<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934.
For the transition period from ________________ to ______________
Commission file number 0-18006
THE IMMUNE RESPONSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 33-0255679
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
5935 Darwin Court, Carlsbad, CA 92008
(Address of Principal Executive Offices)
(Zip Code)
Telephone (760) 431-7080
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
As of August 7, 1998, 23,197,810 shares of common stock were outstanding.
<PAGE>
THE IMMUNE RESPONSE CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets .......................... 3
Condensed Consolidated Statements of Operations ................ 4
Condensed Consolidated Statements of Cash Flows ................ 5
Notes to Condensed Consolidated Financial Statements ........... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities .............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders ................ 17
Item 6. Exhibits and Reports on Form 8-K ................................... 18
Signature ..................................................................... 19
</TABLE>
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
Assets (unaudited) 1997
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................... $ 2,664 $ 4,872
Marketable securities-available-for-sale ..................... 34,374 25,567
Other current assets ......................................... 388 773
--------- ---------
Total current assets ................................. 37,426 31,212
Property and equipment, net ...................................... 5,747 5,810
Deposits and other assets ........................................ 955 353
--------- ---------
$ 44,128 $ 37,375
--------- ---------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ............................................. $ 2,801 $ 1,356
Other accrued expenses ....................................... 1,467 917
Total current liabilities ............................ 4,268 2,273
Convertible Preferred Stock ...................................... 9,207 --
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized; none issued .... -- --
Common stock, $.0025 par value, 40,000,000 shares authorized,
23,160,255 and 22,815,054 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively ........ 58 57
Warrants ..................................................... 2,144 2,144
Additional paid-in capital ................................... 188,387 186,374
Cumulative comprehensive income .............................. (23) 27
Accumulated deficit .......................................... (159,913) (153,500)
--------- ---------
Total stockholders' equity ........................... 30,653 35,102
--------- ---------
$ 44,128 $ 37,375
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
3
<PAGE>
THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Contract research revenue ................... $ -- $ -- $ 1,000 $ 1,000
Licensed research revenue ................... 10,667 -- 10,667 --
-------- -------- -------- --------
10,667 0 11,667 1,000
Expenses:
Research and development ................ 8,429 9,549 16,689 18,148
General and administrative .............. 1,105 1,053 2,104 2,046
-------- -------- -------- --------
9,534 10,602 18,793 20,194
Other revenue:
Investment income ....................... 402 669 713 1,278
-------- -------- -------- --------
Net loss .................................... $ 1,535 $ (9,933) $ (6,413) $(17,916)
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share - basic and diluted $ 0.06 $ (0.45) $ (0.28) $ (0.85)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes.
4
<PAGE>
THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net loss ......................................................... $ (6,413) $(17,916)
Adjustments to reconcile net loss to net cash provided from
(used by) operating activities:
Depreciation and amortization ............................. 744 490
Deferred rent expense ..................................... (44) (29)
Changes in operating assets and liabilities:
Other current assets .................................. 384 128
Accounts payable ...................................... 1,445 129
Accrued expenses ...................................... 594 36
------- --------
Net cash used by operating activities ............ (3,290) (17,162)
Investing activities:
Purchase/sale of marketable securities, net ...................... (8,857) 20,450
Purchase of property and equipment ............................... (680) (2,018)
Deposits and other assets ........................................ (602) (222)
-------- --------
Net cash provided from investing activities ...... (10,139) 18,210
Financing activities:
Net proceeds from sale of common stock
and warrants (Note 3) ........................................ 1,333 15,640
Notes receivable from related parties (Note 3) ................... -- (11,874)
Net proceeds from the sale of convertible preferred stock ........ 9,160 --
Net proceeds from exercise of stock options ...................... 728 378
------- --------
Net cash provided from financing activities ...... 11,221 4,144
------- --------
Net increase in cash and cash equivalents ............................ (2,208) 5,192
Cash and cash equivalents at beginning of period ..................... 4,872 3,785
-------- --------
Cash and cash equivalents at end of period ........................... $ 2,664 $ 8,977
-------- --------
-------- --------
Supplemental disclosure of noncash investing and financing activities:
Accretion of preferred stock ..................................... $ 47 $ --
-------- --------
-------- --------
</TABLE>
See accompanying notes.
5
<PAGE>
THE IMMUNE RESPONSE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
1. Basis of Presentation
The condensed consolidated financial statements of The Immune Response
Corporation ("Immune Response" or the "Company") for the three and six
month periods ended June 30, 1998 and 1997 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 consolidated financial position as of June 30, 1998, and the
consolidated results of operations for the three and six month periods
ended June 30, 1998 and 1997. The results of operations for the six
months ended June 30, 1998 are not necessarily indicative of the results
to be expected for the year ended December 31, 1998. For more complete
financial information, these financial statements, and the notes thereto,
should be read in conjunction with the consolidated audited financial
statements for the year ended December 31, 1997 included in the Company's
Form 10-K filed with the Securities and Exchange Commission.
2. Earnings Per Share
For the three months ended June 30, 1997 and the six months ended June
30, 1998 and 1997, net loss per share is computed using the weighted
average number of common shares outstanding during those periods.
Outstanding stock options and warrants, and the effect of conversion of
the Series F Convertible Preferred Stock are not included in the
calculation of net loss per share because their effect would be
antidilutive. Therefore, there is no difference between basic and diluted
net loss per share for those periods. Weighted average number of shares
outstanding for the three months ended June 30, 1997, and the six months
ended June 30, 1998 and 1997 were 21,990,637, 22,871,460 and 21,130,018,
respectively.
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended June 30, 1998:
<TABLE>
<S> <C>
Numerator:
Net income ................................................ $ 1,535,364
Preferred stock dividends ................................. (139,726)
------------
Numerator for basic earnings per share - income available
to common stockholders .................................. 1,395,638
Effect of dilutive securities: ............................ --
------------
Numerator for diluted earnings per share - income available
to common stockholders after assumed conversions ........ $ 1,395,638
------------
------------
Denominator:
Denominator for basic earnings per share - weighted
average shares .......................................... 22,918,007
Effective of dilutive securities:
Stock option plans ...................................... 2,439,648
------------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions ......... 25,357,655
------------
------------
Basic earnings per share ....................................... $ 0.06
------------
------------
Diluted earnings per share ..................................... $ 0.06
------------
------------
</TABLE>
Options and warrants to purchase 2,244,811 shares of common stock, and
Preferred Stock convertible into 710,732 shares of common stock were
outstanding at June 30, 1998, but were
6
<PAGE>
not included in the computation of diluted earnings per share because the
options' and warrant's exercise price, along with the Preferred Stock's
conversion price, were greater than the average market price of the
common shares for the three months ended June 30,1998, and, therefore,
the effect would be antidilutive.
3. Comprehensive Income
In January 1998, the Company adopted Statement of Financial Accounting
Standards ("FAS") No. 130, "Reporting Comprehensive Income." The
components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) ......... $ 1,535 $ (9,933) $ (6,413) $(17,916)
Net unrealized gain (loss)
on marketable securities (60) (70) (50) (214)
-------- -------- -------- --------
Comprehensive income (loss) $ 1,475 $(10,003) $ (6,463) $(18,130)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
All prior periods have been restated to reflect the adoption of this
statement.
4. Equity Transaction
During the second quarter of 1998, the Company sold 200 shares of its
Series F Convertible Preferred Stock ("Series F Stock") in return for
gross proceeds of $10 million. The Series F Stock is convertible into
common stock initially at a conversion price of $14.07 per share of
common stock. If the Company's common stock does not trade at prices
higher than $14.07 per share over a period of time, the conversion price
will be adjusted downward on April 24, 1999 (or sooner if the Company
issues common stock at less than $14.07 per share) and quarterly
thereafter. The Series F Stock bears a dividend of 7.5% per annum. In
general, the dividend is payable in shares of common stock. The Company
has filed a registration statement with the Securities and Exchange
Commission covering the resale of the common stock issuable upon
conversion of the Series F Stock. Further, the Company has the option for
one year to sell up to $10 million more of the Series F Stock if certain
conditions are met.
Also during the second quarter of 1998, the Company and Agouron
Pharmaceuticals, Inc. ("Agouron") entered into a binding agreement under
which Immune Response agreed to exclusively license REMUNE-TM-, its
immune-based therapy under development for the treatment of HIV
infection, to Agouron. Under terms of the agreement, Immune Response will
manufacture commercial supplies of REMUNE and Agouron will have exclusive
rights to market REMUNE in North America, Europe and certain other
countries. Immune Response initially received a $10 million license fee
and Agouron purchased 118,256 shares of newly issued Immune Response
common stock, priced at a premium to market, for $2 million. The two
companies will share profits on a 50/50 basis if REMUNE is successfully
developed and commercialized.
5. Subsequent Event
In July 1998, the Company entered into a research collaboration and
option agreement with Schering-Plough Corporation to develop gene therapy
products for the treatment of hepatitis B and C, and other diseases.
Under terms of the initial preclinical research agreement, the Company
could receive approximately $5 million in initial fees, reimbursement of
expenses and technical milestone payments related to the delivery of the
interferon alpha-2b gene for the treatment of hepatitis B and C. As part
of the agreement, Schering-Plough has the option to license Immune
Response's gene delivery system for additional proprietary
Schering-Plough genes. The agreement also provides for Schering-Plough to
pay royalties on future product sales.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Overview
The Immune Response Corporation (the "Company") is a biopharmaceutical company
developing immune-based therapies to induce specific T cell responses for the
treatment of HIV, autoimmune diseases and cancer. The Company is conducting
clinical trials for its immune-based therapies for HIV, rheumatoid arthritis,
psoriasis, multiple sclerosis, colon cancer and brain cancer and preclinical
studies for prostate cancer. In addition, the Company is developing a targeted
delivery technology for gene therapy which is designed to enable the intravenous
injection of genes for delivery directly to the liver. The Company's gene
therapy program is currently focused on diseases of the liver and is in
preclinical studies for the treatment of hemophilia and hepatitis.
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. For a further description of potential risks
and uncertainties involved related to the Company, this document should be read
in conjunction with the Company's 1997 Form 10-K filed with the Securities and
Exchange Commission. These forward-looking statements speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
During the second quarter of 1998, the Company sold 200 shares of its Series F
Convertible Preferred Stock ("Series F Stock") in return for gross proceeds of
$10 million. The Series F Stock is convertible into common stock initially at a
conversion price of $14.07 per share of common stock. If the Company's common
stock does not trade at prices higher than $14.07 per share over a period of
time, the conversion price will be adjusted downward on April 24, 1999 (or
sooner if the Company issues common stock at less than $14.07 per share) and
quarterly thereafter. The Series F Stock bears a dividend of 7.5% per annum. In
general, the dividend is payable in shares of common stock. The Company has
filed a registration statement with the Securities and Exchange Commission
covering the resale of the common stock issuable upon conversion of the Series F
Stock. Further, the Company has the option for one year to sell up to $10
million more of the Series F Stock if certain conditions are met.
Also during the second quarter of 1998, the Company and Agouron Pharmaceuticals,
Inc. ("Agouron") entered into a binding agreement under which Immune Response
agreed to exclusively license REMUNE-TM-, its immune-based therapy under
development for the treatment of HIV infection, to Agouron. Under terms of the
agreement, Immune Response will manufacture commercial supplies of REMUNE, and
Agouron will have exclusive rights to market REMUNE in North America, Europe and
certain other countries. Immune Response initially received a $10 million
license fee and Agouron purchased 118,256 shares of newly issued Immune Response
common stock, priced at a premium to market, for $2 million. Additionally, as
part of the collaboration, the Company may receive future contributions from
Agouron for the purchase of additional common stock, for the reimbursement of
research and development costs and for successfully achieving future milestones.
The two companies will share profits on a 50/50 basis if REMUNE is successfully
developed and commercialized.
In July 1998, the Company entered into a research collaboration and option
agreement with Schering-Plough Corporation ("Schering-Plough") to develop gene
therapy products for the treatment of hepatitis B and C, and other diseases.
Under terms of the initial preclinical research agreement, the Company could
receive approximately $5 million in initial fees, reimbursement expenses and
technical milestone payments related to the delivery of the interferon alpha-2b
gene for the treatment of hepatitis B and C. As part of the agreement,
Schering-Plough has the option to license Immune Response's gene delivery system
for additional proprietary Schering-Plough genes. The agreement also provides
for Schering-Plough to pay royalties on future product sales.
The Company has not been profitable since inception and had an accumulated
deficit of $159.9 million as of June 30, 1998. To date, the Company has not
recorded any revenues from the sale of products. Revenues recorded through June
30, 1998 were earned in connection with contract research and investment income.
The Company expects its operating losses to continue to increase over the next
8
<PAGE>
several years, as well as to have quarter-to-quarter fluctuations, some of which
could be significant, due to expanded research, development and clinical trial
activities. 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.
Results of Operations
The contract research revenue received in 1998 was received from Bayer
Corporation related to a research collaboration for a potential therapy for
hemophilia which began in July 1996. The licensed research revenue received in
June 1998 was received from Agouron. The Company expects to receive additional
contract research payments from Agouron over the next two years. 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 foreseeable future.
Investment income decreased to $402,000 for the quarter ended June 30, 1998,
from $669,000 during the same period in 1997. During the six months ended June
30, 1998 and 1997, investment income was $713,000 and $1.3 million,
respectively.
Research and development expenditures decreased to $8.4 million during the
second quarter of 1998 compared to such expenditures during the same period in
1997 of $9.5 million. Research and development expenditures for the six months
ended June 30, 1998 were $16.7 million compared to $18.1 million for the same
period in 1997. The decrease in research and development costs from 1997 was due
primarily to the initial costs incurred in the first half of 1997 to enroll the
final clinical trial sites related to the Phase III clinical endpoint trial for
HIV infection using REMUNE-TM-. Also,following the full recruitment of the Phase
III clinical trial in May 1997, each participating clinical site was converted
to a semi-annual payment schedule rather than payments based upon patient
enrollment. As a result, payments which would otherwise have been made during
the third quarter of 1997 were paid late in the second quarter of 1997. The
Company expects research and development expenditures to rise as it continues
its Phase IIb rheumatoid arthritis clinical trial, expected to be completed by
year-end 1998, and its Phase II psoriasis clinical trial, expected to be
completed during the third quarter of 1998. Research and development
expenditures should also continue to rise in the forseeable future due to
expanding preclinical and clinical testing of the Company's proposed gene
therapy and cancer treatments. Research and development expenses related to
advancing REMUNE are also expected to increase due to the continuance of the
Company's ongoing Phase III clinical endpoint trial with REMUNE and to increased
expenditures related to scaling up of the manufacturing process for REMUNE as
the Company approaches possible commercialization of REMUNE. There can be no
assurance that REMUNE will be successfully developed or commercialized.
General and administrative expenses for the second quarters of both 1998 and
1997 were $1.1 million. General and administrative expenses for the six months
ended June 30, 1998 were $2.1 million as compared to $2.0 million for the same
period in 1997. General and administrative expenses for the remainder of 1998
necessary to support the Company's expanded research and development activities
are expected to remain consistent with expenditures in the first half of 1998.
For the quarter ended June 30, 1998, the Company's net income was $1.5 million,
or $.06 per share, as compared to a net loss of $9.9 million, or $.45 per share,
for the same period in 1997. For the six months ended June 30, 1998, the
Company's net loss was $6.4 million, or $.28 per share, as compared to a net
loss of $17.9 million, or $.85 per share for the same period in 1997. The
primary factor causing the change from 1998 from 1997 was the licensed research
payments received from Agouron in June 1998.
Liquidity and Capital Resources
As of June 30, 1998, the Company had working capital of $33.2 million, including
$37.0 million of cash, cash equivalents and marketable securities. This compares
with working capital as of December 31, 1997 of $28.9 million, including $30.4
million of cash, cash equivalents, marketable securities and short-term
investments. The increase in working capital was primarily due to the $10
million private placement of Series F Convertible Preferred Stock and the $12
million payment received from Agouron, both of which occurred in the second
quarter of 1998.
9
<PAGE>
The Company will 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 in 1998 and 1999, the REMUNE clinical
trials will continue to represent a significant portion of the Company's overall
expenditures. The Company also anticipates that costs related to the development
of REMUNE will continue to increase as the Company approaches possible
commercialization. In particular, the Company anticipates additional capital
improvements of approximately $4 million to be made over the next twelve months
related to increasing the current capacity of its manufacturing facility. Other
anticipated costs with respect to REMUNE will depend on many factors, including
the results of interim analyses of the data from the Phase III clinical endpoint
trial, the potential for accelerated approval, the continuation of the Company's
collaboration with Agouron 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 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 collaborators or other sources. If funds
are acquired through additional collaborations, the Company will likely be
required to relinquish some or all rights to products that the Company may have
otherwise developed itself. 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 believes that its existing
resources, including the funds received from the sale of Series F Convertible
Preferred Stock and the funds received from Agouron, including interest thereon,
will enable the Company to maintain its current and planned operations through
the first half of 1999.
Year 2000
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
created a plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four digits to
define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that the Year 2000 problem will
not pose significant operational problems for the Company's computer systems.
CERTAIN RISK FACTORS (For a discussion of additional Risk Factors applicable to
the Company, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
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 has been in existence since
1986, and to date only six of its product candidates have entered clinical
trials. The Company's potential immune-based therapies for HIV, autoimmune
disease, cancer and gene therapy products currently under development will
require significant additional research and development efforts and regulatory
approvals prior to potential commercialization. To achieve profitable
operations, the Company must successfully develop, manufacture, introduce and
market products. The Company's potential products may not prove to be safe and
effective in clinical trials, United States Food and Drug Administration ("FDA")
or other regulatory approvals may not be obtained and such products may not
achieve market acceptance.
The Company's potential HIV immune-based therapy, REMUNE, is in a Phase III
clinical endpoint trial designed to provide evidence of efficacy based on
clinical endpoints. The results of such clinical trial may not demonstrate that
REMUNE is safe and efficacious and, even if the results of the clinical trial
are considered successful by the Company, the FDA may require the Company to
conduct additional large scale clinical
10
<PAGE>
trials with REMUNE before the FDA will consider approving REMUNE for commercial
sale. Failure to successfully complete the Phase III clinical endpoint trial in
a timely fashion and a failure to obtain FDA approval of REMUNE will materially
and adversely affect the Company.
The results of the Phase III trial may not be consistent with Phase II results.
Even if the results of the Phase III trial are consistent with the results of
the Phase II trial, the FDA may not approve REMUNE for marketing. In addition,
REMUNE is being tested in a Phase II clinical trial in Thailand, in a pediatric
Phase I clinical trial in the United States and in combination trials with
approved HIV therapies in the United States, Spain, Switzerland and the United
Kingdom. 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 immune-based therapies and gene therapy
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 human testing of
potential products based on such technologies may not be permitted by regulatory
authorities and, even if human testing is permitted, products based on such
technologies may not be developed and shown to be safe or efficacious. Potential
immune-based therapies based on certain of the Company's autoimmune
technologies, which are in various stages of clinical testing, and certain of
its cancer technologies, which are at an early stage of clinical testing, may
not be shown to be safe, efficacious or receive regulatory approval.
The results of the Company's preclinical studies and clinical trials may not be
indicative of future clinical trial results. A commitment of substantial
resources to conduct time-consuming research, preclinical studies and clinical
trials, including the REMUNE Phase III clinical endpoint trial 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. None of the Company's potential
products may prove to be safe and effective in clinical trials, FDA or other
regulatory approvals may not be obtained or such products may not 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.
Unacceptable toxicities or side effects may occur at any time in the course of
human clinical trials and, 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,
disease resistance may limit the efficacy of the Company's potential products.
Additional Financing Requirements and Access to Capital. The Company will 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 in 1998 and 1999, the REMUNE clinical trials will continue to represent a
significant portion of the Company's overall expenditures. The Company also
anticipates that costs related to the development of REMUNE will continue to
increase as the Company approaches possible commercialization. The anticipated
costs with respect to REMUNE will depend on many factors, including the results
of interim analyses of the data from the Phase III clinical endpoint trial, the
potential for accelerated approval, the continuation of the Company's
collaboration with Agouron 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 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 collaborators or other sources. If funds
are acquired through additional collaborations, the Company will likely be
required to relinquish some or all rights to products that the
11
<PAGE>
Company may have otherwise developed itself. 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 believes that
its existing resources, including the funds received from the sale of Series F
Convertible Preferred Stock and the funds received from Agouron, including
interest thereon, will enable the Company to maintain its current and planned
operations through the first half of 1999.
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
immune-based therapies for HIV, autoimmune disease, cancer and gene therapy
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 Connetics Corporation has received a United States patent
related to autoimmune disease research that covers technology similar to that
used by the Company.
The Company may not be able to negotiate any necessary cross licenses, and
failure to do so could have a negative impact on the Company. The Company's
patent applications may not issue as patents and its issued patents, or any
patent that may be issued in the future, may not 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 others may 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. Any of the Company's patents, or any
patents issued to the Company in the future, may not afford meaningful
protection against competitors. Defending any such patent could be costly to the
Company, and the patent may not 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. These agreements may be breached, the
Company may not have adequate remedies for any breach and the Company's trade
secrets may 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, such as
the patent owned by Connetics Corporation. 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.
Such licenses may not be available at all or on terms commercially reasonable to
the Company and the Company may not be able to 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.
History of Operating Losses. As of June 30, 1998, the Company had an accumulated
deficit of $159.9 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. The Company may not 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.
12
<PAGE>
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. Biological products must be shown
to be safe, pure and potent (i.e., effective) and are subject to the same
regulatory requirements as nonbiological products under the FDC Act, as amended
by the FDA Modernization Act, except that a biological product licensed under
the Public Health Services Act ("PHS Act") is not required to have an approved
NDA under the Federal Food, Drug and Cosmetic Act ("FDC Act"). The FDA
Modernization Act directed the FDA to take measures to minimize the differences
in the review and approval of marketing applications for biological and
nonbiological products. The FDA Modernization Act also made significant
revisions to the statutory requirements with regard to the approval of new
biological and nonbiological products. Among other things, the FDA Modernization
Act established a new statutory program for the approval of fast track drugs,
streamlined clinical research, and revised the content of product approval
applications and the FDA review process. The FDA is required to issue
regulations and guidelines in order to implement certain of these new
requirements. Until the FDA implements these regulations and guidelines, it is
impossible to predict the impact of the FDA Modernization Act on the review and
approval of any marketing applications that the Company may submit to the FDA.
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 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. The length of the clinical trial period and 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 are uncertain. 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. The
Company may not 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.
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. Reports of results of preclinical studies and clinical
trials for biological drug products are submitted to the FDA in the form of a
Biologics Licensing Application ("BLA") for approval for marketing and
commercial shipment. Submission of a BLA does not assure FDA approval for
marketing. The BLA 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 usually must be filed and approved by the FDA.
Among the other requirements for BLA approval is the requirement that
prospective manufacturers conform to the FDA's Good Manufacturing Practices
("GMP") requirements specifically for biological drugs, as well as for other
drugs. In complying with the FDA's GMP requirements, 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 FDA's drug GMP
13
<PAGE>
requirements subjects the manufacturer to possible FDA regulatory action. The
Company or its contract manufacturers, if any, may not be able to maintain
compliance with the FDA's drug GMP requirements 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.
The Company believes its proprietary GeneDrug and cancer treatment therapies
will likely be regulated as biological products. 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 any of
these products may not be approved for marketing by the FDA on a timely basis,
if at all.
The FDA Modernization Act also amended the FDC Act to permit expanded access to
individuals and larger groups to unapproved new therapeutic and diagnostic
products. Although the new law largely codifies existing FDA regulations in this
area, it expands access to all investigational therapies 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 endpoint 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. The FDA may not determine that REMUNE meets all of the FDA's criteria
for use of an investigational drug for treatment use and, even if the product is
allowed for treatment use, third party payers may not provide reimbursement for
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. In addition, the FDA Modernization Act established a new
statutory program for the approval of fast track drugs, including biological
products. The FDA may not consider REMUNE or any other of the Company's products
under development to be an appropriate candidate for accelerated approval,
expedited review or fast track designation.
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.
Technological Change and Competition. The biotechnology industry continues to
undergo rapid change and competition is intense in the fields of HIV, autoimmune
disease, cancer and gene therapy, and such competition is expected to increase.
The Company will compete with fully integrated pharmaceutical companies, small
biotechnology companies, universities and research organizations. Competitors
may 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 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. Competitors may
develop and commercialize more effective or affordable products.
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, licensors, licensees
14
<PAGE>
and others, and the Company's commercial success is dependent upon these outside
parties performing their respective contractual responsibilities, including the
analysis of the data generated in the Company's clinical trials. 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 and the failure of third
parties to perform their obligations would have a material adverse effect on the
Company. Although the Company has collaborative agreements with several
universities and research institutions, the Company's agreement with Bayer and
its binding Letter of Intent with Agouron Pharmaceuticals, Inc. are the only
collaborative agreements that provide the Company with contract revenue. These
collaborations may not result in the development of any commercial products.
Immune Response intends to seek additional collaborative arrangements to develop
and commercialize certain of its products. The Company may not be able to
negotiate collaborative arrangements on favorable terms, or at all, in the
future and its current or future collaborative arrangements may not 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. The Company may not 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 in commercial quantities, or its autoimmune disease,
cancer and gene therapy treatments in large-scale clinical or commercial
quantities. The Company has no experience in the sales, marketing and
distribution of pharmaceutical products. The Company may not be able to
establish sales, marketing and distribution capabilities or make arrangements
with its collaborators, licensees or others to perform such activities and such
efforts may not be successful. The Company's products may not be successfully
commercialized even, if they are developed and approved for commercialization.
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 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, among other things, 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 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.
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,
15
<PAGE>
they may forego or reduce such use. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and adequate third
party coverage may not be available. Failure to obtain appropriate reimbursement
would have a material adverse effect on the Company.
Subordination of Common Stock to Preferred Stock. The Company's Common Stock is
expressly subordinate to the Company's Series F Convertible Preferred Stock in
the event of the liquidation, dissolution or winding up of the Company. If the
Company were to cease operations and liquidate its assets, there may not be any
remaining value available for distribution to the holders of Common Stock after
providing for the Series F Convertible Preferred Stock liquidation preference.
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, 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, changes or announcements in reimbursement
policies, 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.
16
<PAGE>
PART II. OTHER INFORMATION
Item 2. -- Changes in Securities
During the second quarter of 1998, the Company sold 200 shares of its Series F
Convertible Preferred Stock ("Series F Stock") in return for gross proceeds of
$10 million. The Series F Stock is convertible into common stock initially at a
conversion price of $14.07 per share of common stock. If the Company's common
stock does not trade at prices higher than $14.07 per share over a period of
time, the conversion price will be adjusted downward on April 24, 1999 (or
sooner if the Company issues common stock at less than $14.07 per share) and
quarterly thereafter. The Series F Stock bears a dividend of 7.5% per annum. In
general, the dividend is payable in shares of common stock. The Company has
filed a registration statement with the Securities and Exchange Commission
covering the resale of the common stock issuable upon conversion of the Series F
Stock. Further, the Company has the option for one year to sell up to $10
million more of the Series F Stock if certain conditions are met. The Series F
Stock was sold under the exemption provided by Regulation D promulgated under
the Securties Act of 1933, as amended.
Also during the second quarter of 1998, the Company and Agouron Pharmaceuticals,
Inc. ("Agouron") entered into a binding Letter of Intent under which Immune
Response agreed to exclusively license REMUNE, its immune-based therapy under
development for the treatment of HIV infection, to Agouron. Under terms of the
agreement, Immune Response will manufacture commercial supplies of REMUNE, and
Agouron will have exclusive rights to market REMUNE in North America, Europe and
certain other countries. Immune Response initially received a $10 million
license fee and Agouron purchased 118,256 shares of newly issued Immune Response
common stock, priced at a premium to market, for $2 million. The two companies
will share all profits from the commercialization of REMUNE on a 50/50 basis.
The common stock was sold under the exemption provided by Section 4(2) of the
Securities Act of 1993, as amended.
Item 4. -- Submission of Matters to a Vote of Security Holders
On June 11, 1998, the Company held its Annual Meeting of Stockholders. The
following actions were taken at the annual meeting. As of April 15, 1998, the
record date, 20,833,815 shares were entitled to vote at the Annual Meeting. Of
these 20,833,815 shares, 11,330 shares were not voted.
1. The following Class II Directors were elected:
a. Dennis J. Carlo. 20,445,658 shares voted in favor of the nominee, 39,487
shares withheld their vote;
b. Kevin B. Kimberlin. 20,435,758 shares voted in favor of the nominee, 49,387
shares withheld their vote;
e. The following directors continue in office for their existing terms:
James B. Glavin
Melvin Perelman
John Simon
William M. Sullivan
Philip M. Young
2. The selection of Arthur Andersen LLP as the Company's independent auditor was
ratified. 20,397,760 shares were voted in favor of the proposal, 57,561
shares were voted against the proposal and 29,824 shares abstained.
17
<PAGE>
Item 6. -- Exhibits and Reports on Form 8-K
a) Exhibits
3(i)* Restated Certificate of Incorporation of the Company, as amended
by Certificate of Designations, Preferences and Rights of Series F
Convertible Preferred Stock.
10.1* Securities Purchase Agreement dated as of April 24, 1998 by and
among the Company and Investors.
10.2* Registration Rights Agreement dated as of April 24, 1998 by and
among the Company and the Investors.
10.65# Letter of Intent dated June 11, 1998 between The Immune Response
Corporation and Agouron Pharmaceuticals, Inc.
10.66# Common Stock Purchase Agreement dated June 11, 1998 between The
Immune Response Corporation and Agouron Pharmaceuticals, Inc.
27 Financial Data Schedule
* Incorporated by reference to exhibits of the same number filed with the
Company's Form 8-K dated April 24, 1998 (File No. 0-18006).
# Confidential treatment has been requested for certain portions of this
exhibit.
b) Reports on Form 8-K
A report on Form 8-K dated April 24, 1998, was filed by The Immune Response
Corporation reporting under Item 5 that the Company had sold 200 shares of
its Series F Convertible Preferred Stock in return for gross proceeds of
$10 million.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE IMMUNE RESPONSE CORPORATION
Date: August 12, 1998 /s/ Charles J. Cashion
------------------ -----------------------------------------------
Charles J. Cashion
Senior Vice President, Finance & Administration
Secretary and Treasurer
19
<PAGE>
LETTER OF INTENT
THIS LETTER OF INTENT is made on the 11th day of June 1998, by and
between Agouron Pharmaceuticals, Inc., a corporation duly organized and existing
under the laws of the state of California, having a principal place of business
at 10350 North Torrey Pines Road, La Jolla, California 92037 (hereinafter called
"Agouron"), and The Immune Response Corporation, a corporation duly organized
and existing under the laws of the state of Delaware, having a principal place
of business at 5935 Darwin Court, Carlsbad, California 92008 (hereinafter called
"Immune Response"). Agouron and Immune Response are sometimes hereinafter
referred to as a party (collectively "parties") to this Agreement.
BACKGROUND
In accordance with the terms of this Letter of Intent, Immune Response has
agreed to license to Agouron the exclusive rights necessary or useful for the
registration and/or commercialization of the product known as REMUNE, a
non-infectious intact Human Immunodeficiency Virus ("HIV") devoid of outer
envelope proteins. This Letter of Intent, which shall be binding on the parties,
sets forth the basic license terms upon which the parties have agreed. The full
terms of the license will be set forth in a definitive agreement to be prepared
as described below.
NOW, THEREFORE, the parties agree as follows:
1. Terms. The parties hereby enter into this Letter of Intent to confirm their
entering into a license agreement on terms substantially in accordance with
those contained in Exhibit A hereto. The parties acknowledge that Exhibit A
states the basic terms of the understanding between the parties and anticipate
the further negotiation and preparation of an agreement containing the full
terms of the license between the parties ("Definitive Agreement"). Each party
agrees to act in good faith in an effort to negotiate, execute and deliver the
Definitive Agreement on or before September 1, 1998. If the Definitive Agreement
is not executed by September 1, 1998, the provisions of this Letter of Intent
shall continue in effect until the Definitive Agreement is executed, and the
parties will continue to negotiate in good faith in an effort to execute and
deliver the Definitive Agreement as soon as possible.
2. Disclosure. The parties shall jointly prepare and release a statement about
the existence of this Letter of Intent and of the license between Agouron and
Immune Response. Except as agreed to by the parties, neither Agouron nor Immune
Response shall release any further information to any third party who is not
under an obligation of confidentiality with respect thereto about any of the
terms of this Letter of Intent, or of the license, or of results of clinical
trials of REMUNE, without the prior written consent of the other, which consent
shall not unreasonably be withheld. This prohibition includes, but is not
limited to, press releases, educational and scientific conferences, promotional
materials and discussions with the media. If a party determines that it is
required by law to release information to any third party regarding such
matters, it shall notify the other party of this
*** - Confidential treatment requested. Sections of text which have been
omitted and for which confidential treatment is requested are noted with
"***". An unredacted version of this document has been filed separately
with the Securities and Exchange Commission.
<PAGE>
fact prior to releasing the information. The notice to the other party shall
include the text of the information proposed for release. The other party shall
have the right to confer with the notifying party regarding the necessity for
the disclosure and the text of the information proposed for release.
3. Miscellaneous. This Letter of Intent contains the entire agreement between
the parties as of the date hereinabove written on the matters set forth herein
and shall be governed by and construed in accordance with the laws of the State
of California. Exhibit A describes the parties' understanding with respect to
the registration and commercialization of the "Product" as defined therein. This
Letter of Intent, including Exhibit A, shall not be amended, supplemented or
otherwise modified, except by an instrument in writing signed by duly authorized
officers of both parties. Each party shall bear all of the expenses incurred by
it in connection with the negotiation and preparation of this Letter of Intent
and the Definitive Agreement. Each party represents and warrants that it is not
presently bound by any agreement with any third party which limits its
performance of any of the obligations or activities provided for under this
Letter of Intent or contemplated by the Definitive Agreement. Immune Response
represents and warrants that it is not aware of any patents, patent applications
and/or know-how that it does not have the right to license to Agouron which is
necessary or useful for commercialization of Product by Agouron. Immune Response
further represents and warrants that it will not enter into any agreements which
limit Immune Response's performance of any of the obligations or activities
provided for under this Letter of Intent or contemplated by the Definitive
Agreement. Immune Response, at its expense, shall obtain any government
approval(s) not related to drug product registration, which are required to
enable this Agreement to become effective. At any time after October 15, 1998,
Agouron may elect to immediately terminate, in their entirety, all of its rights
and obligations under this Letter of Intent and the Definitive Agreement, except
that Agouron may exercise this right to terminate only on the basis of its
concerns related to the safety, efficacy, competitiveness, or commercial
feasibility of Product.
IN WITNESS WHEREOF, the parties hereto have executed this Letter of
Intent by their respective officers thereunto duly authorized, as of the date
hereinabove written. This Letter of Intent may be executed in counterparts and
all of such counterparts taken together shall be deemed to constitute one and
the same instrument.
THE IMMUNE RESPONSE CORPORATION AGOURON PHARMACEUTICALS, INC.
By: s/Dennis J. Carlo By: s/Peter Johnson
------------------------------- ----------------------------
Name: Dennis J. Carlo Name: Peter Johnson
------------------------------- ----------------------------
Title: President Title: President
------------------------------- ----------------------------
By: s/Charles J. Cashion By: s/Gary Friedman
------------------------------- ----------------------------
Name: Charles J. Cashion Name: Gary Friedman
------------------------------- ----------------------------
Title: Senior VP Title: Secretary
------------------------------- ----------------------------
2
<PAGE>
EXHIBIT A
Immune Response, under the terms and conditions specified below, hereby grants
Agouron the exclusive right to use, offer for sale, sell and/or import, in or
into the Licensed Territory, the Product under applicable Immune Response Patent
Rights (including claims therein relating to compositions and methods of use)
and using applicable Immune Response Know-How.
1. Definitions: Except as otherwise set forth herein, items containing an
initial capitalized letter shall have the meaning stated below or in
the Letter of Intent to which this Exhibit A is an attachment ("LOI").
(a) "Product" means a pharmaceutical product comprising a
non-infectious intact HIV devoid of outer envelope proteins
whose manufacture, use or sale infringes (in the absence of
the license rights granted under this Exhibit A) a valid claim
(which has not been abandoned, disclaimed or declared invalid
in a non-appealable order) included in an issued patent within
the Immune Response Patent Rights.
(b) "Licensed Territory" means all countries of the world except
the countries listed in Schedule 1.
(c) "Affiliate" means any person, organization or entity which is,
directly or indirectly, controlling, controlled by, or under
common control with Agouron or Immune Response, as the case
may be. The term "control" (including, with correlative
meaning, the terms "controlled by" and "under common control
with"), as used with respect to any person or entity, means
the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such
person, organization or entity, whether through the ownership
of voting securities, or by contract, or court order, or
otherwise. The ownership of voting securities of a person,
organization or entity shall not, in and of itself, constitute
"control" for purposes of this definition, unless said
ownership is of a majority of the outstanding securities
entitled to vote of such person, organization or entity.
Affiliate shall also mean a limited partnership in which a
subsidiary of Agouron and/or Immune Response is a general
partner.
(d) "Immune Response Patent Rights" means (i) the patents and the
patent applications referred to in Schedule 2 of this Exhibit
A; (ii) all patents arising from said applications, and all
patents and patent applications based on, claiming the
priority date(s) of, or corresponding to any of the foregoing;
or (iii) any reissues, extensions (or other governmental
actions that provide exclusive rights to the patent holder in
the patented subject matter beyond the original patent
expiration date), substitutions, confirmations, registrations,
revalidations, re-examinations, additions, continuations,
continuations-in-part, or divisions of or to any of the
foregoing.
*** - Confidential treatment requested. Sections of text which have been
omitted and for which confidential treatment is requested are noted with
"***". An unredacted version of this document has been filed separately
with the Securities and Exchange Commission.
A-1
<PAGE>
(e) "Immune Response Know-How" means any know-how, trade secret,
experimental data, formula, expert opinion, experimental
procedure, and other confidential and/or proprietary
information specifically concerning the Product that is
Controlled by Immune Response and that is necessary or useful
for either: (i) the formulation, manufacture, use and/or
application of the Product; or (ii) obtaining registration of
the Product.
(f) "Control" and "Controlled" mean possession of the ability to
grant a license or sublicense as provided for herein without
violating the terms of any agreement with, or arrangement
with, any third party.
(g) The terms "Net Sales," "Pre-Tax Profits," "Allowable Expenses"
and "Manufacturing Transfer Markup" shall be fully defined in
the Definitive Agreement. The terms "Net Sales and "Allowable
Expenses" shall be determined in accordance with generally
accepted accounting principles and the usual and customary
practices of the parties.
2. As provided below, Immune Response and Agouron shall collaborate to
complete the current program of clinical trials of the Product,
including those aimed at achieving registration of the Product in the
Licensed Territory, in an expeditious manner. Immune Response and
Agouron agree to the following basic approaches to the registration of
Product in the Licensed Territory and the conduct of a committee to be
formed to coordinate the parties' registration of Product in the
Licensed Territory:
(a) Immune Response and Agouron shall use reasonable diligence in
the registration of the Product.
(b) A committee, co-chaired by representatives of Immune Response
and Agouron and comprised of representatives from Immune
Response and Agouron, shall be formed to coordinate the
registration of the Product in the Licensed Territory and such
other matters that the parties mutually agree to assign to it.
Decisions of the committee shall be made by a unanimous vote
of the committee, with each party having one (1) vote,
regardless of the number of representatives attending a
meeting. The committee shall meet regularly, at least four
times per year, and shall assign study or other registration
activities between the parties as described in this Paragraph
2.
(c) The committee shall review and discuss the registration plans
for any countries involved, as well as a coordinated general
strategy and priorities for preclinical and clinical
registration of Product in the Licensed Territory. Each
party's members of the committee will reasonably consider the
adoption of the other party's suggestions and will accept as
many of such suggestions as are reasonable, based upon medical
rationale, drug supply, and the need to conduct the studies in
an expeditious and cost-efficient manner.
*** - Confidential treatment requested
A-2
<PAGE>
(d) The parties will share responsibility and authority to obtain
regulatory approvals for the Product in the Licensed
Territory. If there is a disagreement among the parties
concerning an issue related to the registration of the Product
in the Licensed Territory, the issue shall be resolved in
accordance with the provisions of Paragraph 17.
(e) Agouron, at its expense (except for the cost of clinical
supplies of Product to be provided to Agouron pursuant to the
provisions of Paragraph 9), shall, using reasonable efforts,
initiate and conduct a 200-plus patient viral load study to
support registration of the Product.
(f) In partial consideration for the rights granted to Agouron,
Agouron will make up to six (6) quarterly payments of three
million dollars ($3,000,000) each to support clinical and
manufacturing development and scale-up of the Product
beginning on October 15, 1998, and every ninety (90) days
thereafter, until the earlier of: (i) January 15, 2000; or
(ii) the approval of a Product License Application ("PLA") for
the Product in the United States. The above quarterly payments
of three million dollars ($3,000,000) each to support clinical
and manufacturing development and scale-up of the Product
shall only be due and payable by Agouron if Agouron has not
elected to terminate, in its entirety, all of its rights and
obligations under the LOI and the Definitive Agreement before
the last permitted payment date for the applicable quarterly
payment.
(g) Immune Response will complete, at its expense, the current
worldwide program of clinical trials of the Product, including
the studies listed in Schedule 3, and will promptly and fully
disclose to Agouron the results of the interim and final
analyses of data from these clinical trials.
(h) Agouron will provide, at its expense, regulatory staff support
for preparation of registration documents as such support is
reasonably requested by Immune Response.
(i) Agouron, notwithstanding the preceding, will be responsible
for negotiating labeling, pricing and reimbursement for
Product with the applicable regulatory authorities in the
Licensed Territory, and after registration of the Product will
have the primary responsibility for the ongoing correspondence
and interaction with the applicable regulatory authorities.
Immune Response will provide reasonable assistance to Agouron
in such interactions, if necessary.
(j) Except as provided above, the committee, in assigning the
responsibility for performing specific tasks or activities
related to a study or registration activity among the parties,
shall make such assignments principally based on: (i) the
available resources each of the parties can commit to the task
or activity; (ii) the expertise of each of the parties in
conducting or monitoring
*** - Confidential treatment requested
A-3
<PAGE>
the task or activity; (iii) which party can perform the task
or activity in the most expeditious manner; and (iv) which
party can perform the task or activity in the most cost-
efficient manner. A party not responsible for the performance
of a task or activity may provide advisory and support
services to the other party. The committee may establish
interdisciplinary project teams comprised of representatives
of both parties having the specialized skills necessary to
oversee the conduct of specific day-to-day registration
activities. The committee shall establish procedures
concerning the scope and conduct of activities (including
decision-making procedures) assigned to such project teams.
(k) Each party shall keep the other party informed of its progress
in the registration of Product, including making oral
presentations of progress at the committee meetings and/or the
preparing of such written progress reports as are agreed to by
the parties summarizing such party's activities during each
reporting period and its planned activities for the succeeding
period. Each of the parties will assign a representative to
facilitate communications between the parties; each
representative shall report to his/her management on the
matters discussed at each of the meetings of the parties.
(l) Immune Response will disclose to Agouron all relevant Immune
Response Know-How, including, but not limited to, data and
information which it possesses from the pre-clinical and
clinical studies of Product (including toxicology,
pharmacokinetics and formulation studies) in a format which
will facilitate the preparation for any regulatory filings or
other correspondence to be filed or made by Agouron.
(m) Immune Response will provide assistance to Agouron in
accessing clinical investigators, clinical sites and testing
laboratories for the purposes of data interpretation and/or
evaluation and conduct of registration activities assigned to
Agouron.
(n) Immune Response shall use its reasonable efforts to coordinate
its registration activities in any country(s) located outside
the Licensed Territory with the registration activities of the
parties in the Licensed Territory.
(o) If a licensee of Immune Response wishes to use the results of
studies conducted by Agouron in such licensee's registration
and commercialization activities in a country(s) located
outside of the Licensed Territory, the parties shall enter
into good-faith discussions about the sharing of the costs of
such studies and/or the granting to Agouron of equivalent
rights to use the results of any studies conducted by such
licensee.
(p) If development of the Product is discontinued in a country
located in the Licensed Territory due to safety, efficacy or
regulatory issues or by mutual agreement of the parties and
Agouron is interested in developing a
*** - Confidential treatment requested
A-4
<PAGE>
substitute drug product whose manufacture, use or sale would
infringe (in the absence of the license rights granted under
this Exhibit A) a valid claim (which has not been abandoned,
disclaimed or declared invalid in a non-appealable order)
included in an issued patent within the Immune Response
Patent Rights, then Immune Response and Agouron shall enter
into good faith negotiations regarding the terms of a license
between Immune Response and Agouron for such substitute drug
product. During the period that Agouron is participating in
the development and/or commercialization of the Product
and/or another drug product whose manufacture, use or sale
infringes (in the absence of the license rights granted under
this Exhibit A) a valid claim (which has not been abandoned,
disclaimed or declared invalid in a non-appealable order)
included in an issued patent within the Immune Response
Patent Rights, Immune Response agrees not to commercialize in
the Licensed Territory other drug products whose manufacture,
use or sale is covered by a valid claim (which has not been
abandoned, disclaimed or declared invalid in a non-appealable
order) in an issued patent within the Immune Response Patent
Rights, on its own or with a third party, other than Agouron,
its Affiliates or sublicensees.
3. In partial consideration for the rights granted to Agouron, Agouron
will make the following license-fee milestone payments to Immune
Response:
<TABLE>
<CAPTION>
Milestones Payment (US Dollars)
---------- --------------------
<S> <C>
Within 30 days of execution of the LOI $10,000,000
*** $ ***
*** $ ***
*** $ ***
*** $ ***
------------------
Total Milestone Payments $45,000,000
------------------
------------------
</TABLE>
The above license fee milestone payments shall be payable by Agouron one time
only and shall only be due if Agouron has not elected to terminate, in its
entirety, all of its rights and obligations under the LOI and the Definitive
Agreement before the last permitted payment date for the applicable milestone
payment.
4. Prior to approval of the Product in the United States, Agouron will, "***."
5. The right of Agouron to market Product in the Licensed Territory shall be
subject to commercially reasonable marketing efforts by Agouron, on a
country-by-country basis. For purposes of this paragraph, commercialization
efforts undertaken by Agouron's Affiliates and sublicensees shall be
attributed to Agouron. Agouron shall begin commercial sales of the in a
country no later than "***" after the first
*** - Confidential treatment requested
A-5
<PAGE>
registration of Product in such country; provided, however, that such
period shall be extended for as long as commercially reasonable marketing
efforts to begin commercial sales continue. Following commencement of
commercial sales in a country, Agouron shall keep Product reasonably
available to the public; provided, however, that Agouron shall be released
from this obligation if supply of Product is not available for such country
and Agouron is not responsible for arranging for the commercial production
and supply of Product for such country.
6. The term of the license rights granted hereunder will extend on a
country-by-country basis from the effective date of the signing of the
LOI until the last-to-expire of any patents within the Immune Response
Patent Rights covering the Product in such country (as extended by any
governmental actions which provide exclusive rights to the patent
holder in the patented subject matter beyond the original patent
expiration date).
7. Agouron shall have the right to sublicense its rights in the Product in
one or more countries of the Licensed Territory. In the event that
Immune Response or its Affiliates shall in the future obtain Control of
one or more additional patent rights and/or know-how necessary or
useful for the commercialization of the Product in the Licensed
Territory, then Immune Response shall grant to Agouron an exclusive
license consistent with the terms of this Exhibit A which adds such
patent rights and know-how to the scope of the applicable Immune
Response Patent Rights and Immune Response Know-How, without any
additional obligations due from Agouron to Immune Response. To the
extent that Immune Response grants rights in the Product to a third
party and such third party invents or discovers inventions and/or
know-how necessary or useful for the commercialization of the Product
in the Licensed Territory, then Immune Response shall use its
reasonable efforts to secure rights for Agouron to use such inventions
and know-how.
8. Immune Response hereby grants to Agouron, its Affiliates and
sublicensees a perpetual paid-up, royalty-free, worldwide, exclusive
right to use Immune Response's trademark REMUNETM in the marketing of
the Product in the Licensed Territory.
9. Immune Response shall supply Agouron, and Agouron shall purchase from
Immune Response, sufficient commercial supplies of Product to support
and sustain the launch and subsequent patient demand for Product in the
Licensed Territory. Immune Response hereby agrees to use its
commercially reasonable efforts to have sufficient manufacturing
capacity at its facilities to supply Agouron with commercial quantities
of Product which are necessary for the launch of such Product in the
Licensed Territory and agrees to have at least a monthly manufacturing
capacity for the Licensed Territory of "***" unit doses/month of such
Product at the time of launch of such Product. Immune Response agrees,
at its expense, to maintain commercially reasonable inventory and
safety stock of Product for the Licensed Territory. Immune Response
further agrees to discuss with Agouron, in good faith, Immune
Response's acquisition of additional manufacturing capacity required to
meet the projected patient demand for the
*** - Confidential treatment requested
A-6
<PAGE>
Product for the Licensed Territory. Immune Response shall use
diligence in its manufacturing activities and shall provide Agouron
such technical support for the Product as it may reasonably requested.
Commercial supplies of Product shall be supplied to Agouron at Immune
Response's "***."
10. Immune Response agrees not to enter into any contractual arrangement
with its licensees outside the Licensed Territory which would limit
Immune Response's ability to fully fulfill Agouron's product
requirements for the Licensed Territory, or which would require Immune
Response to allocate its manufacturing capacity among such licensees
and Agouron. If supply shortages of Product are expected to occur
during a calendar quarterly period, and Immune Response's available
supply of drug product is required to be allocated among Immune
Response's licensees, Immune Response shall allocate the available
supply of drug product among Immune Response's licensees during such
calendar quarterly period on a pro-rata basis, based upon: (i) the
relative utilization of such Product in each licensee's respective
territories during the twelve (12) month period ending on the first day
of such calendar quarterly period (based on historical sales data
during such twelve (12) month, to the extent such data is available);
and (ii) the projected sales of such Product in each licensee's
respective territories during the twelve (12) month period commencing
with the first day of such calendar quarterly period.
11. If Immune Response is unable to provide Agouron with its requirements
of Product in a timely and cost-efficient manner, Immune Response
agrees to assist Agouron in the identification of alternative low-cost
manufacturing sources for the Product, including but not limited to,
access to current suppliers of starting materials, intermediates, bulk
material and/or finished Product. Immune Response in such circumstances
will grant Agouron the non-exclusive worldwide right to make and have
made Product under applicable Immune Response Patent Rights and Immune
Response Know-How relating to processes, intermediates and materials
for manufacturing Product, and will provide to Agouron without charge,
to the extent available, technical and manufacturing assistance and use
of its technology and proprietary information for the Product,
including information on its analytical methods, validation reports and
manufacturing processes.
12. Pre-Tax Profits generated from aggregate Net Sales and royalties from
Products in the Licensed Territory on a country-by-country basis shall
be shared equally by Immune Response and Agouron on a fifty-fifty
basis. "***."
13. At any time after October 15, 1998, Agouron may elect to immediately
terminate its development obligations in the Licensed Territory for
Product under the LOI and the Definitive Agreement, except that Agouron
may exercise this right to terminate only on the basis of its concerns
related to the safety, efficacy, competitiveness, or commercial
feasibility of Product. In the event that Agouron elects to terminate
its development obligations for Product under the LOI and the
Definitive Agreement, Immune Response, its Affiliates and sublicensees
shall be free, without any further action by Immune Response or
Agouron, to develop and/or commercialize Product in the Licensed
Territory, on their own, or with any third party, and to retain, use
*** - Confidential treatment requested
A-7
<PAGE>
and disclose to any such third party information and materials that
have been developed by Agouron in its development activities for
Product; provided, that Immune Response shall not disclose to such
third party the confidential and proprietary information of Agouron
(other than clinical, regulatory and manufacturing information and
materials specifically relating to Product). In the event of the
termination of Agouron's development obligations in the Licensed
Territory for Product under the LOI and the Definitive Agreement, the
licenses granted to Agouron to use, offer for sale, sell and/or import,
in or into the Licensed Territory, the Product under applicable Immune
Response Patent Rights and using applicable Immune Response Know-How,
shall be terminated. Agouron shall transfer ownership of any dossiers
for Product in the Licensed Territory to Immune Response, and shall
cooperate with Immune Response to effect an orderly transition of
Agouron's development responsibilities in the Licensed Territory to
Immune Response.
14. At any time after October 15, 1998, Agouron may elect to immediately
terminate, on a country-by-country basis, its marketing rights for
Product in the Licensed Territory under the LOI and the Definitive
Agreement, except that Agouron may exercise this right to terminate
only on the basis of its concerns related to the safety, efficacy,
competitiveness, or commercial feasibility of Product. In the event
that Agouron elects to terminate its marketing rights for Product in a
country: (i) the licenses granted to Agouron to use, offer for sale,
sell and/or import, in or into such country, the Product under
applicable Immune Response Patent Rights and using applicable Immune
Response Know-How, shall be terminated, and Immune Response and its
Affiliates and sublicensees shall be free to market such Product in
such country, on its own, or with any third party; (ii) Agouron shall
transfer ownership to Immune Response of any dossiers for Product in
such country; and (iii) Agouron shall cooperate with to Immune Response
to effect an orderly transition of Agouron's marketing responsibilities
in such country to Immune Response.
15. Immune Response, in accordance with the reasonable directions of
Agouron, shall prepare, file, prosecute, maintain and extend: (i)
patent applications and patents included in the Immune Response Patent
Rights; and (ii) applicable Immune Response trademarks. Immune Response
shall own any Immune Response Patent Rights and Immune Response
trademarks and shall be responsible for all preparation, filing,
prosecution, maintenance, extension and enforcement expenses for such
Immune Response Patent Rights and Immune Response trademarks. Within
fourteen (14) days after the execution of the LOI, Immune Response
shall provide Agouron with copies of the material patent prosecution
file histories for the Immune Response Patent Rights. Immune Response
shall be solely responsible for any royalties or other payments due to
Rhone-Poulenc Rorer Inc. (including payments due because of license
fees or commercial sales of the Product) because of their previously
contractual arrangement (or the termination thereof) involving the
Product. "***."
*** - Confidential treatment requested
A-8
<PAGE>
16. This Agreement shall be assignable by a party with the prior written
consent of the other party. Any assignment (other than to an Affiliate)
without the prior written consent of the other party shall be void. If
this Agreement is assigned to an Affiliate of a party, the assigning
party shall still be responsible for all of its obligations specified
in this Agreement. Notwithstanding the preceding, the LOI shall be
assignable to the transferee or successor company in the event of: (i)
a sale or transfer of all or substantially all of a party's assets; or
(ii) the merger or consolidation of the party with another company.
17. If the representatives of the parties are unable to reach agreement on
a decision required under the terms of the LOI, the issue shall be
submitted for consideration, in the case of Immune Response, to a
designee of its Chief Executive Officer, and, in the case of Agouron,
to a designee of its Chief Executive Officer. If they are unable to
agree, then the Chief Executive Officers of the parties shall agree
upon the appropriate decision. If the Chief Executive Officers of the
parties are unable to reach agreement on a decision required of them,
then the issue shall be settled by arbitration in San Diego, California
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. The decision of the
arbitrator(s) shall be final and binding on all parties. The cost of
such arbitration shall be borne by the non-prevailing party, unless
otherwise decided by the arbitrator(s).
18. "***."
19. Neither party shall be held liable or responsible to the other party
nor be deemed to have defaulted under or breached the LOI for the
failure or delay in fulfilling or performing any term of the LOI to the
extent, and for so long as, such failure or delay is caused by or
results from causes beyond the reasonable control of the affected
party, including but not limited to fire, floods, embargoes, war, acts
of war (whether war is declared or not), insurrections, riots, civil
commotions, strikes, lockouts or other labor disturbances, acts of God,
or acts, omissions or delays in acting by any governmental authority or
the other party.
20. In partial consideration for the rights granted to Agouron, Agouron
will purchase from Immune Response two million dollars ($2,000,000) of
unregistered Immune Response Common Stock on each of the purchase dates
listed below at the premiums to Fair Market Value ("FMV") set forth
opposite the applicable purchase date:
<TABLE>
<CAPTION>
Purchase Date ***
----------------- -----
<S> <C>
Execution Date of LOI ***
10/15/98 ***
1/15/99 ***
4/15/99 ***
7/15/99 ***
10/15/99 ***
1/17/00 ***
</TABLE>
*** - Confidential treatment requested
A-9
<PAGE>
FMV shall mean the average closing price of Immune Response Common Stock
for the five trading days immediately preceding the above purchase dates;
provided, however, that if the FMV of Immune Response Common Stock is "***"
on the applicable purchase date, the premium to FMV shall be "***."
Agouron's obligation to purchase Immune Response Common Stock shall
terminate with respect to any purchase obligations whose applicable
purchase dates occur after Agouron has elected to terminate, in its
entirety, all of its rights and obligations under the LOI and the
Definitive Agreement.
*** - Confidential treatment requested
A-10
<PAGE>
SCHEDULE 1
COUNTRIES NOT INCLUDED IN THE LICENSED TERRITORY
The following countries, subject to the provisions of Paragraph 18 of Exhibit A,
are excluded from the Licensed Territory "***:"
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
The following countries, subject to the provisions of Paragraph 18 of Exhibit A,
are excluded from the Licensed Territory "***."
***
***
***
***
***
***
***
***
***
***
*** - Confidential treatment requested
S-1
<PAGE>
SCHEDULE 2
IMMUNE RESPONSE PATENT RIGHTS
U.S. Patent No. 5,256,767, issued October 26, 1993, from U.S. Patent Application
Serial No. 07/975,899, filed November 10, 1992.
"***."
"***."
*** - Confidential treatment requested
S-2
<PAGE>
SCHEDULE 3
SUMMARY OF CLINICAL TRIALS OF PRODUCT BEING CONDUCTED BY IMMUNE
RESPONSE
1. Trial 806 is a multi-center, double-blind, Phase III clinical end point
study. Patients are HIV positive with CD4 counts between 300 and 549
cells/ul.
2. Trial 816 is a multi-center, double-blind, Phase II study intended to
evaluate the combination of REMUNE(TM) and triple antiviral drug therapy
(AZT, 3TC and Crixivan) on the induction of an HIV-1 specific immune
response. Patients are HIV positive with CD4 counters > 350 cells/ul.
3. Trial 2102 is a multi-center, double-blind, adjuvant-controlled, Phase II
study of REMUNE plus AZT and ddI versus AZT and ddI alone in HIV-infected
subjects. The trial is being conducted in Spain and patients have CD4
counts between 300 and 700 cells/ul.
4. Trial 808 is a Phase I study to evaluate the safety and immunogenicity of
REMUNE in children with HIV-infection.
5. The Switzerland trial is a single center, randomized, open label, Phase II
study combining antiviral therapy (1592U89) plus Nelfinavir plus Saquinavir
or 141W94) alone or antiviral therapy plus immune-based therapy
(subcutaneous interleukin-2 or REMUNE) in antiviral naive HIV-1 infected
subjects with CD-4 + counts > 250 cells/ul.
6. The England trial is a single center, randomized, open labeled Phase I
study of antiviral therapy (two nucleoside analogues and at least one
protease inhibitor) versus antiviral therapy plus IL-2; antiviral therapy
plus IL-2 plus REMUNE; antiviral therapy plus REMUNE. Patients are HIV
positive with CD4 counts > 300 cells/ul.
7. Trial 818 is a Phase II study intended to evaluate the combination of
interferon-alpha (IFN) and REMUNE on HIV-1 specific immunogenicity in HIV-1
infected subjects with CD-4 counts > 300 cells/ul.
8. Trial 2101B is a Phase II, double-blind, randomized, adjuvant controlled
study of REMUNE.
9. Trial 822 is a randomized, double-blind, adjuvant controlled, research
study to evaluate the combination of REMUNE and HAART on the induction of
HIV-1 specific immune responses.
S-3
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement ("Agreement") is made and entered into
as of June 11, 1998 by and between THE IMMUNE RESPONSE CORPORATION., a Delaware
corporation (hereinafter referred to as the Company) and AGOURON
PHARMACEUTICALS, INC., a California corporation ("Agouron"), which parties
hereby agree as follows:
1. AUTHORIZATION; COMMITMENT; CLOSING
1.01 AUTHORIZATION. The Company proposes to authorize, issue and sell to
Agouron on or before January 15, 2000, certain amounts of its common stock,
$.0025 par value ("Common Stock"), as described and determined below.
1.02 COMMITMENT. Subject to Paragraph 5.06 and the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to Agouron, and Agouron agree to
purchase from the Company as of the dates and for the consideration set forth
below, the number of shares of the Company's Common Stock as determined below.
The Common Stock which Agouron is acquiring pursuant to the terms of this
Agreement is hereinafter referred to as "Restricted Common Stock". Agouron is
hereinafter sometimes referred to as the "Purchaser." The purchases of the
Common Stock shall occur on the seven purchase dates set forth below. On each
purchase date, Agouron shall be entitled to acquire such number of shares of
Restricted Common Stock (rounded up to the nearest whole share) as may be
purchased for $2,000,000, at a purchase price equal to the stated premium set
forth opposite the applicable purchase date, over the then fair market value
("FMV") of the Common Stock on The NASDAQ Stock Market. FMV shall be defined
as the average closing price of the Common Stock on The NASDAQ Stock Market for
the five (5) trading days immediately preceding the referenced purchase date.
In the event the FMV is "***" on any purchase date, the premium applicable to
such purchase date shall be adjusted to "***."
<TABLE>
<CAPTION>
PURCHASE DATE PURCHASE PRICE ***
- ---------------- -------------- ---
<S> <C> <C>
June 11, 1998 $2,000,000 ***
October 15, 1998 $2,000,000 ***
January 15, 1999 $2,000,000 ***
April 15, 1999 $2,000,000 ***
July 15, 1999 $2,000,000 ***
October 15, 1999 $2,000,000 ***
January 15, 2000 $2,000,000 ***
</TABLE>
1.03 CLOSING. Separate closings of the purchase and sale of the
Restricted Common Stock ("Closings") shall occur on each of the purchase dates
set forth above and shall take place at such time and place as the Company and
Purchaser shall agree. At each Closing the Company shall deliver to Purchaser
the number of shares of
*** Confidential treatment requested. Sections of text which have been
omitted and for which confidential treatment is requested are noted with
"***". An unredacted version of this document has been filed separately
with the Securities and Exchange Commission.
<PAGE>
June 11, 1998
Restricted Common Stock required by Paragraph 1.02, above, upon delivery to
the Company by Purchaser of a certified check or wire transfer of funds in
the amount of $2,000,000. The Restricted Common Stock to be delivered to
Agouron hereunder at each Closing will be evidenced by a single certificate
registered in Agouron's name or in the name of such nominee as Agouron may
specify and, when issued in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly authorized, validly issued,
fully paid, nonassessable and free and clear of any liens or encumbrances
caused or created by the Company (except that such Restricted Common Stock of
the Company will be subject to restrictions on transfer under federal and
applicable state securities laws).
2. REPRESENTATIONS
2.01 REPRESENTATIONS OF THE COMPANY. The Company represents and warrants
as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has
all requisite power and authority which are necessary to own and
operate its business and properties and to carry on its business as
it is being conducted. The Company is duly licensed and qualified
and in good standing in the State of California and in such other
jurisdictions in which the ownership or lease of property or the
conduct of its business makes such licensing or qualification
necessary.
(b) There are no proceedings pending or, to the knowledge of the
Company, threatened against or affecting the Company in any court or
before any governmental authority or agency or arbitration board or
tribunal which involve the possibility of materially and adversely
affecting the properties, business, prospects or condition (financial
or otherwise) of the Company.
(c) The issuance and sale of the Restricted Common Stock and
compliance by the Company with all of the provisions of this
Agreement are within the corporate powers of the Company and have
been duly authorized by all proper corporate action on the part of
the Company and will not (i) conflict with or result in any breach of
any of the terms, conditions or provisions of, or constitute a
default under the Articles of Incorporation of the Company or the
Bylaws of the Company, (ii) conflict with or result in any breach of
any of the terms, conditions or provisions of, or constitute a
default under or give any party the right to terminate or accelerate
performance under any other agreement or instrument to which the
Company is a party (iii) require consent under any other contract to
which the Company is a party, (iv) result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company pursuant to the terms of any other contract to
which the Company is a party or (v) conflict with any provision of
any applicable
2
<PAGE>
June 11, 1998
judgment, decree, order, statute, rule, or regulation of any court
or any public, governmental or regulatory agency or body having
jurisdiction over the Company.
(d) This Agreement is a valid and binding agreement of the Company
and is enforceable against the Company in accordance with the terms
hereof, except as such enforceability may be affected by applicable
bankruptcy laws and equitable remedies.
(e) The authorized capital stock of the Company consists of
5,000,000 shares of preferred stock (preferred stock) and 40,000,000
shares of common stock. As of the date hereof, 200 shares of its
Series F Convertible Preferred Stock are outstanding. This preferred
stock is convertible into common stock initially at a conversion
price equivalent to $14.07 per share of common stock. If the
Company's common stock does not trade at prices higher than $14.07
per share over a period of time, the conversion price will be
adjusted downward on April 24, 1999 (or sooner if the Company issues
common stock at less than $14.07 per share) and quarterly thereafter.
As of June 9, 1998, 22,900,350 shares of voting common stock are
outstanding. As of the date hereof, 4,497,749 stock options issued
pursuant to the Company's stock option plans and two (2) warrants to
purchase a total of 2,051,281 shares of voting stock are outstanding.
Up to 6,180,000 shares of common stock may be issued under the
Company's stock option plans. Except as set forth above, there are
no other options, warrants, conversion privileges, preemptive rights,
or rights of first refusal granted by the Company in favor of any
other person presently outstanding or in existence to purchase or
acquire any of the authorized but unissued Common Stock of the
Company, other than any of such items granted pursuant to this
Agreement. The Company has provided to Purchaser copies of its
currently in effect Articles of Incorporation and Bylaws, its Form 10-
K for the year ended December 31, 1997, its 1997 Annual Report, its
Proxy statement dated April 27, 1998 and its Form 10-Q for the
quarter ended March 31, 1998. The Company warrants that the
information contained in such documents as updated and supplemented
prior to the date of the Closing is true and correct and when taken
as a whole does not omit a fact necessary to make the information
contained therein in light of the circumstance under which the
documents were made (taking into account, without limitation, the
type of transaction contemplated by this Agreement and the
sophistication and nature of the Purchaser), not misleading. The
Company acknowledges that the Purchaser is relying on the written
documentation provided by the Company to Purchaser as described above
in making its decision to purchase the Restricted Common Stock.
(f) Since March 31, 1998, except for the sale of 200 shares of
Series F Convertible Preferred Stock for $10 million, there has not
been any change in the assets, liabilities, financial condition or
operations of the Company
3
<PAGE>
June 11, 1998
other than changes in the ordinary course of business, none of
which individually or in the aggregate have had a material adverse
affect on such assets, liabilities, financial condition or
operations of the Company.
2.02 REPRESENTATIONS OF THE PURCHASER. The Purchaser represents and
warrants as follows:
(a) It is the intent of the Purchaser that its purchase of the
Restricted Common Stock contemplated by this Agreement shall
constitute a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") and any
applicable state securities laws.
(b) Purchaser will not offer or sell any Restricted Common Stock
except pursuant to an effective registration statement under the
Securities Act or in transactions which do not require registration
under the Securities Act.
(c) Purchaser is a corporation duly organized and validly existing
under the laws of the State of California is in good standing under
such laws and has all requisite corporate powers and authority to
enter into this Agreement.
(d) On or prior to the date of the initial Closing, Purchaser will
have taken all action necessary for the authorization, execution,
delivery and performance of this Agreement.
(e) Purchaser has (i) reviewed this Agreement, and the written
statements, and documents, delivered to Purchaser as described in
Section 2.01(e); and, (ii) received satisfactory response from the
Company as to matters about which Purchaser has inquired relating to
this Agreement, and other documents described in Section 2.01(e) and
relating to the Company's business condition, prospects and plans as
necessary to evaluate the merits and risks of acquiring the
Restricted Common Stock. Purchaser has informed the Company that
Purchaser is relying on all such information and documents in making
its decision to purchase the Restricted Common Stock.
(f) Purchaser (i) has had the risks involved in the investment
represented by this Agreement explained; (ii) has knowledge and
experience in financial and business matters to evaluate the merits
and risks of the investment represented by this Agreement; (iii) is
able to bear the economic risk of the investment represented by this
Agreement (including a complete loss of this investment); and (iv)
has determined that this investment is suitable for Purchaser in
light of Purchaser's financial circumstances and available investment
opportunities.
(g) Purchaser is acquiring the Restricted Common Stock for its own
account and with its general assets for the purpose of investment and
not
4
<PAGE>
June 11, 1998
with a view to the resale, transfer or distribution thereof, and
has no present intention of selling, transferring, negotiating or
otherwise disposing of any Restricted Common Stock. Notwithstanding
anything in this Agreement to the contrary, it is agreed that the
Purchaser shall have the right to assign or transfer the Restricted
Common Stock to its Affiliates at any time without the consent of the
Company.
3. NON-DISCLOSURE. Except as agreed to by the parties neither the Company nor
the Purchaser shall release any information to any third party with respect to
any of the terms of this Agreement without the prior written consent of the
other, which consent shall not unreasonably be withheld. This prohibition
includes, but is not limited to, press releases, promotional materials and
discussions with the media. If the Company determines that it is required by
law to release information to any third party regarding the terms of this
Agreement, it shall notify the Purchaser of this fact prior to releasing the
information. The notice to the Purchaser shall include the text of the
information proposed for release. The Purchaser shall have the right to confer
with the Company regarding the necessity for the disclosure and the text of the
information proposed for release.
4. COMPLIANCE WITH SECURITIES ACT
4.01 CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following respective meanings:
(a) COMMISSION. Shall mean the Securities and Exchange Commission,
or any other Federal agency at the time administering the Securities
Act or the Trust Indenture Act, as the case may be.
(b) SECURITIES ACT. Shall mean the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the relevant time.
(c) EXCHANGE ACT. Shall mean the Securities Exchange Act of 1934,
as amended, or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the relevant time.
(d) RESTRICTED COMMON STOCK. Shall mean the Common Stock of
the Company issued and sold pursuant to this Agreement which by the
terms hereof is required to bear the legend specified in Section 4.02
hereof.
4.02 RESTRICTION OF TRANSFERABILITY; LEGEND. Shares of Restricted Common
Stock shall not be resold or transferred unless registered under the Securities
Act or unless an exemption from registration is available for such sale or
transfer. The conditions specified below are intended to ensure compliance
with the provisions of the Securities Act in respect of any transfer of stock.
Each certificate for shares of Restricted
5
<PAGE>
June 11, 1998
Common Stock shall be stamped or otherwise imprinted with a legend in
substantially the following form:
The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as
amended, and may not be sold or transferred in the
absence of such registration or an exemption therefrom
under said Securities Act and the transfer of such
shares is subject to terms and conditions specified in
the Common Stock Purchase Agreement dated as of June
11, 1998, between the Company and Agouron
Pharmaceuticals, Inc.
If shares of Restricted Common Stock evidenced by certificates bearing a legend
required by this Section 4.02 are sold in accordance with a registration
statement which has become effective under the Securities Act, or if the
Company shall receive an opinion of its counsel to the effect that any legend
required under this Section 4.02 is not, or is no longer, necessary or required
with respect to such shares (including, without limitation, because of the
availability of the exemption afforded by Rule 144 of the General Rules and
Regulations of the Commission), the Company shall, or shall instruct its
transfer agent and registrar to, remove such legend or issue new certificates
without such legend in lieu thereof.
4.03 INFORMATION REQUIREMENTS. The Company agrees to:
(a) Make and keep public information available, as such term is
understood and defined in Commission Rule 144 and Rule 144A, under
the Securities Act;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act; and
(c) Furnish to any holder of Restricted Common Stock a copy of the
most recent annual or quarterly report of the Company, and such other
publicly available reports and documents of the Company, so that such
holder may avail itself of any rule or regulation of the Commission
allowing it to sell any such securities without registration.
4.04 PIGGY-BACK REGISTRATION RIGHTS. If the Company before January 15,
2001 contemplates a public offering of shares of its Common Stock to be
registered under the Securities Act, the Company shall so notify the Purchaser
in writing of its intention to do so, at least twenty (20) days prior to the
filing of a registration statement for such offering. If Purchaser gives
written notice to the Company, within ten (10) days of receipt of the notice
from the Company, of Purchaser's desire to have its Restricted Common Stock
included in such
6
<PAGE>
June 11, 1998
registration statement, Purchaser may, subject to the provisions of this
Section 4.04, have its Restricted Common Stock included in such registration
statement. The Company shall bear all expenses in connection with the
registration and sale of any such Restricted Common Stock, other than the
fees or disbursements of any special counsel which the Purchaser may retain
in connection with the registration of its Restricted Common Stock or any
portion of the underwriter's commission, discounts and expenses attributable
to the Restricted Common Stock being offered and sold by the Purchaser.
Notwithstanding the foregoing, if the managing underwriter of any such
offering determines that the number of shares proposed to be sold by the
Company, by other shareholders having piggy-back rights, and/or by the
Purchaser is greater than the number of shares which the underwriter believes
feasible to sell at the time, at the price and upon the terms approved by the
Company, then the number of shares which the underwriter believes may be sold
shall be allocated for inclusion in the registration statement in the
following order of priority: (i) shares being offered by the Company; and
(ii) pro rata among the other shareholders and the Purchaser, based on the
number of shares of Common Stock each shareholder requested to be registered.
The Company shall have the right to designate the managing underwriter in
respect of a public offering pursuant to this Section 4.04.
4.05 ADDITIONAL COVENANTS CONCERNING SALE OF SHARES.
(a) The Company will notify the Purchaser of the effectiveness of
any registration statement in which Purchaser has exercised
registration rights granted pursuant to the terms of Section 4.04,
together with a list of the jurisdictions where the Company has
qualified or is exempt from registration under applicable state
securities laws.
(b) The Company will prepare and file with the Commission such
amendments and supplements to any registration statement filed
pursuant to the terms of Section 4.04 (and any prospectus used in
connection with such registration statement) as may be necessary to
comply with the provisions of the Securities Act with respect to the
sale of Restricted Common Stock by the Purchaser.
(c) The Company will furnish to the Purchaser a reasonable number of
copies of the prospectus used in connection with a registration
statement filed pursuant to the terms of Section 4.04, including a
preliminary prospectus, which prospectus conforms to the requirements
of the Securities Act, and such other documents as the Purchaser may
reasonably request, in order to facilitate the disposition of the
Purchaser's Restricted Common Stock.
(d) In connection with any registration statement referred to in
Section 4.04 of this Agreement, Purchaser will furnish to the
Company such information as the Company may reasonably require from
Purchaser for inclusion in the registration statement (and the
prospectus included therein).
7
<PAGE>
June 11, 1998
(e) The Company's obligations under Section 4.04 shall be
conditioned upon Purchaser executing and delivering to the Company
its agreement, in a form satisfactory to counsel for the Company,
that it will comply with all applicable provisions of the Securities
Act, the Exchange Act, the securities acts of applicable states and
any rules and regulations promulgated under such acts and will
furnish to the Company information about sales made in such public
offering.
4.06 INDEMNIFICATION
In the event any of the Restricted Common Stock of Purchaser is included
in a registration statement under Section 4.04 of this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Purchaser and its Affiliates and their respective
officers, directors and employees, against any losses, claims,
damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of
the following statements, omissions or violations (hereinafter
sometimes collectively referred to as a "Violation(s)"): (i) any
untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading; or (iii) any violation
or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Company will reimburse each such indemnified
party for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 4.06 shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld or
delayed), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance
upon, and in conformity with, written information furnished expressly
for use in connection with such registration, by any such indemnified
party.
(b) To the extent permitted by law, the Purchaser will indemnify and
hold harmless the Company and its Affiliates and their respective
officers, directors and employees against any losses, claims,
damages, or liabilities (joint or several) to which they may become
subject under the Securities
8
<PAGE>
June 11, 1998
Act, the Exchange Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any Violations, in each
case to the extent (and only to the extent) that such Violation
occurs in reliance upon, and in conformity with, written
information furnished by the Purchaser and its Affiliates and their
respective officers, directors and employees to the Company
expressly for use in connection with such registration; and the
Purchaser will reimburse each such indemnified party for any legal
or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability
or action; provided, however, that the indemnity agreement
contained in this Section 4.06 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Purchaser,
which consent shall not be unreasonably withheld or delayed.
(c) Promptly after receipt by an indemnified party under this
Section 4.06 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under
this Section 4.06, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so
desires, to assume the defense thereof with counsel mutually
satisfactory to the parties.
5. MISCELLANEOUS
5.01 EXPENSES; FINDERS FEES. Neither party shall pay expenses and finder
fees for or to the other in connection with this transaction. Each party
agrees to indemnify and hold the other party harmless from any liability for
any commission or compensation in the nature of a finder's fee to any broker or
other person (and the costs and expenses of defending against such liability or
asserted liability) claiming to have been hired or engaged by the party.
5.02 REPLACEMENT OF CERTIFICATES FOR RESTRICTED COMMON STOCK. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of any certificate evidencing any Restricted
Common Stock, the Company will execute, register and deliver, in lieu thereof,
a new certificate for an equal number of shares of Restricted Common Stock. In
the case of loss, theft or destruction of a certificate, at the election of the
Company, the Purchaser may be required to provide an indemnity reasonably
satisfactory to the Company or to post a surety bond in an amount equal to the
value of the shares represented by the new certificate.
5.03 NOTICE. Any notice required to be given under the terms of this
Agreement shall be in writing, and shall be given in person, transmitted by
telecopier, e-mail or similar electronic communication, delivered by a
recognized overnight delivery service such as Federal Express or sent by mail
(certified or registered or air mail for addresses
9
<PAGE>
June 11, 1998
outside of the country of origin), return receipt requested, postage prepaid
and addressed to the Company at 5935 Darwin Court, Carlsbad, California
92008, or such other address as the Company may designate to Purchaser in
writing and to the Purchaser, at the address appearing at the beginning of
this Agreement or such other address as Purchaser may designate to the
Company in writing. Except as otherwise provided herein, any notice so given
shall be deemed delivered upon the earlier of (i) actual receipt; (ii)
receipt by sender of confirmation if telecopied or sent by e-mail or similar
electronic communication; (iii) two business days after delivery to such
overnight delivery service; or (iv) five business days after deposit in the
mail.
5.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties and their respective successors and assigns.
5.05 SURVIVAL OF REPRESENTATIONS, ETC. All covenants, representations and
warranties made by the parties herein shall survive the Closings and the
delivery of this Agreement and the shares of Restricted Common Stock purchased
hereunder.
5.06 TERMINATION. Purchaser's obligation to purchase Restricted Common
Stock under this Agreement shall terminate with respect to any purchase
obligations whose purchase dates under Paragraph 1.02 occur after Purchaser has
elected to terminate, in its entirety, all of Purchaser's rights and
obligations under the Letter of Intent ("LOI") dated June 11, 1998 and the
Definitive Agreement (as defined in the LOI) between the parties.
5.07 SEVERABILITY. Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
5.08 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the State of California without
regard to its conflict of law provisions.
5.09 CAPTIONS, FORM OF PRONOUNS. The descriptive headings of the various
sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof. All
pronouns used in this Agreement shall be deemed to include masculine, feminine
and neuter forms.
5.10 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the entire
contract between the parties hereto related to the purchase and sale of
Restricted Common Stock and no party shall be liable or bound to the other in
any manner by any warranties, representations or covenants except as
specifically set forth herein.
10
<PAGE>
June 11, 1998
5.11 THIRD PARTIES. Nothing in this Agreement is intended to confer upon
any party, other than the parties hereto, and their respective permitted
successors and assigns, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided herein.
5.12 AMENDMENT AND WAIVER. Any provision of this Agreement may be amended
and the observance of any term hereof may be waived (either prospectively or
retroactively and either generally or in a particular instance) only with the
written consent of the Company and the Purchaser.
5.13 AFFILIATES. References to Purchaser in this Agreement shall be
deemed to include direct or indirect subsidiaries of Purchaser. The term
"Affiliate" shall have the meaning defined in the LOI.
5.14 DISPUTE RESOLUTION. In the event of any controversy or claim arising
out of or relating to any provision of this Agreement, the parties shall try to
settle their differences amicably between themselves. Any unresolved disputes
arising between the parties relating to, arising out of or in any way connected
with this Agreement or any term or condition hereof, or the performance by
either party of its obligations hereunder, whether before or after termination
of this Agreement, shall be finally resolved by binding arbitration. Whenever
a party shall decide to institute arbitration proceedings, it shall give
written notice to that effect to the other party. The party giving such notice
shall refrain from instituting the arbitration proceedings for a period of
sixty (60) days following such notice The arbitration shall be held in San
Diego, California according to the rules of the American Arbitration
Association ("AAA") applicable to commercial securities matters of this nature.
The arbitration shall be conducted by a panel of three arbitrators appointed in
accordance with AAA rules; provided, however, that each party shall within
thirty (30) days after the institution of the arbitration proceedings appoint
one arbitrator with the third arbitrator being chosen by the other two
arbitrators. If only one party appoints an arbitrator, then such arbitrator
shall be entitled to act as the sole arbitrator to resolve the controversy.
Any arbitration hereunder shall be conducted in the English language and the
arbitrator(s) shall apply the law set forth in Section 5.08. All arbitrator(s)
eligible to conduct the arbitration must agree to render their opinion(s)
within thirty (30) days of the final arbitration hearing. The arbitrator(s)
shall have the authority to grant injunctive relief and specific performance,
and to allocate between the parties the costs of arbitration in such equitable
manner as he determines; provided, however, that each party shall bear its own
costs and attorney's and witness' fees. Notwithstanding the terms of this
Section 5.14, a party shall also have the right to obtain prior to the
arbitrator(s) rendering the arbitration decision, provisional remedies
including injunctive relief or specific performance from a court having
jurisdiction thereof. The arbitrator(s) will, upon the request of either
party, issue a written opinion of the findings of fact and conclusions of law
and shall deliver a copy to each of the parties. Decisions of the
arbitrator(s) shall be final and binding on all of the parties. Judgment on
the award so rendered may be entered in any court having jurisdiction thereof.
11
<PAGE>
June 11, 1998
The execution hereof by Purchaser shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Agreement may be executed
in any number of counterparts, each executed counterpart constituting an
original but all together only one agreement.
THE IMMUNE RESPONSE CORPORATION
By S/DENNIS J. CARLO
-----------------------------------------
By S/CHARLES J. CASHION
-----------------------------------------
ACCEPTED AND AGREED TO AS OF THE DAY AND YEAR AFORESAID.
PURCHASER:
AGOURON PHARMACEUTICALS, INC
By S/PETER JOHNSON
-----------------------------------------
Peter Johnson
President and Chief Executive Officer
By S/GARY FRIEDMAN
-----------------------------------------
Gary Friedman
Secretary
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM ITEM 1 OF 10-Q FOR THE
PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,664
<SECURITIES> 34,374
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,426
<PP&E> 11,692
<DEPRECIATION> 5,945
<TOTAL-ASSETS> 44,128
<CURRENT-LIABILITIES> 4,268
<BONDS> 0
9,207
0
<COMMON> 58
<OTHER-SE> 191
<TOTAL-LIABILITY-AND-EQUITY> 44,128
<SALES> 0
<TOTAL-REVENUES> 12,380
<CGS> 0
<TOTAL-COSTS> 18,793
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,413)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,413)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
