SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
______________________
Aquila Biopharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3307818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
365 Plantation Street
Worcester, Massachusetts 01605
(508) 797-5777
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
______________________
ATTORNEY JANE V. HAWKES
BOWDITCH & DEWEY, LLP
311 Main Street
Worcester, Massachusetts 01608
(508) 791-3511
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
______________________
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
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. X
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.
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Amount Maximum Maximum Amount Of
Title of Shares To Be Aggregate Aggregate Registration
To Be Registered Registered Price Offering Fee
Per Price(1)
Unit(1)
Common Stock, par 769,000 $5.50 $4,229,500 $1248
value $0.01 per
share
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of
1933, on the basis of the average of the high and low sale prices reported
on the NASDAQ National Market Automated Quotation System on February 13,
1998.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
AQUILA BIOPHARMACEUTICALS, INC.
FORM S-3
REGISTRATION STATEMENT
CROSS-REFERENCE SHEET
Form S-3 Item Location in Prospectus
1. Forepart of Registration Outside Front Cover Page of Prospectus
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Available information; Information
Back Cover Pages of Prospectus Incorporated by Reference; Table of
Contents
3. Summary Information, Risk Prospectus Summary; Risk Factors
Factors and Ratio of Earnings
to Fixed Charges(a)
4. Use of Proceeds Use of Proceeds
5. Determination of Offering *
Price
6. Dilution *
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to *
be Registered
10. Interest of Named Experts and Experts; Legal Matters
Counsel
11. Material Changes Material Changes; Business
12. Incorporation of Certain Information Incorporated by Reference
Information by Reference
13. Disclosure of Commission *
Position on Indemnification for
Securities Act Liability
(a) The Ratio of Earnings to Fixed Charges is not applicable and
is therefore omitted.
*Omitted since the answer is negative or the item is inapplicable.
PROSPECTUS
769,000 SHARES
AQUILA BIOPHARMACEUTICALS, INC.
COMMON STOCK
This prospectus relates to the offer and sale from time to time of up to
769,000 shares (the "Shares") of common stock, $.01 par value ("Common
Stock"), of Aquila Biopharmaceuticals, Inc., a Delaware corporation
("Aquila" or the "Company"), by the selling shareholders named herein (the
"Selling Shareholders"), or by their respective pledgees, donees,
transferees or other successors in interest that receive such Shares as a
gift, partnership distribution or other non-sale related transfer. The
Shares were issued by the Company to the Selling Shareholders on
February 4, 1998 in a private transaction. The Company will receive no
proceeds from the sale of Shares by the Selling Shareholders.
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Shares covered under the Registration Statement of which this
Prospectus is a part may be offered for sale from time to time by or for
the account of the Selling Shareholders or their pledgees, donees,
transferees or other successors in interest, in the open market, on the
NASDAQ National Market or on one or more exchanges on which the Shares are
then listed, in privately negotiated transactions, in an underwritten
offering, in a combination of such methods, or by any other legally
available means, at market prices prevailing at the time of such sale, at
prices related to such prevailing market prices, at negotiated prices or
at fixed prices. The Shares are intended to be sold through one or more
broker-dealers or directly to purchasers. Such broker-dealer may receive
compensation in the form of discounts, concessions or commissions from
Selling Shareholders, their successors in interest and/or the purchasers
of the Shares for whom such broker-dealer may act as agent or to whom they
may sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). The Selling
Shareholders, their successors in interest and/or any broker-dealers
acting in connection with the sale of the Shares hereunder may be deemed
to be underwriters within the meaning of Section 2(11) of the Securities
Act and any commissions or other compensation received by them on the
resale of the Shares as principals may be deemed underwriting compensation
under the Securities Act. See "Selling Shareholders" and "Plan of
Distribution".
The Common Stock of the Company is traded on the NASDAQ National
Market under the symbol "AQLA". On February 13, 1998 the closing price
of the Company's Common Stock as reported on the NASDAQ National Market
was $5.4375.
THE DATE OF THIS PROSPECTUS IS FEBRUARY ___, 1998.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy materials and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy materials and other information filed
by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington DC 20549, and at the following of its Regional
Offices of the Commission: New York Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048; and Midwest Regional Office,
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, IL 60661-
2511; and copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington
DC 20549 at prescribed rates. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission,
including the Company, located at http:\\www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are hereby incorporated by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
2. Quarterly Report on Form 10-Q for the period ended March 31, 1997.
3. Quarterly Report on Form 10-Q for the period ended June 30, 1997.
4. Quarterly Report on Form 10-Q for the period ended September 30, 1997.
In addition, all documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act since the end of
the fiscal year covered by the Annual Report on Form 10-K referred to
above, and prior to the termination of the offering of the Shares, shall
be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents.
The Company will provide without charge to each person (including a
beneficial owner) to whom a copy of this Prospectus is delivered, upon
written or oral request, a copy of any or all of the information
incorporated by reference as a part of this Prospectus (other than
exhibits to such documents unless such exhibits themselves are
specifically incorporated by reference therein). Requests should be
directed to Ann Charlton, Aquila Biopharmaceuticals, Inc., 365 Plantation
Street, Worcester, Massachusetts 01605, telephone number (508) 797-5777.
The Company's principal executive offices are located at 365 Plantation
Street, Worcester, Massachusetts 01605, telephone number (508) 797-5777.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any statement so modified shall not be deemed,
except as so modified, to constitute a part of this Prospectus. Any
statement so superseded shall not be deemed to constitute a part of this
Prospectus.
No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus, in
connection with the offering described herein, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, nor shall there be any sale
of the securities by any person in any jurisdiction in which it is
unlawful for such person to make such offer, solicitation or sale.
Neither the delivery of this Prospectus nor any sale made hereunder shall
under any circumstances create an implication that the information
contained herein is correct as of any time subsequent to the date hereof.
PROSPECTUS SUMMARY
The Company
The Company is developing and commercializing products which modulate
the immune system for use in treating, controlling or preventing certain
infectious diseases and cancers. The Company's proprietary products
include the Quilimmune(TM) human products for pneumococcal infections,
malaria and tick-born diseases and the Quilvax(TM) animal vaccines for bovine
mastitis, canine lyme disease and feline leukemia. These products
incorporate the Company's Stimulon(TM) adjuvants, which are also included in
products under development by the Company's six corporate partners.
The Offering
Common Stock Offered 769,000 shares for the account of
Selling Shareholders
Common Stock Outstanding 5,770,128 shares
as of February 17, 1998
NASDAQ Symbol AQLA
Summary Financial Information
(In thousands, except per share data)
Nine Months
Years Ended Ended
December 31, September 30,
1994 1995 1996 1996 1997
Statement of Operations Data:
Revenues:
Product sales $ 676 $ 591 $ 1,398 $ 713 $1,050
Research and development 4,334 5,137 5,175 4,456 4,331
----- ----- ----- ----- -----
Total revenues 5,010 5,728 6,573 5,169 5,381
Expenses:
Cost of sales 1,318 1,090 1,879 815 785
Research and development 5,068 5,697 4,839 3,842 3,823
General and administrative 7,051 5,455 5,027 3,862 3,579
Loss on impairment of assets 2,880 - - - -
------ ------ ------ ----- -----
Total expenses 16,317 12,242 11,745 8,519 8,187
Other income, net 360 2,162 5,777 5,249 1,534
Income (loss) before
reorganization items,
and income taxes (10,947) (4,352) 605 1,899 (1,272)
Reorganization items ( 869) ( 813) (1,715) (1,522) -
Income taxes 208 - - - ( 21)
-------- ------- ------- ------- -------
Income (loss) from
continuing operations (11,608) (5,165) (1,110) 377 (1,293)
Discontinued operations:
Income (loss) from ops. ( 3,186) 223 1,452 1,701 -
Gain (loss) on disposal ( 7,482) - 7,657 4,629 191
-------- ------ ------ ----- ------
Income (loss) before
extraordinary loss (22,276) (4,942) 7,999 6,707 (1,102)
Extraordinary loss on
reorganization - - (2,040) - -
------- ----- ------ ----- -------
Net income(loss) (22,276) (4,942) 5,959 6,707 (1,102)
Nine Months
Ended
Years Ended December 31, September 30,
1994 1995 1996 1996 1997
Income (loss) per share:
Continuing operations $ (3.40) $(1.50) $(0.29) $0.11 $(0.26)
Discontinued operations (3.12) .06 2.40 1.79 0.04
Extraordinary loss on
reorganization - - (0.54) - -
------ ------ ------ ---- ------
Net income (loss) $(6.52) $(1.44) $ 1.57 $1.90 $(0.22)
Weighted average number
of common shares outstanding 3,416 3,442 3,803 3,533 5,002
The weighted average shares outstanding has been adjusted to reflect a 7.6
to 1 stock exchange on October 21, 1996
Balance Sheet data September 30, 1997
(In thousands) As (1)
Actual Adjusted
Cash and cash equivalents $ 4,480 $ 8,041
Working capital 15,135 18,696
Total assets 23,574 27,135
Deferred revenue and long term debt 4,181 4,181
Total Shareholders Equity $15,833 $19,394
(1) As adjusted to reflect the sale of 769,000 shares of the Company's
Common Stock at a price of $4.63.
FORWARD LOOKING STATEMENTS
This Prospectus and the documents incorporated herein contain forward
looking statements which involve a number of risks and uncertainties.
Actual results may differ materially from those projected by the Company.
The following factors, among others, could effect the Company's actual
results: general economic conditions; risks in product and technology
development; delays and difficulties in the regulatory approval process;
difficulties in obtaining raw materials and supplies for the Company's
products; failure of corporate partners to commercialize successfully
products using the Company's technology; competition from other companies;
the costs of acquiring additional technology; failure to obtain the
funding necessary for the Company's planned activities; and other risks
and uncertainties identified in this Prospectus and the Company's Security
and Exchange Commission filings and the exhibits thereto, including those
set forth under "Risk Factors" below.
RISK FACTORS
Investment in the Shares offered hereby involves a high degree of risk.
Accordingly, prospective investors should carefully consider the following
factors, among others, relating to the Company.
HISTORY OF OPERATING LOSSES
The Company and its predecessor, Cambridge Biotech Corporation,
experienced significant operating losses in 1995 and 1996. The Company
expects to incur additional operating losses over the next several years
and expects cumulative losses to increase as the Company's research and
development and clinical trial efforts expand. See "Business - Aquila's
Strategy".
The Company's ability to achieve profitable operations is dependent in
large part upon obtaining regulatory approvals of its products, entering
into agreements for product development and commercialization, expanding
manufacturing capacity and developing marketing capabilities, either
independently or with a corporate partner. There can be no assurance that
the Company will ever achieve a profitable level of operations.
UNCERTAINTY OF PRODUCT DEVELOPMENT AND SUCCESSFUL COMMERCIALIZATION
The Company's future success is largely dependent upon its ability to
develop, manufacture and market advanced new products. To date, the
Company has commercialized only one product, Quilvax-FeLV(TM), its feline
leukemia vaccine. The products currently under development will require
significant additional research and development efforts, including
extensive clinical testing and regulatory approval. Each of the steps
involves a significant period of time and significant expense. Once
approved, products must be manufactured in commercial quantities and
marketed successfully. The success of the Company's products also heavily
depends on the choice of antigen, which is frequently made by the
Company's collaborators. Products being developed by collaborators and
licensees incorporating the Company's Stimulon(TM) adjuvants have advanced to
human clinical trials. The Company has two animal products in clinical
trials, one human product in Phase I clinical trials and one human product
which has proceeded to Phase II trials. See "Business - Aquila's Product
Development Programs" and "Business - Corporate Partner Programs".
The Company's potential products will be subject to the risks of failure
inherent in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that the Company's
technical approach will not be successful; that any or all potential
products will not be found to be safe and effective; that the products may
fail to meet applicable regulatory standards or receive necessary
regulatory clearances; that the potential products, even if safe and
effective, will be difficult to develop into commercially viable products,
difficult to manufacture on a large scale, or uneconomical to market; that
proprietary rights of third parties will preclude the Company from
marketing such products; or that third parties will market superior or
equivalent products.
As results of particular preclinical studies and clinical trials are
received by the Company, the Company may abandon projects which it might
otherwise have believed to be promising, some of which may be described in
this Prospectus. There can be no assurance that the Company's research
and development activities will result in any commercially viable
products.
FUTURE FUNDING NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company will need to raise substantial additional capital in order
to continue its research and development programs, conduct preclinical and
clinical testing of its product candidates and conduct full scale
manufacturing of any pharmaceutical products that may be developed. The
Company's capital requirements will depend on numerous factors, including
but not limited to, the progress of its research and development programs,
the progress of preclinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other
intellectual property rights, competing technological and market
developments, changes in the Company's existing research relationships,
the ability of the Company to establish collaborative arrangements, the
development of commercialization activities and arrangements, and the
purchase of additional facilities and capital equipment. While the
Company receives license fees, research funding by licensees and
collaborators, product sales revenue, and interest earned from
investments, these revenues, in the aggregate, are not likely to be
sufficient to meet the Company's operating expenses and capital
requirements prior to commercialization of its products. In addition,
there can be no assurance that changes in the Company's research and
development plans or other events affecting its operations will not result
in accelerated or unexpected expenditures or that the expected revenues
will materialize, or that financing will be available on acceptable terms.
The Company believes that its available cash, cash equivalents and short-
term and long-term investments and funds from license agreements and
product sales should be sufficient to meet its cash requirements for at
least the next two years. Continued operations of the Company beyond such
period will be dependent upon the Company's ability to generate
substantial operating revenue or procure additional funding. There can be
no assurance that the Company's products will prove successful or generate
significant sales or earnings in the future or that, if needed, the
Company will be able to obtain future funding on reasonable terms, if at
all, or at the appropriate time for its planned activities.
If adequate funds are not available, the Company may be required to
delay, reduce the scope of or eliminate one or more of its research or
development programs; to obtain funds through arrangements with
collaborative partners or others that may require the Company to
relinquish rights to certain of its technologies, product candidates or
products that the Company would otherwise seek to develop or commercialize
itself; or to license the rights to such products on terms that are less
favorable to the Company than might otherwise be available. If the
Company raises additional funds by issuing equity securities, dilution to
shareholders may result and such investors could have rights superior to
existing shareholders.
RISKS ASSOCIATED WITH COLLABORATIVE ARRANGEMENTS
The Company's commercialization strategy relies in part on license
agreements permitting certain companies to use the Stimulon(TM) adjuvant.
The Company has entered into various arrangements with corporate,
government and academic collaborators, licensors, licensees and others.
The success of these outside parties in performing their responsibilities
may affect the timing and amount of license fee payments, royalties, and
revenue from product sales. There can be no assurance that the Company
will be able to establish additional acceptable collaborative arrangements
or license agreements should the Company deem this necessary to develop
and commercialize its potential pharmaceutical products, or that existing
or future collaborative arrangements or license agreements will be
successful. See "Business - Corporate Partner Programs".
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend, in part, upon its ability to develop
patentable products and technologies and obtain patent protection for the
proposed products and technologies both in the United States and Europe.
The Company is not aware of any issued third party patents which would
interfere with development of any of its products, but there can be no
assurance that the Company will not infringe on existing or future patents
owned by others, that third parties will not bring suit against the
Company for infringement of such patents, that the Company could obtain
necessary or desirable licenses on acceptable terms, or that the Company
could design around such patents. CSL International ACN ("CSL") has a
patent application pending in Europe, which, if issued, may dominate QS-21
for use in certain formulations. CSL and Seed Capital, Inc. have filed an
opposition against the issuance of the Company's QS-21 patent in Europe.
See "Business - Patents and Proprietary Rights." Any litigation
instituted by third party patent holders could expose the Company to
significant expense and the risk of adverse determination. There can be
no assurance that patent applications owned or licensed by the Company
will issue as patents, that patent protection will be secured for any
particular technology, or that, if issued, such patents will be valid or
that they will provide the Company with meaningful protection against
competitors with a competitive advantage. There can be no assurance that
the patents will not be challenged or designed around by others.
Proceedings brought against the Company's patents could expose the Company
to significant expense and the risk of adverse determinations.
The Company relies on trade secrets and other unpatented proprietary
technology. See "Business - Patents and Proprietary Rights". There can
be no assurances that the Company will be able to meaningfully protect its
rights to such unpatented technology or that others will not independently
develop substantially equivalent technology or otherwise gain access to
the technology. The Company seeks to protect its trade secrets and
proprietary know-how, in part, through confidentiality agreements with its
employees, consultants, advisors and collaborators. There can be no
assurance that these agreements will not be violated by the other parties,
that the Company will have adequate remedies for any breach, or that its
trade secrets will not otherwise become known or be independently
developed by competitors.
COMPETITION AND TECHNOLOGICAL CHANGE
The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. Competitors of the Company's business
in the United States and abroad are numerous. They include, among others,
major pharmaceutical companies, specialized biotechnology firms,
universities and other research institutions. The Company is aware of
certain programs and products under development by others which may
compete with its programs and products, including adjuvants under
development by Ribi ImmunoChem Research, Inc., Corixa Corporation, Virus
Research Institute and Chiron Corporation. There can be no assurance that
competitors will not succeed in developing technologies and products that
are more effective than any which are being developed by the Company or
which would render the Company's technology and products obsolete and
noncompetitive. Many of these competitors have substantially greater
financial and technical resources and production and marketing
capabilities than the Company. In addition, some of the Company's
competitors have greater experience than the Company in conducting
clinical trials of pharmaceutical products and obtaining approvals from
the United States Food and Drug Administration ("FDA"), the United States
Department of Agriculture ("USDA") and other regulatory agencies of
products for use in healthcare. Accordingly, its competitors may succeed
in obtaining FDA or USDA approval for products more rapidly than the
Company. There can be no assurance that the products under development
will be able to compete successfully with existing products or products
under development by other companies, universities and other institutions,
or that they will attain regulatory approval in the United States or
elsewhere. If the Company commences significant commercial sales of its
products, it will also be competing with respect to manufacturing and
marketing capabilities, areas in which it has limited or no experience. A
significant amount of research in the field is also being carried out at
academic and government institutions. These institutions are becoming
increasingly aware of the commercial value of their findings and are
becoming more aggressive in pursuing patent protection and negotiating
licensing arrangements to collect royalties for use of technology that
they have developed. These institutions may also market competitive
commercial products on their own or in collaboration with competitors and
will compete with the Company in recruiting highly qualified scientific
personnel. See "Business - Competition".
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The Company's research and development activities, preclinical studies
and clinical testing, and ultimately the production and marketing of its
products, are subject to extensive regulation by numerous governmental
authorities in the United States, including the FDA and the USDA. Similar
regulatory requirements exist in other countries where the Company will
seek to test and market its products. The rigorous clinical testing
requirements and regulatory approval process of the FDA, the USDA and
foreign regulatory authorities can take a number of years and require the
expenditure of substantial resources. The Company has limited experience
in conducting and managing the clinical testing necessary to obtain
government approvals. There can be no assurance that the Company will be
granted the necessary approvals for clinical testing or for the
manufacturing and marketing of any of its products on a timely basis, if
at all. See "Business - Government Regulation".
Additional government regulation may be established that could prevent
or delay regulatory approval of the Company's product candidates. Delays
in obtaining regulatory approvals would adversely affect the marketing of
any products developed by the Company and its ability to receive product
revenues or royalties. If regulatory approval of a potential product is
granted, such approval may include significant limitations on the
indicated uses for which such product may be marketed.
Even if initial regulatory approvals for the Company's product
candidates are obtained, the Company, its products and its manufacturing
facilities are subject to continual review and periodic inspection. The
regulatory standards for manufacturing are applied stringently by the FDA.
Discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer or
facility, including warning letters, fines, suspensions of regulatory
approvals, product recalls, operating restrictions, delays in obtaining
new product approvals, withdrawal of the product from the market and
criminal prosecution. Other violations of FDA requirements can result in
similar penalties.
The Company will be subject to numerous environmental, health and
workplace safety laws and regulations, including those governing
laboratory procedures, exposure to blood-borne pathogens, and the handling
of biohazardous materials. Any violation of, and the cost of compliance
with, these laws and regulations could adversely impact the Company's
operations.
MANUFACTURING LIMITATIONS
The Company currently has limited capability to manufacture products for
commercial use. See "Business - Manufacturing and Scale-Up". The Company
may need to construct additional manufacturing capacities but there can be
no assurance that the Company will have the resources to do so. The
Company may choose to contract for manufacturing services and may
encounter delays or difficulties in establishing relationships with
manufacturers to produce, package and distribute its finished products and
clinical trials, market introduction and subsequent sales of such products
would be adversely affected. Moreover, contract manufacturers must
operate in compliance with Good Manufacturing Practices required by the
FDA and USDA. The Company's potential dependence upon third parties for
the manufacture of certain of its products may adversely affect its profit
margins and its ability to develop and deliver such products on a timely
and competitive basis.
Manufacturing facilities and processes must pass a pre-approval
inspection before the FDA or USDA will allow the marketing of products.
Should the Company determine to manufacture additional products
independently, the Company would be subject to the regulatory requirements
described above and would require substantial additional capital. While
the Company's Stimulon(TM) adjuvants are currently regulated by the FDA as
constituent materials used in drug preparation, the FDA may seek to
subject these products to more extensive regulation or the Company's
customers may seek to establish higher standards and controls. In
addition, there can be no assurance that the Company will be able to
continue to manufacture its products successfully and in a cost effective
manner or establish manufacturing capacity for new products. See
"Business - Government Regulation".
LIMITED SALES AND MARKETING EXPERIENCE
The Company has little or no experience in sales, marketing and
distribution of pharmaceutical products. The Company must either
establish marketing arrangements with other companies with distribution
organizations or establish a direct sales capability. If in the future
the Company decides to market its own products, it will need to develop a
marketing and sales force with technical expertise and distribution
capability. To the extent the Company enters into marketing or
distribution arrangements, any revenues received by it will depend upon
the efforts of third parties and there can be no assurance that such
efforts will be successful. The Company may retain the right to market
some of its products directly. There can be no assurance that the Company
will be able to establish sales and distribution capabilities or that it
or its collaborators will be successful in gaining market acceptance for
any products that may be developed by the Company.
DEPENDENCE ON RETENTION AND ATTRACTION OF KEY EMPLOYEES
In order to pursue its product development and marketing plans and to
exploit its scientific expertise, the Company must retain existing
management and will need to hire additional qualified management and
operating personnel. Recruiting and retaining qualified scientific
personnel to perform research and development work is critical to the
Company's success. The loss of the services of a combination of these
people might significantly delay the achievement of development objectives
and could have a material adverse effect on its business. The Company
does not maintain any key person life insurance policies. The Company
will face competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and other
research institutions. The failure to attract and retain such personnel
could adversely affect its business.
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
The Company is exposed to potential liability risks that are inherent in
the testing, manufacturing and marketing of health care products. The use
of its product candidates in clinical trials may expose it to product
liability claims and possible adverse publicity. These risks also exist
with respect to the Company's product candidates that receive regulatory
approval for commercial sale. The Company currently has limited product
liability coverage for the clinical research use of its product candidates
such as its Stimulon(TM) adjuvants and Quilvax(TM) and Quilimmune(TM) products.
The Company maintains product liability insurance for the commercial sale
of its FeLV vaccine and the Company intends to obtain such coverage for
new products if and when new products are commercialized. However, there
can be no assurance that the Company will be able to obtain additional
insurance coverage at acceptable costs, if at all, and that such insurance
will provide adequate coverage against claims asserted, or that a product
liability claim would not materially adversely affect its business or
financial condition.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of
hazardous materials and certain waste products. The Company's research
and development and manufacturing processes involve the controlled use of
hazardous, controlled and radioactive materials. Although the Company
maintains safety procedures for handling and disposing of such materials
that it believes comply with the standards prescribed by such laws and
regulations, the risk of accidental contamination, injury, or negligent
disposal by third party disposal firms cannot be completely eliminated.
If such an event occurs, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the
Company. Although the Company believes that it is in compliance in all
material respects with applicable environmental laws and regulations,
there can be no assurance that the Company will not be required to incur
significant costs to comply with environmental laws and regulations in the
future, nor that the operations, business or assets of the Company will
not be materially or adversely affected by current or future environmental
laws or regulations. See "Business - Government Regulation".
UNCERTAINTY RELATED TO PRICING OF HEALTH CARE PRODUCTS AND REIMBURSEMENT
In both domestic and foreign markets, sales of the Company's or its
corporate partners' products, if any, will depend in part on the
availability of reimbursement from third-party payers such as government
health administration authorities, private health insurers, health
maintenance organizations, pharmacy benefit management companies and other
organizations. Both the federal and state governments in the United
States and foreign governments continue to propose and pass legislation
designed to contain or reduce the cost of health care, and regulations
affecting the pricing of pharmaceuticals and other medical products may
change or be adopted before any of the Company's or its corporate
partners' products are approved for marketing. Cost control initiatives
could decrease the price that the Company receives for any product it or
any of its corporate partners may develop in the future and may have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, third-party payers are increasingly
challenging the price and cost-effectiveness of medical products and
services. Significant uncertainty exists as to the reimbursement status
of newly approved health care products, including pharmaceuticals. There
can be no assurance that the Company's or its corporate partners'
products, if any, will be considered cost effective or that adequate third-
party reimbursement will be available to enable the Company or its
corporate partners to maintain price levels sufficient to realize a return
on their investment. In any such event, the Company may be materially
adversely affected.
VOLATILITY OF STOCK PRICE; LIMITED TRADING VOLUME
The market for the Common Stock has been volatile. Factors such as
announcements by the Company or its competitors of technological
innovations, new commercial products, major financing agreements, or
patent or proprietary right developments, and public concern as to the
safety of biotechnology, as well as period to period fluctuations in
financial results, may have a significant impact on the market price of
the Common Stock.
There is limited trading volume in the Common Stock. There is no
assurance that greater trading volume or a more active market for the
Common Stock will develop.
SHARES ELIGIBLE FOR FUTURE SALE
As of February 17, 1998, approximately 5,733,402 shares of the Common
Stock may be freely traded by public shareholders who are not affiliates
of the Company. The Company's officers and directors and members of their
immediate families hold approximately 36,726 shares. As of February 17,
1998, approximately 856,655 additional shares of the Common Stock will be
issuable upon the exercise of outstanding options, of which 469,488 are
currently exercisable, with exercise prices ranging from $2.80 to $6.69
per share.
DIVIDENDS
The Company has never paid any cash dividends on the Common Stock and
does not anticipate paying cash dividends in the foreseeable future. The
Company currently intends to retain earnings, if any, for the development
of its business.
USE OF PROCEEDS
All the Shares offered hereby are being offered for the account of the
Selling Shareholders. Accordingly, the Company will receive no proceeds
from the sale of the Shares by the Selling Shareholders.
BUSINESS
The Company creates and commercializes products which modulate the immune
system to control, prevent or treat infectious diseases and cancers.
Aquila's technology and product development programs are based on
enhancement of the immune system using the Stimulon(TM) family of adjuvants.
Advances in biotechnology and immunology have enabled scientists to
develop a new generation of products which contain disease specific agents
and components which specifically modulate the immune system so that an
effective immune response is achieved. Traditional vaccines can prevent
infection through antibody based immune responses. While antibodies alone
can be effective in preventing or eliminating pathogen infection in
certain diseases, scientists now recognize that the cell mediated
response, where cytotoxic T lymphocytes ("CTL") are activated, is probably
necessary to eliminate intracellular pathogens. By stimulating a CTL
response it may be possible to develop therapeutic products to treat
diseases involving herpes, hepatitis and HIV infections or cancers.
The Stimulon(TM) family of adjuvants have been shown to enhance the quality
and the quantity of the immune response to a variety of antigens, both in
pre-clinical studies and in a number of human clinical trials. Aquila
believes that the Stimulon(TM) adjuvants will allow scientists to design
products which can activate specific T cell responses and result in a new
highly effective class of vaccines for both therapeutic and prophylactic
applications. The market potential of such products is high since this
new understanding of the immune system will allow expansion of the market
to address new areas and the development of safer, more effective
substitutions for older products. New applications include diseases
involving poorly immunogenic antigens such as polysaccharides or
populations, such as the elderly, whose immune systems have deteriorated
so that they do not respond to traditional approaches. New therapeutic
products for treating people with diseases such as chronic hepatitis
infection, malaria, acquired immune deficiency syndrome ("AIDS") or
various cancers where a CTL response is thought to be essential may be
possible using the Stimulon(TM) adjuvants.
Aquila's product development programs include the Quilimmune(TM) human health
products and the Quilvax(TM) products for animal health. Phase I clinical
trials of the Company's lead product, Quilimmune-P(TM) for preventing
S. pneumonia infections in people over the age of 65 years, have been
completed. Phase II trials have been initiated. Aquila's lead animal
health product, Quilvax-M(TM) for controlling bovine mastitis has undergone
extensive testing in bovine immunogenicity and challenge trials. The
Company plans to initiate formal USDA licensing trials shortly. A third
potential product, to help control malaria infections incorporating the
antigen SPf66 and QS-21 is in Phase I clinical trials. The Company's
corporate partners are SmithKline Beecham p.l.c., Wyeth-Lederle Vaccines
and Pediatrics, a business group of Wyeth-Ayerst International, Inc., a
subsidiary of American Home Products Corporation, Pasteur Merieux
Connaught, Progenics Pharmaceuticals, Inc., VaxGen, Inc., Virbac S.A. and
NABI.
SCIENTIFIC BACKGROUND
The human immune system is made up of several different cell types
including antigen presenting cells ("APCs"), B cells and T cells. In
general, the role of APCs is to process protein antigens from pathogens
such as viruses, bacteria or parasites into smaller fragments and to
present the resulting peptides to T-cells. Antigens can be processed by
APC's through one of two pathways, the Class I or Class II pathway.
Peptide fragments from antigens processed through the Class I pathway are
displayed on the surface of the APC by an immune system protein called the
MHC Class I protein and typically result in a cellular immune response.
Those processed by the Class II pathway are displayed by MHC Class II
proteins and typically result in a humoral response. When a humoral
response is stimulated, B cells are activated by a specific type of T
cell, called a helper T cell, to produce antibodies which are specific for
the antigen encountered. Two populations of T-helper cells have been
identified, Th-1 and Th-2. T-helper cells secrete biologically active
molecules called cytokines, which mediate the effects of immune system
cells. Th-1 and Th-2 T-helper cells secrete different types of cytokines
and promote the synthesis of different classes of antibodies. The
antibodies produced by B cells will bind to and can neutralize the
pathogens - bacteria, parasites and viruses - which have invaded the body.
In the cellular response, a second type of T cell, called a cytotoxic T
lymphocyte (CTL) is activated. These cells recognize and kill cells
containing pathogens. T-helper cells and the cytokines they produce are
also important in generating a CTL response. The specific activation of
cytotoxic T cells, called a CTL response, is thought to be very important
in products designed to treat or prevent diseases such as herpes,
hepatitis, HIV and malaria. It is also thought to be critical for many
immunotherapeutic approaches to the treatment of cancer.
Traditional approaches for developing immune protection from infection in
humans involved the use of animal viruses, or the use of attenuated or
killed pathogens as vaccines. For example, the injection of cowpox virus
protects humans against smallpox infection. Vaccines to protect against
polio have been developed using either attenuated or killed polio viruses.
While these approaches are effective, there is a small but significant
risk of disease developing in people receiving these types of vaccines.
With the advent of recombinant technology, scientists realized that safer
products could be created, using specific components of an organism rather
than the whole organism. For example, the genes for the surface antigens
from a pathogen can be cloned using genetic engineering and used to make
recombinant proteins. The recombinant proteins are then used in a
vaccine, to make a so called sub-unit vaccine. Other specific components
have been used to stimulate disease specific responses, including proteins
isolated from the pathogen itself, synthetic peptides, carbohydrates and
lipoproteins.
When these newer technologies were first used, it was found that while a
pathogen specific immune response was stimulated, often this response was
not of the right quality or strong enough to provide protection from
infection or disease. As a result, immune modulation technologies have
been developed that are coupled with pathogen specific antigen approaches.
These methods for modulating the immune system include conjugation of the
antigen to a carrier protein, the use of viral or bacterial vectors to
carry specific genes, the use of cytokines or lymphokines to stimulate the
immune system and the use of adjuvants. Carrier proteins such as keyhole
limpet hemocyanin (KLH) or the toxoids from diphtheria, tetanus and
cholera have been used effectively. An example of this type of vaccine is
the Haemophilus influenzae type b conjugate vaccine, such as HibTITER(TM)
sold by Wyeth-Lederle Vaccines and Pediatrics, where the antigen is
conjugated to a diphtheria protein. Viral vectors such as vaccinia,
canary pox, or the bacteria BCG are under evaluation as carriers of
disease specific genes to determine whether they stimulate a protective
immune response. Adjuvants that have been used or which are in
development include aluminum hydroxide (Alum); MF59, a product of Chiron
Corporation and its affiliates ("Chiron"); monophosphoryl lipid A (MPL), a
product of Ribi ImmunoChem Research, Inc. ("Ribi"); LeIF, a product of
Corixa Corporation ("Corixa"); and saponins from Quillaja saponaria such
as QS-21. These adjuvant technologies are not all the same, affecting the
humoral and cell mediated pathways differently. Some approaches result in
general immune stimulation. Others are more specific. Aquila is
developing the Stimulon(TM) family of saponin adjuvants (QS-21, QS-7) as an
immune modulation technology. The Company uses biotechnology approaches
for the creation of specific antigens, and combines these with the
Company's proprietary Stimulon(TM) adjuvants to develop safe and effective
products.
With the advent of new technology, changes are occurring in the market for
immune modulating agents. Because development of these new products
involves a high rate of technological innovation, it is possible to
protect new products through patenting, which can result in increased
profit margins. While product liability costs are high for traditional
vaccines (because of the safety concerns), product liability costs for
products using the new technology are comparable to those for therapeutic
products. Manufacturing costs can be lower for new immune modulation
products than for other therapeutic products. In the manufacturing of
recombinant therapeutic enzymes it is often difficult to retain the
enzymatic activity, and this can limit the choice of manufacturing
methods. The limitations are not so stringent for products used to
modulate the immune system. Historically, vaccines were generally low
priced because the products were used to prevent disease in healthy people
(prophylaxis) and, due to the lack of product differentiation, companies
generally competed on price. However, in today's approaches to disease
management and with the new proprietary innovations, immune stimulation
products have been recognized as very effective contributors to
controlling the total medical costs of certain diseases. Therapeutic
products involving immune stimulation are in development for a number of
intractable diseases, as are products for populations beyond infancy -
young adults and the elderly.
The Use of Adjuvants: Technology to Enhance the Immune System
Adjuvants are agents which are added to a product to improve or adjust the
immune response. Alum is the only adjuvant currently used in human
vaccines licensed by the FDA. This adjuvant probably acts by a depot
effect, which means that the addition of alum to a vaccine causes the
antigen to remain at the site of injection for a longer period of time,
which seems to increase the humoral immune response. Another adjuvant
under development by Ribi is a mixture of lipopolysaccharides derived from
bacterial cell walls, and is called MPL. Its use can increase the level
of antibodies that are produced in response to an antigen, but additional
components are often required to stimulate a significant CTL response.
Chiron is developing an adjuvant called MF59 which is an emulsion of three
lipids and water. It is a general, broad immune stimulant which will
activate the immune system in the absence of an antigen. Oil/water
emulsions have been used in older vaccines and also act by a depot effect.
Corixa is developing LeIF, a protein produced by the parasite Leishmania,
which is believed to stimulate certain APCs. Aquila's Stimulon(TM) family of
adjuvants, QS-21 and QS-7, are purified, defined molecules, isolated from
natural sources. They stimulate antigen specific responses and have been
shown to promote both antibody and CTL immune responses in animals.
AQUILA'S CORE TECHNOLOGY
Aquila and its corporate partners are developing new products based on two
core technologies: (1) the Stimulon(TM) family of adjuvants that
specifically enhance antibody and CTL responses; and (2) proprietary
antigens that are specific for the target disease.
The Stimulon(TM) Family of Adjuvants
QS-21 is the lead Stimulon(TM) adjuvant. It is a natural product, purified
from the bark of a tree which grows in South America, called Quillaja
saponaria. Up to 10% of the bark from Quillaja saponaria is composed of
saponins of which QS-21 is typically one of the more prominent. The bulk
bark extract is available in the United States. The Company believes QS-
21 is well-suited to pharmaceutical development and formulation because it
has good stability as a dried powder (at least 3 years), is water soluble,
and, when rehydrated, is a clear liquid that mixes easily with other
vaccine components. QS-21 is compatible with Alum and microparticles
which are used in many experimental product formulations. QS-21 is well-
characterized with a known molecular structure - distinguishing it from
competing adjuvant candidates, which are typically emulsions or
biologicals. Because QS-21 is currently regulated by the FDA as a
"constituent material" used in drug preparation, the FDA does not require
licensure of facilities used for its manufacture. A second Stimulon(TM)
molecule, QS-7, which has a slightly different safety and activity
profile, is in development. Patents have issued to Aquila with
composition of matter claims covering QS-7 and QS-21, as well as two other
identified saponins, QS-17 and QS-18. The Company has also been issued a
patent for chemically modified saponins. All patents include the use of
all of these molecules as adjuvants. See "Patents and Proprietary Rights"
and "Risk Factors".
The use of Stimulon(TM) adjuvants improves the quality of the immune
response. Addition of QS-21 to antigens will generally broaden the type
of antibody produced and stimulate cell mediated responses. The quality
of these responses is important for the development of effective products.
QS-21 also produces a strong quantitative response; that is, higher
antibody levels are achieved. It is potent and active at microgram doses.
QS-21 increases the titer, or amount, of antibodies produced by the immune
system in response to vaccination with many types of antigens, including
recombinant proteins derived from viruses and bacteria and free
polysaccharide antigens from bacterial pathogens. An unusual property of
QS-21 not shared by other adjuvants is its ability both to increase
significantly the antibody response to free polysaccharide antigens and to
boost the titer further with a subsequent vaccination.
QS-21 broadens the antibody profile by promoting both Th-1 and Th-2
dependent immune responses. The type of protective immunity elicited by
an infection with a virus or bacterium typically includes antibodies of
several isotypes (also called classes and subclasses). Some of these
isotypes can be more important than others in mediating protection against
viral or bacterial pathogens. Vaccination with a recombinant antigen
typically stimulates only a few isotypes. Some adjuvants, such as Alum,
also only stimulate a narrow range of antibody isotypes. Hence, alum may
stimulate a high quantity, but a lower quality, antibody. In contrast, QS-
21 stimulates high quantities of a broad range of antibody isotypes,
enabling the antigen-induced antibody response to resemble natural
protective immune responses.
QS-21 also stimulates cell-mediated immune responses and induces the
production of cytotoxic T-lymphocytes. The CTL response is a critical
means of natural defense against viral infections and, is believed to
eliminate abnormal cells that might otherwise develop into cancer. Until
recently, it was generally thought that recombinant antigens could not be
used to elicit CTL responses. Alum and simple oil/water emulsions
typically fail to induce CTL responses. However, Company scientists
discovered that the simple addition of QS-21 to these antigens stimulates
the production of a CTL response to the recombinant antigens in animal
studies. Other investigators have also reported that CTL responses
induced by recombinant vaccines adjuvanted with QS-21 can mimic the
protective CTL responses induced by viral infection.
The Company believes that the performance of QS-21 will vary depending
upon the nature of the antigen and the target population. Initial human
studies conducted by the Company's licensees and collaborators have
focused on proving the safety of QS-21 and experimenting with different
formulations and dose levels. Aquila and its collaborators have completed
24 studies to date; an additional 24 studies are underway and over 1300
subjects have received QS-21 in various different formulations. These
studies have shown that the addition of QS-21 to product formulations
improves the immune response to certain antigens, as evidenced by
increased antibody titer. No serious adverse events attributed to QS-21
have occurred thus far in the clinical studies. Some local reactogenicity
which is thought to be due to the enhanced immune response and some pain
on injection have been seen in certain vaccine formulations. The Company
has recently completed initial human clinical trials of a new formulation
of QS-21 which it believes will reduce the pain on injection seen in these
particular vaccine formulations.
Disease Specific Antigens
Aquila's ability to develop and produce proprietary disease specific
antigens allows it to develop products targeted at specific applications
and populations. Company scientists have scientific expertise in: (1)
recombinant DNA cloning methods; (2) mammalian, insect and bacterial cell
expression; (3) extraction and purification of compounds from natural
sources and (4) carbohydrate and polysaccharide production. Furthermore,
Company scientists have demonstrated their expertise with a variety of
antigens from both viral and bacterial pathogens including those that
require high level biocontainment (i.e. BL-3). These antigens include the
envelope protein from feline leukemia virus, two outer surface proteins
from Borellia burgdorferi, fibronectin binding proteins from
Stapholococcal aureus, and a variety of cell surface proteins from
granulocytic Ehrlichia.
The typical development pathway for a disease specific antigen includes
antigen identification, preparation of research quantities of the antigen,
demonstration of a biological effect of a product containing the antigen
and development of commercial scale antigen production procedures. These
developmental efforts can include those primarily accomplished within the
Company or technology licensed by the Company from outside sources, or a
combination of both approaches. This pathway has been completed for the
feline leukemia virus and B. burgdorferi antigens, is nearing completion
for the Staphylococcus aureus ("S. aureus") antigen and is at an early
antigen identification stage for those from Ehrlichia. The Company has
research ongoing on the production of S. pneumonia polysaccharide antigens
by fermentation and purification.
The Company attempts to protect its antigen technology either through
maintenance of trade secrets or filing of patent applications. U.S.
patents have been issued covering the Company's FeLV(TM) and S. aureus
antigen technology as well as its baculovirus expression system. In
addition, patents have been filed which address antigens from B.
burgdorferi and Ehrlichia. However, there can be no assurance that
patents will issue from the patent applications or that if issued such
patents will not be challenged or that the rights granted under any issued
patents will provide adequate proprietary protection. In certain cases
the Company has licensed proprietary technology covering specific antigens
from third parties. See "Patents and Proprietary Information," and "Risk
Factors".
AQUILA'S STRATEGY
Aquila's objective is to create and commercialize products which modulate
the immune system to prevent, control or treat infectious diseases and
cancers. The Company's strategy is to exploit its expertise in adjuvant
and antigen research, to create products and develop them through FDA or
USDA licensure, to support its corporate partner's product development
programs, to develop its manufacturing capacity, and to in-license and
develop related technology.
Exploit Expertise in Adjuvant and Antigen Research
Aquila has developed unique expertise in understanding the role of
adjuvants in stimulating and tuning the immune response to specific
antigens to allow the development of safe and effective therapeutic and
prophylactic products. The Company intends to continue to integrate its
proprietary core technologies and to identify targeted applications of its
technology. In addition, the Company plans to broaden its expertise in
research and development involving different antigens including
recombinant proteins, peptides, polysaccharides and other classes of
antigenic molecules. Aquila's strategy is to acquire related products and
technologies to supplement its scientific expertise, its capabilities and
its product portfolio.
Create and Develop its Own Products
Aquila has established a large number of corporate partnerships and a
significant number of products are being developed through these
partnerships. However, Aquila believes that it can develop and retain
significant value through its own product development efforts. The
Company has three products in clinical development: (i) Quilimmune-P(TM) for
preventing pneumococcal infections in the elderly for which Phase I trials
have been completed and Phase II trials commenced recently; (ii) Quilvax-
M(TM) to control bovine mastitis for which immunogenicity and challenge
trials have been completed; and (iii) Quilimmune-M(TM) for controlling
malaria, which is in Phase I trials. Aquila has research ongoing with
other potential adjuvants and on the discovery and development of antigens
for tick borne diseases. The Company has completed the development and
licensure of one product, Quilvax-FeLV(TM) for preventing leukemia in cats.
See "Aquila's Product Development Programs".
Aquila has a large number of academic collaborations ongoing involving
other antigens. A number of these involve cancer vaccines. In certain
cases the Company has options to license related technology should it wish
to accelerate the development of these products. The Company intends to
develop human products primarily but will exploit unique, significant
product opportunities in animal health.
Support Corporate Partners Programs
Aquila has entered into collaboration agreements with SmithKline Beecham,
p.l.c., Pasteur Merieux Connaught, Wyeth-Lederle Vaccines and Pediatrics,
VaxGen, Inc. NABI and Progenics Pharmaceuticals, Inc. as well as a number
of other biotechnology companies. Aquila intends to leverage these
partnerships to speed discovery and development of certain products which
the Company does not have the resources or skills to develop. These
collaborations allow the Company to focus its own efforts on products
which have different markets than those of interest to large
pharmaceutical companies. The Company has a number of potential licensing
discussions underway and intends to continue to selectively license its
technology. See "Corporate Partner Programs".
Continue Developing Manufacturing Capacity
Aquila has retained rights to the manufacture of QS-21 on a worldwide
basis in all of its licensing agreements, and has been producing QS-21 for
clinical trials for all of its partners and its product programs. In
addition, the Company operates a small manufacturing facility to supply
FeLV antigens and vaccine to its corporate partner Virbac S.A. Aquila has
produced commercial scale quantities of its canine lyme product and has
the capacity to produce specific commercial requirements of its Quilvax-M(TM)
product for bovine mastitis. Aquila intends to continue to develop
manufacturing expertise and capacity to allow it to retain value from the
products which it develops.
In-license Related Technology
Aquila has been and will continue to be opportunistic in licensing in
products and technology related to immune modulation to supplement its
product pipeline. In addition to expanding the product portfolio, this
strategy will allow the Company to capitalize on newly developed
technologies which are synergistic with the Company's existing technology
base.
AQUILAS PRODUCT DEVELOPMENT PROGRAMS
Aquila's strategy is to develop products itself and in partnership with
other companies. The Company has the following six products in development
or commercialized.
Quilimmune(TM) & Quilvax(TM) Product Development
Product Market Status Partner
Quilimmune-P(TM) Adults > 50 Phase I complete, Aquila,
Product to prevent years >70 Phase II clinical worldwide
Pneumococcal infections mil. people trials on-going rights
in U.S.
Quilvax-M(TM) 30 million Immunogenicity and Aquila, N.
Product to control milk cows in challenge trials America
bovine mastitis the U.S. & complete, Virbac S.A.
(S. aureus & E.coli) Europe Licensing trials Europe
anticipated to
start in 1998
Quilimmune-M(TM) 1-2 billion SPf66/QS-21 Collaboration
Product to control persons at Phase I ongoing with World
malaria (Plasmodium risk Health
falciparum) Organization
Quilvax-L(TM) 10 million Licensing efficacy Schering-
Product to prevent dogs at risk & safety trials Plough
canine Lyme disease in endemic completed (Mallinckrodt
areas Veterinary)
Quilvax-FeLV(TM) 15 million cats On market, Leucogen(TM),
Product to prevent vaccinated (Europe) Virbac S.A.
feline leukemia per year Genetivac(TM), (U.S.) Worldwide
Quilimmune-T(TM) Persons at Pre-clinical Aquila
Product to prevent Lyme risk for tick research worldwide
and Ehrlichiosis diseases bites rights
Quilimmune-P(TM) for the Prevention of Pneumococcal Infections
Infections by Streptococcus pneumoniae cause serious disease in young
children and in the elderly. Healthy adults are not typically at risk for
developing disease following exposure to S. pneumoniae. There are over 80
recognized serotypes of pneumococci, each with varying geographic and age-
group prevalence. The resulting diseases and serotypes involved are
different between the young and the elderly, and as a consequence,
separate vaccine products for the young and the elderly are appropriate.
Quilimmune-P(TM) is intended to be used to prevent pneumococcal infections in
the elderly.
There are approximately 34 million people over the age of 65 in the United
States ("U.S."), and an additional 36 million adults with immune
compromising conditions who are at risk for developing disease caused by
S. pneumoniae. Various strains of Streptococcus pneumoniae are
responsible for most community-acquired cases of pneumonia (500,000 cases
per year) and are the second most common cause of bacteremia (50,000 cases
per year, with 25% mortality). It is estimated that S. pneumoniae causes
40,000 deaths in the elderly and immunocompromised adults each year.
The currently available vaccines, which were developed and approved in the
early 1980s, cover the 23 serotypes which cause about 90% of infections in
the United States and Europe. The two vaccines approved in the U.S. are
composed of purified capsular polysaccharides from each of the 23
serotypes. Vaccination rates in the U.S. elderly population are currently
running at about 30%. These vaccines are underutilized by the elderly for
a number of reasons. Reports in the medical literature indicate that the
current vaccines are effective in the elderly in only 50-60% of the
recipients. A number of side effects are caused by the current vaccines,
including pain on injection, a sore arm, fever, and a general feeling of
malaise for a few days. Because of these side effects, these traditional
vaccines have not been licensed for repeat use, resulting in a
misconception in the market that these vaccines give lifetime protection.
In addition, the antibody titers drop over a number of years. Typically
after 3 or more years, the effective levels of antibodies in vaccinees is
quite low. Furthermore, data has recently been presented suggesting that
the ability to elicit functional antibodies particularly decreases with
age. Another reason these vaccines are poorly utilized is because
physicians have an option of treating patients who develop pneumonia with
antibiotics. However strains of S. pneumonia that are resistant to several
classes of antibiotics have been isolated with increasing frequency over
the past few years. With increased antibiotic resistance, the option of
using antibiotics may not be as effective, and physicians are moving
towards prevention as a therapeutic choice. As a result there is an
urgent need for a more effective and safe pneumococcal vaccine for the
elderly.
S. pneumoniae also causes half of childhood otitis media, the most
frequent reason (one out of three) for visits to pediatricians. In some
developing countries, pneumococcal pneumonia kills approximately 10% of
the children under the age of five, making it the single leading cause of
death. Compared to the elderly, a smaller number of S. pneumonia serotypes
is responsible for most of the disease seen in children. Development
efforts are underway by several companies to improve the immune response
to S. pneumoniae capsular polysaccharides by conjugating the
polysaccharides to immunogenic carrier proteins. This approach was used
in developing the successful Hib (Hemophilus influenzae type b) vaccines.
The companies developing conjugate vaccines have chosen to focus on the
ten or eleven strains most prevalent in infants and young children.
A different approach is required for development or an improved S.
pneumoniae vaccine for the elderly. The pediatric conjugate vaccine, if
successfully developed, would likely not be appropriate for immunization
of adults and the elderly because it would address only the limited number
of strains that are problematic in children rather than the broader range
required in the elderly. It would also be difficult to include all 23 of
the strains in the currently available vaccine as conjugates because of
the overall manufacturing expense and cumulative mass of the conjugated
components. There is also some evidence that conjugation does not improve
the performance of polysaccharide vaccines in the elderly.
In animal studies Aquila scientists have shown that the use of Quilimmune-
P(TM), which contains 23 different capsular polysaccharides and QS-21,
improves the immune response over that seen with the current approved
vaccine. For instance, many polysaccharides to which mice do not
typically respond become immunogenic with Quilimmune-P(TM). In addition,
antibody titers to many strains increase. The effect may make the use of
a lower antigen dose feasible, which could make the product less expensive
and also reduce side effects. Finally, mice re-vaccinated with Quilimmune-
P(TM) experience a booster effect for many strains, a response not seen with
existing vaccines. This effect may allow the administration of periodic
booster shots to maintain immunity levels.
Aquila has completed a Phase I clinical trial in healthy young or middle
aged adult volunteers. The study was carried out in collaboration with
and supported by the National Institutes of Health (NIH). The primary end
point of the study was to evaluate safety; a secondary goal was to
evaluate immune responses. The study was designed as a dose response
study, evaluating several different dosage levels of the polysaccharide
antigens and adjuvant. The control group received the marketed vaccine.
Quilimmune-P(TM) was generally well tolerated after intramuscular injection.
Transient pain on injection was seen in some subjects but in most cases
the pain was mild or moderate. Otherwise, local and systemic
reactogenicity was infrequent and similar to the control licensed product.
No serious adverse events or clinically significant abnormal laboratory
values were encountered in any study subject.
Quilimmune-P(TM) was immunogenic in all subjects in a fashion similar to the
control recipients. This included subjects who received Quilimmune-P(TM)
formulated with lower than normal doses of antigen. Because healthy
adults, not elderly people, were used as subjects for the study, these
results were expected. The small number of subjects in each of the groups
limited the Company's ability to draw conclusions about the relative
immunogenicity of the different formulations. However, formulations of
Quilimmune-P(TM) containing a full dose of pneumococcal polysaccharides
induced a higher level of total IgG and nasal wash IgA for some but not
all polysaccharide types than the control vaccine.
In Phase II studies which began recently, Aquila is evaluating Quilimmune-
P(TM) formulations that were shown to be well tolerated in Phase I studies.
This study will be a prospective, randomized, double blind comparison of
Quilimmune-P(TM) to the currently licensed vaccine product in an elderly
population, the target population for the product. The study is expected
to involve about 400 subjects with clinical endpoints of safety, quality
and quantity of the immune response.
Quilvax-M(TM) for the Control of Bovine Mastitis
Bovine mastitis is an inflammation of a dairy cow's udder. Two pathogens cause
the vast majority of infections resulting in mastitis: S. aureus and
Escherichia coli ("E. coli"). Mastitis is the most costly disease
affecting the dairy industry. The economic impact in the United States of
bovine mastitis is estimated to be between $1-2 billion per year.
According to the National Mastitis Council, the value of the losses per
cow per year are $184 (there are about 9.5 million dairy cows in the
U.S.). The principal losses occur from reduced milk production, from milk
that is of poor quality and thus has a lower economic value, from milk
which has to be discarded, and from animal replacement costs. Many times
when an animal develops mastitis, it is simply culled from the herd. There
are also extra labor costs, treatment and veterinary services to cope with
this disease.
There are a number of bovine mastitis vaccines on the market, but these
are directed towards E. coli only. Aquila's Quilvax-M(TM) bovine mastitis
product is bivalent, containing antigens for both S. aureus and E. coli,
and is expected to provide broader control of mastitis.
The S. aureus component of Quilvax-M(TM) is based on a patented cell surface
protein from S. aureus called fibronectin binding protein. Fibronectin
binding protein is primarily responsible for attachment of S. aureus to
host tissue, in this case the epithelium of the bovine mammary gland. It
is believed that this attachment is a critical step in the disease process
and results in the inflammation and tissue destruction that characterizes
mastitis. In the Company's Quilvax-M(TM) program, fibronectin binding
protein is used as the target antigen for development of a beneficial
immune response. Antibodies directed against fibronectin binding protein
may block the attachment of S. aureus to mammary gland tissue or play a
role in antibody dependent opsonophagocytic activity.
The Company has been making use of the ability to experimentally cause S.
aureus mastitis by direct challenge of dairy cattle with bacteria
deposited in the mammary gland. In a typical challenge experiment, the
response of several groups of animals, both treated and non-treated
controls, to a S. aureus challenge are compared. Recent studies indicate
that Quilvax-M(TM) is safe and that it reduces the inflammatory response that
develops upon infection. Measurement of parameters that determine milk
quality and the price dairy producers would receive for their milk
indicates that milk from animals vaccinated with Quilvax-M(TM) would have a
higher value than that from non-treated controls.
The E. coli portion of Quilvax-M(TM) is modeled after the E. coli mastitis
products currently on the market. The marketed products make use of a
mutant strain of E. coli that has slightly altered surface carbohydrate
structure. Quilvax-M(TM) makes use of a similar E. coli mutant.
Immunogenicity studies in dairy cattle indicate that the amount of anti-E.
coli antibody generated by Quilvax-M(TM) is similar to the amount generated
by a marketed E. coli mastitis product.
In order to receive authorization from the USDA to market Quilvax-M(TM), the
Company must conduct formal efficacy trials for both the S. aureus and E.
coli components of the product. Following successful completion of these
studies, a formal safety study using the product on working dairy farms is
required. The Company believes it could add a streptococcal component in
a next generation product.
The research and development costs are 50% funded by Virbac. The Company
has retained exclusive marketing rights in North America. Virbac has
exclusive marketing rights in Europe. The parties share marketing rights
in the rest of the world.
Quilimmune-M(TM) for the Control of Malaria
According to estimates in published reports, over two billion people
reside in malaria-infected areas. The yearly incidence of malaria is
estimated by the World Health Organization at 300 to 500 million cases,
with a death toll of 1.5 to 3 million persons. While anti-malarial drugs
have been in use for decades, they are expensive and resistant malarial
strains are becoming increasingly common. The World Health Organization
has identified malaria as a priority vaccine target in developing
countries.
Aquila is involved in a number of development programs to develop products
to control malaria. One of the programs is a collaboration with
SmithKline Beecham p.l.c. (see "Corporate Partner Programs").
In addition to this program, Aquila has a collaboration with the World
Health Organization on another malaria product involving the antigen
SPf66. SPf66, a polymerized synthetic peptide developed by Dr. Manuel
Patarroyo of the Institute de Inmunologia in Columbia, contains sequences
from proteins expressed during several stages of the parasite's life
cycle. The antigen has been tested with an alum adjuvant in three large
clinical trials in humans. Protection was achieved from malaria in two of
the trials in about 30% of the adults and children. In the third trial
there was no protection. These mixed results are thought to be the result
of several factors: different manufacturing processes were used for the
SPf66; the design of the trials was different; the clinical definition of
malaria varied between studies; and the study populations were different.
Aquila has investigated the effectiveness of a Quilimmune-M(TM) product
containing QS-21 and SPf66. In a study in Aotus monkeys, 57% of the
animals were protected from malaria on challenge after vaccination with
SPf66 plus QS-21. In this study, a control vaccine of SPf66 alum (the
product that was used in the human studies) gave only 25% protection,
comparable to the results obtained previously in humans.
A human clinical trial of this malaria product containing SPf66 and QS-21
has been initiated. In this Phase I trial, approximately 90 volunteers
enrolled in five groups received the SPf66 product formulated with the QS-
21 adjuvant, alum or various doses of QS-21 adjuvant with alum. Treatment
with three sequential subcutaneous injections will be used to determine
the safety and immunogenicity of the potential product. The study is
expected to be completed in approximately twelve months.
Quilvax-L(TM) for the Prevention of Canine Lyme Disease
Aquila is developing a product for dogs pursuant to a 1991 agreement,
currently with Schering-Plough ("SP"), against Borellia burgdorferi, the
pathogen that causes Lyme disease. There are approximately 50 million
dogs in the United States, with perhaps a fifth of them living in areas
infested with the tick which transmits Borrelia burgdorferi, the cause of
Lyme disease. There are currently three Lyme disease vaccine products on
the market.
During 1993-94, Aquila conducted efficacy trials of its canine Lyme
disease product using a protocol approved by the USDA. The studies showed
that use of Quilvax-L(TM) resulted in protection from symptoms in 89% of the
dogs. Data from this trial was submitted to the USDA, which reviewed the
data in support of licensure and found the outcome satisfactory. Quilvax-
L(TM) incorporates two outer surface proteins of Borrelia and QS-21, a
formulation which the Company believes offers better protection against
geographically diverse strains of the pathogen. SP has conducted field
safety studies and the results are under review at the USDA. Additional
safety studies may be required.
Under the SP agreement, the Company will supply SP with bulk formulated
product, which SP will then fill, finish, and distribute. The Company
will be paid a supply price for the product and receive a royalty on SP's
sales. A patent application has been filed on this product. The Company
is unable to predict the timing of or whether this product will reach the
marketplace.
Quilvax-FeLV(TM) for the Prevention of Feline Leukemia
Aquila has developed a recombinant subunit vaccine against the feline
leukemia virus. The product was approved in 1990 in the U.S. and 1991 in
Europe. It is marketed by Virbac S.A. in Europe, Australia and Japan
under the tradename Leucogen(TM) and was marketed by Mallinckrodt Veterinary,
Inc. ("MVI") prior to the sale of MVI to SP in the U.S. under the
tradename Genetivac(TM). FeLV(TM) is a highly contagious and commonly fatal
disease of cats. Aquila's product was the first recombinant vaccine ever
developed against a tumor-causing virus in mammals. A patent covering
Quilvax-FeLV(TM) has been issued in the U.S. and a number of other countries.
Aquila manufactures bulk formulated product for the United States and
Australian markets, and supplies Virbac with bulk antigen and adjuvant for
further manufacture for the European and Japanese markets. The product is
the leading FeLV vaccine in Europe, and in a recent independent study was
found to be the most effective of three leading FeLV products on the
market.
Quilimmune-T(TM) for the Prevention of Tick Borne Diseases
Ticks can transmit pathogens that cause a variety of diseases, including
Lyme disease, Rocky Mountain Spotted Fever and Babesiosis. In 1991
scientists reported the discovery of a new disease, human granulocytic
ehrlichiosis (HGE), caused by a microorganism in the genus Ehrlichia
transmitted by the bite of the same tick that carries Lyme disease. HGE's
flu-like symptoms include fever, headache and muscular aches, as well as
joint pain, nausea, vomiting and cough. HGE is believed to have caused
several deaths in immune-compromised patients.
Aquila scientists isolated the HGE-causing organism in the course of the
efficacy trials of Aquila's canine Lyme disease product and the Company
believes that it was the first to successfully cultivate the HGE organism
in tissue culture. Patent applications on infected cell lines, the
methods of growing the organism, potential vaccine antigens and their
genes, and diagnostic reagents derived from the pathogen have been filed.
Aquila has been working with the Centers for Disease Control and
Prevention ("CDC") to develop a blood test to be used in epidemiological
surveys that will determine how widespread the disease may be. The CDC is
now using this test as part of its tick-borne pathogen screening program.
Prior to Aquila's development of the cell lines, diagnosis of the disease
was extremely difficult, and impractical for survey purposes. Aquila has
been conducting additional internal research to better characterize the
organism and to develop additional antigens and diagnostic reagents, and
has collaborations with leading academic researchers. Genes for the
immunodominant protein and immunogenic surface proteins have been cloned
and characterized. Aquila believes that a combination product could be
developed against HGE and human Lyme disease. Aquila's work in HGE may
also have applicability for animal health applications. The HGE organism
appears to cause illness in dogs. Once the epidemiology is better
understood, Aquila may seek development funding from an animal health
partner.
CORPORATE PARTNER PROGRAMS
In addition to Aquila's own product development programs, the Company has
six corporate partners who have licensed the Stimulon(TM) adjuvants for a
variety of human diseases. The six corporate partners are SmithKline
Beecham p.l.c., Wyeth-Lederle Vaccines and Pediatrics, Pasteur Merieux
Connaught, Progenics Pharmaceuticals, Inc., VaxGen, Inc. and NABI. Three
of the world's four largest vaccine manufacturers are partners using
Aquila's adjuvants. In return for rights to use Stimulon(TM) adjuvants for
specific diseases, the corporate partners have agreed to pay Aquila
license fees, milestone payments, and royalties on product sales. Aquila
has retained worldwide manufacturing rights for QS-21. In addition to
corporate partners, the Company has developed a number of academic
collaborations to test potential vaccine formulations containing QS-21.
Partner/Collab. Clinical Development Status
Research Preclinical Phase I Phase II Phase III
Melanoma* (Th) -------------------------------------------------
HIV-1* (Pr) -------------------------------------------
Herpes II (Th) --------------------------------------
Hepatitis B (Th) --------------------------------------
Malaria* (Pr) --------------------------------------
Respiratory (Pr) --------------------------------
Virus
B Cell (Th) --------------------------
Lymphoma*
Colon Cancer* (Th) --------------------------
Pancreatic (Th) --------------------------
Cancer
Prostate (Th) --------------------------
Cancer*
Lung Cancer (Th) --------------------------
Breast Cancer (Th) --------------------------
*multiple programs, most advanced program shown
Th = Therapeutic; Pr = Prophylactic
SmithKline Beecham, p.l.c. ("SB") has licensed QS-21 for a number of
different applications. The world's leading manufacturer of Hepatitis
B vaccine, SB is aggressively marketing its existing portfolio of
vaccines, while developing new and improved products. SB has completed
a number of Phase I clinical trials of potential products containing QS-
21 and is also investigating the use of combinations of different
adjuvants.
SB in collaboration with the Walter Reed Army Institute of Research
reported in the New England Journal of Medicine (Stoute et al., NEJM,
January 9, 1997, pp. 86-91) results of a Phase I human challenge study
involving the testing of a potential malaria product formulated with
different adjuvants. The three different product formulations all
contained a recombinant circumsporozoite malaria antigen fused to a
hepatitis B surface antigen as a carrier protein. The first
formulation also contained MPL and alum; the second an emulsion of oil
and water; and, the third was formulated with QS-21, MPL and the oil
and water emulsion. In the first formulation, with MPL and alum only,
there was an immunological response, but following challenge with the
malaria parasite after treatment, only one of the seven subjects in
this group was protected from malaria. In the second formulation, with
the oil and water emulsion, the immune response was much stronger, but
in the malaria challenge, only two of seven subjects were protected.
In the third product formulation, with the addition of QS-21, the
immune response was the highest. Most importantly, the quality of the
immune response was significantly different, as six of seven subjects
exposed to the challenge with malaria were protected. These results
demonstrate that the quality of the immune response is critical.
Aquila has been informed that SB is planning further clinical testing
of this potential product.
Pasteur Merieux Connaught ("PMC") has licensed QS-21 for use in its HIV
vaccine programs. PMC has ongoing pre-clinical work on two potential
HIV products and has started a Phase I clinical trial to evaluate a
third HIV vaccine candidate. PMC also licensed QS-21 for use in
influenza and completed two clinical trials. Recently PMC elected to
continue influenza trials with another company's product and not to
incur further development expenses with QS-21. Aquila has exercised
its option to cancel this agreement covering PMC's influenza license
with QS-21.
Wyeth-Lederle Vaccines and Pediatrics ("Wyeth-Lederle") licensed QS-21
in 1992 for use in five vaccines. Wyeth-Lederle, formed as a result of
the acquisition of American Cyanamid by American Home Products, is a
leader in pediatric vaccines. Wyeth-Lederle has completed a Phase I
clinical trial using QS-21 and continues pre-clinical development of
other candidate vaccines.
Progenics Pharmaceuticals, Inc. ("Progenics") licensed QS-21 in 1995
for use in certain therapeutic products for cancer. Progenics' most
advanced program involves the use of QS-21 with a ganglioside
preparation called GM2 to treat melanoma. Phase I/II clinical trials
of this product, which was initially developed by physicians at
Memorial Hospital for Cancer and Related Diseases, have been completed,
and two pivotal Phase III studies have been initiated. The first of
these is being conducted in the U.S. by cooperative cancer research
groups supported by the National Cancer Institute. Another trial
commenced in 1997 and is being conducted outside the U.S. A third
trial is expected to commence in 1998. A second cancer product, GD2,
is being developed for the treatment of various cancers. Phase I/II
clinical trials commenced in 1996. Aquila has licensed Progenics to
use QS-21 in exchange for a license fee, an equity interest in
Progenics, and royalties. Progenics recently entered into a
collaboration with Bristol-Myers Squibb Company to develop and
commercialize GM2 and GD2.
VaxGen, Inc. ("VaxGen") (an early stage company whose major corporate
shareholder is Genentech, Inc.) has licensed QS-21 for use in its HIV-1
vaccine program. VaxGen has conducted Phase I clinical trials in
healthy volunteers with a product formulated with QS-21, under the
auspices of the National Institutes of Health. This trial was expanded
in 1994 after improved neutralizing antibody responses were observed in
volunteers receiving products containing QS-21. Some volunteers in
this study reported pain on injection. Enrollment in a third trial
has just been completed. Volunteers received very low doses of gp 120
antigen combined with QS-21 and/or alum. These product formulations
were well tolerated and preliminary immunogenicity results are
promising. See "Risk Factors".
NABI has licensed QS-21 for use in production of immunoglobulin for
prevention and treatment of gram-negative and gram-positive bacterial
infections. NABI is currently evaluating its products in clinical
trials without using adjuvants. The Company is uncertain if or when
NABI will commence clinical trials using QS-21.
MANUFACTURING AND SCALE-UP
As part of each Stimulon(TM) adjuvant licensing agreement, the Company has
retained the right to be the exclusive supplier of Stimulon(TM) adjuvants.
The license agreements stipulate the supply prices, within certain ranges.
Pursuant to the license agreements, the Company will also receive
royalties on its licensees' product sales.
The Company currently manufactures QS-21 for commercial animal health use
and for use in human clinical trials. The Company produces QS-21 with an
average batch size sufficient for approximately 200,000 doses. The
Company has scaled the critical steps of the process to produce a batch
size suitable for large scale commercial production up to 2,000,000 doses.
QS-21 is currently classified by the FDA as a constituent material used in
vaccine preparation. As a result, the FDA does not require licensure of
facilities used for its manufacture. Aquila believes that classification
of QS-21 as a constituent material affords flexibility in the timing of
investment in commercial manufacturing facilities. After the safety and
effectiveness of QS-21 has been demonstrated, Aquila expects to be in a
position to reasonably project the plant capacity and the capital
investment required and can adjust the scale of manufacturing as
additional products reach the market.
The Company also currently manufactures Quilvax-FeLV(TM) antigen and vaccine,
which were licensed for sale in the U.S. by USDA in 1990 and for European
sales in the European Community ("E.C.") in 1991. The Company produces
commercial quantities at the 400 L fermentation scale in USDA and E.C.
approved facilities. Two additional animal vaccines are under development
and will also be manufactured in these facilities. Quilvax-M(TM) for the
control of bovine mastitis will begin licensing trials in 1998. Quilvax-
L(TM), for prevention of canine lyme disease, has completed licensing trials
and has been scaled to commercial quantities. See "Risk Factors".
PATENTS AND PROPRIETARY RIGHTS
Aquila has pursued a policy of obtaining patent protection both in the
United States and in selected foreign countries for patentable subject
matter in its proprietary technologies. The Company has filed or has
rights to a number of U.S. patents and patent applications and their
foreign counterparts. Aquila also relies on trade secrets, proprietary
know-how, and continuing technical innovation to develop and maintain its
competitive position.
Aquila's future success will depend, in part, upon its ability to develop
patentable products and technologies and obtain patent protection for its
products and technologies both in the United States and Europe. There can
be no assurance that patent applications owned or licensed by the Company
will issue as patents, that patent protection will be secured for any
particular technology, or that, if issued, such patents will be valid, or
that they will provide the Company with meaningful protection against
competitors with a competitive advantage. There can be no assurance that
the patents will not be challenged or designed around by others.
Proceedings brought against Aquila's patents could expose it to
significant expense and the risk of adverse determinations.
Aquila is not aware of any issued third party patents which would
interfere with development of any of its products, but there can be no
assurance that it will not infringe on existing or future patents owned by
others, that third parties will not bring suit against it for infringement
of such patents, that the Company could obtain necessary or desirable
licenses on acceptable terms, or that it could design around such patents.
Any litigation instituted by third party patent holders could expose
Aquila to significant expense and the risk of adverse determination.
QS-21 and other Adjuvants
Aquila received U.S. Patent No. 5,057,540 in 1991, covering purified QS-
21, QS-7 and the other principal fractions of Quillaja saponaria and
methods of their use in vaccines. The Company believes that the standard
of purity specified in the patent for the saponin fractions is necessary
to achieve a safety profile acceptable for human use. CSL International
ACN ("CSL") controls certain patents and patent applications covering
immune stimulating complexes ("ISCOMS") prepared from crude saponin
fractions, lipids and various antigens. The Company believes that its
products do not infringe CSL's U.S. patent due to process differences and
formulation techniques which avoid ISCOM formation. In Europe, CSL has a
corresponding pending application with published claims broader than those
that issued in the U.S. Although the Company believes that the claims may
be narrowed during the European examination, if claims do issue as
published they may dominate QS-21 in combination with lipid formulations.
In the event patents do issue to CSL or other parties which dominate QS-
21, there can be no assurance that Aquila will be able to obtain licenses
or obtain such licenses on favorable terms.
CSL and Seed Capital Inc., another company with an interest in ISCOM
technology, have filed an opposition with the European Patent Office
("EPO") on the issuance of the QS-21 patent in Europe. A hearing before
the EPO is scheduled for October of 1998. The Company has recently
received correspondence from CSL claiming that CSL will present
information to the EPO prior to the October hearing which will allow CSL
to prevail in the opposition and in addition that it intends to challenge
the Company's U.S. patent. The Company has carefully reviewed the prior
art with respect to both the European and U.S. patents and does not
believe that CSL's claims have merit or are likely to succeed. There can
be no assurance, however, that Aquila will prevail in any action taken to
attack the validity of its QS-21 patents.
Mastitis
Aquila exclusively licensed from Alfa Laval Agri AB ("Alfa Laval") certain
base technology used in the mastitis program. This technology includes
patents and patent applications on fibronectin binding proteins from S.
aureus, E. coli and S. dysgalactiae. The Alfa Laval license calls for
payment of an initial license fee, royalties, and additional license fees
as additional patents issue and when Aquila commercializes the vaccines.
As part of the joint development agreement with Virbac, Aquila arranged
for Alfa Laval to grant a direct license to Virbac in certain territories.
To date seven patents have been issued in the U.S. related to fibronectin
binding proteins, the genes that encode these proteins, related synthetic
peptides and the use of these materials for treating bovine mastitis.
These patents are U.S. Patent Numbers 5,175,096; 5,189,015; 5,320,951;
5,416,021; 5,440,014; 5,571,514 and 5,652,217.
Lyme Disease
Aquila has filed a patent application on its vaccine formulation of using
both the A and the B outer surface proteins and QS-21; animal data
indicates this formulation induces group-specific immune responses
(important for protection against multiple Borrelia strains) significantly
better than vaccines containing only one or two of these components.
There are several patents pending in the United States and in Europe
which, if issued in their current form, may dominate Aquila's Lyme
vaccine. Aquila believes that it is unlikely that any dominant claims
will issue because of the extensive prior art, but there can be no
assurance that the Company's position is correct and, if dominating
patents do issue, there can be no assurance that it will be able to obtain
the necessary licenses or obtain such licenses on favorable terms.
Human Granulocytic Ehrlichiosis
Aquila believes that it was the first to successfully cultivate the HGE
organism in tissue culture. The Company has filed patent applications on
infected cell lines, the methods of growing the organism, and potential
vaccine antigens and diagnostic reagents derived from the cell line.
Other researchers in the field of HGE have filed patent applications that
might conflict with Aquila's patent applications. There can be no
assurance that any of Aquila's patent applications will issue.
Other Patents
Aquila holds U.S. patents on its Quilvax-FeLV(TM) vaccine and on drug
delivery compounds. Patents on methods of expressing and purifying
proteins made in a baculovirus expression system have issued. Aquila also
has a fully paid-up royalty-free license to U.S. Patent No. 4,734,362 and
foreign counterparts (protein purification) in the vaccine, therapeutic
and related research fields; a fully paid-up royalty-free license to U.S.
Patent No. 4,753,873 in the veterinary diagnostic field; and a non-
exclusive sublicense to U.S. Patent No. 4,725,669 and U.S. Patent No.
5,068,174 (HIV-gp120-p27) in the vaccine, therapeutic and related research
fields.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. Competitors of Aquila in the United
States and abroad are numerous. They include, among others, major
pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions. There can be no assurance
that Aquila's competitors will not succeed in developing technologies and
products that are more effective than any which have been developed by the
Company or may be developed by the Company in the future or which would
render the Company's technology and products obsolete and noncompetitive.
Many of these competitors have substantially greater financial and
technical resources and production and marketing capabilities than Aquila.
In addition, some of Aquila's competitors have substantially greater
experience than the Company in preclinical testing and human clinical
trials of pharmaceutical products and in obtaining FDA and other
regulatory approvals of products for use in healthcare. Accordingly,
Aquila's competitors may succeed in obtaining FDA approval for products
more rapidly than could the Company. There can be no assurance that
Aquila's products under development will be able to compete successfully
with existing products or products under development by other companies,
universities and other institutions or that they will attain regulatory
approval in the United States or elsewhere. If Aquila commences
significant commercial sales of its products, it will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas
in which it may have less experience. A significant amount of research in
the field is also being carried out at academic and government
institutions. These institutions are becoming increasingly aware of the
commercial value of their findings and are becoming more aggressive in
pursuing patent protection and negotiating licensing arrangements to
collect royalties for use of technology that they have developed. These
institutions may also market competitive commercial products on their own
or in collaboration with competitors and will compete with Aquila in
recruiting highly qualified scientific personnel.
Aquila is aware of certain programs and products under development by
others which may compete with its programs and products. Several
companies, including Ribi, Corixa, Virus Research Institute and Chiron
Corporation, are developing adjuvants.
Merck & Co. Inc., Wyeth-Lederle, SB, PMC and possibly others are in human
clinical trials with conjugate pneumococcal vaccines for the pediatric
market, and have existing non-adjuvanted products on the market. Several
companies market mastitis vaccines for infections caused by E. coli, but
these vaccines do not protect against staphylococcal or streptococcal
infections. The existence of products developed by these and other
competitors, or other products of which Aquila is not aware or which may
be developed in the future, may adversely affect the marketability of
products developed by Aquila.
At least two of Aquila's adjuvant licensees are also licensees of Ribi for
certain diseases. The USDA has licensed three canine Lyme disease
vaccines. PMC and SB have completed successful human trials with Lyme
disease vaccines.
GOVERNMENT REGULATION
The FDA, the USDA, the Environmental Protection Agency, and comparable
state and other agencies, including those in foreign countries, impose
requirements governing the development, manufacture and marketing of
certain of Aquila's products and products under development. The
regulatory process can take several years, involves lengthy and detailed
laboratory and clinical testing, and requires substantial expenditures.
User fee legislation has recently been approved by Congress and signed
into law, which is expected to reduce review times at FDA. Human
biologicals and pharmaceuticals, including vaccines, typically require
three stages of clinical trials: Phase I to determine the preliminary
safety of the product; Phase II, during which the efficacy of the product
is preliminarily assessed and treatment regimens refined; and Phase III
(sometimes referred to as "pivotal trials") during which final safety and
efficacy data are generated. Regulatory approval is required prior to
commencement of initial clinical trials. The clinical data, together with
comprehensive manufacturing and facility information, is filed with the
FDA in a Product License Application ("PLA") and an Establishment License
Application, or in certain cases as a Biologics License Application, on
which the regulatory agencies base their approval decisions. In some
instances, particularly in cases of life-threatening diseases for which
there is no effective treatment, the clinical trial phases may be
combined, or approval may be sought after completion of an expanded Phase
II trial.
Because QS-21 is currently classified by the FDA as a constituent material
used in drug preparation, the FDA does not require licensure of facilities
used in its manufacture. Aquila believes that this affords flexibility on
investment in commercial manufacturing facilities. Aquila has filed
Biologics Master Files for QS-21 with the FDA, which its licensees can
reference as part of their own PLAs as they seek FDA approval.
There can be no assurance that, at the end of the regulatory process,
approval will be obtained or that product developments by competitors in
the interim will not have made Aquila's products obsolete or economically
unfeasible. The extent of regulation which may arise from future
legislative or administrative action cannot be predicted, nor can the
potential impact of such future regulation, or changes in existing
regulation, be predicted with any certainty.
PRODUCT LIABILITY
Aquila has potential liability risks that are inherent in the testing,
manufacturing and marketing of medical products. The use of Aquila's
products or conduct of clinical trials may expose Aquila to product
liability claims and possible adverse publicity. These risks also exist
with respect to Aquila's products, if any, that receive regulatory
approval for commercial sale. The Company currently has limited product
liability coverage for the clinical research use of its products, which
management believes is customary for companies with products at this stage
of clinical development. There can be no assurance that Aquila will be
able to maintain its existing insurance coverage or obtain additional
insurance coverage at acceptable costs, if at all, or that a product
liability claim would not materially adversely affect the business or
financial condition of the Company.
If and when Aquila manufactures products that are recommended for routine
administration to children, it is possible that it will be required to
participate in the National Vaccine Injury Compensation Program. This
program compensates children having adverse reactions to certain routine
childhood immunizations with funds collected through an excise tax from
the manufacturers of these products.
HUMAN RESOURCES
As of February 10, 1998, Aquila employed 57 full-time employees. The
employees are not represented by any labor unions, and the Company
considers its relations with those employees to be good. Aquila's
scientific staff has expertise in many relevant areas and these internal
resources are augmented by consulting agreements with research scientists
located at various academic institutions and commercial organizations.
SCIENTIFIC ADVISORY BOARD
Aquila's Scientific Advisory Board consists of six individuals with
recognized expertise in immunology and oncology. The Scientific Advisory
Board meets from time to time to discuss matters relating to the Company's
current and long-term scientific planning and research and development,
and the individual members are available for consultation on an informal
basis. All members of the Scientific Advisory Board are employed by
academic institutions, and may have commitments or consulting or advisory
obligations to other entities that may limit their availability to Aquila.
These entities may be competitors of Aquila. In certain circumstances,
the academic institutions which employ the Scientific Advisory Board
members may assert ownership rights to inventions or other technology that
may result from advice provided to Aquila by such members. In such
circumstances, Aquila could seek to negotiate licenses to such inventions
or technology, but there can be no assurance that the Company would be
able to obtain such licenses on commercially reasonable terms. No members
of the Scientific Board are expected to devote more than a small portion
of their time to Aquila's business.
The following persons are the current members of the Scientific Advisory
Board:
Mary Lou Clements-Mann, M.D., M.P.H.
Professor
Department of International Health
Johns Hopkins University
Center for Immunization Research
John R. David, M.D.
Richard Pearson Strong Professor and Chairman of the Department of
Tropical Public Health
Professor of Medicine and Chief of the Division of Tropical Medicine
Harvard Medical School
Michael J. Hawkins, M.D.
Associate Professor of Medicine
Division of Medical Oncology
Vincent T. Lombardi Cancer Research Center
Georgetown University
College of Medicine
Arthur I. Hurwitz, D.V.M., Ph.D.
Independent Consultant
350 Westview Ave.
Leonia, NJ 07605
Takis S. Papas, Ph.D.
Director, Center for Molecular and Structural Biology and Professor
of Medicine
CMSB/Hollings Oncology Center
Medical University of South Carolina
Richard J. Whitley, M.D.
Professor of Pediatrics
University of Alabama at Birmingham
Children's Hospital
MANAGEMENT
The following is a list of executive officers and directors of the
Company, their ages, positions, offices and business experience, as of
February 1, 1998:
Alison Taunton-Rigby, Ph.D., 53, has been President, Chief Executive
Officer and Director since March of 1996. Dr. Taunton-Rigby was
President and Chief Executive Officer and a member of the Board of
Directors of the Company's predecessor, Cambridge Biotech Corporation
("CBC") from April 1995 until October of 1996. From 1993 to 1994,
she was President and Chief Executive Officer of Mitotix, Inc., a
biopharmaceutical company. Prior to joining Mitotix, Dr. Taunton-
Rigby was Senior Vice President, Biotherapeutics, of Genzyme
Corporation, where she had overall responsibility for Genzyme's
biotherapeutics business. Dr. Taunton-Rigby is a member of the Board
of Directors of BIO, the national trade organization, where she is
also Chair of the Emerging Companies section. She is also a member
of the Board of Directors and a past President of the Massachusetts
Biotech Council, the trade organization representing Massachusetts
biotechnology companies. Dr. Taunton-Rigby received her doctorate in
Chemistry from the University of Bristol in England, and is a
graduate of the Advanced Management Program of the Harvard Business
School. She is a director of the CML Group, a specialty retailer,
and of Synaptic Pharmaceutical Corporation. She is also a member of
the Bentley College Ethics Board.
Gerald A. Beltz, Ph.D., 46, is Senior Vice President of Research and
Development of the Company. Dr. Beltz served as Vice President of
Research and Development of CBC from 1993 to 1996. For ten years
prior to assuming these positions, Dr. Beltz held various scientific
positions with CBC. Dr. Beltz was responsible for the initial
development of Aquila's FeLV feline leukemia vaccine and CBC's HIV-1
diagnostic assays, and is the lead inventor on the patents covering
these products. Dr. Beltz received his B.S. from Beloit College, his
M.A. and Ph.D. from Princeton University, and did his post-doctoral
work at Harvard University.
Deborah B. Grabbe, 46, is Vice President of Manufacturing Operations
of the Company. Ms. Grabbe served as Vice President of Manufacturing
Operations for CBC from 1995 until 1996. She was Vice President of
Regulatory Affairs and Product Quality for CBC from 1993 to 1994.
Prior to joining CBC in 1993, Ms. Grabbe was Director of Regulatory
and Clinical Affairs and Director of Product Support for Behring
Diagnostics, Inc. From 1987 to 1988 she was Vice President of
Operations at Biotechnica Diagnostics, Inc. Ms. Grabbe holds an A.B.
from Oberlin College and an M.S. from John A. Burns School of
Medicine, University of Hawaii.
Robert B. Kammer, M.D., 57, is Vice President of Medical Affairs for
the Company. Dr. Kammer served as Vice President of Medical Affairs
for CBC from 1993 until 1996. From 1988 to 1993, Dr. Kammer was
employed at Schering-Plough Corporation as Director, Anti-Infective
Clinical Research. Before joining Schering-Plough, Dr. Kammer worked
at Lilly Research Laboratories. Dr. Kammer received his B.A. and
M.D. degrees from the University of Iowa and did his internship,
residency and fellowship at the Medical College of Virginia.
Thomas H. Kelly, Jr., 46 is Vice President of Administration for the
Company. Mr. Kelly served as Director of Administration and Human
Resources from 1995 until 1997. He was manager of Human Resources
for CBC from 1991 until 1995. Prior to joining the Company, Mr.
Kelly held Human Resources positions with Fidelity Investments,
Serono Laboratories and Peat Marwick. Mr. Kelly holds an A.B. from
Boston College and an M.B.A. from Babson College.
James L. Warren, 52, joined the Company in January of 1998 as Vice
President of Finance, Chief Financial Officer and Treasurer. From
1991 to January 1998 Mr. Warren was Vice President and Corporate
Controller of Genzyme Corporation, a multinational biotechnology and
health care products company. From 1984 to 1991, Mr. Warren was Vice
President of Finance and Administration of Itek Graphics Corporation,
Composition Systems Division, a supplier of composition software
systems. Mr. Warren holds a B.S. from the University of Tennessee
and an M.B.A. from Boston University.
Elliott D. Hillback, Jr., 53, has been a Director of the Company
since March of 1996. Since July 1990 Mr. Hillback has served as
Senior Vice President of Genzyme Corporation and since October 1996
has held the position of Senior Vice President of Corporate Affairs.
As Senior Vice President of Genzyme, he was responsible for the
formation in October 1990 of Neozyme Corporation, a research and
development company established to accelerate product development for
Genzyme. From July 1991 to October 1996 he served as President and
CEO of its genetic diagnostics subsidiary, IG Laboratories, Inc.
Prior to joining Genzyme, Mr. Hillback held executive positions at
Baxter International and BOC Group, Inc. as well as the positions of
President and CEO of Cellcor Therapies, Inc., a start-up
biotechnology company. Mr. Hillback is a member of the Council of
Medical Genetics Organizations, is co-chair of the ethics committee
of the Biotechnology Industry Organization and serves as director of
Integramed America, Inc., a physician practice management company
specializing in women's health care with a focus on infertility and
assisted reproductive technology services. He earned his B.A. degree
at Cornell University and an M.B.A. from Harvard Business School. He
is chairman of the Audit Committee and a member of the Compensation
Committee.
John M. Nelson, 66, has been a Director of the Company since March of
1996. Mr. Nelson served as director of CBC from January 1987 to
October 1996. Mr. Nelson is Chairman of The TJX Companies, Inc., a
retailer of off-price fashion goods. Mr. Nelson retired as Chairman
of Wyman-Gordon Company in October of 1997 having held that position
since May of 1994. Previously, he had been Chairman and Chief
Executive Officer since May of 1991. From 1988 until 1990 Mr. Nelson
was Chairman, President and Chief Executive Officer of Norton
Company, a manufacturer of abrasives, ceramics, plastics, and
chemical process products. From 1979 to September 1990, he was a
director of Norton. Prior to becoming Chief Executive Officer of
Norton, Mr. Nelson was President and Chief Operating Officer of
Norton from 1986 to 1988, and, for more than five years, was
President and Chief Executive Officer of its subsidiary, Norton
Christianson, Inc. Mr. Nelson holds a B.A. degree from Wesleyan
University and an M.B.A. from Harvard Business School. He is a
director of Brown & Sharpe Manufacturing Company, Stocker & Yale,
Inc., The TJX Companies, Inc., Commerce Holdings, Inc. and Eaton
Vance Corp. Mr. Nelson serves as Chairman of the Company's
Compensation Committee and a member of the Nominating Committee.
Jeffrey T. Beaver, 60, has been a Director of the Company since March
of 1996, and currently serves as the Chairman of the Board. Mr.
Beaver served as a Director of CBC from January 1983 to October 1996,
and as Chairman of the Board of Directors from April 1995 to October,
1996. From May 1994 to April 1995, Mr. Beaver served as President
and Chief Executive Officer of CBC, and from May 1994 to March 1996,
Mr. Beaver served as CBC's Treasurer. Since October 1996, Mr. Beaver
has been Managing Director of CoView Capital, Inc. From January 1991
to May 1994, Mr. Beaver was an independent consultant in the
healthcare sector. From September 1986 to December 1990, Mr. Beaver
was Senior Vice President and Head of the Corporate Finance Group of
IBJ Schroder Bank and Trust Company. Prior to September 1986, Mr.
Beaver was a Managing Director of J. Henry Schroder Corporation (a
subsidiary of Schroder Venture Managers, Inc.) where he was engaged
in providing corporate financial advisory services. Mr. Beaver is a
member of the Institute of Chartered Financial Analysts. He received
his B.A. degree from Princeton University and his M.B.A. degree from
New York University. Mr. Beaver is a member of the Nominating
Committee of the Company.
Keith J. Dorrington, Ph.D., D.Sc., 58, has been a Director of the
Company since October 1996. Since 1991 Dr. Dorrington has been
associated with MDS Health Ventures Capital Corp., the leading
venture capital company for the healthcare sector in Canada, serving
as Senior Vice President, Science and Technology since 1993. In this
capacity Dr. Dorrington is responsible for the scientific evaluation
of all pharmaceutical/biotechnology proposals received by MDS and in-
depth technical review of selected proposals. Prior to this
appointment Dr. Dorrington was General Manager and Director of
Wellcome Biotechnology in the U.K. (January 1989 to June 1991);
Corporate Vice-President of Research and Development, Connaught
Laboratories Ltd in Toronto (January 1983 to December 1988) and
Professor and Chairman, Department of Biochemistry, University of
Toronto (July 1976 to December 1982). Dr. Dorrington earned his
B.Sc., Ph.D., and D.Sc., from the University of Sheffield, U.K. He
is a member of the Audit Committee and Chairman of the Nominating
Committee.
SELLING SHAREHOLDERS
The following table sets forth the name of each Selling Shareholder, the
number of shares of Common Stock beneficially owned by the Selling
Shareholder before the offering, the number of shares offered for the
Selling Shareholder's account, and the percentage ownership of each
Selling Shareholder upon completion of the offering, assuming the Selling
Shareholders offer and sell all 769,000 Shares of Common Stock. Since the
Selling Shareholders may sell all or some or none of their shares, no
estimate can be made of the aggregate number of shares that are to be
offered hereby or that will be owned by the Selling Shareholders upon
completion of the offering to which this Prospectus relates.
Amount Of Amount to be Percentage
Securities Offered for Of Class to
Owned Prior The Security Be Owned
Name To Offering Holders Account After The Offering
Caduceus 79,000 50,000 *
Capital L.P.
Caduceus 203,500 120,000 1.4%
Capital Ltd.
Finsbury 275,000 275,000 *
Worldwide
Pharmaceutical
Trust PLC
Four Partners, 144,000 108,000 *
L.P.
Investment 10, 15,000 15,000 *
L.L.C.
Biotechnology 176,384 58,000 2.1%
Value Fund,
L.P.
Palamundo, 10,000 10,000 *
L.D.C.
ZPG Securities, 8,000 8,000 *
L.L.C.
Biotechnology 125,000 125,000 *
Value Fund,
Ltd.
*Less than 1%
PLAN OF DISTRIBUTION
The Shares may be sold or distributed from time to time by the Selling
Shareholders or by pledgees, donees or transferees of or successors in
interest to the Selling Shareholders, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may
act solely as agents or may acquire Shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices or at fixed prices, which may be
changed. The distribution of the Shares may be affected in one or more of
the following methods: (i) ordinary broker transactions, which may
include long or short sales, (ii) transactions involving cross or block
trades or otherwise on the NASDAQ National Market, (iii) purchases by
brokers, dealers or underwriters as principals and resale by such
purchasers for their own accounts pursuant to this Prospectus, (iv) "at
the market" to or through market makers or into an existing market for the
Common Stock, (v) in any ways not involving market makers or established
trading markets, including direct sales to purchasers or sales affected
through agents, (vi) through transactions in options, swaps or other
derivatives (whether exchange listed or otherwise), or (vii) any
combination of the foregoing, or by any other legally available means. In
addition, the Selling Shareholders or their successors in interest may
enter into hedging transactions with broker-dealers who may engage in
short sales of shares of Common Stock in the course of hedging the
positions they assume with the Selling Shareholders. Selling Shareholders
or their successors in interest may also enter into options or other
transactions with broker-dealers that require that delivery by such broker-
dealers of the Shares, which Shares may be resold thereafter pursuant to
this Prospectus.
Brokers, dealers, underwriters or agents participating in the
distribution of the Shares may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders and/or
the purchasers of Shares for whom such broker-dealers may act as agents or
to whom they may sell as principal, or both (which compensation as to a
particular broker-dealer may be in excess of customary commissions). The
Selling Shareholders and any broker-dealers acting in connection with the
sale of the Shares hereunder may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act, and any commissions
received by them and any profit realized by them on the resale of Shares
as principals may be deemed underwriting compensation under the Securities
Act. Neither the Company nor any Selling Shareholder can presently
estimate the amount of such compensation. The Company knows of no
existing arrangements between any Selling Shareholder and any other
shareholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the Shares.
Each Selling Shareholder and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of and
limit the timing of purchases and sales of securities by, Selling
Shareholders and other persons participating in a distribution of
securities. Furthermore, under Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously engaging in
market making and certain other activities with respect to such securities
for a specified period of time prior to the commencement of such
distributions subject to specified exceptions or exemptions. All of the
foregoing may affect the marketability of the securities offered hereby.
Any securities covered by the Prospectus that qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this Prospectus.
There can be no assurance that the Selling Shareholders will sell any or
all of the Shares of Common Stock offered by them hereunder.
EXPERTS
The balance sheets of Aquila Biopharmaceuticals, Inc. as of December 31,
1996 and 1995 and related statements of operations, cash flows and
shareholder's equity for each of the three years in the period ended
December 31, 1996 incorporated by reference in this Prospectus have been
audited by Coopers & Lybrand L.L.P., independent accountants, as stated in
their report dated March 7, 1997. Such financial statements have been
incorporated herein in reliance upon the report of such firm given upon
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the Shares to be sold by the Selling Shareholders will
be passed upon by Bowditch & Dewey, LLP, Worcester, Massachusetts.
MATERIAL CHANGE
On November 24, 1997 the Company completed its sale of its real
estate in Rockville, Maryland which had been leased to third parties. The
Company recognized a gain of $2.3 million as a result of the sale and
received approximately $2.0 million in cash after payment of the debt
which encumbered the property in the approximate amount of $4.1 million.
The Company has obtained an extension of its lease for the Worcester
facilities until the earlier of twenty (20) days from the date that the
Company receives notice from the landlord that it has sold the property, or
July 31, 1998. However, there can be no assurance that
the extension will be of long enough duration to allow for the completion
of the facilities which the Company plans to occupy in Framingham
Massachusetts. The Company's lease for the Framingham facilities is not
yet effective, as although construction of the building has commenced, the
developer has yet to obtain construction financing. The Company
anticipates that it will be required to expend substantial sums to
complete the tenant improvements at the Framingham facility and that it
will borrow such funds. There can be no assurance, however, that
financing will be obtained on terms acceptable to the Company and that the
Company will not have to expend its cash to pay some or all of such
expenses.
TABLE OF CONTENTS
Available Information 2
Information Incorporated By Reference 2
Prospectus Summary 3
Forward Looking Statements 5
Risk Factors 5
Use of Proceeds 10
Business 10
Management 30
Selling Shareholders 33
Plan of Distribution 33
Experts 34
Legal Matters 34
Material Change 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth an itemized statement of all expenses in
connection with the issuance and distribution of the securities being
registered, to be borne by the registrant:
Registration fee 1,248
NASD filing fee
Legal Fees and expenses* 15,000
Accounting fees and expenses* 10,000
Blue Sky expenses and counsel fees* 3,000
Printing Expenses*
Miscellaneous*
Total 29,246
_________
* Estimated
The Selling Shareholders will be responsible for any additional fees
incurred as a result of the distribution of these securities.
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides that the
Company shall have the power to indemnify any director, officer, employee
or agent for expenses (including attorneys' fees) judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with any suit, action or proceeding if such person acted in
good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful.
In the event an action against such a person is by or in the right of the
Company and such person shall have been adjudged to be liable to the
Company, such indemnification is permitted only to the extent that the
Court of Chancery or the court in which such action is brought shall deem
proper.
Article THIRD of the Company's By-laws provides for indemnification of
its directors, officers, employees or agents to the fullest extent
provided by laws.
Article SIXTH of the Company's Restated Certificate of Incorporation
provides that a director of the Company shall not be personally liable to
the Company or its shareholders for monetary damages for breach of his or
her fiduciary duty as a director to the extent provided either (i) in the
order of the United States Bankruptcy Court for the District of
Massachusetts confirming the Reorganization Plan, but in any event, to no
greater extent that is permitted by Section 102(b)(7) or any successor
similar provision in the Delaware General Corporation Law, or (ii) by the
Delaware General Corporation Law.
The Company maintains an executive liability indemnification policy.
Subject to the policy conditions, the insurance provides coverage for an
amount payable by the Company to its directors and officers pursuant to
the Company's By-laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
the registrant pursuant to the foregoing provisions, the registrant has
been informed 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.
Item 16. Exhibits.
5.1 Opinion of Bowditch & Dewey, LLP
23.1 Consent of Bowditch & Dewey, LLP (included in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (included on signature page)
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any
financial statements required by Rule3-19 of this chapter at the
start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished,
provided, that the registrant includes in the prospectus, by
means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information
necessary to ensure that all other information in the prospectus
is at least as current as the date of those financial
statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment
need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are
contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Form F-3.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's Annual Report pursuant to Section 13(a) or
15(d) of the Securities and Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's Annual Report
pursuant to Section 15(d) of the Securities and Exchange Act of 1934)
that is incorporated by reference in the registration statement 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.
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 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Worcester, Commonwealth of
Massachusetts, on February 19, 1998.
AQUILA BIOPHARMACEUTICALS, INC.
/s/ Alison Taunton-Rigby
By___________________________________
Alison Taunton-Rigby
President and Chief Executive Officer
/s/ James L. Warren
By___________________________________
James L. Warren
Treasurer, Chief Financial Officer
and Chief Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature
appears below does hereby make, constitute and appoint Alison Taunton-
Rigby and Jane V. Hawkes and each of them his or her true and lawful
attorneys and agents with full power and authority on his or her behalf to
execute and file with the Securities and Exchange Commission any amendment
or amendments, including post-effective amendments to this Registration
Statement and any and all instruments and documents which may be necessary
or desirable in connection with the registration of the shares of common
stock pursuant to this Registration Statement and he or she does ratify
and confirm all said agents and attorneys may do or cause to be done by
virtue hereof.
/s/ Alison Taunton-Rigby
_____________________________
Alison Taunton-Rigby, Director February 19, 1998
/s/ Jeffrey T. Beaver
__________________________________
Jeffrey T. Beaver, Director February 19, 1998
/s/ Keith J. Dorrington
__________________________________
Keith J. Dorrington, Director February 18, 1998
/s/ Elliott D. Hillback, Jr.
__________________________________
Elliott D. Hillback, Jr., Director February 19, 1998
/s/ John M. Nelson
__________________________________
John M. Nelson, Director February 18, 1998
Exhibit Index
5.1 Opinion of Bowditch & Dewey, LLP
23.1 Consent of Bowditch & Dewey, LLP (included in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand, L.L.P.
24.1 Power of Attorney (included on signature page)
Exhibit 5.1
February 19, 1998
Aquila Biopharmaceuticals, Inc.
365 Plantation Street
Worcester, MA 01605
Ladies and Gentlemen:
This opinion is delivered to you in connection with the registration
statement on Form S-3 (the "Registration Statement") filed on February 19,
1998 by Aquila Biopharmaceuticals, Inc. (the "Company") under the Securities
Act of 1933, as amended, for registration under said Act of 769,000 shares
of the common stock, $.01 par value (the "Common Stock"), of the Company for
the account of selling shareholders.
We are familiar with the Restated Certificate of Incorporation of the
Company, as amended, the corporate minute book and the by-laws of the Company,
as amended, and the Registration Statement. We have also made such further
investigation as we have deemed necessary for the purposes of this opinion.
Based upon and subject to the foregoing, we are of the opinion that the
shares of Common Stock of the Company covered by the Registration Statement
have been validly authorized for issuance and are legally issued, fully paid
and nonassessable.
We understand that this opinion is to be used in connection with the
Registration Statement. We consent to the filing of this opinion as an exhibit
to the Registration Statement and the reference to our firm in the prospectus
contained in the Registration Statement under the caption "Legal Matters."
Very truly yours,
/s/ Bowditch & Dewey
BOWDITCH & DEWEY, LLP
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement of Aquila Biopharmaceuticals, Inc. (the "Company") on Form S-3
to register 769,000 shares of common stock, par value $.01 per share of
our report, dated March 7, 1997, on our audits of the financial statements
of Aquila Biopharmaceuticals, Inc. as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996,
which report is included in the Company's 1996 Annual Report on Form 10-K.
We also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 19, 1998
