<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1996
REGISTRATION NO. 333-05393
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
Form S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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THE IMMUNE RESPONSE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0255679
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)
</TABLE>
5935 DARWIN COURT, CARLSBAD, CA 92008, (619) 431-7080
Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices
DENNIS J. CARLO, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE IMMUNE RESPONSE CORPORATION
5935 DARWIN COURT
CARLSBAD, CA 92008
(619) 431-7080
Name, address, including zip code and telephone number, including area code, of
agent for service
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Copies to:
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THOMAS E. SPARKS, JR., ESQ. JAMES C.T. LINFIELD, ESQ.
JOHN L. DONAHUE, ESQ. ERIC J. LOUMEAU, ESQ.
GEORGE A. GUCKER, ESQ. Cooley Godward Castro Huddleson & Tatum
Pillsbury Madison & Sutro LLP 2595 Canyon Boulevard, Suite 250
P.O. Box 7880 Boulder, CO 80302
San Francisco, CA 94120
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable 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. / /
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. / /
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE REGISTRATION FEE
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Common Stock, $.0025 par
value (previously filed)... 2,875,000 shares $12.375 $35,578,125 $12,268(3)
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Registered Pursuant to this
Amendment.................. 460,000 shares $10.14 $4,664,400 $1,609
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</TABLE>
(1) Includes 435,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(3) Previously Paid.
------------------------------------
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 became effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 9, 1996
PROSPECTUS
2,900,000 SHARES
LOGO
THE IMMUNE RESPONSE CORPORATION
COMMON STOCK
All of the 2,900,000 shares of Common Stock offered hereby are being sold
by The Immune Response Corporation ("Immune Response" or the "Company"). Bayer
Corporation ("Bayer") may purchase $4,000,000 of the Common Stock offered hereby
at the public offering price. Bayer is a party to a collaboration agreement with
the Company. The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol "IMNR." On July 5, 1996, the last reported sale price for the
Common Stock was $10.00 per share. See "Price Range of Common Stock and Dividend
Policy."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1)(2) COMPANY (3)
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Per Share.................................... $ $ $
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Total (4).................................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) The Underwriters will not receive any Underwriting Discount on any shares
sold to Bayer.
(3) Before deducting estimated expenses payable by the Company estimated at
$300,000.
(4) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 435,000
additional shares of Common Stock on the same terms and conditions set forth
herein solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, receipt and acceptance of such shares by them. The Underwriters
reserve the right to reject any order in whole or in part. It is expected that
the shares will be ready for delivery at the office of the agent of Hanifen,
Imhoff Inc. in New York, New York on or about , 1996.
HANIFEN, IMHOFF INC. CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1996
<PAGE> 3
[FOUR GRAPHICS: SEE APPENDIX I FOR DESCRIPTION.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS OR OTHER SELLING
GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
REMUNE(TM) and GENEDRUG(TM) are trademarks of the Company. This Prospectus
also contains trademarks of other companies which are owned by the respective
companies.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. Except as otherwise noted, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors."
THE COMPANY
Immune Response is a biopharmaceutical company with proprietary
technologies in four core areas: Human Immunodeficiency Virus ("HIV"),
autoimmune diseases, gene therapy and cancer. The Company is conducting clinical
trials for potential immune-based therapies for HIV, psoriasis, rheumatoid
arthritis, multiple sclerosis and colon cancer, and preclinical studies for
brain and prostate cancers. The Company has potential gene therapies in
preclinical studies for cardiovascular disease, hemophilia and hepatitis. The
Company intends to retain ownership of its core technologies and to license
selected applications.
HIV. The Company's most advanced therapy under development, REMUNE, is
based on an approach first proposed by the late Dr. Jonas Salk, a co-founder of
the Company. REMUNE is an immune-based therapy intended to treat HIV-infected
individuals and prevent or delay the progression to Acquired Immune Deficiency
Syndrome ("AIDS"). REMUNE is designed to stimulate an HIV-infected individual's
immune system to attack HIV and can be used alone or in combination with
existing antiviral drug therapies for HIV. The Company believes that clinical
trials conducted since 1987 have suggested that REMUNE is safe and well
tolerated and may have a favorable impact on multiple markers of HIV disease
progression including viral burden, CD4 cell count, HIV-specific cell-mediated
immunity, antibody production and weight gain. In March 1996, the Company
initiated a pivotal Phase III clinical trial for REMUNE which is designed to
include up to 3,000 HIV-infected individuals at over 50 leading clinical centers
throughout the United States. Enrollment in the Phase III clinical trial is
proceeding more quickly than projected by the Company. Subsequent to the start
of the Phase III clinical trial, the United States Food and Drug Administration
("FDA") granted expanded access approval for those individuals who are
ineligible to enroll in this trial. The Company expects to dedicate a
substantial portion of its resources to the REMUNE program. See "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company is also conducting trials in additional patient populations. In
March 1996, the Company's licensee, Trinity Medical Group Co., Ltd. ("Trinity")
of Bangkok, Thailand, initiated a Phase II clinical trial with REMUNE in
Thailand. In May 1996, the Company initiated a Phase I clinical trial with the
National Institutes of Health ("NIH") to treat HIV-infected children. See
"Business -- REMUNE HIV Therapy."
Autoimmune Disease. Immune Response is using its proprietary autoimmune
disease technology to develop treatments for certain autoimmune diseases,
particularly psoriasis, rheumatoid arthritis and multiple sclerosis. Currently
approved therapies treat only the symptoms of these diseases. The Company's
technology is designed to inhibit the destructive activity of the specific
autoreactive T cells that the Company believes cause each disease by generating
an immune response against the unique markers on the autoreactive T cells. The
Company is currently conducting separate Phase II clinical trials for treatments
for psoriasis and rheumatoid arthritis. Results from these trials are expected
to be available by the end of 1996. In addition, the Company has completed a
Phase I clinical trial for multiple sclerosis. See "Business -- Autoimmune
Disease Technology."
Gene Therapy. The Company's proprietary GeneDrug technology under
development is designed to replace missing or defective genes to treat disease.
This technology uses a unique system intended to deliver genes specifically to
the liver after a single intravenous injection. In preclinical studies for
cardiovascular disease, a potential GeneDrug product was successfully delivered
to the liver which reduced the low density lipoprotein ("LDL"), the so-called
"bad cholesterol," by 30%. In preclinical studies, a potential GeneDrug product
was also successfully used for Factor VIII to produce therapeutic levels of this
blood clotting factor for 60 days. If similar results can be obtained in humans,
the Company believes that this therapy could provide significant advantages over
the current treatments for hemophilia. Additionally, a potential GeneDrug for
interferon-alpha ("IFN(LOGO)a") also has been used in preclinical studies to
induce production of significant levels of IFN(LOGO)a within the liver as a
potential treatment for hepatitis. See "Business -- Gene Therapy Technology."
3
<PAGE> 5
Cancer. The Company is also developing new therapies for the treatment of
cancer. These technologies are designed (i) to increase immune system
recognition of cancers, (ii) to inhibit cancer evasion of the immune system, and
(iii) to sensitize cancer to conventional therapies. The Company is conducting a
Phase I clinical trial for colon cancer which is expected to be completed by the
end of 1996, with data available in early 1997, with additional trials for
colon, prostate and brain cancers planned for 1997. See "Business -- Cancer
Treatment Technology."
RECENT DEVELOPMENTS
In July 1996, Immune Response entered into an agreement with Bayer
Corporation ("Bayer"), the United States affiliate of Bayer AG of Leverkusen,
Germany, to develop gene therapy products for the treatment of hemophilia A, a
blood clotting disorder. Bayer is a market leader in the treatment of this
hereditary blood coagulation disorder. Bayer made an initial license payment to
Immune Response of $6 million upon signing this agreement. Bayer has also
indicated that it may purchase $4 million of Immune Response Common Stock in
this public offering. In addition, during the term of the agreement, the Company
will receive research funding from Bayer for Immune Response's hemophilia A
program and may receive milestone payments and royalties on future sales, if a
product is developed and commercialized. Under the agreement, Bayer is
responsible for all medical and regulatory activities associated with developing
any potential hemophilia A products, and will also be responsible for
commercial-scale manufacturing and commercialization of any such product
developed. The agreement provides Bayer with a worldwide exclusive license to
the Company's GeneDrug technology for the delivery of the Factor VIII gene and
the option to enter into negotiations with the Company to use this technology to
treat other blood coagulation disorders.
In May 1996, a United States patent application was indicated allowable
that expands the Company's technology for the targeted delivery of a soluble
molecular complex to any receptor on any mammalian cell, in addition to liver
cells. In addition, the soluble molecular complex is not limited to the delivery
of DNA, but may include any polynucleotide, such as RNA, oligonucleotides or
ribozymes.
In April 1996, the Company received the first $5 million equity investment
from Trinity in exchange for the Company's Common Stock at $15 per share.
Trinity has also agreed to make additional equity investments of up to $10
million based on the achievement of certain regulatory and commercial milestones
and governmental approvals. There can be no assurance that any such milestones
or approvals will be achieved or obtained. In September 1995, Trinity licensed
the rights to develop, market and distribute REMUNE in Thailand and certain
other Southeast Asian countries.
In March 1996, Immune Response obtained an exclusive license from the
Sidney Kimmel Cancer Center for a potential cancer therapy that has indicated in
a preclinical study that it may be useful in the treatment of brain tumors. The
Company expects to begin a Phase I clinical trial for brain cancer with this
potential therapy during 1997.
The Company was incorporated in Delaware on October 1, 1986. The Company's
executive offices are located at 5935 Darwin Court, Carlsbad, California 92008,
and its telephone number is (619) 431-7080. The Company is not related to a
company called "Immune Response, Inc." which, according to publicly available
reports, is an Englewood, Colorado based company that "intends to perform
research and provide testing facilities for disorders of the immune system" and
has certain securities traded in the over-the-counter market.
------------------------
This Prospectus contains forward-looking statements. Such statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those projected. Factors that could cause or contribute to such
differences include those discussed under "Risk Factors," as well as those
discussed elsewhere in this Prospectus.
4
<PAGE> 6
THE OFFERING
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Common Stock offered by the Company.......... 2,900,000 shares
Common Stock to be outstanding after 20,042,927 shares(1)
offering...................................
Use of proceeds.............................. For clinical trials and research and
development of biopharmaceutical products and
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol................ IMNR
</TABLE>
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(1) Based on shares outstanding at March 31, 1996 and adjusted to include
333,334 shares sold to Trinity in April 1996. Excludes 4,691,447 shares of
Common Stock reserved but unissued under the Company's stock plans under
which there were options to purchase an aggregate of 4,009,474 shares of
Common Stock outstanding at March 31, 1996 (at a weighted average price of
$4.18 per share). See "Capitalization" and Note 5 in Notes to Consolidated
Financial Statements.
------------------------
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research revenue.......... $ 4,768 $ 6,035 $ 1,561 $ 1,311 $ --
Licensed research revenue.......... -- 1,000 -- -- --
---------- ---------- ---------- ---------- ----------
4,768 7,035 1,561 1,311 --
Expenses:
Research and development........... 11,854 13,511 19,489 4,193 5,477
General and administrative......... 4,119 5,608 3,684 991 768
---------- ---------- ---------- ---------- ----------
15,973 19,119 23,173 5,184 6,245
Other revenue and expense:
Investment income.................. 4,320 2,554 2,960 656 744
Equity in operations of joint
venture......................... (8,853) (7,869) (1,284) (1,284) --
---------- ---------- ---------- ---------- ----------
(4,533) (5,315) 1,676 (628) 744
---------- ---------- ---------- ---------- ----------
Net loss............................. $ (15,738) $ (17,399) $ (19,936) $ (4,501) $ (5,501)
========== ========== ========== ========== ==========
Net loss per share................... $ (0.95) $ (1.05) $ (1.19) $ (0.27) $ (0.33)
========== ========== ========== ========== ==========
Weighted average number of shares
outstanding........................ 16,549,816 16,613,547 16,750,460 16,740,290 16,800,488
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........ $38,997 $ 43,997 $ 71,072
Working capital.......................................... 37,684 42,684 69,759
Total assets............................................. 44,559 49,559 76,634
Total stockholders' equity............................... 42,605 47,605 74,680
</TABLE>
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(1) Pro Forma reflects the sale of 333,334 shares of the Company's Common Stock
to Trinity in April 1996 at $15 per share.
(2) Adjusted to give effect to the receipt of the net proceeds from the sale of
2,900,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $10.00 per share. See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information in this Prospectus, the following factors should be
considered carefully in evaluating an investment in the shares of Common Stock
offered by this Prospectus.
UNCERTAINTY OF PRODUCT DEVELOPMENT AND CLINICAL TESTING. The Company has
not completed the development of any products and there can be no assurance any
products will be successfully developed. The Company's potential HIV, autoimmune
disease, gene therapy and cancer products currently under development will
require significant additional research and development efforts and regulatory
approvals prior to potential commercialization.
The Company's potential HIV product, REMUNE, is in a Phase III clinical
trial designed to provide evidence of efficacy based on clinical endpoints;
however there can be no assurance that the results of such clinical trial will
demonstrate that REMUNE is safe and efficacious or, that even if the results of
the clinical trial are considered successful by the Company, that the FDA will
not require the Company to conduct additional large scale clinical trials with
REMUNE before the FDA will consider approving REMUNE for commercial sale. In
addition, REMUNE is being tested in a Phase II clinical trial in Thailand and in
a pediatric Phase I clinical trial in the United States. Failure of these trials
to demonstrate the safety and effectiveness of REMUNE could have a material
adverse effect on the regulatory approval process for this potential product.
The Company's other potential products and technologies are at a much earlier
stage of development than REMUNE. The Company's gene therapy technology and
certain of its technologies for the treatment of cancer have not yet been tested
in humans and there can be no assurance that human testing of potential products
based on such technologies will be permitted by regulatory authorities or, that
even if human testing is permitted, that products based on such technologies
will be shown to be safe or efficacious. Potential products based on the
Company's autoimmune technology and certain of its cancer technologies are at an
early stage of clinical testing and there can be no assurance that such products
will be shown to be safe or efficacious.
There can be no assurance that the results of the Company's preclinical
studies and clinical trials will be indicative of future clinical trial results.
A commitment of substantial resources to conduct time-consuming research,
preclinical studies and clinical trials will be required if the Company is to
develop any products. Delays in planned patient enrollment in the Company's
current clinical trials or future clinical trials may result in increased costs,
program delays or both. There can be no assurance that any of the Company's
potential products will prove to be safe and effective in clinical trials, that
FDA or other regulatory approvals will be obtained or that such products will
achieve market acceptance. Any products resulting from these programs are not
expected to be successfully developed or commercially available for a number of
years, if at all. See "Business -- REMUNE HIV Therapy," "-- Autoimmune Disease
Technology," "-- Gene Therapy Technology," "-- Cancer Treatment Technology" and
"-- Government Regulation."
There can be no assurance that unacceptable toxicities or side effects will
not occur at any time in the course of human clinical trials or, if any products
are successfully developed and approved for marketing, during commercial use of
the Company's products. The appearance of any such unacceptable toxicities or
side effects could interrupt, limit, delay or abort the development of any of
the Company's products or, if previously approved, necessitate their withdrawal
from the market. Furthermore, there can be no assurance that disease resistance
will not limit the efficacy of potential products.
LENGTHY APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS. Clinical testing, manufacture, promotion and sale of the
Company's drug products are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA, and
corresponding state and foreign regulatory agencies. The Company believes that
REMUNE and most of its other potential immune-based therapies will be regulated
by the FDA as biological drug products under current regulations of the FDA. In
general, the regulatory framework for biological drug products is more rigorous
than that for nonbiological drug products. The Federal Food, Drug, and Cosmetic
Act ("FDC Act"), the Public Health Service Act ("PHS Act") and other federal and
state statutes and regulations govern or influence the testing, manufacture,
safety, effectiveness, labeling, storage, recordkeeping, approval, advertising,
distribution and promotion of biological prescription drug products.
Noncompliance with applicable requirements can result in,
6
<PAGE> 8
among other things, fines, injunctions, seizure of products, total or partial
suspension of product marketing, failure of the government to grant premarket
approval, withdrawal of marketing approvals and criminal prosecution.
The regulatory process for new therapeutic drug products, including the
required preclinical studies and clinical testing, is lengthy and expensive and
there can be no assurance that necessary FDA clearances will be obtained in a
timely manner, if at all. There can be no assurance as to the length of the
clinical trial period or the number of patients the FDA will require to be
enrolled in the clinical trials in order to establish the safety and efficacy of
the Company's products. The Company may encounter significant delays or
excessive costs in its efforts to secure necessary approvals, and regulatory
requirements are evolving and uncertain. Future United States or foreign
legislative or administrative acts could also prevent or delay regulatory
approval of the Company's products. There can be no assurance that the Company
will be able to obtain the necessary approvals for clinical trials,
manufacturing or marketing of any of its products under development. Even if
commercial regulatory approvals are obtained, they may include significant
limitations on the indicated uses for which a product may be marketed. In
addition, a marketed product is subject to continual FDA review. Later discovery
of previously unknown problems or failure to comply with the applicable
regulatory requirements may result in restrictions on the marketing of a product
or withdrawal of the product from the market, as well as possible civil or
criminal sanctions. Failure of the Company to obtain marketing approval for
REMUNE or any of its other products under development on a timely basis, or FDA
withdrawal of marketing approval once obtained, could have a material adverse
effect on the Company's business, financial condition and results of operation.
The steps required before a biological drug product may be marketed in the
United States generally include preclinical studies and the filing of an
investigational new drug ("IND") application with the FDA. Reports of results of
preclinical studies and clinical trials for biological drug products are
submitted to the FDA in the form of a product license application ("PLA") for
approval for marketing and commercial shipment. Submission of a PLA does not
assure FDA approval for marketing. The PLA review process may take a number of
years to complete, although reviews of applications for treatments of AIDS,
cancer and other life-threatening diseases may be accelerated or expedited.
Failure of the Company to receive FDA marketing approval for REMUNE or any of
its other products under development on a timely basis could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition to obtaining approval for each biological drug product,
an establishment license application ("ELA") usually must be filed and approved
by the FDA.
Among the other requirements for ELA approval is the requirement that
prospective manufacturers conform to the good manufacturing practice ("GMP")
regulations specifically for biological drugs, as well as for other drugs. In
complying with the GMP regulations, manufacturers must continue to expend time,
money and effort in production, recordkeeping and quality control to assure that
the product meets applicable specifications and other requirements. Failure to
comply with the GMP regulations subjects the manufacturer to possible FDA
regulatory action. There can be no assurance that the Company or its contract
manufacturers, if any, will be able to maintain compliance with the GMP
regulations on a continuing basis. Failure to maintain such compliance could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Another requirement for many biological drug products is lot-by-lot release
approval, which necessitates FDA approval of the release of each lot of a
biologic drug before commercialization. The lot-to-lot release and ELA
requirements may be applied to some or all of the Company's potential
immune-based therapies. Recently, the FDA amended its regulations to permit
certain biotechnology and synthetic biological drug products to be eligible for
approval under a single biological product license that does not entail
lot-to-lot release and establishment licensing requirements. The Company
believes that its potential synthetic protein autoimmune disease products will
be subject to these new regulations. There can be no assurance that REMUNE or
any of the Company's other products will be eligible for approval under a single
biological drug product license or otherwise be subject to less rigorous
regulation than traditional biological products.
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<PAGE> 9
The Company believes its proprietary GeneDrug and cancer treatment
therapies will likely be regulated more like traditional biological products,
subject to both PLA and ELA requirements. As with the Company's other potential
products, the gene therapy and cancer products will be subject to extensive FDA
regulation throughout the product development process, and there can be no
assurance that any of these products will be successful at securing the
requisite FDA marketing approval on a timely basis, if at all.
A number of procedures are available to expedite approval or to allow
expanded access to investigational drugs. Certain investigational drugs,
including products for the treatment of AIDS, can be distributed outside of
traditional IND requirements on a "treatment IND" basis. Generally, the FDA may
permit an investigational drug, including an investigational biological drug, to
be used under a "treatment IND" for patients outside of controlled clinical
trials under certain conditions. Although the FDA has granted expanded access to
REMUNE for those patients who are ineligible to enroll in the Phase III clinical
trial, the FDA has to date not designated expanded access protocols for REMUNE
as "treatment" protocols. Either expanded access or a treatment protocol
designation might permit third party reimbursement of some of the costs
associated with making REMUNE available to patients in such an expanded access
context. There can be no assurance that the FDA will determine that REMUNE meets
all of the FDA's criteria for use of an investigational drug for treatment use
or that, even if the product is allowed for treatment use, that third party
payers will provide reimbursement for any of the costs of treatment with REMUNE.
The FDA also has issued regulations to accelerate the approval of or to
expedite the review of new biological drug products for serious or
life-threatening illnesses that provide meaningful therapeutic benefit to
patients over existing treatments. Under the accelerated approval program, the
FDA may grant marketing approval for a biological or nonbiological drug product
earlier than would normally be the case. In addition to the accelerated approval
process, the FDA has established procedures designed to expedite the
development, evaluation and marketing of new therapies intended to treat persons
with life-threatening and severely-debilitating illnesses, especially when no
satisfactory alternative therapy exists. There can be no assurance that the FDA
will consider REMUNE or any other of the Company's products under development to
be an appropriate candidate for accelerated approval or expedited review.
To market any drug products outside of the United States, the Company is
also subject to numerous and varying foreign regulatory requirements,
implemented by foreign health authorities, governing the design and conduct of
human clinical trials and marketing approval. The approval procedure varies
among countries and can involve additional testing, and the time required to
obtain approval may differ from that required to obtain FDA approval. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA approval set forth above, and approval by the FDA does not ensure
approval by the health authorities of any other country. See
"Business -- Government Regulation."
HISTORY OF OPERATING LOSSES. As of March 31, 1996, the Company had an
accumulated deficit of $104.4 million. The Company has not generated revenues
from the commercialization of any products and expects to incur substantial net
operating losses over the next several years. There can be no assurance that the
Company will be able to generate sufficient product revenue to become profitable
at all or on a sustained basis. The Company expects to have quarter-to-quarter
fluctuations in expenses, some of which could be significant, due to expanded
research, development and clinical trial activities.
ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL. The Company may
need to raise additional funds to conduct research and development, preclinical
studies and clinical trials necessary to bring its potential products to market
and establish manufacturing and marketing capabilities. The Company anticipates
that the REMUNE Phase III clinical trial costs will be approximately $10 million
per year, with an additional $10 million cost per year for manufacturing,
research and all other costs associated with the product for up to three years.
The anticipated costs with respect to REMUNE will depend on many factors,
including the successful enrollment of the Phase III clinical trial, the
availability of third party reimbursement based on gaining "treatment" IND
status for the expanded access protocols for REMUNE, the potential for
accelerated approval and certain other factors which will influence the
Company's determination of the appropriate continued investment of the Company's
financial resources in this program. The Company's future capital requirements
will depend on many factors, including continued scientific progress in its
research and
8
<PAGE> 10
development programs, the scope and results of preclinical studies and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the cost of manufacturing scale-up,
effective commercialization activities and arrangements and other factors not
within the Company's control. The Company intends to seek additional funding
through public or private financings, arrangements with corporate collaborations
or other sources. Adequate funds may not be available when needed or on terms
acceptable to the Company. Insufficient funds may require the Company to scale
back or eliminate some or all of its research and development programs or
license to third parties products or technologies that the Company would
otherwise seek to develop itself. The Company anticipates that its existing
resources, including proceeds of this offering and interest thereon, will enable
the Company to maintain its current and planned operations through mid-1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
PATENTS AND PROPRIETARY TECHNOLOGY. The Company has filed, or participated
as licensee, in the filing of a number of patent applications in the United
States and many international countries. The Company files applications as
appropriate for patents covering its products and processes. The Company has
been issued patents, or has licensed patents, covering certain aspects of its
proposed HIV, autoimmune disease, gene therapy and cancer technologies. The
Company's success may depend in part on its ability to obtain patent protection
for its products and processes. The Company is aware that a group working with
Connective Therapeutics, Inc. has filed patent applications related to
autoimmune disease research that covers technology similar to that used by the
Company. There can be no assurance that the Company's patent applications will
be issued as patents or that any of its issued patents, or any patent that may
be issued in the future, will provide the Company with adequate protection for
the covered products, processes or technology.
The patent positions of biotechnology and pharmaceutical companies can be
highly uncertain, and involve complex legal and factual questions. Therefore,
the breadth of claims allowed in biotechnology and pharmaceutical patents cannot
be predicted. The Company also relies upon unpatented trade secrets and know
how, and no assurance can be given that others will not independently develop
substantially equivalent trade secrets or know how. In addition, whether or not
the Company's patents are issued, or issued with limited coverage, others may
receive patents which contain claims applicable to the Company's product. There
can be no assurance that any of the Company's patents, or any patents issued to
the Company in the future, will afford meaningful protection against
competitors. Defending any such patent could be costly to the Company, and there
can be no assurance that the patent would be held valid by a court of competent
jurisdiction.
The Company also relies on protecting its proprietary technology in part
through confidentiality agreements with its corporate collaborators, employees,
consultants and certain contractors. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or independently discovered by its competitors.
It is possible that the Company's products or processes will infringe, or
will be found to infringe, patents not owned or controlled by the Company. If
any relevant claims of third-party patents are upheld as valid and enforceable,
the Company could be prevented from practicing the subject matter claimed in
such patents, or would be required to obtain licenses or redesign its products
or processes to avoid infringement. There can be no assurance that such licenses
would be available at all or on terms commercially reasonable to the Company or
that the Company could redesign its products or processes to avoid infringement.
Litigation may be necessary to defend against claims of infringement, to enforce
patents issued to the Company or to protect trade secrets. Such litigation could
result in substantial costs and diversion of management efforts regardless of
the results of such litigation and an adverse result could subject the Company
to significant liabilities to third parties, require disputed rights to be
licensed or require the Company to cease using such technology.
TECHNOLOGICAL CHANGE AND COMPETITION. The biotechnology industry continues
to undergo rapid change and competition is intense and is expected to increase.
There can be no assurance that competitors have not or will not succeed in
developing technologies and products that are more effective than any which have
been or are being developed by the Company or which would render the Company's
technology and
9
<PAGE> 11
products obsolete and noncompetitive. Many of the Company's competitors have
substantially greater experience, financial and technical resources and
production, marketing and development capabilities than the Company.
Accordingly, certain of the Company's competitors may succeed in obtaining
regulatory approval for products more rapidly or effectively than the Company.
If the Company commences commercial sales of its products, it will also be
competing with respect to manufacturing efficiency and sales and marketing
capabilities, areas in which it currently has no experience.
DEPENDENCE ON THIRD PARTIES. The Company's strategy for the research,
development and commercialization of its products requires entering into various
arrangements with corporate collaborators (such as the Company's agreement with
Bayer), licensors, licensees and others, and the Company's commercial success is
dependent upon these outside parties performing their respective contractual
responsibilities. The amount and timing of resources such third parties will
devote to these activities may not be within the control of the Company. There
can be no assurance that such parties will perform their obligations as expected
or that the Company will derive any revenue from such arrangements. Although the
Company has collaborative agreements with several universities and research
institutions, the Company's agreement with Bayer is the only collaborative
agreement that will provide the Company with any contract revenues. There can be
no assurance that these collaborations will result in the development of any
commercial products. Immune Response intends to seek additional collaborative
arrangements to develop and commercialize certain of its products. There can be
no assurance that the Company will be able to negotiate collaborative
arrangements on favorable terms, or at all, in the future, or that its current
or future collaborative arrangements will be successful.
LACK OF COMMERCIAL MANUFACTURING AND MARKETING EXPERIENCE. The Company has
a manufacturing facility for REMUNE located in King of Prussia, Pennsylvania,
and a pilot manufacturing facility in Carlsbad, California for its other
products. The Company has not yet manufactured its product candidates in
commercial quantities. No assurance can be given that the Company, on a timely
basis, will be able to make the transition from manufacturing clinical trial
quantities to commercial production quantities successfully or be able to
arrange for contract manufacturing. The Company believes it will be able to
manufacture REMUNE for initial commercialization, if the product obtains FDA
approval, but it has not yet demonstrated the capability to manufacture REMUNE,
or any of its other products, in commercial quantities, or its autoimmune
disease, gene therapy and cancer treatments in large-scale clinical or
commercial quantities. The Company has no experience in the sales, marketing and
distribution of pharmaceutical products. There can be no assurance that the
Company will be able to establish sales, marketing and distribution capabilities
or make arrangements with its collaborators, licensees or others to perform such
activities or that such efforts will be successful.
The manufacture of the Company's products involves a number of steps and
requires compliance with stringent quality control specifications imposed by the
Company itself and by the FDA. Moreover, the Company's products can only be
manufactured in a facility that has undergone a satisfactory inspection by the
FDA. For these reasons, the Company would not be able quickly to replace its
manufacturing capacity if it were unable to use its manufacturing facilities as
a result of a fire, natural disaster (including an earthquake), equipment
failure or other difficulty, or if such facilities are deemed not in compliance
with the FDA's drug Good Manufacturing Practices ("GMP") requirements and the
non-compliance could not be rapidly rectified. The Company's inability or
reduced capacity to manufacture its products would have a material adverse
effect on the Company's business and results of operations.
The Company may enter into arrangements with contract manufacturing
companies to expand its own production capacity in order to meet requirements
for its products, or to attempt to improve manufacturing efficiency. If the
Company chooses to contract for manufacturing services and encounters delays or
difficulties in establishing relationships with manufacturers to produce,
package and distribute its finished products, clinical trials, market
introduction and subsequent sales of such products would be adversely affected.
Further, contract manufacturers must also operate in compliance with the FDA's
drug GMP requirements; failure to do so could result in, for example, the
disruption of product supplies. Until recently, biologic product licenses could
not be held by any company unless it performed significant manufacturing
operations. The FDA recently amended its regulations in this regard, and the
Company believes that under these new regulations it
10
<PAGE> 12
can now hold licenses for its biological products without performing significant
manufacturing steps. Nonetheless, the Company's potential dependence upon third
parties for the manufacture of its products may adversely affect the Company's
profit margins and its ability to develop and deliver such products on a timely
and competitive basis. See "Business -- Government Regulation."
UNCERTAINTY OF PRODUCT PRICING, REIMBURSEMENT AND RELATED MATTERS. The
Company's ability to earn sufficient returns on its products will depend in part
on the extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health coverage insurers, managed care organizations and other
organizations. Third party payors are increasingly challenging the price of
medical products and services. If purchasers or users of the Company's products
are not able to obtain adequate reimbursement for the cost of using such
products, they may forego or reduce such use. Significant uncertainty exists as
to the reimbursement status of newly approved health care products, and there
can be no assurance that adequate third party coverage will be available.
PRODUCT LIABILITY EXPOSURE. The Company faces an inherent business risk of
exposure to product liability and other claims in the event that the development
or use of its technology or prospective products is alleged to have resulted in
adverse effects. While the Company has taken, and will continue to take, what it
believes are appropriate precautions, there can be no assurance that it will
avoid significant liability exposure. Although the Company currently carries
product liability insurance for clinical trials, there can be no assurance that
the Company has sufficient coverage, or can obtain sufficient coverage, at a
reasonable cost. An inability to obtain product liability insurance at
acceptable cost or to otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of products developed by
the Company. A product liability claim could have a material adverse effect on
the business or financial condition of the Company.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. Although the Company does not
currently manufacture commercial quantities of its product candidates, it
produces limited quantities of such products for its clinical trials. The
Company's research and development processes involve the controlled storage, use
and disposal of hazardous materials, biological hazardous materials and
radioactive compounds. The Company is subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of such materials and certain waste products. Although the Company believes that
its safety procedures for handling and disposing of such materials comply with
the standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result, and any such liability could exceed the resources of the Company.
There can be no assurance that the Company will not be required to incur
significant costs to comply with current or future environmental laws and
regulations 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.
VOLATILITY OF STOCK PRICE AND ABSENCE OF DIVIDENDS. The market price of
Immune Response's Common Stock, like that of the common stock of many other
biopharmaceutical companies in the development stages, has been and is likely to
be highly volatile. Factors such as the results of preclinical studies and
clinical trials by the Company, its collaborators or its competitors, other
evidence of the safety or efficacy of products of the Company or its
competitors, announcements of technological innovations or new products by the
Company or its competitors, governmental regulatory actions, developments with
the Company's collaborators, developments concerning patent or other proprietary
rights of the Company or its competitors (including litigation), concern as to
the safety of the Company's products, period-to-period fluctuations in the
Company's operating results, changes in estimates of the Company's performance
by securities analysts, market conditions for biopharmaceutical stocks in
general and other factors not within the control of the Company could have a
significant adverse impact on the market price of the Common Stock. The Company
has never paid cash dividends on its Common Stock and does not anticipate paying
any cash dividends in the foreseeable future. See "Price Range of Common Stock
and Dividend Policy."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. The Company's Certificate of
Incorporation and Bylaws include provisions that could discourage potential
takeover attempts and make attempts by stockholders to
11
<PAGE> 13
change management more difficult. The approval of 66 2/3 percent of the
Company's voting stock is required to approve certain transactions and to take
certain stockholder actions, including the calling of special meetings of
stockholders and the amendment of any of the anti-takeover provisions contained
in the Company's Certificate of Incorporation. Further, pursuant to the terms of
its stockholder rights plan, the Company has distributed a dividend of one right
for each outstanding share of Common Stock. These rights will cause substantial
dilution to the ownership of a person or group that attempts to acquire the
Company on terms not approved by the Board of Directors and may have the effect
of deterring hostile takeover attempts.
DILUTION. Investors participating in this offering will incur immediate
and substantial dilution. In addition, such investors will experience additional
dilution on the exercise of outstanding stock options. See "Dilution."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,900,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$27,075,000 ($31,142,250 if the Underwriters' over-allotment option is exercised
in full), assuming a public offering price of $10.00 per share and after
deducting the estimated underwriting discount and expenses of this offering.
The Company anticipates that the net proceeds of this offering will be used
to fund the on-going Phase III clinical trial with REMUNE, the research and
development of its gene therapy and cancer treatments, clinical trials for its
rheumatoid arthritis, psoriasis, multiple sclerosis and colon cancer products,
future clinical trials, the anticipated capital requirements needed to enhance
manufacturing capacity and for other general corporate purposes. The amount and
timing of these expenditures will depend on numerous factors, including the
progress of the Company's research and development programs, the success of
clinical trials, and the timing of any regulatory approval. Pending application
of the funds to such uses, the net proceeds of this offering will be invested in
interest-bearing, investment grade securities.
The Company believes that its existing capital resources, together with the
net proceeds from this offering, including investment income, will be sufficient
to satisfy its current and projected funding requirements through mid-1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market ("NNM")
under the symbol "IMNR." The following table sets forth the range of high and
low sales prices for the Common Stock on the NNM for the periods indicated since
January 1, 1994.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
First Quarter.................................... $13.75 $10.00
Second Quarter................................... 12.50 9.50
Third Quarter.................................... 10.25 6.88
Fourth Quarter................................... 8.75 5.38
YEAR ENDED DECEMBER 31, 1995
First Quarter.................................... $ 8.00 $ 2.66
Second Quarter................................... 6.75 2.69
Third Quarter.................................... 8.44 4.00
Fourth Quarter................................... 7.63 3.63
YEAR ENDED DECEMBER 31, 1996
First Quarter.................................... $ 8.50 $ 4.75
Second Quarter................................... 15.25 5.94
Third Quarter (through July 5, 1996)............. 11.38 9.88
</TABLE>
On July 5, 1996, the closing sale price of the Company's Common Stock as
reported by the NNM was $10.00 per share. As of July 5, 1996, there were
approximately 1,100 stockholders of record of the Common Stock.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings, if any, for future
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.
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<PAGE> 15
CAPITALIZATION
The following table sets forth, as of March 31, 1996, (i) the actual
capitalization of the Company, (ii) the capitalization of the Company on a pro
forma basis after giving effect to the sale by the Company of 333,334 shares of
Common Stock to Trinity in April 1996 at a purchase price of $15 per share, and
(iii) the capitalization of the Company, as adjusted to give effect to the sale
by the Company of 2,900,000 shares of Common Stock offered hereby at an assumed
public offering price of $10.00 per share, and the receipt of the estimated net
proceeds therefrom. This table should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity(1):
Preferred stock, 5,000,000 shares authorized; none
issued............................................... $ -- $ -- $ --
Common stock, $.0025 par value, 40,000,000 shares
authorized, 16,809,593 issued and outstanding,
17,142,927 issued and outstanding pro forma, and
20,042,927 issued and outstanding as adjusted(2)..... 42 43 50
Paid-in capital......................................... 146,814 151,813 178,881
Unrealized gain on available-for-sale securities........ 166 166 166
Accumulated deficit..................................... (104,417) (104,417) (104,417)
--------- --------- ---------
Total stockholders' equity........................... 42,605 47,605 74,680
--------- --------- ---------
Total capitalization............................ $ 42,605 $ 47,605 $ 74,680
========= ========= =========
</TABLE>
- ---------------
(1) The Company does not have any long-term debt. See Note 4 in Notes to
Consolidated Financial Statements for information about the Company's
commitments.
(2) Excludes 4,691,447 shares of Common Stock reserved but unissued under the
Company's stock plans under which there were options to purchase an
aggregate of 4,009,474 shares of Common Stock, at a weighted average price
of $4.18 per share, outstanding at March 31, 1996. See Note 5 in Notes to
Consolidated Financial Statements.
14
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
March 31, 1996 was $47,605,014, or approximately $2.78 per share. Pro forma net
tangible book value per share represents the amount of the Company's
stockholders' equity less intangible assets (after giving effect to the sale, in
April 1996, by the Company of 333,334 shares of its Common Stock to Trinity for
$5,000,000) divided by 17,142,927 shares of Common Stock outstanding as of March
31, 1996.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
offering made hereby and the pro forma net tangible book value per share of
Common Stock immediately after completion of this offering. After giving effect
to the sale of 2,900,000 shares of Common Stock in this offering by the Company
at an assumed public offering price of $10.00 and the receipt of the estimated
net proceeds therefrom, the as adjusted pro forma net tangible book value of the
Company as of March 31, 1996 would have been $74,680,014, or $3.73 per share.
This represents an immediate increase in net tangible book value of $0.95 per
share to existing stockholders and an immediate dilution in net tangible book
value of $6.27 per share to purchasers of Common Stock in this offering, as
illustrated in the following table.
<TABLE>
<S> <C> <C>
Assumed public offering price per share(1)............................ $10.00
Pro forma net tangible book value per share at March 31, 1996....... $2.78
Increase per share attributable to new investors.................... 0.95
------
As adjusted pro forma net tangible book value per share after this
offering............................................................ 3.73
------
Net tangible book value dilution per share to new investors........... $ 6.27
======
</TABLE>
At March 31, 1996, there were options to purchase an aggregate of 4,009,474
shares of Common Stock, at a weighted average exercise price of $4.18 per share,
outstanding under the Company's stock plans. The foregoing computations assume
no exercise of these stock options. To the extent these options are exercised,
there will be further dilution to new investors. See "Capitalization" and Note 5
in Notes to Consolidated Financial Statements.
- ---------------
(1) Before deduction of the estimated underwriting discount and offering
expenses.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
consolidated statements of operations for each of the three years in the period
ended December 31, 1995, and with respect to the consolidated balance sheets at
December 31, 1994 and 1995, are derived from consolidated financial statements
that have been audited by Ernst & Young LLP, independent auditors, which are
included elsewhere in this Prospectus and are qualified by reference to such
financial statements. The statement of operations data for the years ended
December 31, 1991 and 1992, and the balance sheet data at December 31, 1991,
1992 and 1993, are derived from audited consolidated financial statements not
included in this Prospectus. The selected financial data set forth below as of
March 31, 1996 and for the three months ended March 31, 1995 and 1996 are
derived from unaudited consolidated financial statements of the Company which
are included elsewhere in this Prospectus and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments, which
the Company considers necessary for a fair presentation of the results of
operations for such interim periods. Operating results for the three months
ended March 31, 1996 are not necessarily indicative of results that may be
expected for the entire year ending December 31, 1996. The data presented below
should be read in conjunction with the consolidated financial statements,
related notes, and other financial information included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research revenue.......... $ 4,253 $ 4,035 $ 4,768 $ 6,035 $ 1,561 $ 1,311 $ --
Licensed research revenue.......... -- -- -- 1,000 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
4,253 4,035 4,768 7,035 1,561 1,311 --
Expenses:
Research and development........... 6,367 7,620 11,854 13,511 19,489 4,193 5,477
General and administrative......... 2,360 3,578 4,119 5,608 3,684 991 768
Acquired in-process research and
development(1)................... -- 29,768 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
8,727 40,966 15,973 19,119 23,173 5,184 6,245
Other revenue and expense:
Investment income.................. 3,732 7,021 4,320 2,554 2,960 656 744
Equity in operations of joint
venture.......................... (2,259) (3,843) (8,853) (7,869) (1,284) (1,284) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,473 3,178 (4,533) (5,315) 1,676 (628) 744
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss............................. $ (3,001) $ (33,753) $ (15,738) $ (17,399) $ (19,936) $ (4,501) $ (5,501)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss per share................... $ (0.23) $ (2.19) $ (0.95) $ (1.05) $ (1.19) $ (0.27) $ (0.33)
========== ========== ========== ========== ========== ========== ==========
Weighted average number of shares
outstanding........................ 13,115,610 15,427,667 16,549,816 16,613,547 16,750,460 16,740,290 16,800,488
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................ $ 103,888 $ 90,362 $ 75,359 $ 59,328 $ 44,610 $ 38,997
Working capital...................... 104,391 91,004 75,691 59,226 43,586 37,684
Total assets......................... 109,713 103,128 86,680 68,483 50,429 44,559
Total stockholders' equity........... 108,284 100,576 84,915 67,086 48,441 42,605
</TABLE>
- ---------------
(1) Charge for acquired in-process research and development associated with the
acquisition of the Company's gene therapy technology.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Immune Response is a biopharmaceutical company engaged in the development
of proprietary products in the areas of HIV, autoimmune diseases, gene therapy
and cancer.
This discussion contains forward-looking statements concerning the
Company's operating results and timing of anticipated expenditures. Such
statements are subject to risks and uncertainties which could cause actual
results to differ materially from those projected. Factors that could cause or
contribute to such differences include those discussed under "Risk Factors," as
well as those discussed elsewhere in this Prospectus. The following should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
The Company has not been profitable since inception and had an accumulated
deficit of $104.4 million as of March 31, 1996. To date, the Company has not
recorded any revenues from the sale of products. Revenues recorded through March
31, 1996 were earned in connection with contract research, a licensing
agreement, and investment income. The Company does not have any current
collaborative agreements that will provide it with any contract revenue. The
Company expects its operating losses to continue to increase during 1996 and
beyond, as well as to have quarter-to-quarter expense fluctuations, some of
which could be significant, due to expanded research, development and clinical
trial activities.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1996
Contract research revenue for the quarter ended March 31, 1995 was $1.3
million. The Company had no contract research revenue during the quarter ended
March 31, 1996. Contract research revenue for the quarter ended March 31, 1995
primarily included reimbursement for research and development and certain
administrative expenses from the Company's former joint venture with
Rhone-Poulenc Rorer Inc. ("Joint Venture"). In March 1995, the Company acquired
Rhone-Poulenc Rorer's rights in the Joint Venture. With the termination of the
Joint Venture, the Company has no agreements that will result in significant
contract revenue. The Company has not received any revenue from the commercial
sale of products and does not expect to derive revenue from the sale of products
for the next several years, if at all.
Investment income increased to $744,000 for the quarter ended March 31,
1996, from $656,000 during the same period in 1995. This increase was, despite
the Company's cash position decreasing, due to higher interest rates during the
first quarter of 1996 compared to 1995.
Research and development expenditures of $5.5 million during the first
quarter of 1996 exceeded such expenditures during the same period in 1995 of
$4.2 million. This increase was due primarily to the expansion of clinical
testing and regulatory management of REMUNE, expansion of the Company's
autoimmune disease research programs, including Phase II clinical trials with a
rheumatoid arthritis treatment and a psoriasis treatment, as well as increased
staffing levels and purchases of laboratory materials and supplies related to
the assumption of the manufacturing of REMUNE from the Joint Venture. In
addition, research and development expenditures increased related to research
using gene therapy and cancer treatments, and such expenditures are expected to
continue to rise in the foreseeable future due to expanding preclinical and
clinical testing of the proposed autoimmune disease, gene therapy and cancer
treatments. Research and development expenses are also expected to substantially
increase due to the Company beginning a large scale Phase III clinical trial
with REMUNE in March 1996.
General and administrative expenses for the first quarter of 1996 declined
to $768,000 from $991,000 for the same period in 1995. This decrease was due
primarily to the additional costs incurred in 1995 related to the Company's
acquisition of Rhone-Poulenc Rorer's interest in the Joint Venture. General and
administrative expenses for the remainder of 1996 necessary to support the
Company's expanded research and development activities are expected to remain
relatively consistent with the first quarter of 1996.
17
<PAGE> 19
For the quarter ended March 31, 1996, the Company's net loss was $5.5
million, or $.33 per share, as compared to a net loss of $4.5 million, or $.27
per share, for the same period in 1995.
Years Ended December 31, 1993, 1994 and 1995
Contract research revenues of $4.8 million in 1993, $6.0 million in 1994
and $1.6 million in 1995 were primarily derived from a research and development
agreement with the Joint Venture. Revenues derived from this agreement included
reimbursement for research and development costs and certain administrative
expenses. The decrease in revenue received from the Joint Venture during 1995
was the result of the Joint Venture incurring costs for only two months in 1995.
Investment income was $4.3 million in 1993, $2.6 million in 1994 and $3.0
million in 1995. The fluctuation in investment income over the past three years,
despite the Company's cash position decreasing over that time period, was due to
higher interest rates during 1995 compared to 1994.
The Company's research and development expenses have increased
substantially over the past three years from $11.9 million in 1993 to $13.5
million in 1994 and to $19.5 million in 1995. These increases were primarily due
to the expansion of clinical testing and regulatory management of REMUNE,
expansion of the Company's autoimmune disease research programs, including Phase
II clinical trials with a rheumatoid arthritis treatment and a psoriasis
treatment, as well as increased staffing levels and purchases of laboratory
materials and supplies related to the assumption of the manufacturing of REMUNE
from the Joint Venture. In addition, research and development expenditures have
increased related to research using gene therapy and cancer treatments.
The Company's costs incurred for the development of REMUNE during 1993,
1994 and 1995 were $4.5 million, $5.3 million and $11.3 million, respectively.
Costs incurred for the development of potential products in the autoimmune
disease program were $3.8 million, $3.7 million and $4.1 million for the years
1993, 1994 and 1995, respectively. The gene therapy program incurred costs in
1993, 1994 and 1995 of $3.5 million, $4.3 million and $3.7 million,
respectively.
General and administrative expenses were $4.1 million in 1993, $5.6 million
in 1994 and $3.7 million in 1995. The decrease in general and administrative
expenses from 1994 to 1995 is primarily attributable to the reduction in costs
attributed to a subsidiary of the Company being relocated to California in the
fourth quarter of 1994, as well as to the reduction of approximately $1.1
million of expenses that were incurred in 1994 related to an arbitration
proceeding with Rhone-Poulenc Rorer related to the management of the research
and development activities of the Joint Venture.
The Company's allocable share of the Joint Venture's losses was $8.9
million in 1993, $7.9 million in 1994 and $1.3 million in 1995. The decrease in
expenses from 1994 to 1995 was a result of the Joint Venture incurring costs for
only two months in 1995. Since acquiring Rhone-Poulenc Rorer's interest in the
Joint Venture in March 1995, the Company ceased receiving allocations of
revenues and expenses from the Joint Venture.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception principally through
the sale of equity securities, contract research revenues from the Joint Venture
and by leasing its office and research facilities and laboratory equipment. Due
to the Company acquiring Rhone-Poulenc Rorer's interest in the Joint Venture in
March 1995, the Company will receive no further revenue from the Joint Venture.
In connection with acquiring Rhone-Poulenc Rorer's interest in the Joint
Venture, the Company agreed to pay Rhone-Poulenc Rorer up to $3 million in
royalties on future commercial sales of REMUNE, or upon certain transactions
involving licensing rights for REMUNE to a future corporate partner.
Rhone-Poulenc Rorer will provide no further funding for the development of
REMUNE.
As of March 31, 1996, the Company had working capital of $37.7 million,
including $39 million of cash, cash equivalents and short-term investments. This
compares with working capital at December 31, 1995 of
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$43.6 million, including $44.6 million of cash, cash equivalents and short-term
investments. The decrease in working capital was due to the costs of operating
the business.
In April 1996, the Company received $5 million from Trinity for the
purchase of the Company's common stock at $15 per share. Trinity has also agreed
to make additional equity investments of up to $10 million based on the
achievement of certain regulatory and commercial milestones and governmental
approvals. There can be no assurance that any such milestones or approvals will
be achieved or obtained. In addition, during July 1996, the Company received a
$6 million license fee from Bayer. The Company will also receive funding from
Bayer for the Company's hemophilia A research program. Regardless of whether
such additional funds are received from Trinity, and despite the funding to be
received from Bayer, the Company may need to raise additional funds for
expanding research and development activities in gene therapy and cancer,
conducting the Phase III clinical trial for REMUNE initiated in March 1996, and
enhancing the manufacturing facilities to enable production of commercial
quantities of the Company's products. In particular, the Company anticipates
that the Phase III REMUNE clinical trial costs will be approximately $10 million
per year, with an additional $10 million cost per year for manufacturing,
research and all other costs associated with the product for up to three years.
The anticipated costs with respect to REMUNE will depend on many factors,
including the successful enrollment of the Phase III clinical trial, the
availability of third party reimbursement based on gaining "treatment" IND
status for the expanded access protocols for REMUNE, the potential for
accelerated approval and certain other factors which will influence the
Company's determination of the appropriate continued investment of the Company's
financial resources in this program. To obtain such funding, the Company may
consider collaborative arrangements and public or private financings. There can
be no assurance that such arrangements or funds will be available. The Company
believes that its current capital resources, plus the proceeds of this offering,
will meet its anticipated requirements through mid-1998.
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BUSINESS
This Prospectus contains forward-looking statements. Such statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those projected. Factors that could cause or contribute to such
differences include those discussed under "Risk Factors," as well as those
discussed elsewhere in this Prospectus.
GENERAL
Immune Response is a biopharmaceutical company with proprietary
technologies in four core areas: HIV, autoimmune diseases, gene therapy and
cancer. The Company is conducting clinical trials for potential immune-based
therapies for HIV, psoriasis, rheumatoid arthritis, multiple sclerosis and colon
cancer and preclinical studies for brain and prostate cancers. The Company has
potential gene therapies in preclinical studies for cardiovascular disease,
hemophilia and hepatitis. The Company intends to retain ownership of its core
technologies and to license selected applications.
TREATMENTS UNDER DEVELOPMENT(1)
LOGO
- ---------------
(1) The table is not intended to depict the relative lengths of time of any of
the stages of drug discovery and preclinical and clinical development. The
amount of time spent in any phase of development will vary substantially
from product to product and there can be no assurance that any of the
products will proceed beyond the phase depicted or will receive regulatory
approval. See "Government Regulation."
REMUNE HIV THERAPY
Background. The World Health Organization estimates there are
approximately 20 million individuals, including 1.5 million children, around the
world infected with HIV, which has been identified as the cause of AIDS. In the
United States, the number of HIV-infected individuals is estimated at 1.5
million. The HIV
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epidemic represents a significant societal threat to both developed and
developing nations since most of the HIV-infected individuals are expected to
ultimately develop AIDS, creating a significant burden on healthcare systems and
economies around the world.
Shortly after an individual is infected with HIV, the virus multiplies
rapidly and can be detected in the blood. The immune system responds by
producing an antibody and cellular immune response capable of attacking HIV.
While this and other responses are usually sufficient to temporarily arrest
progress of the infection and reduce levels of virus in the blood, the virus
continues to replicate and slowly destroy the immune system by infecting and
killing critical T cells, known as CD4 cells, which are needed to maintain the
immune system. As the infection progresses, the immune system control of HIV
levels weakens, the level of virus in the blood rises and the level of CD4 cells
declines to a fraction of normal levels. These events are followed by
progression of the disease and the collapse of the immune system, leaving the
body susceptible to fatal infections and cancers. AIDS represents the "end
stage" of the HIV infection, and is characterized by pneumonia and other
infectious diseases of the pulmonary system, central nervous system,
gastrointestinal tract and skin, as well as cancers such as Kaposi's sarcoma and
lymphoma.
Product Description. The Company's most advanced therapy in clinical
trials, REMUNE, is based upon an approach first suggested by the late Dr. Jonas
Salk, a co-founder of the Company. REMUNE is composed of inactivated HIV,
depleted of its outer coat (envelope, gp120) ("envelope"), and emulsified in
Incomplete Freund's Adjuvant ("IFA"), an agent which elicits a more potent
immune response by more effectively presenting the inactivated virus to the
immune system. REMUNE is manufactured by first culturing HIV-infected human T
cells. The virus is then purified from this cell culture and inactivated using
two separate procedures. The virus is first inactivated with betapropiolactone,
a chemical agent commonly used for viral inactivation, and then physically
inactivated with irradiation. Each of these procedures alone is capable of
inactivating HIV. During processing and purification, the outer envelope protein
of the virus, known as gp120, is depleted from the inactivated HIV. The final
envelope-depleted HIV is emulsified in IFA and is filled in syringes for
intramuscular administration. When introduced into HIV-infected individuals,
REMUNE stimulates an immune system response, which the Company believes may
provide a safe, effective and long-lasting benefit to these individuals.
The Company believes that REMUNE has certain potential advantages relative
to other HIV therapies approved or in development. In particular, antiviral
therapies (reverse transcriptase inhibitors including AZT, ddI, d4T, ddC and
3TC; and protease inhibitors including Saquinavir, Ritonavir and Indinovir) have
been associated with significant toxicity and viral resistance. There are many
HIV-infected individuals in the United States currently not using antiviral
therapies, often due to the side effects associated with these therapies. The
Company believes REMUNE may be an appropriate treatment for HIV-infected
individuals to take alone or in combination with other treatments.
Human Clinical Trials. The Company has completed several Phase I and Phase
II clinical trials of REMUNE involving over 280 HIV-infected individuals. The
Company believes these clinical trials have suggested no significant toxicity or
serious side effects associated with the product, as well as suggested the
ability of REMUNE to enhance an immune system response against HIV.
In an open-label Phase I clinical trial, which began in 1987, 25
HIV-positive individuals were treated with REMUNE. Of those individuals, 12
developed an HIV-specific immune response (as measured by a skin test), of whom
11 have not experienced significant progression of the disease. One individual
subsequently developed a secondary infection and died. By contrast, of the 13
individuals who did not develop an HIV-specific immune response, nine progressed
to AIDS and seven have died. This data suggests that REMUNE stimulates an immune
response in some HIV-infected individuals and the Company believes that there is
a correlation between such immune response and stabilization of an individual's
health. The long-term follow-up results from this clinical trial were published
in the Journal of Acquired Immune Deficiency Syndromes and Human Retrovirology
in April 1996.
Two Phase II clinical trials of REMUNE were conducted to assess the ability
of this therapy to stimulate immune system responses against HIV, to evaluate
the effect of REMUNE on early markets of progression in asymptomatic
HIV-infected individuals and to monitor safety. A double-blind,
placebo-controlled Phase II
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dose-ranging clinical trial involving 60 asymptomatic HIV-infected individuals
was conducted to determine the ability of REMUNE administered at various doses
to enhance responses to HIV proteins. A second double-blind, placebo-controlled
Phase II clinical trial of REMUNE was also conducted on 103 HIV-infected
individuals to evaluate the effect of the therapy on the level of virus in the
blood and other potential surrogate markers for disease progression. The Company
believes the results of these clinical trials suggest that REMUNE is safe and
well tolerated and may have a favorable impact on multiple markers of HIV
disease progression including viral burden, CD4 cell count, HIV-specific
cell-mediated immunity, antibody production and weight gain. The results of
these clinical trials were published in the British scientific journal AIDS in
October 1994 and The Journal of Infectious Diseases in June 1994.
The definitive clinical benefit of these effects is unknown and will be
evaluated in a Phase III clinical trial in up to 3,000 individuals that began in
March 1996. This trial is designed to determine whether treatment with REMUNE
can delay the onset of AIDS in HIV-infected individuals. While this Phase III
clinical trial is designed to provide evidence of the effectiveness of REMUNE
based on clinical endpoints, there can be no assurance that the trial will
successfully do so. The mechanism by which HIV affects the immune system is
particularly complex and presents many challenges to successful treatment of the
viral infection.
To support the Phase III clinical trial, the Company has established
relationships with leading academic and clinical institutions in an attempt to
place control of the design, statistical results, data and laboratory results in
the hands of third parties. Over 50 clinical sites have been selected and
invited to participate in the trial. Physicians from the University of
California-San Francisco, The Johns Hopkins University, Brown University and
Cornell University have assisted in the design of this trial and will
participate in managing the trial as Principal Investigators. The statistical
plans for the trial and future data analyses will be conducted by
biostatisticians at Harvard University. Data management and analysis of patient
samples for this trial will be conducted by Quintiles, Inc., while an
independent data monitoring board of clinicians and statisticians will review
the data during the interim and final analyses. The Phase III clinical trial
protocol and implementation plan have been developed with HIV scientific leaders
and HIV community advocates. This trial design has been reviewed by an FDA
Advisory Committee, and the trial has been designated by the FDA as a pivotal
Phase III clinical trial. Enrollment in the Phase III clinical trial is
proceeding more quickly than projected by the Company. Subsequent to the start
of the Phase III clinical trial, the FDA granted expanded access to REMUNE.
Expanded access is a procedure whereby patients who are ineligible to enroll in
the Phase III clinical trial are provided treatment under a separate clinical
trial protocol. Under this protocol those additional patients eligible to
receive REMUNE will be monitored primarily for safety. The FDA has to date not
designated expanded access protocols for REMUNE as "treatments" protocols.
Either expanded access or a treatment protocol designation might permit third
party reimbursement of some of the costs associated with making REMUNE available
to patients in an expanded access context. The Company expects to dedicate a
substantial portion of its resources to the REMUNE program. See "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In May 1996, the Company, in conjunction with the NIH, initiated a Phase I
clinical trial in HIV-infected children. This pediatric clinical trial is being
funded principally by the NIH, and is designed to investigate the safety of
REMUNE, as well as its ability to elicit an HIV-specific immune response in this
patient population. This pediatric clinical trial will involve up to 32
HIV-infected children, all of whom will receive REMUNE.
In September 1995, the Company signed an agreement with Trinity to license
the rights to develop, market and distribute REMUNE in Thailand and certain
other Southeast Asian countries. This agreement allows Trinity to conduct
clinical trials using REMUNE in up to 10,000 HIV-infected individuals in
Thailand. The clinical program sponsored and funded by Trinity is designed to
complement the Company's clinical trials in the United States. The Phase II
clinical trial, which began in March 1996 and involves up to 300 HIV-infected
individuals, is designed to evaluate whether REMUNE is safe, elicits an immune
response and has a favorable impact on CD4 cell counts. Other clinical trials of
HIV-infected individuals in Thailand may include a 2,000-person clinical
endpoint trial to seek to determine the effectiveness of REMUNE in delaying the
progression of HIV infection to AIDS, and an open-label safety trial involving
up to 7,700 individuals. Clinical
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trials conducted in Thailand will be monitored by an independent clinical
research organization, and conducted under the guidelines of the Thailand
Ministry of Public Health.
In addition to funding development costs of REMUNE in Thailand, Trinity has
agreed to make an equity investment of up to $15 million in the Company based on
the achievement of certain regulatory and commercial milestones and governmental
approvals. On April 30, 1996, the Company received the first $5 million equity
investment from Trinity in exchange for 333,334 shares of common stock of the
Company priced at $15 per share. There can be no assurance, though, that any
further milestones or approvals will be achieved or obtained.
Patents. In 1993, the Company received a United States patent relating to
REMUNE. The Company has also received similar patents in Australia, certain
European countries, Japan and Russia. The Company has additional patent
applications relating to REMUNE on file in the United States, as well as in
other countries. The patent applications cover, in part, certain products and
methods of their use for the immunotherapeutic treatment of HIV-infected
patients and/or preventive treatment of uninfected individuals. There can be no
assurance that any additional HIV-related patents will be issued to the Company.
Further, there can be no assurance that the issued patents, or any patent that
may be issued in the future, will survive opposition or provide meaningful
proprietary protection.
Manufacturing. The Company subleases a 51,000 square foot facility in King
of Prussia, Pennsylvania to manufacture REMUNE for clinical trials and, if the
product is approved by the FDA, initial commercial production. The Company
assumed full operating control of this facility in March 1995, and obtained
release of the first clinical materials from this facility in June 1995 for the
continued treatment of participants in prior clinical trials. In February 1996,
the Company received clearance from the FDA to release the product for use in
clinical trials. The Company believes the facility is capable of supplying
clinical trial quantities and, if approved for commercial distribution, initial
commercial quantities of REMUNE. The Company relies on a third party for the
final inactivation step of the manufacturing process. If the proposed
manufacturing operations prove inadequate, there can be no assurance that any
arrangement with a third party can be established on a timely basis, or that the
Company can establish other manufacturing capacity on a timely basis. The
Company believes that the raw materials necessary to produce REMUNE are readily
available from various sources.
Competition. Competition among companies developing treatments for HIV
infection is intense and is expected to increase. In general, this competition
falls into three categories: antiviral drug therapies, prophylactic therapies to
prevent or treat infections associated with AIDS and immune-based therapies
intended to enhance general immune responses or specific responses against HIV.
These three approaches to the treatment of HIV infection may be complementary
and synergistic. The Company's Phase III clinical trial will allow the combined
use of REMUNE with anti-viral drug therapies.
The first category of competition includes five FDA approved reverse
transcriptase inhibitors and three FDA approved protease inhibitors manufactured
by major pharmaceutical companies. These products have been shown to be
effective at reducing the blood levels of virus, but are often associated with
significant toxicity and induction of viral resistance. The second category
includes a number of antibacterial and antifungal agents used in the treatment
of HIV-infected individuals in the later stages of the disease. The third
category, immune-based therapies, includes other agents intended to stimulate
the immune system against HIV, such as the envelope or core protein therapeutic
vaccines, and more general immune stimulants such as interleukin-2 ("IL-2") and
other cytokines.
Many of the Company's competitors have substantially greater experience,
financial and technical resources and production, marketing and development
capabilities than the Company. There can be no assurance that competitors have
not or will not succeed in developing technologies and products more quickly or
that are more effective than any which have been or are being developed by the
Company or which would render the Company's technology and products obsolete and
noncompetitive.
AUTOIMMUNE DISEASE TECHNOLOGY
Background. While the normal immune system is closely regulated,
aberrations in immune response are not uncommon. In some instances, an
individual's immune system functions inappropriately and reacts to a component
of the individual's body as if the component were foreign. Such a response
results in an
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autoimmune disease, in which the immune system attacks the individual's own
tissue. In certain major autoimmune diseases, "autoreactive" T cells are
believed responsible for the attack and destruction of the individual's own
tissue. Current treatments for these diseases address only symptoms while the
diseases continue to progress, often resulting in severe debilitation or death.
Technology. The Company's proprietary autoimmune treatments are designed
to inhibit the autoreactive T cells that the Company believes cause the tissue
damage in certain autoimmune diseases. The goal of the Company's autoimmune
disease therapies is to induce specific immune responses via unique markers on
the T cell receptors present on autoreactive T cells. The immune response
generated will recognize the unique markers and inhibit the autoreactive T
cells. The Company's technical strategy is to isolate autoreactive T cells,
identify their unique T cell receptors and synthesize immunotherapeutics based
on peptides (amino acid sequences) located within these receptors. The Company
is pursuing this innovative approach for the treatment of rheumatoid arthritis,
psoriasis and multiple sclerosis. In preclinical studies published in the
journal Science in November 1989, Immune Response demonstrated that vaccination
with synthetic peptides containing a portion of the autoreactive T cell receptor
can be used to successfully prevent an autoimmune disease in a preclinical
model.
The Company believes that its approach to the treatment of autoimmune
disease may provide several advantages over existing therapies and competing
approaches based on immune system regulation. In preclinical studies,
immune-based therapies using T cell receptor peptides have demonstrated lack of
toxicity and specific impact on the disease-causing cells. These results,
combined with the ease of administration through periodic intramuscular
injection and the potential for a long-lasting response of an active immune-
based therapy, may provide a favorable profile supporting the use of the
Company's rheumatoid arthritis, psoriasis and multiple sclerosis therapies if
successfully developed and approved by the FDA.
Rheumatoid Arthritis Therapy. Rheumatoid arthritis, a chronic inflammatory
disease is characterized by persistent inflammation of the lining of the joints
accompanied by stiffness and pain or tenderness on motion. It is estimated that
approximately four million individuals in the United States, and 53 million
worldwide, suffer from rheumatoid arthritis. Currently available therapies for
rheumatoid arthritis generally have adverse side effects and address only the
symptoms of the disease. By contrast, the Company's rheumatoid arthritis therapy
is intended to target and inhibit the specific T cells thought to be involved in
the disease process. The Company believes this inhibition may reduce the series
of inflammatory events that occur as the disease progresses.
The Company's rheumatoid arthritis immune-based therapy under development
is based on a combination of three peptides from the V(LOGO)b3, V(LOGO)b14 and
V(LOGO)b17 T cell receptors emulsified in IFA. The Company published, in the
Proceedings of the National Academy of Sciences in December 1991, the discovery
of these specific T cell populations that the Company believes may cause
rheumatoid arthritis. The treatment being developed by the Company is designed
to stimulate the immune system of a rheumatoid arthritis patient to control
these T cells. The Company believes that eliminating or inhibiting these T cells
may prevent further damage to the tissue of joints. Several scientific
publications since 1991 by research groups independent of the Company have
confirmed the involvement of one or more of these T cell populations in
rheumatoid arthritis.
Since 1992, the Company has conducted three Phase I clinical trials using
single T cell receptor peptides. These trials involved a total of 45 patients
and provided preliminary evidence that this therapeutic approach is safe and
well tolerated by rheumatoid arthritis patients and that the therapy may
stimulate the immune system to recognize key portions of the T cell receptors.
Based upon the results of the Phase I clinical trials, the Company applied for
and received permission from the FDA to begin a Phase II clinical trial using a
combination of peptides. In August 1995, the Company initiated a Phase II
clinical trial to evaluate the safety and the ability of its rheumatoid
arthritis treatment to elicit an immune response. This trial involves over 90
rheumatoid arthritis patients and is designed to determine the ability of the
rheumatoid arthritis therapy to stimulate responses against the targeted T cells
and to determine an optimal dose of the therapy. Results from this trial are
expected by the end of 1996.
Psoriasis Therapy. Psoriasis is a chronic and recurrent proliferative
disease of the skin characterized by irritating and sometimes painful, defined
red patches covered with silvery-white scales. It afflicts approxi-
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mately five million individuals in the United States. A distinguishing feature
of the disease is the rapid sloughing of skin layers. While normal skin cells
mature in 28 to 30 days, skin cells of psoriasis patients move to the surface of
the skin in approximately four days. Current treatments, which range from
topical ointments to phototherapy, address the symptoms of psoriasis rather than
the cause of the disease. By contrast, the Company's psoriasis therapy is
intended to target and inhibit the immune system cells that may be involved in
the initiation of the disease process.
The Company's immune-based therapy under development for psoriasis is based
on a combination of two peptides from the V[Greek Beta symbol]3 and V[Greek Beta
symbol]13.1 T cell receptors emulsified in IFA. The Company published, in the
Proceedings of the National Academy of Sciences in 1994, the discovery of these
two T cell populations, which the Company believes initiate the events that lead
to the irritating and sometimes painful lesions found on the skin of psoriasis
sufferers. The treatment being developed by the Company is designed to stimulate
the immune system of a psoriasis patient to control these T cells. The Company
believes that eliminating or inhibiting these T cells may alleviate the effects
of this disease.
The safety of the Company's T cell receptor therapy approach has been
tested since 1992 in 55 patients treated in the Phase I rheumatoid arthritis and
multiple sclerosis clinical trials. After reviewing the results from these Phase
I clinical trials, the FDA allowed the Company to proceed directly into a Phase
II clinical trial with its combination peptide psoriasis therapy. In September
1995, the Company initiated a Phase II clinical trial to evaluate the safety and
the ability of its psoriasis treatment to elicit an immune response. The ongoing
Phase II clinical trial involves over 90 psoriasis patients and is designed to
determine the ability of the psoriasis therapy to stimulate responses against
the targeted T cells and to determine an optimal dose of the therapy. Results
from this trial are expected by the end of 1996.
Multiple Sclerosis Therapy. Multiple sclerosis afflicts approximately
250,000 individuals in the United States and more than 1.1 million individuals
worldwide. Multiple sclerosis is a chronic disease of the central nervous system
and one of the most common causes of chronic neurologic disability in young
adults. The disease is characterized by weakness or paralysis in the limbs,
vertigo and incontinence. In acute stages, muscular wasting, progressive visual
failure, epilepsy and aphasia are common. The chronic progressive form of the
disease usually leads to a complete loss of the ability to walk within two years
of onset and total disability after eight to ten years.
The Company's immune-based therapy under development for multiple sclerosis
also uses peptides from amino acid sequences found on T cells, emulsified in
IFA. The T cells from individuals afflicted with multiple sclerosis were found
in the cerebrospinal fluid of individuals afflicted with multiple sclerosis. The
Company believes that these specific T cells initiate the events that lead to
the debilitating and often fatal results. The treatment being developed by the
Company is designed to stimulate the immune system of a multiple sclerosis
patient to control these T cells. The Company believes that eliminating or
inhibiting these T cells may alleviate the effects of this disease.
In January 1995, in collaboration with the Sidney Kimmel Cancer Center
("SKCC"), the Company completed a Phase I clinical trial in multiple sclerosis
patients, which provided evidence that this therapy is safe and well tolerated
and that it may stimulate the immune system to recognize key portions of the T
cell receptors.
Patents. During January 1994, the European Patent Office granted the
Company a patent covering vaccination and methods against diseases resulting
from pathogenic responses by specific T cell populations. In May 1994, the
Australian Industrial Property Organisation accepted a similar application of
the Company. These patents include composition and method claims for the
prevention or treatment of certain autoimmune diseases, such as rheumatoid
arthritis, psoriasis and multiple sclerosis. The Company also has additional
patent applications relating to its autoimmune technology on file in the United
States and other countries, including members of the European Patent Convention
and Japan. These patent applications cover certain compositions and methods
relating to the use of T cell receptor peptide sequences to vaccinate against
autoreactive T cells involved in autoimmune disease. There can be no assurance
that any further autoimmune disease patents will be issued to the Company or
that any issued patents, or any patent that may be issued in the future, will
survive opposition or provide meaningful proprietary protection. The Company is
aware that a
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group working with Connective Therapeutics, Inc. has filed patent applications
related to autoimmune disease research which covers technology similar to that
used by the Company.
Manufacturing. The Company has established a pilot manufacturing facility
at its headquarters in Carlsbad, California for the production of these
therapies. The Company believes this facility will be adequate to supply
clinical trial quantities of all its autoimmune disease therapies, but that
additional manufacturing capacity will be needed for commercial scale
production, if approved for commercial sale. For the manufacture of the
autoimmune disease therapies, the Company obtains synthetic peptides from third
party manufacturers. The Company believes that the synthetic peptides and other
materials necessary to produce the autoimmune disease therapies are readily
available from various sources and several suppliers may be capable of supplying
the autoimmune disease therapies in both clinical and commercial quantities.
Competition. Several emerging technologies related to immune system
regulation, if successfully developed, could compete with the Company's
autoimmune disease treatments. The Company believes that its principal
competition in the autoimmune disease area will come from companies conducting
research in the areas of T cell receptors, interaction between T cells and the
target antigen and tissue, specific targeting of activated T cell populations,
and mechanisms of tolerance including oral tolerance approaches. Scientific
reports on T cell receptor research have also discussed approaches similar to
that of the Company. The Company is aware that a group working with Connective
Therapeutics, Inc. is researching and developing autoimmune disease treatments
through an approach substantially similar to the Company's approach. This
effort, if successful, could compete with the Company in the development and
marketing of autoimmune disease treatments.
Many of the Company's competitors have substantially greater experience,
financial and technical resources and production, marketing and development
capabilities than the Company. There can be no assurance that competitors have
not or will not succeed in developing technologies and products more quickly or
that are more effective than any which have been or are being developed by the
Company or which would render the Company's technology and products obsolete and
noncompetitive.
GENE THERAPY TECHNOLOGY
Technology. The Company's proprietary GeneDrug products under development
are based on a patented delivery technology, licensed from The University of
Connecticut Research Foundation ("University of Connecticut"), for intravenous
injection and targeting of genes or drugs directly to liver cells. In May 1996,
a United States patent application was indicated allowable that expands the
Company's technology for the targeted delivery of a soluble molecular complex to
any receptor on any mammalian cell, in addition to liver cells. Also, the
soluble molecular complex is not limited to the delivery of DNA, but may include
any polynucleotide, such as RNA, oligonucleotides or ribozymes. The Company
believes this technology may have several advantages over current therapies
including:
- Targeted delivery: The Company is developing technology designed to
deliver therapeutic genes and other compounds rapidly and specifically to
the liver. Liver hepatocytes provide an effective target for many
liver-related diseases.
- Versatility: This delivery system utilizes a universal targeting agent
capable of delivering genes for intracellular, cell surface and secreted
proteins. Different diseases can be addressed by simply changing the gene
of interest.
- Safety: The Company's technology does not use viruses as delivery
agents, and is therefore designed to avoid unwanted immune responses or
potentially cancer causing genetic changes. This may provide a
significant safety advantage over many gene therapy systems under
development which use disabled viruses to carry the gene to the cell
nucleus.
- Commercial potential: Each gene therapy product under development by
the Company is intended to be prepared and distributed like a traditional
injectable pharmaceutical. These therapies would not require
patient-specific processing of cells outside the body such as those which
may be required in certain other gene therapy systems under development.
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The Company's intravenous injection gene delivery system is a formulated
cassette-system consisting of a targeting protein and a linker protein to which
the gene is attached for delivery of the gene directly to the liver cells. The
Company's current GeneDrug focus is on the treatment of cardiovascular disease
(atherosclerosis), hemophilia and chronic hepatitis.
Cholesterol-Lowering Agents for Atherosclerosis. Studies indicate that
seven million people in the United States are afflicted with some form of
coronary heart disease. Cardiovascular diseases account for more than half of
all deaths in the United States, and are also the leading cause of death in
Europe and Japan. There are two primary types of cholesterol. The first being
high-density lipoprotein ("HDL"), often referred to as the "good cholesterol."
The second type of cholesterol is low-density lipoprotein ("LDL"), often
referred to as the "bad cholesterol." It is generally recommended that
individuals with coronary heart disease lower their LDL levels and raise their
HDL levels.
The Company is developing several GeneDrugs designed to help manage
cholesterol levels in individuals at high risk of developing coronary heart
disease. The leading product candidate is a targeted gene complex incorporating
the gene which codes for the production of the LDL receptor protein. This
protein is expressed on the surface of liver cells and regulates removal of LDL
from the blood. Increased levels of the LDL receptor protein on liver cells has
been shown to increase the rate of removal of LDL from the bloodstream and thus
lower serum LDL cholesterol levels.
The Company has completed initial preclinical studies demonstrating a 30%
reduction in serum LDL cholesterol levels in rats after delivery of the LDL
receptor protein through the Company's proprietary GeneDrug system. The levels
of LDL remained below the baseline levels for more than 20 days following
administration. If similar effects can be obtained in human clinical trials with
a safe and well tolerated therapy, the Company believes that such a therapy may
provide an effective treatment to lower cholesterol in this patient population.
The Company is preparing for preclinical toxicology and other studies
intended to support an IND application filing in 1997 for an LDL
cholesterol-lowering agent based on the targeted delivery of the LDL receptor
gene. This targeted gene therapy product is being developed initially as a
treatment for patients with elevated cholesterol levels due to genetic
deficiency of the LDL receptor gene and may be applicable to broad populations
of individuals with elevated cholesterol levels. The Company is also in active
research on other potential targets for lowering LDL cholesterol or raising HDL
cholesterol.
Hemophilia Therapy. Hemophilia A, a hereditary blood clotting disorder,
results from the dysfunction or absence of the Factor VIII protein.
Approximately one of every 5,000 live male births in the United States result in
a child afflicted with hemophilia A. Treatment for hemophilia A currently
consists of administering the missing Factor VIII protein, either purified from
blood or produced through recombinant DNA technology. Factor VIII therapy is
normally used to treat acute bleeding episodes when they occur. Maintaining
therapeutic blood concentrations of Factor VIII should prevent bleeding episodes
and other complications of hemophilia, but current replacement Factor VIII
therapies are prohibitively expensive for daily infusion.
The Company's GeneDrug technology system is designed to produce therapeutic
concentrations of Factor VIII by delivering the gene that produces this protein.
Once delivered to the liver cells, the Factor VIII gene may express the desired
protein and secrete this protein into the bloodstream on a continuous basis for
several weeks. If successful, this product would eliminate the regular bleeding
episodes associated with hemophilia by allowing the patient to receive periodic
injections in order to keep Factor VIII at therapeutic levels.
In July 1996, Immune Response entered into an agreement with Bayer, the
United States affiliate of Bayer AG of Leverkusen, Germany, to develop gene
therapy products for the treatment of hemophilia A, a blood clotting disorder.
Bayer is a market leader in the treatment of this hereditary blood coagulation
disorder. Bayer made an initial license payment to Immune Response of $6 million
upon signing this agreement. Bayer has also indicated that it may purchase $4
million of Immune Response Common Stock in this public offering. In addition,
during the term of the agreement, the Company will receive research funding from
Bayer for
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Immune Response's hemophilia A program and may receive milestone payments and
royalties on future sales, if a product is developed and commercialized. Under
the agreement, Bayer is responsible for all medical and regulatory activities
associated with developing any potential hemophilia A products, and will also be
responsible for commercial-scale manufacturing and commercialization of any such
product developed. The agreement provides Bayer with a worldwide exclusive
license to the Company's GeneDrug technology for the delivery of the Factor VIII
gene and the option to enter into negotiations with the Company to use this
technology to treat other blood coagulation disorders.
Hepatitis Therapy. Hepatitis B is a chronic viral infection of the liver.
As many as 300 million individuals are infected with hepatitis B virus ("HBV")
worldwide and in the United States there are approximately 300,000 new cases of
HBV infection each year.
Hepatitis C virus ("HCV") was recently identified as the major cause of
non-A/non-B hepatitis, of which there are at least 75,000 new cases in the
United States each year. Chronic hepatitis C results in a significant number of
cases of liver injury and cirrhosis, and is strongly linked to a high risk of
liver cancer.
Recombinant IFN[inferior letter a] is currently approved for treatment of
both HBV and HCV infection. A preclinical study evaluating delivery of the
IFN[inferior letter a] gene has demonstrated successful expression of
IFN[inferior letter a] protein in liver cells. The Company believes that its
GeneDrug system can significantly enhance interferon therapy by achieving
continuous, low-level expression and secretion of the protein specifically in
liver cells. This form of interferon treatment would concentrate the protein at
the site of hepatitis infection, potentially enhancing the efficacy of the
treatment and reducing side effects normally observed with systemic introduction
and distribution of interferon. In addition, expression of the delivered
IFN[inferior letter a] gene in liver cells for several weeks to months would
significantly reduce the frequency of treatments required compared to repeated
systemic administration. In addition, treatment regimens using higher doses and
lasting for six to 18 months are now being proposed to increase the
effectiveness of interferon treatment and substantially increase the cost of
treatment.
The Company is preparing to conduct preclinical studies to determine the
toxicity and potential efficacy of targeted interferon alpha gene delivery. If
these studies are successful, the Company may file an IND application in 1997
for a hepatitis clinical trial.
Patents. In November 1992, the Company obtained the exclusive license to a
U.S. patent, received by the University of Connecticut, covering the Company's
core gene delivery system technology, including methods and compositions for
delivering DNA to the liver via receptors on the surface of liver cells. In
addition, during 1995 and 1996, one additional Australian patent issued and four
patent applications were allowed in the United States, Europe and Australia, all
of which are exclusively licensed by the Company. If patents from these
applications are issued, the Company's patent protection for its core technology
in the United States may be extended to include the delivery of any
polynucleotide to any mammalian cell via any internalizing cell surface
receptor. Thus, the Company's protection in the United States would no longer be
limited to just liver cells. In Europe and Australia, the Company would have
patent protection for the targeted delivery of genes encoding immunogenic
proteins to any cell type for the purpose of eliciting an immune response. The
Company also exclusively licenses an Australian patent covering targeted
delivery of viruses or cells for selective internalization by liver cells.
The Company is presently seeking to obtain licenses from several different
third parties which are required to practice the Company's gene targeting
technology using certain patented genes. There can be no assurance that the
Company will be able to obtain such licenses on commercially favorable terms, if
at all, and if these licenses are not obtained, the Company might be prevented
from using certain of its technologies. The Company's failure to obtain a
license required to continue practicing its own technologies would have a
material adverse effect on the Company.
There can be no assurance that any additional gene therapy patents will be
issued to the Company. Further, there can no assurance that the issued patents,
or any patent that may be issued in the future, will survive opposition or
provide meaningful proprietary protection.
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Competition. The Company believes that competition in the treatment of the
diseases targeted by its gene therapy program will be of two types: chronic
treatment with pharmaceutical products; and other gene therapy systems under
development for insertion of the correct gene. There currently exist a number of
approved therapies for treatment of hemophilia, hepatitis B and C, and
atherosclerosis. Both purified and recombinant forms of Factor VIII have been
approved by the FDA for treatment of hemophilia and are effective to stop
bleeding episodes and to prevent bleeding if provided on a regular basis to
maintain serum concentrations. Interferon alpha-2b is currently approved for
treatment of both chronic hepatitis B and C. Other interferons available in the
United States for unlabeled use in treatment of viral hepatitis are interferon
alpha-2a and interferon alpha-n3. In addition to interferons, a variety of
nucleoside analogs have been tested for treatment of chronic hepatitis B,
including 3TC. There are also approved therapies that reduce serum LDL for the
treatment of atherosclerosis.
Several major pharmaceutical companies are investigating gene therapy
treatments for the delivery of proteins to treat these diseases. If these prove
effective, they may compete with the Company's gene delivery therapies. Many of
the Company's competitors have substantially greater experience, financial and
technical resources and production, marketing and development capabilities than
the Company. There can be no assurance that competitors have not or will not
succeed in developing technologies and products more quickly or that are more
effective than any which have been or are being developed by the Company or
which would render the Company's technology and products obsolete and
noncompetitive.
CANCER TREATMENTS
Background. Cancer is characterized by the uncontrolled growth of abnormal
cells that spread from the anatomic site of origin. This growth, if
uncontrolled, invades vital organs and may result in death. However, many
cancers can be cured if they are detected early and treated promptly; others can
be controlled for many years with a variety of treatment approaches. Cancer is
most often treated by surgery, radiation, chemotherapy, hormones and more
recently, immunotherapy.
Technology. Immune Response is utilizing distinct proprietary technologies
for the development of more effective cancer therapies. The Company initially
intends to focus on treatments for colon, brain and prostate cancers. Each of
the technologies being developed uses a combination of advanced gene therapy
techniques with vaccine technology to enable the immune system to recognize and
control tumor growth.
- Technologies to increase immune system recognition of cancers
The first technology is designed to treat cancer patients with
irradiated tumor cells in combination with fibroblasts genetically
modified to produce cytokines such as IL-2. The genetic modification
results in immune stimulating cytokines being present to help the
patient's immune system to recognize and clear tumor cells. This
technology is currently in a Phase I clinical trial for colon cancer.
The second technology utilizes the body's most immunologically powerful
antigen-presenting cell, the dendritic cell, exposed to antigens
isolated from B cell lymphoma to stimulate the immune response system
to recognize and reject lymphoma cells.
- Technology to inhibit cancer evasion of the immune system
This technology is designed to prevent the cytokine known as
transforming growth factor beta ("TGF-(LOGO)b") from helping tumor
cells evade detection. TGF-(LOGO)b is overproduced in many cancer cells
and is believed to subvert the immune response to tumor cells by making
them essentially invisible to the immune system. The technology being
developed is designed to introduce a gene into tumor cells to inhibit
the production of TGF-(LOGO)b. A Phase I clinical trial for brain
cancer, using this technology, is being planned for 1997.
- Technology to sensitize cancer to conventional therapies
This technology is designed to make tumor cells more susceptible to
chemotherapy or radiation treatment. Tumor cells are genetically
modified to produce the cytokine interleukin-3 ("IL-3")
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which results in tumor cells becoming more sensitive to radiation
treatment. A Phase I clinical trial for prostate cancer, using this
technology, is being planned for 1997. A similar genetic modification
using IL-2 has been observed in the Phase I clinical trial for colon
cancer that renders tumor cells more sensitive to chemotherapy in colon
cancer.
Colon Cancer. It is estimated that nearly 140,000 individuals in the
United States developed colon cancer in 1995 and an estimated 55,000 deaths were
attributable to colon cancer in the United States in 1995.
The Company's therapy under development is comprised of irradiated
fibroblasts from a skin biopsy, genetically modified to produce IL-2, combined
with irradiated tumor cells excised from the patient. In preclinical studies,
immunization with a preparation of the modified fibroblasts and tumors prevented
tumor growth in six out of eight treated rats. The tumors in all of the control
rats continued to grow.
In June 1995, the Company, in conjunction with SKCC, initiated a Phase I
clinical trial of this potential therapy in colon cancer patients that have
failed conventional therapy. The Phase I clinical trial in up to 12 patients
involves the preparation of a custom therapy for each patient. Results from this
trial are expected during early 1997. The Company is developing therapies that
would alleviate the need for isolating fibroblasts and tumor cells from each
patient resulting in a potential universal product. Success in this development
program may lead to the application of this technology to other solid tumors.
Brain Cancer. Brain tumors are responsible for significant morbidity and
mortality in both pediatric and adult populations. The most common type of brain
cancer is glioma, a tumor that arises in the supportive tissue of the brain.
Glioma tumor cells are known to overproduce the cytokine TGF-(LOGO)b, which can
suppress the activity of the immune system cells that are needed to destroy
tumors, and it is believed to be one of the mechanisms by which tumor cells
evade immune system recognition.
The initial therapy under development by the Company and SKCC is intended
to consist of an individual's glioma cells genetically modified to inhibit
TGF-(LOGO)b production and then injected directly under the patient's skin to
stimulate an anti-tumor immune response. In preclinical studies published in the
April 1996 edition of the Proceedings of the National Academy of Sciences, this
technology indicated that tumor cells modified to prevent production of
TGF-(LOGO)b may be used to stimulate immune system responses against the tumor
in rats. All 11 of the rats treated in this study showed complete tumor
regression and survived, while all of the untreated rats died. A Phase I
clinical trial using this technology is being planned for 1997.
Prostate Cancer. Prostate cancer is the second leading cause of cancer
death among men. According to the American Cancer Society, in 1996 approximately
317,000 American men will be diagnosed with prostate cancer and an estimated
40,000 are expected to die of the disease.
The therapy under development by the Company consists of fibroblasts
genetically modified to produce IL-3. The product is expected to be injected
directly into the patient's tumor prior to radiation therapy. A preclinical
study of this technology conducted in rats indicated that treatment with IL-3
expressing tumor cells sensitized tumors to radiation. In this study, all 10 of
the treated rats demonstrated tumor regression, while the control rats did not
show any improvement. The Company intends to use this approach to treat prostate
cancer prior to radiation and is planning a Phase I clinical trial for 1997.
B Cell Lymphoma. B cell lymphoma is a cancer of the lymph glands caused by
uncontrolled growth of the B cells that produce the body's disease-fighting
antibodies, and is usually fatal. Non-Hodgkin's lymphomas currently afflict
roughly 225,000 Americans, with over 50,000 diagnoses expected in 1996. Low
grade and follicular lymphomas comprise about 65% of the total lymphoma
prevalence in the United States and, to date, are incurable.
The treatment under development utilizes antigen-presenting, dendritic
cells to stimulate responses to tumor antigens. The dendritic cells are exposed
to the tumor antigen in vitro and then reintroduced in vivo to stimulate
anti-tumor immunity. Preclinical studies published in 1994 in the European
Journal of Immunology demonstrated eight out of 10 of the treated rats survived
for one year post treatment, whereas the 10 control rats died. In the January
1996 edition of Nature Medicine, an independent group of scientists at Stanford
University published results of a Phase I clinical trial using this technology
to treat patients for B cell
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lymphoma. In this clinical trial, one of the four patients had complete tumor
regression, one remained free of the disease, one registered partial regression,
and one demonstrated no significant change. All four patients had an anti-tumor
immune response. The Company is currently evaluating appropriate strategies for
future development of this technology.
Patents. Technology to genetically modify fibroblasts with cytokine genes
or genes to inhibit TGF-(LOGO)b production has been exclusively licensed to the
Company from SKCC. The technology to use cytokine modified fibroblasts to
increase sensitivity to chemotherapy was jointly developed by SKCC and the
Company, and the Company retains exclusive rights to develop this technology.
Technology to use IL-3 for radiation sensitization has been licensed from UCLA.
SKCC and UCLA have applied for patent protection in the United States and Europe
related to the technologies licensed exclusively to the Company. Immune Response
has received a patent in Europe, which is being opposed, and an application has
been accepted in Australia related to the B cell lymphoma technology exclusively
licensed from the University of Brussels. There can be no assurance that the
issued patents, or any patent that may be issued in the future, will survive
opposition or provide meaningful proprietary protection.
Competition. New cancer therapies are being developed by numerous
individual investigators and companies. Some of these approaches involve
modification of tumor cells with a variety of cytokines, which approaches may
prove competitive with the technologies being developed by the Company.
Activated Cell Therapy is developing cancer therapies with technology similar to
that licensed by the Company from the University of Brussels.
Many of the Company's competitors have substantially greater experience,
financial and technical resources and production, marketing and development
capabilities than the Company. There can be no assurance that competitors have
not or will not succeed in developing technologies and products more quickly or
that are more effective than any which have been or are being developed by the
Company or which would render the Company's technology and products obsolete and
noncompetitive.
GOVERNMENT REGULATION
Clinical testing, manufacture, promotion and sale of the Company's drug
products are subject to extensive regulation by numerous governmental
authorities in the United States, principally the FDA, and corresponding state
and foreign regulatory agencies. The Company believes that REMUNE and most of
its other potential immune-based therapies will be regulated by the FDA as
biological drug products under current regulations of the FDA. In general, the
regulatory framework for biological drug products is more rigorous than that for
nonbiological drug products. Under the FDC Act and the PHS Act, biological drug
products must be shown to be safe, pure, potent and effective. The FDC Act, the
PHS Act and other federal and state statutes and regulations govern or influence
the testing, manufacture, safety, effectiveness, labeling, storage,
recordkeeping, approval, advertising, distribution and promotion of biological
prescription drug products. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, seizure of products, total or
partial suspension of product marketing, failure of the government to grant
premarket approval, withdrawal of marketing approvals and criminal prosecution.
The steps required before a biological drug product may be marketed in the
United States generally include preclinical studies and the filing of an IND
application with the FDA, which must become effective pursuant to FDA
regulations before human clinical trials may commence. Reports of results of
preclinical studies and clinical trials for biological drug products are
submitted to the FDA in the form of a PLA for approval for marketing and
commercial shipment. Submission of a PLA does not assure FDA approval for
marketing. The PLA review process may take a number of years to complete,
although reviews of applications for treatments of AIDS, cancer and other
life-threatening diseases may be accelerated or expedited. Failure of the
Company to receive FDA marketing approval for REMUNE or any of its other
products under development on a timely basis could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition to obtaining approval for each biological drug product, an ELA
usually must be filed and approved by the FDA. Until recently, unless a company
performed significant manufacturing operations, it
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could not hold a biologics license that would entitle the company to legally
market the manufactured product. The FDA's regulations, and policy statements
regarding such manufacturing constraints, for biological products recently have
been changed. The Company believes that under these new regulations it will be
able to hold licenses for its biological drug products even if it does not
perform significant manufacturing operations. Thus, the Company believes that it
will be able to utilize contract manufacturers to make its products without
sacrificing any opportunity to be the legal entity entitled to market the
biological drug products.
Among the other requirements for ELA approval is the requirement that
prospective manufacturers conform to the GMP regulations specifically for
biological drugs, as well as for other drugs. In complying with the GMP
regulations, manufacturers must continue to expend time, money and effort in
production, recordkeeping and quality control to assure that the product meets
applicable specifications and other requirements. The FDA periodically inspects
biological drug product manufacturing facilities in order to assure compliance
with applicable GMP requirements. Failure to comply with the GMP regulations
subjects the manufacturer to possible FDA regulatory action, such as the
suspension of manufacturing, product recall or seizure, injunction and criminal
prosecution. There can be no assurance that the Company or its contract
manufacturers, if any, will be able to maintain compliance with the GMP
regulations on a continuing basis. Failure to maintain such compliance could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Another requirement for many biological drug products is lot-by-lot release
approval, which necessitates FDA approval of the release of each lot of a
biologic drug before commercialization. The lot-to-lot release and ELA
requirements may be applied to some or all of the Company's potential
immune-based therapies. Recently, the FDA amended its regulations to permit
certain biotechnology and synthetic biological drug products to be eligible for
approval under a single biological product license that does not entail
lot-to-lot release and establishment licensing requirements. The Company
believes that its potential synthetic protein autoimmune disease products will
be subject to those new regulations, because they apply, in relevant part, to
therapeutic synthetic protein products composed of 40 or fewer amino acids. The
synthetic protein products are composed of 40 or fewer amino acids and are for
therapeutic, not prophylactic use. Although such protein products are intended
to affect the immune system of the body, such as many vaccines, usually are
intended for prophylactic use in healthy individuals to prevent the occurrence
of a disease, the Company's synthetic peptides will instead be used
therapeutically in persons affected with a disease. If the synthetic peptides
are subject to the new regulations, the issuance of a single biologics license
and the lack of lot-by-lot release requirements, however, will not necessarily
reduce all of the other regulatory requirements placed upon the Company to
assure and maintain FDA marketing clearances for its autoimmune products.
Moreover, there can be no assurance that REMUNE or any of the Company's other
products will be eligible for approval under a single biological drug product
license or otherwise be subject to less rigorous regulation than traditional
biological products.
The Company believes its proprietary GeneDrug and cancer treatment
therapies will likely be regulated more like traditional biological products,
subject to both PLA and ELA requirements. This is because the Company's gene
products are subject to the FDA's Human Somatic Cell Therapy Products and Gene
Therapy Products Notice that the FDA issued in 1993 (the "1993 Notice"). The
1993 Notice defines gene therapy products as biological products subject to
biological licensure requirements. In addition, the 1993 Notice covers many
ancillary products used as part of the manufacturing process for gene therapy
products. The FDA states that such ancillary products may be subject to medical
device requirements or to new drug application or PLA requirements. No assurance
exists that the Company or its suppliers can meet all the requirements of the
1993 Notice covering gene therapy products. As with the Company's other
potential products, the gene therapy products will be subject to extensive FDA
regulation throughout the product development process, and there can be no
assurance that any of these products will be successful at securing the
requisite FDA marketing approval on a timely basis, if at all.
The preclinical and clinical testing process to obtain FDA approval of a
biological drug is expensive and time consuming. Preclinical studies are
conducted in animals usually to evaluate the potential safety of a product. The
results of preclinical studies are submitted to the FDA as part of the IND
application, which
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must become effective pursuant to FDA regulations before human clinical trials
may begin. Human clinical trials typically are conducted in three phases and are
subject to detailed protocols. Each protocol indicating how the clinical trial
will be conducted must usually be submitted for review to the FDA as part of the
IND application. The FDA's review of a trial protocol does not necessarily mean
that, if the trial is completed, it will constitute proof of safety or efficacy
(including potency). Further, each clinical trial must be conducted under the
auspices of an independent Institutional Review Board ("IRB") established
pursuant to FDA regulations. The IRB considers, among other things, ethical
concerns, informed consent requirements and the possible liability of the
institution conducting the trials. The FDA or IRB may require changes in a
protocol both prior to and after the commencement of a clinical trial. There is
no assurance that the IRB or FDA will permit a trial to go forward or, once
started, to be completed.
The three phases of clinical trials are generally conducted sequentially,
but they may overlap. In Phase I, the initial introduction of the drug into
humans, the drug is tested for safety, side effects, dosage tolerance,
metabolism and clinical pharmacology. Phase I testing for an indication
typically takes at least one year to complete. Phase II involves controlled
tests in a large but still limited patient population to determine the efficacy
of the drug for specific indications, to determine optimal dosage and to
identify possible side effects and safety risks. Phase II trials for an
indication typically take at least from one and one-half to two and one-half
years to complete. If preliminary evidence suggesting effectiveness has been
obtained during Phase II evaluations, expanded Phase III trials are undertaken
to gather the additional information about safety and effectiveness that is
needed to evaluate the overall benefit-risk relationship of the product and to
provide an adequate basis for physician labeling. Phase III trials for an
indication generally take at least two and one-half to five years to complete.
There can be no assurance that Phase I, Phase II or Phase III testing will be
completed successfully within any specified time period, if at all, with respect
to any of the Company's products that have not completed any such testing. Nor
can there be any assurance that completion of clinical testing will result in
FDA approval. Furthermore, the FDA may suspend clinical trials at any time if
the patients are believed to be exposed to a significant health risk.
A number of procedures are available to expedite approval or to allow
expanded access to investigational drugs. Certain investigational drugs,
including products for the treatment of AIDS, can be distributed outside of
traditional IND requirements on a "treatment" basis. Generally, the FDA may
permit an investigational drug, including an investigational biological drug, to
be used for "treatment" of patients outside of controlled clinical trials, if:
(1) the drug is intended to treat a serious or immediately life-threatening
disease; (2) there is no comparable or satisfactory alternative drug or other
therapy available to treat that stage of the disease in the intended patient
population; (3) the drug is under investigation in a controlled clinical trial,
or all clinical trials have been completed; and (4) the sponsor of the
controlled clinical trial is actively pursuing marketing approval of the
investigational drug with due diligence. Although the FDA has granted expanded
access to REMUNE for those patients who are ineligible to enroll in the Phase
III clinical trial, the FDA has to date not designated expanded access protocols
for REMUNE as "treatment" protocols. Either expanded access or a treatment
protocol designation might permit third party reimbursement of some of the costs
associated with making REMUNE available to patients in such an expanded access
context. There can be no assurance that the FDA will determine that REMUNE meets
all of the FDA's criteria for use of an investigational drug for treatment use
or that, even if the product is allowed for treatment use, that third party
payers will provide reimbursement for any of the costs of REMUNE treatment.
The FDA also has issued regulations to accelerate the approval of or to
expedite the review of new biological drug products for serious or
life-threatening illnesses that provide meaningful therapeutic benefit to
patients over existing treatments (e.g., the ability to treat patients
unresponsive to, or intolerant of, available therapy, or improved patient
response over available therapy). Under the accelerated approval program, the
FDA may grant marketing approval for a biological or nonbiological drug product
earlier than would normally be the case, based on an effect on a surrogate
endpoint or a clinical endpoint other than survival. Under the program, the
sponsor must agree to conduct postmarketing studies to verify and describe the
clinical benefits of the product. In addition to the accelerated approval
process, the FDA has established procedures designed to expedite the
development, evaluation and marketing of new therapies intended to treat persons
with life-threatening and severely-debilitating illnesses, especially when no
satisfactory alternative therapy exists. The term "life-threatening" is defined
by the FDA to mean: (1) disease or conditions where the likelihood of
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death is high unless the course of the disease is interrupted and (2) diseases
or conditions with potentially fatal outcomes, where the endpoint of clinical
trial analysis is survival. "Severely debilitating" is defined by the FDA to
mean diseases or conditions that cause major irreversible morbidity. As a
condition of approval, the FDA may require the sponsor to conduct certain
postmarketing studies to delineate additional information about the drug's
risks, benefits and optimal use. There can be no assurance that the FDA will
consider REMUNE, or any other of the Company's products under development, to be
an appropriate candidate for accelerated approval or expedited review.
The Company also is subject to regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other present and potential
future federal, state or local regulations. Regulations concerning biotechnology
may affect the Company's research and development programs. Furthermore,
existing or additional government regulations may be applied that could prevent
or delay regulatory approval of the Company's products, or affect the pricing or
distribution of such products.
The Company also is subject to foreign regulatory requirements governing
human clinical trials and pharmaceutical sales that vary widely from country to
country. Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities of foreign countries must be obtained prior to
marketing the product in those countries. The approval process may be more or
less rigorous from country to country and the time required may be longer or
shorter than that required in the United States. The Company may seek to use
foreign marketing partners to assist in obtaining foreign regulatory approval
for REMUNE and other products.
EMPLOYEES
As of March 31, 1996, the Company had 139 full-time employees, of whom 37
hold Ph.D. or other advanced degrees. Of these employees, 115 are engaged in, or
directly support, research and development. A significant number of the
Company's management and professional employees have had prior experience with
pharmaceutical and biotechnology companies. None of the Company's employees is
covered by a collective bargaining agreement.
PROPERTIES
The Company leases a 50,000 square foot laboratory and headquarters
facility located in Carlsbad, California. Under the terms of the lease, which
expires on December 31, 2000, and has two five-year options to extend, current
monthly rental on the facility is approximately $59,000.
The Company subleases a 51,000 square foot manufacturing facility located
in King of Prussia, Pennsylvania. Under the terms of the sublease which expires
on September 30, 1997, the monthly rental on the facility is $25,400. The
Company has an option to extend the sublease for up to nine years, in three year
increments.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ --- --------------------------------------------------
<S> <C> <C>
James B. Glavin(1)............ 61 Chairman of the Board of Directors
Dennis J. Carlo(1)(3)......... 52 Chief Executive Officer, President and Director
Paula B. Atkins............... 42 Vice President, Administration
Steven W. Brostoff............ 53 Vice President, Research and Development and
Chief Scientific Officer
Charles J. Cashion............ 45 Vice President, Finance; Chief Financial Officer,
Treasurer and Secretary
Fred C. Jensen................ 70 Vice President, Virology
Steven P. Richieri............ 41 Senior Vice President, Operations
Kevin B. Kimberlin(2)(4)...... 43 Director
Gilbert S. Omenn(5)........... 54 Director
Melvin Perelman............... 65 Director
John Simon(1)(4).............. 52 Director
William M. Sullivan(2)(5)..... 61 Director
Philip M. Young(1)(4)(5)...... 56 Director
</TABLE>
- ---------------
(1) Member of Executive Committee of the Board of Directors
(2) Member of Stock Option and Compensation Committee of the Board of Directors
(3) Member of Employee Stock Option Committee of the Board of Directors
(4) Member of Audit Committee of the Board of Directors
(5) Member of Nominating Committee of the Board of Directors
James B. Glavin, a co-founder of the Company, has been a Director since
1987 and has been Chairman of the Board of Directors of the Company since May
1993, and was Chief Executive Officer from April 1987 to September 1994,
President from October 1987 to September 1994 and Treasurer of the Company from
April 1987 to May 1991. Mr. Glavin was a general partner at Cable & Howse
Ventures, Inc., a venture capital firm, from August 1985 to April 1987. Mr.
Glavin was Chairman of the Board of Directors of Smith Laboratories, Inc.
("Smith Labs"), from September 1985 until May 1990 and was Acting President and
Chief Executive Officer of Smith Labs from September 1985 to August 1989. Mr.
Glavin is a director of Gish Biomedical Inc., Inhale Therapeutics, Inc. and the
Meridian Fund. Mr. Glavin received his M.B.A. from Harvard Business School and
his B.S. from Holy Cross College.
Dennis J. Carlo, Ph.D., a co-founder of the Company, has been President and
Chief Executive Officer since September 1994, and was Chief Operating Officer
from April 1987 to September 1994 and Assistant Corporate Secretary and a
Director since 1987. Dr. Carlo was Chief Scientific Officer from April 1987 to
September 1995 and Executive Vice President from October 1987 to September 1994.
From January 1982 to May 1987, Dr. Carlo was Vice President of Research and
Development and Vice President of Therapeutic Manufacturing at Hybritech
Incorporated, a biotechnology company that was acquired by Eli Lilly & Company
("Eli Lilly"), a pharmaceutical company, in 1986. From 1971 to 1981, Dr. Carlo
held various positions at Merck & Co., Inc., including Director of Development
and Basic Cellular Immunology and Director of Bacterial Vaccines and Immunology.
Dr. Carlo is also a director of Vyrex Corporation. Dr. Carlo has authored or
co-authored over 100 articles and abstracts in the field of immunology. Dr.
Carlo received his Ph.D., M.S. and B.S. from Ohio State University.
Paula B. Atkins has been Vice President, Administration of the Company
since September 1992, and was Executive Director, Administration from June 1991
to September 1992, and Director, Administration from March 1988 to June 1991.
From January 1985 to March 1988, Ms. Atkins was Director of Human Resources and
Administration for Access Research Corporation. Ms. Atkins held positions
previously with Foodmaker,
35
<PAGE> 37
Inc., a wholly owned subsidiary of Ralston Purina, and Scripps Clinic and
Research Foundation. Ms. Atkins received her M.S. and B.A. from San Diego State
University.
Steven W. Brostoff, Ph.D. has been Chief Scientific Officer since October
1995 and Vice President, Research and Development for the Company since May
1992, and was Executive Director of Autoimmune Disease Research from July 1988
to May 1992. From 1973 to 1988, Dr. Brostoff held various positions within the
Medical University of South Carolina including: Director, University Research
Development; Director, Medical Scientist Training Program; Director, Program in
Molecular and Cellular Biology and Pathobiology; Professorships in Microbiology
and Immunology, and in Neurology; and served as Associate Dean of the Graduate
School. During his tenure at the University, Dr. Brostoff also served as a
Visiting Scientist at Oxford University in the United Kingdom. Prior to this,
Dr. Brostoff held positions with Albert Einstein College of Medicine, Merck
Institute for Therapeutic Research, the Salk Institute, and the Eleanor
Roosevelt Institute for Cancer Research. Dr. Brostoff received his Ph.D. and
B.S. from the Massachusetts Institute of Technology.
Charles J. Cashion has been Vice President, Finance and Chief Financial
Officer of the Company since February 1989, Secretary of the Company since
September 1989 and Treasurer of the Company since May 1991. From September 1987
to August 1989, Mr. Cashion was Executive Vice President and Secretary of Smith
Labs and President and Chief Executive Officer of Sutter Corporation, a wholly
owned subsidiary of Smith Labs. From 1980 to 1987, Mr. Cashion was Vice
President, Chief Financial Officer and Treasurer of Smith Laboratories. Mr.
Cashion previously held positions at Baxter International, Inc., and Motorola,
Inc. Mr. Cashion received his M.B.A. and B.S. from Northern Illinois University.
Fred C. Jensen, D.V.M. has served as Vice President, Virology Research and
Development since May 1992 and was Executive Director, Virology Research from
March 1988 to May 1992. From 1983 to 1987, Dr. Jensen was the Senior Vice
President of Cytotech, Inc. From 1973 to 1982, Dr. Jensen served as an Associate
Member with Scripps Clinic and Research Foundation in various scientific
disciplines including Immunopathology and Cellular and Development Immunology.
Prior to joining Scripps, Dr. Jensen worked with Wistar Institute and
Microbiological Associates. Dr. Jensen received his D.V.M. from the University
of BRNO, School of Veterinary Medicine in Czechoslovakia after completion of
undergraduate studies.
Steven P. Richieri, R.Ph. has served as Senior Vice President, Operations
since October 1995, and was Vice President, Medical and Regulatory Affairs from
May 1992 to October 1995, and Executive Director, Medical and Regulatory Affairs
from October 1991 to May 1992. From 1984 to 1991, Mr. Richieri held various
positions with Dura Pharmaceuticals, Inc. including Vice President, Regulatory
and Technical Affairs. From 1981 to 1984, Mr. Richieri worked in Regulatory
Affairs with Barnes Hind Inc., a subsidiary of Revlon, Inc. Prior to joining
Barnes Hind Inc., Mr. Richieri worked as a Pharmacist in the medical community.
Mr. Richieri received his M.B.A. from the University of San Diego and his B.S.
from Rutgers College of Pharmacy.
Kevin B. Kimberlin, a co-founder of the Company, has been a Director since
1986 and was Secretary of the Company from November 1986 to September 1989. He
has been Chairman of the Board of Spencer Trask Holdings, Inc., an investment
banking company, since July 1991 and President of St. James Capital Corp., an
investment company, from July 1991 to June 1994.
Gilbert S. Omenn, M.D., Ph.D. has been a Director since 1987, and has been
Professor of Medicine and of Environmental Health and Dean of the School of
Public Health and Community Medicine at the University of Washington, Seattle
since 1982. He is a director of Rohm and Haas Company, Amgen Inc., Nutraceutix,
Inc. and Ostex International, Inc.
Melvin Perelman, Ph.D. became a Director in 1996, and was Executive Vice
President of Eli Lilly and President of The Lilly Research Laboratories from
1986 to 1993 and a director of Eli Lilly from 1976 to 1993. He is a director of
Inhale Therapeutics, Inc., DataChem Corporation, Cinergy Corporation and
Immusol, Inc.
John Simon, J.D., Ph.D. has been a Director since 1988, and has been
Managing Director of Allen & Company Incorporated, an investment banking
company, since 1972. He is a director of T Cell Sciences Incorporated, Neurogen
Corporation and Lunn Industries, Inc.
36
<PAGE> 38
William M. Sullivan has been a Director since 1987, and was Chairman of the
Board of Directors of the Company from March 1987 to May 1993; Chairman of the
Board of Sparta Pharmaceuticals, Inc. since October 1991 and President and Chief
Executive Officer from October 1991 to March 1996. He was Chairman of the Board,
President and Chief Executive Officer of Burroughs Wellcome Co., from December
1981 to January 1986. He is a director of BioVentures, Inc., ProCyte Corporation
and Research Corporation Technologies.
Philip M. Young has been a Director since 1987, and has been General
Partner of U.S. Venture Partners, a venture capital company, since April 1990.
He is a director of Vical Incorporated, Zoran Corporation, FemRx, Inc.,
CardioThoracic Systems, Inc. and several privately held companies.
37
<PAGE> 39
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, dated as of the date of this Prospectus, each of the underwriters of
this offering (the "Underwriters") for whom Hanifen, Imhoff Inc., ("Hanifen")
and Cruttenden Roth Incorporated are acting as representatives (the
"Representatives"), have severally agreed to purchase the aggregate number of
shares of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Hanifen, Imhoff Inc..........................................................
Cruttenden Roth Incorporated.................................................
-----------
Total...................................................................... 2,900,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain conditions and that if any
shares of Common Stock are purchased by Underwriters pursuant to the
Underwriting Agreement all shares of Common Stock agreed to be purchased by the
Underwriters must so be purchased. Bayer may purchase $4,000,000 of the Common
Stock offered hereby at the public offering price. The Underwriters will not
receive any underwriting discount on any such sales to Bayer.
The Company has been advised that the Underwriters propose to offer shares
of Common Stock offered hereby to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain selected
dealers (who may include the Underwriters) at such public offering price less a
concession not to exceed $ per share. The Underwriters or such selected
dealers may reallow a concession to certain other dealers not to exceed
$ per share. The Representatives have advised the Company that they do
not expect the Underwriters to make sales to accounts over which any
Underwriters exercise discretionary authority.
The Company has granted to the Underwriters an option to purchase an
additional 435,000 shares of Common Stock at the public offering price, less the
same underwriting discount as set forth on the cover page of this Prospectus,
solely to cover over-allotments. The option may be exercised at any time up to
30 days after the date of this Prospectus. To the extent the Underwriters
exercise such option, each such Underwriter will be committed, subject to
certain conditions, to purchase a number of option shares proportionate to such
Underwriters initial commitment.
The Company, its directors and executive officers, and certain security
holders of the Company have agreed that they will not offer to sell, sell or
otherwise dispose of any shares of Common Stock not sold in this offering for a
period of 90 days from the date of this Prospectus without the prior written
consent of Hanifen, on behalf of the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1993, as amended
(the "Securities Act"), or to contribute to payments the Underwriters may be
required to make in respect of such liabilities. Certain of the Underwriters and
selling group members (if any) that currently act as market makers for the
Common Stock may engage in "passive market making" in the Common Stock on NNM in
accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon
the satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also NNM market makers in the security
being distributed to engage in
38
<PAGE> 40
limited market making transactions during the period when Rule 10b-6 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") would otherwise
prohibit such activity. Rule 10b-6A prohibits underwriters and selling group
members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds that highest bid for those
securities displayed on NNM by a market maker that is not participating in the
distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the securities to
be distributed.
LEGAL MATTERS
Certain legal matters with respect to the validity of Common Stock offered
hereby are being passed upon for the Company by Pillsbury Madison & Sutro LLP,
San Francisco, California. A partner of Pillsbury Madison & Sutro LLP owns
15,000 shares of Common Stock and holds an option to purchase 20,000 shares of
Common Stock. Cooley Godward Castro Huddleson & Tatum, Boulder, Colorado and San
Diego, California is acting as counsel for the Underwriters in connection with
certain legal matters relating to the sale of the Common Stock offered hereby.
EXPERTS
The consolidated financial statements of The Immune Response Corporation at
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 incorporated by reference and appearing in this Prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference and
appearing elsewhere herein, and are included in reliance upon the authority of
such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements 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., Washington, D.C., as well as the regional
offices of the Commission located at 400 West Madison Street, Chicago, Illinois,
and 7 World Trade Center, New York, New York. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, as certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement, including all exhibits thereto,
may be obtained from the Commission's principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission, or may be examined without
charge at the offices of the Commission described above.
39
<PAGE> 41
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus: (i) the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 (File No. 0-18006), (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
(iii) the description of the Company's Common Stock contained with its
Registration Statement on Form 8-A filed on March 30, 1990 and (iv) the
description of the Preferred Stock Purchase Rights for Series E Participating
Preferred Stock, par value $.001, set forth in the Registration Statement on
Form 8-A filed on March 4, 1992. All documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of this offering to which this
Prospectus relates shall be deemed to be incorporated by reference into this
Prospectus and to be part of this Prospectus from the date of filing thereof.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement. The Company
will provide without charge to each person to whom a copy of the Prospectus has
been delivered, and who makes a written or oral request, a copy of any and all
of the information that has been incorporated by reference in the Registration
Statement (other than exhibits unless such exhibits are specifically
incorporated by reference therein). Requests should be submitted in writing or
by telephone to Investor Relations, The Immune Response Corporation, at the
Company's offices located at 5935 Darwin Court, Carlsbad, California, 92008,
telephone (619) 431-7080.
40
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
THE IMMUNE RESPONSE CORPORATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and March 31, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1995 and the three months ended March 31, 1995 and 1996 (unaudited).... F-4
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1995 and the three months ended March 31, 1996
(unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1995 and the three months ended March 31, 1995 and 1996 (unaudited).... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 43
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
The Immune Response Corporation
We have audited the accompanying consolidated balance sheets of The Immune
Response Corporation as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Immune
Response Corporation at December 31, 1994 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
January 26, 1996, except for Note 5,
as to which the date is June 5, 1996
and Note 6, as to which the date is
June 25, 1996
F-2
<PAGE> 44
THE IMMUNE RESPONSE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1994 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (Note 1)............ $ 1,792,082 $ 1,462,676 $ 244,266
Short-term investments (Notes 1 and 2)........ 57,535,982 43,147,633 38,752,610
Other current assets.......................... 1,295,150 963,762 640,501
------------ ------------ ------------
Total current assets.................. 60,623,214 45,574,071 39,637,377
Property and equipment, net (Note 1)............ 5,541,631 4,806,075 4,872,356
Deposits and other assets....................... 225,104 49,016 49,016
Investment in joint venture (Note 3)............ 2,093,192 -- --
------------ ------------ ------------
$ 68,483,141 $ 50,429,162 $ 44,558,749
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 507,378 $ 1,158,194 $ 1,169,571
Accrued compensation.......................... 313,612 386,311 347,799
Deferred rent obligation (Note 4)............. 444,396 443,853 436,365
Debt and capital lease obligations............ 132,132 -- --
------------ ------------ ------------
Total current liabilities............. 1,397,518 1,988,358 1,953,735
Commitments (Note 4)
Stockholders' equity (Note 5):
Preferred stock, 5,000,000 shares authorized;
none issued................................ -- -- --
Common stock, $.0025 par value, 40,000,000
shares authorized, 16,739,951, 16,788,704
and 16,809,593 shares issued and
outstanding at December 31, 1994 and 1995,
and March 31, 1996, respectively........... 41,850 41,972 42,024
Additional paid-in capital.................... 146,634,524 146,770,428 146,813,923
Unrealized gain (loss) on available-for-sale
securities (Note 2)........................ (609,847) 544,830 166,457
Accumulated deficit........................... (78,980,904) (98,916,426) (104,417,390)
------------ ------------ ------------
Total stockholders' equity............ 67,085,623 48,440,804 42,605,014
------------ ------------ ------------
$ 68,483,141 $ 50,429,162 $ 44,558,749
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 45
THE IMMUNE RESPONSE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract research revenue
(Notes 3 and 6)....... $ 4,767,729 $ 6,035,497 $ 1,561,314 $ 1,311,314 $ --
Licensed research revenue
(Note 6).............. -- 1,000,000 -- -- --
------------ ------------ ------------ ------------ ------------
4,767,729 7,035,497 1,561,314 1,311,314 --
Expenses:
Research and
development........... 11,853,582 13,511,238 19,488,531 4,193,211 5,477,067
General and
administrative........ 4,119,409 5,608,238 3,684,252 991,201 768,229
------------ ------------ ------------ ------------ ------------
15,972,991 19,119,476 23,172,783 5,184,412 6,245,296
Other revenue and expense:
Investment income........ 4,320,709 2,554,041 2,959,967 655,817 744,332
Equity in operations of
joint venture (Note
3).................... (8,853,341) (7,869,556) (1,284,020) (1,284,020) --
------------ ------------ ------------ ------------ ------------
(4,532,632) (5,315,515) 1,675,947 (628,203) 744,332
------------ ------------ ------------ ------------ ------------
Net loss................... $(15,737,894) $(17,399,494) $(19,935,522) $ (4,501,301) $ (5,500,964)
============ ============ ============ ============ ============
Net loss per share (Note
1)....................... $ (0.95) $ (1.05) $ (1.19) $ (0.27) $ (0.33)
============ ============ ============ ============ ============
Weighted average number
of shares outstanding
(Note 1)................. 16,549,816 16,613,547 16,750,460 16,740,290 16,800,488
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 46
THE IMMUNE RESPONSE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON
COMMON STOCK ADDITIONAL AVAILABLE-FOR- TOTAL
-------------------- PAID-IN SALE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SECURITIES DEFICIT EQUITY
---------- ------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992....... 16,523,977 $41,310 $146,378,274 $ -- $ (45,843,516) $ 100,576,068
Issuance of common stock........... 41,498 104 76,669 -- -- 76,773
Net loss........................... -- -- -- -- (15,737,894) (15,737,894)
---------- ------- ------------ --------- ------------- -----------
Balance at December 31, 1993....... 16,565,475 41,414 146,454,943 -- (61,581,410) 84,914,947
Issuance of common stock........... 223,719 559 585,708 -- -- 586,267
Shares redeemed by employee to
exercise options................. (49,243) (123) (406,127) -- -- (406,250)
Adjustment to beginning balance for
change in accounting method
(Notes 1 and 2).................. -- -- -- 95,522 -- 95,522
Change in unrealized gain (loss) on
available-for-sale securities
(Note 2)......................... -- -- -- (705,369) -- (705,369)
Net loss........................... -- -- -- -- (17,399,494) (17,399,494)
---------- ------- ------------ --------- ------------- -----------
Balance at December 31, 1994....... 16,739,951 41,850 146,634,524 (609,847) (78,980,904) 67,085,623
Issuance of common stock........... 48,753 122 135,904 -- -- 136,026
Change in unrealized gain (loss) on
available-for-sale securities
(Note 2)......................... -- -- -- 1,154,677 -- 1,154,677
Net loss........................... -- -- -- -- (19,935,522) (19,935,522)
---------- ------- ------------ --------- ------------- -----------
Balance at December 31, 1995....... 16,788,704 41,972 146,770,428 544,830 (98,916,426) 48,440,804
Issuance of common stock
(unaudited)...................... 20,889 52 43,495 -- -- 43,547
Change in unrealized gain (loss) on
available-for-sale securities
(Note 2) (unaudited)............. -- -- -- (378,373) -- (378,373)
Net loss (unaudited)............... -- -- -- -- (5,500,964) (5,500,964)
---------- ------- ------------ --------- ------------- -----------
Balance at March 31, 1996
(unaudited)...................... 16,809,593 $42,024 $146,813,923 $ 166,457 $(104,417,390) $ 42,605,014
========== ======= ============ ========= ============= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 47
THE IMMUNE RESPONSE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss............................... $(15,737,894) $(17,399,494) $(19,935,522) $(4,501,301) $(5,500,964)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization........ 1,187,605 1,266,412 1,038,312 264,910 201,260
Equity in operations of joint
venture............................ 8,853,341 7,869,556 1,284,020 1,284,020 --
Write down of value of land.......... -- -- 372,044 -- --
Deferred rent expense................ 52,395 28,867 (543) (543) (7,488)
Changes in operating assets and
liabilities:
Research contract receivable from a
related party................... 374,419 (2,308,776) (1,199,390) (1,199,354) --
Other current assets............... 440,921 (373,168) 331,388 704,406 323,261
Accounts payable................... (717,978) 12,066 650,816 409,080 11,377
Accrued compensation............... 142,051 396 72,699 (65,746) (38,512)
------------ ------------ ------------ ----------- -----------
Net cash used by operating
activities.................... (5,405,140) (10,904,141) (17,386,176) (3,104,528) (5,011,066)
Investing activities:
Liquidation of short-term investments,
net.................................. 15,628,332 15,897,397 15,543,026 5,814,788 4,016,650
Purchase of property and equipment..... (910,496) (747,216) (442,655) (22,223) (267,541)
Net proceeds from sale of equipment.... -- 1,458,628 1,948,305 -- --
Investment in joint venture............ (8,500,000) (5,000,000) -- -- --
Other assets........................... -- -- 4,200 -- --
------------ ------------ ------------ ----------- -----------
Net cash provided from investing
activities.................... 6,217,836 11,608,809 17,052,876 5,792,565 3,749,109
Financing activities:
Net proceeds from exercise of stock
options.............................. 76,773 180,017 136,026 4,382 43,547
Payments on debt and capital lease
obligations.......................... (263,749) (408,495) (132,132) (39,509) --
------------ ------------ ------------ ----------- -----------
Net cash provided from (used by)
financing activities.......... (186,976) (228,478) 3,894 (35,127) 43,547
------------ ------------ ------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 625,720 476,190 (329,406) 2,652,910 (1,218,410)
Cash and cash equivalents at beginning of
period................................. 690,172 1,315,892 1,792,082 1,792,082 1,462,676
------------ ------------ ------------ ----------- -----------
Cash and cash equivalents at end of
period................................. $ 1,315,892 $ 1,792,082 $ 1,462,676 $ 4,444,992 $ 244,266
============ ============ ============ =========== ===========
Supplemental disclosure of noncash
investing and financing activities:
Equipment received from liquidation of
joint venture (Note 3)............... $ -- $ -- $ 2,008,562 $ -- $ --
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 48
THE IMMUNE RESPONSE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996, AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996, IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The Immune Response Corporation (the "Company"), a Delaware corporation, is
a biopharmaceutical company with proprietary technologies in four core areas:
Human Immunodeficiency Virus ("HIV"), autoimmune diseases, gene therapy and
cancer. The Company is conducting clinical trials for potential immune-based
therapies for HIV, psoriasis, rheumatoid arthritis, multiple sclerosis and colon
cancer, and preclinical studies for brain and prostate cancers. The Company has
potential gene therapies in preclinical studies for cardiovascular disease,
hemophilia and hepatitis. The Company intends to retain ownership of its core
technologies and to license selected applications.
The Company's products are in various stages of development. Substantially
all of the Company's revenues to date were derived from its research and
development agreements with two pharmaceutical collaborators, though the Company
currently has no collaborations that will provide future revenue. Prior to
generating product revenues, the Company must complete the development of its
products, including several years of human clinical testing, and receive
regulatory approvals prior to selling these products in the human health care
market. No assurance can be given that the Company's products will be
successfully developed, regulatory approvals will be granted, or patient and
physician acceptance of these products will be achieved.
The Company faces additional risks associated with biopharmaceutical
companies whose products are in various stages of development. These risks
include, among others, the Company's need for additional financing to complete
its research and development programs and commercialize its technologies. There
is no assurance such financing will be available to the Company when required or
that such financing would be available under favorable terms.
The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements to its inventions that are
considered important to the development of its business. The patent positions of
pharmaceutical and biotechnology firms, including the Company, are uncertain and
involve complex legal and factual questions for which important legal principles
are largely unresolved.
Interim Financial Information
The financial statements at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited. These financial statements reflect all
adjustments, consisting of only normal recurring adjustments which, in the
opinion of management, are necessary to fairly present the financial position as
of March 31, 1996, and the results of operations for the three months ended
March 31, 1995 and 1996. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the results to be expected for
the year ending December 31, 1996.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Net loss per share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period.
F-7
<PAGE> 49
THE IMMUNE RESPONSE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996, AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996, IS UNAUDITED)
New Accounting Standard
During the first quarter of 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards ("FAS") No. 123, "Accounting for
Stock-Based Compensation." FAS 123 establishes and encourages the use of the
fair value based method of accounting for stock-based compensation arrangements,
under which compensation is determined using the fair value of stock-based
compensation determined as of the grant date, and is recognized over the periods
in which the related services are rendered. The statement also permits companies
to elect to continue using the current implicit value accounting method
specified in Accounting Principles Board Opinion ("APB") No. 25 to account for
stock-based compensation and to disclose the effects of the fair value based
method on a pro forma basis. The Company has elected to continue to account for
stock-based compensation arrangement using the current implicit value method
specified in APB No. 25. Pro forma disclosures reflecting the effects of the
fair value based method of accounting are not required for interim reporting
purposes.
Cash, cash equivalents and short-term investments
Cash and cash equivalents consist of cash and time deposits with original
maturities of less than three months. Short-term investments are stated at
market.
Concentration of credit risk
The Company invests its excess cash in U.S. Government securities and money
market accounts. The Company has established guidelines relative to
diversification and maturities that maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take advantage of trends in
yields and interest rates.
Property and equipment
Property and equipment is stated at cost and is depreciated or amortized
over the estimated useful lives of the assets (five to seven years) or the lease
term using the straight-line method. During 1995, the Company adopted Statement
of Financial Accounting Standards (FAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." In accordance
with FAS 121, prior period financial statements have not been restated to
reflect the change in accounting principle. In 1995, the Company decreased the
value of a parcel of land by $372,044, to its estimated net realizable value.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Furniture and fixtures...................... $ 794,864 $ 889,843 $ 945,810
Equipment................................... 682,067 778,120 851,386
Leasehold improvements...................... 4,953,808 5,205,431 5,343,739
Land........................................ 1,392,044 -- --
----------- ----------- -----------
7,822,783 6,873,394 7,140,935
Less accumulated depreciation and
amortization.............................. (2,281,152) (3,087,319) (3,288,579)
----------- ----------- -----------
5,541,631 3,786,075 3,852,356
Land held for sale.......................... -- 1,020,000 1,020,000
----------- ----------- -----------
$ 5,541,631 $ 4,806,075 $ 4,872,356
=========== =========== ===========
</TABLE>
F-8
<PAGE> 50
THE IMMUNE RESPONSE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996, AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996, IS UNAUDITED)
Income taxes
All income tax amounts have been computed in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
this statement, the liability method is used to account for deferred income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax base of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences reverse.
2. SHORT-TERM INVESTMENTS
Short-term investments consist of treasury securities with maturities of
more than three months. The Company has classified all of its investments as
available-for-sale securities. The following table summarizes available-for-sale
securities:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
---------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. Government Securities............... $42,602,803 $ 544,830 $ -- $43,147,633
=========== ======== ======== ===========
MARCH 31, 1996
U.S. Government Securities............... $38,586,152 $ 214,885 $ 48,428 $38,752,609
=========== ======== ======== ===========
</TABLE>
The net realized losses on sales of available-for-sale securities totaled
$11,400 for the year ended December 31, 1995.
The amortized cost and estimated fair value of available-for-sale
securities at December 31, 1995, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less................................... $15,424,032 $15,608,250
Due after one year through three years.................... 27,178,771 27,539,383
----------- -----------
$42,602,803 $43,147,633
=========== ===========
</TABLE>
3. INVESTMENT IN JOINT VENTURE
Immunization Products Limited (the "Joint Venture"), a joint venture
between the Company and Rhone-Poulenc Rorer Inc., was formed to develop,
manufacture and market in the United States, Canada and Puerto Rico certain
products related to the diagnosis and treatment of human immunodeficiency virus
infection. The Joint Venture also acquired the rights to develop, manufacture
and market REMUNETM (formerly known as the HIV-1 Immunogen) in certain European,
African, Central American and South American countries.
In March 1995, the Company regained all manufacturing, marketing and
distribution rights for REMUNE from Rhone-Poulenc Rorer. The Company also
assumed control and responsibility for the Joint Venture's manufacturing
facility. Neither the Company nor Rhone-Poulenc Rorer received any consideration
from the Joint Venture for amounts payable to such partner, and neither party
has any further obligations to provide capital to the Joint Venture. The Company
agreed to pay Rhone-Poulenc Rorer up to $3 million in royalties on future
commercial sales of REMUNE, or upon certain transactions involving licensing
rights to REMUNE to a
F-9
<PAGE> 51
THE IMMUNE RESPONSE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996, AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996, IS UNAUDITED)
future corporate partner. Rhone-Poulenc Rorer will provide no further funding
for the development of REMUNE.
4. COMMITMENTS
The Company leases its offices, research facility and certain office and
laboratory equipment under operating lease agreements. The equipment lease
agreements require monthly payments through September 1998. The office and
research facility lease agreement, which commenced in January 1991, is for a
term of ten years, with two five-year options to extend. In connection with this
lease, the Company received certain deferred payment terms and the minimum
annual rent is subject to certain annual increases. Rent is being expensed on a
straight-line basis over the term of the lease. Deferred rent reflected in the
accompanying balance sheet represents the difference between rent expense
accrued and amounts actually paid under the terms of the lease.
At December 31, 1995, future minimum rental payments due under the
Company's noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996................................... $3,136,000
1997................................... 2,106,000
1998................................... 1,039,000
1999................................... 806,000
2000................................... 835,000
----------
$7,922,000
==========
</TABLE>
Total rent expense for the years ended December 31, 1995, 1994 and 1993 was
$2.5 million, $1.3 million and $1.3 million, respectively.
5. STOCKHOLDERS' EQUITY
Stock transaction
In April 1996, the Company received $5 million from Trinity Medical Group
Co., Ltd. ("Trinity") of Bangkok, Thailand for the purchase of the Company's
common stock at $15 per share. Trinity has also agreed to make additional equity
investments of up to $10 million based on the achievement of certain regulatory
and commercial milestones and governmental approvals.
Stock options
The Company has established various stock option plans to grant options to
purchase common stock to employees and non-employee directors of the Company and
certain other individuals. The plans authorize the Company to issue or grant
qualified and non-qualified options to purchase up to 4,773,794 shares of its
common stock.
Under the terms of the 1989 Stock Plan, options may be granted at not less
than 100% and 85% of fair market value as of the date of grant for qualified and
non-qualified options, respectively. To date, all options have been issued at
100% of fair market value. These options primarily become exercisable over a
four year period from the date of grant.
F-10
<PAGE> 52
THE IMMUNE RESPONSE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996, AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996, IS UNAUDITED)
During April 1995, the Company offered holders of stock options issued
under the 1989 Stock Plan, with the exception of members of the Board of
Directors, the opportunity to exchange an issued stock option for a new stock
option on a one-for-one basis on April 19, 1995. The new stock option price per
share of $3.25 exceeded the market value of the Company's stock on that day. The
stock options will continue the vesting schedule of the exchanged stock options,
although no part of the new stock option will be exercisable for one year,
regardless of the exchanged stock option's vesting schedule. Of the 2,305,885
eligible stock options, 2,213,581 were exchanged for new options.
The 1990 Directors' Stock Option Plan provides for the Company to issue or
grant non-qualified options to purchase up to 650,000 common shares to its
non-employee directors. Under the terms of the plan, options will be granted at
the fair market value as of the date of grant. These options become exercisable
in four equal annual installments on each of the first four anniversaries of the
date of grant. Additionally, the 1990 Directors' Stock Option Plan provides that
upon each date of the Company's Annual Meeting of the Stockholders, non-employee
directors are eligible to receive a grant of 6,250 shares at the fair market
value on date of grant, with a one-year vesting schedule.
Activity with respect to the various stock plans is summarized as follows:
<TABLE>
<CAPTION>
SHARES STOCK
AVAILABLE OPTIONS PRICE
FOR GRANT OUTSTANDING RANGE
---------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992......................... 576,628 2,348,428 $ .59 - 39.25
Additional authorization........................... 600,000 -- --
Granted............................................ (529,375) 529,375 9.50 - 18.75
Exercised.......................................... -- (40,948) .77 - 10.50
Cancelled.......................................... 99,940 (99,940) 1.50 - 33.00
--------- ---------
Balance at December 31, 1993......................... 747,193 2,736,915 .59 - 39.25
Additional authorization........................... 800,000 -- --
Granted............................................ (1,668,950) 1,668,950 7.00 - 12.25
Exercised.......................................... -- (223,469) .77 - 10.50
Cancelled.......................................... 984,117 (984,117) 1.50 - 39.25
--------- ---------
Balance at December 31, 1994......................... 862,360 3,198,279 .59 - 39.25
Additional authorization........................... 200,000 -- --
Granted............................................ (637,578) 637,578 2.75 - 7.13
Exercised.......................................... -- (48,303) .77 - 5.38
Cancelled.......................................... 185,773 (185,773) 3.25 - 33.00
--------- ---------
Balance at December 31, 1995......................... 610,555 3,601,781 .59 - 18.25
Granted............................................ (443,988) 443,988 5.00 - 6.56
Exercised.......................................... -- (20,889) .77 - 4.13
Cancelled.......................................... 15,406 (15,406) 3.25 - 10.25
--------- ---------
Balance at March 31, 1996............................ 181,973 4,009,474 .59 - 18.25
========= =========
Options exercisable at December 31, 1995............. 896,170 .59 - 18.25
=========
Options exercisable at March 31, 1996................ 976,943 .59 - 18.25
=========
</TABLE>
F-11
<PAGE> 53
THE IMMUNE RESPONSE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996, AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996, IS UNAUDITED)
At December 31, 1995, and March 31, 1996, an additional 1,375,279 and
1,591,582 stock options, respectively, would have been exercisable, had such
options not been restricted by the terms of the repricing agreement.
At March 31, 1996, 4,691,447 shares of common stock were reserved for the
exercise of stock options.
In May 1996, the Company's stockholders approved a 500,000 share increase
in the number of shares authorized for issuance under the 1989 Stock Plan.
Stockholder rights plan
The Company has a Stockholder Rights Plan that provides for the
distribution of a preferred stock purchase right (a "Right") as a dividend for
each share of the Company's common stock of record held at the close of business
on March 12, 1992, as well as all future stock issuances. Under certain
conditions involving an acquisition by any person or group of 15% or more of the
common stock, the Rights permit the holders (other than the 15% holder) to
purchase the Company's common stock at a 50% discount upon payment of an
exercise price of $150 per Right. In addition, in the event of certain business
combinations, the Rights permit the purchase of the common stock of an acquiror
at a 50% discount. Under certain conditions, the Rights may be redeemed by the
Board of Directors in whole, but not in part, at a price of $.01 per Right. The
Rights have no voting privileges and are attached to and automatically trade
with the Company's common stock. The Rights expire February 26, 2002.
6. LICENSED RESEARCH REVENUE
In June 1994, the Company licensed exclusive rights to its proposed
hepatitis B antisense treatment to Chugai Pharmaceutical Company, Ltd.
("Chugai") for use in Japan, China, South Korea and Taiwan. Chugai will be
responsible for research and development efforts in these countries. In July
1994, the Company received a $1 million licensing fee from Chugai. The Company
also received research and development funding in 1994 and 1995 from Chugai.
During June 1996, Chugai gave the Company notice of termination of this
agreement.
7. INCOME TAXES
At December 31, 1995, the Company had federal and California tax net
operating loss carryforwards of approximately $74.5 million and $19.5 million,
respectively. The difference between the federal and California tax loss
carryforwards is primarily attributable to capitalized research and development
expenses for California and the 50% limitation of California loss carryforwards.
The federal tax loss carryforwards will begin expiring in 2002, unless
previously utilized, while the California tax loss carryforwards began to expire
in 1995. The Company also has federal and California research and development
tax credit carryforwards of $3.4 million and $1.1 million, respectively, which
begin expiring in 2002 unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the
Company's net operating loss and credit carryforwards will be limited because of
a cumulative change in ownership of more than 50% which occurred during 1992.
However, the Company does not believe such change will have a material impact
upon the utilization of these carryforwards. Included in the federal loss
carryforwards are approximately $4.4 million of acquired net operating loss
carryforwards that can only be used to the extent of the separate taxable income
of the acquired company.
F-12
<PAGE> 54
THE IMMUNE RESPONSE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996, AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996, IS UNAUDITED)
The components of the Company's deferred tax assets as of December 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Net operating loss carryforwards................ $ 19,400,000 $ 26,500,000
Unused research and development credits......... 3,500,000 4,500,000
Capitalized research and development............ 1,100,000 1,100,000
Other........................................... 100,000 1,500,000
------------ ------------
24,100,000 33,600,000
Valuation allowance............................. (24,100,000) (33,600,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
Approximately $2.3 million of the valuation allowance at December 31, 1995
relates to benefits of stock options which, when recognized, will be allocated
directly to stockholders' equity.
8. QUARTERLY RESULTS (UNAUDITED)
The following unaudited quarterly financial information includes, in
management's opinion, all normal and recurring adjustments necessary to fairly
state the Company's consolidated results of operations and related information
for the periods presented. Net loss per share has been computed using the
weighted average shares outstanding during each quarter.
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995
Contract research revenue........................... $ 1,311 $ 125 $ -- $ 125
Operating expenses.................................. (5,184) (5,288) (5,982) (6,719)
------- ------- ------- -------
Loss from operations................................ (3,873) (5,163) (5,982) (6,594)
Other income (expense).............................. (628) 811 785 708
------- ------- ------- -------
Net loss............................................ $(4,501) $(4,352) $(5,197) $(5,886)
======= ======= ======= =======
Net loss per share.................................. $ (0.27) $ (0.26) $ (0.31) $ (0.35)
======= ======= ======= =======
1994
Licensed research revenue........................... $ -- $ -- $ 1,000 $ --
Contract research revenue with a related party...... 1,240 1,395 1,461 1,766
Other contract research revenue..................... -- -- 125 48
------- ------- ------- -------
1,240 1,395 2,586 1,814
Operating expenses.................................. (4,375) (5,567) (4,511) (4,666)
------- ------- ------- -------
Loss from operations................................ (3,135) (4,172) (1,925) (2,852)
Other expenses...................................... (1,497) (1,125) (1,337) (1,357)
------- ------- ------- -------
Net loss............................................ $(4,632) $(5,297) $(3,262) $(4,209)
======= ======= ======= =======
Net loss per share.................................. $ (0.28) $ (0.32) $ (0.20) $ (0.25)
======= ======= ======= =======
</TABLE>
F-13
<PAGE> 55
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
COMMON STOCK TO WHICH IT RELATES, OR AN OFFER IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AT ANYTIME AFTER THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 3
The Company............................ 3
Risk Factors........................... 6
Use of Proceeds........................ 13
Price Range of Common Stock and
Dividend Policy...................... 13
Capitalization......................... 14
Dilution............................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 20
Management............................. 35
Underwriting........................... 38
Legal Matters.......................... 39
Experts................................ 39
Available Information.................. 39
Documents Incorporated by Reference.... 40
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2,900,000 Shares
LOGO
THE IMMUNE RESPONSE CORPORATION
Common Stock
------------------------
PROSPECTUS
------------------------
HANIFEN, IMHOFF INC.
CRUTTENDEN ROTH
INCORPORATED
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 56
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following tables set forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission ("SEC") registration fee, the National
Association of Securities Dealers, Inc. ("NASD") filing fee and the Nasdaq
National Market ("NNM") listing fee.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee.......................................................... $ 13,877
NASD fee...................................................................... 4,412
Blue Sky fees and expenses.................................................... 10,000
Accounting fees and expenses.................................................. 60,000
Legal fees and expenses....................................................... 125,000
Printing and engraving........................................................ 50,000
Registrar and transfer agent's fees........................................... 10,000
NNM listing fee............................................................... 17,500
Miscellaneous fees and expenses............................................... 9,211
--------
Total.................................................................... $300,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware GCL")
permits the Company's board of directors to indemnify any person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding in which such person
is made a party by reason of his being or having been a director, officer,
employee or agent of the Company, in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). The Delaware GCL provides that indemnification pursuant
to its provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors, or otherwise.
Article VII of the Company's Restated Certificate of Incorporation and
Article V of the Company's Bylaws provide for indemnification of the Company's
directors, officers, employees and other agents to the maximum extent permitted
by law.
As permitted by Sections 102 and 145 of the Delaware GCL, the Company's
Restated Certificate of Incorporation eliminates a director's personal liability
for monetary damages to the Company and its stockholders arising from a breach
or alleged breach of such director's fiduciary duty, except for liability under
Section 174 of the Delaware GCL or liability for any breach of the director's
duty of loyalty to the Company or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law
or for any transaction which the director derived an improper personal benefit.
In addition, the Company has entered into separate indemnification agreements
with its directors and officers that will require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers to the fullest extent not
prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities arising under the Act
and affords certain rights of contribution with respect thereto.
II-1
<PAGE> 57
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
5.1** Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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
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 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.
The undersigned Company hereby undertakes that:
(1) For purposes of determining liability under the Act, the information
omitted from the form of Prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Company pursuant to Rule 424 (b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 58
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 it has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized on July 8, 1996.
THE IMMUNE RESPONSE CORPORATION
By: /s/ DENNIS J. CARLO
------------------------------------
Dennis J. Carlo,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment to Registration Statement has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- --------------
<C> <S> <C>
/s/ JAMES B. GLAVIN*
- ----------------------------------------------- Chairman of the Board of July 8, 1996
James B. Glavin Directors
/s/ DENNIS J. CARLO
- ----------------------------------------------- President, Chief Executive July 8, 1996
Dennis J. Carlo Officer, and Director
/s/ CHARLES J. CASHION
- ----------------------------------------------- Vice President, Finance, July 8, 1996
Charles J. Cashion Chief Financial Officer
Secretary and Treasurer
/s/ KEVIN B. KIMBERLIN*
- ----------------------------------------------- Director July 8, 1996
Kevin B. Kimberlin
/s/ GILBERT S. OMENN*
- ----------------------------------------------- Director July 8, 1996
Gilbert S. Omenn
/s/ MELVIN PERELMAN*
- ----------------------------------------------- Director July 8, 1996
Melvin Perelman
/s/ JOHN SIMON*
- ----------------------------------------------- Director July 8, 1996
John Simon
/s/ WILLIAM M. SULLIVAN*
- ----------------------------------------------- Director July 8, 1996
William M. Sullivan
/s/ PHILIP M. YOUNG*
- ----------------------------------------------- Director July 8, 1996
Philip M. Young
*By: /s/ CHARLES J. CASHION
--------------------------------------------
Charles J. Cashion,
Attorney-in-Fact
</TABLE>
II-3
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- ----------- ---------------------------------------------------------------------- --------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
5.1** Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 60
APPENDIX 1
DESCRIPTION OF GRAPHICS AND IMAGE MATERIALS
Inside Front Cover
Graphic 1: The top left of the illustration entitled REMUNE-HIV THERAPY depicts
an arrow beginning with the injection of REMUNE into a human torso profile. The
bottom left of the illustration depicts an arrow labeled anti-viral drugs. The
two arrows merge in the middle of the illustration which depicts an HIV-infected
cell being affected by an anti-HIV cell and the anti-viral drug particles. The
right portion of the illustration depicts a dead cell and non-infectious virus
particles with the intended end result of slowing down the infection.
Graphic 2: The illustration entitled AUTOIMMUNE DISEASE TECHNOLOGY is a circular
sequence of events depicting the withdrawal of autoreactive T cells from the
knee of a full body human profile, the sequencing of T cell receptor genes and
ending with a needle containing TCR Peptide vaccine pointing at the arm of the
human.
Graphic 3: The illustration entitled GENE THERAPY TECHNOLOGY depicts a box with
a negative charge surrounding it entitled "Gene" containing a DNA strand which
is next to a box with a positive charge surrounding it entitled "Linker"
containing a poly-L-lysine. The Linker box is attached to a third box entitled
"Targeting Agent" containing an asialoglycoprotein which is shown plugging into
a socket entitled "Hepatocyte Receptor" which is indicated to be part of a liver
cell.
Graphic 4: The left illustration entailed CANCER TREATMENTS depicts a tumor
surrounded by a ring with arrows identified as TGF-B apparently deflecting T
cells. The middle illustration indicates the tumor cell has been altered by the
removal of the TGF-B ring and the apparent recognition of the tumor by the T
Cells. The right illustration depicts the shrinking of the tumor cells in the
brain of a human head.
Page 18
Chart: The left of the chart lists the various treatments of the Company and the
current status or next expected event. The remainder of the chart indicates
whether the treatment under development is in Preclinical, Phase I, Phase II or
Phase III.
<PAGE> 1
EXHIBIT 1.1
2,500,000 SHARES OF COMMON STOCK
($.0025 PAR VALUE)
THE IMMUNE RESPONSE CORPORATION
UNDERWRITING AGREEMENT
July ___, 1996
Hanifen, Imhoff Inc.
Cruttenden Roth Incorporated
As Representatives of the several Underwriters
named in Schedule A hereto
1125 17th Street, Suite 1600
Denver, Colorado 80202
Ladies and Gentlemen:
The Immune Response Corporation, a Delaware corporation (the
"Company"), confirms its agreement to issue and sell to the several underwriters
(the "Underwriters") named in Schedule A hereto for whom you are acting as
representatives (the "Representatives") an aggregate of 2,500,000 shares (the
"Firm Shares") of the Company's Common Stock, $0.0025 par value per share (the
"Common Stock"). The respective amounts of the Firm Shares to be purchased by
the several Underwriters are set forth opposite their names in Schedule A. In
addition, for the sole purpose of covering over-allotments in connection with
the sale of the Firm Shares, the Company confirms its agreement to grant to the
Underwriters an option to purchase up to an additional 375,000 shares of Common
Stock (the "Option Shares"). The Firm Shares and any Option Shares purchased
pursuant to this Agreement are hereinafter referred to as the "Shares."
As the Representatives, you have advised the Company that you are
authorized to enter into this Agreement on behalf of the several Underwriters
and that the several
Underwriters are willing, acting severally and not jointly, to purchase the
number of Firm Shares set forth opposite their respective names in Schedule A,
plus their pro rata portion of the Option Shares if you elect to exercise the
over-allotment option in whole or in part for the accounts of the several
Underwriters.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto hereby agree as follows:
1.
<PAGE> 2
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce
the Underwriters to enter into this Agreement, the Company represents and
warrants to, and agrees with, each Underwriter that:
(a) A registration statement on Form S-3 (File No. 333-05393)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company and its directors in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated thereunder, and has been
filed with the Commission such amendments to such registration statement, such
amended prospectuses subject to completion and such abbreviated registration
statements pursuant to Rule 462(b) of the Rules and Regulations as may have been
required prior to the date hereof have been similarly prepared and filed with
the Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. The Company
has complied with the conditions for the use of Form S-3. Copies of such
registration statement and all forms of the prospectuses included therein and
the exhibits, financial statements and schedules thereto and any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations, as
finally amended and revised, have heretofore been delivered by the Company to
the Representatives. Such registration statement, and the prospectus therein,
Part II thereof, any documents incorporated by reference therein and all
financial schedules and exhibits thereto, as amended at the time when it shall
become effective, and including all information omitted therefrom in reliance
upon Rule 430A of the Rules and Regulations, is hereinafter referred to as the
"Registration Statement." Such Registration Statement has been declared
effective under the Act and no post-effective amendment to the Registration
Statement has been filed as of the date of this Agreement. No stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or threatened by the
Commission. The prospectus included as part of the Registration Statement on
file with the Commission when it shall become effective or, if the procedure in
Rule 430A of the Rules and Regulations is followed, the prospectus that
discloses all the information that was omitted from the prospectus on the
effective date pursuant to such Rule, and in either case, together with any
changes contained in any prospectus filed with the Commission by the Company
with your consent after the effective date of the Registration Statement, is
hereinafter referred to as the "Prospectus." Each prospectus included in the
Registration Statement and any amendments thereto prior to the effective date of
the Registration Statement or which is filed with the Commission pursuant to
Rule 424(a) of the Rules and Regulations is referred to herein as a "Preliminary
Prospectus."
2.
<PAGE> 3
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission and no proceedings have
been instituted for that purpose; each Preliminary Prospectus, at the time of
filing thereof, (a) conformed in all material respects to the requirements of
the Act and the Rules and Regulations and (b) did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
documents incorporated by reference in the Preliminary Prospectus, at the time
filed with the Commission, conformed in all respects to the requirements of The
Securities Exchange Act of 1934 (the "Exchange Act") or the Act, as applicable,
and the Rules and Regulations.
(c) As of the time it became or will become effective, as the
case may be, and at all times subsequent thereto, the Registration Statement and
any post-effective amendment thereto and the Prospectus and any supplement
thereto conformed and will conform in all material respects with the
requirements of the Act and the Rules and Regulations. Neither the Registration
Statement nor any amendment thereto, and neither the Prospectus nor any
supplement thereto, at the time the Registration Statement or any amendment
thereto became or will become effective, and, with respect to the Prospectus or
any supplement thereto, at the effective date, the date the Prospectus or any
supplement is filed with the Commission and at each Closing Date (as such term
is defined below), contained or will contain, as the case may be, any untrue
statement of a material fact or omitted or will omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. The documents incorporated by reference in the prospectus, at the
time filed with the Commission, conformed in all material respects to the
requirements of the Exchange Act, the Act, and the Rules and Regulations, as
applicable.
(d) Except for __________________ (the "Subsidiaries"), the
Company does not have any beneficial or record ownership of, or control, any
corporation, partnership, joint venture, limited liability company,
unincorporated association or other entity.
(e) There are no contracts, leases, indentures, instruments or
other documents which are required by the Act and the Rules and Regulations to
be filed as exhibits to the Registration Statement or described in the
Prospectus which have not been so filed or described. All such contracts and
other documents to which the Company is a party have been duly authorized,
executed and delivered by the Company, constitute valid and binding agreements
of the Company and are enforceable against the Company in accordance with the
terms thereof.
(f) Each of the Company and its Subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction
3.
<PAGE> 4
of its organization, with full power and authority (corporate and other) to own
or lease its properties and to conduct its business as described in the
Prospectus. The Company owns all of the outstanding capital stock of its
Subsidiaries free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. Each of the Company and its Subsidiaries is duly
qualified to transact business as a foreign corporation and is in good standing
in all jurisdictions in which the character of the business conducted by it or
the properties owned or leased by it requires such qualification, except where
the failure to so qualify would not have a material adverse effect on the
business, condition (financial or otherwise), results of operations, properties
or prospects of the Company (a "Material Adverse Effect"). Complete and correct
copies of the certificate of incorporation and of the bylaws of the Company and
all amendments thereto have been filed with the Commission as part of the
Registration Statement or have been incorporated by reference to the
Registration Statement and delivered to the Representatives, and no changes
therein will be made subsequent to the date hereof and prior to the Closing
Date.
(g) The capitalization of the Company as of March 31, 1996 is
as set forth under the caption "Capitalization" in the Prospectus, and the
Common Stock and Preferred Stock conform to the descriptions thereof contained
under the caption "Description of Capital Stock" in the Prospectus or
incorporated therein by reference; the outstanding shares of Common Stock have
been, and the Shares, upon issuance and delivery and payment therefor in the
manner herein described, will be, duly authorized, validly issued, fully paid
and are non-assessable. Except as described in the Registration Statement, there
are no preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock pursuant
to the Company's certificate of incorporation, bylaws or other governing
documents or any agreement or other instrument to which the Company is a party
or by which it may be bound. Neither the filing of the Registration Statement
nor the offering or sale of the Shares as contemplated by this Agreement give
rise to any right, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock.
(h) Ernst & Young LLP, whose report appears in the Prospectus,
are independent certified public accountants as required by the Act and the
Rules and Regulations. The financial statements and schedules of the Company,
together with the related notes included in the Registration Statement,
Preliminary Prospectus or the Prospectus, comply in all material respects with
the requirements of the Act and the Rules and Regulations and present fairly the
financial condition, results of operations and cash flows of the entities
purported to be shown thereby at the dates and for the periods indicated. All of
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied (except for changes in
accounting policy described in the Registration Statement) throughout the
periods involved, and all adjustments necessary for a fair presentation of
results for such periods
4.
<PAGE> 5
have been made. The information set forth in the Registration Statement under
the captions "Summary Consolidated Financial Information," "Capitalization" and
"Selected Consolidated Financial Data" present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented in the Registration Statement.
(i) Except as described in the Prospectus, there is no
litigation or governmental action or proceeding pending or threatened before any
court or governmental, administrative or regulatory agency, domestic or foreign,
or, to the knowledge of the Company, contemplated, to which the Company or any
Subsidiary or any officer thereof in their capacity as such is a party or of
which any of the Company's or any Subsidiary's property is the subject and which
(i) if determined adversely to the Company or such Subsidiary, would have a
Material Adverse Effect or (ii) is required to be disclosed in the Prospectus.
(j) The Company has good and marketable title in fee simple to
all items of real property and good and marketable title to all personal
property owned by it, in each case clear of all liens, encumbrances and defects,
except such as are disclosed in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made or
proposed to be made of such property by the Company; and any real property and
buildings held under lease by the Company are held under valid, existing and
enforceable leases with such exceptions as are not material and do not interfere
with the uses made or proposed to be made of such property and buildings by the
Company.
(k) Except as may be disclosed in the Prospectus, the Company
(i) has filed all material tax returns that have been required to be filed, (ii)
has paid all material taxes to be due and payable and (iii) has established
adequate reserves for such material taxes that are not now due and payable, and
such reserves are reflected in the Company's financial statements.
(l) The Company is not, nor with the giving of notice or lapse
of time, or both, would be, in violation of or in default under, nor will the
execution or delivery of this Agreement, the consummation of the transactions
contemplated herein or the fulfillment of the terms hereof conflict with or
result in a violation of or default under, the certificate of incorporation,
bylaws or other governing documents of the Company, or, except where such
violation or default has not had or would not have a Material Adverse Effect,
under (i) any foreign or domestic permit, judgment, decree, order, statute, rule
or regulation applicable to the Company or (ii) any lease, license, contract,
indenture, mortgage, deed of trust, loan agreement or other agreement,
instrument, obligation, arrangement or understanding to which the Company is a
party or by which it or any of its properties is bound, or result in the
creation or imposition of any lien, charge, claim or
5.
<PAGE> 6
encumbrance upon any property or assets of the Company. Each approval, consent,
order, authorization, designation, declaration or filing by or with any
regulatory, administrative or other governmental body or court necessary in
connection with the execution and delivery by the Company of this Agreement and
the consummation of the transactions contemplated herein (except such additional
steps as may be required by the Act, the Exchange Act, the National Association
of Securities Dealers, Inc. ("NASD") or which may be necessary to qualify the
Shares for public offering by the Underwriters under foreign or state securities
or Blue Sky laws, all of which have been or will be completed before the Closing
Date) has been obtained or made and is in full force and effect.
(m) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended.
(n) Since the respective dates as of which information is
given in the Registration Statement or, if later, the Prospectus, as each may be
amended or supplemented, there has not been any material adverse change in, or
any adverse development which materially affects the business, condition
(financial and otherwise), results of operations, properties or prospects of the
Company, whether or not occurring in the ordinary course of business. Since the
respective dates as of which information is given in the Registration Statement
or, if later, the Prospectus, as each may be amended or supplemented, and except
as set forth in the Prospectus, there has not been any change in the capital
stock of the Company, or any transactions entered into by the Company (other
than those in the ordinary course of business consistent with past practices)
that are material with respect to the Company, or any dividend or distribution
of any kind declared, paid or made by the Company on any class of its capital
stock or any issuance of warrants, options, convertible securities or other
rights to purchase or acquire capital stock of the Company.
(o) The business and operations conducted by the Company are
being conducted in accordance with all applicable laws, rules, regulations and
decrees of all public authorities, foreign or domestic, having jurisdiction over
the Company, except where a failure to so conduct the business and operations of
the Company would not have a Material Adverse Effect. The Company owns or
possesses all authorizations, approvals, orders, licenses, registrations, other
certificates and permits of and from all governmental regulatory officials and
bodies, necessary to conduct the business of the Company as presently described
in or contemplated in the Prospectus, except where the failure to own or possess
all such authorizations, approvals, orders, licenses, registrations, other
certificates and permits would not have a Material Adverse Effect; there is no
proceeding pending or threatened (or any basis therefor known to the Company)
that may cause any such authorization, approval, order, license, registration,
certificate or permit to
6.
<PAGE> 7
be revoked, withdrawn, canceled, suspended or not renewed which would result in
a Material Adverse Effect.
(p) The Company owns, licenses or possesses adequate rights to
use all patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets and other proprietary and similar rights necessary for
the conduct of its business as currently conducted. Neither the Company nor any
of its products has infringed upon, or is presently infringing upon, any
patents, patent rights, trademarks, service marks, trade names, copyrights,
trade secret or other proprietary rights of other persons.
(q) The Company has the full power and authority (corporate
and other) to execute, deliver and perform this Agreement. This Agreement has
been duly and validly authorized, executed and delivered by the Company and
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as to rights to
indemnity hereunder which may be limited by federal or state securities laws and
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity.
(r) The Company maintains insurance of the types and in the
amounts adequate for its business.
(s) All transactions during the Company's current fiscal year
and last three (3) full fiscal years between the Company and any person who is
or was during such period an officer, director or 5% or greater stockholder of
the Company have been disclosed in the Prospectus to the extent required under
the Act or the Rules and Regulations.
(t) The Company has not distributed and will not distribute
any prospectus or other offering material in connection with the offering and
sale of the Shares other than any Preliminary Prospectus or the Prospectus or
other materials permitted by the Act and the Rules and Regulations to be
distributed by the Company.
(u) As of the date hereof, the Company's Common Stock,
including the Shares, has been approved for quotation on the Nasdaq National
Market.
(v) The Company has not incurred any liability for any
finder's or broker's fee in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(w) The Company is in compliance in all material respects with
all federal, state and local laws and regulations respecting the employment of
its employees
7.
<PAGE> 8
and employment practices, terms and conditions of employment and wages and hours
relating thereto. There are no pending investigations involving the Company by
the U.S. Department of Labor or any other governmental agency responsible for
the enforcement of such federal, state or local laws and regulations. The
Company is not aware of any union organization activity with respect to the
employees of the Company.
(x) No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document delivered
in connection with this Agreement to be delivered to the Representatives was or
will be, when made, inaccurate, untrue or incorrect in any material respect
(except where such statement, representation, warranty or covenant is already
qualified by materiality, in which case such statement, representation, warranty
or covenant shall not be inaccurate, untrue or incorrect in any respect).
(y) The Company has obtained from each of its officers and
directors and each shareholder listed on Annex I their written agreement that,
for a period of 90 days from the date of the Prospectus, they will not, without
the prior written consent of the Representatives, sell, contract to sell, grant
any option for the sale of or otherwise dispose of, directly or indirectly, any
shares of Common Stock of the Company owned by them (or any securities
convertible into or exercisable for such shares of Common Stock) or file a
registration statement contemplating such sale or disposition.
2. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) Subject to the terms and conditions and upon the basis of
the representations, warranties and covenants herein set forth, the Company
agrees to issue and sell to the Underwriters, and each Underwriter agrees,
severally and not jointly, to purchase at a price of $_______ per Share, the
number of Firm Shares set forth opposite such Underwriter's name in Schedule A
hereto, subject to adjustment in accordance with the terms hereof. The
Underwriters agree to offer the Firm Shares to the public as set forth in the
Prospectus.
(b) The Company hereby grants to the Underwriters an option to
purchase from the Company, solely for the purpose of covering over-allotments in
the sale of Firm Shares, all or any portion of the Option Shares for a period of
thirty (30) days from the date hereof at the purchase price per Share set forth
above. Option Shares shall be purchased from the Company, severally and not
jointly, for the account of each Underwriter as nearly as practicable in
proportion to the number of Firm Shares set forth opposite such Underwriter's
name in Schedule A hereto, except that the respective purchase obligations of
each Underwriter shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase fractional Option Shares.
8.
<PAGE> 9
3. DELIVERY OF AND PAYMENT FOR SHARES.
(a) Delivery of certificates for the Firm Shares and
certificates for the Option Shares, if the option to purchase the same is
exercised on or before the third Business Day (as defined below) prior to the
Closing Date, to be purchased by the Underwriters from the Company shall be made
at the offices of Hanifen, Imhoff Inc., 1125 17th Street, Suite 1600, Denver,
Colorado 80202 (or such other place as mutually may be agreed upon), and payment
therefor shall be made by wire transfer to such account as the Company shall
designate to the Representatives, on the [third/fourth] full Business Day
following the date hereof at _____ __.m. Mountain Time or at such other date and
time as shall be determined by the Representatives and the Company (the "Closing
Date").
(b) The option to purchase Option Shares granted in Section 2
hereof may be exercised during the term thereof by written notice to the Company
from the Representatives. Such notice shall set forth the aggregate number of
Option Shares as to which the option is being exercised and the time and date,
not earlier than either the Closing Date or the second Business Day after the
date on which the option shall have been exercised or later than the fifth
Business Day after the date of such exercise, as determined by the
Representatives, when the Option Shares are to be delivered (the "Option Closing
Date"). Delivery and payment for such Option Shares is to be at the offices and
by wire transfer, respectively, as set forth above for delivery and payment of
the Firm Shares. (The Closing Date and the Option Closing Date are herein
individually referred to as the "Closing Date" and collectively referred to as
the "Closing Dates.")
(c) Delivery of certificates for the Shares shall be made by
or on behalf of the Company to the Representatives, for the respective accounts
of the Underwriters, with any transfer taxes payable in connection with the
transfer of the Shares to the Underwriters duly paid, against payment by the
Representatives, for the several accounts of the Underwriters, of the purchase
price therefor by wire transfer to such account as the Company shall designate
to the Representatives. The certificates for the Shares shall be registered in
such names and denominations as the Representatives shall have requested at
least two (2) full Business Days prior to the applicable Closing Date, and shall
be made available for checking and packaging at the offices of or other location
designated by the Representatives at least one (1) full Business Day prior to
such Closing Date. Time shall be of the essence and delivery at the time and
place specified in this Agreement is a further condition to the obligations of
each Underwriter.
(d) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Shares by the Company to the
respective Underwriters shall be borne by the Company. The Company will pay and
save each Underwriter and any subsequent holder of the Shares harmless from any
and all liabilities with respect to or
9.
<PAGE> 10
resulting from any failure or delay in paying federal and state stamp and other
transfer taxes, if any, which may be payable or determined to be payable in
connection with the original issuance or sale to such Underwriter of the Shares.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters intend to make a public offering of the Firm Shares as soon as you
deem it advisable to do so. The Firm Shares are to be initially offered to the
public at the public offering price set forth in the Prospectus; provided,
however, that you may from time to time increase or decrease the public offering
price prior to the Closing Date. To the extent, if at all, that any Option
Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer
them to the public on the foregoing terms. It is further understood that you
will act as the Representatives for the several Underwriters in the offer and
sale of the Shares, in accordance with an Agreement Among Underwriters entered
into by you and the several other Underwriters.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
Underwriter that:
(a) The Company shall use its best efforts to cause the
Registration Statement and any post-effective amendment subsequently filed to
become effective promptly or, if the procedure in Rule 430A under the Rules and
Regulations is followed, comply with the provisions of and make all requisite
filings with the Commission pursuant to such Rule and to notify you promptly (in
writing, if requested) of all such filings; and the Company shall use its best
efforts to cause any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective promptly. The
Company shall prepare and file with the Commission, promptly upon your request,
any amendments of or supplements to the Registration Statement or Prospectus
which, in your opinion, may be necessary or advisable in connection with the
distribution of the Shares; and the Company may not file any amendment of or
supplement to the Registration Statement or the Prospectus that is not approved
by you after reasonable notice thereof.
(b) The Company will advise you promptly, and, if requested by
you, will confirm such advice in writing, (i) when the Registration Statement
shall have become effective and when any amendment thereto shall have become
effective and when any amendment of or any supplement to the Prospectus shall be
filed with the Commission; (ii) of any request of the Commission for additional
information or for any amendment of or supplement to the Registration Statement
or the Prospectus; (iii) of the issuance by the Commission or any other
governmental body of any order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any proceedings
for such purpose; (iv) of the suspension of the qualification
10.
<PAGE> 11
of the Shares for offering or sale in any jurisdiction or of the institution of
any proceedings for such purpose; (v) of receipt by the Company or any
representative or attorney of the Company of any other communication from the
Commission relating to the Company, the Registration Statement, any Preliminary
Prospectus or the Prospectus; or (vi) of the happening of any event which in the
judgment of the Company makes any material statement in the Registration
Statement or Prospectus untrue or which requires the making of any changes on
the Registration Statement or Prospectus in order to make the statements therein
not misleading. The Company will use its best efforts to prevent the issuance of
any such order preventing or suspending the use of the Prospectus; and to obtain
as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents and furnish such
information as may be reasonably required for that purpose. The Company will,
from time to time, prepare and file such statements, reports and other documents
as are or may be required to continue such qualifications in effect for so long
as is required under the laws of such jurisdictions for such offering and sale.
(d) The Company will furnish the Underwriters with as many
copies of any Preliminary Prospectus as the Underwriters may reasonably request
and, during the period when delivery of a prospectus is required under the Act,
the Company will furnish the Underwriters with as many copies of the Prospectus
in final form, or as thereafter amended or supplemented, as the Representatives
may, from time to time, request. In addition, the Company will deliver to the
Representatives, at or before the Closing Date and without charge, for
transmittal to each Underwriter, a copy of the Registration Statement (two (2)
copies of such Registration Statement shall be signed and shall include
exhibits) and all amendments and supplements thereto.
(e) Within the time during which a prospectus relating to the
Shares is required to be delivered under the Act, the Company shall comply with
all requirements imposed upon it by the Act and the Rules and Regulations, as
from time to time in force, so far as is necessary to permit the continuance of
sales of or dealings in the Shares as contemplated by the provisions hereof and
the Prospectus. If during such period any event occurs as a result of which the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein not misleading, or if during such period it is necessary to
amend the Registration Statement or supplement the Prospectus to comply with the
Act and the Rules and Regulations, the Company shall promptly notify you and
shall amend the Registration Statement or supplement the Prospectus (at the
expense of the Company) so as to correct such statement or omission or effect
such compliance.
11.
<PAGE> 12
(f) The Company will make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Act, and will
deliver to the Representatives, as soon as it is practicable to do so, but in
any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs (or not later than 90 days after the end of such fiscal quarter if such
fiscal quarter is the last fiscal quarter of the fiscal year), an earnings
statement satisfying the requirements of Section 11(a) of the Act and covering a
period of at least twelve (12) consecutive months beginning after the effective
date of the Registration Statement, and will advise you in writing when such
statement has been so made available.
(g) No offer, sale or other disposition of any Common Stock or
other capital stock of the Company, or warrants, options, convertible securities
or other rights to acquire such Common Stock or other capital stock will be
made, nor will any registration statement be filed with the Commission, for a
period of 90 days after the date of this Agreement, directly or indirectly, by
the Company otherwise than hereunder or with your prior written consent or
pursuant to the exercise of warrants or options currently outstanding or
pursuant to the Company's currently existing stock plans.
(h) The Company will apply the net proceeds from the sale of
the Shares as set forth under the caption "Use of Proceeds" in the Prospectus
and shall file such reports with the Commission with respect to the sale of the
Shares and the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
(i) During a period of three (3) years from the date hereof,
the Company shall furnish to the Representatives, and each other Underwriter who
may so request, copies of all reports or other communications furnished to
stockholders and copies of any reports or financial statements furnished to or
filed with the Commission or any national securities exchange or quotation
system on which any class of securities of the Company is listed.
(j) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(k) The Company will not at any time, directly or indirectly,
take any action designed, or which might reasonably be expected, to cause or
result in, or which will constitute stabilization of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company authorizes the Underwriters to use the
Prospectus as from time to time amended or supplemented in connection with the
offering and sale of the Shares.
12.
<PAGE> 13
(m) The Company shall use its best efforts to maintain the
Common Stock, including the Shares, on the Nasdaq National Market (or on a
national securities exchange) for a period of five years after the effective
date of the Registration Statement.
6. COSTS AND EXPENSES. Whether or not the transactions contemplated
hereunder are consummated or this Agreement becomes effective or is terminated,
the Company agrees to pay, or reimburse if paid by the Representatives, all
costs, expenses and fees incident to the performance of the obligations of the
Company under this Agreement, including, without limiting the generality of the
foregoing, the following: accounting fees of the Company; the fees and
disbursements of counsel for the Company; all expenses incident to the issuance
and delivery of the Shares (including all printing and engraving costs); all
fees and expenses of the registrar and transfer agent of the Common Stock; the
cost of preparation, printing and filing of the Registration Statement,
Preliminary Prospectus and the Prospectus (including the financial statements
therein and all exhibits thereto) and any amendments and supplements thereto and
the printing, mailing and delivery to the Underwriters and dealers of copies
thereof and of this Agreement, the Agreement Among Underwriters, any Selected
Dealers Agreement, any other underwriting document, the Blue Sky memorandum and
any supplements or amendments thereto; the filing fees of the Commission; the
filing fees incident to securing any required review by the NASD of the terms of
the sale of the Shares; filing fees and listing fees, if any, transfer taxes and
the expenses (including the fees and disbursements of counsel for the
Underwriters) incurred in connection with the qualification of the Shares under
state securities or Blue Sky laws; the Company's slide presentation and travel
in connection with informational meetings for the brokerage community and
institutional and retail investors; and all other costs and expenses incident to
the performance of the obligations of the Company hereunder that are not
otherwise specifically provided for in this Section 6; provided, however, that
the Company shall not be required to pay the fees for qualification of the sale
of the Shares under state securities laws in excess of $20,000 without its prior
consent. If the sale of the Shares provided for herein is not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed or because any other condition
of the Underwriters' obligations hereunder is not fulfilled, the Company shall
reimburse the several Underwriters for all reasonable out-of-pocket expenses and
disbursements (including fees and disbursements of counsel) incurred by the
Underwriters in connection with their investigation, preparing to market and
marketing the Shares or otherwise in contemplation of performing their
obligations hereunder.
7. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters hereunder are subject to the accuracy as of the date
hereof and each Closing Date (as if made at such Closing Date) of the
representations and warranties of the Company contained herein, and to the
performance and fulfillment by the Company
13.
<PAGE> 14
of its covenants, obligations and conditions hereunder, and to the following
additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made on
or prior to 12:00 noon, Denver time, on ____________, 1996; no order suspending
the effectiveness of the Registration Statement or any amendment or supplement
thereto or the qualification or registration of the Shares under the securities
or Blue Sky laws of any jurisdiction shall have been issued and no proceedings
for such purposes shall have been initiated or threatened or, to the knowledge
of the Company, shall be contemplated, and all requests for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been disclosed to the Representatives and complied with to
its satisfaction and the satisfaction of the Commission; and neither the
Registration Statement or Prospectus nor any amendment or supplement thereto
shall have been filed to which counsel to the Underwriters shall have reasonably
objected or have not given their consent.
(b) No Underwriter shall have advised the Company that the
Registration Statement or Prospectus, or any amendment or supplement thereto,
contains an untrue statement of fact which, in the opinion of counsel to the
Underwriters, is material, or required to be stated therein or is necessary to
make the statements therein not misleading.
(c) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there shall not have been
any change in, or any development which affects, the capital stock of the
Company or the business condition (financial or otherwise), results of
operations, properties or prospects of the Company that, in your judgment, makes
it impractical or inadvisable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(d) You shall have received on each Closing Date the opinion
of Pillsbury Madison & Sutro LLP, counsel for the Company, dated the Closing
Date or the Option Closing Date, as the case may be, addressed to the
Underwriters, in form and substance satisfactory to you and counsel for the
Underwriters, to the effect that:
(i) Each of the Company and its Subsidiaries has been
duly organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its organization, with full corporate power and
authority to own or lease its properties and conduct its business as described
in the Prospectus, and is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the
14.
<PAGE> 15
business conducted by it or the location of the properties owned or leased by it
makes such qualification necessary;
(ii) The Company has authorized, issued and outstanding capital stock
as of _________, 1996 as described under the caption "Capitalization" in the
Prospectus, and the Common Stock and Preferred Stock conform to the descriptions
thereof contained in the Prospectus or incorporated therein by reference. The
outstanding shares of the Company's capital stock have been, and the Shares,
upon issuance, delivery and payment therefor in the manner herein described,
will be, duly authorized, validly issued, fully paid and are non-assessable. The
certificates for the Shares are in due and proper form under the corporations
law of the State of Delaware. There are no preemptive or other rights to
subscribe for or to purchase, or any restriction upon the voting or transfer of,
any shares of the Company's capital stock pursuant to the Company's certificate
of incorporation, bylaws, other governing documents or, to such counsel's
knowledge, any agreements or other instruments to which the Company is a party
or by which it is bound; and, to such counsel's knowledge, neither the filing of
the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of the Company's capital stock. All corporate action required to be taken on the
part of the Company for the authorization, issuance and sale of the Shares by
the Company has been duly and validly taken;
(iii) The Registration Statement and all post-effective amendments
thereto have become effective under the Act and, to such counsel's knowledge, no
stop order proceedings with respect thereto have been instituted or are pending
before or threatened by the Commission and any and all filings required by Rule
424 and Rule 430A of the Rules and Regulations have been made;
(iv) The Registration Statement and the Prospectus and any amendment or
supplement thereto, as of their respective effective dates, comply as to form in
all material respects with the requirements of the Act and the Rules and
Regulations (except that counsel need express no opinion on the financial
statements or other financial data);
(v) The Company is not, nor with the giving of notice or lapse of time,
or both, would be, in violation of or in default under, nor will the execution
or delivery hereof or consummation of the transactions contemplated hereby
result in a violation of, or constitute a default under, the certificate of
incorporation, bylaws or other governing documents of the Company or, to such
counsel's knowledge, any material agreement, indenture or other instrument to
which the Company is a party or by which it is bound, or to which any of its
properties is subject, nor will the performance by the Company of its
obligations hereunder violate any law, rule or regulation of any
15.
<PAGE> 16
governmental agency or body having jurisdiction over the Company or its
properties, or result in the creation or imposition of any lien, charge, claim
or encumbrance upon any property or assets of the Company. Except for permits
and similar authorizations required under the Act and the securities or Blue Sky
laws of certain jurisdictions and for such permits and authorizations which have
been obtained, no consent, approval, authorization or order of any court,
governmental agency or body or financial institution is required in connection
with the consummation of the transactions contemplated by this Agreement;
(vi) Such counsel does not know of or believe that there is any pending
or threatened litigation or any governmental proceeding, statute or regulation
required to be described in the Prospectus which is not so described; and
(vii) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the valid and binding agreement of the Company
and is enforceable against the Company in accordance with its terms, except as
rights to indemnity under this Agreement may be limited by federal or state
securities laws and except as (i) may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
(ii) is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
In addition, such counsel shall state that during the course of the
preparation of the Registration Statement and the Prospectus, such counsel
participated in conferences with officers and other representatives of the
Company at which the contents of the Registration Statement and the Prospectus
and other related matters were discussed. Although such counsel are not passing
upon and have not independently checked or verified the accuracy, completeness
or fairness of the statements contained in the Registration Statement or the
Prospectus, such counsel will advise you that they have no reason to believe
that, as of the effective date of the Registration Statement, the Registration
Statement (except as to the financial statements, including the notes thereto
and related schedules and the other financial and accounting data included in or
which should have been included therein, as to which such counsel will not be
called upon to and will not advise you) contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that, as of the
Closing Date, the Prospectus (except as to the financial statements, including
the notes thereto and related schedules and the other financial and accounting
data included in or which should have been included therein, as to which such
counsel will not be called upon to and will not advise you) contains any untrue
statements of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Such counsel will further state that they do not
know of any amendment
16.
<PAGE> 17
to the Registration Statement or Prospectus required to be filed or of any
contracts or other documents of a character required to be filed as an exhibit
to the Registration Statement or required to be incorporated by reference into
the Prospectus or required to be described in the Registration Statement or the
Prospectus which are not filed or incorporated by reference or described as
required.
(e) You shall have received on each Closing Date the opinion of
[Campbell & Flores/Lahive and Cockfield], patent counsel for the Company, dated
the Closing Date or the Option Closing Date, as the case may be, addressed to
the Underwriters, in form and substance satisfactory to you and counsel for the
Underwriters and stating that it may be relied upon by counsel for the
Underwriters in giving their opinion, to the effect that:
(i) Such counsel is familiar with the technology used by the
Company in its business and the manner of its use thereof and have read the
Registration Statement and the Prospectus, including particularly the portions
of the Registration Statement and the Prospectus referring to patents, trade
secrets, trademarks, service marks or other proprietary information or
materials;
(ii) Such counsel has no reason to believe that the
Registration Statement or the Prospectus (A) contains any untrue statement of a
material fact with respect to patents, trade secrets, trademarks, service marks
or other proprietary information or materials owned or used by the Company, or
the manner of its use thereof, or any allegation on the part of any person that
the Company is infringing any patent rights, trade secrets, trademarks, service
marks or other proprietary information or materials of any such person or (B)
omits to state any material fact relating to patents, trade secrets, trademarks,
service marks or other proprietary information or materials owned or used by the
Company, or the manner of its use thereof, or any allegation of which such
counsel has knowledge, that is required to be stated in the Registration
Statement or the Prospectus or is necessary to make the statements therein not
misleading; and
(iii) To the best of such counsel's knowledge, after
conducting a reasonable investigation, none of the Company's products infringe
upon any patent, trade secret, trademark, service mark, proprietary information
or material owned by any other person or entity.
(f) You shall have received on each Closing Date the opinion of Hogan &
Hartson L.L.P., regulatory counsel for the Company, dated the Closing Date or
the Opinion Closing Date, as the case may be, addressed to the Underwriters, in
form and substance satisfactory to you and counsel for the Underwriters and
stating that it may be
17.
<PAGE> 18
relied upon by counsel for the Underwriters in giving their opinion, to the
effect that: [to come].
(g) The Representatives shall have received from Cooley Godward Castro
Huddleson & Tatum, counsel for the Underwriters, an opinion dated each Closing
Date with respect to the organization of the Company, the validity of the
Shares, the Registration Statement, the Prospectus or such other related matters
as you may reasonably request, and such counsel shall have received such papers
and information as they may reasonably request to enable them to pass upon such
matters.
(h) The Representatives shall have received on the date of this
Agreement and also on each Closing Date, a signed letter from Ernst & Young LLP,
in form and substance satisfactory to the Representatives, regarding the
financial information contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any Blue
Sky Application (as defined below).
(i) The Representatives shall have received on the date hereof and on
each Closing Date, a certificate or certificates signed on behalf of the Company
by the President and Chief Executive Officer and the Chief Financial Officer of
the Company, in form and substance satisfactory to the Representatives, to the
effect that:
(i) The Registration Statement has become effective under the
Act, no order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for that purpose have been initiated or
threatened or are, to their knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company in this
Agreement are true and correct, as if made at and as of such Closing Date, and
the Company has complied with all the covenants and agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to such
Closing Date;
(iii) Any and all filings required by Rule 424 and Rule 430A
of the Rules and Regulations have been made;
(iv) The signers of said certificate and each director of the
Company have carefully examined the Registration Statement and the Prospectus,
and any amendments or supplements thereto, and such documents contain all
statements and information required to be included therein, and do not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading;
18.
<PAGE> 19
(v) Since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has not been so
set forth; and
(vi) There has not occurred any material adverse change, or
any development involving a prospective material adverse change, in the
condition (financial or otherwise), results of operations, properties or
prospects of the Company, from that set forth in the Registration Statement.
(j) Since the effective date of the Registration Statement, the Company
shall not have sustained any loss by fire, flood, accident or other calamity, or
shall not have become a party to or the subject of any litigation, which is
material to the Company, nor shall there have been a material adverse change in
the general affairs, key personnel or net worth of the Company, whether or not
arising in the ordinary course of business, which loss, litigation or change, in
your judgment, shall make it impractical or inadvisable to proceed with the
marketing of the Shares.
(k) The Shares shall be qualified for sale in such jurisdictions as the
Representatives may reasonably request and each such qualification shall be in
effect and not subject to any stop order or other proceeding on each Closing
Date.
(l) Prior to the Closing Date, the Shares shall have been duly
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
(m) The Company shall have furnished to the Representatives such
certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and
completeness at each Closing Date of any statement in the Registration
Statement, or the Prospectus, as to the accuracy at each Closing Date of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to the obligations hereunder of the
Representatives.
The several obligations of the Underwriters to purchase Option Shares
hereunder are subject to the delivery to you on the Option Closing Date of such
documents comparable to the foregoing as you may reasonably request.
8. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning set forth
in the Act (i) against any losses, claims, damages or liabilities to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise
19.
<PAGE> 20
out of or are based upon (A) any untrue statement or alleged untrue statement
made by the Company in Section 1 hereof or (B) any untrue statement or alleged
untrue statement of any material fact contained (x) in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto or (y) in any Blue Sky application or other document executed
by the Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Shares under the securities or Blue Sky laws thereof
(any such application, document or information being hereinafter called a "Blue
Sky Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; (ii) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or of
any claim, in each case arising out of or based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of the Company; and (iii)
against any and all expense whatsoever, as incurred (including, subject to
Section 8(c) hereof, the fees and disbursements of counsel chosen by the
Representatives), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim, in each case arising out
of or based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is not paid
under (i) or (ii) above, and will reimburse promptly each Underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
such Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission, made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company through
you by or on behalf of any Underwriter specifically for use in the preparation
of the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto or in any Blue Sky Application; provided
further, however, that the indemnity agreement provided in this Section with
respect to any Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, charges, liabilities,
expenses or litigation purchased Shares (or to the benefit of any person
controlling such Underwriter), if a copy of an amendment or supplement to the
Prospectus correcting such untrue statement or omission has not been sent or
given to
20.
<PAGE> 21
such person within the time required by the Act and the rules and regulations
promulgated thereunder, unless such failure is the result of noncompliance by
the Company with the terms of this Agreement. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally, but not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning set forth in the Act, (i) against any losses, claims,
damages or liabilities to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained (A) in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto or (B) in any Blue Sky Application, or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; (ii)
against any and all loss, liability, claim, damage and expense whatsoever, as
incurred, to the extent of the aggregate amount paid in settlement of any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim, in each case arising out of or
based upon any such untrue statement or omission, if such settlement is effected
with the written consent of the Underwriters; and (iii) against any and all
expense whatsoever, as incurred (including, subject to Section 8(c) hereof, the
fees and disbursements of counsel chosen by the indemnified parties), reasonably
incurred in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim, in each case arising out of or based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above, and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damages, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
as provided in subsections (i), (ii) and (iii) of this Section to the extent,
but only to the extent, that such loss, liability, claim, damage or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission that has been made in the Registration
Statement, Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or in any Blue Sky Application in reliance upon and in conformity with
written information furnished to the Company through the Representatives by or
on behalf of such Underwriter specifically for use in the preparation thereof or
from the failure of any Underwriter within the time required by the Act and the
Rules and Regulations to send or
21.
<PAGE> 22
deliver a copy of the Prospectus (or the Prospectus as amended or supplemented)
to the person asserting any such losses, claims, charges, liabilities or
litigation, unless such failure is the result of noncompliance by the Company
with the terms of this Agreement. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity or
contribution may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) or contribution provided for
in Section 8(d) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party otherwise than on
account of the provisions of Section 8(a), (b) or (d). In case any such
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party
and shall pay as incurred the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred the reasonable fees and
expenses of the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to material actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the fees and expenses of more than one separate firm for all such indemnified
parties. Such firm shall be designated in writing by you and shall be reasonably
satisfactory to the Company in the case of parties indemnified pursuant to
Section 8(a) and shall be designated by the Company and shall be reasonably
satisfactory to you in the case of parties indemnified pursuant to Section 8(b).
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
22.
<PAGE> 23
(d) If the indemnification provided for in this Section 8 is legally
unavailable to hold harmless an indemnified party under Section 8(a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereto) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to the respective numbers of Firm Shares
set
23.
<PAGE> 24
forth opposite their names in Schedule A hereto (or such number of Firm Shares
as increased pursuant to Section 9 hereof).
(e) In any proceeding relating to the Registration Statement,
the Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto or any Blue Sky Application, the Company and the Underwriters, and each
other party against whom contribution may be sought under this Section 8, hereby
consent to the exclusive jurisdiction and venue of any court situated in the
State of Colorado, City of Denver, and all such parties agree that process
issuing from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any such
proceeding in which such other contributing party is a party.
9. SUBSTITUTION OF UNDERWRITERS. If any Underwriter shall fail to
purchase the Shares set forth opposite its name in Schedule A hereto, and such
failure to purchase shall constitute a default by such Underwriter in its
obligation to purchase the number of Shares which it has agreed to purchase
under this Agreement, the non-defaulting Underwriters shall have the right and
shall be obligated to purchase (in the respective proportions which the number
of Shares set forth opposite the name of each non-defaulting Underwriter in
Schedule A hereto bears to the total number of Shares set forth opposite the
names of all the non-defaulting Underwriters in Schedule A hereto) the Shares
that the defaulting Underwriter agreed but failed to purchase; provided,
however, that the non-defaulting Underwriters shall not be obligated to purchase
any of the Shares if the total number of Shares which the defaulting Underwriter
or Underwriters agreed but failed to purchase exceeds 10% of the total number of
Shares, and any non-defaulting Underwriter shall not be obligated to purchase
more than 110% of the number of Shares set forth its name in Schedule A hereto
plus the total number of Option Shares, purchasable by it pursuant to the terms
of Section 2; provided further, that if the foregoing maximums are exceeded, the
non-defaulting Underwriters, and any other underwriters satisfactory to you who
so agree, shall have the right, but shall not be obligated, to purchase (in such
proportions as may be agreed upon among them) all the Shares. If the
non-defaulting Underwriters or the other underwriters satisfactory to you do not
elect to purchase the Shares which the defaulting Underwriter or Underwriters
agreed but failed to purchase, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriter or the Company except for the
payment of expenses to be borne by the Company and the Underwriters as provided
in Section 6 and the indemnity and contribution agreement of the Company and the
Underwriters contained in Section 8 hereof.
If any of the Underwriters shall fail to purchase the entire number of
shares set forth opposite its name and such failure to purchase shall not
constitute a default by such Underwriter in the performance of its obligations
under this Agreement, the remaining
24.
<PAGE> 25
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the entire amount
(but not less than all) of the Shares which all withdrawing Underwriters agreed
but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have for damages caused by its default. If the other
underwriters satisfactory to you are obligated or agree to purchase the Shares
of a defaulting Underwriter, either you or the Company may postpone the Closing
Date for up to seven (7) full Business Days in order to effect any changes that
may be necessary in the Registration Statement or Prospectus or in any other
document or agreement, and to file promptly any amendment or any supplements to
the Registration Statement or the Prospectus which in you opinion may thereby be
made necessary.
10. NOTICES. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered or sent by
facsimile or telex as follows: (a) if to the Company, at the office of the
Company, 5935 Darwin Court, Carlsbad, California 92008 (Facsimile: (619)
431-8636), with a copy to Company Counsel with Facsimile or (b) if to the
Underwriters, to the Representatives at the offices of Hanifen, Imhoff Inc.,
1125 17th Street, Suite 1600, Denver, Colorado 80202, Attention: Corporate
Finance Department (Facsimile: (303) 291-5470) with a copy to Underwriters'
Counsel with Facsimile.
11. EFFECTIVE DATE AND TERMINATION. This Agreement shall become
effective at _______ __.m., Mountain Time, on the first full Business Day
following the earlier of (a) the date hereof or (b) the day on which the
Representatives releases the Firm Shares for sale to the public. The
Representatives shall notify the Company immediately after it has taken any
action that causes this Agreement to become effective. Until this Agreement is
effective, it may be terminated by the Company by giving notice to the
Representatives or by the Representatives giving notice to the Company, except
that the provisions of Section __ and __ shall at all times be effective. For
purposes of this Agreement, the release of the Firm Shares for sale to the
public shall be deemed to have been made when the Representatives releases, by
telegram or otherwise, firm offers of the Firm Shares to securities dealers or
release for publication a newspaper advertisement relating to the Firm Shares,
whichever occurs first. This Agreement may be terminated at any time on or prior
to each Closing Date by the Representatives by notice to the Company as follows:
(a) At any time prior to such Closing Date if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change in, or any adverse development that materially affects the business,
condition (financial and otherwise), results of operations, properties or
prospects of the Company, whether or not arising in
25.
<PAGE> 26
the ordinary course of business, (ii) trading in any of the equity securities of
the Company shall have been suspended by the Commission or by the Nasdaq, (iii)
any outbreak or escalation of hostilities or declaration of war or national
emergency after the date hereof or other national or international calamity or
crises if the effect of such outbreak, escalation, declaration, emergency,
calamity or crises would, in your judgment, make the offering or delivery of the
Shares impracticable or inadvisable, (iv) suspension or limitation of trading in
securities on the New York Stock Exchange, the American Stock Exchange, Nasdaq
National Market, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade or limitation on prices for securities on
any such exchange or quotation system, (v) additional material governmental
restrictions, not in force on the date of this Agreement, shall have been
imposed upon trading in securities generally by any such exchange or quotation
system or by order of the Commission or any court or other governmental
authority, (vi) declaration of a banking moratorium by either federal or New
York authorities or (vii) if there shall have been such a material change in
general economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States shall be
such as, in your judgment, makes it impracticable or inadvisable to proceed with
the delivery of the Shares; or
(b) As provided in Sections 7 and 9 of this Agreement.
If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Sections 7 and 9 hereof. If this Agreement is
terminated pursuant to this Section, you shall notify the Company thereof
promptly by telephone or facsimile, confirmed by express mail.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
indemnity and contribution agreements contained in Section 8 and the
representations, warranties and agreements of the Company in Sections 1, 4, 5
and 6 hereof shall survive the delivery of the Shares to the Underwriters
hereunder and shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any Underwriter or other indemnified party.
13. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in
the last paragraph of the cover page and in the first and third paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitute the only written information furnished by or on behalf of any
Underwriter.
14. SUCCESSORS. This Agreement has been and is made solely for the
benefit of the Several Underwriters and the Company and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons
26.
<PAGE> 27
referred to in Section 8, and no other person will acquire or have any right or
obligation hereunder. The term "successors and assigns" shall not include any
purchaser of any of the Shares merely by reason of such purchase.
15. MISCELLANEOUS.
For purposes of this Agreement, "Business Day" means any day on which
the New York Stock Exchange, Inc. is open for trading.
Except as otherwise provided herein, this Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other agreements and understandings.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Colorado without giving effect to the choice of law or
conflicts of law principles thereof.
[Remainder of Page Intentionally Left Blank]
27.
<PAGE> 28
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
THE IMMUNE RESPONSE CORPORATION
By:
---------------------------
Its:
---------------------------
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written:
Hanifen, Imhoff Inc.
Cruttenden Roth Incorporated
As Representatives of the Several Underwriters
named in Schedule A hereto
By:
---------------------------
Its:
---------------------------
28.
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
(NUMBER OF FIRM
UNDERWRITER SHARES)
<S> <C>
HANIFEN, IMHOFF INC...................................
CRUTTENDEN ROTH INCORPORATED..........................
----------------------
2,500,000
</TABLE>
29.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" in Amendment No. 1 to the Registration Statement (Form
S-3) and the related Prospectus of The Immune Response Corporation and to the
use of and incorporation by reference therein of our report dated January 26,
1996, except for Note 5, as to which the date is June 5, 1996 and Note 6, as to
which the date is June 25, 1996, with respect to the consolidated financial
statements of The Immune Response Corporation included elsewhere herein and
included in its Annual Report (Form 10-K) for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Diego, California
July 5, 1996
