<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000
REGISTRATION NO. 333-31908
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
CORIXA CORPORATION
(EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 91-1654387
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
1124 COLUMBIA STREET, SUITE 200
SEATTLE, WASHINGTON 98104
(206) 754-5711
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
----------------------------
STEVEN GILLIS, PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1124 COLUMBIA STREET, SUITE 200
SEATTLE, WASHINGTON 98104
(206) 754-5711
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK J. HANDFELT WILLIAM T. WHELAN, ESQ.
DAVID R. YOUNG MICHAEL R. HARRINGTON, ESQ.
CHARLES P. CARTER MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
SOFIA MICHELAKIS ONE FINANCIAL CENTER
VENTURE LAW GROUP BOSTON, MA 02111
A PROFESSIONAL CORPORATION
4750 CARILLON POINT
KIRKLAND, WA 98033
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an Offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same Offering. [ ] _______
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission becomes effective. This
preliminary prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted. You should rely only on the information
contained in this preliminary prospectus.
Preliminary Prospectus Subject to Completion March 31, 2000
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2,250,000 Shares
[CORIXA LOGO]
Common Stock
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We are offering 2,000,000 shares of our common stock to be sold in this
offering.
Our common stock is listed for trading on the Nasdaq National Market under the
symbol "CRXA". On March 29, 2000, the last reported sale price of the common
stock on the Nasdaq National Market was $39.94 per share.
The selling stockholder identified in this prospectus is offering an additional
250,000 shares of common stock. We will not receive any of the proceeds from the
sale of common stock held by the selling stockholder.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. BEFORE BUYING ANY
SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF INVESTING IN OUR
COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price $ $
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Underwriting discounts and commissions $ $
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Our proceeds, before expenses $ $
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Selling stockholder's proceeds, before expenses $ $
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</TABLE>
We and selling stockholders identified in this prospectus have granted the
underwriters a 30-day option to purchase up to an additional 337,500 shares of
our common stock to cover over-allotments.
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about ,
2000.
WARBURG DILLON READ LLC
LEHMAN BROTHERS
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
PACIFIC GROWTH EQUITIES, INC.
<PAGE> 3
[Product Pipeline Chart depicting current vaccine programs for autoimmune
diseases, cancer and infectious diseases, separated by development stage and
listing corporate partners for each program.]
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL
ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Prospectus summary.................... 1
The offering.......................... 3
How to contact us..................... 3
Summary consolidated financial data... 4
Risk factors.......................... 5
Forward-looking statements............ 16
Use of proceeds....................... 17
Dividend policy....................... 17
Price range of common stock........... 17
Capitalization........................ 18
Selected consolidated financial
data................................ 19
Management's discussion and analysis
of
financial condition and results of
operations.......................... 20
Business.............................. 29
Management............................ 63
Principal and selling stockholders.... 66
Description of our capital stock...... 69
Underwriting.......................... 72
Legal matters......................... 75
Experts............................... 75
Where you can find additional
information......................... 76
Index to consolidated financial
statements.......................... F-1
</TABLE>
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AnergiX(R), Melacine(R) and MPL(R) are registered trademarks and Corixa(TM) ,
the stylized Corixa logo, AnergiX.MG(TM), AnergiX.MS(TM), AnergiX.RA(TM),
AnervaX(TM), AnervaX.DB(TM), AnervaX.RA(TM), Detox(TM), Detox B-SE(TM),
PVAC(TM), Ribi.529(TM)and Powered by Corixa(TM) are trademarks of Corixa
Corporation. All other brand names, trademarks or service marks referred to in
this prospectus are the property of their respective owners.
Unless otherwise stated herein, all information contained in this prospectus
assumes no exercise of the over-allotment to the underwriters.
<PAGE> 5
Prospectus summary
This summary highlights information contained in other parts of this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk factors," the financial statements and
related notes, and the documents incorporated by reference in this prospectus,
before making an investment decision.
CORIXA
We are a research and development-based biotechnology company committed to
treating and preventing autoimmune diseases, cancer and infectious diseases by
understanding and directing the immune system. We are focused on
immunotherapeutic products and have a broad technology platform enabling both
fully integrated vaccine design and the use of our separate, proprietary vaccine
components--antigens, adjuvants or antigen delivery technology--on a standalone
basis. Antigens are vaccine components that stimulate immune system responses
and adjuvants are vaccine components that boost those responses. We exploit our
expertise in immunology and our proprietary technology platforms to discover and
develop vaccines, antigen-based products, including monoclonal antibody-based
products, and novel adjuvants.
We believe our antigen discovery capabilities, which use numerous proprietary
technologies, are one of our key competitive strengths. Our ability to discover
antigens allows us to select those that will work most effectively in a given
vaccine. In making this selection, we focus on antigens that 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.
In connection with autoimmune diseases, we focus on discovering antigens that
trigger autoimmune responses and disrupt the pathway that leads to the body's
destruction of healthy tissue.
CURRENT VACCINE LIMITATIONS
The majority of currently available vaccines work by inducing protective
antibody responses that can destroy an invading pathogen. In many instances,
however, such as tumors or certain infectious diseases, antibody responses are
not sufficient to eliminate the pathogen. We believe that an effective immune
response against tumors and certain diseases requires the action of pathogen- or
tumor-reactive T lymphocytes, or T cells.
Autoimmune diseases, such as psoriasis, rheumatoid arthritis and multiple
sclerosis, are caused by the abnormal destruction of healthy body tissues when T
cells and antibodies react with normal tissue. In these diseases, otherwise
normal antigens, or auto-antigens, serve as triggers that cause the immune
system to respond against the body's normal tissue. Currently available
therapies for autoimmune diseases often increase susceptibility to other
diseases because they suppress the overall immune system.
OUR APPROACH
By exploiting our expertise in immunology, we are developing technologies that
may result in products to treat and prevent autoimmune diseases, cancer and
infectious diseases. Our vaccine program focuses on activating specialized
immune system agents, T cells known as cytotoxic T lymphocytes, or CTL, that we
believe have the ability to recognize and kill pathogen-infected tissue or tumor
cells. We are also developing technology that may interrupt the chain of events
involved in autoimmune disease. In contrast to current therapies for autoimmune
diseases, our technologies may provide a means to target the disease process
while leaving the normal immune system unaffected.
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1
<PAGE> 6
We believe that by applying these technologies with our broad immunology
expertise, we can discover and develop:
+ vaccines and immunotherapeutics;
+ adjuvants and antigen delivery systems to increase the effectiveness of
vaccine and immunothepapeutics; and
+ monoclonal antibody-based therapeutics and diagnostics.
We believe that our autoimmune disease technologies offer the potential to treat
a number of diseases, including psoriasis and rheumatoid arthritis. These
technologies may either selectively destroy or inactivate T cells, or stimulate
the immune system to produce antibodies or T cells that interfere with the
autoimmune disease process.
Using advances in understanding molecular mechanisms that control how antigens
are normally presented to T cells, we are designing vaccines to force the immune
system to recognize antigens associated with pathogens and disease in such a way
that potent T cell responses result. We believe that in order to induce these T
cell responses, it is important to combine a three-part technology platform,
which we use to design our vaccines. This three-part vaccine technology platform
consists of the following elements:
+ proprietary antigens;
+ proprietary adjuvants; and
+ proprietary antigen delivery systems.
An important part of our strategy is to partner our technologies with numerous
developers and marketers of pharmaceutical and diagnostic products with the goal
of making our potential products available to patients around the world. We
partner our immunotherapeutic programs, on both a fully integrated vaccine
design basis and through the use of our separate components--antigens, adjuvants
or delivery technology--on a standalone, "Powered by Corixa("TM) basis. "Powered
by Corixa" refers to the ability of each of our component technologies to
improve the safety and efficacy of vaccines and therapeutics developed by us or
our partners.
We have corporate partnerships with SmithKline Beecham, the pharmaceutical
division of Japan Tobacco, Zambon Group, Schering-Plough, Organon and Zenyaku
Kogyo, among others. Our proprietary adjuvants are the subject of multiple
partnerships and are currently in a number of clinical stage vaccines for the
treatment of allergies, cancer and infectious diseases.
We strive to selectively acquire or in-license complementary technologies. In
1999, we acquired two companies, Ribi ImmunoChem Research and Anergen, which
expanded our portfolio of technologies and potential products. Ribi provided us
with multiple proprietary adjuvant programs, and Anergen provided us with
proprietary autoimmune disease programs.
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2
<PAGE> 7
The offering
Common stock offered by Corixa...... 2,000,000 shares
Common stock offered by the selling
stockholder....................... 250,000 shares
Common stock to be outstanding after
this offering....................... 20,883,510 shares(1)
Nasdaq National Market symbol....... CRXA
Use of proceeds..................... + to fund product development and
clinical research;
+ to fund the acquisition of
technologies and companies; and
+ for general corporate purposes,
capital expenditures and other
working capital requirements.
Risk factors........................ Investing in our common stock involves
risk. Please see "Risk factors"
beginning on page 5 for a description.
(1) This share number is based on shares outstanding as of March 2, 2000, but
excludes:
+ an aggregate of 3,258,918 shares subject to outstanding options as of March
2, 2000 at a weighted average exercise price of $10.06 per share under our
1994 Amended and Restated Stock Option Plan and our 1997 Directors' Stock
Option Plan;
+ 1,356,305 shares issuable upon exercise of warrants outstanding as of March
2, 2000 at a weighted average exercise price of $8.31 per share;
+ an additional 2,687,606 shares reserved for issuance upon exercise of options
that may be granted subsequent to March 2, 2000 under our 1994 Amended and
Restated Stock Option Plan and our 1997 Directors' Stock Option Plan;
+ 112,658 shares reserved for issuance under our 1997 Employee Stock Purchase
Plan; and
+ 12,500 shares of Series A preferred stock which are convertible into
1,470,588 shares of common stock.
This share number includes 141,576 shares of common stock that are redeemable.
How to contact us
Our principal executive offices are located at 1124 Columbia Street, Suite 200,
Seattle, Washington 98104. Our telephone number is (206) 754-5711. Our web site
is http://www.corixa.com. Information found on our web site is not a part of
this prospectus.
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3
<PAGE> 8
Summary consolidated financial data
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
CONSOLIDATED STATEMENT OF OPERATIONS DATA 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C>
Revenue:
Collaborative agreements................. $ 2,411 $ 4,402 $ 13,390 $ 17,003 $ 25,035
Government grants........................ 304 1,403 977 1,267 1,463
-------- ------- -------- -------- --------
Total revenue....................... 2,715 5,805 14,367 18,270 26,498
Operating expenses:
Research and development................. 7,040 9,995 16,398 27,436 41,962
General and administrative............... 532 781 2,033 2,672 4,330
Acquired in-process research and
development........................... -- -- -- 12,021 37,637
-------- ------- -------- -------- --------
Total operating expenses............ 7,572 10,776 18,431 42,129 83,929
-------- ------- -------- -------- --------
Loss from operations....................... (4,857) (4,971) (4,064) (23,859) (57,431)
Other income, net.......................... 707 824 1,388 2,543 2,673
-------- ------- -------- -------- --------
Net loss................................... (4,150) (4,147) (2,676) (21,316) (54,758)
Preferred stock dividend................... -- -- -- -- (6,008)
-------- ------- -------- -------- --------
Net loss applicable to common
stockholders............................. $ (4,150) $(4,147) $ (2,676) $(21,316) $(60,766)
======== ======= ======== ======== ========
Basic and diluted net loss per common
share.................................... $ (1.67) $ (1.65) $ (0.55) $ (1.75) $ (3.91)
======== ======= ======== ======== ========
Shares used in computation of basic and
diluted net loss per common share(1)..... 2,487 2,521 4,891 12,172 15,528
======== ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
CONSOLIDATED BALANCE SHEET DATA ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
Cash, cash equivalents and securities available-for-sale.... $ 45,553 $ 120,076
Working capital............................................. 20,919 95,442
Total assets................................................ 92,480 167,003
Long-term obligations, less current portion................. 11,426 11,426
Redeemable common stock..................................... 2,000 2,000
Accumulated deficit......................................... (88,036) (88,036)
Total stockholders' equity.................................. 58,781 133,304
</TABLE>
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(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of the number of shares and net loss per share.
(2) "As adjusted" consolidated balance sheet data reflects the application of
the net proceeds from the sale of 2,000,000 shares of common stock offered
by us at an assumed offering price of $39.94 per share, after deducting the
estimated underwriting discounts and commissions and the estimated offering
expenses.
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4
<PAGE> 9
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Risk factors
You should carefully consider the risks described below, together with all of
the other information included in this prospectus and the information
incorporated by reference in this prospectus, before making an investment
decision. If any of the following risks actually occur, our business, financial
condition or operating results could be harmed. In such case, the trading price
of our common stock could decline, and you may lose all or part of your
investment.
This prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of factors that are described
below and elsewhere in this prospectus. See "Forward-looking statements."
WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND HAVE LIMITED SOURCES OF REVENUE.
We are at an early stage in the development of our therapeutic, prophylactic and
diagnostic products. To date, almost all of our revenue has resulted from
payments made under agreements with our corporate partners, and we expect that
most of our revenue for the foreseeable future will continue to result from
corporate partnerships. Since our inception, we have generated only minimal
revenue from diagnostic product sales and no revenue from therapeutic or
prophylactic product sales. We cannot predict when, if ever, our research and
development programs will result in commercially available immunotherapeutic
products. We do not know when, if ever, we will receive any significant revenue
from commercial sales of these products. We may not receive anticipated revenue
under existing corporate partnerships, and we may not be able to enter into any
additional corporate partnerships.
WE EXPECT TO INCUR FUTURE OPERATING LOSSES AND MAY NOT ACHIEVE CONSISTENT
PROFITABILITY.
We have experienced significant operating losses in each year since our
inception on September 8, 1994. As of December 31, 1999, our accumulated deficit
was approximately $88.0 million, of which $49.7 million is attributable to the
write-off of in-process research and development costs associated with the
acquisitions of Ribi ImmunoChem Research, Anergen and GenQuest. We may incur
substantial additional operating losses over at least the next several years.
These losses have been and may continue to be principally the result of the
various costs associated with our acquisition activities, including the expenses
associated with the write-off of in-process research and development, research
and development programs, preclinical studies and clinical activities.
Substantially all of our revenue and other income to date has resulted from
corporate partnerships, other research, development and licensing arrangements,
research grants and interest income. We may never achieve consistent
profitability, and our ability to achieve a consistent, profitable level of
operations is dependent in large part upon our:
+ entering into agreements with corporate partners for product discovery,
research, development and commercialization;
+ obtaining regulatory approvals for our products; and
+ successfully manufacturing and marketing commercial products.
In addition, payments under corporate partnerships and licensing arrangements
will be subject to significant fluctuations in both timing and amounts.
Accordingly, our results of operations for any period may fluctuate and may not
be comparable to the results of operations for any other period.
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5
<PAGE> 10
RISK FACTORS
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BECAUSE OUR TECHNOLOGY AND PRODUCT DEVELOPMENT ARE UNPROVEN, OUR BUSINESS MAY
NOT SUCCEED.
Our technological approach to the development of therapeutic and prophylactic
vaccines and other immunotherapeutic products for autoimmune diseases, cancer
and infectious diseases is unproven in humans. Products based on our
technologies are currently in the research, preclinical or clinical
investigation stages and have not been demonstrated to be safe and effective in
clinical settings. Currently, only a small number of our immunotherapeutic
products have advanced to clinical trials. Only one of our corporate partners
has conducted clinical trials that incorporate our proprietary microsphere
delivery system. In addition, with the exception of Phase I Her-2/neu vaccine
trials, we have not, nor have any of our corporate partners, conducted any
clinical trials using our proprietary vaccine antigens for cancer or infectious
diseases. With the exception of the approval of Melacine(R) vaccine in Canada,
we have not, nor has any other company, received regulatory approval for, or
successfully commercialized, any therapeutic vaccines for the autoimmune
diseases, cancer or infectious diseases that we target. We may not be able to
develop effective vaccines for these diseases within a reasonable time, if ever,
and our vaccines may not be capable of being commercialized. Furthermore, our
programs may not move beyond their current stages of development.
WE MAY NOT SUCCESSFULLY MANAGE OUR GROWTH OR INTEGRATE POTENTIAL FUTURE
ACQUISITIONS.
We have recently completed several acquisitions of complementary technologies,
product candidates and businesses. In the future, we may acquire additional
complementary companies, products or technologies. Managing these acquisitions
has entailed and may in the future entail numerous operational and financial
risks and strains, including:
+ exposure to unknown liabilities of acquired companies;
+ higher than expected acquisition and integration costs which may cause our
quarterly and annual operating results to fluctuate;
+ combining the operations and personnel of acquired businesses with our own
which may be difficult and costly, and integrating or completing the
development and application of any acquired technologies which may disrupt
our business and divert our management's time and attention;
+ impairment of relationships with key customers of acquired businesses due to
changes in management and ownership of the acquired businesses;
+ inability to retain key employees of any acquired businesses or hire enough
qualified personnel to staff any new or expanded operations; and
+ increased amortization expenses if an acquisition results in significant
goodwill or other intangible assets.
If we do not effectively manage our business or otherwise adapt to anticipated
growth, our business and stock price may suffer.
COMMERCIALIZATION OF SOME OF OUR POTENTIAL PRODUCTS DEPENDS ON CORPORATE
PARTNERSHIPS. IF OUR CORPORATE PARTNERSHIPS ARE NOT SUCCESSFUL, OR IF WE ARE
UNABLE TO FIND CORPORATE PARTNERSHIPS IN THE FUTURE, OUR BUSINESS MAY NOT
SUCCEED.
The success of our business strategy is largely dependent on our ability to
enter into multiple corporate partnerships and to manage effectively the
numerous relationships that may result from this strategy. We derived 94% and
93% of our revenue for the years ended December 31, 1999 and 1998,
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6
<PAGE> 11
RISK FACTORS
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respectively, from research and development and other funding under our existing
corporate partnerships.
We have established relationships with various corporate partners, including
SmithKline Beecham, the pharmaceutical division of Japan Tobacco, Zambon Group,
Zenyaku Kogyo, Schering-Plough and Organon, among others. The process of
establishing corporate partnerships is difficult, time-consuming and involves
significant uncertainty. Our discussions with potential partners may not lead to
the establishment of new corporate partnerships on favorable terms, or at all.
If we are successful in establishing new corporate partnerships, they may never
result in the successful development of our products or the generation of
significant revenues.
Some of our corporate partners have options to license certain aspects of our
technology. Any of these corporate partners may not exercise their option to
license such technology. We have also entered into corporate partnerships with
several companies for the development, commercialization and sale of diagnostic
products incorporating our proprietary antigen technology. These diagnostic
corporate partnerships may never generate significant revenues.
Because we generally enter into research and development collaborations with
corporate partners at an early stage of product development, our success largely
depends upon the performance of our corporate partners. We do not directly
control the amount or timing of resources devoted by our corporate partners to
collaborative activities. As a result, our corporate partners may not commit
sufficient resources to our research and development programs or the
commercialization of our products. If any corporate partner fails to conduct its
activities in a timely manner, or at all, our preclinical or clinical
development related to such corporate partnership could be delayed or
terminated. Also, our current corporate partners or future corporate partners,
if any, may pursue existing or other development-stage products or alternative
technologies in preference to those being developed in collaboration with us. In
addition, disputes may arise with respect to ownership of technology developed
under any such corporate partnership. Finally, our corporate partners may
terminate any of our current partnerships, and we may not be able to negotiate
additional corporate partnerships in the future on acceptable terms, or at all.
Management of our relationships with our corporate partners will require:
+ significant time and effort from our management team;
+ coordination of our research with the research priorities of our corporate
partners;
+ effective allocation of our resources to multiple projects; and
+ an ability to obtain and retain key management, scientific and other
personnel.
OUR INABILITY TO LICENSE TECHNOLOGY FROM THIRD PARTIES MAY IMPAIR OUR ABILITY TO
DEVELOP AND COMMERCIALIZE OUR PRODUCTS.
Our success also depends on our 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 our or our partners'
products. We have various license agreements that provide us rights to use
technologies owned or licensed by third parties. These license agreements
generally allow us and our corporate partners to use the licensed technology in
research, development and commercialization activities. Disputes may arise
regarding the invention and corresponding ownership rights in inventions and
know-how resulting from the joint creation or use of intellectual property by us
and our licensors or scientific collaborators. Additionally, many of our
in-licensing agreements contain milestone-based termination provisions. Our
failure or the failure of any of our corporate partners to meet any agreed
milestones could allow the licensor to terminate an agreement.
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7
<PAGE> 12
RISK FACTORS
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We may not be able to negotiate additional license agreements in the future on
acceptable terms, or at all. In addition, our current license agreements may be
terminated, and we may not be able to maintain the exclusivity of our exclusive
licenses. If we cannot obtain or maintain licenses to technologies advantageous
or necessary to the development or the commercialization of our products, we and
our corporate partners may be required to expend significant time and resources
to develop or in-license similar technology. If we are not able to do so, we may
be prevented from commercializing certain of our products and our business and
stock price may suffer.
OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT MAY SUFFER A DECLINE IN
VALUE.
The market prices for securities of biotechnology companies have in the past
been, and are likely to continue in the future to be, very volatile. The market
price of our common stock may be subject to substantial volatility depending
upon many factors, many of which are beyond our control, including:
+ announcements regarding the results of discovery efforts and preclinical and
clinical activities by us or our competitors;
+ announcements regarding the acquisition of technologies or companies;
+ changes in existing corporate partnerships or licensing arrangements;
+ establishment of additional corporate partnerships or licensing arrangements;
+ technological innovations or new commercial products developed by us or our
competitors;
+ changes in our intellectual property portfolio;
+ developments or disputes concerning proprietary rights;
+ changes in government regulations;
+ progress of regulatory approvals;
+ issuance of new or changed securities analysts' reports and/or
recommendations;
+ economic and other external factors;
+ additions or departures of key personnel;
+ operating losses by us; and
+ actual or anticipated fluctuations in our quarterly financial and operating
results and degree of trading liquidity in our common stock.
One or more of these factors could significantly harm our business and cause a
decline in the price of our common stock in the public market.
THE PROPRIETARY RIGHTS UNDERLYING OUR PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD
ENABLE THIRD PARTIES TO USE OUR TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO
COMPETE.
Our success depends in part on our ability to:
+ obtain commercially valuable patents;
+ protect trade secrets;
+ operate without infringing upon the proprietary rights of others; and
+ prevent others from infringing on our proprietary rights.
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<PAGE> 13
RISK FACTORS
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We will only be able to protect our proprietary rights from unauthorized use to
the extent that these rights are covered by valid and enforceable patents or are
effectively maintained as trade secrets. We try to protect our proprietary
positions by filing United States and foreign patent applications. As of March
2, 2000, we owned or had licensed 103 issued United States patents that expire
at various times between May 2002 and May 2018, as well as 207 pending United
States patent applications.
Our patent position is generally uncertain and involves complex legal and
factual questions. Legal standards relating to the validity and scope of claims
in the biotechnology and biopharmaceutical field are still evolving.
Accordingly, the degree of future protection for our proprietary rights is
uncertain. The risks and uncertainties that we face with respect to our patents
and other proprietary rights include the following:
+ the pending patent applications we have filed or to which we have exclusive
rights may not result in issued patents or may take longer than we expect to
result in issued patents;
+ the claims of any patents which are issued may not provide meaningful
protection;
+ we may not be able to develop additional proprietary technologies that are
patentable;
+ the patents licensed or issued to us or our corporate partners may not
provide a competitive advantage;
+ other companies may challenge patents licensed or issued to us or our
corporate partners;
+ patents issued to other companies may harm our ability to do business;
+ other companies may independently develop similar or alternative technologies
or duplicate our technologies; and
+ other companies may design around technologies we have licensed or developed.
We also rely on trade secret protection and confidentiality agreements to
protect our interests in proprietary know-how that is not patentable and for
processes for which patents are difficult to enforce. We have taken security
measures to protect our proprietary know-how and confidential data and continue
to explore further methods of protection. While we require all employees,
consultants, partners and customers to enter into confidentiality agreements, we
cannot be certain that we will be able to meaningfully protect our trade
secrets. Any material leak of confidential data into the public domain or to
third parties could cause our business, financial condition and results of
operations to suffer.
IF THIRD PARTIES CHALLENGE THE VALIDITY OF OUR PATENTS AND PROPRIETARY RIGHTS,
OUR BUSINESS MAY SUFFER.
A substantial number of patents have issued, and an even larger number of patent
applications have been filed, in the fields of immunology and molecular biology.
Our commercial success depends significantly on our ability to operate our
business without infringing the patents and other proprietary rights of third
parties. However, our technologies may infringe the patents or violate other
proprietary rights of third parties. This could result in our corporate partners
and us being prevented from pursuing product development or commercialization of
our technologies and product candidates. This result would significantly harm
our business.
We have licensed certain patent applications from Southern Research Institute,
or SRI, related to our microsphere encapsulation technology. Two of these patent
applications are currently the subject of opposition proceedings before the
European Patent Office. In one such opposition, the European Patent Office has
revoked a previously issued European patent. Although SRI has appealed this
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RISK FACTORS
- --------------------------------------------------------------------------------
decision, it is uncertain whether SRI will ultimately prevail in this or any
other opposition proceedings. As a result, these patents may not issue in
Europe, in which case our business may suffer.
The defense and prosecution of intellectual property rights, United States
Patent and Trademark Office interference proceedings and related legal and
administrative proceedings in the United States and elsewhere involve complex
legal and factual questions. As a result, these proceedings are costly and
time-consuming, and their outcome is uncertain. Litigation may be necessary to:
+ assert claims of infringement;
+ enforce our issued and licensed patents;
+ protect trade secrets or know-how; or
+ determine the enforceability, scope and validity of the proprietary rights of
others.
If we become involved in any litigation, interference or other administrative
proceedings, we will incur substantial expense and will divert the efforts of
our technical and management personnel. An adverse determination may subject us
to significant liabilities or require us to seek licenses that may not be
available from third parties on commercially reasonable terms or at all. We may
be restricted or prevented from developing and commercializing our products, if
any, in the event of an adverse determination in a judicial or administrative
proceeding, or if we fail to obtain necessary licenses. Any of these outcomes
would significantly harm our business.
IF WE ARE UNABLE TO SECURE ADDITIONAL FUNDING, WE WOULD HAVE TO REDUCE OR CEASE
OPERATIONS.
We require substantial capital resources in order to conduct our operations. Our
future capital requirements will depend on many factors, including:
+ continued scientific progress in our research and development programs;
+ the magnitude and scope of our research and development programs;
+ our ability 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 for our
products;
+ 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 our control.
We intend to seek additional funding through corporate partnerships, and also
may seek additional funding through:
+ public or private equity financings;
+ public or private debt financings; and
+ capital lease transactions.
However, additional financing may not be available on acceptable terms, if at
all. In addition, a substantial number of payments to be made by our corporate
partners and other licensors are dependent upon the achievement by us of
development and regulatory milestones. Failure to achieve
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RISK FACTORS
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such milestones may significantly harm our future capital position. Additional
equity financings could result in significant dilution to our stockholders. If
sufficient capital is not available, we may be required to delay, reduce the
scope of, eliminate or divest one or more of our research, development,
preclinical or clinical programs or manufacturing efforts. We believe that our
existing capital resources, committed payments under existing corporate
partnerships and licensing arrangements, bank credit arrangements, equity credit
lines, equipment financing, interest income and the proceeds from this offering
will be sufficient to fund our current and planned operations over at least the
next 18 months. We may attempt to raise additional capital due to market
conditions or strategic considerations even if we have sufficient funds for
planned operations.
WE DEPEND HEAVILY ON THE PRINCIPAL MEMBERS OF OUR MANAGEMENT AND SCIENTIFIC
STAFF, THE LOSS OF WHOM COULD IMPAIR OUR ABILITY TO COMPETE.
We depend heavily on the principal members of our management and scientific
staff, the loss of whose services might significantly delay or prevent the
achievement of our 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 our success. We may not 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 significantly harm our business. In addition, we do not maintain "key
person" life insurance on any of our officers, employees or consultants.
We also have relationships with scientific collaborators at academic and other
institutions, some of whom conduct research at our request or assist us in
formulating our research, development or clinical strategy. These scientific
collaborators are not our employees and may have commitments to, or consulting
or advisory contracts with, other entities that may limit their availability to
us. We have limited control over the activities of these scientific
collaborators and can generally expect these individuals to devote only limited
amounts of time to our activities. Failure of any such persons to devote
sufficient time and resources to our programs could harm our business. In
addition, these collaborators may have arrangements with other companies to
assist such companies in developing technologies that may compete with our
products.
MANY OF OUR COMPETITORS HAVE GREATER FINANCIAL RESOURCES AND EXPERTISE IN
DISCOVERY, RESEARCH AND DEVELOPMENT, TESTING, OBTAINING REGULATORY APPROVAL AND
MARKETING THAN US.
The biotechnology and biopharmaceutical industries are intensely competitive.
Many companies and institutions compete with us in developing alternative
therapies to treat or prevent autoimmune diseases, cancer and infectious
diseases, including:
+ pharmaceutical companies;
+ biotechnology companies;
+ academic institutions; and
+ research organizations.
Moreover, technology controlled by third parties that may be advantageous to our
business may be acquired or licensed by our competitors, thereby preventing us
from obtaining such technology on commercially reasonable terms, or at all.
Many of the companies developing competing technologies and products have
significantly greater financial resources and expertise in research and
development, manufacturing, preclinical and clinical testing, obtaining
regulatory approvals and marketing than we or our corporate partners do. Other
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RISK FACTORS
- --------------------------------------------------------------------------------
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 research and development, manufacturing,
preclinical and clinical development, obtaining regulatory approval and
marketing of products similar to ours. These companies and institutions compete
with us in recruiting and retaining qualified scientific and management
personnel as well as in acquiring technologies complementary to our programs. We
and our corporate partners will face competition with respect to:
+ product efficacy and safety;
+ the timing and scope of regulatory approvals;
+ availability of resources;
+ reimbursement coverage;
+ product price; and
+ patent position, including potentially dominant patent positions.
Competitors may develop more effective or more affordable products, or may
achieve earlier patent protection or product commercialization than our
corporate partners and us. These competitive products may render our products
obsolete.
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR PRODUCTS AND MAY ENCOUNTER
PROBLEMS OR DELAYS WHICH COULD RESULT IN LOST REVENUE.
Our current manufacturing facilities may not be sufficient to support our or our
corporate partners' needs for clinical quantities of our products and commercial
quantities of our current adjuvant products. We have limited experience
producing commercial quantities of any product, or in producing clinical grade
or commercial amounts of our proprietary antigens. Although we currently
manufacture limited quantities of some antigens and several adjuvants, we may
rely on third party contract manufacturers to produce larger quantities of such
substances for clinical trials and product commercialization. We and these
contract manufacturers may not be able to manufacture our proprietary antigen
vaccines at a cost or in quantities necessary to make them commercially viable.
Third party manufacturers also may not be able to meet our needs with respect to
timing, quantity or quality. If we are unable to contract for a sufficient
supply of required products on acceptable terms, or if we encounter delays or
difficulties in our relationships with such manufacturers, our preclinical and
clinical testing would be delayed, thereby delaying submission of products for
regulatory approval, or the market introduction and commercial sale of such
products. Moreover, contract manufacturers that we may use must continually
adhere to current Good Manufacturing Practices, or GMP, regulations enforced by
the United States Food and Drug Administration, or FDA, through its facilities
inspection program. If the facilities of such manufacturers cannot pass a
pre-approval plant inspection, the FDA approval of our products will not be
granted.
BECAUSE WE LACK SALES, MARKETING AND DISTRIBUTION CAPABILITIES, OUR BUSINESS MAY
SUFFER.
We currently have no sales, marketing or distribution capabilities. We intend to
rely on our corporate partners to market our products. Our corporate partners
may not have effective sales forces and distribution systems. If we are unable
to maintain or establish such relationships and are required to market any of
our products directly, we will need to build a marketing and sales force with
technical
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RISK FACTORS
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expertise and with supporting distribution capabilities. We may not be able to
maintain or establish such relationships with third parties or build in-house
sales and distribution capabilities.
BECAUSE OUR SUCCESS DEPENDS ON OUR PRODUCTS BEING APPROVED THROUGH A GOVERNMENT
REGULATORY APPROVAL PROCESS THAT IS UNCERTAIN, TIME-CONSUMING AND EXPENSIVE, OUR
BUSINESS MAY SUFFER.
Any products we or our corporate partners develop are subject to regulation by
federal, state and local governmental authorities in the United States,
including the FDA, and by similar agencies in other countries. Any product we or
our corporate partners develop 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. Data from a recently completed Phase III
clinical trial of Melacine, our melanoma vaccine, showed no statistically
significant therapeutic benefit on patients who met the criteria for treatment
in connection with the trial. We are currently reviewing, together with our
corporate partner for this product, what additional studies, if any, will be
conducted for this product.
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 we or our corporate
partners develop;
+ could impose significant additional costs on us or our corporate partners;
+ would diminish any competitive advantages that we or our corporate partners
may attain; and
+ could adversely affect our ability to receive royalties and generate revenues
and profits.
Regulatory approval, if granted, may entail limitations on the indicated uses
for which the approved product may be marketed. These limitations could reduce
the size of the potential market for such product. Product approvals, once
granted, may be withdrawn if problems occur after initial marketing. Further,
manufacturers of approved products are subject to ongoing regulation, including
compliance with detailed regulations governing GMP. Failure to comply with
manufacturing regulations 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.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND
COSTLY.
Our research and development involves the controlled use of hazardous and
radioactive materials and biological waste. We are subject to federal, state and
local laws and regulations governing the use, manufacture, storage, handling and
disposal of these materials and certain waste products. Although we believe that
our safety procedures for handling and disposing of these materials comply with
legally prescribed standards, we cannot completely eliminate the risk of
accidental contamination or injury from these materials. In the event of an
accident, we could be held liable for damages or penalized with fines, and this
liability could exceed our resources. We may have to incur significant costs to
comply with future environmental laws and regulations. As part of our
acquisition of Ribi, we assumed responsibility as a potential responsible party
in connection with groundwater contamination
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RISK FACTORS
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at the Bitterroot Valley Sanitary Landfill. We have initiated settlement
discussions with the United States and the State of Montana and currently
believe that a settlement can be reached releasing us from past and future
liability related to the groundwater contamination. We have reserved $2.6
million to cover reasonably anticipated settlement costs. If we incur costs in
excess of this amount in resolving this action, our financial condition may
suffer.
In addition, we cannot predict the extent of government regulations or the
impact of new governmental regulations that might have an adverse effect on the
research, development, production and marketing of our products. We may be
required to incur significant costs to comply with current or future laws or
regulations. Our business may be harmed by the cost of such compliance.
WE FACE PRODUCT LIABILITY EXPOSURE AND POTENTIAL UNAVAILABILITY OF INSURANCE.
We may experience losses due to product liability claims. We have obtained
limited product liability insurance coverage. Such coverage may not be adequate
or may not continue to be available in sufficient amounts, at an acceptable
cost, or at all. We may not be able to obtain commercially reasonable product
liability insurance for any product approved for marketing. A product liability
claim, product recalls or other claim, as well as any claims for uninsured
liabilities or in excess of insured liabilities, may significantly harm our
business.
IF WE CANNOT SUCCESSFULLY DEVELOP OUR PRODUCTS, OR IF OUR PRODUCTS ARE NOT
ACCEPTED BY THE MARKET, WE WILL NOT GENERATE REVENUE AND OUR BUSINESS WILL
SUFFER.
Development of therapeutic, prophylactic and diagnostic products is subject to
risks of failure inherent in their development or commercial viability. Also,
physicians, patients or the medical community generally may not accept or
utilize any products that may be developed by our corporate partners or us.
These risks include the possibility that any such products will:
+ be found unsafe;
+ be found to be ineffective;
+ fail to receive necessary regulatory approvals;
+ be difficult or impossible to manufacture on a large scale;
+ be uneconomical to market;
+ fail to be developed prior to the successful marketing of similar products by
competitors;
+ be impossible to market because they infringe on the proprietary rights of
third parties or compete with products marketed by third parties that are
superior;
+ not be as effective as alternative treatment methods; and
+ not qualify for reimbursement from government and third-party payors.
Any products successfully developed by us or our corporate partners, if approved
for marketing, may never achieve market acceptance. Such products will compete
with drugs and therapies manufactured and marketed by other major pharmaceutical
and other biotechnology companies. If we do not successfully develop and market
our products, we will not generate revenue and our business will suffer.
WE FACE UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT AND HEALTH CARE REFORM.
In both domestic and foreign markets, sales of our or our corporate partners'
products 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;
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RISK FACTORS
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+ pharmacy benefit management companies; and
+ other health care-related organizations.
Both the federal and state governments in the United States and foreign
governments continue to propose and pass new legislation designed to contain or
reduce the cost of health care. Existing regulations affecting the pricing of
pharmaceuticals and other medical products may also change before any of our or
our corporate partners' products are approved for marketing. Cost control
initiatives could decrease the price that we receive for any product we or any
of our corporate partners may develop in the future. 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. Our or
our corporate partners' products, if any, may not be considered cost effective
or adequate third-party reimbursement may not be available to enable us or our
corporate partners to maintain price levels sufficient to realize a return on
our investment.
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.
Following this offering, our directors, entities affiliated with our directors,
and our executive officers will beneficially own, in the aggregate,
approximately 20.5% of our outstanding capital stock. These stockholders as a
group may be able to influence our management and affairs and, if acting
together, may be able to influence most matters requiring the approval by our
stockholders, including the election of directors, any merger, consolidation or
sale of all or substantially all of our assets and any other significant
corporate transaction.
The concentration of ownership may also delay or prevent a change of control of
Corixa at a premium price if these stockholders oppose it.
OUR STOCKHOLDERS FACE IMMEDIATE AND POTENTIAL DILUTION.
The price you will pay for our common stock will be much more than the book
value per share of our outstanding common stock after the offering. Accordingly,
you will suffer immediate and substantial dilution of your investment.
In addition, our stockholders will experience dilution if:
+ we elect or are required to sell shares of our common stock to SmithKline
Beecham under the terms of our multi-field collaboration and license
agreement with SmithKline Beecham;
+ we issue additional shares of our Series A preferred stock and warrants to
purchase our common stock to Castle Gate in connection with additional
draw-downs of funds under the Castle Gate equity line of credit; or
+ we enter into additional corporate partnerships or acquire additional
technologies or companies in connection with which we agree to issue shares
of our capital stock.
STATE LAWS AND OUR CERTIFICATE OF INCORPORATION MAY INHIBIT POTENTIAL
ACQUISITION BIDS THAT COULD BE BENEFICIAL FOR STOCKHOLDERS.
Provisions of our amended and restated certificate of incorporation and by-laws,
as well as provisions of Delaware and Washington law, will make it more
difficult for a third party to acquire us, even if doing so would be beneficial
for our stockholders. See "Description of our capital stock--Antitakeover laws
and provisions" for a discussion of these antitakeover provisions.
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Forward-looking statements
This prospectus includes forward-looking statements about our business and
results of operations that are subject to risks and uncertainties that could
cause our actual results to vary materially from those reflected in the
forward-looking statements. Words such as "believes," "anticipates," "plans,"
"estimates," "future," "could," "may," "should," "expect," "envision,"
"potentially," variations of such words and similar expressions are intended to
identify such forward-looking statements. Factors that could cause or contribute
to these differences include those discussed previously under the caption "Risk
factors" and elsewhere in this prospectus and the documents incorporated by
reference in this prospectus. We caution investors not to place undue reliance
on these forward-looking statements which speak only as of the date hereof. We
disclaim any intent or obligation to update these forward-looking statements.
Actual results or outcomes may differ materially from those predicted in our
forward-looking statements due to the risks and uncertainties inherent in our
business, including among other items, risks and uncertainties in:
+ market acceptance of and continuing demand for our products;
+ the attainment of patent protection for any of these products;
+ the impact of competitive products, pricing and reimbursement policies;
+ our ability to obtain additional financing to support our operations;
+ the continuation of our corporate collaborations;
+ clinical trial results;
+ obtaining and maintaining regulatory approval where required; and
+ changing market conditions and other risks detailed below.
You should read and interpret any forward-looking statements together with the
following documents:
+ our most recent Annual Report on Form 10-K;
+ the risk factors contained in this prospectus under the caption "Risk
factors"; and
+ our other filings with the Securities and Exchange Commission.
Any forward-looking statement speaks only as of the date on which that statement
is made. We will not update any forward-looking statement to reflect events or
circumstances that occur after the date on which such statement is made.
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Use of proceeds
We estimate that the net proceeds from the sale of the 2,000,000 shares of
common stock we are offering will be approximately $74.5 million. If the
over-allotment option is exercised in full, we estimate that the net proceeds
will be approximately $82.1 million. "Net proceeds" is what we expect to receive
after we pay the estimated underwriting discounts and commissions and the
estimated offering expenses. For the purpose of estimating net proceeds, we are
assuming that the public offering price will be $39.94 per share.
We expect to use the net proceeds that we will receive from the offering:
+ to fund product development and clinical research;
+ to fund the acquisition of technologies and companies; and
+ for general corporate purposes, capital expenditures and other working
capital requirements.
Pending such uses, we intend to invest the net proceeds from the offering in
interest-bearing, investment grade securities. We will not receive any of the
proceeds from the sale of 250,000 shares by the selling stockholder.
Dividend policy
We have never declared or paid cash dividends on our common stock and we do not
intend to do so in the foreseeable future.
Price range of common stock
Our common stock has been quoted on the Nasdaq National Market under the symbol
"CRXA" since our initial public offering in October 1997. Prior to this date our
common stock did not trade publicly.
The following table shows the high and low selling prices of our common stock as
quoted on the Nasdaq National Market for each of the quarters indicated.
<TABLE>
<CAPTION>
HIGH LOW
- ------------------------------------------------------------------------------
<S> <C> <C>
1997
Fourth Quarter.............................................. $14.13 $ 8.75
1998
First Quarter............................................... $10.00 $ 6.75
Second Quarter.............................................. 10.50 6.13
Third Quarter............................................... 7.00 3.31
Fourth Quarter.............................................. 9.50 3.50
1999
First Quarter............................................... $10.88 $ 7.38
Second Quarter.............................................. 18.13 7.81
Third Quarter............................................... 18.13 12.25
Fourth Quarter.............................................. 17.44 12.63
2000
First Quarter (through March 29)............................ $72.00 $17.25
</TABLE>
On March 29, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $39.94 per share. As of March 2, 2000, we had 1,201
holders of record of our common stock.
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Capitalization
The following table sets forth our actual capitalization as of December 31, 1999
and as adjusted to give effect to the receipt of the net proceeds from the sale
of 2,000,000 shares of common stock offered by us at an assumed offering price
of $39.94 per share, after deducting underwriting discounts and commissions and
estimated offering expenses we expect to pay.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
ACTUAL AS ADJUSTED
- -------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, less current portion................. $ 11,426 $ 11,426
Redeemable common stock..................................... 2,000 2,000
Stockholders' equity:
Convertible preferred stock, $0.001 par value;
Authorized--10,000,000 shares; Designated Series
A--50,000 shares; Issued and outstanding--12,500
shares................................................. -- --
Common stock, $0.001 par value; Authorized--40,000,000
shares;
Issued and outstanding 18,627,225 shares actual and
20,627,225 shares as adjusted.......................... 19 21
Additional paid-in capital................................ 147,926 222,447
Deferred compensation..................................... (441) (441)
Accumulated other comprehensive loss...................... (687) (687)
Accumulated deficit....................................... (88,036) (88,036)
-------- --------
Total stockholders' equity........................ 58,781 133,304
-------- --------
Total capitalization.............................. $ 72,207 $146,730
======== ========
</TABLE>
The as adjusted outstanding share total excludes:
+ an aggregate of 3,416,556 shares subject to outstanding options as of
December 31, 1999 at a weighted average exercise price of $10.39 per share
under our 1994 Amended and Restated Stock Option Plan and our 1997 Directors'
Stock Option Plan;
+ 1,561,368 shares issuable upon exercise of warrants outstanding as of
December 31, 1999 at a weighted average exercise price of $9.39 per share;
+ an additional 2,084,195 shares reserved for issuance upon exercise of options
that may be granted subsequent to December 31, 1999 under our 1994 Amended
and Restated Stock Option Plan and our 1997 Directors' Stock Option Plan;
+ 125,000 shares reserved for issuance under our 1997 Employee Stock Purchase
Plan; and
+ 12,500 shares of Series A preferred stock which are convertible into
1,470,588 shares of common stock.
The as adjusted outstanding share number includes 141,576 shares of common stock
that are redeemable.
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Selected consolidated financial data
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and notes and the other
information contained in this prospectus. The selected consolidated balance
sheet data as of December 31, 1998 and 1999 and the selected consolidated
statement of operations data for the years ended December 31, 1997, 1998 and
1999 have been derived from our consolidated financial statements that have been
audited by Ernst & Young LLP, independent auditors, and are included elsewhere
in this prospectus. The selected consolidated balance sheet data as of December
31, 1995, 1996 and 1997 and the selected consolidated statement of operations
data for the years ended December 31, 1995 and 1996 have been derived from our
audited consolidated financial statements not included in this prospectus.
When you read this selected financial data, it is important that you also read
the historic financial statement and related notes included in this prospectus,
as well as the section of this prospectus entitled "Management's discussion and
analysis of financial conditions and results of operations." The historical
results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
CONSOLIDATED STATEMENT OF OPERATIONS DATA 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Collaborative agreements.................................. $ 2,411 $ 4,402 $ 13,390 $ 17,003 $ 25,035
Government grants......................................... 304 1,403 977 1,267 1,463
------- ------- -------- -------- --------
Total revenue........................................... 2,715 5,805 14,367 18,270 26,498
Operating expenses:
Research and development.................................. 7,040 9,995 16,398 27,436 41,962
General and administrative................................ 532 781 2,033 2,672 4,330
Acquired in-process research and development.............. -- -- -- 12,021 37,637
------- ------- -------- -------- --------
Total operating expenses................................ 7,572 10,776 18,431 42,129 83,929
------- ------- -------- -------- --------
Loss from operations........................................ (4,857) (4,971) (4,064) (23,859) (57,431)
Other income, net........................................... 707 824 1,388 2,543 2,673
------- ------- -------- -------- --------
Net loss.................................................... (4,150) (4,147) (2,676) (21,316) (54,758)
Preferred stock dividend.................................... -- -- -- -- (6,008)
------- ------- -------- -------- --------
Net loss applicable to common stockholders.................. $(4,150) $(4,147) $ (2,676) $(21,316) $(60,766)
======= ======= ======== ======== ========
Basic and diluted net loss per common share(1).............. $ (1.67) $ (1.65) $ (0.55) $ (1.75) $ (3.91)
======= ======= ======== ======== ========
Shares used in computation of basic and diluted net loss per
common share.............................................. 2,487 2,521 4,891 12,172 15,528
======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
CONSOLIDATED BALANCE SHEET DATA 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and securities available-for-sale.... $10,773 $11,933 $ 56,318 $ 45,141 $ 45,553
Working capital............................................. 9,743 10,101 53,962 36,979 20,919
Total assets................................................ 12,340 15,185 61,807 61,184 92,480
Long-term obligations, less current portion................. 816 1,175 6,924 11,835 11,426
Redeemable common stock..................................... -- -- -- -- 2,000
Accumulated deficit......................................... (5,139) (9,286) (11,962) (33,278) (88,036)
Total stockholders' equity.................................. 10,264 11,226 51,285 42,184 58,781
</TABLE>
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(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of the number of shares and net loss per share.
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Management's discussion and analysis of financial condition and results of
operations
The following discussion should be read together with our consolidated financial
statements and the accompanying notes included elsewhere in this prospectus and
contains forward-looking statements that involve substantial risks and
uncertainties. Our actual results could differ materially from those expressed
or implied in these forward-looking statements as a result of various factors,
including those discussed in "Risk factors" and elsewhere in this prospectus.
OVERVIEW
Our objective is to be a leader in the discovery and commercialization of
products to prevent, treat or diagnose autoimmune diseases, cancer, and certain
infectious diseases. Our strategy consists of integrating our core antigen,
adjuvant and antigen delivery technologies into a product pipeline focused on
the immune system. To implement this strategy, we establish corporate
collaborations at various stages in the research and development process for
product development and commercialization, including research, clinical
development, obtaining regulatory approval, manufacturing and marketing. We
believe that this research and partner-driven approach will create significant
scientific, operational and financial advantages and accelerate the commercial
development of new therapeutic and prophylactic T cell vaccines and other
immunotherapeutic products. Since inception, approximately 92% of our revenue
has resulted from these collaborative agreements, and approximately 8% of our
revenue has resulted from funds awarded through government grants. As of
December 31, 1999, we had total stockholders' equity of $58.8 million.
We have entered into, and intend to continue to enter into, collaborative
agreements at various stages in the research and development process. We believe
that this active corporate partnering strategy enables us to:
+ maintain our focus on our fundamental strengths in vaccine discovery and
research;
+ capitalize on our corporate partners' strengths in product development,
manufacturing and commercialization;
+ retain significant downstream participation in product sales; and
+ reduce our financing requirements.
When entering into corporate partnering relationships, we seek to cover our
research and development expenses through research funding, milestone payments,
collaborative agreement credit lines, and technology or license fees. Also, we
endeavor to retain significant downstream participation in product sales through
either profit-sharing or product royalties paid on annual net sales. Our
significant collaborative agreements include the following:
+ Zenyaku Kogyo. In August 1999, we entered into a corporate partnership with
Zenyaku Kogyo for research and development related to our psoriasis
immunotherapeutic product, PVAC. The agreement provides Zenyaku Kogyo with
exclusive rights to PVAC treatment in Japan, while we and our treatment
discovery partner, Genesis Research and Development Limited, retain exclusive
rights with respect to the rest of the world. Under the agreement, we will
receive license fees and research funding of $6.0 million, milestone payments
based upon successful clinical and commercial progress, and a royalty stream
on future product sales.
+ Zambon Group and the pharmaceutical division of Japan Tobacco. During May and
June 1999, we entered into corporate partnerships with Zambon Group and the
pharmaceutical division of Japan Tobacco, respectively, for the research,
development and commercialization of vaccine and
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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antibody-based products aimed at the prevention and/or treatment of lung
cancer. Zambon Group has exclusive rights to develop and sell vaccine
products in Europe, the former countries of the Soviet Union, Argentina,
Brazil and Colombia and co-exclusive rights with Japan Tobacco in China.
Japan Tobacco has exclusive rights to develop and sell vaccine products in
the United States, Japan and a co-exclusive license in China. We also granted
Zambon Group a non-exclusive license and Japan Tobacco an option to formulate
vaccines that may result from the collaboration using our microsphere
delivery system with our proprietary adjuvants. The agreements have three-
year terms and, in the aggregate, provide us with committed research funding
of $16.5 million as well as milestone payments that vary depending on the
milestones achieved. In addition, Zambon Group purchased $2.0 million of our
common stock. The agreement allows Zambon Group to sell the common stock back
to us at the original price if the technology does not result in a commercial
product at the end of the research program.
+ Infectious Disease Research Institute. In March 1999, we entered into a
research agreement with the Infectious Disease Research Institute, or IDRI,
to research and develop ex vivo therapies for the treatment of cancer.
Pursuant to the terms of the agreement, IDRI committed $12.0 million over the
three-year term of the agreement to fund work in these areas. The agreement
provides us with exclusive rights to all intellectual property and product
rights. IDRI will receive a percentage of our proceeds related to ex vivo
therapy products resulting from the research and development.
+ SmithKline Beecham. During 1998, we entered into a broad corporate
partnership with SmithKline Beecham, SmithKline Beecham Biologicals and
SmithKline Beecham Manufacturing for vaccine discovery for breast, prostate,
ovarian and colon cancer, tuberculosis vaccine discovery and development
programs, and vaccine discovery programs for two chronic infectious
pathogens, Chlamydia trachomatis and Chlamydia pneumoniae. We also have
granted SmithKline Beecham an exclusive worldwide license to develop,
manufacture, and sell vaccine products resulting from our clinical program
based on Her-2/neu for the treatment of breast and ovarian cancer and our
preclinical program based on Mammaglobin, a novel gene product associated
with breast cancer. For certain of these disease areas, we granted SmithKline
Beecham rights to develop, manufacture and sell passive immunotherapy
products. These products include T cell, dendritic cell and antibody
therapeutics and therapeutic drug monitoring products. SmithKline Beecham has
committed $43.6 million to fund work in such discovery programs during the
next four years.
We have also acquired the following companies:
+ Ribi. In October 1999, we completed the acquisition of Ribi ImmunoChem
Research, a Hamilton, Montana-based biopharmaceutical company focused on
developing novel agents that modulate the human immune response to prevent or
treat certain diseases including infectious diseases, allergies, cancer and
cardiovascular injury. We purchased Ribi for approximately $57.5 million,
consisting of 3,610,766 shares of our common stock and stock options valued
in the aggregate at $47.9 million, cash of $7.9 million and transaction costs
of approximately $1.7 million. We intend that the transaction qualify as a
tax-free reorganization, and the transaction was accounted for as a purchase.
We recorded acquired in-process research and development of $26.0 million and
acquisition-related intangibles of $15.1 million, including adjuvant know-how
of $3.1 million, workforce of $1.0 million and goodwill of $11.0 million.
As part of our acquisition of Ribi, we assumed responsibility as a potential
responsible party in connection with groundwater contamination at the
Bitterroot Valley Sanitary Landfill. We have initiated settlement
discussions with the United States and the State of Montana and currently
believe that a settlement can be reached releasing us from past and future
liability related to the groundwater contamination. We have reserved $2.6
million to cover reasonably anticipated settlement costs. If we incur costs
in excess of this amount in resolving this action, our financial
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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condition may suffer. In addition, we assumed responsibility for an action
brought against Ribi by one of its former employees who alleged he was
discharged in violation of the Montana Wrongful Discharge from Employment
Act and further that the discharge was for his refusal to violate public
policy in connection with his employment. Although we believe our defenses
to these allegations have merit, we cannot assure you that we will prevail
in this matter. If the former employee prevails on the public policy issue,
we could be subject to punitive damages of an unknown amount.
+ Anergen. In February 1999, we acquired all of the outstanding shares of
common stock of Anergen, a biotechnology company focused on the treatment of
autoimmune diseases through the discovery and development of proprietary
therapeutics that selectively interrupt the disease process. We purchased
Anergen for approximately $9.6 million, consisting of 1,058,031 shares of our
common stock with a market value of approximately $8.7 million, approximately
$200,000 in cash, and transaction costs of approximately $700,000. We
recorded acquired in-process research and development of $11.6 million. We
accounted for the acquisition as a purchase, and we intend that the
transaction qualify as a tax-free reorganization.
+ GenQuest. In September 1998, we completed the acquisition of GenQuest, a
development stage biotechnology company focused on applying functional
genomics technology to discover novel genes and develop the potential of
these genes and related gene products to be used in diagnosis, drug
screening, gene therapy and antibody development in the areas of prostate,
breast, lung, colon, and ovarian cancer. We purchased GenQuest for
approximately $12.4 million, consisting of 1,063,695 shares of our common
stock with a market value of approximately $7.3 million, cash of
approximately $4.5 million, and transaction costs of approximately $600,000.
We recorded acquired in-process research and development of $12.0 million. We
accounted for the acquisition as a purchase, and we intend that the
transaction qualify as a tax-free reorganization.
We have experienced significant operating losses in each year since our
inception. As of December 31, 1999, our accumulated deficit was approximately
$88.0 million, of which $49.6 million is attributable to the write-off of
in-process research and development costs associated with the acquisitions of
Ribi, Anergen and GenQuest. We may incur substantial additional operating losses
over, at a minimum, the next several years. These losses have been and may
continue to be principally the result of various costs associated with our
discovery, research and development programs, preclinical and clinical
activities and the purchase of technology. Corporate partnerships, other
research, development and licensing arrangements, research grants and interest
income have generated substantially all of our revenue to date. Our 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 our products and successfully manufacturing and marketing
commercial products. We cannot assure you that we will be able to achieve
consistent profitability. In addition, because payments under collaborative
agreements and licensing arrangements may vary significantly in both timing and
amounts, we could experience quarters of profitability and quarters of losses.
Therefore, our results of operations for any period may fluctuate significantly
and may not be comparable to the results of operations for any other period.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
TOTAL REVENUE
Our revenue increased to $26.5 million for the year ended December 31, 1999,
from $18.3 million in 1998 and from $14.4 million in 1997. We attribute the 1999
increase primarily to revenue from collaborative agreements with the
pharmaceutical division of Japan Tobacco, Zambon Group, Zenyaku
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Kogyo and IDRI. The revenue from the multi-field agreement with SmithKline
Beecham is the primary cause for the increase in 1998 over 1997. We received
revenue under government grants in 1999 of $1.5 million, more than the $1.3
million received in 1998, and up from $977,000 received in 1997. We expect our
revenue to fluctuate in the future depending on our ability to enter into new
collaborative agreements, obtain new government grants and uncertainty
surrounding additional product sales.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses increased to $42.0 million for the year
ended December 31, 1999, from $27.4 million in 1998 and from $16.4 million in
1997. The 1999 increase was primarily attributable to increased payroll and
personnel expenses due in part to acquisitions, increased collaboration and
patent expenses, increased costs associated with preclinical activities and
increased facilities costs as a result of the completion of our facility
expansion in late 1998. The 1998 increase compared with 1997 resulted from
increased payroll and personnel expenses, laboratory services and supplies,
increased collaboration and patent expenses, increased consulting costs and
increased amortization of deferred compensation associated with certain stock
option grants. We expect research and development expenses to increase in the
future as the level of our business activities continues to expand.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses increased to $4.3 million for the year
ended December 31, 1999, from $2.7 million in 1998 and from $2.0 million in
1997. These increases were primarily attributable to increased expenses related
to payroll and personnel expenses due in part to acquisitions, legal fees,
business development, and the general and administrative portions of the
amortization of deferred compensation associated with certain stock option
grants. We expect general and administrative expenses to increase in the future
to support the expansion of our business activities.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
For the year ended December 31, 1999, our acquired in-process research and
development (IPR&D) expense increased to $37.6 million from $12.0 million in
1998. The $37.6 million reflects the amount allocated to IPR&D that we acquired
in the Ribi and Anergen acquisitions compared to $12.0 million acquired in the
GenQuest acquisition during 1998.
Our acquired IPR&D for each of the above acquisitions represents the present
value of the estimated after-tax cash flows that we expect to be generated by
the purchased technology that, at the acquisition dates, had not yet reached
technological feasibility. We based the cash flow projections for revenues on
estimates of growth rates and the aggregate size of the respective markets for
each product, probability of technical success given the stage of development at
the time of acquisition, royalty rates based on prior licensing agreements,
product sales cycles, and the estimated life of a product's underlying
technology. We deducted our estimated operating expenses and income taxes from
our estimated revenue projections to arrive at our estimated after-tax cash
flows. Our projected operating expenses include general and administrative
expenses and research and development costs. The rate that we used to discount
projected cash flows ranged from 38% to 55% for in-process technologies, which
we based primarily on venture capital rates of return and the weighted average
cost of capital for us at the time of acquisition.
At the acquisition date, Ribi's IPR&D projects consisted of the following: MPL,
RC-529, Melacine, Detox and RC-552.
+ Ribi is developing MPL, an adjuvant immunostimulant for potential application
in vaccines. Ribi has estimated that the research and development costs to
complete individual MPL vaccine
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development projects will be approximately $2.7 million. The MPL projects are
in various stages of completion, from preclinical to Phase III. Ribi has
scheduled the most advanced MPL project for completion in the year 2000. Ribi
has scheduled additional identified MPL projects in early development stages
for completion by the year 2006. Although Ribi reported favorable results in
Phase III clinical trials related to MPL in a hepatitis B vaccine,
significant risk related to regulatory approval remains.
+ RC-529 is a next generation synthetic adjuvant. Ribi plans to jointly develop
a hepatitis B vaccine utilizing RC-529 with a partner. Ribi has estimated
that RC-529 development will be completed in 2004, requiring an additional
$2.4 million in research and development costs. As of the acquisition date,
Ribi had made progress in the areas of preclinical work, including toxicology
studies, comparative studies, and production scale-up studies.
+ Melacine vaccine is a therapeutic vaccine to treat melanoma. Ribi has
estimated costs to complete Melacine vaccine development at $3.9 million,
with a targeted completion date in 2001. Although significant risks remain,
Melacine vaccine has completed two Phase III clinical trials and is currently
in one other Phase III study.
+ Detox has adjuvant properties, which Ribi is currently developing for use in
Melacine vaccine. In addition, Biomira is developing Detox for use in
Theratope as a therapeutic vaccine for breast, lung, gastrointestinal and
colon cancer. Ribi has estimated remaining costs to complete development of
Detox at approximately $900,000 with completion planned for 2002. While
significant risks remain to complete Detox, Phase III trials have been
started for its application in Theratope, a product that contains Detox
adjuvant as a vaccine adjuvant.
+ RC-552 is a synthetic compound that Ribi is developing for use in protecting
against reperfusion injury in patients undergoing cardiac surgery or
angioplasty. Ribi has targeted completion of RC-552 development for 2001 with
an additional $2.4 million required in completion costs. Prior to our
acquisition of Ribi, Ribi made significant progress related to preclinical
work, including toxicology studies. The FDA has indicated that Ribi could
proceed to a Phase II/III clinical trial for RC-552 with appropriate
preclinical data.
Subsequent to our acquisition of Ribi, we received approval of Melacine for the
treatment of Stage IV malignant melanoma in Canada in November 1999. We also
received preliminary data from a Phase III clinical trial for Melacine for the
treatment of Stage II malignant melanoma.
At the Anergen acquisition date, Anergen's IPR&D projects were potential
therapies for the treatment of autoimmune diseases that focus on destroying or
inactivating T cells without affecting the protective functions of the immune
system or stimulate the immune system to produce antibodies that may interfere
with the presentation of auto-antigens to destructive T cells. AnervaX.RA, a
potential product to treat rheumatoid arthritis, is the primary product.
AnervaX.RA is a synthetic peptide vaccine consisting of a small portion of the
human leukocyte antigen (HLA) II molecule. AnervaX.RA is designed to elicit an
immune response that interferes with the presentation of auto-antigens to T
cells. This immune response is intended to stimulate the production of the
patient's own antibodies to a subset of the HLA molecules on the patient's
antigen presenting cells. AnervaX.RA peptide vaccine has completed a 53-patient
randomized Phase II double-blinded clinical trial. Subsequent to our acquisition
of Anergen, we have received interim data from a Phase I/II clinical trial for
AnergiX.RA in November 1999.
At the GenQuest acquisition date, GenQuest's primary IPR&D projects related to
functional genomics technology to discover and develop novel genes and related
gene products to be used in diagnosis and therapeutic monoclonal antibodies.
These potential products are in the areas of prostate, breast, lung, colon and
ovarian cancer. Subsequent to the acquisition of GenQuest, and as a result of
the
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acquisition, additional antigen-based product rights have been granted to
SmithKline Beecham, Zambon Group and Japan Tobacco. Also, in August 1999, we
entered into a license agreement with Introgen Therapeutics granting exclusive
worldwide license to MDA-7, a tumor suppressor gene that we have in-licensed
from Columbia University. The license was acquired through our acquisition of
GenQuest.
We based all of the foregoing estimates and projections on assumptions we
believed to be reasonable at the time of the acquisition but that are inherently
uncertain and unpredictable. If we do not successfully develop these projects,
our business, operating results, and financial condition may be adversely
affected. As of the date of each acquisition, we concluded that once completed,
the technologies under development can only be economically used for their
specific and intended purposes and that such in-process technologies have no
alternative future use after taking into consideration the overall objectives of
the project, progress toward the objectives, and uniqueness of developments to
these objectives. If the projects fail, the economic contribution expected to be
made by the in-process research and development will not materialize. The risk
of untimely completion includes the risk that competitors will develop
alternative products.
Interest income
Our interest income decreased to $2.8 million for the year ended December 31,
1999, from $3.0 million in 1998 and up from $1.3 million in 1997. The change in
interest income is based on average investment balances during the year and
market interest rates.
Interest expense
Our interest expense increased to $797,000 for the year ended December 31, 1999,
from $767,000 in 1998 and from $327,000 in 1997. The increase in each period was
primarily attributable to higher loan and capital lease financing balances.
Other income
Our other income increased to $677,000 for the year ended December 31, 1999,
from $294,000 in 1998 and from $415,000 in 1997. Other income in 1999 includes
$400,000 and $250,000 in proceeds from the recovery of a collaboration
receivable that was previously charged to expense and sublease rental receipts,
respectively. The 1998 and 1997 amounts include $204,000 and $90,000, and
$325,000 and $90,000 in proceeds from management and administrative service
agreements with GenQuest and IDRI, respectively. We provided services to IDRI
with respect to certain management, accounting and financial matters, record
keeping, personnel administration and human resources, and treasury services as
required by the agreement with IDRI. We performed similar services under our
agreement with GenQuest, which ended upon our acquisition of GenQuest in
September 1998.
EFFECT OF DEFERRED COMPENSATION
We recorded amortization of deferred compensation of approximately $739,000,
$1.4 million and $1.3 million in the years ended December 31, 1999, 1998 and
1997, respectively. Our deferred compensation represents the amortization of the
difference between the exercise prices of options for 645,000 shares of common
stock granted during the year ended December 31, 1997 and the deemed fair value
of our common stock on the grant dates. We will amortize the remaining balance
of $441,000 over the remaining vesting period of two years.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through collaborative agreements and
the issuance of equity securities and debt instruments. The October 1997 initial
public offering and preceding private placements of equity securities have
provided us with aggregate net proceeds of approximately
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$61.1 million. Since inception, we have recognized approximately $67.7 million
of revenue under corporate partnerships and grants, have received $12.5 million
from the issuance of Series A preferred stock under an equity line of credit,
have drawn $9.0 million on a bank loan and received $5.0 million from credit
lines under collaborative agreements.
Since our inception in 1994, our operations have used cash of approximately
$20.2 million. During the same period, we have invested $10.9 million in
property and equipment and have acquired an additional $5.4 million of equipment
through capital lease financings.
In April 1999, we entered into an agreement with Castle Gate, an investment
partnership focusing primarily on health care and biomedical companies, to
provide us with an equity line of credit of up to $50 million. Under this
agreement, Castle Gate is obligated to provide the equity line of credit through
March 2001. We may draw down funds under the equity line of credit at our sole
option and may use these funds for expenses in connection with various
technology or company acquisitions. When these funds are drawn down, we will
issue Castle Gate shares of our Series A preferred stock at a price of $1,000
per share and warrants to purchase shares of our common stock. At the time we
executed the Castle Gate agreement, we completed an initial draw-down under the
equity line of credit of $12.5 million and a corresponding issuance to Castle
Gate of 12,500 shares of our Series A preferred stock convertible into common
stock at $8.50 per share and warrants to purchase up to a total of 1,037,137
shares of our common stock. The warrants have exercise prices of $8.28 and $8.50
per share. On September 24, 1999, we obtained stockholder approval for any
additional funds that we may elect to draw under the equity line of credit. In
the event we elect to draw down additional funds under the equity line of
credit, each draw must be for a minimum of $12.5 million. We have no present
intention to make any additional draws under the equity line of credit.
On the date of the initial draw, the effective conversion price of the preferred
stock (after allocating the portion of the proceeds to the common stock warrants
based on the relative fair values) was at a discount to the price of the common
stock into which the preferred stock is convertible. The discount of $5.5
million was recorded as a preferred stock dividend. In addition, we accrued
$469,000 related to the 5% annual cumulative dividend.
During the year ended December 31, 1999, we used $5.7 million of net cash in our
operations, compared to $7.5 million in 1998 and $249,000 in 1997. Our investing
activities used $16.4 million in 1999, compared to $8.5 million in 1998 and
$30.9 million in 1997. The 1999 increase was due primarily to the increased use
of cash in the net activity of available-for-sale securities, partially offset
by decreases in purchases of property and equipment and cash used in
acquisitions. The 1998 decrease compared with 1997 was due to purchases of
available-for-sale securities in 1997 with the proceeds from our initial public
offering in October 1997. Our financing activities provided cash of $13.8
million in 1999 compared with $8.7 million in 1998 and $45.5 million in 1997.
The increase in 1999 was primarily due to proceeds of $12.5 million from our
issuance of Series A preferred stock partially offset by a decrease in proceeds
from long-term obligations. The decrease in 1998 compared with 1997 is primarily
a result of the proceeds from our initial public offering in October 1997. As of
December 31, 1999, we had approximately $45.6 million in cash, cash equivalents
and securities available-for-sale. Working capital decreased to $20.9 million at
December 31, 1999 from $37.0 million in 1998.
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We believe that our existing capital resources, committed payments under our
existing collaborative agreements and licensing arrangements, equipment
financing, interest income and the proceeds from this offering will be
sufficient to fund our current and planned operations over at least the next 18
months. However, we cannot assure you that these sources of capital will be
sufficient for such period of time. Our future capital requirements will depend
on many factors, including, among others:
+ continued scientific progress in our discovery, research and development
programs;
+ the magnitude and scope of these activities;
+ our ability to maintain existing, and enter into additional, corporate
partnerships and licensing arrangements;
+ progress with preclinical studies and clinical trials;
+ the time and costs involved in obtaining regulatory approvals;
+ the costs of acquiring companies with complementary technology;
+ 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 our control.
We intend to seek additional funding through some or all of the following
methods: corporate collaborations, licensing arrangements, public or private
equity or debt financings, and capital lease transactions. However, we cannot
assure you that additional financing will be available on acceptable terms, if
at all. If sufficient capital is not available, we may be required to delay,
reduce the scope of, eliminate or divest one or more of our discovery, research
or development programs, any of which could have a material adverse effect on
our business, financial condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements", or SAB 101.
Among other things, SAB 101 discusses the SEC staff's view on accounting for
non-refundable up-front fees received in connection with collaboration
agreements. We are currently evaluating the impact of SAB 101 on the accounting
for up-front fees received pursuant to certain collaboration agreements. Should
we determine that a change in accounting policy is necessary, such changes will
be made effective January 1, 2000 and would result in a change to results of
operations for the cumulative effect of the change. Such amount, if recognized,
would be recorded as deferred revenue and recognized as revenue in future
periods. Prior financial results would not be restated.
IMPACT OF YEAR 2000 ISSUES
In prior years, we discussed the nature and progress of our plans to become Year
2000 ready. In late 1999, we completed our remediation and testing of systems.
As a result of those planning and implementation efforts, we experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believe those systems successfully
responded to the Year 2000 date change. We incurred expenses of less than
$100,000 during 1999 in connection with remediating our systems. We are not
aware of any material problems resulting from Year 2000 issues, either with our
products, our internal systems, or the products and services of third parties.
We will continue to monitor our mission critical computer applications and those
of our suppliers and vendors throughout the year 2000 to ensure that we promptly
address any latent Year 2000 matters that may arise.
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MARKET RISK DISCLOSURES
We do not use derivative financial instruments in our operations or investment
portfolio. However, we regularly invest excess operating cash in deposits with
major financial institutions, money market funds, notes issued by the United
States Government and fixed income investments which can be readily purchased or
sold using established markets. We believe that the market risk arising from our
holdings of these financial instruments is minimal. We do not have exposure to
market risks associated with changes in interest rates as we have no variable
interest rate debt outstanding. We do not believe we have any material exposure
to market risks associated with interest rates.
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Business
OVERVIEW
We are a research and development-based biotechnology company committed to
treating and preventing autoimmune diseases, cancer and infectious diseases by
understanding and directing the immune system. We are focused on
immunotherapeutic products and have a broad technology platform enabling both
fully integrated vaccine design and the use of our separate proprietary vaccine
components--antigens, adjuvants or antigen delivery technology--on a standalone,
"Powered by Corixa" basis. We exploit our expertise in immunology and our
proprietary technology platforms to discover and develop vaccines, antigen-based
products, including monoclonal antibody-based products, and novel adjuvants.
OUR ANTIGEN DISCOVERY CAPABILITY
We believe our antigen discovery capabilities, which use numerous proprietary
technologies, are one of our key competitive strengths. Our ability to discover
antigens allows us to select those that will work most effectively in a given
vaccine. In making this selection, we focus on antigens that 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.
In connection with autoimmune diseases, we focus on discovering otherwise normal
antigens, or auto-antigens, that may trigger autoimmune responses.
THROUGH A VARIETY OF PROPRIETARY METHODS,
CORIXA IMMUNOLOGICALLY "SIEVES" FOR ANTIGENS AGAINST
AUTOIMMUNE DISEASES, CANCER, AND OTHER INFECTIOUS DISEASES.
GRAPHIC
[Graphic of "sieve" surrounding the following text:
Normal Tissue, Diseased Tissue, cDNA and Protein
(graphic of down arrow)
Gene Expression Profiling
Quantitative PCR
Full Length Cloning
Immunohistochemistry
Immunogenicity
Antigenicity
In Vitro/In Vivo
(graphic of down arrow)]
NOVEL AND
DISEASE-SPECIFIC
ANTIGENS
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To capitalize on our antigen discovery expertise, a majority of our scientific
personnel is involved in antigen discovery. We use discovery approaches and
technologies that include:
+ acquisition of normal and diseased tissue, and related cDNA and protein;
+ cDNA subtraction and analysis of differential gene expression;
+ quantitative PCR;
+ expression cloning of full-length cDNAs;
+ immunohistochemistry to determine tissue distribution of candidate antigens;
and
+ immunological characterization of candidate antigens.
Our discovery approach also includes correlating the antigens that we discover
with patient immune responses. In this way, we focus on identifying proteins
that are recognized by the human immune system and therefore are antigenic. Our
antigen discovery research culminates in the isolation of pathogen, tumor or
auto-antigen genes that encode antigens with significant potential to be
effective components of vaccines or other immunotherapeutic products.
OUR NOVEL VACCINE DESIGN
The majority of currently available vaccines trigger protective antibody
responses that can destroy an invading pathogen. However, these antibody
responses cannot eliminate tumors or certain infectious diseases. We believe
that an effective immune response against these diseases requires the action of
pathogen- or tumor-reactive T lymphocytes, or T cells. Many of our vaccine
programs focus on activating specialized T cells known as cytotoxic T
lymphocytes, or CTL, that have the ability to recognize and kill
pathogen-infected tissue or tumor cells.
We have shown in preclinical studies that CTL can eliminate either tumors or
some pathogens in situations in which antibody responses fail. These CTL not
only can prevent disease if they are activated before pathogen infection, but
also can eliminate disease once the infection has taken place or, in the case of
cancer, once a tumor has developed. We believe vaccines that activate specific T
cell responses can form the basis for a new class of products that may be used
to either treat or prevent disease. Using recent advances in understanding
molecular mechanisms that control how antigens are normally presented to T
cells, we are designing vaccines that incorporate disease-specific antigens into
biodegradable and biocompatible microspheres. We believe that these vaccines may
give rise to potent CTL responses. Through our antigen discovery program, we
have identified antigens from many tumor types and from infectious disease
pathogens for which no vaccines currently exist.
PRODUCT CATEGORIES
We exploit our expertise in immunology and our proprietary technology platforms
to discover and develop vaccines and other antigen-based products targeting
autoimmune diseases, cancer and infectious diseases in the following product
categories:
+ vaccines and immunotherapeutics for certain autoimmune diseases, cancer and
infectious diseases;
+ adjuvants and antigen delivery systems to increase effectiveness of vaccine
and immunotherapeutics; and
+ monoclonal antibody-based therapeutics and diagnostics.
Our strategy is to partner our technology with numerous developers and marketers
of pharmaceutical and diagnostic products with the goal of making our potential
products available to patients around the world.
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VACCINES AND IMMUNOTHERAPEUTICS FOR CERTAIN AUTOIMMUNE DISEASES, CANCER AND
INFECTIOUS DISEASES.
Autoimmune Disease Technology Platforms. Our autoimmune disease technology
platforms currently consist of:
+ PVAC(TM) treatment;
+ AnergiX(R) complexes; and
+ AnervaX(TM) vaccines.
As an example of our unique approach to generating immunotherapeutic products,
we may have identified certain immune system modulators through our adjuvant
research programs. We are developing one of these immune system modulators, PVAC
treatment, as a possible psoriasis therapeutic. PVAC treatment has entered Phase
II clinical trials in the U.S. and elsewhere in the world. Preliminary data from
a Phase I/II trial in the Philippines indicate that PVAC treatment may induce
beneficial clinical responses in patients with moderate to severe psoriasis.
Our AnergiX complex-based products are in, or have completed, randomized,
blinded, placebo-controlled Phase I clinical trials for the treatment of
rheumatoid arthritis and multiple sclerosis. In the trials, the product was
demonstrated to be safe and beneficial clinical responses were observed in
several AnergiX-treated patients. Our AnervaX.RA(TM) vaccine for rheumatoid
arthritis has completed an initial Phase II clinical trial that showed the
product to be well tolerated and indicated that AnervaX.RA vaccine may provide
clinical benefit.
Cancer and Infectious Disease Technology Platforms. In addition to our
autoimmune disease technology platforms, we specialize in the discovery and
development of a new class of therapeutic and prophylactic products known as T
cell vaccines. Using our three-part technology platform, we design our vaccine
products to force the immune system to recognize antigens in such a way that
potent T cell responses result. This three-part technology platform consists of:
+ proprietary antigens;
+ proprietary adjuvants; and
+ proprietary antigen delivery systems.
In addition to our vaccine programs, we discover and develop other
immunotherapeutic products for the treatment of cancer and infectious diseases.
To date, these products have resulted from our core efforts in antigen and
adjuvant discovery and our acquisition and in-licensing activities. We expect to
continue to derive novel immunotherapies from our internal and external research
efforts.
ADJUVANTS AND ANTIGEN DELIVERY SYSTEMS TO INCREASE EFFECTIVENESS OF VACCINES AND
IMMUNOTHERAPEUTICS.
By combining our antigen discovery capabilities with our adjuvant and delivery
technologies, we believe we can speed the development of potential therapies for
the treatment or prevention of autoimmune diseases, cancer and infectious
diseases. We also believe that many vaccines may be improved by including our
adjuvant and delivery components, leading to multiple new products that are at
least in part "Powered by Corixa."
MONOCLONAL ANTIBODY-BASED THERAPEUTICS AND DIAGNOSTICS.
We believe monoclonal antibodies directed against our antigens may be useful in
the treatment of autoimmune diseases, cancer and infectious diseases.
Consequently, we have entered into a number of collaborations focused on
monoclonal antibody development. We intend to enter into additional
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collaborations with antibody companies to more rapidly develop antibody-based
therapeutics derived from our novel antigen targets.
OUR STRATEGY
Our goal is to be a leader in the discovery and commercialization of products to
prevent, treat or diagnose autoimmune diseases, cancer and infectious diseases.
By understanding and directing the immune system, we discover and develop
vaccines, antigen-based products and novel adjuvants. To accelerate the
commercial development of potential new therapeutic and prophylactic T cell
vaccines and other immunotherapeutic products, we intend to establish corporate
partnerships in various stages in the development process for all aspects of
product development and commercialization.
The principal elements of our strategy are as follows:
BUILD AN INTEGRATED PRODUCT PIPELINE FOCUSED ON THE IMMUNE SYSTEM. We believe
that providing effective vaccines for autoimmune diseases, cancer and infectious
diseases can best be achieved by integrating our proprietary antigen, adjuvant
and antigen delivery technologies.
BROADLY PARTNER CORE TECHNOLOGIES. Because we believe that other companies'
immunotherapeutic products may be enhanced by components available from us, we
seek to establish selective corporate partnerships with major commercial
entities for each of our proprietary core technologies--our "Powered by Corixa"
approach. Examples of these partnerships include antigen-specific collaborations
aimed at generating new antibody targets, or license and supply relationships
involving vaccine adjuvants, such as MPL or Detox. Both approaches enable
improved immunotherapy based in part on our proprietary technologies.
ESTABLISH CORPORATE PARTNERSHIPS AT VARIOUS RESEARCH AND DEVELOPMENT STAGES. We
intend to enter into corporate partnerships at various stages in the research
and development process. For those potential products that show promise in the
preclinical or clinical stage, we usually will seek a corporate partner prior to
initiating Phase II clinical trials. In the case of some technologies or
potential products, we may choose to retain development rights with the intent
to partner such products at a later stage. By partnering later in the
development process, we may increase our potential downstream participation in
product sales. We believe this active corporate partnering strategy provides
four distinct advantages:
+ it focuses on our fundamental strength in immunotherapeutic product
discovery;
+ it capitalizes on our corporate partners' strengths in product development,
manufacturing and commercialization;
+ it may enable us to retain significant downstream participation in product
sales; and
+ it significantly reduces our financing requirements.
SELECTIVELY ACQUIRE OR IN-LICENSE COMPLEMENTARY TECHNOLOGY. In addition to
developing technology internally, we have in-licensed several significant
product opportunities. We intend to continue to pursue such in-licensing
efforts, and also intend to continue to evaluate selected acquisitions of
companies with complementary technologies. We believe our existing technology
and product base may be expanded by such efforts and that such acquisitions may
lead to additional commercial opportunities.
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CLINICAL PROGRAMS
AUTOIMMUNE DISEASES
We have five clinical programs in various stages of clinical testing in a number
of autoimmune diseases that are considered important targets for new disease
therapy. These five programs are:
+ MPL(R) adjuvant, our vaccine adjuvant, is currently undergoing Phase III
testing in Europe for use in allergy vaccines marketed by Allergy
Therapeutics and is sold on a named-patient basis in Germany;
+ PVAC(TM) treatment, an immunomodulator for the treatment of moderate to
severe psoriasis, is in Phase II testing;
+ AnergiX.RA(TM) complex, an MHC-class II molecule loaded with a collagen
peptide for the treatment of rheumatoid arthritis, is licensed worldwide to
Organon and has now completed a Phase I/II clinical trial;
+ AnergiX.MS(TM) complex, an MHC-class II molecule loaded with a multiple
sclerosis-associated peptide for the treatment of multiple sclerosis, has
completed a Phase I/II clinical trial; and
+ AnervaX.RA(TM) vaccine, a peptide vaccine for the treatment of rheumatoid
arthritis, is the subject of a completed Phase II clinical trial.
CANCER
We are moving four of our novel therapeutic cancer vaccines through clinical
development. These four products, in various stages of human testing, are:
+ Melacine(R) vaccine, a melanoma vaccine for treatment of late-stage melanoma,
with distribution rights exclusively held by Schering-Plough, is currently
approved for use in Canada and is in U.S. Phase III testing;
+ Detox(TM) adjuvant, a novel vaccine adjuvant contained in both Melacine and
Biomira's Theratope vaccine, is currently undergoing Phase III testing for
breast cancer;
+ Her-2/neu vaccine, for breast and ovarian cancer, is licensed worldwide to
SmithKline Beecham, and is in Phase I testing; and
+ Muc-1 synthetic peptide vaccine, is currently undergoing an
investigator-sponsored trial in pancreatic cancer at the University of
Pittsburgh and incorporates our MPL vaccine adjuvant.
INFECTIOUS DISEASES
Our partners are currently evaluating our adjuvants in a new generation of adult
and pediatric vaccines designed to be more safe and effective and to protect
against a broader range of diseases. The MPL adjuvant is our flagship adjuvant.
It is a derivative of the lipid A molecule found in gram-negative bacteria, and
is a potent immunostimulant. Licenses for MPL adjuvant have been granted to
SmithKline Beecham and Wyeth-Lederle Vaccines for development in over
twenty-five disease targets. Vaccines that incorporate MPL adjuvant are now in
late-stage clinical trials against the following diseases:
+ herpes virus;
+ hepatitis B virus;
+ human papilloma virus;
+ malaria; and
+ respiratory syncytial virus.
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OUR PRODUCTS IN DEVELOPMENT
We have 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 potential application(s) for a particular product, its present stage
of development and the identity of our corporate partner, if any.
<TABLE>
<CAPTION>
- ---------------------------
PRODUCTS DISEASE/INDICATION DEVELOPMENT STAGE PARTNER(S)
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<S> <C> <C> <C>
AUTOIMMUNE DISEASES
MPL(R) adjuvant Enhance efficacy of Phase III Allergy Therapeutics
certain allergy
vaccines
PVAC(TM) treatment Moderate to severe Phase II Zenyaku Kogyo (Japan
psoriasis only)
AnergiX.RA(TM) complex Rheumatoid arthritis Phase I/II Organon
AnergiX.MS(TM) complex Multiple sclerosis Phase I/II Unpartnered
AnervaX.RA(TM) vaccine Rheumatoid arthritis Phase I/II Unpartnered
MPL(R) adjuvant Enhance efficacy of Preclinical SmithKline Beecham
certain allergy holds co-exclusive
vaccines rights
AnergiX.MG(TM) complex Myasthenia gravis Research Unpartnered
AnervaX.DB(TM) vaccine Type I diabetes Research Unpartnered
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CANCER
Melacine(R) vaccine Stage IV malignant Approved in Canada; Schering-Plough
melanoma Phase III in U.S.
Melacine(R) vaccine Stage II malignant Phase III Schering-Plough
melanoma
Detox(TM) adjuvant Adjuvant component in Phase III Biomira holds exclusive
Theratope(R) rights for certain
therapeutic vaccine for antigens; other targets
breast cancer unpartnered
Her-2/neu vaccine Late stage breast and Phase I SmithKline Beecham
ovarian cancer
Muc-1 vaccine Epithelial tumors Phase I Unpartnered
Mammaglobin vaccine Breast cancer Preclinical SmithKline Beecham
WT-1 vaccine Leukemia Preclinical Unpartnered
Novel cancer vaccine Prostate cancer Preclinical SmithKline Beecham
MPL(R) adjuvant Enhance efficacy of Preclinical SmithKline Beecham
certain cancer vaccines holds certain exclusive
rights for certain
antigens
Ribi.529(TM) adjuvant Enhance efficacy of Preclinical Unpartnered
cancer and infectious
disease vaccines
Novel cancer vaccines Breast, colon and Research SmithKline Beecham
ovarian cancer
Novel cancer vaccine Lung cancer Research Pharmaceutical division
of Japan Tobacco;
Zambon Group
Novel cancer vaccine Leukemia/lymphoma Research Unpartnered
Microsphere-based antigen Lung cancer Research Zambon Group holds
delivery and LeIF adjuvant certain license rights
Microsphere-based antigen Enhance efficacy of Research Japan Tobacco and
delivery and LeIF adjuvant multiple cancer and SmithKline Beecham each
infectious disease hold certain option
vaccines rights
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</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------
PRODUCTS DISEASE/INDICATION DEVELOPMENT STAGE PARTNER(S)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INFECTIOUS DISEASES
MPL(R) adjuvant Enhance efficacy of Phase I, II and III Partnered for certain
certain infectious diseases with
disease vaccines SmithKline Beecham;
Wyeth-Lederle Vaccines
Novel infectious disease Human leishmaniasis Phase I Unpartnered
vaccine
Novel infectious disease Tuberculosis Preclinical SmithKline Beecham
vaccine
Novel infectious disease Chlamydia trachomitis Research SmithKline Beecham
vaccines and Chlamydia
pneumoniae
Novel infectious disease Herpes virus Research Unpartnered
vaccine
Candida antibody and Systemic and vaginal Research Unpartnered
vaccine products yeast infections
Diagnostic Visceral leishmaniasis Commercialized, Several companies
development
Diagnostic Chagas' Disease Commercialized Diamed
Reference laboratory Certain tick-borne Commercialized Imugen
diagnostic diseases
Rapid diagnostic test Tuberculosis Commercialized ICT Diagnostics, a
subsidiary of AMRAD
Rapid diagnostic test Tuberculosis Development Abbott Laboratories
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OTHER PARTNERED PROGRAMS
Adoptive Immunotherapy Multiple cancers Phase I Unpartnered
Cancer gene therapy Multiple cancers Preclinical Introgen Therapeutics
(MDA-7)
RC-552 Ischemia-reperfusion Preclinical Unpartnered
injury
Phototherapeutics Undisclosed Research QLT PhotoTherapeutics
Certain vaccine and Various indications Diagnostics are Heska
diagnostic technologies commercialized;
for companion animal vaccines are in
health research
Other diagnostic products Multiple cancers Research Unpartnered
- ---------------------------
</TABLE>
- ------------
In the column entitled "Development Stage":
+ "Research" means the discovery or creation of prototype products and includes
antigen discovery and characterization;
+ "Development" means testing of prototype diagnostic assays in a particular
format and testing of such products;
+ "Preclinical" means product scale up, formulation and further testing in
animals, including toxicology;
+ "Phase I" indicates products that are currently in Phase I clinical trials,
performed to evaluate the safety of a vaccine and its ability to stimulate an
immune response;
+ "Phase I/Phase II" indicates products that are currently in Phase I/Phase II
clinical testing, being tested to determine safety and preliminary efficacy;
+ "Phase II" indicates products that are currently in Phase II dose-ranging
clinical testing, being tested to further determine safety and efficacy.
+ "Phase III" indicates products that are currently in Phase III clinical
testing, being tested to determine efficacy; and
+ "Commercialized" indicates sales to third parties for use in diagnostic
applications, which have resulted in immaterial revenues to date.
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PRODUCT PIPELINE AND DEVELOPMENT STATUS
AUTOIMMUNE DISEASE
MPL ADJUVANT FOR ALLERGY DESENSITIZATION. Allergies caused by grasses, trees and
house dust mites afflict an estimated 20% of the population in developed
countries. Allergy Therapeutics Ltd., or ATL, and SmithKline Beecham have each
licensed certain rights to our MPL adjuvant for use in allergy desensitization
products. Under the terms of the agreements with ATL and SmithKline Beecham, we
may not grant further rights to MPL adjuvant for allergy products. Initial
targets for the ATL collaboration will be products for relieving allergic
symptoms caused by pollens from grasses, trees and house dust mites. Although
current desensitization methods offer some relief to most allergy sufferers, we
believe the addition of MPL adjuvant may allow the development of more
effective, faster and more easily administered allergy treatments.
In October 1999, ATL presented data from its initial Phase II multi-center
trials for use of the MPL adjuvant in its allergy product for grass at the
Allergie 2000 meeting in Munich, Germany. The results suggested that the
addition of MPL adjuvant to desensitization products may result in a more rapid
response to treatment, fewer treatments with decreased dosages, and a higher
response rate. Phase II and Phase III trials are ongoing in which ATL is
assessing immunologic parameters and safety. In October 1999, ATL launched
allergy products containing MPL adjuvant on a named-patient basis in Germany.
PVAC TREATMENT FOR PSORIASIS. Psoriasis is a dermatological disorder that
afflicts approximately one to two percent of the North American and European
populations. The disease is characterized by chronic inflammatory lesions with
red, scaling plaques and is believed to be an autoimmune phenomenon initiated by
T cells. In collaboration with Genesis Research and Development Corporation, we
are currently testing PVAC treatment for use as an immunotherapeutic product for
psoriasis. PVAC treatment is based on a proprietary process and formulation
derived from heat-killed Mycobacterium vaccae. We hold exclusive rights under SR
Pharma's intellectual property portfolio for the use of Mycobacterium
vaccae-derived products to treat psoriasis and certain other autoimmune
diseases. Following encouraging results from a pilot, uncontrolled trial
performed in the Philippines, in early 2000 we initiated Phase II studies for
PVAC treatment in the United States, Brazil and the Philippines.
ANERGIX COMPLEX. Each AnergiX complex is an MHC-class II molecule loaded with a
disease-specific peptide. We currently have two forms of AnergiX complex,
AnergiX.RA complex for the treatment of rheumatoid arthritis and AnergiX.MS
complex for the treatment of multiple sclerosis.
Rheumatoid arthritis, or RA, is a chronic, progressive autoimmune disease
characterized by progressive joint destruction, deformity and disability. The
disease affects more than 8 million people world-wide. Most drugs approved for
use in RA treat the symptoms of the disease, not the underlying cause of RA. In
collaboration with Organon, we have recently completed a randomized
placebo-controlled Phase I/II clinical trial of AnergiX.RA complex in patients
with advanced RA. Data from an interim analysis of this study were presented at
The American College of Rheumatology meetings in November 1999. This interim
analysis demonstrated that AnergiX.RA complex was well tolerated and indicated
potential clinical benefit at the two top dose levels studied. The interim
results also indicated that clinical results were most pronounced in patients
who had peripheral blood T cells capable of recognizing the synthetic collagen
peptide present in the AnergiX.RA complex.
Multiple sclerosis is an autoimmune disease in which the body's T cells
recognize the outer covering of nerves in the central nervous system as foreign
and attempt to destroy this protective neural covering. The severity of the
disease fluctuates and can lead to progressive impairment of mobility and
paralysis. There are more than 600,000 multiple sclerosis patients in the world.
In 1998, we completed a randomized placebo-controlled Phase I/II clinical trial
of AnergiX.MS complex in patients with secondary progressive multiple sclerosis,
or MS. Results of this trial indicated that the product was
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well tolerated, caused no generalized immune suppression and demonstrated some
evidence of clinical efficacy. We are currently seeking a partner for AnergiX.MS
complex prior to initiating additional Phase II trials.
The AnergiX complex products that have been evaluated in clinical trials to date
are natural products. Due to the high cost of manufacture, such natural products
are likely to be difficult to commercialize. Our scientists have developed
recombinant forms of AnergiX complex products that may be far less expensive to
produce and that have demonstrated efficacy in in vitro and in vivo models of
autoimmune disease. We intend to select one of these recombinant solutions for
use in continuing and expanding clinical evaluation of AnergiX complex products.
ANERVAX.RA VACCINE. AnervaX.RA vaccine is a therapeutic peptide vaccine for
treatment for advanced rheumatoid arthritis, or RA. While results of a
53-patient randomized placebo-controlled Phase I/II study demonstrated that the
product was well tolerated and reduced disease severity in several patients, our
scientists have been working to improve the AnervaX.RA vaccine formulation prior
to continuing clinical evaluation. We believe the addition of one of our
proprietary adjuvants to the AnervaX.RA vaccine may improve its efficacy in
animal models of autoimmune disease. We are currently reformulating this peptide
vaccine to incorporate this novel adjuvant technology and are seeking to partner
this program before entering into additional clinical trials.
ANERGIX.MG COMPLEX. This potential product would be used as therapy for
mysasthenia gravis. Mysasthenia gravis is a progressive neurological disorder in
which patients mount a T cell response directed against a critical
neurotransmitter receptor that is involved in the transfer of nerve cell
impulses into muscular contractions.
ANERVAX.DB VACCINE. The majority of patients with Type I diabetes express a
particular MHC class II gene product. AnervaX.DB vaccine is a peptide vaccine
based on the structure of the diabetes associated MHC class II gene product. It
is thought administration of such vaccine to patients might result in an immune
response that inhibits auto-antigen presentation to T cells in diabetic
patients. The product is currently in preclinical experimentation in animal
models of diabetes.
CANCER
MELACINE VACCINE. Melanoma, if not detected and treated early, can be highly
metastatic and is the most deadly form of skin cancer. Death due to malignant
melanoma is usually caused by complications after the disease has spread to the
lungs, liver, brain or other organs. Primary skin tumors are removed by surgery.
Current standard therapy includes surgery and observation as follow-up for
primary skin tumors.
Our Melacine melanoma vaccine, a potential therapeutic for the treatment of
melanoma, has been approved for commercial sale in Canada. Melacine vaccine
consists of lysed (broken) cells from two human melanoma cell lines combined
with our proprietary Detox adjuvant. Detox adjuvant includes MPL adjuvant and
mycobacterial cell wall skeleton, both of which activate the human immune system
in the context of vaccination. Melacine vaccine is administered as a two-shot
vaccination once a week for five weeks. In addition, patients may receive a
second course of therapy and maintenance therapy of one vaccination a month. We
have granted worldwide distribution rights for Melacine vaccine to
Schering-Plough Corporation, a leader in cancer therapy.
In February 2000, the Southwest Oncology Group released preliminary data from a
Phase III study, designed to determine the ability of Melacine vaccine to
prevent recurrence of disease in patients with Stage II melanoma with primary
skin tumors between 1.5 and 4 mm in depth. The study compared 346 patients who
had skin tumors surgically removed and were treated with Melacine vaccine to 343
patients who had tumors removed followed by observation but received no Melacine
vaccine.
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Patient accrual in this study was completed in late 1996. Eighty-nine of the
patients, some from the treatment group and some from the observation group,
were later determined to be ineligible for the study, in most cases because
tumor size was either less than 1.5 mm (41 cases) or greater than 4 mm (23
cases) in depth.
The evaluation of disease-free survival was performed on both the eligible
patients and on all 689 randomized patients (the intent-to-treat population). An
analysis of the eligible patient population found no statistically significant
difference in disease-free survival between the patients randomized to be
treated with Melacine vaccine and patients randomized to observation alone.
However, the results of the intent-to-treat analysis on the total population
indicated there was a statistically significant difference in disease-free
survival between the patients treated with Melacine vaccine and patients
randomized to observation alone (p=0.04). The majority of adverse events
reported were mild to moderate with local injection site reaction as the primary
toxic event.
An additional Phase III study is currently underway comparing the survival of
300 patients with Stage IV melanoma randomized either to receive Melacine
vaccine plus Intron A, which is recombinant interferon alpha-2b supplied by
Schering-Plough, or Intron A alone. This study was initiated in early 1996, and
patient accrual was completed in January 2000. Intron A received FDA approval in
late 1995 for use in melanoma patients at high risk of recurrence after surgical
removal of primary disease. Analysis of disease recurrence for this study is
expected to begin by the second quarter of 2000.
In the first quarter of 1998, we filed a license application for Melacine
vaccine with the European Agency for the Evaluation of Medicinal Products. We
withdrew the application in November 1998 after the European Agency requested
additional clinical and product data, and we preserved the right to refile the
application later with the requested data. We intend to determine after all
Melacine vaccine clinical data is available and has been analyzed whether to
submit any additional product approval applications, including a Biological
License Application in the United States or a license application in Europe.
DETOX ADJUVANT. Detox adjuvant is a composition which we believe activates the
human immune system in the context of vaccination. Human clinical data have been
published that demonstrate that one of our formulations of Detox adjuvant, Detox
B-SE adjuvant, may play an important role in generating an immune response with
Biomira, Inc.'s line of Theratope therapeutic cancer vaccines. Biomira has
licensed Detox B-SE adjuvant for the clinical development and potential
commercialization of Theratope products. In 1996, Biomira announced that final
Phase II clinical data indicated that its Theratope product for metastatic
breast cancer provided a median survival of more than 26 months compared to less
than 10 months achieved historically with chemotherapy. Biomira announced in
November 1998 the start of a pivotal Phase III trial to evaluate the efficacy of
Theratope therapeutic vaccine in treating metastatic breast cancer. Biomira has
announced that the study will include 75 to 80 centers worldwide studying
approximately 900 evaluable patients. Primary endpoints for the study are time
to disease progression and survival.
HER-2/NEU VACCINE. Her-2/neu is a protein that is normally expressed at very low
levels by cells of the breast, ovaries, skin, lung, liver, intestines, and
prostate. In some of these cases, the Her-2/neu protein is expressed at an
elevated level by tumor cells derived from these tissues. Accordingly, we
believe it to be an appropriate candidate for a vaccine antigen. As a result, we
are currently conducting a number of Phase I clinical trials designed to test
the effects of various Her-2/neu vaccine product formulations. These trials are
evaluating peptide vaccines based on the Her-2/neu antigen for treatment of
breast and ovarian cancer. The clinical studies are intended to test primarily
the safety of the vaccines, but are also designed to measure the induction of
immune responses to the Her-2/neu antigen. One of these trials also involves the
use of our proprietary microsphere antigen delivery system. Our Her-2/neu
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vaccine program is included in our current collaboration and license agreement
with SmithKline Beecham.
MUC-1 VACCINE. Muc-1 is a polypeptide antigen that is expressed on multiple
tumor types. Although also expressed on normal tissue, we believe that the
antigen's altered structure on tumor cells may make it more recognizable by T
cells. Accordingly, we believe it is a potential candidate for a vaccine
antigen. As a result, we helped sponsor a Phase I dose escalation trial of a
Muc-1 peptide vaccine at the University of Pittsburgh in breast, colon and
pancreatic cancer patients. Further, dose escalation is continuing in a current
Phase I clinical trial at the University of Pittsburgh in pancreatic cancer
patients.
We are currently engaged in discovery of antigens for many of the world's most
widespread forms of cancer, including breast, prostate, lung, colon and ovarian
carcinoma and leukemia. According to the American Cancer Society, or ACS, the
number of new cases projected for these six diseases in 1999 was more than 3.2
million patients worldwide, with just over 21%, or 677,300, of these estimated
to occur in the United States. Most of these patients undergo chemotherapy,
radiation therapy and surgery, yet the vast majority is likely to relapse with
malignant disease within ten years following surgery. We believe that our
vaccines will initially be useful in those patients who have undergone such
therapies. Our breast, prostate, colon and ovarian cancer antigen discovery
programs are the subject of our current collaboration and license agreement with
SmithKline Beecham.
We have identified many gene sequences that may be either uniquely expressed or
markedly over-expressed in solid tumors. We have filed patent applications on a
significant portion of these tumor gene sequences. We are also continuing to
analyze the immunological characteristics of these and other gene sequences with
the goal of selecting several antigens for use in vaccines for each of breast,
ovarian, colon and prostate carcinoma.
Building on our progress in cancer antigen discovery, we have initiated
additional discovery programs in several other tumor types, including lung
cancer and leukemia. According to the ACS, lung cancer remains the most common
cancer in terms of both worldwide incidence (1.0 million new cases) and
mortality (920,000 deaths) based on data for 1990, the latest statistics
available. These ACS statistics predicted that for the United States, an
estimated 171,600 new cases would be diagnosed in 1999 and an estimated 158,900
people would die in 1999 from the disease. For leukemia, 30,200 new cases were
projected by the ACS to arise in the United States in 1999, with 22,100 deaths
predicted in the United States in 1999. Due to the magnitude and severity of
these diseases and the lack of effective therapies, we have begun antigen
discovery and vaccine development efforts for lung cancer and leukemia using
approaches similar to those we use in other cancers. Our lung cancer antigen
discovery program is the subject of our May 1999 collaboration agreement with
Zambon Group and our June 1999 collaboration agreement with the pharmaceutical
division of Japan Tobacco. In addition to our internal discovery efforts for
leukemia, we have in-licensed a novel and patented gene from the Massachusetts
Institute of Technology for potential development in a leukemia vaccine. The
gene, known as WT-1, is expressed in a significant percentage of most leukemias
and may, therefore, be useful as a vaccine antigen.
INFECTIOUS DISEASES
MPL ADJUVANT IN INFECTIOUS DISEASE VACCINES. A number of our partners are
currently evaluating our adjuvants for use in infectious disease vaccines.
SmithKline Beecham and Wyeth-Lederle Vaccines are evaluating MPL adjuvant in a
generation of adult and pediatric vaccines designed to protect against a broader
range of diseases. Vaccines that incorporate MPL adjuvant are currently in
clinical trials against herpes virus, hepatitis B virus, human papilloma virus,
malaria and respiratory syncytial virus.
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In December 1998, SmithKline Beecham Biologicals announced Phase III safety and
efficacy results of a hepatitis B vaccine containing our MPL adjuvant. This
vaccine was developed to address low or non-responding patients to SmithKline
Beecham's current hepatitis B vaccine, Engerix-B. Engerix-B is currently the
world's leading hepatitis B vaccine, over 450 million doses having been
distributed worldwide. The new vaccine combines the antigen from Engerix-B with
SmithKline Beecham's adjuvant, SBAS4, which contains our MPL adjuvant.
In the clinical trial in non-responders comparing Engerix-B with the new
vaccine, investigators measured seroconversion rates (protective antibody
levels) one month after each of three vaccine doses; at zero, one and six
months. After the first dose, 78% of the group given the new vaccine
seroconverted versus 59% of the Engerix-B group. After two doses, 96% versus 76%
seroconverted. After the third and final treatment, 98% of patients receiving
the vaccine containing MPL adjuvant seroconverted compared to only 81% of
patients given Engerix-B.
In a multicenter study in normal individuals, vaccination with Engerix-B
containing MPL adjuvant resulted in greater than 98% of vaccinated subjects
achieving protective anti-hepatitis B antibody levels after just two doses,
whereas three doses of the current Engerix-B product were required to obtain a
similar level of protection.
In addition to the hepatitis B vaccine, our MPL adjuvant is included in a number
of other vaccines under development by SmithKline Beecham. SmithKline Beecham is
currently conducting a Phase III clinical trial of a genital herpes vaccine
containing MPL adjuvant. Also, SmithKline Beecham has begun clinical trials
against genital warts, malaria and respiratory syncytial virus using vaccines
that include MPL adjuvant.
SmithKline Beecham's experience with MPL adjuvant-containing vaccines includes
10,000 subjects receiving over 25,000 doses, and SmithKline Beecham has reported
positive safety and immunogenicity results. In addition, Wyeth-Lederle Vaccines
is in clinical development of a pediatric combination vaccine that contains MPL
adjuvant.
LEISHMANIASIS VACCINE. Leishmaniasis is a skin and visceral disease endemic in
South America, Northern Africa, the Middle East and the Indian sub-continent,
and according to the World Health Organization, or WHO, kills more than 500,000
people each year, including many small children. Leishmaniasis is caused by the
parasite Leishmania, which is carried by sand flies. A prototype leishmaniasis
vaccine containing antigens discovered by us has been tested on a
compassionate-use basis in Phase I clinical trials in a small number of
leishmaniasis patients in Brazil. We currently intend to conduct a larger Phase
I/II clinical trial in Brazil.
TUBERCULOSIS. Mycobacterium tuberculosis, or Mtb, infection causes more deaths
than any other infectious disease in the world. According to the National
Institute of Allergy and Infectious Diseases, an estimated 1.7 billion people
are infected with Mtb, including approximately 15 million people in the United
States. Any of these people may develop active tuberculosis during some stage of
their lives. Each year, approximately 8 million people worldwide contract active
tuberculosis, and an estimated 3 million die each year from the disease.
Statistics from the Centers for Disease Control, or CDC, show 21,337 active
tuberculosis cases in 1996. In addition, the WHO estimates more than 50 million
people worldwide may be infected with drug-resistant strains of Mtb. Our goal is
to develop specific vaccines for both conventional and drug-resistant strains of
Mtb.
From more than 100 candidate Mtb gene products, we have identified as candidate
vaccine antigens a number of antigens that specifically trigger appropriate
helper T cell responses in vitro. The Mtb gene products are the subject of
several of our patent applications covering composition of matter and vaccine
and diagnostic methods of use. We selected several of the candidate vaccine
antigens for skin-testing in both infected-healthy and infected-diseased
individuals in South America to determine which
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of these antigens are recognized by patients' immune systems. Based on results
from these tests and continued analysis of patient T cell responses in vitro, we
have begun preclinical studies for both therapeutic and prophylactic vaccines in
mouse, guinea pig and monkey models of Mtb infection. Our goal in conducting
these preclinical studies is to select a vaccine candidate for Phase I clinical
trials. We are currently targeting initiation of Phase I clinical trials in
early 2001.
CHLAMYDIA TRACHOMITIS. Chlamydia trachomitis, or C. trachomitis, causes the most
common sexually-transmitted disease in the United States. Although the disease
can be transmitted during sexual contact with an infected partner, the disease
is often not diagnosed and treated until complications develop. Studies show
that as many as 85% of women and 40% of men with chlamydial infections have no
symptoms whatsoever. The CDC estimates that in the United States alone, over 4
million new cases arise each year. The highest rates of chlamydial infections
are among 15 to 19 year olds, regardless of demographics or geographic location.
Complications from the disease include Pelvic Inflammatory Disease, a serious
cause of infertility among women of childbearing age. Further, a woman may pass
the infection to her newborn during delivery, with subsequent neonatal eye
infection or pneumonia. The WHO estimates that worldwide, approximately 89
million C. trachomitis infections occurred in 1997 alone. We are currently
engaged in the identification of C. trachomitis antigens for use in a
preventative vaccine for this pathogen. This program is one of the three
infectious disease programs covered under our current collaboration and license
agreement with SmithKline Beecham.
CHLAMYDIA PNEUMONIAE. Chlamydia pneumoniae, or C. pneumoniae, is a major cause
of pneumonia, bronchitis and sinusitis. C. pneumoniae is a human pathogen
transmitted by the respiratory route. Retrospective studies made using serum
bank investigations indicate that C. pneumoniae infection is as prevalent today
as it was in 1963. According to the CDC, more than half of the adults in the
United States and many other countries worldwide have antibodies specific to C.
pneumoniae, indicating widespread prior infection. The incidence of pneumonia in
the United States is about one in 80 persons each year, and virtually everyone
is infected at some point in life, with reinfection common. Importantly, the CDC
reports that one effect of C. pneumonaie infection is atherosclerosis.
Seroepidemiological studies have associated C. pneumoniae infection with the
related conditions of coronary artery disease, myocardial infarction and
cerebrovascular disease. The association of C. pneumoniae with atherosclerosis
has been corroborated by the presence of the organism in atherosclerotic lesions
throughout the arterial tree, and the near absence of the organism in healthy
arterial tissue. We are now currently engaged in the discovery of C. pneumoniae
antigens for use in a preventative or therapeutic vaccine for this pathogen.
This program is one of the three infectious disease programs covered under our
current collaboration and license agreement with SmithKline Beecham.
OTHER INFECTIOUS DISEASES. We are also engaged in antigen discovery and vaccine
development for infections stemming from Herpes Virus (Type 1 and Type 2) and
Candida. Systemic and vaginal Candida infections are a recurring and serious
problem for many people on a worldwide basis. We are collaborating with an
early-stage biotechnology company, LigoCyte Pharmaceuticals, to develop a novel
therapeutic antibody for use in hospital-based systemic infections, and a
vaccine that might be effective in reducing the incidence of vaginal candidiasis
in the subset of women who suffer from this infection on a recurring basis. We
believe our antigen discovery technology will be useful in identifying antigens
for use in vaccines that may either prevent or treat the widespread diseases
caused by Herpes Virus and Candida, which afflict over 100 million people
worldwide. Our efforts in Herpes Virus and Candida are currently in early stage
research.
OTHER PRODUCTS IN DEVELOPMENT
ADOPTIVE IMMUNOTHERAPY PRODUCTS. T cells, particularly CTL, are generally
believed to be essential to protective immunity against cancer. As a result, for
many years scientists and clinicians have studied
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the potential of growing a patient's own CTL or antigen presenting cells, or
APC, outside the body, or ex vivo, and then using those CTL or APC in treating
the patient's 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, is limited by
the difficulty in growing sufficient numbers of tumor antigen reactive CTL or
APC ex vivo for re-infusion into cancer patients. We believe that several of our
core technologies may be useful in developing adoptive immunotherapy procedures
for cancer treatment, and we have identified several tumor antigens that we or
our corporate partners may use to stimulate in vitro growth of tumor-reactive
CTL. In addition, we have demonstrated that our microsphere and adjuvant
technologies enhance the in vitro generation and growth of tumor antigen
reactive CTL. We intend to pursue research and corporate partnership
opportunities in the field of adoptive immunotherapy of cancer. In March 1999,
we entered into a research agreement with the Infectious Disease Research
Institute, or IDRI, pursuant to which IDRI will provide us grant funding for
three years to fund research and development of adoptive immunotherapy products
for the treatment of cancer.
CANCER GENE THERAPY. In recent years a number of so-called tumor suppressor
genes have been discovered. The expression of such genes in tumor cells leads to
elimination of the malignant phenotype and a return of the tumor cell to a state
resembling a normal tissue cell, under the control of cellular processes that
keep the cell from entering a state of rapid division or malignancy. We obtained
rights to a particular tumor suppressor gene, called MDA-7 following our
acquisition of GenQuest in 1998. Expression of MDA-7 in tumor cells stops tumor
cell growth both in both test tube and animal experiments. In 1999, we licensed
the MDA-7 gene to Introgen Therapeutics for use in gene therapy applications of
the treatment of cancer.
CARDIOPROTECTANT. Ischemia-reperfusion injury is damage that can occur in tissue
during the oxygen deprivation of interrupted blood flow, or ischemia, and when
blood flow is restored after, for example, a heart attack or a planned event
such as cardiovascular surgery, angioplasty or organ transplantation.
Paradoxically, restoring blood flow to ischemic tissue may induce a complex
series of events leading to both reversible and irreversible tissue damage
beyond any damage that may have occurred during the ischemic period. It is
believed that a significant factor in reperfusion injury is the generation of
free radical molecules, which attack and damage cardiac tissue. The injury can
result in a number of complications, including tissue death, depression of heart
function, irregular heart beat and in some cases, death. Our synthetic chemistry
program has generated a novel cardioprotectant, RC-552, which we have
demonstrated in preclinical studies to be fast acting and potent. Potential
clinical applications for RC-552 cardioprotectant may include coronary artery
bypass graft surgery, aortic valve replacement, angioplasty, non-cardiac surgery
in high-risk patients, unstable angina, acute myocardial infarction thrombolytic
therapy and organ transplantation.
ANIMAL HEALTH PRODUCTS. We believe that certain of our human vaccine and
diagnostic products also may have applications in the diagnosis and treatment of
disease in animals. For instance, leishmaniasis can infect dogs. Europe is the
primary market for products targeting this disease in animals. We are currently
collaborating with Heska, a developer and marketer of companion animal
diagnostics and therapeutics, to develop and commercialize diagnostics and
vaccines for leishmaniasis in dogs.
CORE TECHNOLOGIES
OUR ANTIGEN DISCOVERY CAPABILITIES
Our ability to discover numerous antigens allows us to select those that will
work most effectively in a given vaccine. In making this selection, we focus on
antigens that 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. In connection with autoimmune
diseases, we focus on
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discovering otherwise normal antigens, or auto-antigens, that trigger autoimmune
responses and disrupt the pathway that leads to the destruction of healthy
tissue.
A majority of our scientific personnel are involved in antigen discovery. We use
discovery approaches and technologies that include:
+ acquisition of normal and diseased tissue, and related cDNA and protein;
+ cDNA subtraction and analysis of differential gene expression;
+ quantitative PCR;
+ expression cloning of full-length cDNAs;
+ immunohistochemistry to determine tissue distribution of candidate antigens;
and
+ immunological characterization of candidate antigens.
Our discovery approach also includes correlating the antigens that we discover
with patient immune responses. In this way, we focus on identifying proteins
that are recognized by the human immune system and are therefore antigenic.
Our antigen discovery research culminates in the isolation of pathogen, tumor or
auto-antigen genes that encode antigens with significant potential to be
effective components of vaccines or other immunotherapeutic products. Such
antigens may be in the form of either recombinant proteins or biosynthetically
produced peptides. We have discovered multiple pathogen and/or tumor gene and
protein sequences. As a result, we have filed numerous patent applications
seeking both composition of matter and/or vaccine and diagnostic method of use
claims. We have also filed a number of applications for the potential use of our
antigens or adjuvant-based technology for use in the diagnosis, prevention or
treatment of certain autoimmune diseases.
OUR NOVEL VACCINE DESIGN
The majority of currently available vaccines trigger protective antibody
responses that can destroy an invading pathogen. Antibodies are protein-based
products of specialized immune system cells called B lymphocytes, or B cells.
Antibodies recognize and attach to a pathogen's 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. Today's
vaccines are made of either whole organisms that contain antigens or the
antigens themselves. These antigens can be peptides, proteins or carbohydrates.
Typically these vaccines are formulated by combining antigens with an adjuvant,
an immune system booster.
The antibody responses triggered by currently available vaccines usually cannot
eliminate tumors or certain infectious diseases. We believe that an effective
immune response against these diseases requires the action of pathogen- or
tumor-reactive T lymphocytes, or T cells. Our vaccine program focuses on
activating specialized T cells known as cytotoxic T lymphocytes, or CTL, that
have the ability to recognize and kill pathogen-infected tissue or tumor cells.
The body's immune response is a complex series of events that begins when a
specialized immune system cell called an antigen presenting cell, or APC,
processes antigens. Antigens are processed by APCs through two different
pathways, the Class I and Class II Pathways. The antibody response produced by
currently available vaccines results from antigen processing only through the
Class II Pathway. The Class II Pathway breaks down antigens into specific
peptides that are then presented on the surface of an APC by major
histocompatibility, or MHC, Class II proteins. Antigen presentation by MHC Class
II proteins results in activation of CD4 positive helper T cells. These helper
cells produce immune system hormones called cytokines that "help" generate
various components of both cellular
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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. In this way, a Th1 response may lead to pathogen
elimination.
Th1-induced antibody production can be sufficient to prevent or eliminate
pathogen infection in the case of some diseases. However, antibody responses
alone are not sufficient in other diseases, such as cancer. In these diseases, a
cellular immune response that includes generating CTL is necessary to achieve
protective immunity. Although 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 that are then presented on the surface of an APC
by MHC Class I proteins. Antigen presentation by MHC Class I proteins results in
CTL generation and activation. We believe that CTL are necessary to eliminate
tumors and various pathogens that antibodies alone cannot destroy.
We have shown in preclinical studies that CTL can eliminate either tumors or
certain pathogens in situations in which antibody responses fail. These CTL not
only can prevent disease if they are activated before pathogen infection but
also can eliminate disease once the infection has taken place or, in the case of
cancer, once a tumor has developed. We believe vaccines that activate specific T
cell responses can form the basis for a new class of products that may be used
to either treat or prevent disease. Using recent advances in understanding
molecular mechanisms that control how antigens are normally presented to T
cells, we are designing vaccines that incorporate disease-specific antigens into
biodegradable and biocompatible microspheres. We believe that these vaccines may
give rise to potent CTL responses. Through our antigen discovery program, we
have identified antigens from many tumor types and from infectious disease
pathogens for which no vaccines currently exist. In addition, we have discovered
a novel adjuvant that we have shown in preclinical studies significantly
improves the ability of microsphere-formulated vaccines to stimulate and
activate Th1 helper T cells and CTL.
OUR AUTOIMMUNE DISEASE THERAPEUTICS
Autoimmune diseases include psoriasis, rheumatoid arthritis, multiple sclerosis,
myasthenia gravis and diabetes. Autoimmune diseases are caused by the abnormal
destruction of healthy body tissues when T cells and antibodies react to normal
tissue. T cells in the immune system normally regulate the identification and
destruction of foreign substances and malignant cells. Otherwise normal
antigens, or auto-antigens, serve as triggers for an autoimmune response. We are
developing technology that may interrupt the chain of events involved in
autoimmune disease. In contrast to today's therapies for these diseases, which
often suppress the overall immune system, we believe that our technologies may
provide a means to target the disease process while leaving the normal immune
system unaffected.
We believe that our AnergiX complex and AnervaX vaccine technologies offer the
potential to treat a number of major autoimmune diseases. The AnergiX complex
technology may enable the selective destruction or inactivation of T cells
involved in autoimmune disease. The AnervaX vaccines may stimulate the immune
system to produce antibodies or T cells that interfere with the presentation of
auto-antigens to destructive T cells.
The AnergiX complex technology platform is based on creating therapeutics that
are a complex of an MHC or human leukocyte antigen (HLA)-derived protein and an
autoimmune disease-specific auto-antigenic peptide. Selection of a particular
HLA molecule is based on our understanding of patients' genetic susceptibility
to various autoimmune diseases. For instance, patients with multiple sclerosis
predominantly express HLA DR2 and patients with rheumatoid arthritis
predominantly express HLA DR4. That information guides our selection of relevant
HLA molecules for complexing with suspected disease-causing auto-antigens. Our
scientists have performed research that demonstrates that
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delivery of the AnergiX complex selectively inactivates, or induces anergy in,
disease-causing T cells. We are currently focusing our efforts on two AnergiX
complex Phase I/II programs, the first in rheumatoid arthritis, partnered with
Organon, and the second in multiple sclerosis, presently unpartnered.
The AnervaX vaccine technology platform is a family of therapeutic MHC-derived
peptide vaccines designed to stimulate production of a neutralizing immune
response to selectively block the autoimmune cascade. The design of an AnervaX
vaccine molecule is based on knowledge of patients' genetic susceptibility to
autoimmune disease. That susceptibility has been mapped to a particular region
of the MHC molecule in each autoimmune disease. Specifically blocking or
"down-regulating" that region is the basis of the action of AnervaX vaccines in
rheumatoid arthritis and Type I diabetes, programs that are in Phase II and
preclinical development, respectively.
OUR 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, the only
FDA-approved adjuvant for use with human vaccines is aluminum hydroxide, or
alum. Although alum is useful in boosting antibody responses to vaccine
antigens, it has no effect on the type of immune responses that our T cell
vaccines are meant to generate. As a result, we are interested in discovering
new adjuvants that can be used to boost T cell immune responses after vaccine
administration.
Our technology is based on the potent capacities of certain microbial products
to act as adjuvants and modulate the cascade of immune system regulators, known
as cytokines, produced by cells in man and other animals. Slight modifications
of these products and/or their physical and biological delivery to the immune
system can influence the manner in which cytokines are modulated, as well as the
recipient's physiological responses. By activating macrophages, lymphocytes and
other cells relating to the immune system, these adjuvants stimulate a cascade
of cytokines that complements the normal, protective responses that are
initiated during infection or injury. Our adjuvants include both natural and
synthetic derivatives of immunomodulatory bacterial components. The adjuvants
work by activating and focusing key cells within the immune system to
effectively modulate a desired immune response.
MPL adjuvant, our flagship adjuvant, is a derivative of the lipid A molecule
found in gram-negative bacteria, one of the most potent immunostimulants known
to man. We also own patented technology for extracting MPL adjuvant from
bacterial cell walls. A number of our partners are currently evaluating MPL
adjuvant in vaccines for development in allergy, cancer and infectious disease
targets. Detox adjuvant consists of MPL adjuvant and mycobacterial cell wall
skeleton. Detox adjuvant is a key component of our Melacine melanoma vaccine and
is a component in Biomira's Theratope vaccine for adenocarcinomas.
We have also been particularly interested in the products of microorganisms that
can infect APCs as a potential source for new adjuvants. One of our proprietary
adjuvants, LeIF, is a recombinant protein that has significant T cell
stimulatory activity. LeIF is a protein produced by the intracellular parasite
Leishmania, which is carried by sand flies and causes both a skin and visceral
disease known as leishmaniasis. In cell culture studies conducted by our
scientists, LeIF has been found to have potent immune system stimulatory
effects. Preclinical studies conducted by our scientists indicate that LeIF is a
unique protein stimulator of the Th1 response. Additional research 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
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required for the generation of potent CTL responses. In preclinical studies, use
of microsphere-encapsulated tumor antigens together with LeIF resulted in tumor
regression when administered to animals with established tumors. In these
studies, tumor regression was shown to correlate with the in vivo development of
tumor-antigen reactive CTL and treated animals were still able to reject lethal
doses of antigen-positive tumors when challenged more than four months after
therapy.
We are also studying the adjuvant properties of the intracellular microorganism,
Mycobacterium vaccae, or M. vaccae. M. vaccae is a soil-borne microorganism that
is not pathogenic to people. Together with Genesis, we have determined that M.
vaccae, as well as protein derivatives from M. vaccae, have considerable
adjuvant activity. We believe that M. vaccae and these protein derivatives may
be useful as vaccine adjuvants and may also be capable of altering immune
responses in a manner useful in the treatment of various diseases.
We are also conducting research related to the development of synthetic
adjuvants. Such synthetic compounds are novel, small molecules that may possess
a spectrum of properties, including potent adjuvant and anti-tumor activity. We
hope to develop these synthetic components in building an even broader vaccine
adjuvant platform with considerable potential for the prevention and treatment
of human diseases. The small molecule synthetic adjuvant, Ribi.529 adjuvant, is
in preclinical development. We are initiating multiple partnership discussions
pertaining to this novel vaccine adjuvant, as well as a second novel synthetic
immunomodulator, RC-552, for potential use as a cardioprotectant.
OUR MICROSPHERE ANTIGEN DELIVERY SYSTEMS
We have demonstrated in preclinical studies that potent antibody and CTL
responses can be generated against antigens using our proprietary microsphere
antigen delivery system. We have determined that CTL generated as a result of
microsphere-mediated antigen presentation can kill antigen-positive cells in
both in vitro and in vivo 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 the 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 neither activated CTL
responses nor resulted in protective immunity in animals later challenged in the
same manner.
We believe that microsphere-mediated antigen delivery may be superior in terms
of versatility, stability, safety and cost to other approaches used to target
antigen presentation pathways. These other approaches include, for example, the
use of various gene therapies or liposome or recombinant protein-lipid
formulations. Only APCs take up microspheres of the particular sizes that we
use. 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. We use
microspheres that are produced from synthetic co-polymers approved by the FDA.
In addition, 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 for many vaccine products. Such a formulation would
avoid the repetitive costs associated with constructing, manufacturing and
testing different gene therapy vectors or recombinant protein-lipid formulations
for different antigens or tissue targets. In addition, we believe that our
microsphere vaccine preparations will be stable as freeze-dried formulations,
resulting in multi-year shelf-life. In February 1999, we initiated a Phase I
clinical trial of a microsphere-encapsulated, Her-2/neu vaccine for breast and
ovarian cancer.
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We have an exclusive, worldwide license to a number of patents and pending
patent applications from the Southern Research Institute covering the
composition, use and production of microspheres of a particular size range for
augmenting immune responses. In addition, we have an exclusive, worldwide
license from the Dana-Farber Cancer Institute to patents and patent applications
claiming the composition and use of microspheres for the purpose of activating
CTL. We are also developing internally additional microsphere technology.
OUR MONOCLONAL ANTIBODY-BASED THERAPEUTICS AND DIAGNOSTICS
We believe that our antibody products may promote tumor elimination or
shrinkage, resulting in improved cancer patient response or survival rates. For
example, we believe that monoclonal antibodies directed against antigens on the
surface of tumor cells may be used either directly to destroy these targets or
as carriers of other therapeutic compounds for the destruction of tumor cells.
We believe that many of the antigens we have discovered through our antigen
discovery efforts may also have applications in disease diagnosis. Antigens
themselves may be used in diagnostic tests to determine if antibodies, which
bind to these antigens, are present in patient sera, suggesting infection or
disease. In addition, monoclonal antibodies may be useful for diagnostic
purposes if used to determine the presence of target antigens associated with
the existence of a particular disease.
ADDITIONAL TECHNOLOGIES
We believe that we or our corporate partners may be able to introduce certain of
our proprietary cancer genes into tumor cells to potentially kill them or slow
their growth. Also, we and our corporate partners may be able to develop
techniques that use our discovery methodologies or gene products to search for
low molecular weight compounds that inhibit tumor cell growth or metastasis.
These compounds may prove useful as cancer therapeutics.
CORPORATE PARTNERSHIPS
Part of our strategy is to establish many corporate partnerships with
pharmaceutical, biopharmaceutical and diagnostic companies. We focus our
partnership efforts on broadly partnering our core technologies at various
stages in the research and development process. We target partners that have the
expertise and capability to develop, manufacture, obtain regulatory approval for
and commercialize our products. In our corporate partnerships, we seek to cover
our research and development expenses through research funding, milestone
payments and option, technology or license fees. We also seek to retain
significant downstream participation in product sales through either
profit-sharing or product royalties paid on annual net sales. We have focused on
three discrete types of product collaborations:
+ vaccines and immunotherapeutics for autoimmune diseases, cancer and
infectious diseases;
+ adjuvants and delivery systems to increase effectiveness of vaccines and
immunotherapeutics for a wide range of human diseases; and
+ monoclonal antibody-based therapeutics and diagnostics.
VACCINES AND IMMUNOTHERAPEUTICS
ZENYAKU KOGYO. In August 1999, we entered into a corporate partnership with
Zenyaku Kogyo for research and development of PVAC treatment. The agreement
provides Zenyaku Kogyo with exclusive rights to PVAC treatment in Japan. We and
our discovery partner for PVAC treatment, Genesis Research and Development,
retain exclusive PVAC treatment rights for the rest of the world. Under the
terms of the agreement, we will receive license fees and research funding of $6
million, milestone payments based upon successful clinical and commercial
progress, and a royalty stream on future product sales.
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PHARMACEUTICAL DIVISION OF JAPAN TOBACCO. Effective July 1999, we entered into a
license and collaborative agreement with the pharmaceutical division of Japan
Tobacco for the research, development and commercialization of vaccine and
antibody-based products aimed at the prevention and/or treatment of lung cancer.
We granted Japan Tobacco an exclusive license to develop and sell the vaccine
products in North America, Japan and all other countries not previously
exclusively licensed to Zambon Group. Japan Tobacco's rights are co-exclusive
with Zambon Group in China. We also granted Japan Tobacco an option to a
non-exclusive license to formulate the vaccines in our microsphere delivery
system with our proprietary protein adjuvants. We also agreed to supply
preclinical and clinical grade materials to Japan Tobacco in connection with the
collaboration. Japan Tobacco may also elect to require us to supply commercial
materials for products licensed to Japan Tobacco under the agreement.
Under the agreement, we may receive over $40 million in license fees, research
funding and clinical and commercial milestone payments. The individual amounts
of the milestone payments vary, depending on the milestones achieved and the
types of products sold. We are also entitled to receive future royalties on all
product sales, which royalties vary depending on the amount and type of products
sold.
ZAMBON GROUP. In May 1999, we entered into a collaboration agreement with Zambon
Group for the research, development and commercialization of vaccine products
aimed at the prevention and/or treatment of lung cancer. We granted Zambon Group
an exclusive license to develop and sell these vaccine products and therapeutic
drug monitoring products in Europe, the countries of the former Soviet Union,
Argentina, Brazil and Columbia. We granted Zambon Group these rights
co-exclusively in China. We also granted Zambon Group the non-exclusive right to
formulate the vaccines in our microsphere delivery system with our proprietary
protein adjuvants. We also agreed to supply preclinical and clinical grade
materials, as well as commercial materials, to Zambon Group in connection with
the collaboration.
Under the agreement, we may receive over $21.5 million in license fees, research
funding, equity financing and clinical and commercial milestone payments.
Pursuant to the agreement, Zambon Group also agreed to purchase 141,576 shares
of our common stock at a premium to its fair market value. The individual
amounts of the milestone payments vary, depending on the milestones achieved and
the types of products sold. We are also entitled to receive future royalty or
profit-share payments on all product sales, which royalties vary depending on
the amount and types of products sold.
SMITHKLINE BEECHAM. Effective September 1998, we entered into a collaboration
and license agreement with SmithKline Beecham. This agreement replaced and
significantly expanded the scope of our then-existing agreements with SmithKline
Beecham Manufacturing and SmithKline Beecham Biologicals. We granted SmithKline
Beecham an exclusive worldwide license to develop, manufacture and sell vaccine
products and certain dendritic cell therapy products that incorporate antigens
discovered or in-licensed under this corporate partnership, although with
respect to tuberculosis, rights are co-exclusive with us in Japan.
Under this collaboration and license agreement, SmithKline Beecham agreed to
provide payment for work that is performed under:
+ our cancer antigen discovery programs in breast, colon, ovarian and prostate
cancer;
+ our Her-2/neu breast and ovarian cancer vaccine program;
+ our mammaglobin breast cancer vaccine program;
+ our infectious disease antigen discovery programs in Chlamydia pneumoniae,
Chlamydia trachomatis and Mycobacterium tuberculosis; and
+ one additional antigen discovery program in a disease field to be agreed
upon.
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For certain of these disease areas, we also granted SmithKline Beecham license
rights to develop, manufacture and sell passive immunotherapy products, such as
T cell or antibody therapeutics, and therapeutic drug monitoring products.
Under the agreement, SmithKline Beecham committed to fund $43.6 million for work
to be performed during the initial four-year term of the agreement in the above
programs. We and SmithKline Beecham may mutually agree to extend the research
and development programs beyond the initial four-year term. Pursuant to the
agreement, SmithKline Beecham also purchased 427,807 shares of our common stock
at a premium to its fair market value, and we have the right in the future to
require SmithKline Beecham to purchase an additional $2.5 million of our common
stock at a premium to its then-current fair market value. The initial equity
investment combined with the discovery program payment results in aggregate
funding to us of $48.6 million during the first four years of the agreement.
Additionally, with respect to $5.0 million paid to us by SmithKline Beecham
under a prior option agreement, SmithKline Beecham may elect either to have us
repay it that amount on September 1, 2003 or to convert that amount into our
common stock at a premium to its then-current fair market value. To the extent
that clinical and commercial milestones in the programs are achieved, we are
entitled to receive additional payments, which in the aggregate could exceed
$150 million. The individual amounts of such payments vary, depending on the
milestones achieved and the types of product sold. We are also entitled to
receive future royalty payments on all product sales, which royalties vary
depending on the types of products sold.
SCHERING-PLOUGH. In 1998, we entered into a worldwide license granting exclusive
marketing rights for our Melacine vaccine to Schering-Plough. In addition to
license fees, we will receive transfer payments for supplies of Melacine vaccine
and will be entitled to royalties upon commercial sale of Melacine vaccine. See
"Product Pipeline and Development Status--Cancer--Melacine vaccine" for a
discussion of the clinical trial status of this vaccine.
ORGANON. In 1996, we entered into a product development and license agreement
with Organon, the pharmaceutical division of the Akzo-Nobel Group. The Organon
partnership targets the development of an AnergiX.RA complex that incorporates
Organon's proprietary rheumatoid arthritis peptide into our AnergiX complex. We
recently completed a Phase I/II clinical trial of AnergiX.RA in patients with
moderate to severe RA. Under the terms of the collaboration, the majority of
current clinical trials costs are borne by Organon, and in the event of ongoing
success, Organon will pay us milestone and royalty payments.
ADJUVANTS AND DELIVERY SYSTEMS
AUTOIMMUNE DISEASES. We have two corporate partnerships granting rights to use
MPL adjuvant in products to treat and prevent allergies. Our partners are
Allergy Therapeutics, under a 1996 license and supply agreement, and SmithKline
Beecham, under a 1999 license and supply agreement. Under each of these
agreements, we will receive annual license fees prior to, and minimum annual
royalties subsequent to, regulatory approval of any allergy vaccine developed
under the applicable agreement. We will also receive supply payments for
clinical and commercial quantities of MPL adjuvant and royalties on any
commercial sales of approved allergy vaccines.
CANCER. In 1995, we entered a license and supply agreement granting SmithKline
Beecham a non-exclusive, worldwide license to use MPL adjuvants in cancer
vaccines. The agreement includes an option to obtain exclusivity in connection
with a limited number of SmithKline Beecham's proprietary cancer antigens. We
will receive an annual license fee and milestone payments for each SmithKline
Beecham vaccine incorporating MPL adjuvant that is submitted for regulatory
review. We will also receive milestone payments upon any regulatory approval of
such vaccines. In addition to transfer
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payments for commercial quantities of MPL adjuvant, we will receive royalties on
any commercial sales of vaccines that incorporate MPL adjuvant.
In 1990, we entered into a collaboration with Biomira covering the use of our
Detox B-SE adjuvant in Biomira's Theratope vaccines for the potential treatment
of breast, lung and gastrointestinal cancers. In 1996, Biomira announced that
final Phase II clinical data demonstrated that its Theratope vaccine for
metastatic breast cancer provided a median survival of more than 26 months
compared to less than 10 months achieved historically with chemotherapy. In
November 1998, Biomira announced the start of a pivotal Phase III trial to
evaluate the effectiveness of Theratope vaccine in treating metastatic breast
cancer. Under the agreement, Biomira will purchase Detox adjuvant at an agreed
upon transfer price exclusively from us.
INFECTIOUS DISEASE VACCINES. We have licensed MPL adjuvant to a number of our
corporate partners for use in infectious diseases. We have licensed MPL adjuvant
to SmithKline Beecham under three separate agreements for use in infectious
diseases vaccines. The first agreement, entered in 1991, grants SmithKline
Beecham exclusive, worldwide rights to use MPL adjuvant in vaccines in a number
of infectious disease fields, including hepatitis B. Under the agreement, we
receive transfer payments for supplies of MPL adjuvant and will receive
royalties upon commercialization of products developed under the agreement.
The second agreement, entered in 1992, grants SmithKline Beecham the
co-exclusive right to develop vaccines that include MPL adjuvant against several
bacterial infections as well as combination vaccines that contain diphtheria,
pertussis, tetanus, Haemophilus influenza b and polio antigens. In addition to
an annual license fee, we receive transfer payments for supplies of MPL adjuvant
and will be entitled to royalties from SmithKline Beecham upon commercial sale
of the vaccines.
We are party to a third infectious disease vaccine license agreement, effective
December 31, 1996, with SmithKline Beecham, granting rights to use MPL adjuvant
in an additional group of vaccines against infectious diseases, including
tuberculosis. The grant is exclusive for human papilloma virus vaccines,
co-exclusive license for tuberculosis vaccines, and non-exclusive license for
specified additional infectious disease vaccines. In addition to annual license
fees, we will receive transfer payments for clinical and commercial quantities
of adjuvant and royalties on any commercial sales of vaccines incorporating MPL
adjuvant.
We are also a party to a license agreement and related supply agreement,
effective April 1, 1993, with American Home Products Corporation, acting through
the Wyeth-Lederle Vaccines business unit of its Wyeth-Ayerst Laboratories
division. The license agreement grants Wyeth-Lederle co-exclusive use of MPL
adjuvant in the infectious disease fields licensed co-exclusively to SmithKline
Beecham under the 1992 agreement. Under the supply agreement, we will provide
commercial quantities of MPL adjuvant for use in any vaccines that Wyeth-Lederle
may develop under the license agreement. The agreements with Wyeth-Lederle
provide for an annual license fee payable until a threshold level of earned
royalties is met, transfer payments for supplies of MPL adjuvant and annual
minimum and earned royalty payments upon commercial sale of vaccines.
Additionally, we have granted Merck & Co. an option to use MPL adjuvant in
Merck's HIV vaccine formulations.
MONOCLONAL ANTIBODY-BASED THERAPEUTICS AND DIAGNOSTICS
In connection with our current collaboration and license agreement with
SmithKline Beecham agreement, as well as the Zambon Group and the pharmaceutical
division of Japan Tobacco agreements, we and our partners have acknowledged the
potential utility of novel discovered antigens
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as targets for therapeutic monoclonal antibodies. If such antibodies are
developed, we will receive additional funding, milestone payments and royalties
on such products.
ANTIGEN-BASED DIAGNOSTIC PRODUCTS
We have entered into and intend to continue to pursue corporate partnerships in
the fields of cancer and infectious disease diagnostics to complement our
therapeutic research efforts and to expand our scientific platform. We have
established corporate partnerships for the development of diagnostic products
for infectious diseases with Abbott Laboratories, DiaMed, ICT Diagnostics, a
subsidiary of AMRAD, and other small diagnostic companies. Under these
arrangements, we generally grant a non-exclusive license to our antigens for use
in specified infectious disease indications. In exchange, we generally receive
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. We have also
established a corporate partnership with Imugen, Inc. pursuant to which we
granted Imugen an exclusive license to certain of our antigens related to
infectious diseases caused by certain tick-borne pathogens for use in Imugen's
clinical reference laboratory diagnostic services. In exchange for this license,
Imugen will pay us certain annual minimum payments as well as a percentage of
revenues received in connection with the clinical reference laboratory services.
In connection with our current collaboration and license agreement with
SmithKline Beecham and the Zambon Group collaboration agreement, we granted each
of SmithKline Beecham and the Zambon Group rights to diagnostic products for
monitoring patient eligibility and response to therapy in connection with the
therapeutic products that may be developed under those agreements.
OTHER PARTNERED PROGRAMS
PHOTODYNAMIC THERAPY. In March 2000, we entered into a relationship with QLT
PhotoTherapeutics to provide them exclusive rights to use our proprietary
immunotherapeutic compounds called AGPs in combination with their research and
development efforts regarding photodynamic therapy. We received an upfront
payment and have the potential upon achievement of certain development goals to
receive additional licensing fees and royalties. Under certain circumstances,
QLT PhotoTherapeutics may be required to purchase a small amount of our common
stock at a premium to fair market value.
CANCER GENE THERAPY. In August 1999, we entered into a license agreement with
Introgen Therapeutics, granting exclusive worldwide license to MDA-7, a tumor
suppressor gene that we have in-licensed from Columbia University, for use in
gene therapy. MDA-7 may enhance cancer treatment options and be utilized
synergistically with the existing therapeutic approaches of surgery,
chemotherapy and radiotherapy. Under the terms of the agreement, Introgen
received an exclusive, worldwide license, with the right to sublicense, the
MDA-7 gene for use in all gene therapy applications. In consideration of the
exclusive license and research and development services that we performed prior
to executing the agreement, we received an up-front license fee, and may receive
milestone payments, research and development payments and royalties on potential
product sales.
ADOPTIVE IMMUNOTHERAPY PRODUCTS. Effective in March 1999, we entered into a
research agreement with IDRI, pursuant to which IDRI will provide us with $12.0
million in grant funding over the three year term of the agreement to fund
research and development of adoptive immunotherapy products for treating cancer.
The agreement provides us ownership of all intellectual property and product
rights that we develop. IDRI will receive a percentage of specified proceeds
that we may receive related to adoptive immunotherapy products resulting from
the funded research and development.
ANIMAL HEALTH PRODUCTS. In March 1996, we entered into a license and research
agreement granting Heska an exclusive worldwide license to use
leishmaniasis-based technologies in certain of Heska's companion animal
products, including LeIF as a vaccine adjuvant and a stand-alone vaccine against
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canine leishmaniasis. In addition, we granted Heska a license to our diagnostic
leishmania 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
on achieving certain development milestones, as well as royalty payments on any
product sales. In December 1996, Heska made a payment based on achieving a
development milestone for our K39 diagnostic product. In December 1997, Heska
announced commercial availability of the first product, a diagnostic test for
use in clinical laboratories, and paid us a corresponding milestone payment.
Our corporate partnership agreements generally provide us recourse with respect
to our existing product and technology rights in the event the corporate partner
leaves uncured a material breach of its agreement. In that event, we generally
may terminate the licenses granted to that corporate partner under its
agreement. However, because our strategy for the discovery, research,
development, clinical testing and commercialization of our products is to enter
into many corporate partnerships, our success is substantially dependent on:
+ our ability to enter into and maintain these arrangements on favorable terms;
+ our ability to manage successfully current or future corporate partnerships,
if any; and
+ our corporate partners' ability to perform their obligations under these
arrangements.
We cannot assure you that we will be able to negotiate any additional corporate
partnerships on favorable terms, or at all. We also cannot assure you that our
current corporate partnerships will be successful, or that our corporate
partners will perform their obligations under these arrangements in a timely
manner or at all. The occurrence of any such factors would significantly harm
our business.
OTHER STRATEGIC RELATIONSHIPS
We seek to obtain technologies that complement and expand our existing
technology base. Where consistent with its strategy, we have licensed and intend
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, we generally seek to
obtain unrestricted sublicense rights consistent with its partner-driven
strategy. We are generally obligated under these agreements to pursue diligently
product development, make development milestone payments and pay royalties on
any product sales.
INCYTE PHARMACEUTICALS. In February 2000, we entered into a collaborative
agreement with Incyte Pharmaceuticals, a California-based genomics company.
Under the agreement, we gained access to Incyte's LifeSeq databases of expressed
human genes. Some of these gene sequences may be of use in our antigen-based
vaccines. Under the terms of the agreement, we have the right to obtain licenses
under Incyte patents and patent applications covering sequences in Incyte's
LifeSeq database. These licenses would require us to pay license fees and
royalties.
GENSET. In February 2000, we entered into an agreement with Genset, a French
genomics company. Under the agreement, we provided Genset with an undisclosed
pathogen that we believe is involved in the development of an infectious
disease. Genset will sequence the genome, and we then intend to use this genomic
information, together with our antigen discovery techniques, to attempt to
design novel, antigen-based therapeutic and prophylactic vaccines targeting the
pathogen.
LIGOCYTE PHARMACEUTICALS. In October 1999, we entered into an exclusive research
and development agreement with LigoCyte Pharmaceuticals, an early-stage
biotechnology company, for the development of its proprietary monoclonal
antibodies against the yeast, Candida albicans. Under the agreement, we have
agreed to fund certain of LigoCyte's efforts to develop treatments for
hospital-based systemic
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Candida infections and a novel vaccine to treat recurring vaginal candidiasis.
Under the terms of the agreement, we will make research and development payments
and, if certain milestones are achieved, additional milestone payments, as well
as royalty payments on future product sales. In addition to the collaborative
agreement, we invested $1.0 million in exchange for preferred stock in LigoCyte.
Our President and Chief Operating Officer is a member of LigoCyte's board of
directors.
SR PHARMA. In December 1998, we entered into a worldwide, exclusive license
agreement with Stanford Rook, known as SR Pharma, for rights to SR Pharma's M.
vaccae-related intellectual property in connection with the development and
commercialization of PVAC treatment for the treatment of psoriasis, rheumatoid
arthritis, multiple sclerosis and diabetes, with an option to certain additional
disease fields. Under the license agreement, we agreed to pay SR Pharma license
fees, milestone payments and a percentage of any revenues that we may receive
from product sales. The agreement was expanded in February 1999 to reflect SR
Pharma's grant to use of manufacturing rights. In February 1999, we also entered
into a worldwide, non-exclusive license agreement with SR Pharma for rights
under its M. vaccae-related intellectual property for the manufacture,
development and commercialization of specified M. vaccae-derived products for
use as adjuvants in our proprietary vaccines other than tuberculosis vaccines.
IMMGENICS PHARMACEUTICALS. In November 1998, we signed an exclusive agreement
with ImmGenics Pharmaceuticals to utilize ImmGenics' proprietary Selected
Lymphocyte Antibody Method technology to develop therapeutic and diagnostic
monoclonal antibodies specific to our proprietary antigens in cancer and
infectious disease. Under the agreement, we will make research and development
payments and, if certain milestones are achieved, additional milestone payments
and royalty payments on future product sales. In addition to the collaborative
agreement, in 1998 we invested $1.75 million in exchange for preferred stock in
ImmGenics, convertible debt and warrants, and, based on ImmGenics having met
certain milestones in accordance with the terms and conditions of the agreement,
we have invested an additional $1.25 million in 1999, for a total investment of
$3.0 million. In addition, we may obtain additional ownership in ImmGenics over
time under certain terms of the agreement. Our Vice President and Chief
Financial Officer and our Executive Vice President and Chief Scientific Officer
are members of ImmGenics' board of directors.
GENESIS RESEARCH AND DEVELOPMENT. Effective in January 1998, we entered into a
collaborative research and development agreement with Genesis Research and
Development to develop and commercialize the M. vaccae-derived product, PVAC
treatment, for psoriasis. Under the agreement, we will share the costs of
product development and the revenue received related to that product with
Genesis. In the event one party becomes responsible for more than 50% of product
development costs, that party will also receive a pro rata increased portion of
revenues related to product sales. Under the agreement, Genesis also granted us
the worldwide, exclusive right to develop the M. vaccae-derived product for
certain other autoimmune diseases, including rheumatoid arthritis, multiple
sclerosis and diabetes. We also entered into a separate agreement with Genesis,
effective in January 1998, to research and develop M. vaccae-derived products as
vaccine adjuvants. Under the agreement Genesis granted us an exclusive license
to use these adjuvant products in our proprietary vaccines. Our Chairman and
Chief Executive Officer is a member of Genesis' board of directors.
SOUTHERN RESEARCH INSTITUTE. In May 1996, we entered into a license agreement
with SRI for an exclusive, worldwide, sublicensable license (subject to a
grant-back to SRI for non-commercial research purposes) to use SRI polymer
microsphere technology in the fields of cancer and infectious disease, to the
extent a product incorporates an antigen, cytokine or adjuvant that we own or
control. In addition, SRI granted us options to exclusive, worldwide,
sublicensable licenses in specified autoimmune and viral disease fields. Our
option rights renew annually upon our payment of an option fee and our grant to
SRI of 4,545 shares of our common stock. We paid up-front license fees upon
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execution of the license agreement and are obligated to make future payments on
achieving specified development milestones, and royalty payments on any product
sales, subject to an annual minimum royalty. In addition, we 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 additional shares.
In late 1999, SRI net exercised 7,575 of the warrant shares, which had vested in
May 1999 in connection with our grant of a sublicense to Zambon Group under the
SRI microsphere rights. In April 1997, the parties amended the license agreement
to extend our license in the field of cancer to include products that
incorporate third-party antigens or cytokines. We are obligated to share
revenues from such third-party sublicense agreements with SRI. In connection
with renewal of our option rights we have issued SRI 4,545 shares of common
stock on each of the first, second and third anniversaries of the effective date
of the license agreement. SRI may terminate the license agreement if we fail to
perform certain obligations under such agreement.
DANA-FARBER CANCER INSTITUTE. In January 1995, we entered into a licensing
agreement with Dana-Farber Cancer Institute. Under the licensing agreement,
Dana-Farber granted us an exclusive, worldwide, sublicensable license (subject
to a grant-back to Dana-Farber for non-commercial research purposes) to use
specified Dana-Farber microsphere technology related to the induction of a CTL
response in all fields. We paid up-front license fees on execution of the
licensing agreement. We are also obligated to make future payments on achieving
certain development milestones, and royalty payments on any product sales,
subject to an annual minimum royalty. In addition, we issued Dana-Farber 15,151
shares of common stock on execution of the licensing agreement and an additional
15,151 shares of common stock in 1999 upon issuance of the first patent
containing claims covering the licensed technology. We must continue to meet
certain research-based obligations in order to retain its rights under the
licensing agreement. Dana-Farber may terminate the licensing agreement in the
event we do not make required royalty payments or fails to perform specified
obligations under the agreement.
INFECTIOUS DISEASE RESEARCH INSTITUTE. In September 1994, we entered into a
research services and intellectual property agreement with the Infectious
Disease Research Institute, or IDRI, a not-for-profit, private research
institute. Under this agreement, as amended and restated effective January 1997,
we agreed to provide IDRI with research funding and administrative and
facilities support, including use of a limited amount of our research laboratory
space. IDRI pays a services fee for the administrative and facilities support
that we provide and rent for the use of laboratory space. Our funded research
performed by IDRI is in the area of infectious disease. Under the agreement,
IDRI must disclose to us all significant developments relating to information or
inventions discovered at IDRI. We will own, on a royalty-free basis, all of
IDRI's interest in inventions and patent rights arising out of the research IDRI
performs with our funding 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 rights arising out of research funded by governmental and
not-for-profit organizations, IDRI granted us a royalty-bearing, worldwide,
perpetual license, exclusive except as to rights held by the governmental or
not-for-profit organizations. In late 1999, IDRI relocated to facilities outside
of our facilities. Since this move, we have provided only limited services to
IDRI. We and IDRI are in the process of amending and restating the research
services and intellectual property agreement to reflect this decrease in the
services that we provide.
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OTHER LICENSE AGREEMENTS. Additionally, we are a party to other exclusive
license agreements with academic institutions, including:
+ the University of Washington for the use of Her-2/neu technology in all
fields;
+ Washington University in St. Louis, Missouri for the use of mammaglobin, a
breast cancer-related gene and protein, for prophylactic and therapeutic
treatment and diagnosis of adenocarcinoma;
+ Health Research for the use of a proprietary mouse model for human cancer;
+ Massachusetts Institute of Technology for the use of WT-1, a leukemia-related
gene and protein, in therapeutic applications; and
+ the University of Pittsburgh for Muc-1 peptide vaccine for use in the
diagnosis and therapy of cancer.
Some of these agreements require us or other parties to meet certain performance
obligations in order to retain their rights under such agreements or require us
to make payments in order to obtain or maintain rights to the subject
technology.
PATENTS AND PROPRIETARY TECHNOLOGY
Our success will depend in large part on our and our licensors' abilities to:
+ obtain patent and other proprietary protection for vaccine, other
immunotherapeutic and diagnostic products, antigens, antibodies, adjuvants
and delivery systems;
+ defend patents once obtained;
+ preserve trade secrets; and
+ operate without infringing the patents and proprietary rights of third
parties.
We intend to seek appropriate patent protection for our vaccine, immunotherapy,
discovery, screening, diagnostic and other proprietary technologies by filing
patent applications in the United States and certain other countries. As of
March 2, 2000, we owned or had licensed 103 issued United States patents that
expire at various times between May 2002 and May 2018, and 207 pending United
States patent applications.
Although we believe our patents and patent applications provide a competitive
advantage, the patent positions of pharmaceutical and biopharmaceutical
companies are highly uncertain and involve complex legal and factual questions.
For example, there is substantial uncertainty regarding the potential for patent
protection for gene fragments or genes without known function or correlation
with specific diseases. We and our corporate partners or licensors may not be
able to develop patentable products or processes. We and our corporate partners
or licensors may not be able to obtain patents from pending patent applications.
Even if patent claims are allowed, the claims may not issue, or in the event of
issuance, may not be sufficient to protect the technology owned by or licensed
to us or our corporate partners.
Our or our corporate partners' current patents, or patents that issue on pending
applications, may be challenged, invalidated, infringed or circumvented, and the
rights granted in those patents may not provide proprietary protection or
competitive advantages to us. Two patent applications that we have licensed from
SRI are currently the subject of opposition hearings before the European Patent
Office. In one such opposition, the European Patent Office has revoked the
previously issued European patent. Although SRI has appealed this decision, it
is uncertain whether SRI will ultimately prevail in this or
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any other opposition proceedings. As a result, these patents may not issue in
Europe, in which case our business may suffer.
Patent applications in the United States are presently maintained in secrecy
until patents issue and patent applications in certain foreign countries
generally are not published until many months or years after they are filed.
Scientific and patent publication often occurs long after the date of the
scientific developments disclosed in those publications. Accordingly, we cannot
be certain that we or one of our corporate partners was the first to invent the
subject matter covered by any patent application or that we or one of our
corporate partners was the first to file a patent application for any such
invention.
Our commercial success depends significantly on our ability to operate without
infringing patents and proprietary rights of third parties. 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 us or our corporate partners. We cannot determine with certainty
whether patents or patent applications of other parties may materially affect us
or our 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 us or our
corporate partners and limit our or our corporate partners' ability to obtain
meaningful patent protection. If patents containing competitive or conflicting
claims are issued to third parties, we or our 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. In addition, other parties may duplicate, design around, or
independently develop similar or alternative technologies to ours, our corporate
partners or our licensors. If another party controls patents or patent
applications covering our products, we and our corporate partners may not be
able to obtain the rights we need to those patents or patent applications in
order to commercialize our products.
Litigation may be necessary to enforce patents issued or licensed to us or our
corporate partners or to determine the scope or validity of another party's
proprietary rights. United States Patent Office interference proceedings may be
necessary if we and another party both claim to have invented the same subject
matter.
We could incur substantial costs if:
+ litigation is required to defend against patent suits brought by third
parties;
+ we participate in patent suits brought against or initiated by our corporate
partners;
+ we initiate similar suits; or
+ we participate in an interference proceeding.
In addition, we or our corporate partners may not prevail in any of these
actions or proceedings. An adverse outcome in litigation or an interference or
other proceeding in a court or patent office could:
+ subject us to significant liabilities;
+ require disputed rights to be licensed from other parties; or
+ require us or our corporate partners to cease using certain technology.
We also rely on trade secrets and proprietary know-how, especially when we does
not believe that patent protection is appropriate or can be obtained. Our policy
is to require each of our employees, consultants and advisors to execute a
confidentiality and inventions agreement before beginning their employment,
consulting or advisory relationship with us. These agreements generally provide
that the
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individual must keep confidential and not disclose to other parties any
confidential information developed or learned by the individual during the
course of their relationship with us except in limited circumstances. These
agreements also generally provide that we shall own all inventions conceived by
the individual in the course of rendering services to us.
We work with others in its research, development and commercialization
activities. Disputes may arise about inventorship and corresponding rights in
know-how and inventions resulting from the joint creation or use of intellectual
property by us and our corporate partners, licensors, scientific collaborators
and consultants. In addition, other parties may circumvent any proprietary
protection we do have. As a result, we may not be able to maintain our
proprietary position.
GOVERNMENT REGULATION
Our products are subject to extensive regulation by numerous governmental
authorities, principally the FDA, as well as numerous state and foreign
agencies. We need to obtain clearance of our potential products by the FDA
before we can begin marketing the products in the United States. Similar
approvals are also required in other countries.
Product development and approval within this regulatory framework is uncertain,
can take a number of years and requires the expenditure of substantial
resources. The nature and extent of the governmental premarket review process
for our potential products will vary, depending on the regulatory categorization
of particular products. We believe that the FDA and comparable regulatory bodies
in other countries will regulate our vaccine and other immunotherapeutic
products and related pharmaceutical products as biologics. The necessary steps
before a new biological product may be marketed in the United States ordinarily
include:
+ preclinical laboratory and animal tests;
+ submission to the FDA of an investigational new drug application, or IND,
which must become effective before clinical trials may commence;
+ completion of adequate and well controlled human clinical trials to establish
the safety and efficacy of the proposed drug for its intended use;
+ the submission to the FDA of a biologics license application, or BLA; and
+ FDA review and approval of the BLA prior to any commercial sale or shipment
of the product.
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, analytical data and proposed
clinical trial protocols, 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. In such case, we cannot assure you that this 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
arise, 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
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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 at
the institutions at which the trial will be conducted. The institutional review
board will consider, among other things, ethical factors and the safety of human
subjects. The institutional review board 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 that 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:
+ determine the efficacy of the potential product for specific, targeted
indications;
+ determine dosage tolerance and optimum dosage; and
+ 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 in comparison to standard therapies, within a broader patient
population, generally at geographically dispersed clinical sites. Phase I, Phase
II or Phase III testing may not be completed successfully within any specific
period of time, if at all, with respect to any of our potential products.
Furthermore, the FDA or an institutional review board or we may suspend a
clinical trial at any time for various reasons, including a finding that the
subjects or patients are being exposed to an unacceptable health risk.
The results of pharmaceutical development, preclinical studies and clinical
trials are submitted to the FDA in the form of a BLA 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 a BLA 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. 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.
Any diagnostic products developed by us or our 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--including labeling, premarket notification and
adherence to GMP quality system regulation, or QSR;
+ Class II--general controls and special controls--including 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
notification under Section 510(k) of the Federal Food, Drug and Cosmetic Act or
approval of a premarket approval application, or PMA. 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 a
PMA. 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.
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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
must be approved through the PMA process. An FDA determination of "not
substantially equivalent," a request for additional information, or the
requirement of a PMA could delay market 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,
require new 510(k) submissions.
If a device does not qualify for the 510(k) 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 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
investigational device exemption 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 institutional review board approval. Clinical
investigation of medical devices may involve risks similar to those involved in
the clinical investigation of pharmaceutical products.
A PMA 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. The PMA review and approval process can be expensive,
uncertain and lengthy, and approvals may not be granted on a timely basis, if at
all.
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. We and our corporate partners will be required to adhere to
applicable regulations setting forth detailed GMP or QSR requirements, which
include testing, control and documentation requirements. 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,
we and our 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 requirements similar to those associated with FDA approval.
Our research and development activities involve the controlled use of hazardous
materials, chemicals and various radioactive materials. We are subject to
federal, state and local laws and regulations governing the use, storage,
handling and disposal of such materials and certain waste products. Although we
believe that our safety procedures for using, handling, storing and disposing of
such materials comply with the standards required by state and federal laws and
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials.
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COMPETITION
The biotechnology and biopharmaceutical industries are characterized by rapidly
advancing technologies, intense competition and a strong emphasis on proprietary
products. Many third parties compete with us in developing alternative therapies
to treat cancers and infectious and autoimmune diseases, including:
+ pharmaceutical companies;
+ biotechnology companies;
+ academic institutions; and
+ other research organizations.
Many of these competitors have significantly greater financial resources and
expertise in research and development, manufacturing, preclinical testing,
conducting clinical trials, obtaining regulatory approvals and marketing than
us. 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 or early-stage
companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies. These third
parties compete with us in recruiting and retaining qualified scientific and
management personnel, as well as in acquiring technologies complementary to our
programs.
We expect that competition among products approved for sale will be based, among
other things, on efficacy, reliability, product safety, price and patent
position. Our ability to compete effectively and develop products that can be
manufactured cost-effectively and marketed successfully will depend on our
ability to:
+ advance our technology platforms;
+ license additional technology;
+ maintain a proprietary position in our 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.
RECENT ACQUISITIONS
RIBI IMMUNOCHEM RESEARCH
In October 1999, we acquired all of the outstanding shares of common stock of
Ribi in a merger valued at approximately $57.5 million. The transaction combines
our antigen discovery and immunotherapeutic expertise with Ribi's adjuvant
expertise and manufacturing resources to develop therapies for the treatment or
prevention of autoimmune diseases, cancer and infectious diseases. In addition,
the acquisition further expands our technological platform to include an
immunotherapeutic program aimed at reperfusion injury, RC-552.
ANERGEN
In February 1999, we acquired all of the outstanding shares of common stock of
Anergen in a merger valued at approximately $9.6 million. The transaction
extends the application of our immunotherapeutic expertise into multiple
autoimmune disease fields and complements our existing programs in autoimmune
disease, cancer and infectious disease. By developing therapeutics that
selectively interrupt
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the disease process, we believe we will be able to treat a number of autoimmune
diseases including rheumatoid arthritis, multiple sclerosis, and diabetes.
GENQUEST
In September 1998, we acquired all of the outstanding shares of common stock of
GenQuest in a merger valued at approximately $12.4 million. The acquisition
enables us to augment our proprietary approaches in antigen discovery by
applying functional genomics technology to discover novel genes and to develop
the potential of such genes and related gene products. These genes and gene
products may be used in diagnosis, drug screening, gene therapy and antibody
development in the areas of prostate, breast, lung, colon, and ovarian cancer.
Prior to the acquisition, we were a stockholder in GenQuest.
MANUFACTURING
We have manufactured pharmaceutical-grade product to supply some of our previous
and ongoing clinical trials. In addition, we have maunufactured preclinical and
clinical supplies of adjuvants and protein for our corporate partners, for
government agencies and for numerous academic researchers. We believe that our
existing facilities will be sufficient to accommodate manufacturing of initial
production quantities of our most advanced product candidates. Should we require
additional capacity in the future, we have space to expand our manufacturing
facility in Hamilton, Montana.
FACILITIES
We operate at three sites. Our headquarters is in Seattle, Washington, where we
lease approximately 77,000 square feet of laboratory, discovery, research and
development, manufacturing and general administration space. We maintain an
additional 31,000 square feet of laboratory and research and development space
in Redwood City, California. In addition, we own a 35-acre complex near
Hamilton, Montana which includes a 60,000 square foot building containing
laboratory, pilot plant, commercial manufacturing, marketing and administrative
facilities. The lease for the Seattle facility expires in January 2005, with an
option to renew the lease for two additional periods of five years each. We
believe our existing facilities are adequate to meet our immediate needs and
that suitable additional space will be available in the future on commercially
reasonable terms as needed.
EMPLOYEES
As of March 2, 2000, we had 276 employees, 67 of whom hold degrees at the
doctorate level. Of these employees, 212 are engaged in or directly support
research and development activities, 26 are in production, and 38 are in
administration and business development positions. Each of our employees has
signed a confidentiality agreement and none are covered by a collective
bargaining agreement. We have never experienced employment-related work
stoppages and consider our employee relations to be good.
LEGAL AND REGULATORY MATTERS
As part of our acquisition of Ribi, we assumed responsibility for two active
litigation matters.
GROUNDWATER CONTAMINATION
Ribi, the NIH and the Bitterroot Valley Sanitary Landfill were notified by the
Montana Department of Environmental Quality in March 1991 that they had been
identified as potentially responsible parties and as such were jointly and
severally liable for groundwater contamination at a landfill in Ravalli County,
Montana. The NIH voluntarily initiated and completed work pursuant to an interim
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remediation plan approved by the Department of Environmental Quality. In August
1995, the Department of Environmental Quality announced that it had approved a
second interim action in the vicinity of the landfill that was voluntarily
conducted by the NIH that involved installing individual replacement and new
wells.
The Department of Environmental Quality initiated an action in 1997 in the state
district court in Lewis and Clark County, Montana against Ribi, the landfill and
the owners of the landfill seeking recovery of past alleged costs associated
with its oversight activities, as well as a declaratory judgment finding the
parties liable for future oversight costs, plus civil penalties in the event the
parties fail to comply. The state action has been stayed pending outcome of the
federal action described below.
In April 1998, Ribi received notice that the United States, acting on behalf of
the Department of Health and Human Services, which oversees the NIH, filed suit
in United States District Court seeking contribution from Ribi of an equitable
share of past and future response costs incurred by the NIH in connection with
the remediation at and near the landfill.
In June 1998, the Department of Environmental Quality filed a complaint in the
United States District Court under the Federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) against Ribi, the landfill and
the owners of the landfill seeking recovery of past alleged costs associated
with its oversight activities, plus interest and attorneys' fees and costs as
well as a declaratory judgment finding the parties liable for future response
costs.
Following closing of the Ribi acquisition, we initiated settlement discussions
with the United States and the State of Montana. We currently believe that a
settlement can be reached with the United States and the State of Montana
releasing us from past and future liability related to the Bitterroot Landfill,
and we have reserved $2,600,000 to cover the costs of any such settlement.
WRONGFUL DISCHARGE
In June 1997, a complaint was filed in state district court in Ravalli County,
Montana against Ribi by a former employee who was discharged for cause in June
1996. The former employee alleged he was discharged in violation of the Montana
Wrongful Discharge from Employment Act and further, that the discharge was for
his refusal to violate public policy in connection with his employment. The
court granted dismissal with respect to the portion of the complaint alleging
that termination was due to his refusal to violate public policy. The former
employee then filed a motion for reconsideration asking the court to reverse its
decision, and requested permission to amend his complaint to include additional
allegations relative to the public policy issue. Our motion for partial summary
judgment on the public policy issue is currently pending. The plaintiff has
filed a motion for partial summary judgment on the issue of discharge in
violation of the Wrongful Discharge from Employment Act.
While we believe our defenses to these employment allegations are meritorious,
we may incur substantial litigation costs to defend ourselves. A potential
adverse outcome could cause our business, financial condition and results of
operations to suffer.
RECENT DEVELOPMENT
We understand that a complaint was filed in Montana district court in February
2000 by a former Ribi employee claiming damages associated with working
conditions while she was employed at Ribi. Although we have not yet been served
with the complaint, based on our current understanding and initial investigation
of the matter, we believe the claim to be without merit.
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Management
Our officers and directors, and their ages as of March 2, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
Steven Gillis, Ph.D. ...................... 46 Chairman, Chief Executive Officer and
Director
Mark McDade................................ 44 President, Chief Operating Officer and
Director
Steven Reed, Ph.D. ........................ 49 Executive Vice President and Chief
Scientific
Officer
Kenneth Grabstein, Ph.D. .................. 49 Executive Vice President and Director of
Immunology
Michelle Burris............................ 34 Vice President and Chief Financial Officer
Kathleen McKereghan........................ 48 Vice President, General Counsel and
Secretary
Martin Cheever, M.D. ...................... 56 Vice President and Director of Medical
Affairs
Maureen Howard, Ph.D. ..................... 47 Vice President and Director of Research and
Development--Redwood City
Cindy Jacobs, Ph.D., M.D. ................. 42 Vice President and Director of Clinical
Research
Charles Richardson, Ph.D. ................. 48 Vice President and General Manager--
Hamilton
Gary Christianson.......................... 45 Vice President, Technical Operations
Joseph Lacob(1)............................ 44 Director
Arnold Oronsky, Ph.D.(1)(2)................ 59 Director
Andrew Senyei, M.D.(1)(2).................. 49 Director
</TABLE>
- ------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Steven Gillis, Ph.D. co-founded Corixa in October 1994 and has served as chief
executive officer and as a director of Corixa since then. Dr. Gillis has served
as the chairman of our board of directors since March 1999. From 1994 to
February 1999, Dr. Gillis served as our president. Dr. Gillis was a co-founder
of Immunex, where he held multiple positions, including acting chief executive
officer and chairman of the board of Immunex. In addition, Dr. Gillis is a
director of both Micrologix Biotech and Genesis Research and Development
Corporation. He also serves on the scientific advisory board of Medarex. Dr.
Gillis graduated from Williams College and received his Ph.D. from Dartmouth
College.
Mark McDade co-founded Corixa in October 1994 and has served as our president
since March 1999. He has served as our chief operating officer and as a director
since 1994. From 1994 to February 1999, Mr. McDade served as our executive vice
president. Prior to co-founding Corixa, Mr. McDade served as the chief operating
officer of Boehringer Mannheim Therapeutics. His prior experience includes
various positions with Sandoz. In addition, Mr. McDade is a director of LigoCyte
Pharmaceuticals. Mr. McDade graduated from Dartmouth College and received his
M.B.A. from Harvard University.
Steven Reed, Ph.D. co-founded Corixa in October 1994 and has served as our
executive vice president and chief scientific officer since then. Dr. Reed also
serves as an Associate Professor of Pathobiology at the University of
Washington. Prior to co-founding Corixa, he founded the Infectious Disease
Research Institute and also served as a senior scientist at the Seattle
Biomedical Research Institute. In addition, Dr. Reed is a director of ImmGenics
Pharmaceuticals. Dr. Reed graduated from Whitman College and received his Ph.D.
from University of Montana.
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Kenneth Grabstein, Ph.D. co-founded Corixa in October 1994 and has served as our
director of immunology since then. He also serves as our executive vice
president, a position he has held since March 1999. From 1994 to February 1999,
he served as our vice president. Prior to co-founding Corixa, Dr. Grabstein was
the director of cellular immunology and director of the flow cytometry facility
at Immunex Research and Development Corporation. He has also served as an
affiliate investigator of the Clinical Research Division of the Fred Hutchinson
Cancer Research Center. Dr. Grabstein graduated from the University of
California, Berkeley and received his Ph.D. from the University of California,
Berkeley.
Michelle Burris has served as our vice president and chief financial officer
since January 1998. From February 1997 to January 1998, she was our vice
president of finance and administration. From 1996 to February 1997, she served
as our director of finance and administration, and from 1995 to 1996, she was
our controller. Ms. Burris served us as a consultant from November 1994 through
March 1995. Before working with us, Ms. Burris held several finance and planning
positions at The Boeing Company. In addition, Ms. Burris is a director of
ImmGenics Pharmaceuticals. Ms. Burris is a Certified Public Accountant, and she
graduated from George Mason University and received her M.B.A. from Seattle
University.
Kathleen McKereghan has served as our vice president and general counsel since
January 2000 and as our corporate secretary since June 1998. From January 1998
to January 2000, she served as our director of legal affairs, and from December
1995 to January 1998 she was our corporate attorney. Prior to joining us, Ms.
McKereghan practiced law at the law firm of Perkins Coie in Seattle, Washington.
She is licensed to practice law in the state of Washington and admitted to
practice before the U.S. Patent and Trademark Office. Ms. McKereghan graduated
from the University of California, Davis and received her J.D. from the
University of Washington.
Martin Cheever, M.D. has served as our vice president and director of medical
affairs since joining us in December 1997. Dr. Cheever is also a co-founder of
Corixa. Prior to joining us, he served as an affiliate investigator for the
clinical research division for the Fred Hutchinson Cancer Research Center and
from 1987 to December 1997, Dr. Cheever was a clinical professor of medicine and
a member of the division of oncology at the University of Washington School of
Medicine. Dr. Cheever graduated from the University of Michigan and received his
M.D. from the University of Michigan School of Medicine.
Maureen Howard, Ph.D. has served as our vice president and director of research
and development at our Redwood City, California facility since February 1999.
From 1997 to 1999, Dr. Howard served as the vice president of research at
Anergen. Prior to working at Anergen, she served as the founding director of the
department of immunology at DNAX Research Institute of Molecular and Cellular
Biology. Dr. Howard's prior experience includes service as a Fulbright and
Fogarty fellow in the laboratory of immunology at the National Institutes of
Health. Dr. Howard graduated from the University of Melbourne, Australia and
received her Ph.D. from the Walter and Eliza Hall Institute in Australia.
Cindy Jacobs, Ph.D., M.D. has served as our vice president and director of
clinical research since joining us in April 1999. Prior to joining us, Dr.
Jacobs served as the of vice president of clinical research at Cytran. From 1993
to 1998, Dr. Jacobs was in charge of clinical research at CellPro, where she
held various positions including vice president of clinical research. Dr. Jacobs
graduated from Montana State University. She received her M.S. from Washington
State University, a Ph.D. from Washington State University and a M.D. from the
University of Washington.
Charles Richardson, Ph.D. has served as our vice president and general manager
at our Hamilton, Montana facility since October 1999. From 1988 to 1999, Dr.
Richardson served in various capacities
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at Ribi ImmunoChem Research, including vice president of pharmaceutical
discovery. He graduated from Carnegie Mellon University and received his Ph.D.
from the University of Cincinnati.
Gary Christianson has served as our vice president of technical operations since
October 1999. From 1987 to 1999, Mr. Christianson served in various capacities
at Ribi ImmunoChem Research, including director of production and engineering.
He graduated from Montana State University.
Joseph Lacob has served as a director of Corixa since 1994. From 1994 to
December 1998, Mr. Lacob served as our chairman of the board of directors. Mr.
Lacob has been a partner of Kleiner Perkins Caufield & Byers, a venture capital
firm, since May 1987. In addition, he is currently the chairman of the board of
Microcide Pharmaceuticals and Cardima. He also serves on the board of directors
of Heartport, IsoStent and several other privately held biotechnology, medical
device and health care service companies. Mr. Lacob also serves as the chairman
of the board of CellPro. Mr. Lacob graduated from the University of California,
Irvine, received his M.P.H. from the University of California, Los Angeles and
received his M.B.A. from the Stanford Graduate School of Business.
Arnold Oronsky, Ph.D. has served as a director of Corixa since 1994. He
currently serves as chairman of the board of directors of Coulter
Pharmaceuticals and as a director of Signal Pharmaceuticals. From 1995 to 1996,
Dr. Oronsky served as the president and chief executive officer of Coulter
Pharmaceuticals. 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 the vice president for discovery research at Lederle
Laboratories, where he was responsible for the research of new drugs. Dr.
Oronsky graduated from University College, New York University and received his
Ph.D. from Columbia University.
Andrew Senyei, M.D. has served as a director of Corixa since 1994. Dr. Senyei
has served as managing partner of Enterprise Partners, a venture capital firm,
since 1999 and a general partner of Enterprise Partners since 1988. Dr. Senyei
was a founder of Molecular Biosystems. and serves on the board of directors of
several private technology companies. Prior to joining Enterprise Partners, Dr.
Senyei 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 and received his M.D. from Northwestern
University.
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Principal and selling stockholders
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 2, 2000 and as adjusted to reflect the
sale of the common stock offered by this prospectus by
+ each person who is known by us to own beneficially more than five percent of
our common stock;
+ each of our directors;
+ each of our named executive officers; and
+ all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(2) NUMBER OF AFTER OFFERING(2)
-------------------- SHARES --------------------
NAME AND ADDRESS(1) NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Five percent stockholders
Castle Gate(3).................... 2,507,725 11.7% 2,507,725 10.7%
2365 Carillon Point
Kirkland, WA 98033
Kleiner Perkins Caufield &
Byers(4)........................ 2,214,845 10.9 2,214,845 9.9
2750 Sand Hill Road
Menlo Park, CA 94025
InterWest Investors(5)............ 1,196,797 5.9 250,000 946,797 4.2
3000 Sand Hill Road,
Menlo Park, CA 94025
SmithKline Beecham(6)............. 1,118,779 5.5 1,118,779 5.0
New Horizons Court
Brentford, Middlesex TWB 9EP
United Kingdom
Directors and named executive
officers
Steven Gillis, Ph.D.(7)........... 387,169 1.9 387,169 1.7
Steven Reed, Ph.D.(8)............. 261,751 1.3 261,751 1.2
Mark McDade(9).................... 261,211 1.3 261,211 1.2
Kenneth Grabstein, Ph.D.(10)...... 228,742 1.1 228,742 1.0
Martin Cheever, M.D.(11).......... 135,727 * 135,727 *
Joseph Lacob(12).................. 2,238,595 11.0 2,238,595 10.0
Arnold Oronsky, Ph.D.(13)......... 1,220,547 6.0 250,000 970,547 4.3
Andrew Senyei, M.D.(14) .......... 81,024 * 81,024 *
All directors and officers as a
group (15 persons)(14).......... 4,964,896 23.7 4,714,896 20.5
</TABLE>
- ------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each of the individuals named
above is Corixa Corporation, 1124 Columbia Street, Suite 200, Seattle,
Washington 98104.
(2) Assumes no exercise of the underwriters' over-allotment option. The
applicable percentage of beneficial ownership prior to this offering is
based on 20,354,098 shares of our common stock, which comprises 18,883,510
shares of our common stock outstanding as of March 2, 2000 and 12,500
shares of Series A preferred stock which have the right to vote with the
common stock on an as-converted basis and are convertible into an aggregate
of 1,470,588 shares of our common
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PRINCIPAL AND SELLING STOCKHOLDERS
- --------------------------------------------------------------------------------
stock, together with applicable options and warrants for such stockholder.
The applicable percentage of beneficial ownership after this offering is
based on 22,354,098 shares of our common stock, after taking into account
the factors listed in the preceding sentence. Beneficial ownership is
determined in accordance with the rules of the Securities Exchange
Commission.
The number of shares beneficially owned by a person includes shares of our
common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of March 2, 2000. Shares issuable
pursuant to those options are deemed outstanding for computing the
percentage ownership of the person holding the options but are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person.
To our knowledge, twelve persons named in this table have sole voting and
investment power with respect to all shares of our common stock shown as
owned by them, subject to community property laws where applicable and
except as indicated.
(3) Castle Gate holds 12,500 shares of Series A preferred stock which are
convertible into an aggregate of 1,470,588 shares of our common stock and
has warrants to purchase an additional 1,037,137 shares of our common
stock.
(4) 2,114,294 shares are held by Kleiner Perkins Caufield & Byers VII, 62,673
shares are held by Kleiner Perkins Caufield & Byers VI and 37,878 shares
are held by Cynthia Healy, Director Life Science Research at Kleiner
Perkins Caufield & Byers. Joseph Lacob, a director, 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.
(5) InterWest Partners V, L.P., holds 1,182,107 shares, InterWest Investors V,
L.P. holds 8,690 shares, and Arnold Oronsky holds 6,000 shares. Dr.
Oronsky, one of our directors, 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 these shares. Dr. Oronsky disclaims beneficial ownership of
shares held by InterWest Partners V, L.P., except to the extent of his
pecuniary interest in the shares, and disclaims beneficial ownership to all
shares held by InterWest Investors V, L.P., except to the extent of his
pecuniary interest in the shares.
(6) S.R. One Ltd., a wholly-owned subsidiary of SmithKline Beecham, holds
505,051 shares and SmithKline Beecham holds 613,728 shares.
(7) The information regarding Steven Gillis includes 112,064 shares issuable
upon the exercise of outstanding options held by him exercisable within 60
days of March 2, 2000.
(8) The information regarding Steven Reed includes 44,166 shares issuable upon
the exercise of outstanding options held by him exercisable within 60 days
of March 2, 2000. 15,151 shares are held in the name of Steven James N.
Reed, UGMA WA Merrill Lynch and 15,151 shares are held in the name of Sarah
Mariko Reed, UGMA WA Merrill Lynch, both of which accounts name Dr. Reed as
custodian. Dr. Reed disclaims beneficial ownership of such shares, except
to the extent of his pecuniary interest in such shares. If the
underwriters' overallotment option were exercised in full, the number of
shares beneficially owned by Dr. Reed after the offering would be 231,751
and the percentage would be 1.0%.
(9) The information regarding Mark McDade includes 170,302 shares issuable upon
the exercise of outstanding options held by him exercisable within 60 days
of March 2, 2000. If the underwriters' overallotment option were exercised
in full, the number of shares beneficially owned by Mr. McDade after the
offering would be 231,211 and the percentage would be 1.0%.
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PRINCIPAL AND SELLING STOCKHOLDERS
- --------------------------------------------------------------------------------
(10) The information regarding Kenneth Grabstein includes 38,153 shares issuable
upon the exercise of outstanding options held by him exercisable within 60
days of March 2, 2000. If the underwriters' overallotment option were
exercised in full, the number of shares beneficially owned by Dr. Grabstein
after the offering would be 198,742.
(11) The information regarding Martin Cheever includes 47,629 shares issuable
upon the exercise of outstanding options held by him exercisable within 60
days of March 2, 2000. If the underwriters' overallotment option were
exercised in full, the number of shares beneficially owned by Dr. Cheever
after the offering would be 105,727.
(12) The information regarding Joseph Lacob includes 23,750 shares issuable upon
the exercise of outstanding options held by him exercisable within 60 days
of March 2, 2000, 2,114,294 shares held by Kleiner Perkins Caufield & Byers
VII and 62,673 shares held by Kleiner Perkins Caufield & Byers VI. Mr.
Lacob, one of our 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) The information regarding Arnold Oronsky includes 23,750 shares issuable
upon the exercise of outstanding options held by him exercisable within 60
days of March 2, 2000, 1,182,107 shares held by InterWest Partners V, L.P.,
8,690 shares held by InterWest Investors V, L.P and 6,000 shares held by
Dr. Oronsky. Dr. Oronsky, one of our directors, 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.
(14) As a group, all directors and officers, totaling 15 individuals, hold
4,964,896 shares, which includes 24,492 shares issuable upon the exercise
of outstanding options held by Kathleen McKereghan, one of our executive
officers, exercisable within 60 days of March 2, 2000, 18,695 shares
issuable upon the exercise of outstanding options held by Maureen Howard,
one of our executive officers, exercisable within 60 days of March 2, 2000,
774 shares held and 11,966 shares issuable upon the exercise of outstanding
options held by Charles Richardson, one of our executive officers,
exercisable within 60 days of March 2, 2000, 8,292 shares issuable upon the
exercise of outstanding options held by Gary Christianson, one of our
executive officers, exercisable within 60 days of March 2, 2000, 12,500
shares issuable upon the exercise of outstanding options held by Cindy
Jacobs, one of our executive officers, exercisable within 60 days of March
2, 2000 57,274 shares held and 23,750 shares issuable upon exercise of
outstanding options held by Andrew Senyei, one of our directors, exercised
within 60 days of March 2, 2000, and 73,411 shares issuable upon the
exercise of outstanding options held by Michelle Burris, one of our
executive officers, exercisable within 60 days of March 2, 2000. If the
underwriters' overallotment option were exercised in full, the number of
shares beneficially owned by Ms. Burris after the offering would be 58,411.
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<PAGE> 73
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Description of our capital stock
Our authorized capital stock consists of 40,000,000 shares of common stock,
$0.001 par value per share, and 10,000,000 shares of convertible preferred
stock, $0.001 par value per share.
OUR COMMON STOCK. As of March 2, 2000, there were approximately 18,883,510
shares of our common stock outstanding. Pursuant to our certificate of
incorporation, the holders of our common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. None of our common
stockholders will be entitled to cumulate votes at any election of directors.
Subject to preferences that are applicable to the Series A preferred stock and
any other series of our preferred stock that may come into existence in the
future, the holders of our common stock are entitled to receive such dividends,
if any, as may be declared from time to time by our board out of legally
available funds. In the event of our liquidation, dissolution or winding up, the
holders of our common stock are entitled to share ratably with the Series A
preferred stock in all assets remaining after payment of liabilities, subject to
prior rights of any other series of our preferred stock that may come into
existence in the future. Holders of our 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 our common stock.
OUR PREFERRED STOCK. Pursuant to our certificate of incorporation, our board of
directors has the authority, without further action by our stockholders, to
issue up to 10,000,000 shares of our preferred stock in one or more series. Our
board of directors has the authority to issue such 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 our 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 our stockholders. The issuance of our preferred stock may have
the effect of delaying, deferring or preventing a change in control of Corixa
without further action by our stockholders and may adversely affect the voting
and other rights of the holders of our common stock.
Pursuant to a certificate of designation, we have designated 50,000 shares of
preferred stock as Series A preferred stock, of which 12,500 shares were issued
and sold to Castle Gate in April 1999 at a purchase price of $1,000 per share.
If we elect to draw down all remaining available funds under the Castle Gate
equity line of credit, we will issue all 50,000 shares of Series A preferred
stock to Castle Gate. Our Series A preferred stock has the following rights,
privileges and preferences:
+ DIVIDENDS. The holders of our Series A preferred stock are entitled to
receive cumulative dividends at the rate of $50.00 per annum per share. Such
dividends are payable annually in cash or shares of our common stock at our
option for a minimum of four and a maximum of seven years from the date of
issuance of such shares.
+ LIQUIDATION PREFERENCE. In the event of our liquidation, dissolution or
winding up, the holders of our Series A preferred stock are entitled to share
ratably with the holders of our common stock in all assets remaining after
payment of liabilities.
+ CONVERSION. Each share of our Series A preferred stock is convertible at any
time at the option of the holder into the number of shares of our common
stock equal to $1,000 divided by the applicable conversion price in effect at
the time of the issuance of such shares, provided that any such optional
conversion must result in the issuance of the number of shares of our common
stock having an aggregate value of at least $10 million, based on the
applicable conversion price. The conversion price for the currently
outstanding shares of our Series A preferred stock is $8.50 per share, which
means that each outstanding share of our Series A preferred stock is
convertible into
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69
<PAGE> 74
DESCRIPTION OF OUR CAPITAL STOCK
- --------------------------------------------------------------------------------
approximately 117.65 shares of our common stock. For shares of our Series A
preferred stock issued pursuant to subsequent draw downs under the Castle
Gate equity line of credit, the conversion price shall be equal to the
average closing price of our common stock on Nasdaq for a designated period
before and after the consummation of such subsequent draw, subject to
specified maximum thresholds. Each outstanding share of our Series A
preferred stock is also subject to automatic conversion into our common stock
on the earlier of:
- the four-year anniversary of the issuance of such share, or any subsequent
annual issuance of such share if the average trading price of our common
stock on Nasdaq reaches a specified threshold that represents a return on
such holder's investment; or
- April 8, 2006.
+ VOTING. The holders of our Series A preferred stock are entitled to one vote
for each share of common stock into which such Series A preferred stock could
then be converted. No Series A preferred stockholder will be entitled to
cumulate votes at any election of directors. The vote of holders of at least
a majority of the outstanding shares of Series A preferred stock is also
required to:
- alter or change the rights, preferences or privileges of the Series A
preferred stock so as to adversely affect such shares;
- create any new class or series of our preferred stock having a liquidation
preference superior to our Series A preferred stock; or
- increase the authorized number of shares of our Series A preferred stock.
The shares of our Series A preferred stock were issued in a self-managed private
placement exempt from registration under Rule 506 of Regulation D of the
Securities Act. However, pursuant to a registration rights agreement entered
into between Castle Gate and us in connection with the Castle Gate equity line
of credit, we have committed to file an S-3 to register the underlying shares of
our common stock for resale on after conversion of the Series A preferred stock.
The rights and preferences of the Series A preferred stock are described in our
certificate of designation with respect to the Series A preferred stock. The
certificate of designation has also been filed with the Delaware Secretary of
State.
WARRANTS. As of March 2, 2000, there were 25 outstanding warrants to purchase an
aggregate of up to 1,356,305 shares of our common stock at a weighted average
exercise price of $8.31 per share. These warrants are currently exercisable in
full and expire between 2001 and 2008. We may also be obligated to issue
additional warrants to purchase our common stock in the future if we draw down
additional funds under the Castle Gate equity line of credit.
OPTIONS. As of March 2, 2000, there were an aggregate of 3,258,918 shares
subject to outstanding options at a weighted average exercise price of $10.06
per share under our 1994 Amended and Restated Stock Option Plan and our 1997
Directors' Stock Option Plan. In addition, 2,687,606 shares were reserved for
future issuance upon exercise of options that may be granted subsequent to March
2, 2000.
REGISTRATION RIGHTS OF CERTAIN HOLDERS. Certain holders of shares of our common
stock and warrants exercisable for our common stock are entitled to rights with
respect to the registration of such shares under the Securities Act. The
registration rights are provided for under the terms of an amended and restated
investors' rights agreement between us and the holders of our registrable
securities. Pursuant to the investors' rights agreement, and under specific
conditions, holders of our registrable securities have the right to request that
we pay the expenses of and file for the registration of our shares of
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<PAGE> 75
DESCRIPTION OF OUR CAPITAL STOCK
- --------------------------------------------------------------------------------
common stock under the Securities Act, as well as the right to request secondary
registrations on Form S-3 under the Securities Act and the right to participate
in registrations of our common stock initiated by us.
Pursuant to a common stock purchase agreement dated December 11, 1998 entered
into in connection with the Anergen acquisition, we committed to register up to
170,224 shares of our common stock held by Warburg Pincus Ventures, L.P. and
International Biotechnology Trust through the filing of a Registration Statement
on Form S-3. We filed an S-3 to register such shares on August 9, 1999.
As described above, we have committed to file an S-3 to register the shares of
our common stock issuable upon conversion of the Series A preferred stock and
upon exercise of warrants to purchase common stock held by Castle Gate.
Holders of 3,274 shares of our common stock issued or issuable upon exercise of
warrants assumed by us in connection with the Anergen acquisition are also
entitled to rights with respect to the registration of such shares under the
Securities Act.
ANTITAKEOVER LAWS AND PROVISIONS. Delaware law and Washington law may inhibit
potential acquisition proposals. We are restricted by the antitakeover
provisions of the Delaware General Corporation Law, which regulates corporate
acquisitions. Delaware law prevents us from engaging in a business combination
with any interested stockholder for three years following the date that the
stockholder became an interested stockholder. For purposes of Delaware law, a
business combination includes a merger or consolidation or the sale of more than
10% of our assets. In general, Delaware law defines an interested stockholder as
any entity or person beneficially owning 15% or more of the outstanding voting
stock of a corporation and any entity or person affiliated with or controlling
or controlled by the entity or person. Under Delaware law, a Delaware
corporation may opt out of the antitakeover provisions. We do not intend to opt
out of these antitakeover provisions of Delaware law.
The laws of Washington, where our principal executive officers are located, also
impose restrictions on some transactions between foreign corporations and
significant stockholders. Chapter 23B.19 of the Washington Business Corporation
Act prohibits a target corporation, with exceptions, from engaging in
significant business transactions with an acquiring person for a period of five
years after the acquisition, unless the transaction or acquisition of the shares
is approved by a majority of the members of the target corporation's board of
directors prior to the time of acquisition. A corporation may not "opt out" of
this statute and, therefore, we anticipate this statute will apply to us.
Depending upon whether we meet 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 us.
Our board of directors, without stockholder approval, has the authority under
our certificate of incorporation to issue up to 10,000,000 shares of convertible
preferred stock with rights superior to the rights of the holders of common
stock. As a result, preferred stock could be issued quickly and easily, could
hurt the rights of holders of common stock and could be issued with terms
calculated to delay or prevent a change of control or make removal of management
more difficult. Several provisions of our by-laws may also have the effect or
delaying, deferring or preventing a change of control. Our by-laws require the
vote of 80% of our stockholders to call a special meeting of stockholders. In
addition, our by-laws contain procedures for advance notification of shareholder
proposals.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for our common
stock is the Harris Trust Company of California. 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> 76
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Underwriting
We and the selling stockholders have entered into an underwriting agreement with
the underwriters named below. Warburg Dillon Read LLC, Lehman Brothers Inc.,
Prudential Securities Incorporated and Pacific Growth Equities, Inc. are acting
as representatives of the underwriters.
The underwriting agreement provides for the purchase from us and the selling
stockholders of a specific number of shares of common stock by each of the
underwriters. The underwriters' obligations are several, which means that each
underwriter is required to purchase a specified number of shares, but is not
responsible for the commitment of any other underwriter to purchase shares.
Subject to the terms and conditions of the underwriting agreement, each
underwriter has severally agreed to purchase the number of shares of common
stock set forth opposite its name below.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Warburg Dillon Read LLC.....................................
Lehman Brothers Inc.........................................
Prudential Securities Incorporated..........................
Pacific Growth Equities, Inc................................
---------
Total....................................................... 2,250,000
</TABLE>
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus, other than
those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The representatives have advised us that the underwriters propose to offer the
shares directly to the public at the public offering price that appears on the
cover page of this prospectus. In addition, the representatives may offer some
of the shares to certain securities dealers at such price less a concession of
$ per share to certain other dealers. The underwriters may also allow to
dealers, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the shares are released for sale to the
public, the representatives may change the offering price and other selling
terms at various times.
We and certain selling stockholders have granted the underwriters an
over-allotment option. This option, which is exercisable for up to 30 days after
the date of this prospectus, permits the underwriters to purchase a maximum of
337,500 additional shares of the common stock to cover over-allotments, 202,500
shares from us and 135,000 shares from certain selling stockholders. If the
underwriters exercise all or part of this option, they will purchase shares
covered by the option at the public offering price that appears on the cover
page of this prospectus, less the underwriting discount. To the extent that the
underwriters exercise the over-allotment option in part and not in full, the
underwriters will purchase shares from us and the selling stockholders on a pro
rata basis. If this option is exercised in full, the total price to the public
will be $ million, the total proceeds to us will be approximately $
million and the total proceeds to the selling stockholders will be approximately
$ , at an assumed offering price of $ per share. The
underwriters have severally agreed that, to the extent the overallotment option
is exercised, each of the underwriters will purchase a number of additional
shares proportionate to its initial amount reflected in the above table.
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72
<PAGE> 77
UNDERWRITING
- --------------------------------------------------------------------------------
The following table provides information regarding the amount of the discount to
be paid to the underwriters by us and the selling stockholders.
<TABLE>
<CAPTION>
NO EXERCISE OF FULL EXERCISE OF
OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------------------- ---------------------
<S> <C> <C>
Per share underwriting discounts and
commissions paid by us................. $ $
Per share underwriting discounts and
commissions paid by the selling
stockholders........................... $ $
Total.................................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding the underwriting
discounts and commissions, will be approximately $560,000.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act.
We and our directors, executive officers and several other stockholders have
agreed pursuant to "lock-up" agreements with the underwriters that, subject to
certain exceptions, we and they will not offer, sell, contract to sell, pledge,
grant any option to sell, or otherwise dispose of, directly or indirectly, any
shares of common stock or securities convertible into or exercisable or
exchangeable for common stock for a period of 90 days after the date of this
prospectus without the prior written consent of Warburg Dillon Read LLC. Warburg
Dillon Read LLC, in its sole discretion, may release the shares subject to the
lock-up agreements in whole or in part at any time with or without notice.
However, Warburg Dillon Read LLC has no current plan to do so.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
- - Stabilizing transactions. The representatives may make bids for or purchases
of the shares for the purpose of pegging, fixing or maintaining the price of
the shares, so long as stabilizing bids do not exceed a specified maximum.
- - Overallotments and syndicate covering transactions. The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created in
connection with this offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising all
or part of the overallotment option.
- - Penalty bids. If the representatives purchase shares in the open market in a
stabilizing transaction or syndicate covering transaction, they may reclaim a
selling concession from the underwriters and selling group members who sold
those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of these transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If these transactions are commenced, they may be discontinued without notice at
any time.
Pacific Growth Equities, Inc. provided financial advisory services to us in
connection with our acquisition of Ribi ImmunoChem Research in October 1999.
Prudential Securities Incorporated provided services to us in connection with
our acquisition of Anergen in February 1999.
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73
<PAGE> 78
UNDERWRITING
- --------------------------------------------------------------------------------
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor(SM), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.
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<PAGE> 79
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Legal matters
The validity of the common stock offered hereby will be passed upon for us by
Venture Law Group, A Professional Corporation, Kirkland, Washington. The
underwriters have been represented by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Boston, Massachusetts.
Experts
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements at December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We've included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst and Young LLP's report, given on their authority
as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial statements
of Anergen, Inc. as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998, included in our current report on
Form 8-K dated August 9, 1999, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. The financial statements of Anergen, Inc. are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
The financial statements of Ribi ImmunoChem Research, Inc. as of December 31,
1998 and 1997, and for each of the three years in the period ended December 31,
1998, included in our current report on form 8-K dated as of October 6, 1999,
have been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
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<PAGE> 80
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Where you can find additional information
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules. For further
information with respect to us and the common stock offered hereby, reference is
made to the Registration Statement and to the exhibits and schedules. Statements
made in this prospectus concerning the contents of any document referred to
herein are not necessarily complete. With respect to each such document filed as
an exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved. The Registration Statement and
the exhibits and schedules may be inspected without charge at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, NY 10048, and the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any part of the Registration Statement may be obtained from the
SEC's offices upon payment of fees prescribed by the SEC. The SEC maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of the site is http://www.sec.gov.
The SEC allows us to "incorporate by reference" certain of our publicly filed
documents into this prospectus, which means that information included in those
documents is considered part of this prospectus. Information that we file with
the SEC after the effective date of this prospectus will automatically update
and supersede this information. We incorporate by reference the document listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this prospectus and prior
to the closing date of the offering.
The following documents filed with the SEC are incorporated by reference in this
prospectus:
+ Our Annual Report on Form 10-K for the year ended December 31, 1999 (File No.
0-22891); and
+ Our current reports on Form 8-K dated October 6, 1999, August 18, 1999 and
August 9, 1999.
We will furnish, without charge to you, on written or oral request, a copy of
any or all of the documents incorporated by reference, other than exhibits to
those documents. You should direct any requests for documents to:
Ms. Chris Kano
1124 Columbia Street, Suite 200
Seattle, Washington 98104
(206) 754-5711.
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<PAGE> 81
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Index to consolidated financial statements
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
- --------------------------------------------------------------------------------
F- 1
<PAGE> 82
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Corixa Corporation
We have audited the accompanying consolidated balance sheets of Corixa
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Corixa Corporation at
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Seattle, Washington
February 11, 2000
- --------------------------------------------------------------------------------
F- 2
<PAGE> 83
CORIXA CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 780 $ 9,098
Securities available-for-sale............................. 33,425 30,514
Accounts receivable, net (including $161 receivable from
an affiliated company at December 31, 1998)............ 2,792 3,449
Interest receivable....................................... 759 567
Prepaid expenses and other current assets................. 1,779 516
Deposits.................................................. 1,657 --
-------- --------
Total current assets........................................ 41,192 44,144
Property and equipment, net................................. 21,281 8,831
Securities available for sale, noncurrent................... 11,348 5,529
Investments................................................. 4,000 2,544
Acquisition related intangible assets, net.................. 14,516 --
Deferred charges and deposits............................... 143 136
-------- --------
Total assets...................................... $ 92,480 $ 61,184
======== ========
LIABLITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 8,701 $ 4,368
Dividend payable.......................................... 469 --
Deferred revenue.......................................... 8,236 100
Current portion of long-term obligations.................. 2,867 2,697
-------- --------
Total current liabilities................................... 20,273 7,165
Long-term obligations, less current portion................. 11,426 11,835
Commitments and contingencies
Redeemable common stock..................................... 2,000 --
Stockholders' equity:
Convertible preferred stock, $0.001 par value:
Authorized--10,000,000 shares;
Designated Series A--50,000 shares;
Issued and outstanding--12,500 shares in 1999 and none
in 1998............................................... -- --
Common stock, $0.001 par value:
Authorized--40,000,000 shares
Issued and outstanding--18,627,225 shares in 1999
(including 141,576 redeemable common shares) and
13,400,895 in 1998.................................... 19 13
Additional paid-in-capital................................ 147,926 76,539
Deferred compensation..................................... (441) (1,180)
Accumulated other comprehensive income (loss)............. (687) 90
Accumulated deficit....................................... (88,036) (33,278)
-------- --------
Total stockholders' equity.................................. 58,781 42,184
-------- --------
Total liabilities and stockholders' equity........ $ 92,480 $ 61,184
======== ========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 3
<PAGE> 84
CORIXA CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Collaborative agreements.................................. $ 25,035 $ 17,003 $13,390
Government grants......................................... 1,463 1,267 977
-------- -------- -------
Total revenue.......................................... 26,498 18,270 14,367
Operating expenses:
Research and development.................................. 41,962 27,436 16,398
General and administrative................................ 4,330 2,672 2,033
Acquired in-process research and development.............. 37,637 12,021 --
-------- -------- -------
Total operating expenses............................... 83,929 42,129 18,431
-------- -------- -------
Loss from operations........................................ (57,431) (23,859) (4,064)
Interest income............................................. 2,793 3,016 1,300
Interest expense............................................ (797) (767) (327)
Other income................................................ 677 294 415
-------- -------- -------
Net loss.................................................... (54,758) (21,316) (2,676)
Preferred stock dividend.................................... (6,008) -- --
-------- -------- -------
Net loss applicable to common stockholders.................. $(60,766) $(21,316) $(2,676)
======== ======== =======
Basic and diluted net loss per common share................. $ (3.91) $ (1.75) $ (0.55)
======== ======== =======
Shares used in computation of basic and diluted net loss per
common share.............................................. 15,528 12,172 4,891
======== ======== =======
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 4
<PAGE> 85
CORIXA CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PREFERRED STOCK COMMON STOCK PAID-IN RECEIVABLE DEFERRED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL FOR WARRANTS COMPENSATION INCOME (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997......... 5,151 $ 6 2,594 $ 3 $ 21,655 $(1,140) $ -- $ (12)
Warrants payment received......... -- -- -- -- 488 -- --
Stock options exercised........... -- -- 126 -- 69 -- -- --
Issuance of common stock for
services........................ -- -- 8 -- 65 -- -- --
Deferred compensation related to
stock option grants............. -- -- -- -- 3,904 -- (3,904) --
Amortization of deferred
compensation.................... -- -- -- -- -- -- 1,329 --
Proceeds from initial public
offering (IPO) (net of offering
cost of $4,072)................. -- -- 3,450 4 40,774 -- -- --
Preferred stock conversion upon
IPO............................. (5,151) (6) 5,151 5 -- -- -- --
Stock warrants net exercised...... -- -- 445 -- -- -- -- --
Comprehensive loss:
Net unrealized gain on
securities
available-for-sale............ -- -- -- -- -- -- -- 7
Net loss........................ -- -- -- -- -- -- -- --
Comprehensive loss..............
------ --- ------ --- -------- ------- ------- -----
Balance at December 31, 1997....... -- -- 11,774 12 66,467 (652) (2,575) (5)
Warrants payment received......... -- -- -- -- -- 652 -- --
Stock options exercised........... -- -- 106 -- 59 -- -- --
Issuance of common stock under the
employee stock purchase plan.... -- -- 6 -- 32 -- -- --
Issuance of common stock in
GenQuest acquisition............ -- -- 1,064 1 7,350 -- -- --
Issuance of common stock in
exchange for technology and
services........................ -- -- 23 -- 131 -- -- --
Amortization of deferred
compensation.................... -- -- -- -- -- -- 1,395 --
Issuance of common stock for
cash............................ -- -- 428 -- 2,500 -- -- --
Comprehensive loss:
Net unrealized gain on
securities
available-for-sale............ -- -- -- -- -- -- -- 95
Net loss........................ -- -- -- -- -- -- -- --
Comprehensive loss..............
------ --- ------ --- -------- ------- ------- -----
Balance at December 31, 1998....... -- 13,401 13 76,539 -- (1,180) 90
Issuance of Series A convertible
preferred stock and common stock
warrants (net of offering cost
of $16)......................... 12 -- -- -- 12,484 -- -- --
Preferred stock dividend.......... -- -- -- -- (469) -- -- --
Stock options exercised........... -- -- 97 -- 263 -- -- --
Issuance of common stock under the
employee stock purchase plan.... -- -- 26 -- 134 -- -- --
Issuance of common stock and
options in exchange for
technology and services......... -- -- 20 -- 866 -- -- --
Issuance of common stock for
acquisitions.................... -- 4,839 6 58,109 -- --
Stock warrants net exercised...... -- -- 103 -- -- -- -- --
Amortization of deferred
compensation.................... -- -- -- -- -- -- 739 --
Comprehensive loss:
Net unrealized loss on
securities
available-for-sale............ -- -- -- -- -- -- -- (777)
Net loss........................ -- -- -- -- -- -- -- --
Comprehensive loss..............
------ --- ------ --- -------- ------- ------- -----
Balance at December 31, 1999....... 12 $-- 18,486 $19 $147,926 $ -- $ (441) $(687)
====== === ====== === ======== ======= ======= =====
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
- -----------------------------------
<S> <C> <C>
Balance at January 1, 1997......... $ (9,286) $ 11,226
Warrants payment received......... -- 488
Stock options exercised........... -- 69
Issuance of common stock for
services........................ -- 65
Deferred compensation related to
stock option grants............. -- --
Amortization of deferred
compensation.................... -- 1,329
Proceeds from initial public
offering (IPO) (net of offering
cost of $4,072)................. -- 40,778
Preferred stock conversion upon
IPO............................. -- (1)
Stock warrants net exercised...... -- 0
Comprehensive loss:
Net unrealized gain on
securities
available-for-sale............ -- 7
Net loss........................ (2,676) (2,676)
--------
Comprehensive loss.............. (2,669)
-------- --------
Balance at December 31, 1997....... (11,962) 51,285
Warrants payment received......... -- 652
Stock options exercised........... -- 59
Issuance of common stock under the
employee stock purchase plan.... -- 32
Issuance of common stock in
GenQuest acquisition............ -- 7,351
Issuance of common stock in
exchange for technology and
services........................ -- 131
Amortization of deferred
compensation.................... -- 1,395
Issuance of common stock for
cash............................ -- 2,500
Comprehensive loss:
Net unrealized gain on
securities
available-for-sale............ -- 95
Net loss........................ (21,316) (21,316)
--------
Comprehensive loss.............. (21,221)
-------- --------
Balance at December 31, 1998....... (33,278) 42,184
Issuance of Series A convertible
preferred stock and common stock
warrants (net of offering cost
of $16)......................... -- 12,484
Preferred stock dividend.......... -- (469)
Stock options exercised........... -- 263
Issuance of common stock under the
employee stock purchase plan.... -- 134
Issuance of common stock and
options in exchange for
technology and services......... -- 866
Issuance of common stock for
acquisitions.................... -- 58,115
Stock warrants net exercised...... -- --
Amortization of deferred
compensation.................... -- 739
Comprehensive loss:
Net unrealized loss on
securities
available-for-sale............ -- (777)
Net loss........................ (54,758) (54,758)
--------
Comprehensive loss.............. (55,535)
-------- --------
Balance at December 31, 1999....... $(88,036) $ 58,781
======== ========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 5
<PAGE> 86
CORIXA CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(54,758) $(21,316) $ (2,676)
Adjustments to reconcile net loss to net cash used in
operating activities:
Acquired in-process research and development.............. 37,637 12,021 --
Amortization of deferred compensation..................... 739 1,395 1,329
Depreciation and amortization............................. 3,801 1,609 1,091
Equity instruments issued in exchange for technology and
services................................................ 866 131 65
Write-off of warrant receivable........................... -- 489 --
Changes in operating assets and liabilities:
Accounts receivable....................................... 1,357 (2,805) 80
Interest receivable....................................... (192) (433) (129)
Prepaid expenses, deposits and other current assets....... 512 175 (380)
Accounts payable and accrued liabilities.................. (759) 2,305 592
Deferred revenue.......................................... 5,090 (1,097) (221)
-------- -------- --------
Net cash used in operating activities....................... (5,707) (7,526) (249)
INVESTING ACTIVITIES:
Purchases of securities available-for-sale................ (43,791) (86,844) (35,802)
Proceeds from maturities of securities
available-for-sale...................................... 15,096 63,751 5,794
Proceeds from sale of securities.......................... 19,226 27,004 --
Purchases of property and equipment....................... (3,090) (5,590) (888)
Net cash paid in acquisitions............................. (1,609) (4,737) --
Investments............................................... (2,250) (1,750) --
Anergen preacquisition cost............................... -- (345) --
-------- -------- --------
Net cash used in investing activities....................... (16,418) (8,511) (30,896)
FINANCING ACTIVITIES:
Proceeds from issuance of redeemable common stock......... 2,000 -- --
Proceeds from issuance of common stock.................... 397 2,591 40,847
Proceeds from issuance of preferred stock................. 12,484 -- --
Principal payments on capital leases...................... (1,059) (1,077) (820)
Principal payments made on long-term obligations.......... (2,015) -- --
Borrowings form collaborative agreements.................. -- 2,000 3,000
Proceeds from long-term obligations....................... 2,000 5,000 2,000
Payments on receivables for warrants...................... -- 163 488
-------- -------- --------
Net cash provided by financing activities................... 13,807 8,677 45,515
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (8,318) (7,360) 14,370
Cash and cash equivalents at beginning of period............ 9,098 16,458 2,088
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 780 $ 9,098 $ 16,458
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................... $ 844 $ 706 $ 327
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equity instruments issued for acquisitions.................. $ 58,109 $ 7,352 $ --
======== ======== ========
Assets acquired pursuant to capital leases.................. $ -- $ 308 $ 2,067
======== ======== ========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F- 6
<PAGE> 87
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Corixa Corporation (the Company or Corixa) is focused on the discovery and early
clinical development of vaccines, antigen-based products and adjuvants useful in
preventing, treating or diagnosing autoimmune disease, cancer and certain
infectious diseases.
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 is
segregated into current and non current portions based on the remaining term of
the instrument. The Company's primary investment objectives are preservation of
principal, a high degree of liquidity and a maximum total return. The Company
invests primarily in (U.S. denominated only): commercial paper; short and mid-
term corporate notes/bonds, with no more than 10% of the portfolio in any one
corporate issuer; and Federal agencies with terms not exceeding four years. 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
investments. Credit risk for investments is managed by purchase of investment
grade securities, A1/P1 for money market instruments and A or better for debt
instruments, 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 five
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.
ACQUISITION RELATED INTANGIBLE ASSETS
Intangible assets consist of acquired workforce, adjuvant know-how and goodwill
and are amortized on the straight-line method over periods of four to seven
years. In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
assets to be Disposed of," the carrying value of intangible assets and other
long-lived assets is reviewed on a regular basis for the existence of facts or
circumstances, both internal and external, that may suggest impairment. To date,
no such impairment has been indicated. Should there be an impairment in the
future, the Company will measure the amount of the impairment based on
undiscounted future cash flows from the impaired assets. The cash flow estimates
that will be used will contain management's best estimates, using assumptions
and projections appropriate and customary at the time.
- --------------------------------------------------------------------------------
F- 7
<PAGE> 88
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation" and applies Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations in accounting for its stock option plans. Accordingly,
Corixa's employee stock-based compensation expense is recognized based on the
intrinsic value of the option on the date of grant. Pro forma disclosures of net
loss and net loss per share under SFAS 123 are provided in Note 6.
Stock compensation expense for options granted to non-employees has been
determined in accordance with SFAS 123 and Emerging Issues Task Force Consensus
Issue (EITF) No. 96-18 "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" as the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably measured. The fair
value of options granted to non-employees is periodically re-measured as the
underlying options vest.
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, 1999 and 1998, 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 approximate market rates at the balance sheet dates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of Corixa
Corporation and its wholly owned subsidiaries. All significant inter-company
account balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue under collaborative agreements typically consists of nonrefundable
up-front fees, ongoing research funding, development and technology access
payments, and milestone and royalty payments. Revenue from nonrefundable
up-front fees is recognized upon satisfaction of the 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
approximate the research and development expense being incurred associated with
the agreement. Revenue from milestone, royalty, and other contingent payments is
recognized as earned. Advance payments received under any agreement in excess of
amounts earned are recorded as deferred revenue. Revenue under cost
reimbursement contracts is recognized as the related costs are incurred. The
Company recognized 73% of its revenue in 1999 from three collaborative partners
and 76% and 74% of its revenue in 1998 and 1997, respectively from two
collaborative partners.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements", or SAB 101.
Among other things, SAB 101 discusses the SEC staff's view on accounting for
non-refundable up-front fees received in connection with collaboration
agreements. We are currently evaluating the impact of SAB 101 on the accounting
for
- --------------------------------------------------------------------------------
F- 8
<PAGE> 89
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
up-front fees received pursuant to certain collaboration agreements. Should we
determine that a change in accounting policy is necessary, such changes will be
made effective January 1, 2000 and would result in a change to results of
operations for the cumulative effect of the change. Such amount, if recognized,
would be recorded as deferred revenue and recognized as revenue in future
periods. Prior financial results would not be restated.
RESEARCH AND DEVELOPMENT EXPENSES
Pursuant to SFAS No. 2, "Accounting for Research and Development Costs," the
Company's research and development costs are expensed as incurred. Acquired
in-process research and development is charged to expense at the date of
acquisition.
NET LOSS PER SHARE
Basic net loss per share is calculated by dividing net loss applicable to common
stockholders by the weighted average number of common shares outstanding.
Diluted net loss per share is calculated by dividing net loss by the weighted
average common shares outstanding plus the dilutive effect of outstanding stock
options, stock warrants and preferred stock. Since Corixa reports a net loss,
diluted net loss per share is the same as basic net loss per share because the
effect of outstanding stock options, stock warrants and preferred stock being
added to weighted average shares outstanding would reduce the loss per share.
Therefore, outstanding stock options, stock warrants and preferred stock are not
included in the calculation.
Comprehensive income (loss) includes all items that comprise net loss and the
effect of unrealized gains (losses) on available-for-sale securities.
Comprehensive income (loss) is shown on the consolidated statements of
stockholders' equity.
SEGMENT INFORMATION
In January 1998, the Company adopted SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. This standard established interim and
annual reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
The Company currently operates in one segment.
NEW ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". SOP 98-1 requires all costs related to the
development of internal use software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred during
the application development stage are required to be capitalized and amortized
over the estimated useful life of the software. The Company adopted SOP 98-1 on
January 1, 1999 and there was no significant impact on the Company's financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. The statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company does not expect the adoption of SFAS No. 133 to have a significant
impact on the Company's financial position or results of operations.
- --------------------------------------------------------------------------------
F- 9
<PAGE> 90
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1999 presentation.
2. SCIENTIFIC COLLABORATIVE AND LICENSE AGREEMENTS
1999 AGREEMENTS
In March 1999, Corixa entered into a research agreement with the Infectious
Disease Research Institute ("IDRI") to research and develop ex vivo therapies
for the treatment of cancer. Pursuant to the terms of the agreement, IDRI
committed $12.0 million of research funding over the three-year term of the
agreement. The agreement provides the Company exclusive rights to all
intellectual property and product rights while IDRI will receive a percentage of
certain Corixa proceeds related to ex vivo therapy products resulting from such
research and development. The Company recognized revenue of $4.5 million in
connection with this agreement in 1999.
During May and June 1999, the Company entered into corporate partnerships with
Zambon Group Spa and Japan Tobacco, respectively, for the research, development
and commercialization of vaccine and antibody-based products aimed at the
prevention and/or treatment of lung cancer. Zambon has exclusive rights in
Europe, the former countries of the Soviet Union, Argentina, Brazil and Columbia
and co-exclusive rights in China. Japan Tobacco has exclusive rights to develop
and sell vaccine products in the United States, Japan and a co-exclusive license
in China. Corixa also granted Japan Tobacco a nonexclusive license to formulate
vaccines that may result from the collaboration in Corixa's microsphere delivery
system with Corixa's proprietary protein adjuvants. The agreements have terms of
three years and, in the aggregate, provide for committed research funding of
$16.5 million as well as milestone payments that vary depending on the
milestones achieved. In addition, Zambon purchased $2.0 million of Corixa common
stock. The collaboration agreement allows Zambon to sell the common stock back
to Corixa at the original price if the technology does not result in a
commercial product at the end of the research program (see footnote 6). The
Company recognized revenue of $3.1 million and $1.6 million in connection with
the Zambon and Japan Tobacco agreements, respectively in 1999.
In August 1999 the Company entered into a corporate partnership with Zenyaku
Kogyo Co. Ltd. For the research and development related to the psoriasis
immunotherapeutic product (PVAC) developed by Corixa and Genesis Research and
Development Corporation (Genesis). The agreement provides Zenyaku Kogyo with
exclusive rights to PVAC in Japan, while Corixa and Genesis retain exclusive
rights with respect to the rest of the world. Under the terms of the agreement,
Corixa will receive license fees and research funding of $6.0 million and
milestone payments based upon successful clinical and commercial progress, as
well as a royalty stream on future product sales. The Company recognized revenue
of $ 531,000 in 1999 in connection with the agreement.
SMITHKLINE BEECHAM
In October 1998, Corixa entered into a collaboration and license agreement
effective September 1, 1998 with SmithKline Beecham, which superseded and
significantly expanded the scope of Corixa's then-existing agreements with SB
Manufacturing and SB Biologicals. SmithKline Beecham has committed to funding of
$43.6 million for work that is performed in multiple discovery programs during
the four year term. Corixa and SmithKline Beecham may mutually agree to extend
the research and development programs beyond the initial four-year term. Corixa
recognized revenue of $10.9 million and $10.0 million in 1999 and 1998,
respectively, from this agreement.
- --------------------------------------------------------------------------------
F- 10
<PAGE> 91
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, SmithKline Beecham purchased $2.5 million worth of Corixa common
stock in 1998 at a premium to its fair market value, and Corixa has the right in
the future to require SmithKline Beecham to purchase an additional $2.5 million
of Corixa common stock, at a premium to its then-current fair market value.
Additionally, with respect to the $5.0 million previously paid to Corixa by
SmithKline Beecham under a prior collaboration agreement, SmithKline Beecham may
elect to have Corixa repay such amount to SmithKline Beecham on September 1,
2003 or convert such amounts into the purchase of Corixa common stock at a
premium to its then-current fair market value. This amount is recorded as a
long-term obligation at December 31, 1999 and 1998.
OTHER
The Company has various other collaborative research agreements with academic
universities and research institutions, which expire at various intervals
through 2001. 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, 1999, 1998 and 1997 are reimbursements approximating $2.9 million,
$2.3 million and $1.8 million, respectively, relating to these agreements.
Certain 1999 collaborative agreements extend into fiscal years 2000 and 2001,
and as of December 31, 1999 the Company is committed to reimburse these
universities and institutions approximately $624,000 and $62,500 in 2000 and
2001, 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 1999, 1998 and 1997, the Company
paid initial license and/or option fees approximating $1.8 million, $1.8 million
and $500,000 respectively. In addition, the Company issued 19,697, 22,724 and
19,697 shares of common stock and options valued at $270,000, $131,000 and
$65,000 during 1999, 1998 and 1997, respectively, in exchange for such rights.
All such amounts were expensed when paid and are included in research and
development expense.
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 and supply
agreements and granted rights to other parties to negotiate license agreements
under the terms of which the Company provides license, technology, and patent
rights and qualities of product for research and clinical development purposes.
Under the terms of the agreements, the Company will receive additional license
fees, option fees and/or reimbursement of certain research and development costs
and product sales revenue. The agreements may also provide for one-time payments
upon the achievement of certain milestones and the payment of royalties based on
product sales.
3. BUSINESS COMBINATIONS
ACQUISITION OF RIBI IMMUNOCHEM RESEARCH, INC.
On October 6, 1999, Corixa acquired all of the outstanding shares of common
stock of Ribi ImmunoChem Research, Inc. (Ribi), a Hamilton, Montana-based
biopharmaceutical company which focuses on developing novel agents that modulate
the human immune response to prevent or treat certain diseases including cancer,
infectious diseases and cardiovascular injury. The acquisition was accounted for
as a purchase transaction. Aggregate consideration for the acquisition was
approximately $57.5 million, which consisted of 3,610,766 shares of Corixa
common stock and stock options
- --------------------------------------------------------------------------------
F- 11
<PAGE> 92
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
valued at $47.9 million, cash of $7.9 million paid by Corixa to Ribi for the
redemption of Ribi Series A preferred stock and transaction costs of
approximately $1.7 million. The aggregate purchase price was allocated, based on
estimated fair values on the acquisition date, as follows (in thousands):
<TABLE>
<S> <C>
Acquired in-process research and development................ $26,024
Assets acquired............................................. 23,868
Liabilities assumed......................................... (7,505)
Assembled workforce......................................... 1,033
Adjuvant know-how........................................... 3,076
Goodwill.................................................... 11,033
-------
Total purchase price.............................. $57,529
=======
</TABLE>
ACQUISITION OF ANERGEN, INC.
On February 10, 1999, the Company acquired all of the outstanding shares of
common stock of Anergen. Anergen is a biotechnology company focused on the
treatment of autoimmune diseases through the discovery and development of
proprietary therapeutics that selectively interrupt the disease process. The
acquisition was accounted for as a purchase transaction. Aggregate consideration
for the acquisition was approximately $9.6 million, which consisted of 1,058,031
shares of Corixa common stock, with a market value of approximately $8.7
million, approximately $200,000 in cash, and approximately $700,000 of
acquisition costs. The aggregate purchase price exceeded the fair value of
tangible assets by approximately $11.6 million, and this amount was allocated to
IPR&D during the first quarter of 1999. The aggregate purchase price was
allocated, based on estimated fair values on the acquisition date, as follows
(in thousands):
<TABLE>
<S> <C>
Acquired in-process research and development................ $11,613
Net liabilities assumed..................................... (1,950)
-------
Total purchase price.............................. $ 9,663
=======
</TABLE>
ACQUISITION OF GENQUEST
On September 15, 1998, the Company acquired all of the outstanding shares of
common stock of GenQuest. GenQuest is a development stage biotechnology company
focused on applying functional genomics technology to discover novel genes and
to develop the potential of such genes and related gene products to be used in
diagnosis, drug screening, gene therapy and antibody development in the areas of
prostate, breast, lung, colon, and ovarian cancer. While at the time of
acquisition no program was at a stage beyond very early research, each
identified program had specific objectives and data supporting its intended
purpose in the field of oncology. The acquisition was accounted for as a
purchase transaction. Aggregate consideration for the acquisition was
approximately $12.4 million, which consisted of 1,063,695 shares of Corixa
common stock, with a market value of approximately $7.3 million, approximately
$4.5 million in cash, and approximately $600,000 of acquisition costs. The
aggregate purchase price exceeded the fair value of net tangible assets by
approximately $12.0 million, and this amount was allocated to acquired
in-process research and development (IPR&D). The aggregate purchase price was
allocated, based on estimated fair values on the acquisition date, as follows
(in thousands):
<TABLE>
<S> <C>
Acquired in-process research and development................ $12,021
Net assets acquired......................................... 421
-------
Total purchase price.............................. $12,442
=======
</TABLE>
- --------------------------------------------------------------------------------
F- 12
<PAGE> 93
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prior to the acquisition, Corixa was a stockholder in GenQuest. In conjunction
with the relationship between Corixa and GenQuest, Corixa issued warrants to
purchase 454,533 shares of Corixa'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 $652,000 from GenQuest,
which represents the outstanding amount due for the warrants was established at
the time of issuance. The remaining receivable was expensed in connection with
the acquisition of GenQuest.
In conjunction with its collaborative agreement with GenQuest, Corixa's December
31, 1998 and 1997 results include collaborative revenue and research and
development expenses of approximately $1.0 million and $1.7 million and $1.9
million and $2.4 million, respectively. Additionally, Corixa recognized $652,000
and $488,000 in warrant amortization during the year ended December 31, 1998 and
1997, respectively.
For each of the above acquisitions, acquired IPR&D represents the present value
of the estimated after-tax cash flows expected to be generated by the purchased
technology, which, at the acquisition dates, had not yet reached technological
feasibility. The cash flow projections for revenues were based on estimates of
growth rates and the aggregate size of the respective market for each product;
probability of technical success given the stage of development at the time of
acquisition; royalty rates based on prior licensing agreements; products sales
cycles; and the estimated life of a product's underlying technology. Estimated
operating expenses and income taxes were deducted from estimated revenue
projections to arrive at estimated after-tax cash flows. Projected operating
expenses include general and administrative expenses, and research and
development costs. The rates utilized to discount projected cash flows were 38%
to 55% for in-process technologies used depending upon the relative risk of each
in-process technology and were based primarily on venture capital rates of
return and the weighted average cost of capital for Corixa at the time of
acquisition.
All of the foregoing estimates and projections regarding the GenQuest, Anergen,
and Ribi acquisitions were based on assumptions Corixa believed to be reasonable
at the time of the acquisitions, but which are inherently uncertain and
unpredictable. If these projects are not successfully developed, the business,
operating results, and financial condition of Corixa may be adversely affected.
As of the date of each acquisition, Corixa concluded that once completed, the
technologies under development can only be economically used for their specific
and intended purposes and that such in-process technology has no alternative
future use after taking into consideration the overall objectives of the
project, progress toward the objectives, and uniqueness of developments to these
objectives. If the Company fails in its efforts, no alternative economic value
will result. If the projects fail, the economic contribution expected to be made
by the IPR&D will not materialize. The risk of untimely completion includes the
risk that alternative vaccines, immunotherapeutics, or diagnostics will be
developed by competitors.
The assets and liabilities of Ribi, Anergen, and GenQuest have been recorded on
the books of the Company at their fair market values. The operating results of
the acquired businesses have been included in the consolidated statements of
operations from October 6, 1999, February 10, 1999 and September 15, 1998, the
effective date of the acquisitions, respectively.
For pro forma purposes:
+ The operating results of the Company, Ribi and Anergen for the year ended
December 31, 1999 have been combined as if the acquisitions occurred on
January 1, 1999.
+ The operating results of the Company, Ribi, Anergen and GenQuest for the year
ended December 31, 1998 have been combined as if the acquisitions occurred on
January 1, 1998.
- --------------------------------------------------------------------------------
F- 13
<PAGE> 94
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
This pro forma information does not purport to be indicative of what would have
occurred had the acquisitions been made as of those dates, or of results which
may occur in the future. The pro forma information does not include the charge
for purchased in-process research and development of $37.6 million in 1999 and
$12.0 million in 1998 associated with the acquisitions of Ribi, Anergen or
GenQuest.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Total revenue............................................... $ 30,745 $ 27,460
Net loss applicable to common stockholders.................. $(25,757) $(30,142)
Net loss per common share................................... $ (1.40) $ (1.71)
</TABLE>
4. SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSSES VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1999
U.S. Government agencies.......................... $15,109 $ -- $(243) $14,866
U.S. Corporate obligations........................ 30,351 9 (453) 29,907
------- ---- ----- -------
$45,460 $ 9 $(696) $44,773
======= ==== ===== =======
December 31, 1998
U.S. Government agencies.......................... $ 9,070 $ 11 $ (12) $ 9,069
U.S. Corporate obligations........................ 26,883 106 (15) 26,974
------- ---- ----- -------
$35,953 $117 $ (27) $36,043
======= ==== ===== =======
</TABLE>
Corixa's gross realized gains or losses were immaterial on sales of
available-for-sale securities for the fiscal years 1999, 1998 and 1997 and are
therefore not shown. The contractual maturities of Corixa's available-for-sale
securities are shown below:
<TABLE>
<CAPTION>
ESTIMATED
FAIR MARKET AMORTIZED
VALUE COST
- -------------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1999
Due in one year or less................................... $19,049 $19,145
Due in one year through four years........................ 25,724 26,315
------- -------
$44,773 $45,460
======= =======
December 31, 1998
Due in one year or less................................... $18,263 $18,218
Due in one year through three years....................... 17,780 17,735
------- -------
$36,043 $35,953
======= =======
</TABLE>
The Company has classified available-for-sale-securities as noncurrent to the
extent the maturity date of the security is two years or longer.
- --------------------------------------------------------------------------------
F- 14
<PAGE> 95
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BALANCE SHEET ACCOUNTS
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Laboratory equipment........................................ $ 9,949 $ 4,985
Land and buildings.......................................... 7,767 --
Leasehold improvements...................................... 6,889 4,111
Computers and office equipment.............................. 3,285 2,182
Construction in progress.................................... -- 1,099
------- -------
27,890 12,377
Accumulated depreciation and amortization................... (6,609) (3,546)
------- -------
$21,281 $ 8,831
======= =======
</TABLE>
At December 31, 1999 and 1998, the Company held equipment under capitalized
leases with an original cost of approximately $5.2 million and $5.4 million,
respectively, and a net book value of approximately $1.4 million and $2.4
million, respectively. These leases are secured by the underlying assets.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts payable...................................... $1,664 $ 889
Employee compensation and related expenses.................. 1,891 510
Environmental contingency................................... 2,600 --
Other....................................................... 2,546 2,969
------ ------
$8,701 $4,368
====== ======
</TABLE>
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In October 1997, Corixa completed the Initial Public Offering of its common
stock by selling 3,450,000 shares at $13 per share, resulting in proceeds to
Corixa of $40,778,096 net of underwriting discounts, commissions and offering
expenses incurred by Corixa.
REDEEMABLE COMMON STOCK
In May 1999, the Company issued 141,576 shares of its common stock for
$2,000,000 or $14.13 per share to Zambon in connection with a collaboration
agreement. Under the terms of the collaboration agreement, Zambon may sell the
common stock back to Corixa for the original purchase price at the end of the
research program term if Zambon determines that a commercial product is not
viable. Accordingly, the common shares has been classified as redeemable common
stock.
PREFERRED STOCK
In April 1999 Corixa entered into an agreement with Castle Gate, L.L.C., a
Northwest investment partnership focusing primarily on health care and
biomedical companies, to provide Corixa with an
- --------------------------------------------------------------------------------
F- 15
<PAGE> 96
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
equity line of credit of up to $50 million (the "Line"). The Company may draw
down funds pursuant to the Line at its option. When funds are drawn under the
Line, the Company will issue to Castle Gate shares of Series A Preferred Stock
at a price of $1,000 per share and warrants to purchase shares of the Company's
common stock as described below.
The Preferred Stock has an annual cumulative dividend rate of 5% and may be
paid, at the Company's option, in cash or in shares of the Company's common
stock. The Company has accrued the dividend ratably during the year. The
Preferred Stock may be converted into common stock at the option of Castle Gate
at any time following issuance. Beginning on the fourth anniversary of issuance,
outstanding preferred shares will be converted into common stock if the price of
the Company's common stock exceeds the preferred stock conversion price by at
least 30% as specified in the agreement. Additionally, any shares of Preferred
Stock that have not been converted previously will be converted automatically on
the seventh anniversary of issuance. Series A Preferred shares have voting
rights based on the number of common shares into which the preferred shares are
convertible.
Upon execution of the Agreement, the Company completed an initial draw under the
Line of $12.5 million (the "Initial Draw") and issued Castle Gate 12,500 shares
of Preferred Stock and warrants to purchase 1,037,137 shares of Common Stock
(the "Initial Closing Warrants"). The conversion price for the Preferred Stock
issued in the Initial Draw is $8.50 per share. The conversion price for all
other shares of Preferred Stock that may be issued as the result of subsequent
draw-downs by the Company under the Line will be equal to the average daily
closing price of the Company's Common Stock for a designated period before and
after the consummation of such draw, provided that such conversion price cannot
exceed certain specified amounts. Initial Closing Warrants to purchase 312,500
shares of common stock have an exercise price of $8.50 per share and Initial
Closing Warrants to purchase 724,637 shares have an exercise price of $8.28 per
share. The Company is obligated to issue additional warrants equal to $1.125
million and $1.0 million worth of common stock, based on the value of the
Company's common stock, on the first and second anniversaries, respectively, of
the Line. These warrants had a value of $5.3 million, which is included in
equity. The Company is obligated to issue Castle Gate an additional 187,500
common stock warrants at the time of subsequent draws under the Line. The
warrants will have exercise prices that are determined in accordance with
specific formulas at the time of their respective issuance.
On the date of the initial draw, the effective conversion price of the Preferred
Stock (after allocating the portion of the proceeds to the common stock warrants
based on the relative fair values) was at a discount to the price of the common
stock into which the Preferred Stock is convertible. The discount of $5.5
million was recorded as a preferred stock dividend. In addition, the Company
accrued $469,000 related to the 5% annual cumulative dividend.
1994 STOCK OPTION PLAN
Corixa has a stock option plan, the Amended and Restated 1994 Stock Option Plan
(the "1994 Plan") under which an aggregate of 5,650,496 shares of common stock
were reserved for grants to employees, members of the Board of Directors, and
consultants as of December 31, 1999. Options granted under the 1994 Plan may be
designated as incentive or nonqualified at the discretion of the Plan
Administrator (as defined in the 1994 Plan). On June 9, 1999, Corixa amended the
1994 Plan, whereby the number of shares authorized was increased by 2,500,000.
The number of shares reserved for issuance 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 750,000 shares each year over the ten-year period.
- --------------------------------------------------------------------------------
F- 16
<PAGE> 97
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Generally, the options become exercisable over a four-year period with 25%
vesting upon 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 Administrator
has the discretion to allow unvested options to be exercised for shares of
Corixa common stock and, to the extent that an optionee holds options for such
unvested shares of Common Stock upon termination, Corixa has 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.
1997 EMPLOYEE STOCK PURCHASE PLAN
On July 25, 1997, Corixa adopted the 1997 Employee Stock Purchase Plan (the
"Purchase Plan"). Under the Purchase Plan, a total of 125,000 shares of common
stock were reserved for issuance under the Purchase Plan. The Purchase Plan
permits eligible employees to purchase shares of Corixa's common stock through
payroll deductions at a price equal to 85% of the fair market value of Corixa's
common stock on the first day or the last day of the applicable six-month
offering period, whichever is lower.
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.
In 1999 and 1998, 25,826 and 5,887 shares were issued under the Purchase Plan at
prices ranging from $4.89 to $7.33 and $4.89 to $7.65, respectively.
1997 DIRECTORS' STOCK OPTION PLAN
Corixa adopted the Directors' Plan on July 25, 1997. As of December 31, 1999, a
total of 300,000 shares of Corixa's common stock were 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 to
non-employee directors of Corixa. The Directors' Plan provides that each person
who first became a non-employee director of Corixa shall be granted nonqualified
stock options to purchase 15,000 shares of common stock (the "First Option").
Thereafter, on the first day of each fiscal year, commencing fiscal year 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 Corixa's Board of 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 Corixa's common stock on
the date of grant of the option. The Plan has a 10-year term unless terminated
earlier.
- --------------------------------------------------------------------------------
F- 17
<PAGE> 98
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of Corixa's stock option activity under both plans and related
information follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE PER SHARE PRICE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1997.......................... 605,125 $0.33 - 0.99 $ 0.40
Options granted................................... 710,004 0.99 - 13.50 2.08
Options exercised................................. (126,188) 0.33 - 0.99 0.55
Options canceled.................................. (19,852) 0.33 - 0.99 0.67
---------
Balance at December 31, 1997........................ 1,169,089 0.33 - 13.50 1.40
Options granted................................... 433,775 5.00 - 9.50 8.22
Options assumed in GenQuest acquisition........... 12,325 0.77 0.77
Options exercised................................. (107,610) 0.33 - 0.99 0.61
Options canceled.................................. (68,253) 0.33 - 11.50 4.04
---------
Balance at December 31, 1998........................ 1,439,326 0.33 - 13.50 3.38
Options granted................................... 1,816,779 8.63 - 17.81 12.03
Option assumed in acquisitions.................... 371,937 6.15 - 178.83 33.66
Options exercised................................. (96,578) 0.33 - 14.84 2.73
Options canceled.................................. (114,908) 0.33 - 178.83 30.89
---------
Balance at December 31, 1999........................ 3,416,556 $0.33 - 169.89 $10.39
=========
</TABLE>
The following table summarizes information about the stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED OPTIONS EXERCISABLE
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISE
PRICES 12/31/99 LIFE PRICE SHARES PRICE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.33 - $ 0.99 880,559 6.51 $ 0.72 701,853 $ 0.66
$ 5.00 - $ 8.69 847,070 8.95 $ 8.30 193,979 $ 8.12
$ 8.90 - $ 12.69 707,613 9.19 $11.09 117,765 $ 9.57
$13.00 - $ 24.20 817,214 9.09 $16.68 146,219 $18.90
$25.52 - $169.89 164,100 4.48 $38.77 145,920 $38.91
--------- ---------
$ 0.33 - $169.89 3,416,556 8.19 $10.39 1,305,736 $ 8.90
========= =========
</TABLE>
Deferred compensation of approximately $3.9 million was recorded during 1997
representing the difference between the exercise prices of options granted
during that period and the deemed fair market value. Deferred compensation
expense of approximately $739,000, $1.4 million and $1.3 million were amortized
for the years ended December 31, 1999, 1998 and 1997, respectively.
Options for 4,873 and 17,095 shares had been exercised as of December 31, 1999
and 1998, respectively, for which the underlying stock is subject to
restrictions. The restrictions lapse over the vesting term of the original
option. During 1998 the Company repurchased 1,042 of unvested shares that were
previously outstanding. At December 31, 1999 2,084,195 shares remain available
for grant under both plans.
- --------------------------------------------------------------------------------
F- 18
<PAGE> 99
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Included in options outstanding at December 31, 1999 are 111,572 options granted
to consultants for services. Expense of $596,000 was recorded in 1999 related to
such options.
PRO FORMA INFORMATION
Pro forma information regarding net loss and loss per share required by SFAS 123
has been determined as if Corixa 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:
<TABLE>
<CAPTION>
EMPLOYEE STOCK
EMPLOYEE STOCK OPTION PURCHASE PLAN
1999 1998 1997 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expected life (years).................................. 4 4 4 1 1
Expected volatility.................................... 67% 67% 57% 67% 67%
Risk-free interest rate................................ 4.9% 5.5% 6.4% 5.2% 5.4%
Expected dividend yield................................ 0.0% 0.0% 0.0% 0.0% 0.0%
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and 1997
was $7.95, $5.59 and $6.60, respectively.
Under Statement 123, if Corixa had elected to recognize the compensation cost
based upon the fair value of the options granted at the grant date, net loss
would have been increased as follows (the estimated fair value of the options is
amortized to expense over the options' vesting period):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported.............................................. $(60,766) $(21,316) $(2,676)
Pro forma................................................ (64,066) (22,395) (2,914)
Pro forma net loss per common share:
As reported.............................................. $ (3.91) $ (1.75) $ (0.31)
Pro forma................................................ (4.13) (1.84) (0.33)
</TABLE>
STOCK WARRANTS
Corixa had common stock warrants outstanding of 1,561,368 shares as of December
31, 1999 at a weighted average exercise price of approximately $9.39, which will
expire between 2001 and 2008. Included in this total are 436,712 warrants to
purchase common stock issued during 1996 with exercise prices ranging from
negligible to $9.90 and expiration dates ranging from 2001 to 2008 issued in
connection with certain collaborative agreements and the leasing of office and
research facilities. Vesting of 175,485 warrants is contingent upon the
achievement of certain scientific milestones. The weighted average grant-date
fair value ranges from $0.99 to negligible per share based on the black-scholes
pricing model. Outstanding warrants also includes 3,274 warrants and 84,245
warrants assumed in the Anergen and Ribi acquisitions, respectively.
- --------------------------------------------------------------------------------
F- 19
<PAGE> 100
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMON SHARES RESERVED
Common stock was reserved for the following purposes at December 31, 1999:
<TABLE>
<S> <C>
Stock options............................................... 5,500,751
Warrants to purchase common stock........................... 1,561,368
Employee Stock Purchase Plan................................ 99,174
Series A Preferred Stock.................................... 1,470,588
License, technology, and patent rights agreements........... 4,545
---------
Total............................................. 8,636,426
=========
</TABLE>
7. INCOME TAXES
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $150.5 million, and research and experimentation credit
carryforwards of approximately $9.5 million. These carryforwards will expire
from 2000 to 2019. Of the net operating loss carryforwards at December 31, 1999,
$120.5 million were generated from acquired businesses. Utilization of a portion
of these net operating loss carryforwards will be permanently limited under
Section 382 of the Internal Revenue Code of 1986, as amended. The remaining net
operating loss carryforwards may also be subject to certain limitations under
Section 382 of the Internal Revenue Code of 1986, as amended.
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 realizing the benefits of the assets. The valuation allowance for
deferred tax assets increased $50.2 million and $6.4 million during 1999 and
1998, respectively. The effects of temporary differences and carryforwards that
give rise to deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 51,188 $ 9,431
Research and experimentation credit and foreign tax credit
carryforwards.......................................... 9,553 1,931
Depreciation.............................................. 301 (413)
Deferred revenue.......................................... 159 34
Financial statement expenses not deducted................. 147 73
-------- --------
On tax return............................................. 61,348 11,056
Deferred tax liabilities:
Tax return expenses not charged against financial
statements............................................. 153 73
-------- --------
153 73
-------- --------
Net deferred tax asset...................................... 61,195 10,983
Less valuation allowance.................................... (61,195) (10,983)
-------- --------
Net deferred tax assets..................................... $ -- $ --
======== ========
</TABLE>
To the extent we are able to generate taxable income in the future, net
operating loss carryforwards will be utilized first to reduce the outstanding
balance of goodwill, second to offset future tax expense and third to increase
additional paid-in capital for the unrecorded tax benefit of stock options.
- --------------------------------------------------------------------------------
F- 20
<PAGE> 101
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. 401(k) PLAN
Corixa has a tax-qualified employee savings and retirement plan (the "401(k)
Plan") covering all of Corixa's employees. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($10,000 in 1999) and to have the amount of
such reduction contributed to the 401(k) Plan. Corixa did not match
contributions before 1998. Effective January 1, 1998, Corixa implemented a
401(k) matching program whereby Corixa contributes twenty-five cents for each
dollar a participant contributes, with a maximum contribution of 25% of the
first 8% of a participant's earnings not to exceed 25% of the prescribed annual
limit. The 401(k) Plan is intended to qualify under Section 401 of the Internal
Revenue Code so that contributions by employees or by Corixa 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 Corixa, if
any, will be deductible by Corixa when made. At the direction of each
participant, Corixa invests the assets of the 401(k) Plan in any of 11
investment options. Company contributions under the plan were approximately
$224,000 and $98,000 in 1999 and 1998, respectively.
9. LONG-TERM OBLIGATIONS AND LEASE COMMITMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Capital lease obligations................................... $ 1,474 $ 2,532
Credit line from corporate partner.......................... 5,000 5,000
Bank loan................................................... 7,819 7,000
------- -------
14,293 14,532
Less current portion of obligations and commitments......... 2,867 2,697
------- -------
$11,426 $11,835
======= =======
</TABLE>
Capital lease obligations are secured by the underlying equipment.
The $5 million credit line from a corporate partner at December 31, 1999
represents payments received in exchange for options to license two of Corixa's
early-stage cancer vaccines. Refer to Note 2 with regard to the terms and
conditions of the line.
As of December 31, 1999, the Company had outstanding an unsecured bank loan of
$7.8 million which matures in May 2005. Borrowings under the note bear interest
at a rate that is a function of either the prime rate of a major bank or federal
fund rates. Under the terms of the note, the Company is required to meet minimum
(i) tangible net worth, (ii) net cash calculated based upon the sum of the
principal balance under the note plus a multiple of the Company's actual cash
burn or $10,000,000, whichever is greater, (iii) total debt to net worth ratios
and (iv) current ratio. The note requires quarterly interest and principal
payments. As of December 31, 1999 the Company was in compliance with the note
covenants.
The Company rents office and research facilities under a noncancelable operating
lease that expires in January 2005. The Company has issued an irrevocable
standby letter of credit in the amount of $750,000 as a security deposit on the
lease. The Company has options to renew the lease for two additional terms of
five years each.
- --------------------------------------------------------------------------------
F- 21
<PAGE> 102
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum future rental payments under all lease agreements at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
- ----------------------------------------------------------------------------------
<S> <C> <C>
2000........................................................ $1,025 $ 2,670
2001........................................................ 573 2,750
2002........................................................ 31 2,832
2003........................................................ -- 2,917
2004........................................................ -- 3,005
Thereafter.................................................. -- 129
------ -------
Total minimum payments................................. $1,629 $14,303
=======
Less interest............................................... 155
------
Present value of minimum lease payments..................... 1,474
Less current portion........................................ 822
------
Capital lease obligations, less current portion............. $ 652
======
</TABLE>
Rent expense was $3.5 million, $2.3 million, and $1.5 million, for the years
ended December 31, 1999, 1998 and 1997, respectively.
10. INVESTMENTS
IMMGENICS
In November 1998, Corixa and ImmGenics Pharmaceuticals Inc. ("ImmGenics"), a
privately held biotechnology company signed an exclusive agreement to utilize
ImmGenics' proprietary Selected Lymphocyte Antibody Method technology to develop
high-potency therapeutic and diagnostic monoclonal antibodies targeting Corixa's
proprietary antigens in cancer and infectious disease. This agreement marks
Corixa's first venture into the development of antibody products. Under the
terms of the agreement, ImmGenics could receive research, development and
milestone payments, as well as royalty streams on future product sales. In
addition to the collaborative agreement, Corixa purchased an aggregate 859,000
shares of Class A Preferred stock for $1.25 million and also entered into a
$500,000 non-interest bearing convertible debenture and purchased an additional
$1.25 million of Class A Preferred stock in 1999 for a total investment of $3.0
million. Additionally, the Company received warrants to acquire ImmGenics Class
A Preferred stock. The number of warrants increases if ImmGenics does not obtain
specified financing milestones. Corixa's ownership interest in ImmGenics at
December 31, 1999 is approximately 14.9%.
LIGOCYTE
In October 1999, Corixa signed a licensing and collaborative research agreement
with LigoCyte Pharmaceuticals, Inc. (LigoCyte) to utilize LigoCyte technology
for the development of therapeutic and vaccine products that target infections
arising from Candid albicans.
Under the terms of the agreement and related agreements Corixa paid a one time
license fee of $250,000 and is paying research funding of $225,000 over a one
year period. Corixa will also make milestone payments based on successful
clinical trial and product commercialization progress as well as royalties on
future product sales. Corixa also purchased 293,255 shares of Series B preferred
stock for $1,000,000 and will purchase an additional 146,628 shares for $500,000
on the one year anniversary of the agreement.
- --------------------------------------------------------------------------------
F- 22
<PAGE> 103
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company accounts for its investments in Immgenics and LigoCyte on the cost
method.
11. CONTINGENCIES
GROUNDWATER CONTAMINATION
Ribi, the NIH and the Bitterroot Valley Sanitary Landfill were notified by the
Montana Department of Environmental Quality in March 1991 that they had been
identified as potentially responsible parties and as such were jointly and
severally liable for groundwater contamination at a landfill in Ravalli County,
Montana. The NIH voluntarily initiated and completed work pursuant to an interim
remediation plan approved by the Department of Environmental Quality. In August
1995, the Department of Environmental Quality announced that it had approved a
second interim action in the vicinity of the landfill that was voluntarily
conducted by the NIH that involved installing individual replacement and new
wells.
The Department of Environmental Quality initiated an action in 1997 in the state
district court in Lewis and Clark County, Montana against Ribi, the landfill and
the owners of the landfill seeking recovery of past alleged costs associated
with its oversight activities, as well as a declaratory judgment finding the
parties liable for future oversight costs, plus civil penalties in the event the
parties fail to comply. The state action has been stayed pending outcome of the
federal action described below.
In April 1998, Ribi received notice that the United States, acting on behalf of
the Department of Health and Human Services, which oversees the NIH, filed suit
in United States District Court seeking contribution from Ribi of an equitable
share of past and future response costs incurred by the NIH in connection with
the remediation at and near the landfill.
In June 1998, the Department of Environmental Quality filed a complaint in the
United States District Court under the Federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) against Ribi, the landfill and
the owners of the landfill seeking recovery of past alleged costs associated
with its oversight activities, plus interest and attorneys' fees and costs as
well as a declaratory judgment finding the parties liable for future response
costs.
Following closing of the Ribi acquisition, we initiated settlement discussions
with the United States and the State of Montana. We currently believe that a
settlement can be reached with the United States and the State of Montana
releasing us from past and future liability related to the Bitterroot Landfill,
and we have reserved $2,600,000 to cover the settlement we may pay in 2000.
WRONGFUL DISCHARGE
In June 1997, a complaint was filed in state district court in Ravalli County,
Montana against Ribi by a former employee who was discharged for cause in June
1996. The former employee alleged he was discharged in violation of the Montana
Wrongful Discharge from Employment Act and further, that the discharge was for
his refusal to violate public policy in connection with his employment. The
court granted dismissal with respect to the portion of the complaint alleging
that termination was due to his refusal to violate public policy. The former
employee then filed a motion for reconsideration asking the court to reverse its
decision, and requested permission to amend his complaint to include additional
allegations relative to the public policy issue. Our motion for partial summary
judgment on the public policy issue is currently pending. The plaintiff has
filed a motion for partial summary judgment on the issue of discharge in
violation of the Wrongful Discharge Act.
While we believe our defenses to these employment allegations are meritorious,
we may incur substantial litigation costs to defend ourselves. A potential
adverse outcome could cause our business, financial condition and results of
operations to suffer.
- --------------------------------------------------------------------------------
F- 23
<PAGE> 104
CORIXA CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECENT DEVELOPMENT
We understand that a complaint was filed in Montana district court in February
2000 by a former Ribi employee claiming damages associated with working
conditions while she was employed at Ribi. Although we have not yet been served
with the complaint, based on our current understanding and initial investigation
of the matter, we believe the claim to be without merit.
- --------------------------------------------------------------------------------
F- 24
<PAGE> 105
[CORIXA LOGO]
<PAGE> 106
- --------------------------------------------------------------------------------
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
Common Stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
- ------------------------------------------------------------------------
<S> <C>
SEC registration fee........................................ $ 40,000
NASD filing fee............................................. $ 16,000
Nasdaq National Market fee.................................. $ 17,500
Printing.................................................... $175,000
Legal fees and expenses..................................... $210,000
Accounting fees and expenses................................ $ 80,000
Blue Sky qualification fees and expenses.................... $ 7,500
Transfer Agent and Registrar fees........................... $ 5,000
Miscellaneous fees and expenses............................. $ 9,000
--------
Total............................................. $560,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article Six of the Registrant's Certificate
of Incorporation (Exhibit 3.1 to the Registrant's registration statement on Form
S-1 (Registration No. 333-32147), which was declared effective on October 2,
1997, (the "Initial Registration Statement")) and Article VI of the Company's
Bylaws (Exhibit 3.2 to the Initial Registration Statement) provide for
indemnification of the Company's directors, officers, employees and other agents
to the maximum extent permitted by Delaware Law. In addition, the Company has
entered into Indemnification Agreements (Exhibit 10.6 to the Initial
Registration Statement) with its officers and directors. The Underwriting
Agreement (Exhibit 1.1 to this Registration Statement) also provides for
cross-indemnification among the Company, the Selling Stockholders and the
Underwriters with respect to certain matters, including matters arising under
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
2.1 Agreement and Plan of Merger, dated June 9, 1999, between
the Registrant and Ribi ImmunoChem Research, Inc. .......... (K)
2.2 Form of Certificate of Merger between Registrant and Ribi
ImmunoChem Research, Inc. .................................. (K)
</TABLE>
- --------------------------------------------------------------------------------
II- 1
<PAGE> 107
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------------------------------------------------------------------------
<C> <S> <C>
2.3 Agreement and Plan of Reorganization dated December 11, 1998
by and among the Registrant, Yakima Acquisition Corporation
and Anergen, Inc. .......................................... (H)
2.4 Form of Certificate of Merger between Yakima Acquisition
Corporation and Anergen, Inc. .............................. (H)
2.5 Agreement and Plan of Merger dated June 22, 1998 by and
among the Registrant, Chinook Acquisition Corporation and
GenQuest, Inc. ............................................. (K)
2.6 Form of Certificate of Merger between Chinook Acquisition
Corporation and GenQuest, Inc. ............................. (K)
2.7 Certificate of Designation of Corixa Corporation............ (J)
3.1 Amended and Restated Certificate of Incorporation of Corixa
Corporation................................................. (A)
3.2 Bylaws of Corixa Corporation................................ (A)
4.1 Amended and Restated Investors' Rights Agreement dated as of
May 10, 1996 between Registrant and certain holders of its
capital stock............................................... (A)
5.1** Opinion of Venture Law Group, a Professional Corporation,
regarding the legality of the common stock being
registered..................................................
10.1 1994 Amended and Restated Stock Option and Restricted Stock
Plan, as amended on June 9, 1999............................ (A)
10.2 1997 Directors' Stock Option Plan and form of stock option
agreement................................................... (A)
10.3 1997 Employee Stock Purchase Plan and form of subscription
agreement................................................... (A)
10.4 Corixa Corporation 401(k) Savings & Retirement Plan......... (A)
10.5 Form of Indemnification Agreement........................... (A)
10.6 Lease Agreement dated October 28, 1994 and amended December
29, 1995 between Registrant and Fred Hutchinson Cancer
Research Center............................................. (A)
10.7 Amendment No. 2 , dated September 25, 1998, to the Lease
Agreement Dated May 31, 1996 between Registrant and
Alexandria Real Estate Equities............................. (D)
10.8 Multi-Field Vaccine Discovery Collaboration and License
Agreement between Registrant and SmithKline Beecham, dated
September 1, 1998........................................... (I)
10.9+ Licensing Agreement between Registrant and Dana-Farber
Cancer Institute, Inc., dated January 1, 1995............... (A)
10.10+ Amendment No. 1, dated September 29, 1997, to the Licensing
Agreement, dated January 1, 1995, by and between Registrant
and Dana-Farber Cancer Institute, Inc. ..................... (D)
10.11 Amendment No. 2, dated July 31, 1998, to the Licensing
Agreement, dated January 1, 1995, by and between Registrant
and Dana- Farber Cancer Institute, Inc. .................... (B)
10.12+ Amended and Restated Research Services and Intellectual
Property Agreement effective as of January 1, 1997 by and
between Registrant and the Infectious Disease Research
Institute................................................... (A)
10.13+ Amendment No. 1 to License Agreement dated April 30, 1997 by
and among Registrant, Southern Research Institute and
University of Alabama at Birmingham Research Foundation..... (A)
10.14 Confirmation Letter, Purchase of $7,000,000 Loan Facility,
dated August 21, 1998 to Registrant from Banque Nationale de
Paris....................................................... (D)
10.15 Assignment and Assumption Agreement, dated August 21, 1998,
by and Among Sumitomo Bank, Limited, Sumitomo Bank of New
York Trust Corporation, Registrant, Well Fargo Bank, N.A.,
Banque Nationale de Paris, and Bank of The West Trust and
Investment Services Division................................ (D)
10.16+ Research Agreement between Registrant and the Infectious
Disease Research Institute, dated March 26, 1999............ (E)
</TABLE>
- --------------------------------------------------------------------------------
II- 2
<PAGE> 108
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------------------------------------------------------------------------
<C> <S> <C>
10.17+ Equity Line of Credit and Securities Purchase Agreement
between Registrant and Castle Gate, L.L.C. dated April 8,
1999........................................................ (J)
10.18+ Registration Rights Agreement between Registrant and Castle
Gate, L.L.C. dated April 8, 1999............................ (J)
10.19+ Standstill Agreement between Registrant and Castle Gate,
L.L.C. on April 8, 1999..................................... (J)
10.20+ Warrant Number CG-1 issued by Registrant to Castle Gate,
L.L.C. on April 8, 1999..................................... (J)
10.21+ Warrant Number CG-2 issued by Registrant to Castle Gate,
L.L.C. on April 8, 1999..................................... (J)
10.22+ Form of Warrant Number CG-3 to be issued to Castle Gate,
L.L.C. upon the occurrence of certain events in accordance
with the terms of the Equity Line of Credit and Securities
Purchase Agreement.......................................... (J)
10.23+ Form of Warrant Number CG-4 to be issued by the Registrant
to Castle Gate, L.L.C. upon the occurrence of certain events
in accordance with the terms of the Equity Line of Credit
and Securities Purchase Agreement........................... (J)
10.24+ Collaboration Agreement, dated May 21, 1999, between
Registrant and Inpharzam International, Inc. ............... (F)
10.25+ Common Stock Purchase Agreement, dated May 21, 1999, between
Registrant and Inpharzam International, S.A. ............... (F)
10.26+ License and Collaborative Research Agreement, dated June 15,
1999, between Registrant and Japan Tobacco Inc. ............ (F)
10.27+ Common Stock Purchase Agreement, dated December 11, 1998,
among Registrant, International Biotechnology Trust, plc and
Warburg, Pincus Ventures, L.P. ............................. (F)
10.28 Forms of stock purchase and stock option agreement.......... (A)
10.29 Option Agreement dated March 1, 1997 between Corixa
Corporation and SmithKline Beecham Biologicals Manufacturing
S.A. (originally filed under a confidential treatment
request as Exhibit 10.11 to the Company's Form S-1, as
amended, (File No. 33-32147), filed with the Commission on
September 30, 1997)......................................... (L)
21.1 List of Subsidiaries........................................ (L)
23.1 Consent of Ernst & Young LLP, Independent Auditors, with
respect to the consolidated financial statements of
Registrant
23.2 Consent of Ernst & Young LLP, Independent Auditors, with
respect to the financial statements of Anergen
23.3 Consent of KPMG LLP, Independent Auditors, with respect to
the financial statements of Ribi
23.4** Consent of Venture Law Group (See Exhibit 5.1)
24.1** Power of Attorney (see page II-6 of this Registration
Statement as filed on March 7, 2000)
</TABLE>
- --------------------------------------------------------------------------------
II- 3
<PAGE> 109
PART II
- --------------------------------------------------------------------------------
- ------------
<TABLE>
<S> <C>
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment granted by order of the SEC.
(A) Incorporated herein by reference to the Registrant's Form
S-1, as amended, (File No. 333-32147), declared effective by
the Commission on September 30, 1997.
(B) Incorporated herein by reference to the Registrant's Form
10-K (File No. 0-22891), filed with the Commission on March
10, 1998.
(C) Incorporated herein by reference to the Registrant's Form
10-Q (File No. 0-22891), filed with the Commission on August
11, 1998.
(D) Incorporated herein by reference to the Registrant's Form
10-Q (File No. 0-22891), filed with the Commission on
November 12, 1998.
(E) Incorporated herein by reference to the Registrant's Form
10-Q (File No. 0-22891), filed with the Commission on May 6,
1999.
(F) Incorporated herein by reference to the Registrant's Form
10-Q (File No. 0-22891), filed with the Commission on August
9, 1999.
(G) Incorporated herein by reference to Appendix A of The Proxy
Statement/Prospectus included in the Registration Statement
on Form S-4, as amended, (File No. 333-57751), filed with
the Commission on August 5, 1998.
(H) Incorporated herein by reference to the Registrant's Form
S-4, as amended, (File No. 333-69679), filed with the
Commission on December 24, 1998..
(I) Incorporated herein by reference to the Registrant's Form
8-K (File No. 0-22891), filed with the Commission on
November 10, 1998.
(J) Incorporated herein by reference to the Registrant's Form
8-K (File No. 0-22891), filed with the Commission on April
23, 1999.
(K) Incorporated herein by reference to the Registrant's Form
S-4, as amended (File No. 333-81939), filed with the
Commission on June 30, 1999.
(L) Incorporated herein by reference to Amendment No. 1 to the
Registrant's Form 10-K (File No. 0-22891), filed with the
Commission on March 30, 2000.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to deliver or cause to be delivered
with the prospectus, to each person to whom the prospectus is sent or given, the
latest annual report, to security holders that is incorporated by reference in
the prospectus and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
- --------------------------------------------------------------------------------
II- 4
<PAGE> 110
PART II
- --------------------------------------------------------------------------------
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
- --------------------------------------------------------------------------------
II- 5
<PAGE> 111
PART II
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Seattle, State of Washington, on the 31st day of
March 2000.
CORIXA CORPORATION
By: *
------------------------------------
Steven Gillis, Ph.D.
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman, Chief Executive March 31, 2000
- -------------------------------------------------------- Officer and Director
Steven Gillis, Ph.D. (Principal Executive
Officer)
* President, Chief Operating March 31, 2000
- -------------------------------------------------------- Officer and Director
Mark McDade
* Vice President and Chief March 31, 2000
- -------------------------------------------------------- Financial Officer (Principal
Michelle Burris Financial and Accounting
Officer)
* Director March 31, 2000
- --------------------------------------------------------
Joseph Lacob
* Director March 31, 2000
- --------------------------------------------------------
Arnold Oronsky, Ph.D.
* Director March 31, 2000
- --------------------------------------------------------
Andrew Senyei, M.D.
*By: /s/ KATHLEEN MCKEREGHAN
- --------------------------------------------------------
Kathleen McKereghan
Attorney-in-Fact
</TABLE>
- --------------------------------------------------------------------------------
II- 6
<PAGE> 112
PART II
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
5.1** Opinion of Venture Law Group, a Professional Corporation,
regarding the legality of the common stock being registered
23.1 Consent of Ernst & Young LLP, Independent Auditors, with
respect to the consolidated financial statements of
Registrant.
23.2 Consent of Ernst & Young LLP, Independent Auditors, with
respect to the financial statements of Anergen.
23.3 Consent of KPMG LLP, Independent Auditors, with respect to
the financial statements of Ribi
23.4** Consent of Venture Law Group (See Exhibit 5.1)
24.1** Power of Attorney (see page II-6 of this Registration
Statement, as filed on March 7, 2000)
</TABLE>
- ---------------
** Previously filed.
- --------------------------------------------------------------------------------
II- 7
<PAGE> 1
EXHIBIT 1.1
2,250,000 Shares
Common Stock
($.001 Par Value)
UNDERWRITING AGREEMENT
______ __, 2000
<PAGE> 2
UNDERWRITING AGREEMENT
, 2000
WARBURG DILLON READ LLC
Lehman Brothers Inc.
Prudential Securities Incorporated
Pacific Growth Equities, Inc.
as Managing Underwriters
299 Park Avenue
New York, New York 10171-0026
Ladies and Gentlemen:
Corixa Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell and Interwest Investors LP ("Interwest") proposes to sell to the
underwriters named in Schedule A annexed hereto (the "Underwriters") an
aggregate of 2,250,000 shares (the "Firm Shares") of Common Stock, $.001 par
value (the "Common Stock"), of the Company, of which 2,000,000 shares are to be
issued and sold by the Company and an aggregate of 250,000 shares are to be sold
by Interwest in the respective amounts set forth under the caption "Firm Shares"
in Schedule B annexed hereto. In addition, solely for the purpose of covering
over-allotments, the Company and the persons named in Schedule B annexed hereto
(the "Selling Stockholders") propose to grant to the Underwriters the option to
purchase from the Company and the Selling Stockholders up to an additional
337,500 shares of Common Stock (the "Additional Shares") in the respective
amounts set forth under the caption "Additional Shares" in Schedule B hereto.
The Firm Shares and the Additional Shares are hereinafter collectively sometimes
referred to as the "Shares." The Shares are described in the Prospectus which is
referred to below.
The Company has filed, in accordance with the provisions of the Securities Act
of 1933, as amended, and the rules and regulations thereunder (collectively
called the "Act"), with the Securities and Exchange Commission (the Commission)
a registration statement on Form S-3, (File No.[333-XXX]) including a
prospectus, relating to the Shares, which incorporates by reference documents
which the Company has filed in accordance with the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(collectively called the "Exchange Act"). The Company has furnished to you, for
use by the Underwriters and by dealers, copies of one or more preliminary
prospectuses and the documents incorporated by reference therein (each thereof,
including the documents incorporated therein by reference, being herein called a
"Preliminary Prospectus") relating to the Shares. Except where the context
otherwise requires, the registration statement, as amended when it becomes
effective, including all documents filed as a part thereof or incorporated by
reference therein, and including any information contained in a prospectus
subsequently filed with the Commission pursuant to Rule 424(b) under the Act and
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430(A) under the Act and also including any registration
statement filed pursuant to Rule 462(b) under the Act, is herein called the
Registration
<PAGE> 3
Statement, and the prospectus, including all documents incorporated therein by
reference, in the form filed by the Company with the Commission pursuant to Rule
424(b) under the Act on or before the second business day after the date hereof
(or such earlier time as may be required under the Act) or, if no such filing is
required, the form of final prospectus included in the Registration Statement at
the time it became effective, is herein called the Prospectus.
The Company, the Selling Stockholders and the Underwriters agree as
follows:
1. Sale and Purchase. Upon the basis of the warranties and
representations and subject to the terms and conditions herein set forth, the
Company and Interwest, severally and not jointly, agree to sell to the
respective Underwriters and each of the Underwriters, severally and not jointly,
agrees to purchase from the Company and Interwest the respective number of Firm
Shares (subject to such adjustment as you may determine to avoid fractional
shares) which bears the same proportion to the number of Firm Shares to be sold
by the Company or by Interwest, as the case may be, as the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule A annexed hereto
bears to the total number of Firm Shares to be sold by the Company and
Interwest, in each case at a purchase price of $[_____] per Share. The Company
and Interwest are advised by you that the Underwriters intend (i) to make a
public offering of their respective portions of the Firm Shares as soon after
the effective date of the Registration Statement as in your judgment is
advisable and (ii) initially to offer the Firm Shares upon the terms set forth
in the Prospectus. You may from time to time increase or decrease the public
offering price after the public offering to such extent as you may determine.
In addition, the Company and the Selling Stockholders listed on Schedule B
hereto hereby grant to the several Underwriters the option to purchase, and upon
the basis of the warranties and representations and subject to the terms and
conditions herein set forth, the Underwriters shall have the right to purchase,
severally and not jointly, from the Company and the Selling Stockholders listed
on Schedule B hereto, ratably in accordance with the number of Firm Shares to be
purchased by each of them (subject to such adjustment as you shall determine to
avoid fractional shares), all or a portion of the Additional Shares as may be
necessary to cover over-allotments made in connection with the offering of the
Firm Shares, at the same purchase price per share to be paid by the Underwriters
to the Company and Interwest for the Firm Shares. This option may be exercised
by you on behalf of the several Underwriters at any time (but not more than
once) on or before the thirtieth day following the date hereof, by written
notice to the Company and the Selling Stockholders listed on Schedule B hereto].
Such notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised, and the date and time when the Additional
Shares are to be delivered (such date and time being herein referred to as the
additional time of purchase); provided, however, that the additional time of
purchase shall not be earlier than the time of purchase (as defined below) nor
earlier than the second business day(1) after the date on which the option shall
have been exercised nor later than the tenth business day after the date on
which the option shall have been exercised. The number
- ----------
(1) As used herein "business day" shall mean a day on which the New York Stock
Exchange is open for trading.
2
<PAGE> 4
of Additional Shares to be sold to each Underwriter shall be the number which
bears the same proportion to the aggregate number of Additional Shares being
purchased as the number of Firm Shares set forth opposite the name of such
Underwriter on Schedule A hereto bears to the total number of Firm Shares
(subject, in each case, to such adjustment as you may determine to eliminate
fractional shares).
Pursuant to powers of attorney, which shall be satisfactory to counsel
for the Underwriters, granted by each Selling Stockholder, [________] and
[________] will act as representatives of the Selling Stockholders. The
foregoing representatives (the "Representatives of the Selling Stockholders")
are authorized, on behalf of each Selling Stockholder, to execute any documents
necessary or desirable in connection with the sale of the Shares to be sold
hereunder by each Selling Stockholder, to make delivery of the certificates of
such Shares, to receive the proceeds of the sale of such Shares, to give
receipts for such proceeds, to pay therefrom the expenses to be borne by each
Selling Stockholder in connection with the sale and public offering of the
Shares, to distribute the balance of such proceeds to each Selling Stockholder
in proportion to the number of Shares sold by each Selling Stockholder, to
receive notices on behalf of each Selling Stockholder and to take such other
action as may be necessary or desirable in connection with the transactions
contemplated by this Agreement.
2. Payment and Delivery. Payment of the purchase price for the Firm
Shares shall be made to the Company and Interwest by Federal Funds wire
transfer, against delivery of the certificates for the Firm Shares to you
through the facilities of the Depository Trust Company (DTC) for the respective
accounts of the Underwriters. Such payment and delivery shall be made at 10:00
A.M., New York City time, on [________], 2000 (unless another time shall be
agreed to by you, the Company and the Representatives of the Selling
Stockholders or unless postponed in accordance with the provisions of Section 10
hereof). The time at which such payment and delivery are actually made is
hereinafter sometimes called the time of purchase. Certificates for the Firm
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify no later than the second business day
preceding the time of purchase. For the purpose of expediting the checking of
the certificates for the Firm Shares by you, the Company and the Selling
Stockholders agree to make such certificates available to you for such purpose
at least one full business day preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be made at
the additional time of purchase in the same manner and at the same office as the
payment for the Firm Shares. Certificates for the Additional Shares shall be
delivered to you in definitive form in such names and in such denominations as
you shall specify no later than the second business day preceding the additional
time of purchase. For the purpose of expediting the checking of the certificates
for the Additional Shares by you, the Company and the Selling Stockholders
listed on Schedule B hereto agree to make such certificates available to you for
such purpose at least one full business day preceding the additional time of
purchase.
3. Representations and Warranties of the Company. The Company represents
and warrants to each of the Underwriters that:
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<PAGE> 5
(a) the Company has not received, and has no notice of, any order
of the Commission preventing or suspending the use of any Preliminary
Prospectus, or instituting proceedings for that purpose, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act when the Registration
Statement becomes effective, the Registration Statement and the
Prospectus will fully comply in all material respects with the
provisions of the Act, and the Registration Statement will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement have been so
described or filed; provided, however, that the Company makes no
warranty or representation with respect to any statement contained in
the Registration Statement or the Prospectus in reliance upon and in
conformity with information concerning the Underwriters and furnished in
writing by or on behalf of any Underwriter through you to the Company
expressly for use in the Registration Statement or the Prospectus; the
documents incorporated by reference in the Prospectus, at the time they
were filed with the Commission, complied in all material respects with
the requirements of the Exchange Act, and do not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading
and the Company has not distributed any offering material in connection
with the offering or sale of the Shares other than the Registration
Statement, the Preliminary Prospectus, the Prospectus or any other
materials, if any, permitted by the Act;
(b) as of the date of this Agreement, the Company has an
authorized capitalization as set forth under the heading entitled
"Actual" in the section of the Registration Statement and the Prospectus
entitled "Capitalization" and, as of the time of purchase and the
additional time of purchase, as the case may be, the Company shall have
an authorized capitalization as set forth under the heading entitled "As
Adjusted" in the section of the Registration Statement and the
Prospectus entitled "Capitalization"; all of the issued and outstanding
shares of capital stock including Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and
non-assessable , have been issued in compliance with all federal and
state securities laws and were not issued in violation of any preemptive
right, resale right, right of first refusal or similar right;
(c) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full power and authority to own, lease and operate its
properties and conduct its business as described in the Registration
Statement;
(d) the Company is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction where the ownership or
leasing of its properties or the
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<PAGE> 6
conduct of its business requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the
business, properties, financial condition or results of operation of the
Company and its Subsidiaries (as hereinafter defined) taken as a whole
(a "Material Adverse Effect"). The Company has no subsidiaries (as
defined in the Rules and Regulations) other than Chinook (the
"Subsidiary"); other than the Subsidiary, the Company does not own,
directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest
in any firm, partnership, joint venture, association or other entity;
complete and correct copies of the certificates of incorporation and of
the bylaws of the Company and the Subsidiary and all amendments thereto
have been delivered to you, and except as set forth in the exhibits to
the Registration Statement no changes therein will be made subsequent to
the date hereof and prior to the Closing Date or, if later, the Option
Closing Date; the Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement; the Subsidiary is
duly qualified to do business as a foreign corporation in good standing
in each jurisdiction where the ownership or leasing of the properties or
the conduct of its business requires such qualification, except where
the failure to so qualify would not have a Material Adverse Effect; all
of the outstanding shares of capital stock of the Subsidiary have been
duly authorized and validly issued, are fully paid and non-assessable
and (except as otherwise described in this Section 3(d)) are owned by
the Company subject to no security interest, other encumbrance or
adverse claims; no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligation into shares of capital stock or ownership interests in the
Subsidiary are outstanding.
(e) the Company and the Subsidiary are duly qualified or licensed
by and are in good standing in each jurisdiction in which they conduct
their respective businesses and in which the failure, individually or in
the aggregate, to be so licensed or qualified could have a material
adverse effect on the operations, business, condition, prospects or
property of the Company and the Subsidiary, taken as a whole (a
"Material Advisory Effect"); and the Company and the Subsidiary are in
compliance in all material respects with the laws, orders, rules,
regulations and directives issued or administered by such jurisdictions;
(f) neither the Company nor the Subsidiary is in breach of, or in
default under (nor has any event occurred which with notice, lapse of
time, or both would result in any breach of, or constitute a default
under), its respective charter or by-laws or in the performance or
observance of any obligation, agreement, covenant or condition contained
in any indenture, mortgage, deed of trust, bank loan or credit agreement
or other evidence of indebtedness, or any lease, Contract or other
agreement or instrument to which the Company or the Subsidiary is a
party or by which either of them or any of their properties is bound,
and the execution, delivery and performance of this Agreement, the
issuance and sale of the Shares and the consummation of the transactions
contemplated hereby will not conflict with, or result in any breach of
or constitute a default under (nor constitute any event which with
notice, lapse of time, or both would result in any breach
5
<PAGE> 7
of, or constitute a default under), any provisions of the charter or
by-laws, of the Company or the Subsidiary or under any provision of any
license, indenture, mortgage, deed of trust, bank loan or credit
agreement or other evidence of indebtedness, or any lease, Contract or
other agreement or instrument to which the Company or the Subsidiary is
a party or by which any of them or their respective properties may be
bound or affected, or under any federal, state, local or foreign law,
regulation or rule or any decree, judgment or order applicable to the
Company or the Subsidiary;
(g) this Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement of
the Company enforceable in accordance with its terms;
(h) the capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Registration Statement and Prospectus and the certificates for
the Shares are in due and proper form and the holders of the Shares will
not be subject to personal liability by reason of being such holders;
(i) the Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued and fully paid and non-assessable;
(j) no approval, authorization, consent or order of or filing
with any national, state or local governmental or regulatory commission,
board, body, authority or agency is required in connection with the
issuance and sale of the Shares or the consummation by the Company of
the transaction as contemplated hereby other than registration of the
Shares under the Act and any necessary qualification under the
securities or blue sky laws of the various jurisdictions in which the
Shares are being offered by the Underwriters or under the rules and
regulations of the National Association of Securities Dealers, Inc.
(NASD);
(k) no person has the right, contractual or otherwise, to cause
the Company to issue to it, or register pursuant to the Act, any shares
of capital stock of the Company upon the issue and sale of the Shares to
the Underwriters hereunder, nor does any person have preemptive rights,
co-sale rights, rights of first refusal or other rights to purchase any
of the Shares other than those that have been expressly waived prior to
the dates hereof;
(l) Ernst & Young, LLP, whose report on the consolidated
financial statements of the Company and its Subsidiaries is filed with
the Commission as part of the Registration Statement and Prospectus, are
independent public accountants as required by the Act;
(m) each of the Company and the Subsidiary has all necessary
licenses, authorizations, consents and approvals and has made all
necessary filings required under any federal, state, local or foreign
law, regulation or rule, and has obtained all necessary authorizations,
consents and approvals from other persons, in order to conduct its
6
<PAGE> 8
respective business; neither the Company nor the Subsidiary is in
violation of, or in default under, any such license, authorization,
consent or approval or any federal, state, local or foreign law,
regulation or rule or any decree, order or judgment applicable to the
Company or the Subsidiary the effect of which could have a Material
Adverse Effect;
(n) all legal or governmental proceedings, contracts, leases or
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement have been so described or filed as required;
(o) there are no actions, suits, claims, investigations or
proceedings pending or threatened to which the Company or the Subsidiary
or any of their respective officers is a party or of which any of their
respective properties is subject at law or in equity, or before or by
any federal, state, local or foreign governmental or regulatory
commission, board, body, authority or agency which could result in a
judgment, decree or order having a Material Adverse Effect or
consummation of the transaction contemplated hereby;
(p) the audited financial statements included in the Registration
Statement and the Prospectus present fairly the consolidated financial
position of the Company and the Subsidiary as of the dates indicated and
the consolidated results of operations and cash flows of the Company and
the Subsidiary for the periods specified; such financial statements have
been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved;
(q) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been (i) any material adverse change, or any development which, in the
Company's reasonable judgment, is likely to cause a material adverse
change, in the business, properties or assets described or referred to
in the Registration Statement, or the results of operations, condition
(financial or otherwise), business or operations of the Company and the
Subsidiary taken as a whole, (ii) any transaction which is material to
the Company or the Subsidiary, except transactions in the ordinary
course of business, (iii) any obligation, direct or contingent, which is
material to the Company and the Subsidiary taken as a whole, incurred by
the Company or the Subsidiary, except obligations incurred in the
ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company or the Subsidiary or (v) any
dividend or distribution of any kind declared, paid or made on the
capital stock of the Company. Neither the Company nor the Subsidiary has
any material contingent obligation which is not disclosed in the
Registration Statement.
(r) the Company has obtained the agreement of each of the Selling
Stockholders and of each of its directors and officers and certain of
its other stockholders not to sell, offer to sell, contract to sell,
hypothecate grant any option to sell or otherwise dispose of, directly
or indirectly, any shares of Common Stock or securities convertible into
or exchangeable for Common Stock or warrants or other rights to purchase
Common Stock for a period of 90 days after the date of the Prospectus;
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<PAGE> 9
(s) the Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended (the "Investment Company
Act");
4. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder (which for purposes of this Agreement, unless the context
requires otherwise, shall include Interwest), severally and not jointly,
represents and warrants to each Underwriter that:
(a) such Selling Stockholder now is and at the time of delivery
of such Shares (whether the time of purchase or additional time of
purchase, as the case may be) will be, the lawful owner of the number of
Shares to be sold by such Selling Stockholder pursuant to this Agreement
and has and, at the time of delivery thereof, will have valid and
marketable title to such Shares, and upon delivery of and payment for
such Shares (whether at the time of purchase or the additional time of
purchase, as the case may be), the Underwriters will acquire valid and
marketable title to such Shares free and clear of any claim, lien,
encumbrance, security interest, community property right, restriction on
transfer or other defect in title;
(b) such Selling Stockholder has and at the time of delivery of
such Shares (whether the time of purchase or additional time of
purchase, as the case may be) will have, full legal right, power and
capacity, and any approval required by law (other than those imposed by
the Act and the securities or blue sky laws of certain jurisdictions),
to sell, assign, transfer and deliver such Shares in the manner provided
in this Agreement;
(c) this Agreement and the Custody Agreement among [__________],
as custodian, and the Selling Stockholders (the "Custody Agreement")
have been duly executed and delivered by such Selling Stockholder and
each is a legal, valid and binding agreement of such Selling Stockholder
enforceable in accordance with its terms;
(d) when the Registration Statement becomes effective and at all
times subsequent thereto through the latest of the time of purchase,
additional time of purchase or the termination of the offering of the
Shares, the Registration Statement and Prospectus, and any supplements
or amendments thereto as relate to such Selling Stockholder will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(e) such Selling Stockholder has duly and irrevocably authorized
the Representatives of the Selling Stockholders, on behalf of such
Selling Stockholder, to execute and deliver this Agreement and any other
document necessary or desirable in connection with the transactions
contemplated thereby and to deliver the Shares to be sold by such
Selling Stockholder and receive payment therefor pursuant hereto; and
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<PAGE> 10
(f) the sale of such Selling Stockholder's Shares pursuant to
this Agreement is not prompted by any information concerning the Company
which is not set forth in the Prospectus.
5. Certain Covenants of the Company. The Company hereby agrees:
(a) to furnish such information as may be required and otherwise
to cooperate in qualifying the Shares for offering and sale under the
securities or blue sky laws of such states as you may designate and to
maintain such qualifications in effect so long as required for the
distribution of the Shares; provided that the Company shall not be
required to qualify as a foreign corporation or to consent to the
service of process under the laws of any such state (except service of
process with respect to the offering and sale of the Shares); and to
promptly advise you of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose;
(b) to make available to the Underwriters in New York City, as
soon as practicable after the Registration Statement becomes effective,
and thereafter from time to time to furnish to the Underwriters, as many
copies of the Prospectus (or of the Prospectus as amended or
supplemented if the Company shall have made any amendments or
supplements thereto after the effective date of the Registration
Statement) as the Underwriters may request for the purposes contemplated
by the Act; in case any Underwriter is required to deliver a prospectus
within the nine-month period referred to in Section 10(a)(3) of the Act
in connection with the sale of the Shares, the Company will prepare
promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such
prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act;
(c) to advise you promptly and (if requested by you) to confirm
such advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes
effective and (ii) if Rule 430A under the Act is used, when the
Prospectus is filed with the Commission pursuant to Rule 424(b) under
the Act (which the Company agrees to file in a timely manner under such
Rules);
(d) to advise you promptly, confirming such advice in writing, of
any request by the Commission for amendments or supplements to the
Registration Statement or Prospectus or for additional information with
respect thereto, or of notice of institution of proceedings for, or the
entry of a stop order suspending the effectiveness of the Registration
Statement and, if the Commission should enter a stop order suspending
the effectiveness of the Registration Statement, to make every
reasonable effort to obtain the lifting or removal of such order as soon
as possible; to advise you promptly of any proposal to amend or
supplement the Registration Statement or Prospectus including by filing
any documents that would be incorporated therein by reference and to
file no such amendment or supplement to which you shall object in
writing;
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<PAGE> 11
(e) to file promptly all reports and any definitive proxy or
information statement required to be filed by the Company with the
Commission in order to comply with the Exchange Act subsequent to the
date of the Prospectus and for so long as the delivery of a prospectus
is required in connection with the offering or sale of the shares, and
to promptly notify you of such filing;
(f) if necessary or appropriate, to file a registration statement
pursuant to Rule 462(b) under the Act;
(g) to furnish to you and, upon request, to each of the other
Underwriters for a period of five years from the date of this Agreement
(i) copies of any reports or other communications which the Company
shall send to its stockholders or shall from time to time publish or
publicly disseminate, (ii) copies of all annual, quarterly and current
reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such
other similar form as may be designated by the Commission, (iii) copies
of documents or reports filed with any national securities exchange on
which any class of securities of the Company is listed, and (iv) such
other information as you may reasonably request regarding the Company or
its Subsidiaries, in each case as soon as such communications, documents
or information becomes available;
(h) to advise the Underwriters promptly of the happening of any
event known to the Company within the time during which a Prospectus
relating to the Shares is required to be delivered under the Act which,
in the judgment of the Company, would require the making of any change
in the Prospectus then being used, or in the information incorporated
therein by reference, so that the Prospectus would not include an untrue
statement of material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under
which they are made, not misleading, and, during such time, to prepare
and furnish, at the Company's expense, to the Underwriters promptly such
amendments or supplements to such Prospectus as may be necessary to
reflect any such change and to furnish you a copy of such proposed
amendment or supplement before filing any such amendment or supplement
with the Commission;
(i) to make generally available to its security holders, and to
deliver to you, an earnings statement of the Company (which will satisfy
the provisions of Section 11(a) of the Act) covering a period of twelve
months beginning after the effective date of the Registration Statement
(as defined in Rule 158(c) of the Act) as soon as is reasonably
practicable after the termination of such twelve-month period but not
later than [_________, 200__];
(j) to furnish to its shareholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet
and statements of income, shareholders' equity and of cash flow of the
Company for such fiscal year, accompanied by a copy of the certificate
or report thereon of nationally recognized independent certified public
accountants;
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<PAGE> 12
(k) to furnish to you 5 signed copies of the Registration
Statement, as initially filed with the Commission, and of all amendments
thereto (including all exhibits thereto and documents incorporated by
reference therein) and sufficient conformed copies of the foregoing
(other than exhibits) for distribution of a copy to each of the other
Underwriters;
(l) to furnish to you as early as practicable prior to the time
of purchase and the additional time of purchase, as the case may be, but
not later than two business days prior thereto, a copy of the latest
available unaudited interim consolidated financial statements, if any,
of the Company and the Subsidiary which have been read by the Company's
independent certified public accountants, as stated in their letter to
be furnished pursuant to Section 8(c) hereof;
(m) to apply the net proceeds from the sale of the Shares in the
manner set forth under the caption "Use of Proceeds" in the Prospectus;
(n) to furnish to you, before filing with the Commission
subsequent to the effective date of the Registration Statement and
during the period referred to in paragraph (f) above, a copy of any
document proposed to be filed pursuant to Section 13, 14 or 15(d) of the
Exchange Act;
(o) not to sell, offer or agree to sell, contract to sell, grant
any option to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock or warrants or other rights to purchase
Common Stock or permit the registration under the Act of any shares of
Common Stock, except for the registration of the Shares and the sales to
the Underwriters pursuant to this Agreement and except for issuances of
Common Stock upon the exercise of outstanding options, warrants and
debentures, for a period of 90 days after the date hereof, without the
prior written consent of the WDR; and
(p) to use its best efforts to cause the Common Stock to be
listed for quotation on the National Association of Securities Dealers
Automated Quotation National Market System ("NASDAQ").
6. Certain Covenants of the Company and the Selling Stockholders. The
Company and each of the Selling Stockholders agree with each Underwriter as
follows:
(a) the Company and the Selling Stockholders, in such proportions
(aggregating 100%) as the number of Shares to be sold by the Company and
by each such Selling Stockholder bears to the total number of Shares or
as they otherwise may determine among themselves, will pay all expenses,
fees and taxes (other than any transfer taxes and fees and disbursements
of counsel for the Underwriters except as set forth under Section 7
hereof or (iii) or (iv) below) in connection with (i) the preparation
and filing of the Registration Statement, each Preliminary Prospectus,
the Prospectus, and any amendments or supplements thereto, and the
printing and furnishing of copies of each thereof to the Underwriters
and to dealers (including costs of mailing and shipment),
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<PAGE> 13
(ii) the issuance, sale and delivery of the Shares by the Company and
the Selling Stockholders, (iii) the word processing and/or printing of
this Agreement, any Agreement Among Underwriters, any dealer agreements,
any Statements of Information, the Custody Agreement and the Powers of
Attorney and the reproduction and/or printing and furnishing of copies
of each thereof to the Underwriters and to dealers (including costs of
mailing and shipment), (iv) the qualification of the Shares for offering
and sale under state laws and the determination of their eligibility for
investment under state law as aforesaid (including the legal fees and
filing fees and other disbursements of counsel to the Underwriters) and
the printing and furnishing of copies of any blue sky surveys or legal
investment surveys to the Underwriters and to dealers, (v) any listing
of the Shares on any securities exchange or qualification of the Shares
for quotation on NASDAQ and any registration thereof under the Exchange
Act, (vi) the filing for review of the public offering of the Shares by
the National Association of Securities Dealers, Inc. (the NASD), and
(vii) the performance of the Company's and the Selling Stockholders'
other obligations hereunder; and
(b) the Company and the Selling Stockholders will not issue,
sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock or securities convertible into or
exchangeable for Common Stock or warrants or other rights to purchase
Common Stock or, in the case of the Company, permit the registration
under the Act of any shares of Common Stock, except for the registration
of the Shares and the sales to the Underwriters pursuant to this
Agreement and except for issuances of Common Stock upon the exercise of
outstanding options, warrants and debentures, for a period of 90 days
after the date of the Prospectus, without the prior written consent of
the Managing Underwriters.
7. Reimbursement of Underwriters' Expenses. If the Shares are not
delivered for any reason other than the termination of this Agreement pursuant
to the first two paragraphs of Section 10 hereof or the default by one or more
of the Underwriters in its or their respective obligations hereunder, the
Company shall, in addition to paying the amounts described in Section 6(a)
hereof, reimburse the Underwriters for all of their out-of-pocket expenses,
including the fees and disbursements of their counsel.
8. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters hereunder are subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Stockholders on the
date hereof and at the time of purchase (and the several obligations of the
Underwriters at the additional time of purchase are subject to the accuracy of
the representations and warranties on the part of the Company and the Selling
Stockholders on the date hereof and at the time of purchase (unless previously
waived) and at the additional time of purchase, as the case may be), the
performance by the Company and the Selling Stockholders of their obligations
hereunder and to the following additional conditions precedent:
(a) The Company shall furnish to you at the time of purchase and
at the additional time of purchase, as the case may be, an opinion of
Venture Law Group, counsel for the Company, addressed to the
Underwriters, and dated the time of purchase
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<PAGE> 14
or the additional time of purchase, as the case may be, with reproduced
copies for each of the other Underwriters and in form satisfactory to
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel for the
Underwriters, stating that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with full corporate power and authority to
own, lease and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus, to
execute and deliver this Agreement and to issue, sell and deliver
the Shares as herein contemplated;
(ii) the Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation with full corporate
power and authority to own, lease and operate its respective
properties and to conduct its respective business;
(iii) the Company and the Subsidiary are duly qualified or
licensed by each jurisdiction in which they conduct their
respective businesses and in which the failure, individually or
in the aggregate, to be so licensed or qualified could have a
Material Adverse Effect and the Company and the Subsidiary are
duly qualified, and are in good standing, in each jurisdiction in
which they own or lease real property or maintain an office and
in which such qualification is necessary;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) the Shares have been duly authorized and, when issued
and delivered to and paid for by the Underwriters, will be duly
and validly and issued and will be fully paid and non-assessable;
(vi) the Company has an authorized capitalization as set
forth in the Registration Statement and the Prospectus; the
outstanding shares of capital stock of the Company have been duly
and validly authorized and issued, and are fully paid,
nonassessable and free of statutory and contractual preemptive
rights; the Shares when issued will be free of statutory and
contractual preemptive rights, resale rights, rights of first
refusal and similar rights; the certificates for the Shares are
in due and proper form and the holders of the Shares will not be
subject to personal liability by reason of being such holders;
(vii) other than the Subsidiary, the Company does not own or
control, directly or indirectly, any corporation, association or
other entity; the Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, with full corporate
power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration
Statement; the Subsidiary is duly
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<PAGE> 15
qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of
the properties or the conduct of its business requires such
qualification, except where the failure to so qualify would not
have a Material Adverse Effect; all of the outstanding shares of
capital stock of the Subsidiary have been duly authorized and
validly issued, are fully paid and non-assessable and, except as
otherwise stated in the Registration Statement, are owned by the
Company, in each case subject to no security interest, other
encumbrance or adverse claim; to the best of such counsel's
knowledge, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to
convert any obligation into shares of capital stock or ownership
interests in the Subsidiary are outstanding;
(viii) the capital stock of the Company, including the
Shares, conforms to the description thereof contained in the
Registration Statement and Prospectus;
(ix) the Registration Statement and the Prospectus (except
as to the financial statements and schedules and other financial
and statistical data contained or incorporated by reference
therein, as to which such counsel need express no opinion) comply
as to form in all material respects with the requirements of the
Act;
(x) the Registration Statement has become effective under
the Act and, to the best of such counsel's knowledge, no stop
order proceedings with respect thereto are pending or threatened
under the Act and any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424 under the Act has been
made in the manner and within the time period required by such
Rule 424;
(xi) no approval, authorization, consent or order of or
filing with any national, state or local governmental or
regulatory commission, board, body, authority or agency is
required in connection with the issuance and sale of the Shares
and consummation by the Company of the transaction as
contemplated hereby other than registration of the Shares under
the Act (except such counsel need express no opinion as to any
necessary qualification under the state securities or blue sky
laws of the various jurisdictions in which the Shares are being
offered by the Underwriters);
(xii) the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby do not and will not conflict
with, or result in any breach of, or constitute a default under
(nor constitute any event which with notice, lapse of time, or
both, would result in any breach of or constitute a default
under), any provisions of the charter or by-laws of the Company
or the Subsidiary or under any provision of any license,
indenture, mortgage, deed of trust, bank loan, credit agreement
or other evidence of indebtedness, or any lease, contract or
other agreement or instrument to which the Company or the
Subsidiary is a party or by which any of them or their respective
properties may be bound or affected, or
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<PAGE> 16
under any federal, state, local or foreign law, regulation or
rule or any decree, judgment or order applicable to the Company
or the Subsidiary;
(xiii) to the best of such counsel's knowledge, neither
the Company nor the Subsidiary is in violation of its charter or
by-laws or is in breach of, or in default under (nor has any
event occurred which with notice, lapse of time, or both would
result in any breach of, or constitute a default under), any
license, indenture, mortgage, deed of trust, bank loan or any
other agreement or instrument to which the Company or the
Subsidiary is a party or by which either of them or their
respective properties may be bound or affected or under any
federal, state, local or foreign law, regulation or rule or any
decree, judgment or order applicable to the Company or the
Subsidiary;
(xiv) to the best of such counsel's knowledge, there are
no contracts, licenses, agreements, leases or documents of a
character which are required to be filed as exhibits to the
Registration Statement or to be summarized or described in the
Prospectus which have not been so filed, summarized or described;
(xv) to the best of such counsel's knowledge, there are no
actions, suits, claims, investigations or proceedings pending,
threatened or contemplated to which the Company or the Subsidiary
is subject or of which any of their respective properties, is
subject at law or in equity or before or by any federal, state,
local or foreign governmental or regulatory commission, board,
body, authority or agency which are required to be described in
the Prospectus but are not so described;
(xvi) the documents incorporated by reference in the
Registration Statement and Prospectus, when they became effective
were filed (or, if an amendment with respect to any such document
was filed when such amendment was filed) with the Commission,
complied as to form in all material respects with the Exchange
Act (except as to the financial statements and schedules and
other financial and statistical data contained or incorporated by
reference therein as to which such counsel need express no
opinion);
(xvii) the Company will not, upon consummation of the
transactions contemplated by this Agreement, be an "investment
company," or a "promoter" or "principal underwriter" for, a
"registered investment company," as such terms are defined in the
Investment Company Act of 1940, as amended;
(xviii) such counsel have participated in conferences with
officers and other representatives of the Company,
representatives of the independent public accountants of the
Company and representatives of the Underwriters at which the
contents of the Registration Statement and Prospectus were
discussed and, although such counsel is not passing upon and does
not assume responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement or Prospectus (except as and to the extent stated in
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<PAGE> 17
subparagraphs (vi) and (viii) above), on the basis of the
foregoing nothing has come to the attention of such counsel that
causes them to believe that the Registration Statement or any
amendment thereto at the time such Registration Statement or
amendment became effective contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus or any supplement thereto at
the date of such Prospectus or such supplement, and at all times
up to and including the time of purchase or additional time of
purchase, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and schedules
and other financial and statistical data included in the
Registration Statement or Prospectus).
(b) The Selling Stockholders shall furnish to you at the time of
purchase and at the additional time of purchase, as the case may be, an
opinion of Venture Law Group, counsel for the Selling Stockholders,
addressed to the Underwriters, and dated the time of purchase or the
additional time of purchase, as the case may be, with reproduced copies
for each of the other Underwriters, and in form and substance
satisfactory to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
counsel for the Underwriters, stating that:
(i) this Agreement and the Custody Agreement have been
duly executed and delivered by or on behalf of each of the
Selling Stockholders;
(ii) each Selling Stockholder has full legal right and
power, and has obtained any authorization or approval required by
law (other than those imposed by the Act and the securities or
blue sky laws of certain jurisdictions), to sell, assign,
transfer and deliver the Shares to be sold by such Selling
Stockholder in the manner provided in this Agreement;
(iii) delivery of certificates for the Shares by each
Selling Stockholder pursuant hereto will pass valid and
marketable title thereto to the Underwriters, free and clear of
any claim, lien, encumbrance, security interest, community
property right, restriction on transfer or other defect in title;
(iv) each of the Representatives of the Selling
Stockholders has been duly authorized by each Selling Stockholder
to execute and deliver on behalf of such Selling Stockholder this
Agreement and any other document necessary or desirable in
connection with the transactions contemplated hereby and to
deliver the Shares to be sold by such Selling Stockholder; and
(v) to the best of such counsel's knowledge, the
statements in the Prospectus under the caption "Principal and
selling stockholders" insofar as such statements constitute a
summary of the matters referred to therein present fairly the
information called for with respect to such matters.
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<PAGE> 18
(c) You shall have received from Ernst & Young, LLP, letters
dated, respectively, the date of this Agreement and the time of purchase
and additional time of purchase, as the case may be, and addressed to
the Underwriters (with reproduced copies for each of the Underwriters)
in the forms heretofore approved by the WDR.
(d) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the favorable opinion
of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel for the
Underwriters, dated the time of purchase or the additional time of
purchase, as the case may be, as to the matters referred to in
subparagraphs (iv), (v), (viii) (with respect to the Shares only), (ix)
and (x) of paragraph (a) of this Section 8.
In addition, such counsel shall state that such counsel have
participated in conferences with officers and other representatives of
the Company, counsel for the Company, representatives of the independent
public accountants of the Company and representatives of the
Underwriters at which the contents of the Registration Statement and
Prospectus and related matters were discussed and, although such counsel
is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus (except as to matters referred to
with respect to the Shares under subparagraph (viii) of paragraph (a) of
this Section 8), on the basis of the foregoing (relying as to
materiality to a large extent upon the opinions of officers and other
representatives of the Company), no facts have come to the attention of
such counsel which lead them to believe that the Registration Statement
or any amendment thereto at the time such Registration Statement or
amendment became effective contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus as of its date or any supplement thereto as of its date
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express
no comment with respect to the financial statements and schedules and
other financial and statistical data included in the Registration
Statement or Prospectus).
(e) No amendment or supplement to the Registration Statement or
Prospectus, including documents deemed to be incorporated by reference
therein, shall be filed prior to the time the Registration Statement
becomes effective to which you object in writing.
(f) The Registration Statement shall become effective, or if Rule
430A under the Act is used, the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) under the Act, at or before 5:00
P.M., New York City time, on the date of this Agreement, unless a later
time (but not later than 5:00 P.M., New York City time, on the second
full business day after the date of this Agreement) shall be agreed to
by the Company, the Representatives of the Selling Stockholders and you
in writing or by telephone, confirmed in writing; provided, however,
that the Company, the
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<PAGE> 19
Representatives of the Selling Stockholders and you and any group of
Underwriters, including you, who have agreed hereunder to purchase in
the aggregate at least 50% of the Firm Shares may from time to time
agree on a later date.
(g) Prior to the time of purchase or the additional time of
purchase, as the case may be, (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued under
the Act or proceedings initiated under Section 8(d) or 8(e) of the Act;
(ii) the Registration Statement and all amendments thereto, or
modifications thereof, if any, shall not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(iii) the Prospectus and all amendments or supplements thereto, or
modifications thereof, if any, shall not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
(h) Between the time of execution of this Agreement and the time
of purchase or the additional time of purchase, as the case may be, (i)
no material and unfavorable change, financial or otherwise (other than
as referred to in the Registration Statement and Prospectus), in the
business, condition or prospects of the Company and its Subsidiaries
taken as a whole shall occur or become known and (ii) no transaction
which is material and unfavorable to the Company shall have been entered
into by the Company or any of its Subsidiaries.
(i) The Company will, at the time of purchase or additional time
of purchase, as the case may be, deliver to you a certificate of two of
its executive officers to the effect that the representations and
warranties of the Company as set forth in this Agreement are true and
correct as of each such date, that the Company shall perform such of its
obligations under this Agreement as are to be performed at or before the
time of purchase and at or before the additional time of purchase, as
the case may be and the conditions set forth in paragraphs (g) and (h)
of this Section 8 have been met.
(j) You shall have received signed letters, dated the date of
this Agreement, from each of the Selling Stockholders and each of the
directors and officers of the Company and certain of its other
stockholders to the effect that such persons shall not sell, offer or
agree to sell, contract to sell, grant any option to sell or otherwise
dispose of, directly or indirectly, any shares of Common Stock of the
Company or securities convertible into or exchangeable or exercisable
for Common Stock or warrants or other rights to purchase Common Stock
for a period of 90 days after the date of the Prospectus without WDR's
prior written consent.
(k) The Company and the Selling Stockholders shall have furnished
to you such other documents and certificates as to the accuracy and
completeness of any statement in the Registration Statement and the
Prospectus as of the time of purchase and the additional time of
purchase, as the case may be, as you may reasonably request.
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(l) The Shares shall have been approved for listing for quotation
on NASDAQ, subject only to notice of issuance at or prior to the time of
purchase or the additional time of purchase, as the case may be.
(m) The Selling Stockholders will at the time of purchase and the
additional time of purchase, as the case may be deliver to you a
certificate of the Representatives of the Selling Stockholders to the
effect that the representations and the warranties of the Selling
Stockholders as set forth in this Agreement are true and correct as of
each such date.
(n) Between the time of execution of this Agreement and the time
of purchase or additional time of purchase, as the case may be, there
shall not have occurred any downgrading, nor shall any notice or
announcement have been given or made of (i) any intended or potential
downgrading or (ii) any review or possible change that does not indicate
an improvement, in the rating accorded any securities of or guaranteed
by the Company or the Subsidiary by any "nationally recognized
statistical rating organization", as that term is defined in Rule
436(g)(2) under the Act.
9. Effective Date of Agreement; Termination. This Agreement shall become
effective (i) if Rule 430A under the Act is not used, when you shall have
received notification of the effectiveness of the Registration Statement, or
(ii) if Rule 430A under the Act is used, when the parties hereto have executed
and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be subject
to termination in the absolute discretion of you or any group of Underwriters
(which may include you) which has agreed to purchase in the aggregate at least
50% of the Firm Shares, if, since the time of execution of this Agreement or the
respective dates as of which information is given in the Registration Statement
and Prospectus, (y) there has been any material adverse and unfavorable change,
financial or otherwise (other than as referred to in the Registration Statement
and Prospectus), in the operations, business, condition or prospects of the
Company and its Subsidiary taken as a whole, which would, in your judgment or in
the judgment of such group of Underwriters, make it impracticable to market the
Shares, or (z) there shall have occurred any downgrading, or any notice shall
have been given of (i) any intended or potential downgrading or (ii) any review
or possible change that does not indicate an improvement, in the rating accorded
any securities of or guaranteed by the Company or the Subsidiary by any
"nationally recognized statistical rating organization", as that term is defined
in Rule 436(g)(2) under the Act or, if, at any time prior to the time of
purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange, the American Stock Exchange or the NASDAQ National
Market shall have been suspended or limitations or minimum prices shall have
been established on the New York Stock Exchange, the American Stock Exchange or
the NASDAQ National Market or if a banking moratorium shall have been declared
either by the United States or New York State authorities, or if the United
States shall have declared war in accordance with its constitutional processes
or there shall have occurred any material outbreak or escalation of hostilities
or other national or international calamity or crisis of such magnitude in its
effect on the financial markets of the
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United States as, in your judgment or in the judgment of such group of
Underwriters, to make it impracticable to market the Shares.
If you or any group of Underwriters elects to terminate this Agreement
as provided in this Section 9, the Company, the Representatives of the Selling
Stockholders and each other Underwriter shall be notified promptly by letter or
telegram.
If the sale to the Underwriters of the Shares, as contemplated by this
Agreement, is not carried out by the Underwriters for any reason permitted under
this Agreement or if such sale is not carried out because the Company or the
Selling Stockholders, as the case may be, shall be unable to comply with any of
the terms of this Agreement, the Company or the Selling Stockholders, as the
case may be, shall not be under any obligation or liability under this Agreement
(except to the extent provided in Sections 6(a), 7 and 11 hereof), and the
Underwriters shall be under no obligation or liability to the Company and the
Selling Stockholders under this Agreement (except to the extent provided in
Section 11 hereof) or to one another hereunder.
10. Increase in Underwriters' Commitments. Subject to Sections 8 and 9,
if any Underwriter shall default in its obligation to take up and pay for the
Firm Shares to be purchased by it hereunder (otherwise than for reasons
sufficient to justify the termination of this Agreement under the provisions of
Section 9 hereof) and if the number of Firm Shares which all Underwriters so
defaulting shall have agreed but failed to take up and pay for does not exceed
10% of the total number of Firm Shares, the non-defaulting Underwriters shall
take up and pay for (in addition to the number of Firm Shares they are obligated
to purchase pursuant to Section 1 hereof) the number of Firm Shares agreed to be
purchased by all such defaulting Underwriters, as hereinafter provided. Such
Shares shall be taken up and paid for by such non-defaulting Underwriter or
Underwriters in such amount or amounts as you may designate with the consent of
each Underwriter so designated or, in the event no such designation is made,
such Shares shall be taken up and paid for by all non-defaulting Underwriters
pro rata in proportion to the aggregate number of Firm Shares set opposite the
names of such non-defaulting Underwriters in Schedule A.
Without relieving any defaulting Underwriter from its obligations
hereunder, the Company and the Selling Stockholders agree with the
non-defaulting Underwriters that they will not sell any Firm Shares hereunder
unless all of the Firm Shares are purchased by the Underwriters (or by
substituted Underwriters selected by you with the approval of the Company or
selected by the Company with your approval).
If a new Underwriter or Underwriters are substituted by the Underwriters
or by the Company for a defaulting Underwriter or Underwriters in accordance
with the foregoing provision, the Company or you shall have the right to
postpone the time of purchase for a period not exceeding five business days in
order that any necessary changes in the Registration Statement and Prospectus
and other documents may be effected.
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The term Underwriter as used in this agreement shall refer to and
include any Underwriter substituted under this Section 10 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
If the aggregate number of Shares which the defaulting Underwriter or
Underwriters agreed to purchase exceeds 10% of the total number of Shares which
all Underwriters agreed to purchase hereunder, and if neither the non-defaulting
Underwriters nor the Company shall make arrangements within the five business
day period stated above for the purchase of all the Shares which the defaulting
Underwriter or Underwriters agreed to purchase hereunder, this Agreement shall
be terminated without further act or deed and without any liability on the part
of the Company to any non-defaulting Underwriter and without any liability on
the part of any non-defaulting Underwriter to the Company. Nothing in this
paragraph, and no action taken hereunder, shall relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
11. Indemnity and Contribution.
(a) The Company and the Selling Stockholders jointly and
severally agree to indemnify, defend and hold harmless each Underwriter,
its partners, directors and officers, and any person who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, and the successors and assigns of all of the foregoing
persons from and against any loss, damage, expense, liability or claim
(including the reasonable cost of investigation) which, jointly or
severally, any such Underwriter or any such person may incur under the
Act, the Exchange Act, the Common Law or otherwise, insofar as such
loss, damage, expense, liability or claim arises out of or is based upon
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or in the Registration
Statement as amended by any post-effective amendment thereof by the
Company) or in a Prospectus (the term Prospectus for the purpose of this
Section 11 being deemed to include any Preliminary Prospectus, the
Prospectus and the Prospectus as amended or supplemented by the
Company), or arises out of or is based upon any omission or alleged
omission to state a material fact required to be stated in either such
Registration Statement or Prospectus or necessary to make the statements
made therein not misleading, except insofar as any such loss, damage,
expense, liability or claim arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact contained in
and in conformity with information furnished in writing by or on behalf
of any Underwriter through you to the Company expressly for use with
reference to such Underwriter in such Registration Statement or such
Prospectus or arises out of or is based upon any omission or alleged
omission to state a material fact in connection with such information
required to be stated in either such Registration Statement or
Prospectus or necessary to make such information not misleading.
If any action, suit or proceeding (together, a "Proceeding") is
brought against an Underwriter or any such person in respect of which
indemnity may be sought against the Company or any Selling Stockholder
pursuant to the foregoing paragraph, such Underwriter or such person
shall promptly notify the Company and the Representatives
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<PAGE> 23
of the Selling Stockholders in writing of the institution of such
Proceeding and the Company or such Selling Stockholder, as the case may
be, shall assume the defense of such Proceeding, including the
employment of counsel reasonably satisfactory to such indemnified party
and payment of all fees and expenses; provided, however, that the
omission to so notify the Company or the Representative of the Selling
Stockholders shall not relieve the Company or any Selling Stockholder
from any liability which the Company may have to any Underwriter or any
such person or otherwise. Such Underwriter or such controlling person
shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense
of such Underwriter or of such person unless the employment of such
counsel shall have been authorized in writing by the Company or such
Selling Stockholder in connection with the defense of such Proceeding or
the Company or such Selling Stockholder shall not have, within a
reasonable period of time in light of the circumstances employed counsel
to have charge of the defense of such Proceeding or such indemnified
party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from, additional to
or in conflict with those available to the Company or such Selling
Stockholder (in which case the Company or such Selling Stockholder shall
not have the right to direct the defense of such Proceeding on behalf of
the indemnified party or parties), in any of which events such fees and
expenses shall be borne by the Company or such Selling Stockholder, as
the case may be, and paid as incurred (it being understood, however,
that the Company or such Selling Stockholder shall not be liable for the
expenses of more than one separate counsel (in addition to any local
counsel) in any one Proceeding or series of related Proceedings in the
same jurisdiction representing the indemnified parties who are parties
to such Proceeding). The Company or such Selling Stockholder shall not
be liable for any settlement of any such Proceeding effected without its
written consent but if settled with the written consent of the Company
or such Selling Stockholder, the Company or such Selling Stockholder
agrees to indemnify and hold harmless any Underwriter and any such
person from and against any loss or liability by reason of such
settlement. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second sentence of this paragraph, then the
indemnifying party agrees that it shall be liable for any settlement of
any Proceeding effected without its written consent if (i) such
settlement is entered into more than 60 business days after receipt by
such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with
such request prior to the date of such settlement and (iii) such
indemnified party shall have given the indemnifying party at least 30
days' prior notice of its intention to settle. No indemnifying party
shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened Proceeding in respect
of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such Proceeding and does not include an admission of fault,
culpability or a failure to act, by or on behalf of such indemnified
party.
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(b) Each Underwriter severally agrees to indemnify, defend and
hold harmless the Company, its directors and officers, each Selling
Stockholder and any person who controls the Company or any Selling
Stockholder within the meaning of Section 15 of the Act, or Section 20
of the Exchange Act from and against any loss, damage, expense,
liability or claim (including the reasonable cost of investigation)
which, jointly or severally, the Company, any Selling Stockholder or any
such person may incur under the Act, the Exchange Act, or Common Law or
otherwise, insofar as such loss, damage, expense, liability or claim
arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in and in conformity with
information furnished in writing by or on behalf of such Underwriter
through you to the Company expressly for use with reference to such
Underwriter in the Registration Statement (or in the Registration
Statement as amended by or on behalf of any post-effective amendment
thereof by the Company) or in a Prospectus, or arises out of or is based
upon any omission or alleged omission to state a material fact in
connection with such information required to be stated in such
Registration Statement or Prospectus or necessary to make such
information not misleading.
If any Proceeding is brought against the Company, any Selling
Stockholder or any such person in respect of which indemnity may be
sought against any Underwriter pursuant to the foregoing paragraph, the
Company, such Selling Stockholder or such person shall promptly notify
such Underwriter in writing of the institution of such Proceeding and
such Underwriter shall assume the defense of such Proceeding, including
the employment of counsel reasonably satisfactory to such indemnified
party and payment of all fees and expenses, provided, however, that the
omission to so notify such Underwriter shall not relieve such
Underwriter, from any liability which such Underwriter may have to the
Company, any Selling Stockholder or any such person or otherwise. The
Company, such Selling Stockholder or such person shall have the right to
employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of the Company, such Selling
Stockholder or such person unless the employment of such counsel shall
have been authorized in writing by such Underwriter in connection with
the defense of such Proceeding or such Underwriter shall not have
employed counsel to have charge of the defense of such Proceeding or
such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from
or additional to or in conflict with those available to such Underwriter
(in which case such Underwriter shall not have the right to direct the
defense of such Proceeding on behalf of the indemnified party or
parties, but such Underwriter may employ counsel and participate in the
defense thereof but the fees and expenses of such counsel shall be at
the expense of such Underwriter), in any of which events such fees and
expenses shall be borne by such Underwriter and paid as incurred (it
being understood, however, that such Underwriter shall not be liable for
the expenses of more than one separate counsel (in addition to any local
counsel) in any one Proceeding or series of related Proceedings in the
same jurisdiction representing the indemnified parties who are parties
to such Proceeding). No Underwriter shall be liable for any settlement
of any such Proceeding effected without the written consent of such
Underwriter but if settled with the written consent of such Underwriter,
such Underwriter agrees to indemnify and hold harmless the Company, any
Selling Stockholder and any
23
<PAGE> 25
such person from and against any loss or liability by reason of such
settlement. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second sentence of this paragraph, then the
indemnifying party agrees that it shall be liable for any settlement of
any Proceeding effected without its written consent if (i) such
settlement is entered into more than 60 business days after receipt by
such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with
such request prior to the date of such settlement and (iii) such
indemnified party shall have given the indemnifying party at least 30
days' prior notice of its intention to settle. No indemnifying party
shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened Proceeding in respect
of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such Proceeding.
(c) If the indemnification provided for in this Section 11 is
unavailable to an indemnified party under subsections (a) and (b) of
this Section 11 in respect of any losses, damage, expenses, liabilities
or claims referred to therein, then each applicable indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, damages, expenses, liabilities or claims (i) in such proportion
as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii)
if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Selling Stockholders on the one
hand and of the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, damages,
expenses, liabilities or claims, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other
shall be deemed to be in the same respective proportion as the total
proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and
the Selling Stockholders and the total underwriting discounts and
commissions received by the Underwriters, bear to the aggregate public
offering price is the shares. The relative fault of the Company and the
Selling Stockholders on the one hand and of the Underwriters on the
other shall be determined by reference to, among other things, whether
the untrue statement or alleged untrue statement of a material fact or
omission or alleged omission relates to information supplied by the
Company, by the Selling Stockholders or by the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, damages, expenses,
liabilities and claims referred to in this subsection shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
party in connection with investigating, preparing to defend or defending
any claim or Proceeding.
24
<PAGE> 26
(d) The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant
to this Section 11 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in subsection (c) above. Notwithstanding the
provisions of this Section 11, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price
at which the Shares underwritten by such Underwriter and distributed to
the public were offered to the public exceeds the amount of any damage
which such Underwriter has otherwise been required to pay by reason of
such untrue statement or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations to contribute pursuant to this Section 11
are several in proportion to their respective underwriting commitments
and not joint.
(e) The indemnity and contribution agreements contained in this
Section 11 and the covenants, warranties and representations of the
Company and the Selling Stockholders contained in this Agreement shall
remain in full force and effect regardless of any partners,
investigation made by or on behalf of any Underwriter, its directors and
officers or any person (including each partner, officer or director of
such person) who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, or by or on behalf of
the Company, its directors or officers, any Selling Stockholder or any
person who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, and shall survive any termination
of this Agreement or the issuance and delivery of the Shares. The
Company, each Selling Stockholder and each Underwriter agree promptly to
notify each other of commencement of any Proceeding against it and, in
the case of the Company, against any of the Company's officers or
directors in connection with the issuance and sale of the Shares, or in
connection with the Registration Statement or Prospectus.
12. Notices. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
Warburg Dillon Read LLC, 299 Park Avenue, New York, N.Y. 10171-0026, Attention:
Syndicate Department, if to the Company, shall be sufficient in all respects if
delivered or sent to the Company at the offices of the Company at Corixa
Corporation, 1124 Columbia Street, Suite 200, Seattle, WA 98104 and, if to any
of the Selling Stockholders, shall be sufficient in all respects if delivered or
sent to the Representatives of the Selling Stockholders at Corixa Corporation,
1124 Columbia Street, Suite 200, Seattle, WA 98104.
13. Governing Law; Construction. This Agreement and any claim,
counterclaim or dispute of any kind or nature whatsoever arising out of or in
any way relating to this Agreement ("Claim"), directly or indirectly, shall be
governed by, and construed in accordance with, the
25
<PAGE> 27
laws of the State of New York. The Section headings in this Agreement have been
inserted as a matter of convenience of reference and are not a part of this
Agreement.
14. Submission to Jurisdiction. Except as set forth below, no Claim may
be commenced, prosecuted or continued in any court other than the courts of the
State of New York located in the City and County of New York or in the United
States District Court for the Southern District of New York, which courts shall
have jurisdiction over the adjudication of such matters, and the Company
consents to the jurisdiction of such courts and personal service with respect
thereto. The Company hereby consents to personal jurisdiction, service and venue
in any court in which any Claim arising out of or in any way relating to this
Agreement is brought by any third party against Warburg Dillon Read LLC or any
indemnified party. Each of Warburg Dillon Read LLC and the Company (on its
behalf and, to the extent permitted by applicable law, on behalf of its
stockholders and affiliates) waives all right to trial by jury in any action,
proceeding or counterclaim (whether based upon contract, tort or otherwise) in
any way arising out of or relating to this Agreement. The Company agrees that a
final judgment in any such action, proceeding or counterclaim brought in any
such court shall be conclusive and binding upon the Company and may be enforced
in any other courts in the jurisdiction of which the Company is or may be
subject, by suit upon such judgment.
15. Parties at Interest. The Agreement herein set forth has been and is
made solely for the benefit of the Underwriters, the Company, the Selling
Stockholders and to the extent provided in Section 11 hereof the controlling
persons, directors and officers referred to in Such Section, and their
respective successors, assigns, heirs, pursuant representatives and executors
and administrators. No other person, partnership, association or corporation
(including a purchaser, as such purchaser, from any of the Underwriters) shall
acquire or have any right under or by virtue of this Agreement.
16. Counterparts. This Agreement may be signed by the parties in one or
more counterparts which together shall constitute one and the same agreement
among the parties.
17. Successors and Assigns. This Agreement shall be binding upon the
Underwriters and the Company and their successors and assigns and any successor
or assign of any substantial portion of the Company's and any of the
Underwriters' respective businesses and/or assets.
26
<PAGE> 28
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the Underwriters, please so indicate in
the space provided below for the purpose, whereupon this letter and your
acceptance shall constitute a binding agreement among the Company, the Selling
Stockholders and the Underwriters, severally.
Very truly yours,
CORIXA CORPORATION
By:
------------------------------------
Title:
THE SELLING STOCKHOLDERS NAMED IN
SCHEDULE B ATTACHED HERETO
By:
------------------------------------
Attorney-in-Fact
Accepted and agreed to as of the date first above written, on behalf of and the
other several Underwriters named in Schedule A
WARBURG DILLON READ LLC
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES INCORPORATED
PACIFIC GROWTH EQUITIES, INC.
By: WARBURG DILLON READ LLC
By:
-------------------------------
Title:
By:
-------------------------------
Title:
27
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ----------- -----------
<S> <C>
WARBURG DILLON READ LLC
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES INCORPORATED
PACIFIC GROWTH EQUITIES, INC.
--------
Total 2,250,000
=========
</TABLE>
<PAGE> 30
SCHEDULE B
<TABLE>
<CAPTION>
Number of Number of
Selling Stockholders Firm Shares Additional Shares
- -------------------- ----------- -----------------
<S> <C> <C>
InterWest Investors 250,000
---------- -------------
Total
</TABLE>
<PAGE> 31
Opinion of Patent Counsel.
Dear Sirs:
At the request of Corixa Corporation (the "Company"), to which Company this firm
acts as patent counsel, we provide the following opinion as to such patent
matters and subject to the terms and conditions stated herein:
a. We have disclosed or intend to disclose to the United States Patent and
Trademark Office any references known by us to be material to the patentability
of the claimed inventions of the United States patent applications of the
Company being prosecuted by us listed on Schedule A in accordance with 37 C.F.R.
Section 1.56;
b. According to the records of the United States Patent and Trademark Office
("PTO"), and to our knowledge, the Company is the sole assignee of each of the
United States patent applications of the Company being prosecuted by us listed
on Schedule A [ATTACH LIST OF CASES FOR WHICH COUNSEL HAS PROSECUTION
RESPONSIBILITY] for which a serial number has been issued and which have a
searchable record in the PTO's assignment database; or to our knowledge all
inventors on such patent applications are under an obligation to assign all of
their rights in such applications to the Company;, except for the cases listed
on Schedule B [LIST EXCEPTIONS, SUCH AS CO-OWNED CASES ON SCHEDULE B]
c. To our knowledge, the Company has not received any notice of infringement
with respect to any patent, trademark or copyright or any notice of
misappropriation of trade secrets;
d. Based on our knowledge of the Company's processes and the conduct of its
business as described to us by the Company, the Company is not violating any
patent, trademark or copyright or trade secret or other proprietary right of a
third party which we are aware of, or which the Company has brought to our
attention, or which we have reviewed during prosecution of the patent
applications listed on Schedule A; and this firm has no reason to believe that
the Company does not possess or own adequate licenses or other rights to conduct
the business now being conducted by the Company as described in the Prospectus
e. We are not aware of any pending or threatened legal or governmental
proceedings relating to patent rights, copyrights trademark rights, trade
secrets, or other proprietary rights of the Company (other than the prosecution
patent or trademark proceedings themselves); [LIST EXCEPTIONS, SUCH AS
INTERFERENCES, LITIGATIONS, OR OPPOSITIONS IN SCHEDULE C]
f. To the best of our knowledge, the statements under the captions "Risk Factors
- - Patents and Proprietary Rights; Third Party Rights" and "Business -
Intellectual Property", insofar as such matters constitute matters of law or
legal conclusions are accurate and correct in all material respects and fairly
present such matters; and
<PAGE> 32
g. With respect to United States patent, trademark, copyright and trade secret
matters, nothing has come to our attention which would lead us to believe that
the sections of the Offering Memorandum entitled "Risk Factors-- Patents and
Proprietary Rights; Third Party Rights" and "Business-- Intellectual Property,"
as of the date thereof and at any Delivery Date, contain any untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, not misleading.
Very truly yours,
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 11, 2000 included in Amendment No. 2 to the Registration Statement
(Form S-3 No. 333-31908) and related Prospectus of Corixa Corporation for the
registration of 2,587,500 shares of its common stock.
ERNST & YOUNG LLP
Seattle, Washington
March 30, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-3 No. 333-31908) and related
Prospectus of Corixa Corporation for the registration of 2,587,500 shares of its
common stock and to the incorporation by reference therein of our report dated
February 22, 1999, with respect to the financial statements of Anergen, Inc.,
included in Corixa Corporation's Current Report on Form 8-K dated August 9,
1999, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Seattle, Washington
March 30, 2000
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Ribi ImmunoChem Research, Inc.
We consent to the incorporation by reference in Amendment No. 2 of the
registration statement on Form S-3 to be filed on or about March 29, 2000 of
Corixa Corporation of our report dated January 22, 1999, with respect to the
balance sheets of Ribi ImmunoChem Research, Inc. as of December 31, 1998 and
1997, and the related statements of operations, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998, which report appears in the Form 8-Ks of Corixa
Corporation dated August 18, 1999 and October 6, 1999 and to the reference to
our firm under the heading "Experts" in the prospectus.
Billings, Montana KPMG LLP
March 29, 2000
