, and CellPro's rights to such technology are exclusive
even as to the Company with respect to adoptive T cell immunotherapy of cancer.
See "-- Corporate Partnerships -- Other Products."
Autoimmune Disease Products. In some instances, the immune system can
mistakenly identify host tissue as though it was an invading pathogen. Such
mistaken recognition plays a key role in the development of diseases such as
diabetes, rheumatoid arthritis, lupus and multiple sclerosis. Severity and onset
of the disease can be associated with the development of a Th1 response.
Elimination of this type of helper T cell response has been demonstrated to have
a beneficial effect on the duration or severity of autoimmune disease in
preclinical studies. Corixa has isolated novel pathogen proteins (i.e., LeIF)
that exclusively stimulate Th1 helper T cell responses, and has entered into a
corporate partnership with ZymoGenetics aimed at the
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discovery of new pharmacologic agents useful in the treatment of autoimmune
diseases. See "-- Corporate Partnerships -- Other Products."
Products with LeIF Gene as an Immunomodulator. LeIF functions as a potent
adjuvant due in part to its ability to induce APC production of a certain
cytokine and a certain cell surface protein, two important molecular signals
required for the generation of potent cellular immune responses. Many
scientists, as well as pharmaceutical and gene therapy companies, are exploring
the utility of this cytokine and this cell surface protein to promote anti-tumor
responses. Corixa and its academic collaborators are researching the ability of
LeIF to promote anti-tumor immune responses when administered as a stand-alone
agent in preclinical studies of malignant disease. Based on the results of these
experiments, which demonstrated an anti-tumor effect of LeIF therapy, the
Company has granted Vical an option to license certain LeIF technology. See
"-- Corporate Partnerships -- Other Products."
Animal Health Products. The Company believes that certain of its vaccine
and diagnostic products also may have applications in the detection of infection
and treatment of disease in animals. One such disease is Leishmaniasis, which
can be carried by dogs. Europe is the primary market for these products. The
Company is currently collaborating with Heska, a developer and marketer of
companion animal diagnostics and therapeutic products, including vaccines for
certain parasitological diseases, to develop both diagnostics and vaccines for
the treatment of Leishmaniasis in dogs. The Company has also granted Heska a
license to use LeIF in combination with other types of vaccines in the companion
animal field. Corixa intends to explore further opportunities to out-license its
technology for use in animal health markets. See "-- Corporate
Partnerships -- Other Products."
The Company's products are in an early stage of development and have not
been demonstrated to be safe or effective. There can be no assurance that any of
the Company's programs will move beyond its current stage of development. In
addition, even if the Company is able to successfully complete its development
efforts with respect to a particular product, there can be no assurance that
regulatory approvals will be obtained or that any such product can be
successfully manufactured and commercialized. See "Risk Factors -- Uncertainties
Related to Technology and Product Development."
CORPORATE PARTNERSHIPS
Corixa's strategy is to establish multiple corporate partnerships with
pharmaceutical, biopharmaceutical and diagnostic companies that have the
expertise and capability to develop, manufacture, obtain regulatory approval of
and commercialize the Company's products. In such corporate partnerships, Corixa
seeks to cover its research and development expenses through research funding,
milestone payments and option, technology or license fees, while retaining
significant downstream participation in product sales through either profit-
sharing or product royalties paid on annual net sales. The Company has focused
initially on three areas of collaboration, including vaccine discovery programs,
diagnostic technology and out-licensing its three proprietary core technologies
for applications outside the Company's focus.
Vaccines
Breast and Prostate Cancer Vaccines
SmithKline Beecham. In March 1997, the Company entered into breast and
prostate cancer collaboration and license agreements and an option agreement
with SmithKline Beecham. The Company granted SmithKline Beecham an exclusive
worldwide license to develop, manufacture and sell vaccine products resulting
from this corporate partnership. The Company also granted SmithKline Beecham an
option to license certain other related technology for use in these cancer
vaccines. Under the collaboration and license agreements, SmithKline Beecham
agreed to provide annual research funding to support the Company's current
program to discover breast and prostate cancer antigens. To the extent breast or
prostate cancer antigens are discovered and selected for further development,
the Company is entitled to receive future payments upon the achievement of
certain contractual milestones relating to drug development and regulatory
progress, as well as royalty payments on any product sales. SmithKline Beecham
may elect to extend the research program beyond its initial two-year term based
upon mutually agreed terms. In the event SmithKline
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Beecham elects to extend the research program, payments by SmithKline Beecham
under the collaboration and license agreements for such extension, research
funding and achievement of contractual milestones may total up to $46.0 million,
which amounts are payable over time based on extension of the research program
and achievement of contractual milestones. SmithKline Beecham may terminate
either or both of the breast and prostate cancer programs in the event the
Company does not meet certain scientific milestones after the second anniversary
of the effective date of the respective agreements. Under the option agreement,
SmithKline Beecham paid certain consideration in exchange for exclusive options
to license two of Corixa's early-stage antigen discovery programs in two cancer
targets. In the event such options are exercised, then at SmithKline Beecham's
election, such consideration will either be credited against future milestone
payments or converted into Common Stock of Corixa. If SmithKline Beecham elects
to exercise both such options and convert such consideration into Common Stock,
the number of such shares that the Company is obligated to issue will be
dependent upon the then-current fair market value of such Common Stock. Assuming
such fair market value is $13.00 per share, the Company would be obligated to
issue an aggregate of approximately 207,433 shares of Common Stock, which amount
would represent beneficial ownership of approximately 1.8% of the Common Stock
(based upon 11,244,331 shares of Common Stock to be outstanding upon completion
of the Offering). Because the fair market value of the Common Stock is variable,
the number of shares of Common Stock that the Company is obligated to issue upon
exercise of such options may be a greater or lesser number than set forth above.
In the event either or both of such options are not exercised or extended by
February 28, 1998 with respect to one cancer target and August 31, 1998 with
respect to the other cancer target, the Company will be required to repay the
amounts paid by SmithKline Beecham for such option(s) over a three-year period
beginning in March 2000. See Note 8 of Notes to Financial Statements.
Tuberculosis Vaccines
SmithKline Beecham. In October 1995, the Company entered into an option and
collaborative research agreement with SmithKline Beecham. Under the option and
collaborative research agreement, the Company granted SmithKline Beecham an
option to receive an exclusive worldwide license to the Company's vaccine
antigens discovered under Corixa's Mtb antigen discovery program. If SmithKline
Beecham exercises its option, it will receive an exclusive worldwide license to
use any or all such antigens, provided that such rights shall be co-exclusive
with Corixa in Japan. SmithKline Beecham paid an up-front technology access fee
and agreed to provide annual research funding to support the Company's program
to discover Mtb antigens. In addition, if SmithKline Beecham exercises its
option, the Company is entitled to receive an option exercise fee and future
payments upon the achievement of certain contractual milestones relating to drug
development and regulatory progress, as well as royalty payments on any product
sales. Under the option and collaborative research agreement, payments by
SmithKline Beecham to Corixa for research funding, the option exercise fee and
achievement of contractual milestones may total up to approximately $19.3
million. In February 1997, the Company and SmithKline Beecham agreed to renew
the Mtb research program through May 1998, and extended SmithKline Beecham's
option to license Mtb antigens through August 1998, which amounts are payable
over time based on extension of the research program and achievement of
contractual milestones.
Adjuvants
Pasteur Merieux Connaught. In December 1996, the Company entered into an
option and license agreement with PMC whereby the Company granted PMC an option
to license its novel adjuvant LeIF for exclusive use in influenza and
respiratory syncytial virus and non-exclusive use in HIV, Tb and malaria. Under
the option and license agreement, PMC paid an up-front option fee and, in the
event and to the extent PMC exercises its option, PMC has agreed to pay exercise
fees for each disease indication. In addition, in the event PMC exercises its
option for one or more disease fields, the Company is entitled to receive future
payments upon the achievement of certain contractual milestones relating to drug
development and regulatory progress, as well as royalty payments on any product
sales and annual research funding to support the Company's preclinical
development efforts related to LeIF. Unless extended, PMC's option will
terminate in the event PMC has not exercised its right in at least one disease
field during October 1997.
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Diagnostics
The Company has entered into and intends to continue to pursue corporate
partnerships in the fields of cancer and infectious disease diagnostics to
complement its therapeutic research efforts and to expand its scientific
platform. The Company has established corporate partnerships for the development
of diagnostics for infectious diseases with Abbott, DiaMed, Centocor and other
small diagnostic companies. Under these arrangements, the Company generally
grants a non-exclusive license to Corixa's antigens for use in specified
infectious disease indications in exchange for the respective corporate
partner's agreement to make certain payments upon achievement of development
milestones, a commitment to purchase a minimum number of reagents and an
agreement to pay royalties on any product sales. In addition, the Company has
collaborated exclusively with GenQuest for the development of diagnostics for
cancer. See "-- Relationship with GenQuest, Inc."
Other Products
Adoptive Immunotherapy Products
CellPro. Effective as of November 1995, the Company entered into a license
and collaborative research agreement with CellPro. Under the license and
collaborative research agreement, the Company granted CellPro an exclusive
worldwide license to Corixa's proprietary vaccine technologies -- microsphere
antigen delivery, the LeIF adjuvant and novel cancer antigens -- in the field of
adoptive immunotherapy of cancer, and CellPro's rights to such technology are
exclusive even as to the Company with respect to adoptive T cell immunotherapy
of cancer. As consideration for the license, CellPro paid the Company up-front
license fees and agreed to make future payments upon the achievement of certain
contractual milestones relating to drug development and regulatory progress, as
well as royalty payments on any product sales. In addition, the Company is
entitled to receive annual research funding to support the corporate
partnership's scientific objectives. Under the license and collaborative
research agreement, payments by CellPro to Corixa for research funding and
achievement of contractual milestones may total up to approximately $10.2
million, which amounts are payable over time based on extension of the research
program and achievement of contractual milestones. The Company and CellPro must
agree annually upon the scientific objectives for the ensuing year. CellPro may
terminate funding for the adoptive immunotherapy research program in the event
the Company fails to perform certain obligations under such research program.
Effective January 1997, the Company and CellPro amended the license and
collaborative research agreement to provide for a co-exclusive license to
dendritic cell vaccines incorporating the Company's cancer vaccine technology
and a sharing of any license fees or royalty payments arising under the
co-exclusive license.
Autoimmune Disease Products
ZymoGenetics. In September 1996, the Company entered into a license and
collaborative research agreement with ZymoGenetics. Under the license and
collaborative research agreement, ZymoGenetics agreed to provide annual research
funding to support the Company's research program for the discovery of certain
vaccine technology for autoimmune diseases. In addition, the Company is entitled
to receive future payments upon the achievement of certain contractual
milestones. The Company granted ZymoGenetics an exclusive worldwide license to
vaccine technology discovered under the funded research program in the fields of
diabetes, multiple sclerosis and rheumatoid arthritis. The Company retained
rights to all discoveries resulting from the funded research program in all
other fields. ZymoGenetics may terminate the license and collaborative research
agreement in the event the Company does not meet certain scientific milestones
or at any time after September 30, 1997. Based on correspondence received from
ZymoGenetics, the Company currently anticipates the research program will
terminate effective as of January 28, 1998.
LeIF Gene as an Immunomodulator
Vical. In April 1996, the Company entered into an option agreement with
Vical. Under the option agreement, Vical received an option to license the
Company's LeIF gene as a single gene immunomodulator in the field of cancer.
Vical paid an up-front option fee and, to the extent it exercises its option,
Vical has agreed to pay an option exercise fee and to make additional payments
upon the achievement of certain
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contractual milestones relating to drug development and regulatory progress, as
well as royalty payments on any product sales. The Company and Vical have
amended the option agreement in order to extend the option exercise period. As
amended, the option agreement will terminate on October 26, 1997 unless Vical
exercises its option prior to such termination.
Animal Health Products
Heska. In March 1996, the Company entered into a license and research
agreement with Heska. Under the license and research agreement, the Company
granted Heska an exclusive worldwide license to Corixa's LeIF adjuvant for use
in certain of Heska's vaccines and for use as a stand-alone vaccine against
canine leishmaniasis. In addition, the Company granted Heska a license to its
diagnostic antigen, K39, for use in detecting canine leishmaniasis. The license
is exclusive worldwide, except that it is non-exclusive in Central and South
America. Heska paid an up-front license fee and agreed to make future payments
upon the achievement of certain development milestones, as well as royalty
payments on any product sales. In December 1996, Heska made a payment to the
Company based on achievement of a development milestone for the Company's K39
diagnostic product.
The Company's corporate partnership agreements generally provide recourse
for the Company with respect to its existing product and technology rights in
the event of an uncured material breach of such an agreement by a corporate
partner. In such event, Corixa generally may elect to terminate the licenses
granted to such corporate partner under such agreement. However, because
Corixa's strategy for the discovery, research, development, clinical testing and
commercialization of its products is to enter into multiple corporate
partnerships, the success of the Company is substantially dependent on its
ability to enter into and maintain such arrangements on terms favorable to the
Company, its ability to successfully manage current or future corporate
partnerships, if any, and the ability of its corporate partners to perform their
respective obligations under such arrangements. There can be no assurance that
the Company will be able to negotiate any additional corporate partnerships on
favorable terms, or at all, that its current corporate partnerships will be
successful or that its corporate partners will perform their obligations under
such arrangements in a timely manner or at all, any of which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Dependence on and Management of
Existing and Future Corporate Partnerships."
RELATIONSHIP WITH GENQUEST, INC.
Corixa is a principal stockholder in, and has received licenses in the
field of cancer vaccines from, GenQuest, a privately-held company formed in 1995
to exploit functional genomics technology developed by Dr. Paul Fisher and
Columbia University. GenQuest is engaged in discovery of new genes related to
the transformation of normal cells into cancer cells and research of novel genes
that are uniquely expressed by cancer cells. The Company believes that its
relationship with GenQuest will lead to the identification of additional genes
uniquely expressed by cancer cells that are useful in the Company's research
programs.
Genomics refers to the organization, structure and regulation of genes.
Recent advances in genomics technology have allowed the isolation of genes that
are associated with specific diseases. Expression of these genes may pre-dispose
individuals to develop certain diseases or may be responsible for initiating the
disease process. Development of techniques useful in determining gene structure
has led to an increased focus on determining a specific gene's function, known
as "functional genomics." Functional genomics refers to a set of gene discovery
techniques that allow identification of function at the time a specific gene is
discovered. GenQuest's technology includes three major discovery approaches: (i)
rapid expression cloning systems that identify genes that are only expressed
when normal cells become malignant cells; (ii) surface epitope masking that
identifies genes that are uniquely expressed on the surface of cancer cells; and
(iii) differentiation induction and subtractive hybridization -- a technique
that identifies genes that are expressed when cancer cells are forced to revert
to normal cells. The Company has rights to these and other technologies for the
purpose of discovering additional cancer vaccine antigens.
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In December 1996, the Company and GenQuest entered into a series of
collaborative agreements amending the original license and research
collaboration agreement entered into in February 1996. Under the amended license
and collaboration agreement, GenQuest agreed to provide an aggregate of $5.7
million in research funding over a three-year period to support the Company's
program to discover cancer genes, related antigens and cancer-related gene
products. The Company granted GenQuest an exclusive worldwide license to certain
of Corixa's existing non-vaccine technology and technology developed by Corixa
under the joint research program in the field of cancer diagnostics and
non-vaccine cancer therapeutics. GenQuest granted Corixa an exclusive worldwide
license to GenQuest's existing technology and technology developed under the
joint research program in the field of cancer vaccines and ex vivo cell therapy
of cancer. Both the Company and GenQuest agreed to pay royalties on any sales of
products incorporating licensed technology, except that with respect to genes
and gene products developed by GenQuest during the funded research program,
GenQuest is not obligated to pay any royalties to the Company. In addition, the
Company has agreed to assume remaining royalty obligations of GenQuest to its
licensor on products incorporating the licensed technology. Either the Company
or GenQuest may terminate the license agreement within 30 days following
December 31, 1997 if such party believes that the scientific objectives of the
corporate partnership have not been met. Under the license agreement, there are
limitations on the Company's ability to enter into certain relationships outside
its core business of vaccine technologies. However, the Company does not believe
such limitations are material. See "Certain Transactions" and Note 9 of Notes to
Financial Statements.
The Company and GenQuest have also entered into a call option agreement
(the "Call Option Agreement") under which the Company has the right to purchase
a significant majority of the outstanding shares of GenQuest's capital stock in
exchange for shares of the Company's Common Stock at a purchase price determined
in accordance with the formula specified in the Call Option Agreement. The right
becomes effective on the earlier of (i) June 23, 1998, (ii) the completion of a
30-day trading period following the Company's initial public offering during
which the average closing sale price of a share of the Company's Common Stock is
at least $19.80, or (iii) a merger of Corixa with another entity or a sale of
substantially all of Corixa's assets. Corixa's right to purchase the shares of
GenQuest capital stock terminates on the earlier of (i) January 23, 2000, (ii)
the date that the Company notifies GenQuest that it will not exercise its right,
(iii) the closing of the initial public offering of GenQuest, (iv) ten days
following the termination of the amended license agreement, or (v) ten days
following a merger of, a sale of assets by, or a change in control of Corixa.
The number of shares of Common Stock that Corixa is required to issue in order
to exercise the right is variable as the formula specified in the Call Option
Agreement takes into account the then-current fair market value of the Common
Stock and the capitalization of GenQuest as well as the date of exercise. Under
this formula, the value allocated to a share of Common Stock for the purpose of
determining the number of shares issuable upon exercise of this right is equal
to the greater of (i) the sum of $3.00 plus the quotient obtained by dividing
the difference between (a) the average closing sale price of a share of Common
Stock during the 30 trading days immediately prior to such exercise and (b)
$3.00 by 2, and (ii) the product of the average closing sale price of a share of
Common Stock during the 30 trading days immediately prior to such exercise
multiplied by 0.7. The value allocated to the shares of the capital stock of
GenQuest for the purpose of determining the purchase price of such capital stock
increases ratably on a monthly basis, up to a maximum allocated price per share,
based on the length of time the right remains outstanding. The purchase price
initially allocated to the GenQuest Series B preferred stock is $1.00 per share
and increases by approximately $0.04 per month until the right is exercised, up
to a maximum of $2.00 per share. The purchase price allocated to the GenQuest
Series A preferred stock and common stock is equal to 66 2/3% of the purchase
price of the GenQuest Series B preferred stock. For example, if the Company were
to exercise such right on June 23, 1998, assuming the then-current fair market
value of the Common Stock is $13.00 per share and assuming no changes to
GenQuest's capitalization in the interim, the Company would be obligated to
issue an aggregate of approximately 4,063,460 shares of Common Stock in exchange
for such outstanding shares of GenQuest's capital stock, which amount would
represent beneficial ownership of approximately 27% of the Common Stock of the
Company (based upon 11,244,331 shares of Common Stock to be outstanding upon
completion of the Offering). Because the actual number of shares of Common Stock
that the Company is obligated to issue upon exercise of the right is dependent
upon the variables described above, the number of shares of Common Stock that
Corixa would be obligated to issue and the resulting dilution to existing
stockholders of
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Corixa may be substantially greater or less than that set forth in the example
above. As of the date of this Prospectus, Corixa has not made a decision as to
whether it will exercise this right. In connection with the relationship between
Corixa and GenQuest, Corixa issued warrants to purchase up to 454,533 shares in
the aggregate of Corixa's Series B Preferred Stock at an exercise price of $9.90
per share. The holders of such warrants or their transferees (subject to certain
conditions) are entitled to certain rights with respect to the registration of
the shares of Common Stock issuable upon exercise of such warrants. See "Certain
Transactions -- GenQuest, Inc." and "Description of Capital Stock."
CERTAIN LICENSE AGREEMENTS
The Company seeks to obtain technologies that complement and expand its
existing technology base. Where consistent with its strategy, the Company has
licensed and intends to continue to license product and marketing rights from
selected research and academic institutions in order to capitalize on the
capabilities and technology bases of these entities. Under these license
agreements, the Company generally seeks to obtain unrestricted sublicense rights
consistent with its partner-driven strategy. The Company is generally obligated
under these agreements to diligently pursue product development, make
development milestone payments and pay royalties on any product sales.
Agreements with Southern Research Institute
In May 1996, the Company entered into a license agreement with SRI. Under
the license agreement, SRI granted the Company an exclusive, worldwide,
sublicensable license (subject to the rights of certain United States
governmental agencies and a grant-back to SRI for non-commercial research
purposes) to certain polymer microsphere technology for use in the fields of
cancer and infectious disease, to the extent a product incorporates an antigen,
cytokine or adjuvant owned or controlled by Corixa. In addition, SRI granted the
Company options to exclusive, worldwide, sublicensable licenses in certain
autoimmune and viral disease fields. The Company paid up-front license fees upon
execution of the license agreement. The Company is also obligated to make future
payments upon the achievement of certain development milestones, as well as
royalty payments on any product sales, subject to an annual minimum royalty. In
addition, the Company issued SRI 15,151 shares of Common Stock upon execution of
the license agreement and a warrant exercisable for 7,575 shares for each grant
of sublicense rights to a third party, up to a maximum of 37,875 shares, and
7,575 shares for initiation of each Phase III clinical trial, up to a maximum of
37,875 shares. In April 1997, the parties amended the license agreement to
extend the Company's license in the field of cancer to include products that
incorporate third-party antigens or cytokines. The Company is obligated to share
revenues from such third-party sublicense agreements with SRI. The Company
issued SRI 4,545 shares of Common Stock upon the first anniversary of the
effective date of the license agreement. SRI may terminate the license agreement
in the event the Company fails to perform certain obligations under such
agreement.
Additionally, in January 1995, the Company entered into a research
agreement with SRI. Under the research agreement, the Company agreed to fund
certain research at SRI directed at the incorporation of the Company's
proprietary antigens and/or adjuvants with SRI's microsphere technology. Rights
to any related discoveries made or obtained during the funded research are
subject to the license agreement between SRI and Corixa. The Company is
obligated to provide funding to SRI under the research agreement through 1997.
Agreement with Dana-Farber Cancer Institute
In January 1995, Corixa entered into a licensing agreement with
Dana-Farber. Under the licensing agreement, Dana-Farber granted the Company an
exclusive, worldwide, sublicensable license (subject to the rights of certain
United States governmental agencies and a grant-back to Dana-Farber for
non-commercial research purposes) to certain microsphere technology related to
the induction of a CTL response for use in all fields. The Company paid up-front
license fees upon execution of the licensing agreement. The Company is also
obligated to make future payments upon the achievement of certain development
milestones, as well as royalty payments on any product sales, subject to an
annual minimum royalty. In addition, the Company issued Dana-Farber 15,151
shares of Common Stock upon execution of the licensing agreement and agreed to
issue an additional 15,151 shares of Common Stock upon issuance of the first
patent containing claims
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covering the licensed technology. The Company must meet certain performance
obligations in order to retain their rights under the licensing agreement.
Dana-Farber may terminate the licensing agreement in the event the Company does
not make required royalty payments or fails to perform certain obligations under
such agreement.
Agreement with the University of Pittsburgh
Corixa has an exclusive worldwide license to intellectual property
developed by a Corixa founder and consultant and the University of Pittsburgh
relating to the discovery and development of a Muc-1 peptide vaccine for use in
the diagnosis and therapy of cancer. Muc-1 is the name of a protein that is
present on the surface of ductal epithelial tissue cells. Epithelial cells are
located in tissues throughout the body, including lung, ovary, breast,
pancreatic, colon and prostate tissues. When expressed by a normal epithelial
cell, the portion of the Muc-1 protein outside the cell is covered with
carbohydrates, which serve to hide the underlying protein from the immune
system. When epithelial cells turn into epithelial cancer cells, the Muc-1
protein on the surface of such cells is only slightly covered with
carbohydrates. This allows T cells to recognize the underlying peptide sequence
of the Muc-1 protein. Work conducted by the Corixa founder and consultant at the
University of Pittsburgh confirmed that T cells obtained from cancer patients
specifically recognized a repetitive peptide sequence within Muc-1.
In an early safety trial conducted by the University of Pittsburgh pursuant
to a sponsored research arrangement between the University and the Company, a
total of 60 breast, pancreatic and colon cancer patients whose tumors expressed
the Muc-1 antigen received escalating doses of the Muc-1 peptide vaccine
formulated in a commercially available adjuvant. The clinical trial confirmed
that vaccination of cancer patients was well-tolerated. While the Company did
not observe a level of efficacy sufficient to support product development, it
has agreed to fund a limited second dose-ranging Phase I clinical trial to be
conducted at the University of Pittsburgh. In addition, the Company is aware of,
but not participating in or sponsoring, an early-stage clinical trial currently
being conducted in Germany. See "Risk Factors -- Uncertainties Related to
Technology and Product Development."
Agreement with Infectious Disease Research Institute
In September 1994, the Company entered into a research services and
intellectual property agreement with IDRI, a not-for-profit, grant-funded
private research institute. Under this agreement, as amended and restated
effective January 1997, the Company has agreed to provide IDRI with research
funding and certain administrative and facilities support, including use of the
Company's research laboratory space. IDRI pays a services fee for the
administrative and facilities support provided by the Company. The Company's
funded research performed by IDRI is in the area of infectious disease. Under
the agreement, IDRI is obligated to disclose to the Company all significant
developments relating to information or inventions discovered at IDRI, and the
Company will own, on a royalty-free basis, all of IDRI's interest in inventions
and patent rights arising out of IDRI's research during the term of the
agreement (other than inventions and patent rights arising out of research that
is or in the future may be funded by certain governmental or not-for-profit
organizations). With respect to such rights arising out of research funded by
governmental and not-for-profit organizations, the Company has been granted a
royalty-bearing, worldwide, perpetual license, exclusive except as to rights
held by such governmental or not-for-profit organizations.
IDRI is independent of the Company, and the Company does not have the right
to control or direct IDRI's activities. A majority of the members of IDRI's
board of directors are not affiliated with the Company. However, the Company's
Chief Scientific Officer is co-founder and a member of the board of directors of
IDRI. The Company's Chief Operating Officer is also a member of the board of
directors of IDRI and the Company's Vice President of Finance and Administration
is treasurer of IDRI.
The research services and intellectual property agreement terminates on
December 31, 1999, subject to renewal for one or more three year terms at the
option of the Company. If IDRI terminates the agreement as a result of the
Company's failure to make required payments, the Company would be obligated to
pay royalties on any product sales. See "Certain Transactions."
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Other License Agreements
Additionally, the Company is a party to certain other option or license
agreements useful in vaccine formulation and delivery with academic
institutions, including an exclusive license agreement with the University of
Washington for the use of Her-2/neu technology in all fields. The Company is
also a party to option or license agreements useful in its antigen discovery
program, including agreements with (i) Washington University in St. Louis,
Missouri for the use of mammaglobin, a breast cancer-related protein and genes
for prophylactic and therapeutic treatment of adenocarcinoma, (ii) Health
Research, Inc. for the use of a proprietary mouse model for all cancer fields,
and (iii) Mayo Foundation for Medical Education and Research for use of
tick-borne disease antigens. Certain of these agreements require the Company or
other parties to meet certain performance obligations in order to retain their
rights under such agreements or require the Company to make certain payments in
order to obtain or maintain rights to the subject technology.
CORIXA'S VACCINE ANTIGEN DISCOVERY METHODOLOGIES
Tumor Tissue Procurement and SCID Mouse Tumor Propagation. Corixa has
developed a variety of unique and proprietary resources that provide the Company
with sufficient tumor tissue to enable it to conduct the types of immunological
and molecular biological research it believes are necessary for antigen
discovery. Many scientific organizations, universities and pharmaceutical and
biotechnology companies are actively pursuing the identification of gene
products that are uniquely expressed in tumor tissue. Such gene products can
form the basis not only of vaccines, but also diagnostic and therapeutic product
development. Access to large amounts of tumor tissue is therefore one of the
keys to success in this area of research. Although many people in the United
States suffer from cancer, large quantities of tumor tissue are not readily
available due to increasing early detection. In order to gain access to
sufficient tumor tissue, the Company uses (i) agreements with multiple clinical
and academic centers in the United States and South America for provision of
tumor tissue, sera and lymphocytes obtained from cancer patients; and (ii) a
proprietary system for growing tumors of multiple types from primary biopsy
specimens in mice that are genetically pre-disposed to lack an immune system
(severe combined immune deficient ("SCID") mice). SCID mice lack an immune
response and therefore are incapable of rejecting transplanted human tumor
tissues. Tumors can be transplanted and grown in multiple numbers of SCID mice,
thereby providing a stable source of tumor tissue for use in antigen discovery.
In addition, small numbers of lymphocytes present in primary biopsy specimens
continue to grow within SCID mice transplanted with biopsy tumors, serving as a
reservoir for generation of tumor reactive T cell lines and clones as well as
antibody-producing B cells.
Differential Display. Corixa has used differential display techniques to
identify hundreds of gene sequences that are uniquely expressed or
over-expressed by tumors. This approach allows investigators to compare genes
that are expressed in different cell types simultaneously. In tumor antigen
discovery, cells are obtained from both tumor and normal tissue from individual
cancer patients. Messenger RNA (genetic information from genes that are
expressed) is prepared from both cell types and converted into DNA (called
"cDNA"). Multiple cDNA(s) are then separated from each other on the basis of
their size. Patterns of cDNA expression from tumor and normal cells are then
compared, leading to identification of cDNA(s) that are either uniquely
expressed or dramatically over-expressed in tumor cells. The sequence of nucleic
acids (the individual component molecules of DNA) in such cDNA(s) can be
determined and that information used to isolate genes from such cDNA. The
protein products of such genes then can be tested in laboratory experiments to
determine whether they can function as stimulators of immune responses in cancer
patients. Positive results from such studies indicate that such proteins are
good candidates for inclusion in tumor vaccines.
cDNA Subtraction. Corixa has used cDNA subtraction to identify genes that
are uniquely expressed or over-expressed by prostate tumors and prostate tissue.
cDNA subtraction is another molecular biology technique that allows
investigators to identify genes that are expressed in one type of tissue and not
expressed in another type of tissue. The technique takes advantage of the
ability of single strands of cDNA from identical or closely related genes to
bind to each other and form a complex. In tumor antigen discovery, cDNA(s)
(representing populations of expressed genes) obtained from normal tissue are
mixed with cDNA populations harvested from tumor tissue. cDNAs from genes that
are shared between both tissues form
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complexes and can be eliminated from further analysis. Remaining cDNA(s)
representing genes expressed only in tumor tissue or only in normal tissue then
can be separated and further analyzed. The goal of such experimentation is to
identify those genes that are expressed only in tumor cells. The protein
products of such genes then can be tested in laboratory experiments to determine
whether they can function as stimulators of immune responses in cancer patients.
Positive results from such studies indicate that such proteins are good
candidates for inclusion in tumor vaccines.
Expression Cloning. Corixa also uses expression cloning methods to identify
potential tumor antigens for incorporation into candidate tumor vaccines. The
Company has developed a number of proprietary improvements in expression cloning
technology. This mode of experimentation requires use of either antibodies or
immune T cells harvested from cancer or infectious disease patients. In
antibody-mediated expression cloning, genes from pathogenic organisms or tumors
are transferred into clones of bacteria in a system that will promote expression
of all transferred genes into corresponding proteins. Because of the bacteria's
rapid growth rate and capacity for protein production, pathogen or tumor
proteins are produced in significant quantity together with bacterial proteins.
These proteins are screened for their ability to react with antibody from either
pathogen-infected or cancer patients. The development of a positive
protein-antibody reaction indicates that the gene that encodes the antigen is
present in a single bacterial clone. Because CTL are felt to be extremely
important in mounting an effective immune response against tumors, tumor antigen
expression cloning studies focus on the use of CTL for discovery of antigens by
direct expression cloning. The Company has developed multiple tumor reactive CTL
lines and clones for such experimentation.
Pathogen Protein Purification. Corixa uses protein purification techniques
to obtain candidate antigens from specific pathogens. Proteins are prepared from
a given pathogenic organism and separated based on their physical
characteristics such as size, electric charge and shape. Individual proteins are
then tested for their ability to stimulate appropriate T-helper lymphocyte
responses in vitro. Lymphocytes used in this screening process are obtained from
individuals who are infected with the pathogen but lack evidence of disease
(i.e., immune patients). Proteins that trigger helper T cell responses are then
purified to homogeneity and their precise amino acid sequence is determined. The
amino acid sequence information is then used to isolate the gene that encodes
the particular protein.
Antigenic Peptide Stripping. Most cells in the human body express MHC
proteins on their surface. The same MHC proteins are expressed on the surface of
all tissue cells within a given individual. One function of MHC proteins is to
attract and bind small peptide antigens. The complex between such peptides and
MHC proteins serves as a site of immunologic recognition by T cells. Many
different types of tumor cells also express MHC proteins. Corixa uses a
combination of biochemical techniques to purify MHC proteins and remove
antigenic peptides from the region of the MHC protein where they are bound. Such
peptides can then be purified using sophisticated peptide separation techniques,
and the purified peptides can then be sequenced using mass spectroscopy.
Comparison of such sequences with sequences of proteins from normal cells can
lead to the identification of proteins or peptides that are produced only by
tumor cells. The same sequence information can then be used to isolate the gene
that encodes this putative "tumor antigen."
Immunological Characterization of Candidate Vaccine Antigens. The Company's
discovery techniques result in the cloning and characterization of multiple
genes for possible inclusion in tumor vaccines. A key component of Corixa's
antigen discovery technology is the ability to determine which of these gene
products can function as potent antigens for generating anti-tumor immune
responses. Once candidate antigen genes are identified, Corixa systematically
determines: (i) expression of the gene product by multiple tumors from different
individuals; (ii) expression of the gene product by primary as well as
metastatic tumor tissue; (iii) absence of expression of the gene product in
normal tissue; (iv) ability of the candidate tumor antigen to generate in vitro
immune responses from T cell populations harvested from tumor and normal
patients; (v) ability of the candidate tumor antigen to generate immune
responses in specially designed tumor models; and (vi) ability of T cells
stimulated by such antigens to mediate tumor regression in specially designed
tumor models. By such systematic evaluation of candidate antigens, Corixa is
able to determine and select which antigens are appropriate for microsphere
formulation and vaccine development.
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PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent and other proprietary protection for
the Company's vaccine and diagnostic products, antigens and adjuvants, defend
patents once obtained, preserve its trade secrets and operate without infringing
the patents and proprietary rights of third parties both in the United States
and in foreign countries. Where appropriate, the Company intends to seek patent
protection for its vaccine, discovery, screening, diagnostic and other
proprietary technologies by filing patent applications in the United States and
certain other countries. As of June 30, 1997, the Company owned or had licensed
eight issued United States patents that expire at various times between December
2008 and February 2014, 55 corresponding issued foreign patents, 76 pending
United States patent applications, as well as 19 corresponding international
filings under the Patent Cooperation Treaty and 111 pending foreign national
patent applications. The Company also holds an option to exclusively license
cancer vaccine antigens discovered by GenQuest through December 2001.
While the Company believes its patents and patent applications provide a
competitive advantage in its efforts to discover, develop and commercialize
useful vaccine and diagnostic products, antigens and adjuvants, the patent
positions of pharmaceutical and biopharmaceutical companies, including those of
the Company, are highly uncertain and involve complex legal and factual
questions for which important legal principles are unresolved. There can be no
assurance that the Company, its corporate partners or its licensors have or will
develop or obtain rights to products or processes that are patentable, that
patents will issue from any of the pending applications owned or licensed by the
Company or its corporate partners, that any claims allowed will issue, or in the
event of issuance, will be sufficient to protect the technology owned by or
licensed to the Company or its corporate partners. The Company has licensed
certain patent applications from SRI related to the Company's microsphere
encapsulation technology, one of which is currently the subject of an opposition
proceeding before the European Patent Office. There can be no assurance that SRI
will prevail in this opposition proceeding or that any patents will issue in
Europe related to such technology. There can also be no assurance that the
Company's or its corporate partners' current patents, or patents that issue on
pending applications, will not be challenged, invalidated, infringed or
circumvented, or that the rights granted thereunder will provide proprietary
protection or competitive advantages to Corixa. Patent applications in the
United States are maintained in secrecy until patents issue, patent applications
in certain foreign countries are not generally published until many months or
years after they are filed, and publication of technological developments in the
scientific and patent literature often occur long after the date of such
developments. Accordingly, the Company cannot be certain that it or one of its
corporate partners was the first to invent the subject matter covered by any
patent application or that it or one of its corporate partners was the first to
file a patent application for any such invention.
The commercial success of the Company depends significantly on its ability
to operate without infringing patents and proprietary rights of third parties,
and there can be no assurance that the Company's and its corporate partners'
technologies do not or will not infringe the patents or proprietary rights of
others. A number of pharmaceutical companies, biotechnology companies,
universities and research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the technologies
owned, optioned by or licensed to the Company or its corporate partners. In
addition, the Company is unable to determine the patents or patent applications
that may materially affect the Company's or its corporate partners' ability to
make, use or sell any products. The existence of third-party patent applications
and patents could significantly reduce the coverage of the patents owned,
optioned by or licensed to the Company or its corporate partners and limit the
ability of the Company or its corporate partners to obtain meaningful patent
protection. If patents containing competitive or conflicting claims are issued
to third parties, the Company or its corporate partners may be enjoined from
pursuing research, development or commercialization of products or be required
to obtain licenses to these patents or to develop or obtain alternative
technology. There can be no assurance that the Company or its corporate partners
will not be so enjoined or will be able to obtain any license to the patents and
technologies of third parties on acceptable terms, if at all, or will be able to
obtain or develop alternative technologies. If the Company or any of its
corporate partners is enjoined from pursuing its research, development or
commercialization activities or if any such license is or alternative
technologies are not obtained or developed, the Company or such corporate
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<PAGE> 46
partner may be delayed or prevented from commercializing its products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
There can be no assurance that third parties will not independently develop
similar or alternative technologies to those of the Company, duplicate any of
the technologies of the Company, its corporate partners or its licensors, or
design around the patented technologies developed by the Company, its corporate
partners or its licensors. The occurrence of any of these events would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Litigation may also be necessary to enforce patents issued or licensed to
the Company or its corporate partners or to determine the scope or validity of a
third party's proprietary rights. Corixa could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if Corixa participates in patent suits brought against or initiated by
its corporate partners or if Corixa initiates such suits, and there can be no
assurance that funds or resources would be available to the Company in the event
of any such litigation. Additionally, there can be no assurance that the Company
or its corporate partners would prevail in any such action. An adverse outcome
in litigation or an interference to determine priority or other proceeding in a
court or patent office could subject the Company to significant liabilities,
require disputed rights to be licensed from other parties or require the Company
or its corporate partners to cease using certain technology, any of which may
have a material adverse effect on the Company's business, financial condition
and results of operations.
Corixa also relies on trade secrets and proprietary know-how, especially in
circumstances where patent protection is not believed to be appropriate or
obtainable. The Company's policy is to require each of its employees,
consultants and advisors to execute a confidentiality agreement upon the
commencement of any employment, consulting or advisory relationship with the
Company. These agreements generally provide that all confidential information
developed or made known to the individual during the course of such relationship
will be kept confidential and not disclosed to third parties except in specified
circumstances. These agreements also generally provide that all inventions
conceived by the individual in the course of rendering services to the Company
shall be the exclusive property of the Company. There can be no assurance,
however, that these agreements will provide meaningful protection or adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently discovered by its competitors, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company is a party to various license agreements that give it rights to
use certain technologies in its research, development and commercialization
activities. Disputes may arise as to the inventorship and corresponding rights
in know-how and inventions resulting from the joint creation or use of
intellectual property by the Company and its corporate partners, licensors,
scientific collaborators and consultants. There can be no assurance that the
Company will be able to maintain its proprietary position or that third parties
will not circumvent any proprietary protection the Company does have. The
failure of the Company to maintain exclusive or other rights to such
technologies could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Dependence
on Proprietary Technology and Uncertainty of Patent Protection."
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the development, production and
marketing of any products developed by the Company or its corporate partners.
Pharmaceutical products and medical devices are subject to rigorous regulation
by the FDA in the United States and similar health authorities in foreign
countries under laws and regulations that govern, among other things, testing,
manufacturing, safety, efficacy, labeling, storage, record keeping, export and
promotion, marketing and distribution of such products. Product development and
approval within this regulatory framework is uncertain, can take a number of
years and requires the expenditure of substantial resources. Any failure to
obtain regulatory approval, or any delay in obtaining such approvals, could
adversely affect the marketing of products under development by the Company or
its corporate partners, the Company's ability to receive product or royalty
revenues, and its liquidity and capital resources.
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The nature and extent of the governmental premarket review process for the
Company's products will vary, depending on the regulatory categorization of
particular products. The Company believes that its vaccine and related
pharmaceutical products will be regulated as biologics by the FDA and comparable
regulatory bodies in other countries. The necessary steps before a new
biological product may be marketed in the United States ordinarily include: (i)
preclinical laboratory tests and in vivo preclinical studies; (ii) the
submission to the FDA of an investigational new drug application ("IND"), which
must become effective before clinical trials may commence; (iii) adequate and
well-controlled clinical trials to establish the safety and efficacy of the
product; (iv) the submission to the FDA of a product license application and
establishment license application ("PLA/ELA"); and (v) FDA review and approval
of the PLA/ELA prior to any commercial sale or shipment of the product.
Recently, the FDA has eliminated the separate ELA requirement for certain
categories of biotechnology products and has indicated that it intends to adopt
regulations permitting the premarket review of all biologics under a single
biologics license application. However, it is impossible predict when this new
procedure will become effective or its impact upon the regulatory review of the
Company's biological products.
Preclinical tests include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and efficacy of the product.
Preclinical tests must be conducted by laboratories that comply with FDA
regulations regarding good laboratory practices. The results of preclinical
tests, together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND, which must become effective before the
commencement of clinical trials. The IND will automatically become effective 30
days after receipt by the FDA unless the FDA indicates prior to the end of such
30-day period that the proposed protocol raises concerns that must be resolved
to the satisfaction of the FDA before the trials may proceed as outlined in the
IND. In such case, there can be no assurance that such resolution will be
achieved in a timely fashion, if at all. In addition, the FDA may impose a
clinical hold on an ongoing clinical trial, if, for example, safety concerns are
presented, in which case the study cannot recommence without FDA authorization
under terms sanctioned by the agency.
Clinical trials involve the administration of the product to healthy
volunteers or to patients under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with good clinical
practices under protocols that detail the objectives of the trial, inclusion and
exclusion criteria, the parameters to be used to monitor safety and the efficacy
criteria to be evaluated. Each protocol must be submitted to the FDA as part of
the IND. Further, each clinical trial must be reviewed and approved by an
independent institutional review board ("IRB") at the institutions at which the
trial will be conducted. The IRB will consider, among other things, ethical
factors and the safety of human subjects. The IRB may require changes in a
protocol, and there can be no assurance that the submission of an IND will
enable a study to be initiated or completed.
Clinical trials generally are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the product into
healthy human subjects or patients, the product is tested to assess safety,
metabolism, pharmacokinetics and pharmacological actions associated with
increasing doses. Phase II usually involves studies in a limited patient
population to (i) determine the efficacy of the potential product for specific,
targeted indications, (ii) determine dosage tolerance and optimum dosage and
(iii) further identify possible adverse reactions and safety risks. If a
compound is found to be effective and to have an acceptable safety profile in
Phase II evaluations, Phase III trials are undertaken to evaluate further
clinical efficacy and to test further for safety within a broader patient
population, generally at geographically dispersed clinical sites. There can be
no assurance that Phase I, Phase II or Phase III testing will be completed
successfully within any specific period of time, if at all, with respect to any
of the Company's products subject to such testing. In addition, after marketing
approval is granted, the FDA may require post-marketing clinical studies, which
typically entail extensive patient monitoring and may result in restricted
marketing of an approved product for an extended period of time.
The results of pharmaceutical development, preclinical studies and clinical
trials are submitted to the FDA in the form of a PLA/ELA for approval of the
manufacture, marketing and commercial shipment of the biological product. The
testing and approval process is likely to require substantial time, effort and
resources, and there can be no assurance that any approval will be granted on a
timely basis, if at all. The FDA may deny
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<PAGE> 48
the PLA/ELA if applicable regulatory criteria are not satisfied, require
additional testing or information, or require postmarket testing and
surveillance to monitor the safety or efficacy of the product.
Any diagnostic products developed by the Company or its corporate partners
are likely to be regulated as medical devices. In the United States, medical
devices are classified into one of three classes on the basis of the controls
deemed by the FDA to be necessary to reasonably ensure their safety and
effectiveness: Class I (general controls -- e.g., labeling, premarket
notification and adherence to GMP), Class II (general controls and special
controls -- e.g., performance standards and postmarket surveillance) and Class
III (premarket approval).
Before a new device can be introduced into the market, its manufacturer
generally must obtain marketing clearance through either a premarket clearance
under Section 510(k) of the federal Food, Drug and Cosmetic Act ("510(k)") or
approval of a premarket approval application ("PMA"). Because the Company
believes that any diagnostic device developed by it or its corporate partners
would be classified as a Class III device, such product would be subject to the
PMA approval requirement. A 510(k) clearance typically will be granted if a
company establishes that its device is "substantially equivalent" to a legally
marketed Class I or II medical device or to a Class III device for which the FDA
has not yet required the submission of PMAs. A 510(k) clearance must contain
information to support the claim of substantial equivalence, which may include
laboratory test results or the results of clinical studies. Commercial
distribution of a device subject to the 510(k) requirement may begin only after
the FDA issues an order finding the device to be substantially equivalent to a
predicate device. It generally takes from four to 12 months from the date of
submission to obtain clearance of a 510(k) submission, but it may take longer.
The FDA may determine that a proposed device is not substantially equivalent to
a legally marketed device, that additional information is needed before a
substantial equivalence determination may be made, or that the product may be
approved through the PMA process. An FDA determination of "not substantially
equivalent," a request for additional information, or the requirement of PMA
approval could delay marketed introduction of products that fall into this
category. Furthermore, for any devices cleared through the 510(k) process,
modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.
If a device does not qualify for the premarket notification procedure, a
company must file a PMA. The PMA requires more extensive pre-filing testing than
required for a 510(k) premarket notification and usually involves a
significantly longer review process. A PMA application must be supported by
valid scientific evidence that typically includes extensive data, including
preclinical and clinical trial data, to demonstrate that safety and efficacy of
the device. If clinical trials are required, and the device presents a
"significant risk," an investigation device exemption ("IDE") application must
be filed with the FDA and become effective prior to the commencement of clinical
trials. If the device presents a "nonsignificant risk" to trial subjects,
clinical trials may begin on the basis of appropriate IRB approval. Clinical
investigation of medical devices may involve risks similar to those involved in
the clinical investigation of pharmaceutical products.
The PMA application must contain the results of clinical trials and
nonclinical tests, a complete description of the device, and a detailed
description of the methods, facilities and controls used to manufacture the
device. The PMA review and approval process can be expensive, uncertain and
lengthy, and there can be no assurance that any approval will be granted on a
timely basis, if at all. A PMA application may be denied if applicable
regulatory criteria are not satisfied, and the FDA may impose certain conditions
upon the applicant, such as postmarket testing and surveillance.
Regulatory approval, if granted for any biopharmaceutical or medical device
product, may entail limitations on the indicated uses for which it may be
marketed, and product approvals, once granted, may be withdrawn if problems
occur after initial marketing. Manufacturers of FDA-regulated products are
subject to pervasive and continuing governmental regulation, including record
keeping requirements and reporting of adverse experiences associated with
product use. The Company and its corporate partners will be required to adhere
to applicable regulations setting forth detailed GMP requirements, which include
testing, control and documentation requirements. The FDA has recently issued
significant revisions to its medical device GMP regulations, and future changes
in regulatory regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. Manufacturing
facilities in the United
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States are subject to periodic inspection by the FDA Failure to comply with GMP
and other applicable regulatory requirements may result in, among other things,
warning letters, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to review pending marketing approval applications, withdrawal of marketing
approvals and criminal prosecution.
For clinical investigation and marketing of products outside the United
States, the Company and its corporate partners may be subject to regulation by
regulatory authorities in other countries. The requirements governing the
conduct of clinical trials, marketing authorization and pricing and
reimbursement vary widely from country to country. The regulatory approval
process in other countries entails risks similar to those associated with FDA
approval.
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for using,
handling, storing and disposing of such materials comply with the standard
prescribed by state and federal 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's use of these materials could be
curtailed by state or federal authorities, the Company could be held liable for
any damages that result and any liability could exceed the resources of the
Company. See "Risk Factors -- Government Regulation."
COMPETITION
The biotechnology and biopharmaceutical industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. Many entities, including pharmaceutical and biotechnology
companies, academic institutions and other research organizations are actively
engaged in the discovery, research and development of products that could
compete directly with products the Company is seeking to develop. Many companies
are also developing alternative therapies to treat cancer and infectious disease
and, in this regard, are competitive with the Company. Many of the entities
developing and marketing such competing products have significantly greater
financial resources and expertise in research and development, manufacturing,
preclinical testing, conducting clinical trials, obtaining regulatory approvals
and marketing than Corixa. In addition, many of these competitors have become
more active in seeking patent protection and licensing arrangements in
anticipation of collecting royalties for use of technology that they have
developed. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established
companies. These companies and institutions compete with the Company in
recruiting and retaining qualified scientific and management personnel, as well
as in acquiring technologies complementary to the Company's programs. The
Company's ability to compete effectively will depend on its ability to advance
its core technologies, license additional technology, maintain a proprietary
position in its technologies and products, obtain required government and other
public and private approvals on a timely basis, attract and retain key personnel
and enter into corporate partnerships that enable the Company and its corporate
partners to develop effective products that can be manufactured cost-effectively
and marketed successfully. The Company expects that competition among products
approved for sale will be based, among other things, on efficacy, reliability,
product safety, price and patent position. There can be no assurance that
competitors will not develop more effective or more affordable products, or
achieve earlier patent protection or product commercialization than the Company
or that such products will not render the Company's products obsolete. See "Risk
Factors -- Intense Competition."
EMPLOYEES
As of June 30, 1997, the Company employed 82 personnel, including 68 in
research and development (29 in antigen discovery, 18 in immunology, 11 in
vaccine research and 10 in research and development support) and 14 in
administration. Each of the Company's employees has signed a confidentiality
agreement and none are covered by a collective bargaining agreement. The Company
has never experienced employment-related work stoppages and considers its
employee relations to be good.
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PROPERTIES
Corixa maintains its headquarters in Seattle, Washington where it leases
approximately 35,416 square feet of laboratory, discovery, research and
development, manufacturing and general administration space. The lease for this
facility expires in January 2005, with an option to renew the lease for two
additional periods of five years each. As of June 30, 1997 the Company's monthly
rent was approximately $129,000. The Company believes that its existing
facilities are adequate to meet its immediate needs and that suitable additional
space will be available in the future on commercially reasonable terms as
needed.
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to any
material legal proceedings.
SCIENTIFIC COLLABORATORS
The Company has established a network of medical, clinical and scientific
advisors and collaborators to consult with the Company's scientists and to
advise the Company on its research and development program, the design of its
clinical trials and on other medical and scientific matters relating to the
Company's business. The Company's advisors and collaborators include the
following individuals:
Roberto Badaro, M.D. is an Associate Professor and Chief of the Infectious
Disease Research Unit at the Federal University of Bahia in Salvador, Bahia,
Brazil, and a Member of the Steering Committee of Integrated Chemotherapy and
Vaccine for Leishmaniasis for the World Health Organization in Geneva,
Switzerland. Dr. Badaro collaborates with the Company in a tuberculosis skin
testing program and a cancer-related tissue procurement program, each of which
is conducted in Brazil.
Martin Cheever, M.D. is a Professor of Medicine at the University of
Washington in Seattle, Washington and a co-founder of the Company. Dr. Cheever
collaborates with the Company in its research and development program focusing
on the use of Her-2/neu technology in vaccines for breast cancer. Dr. Cheever is
the inventor of Her-2/neu peptide-based vaccines for potential use in breast and
ovarian cancer.
Nora Disis, M.D. is an Assistant Professor of Medicine at the University of
Washington in Seattle, Washington. Dr. Disis collaborates with the Company in
its research and development program focusing on the use of Her-2/neu technology
in vaccines for breast cancer. Dr. Disis is the principal investigator on the
Phase I clinical trial currently being conducted by the Company and the
University of Washington using Her-2/neu peptide vaccines for breast cancer.
Olivera Finn, Ph.D. is a Professor of Molecular Genetics and Biochemistry
at the University of Pittsburgh School of Medicine, Director of the Immunology
Program at the University of Pittsburgh Cancer Institute in Pittsburgh,
Pennsylvania and a co-founder of the Company. Dr. Finn collaborates with the
Company in its research and development efforts focusing on the use of the Muc-1
peptide vaccine for the treatment of breast, pancreatic and colon cancer. Dr.
Finn is the inventor of the Muc-1 synthetic peptide vaccine that was the subject
of a Phase I clinical trial in breast, colon and pancreatic cancer recently
conducted by the University of Pittsburgh. Such vaccine is currently the subject
of a limited second dose-ranging clinical trial which is partly funded by the
Company and conducted by the University of Pittsburgh.
Paul Fisher, Ph.D. is a Director of Neuro-Oncology Research, Professor of
Clinical Pathology and a Chernow Research Scientist in the Departments of
Neurosurgery, Pathology, and Urology at the College of Physicians and Surgeons
of Columbia University in New York City, New York. Dr. Fisher is a member of the
board of directors of GenQuest and collaborates with the Company in its research
and development program focusing on the discovery and characterization of
cancer-related genes.
Richard Ostenson, M.D. is a Director of Research at Good Samaritan Cancer
Center. Dr. Ostenson collaborates with the Company in its vaccine development
program and supplies the Company with cancer cell lines and other materials used
in the Company's various research and development programs.
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David Persing, Ph.D., M.D. is an Associate Professor of Microbiology at the
Mayo Clinic's Department of Laboratory Medicine and Pathology in Rochester,
Minnesota. Dr. Persing collaborates with the Company in its tick-borne disease
programs.
Elizabeth Repasky, Ph.D. is a Cancer Research Scientist with Roswell Park
Cancer Institute in Buffalo, New York. Dr. Repasky collaborates with the Company
in its tumor antigen development program and has licensed certain rights to a
proprietary mouse model.
Kenneth Rock, M.D. is the Chairman of the Department of Pathology and a
Professor at the University of Massachusetts Medical Center in Worcester,
Massachusetts and a co-founder of the Company. Dr. Rock collaborates with the
Company in its research and development efforts focusing on the use of
microsphere delivery technology to stimulate a T cell response.
Thomas Tice, Ph.D. is the Director, Pharmaceutical Formulations Department
at SRI in Birmingham, Alabama. Dr. Tice collaborates with the Company in its
formulations of microsphere-encapsulated antigens for vaccine research.
James Watson, Ph.D. is the Scientific Director of the Genesis Research &
Development Corporation, Ltd. in Auckland, New Zealand. Dr. Watson collaborates
with the Company in its tuberculosis antigen discovery program and animal
testing.
The Company has entered into consulting or sponsored research agreements
with its principal advisors and collaborators. Each of the Company's advisors
and collaborators has also entered into a confidentiality and non-disclosure
agreement with the Company. These advisors and collaborators are generally
employed by employers other than the Company and may have commitments to or
consulting or advisory contracts with other entities that may limit their
availability to the Company. Although generally each advisor and collaborator
agrees not to perform services for another person or entity which would create a
conflict of interest with the individual's services for the Company, there can
be no assurance that such conflict will not arise.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company and their ages and positions as
of June 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- --------------------------------------------------
<S> <C> <C>
Steven Gillis, Ph.D. ........... 44 President, Chief Executive Officer and Director
Mark McDade..................... 42 Executive Vice President, Chief Operating Officer
and Director
Steven Reed, Ph.D. ............. 46 Executive Vice President and Chief Scientific
Officer
Kenneth Grabstein, Ph.D. ....... 46 Vice President and Director of Immunology
Michelle Burris................. 31 Vice President of Finance and Administration
Syamal Raychaudhuri, Ph.D. ..... 43 Vice President and Director of Vaccine Research
Joseph S. Lacob (1)............. 41 Chairman of the Board of Directors
Arnold L. Oronsky, Ph.D. (2).... 56 Director
Andrew E. Senyei, M.D.(1)(2).... 47 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
STEVEN GILLIS, PH.D. has served as President and Chief Executive Officer of
Corixa since 1994. From 1996 to the present, Dr. Gillis has also served as
Acting Chief Executive Officer and a director of GenQuest. Dr. Gillis was a
founder of Immunex Corporation ("Immunex"), a biotechnology company. From 1981
to 1994, Dr. Gillis served as Executive Vice President and Director of Research
and Development of Immunex, and from 1993 to 1994, served as Acting Chief
Executive Officer and Chairman of the Board of Immunex. From 1990 to 1994, Dr.
Gillis also served as President and Chief Executive Officer of Immunex Research
and Development Corporation, a wholly owned subsidiary of Immunex, and Chief
Scientific Officer of Immunex. In addition, Dr. Gillis is a director of
Micrologix Biotech, Inc. Dr. Gillis serves on the Scientific Advisory Board of
Medarex Corporation. Dr. Gillis graduated from Williams College with a B.A. in
Biology and English in 1975 and received his Ph.D. in Biological Sciences from
Dartmouth College in 1978.
MARK MCDADE has served as Executive Vice President and Chief Operating
Officer of Corixa since 1994. From 1996 to the present, Mr. McDade has also
served as Acting Vice President and a director of GenQuest. From 1993 to 1994,
Mr. McDade served as Chief Operating Officer of Boehringer Mannheim
Therapeutics, a pharmaceutical company, heading its worldwide pharmaceutical
operations. From 1991 to 1992, Mr. McDade was an independent consultant
providing business development and strategic consulting to a number of
biopharmaceutical and pharmaceutical companies. From 1983 to 1991, Mr. McDade
held various positions with Sandoz, Ltd., a pharmaceutical company. Mr. McDade
graduated from Dartmouth College with a B.A. in History in 1977 and received his
M.B.A. from Harvard University in 1984.
STEVEN REED, PH.D. has served as Executive Vice President and Chief
Scientific Officer of Corixa since 1994. From 1993 to the present, Dr. Reed has
served as an Associate Professor of Pathobiology at the University of
Washington. From 1993 to the present, he served as a director of IDRI, which he
founded. From 1984 to the present, Dr. Reed has served as a Professor (Adjunct)
of Medicine at the Cornell University Medical College. From 1984 to 1993, Dr.
Reed served as a Senior Scientist at the Seattle Biomedical Research Institute.
Dr. Reed graduated from Whitman College with a B.A. in Biology in 1973 and
received his Ph.D. in Microbiology from the University of Montana in 1979.
KENNETH GRABSTEIN, PH.D. has served as Vice President and Director of
Immunology of Corixa since 1994. From 1992 to 1994, Dr. Grabstein was Director
of Cellular Immunology and Director of the Flow Cytometry Facility at Immunex
Research and Development Corporation. From 1995 to the present, he has served as
Affiliate Investigator of the Clinical Research Division of the Fred Hutchinson
Cancer Research
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<PAGE> 53
Center. Dr. Grabstein graduated from the University of California, Berkeley with
a B.A. in Zoology in 1973 and received his Ph.D. in Immunology from the
University of California, Berkeley in 1982.
MICHELLE BURRIS has served as Vice President of Finance and Administration
of Corixa since February 1997. From 1996 to February 1997, she was Director of
Finance and Administration of Corixa. From 1995 to 1996, she was Controller at
Corixa. Ms. Burris held several finance and planning positions at The Boeing
Company, an aerospace company, most recently serving as Manager of Planning and
Performance from 1994 to 1995 and Manager of Operations Planning from 1992 to
1994. Ms. Burris graduated from George Mason University with a B.S. in Marketing
and Statistics in 1987 and received her M.B.A. from Seattle University in 1991.
SYAMAL RAYCHAUDHURI, PH.D. has served as Vice President of Corixa since
February 1997 and has served as Director of Vaccine Research since 1996. From
1993 to 1994, he was Director of Immunology for Actigen, Inc., a biotechnology
company, which was merged into Corixa in May 1996. From 1987 to 1993, he was a
Senior Scientist in the Department of Cellular Immunology of IDEC
Pharmaceuticals Corporation, a biopharmaceutical company. Dr. Raychaudhuri
graduated from the University of Calcutta with a B.S. in Chemistry in 1972 and
received his Ph.D. in Biochemistry from the University of Calcutta in 1980.
JOSEPH S. LACOB has served as Chairman of the Board of Corixa since 1994.
Mr. Lacob has been a general partner of Kleiner Perkins Caufield & Byers, a
venture capital firm, since 1992, and was a venture partner from 1987 to 1992.
Mr. Lacob serves as Chairman of the Board of three public companies, Cardima,
Inc., Cellpro and Microcide Pharmaceuticals, Inc., and a director of two
additional public companies, Heartport, Inc. and Pharmacyclics, Inc. Mr. Lacob
graduated from the University of California, Irvine in 1978 with a B.S. in
Biological Sciences and received his M.P.H. from the University of California,
Los Angeles in 1979. Mr. Lacob also received his M.B.A. from the Stanford
Graduate School of Business in 1983.
ARNOLD L. ORONSKY, PH.D. has served as a director of Corixa since 1994. He
is currently Chairman of the Board of Directors of Coulter Pharmaceuticals Inc.
("Coulter"), a biopharmaceutical company. From 1995 to 1996, Dr. Oronsky served
as President and Chief Executive Officer of Coulter. From 1994 to the present,
Dr. Oronsky has been a general partner at InterWest Partners, a venture capital
firm. From 1984 to 1994, Dr. Oronsky served as Vice President for Discovery
Research at Lederle Laboratories, a pharmaceutical division of American
Cyanamid, Inc., where he was responsible for the research of new drugs. Since
1988, Dr. Oronsky has served as a senior lecturer in the Department of Medicine
at Johns Hopkins Medical School. Dr. Oronsky graduated from University College,
New York University with a B.A. in History in 1962 and received his Ph.D. in
Biochemistry from Columbia University in 1968.
ANDREW E. SENYEI, M.D. has served as a director of Corixa since 1994. Dr.
Senyei has been a general partner of Enterprise Partners, a venture capital
firm, since 1988. Dr. Senyei was a founder of Molecular Biosystems, Inc. and,
prior to joining Enterprise Partners, was a practicing clinician and Adjunct
Associate Professor of Obstetrics, Gynecology and Pediatrics at the University
of California, Irvine. Dr. Senyei graduated from Occidental College with a B.A.
in Biology in 1972 and received his M.D. from Northwestern University in 1979.
The Board of Directors currently consists of five members. All directors
hold office until the next annual meeting of stockholders of the Company and
until their successors have been duly elected and qualified. The officers of the
Company are appointed annually and serve at the discretion of the Board of
Directors. There are no family relationships between any of the directors or
executive officers of the Company.
The Board of Directors designated a Compensation Committee (the
"Compensation Committee") in October 1994 to review and approve the compensation
and benefits for the Company's executive officers, administer the Company's
stock option plans and make recommendations to the Board of Directors regarding
such matters. The Compensation Committee is currently comprised of Mr. Lacob and
Dr. Senyei.
The Board of Directors designated an Audit Committee in December 1994 to
review the scope and results of financial audits and other services performed by
the Company's independent accountants and to make recommendations to the Board
of Directors regarding such matters. The Audit Committee is currently comprised
of Dr. Oronsky and Dr. Senyei.
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<PAGE> 54
Directors currently receive no cash fees for services provided in that
capacity. The Company has adopted the 1997 Directors' Stock Option Plan under
which current and future nonemployee directors will be eligible to receive stock
options in consideration for their services. See "-- Stock Option and Incentive
Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Except as set forth below and in "Certain Transactions," no interlocking
relationship exists between the Company's Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company, nor has any such interlocking relationship existed in the past.
Dr. Gillis is Acting Chief Executive Officer and a director of GenQuest and
Mr. McDade is Acting Vice President and a director of GenQuest. Dr. Reed and Mr.
McDade are directors of IDRI. While there is no specified amount of time that
Dr. Gillis and Mr. McDade are required to devote to their respective duties as
officers of GenQuest, the Company estimates that at the present time Dr. Gillis
and Mr. McDade each devote less then 20% of their respective time to such
duties. Neither Dr. Gillis nor Mr. McDade receive compensation from GenQuest in
connection with services they perform for GenQuest. See "Certain Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that a director of a corporation will not be personally liable for monetary
damages for breach of such individual's fiduciary duties as a director, except
for liability (i) for any breach of such director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law (the "DGCL"), or
(iv) for any transaction from which a director derives an improper personal
benefit. Delaware law does not eliminate a director's duty of care and this
provision has no effect on the availability of equitable remedies such as an
injunction or recission based upon a director's breach of the duty of care. In
addition, the Company has obtained an insurance policy providing coverage for
certain liabilities of its officers and directors.
The Company's Bylaws provide that the Company shall indemnify its directors
and may indemnify its officers, employees and other agents to the fullest extent
permitted by law. The Company believes that indemnification under its Bylaws
covers at least negligence and gross negligence on the part of an indemnified
party and permits the Company to advance expenses incurred by an indemnified
party in connection with the defense of any action or proceeding arising out of
such party's status or service as a director, officer, employee or other agent
of the Company upon an undertaking by such party to repay such advances if it is
ultimately determined that such party is not entitled to indemnification.
The Company has entered into separate indemnification agreements with each
of its directors and officers. These agreements require the Company, among other
things, to indemnify such director or officer against certain expenses
(including attorney's fees), judgments, fines and settlement amounts
(collectively, "Liabilities") paid by such individual in connection with any
action, suit or proceeding arising out of such individual's status or service as
a director or officer of the Company (subject to certain exceptions, including
Liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest or a violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) and to advance
expenses incurred by such individual in connection with any proceeding against
such individual with respect to which such individual may be entitled to
indemnification by the Company. The Company believes that its Restated
Certificate of Incorporation, Bylaw provisions and indemnification agreements
are necessary to attract and retain qualified persons as directors and officers.
The Company is not aware of any pending litigation or proceeding involving
any director, officer, employee or agent of the Company where indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
54
<PAGE> 55
EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid by the Company
during the fiscal year ended December 31, 1996 to the Company's Chief Executive
Officer and the Company's other executive officers whose total cash compensation
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996 ANNUAL COMPENSATION
------------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1)
------------------------------------------------------ --------- -----------
<S> <C> <C>
Steven Gillis, President.............................. $ 250,000 $ 20,000
Mark McDade, Executive Vice President................. 200,000 14,000
Steven Reed, Executive Vice President................. 147,000 7,000
Kenneth Grabstein, Vice President..................... 126,000 8,400
</TABLE>
- ---------------
(1) Bonus represents the amount actually paid to the employee in 1996, but
earned in the preceding year.
None of the Named Executive Officers were granted stock options or stock
appreciation rights during the fiscal year ended December 31, 1996. For option
holdings of the Named Executive Officers see "Principal Stockholders."
OPTION EXERCISES AND HOLDINGS
There were no option exercises by the Named Executive Officers during
fiscal 1996. The following table sets forth for each of the Named Executive
Officers certain information concerning the number of shares subject to both
exercisable and unexercisable stock options at December 31, 1996. Also reported
are values for "in-the-money" options that represent the positive spread between
the respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock as of December 31, 1996, as determined by
the Board of Directors.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR END(#)(1) AT FISCAL YEAR END($)(2)
--------------------- ------------------------
NAME VESTED UNVESTED VESTED UNVESTED
------------------------------ ------ -------- --------- ---------
<S> <C> <C> <C> <C>
Steven Gillis................. 17,297 34,217 $ 219,153 $ 433,529
Mark McDade................... 56,817 64,395 719,871 815,885
Steven Reed................... 1,894 5,681 23,997 71,978
Kenneth Grabstein............. -- -- -- --
</TABLE>
- ---------------
(1) Options granted under the 1994 Plan may be exercised immediately upon grant
and prior to full vesting, subject to the optionee's entering into a
restricted stock purchase agreement with the Company with respect to any
unvested shares. Under such agreement, the optionee grants the Company an
option to repurchase any unvested shares at their original purchase price in
the event the optionee's employment or consulting relationship with the
Company is terminated. The Company's right of repurchase lapses as the
shares vest in a series of equal quarterly or annual installments in
accordance with the vesting schedule of the exercised options.
(2) Calculated based on the initial public offering price of $13.00 per share
less the exercise price.
STOCK OPTION AND INCENTIVE PLANS
Amended and Restated 1994 Stock Option Plan
The 1994 Plan was originally adopted by the Board of Directors in October
1994 and approved by the stockholders in October 1995, amended and restated in
August 1996, which amendment and restatement was approved by the stockholders in
July 1997, and amended and restated again in July 1997, which amendment and
restatement was approved by the stockholders in September 1997. The 1994 Plan
provides for the grant to
55
<PAGE> 56
employees of the Company (including officers and employee directors) of
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") and for the grant of
nonstatutory stock options ("NSOs") and to employees, directors and consultants
of the Company. The 1994 Plan is administered by the Board of Directors or the
Compensation Committee (the "Administrator"). The maximum number of shares which
may be subject to options granted to any one employee under the 1994 Plan for
any fiscal year is 500,000.
The Administrator has the authority to grant ISOs to employees of the
Company and to grant NSOs to employees, directors and consultants of the
Company. The Administrator determines which individuals will be granted options
under the 1994 Plan and the terms of such options, including the exercise price,
the number of shares subject to such options, the maximum term for which such
options are to remain outstanding, the date upon which such options are to
become exercisable and the vesting schedule, if any, applicable to such options,
provided that the Administrator, in its discretion, may determine that an
optionee shall have the right to exercise some or all of his or her options,
including options which would not otherwise be exercisable. The exercise price
of all ISOs granted under the 1994 Plan must be at least equal to the fair
market value of the Common Stock of the Company on the date of grant. The
exercise price of all NSOs granted under the 1994 Plan must equal at least 85%
of the fair market value of the Common Stock on the date of grant. The exercise
price of any stock option granted to an optionee who owns stock representing
more than 10% of the voting power of the Company's outstanding capital stock (a
"10% Stockholder") must equal at least 110% of the fair market value of the
Common Stock on the date of grant. Payment of the exercise price may be made in
cash, by check, in the Administrator's discretion, by promissory note (for
optionees other than non-employee directors), in shares of properly registered
Common Stock (valued at the fair market value as of the exercise date of the
option) that meet certain holding requirements or, to the extent the option is
exercised for vested shares, through a special sale and remittance procedure
conducted by a Company-designated brokerage firm whereby the Company is paid
sufficient funds to cover the aggregate exercise price of the purchased shares
as well as all taxes that the Company would be required to withhold as a result
of such exercise.
The term of a stock option granted under the 1994 Plan may not exceed 10
years; provided, however, that the term of an ISO granted to a 10% Stockholder
may not exceed five years. No option may be transferred by the optionee other
than by will or the laws of descent and distribution, except that an NSO may be
assigned in accordance with the terms of a domestic relations judgment, decree
or order (substantially complying with the requirements of Section 414(p) of the
Code) conveying marital property rights to any spouse or former spouse of the
optionee pursuant to applicable state domestic relations laws, and provided that
the Administrator may, in its discretion, grant transferable NSOs pursuant to
stock option grants specifying (i) the manner in which such NSOs are
transferable and (ii) that any such transfer shall be subject to applicable
laws. Except as set forth in the foregoing sentence, each option may be
exercised during the lifetime of the optionee only by such optionee. To the
extent an optionee would have the right in any calendar year to exercise for the
first time one or more ISOs for shares having an aggregate fair market value
(under all plans of the Company and determined for each share as of the date the
option to purchase the share was granted) in excess of $100,000, any such excess
options shall be treated as NSOs. In the event of a proposed dissolution or
liquidation of the Company, the 1994 Plan requires that each outstanding option
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the change in
control. In the event of a proposed sale of all or substantially all of the
assets of the Company or the merger of the Company with or into another
corporation, (i) if the options are assumed or an equivalent option is
substituted, one half of the unvested portions of option grants shall be deemed
to have vested immediately prior to such sale or merger, (ii) if the options are
not assumed or an equivalent option is not substituted, all of the unvested
portions of option grants shall be deemed to have vested immediately prior to
such sale or merger, and (iii) if an executive officer of the Company is
terminated without cause within six months following the consummation of such
sale or merger, all of the entire unvested portion of option grants to such
executive officer shall be deemed to have vested and become fully exercisable
immediately prior to such termination. Upon the termination of an optionee's
employment or other relationship with the Company, such optionee will have a
limited time within which to exercise any outstanding options, which time period
will vary depending on the reason for termination. The Administrator has the
discretion to grant options that are exercisable for unvested shares of Common
Stock and, to the extent that an optionee holds options for such
56
<PAGE> 57
unvested shares of Common Stock upon termination, the Company will have the
right to repurchase any or all of the unvested shares at the per-share exercise
price paid by the optionee for the unvested shares.
As of September 15, 1997, options to purchase a total of 159,117 shares of
Common Stock had been exercised, options to purchase a total of 1,145,825 shares
at a weighted average exercise price of $0.72 per share were outstanding and an
aggregate of 706,039 shares remained available for future option grants under
the 1994 Plan. Pursuant to the July 1997 amendment to the 1994 Plan, the number
of authorized shares is subject to automatic increase, on the first trading day
of each of the ten calendar years beginning in 1998 and ending in 2007, in an
amount equal to three percent of the number of shares of Common Stock
outstanding on December 31 of the immediately preceding calendar year, up to a
maximum of 500,000 shares each year over the ten-year period.
The Board of Directors has the authority to amend the 1994 Plan as long as
such action does not adversely affect the rights and obligations with respect to
options or unvested stock issuances then outstanding under the 1994 Plan, and
provided further that stockholder approval is required to increase the number of
shares subject to the 1994 Plan (other than for permissible adjustments in the
event of certain changes in the Company's capitalization and as described
above), to materially modify the eligibility requirements for 1994 Plan
participation, or to materially increase the benefits accruing to participants
under the 1994 Plan. If not terminated earlier, the 1994 Plan will terminate in
2007.
1997 Employee Stock Purchase Plan
The Purchase Plan was adopted by the Board of Directors in July 1997 and
approved by the stockholders in September 1997. A total of 125,000 shares of
Common Stock has been reserved for issuance under the Purchase Plan. The
Purchase Plan, which is intended to qualify under Section 423 of the Code, will
be implemented by a series of offering periods of twelve months duration, with
new offering periods (other than the first offering period) commencing on or
about February 1 and August 1 of each year. Each offering period will consist of
two consecutive purchase periods of six months duration, with the last day of
such period being designated a purchase date. The initial offering period will
begin on the date of the Offering and will continue through July 31, 1998, with
the first purchase date occurring on January 31, 1998 and subsequent purchase
dates to occur every six months thereafter. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions, which may not
exceed 15% of an employee's compensation, at a price equal to the lower of 85%
of the fair market value of the Common Stock at the beginning of the offering
period and on the purchase date. If the fair market value of the Common Stock on
a purchase date is less than the fair market value at the beginning of the
offering period, a new twelve month offering period will automatically begin on
the first business day following the purchase date with a new fair market value.
The maximum number of shares an employee may purchase during each offering
period will be determined on the offering date by dividing $25,000 by the fair
market value of a share of the Company's Common Stock on the offering date
(subject to certain limitations imposed by the Code). Employees may end their
participation in an offering at any time during the offering period prior to the
purchase date, and participation ends automatically on termination of employment
with the Company. The Purchase Plan provides that in the event of a merger of
the Company with or into another corporation or a sale of substantially all of
the Company's assets, each right to purchase stock under the Purchase Plan will
be assumed or an equivalent right substituted by the successor corporation
unless the Board of Directors shortens the offering period so that employees'
rights to purchase stock under the Purchase Plan are exercised prior to the
merger or sale of assets. The number of authorized shares is subject to
automatic increase, on the first trading day of each of the 20 calendar years
beginning in 1998 and ending in 2017. If the number of shares reserved for
issuance at such time is less than one percent of the outstanding Common Stock,
then the number of shares reserved for issuance shall be increased until it
equals one percent of the outstanding Common Stock (up to a maximum of 125,000
in any calendar year), or such lower amount as determined by the Board of
Directors. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder. If not terminated earlier, the Purchase
Plan will terminate in 2017.
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<PAGE> 58
1997 Directors' Stock Option Plan
The Directors' Plan was adopted by the Board of Directors in July 1997 and
approved by the stockholders in September 1997. A total of 200,000 shares of
Common Stock has been reserved for issuance under the Directors' Plan. The
number of authorized shares is subject to automatic increase, on the first
trading day of each of the five calendar years beginning in 1998 and ending in
2002, in an amount equal to 50,000 shares of Common Stock or such lesser amount
as the Board of Directors may establish. The Directors' Plan provides for the
grant of NSOs to non-employee directors of the Company. The Directors' Plan is
designed to work automatically without administration; however, to the extent
administration is necessary, it will be performed by the Board of Directors. The
Directors' Plan provides that each person who is a non-employee director on the
date of the Offering and each person who first becomes a non-employee director
of the Company after the date of the Offering shall be granted NSOs to purchase
15,000 shares of Common Stock (the "First Option"). Thereafter, on the date of
each Annual Meeting of the Company's stockholders, commencing in 1998, each
non-employee director shall be automatically granted an additional option to
purchase 5,000 shares of Common Stock (a "Subsequent Option") if, on such date,
he or she shall have served on the Company's Board of Directors for at least six
months. The Directors' Plan provides that the First Option shall become
exercisable in installments as to 1/36th of the total number of shares subject
to the First Option each month after the date of grant of the First Option, and
each Subsequent Option shall become exercisable in installments as to
one-twelfth of the total number of shares subject to the Subsequent Option each
month after of the date of grant of that Subsequent Option. The exercise price
of all options granted under the Directors' Plan shall be equal to the fair
market value of the Company's Common Stock on the date of grant of the option.
Options granted under the Directors' Plan have a term of ten years. In the event
of the dissolution or liquidation of the Company, a sale of all or substantially
all of the assets of the Company, the merger of the Company with or into another
corporation in which the Company is not the surviving corporation or any other
capital reorganization in which more than 50% of the shares of the Company
entitled to vote are exchanged, each non-employee director shall have either (i)
a reasonable time within which to exercise the option, including any part of the
option that would not otherwise be exercisable, prior to the effectiveness of
such liquidation, dissolution, sale, merger, consolidation or reorganization, at
the end of which time the option shall terminate or (ii) the right to exercise
the option, including any part of the option that would not otherwise be
exercisable, or receive a substitute option with comparable terms as to an
equivalent number of shares of stock of the corporation succeeding the Company
or acquiring its business by reason of such liquidation, dissolution, sale,
merger, consolidation or reorganization. The Board of Directors may amend or
terminate the Directors' Plan; provided, however, that no such action may
adversely affect any outstanding options, and the provisions regarding the grant
of options under the Directors' Plan may be amended only once in any six-month
period, other than to comport with changes in the Employee Retirement Income
Security Act of 1974, as amended, or the Code. If not terminated earlier, the
Directors' Plan will have a term of ten years from the date of the Offering.
401(k) Plan
The Company has a tax-qualified employee savings and retirement plan (the
"401(k) Plan") covering all of the Company's employees. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($9,500 in 1997) and to have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan does not permit
matching contributions by the Company. The 401(k) Plan is intended to qualify
under Section 401 of the Code so that contributions by employees or by the
Company to the 401(k) Plan, and income earned on 401(k) Plan contributions, are
not taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by the Company, if any, will be deductible by the Company when
made. At the direction of each participant, the Company invests the assets of
the 401(k) Plan in any of five investment options.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Dr. Gillis,
Mr. McDade, Dr. Reed and Dr. Grabstein, effective as of September 30, 1994. All
of the agreements provide for employment
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<PAGE> 59
"at-will," do not provide for a specific term and can be terminated by either
the employee or the Company at any time, for any reason, with or without cause.
In addition, such agreements contain a non-competition provision. In the event
that any of the officers' employment agreements are terminated other than for
good cause (defined as gross misconduct or acts or omission that involve fraud,
embezzlement or misappropriation of property), such officer will be entitled to
receive his base salary and benefits for one year and to the continued vesting,
for such one-year period, of shares subject to those certain Stock Purchase
Agreements entered into between such officer and the Company. In connection with
their employment agreements, each of the above named officers has entered into a
proprietary information and inventions agreement with the Company.
The Company has also entered into arrangements with Dr. Raychaudhuri and
Ms. Burris effective as of October 25, 1994 and March 2, 1995, respectively,
which provide for employment "at-will," do not provide for a specific term and
can be terminated by either the employee or the Company at any time, for any
reason, with or without cause. In connection with their employment agreements,
Dr. Raychaudhuri and Ms. Burris have entered into proprietary information and
inventions agreements with the Company.
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<PAGE> 60
CERTAIN TRANSACTIONS
SALES OF EQUITY SECURITIES
Between September 23, 1994 and March 31, 1995, the Company issued an
aggregate of 4,646,131 shares of Series A Preferred Stock at a price per share
of $3.30. On May 10, 1996, the Company issued 505,050 shares of Series B
Preferred Stock at a price per share of $9.90. All of the Series A and Series B
Preferred Stock issued by the Company will convert into Common Stock on a
one-for-one basis upon the closing of the Offering.
Listed below are those directors, executive officers and five percent
stockholders who have made equity investments in the Company or who have been
issued warrants to purchase shares of the Company's Preferred Stock or Common
Stock during the last three fiscal years.
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING
PRE-OFFERING
-----------------------------------------------------------------------
SERIES A SERIES B COMMON
COMMON PREFERRED PREFERRED STOCK SERIES B AGGREGATE
INVESTOR(1) STOCK STOCK STOCK WARRANTS WARRANTS CONSIDERATION
- ------------------------------------------ ---------- --------- --------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with Kleiner Perkins
Caufield & Byers(2)..................... 1,114,293 1,350,550 -- -- -- $ 4,476,824
Entities affiliated with Enterprise
Partners................................ -- 1,287,878 -- 192,423 -- 4,250,635
Entities affiliated with InterWest
Investors............................... -- 1,212,120 -- 183,332 -- 4,000,605
Entities affiliated with Forward
Ventures(2)............................. 278,572 303,030 -- -- 64,098 1,005,000
Entities affiliated with Olympic Venture
Partners................................ -- 374,378 -- 37,436 -- 1,235,578
S.R. One, Limited......................... -- -- 505,050 -- -- 5,000,001
Steven Gillis............................. 272,727 -- -- -- -- 4,500
Mark McDade............................... 90,909 -- -- -- -- 1,500
Steven Reed............................... 216,361 -- -- -- -- 3,570
Kenneth Grabstein......................... 189,393 -- -- -- -- 3,125
Joseph S. Lacob(2)........................ 1,076,415 1,350,550 -- -- -- 4,476,824
Andrew E. Senyei.......................... -- 1,287,878 -- 192,423 -- 4,250,635
Syamal Raychaudhuri....................... 113,636 -- -- -- -- 1,875
Arnold L. Oronsky......................... -- 1,212,120 -- 183,332 -- 4,000,605
</TABLE>
- ---------------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Entities affiliated with Kleiner Perkins Caufield & Byers, a five percent
stockholder, contributed a total of 97,826 shares of Common Stock as a
capital contribution to the Company. Mr. Lacob, a director of the Company,
is a general partner of Kleiner Perkins Caufield & Byers. Entities
affiliated with Forward Ventures, a five percent stockholder, also
contributed 24,456 shares of Common Stock as a capital contribution to the
Company.
On May 10, 1996, the Company sold 505,050 shares of Series B Preferred
stock to S.R. One, Limited, a wholly owned subsidiary of SmithKline Beecham and
a five percent stockholder ("S.R. One"), for an aggregate purchase price of
$5,000,001. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Business -- Corporate Partnerships."
Holders of Preferred Stock and certain holders of Common Stock and Warrants
are entitled to certain registration rights with respect to the Common Stock
issued or issuable upon conversion thereof. See "Description of Capital
Stock -- Registration Rights."
GENQUEST, INC.
In connection with the amended license agreement with GenQuest entered into
in December 1996, the Company entered into a management services agreement under
which the Company will provide financial, legal, administrative, management and
related services to GenQuest. GenQuest will pay the Company a nominal management
fee and will reimburse the Company for its fully-burdened cost in providing such
services. Corixa's Chief Executive Officer, Chief Scientific Officer and Chief
Operating Officer are required to
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provide specific services to GenQuest under the management services agreement,
and other members of the Company's management team are required to provide
general support. The management services agreement terminates upon the earlier
of (i) 90 days following the expiration of the Company's right to purchase
substantially all of the outstanding shares of GenQuest's capital stock, as
described below, (ii) 90 days following the date the Company purchases
GenQuest's capital stock pursuant to such right, or (iii) at the option of
either Corixa or GenQuest, upon the termination of the amended license
agreement.
In February 1996, the Company acquired an aggregate of 4,412,613 shares of
Series A Preferred Stock of GenQuest, representing approximately 16% of
GenQuest's outstanding capital stock as of June 30, 1997. GenQuest has granted
Corixa certain demand and piggyback registration rights pertaining to GenQuest
common stock issuable upon conversion of the Series A Preferred Stock and a
right to participate in future issuances of stock to maintain the Company's
pro-rata ownership interest in GenQuest. Pursuant to a voting agreement entered
into in connection with the Company's purchase of Series A Preferred Stock, the
Company is entitled to designate two of the seven nominees to the board of
directors of GenQuest.
The Company and GenQuest have also entered into the Call Option Agreement
under which the Company has the right to purchase a significant majority of the
outstanding shares of GenQuest's capital stock in exchange for shares of the
Company's Common Stock at a purchase price determined in accordance with the
formula specified in the Call Option Agreement. The right becomes effective on
the earlier of (i) June 23, 1998, (ii) the completion of a 30-day trading period
following the Company's initial public offering during which the average closing
sale price of a share of the Company's Common Stock is at least $19.80, or (iii)
a merger of Corixa with another entity or a sale of substantially all of
Corixa's assets. Corixa's right to purchase the shares of GenQuest capital stock
terminates on the earlier of (i) January 23, 2000, (ii) the date that the
Company notifies GenQuest that it will not exercise its right, (iii) the closing
of the initial public offering of GenQuest, (iv) ten days following the
termination of the amended license agreement, or (v) ten days following a merger
of, a sale of assets by, or a change in control of Corixa. The number of shares
of Common Stock that Corixa is required to issue in order to exercise the right
is variable as the formula specified in the Call Option Agreement takes into
account the then-current fair market value of the Common Stock and the
capitalization of GenQuest as well as the date of exercise. Under this formula,
the value allocated to a share of Common Stock for the purpose of determining
the number of shares issuable upon exercise of this right is equal to the
greater of (i) the sum of $3.00 plus the quotient obtained by dividing the
difference between (a) the average closing sale price of a share of Common Stock
during the 30 trading days immediately prior to such exercise and (b) $3.00 by
2, and (ii) the product of the average closing sale price of a share of Common
Stock during the 30 trading days immediately prior to such exercise multiplied
by 0.7. The value allocated to the shares of the capital stock of GenQuest for
the purpose of determining the purchase price of such capital stock increases
ratably on a monthly basis, up to a maximum allocated price per share, based on
the length of time the right remains outstanding. The purchase price initially
allocated to the GenQuest Series B preferred stock is $1.00 per share and
increases by approximately $0.04 per month until the right is exercised, up to a
maximum of $2.00 per share. The purchase price allocated to the GenQuest Series
A preferred stock and common stock is equal to 66 2/3% of the purchase price of
the GenQuest Series B preferred stock. For example, if the Company were to
exercise such right on June 23, 1998, assuming the then-current fair market
value of the Common Stock is $13.00 per share and assuming no changes to
GenQuest's capitalization in the interim, the Company would be obligated to
issue an aggregate of approximately 4,063,460 shares of Common Stock in exchange
for such outstanding shares of GenQuest's capital stock, which amount would
represent beneficial ownership of approximately 27% of the Common Stock of the
Company (based upon 11,244,331 shares of Common Stock to be outstanding upon
completion of the Offering). Because the actual number of shares of Common Stock
that the Company is obligated to issue upon exercise of the right is dependent
upon the variables described above, the number of shares of Common Stock that
Corixa would be obligated to issue and the resulting dilution to existing
stockholders of Corixa may be substantially greater or less than that set forth
in the example above. As of the date of this Prospectus, Corixa has not made a
decision as to whether it will exercise this right. In connection with the
relationship between Corixa and GenQuest, Corixa issued warrants to purchase up
to 454,533 shares in the aggregate of Corixa's Series B Preferred Stock at an
exercise price of $9.90 per share. The holders of such warrants or their
transferees (subject to certain conditions) are entitled to
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certain rights with respect to the registration of the shares of Common Stock
issuable upon exercise of such warrants. See "Business -- Relationship with
GenQuest, Inc." and "Description of Capital Stock."
INFECTIOUS DISEASE RESEARCH INSTITUTE
In September 1994, the Company entered into a research services and
intellectual property agreement with IDRI, a not-for-profit, grant-funded
private research institute. Under this agreement, as amended and restated
effective January 1997, the Company has agreed to provide IDRI with research
funding and certain administrative and facilities support, including use of the
Company's research laboratory space. IDRI pays a services fee for the
administrative and facilities support provided by the Company. IDRI is
independent of the Company and the Company does not have the right to control or
direct IDRI's activities. Dr. Reed, the Company's Chief Scientific Officer, is
co-founder and a member of the board of directors of IDRI. Mr. McDade, the
Company's Chief Operating Officer, is also a member of the board of directors of
IDRI and Ms. Burris, the Company's Vice President of Finance and Administration,
is treasurer of IDRI. The agreement terminates on December 31, 1999, subject to
renewal for additional three-year terms at the option of the Company. If IDRI
terminates the agreement as a result of the Company's failure to make required
payments, the Company will be obligated to pay royalties on sales of
commercialized products, if any. See "Business -- Certain License Agreements."
CELLPRO, INCORPORATED
On November 1, 1995, the Company entered into a research collaboration and
license agreement with CellPro whereby CellPro will make payments to Corixa to
support research activities and the parties will grant licenses to the other.
The agreement was amended effective January 1997. Mr. Lacob, Chairman of the
Board of Directors of the Company, is also the Chairman of the Board of
Directors of CellPro. See "Business -- Corporate Partnerships."
INDEMNIFICATION AGREEMENTS
The Company has entered into an indemnification agreement with each of its
officers and directors.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested directors, and will continue to be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and will be made only for bona fide business
purposes.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of June 30, 1997, and as
adjusted to reflect the sale of shares of Common Stock offered hereby, as to (i)
each person (or group of affiliated persons) known by the Company to own
beneficially more than five percent of the Company's outstanding Common Stock,
(ii) each of the Company's directors, (iii) each of the Named Executive
Officers, and (iv) all current directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
PERCENT OF
SHARES BENEFICIALLY
OWNED(1)(2)
NUMBER OF -------------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- --------------------------------------------------------- ------------------- ----------- -----------
<S> <C> <C> <C>
Entities affiliated with
Kleiner Perkins Caufield & Byers(3).................... 2,464,843 29.9% 21.9%
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with
Enterprise Partners(4)................................. 1,480,301 18.0 13.2
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
Entities affiliated with
InterWest Investors(5)................................. 1,395,452 16.9 12.4
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
Entities affiliated with
Forward Ventures (6)................................... 645,700 7.7 5.7
9255 Towne Center Drive, Suite 300
San Diego, CA 92121
S.R. One, Limited........................................ 505,050 6.1 4.5
Bay Colony Executive Park
565 East Swedesford, Suite 315
Wayne, PA 19087
Entities affiliated with
Olympic Venture Partners(7)............................ 411,814 5.0 3.7
2420 Carillon Point
Kirkland, WA 98033
Steven Gillis, Ph.D.(8).................................. 341,412 4.1 3.0
Mark McDade(9)........................................... 229,292 2.7 2.0
Kenneth Grabstein, Ph.D.(10)............................. 206,564 2.5 1.8
Steven Reed, Ph.D.(11)................................... 197,169 2.4 1.8
Joseph S. Lacob(12)...................................... 2,426,965 29.4 21.6
Andrew E. Senyei, M.D.(4)................................ 1,480,301 18.0 13.2
Arnold L. Oronsky(5)..................................... 1,395,452 16.9 12.4
All directors and executive officers as a group (9 6,492,556 75.5 56.0
persons)(13)...........................................
</TABLE>
- ---------------
(1) Includes the number of shares and percentage ownership represented by such
shares determined to be beneficially owned by a person in accordance with
the rules of the Securities and Exchange Commission plus all additional
options and warrants to purchase Common Stock exercisable at any time after
60 days from June 30, 1997. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Such exercisable options are shown in the footnotes to this
table for each such person. To the Company's knowledge, the persons named
in this table have sole voting and investment power with respect to all
shares of Common Stock shown as owned by them, subject to community
property laws where applicable and except as indicated in the other
footnotes to this table.
(2) Based on 8,244,331 shares outstanding prior to the Offering and 11,244,331
shares outstanding after the Offering, and assuming no exercise of the
Underwriters' over-allotment option.
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(3) Includes 2,364,292 shares held by Kleiner Perkins Caufield & Byers VII,
62,673 shares held by Kleiner Perkins Caufield & Byers VI and 37,878 shares
held by Cynthia Healy, Director Life Science Research at Kleiner Perkins
Caufield & Byers. Joseph S. Lacob, the Chairman of Board of Directors, is a
general partner of Kleiner Perkins Caufield & Byers VII and Kleiner Perkins
Caufield & Byers VI, and, as such, may be deemed to share voting and
investment power with respect to such shares except for the shares held by
Dr. Healy. Mr. Lacob disclaims beneficial ownership of such shares, except
to the extent of his pecuniary interest in such shares.
(4) Includes 1,184,848 shares held by Enterprise Partners III, L.P., 103,030
shares held by Enterprise Partners III Associates, L.P. and 187,538 shares
issuable upon the net exercise of outstanding warrants held by entities
affiliated with Enterprise Partners exercisable within 60 days of June 30,
1997. Andrew E. Senyei, a Director, is a general partner of Enterprise
Partners III, L.P. and Enterprise Partners III Associates, and, as such,
may be deemed to share voting and investment power with respect to such
shares. Dr. Senyei disclaims beneficial ownership of such shares, except to
the extent of his pecuniary interest in such shares.
(5) Includes 1,204,545 shares held by InterWest Partners V, L.P., 7,575 shares
held by InterWest Investors V, L.P. and 178,677 shares issuable upon the
net exercise of outstanding warrants held by entities affiliated with
InterWest Investors within 60 days of June 30, 1997. Arnold L. Oronsky, a
Director, is a general partner of InterWest Partners V, L.P. and, as such,
may be deemed to share voting and investment power with respect to such
shares. Dr. Oronsky disclaims beneficial ownership of shares held by
InterWest Partners V, L.P., except to the extent of his pecuniary interest
in such shares, and disclaims beneficial ownership to all shares held by
InterWest Investors V, L.P.
(6) Includes 505,846 shares held by Forward Ventures II, L.P., 37,878 shares
held by the Royston Family Trust UTA DTD 2/12/82, whose co-trustee is Ivor
Royston, a general partner of Forward Ventures, 37,878 shares held by
Standish Fleming, a general partner of Forward Ventures and 64,098 shares
issuable upon the exercise of outstanding warrants held by individuals and
entities affiliated with Forward Ventures exercisable within 60 days of
June 30, 1997.
(7) Includes 355,660 shares held by Olympic Venture Partners III, 18,718 shares
held by OVP III Entrepreneurs Fund and 36,484 shares issuable upon the net
exercise of outstanding warrants held by entities affiliated with Olympic
Venture Partners exercisable within 60 days of June 30, 1997.
(8) Includes 68,685 shares issuable upon the exercise of outstanding options
held by Dr. Gillis exercisable within 60 days of June 30, 1997, at which
date 28,387 shares were fully vested.
(9) Includes 138,383 shares issuable upon the exercise of outstanding options
held by Mr. McDade exercisable within 60 days of June 30, 1997, at which
date 81,417 shares were fully vested.
(10) Includes 17,171 shares issuable upon the exercise of outstanding options
held by Dr. Grabstein exercisable within 60 days of June 30, 1997, at which
date 2,504 shares were fully vested.
(11) Includes 24,746 shares issuable upon the exercise of outstanding options
held by Dr. Reed exercisable within 60 days of June 30, 1997, at which
date, 5,660 shares were fully vested, and 15,151 shares held in the name of
Steven James N. Reed, UGMA WA Merrill Lynch and 15,151 shares held in the
name of Sarah Mariko Reed, UGMA WA Merrill Lynch, both of which accounts
Dr. Reed is custodian.
(12) Includes 2,364,292 shares held by Kleiner Perkins Caufield & Byers VII and
62,673 shares held by Kleiner Perkins Caufield & Byers VI. Mr. Lacob,
Chairman of the Board of Directors, is a general partner of Kleiner Perkins
Caufield & Byers VII and Kleiner Perkins Caufield & Byers VI, and, as such,
may be deemed to share voting and investment power with respect to such
shares. Mr. Lacob disclaims beneficial ownership of such shares, except to
the extent of his pecuniary interest in such shares.
(13) Includes shares referred to in footnotes (4)-(5) and (8)-(12). Also
includes 61,867 shares issuable upon the exercise of outstanding options
held by Michelle Burris, an executive officer of the Company, exercisable
within 60 days of June 30, 1997, at which date 13,707 shares were fully
vested, and 153,534 shares beneficially owned by Syamal Raychaudhuri, an
officer of the Company, which includes 39,898 shares issuable upon the
exercise of outstanding options held by Dr. Raychaudhuri exercisable within
60 days of June 30, 1997, at which date 15,508 shares were fully vested.
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DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, and after giving effect to the amendment
of the Company's Restated Certificate of Incorporation to delete references to
the Series A Preferred Stock and Series B Preferred Stock and to increase the
authorized number of shares of Common Stock, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.001 par value, and
10,000,000 shares of Preferred Stock, $0.001 par value.
The following summary of certain characteristics of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate of
Incorporation which is included as an exhibit to the Registration Statement of
which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of June 30, 1997, there were 8,244,331 shares of Common Stock
outstanding that were held of record by approximately 84 stockholders after
giving effect to the conversion of the Company's Series A and Series B Preferred
Stock into Common Stock at a one-to-one ratio and assuming the net exercise of
outstanding warrants for 445,139 shares of Common Stock. There will be
11,244,331 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option or exercise of outstanding options under the
1994 Plan after June 30, 1997) after giving effect to the sale of the shares of
Common Stock offered hereby. See "Management -- Stock Option and Incentive
Plans."
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior rights of Preferred
Stock, if any, then outstanding. Holders of Common Stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the holders of Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be issued upon completion of the Offering will be
fully paid and non-assessable.
PREFERRED STOCK
Pursuant to the Company's Restated Certificate of Incorporation, the Board
of Directors has the authority, without further action by the stockholders, to
issue up to 10,000,000 shares of Preferred Stock in one or more series. The
Board of Directors will have the authority to issue the undesignated Preferred
Stock and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated Preferred Stock, and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect the
voting and other rights of the holders of Common Stock. At the close of the
Offering, there will be no shares of Preferred Stock outstanding and the Company
currently has no plans to issue any shares of Preferred Stock.
WARRANTS
As of the date of this Prospectus, the Company has warrants outstanding
exercisable to purchase an aggregate of 527,533 shares of Common Stock, 195,454
shares of Series A Preferred Stock and 454,533 shares of Series B Preferred
Stock, each as described below.
In connection with the issuance of certain shares of Series A Preferred
Stock, the Company issued to the purchasers of such shares warrants to purchase
up to an aggregate of 413,191 shares of the Company's
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<PAGE> 66
Common Stock at an exercise price of $0.33 per share. The warrants expire in
December 2004 and January 2005.
In connection with a license agreement entered into in May 1996, the
Company issued the Southern Research Institute a warrant to purchase up to an
aggregate of 75,757 shares of Common Stock at an exercise price of $0.003 per
share. The warrant expires on May 22, 2006.
In connection with a facilities lease entered into in May 1996, the Company
issued to Health Science Properties, Inc. ("HSP"), John Teutsch and Robert
Mooney warrants to purchase up to an aggregate of 38,585 shares of Common Stock
at an exercise price of $6.60 per share. Messrs. Teutsch's and Mooney's warrants
expire on July 24, 2006 and HSP's warrants expire on May 10, 2008. HSP has
subsequently distributed such warrants to its shareholders.
In connection with a capital equipment lease entered into in December 1994,
the Company issued to Comdisco, Inc. a warrant to purchase up to an aggregate of
31,818 shares of the Company's Series A Preferred Stock. Upon the closing of the
Offering, such warrant will become a warrant exercisable to purchase the same
number of shares of Common Stock at an exercise price of $3.30 per share. The
warrant expires on the later of December 9, 2004 and five years after the
Company's initial public offering.
In connection with a license agreement entered into in January 1996, the
Company issued the Mayo Foundation for Medical Education and Research a warrant
to purchase up to an aggregate of 12,121 shares of the Company's Series A
Preferred Stock, subject to certain milestones. Upon the closing of the
Offering, the warrant will become a warrant exercisable to purchase the same
number of shares of Common Stock at an exercise price of $6.60 per share. The
warrant expires on January 1, 2006.
In connection with a license agreement entered into in April 1996, the
Company issued Vaxcel, Inc. a warrant to purchase up to an aggregate of 151,515
shares of the Company's Series A Preferred Stock, subject to certain milestones.
Upon the closing of the Offering, the warrant will become a warrant exercisable
to purchase the same number of shares of Common Stock at an exercise price of
$6.60 per share. The warrant expires upon the earlier to occur of (i) the
termination of the license agreement entered into in connection with the
issuance of the warrant and (ii) ten years from the date of execution of such
warrant.
In connection with the relationship between Corixa and GenQuest, the
Company issued warrants to purchase up to an aggregate of 454,533 shares of the
Company's Series B Preferred Stock an exercise price of $9.90 per share. The
warrants expire on the earlier of (i) December 23, 2001 or (ii) the closing of
the sale of the assets or capital stock of the Company.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 7,925,862 shares of Common Stock and certain holders of
warrants exercisable for up to 694,512 additional shares of Common Stock (the
"Registrable Securities") or their transferees (subject to certain conditions)
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. Of such holders, holders of 35,555 Registrable
Securities have certain rights to registration of such Registrable Securities in
the Offering. All such rights have been waived or have expired by reason of
lapse of time.
The registration rights are provided for under the terms of an amended and
restated investors' rights agreement (the "Rights Agreement") between the
Company and the holders of Registrable Securities. Certain holders of at least
40% of the Registrable Securities then outstanding may require, on two occasions
at any time after one year following the effective date of the Offering, that
the Company use its best efforts to register the Registrable Securities for
public resale; provided, among other limitations, that the proposed aggregate
selling price, prior to deductions for underwriting discounts and commissions,
is at least $5,000,000. The Company may delay such registration by up to 120
days for business reasons (but not more than once in any one-year period). If
the Company registers any of its Common Stock either for its own account or for
the account of other security holders, the holders of Registrable Securities are
entitled to include their shares of Common Stock in the registration. Generally
speaking, a holder's right to include shares in either a demand or piggyback
underwritten registration is subject to the ability of the underwriters to limit
the number of shares
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included in the offering. Certain holders of at least 20% of the Registrable
Securities then outstanding may also require the Company, on no more than one
occasion over any one-year period, to register all or a portion of their
Registrable Securities on Form S-3 when use of such form becomes available to
the Company, provided, among other limitations, that the proposed aggregate
selling price, prior to deductions for underwriting discounts and commissions,
is at least $500,000. The Company may delay such registration by up to 120 days
for business reasons. Subject to certain limitations contained in the Rights
Agreement, all fees, costs and expenses of registrations effected pursuant to
the Rights Agreement, excluding those incurred with respect to registrations on
Form S-3, must be borne by the Company, and all selling expenses (including
underwriting discounts and selling commissions) relating to Registrable
Securities must be borne by the holders of the securities being registered.
Subject to certain limitations contained in the Rights Agreement, all fees,
costs, and expenses (excluding selling expenses) for the first two registrations
on Form S-3 each year shall be borne by the Company and, thereafter, by the
holders of the securities being registered (including selling expenses).
ANTI-TAKEOVER EFFECTS OF DELAWARE AND WASHINGTON LAW
The Company is subject to the provisions of Section 203 of the DGCL. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder, unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such date,
the business combination is approved by the board of directors and authorized at
an annual or special meeting of stockholders (not by written consent), by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder.
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Additionally, the laws of the State of Washington, where the Company's
principal executive offices are located, impose restrictions on certain
transactions between certain foreign corporations and significant stockholders.
Chapter 23B.19 of the Washington Business Corporation Act (the "WBCA") prohibits
a "target corporation," with certain exceptions, from engaging in certain
"significant business transactions" with a person or group of persons who
beneficially own 10% or more of the voting securities of the target corporation
(an "acquiring person") for a period of five years after such acquisition,
unless the transaction or acquisition of such shares is approved by a majority
of the members of the target corporation's board of directors prior to the time
of acquisition. Such prohibited transactions include, among other things, a
merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person, termination of 5% or more
of the employees of the target corporation as a result of the acquiring person's
acquisition of 10% or more of the shares or allowing the acquiring person to
receive disproportionate benefit as a stockholder. After the five-year period, a
significant business transaction may take place as long as
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it complies with certain fair price provisions of the statute. A target
corporation includes a foreign corporation if (i) the corporation has a class of
voting stock registered pursuant to Section 12 or 15 of the Exchange Act, (ii)
the corporation's principal executive office is located in Washington, (iii) any
of (a) more than 10% of the corporation's stockholders of record are Washington
residents, (b) more than 10% of its shares are owned of record by Washington
residents, or (c) 1,000 or more of its stockholders of record are Washington
residents, (d) a majority of the corporation's employees are Washington
residents or more than 1,000 Washington residents are employees of the
corporation, and (e) a majority of the corporation's tangible assets are located
in Washington or the corporation has more than $50.0 million of tangible assets
located in Washington. A corporation may not "opt out" of this statute and,
therefore, the Company anticipates this statute will apply to it. Depending upon
whether the Company meets the definition of a target corporation, Chapter 23B.19
of the WBCA may have the effect of delaying, deferring or preventing a change in
control of the Company.
In addition, upon completion of the Offering, certain provisions of the
Company's charter documents, including a provision eliminating the ability of
stockholders to take actions by written consent, may have the effect of delaying
or preventing changes in control or management of the Company, which could have
an adverse effect on the market price of the Company's Common Stock. In the
event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Company's stock option and purchase plans generally provide for the acceleration
of one-half of the unvested portion of options in the event the successor
corporation assumes the option or grants an equivalent option and the
acceleration of all of the unvested portion of options in the event the
successor corporation does not assume the options or grant an equivalent option.
In addition, the Company's stock option and purchase plans allow an optionee, in
the discretion of the Board of Directors, to exercise some or all of the their
options, including non-vested shares, or to have the vesting of options
accelerated upon a change of control or similar event. The Board of Directors
has the authority to issue up to 10,000,000 shares of Preferred Stock and to fix
the rights, preferences, privileges and restrictions, including voting rights,
of these shares without any further vote or action by the stockholders. The
rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance of
such Preferred Stock could have a material adverse effect on the market value of
the Common Stock. The Company has no present plan to issue shares of Preferred
Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is The
Harris Trust Company. Its address is Suite 4900, 601 South Figueroa Street, Los
Angeles, California 90017 and its telephone number is (213) 239-0600.
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<PAGE> 69
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and based on the shares outstanding as of
June 30, 1997, the Company will have a total of 11,244,331 shares of Common
Stock outstanding (11,694,331 shares if the Underwriters' over-allotment options
are exercised in full), assuming the net exercise of outstanding warrants for
445,139 shares of Common Stock immediately upon the closing of the Offering, no
exercise of warrants for 694,512 shares, and no exercise of options after June
30, 1997. Of these shares, the 3,000,000 shares offered hereby (3,450,000 shares
if the Underwriters' over-allotment options are exercised in full) will be
freely tradable without restriction or registration under the Securities Act by
persons other than "affiliates" of the Company, as defined under the Securities
Act. The remaining 8,244,331 shares of Common Stock outstanding are Restricted
Shares.
The holders of 8,051,548 Restricted Shares, including all officers and
directors of the Company and certain other stockholders, are subject to
"lock-up" agreements with the Representatives of the Underwriters and/or the
Company providing that they will not offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of the shares of Common Stock owned by
them or that could be purchased by them through the exercise of options to
purchase Common Stock of the Company for a period of 180 days after the
effectiveness of the Registration Statement (the "Lockup Period") without the
prior written consent of Lehman Brothers Inc. on behalf of the Underwriters
and/or the Company, as applicable. The Company has agreed with the
Representatives of the Underwriters not to release any holders from such
agreements without the prior written consent of Lehman Brothers Inc. on behalf
of the Underwriters. Such lock-up agreements may be released at any time as to
any or all of the shares subject to such agreements at the sole discretion of
Lehman Brothers Inc. Of the 8,051,548 Restricted Shares that will first become
eligible for sale in the public market 180 days after the effectiveness of the
Registration Statement, 1,522,149 shares will be immediately eligible for sale
without restriction under Rule 144(k) or Rule 701, and 6,524,854 shares will be
immediately eligible for sale subject to certain volume and other restrictions
pursuant to Rule 144. As of 180 days after the effectiveness of the Registration
Statement, 163,357 shares of Common Stock will remain subject to the Company's
right of repurchase pursuant to stock purchase agreements and therefore will not
be available for sale under Rule 144 until such right of repurchase lapses.
Beginning immediately after the closing of the Offering, 12,593 shares will be
available for sale under Rule 144 upon the exercise of outstanding warrants, and
beginning 180 days after the closing of the Offering, an additional 681,919
shares will be available for sale under Rule 144 upon the exercise of warrants.
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year, including persons
who may be deemed to be "affiliates" of the Company, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 109,943 shares immediately after the
Offering); or (ii) the average weekly trading volume of the Common Stock as
reported through the Nasdaq National Market during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the Restricted Shares proposed to be
sold (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Subject to certain limitations on the aggregate offering price of a
transaction and certain other conditions, Rule 701 permits the resale of shares
issued prior to the date the issuer becomes subject to the reporting
requirements of the Exchange Act, pursuant to certain compensatory benefit plans
and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Exchange Act, in reliance upon Rule 144 but
without compliance with certain restrictions, including the holding period
requirements, contained in Rule 144. In addition, the Securities and Exchange
Commission (the "Commission") has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, as well as the shares acquired upon exercise
of such options
69
<PAGE> 70
(including exercises after the date of this Prospectus). Securities issued in
reliance on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
Prospectus, may be sold by persons other than affiliates subject only to the
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its two-year minimum holding period requirements.
The Company has also agreed not, directly or indirectly, to offer for sale,
sell, pledge or otherwise dispose of (or enter into transaction or device which
is designed to, or could be expected to, result in the disposition by any person
at any time in the future of) any shares of Common Stock (other than Common
Stock sold in the Offering and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans currently
existing or pursuant to currently outstanding contractual obligations, options,
warrants or rights), or sell or grant options, rights or warrants with respect
to any shares of Common Stock (other than the grant of options pursuant to
currently existing option plans or contractual obligations) for a period of 180
days after the effectiveness of the Registration Statement, without the prior
written consent of Lehman Brothers Inc.
After completion of this Offering, the Company intends to register on a
Form S-8 registration statement under the Securities Act, during the 180-day
lockup period, the resale of 1,893,653 shares of Common Stock issuable upon
exercise of outstanding options or reserved for issuance under the 1994 Plan,
200,000 shares of Common Stock reserved for issuance under the Directors' Plan
and 125,000 shares reserved for issuance under the Purchase Plan. Such
registration will permit the resale of shares so registered by non-affiliates in
the public market without restriction under the Securities Act upon expiration
of the Lockup Period.
In addition, beginning one year after the Offering, holders of 7,925,862
shares of Common Stock and holders of warrants to acquire 694,512 shares of
Common Stock may require the Company to register their shares of Common Stock
under the Securities Act, which would permit such holders to resell a certain
number of their shares without complying with Rule 144. Registration and sale of
such shares could have an adverse effect on the trading price of the Common
Stock. If the Company were to include in a Company-initiated registration any
Registrable Securities pursuant to the exercise of piggyback registration
rights, such sales could have an adverse effect on the Company's ability to
raise needed capital. See "Description of Capital Stock -- Registration Rights."
Prior to the Offering, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that the sale or
availability for shares of additional Common Stock will have on the trading
price of the Common Stock. Nevertheless, sales of a substantial number of such
shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its equity
securities. See "Risk Factors -- Shares Eligible for Future Sale" and
"Description of Capital Stock."
70
<PAGE> 71
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement, the Underwriters named below, for whom Lehman Brothers
Inc., Invemed Associates, Inc., Vector Securities International, Inc. are acting
as representatives (the "Representatives"), have severally agreed to purchase
from the Company, and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite the name of each
such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------ ---------
<S> <C>
Lehman Brothers Inc............................................... 772,000
Invemed Associates, Inc........................................... 586,000
Vector Securities International, Inc.............................. 586,000
Credit Suisse First Boston Corporation............................ 76,000
Deutsche Morgan Grenfell Inc. .................................... 76,000
Hambrecht & Quist LLC............................................. 76,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................ 76,000
Nationsbanc Montgomery Securities, Inc. .......................... 76,000
J.P. Morgan Securities Inc. ...................................... 76,000
Oppenheimer & Co., Inc. .......................................... 76,000
Prudential Securities Incorporated................................ 76,000
SBC Warburg Dillon Read Inc. ..................................... 76,000
UBS Securities LLC................................................ 76,000
Ragen MacKenzie Incorporated...................................... 76,000
Cowen & Company................................................... 44,000
Genesis Merchant Group Securities LLC............................. 44,000
Needham & Company, Inc. .......................................... 44,000
Raymond James & Associates, Inc. ................................. 44,000
Sands Brothers Co., Ltd. ......................................... 44,000
---------
Total................................................... 3,000,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page hereof, and to certain dealers at
such initial public offering price less a selling concession not in excess of
$0.53 per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain other Underwriters or to
certain other brokers or dealers. After the initial offering to the public, the
offering price and other selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions, including the condition that no stop order
suspending the effectiveness of the Registration Statement is in effect and no
proceedings for such purpose are pending or threatened by the Commission and
that there has been no material adverse change or any development involving a
prospective material adverse change in the condition of the Company from that
set forth in the Registration Statement otherwise than as set forth or
contemplated in this Prospectus, and that certain certificates, opinions and
letters have been received from the Company and its counsel and independent
auditors. The Underwriters are obligated to take and pay for all of the above
shares of Common Stock if any such shares are taken.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments that the Underwriters may be required to make in respect thereof.
71
<PAGE> 72
The Company has granted to the Underwriters an option to purchase up to an
additional 450,000 shares of Common Stock, exercisable solely to cover
over-allotments, at the initial public offering price less the underwriting
discounts and commissions shown on the cover page hereof. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that the option is exercised, each Underwriter will be
committed, subject to certain conditions, to purchase a number of the additional
shares of Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table.
The Representatives have informed the Company that they do not intend to
confirm sales of Common Stock offered hereby to any accounts over which they
exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price was negotiated by and among the Company
and the Representatives. The primary factors considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, were the Company's historical performance and capital
structure, estimates of business potential and earnings prospects of the
Company, an assessment of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. In addition, if the Representatives over-allot (i.e., if they sell
more shares of Common Stock than are set forth on the cover page of this
Prospectus), and thereby create a short position in the Common Stock in
connection with the Offering, the Representatives may reduce that short position
by purchasing Common Stock in the open market. The Representatives may also
elect to reduce any short position by exercising all or part of the
over-allotment option described herein.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the Offering. Neither the
Company nor any of the Underwriters makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the Common Stock. In addition, neither the Company nor
any of the Underwriters makes any representation that the Representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
At the request of the Company, the Underwriters have reserved up to 137,500
shares of Common Stock for sale at the initial public offering price to
officers, employees and certain other persons associated with the Company. The
number of shares available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby. Reserved shares purchased by
individuals will, except as restricted by applicable securities laws, be
available for resale following the Offering.
For a period of 180 days after the effectiveness of the Registration
Statement, without the prior written consent of Lehman Brothers Inc., and/or the
Company, as applicable, the Company and holders of 8,051,548 shares of Common
Stock have agreed not to offer, sell or contract to sell, pledge, grant any
option to purchase, make any short sale, pledge or otherwise dispose of,
directly or indirectly, any shares of Common Stock or securities exchangeable or
exercisable for or convertible into shares of, or any other rights to purchase
or acquire Common Stock of the Company other than issuances pursuant to existing
employee compensation plans, existing contractual obligations of the Company,
transfers that will not result in any change in beneficial
72
<PAGE> 73
ownership, including, but not limited to, pro rata partnership distributions and
transfers into trusts for the benefit of the original holder or members of the
original holder's immediate family, certain pledges, or transfers that
constitute bona fide gifts.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by its counsel, Venture Law Group, A Professional Corporation, 4750
Carillon Point, Kirkland, Washington 98033. Certain legal matters will be passed
upon for the Underwriters by Cooley Godward LLP, Five Palo Alto Square, 3000 El
Camino Real, Palo Alto, California 94306.
EXPERTS
The financial statements of Corixa Corporation, as of December 31, 1995 and
1996, and for each of the two years in the period ended December 31, 1996, and
for the period from September 8, 1994 (date of inception) to December 31, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of Corixa Corporation for the period from
September 8, 1994 (date of inception) to December 31, 1994 have been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1, of which this Prospectus constitutes a part, under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement and the exhibits and schedules filed
therewith for further information with respect to the Company and the Common
Stock offered hereby. Statements contained herein concerning the provisions of
any documents are not necessarily complete, and in each instance reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Registration Statement, including exhibits and schedules filed therewith,
may be inspected without charge at the principal office of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or at
the regional offices of the Commission located at Room 1400, 75 Park Place, New
York, New York 10007, and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates. The
Commission also maintains a site on the World Wide Web at http://www.sec.gov
where such materials may be obtained. The Company has filed the Registration
Statement, including the exhibits and schedules hereto, electronically with the
Commission via the Commissions' Electronic Data Gathering, Analysis, and
Retrieval ("EDGAR") system. The Company intends to distribute to its
stockholders annual reports containing audited financial statements examined by
an independent public accountant and will make available copies of quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
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<PAGE> 74
GLOSSARY OF SCIENTIFIC TERMS
ADJUVANT: a substance capable of non-specifically enhancing or boosting an
immune response.
ANTIBODY: a product of B cells that recognizes and attaches to antigens
thereby triggering the elimination of an invading pathogen.
ANTIGEN: a component of a pathogen consisting of a protein, peptide and/or
carbohydrate that is recognized by cells of the immune system.
ANTIGEN PRESENTING CELL ("APC"): a specialized immune system cell that
breaks down antigens and presents the component parts to T cells, thereby
initiating an immune response.
B LYMPHOCYTES ("B CELLS"): specialized immune system cells that produce
antibodies.
CYTOKINES: immune system hormones that serve to enhance or maintain
cellular and antibody-based immune responses.
CYTOTOXIC T LYMPHOCYTES ("CTL"): specialized T cells that have the ability
to recognize and kill pathogen-infected tissue or tumor cells.
HELPER T CELLS: specific antigen-reactive T cells that serve to enhance or
maintain immune response through the production of specific cytokines.
HER-2/NEU: a gene that is markedly over-expressed on the surface of
approximately 50% of breast and ovarian carcinomas.
LEISHMANIA ELONGATION INITIATING FACTOR ("LEIF"): a protein produced by the
parasite Leishmania that the Company has found to function as a potent adjuvant.
MICROSPHERES: synthetic microscopic particles that the Company uses to
encapsulate antigens for use in vaccines.
T LYMPHOCYTES ("T CELLS"): specialized immune system cells that generate a
cellular immune response against pathogens or tumor cells, including the
activation of antigen-reactive helper T cells and CTL.
TH1 RESPONSE: a particular type of helper T cell response that enhances the
generation and activation of CTL and leads to antibody production by B cells.
74
<PAGE> 75
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM SEPTEMBER 8, 1994
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1994
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Auditors.........................................F-2, F-3
Audited Financial Statements
Balance Sheets...............................................................F-4
Statements of Operations.....................................................F-5
Statements of Stockholders' Equity...........................................F-6
Statements of Cash Flows.....................................................F-7
Notes to Financial Statements................................................F-8
F-1
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Corixa Corporation
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Corixa Corporation (a development stage company) for
the period from September 8, 1994 (date of inception) to December 31, 1994.
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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and the cash flows of Corixa
Corporation for the period from September 8, 1994 (date of inception) to
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
April 28, 1995
F-2
<PAGE> 77
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Corixa Corporation
We have audited the accompanying balance sheets of Corixa Corporation (a
development stage company) as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1996 and for the period from
September 8, 1994 (date of inception) through 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 audit. The financial statements as of December 31, 1994, and for the period
from September 8, 1994 (date of inception) through December 31, 1994, were
audited by other auditors whose report dated April 28, 1995 expressed an
unqualified opinion on those statements. The financial statements for the period
from September 8, 1994 (date of inception) to December 31, 1994 included a
cumulative loss of $989,250. Our opinion on the statements of operations and
cash flows for the period from September 8, 1994 (date of inception) through
December 31, 1996, insofar as it relates to amounts for the period prior to
January 1, 1995, is based solely on the report of other auditors.
We conducted our audit 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 audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Corixa Corporation (a development stage company) at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1996 and for the
period from September 8, 1994 (date of inception) through December 31, 1996 in
conformity with generally accepted accounting principles.
Seattle, Washington
January 31, 1997,
except Footnote 11, as to which the date is
September 24, 1997
F-3
<PAGE> 78
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, JUNE 30,
------------------------- JUNE 30, 1997
1995 1996 1997 (NOTE 11)
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 3,003,938 $ 2,088,226 $ 295,251
Securities available-for-sale........................... 7,768,727 9,845,180 14,751,336
Accounts receivable (including $166,640 and $269,400
receivable from an affiliated company at December 31,
1996 and June 30, 1997, respectively)................ 52,119 687,048 415,737
Prepaid expenses........................................ 177,735 264,859 408,085
----------- ----------- -----------
Total current assets...................................... 11,002,519 12,885,313 15,870,409
Property and equipment, net............................... 1,269,068 2,237,196 3,917,132
Other assets, net......................................... 68,301 62,402 242,287
----------- ----------- -----------
Total assets.............................................. $12,339,888 $15,184,911 $20,029,828
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................ $ 570,109 $ 978,738 $ 918,673
Deferred revenue........................................ 412,917 1,318,130 1,345,102
Current portion of obligations.......................... 276,936 487,758 808,162
----------- ----------- -----------
Total current liabilities................................. 1,259,962 2,784,626 3,071,937
Long-term obligations, less current portion............... 815,888 1,175,354 5,085,823
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par value:
Authorized shares -- 23,100,000 (16,100,000
designated as Series A and 1,666,667 designated as
Series B); (10,000,000 pro forma)
Issued and outstanding Series A shares -- 4,646,131
(no shares pro forma) (aggregate liquidation
preference of $15,332,279 at December 31, 1996).... 4,646 4,646 4,646 --
Issued and outstanding Series B shares -- 505,050 (no
shares pro forma) (aggregate liquidation preference
of $5,000,001 at December 31, 1996)................ -- 505 505 --
Common stock, $0.001 par value:
Authorized shares -- 40,000,000
Issued and outstanding shares -- 2,492,811 at
December 31, 1995, 2,594,137 at December 31, 1996,
and 2,648,011 at June 30, 1997 (7,799,192 shares
pro forma)......................................... 2,493 2,594 2,648 7,799
Additional paid-in capital.............................. 15,382,893 21,655,080 25,623,952 25,623,952
Receivable for warrants................................. -- (1,140,000) (931,697) (931,697)
Deferred compensation................................... -- -- (3,532,585) (3,532,585)
Deficit accumulated during development stage............ (5,125,994) (9,297,894) (9,295,401) (9,295,401)
----------- ----------- ----------- -----------
Total stockholders' equity................................ 10,264,038 11,224,931 11,872,068 $11,872,068
===========
----------- ----------- -----------
Total liabilities and stockholders' equity................ $12,339,888 $15,184,911 $20,029,828
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 79
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
SEPTEMBER SEPTEMBER
8, 8,
1994 1994 PERIOD FROM
(DATE OF (DATE OF SEPTEMBER 8,
INCEPTION) INCEPTION) 1994
TO YEAR ENDED TO SIX MONTHS ENDED (DATE OF
DECEMBER DECEMBER 31, DECEMBER JUNE 30, INCEPTION) TO
31, ------------------------- 31, ------------------------- JUNE 30,
1994 1995 1996 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Collaborative
agreements.............. $ -- $ 2,410,834 $ 4,401,560 $ 6,812,394 $ 1,730,740 $ 6,939,588 $13,751,982
Government grants......... -- 304,029 1,402,979 1,707,008 626,743 553,571 2,260,579
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues.......... -- 2,714,863 5,804,539 8,519,402 2,357,483 7,493,159 16,012,561
Operating expenses:
Research and
development............. (438,783) (7,039,757) (9,994,796) (17,473,336) (4,708,234) (7,104,054) (24,577,390)
In-process research and
development............. (428,059) -- -- (428,059) -- -- (428,059)
General and
administrative.......... (205,533) (531,880) (780,904) (1,518,317) (438,359) (779,047) (2,297,364)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. (1,072,375) (7,571,637) (10,775,700) (19,419,712) (5,146,593) (7,883,101) (27,302,813)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations................ (1,072,375) (4,856,774) (4,971,161) (10,900,310) (2,789,110) (389,942) (11,290,252)
Interest income............. 83,125 772,426 642,011 1,497,562 279,910 390,652 1,888,214
Interest expense............ -- (82,024) (165,613) (247,637) (67,120) (155,571) (403,208)
Other income................ -- 16,399 348,000 364,399 174,000 187,274 551,673
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........... $ (989,250) $(4,149,973) $(4,146,763) $(9,285,986) $(2,402,320) $ 32,413 $(9,253,573)
=========== =========== =========== =========== =========== =========== ===========
Pro forma net income (loss)
per share (unaudited)..... $ (0.50) $ 0.00
=========== ===========
Shares used in computation
of pro forma net income
(loss) per share.......... 8,342,583 8,536,343
=========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 80
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DURING
------------------ ------------------ PAID-IN FOR DEFERRED DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS COMPENSATION STAGE TOTAL
--------- ------ --------- ------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock
to original
employees and
founders for
cash, at
$0.017 per
share........ -- $ -- 2,338,048 $2,338 $ 38,257 $ -- $ -- $ -- $ 40,595
Issuance of
common stock,
valued at
$0.017 per
share, in
business
combination... -- -- 115,863 116 1,796 -- -- -- 1,912
Issuance of
Series A
convertible
preferred
stock for
cash, at
$3.30 per
share........ 4,480,427 4,480 -- -- 14,780,975 -- -- -- 14,785,455
Issuance of
Series A
convertible
preferred
stock, valued
at $3.30 per
share, in
business
combination... 62,674 63 -- -- 206,761 -- -- -- 206,824
Issuance of
warrants, for
cash, to
purchase
common
stock........ -- -- -- -- 1,354 -- -- -- 1,354
Net unrealized
loss on
securities
available-for-
sale......... -- -- -- -- -- -- -- (9,208) (9,208)
Net loss for
the period
from
inception
through
December 31,
1994......... -- -- -- -- -- -- -- (989,250) (989,250)
--------- ------ --------- ------ ----------- ----------- ----------- ----------- -----------
Balance at
December 31,
1994........... 4,543,101 4,543 2,453,911 2,454 15,029,143 -- -- (998,458) 14,037,682
Issuance of
Series A
convertible
preferred
stock at
$3.30 per
share, for
cash......... 103,030 103 -- -- 339,897 -- -- -- 340,000
Issuance of
common stock,
valued at
$0.33 per
share, for
services..... -- -- 42,233 42 13,895 -- -- -- 13,937
Repurchase of
common stock
at $0.017 per
share........ -- -- (3,333) (3) (52) -- -- -- (55)
Issuance of
warrants, for
cash, to
purchase
common
stock........ -- -- -- -- 10 -- -- -- 10
Net unrealized
gain on
securities
available-for-
sale......... -- -- -- -- -- -- -- 22,437 22,437
Net loss for
the year
ended
December 31,
1995......... -- -- -- -- -- -- -- (4,149,973) (4,149,973)
--------- ------ --------- ------ ----------- ----------- ----------- ----------- -----------
Balance at
December 31,
1995........... 4,646,131 4,646 2,492,811 2,493 15,382,893 -- -- (5,125,994) 10,264,038
Issuance of
common stock,
valued at
$0.33 per
share, for
services..... -- -- 33,328 33 12,967 -- -- -- 13,000
Stock options
exercised.... 67,998 68 22,372 -- -- -- 22,440
Issuance of
Series B
convertible
preferred
stock for
cash, at
$9.90 per
share........ 505,050 505 -- -- 4,999,496 -- -- -- 5,000,001
Issuance of
Series A
convertible
preferred
stock and
common stock
warrants for
acquired
technology... -- -- -- -- 97,352 -- -- -- 97,352
Net unrealized
loss on
securities
available-for-
sale......... -- -- -- -- -- -- -- (25,137) (25,137)
Warrants issued
in exchange
for
receivable... 1,140,000 (1,140,000) -- -- --
Net loss for
the year
ended
December 31,
1996......... -- -- -- -- -- -- (4,146,763) (4,146,763)
--------- ------ --------- ------ ----------- ----------- ----------- ----------- -----------
Balance at
December 31,
1996........... 5,151,181 5,151 2,594,137 2,594 21,655,080 (1,140,000) -- (9,297,894) 11,224,931
Warrants
payment
received
(unaudited).. -- -- -- -- -- 208,303 -- -- 208,303
Stock options
exercised
(unaudited)... -- -- 49,329 49 27,586 -- -- -- 27,635
Issuance of
common stock,
valued at
$8.25 per
share for
services
(unaudited)... -- -- 4,545 5 37,491 -- -- -- 37,496
Net unrealized
loss on
securities
available-for-sale
(unaudited)... -- -- -- -- -- -- -- (29,920) (29,920)
Deferred
compensation
related to
stock option
grants
(unaudited)... -- -- -- -- 3,903,795 -- (3,903,795) -- --
Amortization of
deferred
compensation
(unaudited)... -- -- -- -- -- -- 371,210 -- 371,210
Net income for
the period
ended June
30, 1997
(unaudited)... -- -- -- -- -- -- -- 32,413 32,413
--------- ------ --------- ------ ----------- ----------- ----------- ----------- -----------
Balance at June
30, 1997
(unaudited).... 5,151,181 $5,151 2,648,011 $2,648 $25,623,952 $ (931,697) $(3,532,585) $(9,295,401) $11,872,068
========= ====== ========= ====== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 81
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM SIX MONTHS
SEPTEMBER 8, 1994 SEPTEMBER 8, 1994 ENDED JUNE
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, (DATE OF INCEPTION) 30,
TO DECEMBER 31, -------------------------- TO DECEMBER 31, ------------
1994 1995 1996 1996 1996
------------------- ----------- ------------ ------------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income....................... $ (989,250) $(4,149,973) $ (4,146,763) $ (9,285,986) $ (2,402,320)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 3,649 293,241 571,106 867,996 239,733
In-process research and development... 428,059 -- -- 428,059 --
Equity instruments granted in exchange
for services and technology......... -- 13,937 97,352 111,289 107,352
Amortization of deferred
compensation........................ -- -- -- -- --
Changes in certain assets and
liabilities:
Accounts receivable................. -- (52,119) (634,929) (687,048) 53,749
Interest receivable................. (158,923) 108,576 50,347 -- --
Prepaid expenses.................... (10,908) (165,262) (87,124) (263,294) (139,248)
Other assets........................ (54,967) 76,184 5,899 27,116 (27,063)
Accounts payable and accrued
expenses.......................... (68,050) 414,356 408,629 754,935 (65,909)
Deferred revenue.................... -- 412,917 905,213 1,318,130 408,333
------------ ----------- ----------- ------------ ------------
Net cash provided by (used in) operating
activities............................ (850,390) (3,048,143) (2,830,270) (6,728,803) (1,825,373)
INVESTING ACTIVITIES
Purchases of securities available-for-
sale.................................. (11,932,613) (5,222,538) (11,269,688) (28,424,839) (10,578,495)
Proceeds from maturities of securities
available-for-sale.................... -- 9,450,000 9,117,751 18,567,751 5,701,550
Purchases of property and equipment..... (27,367) (270,475) (543,619) (841,461) (114,907)
Cash acquired in acquisitions........... 29,939 -- -- 29,939 --
------------ ----------- ----------- ------------ ------------
Net cash provided by (used in) investing
activities............................ (11,930,041) 3,956,987 (2,695,556) (10,668,610) (4,991,852)
FINANCING ACTIVITIES
Proceeds from issuance of convertible
preferred stock....................... $ 14,785,455 $ 340,000 $ 5,000,001 $ 20,125,456 $ 5,000,001
Borrowings from collaborative
agreement............................. -- -- -- -- --
Proceeds from issuance of common
stock................................. 40,595 -- 35,440 76,035 440
Proceeds from issuance of warrants...... 1,354 10 -- 1,364 --
Repurchase of common stock.............. -- (55) -- (55) --
Principal payments on capital leases.... -- (151,355) (425,327) (576,682) (178,809)
Payments on notes due to stockholders... -- (140,479) -- (140,479) --
------------ ----------- ----------- ------------ ------------
Net cash provided by financing
activities............................ 14,827,404 48,121 4,610,114 19,485,639 4,821,632
Net increase (decrease) in cash and cash
equivalents........................... 2,046,973 956,965 (915,712) 2,088,226 (1,995,593)
Cash and cash equivalents at beginning
of period............................. -- 2,046,973 3,003,938 -- 3,003,938
------------ ----------- ----------- ------------ ------------
Cash and cash equivalents at end of
period................................ $ 2,046,973 $ 3,003,938 $ 2,088,226 $ 2,088,226 $ 1,008,345
============ =========== =========== ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
OPERATING, INVESTING, AND FINANCING
ACTIVITIES
Assets acquired pursuant to capital
leases.............................. $ -- $ 1,244,179 $ 995,615 $ 2,239,794 $ 549,162
Warrants and stock issued in exchange
for technology...................... -- -- 97,352 97,352 97,352
Interest paid......................... -- 82,024 165,613 247,637 67,120
<CAPTION>
PERIOD FROM
SEPTEMBER 8, 1994
(DATE OF INCEPTION)
1997 TO JUNE 30, 1997
----------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <<C> <C>
OPERATING ACTIVITIES
Net (loss) income....................... $ 32,413 $ (9,253,573)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 457,530 1,325,526
In-process research and development... -- 428,059
Equity instruments granted in exchange
for services and technology......... 245,784 357,073
Amortization of deferred
compensation........................ 371,210 371,210
Changes in certain assets and
liabilities:
Accounts receivable................. 271,311 (415,737)
Interest receivable................. -- --
Prepaid expenses.................... (143,226) (406,520)
Other assets........................ (471,325) (444,209)
Accounts payable and accrued
expenses.......................... (60,064) 694,871
Deferred revenue.................... 26,972 1,345,102
----------- ------------
Net cash provided by (used in) operating
activities............................ 730,605 (5,998,198)
INVESTING ACTIVITIES
Purchases of securities available-for-
sale.................................. (7,444,633) (35,869,472)
Proceeds from maturities of securities
available-for-sale.................... 2,800,000 21,367,751
Purchases of property and equipment..... (544,172) (1,385,633)
Cash acquired in acquisitions........... -- 29,939
----------- ------------
Net cash provided by (used in) investing
activities............................ (5,188,805) (15,857,415)
FINANCING ACTIVITIES
Proceeds from issuance of convertible
preferred stock....................... $ -- $ 20,125,456
Borrowings from collaborative
agreement............................. 3,000,000 3,000,000
Proceeds from issuance of common
stock................................. 27,648 103,683
Proceeds from issuance of warrants...... -- 1,364
Repurchase of common stock.............. -- (55)
Principal payments on capital leases.... (362,423) (939,105)
Payments on notes due to stockholders... -- (140,479)
----------- ------------
Net cash provided by financing
activities............................ 2,665,225 22,150,864
Net increase (decrease) in cash and cash
equivalents........................... (1,792,975) 295,251
Cash and cash equivalents at beginning
of period............................. 2,088,226 --
----------- ------------
Cash and cash equivalents at end of
period................................ $ 295,251 $ 295,251
=========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH
OPERATING, INVESTING, AND FINANCING
ACTIVITIES
Assets acquired pursuant to capital
leases.............................. $ 1,593,294 $ 3,833,088
Warrants and stock issued in exchange
for technology...................... 37,496 134,848
Interest paid......................... 155,571 403,208
</TABLE>
See accompanying notes.
F-7
<PAGE> 82
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1997 FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities
Corixa Corporation (the Company), a development stage company, is focused
on the discovery and early clinical development of vaccine products that induce
specific and potent pathogen- or tumor-reactive T lymphocyte (T cell) responses
for the treatment and prevention of cancers and certain infectious diseases. The
Company employs the following three proprietary core technology platforms, which
together comprise the elements the Company believes are necessary for effective
T cell vaccines: (i) microsphere delivery systems that specifically activate
appropriate T cell responses; (ii) adjuvants that specifically enhance
appropriate T cell responses; and (iii) disease-specific antigens that are
essential to elicit appropriate T cell responses. Principal activities to date
include conducting research and development, pursuing intellectual property
protection, entering into collaborative in- and out-licensing agreements,
raising capital, recruiting scientific and management personnel, and
establishing a research facility.
Interim Financial Information
The financial information at June 30, 1997 and for the six months ended
June 30, 1996 and 1997 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Operating results for the six months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the entire year.
Cash and Cash Equivalents
All short-term investments, which consist primarily of bankers' acceptances
and certificates of deposit, with maturities of three months or less at date of
purchase are considered to be cash equivalents. The amounts are recorded at
cost, which approximates fair market value.
Securities Available-for-Sale
The Company's investment portfolio is classified as available-for-sale, and
such securities are stated at fair value, with the unrealized gains and losses
reflected in stockholders' equity. Interest earned on securities is included in
interest income. The amortized cost of investments is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization and
accretions are included in interest income. The cost of securities sold is
calculated using the specific identification method.
Management of Credit Risk
The Company is subject to concentration of credit risk, primarily from its
cash investments. Credit risk for cash investments is managed by purchase of
investment grade securities and diversification of the investment portfolio
among issuers and maturities.
Property and Equipment
Property and equipment is stated at cost and is depreciated on the
straight-line method over the assets' estimated useful lives, which range from
three to four years. Leasehold improvements are amortized over the lesser of
their estimated useful lives or the term of the lease. Amortization of assets
recorded under capital leases is included in depreciation.
F-8
<PAGE> 83
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123). The Company has adopted the disclosure-only
provisions of Statement 123, and applies Accounting Principles Board Opinion No.
25 (APB 25) and related Interpretations in accounting for its stock option
plans. Accordingly, the Company's stock-based compensation expense is recognized
based on the intrinsic value of the option on the date of grant. Pro forma
disclosure of net loss and earnings per share under Statement 123 is provided in
Note 5 to the financial statements.
The Company records deferred compensation for the difference between the
exercise price and the deemed fair value for financial reporting purposes of
stock options granted. The compensation expense related to such grants is
amortized over the vesting period.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Other Financial Instruments
At December 31, 1996 and June 30, 1997, the carrying value of financial
instruments such as receivables and payables approximated their fair values,
based on the short-term maturities of these instruments. Additionally, the
carrying value of long-term liabilities approximated fair values because the
underlying interest rates reflect market rates at the balance sheet dates.
Investment in GenQuest
The Company's preferred stock investment in GenQuest, which constitutes
less than 20% of the voting stock of GenQuest, is accounted for using the cost
method. The carrying value of this investment is zero. See Note 9.
Revenues
Revenue under collaborative agreements typically consists of nonrefundable
up-front fees, ongoing research and development payments, and milestone and
royalty payments. Revenue from nonrefundable up-front fees is recognized upon
satisfaction of related obligations. Revenue from ongoing research and co-
development payments is recognized ratably over the term of the agreement, as
the Company believes such payments will approximate the research and development
expense being incurred associated with the agreement. Revenue from milestone,
royalty, and other contingent payments will be recognized as earned. Advance
payments received under any agreements in excess of amounts earned are recorded
as deferred revenue. Revenue under cost reimbursement contracts is recognized as
the related costs are incurred.
Research and Development Expenses
Research and development costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes using the liability method under
Statement of Accounting Standards No. 109, "Accounting for Income Taxes."
F-9
<PAGE> 84
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Historical and Pro Forma Net Income (Loss) Per Share
Historical net income (loss) per share is based on the weighted average
number of common and common equivalent shares outstanding during each period.
Common equivalent shares from preferred stock, stock options, and warrants are
not included in the per share calculation when the effect of their inclusion
would be antidilutive, except that, in accordance with Securities and Exchange
Commission requirements, for pro forma purposes, common and common equivalent
shares issued during the 12-month period immediately preceding the Company's
initial public offering have been included in the calculation as if they were
outstanding for all periods prior to the initial public offering using the
treasury stock method, even though their inclusion would be antidilutive. In
addition, for pro forma purposes, all outstanding shares of convertible
preferred stock are assumed to have been converted to common stock at the time
of issuance. Historical net loss per share for the periods ended December 31,
1996, 1995 and 1994 were $1.23, $1.24 and $0.30, respectively.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1996 presentation.
2. ACQUISITIONS
The Company acquired two companies in 1994. The acquisitions were accounted
for using the purchase method of accounting, whereby the purchase prices were
allocated to the assets acquired and liabilities assumed based on their relative
fair values. The excess of the cost over the fair value of net assets acquired
was accounted for as in-process research and development, which was expensed.
Iasys Corporation: In September 1994, the Company acquired all of the
outstanding common stock of Iasys Corporation (Iasys). The purchase price
consisted of 115,863 shares of the Company's common stock valued at an aggregate
of $1,912 and the assumption of certain liabilities principally related to
intellectual property and start-up costs approximating $200,300. These
liabilities were paid during 1994. In 1995, Iasys was merged into the Company.
Actigen, Inc.: In December 1994, the Company acquired all of the
outstanding common stock of Actigen, Inc. (Actigen). The purchase price
consisted of issuing 62,674 shares of the Company's Series A Preferred Stock
valued at an aggregate of $206,824, a note payable of $42,500, and the
assumption of certain liabilities approximating $121,500. The note payable was
repaid in 1995. In 1996, Actigen was merged into the Company.
The Company acquired all of the capital stock of Actigen and Iasys. In
conjunction with these acquisitions, assets acquired and liabilities assumed
were as follows:
<TABLE>
<S> <C>
Fair value of assets and research and development
acquired................................................ $573,018
Fair value of preferred stock issued...................... 206,824
Fair value of common stock issued......................... 1,912
Notes payable issued...................................... 42,500
Liabilities assumed....................................... 321,782
</TABLE>
F-10
<PAGE> 85
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
GROSS GROSS
MARKET UNREALIZED UNREALIZED AMORTIZED
VALUE GAINS LOSSES COST
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1995
U.S. Treasury obligations................ $ 7,768,727 $ 14,338 $ (1,109) $ 7,755,498
=========== ======= ======== ===========
December 31, 1996
U.S. Treasury obligations................ $ 9,845,180 $ 842 $ (12,750) $ 9,857,088
=========== ======= ======== ===========
June 30, 1997
U.S. Treasury obligations................ $14,751,336 $ 7 $ (41,835) $14,793,164
=========== ======= ======== ===========
</TABLE>
There were no realized gains or losses on sales of available-for-sale
securities for the years ended December 31, 1995 and 1996. All securities
available-for-sale mature within one year.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Laboratory equipment............................... $1,253,887 $2,088,170 $3,606,780
Computers.......................................... 170,188 370,471 500,909
Leasehold improvements............................. 124,272 628,940 1,114,263
----------- ---------- ----------
1,548,347 3,087,581 5,221,952
Accumulated depreciation and amortization.......... 279,279 850,385 1,304,820
----------- ---------- ----------
$1,269,068 $2,237,196 $3,917,132
=========== ========== ==========
</TABLE>
At December 31, 1996 and June 30, 1997, the Company held equipment under
capitalized leases with an original cost of $2,295,831 and $3,991,782,
respectively, and a net book value of $1,595,970 and $2,891,924, respectively.
These leases are secured by the underlying assets.
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Holders of shares of Series A Preferred Stock and Series B Preferred Stock
(Series A shares and Series B shares) are entitled to receive cash dividends at
the rate of $0.26 per share and $0.79 per share, respectively. Such dividends
shall be payable only when, as, and if declared by the Board and shall be
noncumulative. As of June 30, 1997, the Board has not declared any dividends.
Series A shares and Series B shares are entitled to equal votes with the
common stock on ordinary course matters and have the right to vote separately as
a single class on certain material events, and, at the option of the holder, may
be converted at any time into common stock. The conversion ratios at December
31, 1996 and June 30, 1997 were 1-for-1. The conversion rate may be adjusted
from time to time, based on provisions included in the Company's Amended and
Restated Certificate of Incorporation. Each Series A share and Series B share
shall be converted into shares of common stock, based on the then-effective
respective conversion prices of the Series A shares and Series B shares,
automatically upon the closing of a firmly underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933,
F-11
<PAGE> 86
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
as amended, covering the offer and sale of Common Stock for the account of the
Company in which the per share price is at least $23.10 and the gross cash
proceeds to the Company are at least $10,000,000, or upon the consent of a
majority of the holders of such shares, which consent the Company has solicited
and received; see Note 11.
Series A shares and B shares also have preferential liquidation rights over
common stock. In the event of liquidation, holders of Series A shares shall be
entitled to be paid out of the assets of the Company an amount per share equal
to the sum of $3.30 per share, plus all declared and unpaid dividends, if any.
After the payment of the full liquidation preference of the Series A shares, the
holders of Series B shares shall be entitled to be paid out of the assets of the
Company legally available for distribution, an amount per share equal to the sum
of $9.90 per share plus all declared and unpaid dividends on such shares. Any
remaining assets of the Company shall be distributed ratably to the holders of
the common stock, Series A shares, and Series B shares, up to an aggregate of
$9.90 per common share and $29.70 per share for Series A shares and Series B
shares, respectively, on an as if converted to common stock basis.
Stock Option Plan
The Company has a stock option plan under which an aggregate of 1,310,981
shares of common stock were reserved for grants to employees, members of the
Board of Directors, and consultants. Options granted under this plan may be
designated as incentive or nonqualified at the discretion of the Plan
Administrator. Refer to Note 11 for the July 1997 amendment to the Plan.
Generally, the options vest over a four-year period with 25% vesting in the
first year and the remainder vesting monthly thereafter. All options expire no
later than ten years from the date of grant. Incentive stock options are
exercisable at not less than the fair market value of the stock at the date of
grant, and nonqualified stock options are exercisable at prices determined at
the discretion of the Plan Administrator, but not less than 85% of the fair
market value of the stock at the date of grant. The Plan allows option holders
to exercise options prior to vesting, but the stock received is subject to
repurchase by the Company at the original purchase price in the event of
termination. The repurchase rights expire according to the original option
vesting terms.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES UNDER AVERAGE
OUTSTANDING PRICE PER EXERCISE
OPTIONS SHARE PRICE
-------------- ---------- --------
<S> <C> <C> <C>
Options granted..................... 167,127 $ 0.33 $ 0.33
--------- --------- ------
Balance at December 31, 1994.......... 167,127 0.33 0.33
Options granted..................... 341,643 0.33 0.33
Options canceled.................... (11,969) 0.33 0.33
--------- --------- ------
Balance at December 31, 1995.......... 496,801 0.33 0.33
Options granted..................... 182,413 0.33-0.99 0.58
Options exercised................... (67,999) 0.33 0.33
Options canceled.................... (6,090) 0.33-0.99 0.38
--------- --------- ------
Balance at December 31, 1996.......... 605,125 0.33-0.99 0.40
Options granted (unaudited)......... 645,004 0.99 0.99
Options exercised (unaudited)....... (49,329) 0.33-0.99 0.56
Options canceled (unaudited)........ (13,186) 0.33-0.99 0.50
--------- --------- ------
Balance at June 30, 1997
(unaudited)......................... 1,187,614 0.33-0.99 0.71
========= ========= ======
</TABLE>
F-12
<PAGE> 87
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred compensation of approximately $3.9 million was recorded during the
six months ended June 30, 1997 representing the difference between the exercise
prices of options granted during that period and the deemed fair market value.
Options considered fully vested as of December 31, 1995, 1996, and June 30,
1997 were 48,048, 246,806, and 378,334, respectively, at weighted average
exercise prices of $0.33, $0.34, and $0.41, respectively. Options exercised as
of December 31, 1996 and June 30, 1997 for which the underlying stock continues
to be restricted amounted to 34,281 and 56,969, respectively. The weighted
average remaining contractual life of the outstanding options at December 31,
1995 and 1996 was 9.3 years and 8.6 years, respectively. At December 31, 1996
and June 30, 1997, options for 637,857 shares and 6,039 shares, respectively,
remain available for grant.
The weighted average fair value of options granted during 1995 and 1996 was
$0.11 and $0.17 per option, respectively.
Pro forma information regarding net income and earnings per share required
by Statement 123 has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions on the
option grant date: risk-free interest rates of 6.3% to 6.5%, expected volatility
of 0.0%, expected option life of four years, and a dividend yield of 0.0%
Under Statement 123, if the Company had elected to recognize the
compensation cost based upon the fair value of the options granted at the grant
date, net income would have been reduced as follows (the estimated fair value of
the options is amortized to expense over the options' vesting period or upon the
achievement of certain milestones):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net loss:
As reported............................. $(4,149,973) $(4,146,763)
Pro forma............................... $(4,158,556) $(4,170,558)
Net loss per share:
As reported............................. $(1.24) $(1.23)
Pro forma............................... $(1.24) $(1.24)
</TABLE>
The Statement 123 pro forma disclosures above are not necessarily
indicative of future pro forma disclosures because of the manner in which
Statement 123 calculations are phased in over time.
Stock Warrants
In connection with sales of Series A shares in 1995 and 1994, the Company
issued stock warrants to certain stockholders at an aggregate purchase price of
$0.003 per share to purchase 413,191 shares of common stock at an exercise price
of $0.33 per share. These warrants expire in 2004 and 2005.
During 1996, the Company issued warrants to purchase 114,342 shares of
common stock at exercise prices ranging from $0.003 to $6.60 per share and
163,636 Series A shares at an exercise price of $6.60 per share. These warrants
were issued in connection with certain collaborative agreements and the leasing
of office and research facilities. The weighted average grant-date fair value
ranged from $0.99 to negligible per share, and negligible per share for common
stock and Series A shares, respectively. Vesting of 75,757 warrants to purchase
common stock and 163,636 warrants to purchase Series A shares is contingent upon
the achievement of certain milestones. The Company has recognized research and
development expense for the calculated fair
F-13
<PAGE> 88
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value of those warrants (warrants to purchase 61,321 and 42,424 common shares
and Series A shares, respectively) for which milestone achievement was deemed
probable by management at December 31, 1996. Final valuation will be calculated
at the actual achievement of these milestones based on the fair value of the
underlying stock at that date.
Warrants to purchase 31,818 shares of Series A Preferred Stock were issued
in 1994. (See Note 7.) Warrants to purchase 454,533 shares of Series B Preferred
Stock were issued in 1996. (See Note 9.)
Total common stock, Series A share and Series B share warrants outstanding
at December 31, 1996 and June 30, 1997 were 527,533, 195,454, and 454,533,
respectively, at weighted average exercise prices of $2.24, $6.07, and $9.90 per
share, respectively.
Stock Repurchase Agreements
Since its inception, the Company has sold approximately 945,185 shares of
common stock at a price of $0.017 per share to employees and scientific founders
of the Company under agreements which allow the Company, at its option, to
repurchase the shares at the original purchase price if the employment or
consulting relationship with the Company ceases for any reason. Under the
repurchase agreements, the shares subject to repurchase are generally reduced in
cumulative pro rata increments over a four-year period beginning at the issuance
date. As of December 31, 1996 and June 30, 1997, 413,516 shares and 295,369
shares, respectively, were subject to repurchase.
Under the terms of all of the repurchase agreements, if the Company is
acquired by merger, consolidation, or sale of assets, the repurchase agreements
will cease to apply.
Shares Reserved
Common stock was reserved for the following purposes:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
<S> <C> <C>
Conversion of preferred stock............................. 5,151,181 5,151,181
Warrants to purchase preferred stock which are convertible
to common............................................... 649,987 649,987
Stock options............................................. 1,242,982 1,193,653
Warrants to purchase common stock......................... 527,533 527,533
License, technology, and patent rights agreements......... 54,545 34,848
---------- ----------
7,626,228 7,557,202
</TABLE>
6. INCOME TAXES
At December 31, 1996 and June 30, 1997, the Company had net operating loss
carryforwards of approximately $7,490,000 and $6,621,000, respectively, and
research and experimentation credit carryforwards of approximately $314,000 and
$908,000, respectively, which are available to offset future federal taxable
income and income taxes, respectively, if any, through 2009. Utilization of
federal income tax and research and development tax credit carryforwards is
subject to limitations under applicable regulations in effect under the Internal
Revenue Code of 1986, as amended. Accordingly, the Company's use of losses
incurred through the date of this ownership change may be limited during the
carryforward period.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has
recognized a valuation allowance equal to the deferred tax assets due to the
uncertainty of
F-14
<PAGE> 89
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
realizing the benefits of the assets. The valuation allowance for deferred tax
assets increased $1,528,000, $1,475,000, and $396,000 during 1995, 1996, and the
six months ended June 30, 1997, respectively. The effects of temporary
differences that give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......... $ 1,565,000 $ 2,547,000 $ 2,251,000
Research and experimentation credit and
foreign tax credit carryforwards....... 144,000 339,000 933,000
Deferred revenue.......................... 140,000 448,000 457,000
Other..................................... 15,000 33,000 112,000
----------- ----------- -----------
1,864,000 3,367,000 3,753,000
Deferred tax liabilities:
Depreciation.............................. 6,000 34,000 24,000
----------- ----------- -----------
Net deferred tax asset.................... 1,858,000 3,333,000 3,729,000
Less valuation allowance.................. (1,858,000) (3,333,000) (3,729,000)
----------- ----------- -----------
Net deferred tax assets..................... $ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
7. LONG-TERM OBLIGATIONS AND COMMITMENTS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Capital lease obligations................... $ 1,092,824 $ 1,663,112 $ 2,893,985
Advance from corporate partner.............. -- -- 3,000,000
----------- ----------- -----------
1,092,824 1,663,112 5,893,985
Less current portion of capital lease
obligations............................... 276,936 487,758 808,162
----------- ----------- -----------
$ 815,888 $ 1,175,354 $ 5,085,823
=========== =========== ===========
</TABLE>
In December 1994, the Company entered into a master lease agreement to
lease certain equipment. In connection with the draw down of the this lease line
in 1994, the Company issued the lessor warrants to purchase 31,818 shares of the
Company's Series A Preferred Stock at $3.30 per share. The term of the warrants
is either ten years from the date of issuance or five years from the effective
date of an initial public offering by the Company, whichever is longer. The term
may expire sooner if certain conditions, as defined in the warrant agreement,
are met.
A $1,500,000 lease line was obtained in 1996, of which approximately
$1,200,000 remained available at December 31, 1996. In March 1997, the remaining
lease line was renegotiated to $1,450,000, of which approximately $721,000
remained available at June 30, 1997. Both leases are secured by the underlying
equipment.
The $3 million advance from the corporate partner at June 30, 1997
represents payments received in exchange for options to license two of Corixa's
early-state cancer targets. Refer to Note 8 with regard to the future
application of the advance.
The Company rents office and research facilities under noncancelable
operating leases which expire in January 2005. The Company has issued an
irrevocable standby letter of credit in the amount of $750,000 as security
deposit on the lease. The Company has options to renew the lease for two
additional terms of five years each.
F-15
<PAGE> 90
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Minimum future rental payments under all lease agreements at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
----------------------------------------------------------- ---------- -----------
<S> <C> <C>
1997....................................................... $ 635,371 $ 1,024,606
1998....................................................... 693,132 1,319,393
1999....................................................... 457,571 2,424,681
2000....................................................... 187,443 2,514,227
2001....................................................... -- 2,589,654
Thereafter................................................. -- 8,332,779
---------- -----------
Total minimum payments..................................... 1,973,517 $18,205,340
===========
Less interest.............................................. 310,405
----------
Present value of minimum lease payments.................... 1,663,112
Less current portion....................................... 487,758
----------
Capital lease obligations, less current portion............ $1,175,354
==========
</TABLE>
Rent expense was $364,240, $638,037, and $768,803 for the years ended
December 31, 1995, 1996, and the six-month period ended June 30, 1997,
respectively.
8. SCIENTIFIC COLLABORATIVE AND LICENSE AGREEMENTS
The Company has various collaborative research agreements with academic
universities and research institutions, which expire at various intervals
through 1999. Certain agreements stipulate the reimbursement by the Company of
research costs incurred by these universities and institutions on behalf of the
Company. Included in research and development expenses for the years ended
December 31, 1995 and 1996 and the six-month period ended June 30, 1997 are
reimbursements approximating $900,000, $1,400,000, and $827,000, respectively.
As of December 31, 1996, the Company is committed to reimburse the universities
and institutions $650,000 and $65,000 in 1997 and 1998, respectively. As of June
30, 1997, the Company is obligated to reimburse the universities and
institutions $348,000, $14,500, and $33,000 in 1997, 1998, and 1999,
respectively.
The Company has entered into certain license agreements and obtained
options to negotiate license agreements under the terms of which the Company
received license, technology, and patent rights. During 1995 and 1996 and the
six-month period ended June 30, 1997, the Company paid initial license and/or
option fees approximating $80,000, $185,000, and $145,000, respectively, and
issued 36,363 and 33,328 shares of common stock during 1995 and 1996,
respectively, (plus a commitment to issue an additional 33,333 and 21,212
shares, respectively, upon the achievement of certain events of which 19,697
were issued in 1997) for such rights. In conjunction with certain 1996
collaboration agreements, the Company also issued options to purchase 129,393
shares of common stock and warrants to purchase 75,757 and 163,636 shares of
common stock and Series A Preferred Stock, respectively. See Note 5.
Certain agreements call for royalty and milestone payments to be paid by
the Company. The agreements are for terms from 10 to 17 years or the expiration
of the last issued patent within the licensed technology, unless terminated
earlier for certain specified events, as defined in the respective agreements.
Additionally, the Company has entered into research and license agreements
and granted options to other parties to negotiate license agreements under the
terms of which the Company provides license, technology, and patent rights.
Under the terms of the agreements, the Company will receive additional license
fees, option fees and/or reimbursement of certain research and development costs
through 1998. The agreements provide
F-16
<PAGE> 91
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
for one-time payments upon the achievement of certain milestones and the payment
of royalties based on product sales.
The Company entered into an agreement during 1997 with a third party
pursuant to which the third party agreed to advance consideration in exchange
for exclusive options to license two of Corixa's early-state programs in two
cancer targets (see Note 7). In the event such options are exercised, the
consideration will be credited against future milestone payments or converted to
common stock of Corixa, as per the agreement. If either or both of such options
are not exercised or extended between February 28, 1998 and August 18, 1998, the
Company will be required to refund the consideration over a three-year period
beginning March 2000.
9. INVESTMENTS IN AND AGREEMENTS WITH GENQUEST
In February 1996, the Company entered a license and research collaboration
agreement with GenQuest, Inc., a Delaware corporation (GenQuest) for the purpose
of discovering, characterizing, developing, and commercializing novel genes for
use in the treatment, prevention, or diagnosis of cancer or pre-neoplastic cell
proliferation disease.
In February 1996, the Company acquired an aggregate of 4,412,613 shares of
series A preferred stock of GenQuest in exchange for the transfer of certain
intellectual property rights in connection with the collaboration, which shares
represent approximately 16% of GenQuest's outstanding capital stock at December
31, 1996. As a result of its ownership of series A preferred stock of GenQuest,
the Company has certain registration rights with respect to public offerings of
GenQuest and rights of first offer which allow the Company to participate
ratably in future issuances of stock to maintain its ownership percentage of
GenQuest.
Additionally, the Company is entitled to voting rights equivalent to the
number of shares of common stock of GenQuest into which such shares of series A
preferred stock can be converted and is a party to a voting agreement among
GenQuest and all but two of its stockholders. Under the terms of the voting
agreement, the Company has a right to designate two of seven nominees to the
Board of Directors of GenQuest and the stockholders of GenQuest who are parties
to the voting agreement have agreed to vote their shares in favor of such
nominees. The Company's right to designate such nominees will terminate when the
Company owns less than 10% of the voting capital stock of GenQuest.
In December 1996, the Company and GenQuest amended the license and
collaboration agreement and, in connection with this amendment, entered into an
administrative services and management agreement. As part of the collaboration,
GenQuest has agreed to provide an aggregate of $5.7 million in funding in
support of certain research and development projects conducted by the Company
and GenQuest on a collaborative basis during a three year research term.
Additionally, the Company has agreed that certain administrative and management
services will be provided to GenQuest by certain Company employees, including
the Company's Chief Executive Officer, Chief Scientific Officer, and Chief
Operating Officer, and GenQuest has agreed to reimburse the Company for such
services. Either the Company or GenQuest may terminate the license agreement
within 30 days after December 31, 1997 if such party believes that the
scientific objectives of the collaboration have not been met.
Under the license agreement, the Company and GenQuest agreed to
cross-license certain technologies and products owned or controlled by them as
of February 1996 and technologies and products developed under the collaborative
research program. The Company is required to pay GenQuest, when product sales
commence, certain royalties on sales of products that use technology licensed
from GenQuest, and GenQuest is required to pay the Company, when product sales
commence, certain royalties on the sale of products that use technology licensed
from the Company. In addition, sales of certain products developed by GenQuest
using technology developed by the Company in the collaborative research program
would be royalty-free.
F-17
<PAGE> 92
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In December 1996, in connection with the modification of the collaboration
between the Company and GenQuest and the issuance of series B preferred stock of
GenQuest to additional investors (18,309,271 shares at $0.50 per share), the
Company, GenQuest and certain stockholders of GenQuest entered into a call
option agreement. Under the terms of this agreement, the Company has the right
to purchase a significant majority of the outstanding shares of GenQuest's
capital stock held by the stockholders of GenQuest at a purchase price
determined in accordance with a formula stipulated in the agreement. This right
becomes effective on the earlier of June 23, 1998, the completion of a 30-day
trading period following the Company's initial public offering during which the
average closing sale price of a share of the Company's common stock meets the
minimum requirement stipulated in the agreement, and a merger of the Company
with another entity or a sale of substantially all of the Company's assets, and
terminates on the earlier of January 23, 2000, the date that the Company
notifies GenQuest that it will not exercise this right, the closing of the
initial public offering of GenQuest, and 10 days following a merger of or sale
of assets by the Company.
In conjunction with the relationship between the Company and GenQuest, the
Company issued warrants to purchase 454,533 shares of the Company's Series B
shares at a price of $9.90 per share. The warrants expire on the earlier of
December 23, 2001 or certain events as specified in the warrant agreements. A
receivable of $1.14 million from GenQuest, which represents the value of the
warrants, is included in equity at December 31, 1996. The receivable will be
paid over the three-year funding life of the current collaborative agreement out
of the proceeds therefrom. Amounts expected to be applied against the receivable
in 1997, 1998 and 1999 approximate $488,432, $325,784 and $325,784,
respectively.
The Company's investment in GenQuest is recorded in the balance sheet at
$-0-, which was the historical cost of the technology exchanged for the
preferred stock of GenQuest issued to the Company. The Company did not recognize
the increased value of its equity investment resulting from the GenQuest
issuance of Series B preferred stock due to uncertainty regarding its ultimate
realization.
In 1996, the Company recognized other income of $300,000 as a result of
administrative services provided to GenQuest.
During the six months ended June 30, 1997, the Company recognized
collaborative revenue and research and development expenses of approximately
$831,000 and $1 million, respectively. In conjunction with its collaborative
agreement with GenQuest, the Company also recognized other income of
approximately $162,500 as a result of administrative services provided to
GenQuest during the six months ended June 30, 1997.
10. 401(k) PLAN
The Company has a 401(k) defined contribution plan (the Plan), as defined
by the Internal Revenue Code. The Plan is for the benefit of all qualifying
employees and permits voluntary contributions (by the employees) of up to 15% of
their base salary (as defined by the Plan). Currently, the Company does not
match contributions.
11. SUBSEQUENT EVENTS
Initial Public Offering
On July 25, 1997, the Company's Board of Directors authorized the Company
to file a Registration Statement with the Securities and Exchange Commission to
permit the Company to proceed with an initial public offering of its common
stock (the Offering). In connection with the Offering, the Company's Board of
Directors and stockholders authorized a class of 10,000,000 shares of Preferred
Stock and approved a reverse stock split of the outstanding shares of common
stock and convertible preferred stock on the basis of one new share of stock for
every 3.3 outstanding shares of stock. The reverse stock split will become
effective at the time an Amended and Restated Certificate of Incorporation is
filed with the Secretary of State of the State of
F-18
<PAGE> 93
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Delaware. All outstanding convertible preferred stock, common and common
equivalent shares and per-share amounts in the accompanying financial statements
and related notes to financial statements have been retroactively adjusted to
give effect to the reverse stock split.
In addition, in connection with the Offering, the Company has solicited and
received the consent of the holders of the Series A shares and Series B shares
to the automatic conversion of all of the outstanding Series A shares and Series
B shares upon the closing of the Offering. Immediately prior to the closing of
the Offering, all outstanding Series A shares will automatically convert into
4,646,131 shares of common stock and all of the outstanding Series B shares will
automatically convert to 505,050 shares of common stock (in each case subject to
adjustment upon the occurrence of certain dilutive events). Unaudited pro forma
stockholders' equity at June 30, 1997, as adjusted for the assumed conversion of
the Series A shares and Series B shares, is set forth in the accompanying
balance sheet.
Amended Stock Option Plan
On July 25, 1997, the Company amended and restated the 1994 Plan, whereby
the number of shares authorized under the 1994 Plan was increased by 700,000
shares and is subject to automatic increase on the first trading day of each of
the ten calendar years beginning in 1998 and ending in 2007, in an amount equal
to 3% of the number of shares of common stock outstanding on December 31 of the
immediately preceding calendar year, up to a maximum of 500,000 shares each year
over the ten-year period.
1997 Employee Stock Purchase Plan
On July 25, 1997, the Company adopted the 1997 Employee Stock Purchase Plan
(the Purchase Plan). A total of 125,000 shares of common stock are reserved for
issuance under the Purchase Plan. The Purchase Plan permits eligible employees
to purchase common stock through payroll deductions at a price equal to 85% of
the fair market value of the Company's common stock on the first day or the last
day of the applicable six-month offering period, whichever is lower. The
Purchase Plan will begin on the effective date of the Company's initial public
offering.
The number of authorized shares is subject to automatic increase on the
first trading day of each of the 20 calendar years beginning in 1998 and ending
in 2017. If the number of shares reserved for issuance is less than 1% of the
outstanding common stock, the number of shares reserved for issuance shall be
increased until it equals 1% of the outstanding common stock (up to a maximum of
125,000 in any calendar year), or such lower amount as determined by the Board
of Directors. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder. If not terminated earlier, the Purchase
Plan will have a term of 20 years.
1997 Directors' Stock Option Plan
The Directors' Plan was adopted by the Company on July 25, 1997. A total of
200,000 shares of common stock has been reserved for issuance under the
Directors' Plan. The number of authorized shares is subject to automatic
increase, on the first trading day of each of the five calendar years beginning
in 1998 and ending in 2002 in an amount equal to 50,000 shares of common stock
or such lesser amount as the Board of Directors may establish. The Directors'
Plan provides for the grant of nonqualified stock options (NSOs) to nonemployee
directors of the Company. The Directors' Plan provides that each person who is a
nonemployee director on the date of the offering and each person who first
becomes a nonemployee director of the Company after the date of the offering
shall be granted NSOs to purchase 15,000 shares of common stock (the First
Option). Thereafter, on the date of each annual meeting of the Company's
stockholders, commencing in 1998, each nonemployee director shall be
automatically granted an additional option to purchase 5,000 shares of common
stock (a Subsequent Option) if, on such date, he or she shall have served on the
Company's Board of
F-19
<PAGE> 94
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Directors for at least six months. The First Options and Subsequent Options
generally vest over 36 and 12 months, respectively, and have 10-year terms. The
exercise price of such options shall be equal to the fair market value of the
Company's common stock on the date of grant of the option. The Plan has a
10-year term unless terminated earlier.
F-20
<PAGE> 95
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Data............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
Business............................ 26
Management.......................... 52
Certain Transactions................ 60
Principal Stockholders.............. 63
Description of Capital Stock........ 65
Shares Eligible for Future Sale..... 69
Underwriting........................ 71
Legal Matters....................... 73
Experts............................. 73
Additional Information.............. 73
Glossary of Scientific Terms........ 74
Index to Financial Statements....... F-1
</TABLE>
------------------
UNTIL OCTOBER 27, 1997 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS
PROSPECTUS), 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.
======================================================
======================================================
3,000,000 SHARES
[CORIXA LOGO]
CORIXA CORPORATION
COMMON STOCK
---------------------------
PROSPECTUS
October 2, 1997
---------------------------
LEHMAN BROTHERS
INVEMED ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.
======================================================
