PROSPECTUS
666,667 SHARES
AQUILA BIOPHARMACEUTICALS, INC.
COMMON STOCK
All shares of common stock offered hereby are
being sold by Aquila. The price of such shares is
$2.25 per share. Aquila received proceeds of
$1,500,000. There was no underwriter.
Aquila's common stock is traded on the NASDAQ
National Market System under the symbol "AQLA". On
June 2, 1999, the last reported sale price for the
common stock on the NASDAQ National Market was
$2.00 per share.
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 19, 1999.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual,
quarterly and current reports, proxy materials and
other information with the SEC. You may read and
copy these reports, proxy materials and other
information at the SEC's public reference rooms at
450 Fifth Street, N.W., Washington, DC 20549, New
York, NY, and Chicago, IL. You can request copies of
these documents by writing to the SEC and paying a
fee for the copying costs. Please call the SEC at 1-
800-SEC-0330 for more information about the operation
of the public reference rooms. Our SEC filings are
also available at the SEC's Web Site at
"http:\\www.sec.gov".
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference"
information that we file with them, which means that
we can disclose important information to you by
referring you to those other documents. The
information incorporated by reference is an important
part of this Prospectus, and information that we file
later with the SEC will automatically update and
supercede this information. We incorporate by
reference the documents listed below and any future
filings we will make with the SEC under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934:
- Annual Report on Form 10-K for the fiscal
year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1999; and
- Description of the common stock contained
in Aquila's Registration Statement on
Form 8(a) filed with the SEC under the
Securities Exchange Act of 1934.
We are delivering with this Prospectus a copy
of the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and the Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31,
1999. You may request a copy of the other filings at
no cost, by writing or telephoning us at the
following address:
Aquila Biopharmaceuticals, Inc.
175 Crossing Boulevard
Framingham, Massachusetts 01702
Attn: James L. Warren, CFO
(508) 628-0100
This Prospectus is part of a registration
statement we have filed with the SEC. You should
rely only on the information incorporated by
reference or provided in this Prospectus. No one
else is authorized to provide you with different
information. We are not making an offer of these
securities in any state where the offer is not
permitted. You should not assume that the
information in this Prospectus is accurate as of any
date other than the date on the front of this
document.
PROSPECTUS SUMMARY
The Company
We engage in discovery, development and
commercialization of products to prevent, treat or
control infectious diseases, autoimmune disorders and
cancers. Our proprietary product development
programs include Quilvax-M(TM) for controlling bovine
mastitis, Quilimmune-M(TM) for preventing malaria and
Quilimmune-P(TM) for preventing pneumococcal infections.
CD1-TB to prevent tuberculosis infections and CD1-CHL
for preventing chlamydia infections are in research.
We have six corporate partners who are involved in
product development programs using our Stimulon(TM)
adjuvants. A seventh corporate partner markets our
feline leukemia virus vaccine.
The Offering
Common Stock Offered 666,667 shares offered by Aquila
Common Stock Outstanding 6,996,738 shares
as of June 2, 1999
Use of Proceeds Proceeds will be used
for research and
development activities,
including preclinical
and clinical studies,
capital expenditures
and other general
corporate purposes.
See "Use of Proceeds."
NASDAQ Symbol AQLA
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 anticipated
in the forward-looking statements. The following
factors, among others, could effect our 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 SEC 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. Please consider
carefully the following risk factors, among others,
relating to the Company.
HISTORY OF OPERATING LOSSES
Because of the nature of the business of
developing and commercializing drug products, our
operating expenses from 1995 through 1998 have
exceeded our operating revenues for the same period
by significant amounts. We expect to incur
additional operating losses over the next several
years, and we expect losses to increase as our
research and development and clinical trial efforts
expand. We cannot guarantee that we will
successfully develop, receive regulatory approval
for, commercialize, manufacture, market and sell any
additional products, or achieve or sustain future
profitability.
EARLY STAGE OF TECHNOLOGY, UNCERTAINTY OF PRODUCT
DEVELOPMENT AND SUCCESSFUL COMMERCIALIZATION
Many of our research and development programs
are at an early stage of development. To date, the
USDA has only approved one of our product candidates,
Quilvax-FeLV(TM), our feline leukemia vaccine. Neither
the USDA (in the case of our animal product
candidate) nor the FDA (in the case of our human
product candidates) has approved any of our other
product candidates. While our development efforts
are at different stages for different products, we
cannot assure you that we will successfully develop
any additional products or that we will not abandon
some or all of our proposed research programs. We
must conduct time-consuming, extensive and costly
clinical trials, in compliance with FDA regulations
to show the safety and effectiveness of each of our
human product candidates before the FDA can approve a
product candidate for sale. We must also conduct
trials and comply with USDA regulations to show the
safety and effectiveness of our animal product
candidate before it is approved. Clinical trials are
lengthy and expensive and have a high risk of
failure. In addition, to compete effectively, our
products must be easy to use, cost effective and
economical to manufacture on a commercial scale. We
cannot assure you that we can achieve any of these
objectives. Any of our product candidates may fail
the testing phase or may not attain market
acceptance. Also, third parties may develop superior
products or have proprietary rights that preclude us
from marketing our products. Some of our product
candidates and those products being developed by our
collaborators and licensees have advanced to human
clinical trials. We have one animal product in
clinical trials, one human product has completed
Phase I clinical trials and one human product is in
Phase II clinical trials.
Our product candidates are prone to the risks
of failure inherent in pharmaceutical product
development, including the following:
- Our technical approach will not be
successful;
- Any or all of our product candidates will
not be safe and effective;
- Product candidates will not otherwise
meet applicable regulatory standards or
receive regulatory clearance;
- Our product candidates will not prove to
be commercially viable products;
- We will not be able to manufacture or
produce economically or on a large scale
any or all of our product candidates;
- We will not be able to successfully
market our product candidates;
- We will not be able to market such
products because of the proprietary
rights of third-parties; and
- Our competitors will market superior or
equivalent products.
FUTURE FUNDING NEEDS; UNCERTAINTY OF ADDITIONAL
FINANCING
While we have some revenue sources, we do not
think these sources will generate sufficient funds to
continue our operations until commercialization of
our product candidates. In addition, changes in our
research and development plans or other events
affecting our operations may significantly increase
our capital requirements over current projections.
We cannot be certain that expected revenues will
materialize, or that other financing will be
available on acceptable terms.
We will need to raise additional capital in
order to continue our research and development
programs, conduct preclinical and clinical testing of
our product candidates and conduct full scale
manufacturing of any products that we may develop.
The timing and degree of any future requirements will
depend on numerous factors, including:
- the progress of our 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 our existing research
relationships;
- our ability to establish collaborative
marketing arrangements; and
- development of commercialization
activities and arrangements.
Based on current projections, we estimate that
our existing capital resources, research revenue and
revenue from product sales will be sufficient to meet
our cash requirements for approximately fifteen
months. Whether we can continue to operate beyond
such period will depend upon our ability to generate
substantial operating revenue from license fees and
other sources or procure additional funding. We
cannot be sure that our product candidates will prove
successful or generate significant sales or earnings
in the future or that, if needed, we will be able to
obtain future funding on reasonable terms, if at all,
or at the appropriate time for our planned
activities.
If adequate funds are not available, we may be
required to delay, reduce the scope of or eliminate
one or more of our research or development programs;
to obtain funds through arrangements with
collaborative partners or others that may require us
to relinquish rights to certain of our technologies,
product candidates or products that we would
otherwise seek to develop or commercialize ourselves;
or to license the rights to such products on terms
that are less favorable to us than might otherwise be
available. If we raise additional funds by issuing
equity securities, this may result in further
dilution to our existing stockholders. In addition,
any future investors could demand (and we may have to
grant) rights superior to those of our existing
stockholders.
RISKS ASSOCIATED WITH COLLABORATIVE ARRANGEMENTS
Part of our strategy for the development,
clinical testing and commercialization of our
products is to license certain companies to use our
technologies. The success of these third parties in
performing their responsibilities under the license
agreements may affect the timing and amount of
license fee payments, royalties and revenues from
product sales, and we cannot assure you that such
collaborations will be successful. We may not be
able to establish additional acceptable collaborative
arrangements or license agreements should we deem
this necessary to develop and commercialize our
product candidates, nor can we assure you that such
future arrangements will be successful.
PATENTS AND PROPRIETARY RIGHTS
We cannot be sure that our current patents or
patents that issue from any of our pending
applications will not be challenged, invalidated or
circumvented. Although we are not aware of any
issued third party patents which would interfere with
development of any of our products, we cannot be
certain that we will not infringe on existing or
future patents owned by others or that third parties
will not bring suit against us for infringement of
such patents. CSL International ACN ("CSL") and Seed
Capital Inc. filed an opposition with the European
Patent Office ("EPO") on the issuance of our QS-21
patent in Europe. At a hearing before the EPO in
October of 1998, we prevailed on all points raised in
the opposition. CSL may appeal the EPO's decision,
and, though we do not believe that CSL's claims have
any merit or are likely to succeed, there can be no
assurance that we will prevail in any future actions
taken to attack the validity of our patents.
Patent litigation can be extremely costly and
time consuming, but may be necessary for us to
enforce our patents or defend against claims by
third-parties.
We also rely extensively on trade secrets and
other unpatented proprietary technology. We attempt
to protect our proprietary technology in part by
confidentiality agreements with our employees,
consultants, advisors and collaborators. We cannot
assure you that the other parties will not violate
these agreements, that we will have adequate
remedies, or that our trade secrets will not
otherwise become known or independently developed by
competitors.
COMPETITION AND TECHNOLOGICAL CHANGE
The biotechnology and pharmaceutical industries
are subject to rapid and significant technological
change. Our competitors in the United States and
abroad are numerous. Our competitors include, among
others, major pharmaceutical companies, specialized
biotechnology firms, universities and other research
institutions. Specifically, other adjuvants which
could compete with our Stimulon(TM) adjuvants are under
development by Ribi ImmunoChem Research, Inc., Corixa
Corporation, AVANT Immunotherapeutics, Inc. and
Chiron Corporation. Our competitors may succeed in
developing technologies and products that are more
effective than any which we are developing or that
would render our technology and products obsolete and
noncompetitive.
Many of our competitors have substantially
greater financial and technical resources than we do
in:
- production and marketing;
- conducting clinical trials; and
- obtaining regulatory approvals.
If we begin significant commercial sales of our
products, we will also be competing with respect to
manufacturing and marketing capabilities, areas in
which we have limited experience.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY
APPROVAL
Our research and development activities and
products are subject to extensive and rigorous
regulation by the federal government, principally the
FDA and USDA, and by state and local governments. We
intend to market our products in other countries, and
foreign governments may also impose stringent
regulations. We must complete all appropriate
regulatory clearance processes before commercializing
any of our product candidates, which is lengthy and
expensive. We cannot be sure that we will obtain
necessary regulatory approvals on a timely basis, if
at all, for any of our product candidates.
The current regulatory framework may change or
additional regulations may arise at any stage during
our product development, which may affect our ability
to obtain approval as anticipated, delay the
submission or review of an application or require
additional expenditures. Even if regulatory approval
of the drug is granted, the approval may limit the
drug to certain uses or "indications." Approved
drugs, drug manufacturers and manufacturing
facilities are also subject to continual review and
periodic inspections by the FDA or foreign regulatory
agencies, even after the drug is on the market. As a
manufacturer, we must spend considerable time, money
and effort, especially in the areas of production and
quality control, to comply with FDA or foreign
manufacturing regulations. Later discovery of
previously unknown problems with a product or
facility may result in restrictions being placed on
that product or us, including forcing a withdrawal of
the product from the market. Our failure to comply
with applicable regulatory requirements could, among
other things, result in fines, suspensions of
regulatory approvals, product recalls, operating
restrictions and criminal prosecution. We are also
subject to numerous environmental, health and
workplace safety laws and regulations, including
those related to laboratory procedures, exposure to
blood-born pathogens, and the handling of bio-
hazardous materials.
MANUFACTURING LIMITATIONS
We have limited capability to manufacture
products for commercial use. We may need to
construct additional manufacturing facilities or to
have another company manufacture our products. We do
not guarantee that we could do either at a cost low
enough to enable us to obtain an appropriate profit
margin.
If we decide to manufacture additional products
ourselves, we will be subject to regulatory
requirements and will require substantial additional
capital. The FDA or other regulatory agency may seek
to subject these products to more extensive
regulation.
LIMITED SALES AND MARKETING EXPERIENCE
We have very limited experience in sales,
marketing and distribution of products. We currently
do not sell any products directly. Instead, we sell
our feline leukemia vaccine through our partner
Virbac which is responsible for all sales and
marketing of that product. In order to distribute
our products we will most likely have to enter into
collaborations with third parties. We may be unable
to find a suitable marketing partner or to enter into
a marketing arrangement which would be economically
advantageous to the Company.
DEPENDENCE ON RETENTION AND ATTRACTION OF KEY
EMPLOYEES
Our product development and marketing plans
depend heavily on retaining existing management and
the ability to hire additional qualified management
and operating personnel. Recruiting and retaining
qualified scientific personnel to perform research
and development work is critical to our success.
Loss of our key personnel would likely delay the
achievement of development objectives and will have a
negative affect on our business. We do not maintain
any key person life insurance policies. We face
serious competition for qualified individuals from
numerous pharmaceutical and biotechnology companies,
and other research institutions.
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
Drugs used in clinical trials and drugs sold on
the market may expose us to damages claims and
adverse publicity resulting from the use of such
products. We have limited product liability coverage
for clinical research use of product candidates such
as the Stimulon(TM) adjuvants and Quilvax(TM) and
Quilimmune(TM) products. We also maintain product
liability insurance for the commercial sale of our
feline leukemia vaccine, and we intend to obtain
similar coverage for new products if and when they
are commercialized. We may not be able to afford to
buy enough liability insurance to protect us against
all of the product liability losses that could
possibly occur, and we cannot guarantee that any such
insurance would provide us with sufficient protection
against a product liability claim.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS
Our research and development activities and
manufacturing processes involve the controlled use of
hazardous, controlled and radioactive materials.
Although we believe that our safety procedures for
handling and disposing of such materials comply with
the standards required under local, state and federal
regulations, there is still a risk of accidental
contamination or injury, or negligent disposal by
third parties. If there was such an accident, we
could be held liable for any damages that result.
Those liabilities may exceed our resources. Although
we believe that we are in compliance with applicable
and environmental laws and regulations and currently
do not expect to have to spend significant amounts of
money for environmental control facilities, we may be
required to do so to comply with environmental laws
and regulations in the future.
UNCERTAINTY RELATED TO PRICING OF HEALTH CARE
PRODUCTS AND REIMBURSEMENT
Our ability to successfully sell our products
depends in part on the extent to which reimbursement
for the cost of such products and related treatments
will be available from government, health
administration authorities, private health coverage
insurers, HMOs and other organizations. Adequate
third-party coverage may not be available to allow us
to obtain satisfactory price levels for third-party
payor reimbursements. Government and other third-
party payors are increasingly attempting to contain
health care costs by limiting both coverage and the
level of reimbursement for new products. If adequate
coverage and reimbursement levels are not provided by
government and third-party payors for uses of our
product, the market acceptance of these products will
be more difficult. We cannot guarantee that our
corporate partners' products, if any, will be
considered cost-effective or that adequate
reimbursement will be available to enable us or our
corporate partners to make a profit.
VOLATILITY OF STOCK PRICE; LIMITED TRADING VOLUME
The market price of our common stock has been
and is likely to continue to be volatile. The market
price can be influenced by factors such as
announcements by us or our competitors of
technological innovations, new commercial products,
major financing agreements, patent or proprietary
right developments, public concern as to the safety
of biotechnology, and period to period fluctuations
in financial results.
There is limited trading volume in our common
stock and limited liquidity. We cannot guarantee
that greater trading volume or a more active market
for the common stock will develop.
POTENTIAL ANTI-TAKEOVER DEVICES
Certain provisions of our charter documents,
our Shareholder Rights Plan and Delaware General
Corporation law may have the effect of delaying,
discouraging, inhibiting or preventing an attempt by
a third party to obtain control of Aquila by means of
a tender offer, business combination, proxy contest
or otherwise. The terms of the members of our board
expire in different years, thus making it more
difficult for a party waging a proxy contest to
obtain control of a majority of the board. In
addition, our Shareholder Rights Plan discourages any
hostile takeover by giving existing stockholders the
right to buy shares in either the Company or any
acquirer at a price that could cause massive
dilution.
USE OF PROCEEDS
Assuming a sale price of $2.00 and the sale of
750,000 shares, we estimate that the net proceeds
received from the sale of shares offered will be
approximately $1,475,000. The Company currently
expects to use the net proceeds for general corporate
purposes that may include funding repayment of debt
or operations. Until applied to any use, the net
proceeds of this offering will be invested in high
quality interest bearing investments or deposit
accounts.
PLAN OF DISTRIBUTION
We are offering up to 750,000 shares of our
Common Stock directly to a limited number of
investors. Simultaneously with the filing of the
Registration Statement and in accordance with the
provisions of Rule 134 under the Securities Act of
1933, as amended, we made a public announcement of
the filing of the Registration Statement. After the
filing, officers of Aquila discussed the offering
with our largest shareholders. It is anticipated
that an agreement to purchase the shares will be
negotiated by our officers and entered into with at
least one of our large shareholders promptly upon the
Registration Statement becoming effective and that
the shares will be delivered shortly thereafter.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of
30,500,000 shares of common stock, $0.01 par value
per share, and 5,000,000 shares of preferred stock,
$0.01 par value per share. As of June 2, 1999, there
were 6,996,738 shares of common stock outstanding
held of record by 4,847 record holders. We have not
issued any shares of preferred stock.
COMMON STOCK
Each common stockholder is entitled to one vote
per share on all matters to be voted upon by the
stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the
common stockholders are entitled to receive ratably
any dividends that are declared from time to time by
the Board of Directors out of legally available
funds. In the event of liquidation, dissolution or
winding up, the holders of our common stock are
entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior rights
of preferred stock, if any, then outstanding. The
common stock has no pre-emptive or conversion rights
or other subscription rights, other than those
associated with the Shareholder Rights Agreement
described below. All outstanding shares of common
stock are fully paid and nonassessable.
CERTAIN PROVISIONS TO DISCOURAGE OR PREVENT COERCIVE
TAKEOVERS
Certain provisions of our charter documents
could make the acquisition of Aquila and the removal
of incumbent officers and directors more difficult.
These provisions are expected to discourage coercive
takeover practices and inadequate takeover bids and
to encourage persons seeking to acquire control of us
to first negotiate with us. We believe that the
benefits of increased protection of our potential
ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of
discouraging these proposals, because, among other
things, negotiation of these proposals could result
in an improvement of their terms.
Our bylaws provide for a classified board of
directors divided into three classes, with staggered
three-year terms. As a result, only one class of
directors will be elected at each annual meeting of
stockholders with the other classes continuing for
the remainder of their respective three-year terms.
The classification of the board of directors may make
it more difficult for existing stockholders to
replace the board of directors as well as for another
party to obtain control of us by replacing the board
of directors. Since the board of directors has the
power to retain and discharge officers, the
provisions could also make it more difficult for
existing stockholders or another party to effect a
change in management.
We are subject to the provisions of Section 203
of the Delaware law. In general, the statute
prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an
"interested stockholder" for a period of three years
after the date that the person became an interested
stockholder. These transactions may be permitted if
the business combination or the transaction in which
the person became an interested stockholder occurs
after the interested stockholder owns 85% of the
voting stock of the corporation or if the
stockholders or directors approve the transaction.
Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder.
Generally, an "interested stockholder" is a person
who, together with affiliates and associates, owns
(or within three years prior, did own) 15% or more of
the corporation's voting stock. These provisions may
have the effect of delaying, deferring or preventing
a change in control of us without further action by
the stockholders.
Aquila has in place a shareholder rights plan
which is designed to distribute common stock purchase
rights to holders of Aquila's common stock if a
person or group:
- acquires beneficial ownership of
fifteen percent or more of Aquila's
outstanding stock; or
- acquires beneficial ownership of ten
percent or more of Aquila's
outstanding stock and is deemed by our
board of directors to be a person or
group whose ownership could have
material adverse consequences for
Aquila, our property or our
stockholders; or
- commences a tender offer which would
result in ownership as described in
the two situations above.
The plan expires June 2, 2008 and provides for
the issuance of common stock in Aquila or the
acquiring company equal in value to twice the
exercise price for each right. The dilutive effect
of this transaction is intended to deter inadequate
takeover bids.
EXPERTS
The consolidated financial statements of Aquila
Biopharmaceuticals Inc. incorporated in this
Prospectus by reference to the Annual Report on Form
10-K for the year ended December 31, 1998 have been
incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP given on the authority of
said firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares to be sold hereunder
will be passed upon by Bowditch & Dewey, LLP,
Worcester, Massachusetts.
TABLE OF CONTENTS
Where You Can Find More Information 2
Information Incorporated By Reference 2
Prospectus Summary 2
Forward-Looking Statements 3
Risk Factors 3
Use of Proceeds 7
Plan of Distribution 8
Description of Capital Stock 8
Experts 9
Legal Matters 9
