ORAVAX INC /DE/, S-1/A, 1996-06-26

ORAVAX INC /DE/
S-1/A, 1996-06-26
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1996

REGISTRATION NO. 333-3056
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 3 TO

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------

ORAVAX, INC.
(Exact name of registrant as specified in its charter)
------------------------

DELAWARE 2836 04-3085209
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification Number)
or organization) Code Number)

38 SIDNEY STREET, CAMBRIDGE, MASSACHUSETTS 02139
(617) 494-1339
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------

LANCE K. GORDON, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ORAVAX, INC.
38 SIDNEY STREET
CAMBRIDGE, MASSACHUSETTS 02139 (617) 494-1339
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------

Copies to:

JOHN M. WESTCOTT, JR., ESQ. BRUCE DALLAS, ESQ.
HALE AND DORR DAVIS POLK & WARDWELL
60 State Street 450 Lexington Avenue
Boston, Massachusetts 02109 New York, New York 10017
(617) 526-6000 (212) 450-4000

------------------------

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date hereof.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Registration statement number of the earlier effective
registration statement for the same offering. / / ------------

If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2

ORAVAX, INC.

CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1

<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND CAPTION LOCATION IN PROSPECTUS
--------------------- -----------------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Prospectus Summary; Risk Factors
4. Use of Proceeds................................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................ Underwriting
6. Dilution....................................... Dilution
7. Selling Security Holders....................... Not Applicable
8. Plan of Distribution........................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered..... Description of Capital Stock
10. Interests of Named Experts and Counsel......... Legal Matters
11. Information With Respect to the Registrant:
(a) Description of Business.................. Prospectus Summary; Recent Developments;
Business
(b) Description of Property.................. Business -- Facilities
(c) Legal Proceedings........................ Business -- Legal Proceedings
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters...................... Front Cover Page; Price Range of Common
Stock; Dividend Policy; Description of
Capital Stock; Shares Eligible for Future
Sale; Management -- Executive
Compensation
(e) Financial Statements..................... Financial Statements; Capitalization
(f) Selected Financial Data.................. Selected Financial Data
(g) Supplementary Financial Information...... Not Applicable
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................... Not Applicable
(j) Directors, Executive Officers, Promoters
and Control Persons...................... Management -- Directors and Executive
Officers; Certain Transactions
(k) Executive Compensation................... Management -- Executive Compensation
(l) Security Ownership of Certain Beneficial
Owners and Management.................... Principal Stockholders
(m) Certain Relationships and Related
Transactions............................. Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
</TABLE>

<PAGE> 3

PROSPECTUS

2,000,000 SHARES

LOGO
COMMON STOCK
------------------------------

All of the shares of Common Stock offered hereby are being sold by OraVax,
Inc. The Common Stock is quoted on The Nasdaq National Market under the symbol
"ORVX." The last sale price of the Common Stock on June 25, 1996, as reported by
The Nasdaq National Market, was $8.50.

------------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Per Share............................. $7.25 $0.435 $6.815
Total(3).............................. $14,500,000 $870,000 $13,630,000
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses estimated to be $350,000, which will be paid by
the Company.

(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 300,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $16,675,000, $1,000,500 and
$15,674,500, respectively. See "Underwriting."

------------------------------

The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York on or about July 1, 1996.

------------------------------

COWEN & COMPANY DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

June 26, 1996

<PAGE> 4

[SEE APPENDIX A FOR DESCRIPTION]

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. Certain terms are defined in the glossary
beginning on page 60 of this Prospectus. This Prospectus contains estimates on
market size, incidence of disease and medical costs that have been developed by
the Company based on sources including medical journals, industry reports and
literature distributed at medical seminars and conferences. Unless otherwise
indicated, all information contained in this Prospectus assumes no exercise of
the Underwriters' over-allotment option.

THE COMPANY

OraVax is a leader in the discovery and development of oral vaccines and
non-injected antibody products for the prevention and treatment of diseases
which infect the human body at its mucosal surfaces. Most bacterial and viral
infections attack the body's mucosal tissues. These tissues include the linings
of the gastrointestinal, respiratory and genitourinary tracts and the surface of
the eyes, an exposed surface area of over 3,600 square feet in the average
adult. Consequently, the largest part of the body's immune system is at the
mucosal surface and forms an important first line of defense against disease.
OraVax was founded to pursue drug discovery and development utilizing the
mucosal immune system. OraVax believes oral and non-injected products that
provide immunity at mucosal surfaces offer a number of important clinical and
commercial advantages relative to injected antibody and vaccine products,
including greater clinical efficacy, a higher level of safety, lower costs of
administration and improved patient compliance.

The Company has developed a portfolio of proprietary technologies and
accumulated valuable expertise in the exploitation of the mucosal immune system
for drug discovery and development. The Company's product candidates are
designed to generate mucosal immunity utilizing a specialized class of
antibodies, secretory IgA, found solely at the mucosal surfaces. These product
candidates are intended to be delivered orally or through other non-injected
delivery systems. In contrast, conventional antibody products and vaccines
generate immunity principally based on IgG, a class of antibodies found in the
bloodstream, and are usually delivered by injection.

OraVax is currently pursuing three principal product development programs
which target diseases that have high rates of incidence, compelling
pharmaco-economic profiles and for which there are no adequate therapeutic or
preventive antibody products or vaccines. These disease targets are viral
pneumonia in children, peptic ulcer disease and antibiotic-associated diarrhea
and colitis. The Company's principal product candidates are the following:
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<TABLE>
<CAPTION>
PRODUCT CANDIDATE INDICATION STATUS
-------------------- ---------------------------------------------- -------------------------
<S> <C> <C>
HNK20 antibody Prevention of viral pneumonia in children Phase 3 trials
UreAB oral vaccine Prevention and treatment of peptic ulcers Phase 2 trials
Prevention of antibiotic-associated diarrhea
CdAB oral vaccine and colitis Preclinical development
</TABLE>

- --------------------------------------------------------------------------------

The Company's most advanced product candidate is the HNK20 antibody being
developed to prevent viral pneumonia in children caused by respiratory syncytial
virus ("RSV"). HNK20 is designed to be administered directly to the mucous
lining of the nasal passages by nose drops, thereby providing protection against
infection at the point of entry to the respiratory system. In the United States,
approximately 250,000 children annually have moderate to severe underlying
medical problems that put them at risk of contracting viral pneumonia from RSV
infection. Approximately 36% of these children require hospitalization due to
severe lower respiratory infections from RSV and up to 5% of these hospitalized
cases prove to be fatal. The nose drop formulation of HNK20 may facilitate its
use in children who present a wide range of risk factors. The Company estimates
that the direct medical costs associated with the treatment of the disease in
the United States exceed $500 million annually. Phase 2 trials of this product
candidate in adults were completed in July 1995. A Phase 1 safety trial in
children was also completed in July 1995, and a Phase 2 trial in high risk
infants was completed in April 1996. See "Recent Developments." The Company
commenced Phase 3 trials in children in early May 1996 in the Southern
Hemisphere, where the months of greatest risk for RSV infection are May to
September.

3
<PAGE> 6

The Company's second product candidate is UreAB, a urease-based oral
vaccine designed to prevent and treat infection by Helicobacter pylori bacteria
("H. pylori"). In recent years, H. pylori infection has been identified as the
underlying cause of the majority of cases of chronic gastritis and peptic ulcer
disease and as a major risk factor for stomach cancer. The Company believes that
approximately 90% of peptic ulcer cases are attributable to chronic H. pylori
infections. In addition, H. pylori has been formally classified as a Category 1
(or definite) human carcinogen by the World Health Organization. The Company is
developing an oral vaccine for the prevention of infection by H. pylori and, in
chronically infected persons, to clear the infection and prevent reinfection.
The Company estimates that the direct medical costs of treating peptic ulcers in
the United States exceed $5 billion per year. Although frequently asymptomatic,
all persons infected by H. pylori have chronic stomach inflammation (gastritis).
The Company estimates that approximately 30% of the United States population is
infected with H. pylori. Infection rates in most parts of the world exceed those
in the United States. OraVax completed a Phase 1 clinical safety study of its H.
pylori vaccine in chronically infected adults in December 1995. A Phase 2 safety
and immunogenicity trial was initiated in adults in September 1995 and is
expected to be completed in the third quarter of 1996.

In March 1995, the Company entered into a collaboration (the "Joint
Venture") with Pasteur Merieux Serums & Vaccins S.A. ("Merieux"), a wholly-owned
subsidiary of Rhone-Poulenc S.A., for the development, manufacturing, marketing
and sale of immuno-therapeutic and preventive vaccines against H. pylori. Under
the Joint Venture, OraVax and Merieux have agreed to co-develop vaccines which
use the urease protein or any of its sub-units as an antigen (the "Target
Products"). OraVax and Merieux will share equally in profits from the sales of
the Target Products and in all future research, development, clinical and
commercialization costs. Merieux made an initial milestone payment, purchased
equity in the Company and agreed to make certain payments to the Company during
the development period, subject to the achievement of certain clinical and
regulatory milestones. The first of these milestone payments was made in the
fourth quarter of 1995. See "Business -- Products under Development -- UreAB
Oral Vaccine Against H. pylori."

The Company's third product candidate is CdAB, an oral vaccine designed to
prevent antibiotic-associated diarrhea and colitis caused by Clostridium
difficile ("C. difficile"). Approximately two million cases of
antibiotic-associated diarrhea and colitis occur annually in hospitalized
patients and nursing home residents in the United States. Preclinical trials in
animal models with CdAB have demonstrated effectiveness in prevention of C.
difficile induced disease. The Company expects to file an IND in the fourth
quarter of 1996.

In addition to the Company's three principal product development programs,
the Company has rights to certain other technologies which may have the
potential to be developed into products. These technologies also build on the
Company's platform of knowledge of immunology and infectious disease. These
technologies include methods for stimulating IgA antibody production, a
potential improved vaccine for prevention of Japanese Encephalitis ("JE") viral
infections, an antigen delivery system using genetically engineered virus-like
particles, Viricles, and a Shigella live-vector antigen delivery system. In
March 1996, the Company was notified that it had been awarded a Phase 2 Small
Business Innovation Research grant from the United States National Institutes of
Health to fund its product development efforts in JE.

OraVax was incorporated in Delaware in 1990. The Company's principal office
is located at 38 Sidney Street, Cambridge, Massachusetts 02139 and its telephone
number is (617) 494-1339.

As used in this Prospectus, the terms "OraVax" and the "Company" refer to
OraVax, Inc. and its wholly-owned subsidiaries, OraVax JVM, Inc. and OraVax
Securities Corp., unless the context otherwise requires. ViricleTM and OraVaxTM
are registered trademarks of the Company. All other trademarks or trade names
referred to in this Prospectus are the property of their respective owners.

4
<PAGE> 7

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company..................................... 2,000,000 shares
Common Stock to be outstanding after the offering....................... 9,643,306 shares(1)
Use of proceeds......................................................... Research and development
Nasdaq National Market symbol........................................... ORVX
</TABLE>

SUMMARY FINANCIAL DATA

The summary financial data set forth below as of December 31, 1995 and for
the years ended December 31, 1995, 1994 and 1993 is derived from the financial
statements of the Company, which have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The unaudited balance sheet data as of March 31, 1996
and the unaudited statement of operations data for the three months ended March
31, 1996 and March 31, 1995 have been prepared on a basis substantially
consistent with the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth herein.
Results for the three months ended March 31, 1996 are not necessarily indicative
of results to be expected for the year ending December 31, 1996, although a
significant loss is expected for that period. See "Risk Factors -- History of
Operating Losses; Uncertainty of Future Profitability." The data set forth below
should be read in conjunction with "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's financial statements and related notes included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ----------------
1993 1994 1995 1995 1996
------- -------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative research and development................... $ -- $ -- $ 8,684 $3,190 $ 1,571
Government grants........................................ 349 257 311 78 192
Interest................................................. 78 51 1,080 79 310
------- -------- ------- ------ -------
427 308 10,075 3,347 2,073
Expenses:
Research and development................................. 5,981 8,406 12,450 2,775 5,280
General and administrative............................... 1,848 2,580 3,299 1,165 843
Interest................................................. 92 190 87 21 139
------- -------- ------- ------ -------
7,921 11,176 15,836 3,961 6,262
------- -------- ------- ------ -------
Equity in operations of joint ventures..................... -- -- (2,436) -- (1,086)
------- -------- ------- ------ -------
Net loss(2)................................................ (7,494) (10,868) (8,197) (614) (5,275)
Net loss to common stockholders(2)......................... $(7,494) $(10,968) $(8,305) $ (671) $(5,275)
======== ========= ======== ====== ========
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and investments........................................................... $22,543 $ 35,823
Total assets................................................................... 29,086 42,366
Working capital................................................................ 16,652 29,932
Total stockholders' equity..................................................... 19,353 32,633
</TABLE>

- ---------------

(1) Based on the number of shares outstanding at April 15, 1996. Excludes
options outstanding as of April 15, 1996 to purchase approximately 865,963
shares of Common Stock at a weighted average exercise price of $3.361.

(2) The net loss for the years ended December 31, 1994 and 1995 and the three
months ended March 31, 1995 excludes accretion to redemption value of
preferred stock of $100,000, $108,000 and $57,000, respectively, which is
included in net loss to common shareholders.

(3) Adjusted to give effect to the sale by the Company of 2,000,000 shares of
Common Stock offered hereby. See "Use of Proceeds."

5
<PAGE> 8

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Common
Stock offered by this Prospectus.

EARLY STAGE OF PRODUCT DEVELOPMENT; UNCERTAINTY OF SUCCESSFUL COMMERCIALIZATION

The Company has not yet completed the development of any product and,
accordingly, has not begun to market or generate revenues from the
commercialization of products. The products under development by the Company
will require significant additional research and development efforts, including
extensive clinical testing and regulatory approval, prior to commercial use.
OraVax has three principal product candidates, of which two have advanced to the
clinical trial phase and one is in preclinical development. The Company's
potential products are subject to the risks of failure inherent in the
development of pharmaceutical products based on new technologies. These risks
include the possibilities that the Company's therapeutic approach will not be
successful; that any or all of the Company's potential products will be found to
be unsafe, ineffective, toxic or otherwise fail to meet applicable regulatory
standards or receive necessary regulatory clearances; that the potential
products, if safe and effective, will be difficult to develop into commercially
viable products, to manufacture on a large scale or be uneconomical to market;
that proprietary rights of third parties will preclude the Company from
marketing such products; or that third parties will market superior or
equivalent products.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

The Company will require substantial additional funds in order to continue
its research and development programs, preclinical and clinical testing of its
product candidates and to conduct full scale manufacturing and marketing of any
pharmaceutical products that may be developed. The Company's capital
requirements depend on numerous factors, including but not limited to the
progress of its research and development programs, the progress of preclinical
and clinical testing, the time and costs involved in obtaining regulatory
approvals, the cost of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights, competing technological and
market developments, changes in the Company's existing research relationships,
the ability of the Company to establish collaborative arrangements, the
development of commercialization activities and arrangements, and the purchase
of additional facilities and capital equipment. Based upon its current plans,
which assume completion of current clinical trials at planned patient
enrollments (but excluding any expenditures for start-up of HNK20
manufacturing), the Company believes that the net proceeds of this offering,
research funding and milestone payments expected to be made by Merieux pursuant
to the Joint Venture, cash on hand and interest earned therefrom will be
sufficient to meet the Company's operating expenses and capital requirements for
approximately the next 15 months. The Company will require additional funds to
conduct, if required, a Phase 3 trial in the United States of its HNK20 product
candidate and for HNK20 manufacturing start up. There can be no assurance,
however, that the additional funds will be available when required, or if
available, can be obtained on terms which are satisfactory to the Company.
Moreover, changes in the Company's research and development plans or other
events affecting the Company's operations may result in accelerated or
unexpected expenditures. The foregoing forward-looking statements related to the
Company's capital resources are subject to important factors, including those
set forth herein.

Thereafter, the Company will need to raise substantial additional capital
to fund its operations. The Company intends to seek such additional funding
through public or private financings or collaborative or other arrangements with
corporate partners. If additional funds are raised by issuing equity securities,
further dilution to existing stockholders will result and future investors may
be granted rights superior to those of existing stockholders. There can be no
assurance, however, that additional financing will be available from any of
these sources, or if available, will be available on acceptable or affordable
terms. If adequate funds are not available, the Company may be required to
delay, reduce the scope of or eliminate one or more of its research and
development programs or to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to issue
additional equity or to relinquish rights to certain technologies or product
candidates that the Company would not otherwise issue or relinquish. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

6
<PAGE> 9

PATENTS AND PROPRIETARY RIGHTS

The Company's success will depend, in part, upon its ability to develop
patentable products and technologies and obtain patent protection for its
products and technologies both in the United States and other countries. There
can be no assurance that patent applications owned or licensed by the Company
will issue as patents, that patent protection will be secured for any particular
technology, or that, if issued, such patents will be valid or that they will
provide the Company with meaningful protection against competitors or with a
competitive advantage. There can be no assurance that patents will not be
challenged or designed around by others. The Company could incur substantial
costs in proceedings before the United States Patent Office, including
interference proceedings. These proceedings could also result in adverse
decisions as to the patentability of the Company's licensed or assigned
inventions. Further, there can be no assurance that the Company will not
infringe upon prior or future patents owned by others, that the Company will not
need to acquire licenses under patents belonging to others for technology
potentially useful or necessary to the Company, or that such licenses will be
available to the Company, if at all, on terms acceptable to the Company.
Moreover, there can be no assurance that any patent issued to or licensed by the
Company will not be infringed by others. Lastly, there can be no assurance that
third parties will not bring suit against the Company for patent infringement or
for declaratory judgment to have the patents owned or licensed by the Company
declared invalid. OraVax also relies on trade secrets and other unpatented
proprietary technology. No assurance can be given that the Company can
meaningfully protect its rights in such unpatented technology or that others
will not independently develop substantially equivalent products and processes
or otherwise gain access to the Company's technology.

The Company seeks to protect its trade secrets and proprietary know-how, in
part, through confidentiality agreements with its employees, consultants,
advisors and collaborators. There can be no assurance that these agreements will
not be violated by the other parties, that OraVax will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or be independently developed by competitors. OraVax has relationships
with a number of academic consultants who are employed by organizations other
than the Company. Accordingly, the Company has limited control over their
activities and can expect only limited amounts of their time to be dedicated to
the Company's activities. These persons may have consulting, employment or
advisory arrangements with other entities that may conflict with or compete with
their obligations to the Company. Although the precise nature of each
relationship varies, the consultants generally sign agreements which provide for
confidentiality of the Company's proprietary information and results of studies,
but not for the assignment of inventions. There can be no assurance that OraVax
will, in connection with every relationship, be able to maintain the
confidentiality of the Company's technology, dissemination of which could have a
materially adverse effect on the Company's business. To the extent that the
Company's scientific consultants develop inventions or processes independently
that may be applicable to the Company's proposed products, disputes may arise as
to the ownership of the proprietary rights to such information. Such inventions
or processes will not necessarily become the property of the Company, but may
remain the property of such persons or their full-time employers. The Company
could be required to make payments to the owners of such inventions or
processes, either in the form of cash, equity or a combination thereof. In
addition, protracted and costly litigation may be necessary to enforce and
determine the scope and validity of the Company's proprietary rights. See
"Scientific Advisory Board" and "Business -- Patents and Proprietary Rights;
Technology Agreements."

RISKS ASSOCIATED WITH COLLABORATIVE ARRANGEMENTS

The Company's product development strategy may require the Company to enter
into various additional arrangements with corporate, government and academic
collaborators, licensors, licensees and others. Therefore, the Company may be
dependent upon the subsequent success of these outside parties in performing
their responsibilities. There can be no assurance that the Company will be able
to establish additional collaborative arrangements or license agreements that
the Company deems necessary or acceptable to develop and commercialize its
potential pharmaceutical products or that such collaborative arrangements or
license agreements will be successful.

7
<PAGE> 10

In March 1995, the Company entered into the Joint Venture with Merieux for
the development, manufacture, marketing and sale of immuno-therapeutic and
preventive vaccines against H. pylori infections in humans. Merieux has agreed
to make certain payments to the Company during the development period, subject
to the achievement of certain clinical and regulatory milestones. However, there
can be no assurance that the milestones which trigger these payments will be
achieved. Absent any breach, neither the Company nor Merieux may unilaterally
terminate the Joint Venture before March 31, 1997. If the Joint Venture were
terminated such termination might have a material adverse effect on the
Company's H. pylori drug development program. See "Business -- Products Under
Development -- UreAB Oral Vaccine Against H. pylori." While the Company does not
anticipate that Merieux will do so, under the Joint Venture agreements Merieux
is not prohibited from independently developing products against H. pylori
infections that do not use the urease protein or any of its sub-units as an
antigen. However, both Merieux and the Company are required to offer to the
Joint Venture on arm's length terms any technology either of them develops or
acquires independently during the course of the collaboration which could be
useful or potentially useful to the development, manufacture or exploitation of
vaccines using urease or any of its sub-units as an antigen. Were Merieux to
develop such products in parallel with the Joint Venture, it could compete
against the Joint Venture, which could have a material adverse effect on the
Company. The Company is aware of early stage research in naked DNA technology
which Merieux is conducting with a collaborator and which could have potential
application to H. pylori, although the Company does not anticipate that Merieux
will pursue such application. See "Business -- Patents and Proprietary Rights;
Technology Agreements."

COMPETITION AND TECHNOLOGICAL CHANGE

The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. Competitors of the Company in the United
States and abroad are numerous and include, among others, major pharmaceutical
and chemical companies, specialized biotechnology firms, universities and other
research institutions. There can be no assurance that the Company's competitors
will not succeed in developing technologies and products that are more effective
than any which are being developed by the Company or which would render the
Company's technology and products obsolete and noncompetitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. In addition, some of the
Company's competitors have greater experience than the Company in conducting
preclinical testing and human clinical trials of pharmaceutical products and
obtaining United States Food and Drug Administration ("FDA") and other
regulatory approvals of products for use in healthcare. Accordingly, the
Company's competitors may succeed in obtaining FDA approval for products more
rapidly than the Company. There can be no assurance that the Company's products
under development will be able to compete successfully with existing products or
products under development by other companies, universities and other
institutions or that they will attain regulatory approval in the United States
or elsewhere. If the Company commences significant commercial sales of its
products, it will also be competing with respect to manufacturing efficiency and
marketing capabilities, areas in which it has limited or no experience. A
significant amount of research in the field is also being carried out at
academic and government institutions. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more aggressive in pursuing patent protection and negotiating licensing
arrangements to collect royalties for use of technology that they have
developed. These institutions may also market competitive commercial products on
their own or in collaboration with competitors and will compete with OraVax in
recruiting highly qualified scientific personnel. See "Business -- Competition."
The February 1994 National Institutes of Health ("NIH") Consensus Statement on
H. pylori in peptic ulcer disease concluded that ulcer patients with H. pylori
infection require treatment with antimicrobial agents in addition to anti-
secretory drugs whether on first presentation with the illness or on recurrence.
Success of the Company's oral vaccine product candidate against H. pylori will
depend, in part, upon its ability to compete based on cost and clinical efficacy
with the treatments described in the NIH Consensus Statement.

HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY

The Company currently has limited sources of revenue, consisting primarily
of research funding and interest income. The Company experienced net losses of
approximately $7.5 million, $10.9 million and $8.2

8
<PAGE> 11

million for the years ended December 31, 1993, 1994 and 1995, respectively, and
$5.3 million for the three months ended March 31, 1996, and had an accumulated
deficit of approximately $38.5 million at March 31, 1996. The Company expects to
incur significant additional operating losses over the next several years and
expects cumulative losses to increase substantially due to expanded research and
development efforts, preclinical and clinical testing, the acquisition of
additional technologies, the establishment of manufacturing capability and the
performance of commercialization activities. Revenues that the Company may
receive in the next few years will be limited to those from the Company's Joint
Venture with Merieux, as well as under other research or product development
relationships that the Company has or will establish. There can be no assurance,
however, that the Company will be able to establish any additional relationships
on terms acceptable to the Company. The Company's ability to achieve
profitability depends upon its ability to successfully complete, either alone or
with others, develop its potential products, conduct preclinical and clinical
trials, obtain required regulatory approvals, and manufacture and market any
potential pharmaceutical products. Accordingly, the extent of future losses and
the time required to achieve profitability is highly uncertain. There can be no
assurance that the Company will ever achieve profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

The Company's research and development activities, preclinical studies and
clinical testing, and ultimately the production and marketing of its products,
are subject to extensive regulation by numerous governmental authorities in the
United States, including the FDA. Similar regulatory requirements exist in other
countries where the Company intends to test and market its products. The
rigorous preclinical and clinical testing requirements and regulatory approval
process of the FDA and of foreign regulatory authorities can take a number of
years and require the expenditure of substantial resources. The Company has
limited experience in conducting and managing preclinical and clinical testing
necessary to obtain government approvals. There can be no assurance that the
Company will be able to obtain the necessary approvals for clinical testing or
for the manufacturing and marketing of any products that it develops.

Additional government regulation may be established that could prevent or
delay regulatory approval of the Company's product candidates. Delays in
obtaining regulatory approvals would adversely affect the marketing of any
products developed by the Company and the Company's ability to receive product
revenues or royalties. If regulatory approval of a potential product is granted,
such approval may include significant limitations on the indicated uses for
which such product may be marketed.

Even if initial regulatory approvals for the Company's product candidates
are obtained, the Company, its products and its manufacturing facilities are
subject to continual review and periodic inspection. The regulatory standards
for manufacturing are applied stringently by the FDA. Discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on such product or manufacturer or facility, including warning
letters, fines, suspensions of regulatory approvals, product recalls, operating
restrictions, delays in obtaining new product approvals, withdrawal of the
product from the market, and criminal prosecution. Other violations of FDA
requirements can result in similar penalties.

The Company is also subject to numerous environmental, health and workplace
safety laws and regulations, including those governing laboratory procedures,
exposure to blood-borne pathogens, and the handling of biohazardous materials.
Any violation of, and the cost of compliance with, these laws and regulations
could adversely impact the Company's operations. See "Business -- Government
Regulation."

UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT

In both domestic and foreign markets, the ability of the Company to
commercialize its product candidates will depend, in part, on the availability
of reimbursement from third-party payors, such as government health
administration authorities, private health insurers and other organizations.
Third-party payors are increasingly challenging the price and cost-effectiveness
of medical products. There can be no assurance that Company-developed products
will be considered cost effective. Significant uncertainty exists as to the
reimbursement status of newly-approved healthcare products. There can be no
assurance that adequate

9
<PAGE> 12

third-party insurance coverage will be available for the Company to establish
and maintain price levels sufficient for realization of an appropriate return on
its investment in developing new therapies. Government and other third-party
payors are increasingly attempting to contain healthcare costs by limiting both
coverage and the level of reimbursement for new therapeutic products approved
for marketing by the FDA and by refusing, in some cases, to provide any coverage
for uses of approved products for disease indications for which the FDA has not
granted marketing approval. If adequate coverage and reimbursement levels are
not provided by government and third-party payors for uses of the Company's
therapeutic products, the market acceptance of these products would be adversely
affected. See "Business -- Healthcare Reimbursement."

MANUFACTURING LIMITATIONS

The Company does not currently have the capability to manufacture products
in commercial quantities. The Company's long-term strategy is to develop
manufacturing facilities for producing both pilot-scale and commercial
quantities of its products. In January 1996, OraVax leased an approximately
47,000 square foot manufacturing facility in Canton, Massachusetts, and acquired
related manufacturing equipment from the former tenant. OraVax intends to use
this facility for commercial production of HNK20. If OraVax initiates
manufacturing in its Canton facility, the Company will be required to
demonstrate the comparability of product manufactured in its own facility to
that used in the Phase 3 clinical trials which was manufactured by a contract
manufacturer. The Company may enter into arrangements with contract
manufacturing companies to expand its own production capacity in order to meet
requirements for its product candidates. 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
pharmaceutical or other medical products (if any), clinical trials, market
introduction and subsequent sales of such products would be adversely affected.
Moreover, contract manufacturers must operate in compliance with Good
Manufacturing Practices required by the FDA. 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.

Manufacturing facilities and processes must pass a pre-approval inspection
before the FDA will issue the establishment and product licenses necessary to
market biological products including vaccines and antibodies. Should the Company
determine to manufacture any product candidates independently, the Company would
be subject to the regulatory requirements described above and would require
substantial additional capital. In addition, there can be no assurance that the
Company will be able to manufacture any products successfully and in a cost
effective manner. If the Company is unable to manufacture its potential products
independently or obtain or retain third-party manufacturing on commercially
acceptable terms, the submission of products for final regulatory approval and
initiation of marketing would be delayed. This, in turn, may cause the Company
to be unable to commercialize its product candidates as planned, which may have
a material adverse effect on the Company. See "Business -- Government
Regulation."

LIMITED SALES AND MARKETING EXPERIENCE

The Company has limited experience in sales, marketing and distribution.
The Company plans to establish marketing arrangements with pharmaceutical
companies with large distribution systems for non-bulk distribution of products
and does not expect to establish a direct sales capability for non-bulk
distribution for several years. In the future, in order to market any of its
products directly for non-bulk distribution, the Company will need to develop a
marketing and sales force with technical expertise and distribution capability.
To the extent that the Company enters into marketing or distribution
arrangements, any revenues received by the Company will depend upon the efforts
of third parties and there can be no assurance that such efforts will be
successful. The Company currently intends to retain the right to market some of
its products directly to bulk purchasers of vaccines and antibodies, including
the United States military and the National Centers for Disease Control. There
can be no assurance that the Company will be able to establish sales and
distribution capabilities or that it or its collaborators will be successful in
gaining market acceptance for any products that may be developed by the Company.
See "Business -- Marketing Strategy."

10
<PAGE> 13

DEPENDENCE ON ATTRACTION AND RETENTION OF KEY EMPLOYEES

Recruiting and retaining qualified scientific personnel to perform research
and development work is critical to the Company's success. Accordingly, the
Company is highly dependent on the principal members of its scientific and
management staff. The loss of the services of one or more of these persons might
significantly delay the achievement of development objectives and could have a
material adverse effect on the Company. With the exception of the Company's
President and Chief Executive Officer and its Vice President, Research and
Medical Affairs, the Company does not maintain any key man life insurance
policies. In order to pursue its product development and marketing plans, the
Company will need to hire additional qualified management and operating
personnel to perform research and development. The Company faces competition for
qualified individuals from numerous pharmaceutical and biotechnology companies,
universities and other research institutions. In addition, the Company's
anticipated growth and expansion into areas and activities requiring additional
expertise, such as production and marketing, will require the addition of new
management personnel. The failure to attract and retain such personnel could
adversely affect the Company's business. See "Management."

PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE

The Company's business exposes it to potential liability risks that are
inherent in the testing, manufacturing and marketing of medical products. The
use of the Company's product candidates in clinical trials may expose the
Company to product liability claims and possible adverse publicity. These risks
also exist with respect to the Company's product candidates, if any, that
receive regulatory approval for commercial sale. The Company currently has
limited product liability coverage for the clinical research use of its product
candidates. The Company does not have product liability insurance for the
commercial sale of its product candidates but intends to obtain such coverage if
and when its products are commercialized. However, there can be no assurance
that the Company will be able to obtain additional insurance coverage at
acceptable costs, if at all, or that a product liability claim would not
materially adversely affect the business or financial condition of the Company.
See "Business -- Product Liability."

POSSIBLE STOCK PRICE VOLATILITY

There can be no assurance that an active trading market will be sustained
or that the market price of the Common Stock will not decline below its current
price. There has been significant volatility in the market price of securities
of biotechnology and other emerging companies such as the Company. Various
factors and events, including announcements by the Company or its competitors
concerning clinical results, actions by the FDA or other regulatory agencies,
patents, proprietary rights, technological innovations or new commercial
products, may have a significant impact on the Company's business and the market
price of the Common Stock.

ABSENCE OF DIVIDENDS

SHARES ELIGIBLE FOR FUTURE SALES; REGISTRATION RIGHTS

Sales of substantial amounts of shares of Common Stock in the public market
after this offering could adversely affect the market price of the Common Stock.
Upon completion of this offering, based upon the number of shares outstanding at
April 15, 1996, there will be 9,643,306 shares of Common Stock of the Company
outstanding. Of these shares, approximately 7,464,117 shares, consisting of
2,000,000 shares sold in this offering, 2,300,000 shares sold in the Company's
initial public offering, and 3,164,117 shares eligible for resale pursuant to
Rule 144(k) of the Securities Act of 1933, as amended (the "Securities Act"),
will be immediately eligible for resale in the public market without restriction
under the Securities Act. Beginning in June 1996 and January 1997, approximately
1,028,061 shares and 737,374 additional shares, respectively, will

11
<PAGE> 14

become eligible for immediate resale in the public market subject to compliance
with applicable provisions of Rule 144. Holders of 1,691,425 shares of Common
Stock have entered into lock-up agreements whereby they have agreed not to
publicly offer, sell or otherwise dispose of such shares without the consent of
Cowen & Company for 90 days after the date of the final Prospectus. The Company
is unable to predict the effect that sales made under Rule 144, or otherwise,
may have on the then prevailing market price of the Common Stock. As of April
15, 1996, the holders of approximately 3,677,277 shares of Common Stock are
entitled to certain piggyback and demand registration rights with respect to
such shares. By exercising their registration rights, subject to certain
limitations, such holders could cause a large number of shares to be registered
and sold in the public market. Such sales may have an adverse effect on the
market price for the Common Stock and could impair the Company's ability to
raise capital through an offering of its equity securities. See "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."

ANTITAKEOVER PROVISIONS

The Company's Second Amended and Restated Certificate of Incorporation
requires that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing, and require
reasonable advance notice by a stockholder of a proposal or director nomination
which such stockholder desires to present at any annual or special meeting of
stockholders. Special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer or, if none, the President of
the Company or the Board of Directors. The Restated Certificate of Incorporation
provides for a classified Board of Directors, and members of the Board of
Directors may be removed only for cause upon the affirmative vote of holders of
at least two-thirds of the shares of capital stock of the Company entitled to
vote. These provisions, and other provisions of the Restated Certificate of
Incorporation, may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then-current market prices. These provisions may limit the ability
of stockholders to approve transactions that they may deem to be in their best
interests. In addition, the stockholders of the Company have granted the Board
of Directors authority to issue the Preferred Stock and to determine its rights
and preferences in order to eliminate delays associated with a stockholder vote
on specific issuances. The Company has no present plans to issue any shares of
Preferred Stock. See "Description of Capital Stock."

RECENT DEVELOPMENTS

A Phase 2 safety and pharmacology trial for HNK20 in premature infants and
infants with bronchopulmonary dysplasia at high risk of contracting RSV viral
pneumonia was initiated in December 1995 and was completed in April 1996. This
double-blind, placebo-controlled study included 57 infants, under the age of
nine months at study entry, who received either 2.5 milligrams per day of HNK20
or placebo, each through once daily nose drop administration. Based on
preliminary examination of the results, the study demonstrated that HNK20 was
well tolerated in the target population and was administered with a high level
of compliance. A review of adverse events revealed no safety concerns related to
treatment with HNK20. Given the small size of the Phase 2 study, no significant
differences were observed between the HNK20 and placebo groups related to the
incidence of RSV infection. Initial results, however, indicate that HNK20 may
reduce the frequency with which RSV upper respiratory tract infections progress
to lower respiratory tract infections (bronchiolitis or viral pneumonia).

Lower respiratory tract infection with RSV may lead to severe disease or
fatality in infants with bronchopulmonary dysplasia or other risk factors. The
proportion of infants with upper respiratory tract infection that progressed to
the more severe lower respiratory tract infection was lower in the HNK20 group
than in the placebo group. Eight of the 12 RSV infection cases in the HNK20
group progressed from upper to lower respiratory tract infection, while seven of
the eight RSV infection cases in the placebo group progressed from upper to
lower respiratory tract infection. These data are consistent with non-human
primate studies in which the topically applied HNK20 IgA antibody was shown to
limit virus replication in the upper airways

12
<PAGE> 15

and prevent the spread of the virus to the lung. However, this Phase 2 trial,
with a small number of participants, was designed primarily to determine safety
and tolerance, not efficacy.

Among the infants who developed lower respiratory tract infections, seven
of the HNK20 treated infants were hospitalized, compared with two of the placebo
recipients. No other infant in the trial was hospitalized with RSV. The Company
believes that the higher hospitalization rate for the HNK20 group may be due to
the random assignment of infants with more severe preexisting risk factors to
the HNK20 group. Of infants developing RSV infections, the HNK20 treated group
on average was younger (HNK20 = 13 weeks vs. placebo = 19 weeks) and weighed
less (HNK20 = 6.6 lbs. vs. placebo = 9.4 lbs.), and had a higher frequency of
preexisting bronchopulmonary dysplasia than the placebo recipients.
Hospitalization with RSV is a primary endpoint for the Company's recently
commenced Phase 3 trial in the Southern Hemisphere.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered by the Company hereby are estimated to be $13.3
million ($15.3 million if the Underwriters' over-allotment option is exercised
in full) after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company.

The Company anticipates using substantially all the net proceeds for
product research and development, including preclinical and clinical testing.

The amounts and timing of the expenditures of the net proceeds will depend
on numerous factors, such as the status of the Company's research and
development efforts, the regulatory approval process, technological advances,
determinations as to commercial potential, the terms of collaborative agreements
entered into by the Company and the status of competitive products. In addition,
the Company's research and development expenditures will vary as projects are
added, extended or abandoned and as a result of variations in funding from
existing or future third-party collaborators. Based upon its current plans,
which assume completion of current clinical trials at planned patient
enrollments (but excluding any expenditures for start-up of HNK20
manufacturing), the Company anticipates that its existing capital resources,
including the proceeds of this offering, research funding and milestone payments
expected to be made by Merieux pursuant to the Joint Venture, cash on hand and
interest earned therefrom will be sufficient to meet the Company's operating
expenses and capital requirements for approximately the next 15 months. The
Company will require additional funds to conduct, if required, a Phase 3 trial
in the United States of its HNK20 product candidate and for HNK20 manufacturing
start up. There can be no assurance, however, that the additional funds will be
available when required, or if available, can be obtained on terms which are
satisfactory to the Company. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The foregoing forward-looking statements relating to the Company's
capital resources are subject to important factors, including those set forth
under "Risk Factors -- Future Capital Needs; Uncertainty of Additional Funding."

Pending the uses described above, the Company intends to invest the net
proceeds of the offering in short-term, interest-bearing, investment grade
securities, including U.S. Treasury and agency securities and high grade
corporate notes.

13
<PAGE> 16

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is quoted on The Nasdaq National Market under
the symbol ORVX. The following table sets forth for the periods indicated the
high and low reported last sale prices for the Company's Common Stock.

<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-------------------
HIGH LOW
------ ------
<S> <C> <C>
1995:
Second Quarter (from June 8, 1995).................................. $ 9.13 $ 7.25
Third Quarter....................................................... 16.38 8.25
Fourth Quarter...................................................... 14.88 9.75
1996:
First Quarter....................................................... $15.00 $11.25
Second Quarter (through June 25, 1996).............................. 14.00 8.50
</TABLE>

On June 25, 1996, the reported last sale price for the Company's Common
Stock on The Nasdaq National Market was $8.50 per share. As of April 15, 1996,
the Company had 202 stockholders of record.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support the
development of its business and does not anticipate paying cash dividends in the
foreseeable future. Payment of future cash dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion.

14
<PAGE> 17

CAPITALIZATION

The following table sets forth as of March 31, 1996, the actual cash and
capitalization of the Company and the cash and capitalization of the Company as
adjusted to reflect the issuance and sale by the Company of 2,000,000 shares of
Common Stock offered hereby and receipt of the net proceeds therefrom, after
deducting the underwriting discounts and commissions and estimated offering
expenses. See "Use of Proceeds." This table should be read in conjunction with
the Company's financial statements and notes included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and investments................................................ $22,543 $ 35,823
======= =========
Obligation under capital leases, excluding current portion.......... 2,239 2,239
Installment debt.................................................... 1,211 1,211
Stockholders' equity
Preferred stock, $.001 par value
2,000,000 shares authorized, none issued or outstanding...... -- --
Common stock, $.001 par value
25,000,000 shares authorized; 7,642,650 shares issued and
outstanding (actual); 9,642,650 shares issued and outstanding
(as adjusted)(1).............................................. 8 10
Additional paid-in capital..................................... 58,158 71,436
Deferred compensation.......................................... (278) (278)
Accumulated deficit............................................ (38,535) (38,535)
------- -----------
Total stockholders' equity................................... 19,353 32,633
------- -----------
Total capitalization................................................ $22,803 $ 36,083
======= =========
</TABLE>

- ------------------------------

(1) Excludes an aggregate of 851,719 shares of Common Stock reserved for
issuance upon the exercise of options or warrants outstanding as of March
31, 1996. An additional 218,896 shares of Common Stock were reserved for
future option grants as of March 31, 1996. See Note I of Notes to
Consolidated Financial Statements.

15
<PAGE> 18

DILUTION

The net tangible book value of the Company as of March 31, 1996 was
$19,353,000 or $2.53 per share. Net tangible book value per share represents the
amount of total tangible assets (total assets less intangible assets) of the
Company reduced by the Company's total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale by the
Company of 2,000,000 shares of Common Stock in this offering (after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses), the net tangible book value of the Company as of March 31, 1996 would
have been $32,633,000, or $3.38 per share. This represents an immediate increase
in net tangible book value of $0.85 per share to existing stockholders and an
immediate dilution in net tangible book value of $3.87 per share to new
investors purchasing Common Stock in this offering, as illustrated in the
following table:

<TABLE>
<S> <C> <C>
Public offering price per share..................................... $ 7.25
Net tangible book value per share before this offering............ $ 2.53
Increase per share attributable to this offering.................. $ 0.85
------
Net tangible book value per share after this offering(1)(2)......... $ 3.38
-------
Dilution per share to new investors................................. $ 3.87
======
</TABLE>

- ---------------

(1) If the Underwriters' over-allotment option is exercised in full, the net
tangible book value would be approximately $3.49 per share, resulting in
dilution to new investors in this offering of $3.76 per share. See
"Underwriting."

(2) If all outstanding options as of March 31, 1996 for the purchase of shares
of Common Stock with exercise prices less than the assumed public offering
price were exercised in full (using the treasury method and assuming no
exercise of the Underwriters' over-allotment option), the pro forma net
tangible book value would be approximately $3.20 per share, resulting in
dilution to new investors in this offering of $4.05 per share.

The foregoing table assumes no exercise of any outstanding stock options or
warrants or the Underwriters' over-allotment option. See Note (1) under
"Capitalization" for information regarding the number of shares issuable upon
exercise of stock options outstanding as of March 31, 1996 and "Underwriting"
for information concerning the Underwriters' over-allotment option. To the
extent that the outstanding options, or any options granted in the future, are
exercised at a price per share below the assumed public offering price, there
will be further dilution to new investors. See "Management -- Executive
Compensation."

16
<PAGE> 19

SELECTED FINANCIAL DATA
<TABLE>
The selected financial data set forth below with respect to the Company's
statements of operations for each of the four years in the period ended December
31, 1995 and the nine months ended December 31, 1991 are derived from financial
statements that have been audited by Coopers & Lybrand L.L.P., independent
accountants. The statement of operations data for the year ended December 31,
1992 and the nine months ended December 31, 1991 are derived from audited
financial statements not included in this Prospectus. The unaudited balance
sheet data as of March 31, 1996 and the unaudited statement of operations data
for the three months ended March 31, 1996 and March 31, 1995 have been prepared
on a basis substantially consistent with the audited financial statements and,
in the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
herein. Results for the three months ended March 31, 1996 are not necessarily
indicative of results to be expected for the year ending December 31, 1996,
although a significant loss is expected for that period. See "Risk Factors --
History of Operating Losses; Uncertainty of Future Profitability." The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and related notes included elsewhere in this Prospectus.

<CAPTION>
NINE MONTHS THREE MONTHS
ENDED YEARS ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ---------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
------------ ------- ------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative research and
development.................. $ -- $ -- $ -- $ -- $ 8,684 $ 3,190 $ 1,571
Government grants.............. -- 251 349 257 311 78 192
Interest....................... 132 69 78 51 1,080 79 310
------- ------- ------- -------- ---------- -------- ---------
132 320 427 308 10,075 3,347 2,073
Expenses:
Research and development....... 1,006 3,009 5,981 8,406 12,450 2,775 5,280
General and administrative..... 604 1,408 1,848 2,580 3,299 1,165 843
Interest....................... 1 80 92 190 87 21 139
------- ------- ------- -------- ---------- -------- ---------
1,611 4,497 7,921 11,176 15,836 3,961 6,262
Equity in operations of joint
venture........................ -- -- -- -- (2,436) -- (1,086)
------- ------- ------- -------- ---------- -------- ---------
Net loss(1)...................... (1,479) (4,177) (7,494) (10,868) (8,197) (614) (5,275)
Net loss to common
stockholders(1)................ $(1,479) $(4,177) $(7,494) $(10,968) $ (8,305) $ (671) $ (5,275)
======= ======= ======= ======== ========== ======== =========
Net loss per common and common
equivalent share(1)............ $ (1.86) $ (1.13) $ (0.69)
========== ======== =========
Weighted average number of common
and common equivalent shares
outstanding.................... 4,465,955 595,266 7,630,778
</TABLE>

DECEMBER 31, MARCH 31,
--------------------------------------------------------------- ---------
1991 1992 1993 1994 1995 1996
------------ ------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments........................ $ 3,354 $ 1,841 $ 1,042 $ 3,706 $27,631 $ 22,543
Total assets................................ 3,973 3,133 3,050 5,195 29,833 29,086
Working capital............................. 3,259 1,602 (218) 1,400 23,109 16,652
Redeemable convertible preferred stock...... 6,175 6,175 14,988 27,331 -- --
Total stockholders' equity (deficit)........ (2,507) (6,683) (14,152) (25,038) 24,513 19,353
<FN>

- ---------------
(1) The net loss for the years ended December 31, 1994 and 1995 and the three
months ended March 31, 1995 exclude accretion to redemption value of
preferred stock of $100,000 and $108,000 and $57,000, respectively, which is
included in the net loss to common shareholders.
</TABLE>

17
<PAGE> 20

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Since its inception in 1990, the Company has been engaged in the discovery
and development of oral vaccines and non-injected antibody products to prevent
or treat human infectious diseases.

To date, the Company has not received any revenues from the sale of
products and does not expect to receive any such revenues for at least several
years. The Company's losses incurred since inception result principally from
expenditures under its research and development programs and the Company expects
to incur significant operating losses over the next several years due primarily
to expanded research and development efforts, preclinical testing and clinical
trials of its product candidates, the acquisition of additional technologies,
the establishment of manufacturing capability and the performance of
commercialization activities. Results of operations may vary significantly from
quarter to quarter depending on, among other factors, the progress of the
Company's research and development efforts, the receipt, if any, of milestone
payments, the timing of certain expenses and the establishment of collaborative
research agreements.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995

The Company's total revenues decreased to $2,073,000 in the three months
ended March 31, 1996 from $3,347,000 in the three months ended March 31, 1995.
In the three months ended March 31, 1996, the Company's revenues consisted of
$1,571,000 of collaborative research revenues earned under the Company's
collaboration (the "Joint Venture") with Pasteur Merieux Serums & Vaccins S.A.
("Merieux") which was entered into late in the first quarter of 1995, $192,000
from government grants and $310,000 in interest earned on invested funds. In the
three months ended March 31, 1995 the Company's revenues consisted of $2,600,000
of milestone payments and $590,000 of collaborative research revenues paid
directly to the Company by Merieux, $78,000 from government grants and $79,000
in interest earned on invested funds. The increase in interest earned on
invested funds is principally attributable to the temporary investment of the
net proceeds remaining from the Company's initial public offering in June 1995.

The Company's total costs and expenses increased to $6,262,000 in the three
months ended March 31, 1996 from $3,961,000 in the three months ended March 31,
1995. Research and development expenses increased 90% to $5,280,000 in the three
months ended March 31, 1996 from $2,775,000 in the three months ended March 31,
1995, principally reflecting growth in the Company's primary product development
programs. Significant contributions to the Company's increased research and
development expenses during the first quarter of 1996 included conducting Phase
2 clinical trials under both its H. pylori and RSV programs and production of
its necessary supplies of clinical materials for its Phase 3 pivotal clinical
trials under its RSV program planned for commencement in the Southern Hemisphere
during the second quarter of 1996. The 28% decrease in general and
administrative expenses to $843,000 in the three months ended March 31, 1996
from $1,165,000 in the three months ended March 31, 1995 resulted principally
from expenses associated with the consummation of the Joint Venture agreements
having been incurred in the first quarter of 1995 and not in the comparable 1996
period. This increase was partially offset in 1996 by increased administrative
costs incurred in connection with compliance with the information reporting
requirements of a public company and other administrative costs necessary to
support the growth in research and development. OraVax accounts for its
investment in the two equally controlled partnerships (the "Joint Venture
Partnerships"), through which the Joint Venture has conducted its research
beginning after the first quarter of 1995, under the equity method of accounting
and, accordingly, recorded its $1,086,000 share of the Joint Venture
Partnerships' losses in the first quarter of 1996 only. Interest expense
increased to $139,000 in the three months ended March 31, 1996 from $21,000 in
the three months ended March 31, 1995 due to assumption of capitalized leases
and installment debt associated with the acquisition of equipment and leasehold
improvements for the Company's manufacturing facility in January 1996.

The Company incurred a net loss of $5,275,000 in the three months ended
March 31, 1996 compared to a net loss of $671,000 in the three months ended
March 31, 1995.

18
<PAGE> 21

YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994

The Company's total revenues increased to $10,075,000 in 1995 from $308,000
during 1994. In 1995, the Company's revenues consisted of $8,684,000 earned
under its Joint Venture with Merieux which was entered into during 1995,
$311,000 from government grants and $1,080,000 in interest earned on invested
funds. In 1994, the Company's revenues consisted of $257,000 from government
grants and $51,000 in interest earned on invested funds. The increase in
interest earned on invested funds is principally attributable to the temporary
investment of approximately $20,676,000 of net proceeds from the Company's
initial public offering in June 1995.

The Company's total costs and expenses increased to $15,836,000 in 1995
from $11,176,000 in 1994. Research and development expenses increased 48% to
$12,450,000 in 1995 from $8,406,000 in 1994, principally reflecting growth in
the Company's primary product development programs, including conducting Phase 1
and 2 clinical trials under its RSV program and Phase 1 clinical trials under
its H. pylori program. The 28% increase in general and administrative expenses
during the same period to $3,299,000 in 1995 from $2,580,000 in 1994, reflects
increased business development efforts in the identification of, and negotiation
with, potential corporate partners including Merieux, increased administrative
costs incurred in connection with the Company's initial public offering and
resulting compliance with the information reporting requirements of the
Securities and Exchange Commission, and increases in other administrative costs
necessary to support the growth in research and development. Such administrative
costs included moving and relocation expenses incurred in connection with the
Company's move to consolidated research and administrative facilities. OraVax
accounts for its investments in the Joint Venture Partnerships under the equity
method of accounting and, accordingly, recorded its $2,436,000 share of the
Joint Venture Partnerships' net losses during 1995. Interest expense decreased
54% to $87,000 in 1995 from $190,000 in 1994. While there was similar interest
expense from capital leases in both years, interest from promissory notes to
shareholders is reflected in 1994 alone.

The Company incurred a net loss of $8,197,000 in 1995 compared to a net
loss of $10,868,000 in 1994.

YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993

The Company's total revenues decreased to $308,000 in 1994 from $427,000
during 1993. In 1994, the Company's revenues consisted of $257,000 from
government grants and $51,000 in interest earned on invested funds. In 1993, the
Company's revenues consisted of $349,000 from government grants and $78,000 in
interest earned on invested funds.

The Company's total costs and expenses increased to $11,176,000 in 1994
from $7,921,000 in 1993. Research and development expenses increased 41% to
$8,406,000 in 1994 from $5,981,000 in 1993, principally reflecting growth in the
Company's primary product development programs, including the initiation of
clinical trials. The 40% increase in general and administrative expenses during
the same period to $2,580,000 in 1994, from $1,848,000 in 1993, reflects
increased business development efforts in the identification of, and negotiation
with, potential corporate partners, increased costs associated with patent
filing and investigations and increases in other administrative costs necessary
to support the growth in research and development. Interest expense increased
107% to $190,000 in 1994 from $92,000 in 1993, principally from interest expense
incurred on promissory notes and capitalized leases.

The Company incurred a net loss of $10,868,000 in 1994 compared to a net
loss of $7,494,000 in 1993.

LIQUIDITY AND CAPITAL RESOURCES

In January and March 1995, the Company sold an aggregate of 216,237 shares
of Series Preferred Stock for net cash proceeds of $9.2 million. These shares
were converted to Common Stock upon the closing of the Company's initial public
offering in June 1995.

In March 1995, the Company entered into a Joint Venture with Merieux for
the development, manufacturing, marketing and sale of immuno-therapeutic and
preventive vaccines against H. pylori infections in humans. Under the Joint
Venture, OraVax and Merieux agreed to co-develop vaccines which use the urease
protein or any of its sub-units as an antigen. OraVax and Merieux will share
equally in profits from the sales of the Target Products and in all future
research, development, clinical and commercialization costs.

19
<PAGE> 22

OraVax and Merieux estimate that research, development and clinical costs will
exceed $50.0 million. Merieux is providing technical expertise and will also
provide marketing expertise to the Joint Venture. Merieux made an initial
milestone payment of $2.6 million directly to OraVax, paid the Company directly
$0.6 million for research and development conducted in the first quarter of 1995
and purchased $2.5 million of the Company's Series Preferred Stock.
Subsequently, Merieux purchased an additional $1.0 million of Common Stock in
the Company's initial public offering. In addition, Merieux agreed to pay the
Company directly up to $12.0 million during the development period, subject to
the achievement of certain clinical and regulatory milestones, of which $0.6
million was paid to OraVax in December 1995. However, there can be no assurance
that the milestones which trigger such future payments will be achieved.
Beginning in the second quarter of 1995, research, development and
commercialization activities of the Joint Venture were conducted through two
equally controlled partnerships which have contracted with OraVax to perform
research and development and clinical trial activities. OraVax earned $4.9
million under these contracts during 1995 and $1.6 million in the first quarter
of 1996. The Joint Venture provides for certain rights of termination, but,
absent any breach, neither party may unilaterally terminate the Joint Venture
prior to March 31, 1997.

In June 1995, the Company sold 2,300,000 shares of its Common Stock for
$10.00 per share in an initial public offering, providing net proceeds of
approximately $20.7 million.

In 1995, the Company entered into a five year operating lease, with renewal
options, to consolidate its current research and administrative operations and
provide for its longer-term expansion plans in an approximately 53,000 square
foot facility in Cambridge, Massachusetts. Occupancy of the new facility began
in December 1995. There were no material impairments of long-lived assets as a
result of the move.

In January 1996, the Company leased an approximately 47,000 square foot
GMP-compliant manufacturing facility in Canton, Massachusetts and acquired
related equipment and leasehold improvements from the former tenant. The
facility is intended to be used for commercial production of the Company's
monoclonal antibody (HNK20), designed to prevent viral pneumonia in children
caused by RSV. This facility was specifically designed and equipped by the
former tenant for the manufacture of monoclonal antibodies for pharmaceutical
use, although other production uses are possible. Existing building and capital
equipment leases, which include renewal and purchase options, were transferred
to the Company. In addition, the Company purchased leasehold improvements and
other related assets from the former tenant, payable in installments through
1999.

The costs to lease and equip these facilities will be funded in whole, or
in part, either through existing cash and investments, proceeds from offerings
of securities, or other methods of financing including mortgage or lease
financing, if available to the Company on acceptable terms. In addition, the
Company expects to continue its current practice of leasing most of its capital
equipment, provided such lease financing continues to be available to the
Company on acceptable terms.

The Company's aggregate cash and investments were $22,543,000 at March 31,
1996, a decrease of $5,088,000 since December 31, 1995. Cash used by operations
during the three months ended March 31, 1996, principally to support research
and development, was $3,512,000. The Company expended $230,000 for property and
equipment, of which $216,000 was recovered under sale-leaseback arrangements,
and repaid $372,000 of its capital lease obligations during the period. In
addition, the Company invested $674,000 in the Joint Venture Partnerships and
repaid $613,000 of installment debt during the three months ended March 31,
1996.

The Company's aggregate cash and investments were $27,631,000 at December
31, 1995, an increase of $23,925,000 since December 31, 1994. Cash used by
operations during the period, principally to support research and development,
was $2,545,000. The Company expended $762,000 for property and equipment, of
which $614,000 was recovered under sale-leaseback arrangements, and repaid
$530,000 of its lease obligations during the period. In addition, the Company
invested $2,886,000 in the Joint Venture Partnerships during the year ended
December 31, 1995.

Since inception, the Company's cash expenditures have exceeded its
revenues. Operations have been funded principally through public and private
placements of equity securities, equipment lease financing, revenues from the
Company's Joint Venture with Merieux, government grants and interest income. The

20
<PAGE> 23

Company's future capital requirements will depend on many factors, including,
but not limited to, the progress of its research and development programs, the
progress of preclinical and clinical testing, the time and costs involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights, competing
technological and market developments, changes in the Company's existing
research relationships, the ability of the Company to establish collaborative
arrangements, the development of commercialization activities and arrangements,
and the acquisition of additional facilities and capital equipment.

The Company plans to finance these cash needs in the near term principally
through its existing cash reserves, together with interest earned thereon,
revenues, payments and reimbursements under the Company's Joint Venture with
Merieux and facilities and equipment financing. Based upon current plans, which
assume completion of current clinical trials at planned patient enrollments (but
excluding any expenditures for start-up of HNK20 manufacturing), the Company
believes that its capital resources, including the proceeds of this offering,
research funding and milestone payments expected to be made by Merieux, cash on
hand and interest earned therefrom will be sufficient to meet the Company's
operating expenses and capital requirements for approximately the next 15
months. The Company will require additional funds to conduct, if required, a
Phase 3 trial in the United States of its HNK20 product candidate and for HNK20
manufacturing start up. Moreover, changes in the Company's research and
development plans or other events affecting the Company's operations may result
in accelerated or unexpected expenditures. In addition, the Company will need
substantial additional capital to fund its operations for the manufacturing and
marketing of any of its successful product candidates. The Company intends to
seek such additional funding through public or private financings or
collaborative or other arrangements with corporate partners. If additional funds
are raised by issuing equity securities, further dilution to existing
stockholders may result and future investors may be granted rights superior to
those of existing stockholders. There can be no assurance, however, that
additional financing will be available from any of these sources, or if
available, can be obtained on terms satisfactory to the Company. The Company's
inability to obtain needed funding on satisfactory terms may require the Company
to delay, curtail or eliminate one or more of its planned product development
programs, scale back its planned manufacturing operations or enter into
collaborative arrangements that may require the Company to issue additional
equity or to relinquish rights to certain technologies or product candidates
that the Company would not otherwise issue or relinquish. The foregoing
forward-looking statements relating to the Company's capital resources are
subject to important factors, including those set forth under "Risk Factors --
Future Capital Needs; Uncertainty of Additional Fundings."

21
<PAGE> 24

BUSINESS

GENERAL

<TABLE>
OraVax is currently pursuing three principal product development programs
which target diseases that have high rates of incidence, compelling
pharmaco-economic profiles and for which there are no adequate therapeutic or
preventive antibody products or vaccines. These disease targets are viral
pneumonia in children, peptic ulcer disease and antibiotic-associated diarrhea
and colitis. The Company's principal product candidates are the following:

- -------------------------------------------------------------------------------------------------
<CAPTION>
PRODUCT CANDIDATE INDICATION STATUS
----------------- ---------- ------
<S> <C> <C>
HNK20 antibody Prevention of viral pneumonia in Phase 3 trials
children
UreAB oral vaccine Prevention and treatment of peptic Phase 2 trials
ulcers
CdAB oral vaccine Prevention of antibiotic-associated Preclinical development
diarrhea and colitis
- -------------------------------------------------------------------------------------------------
</TABLE>

The Company's most advanced product candidate is the HNK20 antibody being
developed to prevent viral pneumonia in children caused by respiratory syncytial
virus ("RSV"). HNK20 is designed to be administered directly to the mucous
lining of the nasal passages by nose drops, thereby providing protection against
infection at the point of entry to the respiratory system. In the United States,
approximately 250,000 children annually have moderate to severe underlying
medical problems that put them at risk of contracting viral pneumonia from RSV
infection. Approximately 36% of these children require hospitalization due to
severe lower respiratory infections from RSV and up to 5% of these hospitalized
cases prove to be fatal. The nose drop formulation of HNK20 may facilitate its
use in children who present a wide range of risk factors. The Company estimates
that the direct medical costs associated with the treatment of the disease in
the United States exceed $500 million annually. Phase 2 trials of this product
candidate in adults were completed in July 1995. A Phase 1 safety trial in
children was also completed in July 1995, and a Phase 2 trial in high risk
infants was completed in April 1996. The Company commenced Phase 3 trials in
children in early May 1996 in the Southern Hemisphere, where the months of
greatest risk for RSV infection are May to September.

22
<PAGE> 25

vaccine for the prevention of infection by H. pylori and, in chronically
infected persons, to clear the infection and prevent reinfection. The Company
estimates that the direct medical costs of treating peptic ulcers in the United
States exceed $5 billion per year. Although frequently asymptomatic, all persons
infected by H. pylori have chronic stomach inflammation (gastritis). The Company
estimates that approximately 30% of the United States population is infected
with H. pylori. Infection rates in most parts of the world exceed those in the
United States. OraVax completed a Phase 1 clinical safety study of its H. pylori
vaccine in chronically infected adults in December 1995. A Phase 2 safety and
immunogenicity trial was initiated in adults in September 1995 and is expected
to be completed in the third quarter of 1996.

In March 1995, the Company entered into a collaboration (the "Joint
Venture") with Pasteur Merieux Serums & Vaccins S.A. ("Merieux"), a wholly-owned
subsidiary of Rhone-Poulenc S.A., for the development, manufacturing, marketing
and sale of immuno-therapeutic and preventive vaccines against H. pylori. Under
the Joint Venture, OraVax and Merieux have agreed to co-develop vaccines which
use the urease protein or any of its sub-units as an antigen (the "Target
Products"). OraVax and Merieux will share equally in profits from the sales of
the Target Products and in all future research, development, clinical and
commercialization costs. Merieux made an initial milestone payment, purchased
equity in the Company and agreed to make certain payments to the Company during
the development period, subject to the achievement of certain clinical and
regulatory milestones. The first of these milestone payments was made the fourth
quarter of 1995. See "Business -- Products under Development -- UreAB Oral
Vaccine Against H. pylori."

The Company's third product candidate is CdAB, an oral vaccine designed to
prevent antibiotic-associated diarrhea and colitis caused by Clostridium
difficile ("C. difficile"). Approximately two million cases of
antibiotic-associated diarrhea and colitis occur annually in hospitalized
patients and nursing home residents in the United States. Preclinical trials in
animals with CdAB have demonstrated effectiveness in prevention of C. difficile
induced disease. The Company expects to file an IND in the fourth quarter of
1996.

In addition to the Company's three principal product development programs,
the Company has rights to certain other technologies which may have the
potential to be developed into products. These technologies also build on the
Company's platform of knowledge of immunology and infectious disease. These
technologies include methods for stimulating IgA antibody production, a
potential improved vaccine for prevention of Japanese Encephalitis ("JE") viral
infections, an antigen delivery system using genetically engineered virus-like
particles, Viricles, and a Shigella live-vector antigen delivery system. In
March 1996, the Company was notified that it had been awarded a Phase 2 Small
Business Innovation Research ("SBIR") grant from the United States National
Institutes of Health ("NIH") to fund its product development efforts in JE.

BUSINESS STRATEGY

The Company's early recognition of the drug discovery opportunities
inherent in mucosal immunity research has enabled OraVax to build its strong
proprietary position in the field and to accumulate valuable knowledge of the
mucosal immune response. The Company has accumulated this technology base
through its own research and development activities and through collaborations
with academic and government institutions. In addition, the Company has
established functional capabilities in the areas of immunology, biochemistry,
microbiology, electron microscopy, process development, clinical trial
management and regulatory compliance, among others. The Company believes that
its understanding of the mucosal immune system combined with its drug
development capabilities will enable OraVax to produce commercially viable
products that treat or prevent human infectious diseases.

23
<PAGE> 26

The Company's objective is to establish itself as the leader in the
development and commercialization of oral vaccines and non-injected antibody
products that stimulate or provide immunity at mucosal surfaces. Key elements of
the Company's continuing business strategy include:

DEVELOPING ORAVAX'S TECHNOLOGY PLATFORM

The Company has recruited a staff of experienced scientists, technicians
and managers representing the range of skills the Company believes will be
necessary to identify, evaluate and develop commercial technologies and product
opportunities. In addition, the Company has developed collaborations with
universities, government institutions and corporations to complement and extend
its internal resources and assist in product development. The Company will
continue to build upon its understanding of the mucosal immune system,
monoclonal IgA antibodies and vaccine formulations, and to pursue product
candidates that leverage the Company's technology and know-how.

IDENTIFYING MEDICALLY AND ECONOMICALLY IMPORTANT DISEASE TARGETS

OraVax is focusing its development efforts on diseases that are preventable
or treatable by utilizing the mucosal immune response, have near-term
commercialization potential and present large market opportunities. The Company
considers pharmaco-economics during product selection and throughout
development, with the objective of reducing overall health care delivery costs.

COMMERCIALIZING PRODUCTS EFFICIENTLY

The Company evaluates and selects product commercialization strategies on a
product-by-product basis. The Company currently intends to complete development
of the HNK20 product independently, retaining all product rights. In January
1996, the Company leased a manufacturing facility for commercial production of
HNK20. The Company intends to sell, market and distribute HNK20 in selected
markets itself and to enter into sales, marketing and distribution agreements
with established pharmaceutical partners. The Company is in the process of
establishing such relationships. In March 1995, the Company formed the Merieux
Joint Venture to develop its UreAB H. pylori product candidate, to acquire
complementary technology, marketing and distribution expertise and financial
support for a product the Company believes has global commercial prospects. The
Company is continuing to evaluate the most efficient commercialization strategy
for its CdAB oral vaccine, which is still in preclinical development. Depending
on the future circumstances of these and other product development programs,
OraVax may expand its manufacturing capacity, sub-contract selected
manufacturing or grant manufacturing rights to its collaborators.

SCIENTIFIC BACKGROUND

The human immune system protects against disease caused by infectious
organisms such as bacteria, viruses and protozoan parasites. The immune system
is generally capable of identifying these pathogens by detecting unique features
such as proteins or carbohydrates of the pathogen. These unique features or any
combination of such features are known as antigens. The immune system produces
antibodies that react with the antigens and either directly disable the pathogen
or initiate a process through which the body can eliminate the pathogen.
Antibodies are immunoglobulin proteins that have the ability to bind in a
specific fashion to an antigen. Once the immune system has detected and
responded to a particular pathogen, it generally is able to remember and respond
by producing antibodies more quickly when re-exposed to the same pathogen.

The human immune system is comprised of two distinct divisions, systemic
and mucosal. The systemic immune system, which protects the blood and deep
tissues of the body, relies on antibodies composed principally of IgG and IgM
immunoglobulins. The mucosal immune system, which protects mucosal surfaces,
such as the digestive, respiratory and genitourinary tracts and the surface of
the eye, relies on antibodies composed principally of the IgA class
immunoglobulins. Historically, vaccine or antibody development has been focused
on the systemic immune system, with the objective of increasing IgG antibodies
in the blood by injecting vaccines or immunoglobulins. However, this approach
often does not provide protection for mucosal surfaces that rely on IgA
immunoglobulin. The mucosal surfaces, which comprise a total surface area of
over 3,600 square feet, represent either the site of disease or the portal of
entry into the body for most infectious diseases. Furthermore, the IgA
antibodies produced by the mucosal immune system constitute over 75% of all
antibodies produced by the human immune system. Accordingly, the Company
believes that the mucosal immune system presents an attractive opportunity for
developing products that treat or prevent infectious

24
<PAGE> 27

disease. Such products include monoclonal IgA antibodies that are applied
directly to mucosal surfaces and vaccines that are designed to stimulate the
body to produce IgA antibodies. Such vaccines are composed of one or more
antigens of the pathogen and are specifically formulated for administration to
the mucosal immune system.

The mucosal immune response is initiated when an antigen binds to M cells
located in specialized areas of the mucosal surfaces known as lymphoid
follicles. M cells are specifically designed to entrap antigens and transport
them from the outside surface of the mucosal tissue to the underlying lymphoid
follicle. In the lymphoid follicle, antigens stimulate precursor B cells that,
when mature, will secrete IgA antibodies. These precursor cells are widely
disseminated via the bloodstream to mucosal tissues throughout the body, where
they undergo maturation into IgA antibody secreting cells. The IgA antibodies
are then transported across the mucosal membrane to the mucosal surface. During
the transport process, IgA antibodies bind to a protein, known as secretory
component, which improves the stability of the IgA antibody against digestion
within the intestine or degradation by enzymes found in respiratory secretions.
The IgA antibodies produced in response to stimulation of the mucosal immune
system with an antigen recognize and bind to that antigen on a bacteria or virus
in a highly specific fashion. Consequently, when the pathogen attempts to invade
the body at a mucosal surface, it encounters specific IgA antibodies that bind
and neutralize it. The pathogen is subsequently swept away by the body's normal
mechanisms for cleansing mucosal surfaces, such as the continuous movement of
intestinal contents through the intestine, the removal of secretions from the
lung and nose by ciliary action and ingestion of mucous and the tearing of the
eye.

[See Appendix A for Description]

SPECIALIZED M CELLS OF THE MUCOSAL IMMUNE SYSTEM CAPTURE FOREIGN MATERIAL AT THE
MUCOSAL SURFACE. THE UPTAKE OF FOREIGN MATERIAL INITIATES AN IMMUNE RESPONSE AS
ANTIGENS IN THE FOREIGN MATERIAL ARE RECOGNIZED AND TRANSPORTED INTO THE
LYMPHOID FOLLICLE. IMMUNE CELLS SECRETE SPECIALIZED ANTIBODY (IGA), WHICH IS
ACTIVELY TRANSPORTED ACROSS THE MUCOSAL SURFACE, WHERE IT ATTACKS THE INVADING
PATHOGEN.

Pharmaceutical products can achieve immune protection against a pathogen
either actively, by stimulating the body's own immune system to produce
antibodies directed at the pathogen, or passively, through the administration of
a natural or synthetic antibody that will itself react with the pathogen.
Vaccines produce active immunity and operate by presenting the immune system
with dead or disabled pathogens or fragments of pathogens that contain one or
more antigens derived from the pathogen. Antigens that appear in many

25
<PAGE> 28

strains of the same pathogen are referred to as "highly conserved." Generally,
the more highly conserved the antigens are among strains of the pathogen, the
more effective the vaccine will be. Direct administration of an antibody
provides passive immunity and may be an effective treatment for certain
infections during defined periods of risk, particularly for patients whose
immune systems are unable to respond quickly enough to prevent serious medical
consequences of infection or unable to provide a sufficient level of protection.
While most existing products are classical injected vaccines and antibodies
designed to provide systemic immunity, OraVax's product candidates are designed
to be administered orally or topically and to provide either passive or active
mucosal immunity.

Since the mechanisms that produce immunity at mucosal surfaces are distinct
from those that protect other tissues of the body, novel approaches are
necessary to develop preventive and therapeutic products for mucosal
immunization. Vaccines designed to stimulate mucosal immunity generally require
specialized formulations for delivery to the mucosal surface and special
techniques are needed to evaluate the mucosal immune response.

BENEFITS OF MUCOSAL IMMUNITY

Conventional vaccines and antibodies are designed to provide systemic, as
opposed to mucosal, immunity and are administered by injection. Such products
include routine childhood vaccines (e.g., Diphtheria/Tetanus/Pertussis,
Hepatitis B and Measles/Mumps/Rubella), adult vaccines (e.g., influenza and
Hepatitis B) and immune globulins (e.g., rabies and cytomegalovirus). These
products provide immunity to infection only after the infecting organism has
entered the bloodstream or deep tissues of the body. In contrast, mucosal
vaccines and antibody products are not injected but rather are applied to
mucosal surfaces (e.g., orally or intranasally). Mucosal vaccines are designed
to prevent infection at the point of entry into the body, prior to deep tissue
penetration. Noninjected vaccine and antibody products may prevent or treat
infections (e.g., H. pylori) that are not susceptible to a systemic immunity
approach.

The Company believes that oral and other non-injected products based upon
mucosal immunity will offer a number of important clinical and commercial
advantages relative to injected antibody or vaccine products, including:

GREATER CLINICAL EFFICACY

The body's natural defense against disease at mucosal surfaces is the
mucosal immune system. Mucosal immunity to specific antigens has been
demonstrated to be capable of preventing or eliminating mucosal infections in
cases where the systemic immune response is not effective. The Company believes
that its approach to the generation of immunity will result in products that
more effectively prevent or treat many infectious diseases. In particular, the
Company expects that it will be able to develop vaccines to provide mucosal
immunity against diseases for which there are no current vaccines or for which
the protection afforded by systemic immunity has not been adequate.

HIGHER LEVEL OF SAFETY

Injected vaccines and antibody products can cause fever, inflammation,
acute allergic reactions and, although rare, severe reactions resulting in
disability or death. The Company believes its oral vaccines and non-injected
antibody products will result in a significantly lower incidence of adverse
reactions.

LOWER COST OF ADMINISTRATION

It is anticipated that the Company's products will be administered orally
or through nose drops, nasal sprays, eye drops, suppositories or other methods
involving direct contact with mucosal surfaces. In contrast to products which
require intravenous or intramuscular injection, these methods of administration
will not require trained personnel or utilization of hospital or outpatient
facilities, effectively lowering the cost of administration.

IMPROVED PATIENT COMPLIANCE

The Company believes that the greater ease of administration of its
products will result in increased patient compliance.

26
<PAGE> 29

PRODUCTS UNDER DEVELOPMENT

<TABLE>
The following table summarizes the Company's principal product development
initiatives:

- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISEASE PRIMARY
PROGRAM STATUS INDICATION MARKET POPULATION
------- ------ ---------- -----------------
<S> <C> <C> <C>
RSV
HNK20 intranasal antibody
Phase 3 clinical trials Prevention of viral Approximately 500,000
pneumonia at-risk children/year
in the U.S., Western
Europe and Japan
(250,000 in the U.S.)
H. PYLORI
UreAB oral vaccine
Phase 2 clinical trials; Treatment of peptic ulcer Approximately 10
Joint Venture with disease million patients with
Merieux peptic ulcer disease
in industrialized
countries (U.S.,
Europe, Japan)
Treatment of chronic At least 105 million
gastritis persons under the age
of 40 years in
industrialized
countries with chronic
H. pylori infection
Prevention of H.pylori Approximately 120
infection and its million uninfected
consequences children under the age
of 17 years in
industrialized
countries
C. DIFFICILE
CdAB oral vaccine
Preclinical phase Prevention of antibiotic- At least 1.5 million
associated diarrhea and nursing home
colitis residents, 5 million
elderly persons
admitted to hospitals
annually, and 30
million persons over
65 years of age in the
U.S. at risk of
hospitalization and
treatment with broad
spectrum antibiotics
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

HNK20 INTRANASAL ANTIBODY AGAINST RSV

Market Opportunity

The Company is developing HNK20, a monoclonal IgA antibody product designed
to prevent viral pneumonia in children caused by RSV. In the United States,
approximately 250,000 children annually have moderate to severe underlying
medical problems that put them at risk of contracting viral pneumonia from RSV
infection. These are children who are born prematurely or who have
bronchopulmonary dysplasia, congenital heart disease, leukemia, cystic fibrosis
and various immunodeficiency disorders. Approximately 36% of these children
require hospitalization due to severe lower respiratory infections from RSV and
up to 5% of these hospitalized cases prove to be fatal. The Company estimates
that the direct medical costs associated with treatment of the disease exceed
$500 million annually in the United States.

The Company believes there is a need for a cost effective approach to the
prevention of RSV pneumonia that can be used in both home and hospital settings.
Current treatment for RSV pneumonia involves hospitalization, often in an
intensive care unit, and administration of ribavirin, an anti-viral drug. The
disadvantages of such treatment include difficulty of administration, low
efficacy and high cost of product. One company recently received marketing
approval for an intravenous, systemic IgG product derived from adult blood
donors. This product was developed for use in the highest risk infants to reduce
the frequency or duration of hospitalization due to RSV viral pneumonia. Use of
this product involves the high cost of intravenous administration in a hospital
or outpatient setting and the risks inherent in the systemic administration of
large volumes of a human blood derived product to infants. Another approach
being explored by this company and others is the development of monoclonal IgG
antibodies for administration by injection. The Company believes that its
intranasally-administered HNK20 will have the advantages of easy, in-home

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administration (nose drop) and of limitation of the upper respiratory infection
at the outset, before it develops into viral pneumonia.

OraVax Approach

The Company is developing HNK20, a monoclonal IgA antibody, designed for
administration by nose drop. Based on the results of primate studies as well as
clinical studies in adults and infants, the OraVax product candidate appears to
be safe and provide protection with small doses of antibody (2.5 milligrams)
administered by nose drop. Studies in several species, including nonhuman
primates, indicate that HNK20 is effective when administered at a convenient
dosing interval of once daily. The Company expects that its product, if
successfully developed, would be used to protect those children at risk from RSV
infection, particularly during the winter season when RSV infection is most
prevalent.

The Company received approval from the United States Food and Drug
Administration ("FDA") to initiate clinical trials of HNK20 under an
Investigational New Drug Application ("IND") filed in March 1994. A
double-blind, randomized, placebo-controlled Phase 1 study, designed to
establish safety of treatment and retreatment in healthy adults, was conducted
at Johns Hopkins Medical Center ("Johns Hopkins") in June 1994. All of the
subjects completed both the primary treatment and retreatment phases of the
study with no significant adverse reactions seen in any of the subjects.

Effectiveness of the antibody against RSV infection in adults has been
studied in two double-blind, randomized, placebo-controlled Phase 2 trials
initiated in October 1994 at Johns Hopkins. In the first study, completed in
January 1995, 31 healthy subjects were given either antibody or placebo and
challenged later that day with live infectious RSV. Treatment with either
antibody or placebo was repeated once daily for three additional days after
challenge. Challenge of healthy adults in this study was possible since RSV does
not cause severe illness in healthy adults, and infection with the virus can be
measured in nasal secretions. The second Phase 2 trial in adults was completed
in July 1995. Overall, in the two Phase 2 studies combined, there was a
reduction of approximately 70% in the degree of virus shedding in the nasal
secretions of treated subjects. The dosing level in these adult studies was 2.5
milligrams per dose or, on average, 0.05 milligrams per kilogram of body weight.

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<PAGE> 31

random assignment of infants with more severe preexisting risk factors to the
HNK20 group. Of infants developing RSV infections, the HNK20 treated group on
average was younger (HNK20 = 13 weeks vs. placebo = 19 weeks) and weighed less
(HNK20 = 6.6 lbs. vs. placebo = 9.4 lbs.), and had a higher frequency of
preexisting bronchopulmonary dysplasia than the placebo recipients.
Hospitalization with RSV is a primary endpoint for the Company's recently
commenced Phase 3 trial in the Southern Hemisphere.

The Company commenced a Phase 3 clinical trial in this high risk infant
population in the Southern Hemisphere in early May 1996. This study is designed
to determine efficacy in the target population and will include approximately
500 infants at high risk of developing RSV infection. The trial will be
conducted at 25 centers in Australia, New Zealand, Argentina and South Africa
and is expected to be completed at the end of the third quarter of 1996. If this
Phase 3 study is successful, the Company anticipates submitting a Product
License Application to the FDA in 1997. However, the Company may be required to
conduct a Phase 3 clinical trial in the United States as a condition to
receiving FDA approval, and if so required, the Company does not expect to
conduct such Phase 3 clinical trial until the winter of 1997-1998. The foregoing
forward-looking statements relating to the timing of the Company's clinical
trials and Product License Application are subject to important factors,
including those set forth under "Risk Factors -- Early Stage of Product
Development; Uncertainty of Successful Commercialization" and "-- Government
Regulation; No Assurance of Regulatory Approval," that could cause the actual
timing of such trials and application to be materially different from that set
forth above. See also "Risk Factors -- Future Capital Needs; Uncertainty of
Additional Funding."

The Company has an agreement with CSL Ltd., Australia ("CSL") to assist
with its Phase 3 clinical trials. In addition, in June 1996, the Company entered
into an agreement with CSL under which CSL will act as exclusive distributor of
HNK20 in Australia, New Zealand, Indonesia and Papua New Guinea. CSL also will
be responsible for obtaining both regulatory approval and registration of the
product in these countries and the listing of the HNK20 product by the
Australian and New Zealand pricing authorities for the purpose of reimbursement.
The Company's agreement with CSL provides that the Company will receive from CSL
full reimbursement of the cost of manufacturing and shipment of HNK20 to
Australia, including tariffs, freight and insurance. The agreement provides also
that the Company will receive from CSL 50% of the gross margin generated from
the sale of HNK20 in the above listed territories.

UreAB ORAL VACCINE AGAINST H. PYLORI

Market Opportunity

OraVax is developing UreAB, a urease-based oral vaccine designed to prevent
and treat peptic ulcer disease and chronic gastritis caused by H. pylori.
According to an NIH Consensus Statement dated February 1994, H. pylori has been
associated with virtually all duodenal ulcer cases and more than 80% of gastric
ulcer cases. In 1994, H. pylori was classified as a Category 1, or definite,
carcinogen by the World Health Organization. Although frequently asymptomatic,
all persons infected by H. pylori have chronic stomach inflammation (gastritis).
It is estimated that at least five million people suffer from active peptic
ulcers each year and approximately 350,000 to 500,000 new cases are diagnosed
annually in the United States. Approximately 600,000 patients are hospitalized
each year in the United States for peptic ulcer disease. Serious complications
occur in approximately one-third of these cases, including intestinal
obstruction, upper gastrointestinal hemorrhage and perforation. Further, each
year over 6,000 deaths in the United States are directly caused by ulcer
disease, and peptic ulcers are a contributing factor in an additional 11,000
deaths. Approximately 10% of the population will develop peptic ulcer disease
during their lifetimes. The Company estimates that the direct medical costs of
treating peptic ulcers in the United States exceed $5 billion per year. The
Company estimates that approximately 30% of the United States population is
infected with H. pylori, while infection rates in most parts of the world exceed
those in the United States. In Japan and parts of Europe (including Greece,
Germany and all of eastern Europe), the prevalence of infection is nearly twice
that of the United States, and in developing countries nearly 100% of the
population is infected at an early age. The increased prevalence in infection in
these areas is associated with a high risk of peptic ulcer disease and gastric
cancer. In Japan, for example, the risk of dying of gastric cancer is estimated
to be as high as 8% as compared with 0.8% in the United States.

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<PAGE> 32

Until recently, treatment of peptic ulcer disease focused on the use of
antagonists of acid secretion, such as the H-2 antagonists, Tagamet (cimetidine)
and Zantac (ranitidine), and the proton pump inhibitors, Prilosec (omeprazole)
and Lanzor (lansoprazole). While assisting in the healing of ulcers, these drugs
acting alone do not cure the underlying infection. Consequently, high rates of
recurrence and the need for chronic therapy are associated with anti-secretory
regimes. An approach being developed to treat recurrent peptic ulcer disease
recognizes the role of H. pylori and involves the administration of antibiotics,
often in combination with bismuth (e.g., Pepto Bismol) or antagonists of acid
secretion. In late 1995 an FDA Advisory Committee recommended approval of two
strategies for the treatment of active ulcer disease, each involving a
combination of an antagonist of acid secretion and one or more antibiotics. The
most effective antibiotic treatments may be complicated by the need to treat for
prolonged periods with multiple drugs, by side effects and problems with patient
compliance, by relapses if treatment is interrupted, and by the development of
antibiotic-resistant strains of the bacteria.

OraVax Approach

The Company is developing oral vaccines to treat H. pylori infection and
prevent reinfection in previously-infected persons and to stimulate immunity in
uninfected persons. The Company believes that an oral vaccine directed against
H. pylori, if successfully developed, would eventually be considered for routine
administration as treatment for peptic ulcer disease and chronic gastritis and
as a preventive for the full spectrum of H. pylori-caused disease.

The Company's candidate vaccine, UreAB, is in Phase 2 clinical trials. The
vaccine is based on urease, a major component of the H. pylori bacteria with
characteristics that make it an ideal vaccine antigen. Urease is present in all
strains of H. pylori and is exposed on the surface of the bacteria as a target
for IgA antibodies. OraVax has cloned the urease gene and efficiently produced a
purified non-toxic urease as an oral vaccine candidate. The Company's
preclinical studies in several species, including nonhuman primates, have
demonstrated that a urease antigen, in combination with one of several
identified mucosal adjuvants, stimulates a strong immune response when
administered orally in low doses. As with many vaccines, an adjuvant is required
to evoke a long-lasting and effective response. The urease-based vaccine,
formulated with a mucosal adjuvant, consistently protected against infection and
cured established infections in several pre-clinical models.

The Company has completed preclinical development of UreAB, a vaccine
candidate based on a non-toxic form of the urease antigen, and conducted a Phase
1 clinical safety study in chronically infected adults at the Centre Hospital
Universitaire Vaudois ("CHUV") in Lausanne, Switzerland, which was completed in
December 1995, and demonstrated the safety of the UreAB oral vaccine without
adjuvant. Phase 2 safety and immunogenicity trials in adults using the urease
vaccine with a mucosal adjuvant were initiated in late September 1995 at CHUV
and at the University of Maryland. These studies are expected to be completed in
the third quarter of 1996. The foregoing forward-looking statements relating to
the timing of the Company's clinical trials are subject to important factors,
including those set forth under "Risk Factors -- Early Stage of Product
Development; Uncertainty of Successful Commercialization" and "-- Government
Regulation; No Assurance of Regulatory Approval," that could cause the actual
timing of such trials to be materially different from that set forth above.

OraVax has entered into several agreements with corporate and academic
collaborators relating to the development of H. pylori vaccines. See "Patents
and Proprietary Rights; Technology Agreements -- H. pylori Product Development
Program."

Collaboration for H. pylori Product with Merieux

In March 1995, the Company entered into a collaboration with Pasteur
Merieux Serums & Vaccins S.A., a wholly owned subsidiary of Rhone-Poulenc S.A.,
for the development, manufacturing, marketing and sale of immuno-therapeutic and
preventive vaccines against H. pylori infections in humans. Under the Joint
Venture, OraVax and Merieux have agreed to co-develop vaccines which use the
urease protein or any of its sub-units as an antigen (the "Target Products").
OraVax and Merieux will share equally in profits from the sales of the Target
Products and in all future research, development, clinical and commercialization
costs. OraVax and

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<PAGE> 33

Merieux estimate that research, development and clinical costs will exceed $50.0
million, excluding late stage commercialization costs such as manufacturing
start-up, pre-launch inventory and market launch start-up costs. Merieux is
providing technical expertise and will also provide marketing expertise to the
Joint Venture. Merieux made an initial milestone payment of $2.6 million to
OraVax, paid the Company $0.6 million for research and development conducted in
the first quarter of 1995 and purchased $3.5 million of equity in the Company.
In addition, Merieux has agreed to pay the Company up to an additional $12.0
million during the development period, subject to the achievement of certain
clinical and regulatory milestones. The first of these milestones was achieved
in the third quarter of 1995 (completion of the Phase 1 safety study of the
urease oral vaccine), resulting in payment of approximately $0.6 million from
Merieux to OraVax in December 1995. Beginning in the second quarter of 1995,
research, development and commercialization activities of the Joint Venture were
conducted through two equally controlled partnerships which have contracted with
the Company to perform the research, development and clinical trial activities.
OraVax earned $4.9 million under these contracts during 1995 and $1.6 million
during 1996.

It is the current intention of OraVax and Merieux that OraVax will
manufacture the Target Products in sufficient quantities for clinical trials and
for sales by the Joint Venture in the United States. It is also the current
intention of OraVax and Merieux that Merieux will manufacture the Target
Products for sale by the Joint Venture in non-U.S. markets.

The marketing activities of the Joint Venture will be managed by the
partnerships' respective Marketing Committees with equal control by each party.
The corporate names of both OraVax and Merieux will be prominently displayed on
the label of the Target Products to the extent consistent with regulatory agency
requirements. Marketing and sales of Target Products are expected to be carried
out principally by Merieux with the exception that OraVax is expected to market
and sell directly to the United States military and the National Centers for
Disease Control ("CDC").

Absent any breach, neither the Company nor Merieux may unilaterally
terminate the Joint Venture before March 31, 1997. After March 31, 1997, either
party may withdraw from the Joint Venture only in the event that there is a
failure to efficiently and effectively carry out the research and development
program or a failure both of urease and of any other antigen or combination of
antigens or formulations to work and irreconcilable differences on how to
proceed, in either case subject to arbitration. In the event of termination, in
all cases except breach, both parties can commercialize the Target Products upon
payment of cross-royalties.

CdAB ORAL VACCINE AGAINST ANTIBIOTIC-ASSOCIATED DIARRHEA AND COLITIS

Market Opportunity

The Company is developing CdAB, an oral vaccine designed to prevent
antibiotic-associated diarrhea and colitis caused by C. difficile. Antibiotic
treatment results in a decrease in the number of non-disease causing bacteria in
the intestine, a condition allowing the rapid growth of the antibiotic-resistant
C. difficile. The C. difficile bacteria produce two toxins (A and B toxins) that
cause intestinal inflammation and fluid secretion. C. difficile is a leading
cause of antibiotic-associated diarrhea and colitis among elderly hospitalized
patients and nursing home residents who are undergoing antibiotic treatment
regimes. An estimated 21% of hospitalized patients, or 6.6 million persons,
develop C. difficile infections, and 7% (2.2 million persons) develop C.
difficile disease (colitis and antibiotic-associated diarrhea) annually in the
United States. Up to 33% of nursing home residents (approximately 500,000
persons) develop diarrheal illness in the United States each year, and C.
difficile is an important cause of such illness. C. difficile infection is also
associated with the use of certain anticancer drugs. Diarrhea is an important
contributor to and cause of death in the elderly, and C. difficile may be a
significant factor in such cases. Complications of diarrhea, especially
dehydration, electrolyte imbalance, and urinary tract and skin infections, are
frequent. A vaccine would be expected to significantly reduce costs associated
with diagnostic tests for C. difficile infection, infection control measures
applied to prevent spread, prolonged hospital stay, and care and management of
cases.

Current treatment of the disease involves fluid and electrolyte replacement
and the use of additional antibiotics. Treatment is sometimes problematic
because of the need to interrupt the antibiotic regime targeting the patient's
primary infection in order to allow resolution of the C. difficile infection.
This

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<PAGE> 34

interruption may result in recurrence of the primary infection. The Company is
not aware of any available method for prevention of the disease other than
avoidance of broad-spectrum antibiotics in high-risk elderly patients and
isolation, quarantine and other infection control procedures used to limit
exposure to C. difficile. These measures are often difficult or impossible to
apply.

OraVax Approach

The Company has developed CdAB, a candidate vaccine (based on the A and B
toxins) which would be taken prior to exposure to the C. difficile bacteria.
CdAB is a toxoid vaccine composed of chemically inactivated A and B toxins.
Preclinical trials in animal models with CdAB have demonstrated effectiveness in
prevention of C. difficile induced disease. The Company expects to file an IND
in the fourth quarter of 1996.

OTHER ORAVAX TECHNOLOGIES

IgA Antibody Technology. The Company's monoclonal IgA antibody technology
includes methods for stimulating IgA antibody production, producing recombinant
secretory component and linking IgA antibody to secretory component. The
Company's current efforts in these areas are focused on the development of
monoclonal IgA antibodies directed against RSV, but are expected to have general
application to the development of monoclonal IgA antibodies against other
infections. The Company's patent application, filed worldwide, describing the
HNK20 monoclonal IgA antibody issued in the United States in 1995. In addition,
the Company has filed a United States patent application claiming the DNA that
encodes the RSV-recognition site. OraVax also has an exclusive worldwide license
from Harvard University to a patent application covering complexes of antibody
and secretory component and methods for producing such complexes, including
methods for the production of recombinant secretory component and for linking
IgA antibodies to secretory component. The Company is not aware of competing
patent rights involving complexes of antibody and secretory component.

Japanese Encephalitis. The Company is in the early stages of development
of an improved vaccine for prevention of Japanese Encephalitis ("JE") viral
infections. JE is a potentially fatal neurotrophic viral infection, endemic in
Japan, China and other countries of the Pacific Rim. Current vaccines routinely
used in the Pacific Rim are expensive and require periodic boosters. The Company
has applied for an exclusive license to patented technology for a cell
culture-produced, live-attenuated, single dose vaccine, expected to produce
life-long immunity. The Company's research on JE has been funded by a Phase 1
SBIR grant awarded to the Company by NIH. In March 1996, the Company was
notified that it had been awarded a Phase 2 SBIR grant to fund additional
research in JE. The Company's product candidate is a genetically engineered
vaccine is based on a virulence gene of the JE virus. Preclinical trials in
animal models indicate that the vaccine is effective.

Viricle Technology. The bluetongue virus ("BTV") afflicts sheep and cattle
in livestock raising regions, including the western United States, Australia and
South Africa, causing still births. Genetically engineered virus-like particles
known as Viricles were developed as a vaccine against BTV in sheep and against
African Horse Sickness, an economically important disease in Spain and other
countries which raise thoroughbred horses. In veterinary field trials conducted
prior to 1994 by Oxford Virology and the National Environmental Research Council
in England, orally administered Viricles have shown promise as a veterinary
vaccine against BTV without the need for a mucosal adjuvant. OraVax believes
this delivery system may prove useful in the development of human oral vaccines.
Consequently, the Company has incorporated a portion of the C. difficile gene
into these virus-like particles and has shown that the resulting Viricle vaccine
stimulates antibody against both BTV and C. difficile. OraVax acquired the
rights of Oxford Virology and jointly owns and has an exclusive license from the
Natural Environment Research Council in Oxford, England to two inventions

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<PAGE> 35

involving BTV, one relating to Viricles and one relating to a method for
producing an immunogenic effect against BTV through the use of such particles.

Shigella Live Vector Oral Vaccine Technology. Infection by Shigella
bacteria ("Shigella") is the leading cause of bacillary dysentery. Bacillary
dysentery is a worldwide problem, with the highest incidence among children in
developing countries. The principal markets for a Shigella vaccine are expected
to be travellers, deployed military populations and selected high risk
institutionalized groups in the United States. Current treatment of bacillary
dysentery involves fluid replacement and the use of antibiotics and
anti-motility drugs after the occurrence of the infection. While certain
antimicrobial drugs may provide protection against Shigella, the widespread use
of such drugs has not been recommended because of their side effects and the
possibility of inducing the development of drug resistant strains of bacteria.

The Company has a worldwide exclusive license to the VirG gene modification
from the Institut Pasteur. The VirG mutation limits virulence of the bacteria.
The Company also has an exclusive license to the genes encoding two enterotoxins
produced by the Shigella bacteria for use in preparing an oral vaccine directed
against Shigella and for use in a live vector delivery system. The Company is
aware of certain additional gene modifications which may be necessary or useful
in final design of a human vaccine. These additional modifications are covered
by patents or patent applications to which the Company does not currently have
rights. The Company is evaluating the possibility of using Shigella live vector
technology as an antigen delivery method for its H. pylori vaccine.

Copolymer Microsphere Technology. The Company has a non-exclusive license
to a patent application covering the use of copolymer microsphere technology in
the development of oral vaccines directed against five specific disease targets,
including H. pylori and C. difficile. However, this technology is not currently
used in formulating any OraVax product candidates. The Company has a
non-exclusive license to an issued United States patent relating to the use of
copolymer microspheres in injected vaccines. The Company is aware of an
additional issued United States patent relating to selective release of active
ingredients through the use of copolymer microspheres.

Hydroxylapatite. The Company has an exclusive license from Harvard
University to a patent application covering the use of hydroxylapatite crystals
as a particulate carrier for antigens used as oral vaccines.

MANUFACTURING

At present, the Company's ability to manufacture its products is limited to
clinical trial quantities. The Company does not have the capability to
manufacture commercial quantities of products. The Company's long-term strategy
is to develop manufacturing facilities for producing both pilot-scale and
commercial quantities of its products. To ensure compliance with GMP
regulations, OraVax will need to add sufficient technical staff to oversee all
product operations, including quality control, quality assurance, technical
support and manufacturing management.

HNK20 INTRANASAL ANTIBODY

Manufacturing of HNK20 for Phase 1 and Phase 2 clinical trials has been
performed by OraVax at its primary facility in Cambridge, Massachusetts and by
third parties under contract to OraVax. The product to be used in the Phase 3
clinical trials that are expected to be conducted in the Southern Hemisphere
commencing at the end of the second quarter of 1996 is being manufactured by a
contract manufacturer. If the Company is required to conduct a second Phase 3
trial during the winter of 1997-1998, the Company expects to use product from
existing inventory produced by this contract manufacturer.

UreAB ORAL VACCINE

The UreAB vaccine product used in the Phase 1 and Phase 2 clinical trials
is manufactured in the biological production facility of the Walter Reed Army
Institute of Research, Forest Glen Section, Silver Spring, Maryland under a
Cooperative Research and Development Agreement ("CRADA") with the United States
Army. OraVax anticipates the continued use of this facility to support Phase 2
and at least the initial portion of Phase 3 trials. The Company expects to
manufacture product for commercial distribution in the

33
<PAGE> 36

United States in its own facilities. Alternatively, the Company may elect to
contract out this commercial product manufacture.

CDAB ORAL VACCINE

Product for early clinical trials may be manufactured by a third party
under contract to OraVax. Alternatively, the Company may elect to manufacture
product for clinical trials in its own facilities in Cambridge or Canton,
Massachusetts.

MARKETING STRATEGY

The Company plans to establish marketing arrangements with pharmaceutical
companies with large distribution systems for non-bulk distribution of its
products and does not expect to establish a direct sales capability for non-bulk
distribution for several years. To market in the future any of its products
directly for non-bulk distribution, the Company will need to develop a marketing
and sales force with technical expertise and distribution capability. There can
be no assurance that the Company will be able to establish relationships with
third parties or successful in-house sales and distribution capabilities. To the
extent that the Company enters into marketing or distribution arrangements, any
revenues received by the Company will depend upon the efforts of third parties
and there can be no assurance that such efforts will be successful. The Company
currently intends to retain the right to market some of its products directly to
bulk purchasers of vaccines and antibodies, including the United States military
and the CDC. See "Risk Factors -- Limited Sales and Marketing Experience."

PATENTS AND PROPRIETARY RIGHTS; TECHNOLOGY AGREEMENTS

The following sets forth the Company's proprietary position with respect to
its principal product development programs.

RSV PRODUCT DEVELOPMENT PROGRAM

The Company's patent application, filed worldwide, describing the HNK20
monoclonal IgA antibody issued in the United States in 1995. The Company has
also filed a United States patent application claiming the DNA that encodes the
RSV-recognition site. OraVax is not aware of any other patents or patent
applications describing this antibody.

H. PYLORI PRODUCT DEVELOPMENT PROGRAM

The Company has worldwide rights to inventions made by five groups of
researchers in the field of H. pylori:

Case Western Reserve University

In October 1993, the Company entered into an assignment agreement with its
collaborators at Case Western Reserve University ("CWRU") and entered into a
research agreement with these collaborators and CWRU. Pursuant to the assignment
agreement, OraVax has been assigned preexisting patent rights claiming oral
immunization using H. pylori antigens. The research agreement provides for
sponsorship of the continuing development work of the collaborators in the field
of H. pylori, including the development of monoclonal antibodies against urease
and other antigens, the development of adjuvants to be used in conjunction with
an oral vaccine directed against H. pylori and the development of animal models
for the testing of oral vaccines directed against H. pylori. Under the terms of
the research agreement, the Company will be granted a worldwide exclusive
license to inventions made in the course of sponsored research. The U.S. Patent
Office has issued a Notice of Allowance for the patent application filed by the
CWRU group, indicating its intention to grant the Company a patent covering the
oral administration of H. pylori lysate, together with an adjuvant, to stimulate
a protective immune response in a patient.

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<PAGE> 37

Centre Hospitalier Universitaire Vaudois ("CHUV"); Max-Planck Institute

In April 1992, the Company entered into a research and development
agreement with the Foundation Pour La Recherche Des Maladies Gastro-Intestinales
("Gastrofonds") in Lausanne, Switzerland pursuant to which OraVax is sponsoring
research in the field of H. pylori at the CHUV in Lausanne, Switzerland, and at
the Max-Planck Institute in Tubingen, Germany. Pursuant to this agreement,
Gastrofonds, representing collaborating inventors at the CHUV and the Max-Planck
Institute, have assigned to OraVax title to two patent applications covering
urease as a vaccine for prevention and treatment of H. pylori infection. Also
pursuant to this agreement, Gastrofonds has granted the Company a worldwide
exclusive license to all patent rights and know-how developed during the course
of the sponsored research in the field of vaccine and secretory IgA products for
prevention or treatment of infections caused by H. pylori.

Institut Pasteur

The Company also has a co-exclusive license, with Merieux, to an issued
patent and two patent applications owned by the Institut Pasteur covering the H.
pylori urease gene, heat shock protein A (HspA) and other antigens.

Saint Bartholomew's Hospital Medical College

In October 1992, OraVax entered into an agreement with The Medical College
of Saint Bartholomew's Hospital in London, England ("St. Bart's") pursuant to
which the Company is sponsoring research relating to the development of vaccine
candidates for use in an oral vaccine directed against H. pylori. Under the
agreement, OraVax has been granted a worldwide nonexclusive license to
preexisting patent rights and know-how in the field of H. pylori developed by
St. Bart's, and a worldwide exclusive license to all patent rights and know-how
developed during the course of the sponsored research.

Vanderbilt University

In September 1993, the Company entered into a license agreement with
Vanderbilt University ("Vanderbilt") pursuant to which Vanderbilt has granted to
OraVax an exclusive worldwide license to patent rights to a specific region of
the gene for an H. pylori antigen, the Cag A antigen, as a vaccine and
diagnostic means and methods for detecting predisposition to peptic ulceration,
and to related know-how.

OraVax anticipates that its H. pylori vaccine product will include one or
more H. pylori antigens, which likely will include urease, and that the
antigen(s) will be used in conjunction with a mucosal adjuvant or mucosal
antigen delivery system. The UreAB vaccine formulation currently being tested in
a Phase 2 clinical trial uses the native heat-labile enterotoxin ("LT") produced
by E. coli as a mucosal adjuvant. The Company currently has a license to the
United States Navy's patent application covering the use of native LT as a
mucosal adjuvant. The Company is aware of a patent owned by the Kitasato
Institute that also claims the use of native LT. The Company is also conducting
research on the polyhosphazene mucosal adjuvant and the Vibrio cholerae
live-vector delivery system under an option from Virus Research Institute in
Cambridge, Massachusetts. Other formulation technologies being evaluated include
mutants of LT that may have advantages in greater safety or potency, the
Shigella live-vector system developed by the Company and technologies developed
or controlled by Merieux. Depending on the course of product development, the
Company may need to acquire licenses or other rights to use specific mutant LT's
owned by other parties. There can be no assurance that the Company will be able
to obtain any such licenses or rights on favorable terms. See "Risk
Factors -- Patents and Proprietary Rights."

The Company is aware of an additional patent application owned by a
competitor claiming use of H. pylori antigens against H. pylori infection.
Whether this application will issue in the United States is uncertain. Depending
on the course of product development, the Company may need to acquire rights to
this patent application in certain countries and there can be no assurance that
the Company will be able to obtain such rights on favorable terms. See "Risk
Factors -- Patents and Proprietary Rights."

35
<PAGE> 38

C. DIFFICILE PRODUCT DEVELOPMENT PROGRAM

In March 1993, OraVax entered into a collaborative development and license
agreement with Techlab, Inc. ("Techlab") pursuant to which OraVax is sponsoring
research and the development of vaccines for the prevention of diseases caused
by C. difficile. With respect to technology developed during the course of the
collaboration, the Company will have title to all patent rights and know-how
invented by OraVax employees or developed jointly by Company and Techlab
employees, and Techlab will have title to all patent rights and know-how
developed solely by its employees. Techlab has granted to OraVax a worldwide
exclusive license to technology owned solely by Techlab. The Company has filed
two patent applications covering its C. difficile vaccine product candidate and
related technology. The Company owns these patent applications and any patents
issued thereon.

GENERAL

The Company's success will depend, in part, upon its ability to develop
patentable products and technologies and obtain patent protection for its
products and technologies both in the United States and other countries. The
Company is not aware of any issued third party patents which would interfere
with development of its RSV, H. pylori or C. difficile product candidates. There
can be no assurance that additional patent applications owned or licensed by the
Company will issue as patents, that patent protection will be secured for any
particular technology, or that, if issued, such patents will be valid or that
they will provide the Company with meaningful protection against competitors or
with a competitive advantage. There can be no assurance that patents will not be
challenged or designed around by others. The Company could incur substantial
costs in proceedings before the United States Patent Office, including
interference proceedings. These proceedings could also result in adverse
decisions as to the patentability of the Company's licensed or assigned
inventions. Further, there can be no assurance that the Company will not
infringe upon prior or future patents owned by others, that the Company will not
need to acquire licenses under patents belonging to others for technology
potentially useful or necessary to the Company, or that such licenses will be
available to the Company, if at all, on terms acceptable to the Company.
Moreover, there can be no assurance that any patent issued to or licensed by the
Company will not be infringed by others. Lastly, there can be no assurance that
third parties will not bring suit against the Company for patent infringement or
for declaratory judgment to have the patents owned or licensed by the Company
declared invalid. OraVax also relies on trade secrets and other unpatented
proprietary technology. No assurance can be given that the Company can
meaningfully protect its rights in such unpatented technology or that others
will not independently develop substantially equivalent products and processes
or otherwise gain access to the Company's technology. See "Risk
Factors -- Patents and Proprietary Rights."

OraVax is engaged in research and development collaborations and licensing
arrangements with a number of academic, government and commercial research
groups. The Company has entered into these agreements to secure rights to
certain technologies, processes and compounds that it believes may be important
to the development of its products. See "Products Under Development" and "Risk
Factors -- Risks Associated with Collaborative Arrangements."

In general, the research and development agreements provide for OraVax
sponsorship of research and development in exchange for exclusive,
royalty-bearing licenses or options to the technology developed during the
course of the sponsored research. Certain of these agreements also include
nonexclusive licenses to preexisting technology rights. In general, the license
agreements grant to the Company exclusive licenses in exchange for varying
combinations of license fees, milestone payments, royalties and minimum
royalties. In addition, the license agreements typically place commercialization
obligations on the Company which, if not satisfied, may result in the licensor
having the right to render the license nonexclusive or to terminate the
agreement. In certain instances, the Company has obtained assignments of
technology, although the Company's ownership, in some cases, is subject to
forfeiture for failure to commercialize. Typically, the agreements are
terminable by either party for breach. Further, the research agreements are
generally terminable in the discretion of either party and the license
agreements are generally terminable by the Company in its discretion.

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<PAGE> 39

COMPETITION

The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. Competitors of the Company in the United
States and abroad are numerous and include, among others, major pharmaceutical
and chemical companies, specialized biotechnology firms, universities and other
research institutions. There can be no assurance that the Company's competitors
will not succeed in developing technologies and products that are more effective
than any which are being developed by the Company or which would render the
Company's technology and products obsolete and noncompetitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. In addition, some of the
Company's competitors have substantially greater experience than the Company in
preclinical testing and human clinical trials of pharmaceutical products and in
obtaining FDA and other regulatory approvals of products for use in healthcare.
Accordingly, the Company's competitors may succeed in obtaining FDA approval for
products more rapidly than the Company. There can be no assurance that the
Company's products under development will be able to compete successfully with
existing products or products under development by other companies, universities
and other institutions or that they will attain regulatory approval in the
United States or elsewhere. If the Company commences significant commercial
sales of its products, it will also be competing with respect to manufacturing
efficiency and marketing capabilities, areas in which it has limited experience.
A significant amount of research in the field is also being carried out at
academic and government institutions. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more aggressive in pursuing patent protection and negotiating licensing
arrangements to collect royalties for use of technology that they have
developed. These institutions may also market competitive commercial products on
their own or in collaboration with competitors and will compete with OraVax in
recruiting highly qualified scientific personnel. See "Risk
Factors -- Competition and Technological Change."

The Company is aware of certain programs under development by competitors
that are targeted for the prevention or treatment of certain diseases that the
Company has identified as product development areas, including RSV and H.
pylori. Certain of the Company's competitors are developing antibody products
for the prevention of disease caused by RSV, and one such competitor has
recently received United States regulatory approval for marketing its
intravenous IgG (systemic) antibody product. In addition, certain competitors of
the Company are engaged in H. pylori research. However, the Company is not aware
of any company that has initiated clinical trials of an H. pylori vaccine
product candidate. The existence of products developed by these competitors, or
other products or treatments of which the Company is not aware, or products or
treatments that may be developed in the future, may adversely affect the
marketability of products developed by the Company.

GOVERNMENT REGULATION

Regulation by governmental authorities in the United States and other
countries will be a significant factor in the manufacturing and marketing of any
products that may be developed by the Company. The nature and extent to which
such regulation may apply to the Company will vary depending on the nature of
any such products. All of the Company's products will require regulatory
approval by governmental agencies prior to commercialization. Human
therapeutics, in particular, are subject to rigorous preclinical and clinical
testing and other approval procedures by the FDA and similar health authorities
in foreign countries. Various federal statutes and regulations also govern or
influence the manufacturing, safety, labeling, storage, record keeping and
marketing of such products.

The Immunization Practices Advisory Committee ("ACIP") of the CDC has a
role in setting the market for most, if not all, of the products OraVax intends
to make. The ACIP meets quarterly to review developing data on licensed
vaccines, and those approaching license, as well as epidemiologic data on the
need for these products. The recommendations of ACIP on the appropriate use of
vaccines and related products are published in the Morbidity and Mortality
Weekly Report and reprinted in several journals. The CDC develops epidemiologic
data in support of the need for new vaccines and monitors vaccine usage and
changes in disease incidence. In addition CDC staff frequently act as key
advisors to the FDA in their review process.

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<PAGE> 40

The Company believes that both its vaccines and antibody products will be
classified by the FDA as "biologic products" as opposed to "drug products." New
biologic products must satisfy several requirements in order to receive
regulatory approval, including: preclinical laboratory and animal tests;
submission by the Company or an individual physician to the FDA of an
application for an IND, or submission to an Institutional Review Board of a
research institution for approval of intrastate trials, one of which must become
effective before human clinical trials may start; the performance of
well-controlled clinical trials; and the submission of a Product License
Application ("PLA") containing the results of clinical trials and manufacturing
information prior to commercial sale or shipment of the product. During the
approval process, the FDA must confirm that appropriate standards were
maintained during product testing and that the product meets regulatory
standards for safety and efficacy. In addition to obtaining FDA approval for
each PLA, an Establishment License Application ("ELA") must be filed and
approved by the FDA for the manufacturing facilities for a biologic product
before commercial marketing of the biologic product is permitted. As a
consequence of regulatory reforms initiated in 1995, a formal ELA may not be
needed for some of the Company's product candidates. However, manufacturing
practices will continue to be subject to FDA regulations and review. The
regulatory process may take many years and requires the expenditure of
substantial resources. Before testing of any agents with potential therapeutic
value in healthy human test subjects or patients may begin, government
requirements for preclinical data must be satisfied. These data, obtained from
studies in animals, as well as from laboratory studies, are generally submitted
in an IND application or its equivalent in countries outside the United States
where clinical studies are to be conducted. These preclinical data must provide
an adequate basis for evaluating both the safety and the scientific rationale
for the initial Phase 1 studies in human volunteers.

Phase 1 clinical studies are generally performed in healthy human subjects
or, occasionally, selected patients with the targeted disease or disorder. The
goal of the Phase 1 study is to establish initial data about safety and
tolerance of the drug in humans. Also, the first data regarding the absorption,
distribution, metabolism and excretion of the drug in humans, or the immune
response to a vaccine, may be obtained. In Phase 2 human clinical studies,
evidence is sought about the desired therapeutic efficacy of a drug or antibody,
or the immune response to a vaccine, in limited studies with small numbers of
carefully selected subjects. Efforts are made to evaluate the effects of various
dosages and to establish an optimal dosage level and dosage schedule. Additional
safety data are also gathered from these studies. The Phase 3 clinical
development program consists of expanded, large scale, multicenter studies of
patients with the target disease or disorder, or in the case of a preventive
antibody or vaccine, who are susceptible to the disease. The goal of these
studies is to obtain definitive statistical evidence of the efficacy and safety
of the proposed product and dosage regimen.

At the same time that the human clinical program is being performed,
additional non-clinical (animal) studies may also be conducted. In addition,
expensive, long duration toxicity, teratogenicity (birth defects) and
carcinogenicity studies may be required to demonstrate the safety of drug
administration for the extended period of time required for effective therapy.
Also, a variety of laboratory, animal and initial human studies are performed to
establish manufacturing methods for the drug, as well as stable, effective
dosage forms.

All data obtained from this comprehensive development program are submitted
as a PLA to the FDA and the corresponding agencies in other countries for review
and approval. FDA approval of the PLA and the associated manufacturing
documentation is required before marketing may begin in the United States.
Although the FDA's policy is to review priority applications within 180 days of
their filing, in practice longer times may be required. The FDA frequently
requests that additional information be submitted requiring significant
additional review time. Essentially, all proposed products of the Company will
be subject to demanding and time-consuming PLA or similar approval procedures in
the countries where the Company intends to market its products. These
regulations define not only the form and content of the development of safety
and efficacy data regarding the proposed product, but also impose specific
requirements regarding manufacture of the product, quality assurance, packaging,
storage, documentation and record keeping, labelling and advertising, and
marketing procedures. Effective commercialization also requires inclusion of the
Company's products in national, state, provincial, or institutional formularies
or cost reimbursement systems.

In addition, the activities of the Company, and its potential partners and
licensees are subject to laws and regulations regarding, among other things,
occupational safety, the use and handling of radioisotopes,

38
<PAGE> 41

environmental protection, laboratory and manufacturing working conditions,
handling and disposition of potentially hazardous materials, and use of
laboratory animals.

Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities may be necessary in foreign countries prior to
the commencement of marketing of the product in such countries. The approval
procedure varies among countries, can involve additional testing, and the time
required may differ from that required for FDA approval. Although there is now a
centralized European Community approval mechanism in place, each European
country may nonetheless impose its own procedures and requirements, many of
which are time consuming and expensive. Thus, there can be substantial delays in
obtaining required approvals from both the FDA and foreign regulatory
authorities after the relevant applications are filed. The Company expects to
rely on corporate partners and licensees, along with Company expertise, to
obtain governmental approval in foreign countries of drug formulations utilizing
its compounds. See "Risk Factors -- Government Regulation; No Assurance of
Regulatory Approval."

HEALTHCARE REIMBURSEMENT

In both domestic and foreign markets, sales of the Company's products, if
any, will depend, in part, on the availability of reimbursement from third-party
payors, such as government health administration authorities, private health
insurers and other organizations. Third-party payors are increasingly
challenging the price and cost-effectiveness of medical products. There can be
no assurance that the Company's products will be considered cost-effective or
that adequate third-party reimbursement will be available to enable the Company
to maintain price levels sufficient to realize an appropriate return on its
investment in product development. See "Risk Factors -- Uncertainty of
Third-Party Reimbursement."

PRODUCT LIABILITY

The Company's business exposes it to potential liability risks that are
inherent in the testing, manufacturing and marketing of medical products. The
use of the Company's products or clinical trials may expose the Company to
product liability claims and possible adverse publicity. These risks also exist
with respect to the Company's products, if any, that receive regulatory approval
for commercial sale. The Company currently has limited product liability
coverage for the clinical research use of its products which management believes
is customary for a Company with products at this stage of clinical development.
The Company does not have product liability insurance for the commercial sale of
its products but intends to obtain such coverage if and when its products are
commercialized. However, such coverage is becoming increasingly expensive and
there can be no assurance that the Company will be able to maintain its existing
insurance coverage or obtain additional insurance coverage at acceptable costs,
if at all, or that a product liability claim would not materially adversely
affect the business or financial condition of the Company.

If and when the Company manufactures vaccines which are recommended for
routine administration to children, it is possible that the Company will be
required to participate in the National Vaccine Injury Compensation Program.
This program compensates children having adverse reactions to certain routine
childhood immunizations with funds collected through an excise tax from the
manufacturers of these vaccines.

FACILITIES

The Company's administrative offices and research facilities consist of an
aggregate of approximately 53,000 square feet of leased space at 38 Sidney
Street, Cambridge, Massachusetts. The Company moved its principal offices to the
38 Sidney Street location from a nearby building in Cambridge in December 1995,
significantly expanding its available laboratory and office space and improving
its facilities. In January 1996, the Company leased a fully-equipped
manufacturing facility of approximately 47,000 square feet in Canton,
Massachusetts and purchased substantial related equipment from the former
tenant. The Company believes these facilities are adequate for its needs for the
foreseeable future.

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<PAGE> 42

EMPLOYEES

As of April 15, 1996, OraVax employed a work force of 91 persons including
73 persons employed full-time, of which 11 are leased employees, and seven
persons employed part-time. Of this total work force, 70 persons are engaged in
research and development activities and 18 are devoted to research and
facilities support and administrative activities. Twenty-two persons hold Ph.D.
or M.D. degrees. A significant number of the Company's management and
professional employees have had prior experience with pharmaceutical,
biotechnology or medical products companies. OraVax believes that it has been
successful in attracting skilled and experienced scientific personnel; however,
competition for such personnel is intense. See "Risk Factors -- Dependence on
Attraction and Retention of Key Employees." OraVax believes that its
relationships with its employees are good.

ACADEMIC CONSULTANTS

OraVax has relationships with a number of academic consultants. These
persons are not employees of the Company. Accordingly, the Company has limited
control over their activities and can expect only limited amounts of their time
to be dedicated to the Company's activities. These persons may or may not enjoy
relationships with other commercial entities, some of which could compete with
the Company. Although the precise nature of each relationship varies, the
consultants generally sign agreements which provide for confidentiality of the
Company's proprietary information and results of studies but not for the
assignment of inventions. There can be no assurance that OraVax will in
connection with every relationship be able to maintain the confidentiality of
the Company's technology, dissemination of which could have a materially adverse
effect on the Company's business. Further, there can be no assurance that the
Company will be able to license inventions and technology discovered by such
consultants. See "Risk Factors -- Patents and Proprietary Rights."

LEGAL PROCEEDINGS

The Company is not a party to any litigation or legal proceedings that it
believes could have a material adverse effect on the Company or its business.

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<PAGE> 43

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

<TABLE>
The executive officers and Directors of the Company are as follows:

<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lance K. Gordon, Ph.D.............. 48 President, Chief Executive Officer and Director

Samuel K. Ackerman, M.D............ 48 Vice President, Development and Regulatory Affairs
Keith S. Ehrlich................... 45 Vice President, Finance and Administration, Chief
Financial Officer, Secretary and Treasurer

Thomas P. Monath, M.D.............. 55 Vice President, Research and Medical Affairs

Robert B. Rombauer, Ph.D........... 57 Vice President, Business Development, Sales and
Marketing

Douglas MacMaster(1)(2)............ 65 Chairman of the Board of Directors

Richard A. Charpie, Ph.D.(1)....... 44 Director

Jean J. Deleage, Ph.D.(1).......... 55 Director

Andre L. Lamotte, Sc.D.(2)......... 46 Director

Allen Misher, Ph.D................. 64 Director
<FN>

- ---------------
(1) Member of the Audit Committee of the Board of Directors.

(2) Member of the Compensation Committee of the Board of Directors.
</TABLE>

LANCE K. GORDON, PH.D. has served as the President and Chief Executive
Officer and a member of the Board of Directors of the Company since June 1990.
From January 1989 to June 1990, Dr. Gordon served as Senior Vice President of
North American Vaccine, Inc., a biopharmaceutical company. From April 1988 to
January 1989, he served as Chief Executive Officer of American Vaccine
Corporation and Selcore Laboratories, Inc., both of which are biopharmaceutical
companies. From 1987 to 1988, Dr. Gordon was Associate Director, Infectious &
Inflammatory Diseases, Clinical Pharmacology -- Drug Medical Affairs, of E.R.
Squibb & Sons, Inc., a pharmaceutical company. From 1981 to 1987, he was
Director, Immunobiology Research at Connaught Laboratories, Ltd., a
pharmaceutical company. During his seven years with Connaught Laboratories, Dr.
Gordon was responsible for both bacterial and viral research and development
programs. He was the inventor and Project Director of the Connaught HAEMOPHILUS
INFLUENZAE type b conjugate vaccine, ProHibit. Dr. Gordon also serves on the
advisory boards of the not-for-profit Albert Sabin Foundation and BioSciences
Contract Production, a private biopharmaceutical services company. Dr. Gordon
received a B.A. from the University of California at Humboldt and a Ph.D. in
Biomedical Science from the University of Connecticut. Dr. Gordon completed his
postdoctoral fellowship at the Howard Hughes Medical Institute.

SAMUEL K. ACKERMAN, M.D. has served as Vice President, Development and
Regulatory Affairs of the Company since December 1993. From 1986 to November
1993, Dr. Ackerman was Senior Vice President, Medical and Regulatory Affairs, of
XOMA Corporation, a biopharmaceutical company, where he had responsibility for
regulatory affairs, clinical development and quality control. Dr. Ackerman
received his B.A. degree from Cornell University and his M.D. from Jefferson
Medical College. He received his postdoctoral training at the University of
Minnesota.

KEITH S. EHRLICH has served as Vice President, Finance and Administration,
Chief Financial Officer and Treasurer of the Company since October 1993. He was
elected Secretary in March 1995. From May 1991 to October 1993, Mr. Ehrlich
served as Treasurer and Director of Finance of Vertex Pharmaceuticals
Incorporated ("Vertex"), a biopharmaceutical company where he had responsibility
for finance, accounting and human resources. While at Vertex he also served as
Treasurer of its wholly-owned subsidiary, Altus Biologics Inc. From 1980 to May
1991, Mr. Ehrlich served in a variety of positions at Coopers & Lybrand L.L.P.,
an accounting firm, most recently as Senior Audit Manager. Mr. Ehrlich is a
Certified Public Accountant and received his B.A. in Biology from Drew
University and his M.B.A. from Rutgers University.

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<PAGE> 44

THOMAS P. MONATH, M.D. has served as Vice President, Research and Medical
Affairs of the Company since December 1993. From April 1992 to December 1993, he
served as Vice President, Research and Development of the Company and from
October 1991 to March 1992, he served as a consultant to the Company. From
November 1988 to October 1991, Dr. Monath was Chief, Virology Division of the
United States Army Medical Research Institute of Infectious Diseases, Fort
Detrick, Maryland. As Chief of the Virology Division, Dr. Monath directed the
development of conventional and genetically engineered viral vaccines and the
discovery, evaluation, preclinical testing and clinical development of antiviral
drugs. Dr. Monath currently serves as a member of the Steering Committee on
Dengue and Japanese Encephalitis of the Global Program for Vaccines and
Immunization of the World Health Organization. Dr. Monath received a B.A. from
Harvard College and an M.D. from Harvard Medical School.

ROBERT B. ROMBAUER, PH.D. has served as Vice President, Business
Development, Sales and Marketing of the Company since May 1992. From May 1991 to
May 1992, Dr. Rombauer was self-employed as a healthcare investment advisor.
From December 1986 to May 1991, he was a partner and officer of Merrill Lynch
Venture Capital, Inc., a venture capital investment company, specializing in
early to medium-stage biotechnology and life science investments. Dr. Rombauer
received a B.S. in Chemistry from Yankton College and a Ph.D. in Biochemistry
from the University of Missouri. Dr. Rombauer completed his postdoctoral
fellowship at Albert Einstein College of Medicine.

DOUGLAS MACMASTER has served as a Director of the Company since March 1993
and was elected Chairman of the Board of Directors in April 1994. From July 1988
until his retirement in January 1992, Mr. MacMaster served as a Senior Vice
President of Merck & Co., Inc. ("Merck"), a pharmaceutical company, with
responsibility for worldwide chemical and pharmaceutical manufacturing,
worldwide construction, the Agvet division and the Speciality Chemicals Group.
From October 1985 to July 1988, Mr. MacMaster was President of the Merck Sharp &
Dohme Division, with responsibility for the United States human healthcare
business. Mr. MacMaster was an employee of Merck for 30 years. He is currently
on the Board of Directors of American Precision Industries, Inc., Martek
Biosciences Corp., Neose Pharmaceuticals, Inc., Phyto Pharmaceuticals Inc. and
U.S. Bioscience, Inc. Mr. MacMaster received his A.B. degree from St. Francis
Xavier University (Canada) and his J.D. degree from Boston College Law School.

RICHARD A. CHARPIE, PH.D. served as a Director of the Company from 1990 to
1991, and returned as a Director in 1994. Dr. Charpie joined Ampersand Ventures,
a venture capital firm, in March 1980, and became Managing General Partner in
August 1983. He serves as the Managing General Partner of ASMV Management
Company, L.P. ("ASMV"), which is the General Partner of Ampersand Specialty
Materials Ventures Limited Partnership ("Ampersand"), and as the Managing
General Partner of LAB-I Management Company ("LAB-I"), which is the General
Partner of Laboratory Partners I Limited Partnership ("Laboratory Partners I")
and Laboratory Partners Companion Fund Limited Partnership ("Laboratory
Partners"). Dr. Charpie received his S.B. and M.S. in Physics, and his Ph.D. in
Applied Economics and Finance, from the Massachusetts Institute of Technology.

JEAN J. DELEAGE, PH.D. has served as a Director of the Company since 1991.
Since 1976, he has served as Vice President and Managing General Partner of
Burr, Egan, Deleage & Co., a venture capital firm ("Burr, Egan") Burr, Egan
serves as the investment advisor to Alta IV Limited Partnership ("Alta IV") and
C.V. Sofinnova Partners Five ("Sofinnova"). Dr. Deleage is the Managing Partner
of Burr, Egan and is a General Partner of Alta IV Management Partners ("Alta IV
MP") the General Partner of Alta IV. Dr. Deleage is a director of Abaxis, Inc.
Dr. Deleage received a Masters Degree in Electronic Engineering from the Ecole
Superieure d'Electricite and a Ph.D. in Economics from the Sorbonne.

ANDRE L. LAMOTTE, SC.D. has served as a Director of the Company since April
1990. Since April 1989, he has served as the Managing General Partner of Medical
Science Ventures ("MSV"), the General Partner of Medical Science Partners L.P.
("MSP"), and as Managing General Partner of Medical Science Ventures II ("MSV
II"), the General Partner of Medical Science Partners II, L.P. ("MSP II") and
Medical Science II Co-Investment L.P. ("MSP II-Co"). Dr. Lamotte received a B.S.
in General Engineering from Ecole Centrale Paris, an M.S. in Chemical
Engineering and an Sc.D. in Chemical Engineering from the

42
<PAGE> 45

Massachusetts Institute of Technology, and a M.B.A. from the Harvard Graduate
School of Business Administration.

ALLEN MISHER, PH.D. has served as a member of the Board of Directors of the
Company since February 1996. Dr. Misher is President Emeritus of the
Philadelphia College of Pharmacy and Science where he served as President from
January 1984 until his retirement in December 1994. From 1982 to 1984 he served
as Senior Vice President at National Medical Care, Inc., a company specializing
in outpatient renal dialysis and related services. From 1960 to 1982 Dr. Misher
held various executive positions at SmithKline & French Laboratories including
Vice President, Research, Vice President, Manufacturing and President,
Smithkline Medical Diagnostic Group. He is currently a Director of US
Healthcare, Inc., G.D. Searle & Co., Cortech, Inc., US Bioscience, Inc. and
Litmus Concepts. Dr. Misher received his B.S. from the Philadelphia College of
Pharmacy and Science and a Ph.D. in Physiology from the University of
Pennsylvania.

The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The Board is comprised of two Class I
Directors (Mr. MacMaster and Dr. Lamotte), two Class II Directors (Dr. Deleage
and Dr. Misher) and two Class III Directors (Dr. Charpie and Dr. Gordon). At
each annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
expiring. The terms of the Class I Directors, Class II Directors and Class III
Directors will expire upon the election and qualification of successor directors
at the annual meeting of stockholders held during the calendar years 1996, 1997
and 1998, respectively.

The Board of Directors has a Compensation Committee comprised of Dr.
Charpie, Dr. Lamotte and Mr. MacMaster, which makes recommendations concerning
salaries and incentive compensation for employees of and consultants to the
Company, and an Audit Committee comprised of Drs. Charpie and Deleage and Mr.
MacMaster, which reviews the results and scope of the audit and other services
provided by the Company's independent public accountants.

Drs. Gordon, Lamotte and Charpie were nominated and elected to the Board of
Directors pursuant to a voting agreement among the Company's stockholders which
terminated upon the consummation of the Company's initial public offering.

Executive officers serve at the discretion of the Board of Directors. There
are no family relationships among any of the Directors and executive officers of
the Company.

DIRECTOR COMPENSATION

Except as described below, the Company's Directors do not receive any cash
compensation for service on the Board of Directors or any committee thereof, but
are reimbursed for expenses actually incurred in connection with attending
meetings of the Board and any committee thereof. The Company pays reasonable
travel and out-of-pocket expenses incurred by non-employee Directors in
connection with attendance at meetings to transact the business of the Company
or attendance at meetings of the Board of Directors or any committee thereof. In
April 1994, the Company entered into an agreement with Mr. MacMaster, Chairman
of the Board of Directors, pursuant to which Mr. MacMaster receives an annual
retainer of $25,000 paid quarterly in advance, a fee of $2,000 per day for
attending meetings of the Board of Directors or other meetings attended at the
request of the Company's President or the Board of Directors, including monthly
advisory meetings, plus travel expenses. Mr. MacMaster received $57,000 from the
Company pursuant to this Agreement in 1995. In addition, on March 6, 1993, Mr.
MacMaster received an option to purchase 8,500 shares of Common Stock at an
exercise price of $0.765 per share. The option vests in three equal annual
installments commencing one year after the date of grant. In addition, Mr.
MacMaster received an option, effective February 6, 1995, to purchase 12,750
shares of Common Stock at an exercise price of $3.529 per share. The option
vests in five equal annual installments commencing one year after the date of
grant. In February 1996, the Company entered into an agreement with Dr. Misher
pursuant to which Dr. Misher receives an annual retainer of $5,000 and a fee of
$1,500 per meeting of the Board of Directors attended. In addition, on February
9, 1996, Dr. Misher received an option to purchase 10,000 shares of Common Stock
at an exercise price of $13.25 per share. The option vests in three equal annual
installments commencing one

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<PAGE> 46

year after the date of grant. For a discussion of certain transactions between
the Company and affiliates of certain Directors, see "Certain Transactions."

EXECUTIVE COMPENSATION

<TABLE>
The following table sets forth certain information with respect to the
compensation paid by the Company during the fiscal years ended December 31, 1994
and 1995 to the Company's Chief Executive Officer and each of the Company's four
other most highly compensated executive officers whose cash compensation
exceeded $100,000 in 1995 (the Chief Executive Officer and such other executive
officers are hereinafter referred to as the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) ------------------
------------------------------------ SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL UNDERLYING OPTIONS COMPENSATION
POSITION YEAR ($) ($)(2) COMPENSATION(3) (#) ($)(4)
- ------------------------ ---- -------- ------- --------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lance K. Gordon......... 1995 $220,500 $40,793 $ 7,009 0 $ 45,653
President and Chief 1994 $180,159 $30,000 $ 5,099 90,023 $ 47,924
Executive Officer

Samuel K. Ackerman...... 1995 $220,500 $40,793 $ 6,722 0 --
Vice President, 1994 $205,000 $54,286 $ 6,124 38,250 $229,356(5)
Development and
Regulatory Affairs

Thomas P. Monath........ 1995 $157,500 $29,138 $ 5,034 0 --
Vice President, Research 1994 $142,500 $27,000 $ 2,221 55,012 --
and Medical Affairs

Robert B. Rombauer...... 1995 $147,000 $25,725 $ 7,008 0 --
Vice President, Business 1994 $135,138 $26,000 $ 5,257 33,341 $ 10,000
Development, Sales and
Marketing

Keith S. Ehrlich........ 1995 $131,250 $24,938 $ 1,039 0 --
Vice President, Finance 1994 $120,122 $26,833 $ 5,019 21,250 --
and Administration,
Treasurer and Secretary
<FN>
- ---------------
(1) Includes amounts payable in a subsequent fiscal year for services rendered
by the Named Executive Officer in the fiscal year.

(2) Other compensation in the form of perquisites and other personal benefits
has been omitted because it constitutes less than the lesser of $50,000 or
ten percent of the total annual salary and bonus for the Named Executive
Officer.

(3) Includes term-life insurance premiums and financial planning expenses paid
by the Company to the Named Executive Officer.

(4) Represents relocation allowances paid by the Company.

(5) The $229,356 relocation reimbursement paid to Mr. Ackerman consists of
$47,922 in temporary living and commuting costs, $87,683 in moving and real
estate closing costs and $93,751 for reimbursement of related federal and
state income taxes.
</TABLE>

Option Grants

The Company did not grant any options to the Named Executive Officers
during the fiscal year ended December 31, 1995.

44
<PAGE> 47

Option Exercises and Holdings

<TABLE>
The following table sets forth certain information regarding each exercise
of a stock option during the fiscal year ended December 31, 1995 by each of the
Named Executive Officers and the number and value of unexercised stock options
held as of December 31, 1995 by each of the Named Executive Officers:

AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES

<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR-END(#) FISCAL YEAR-END($)(2)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ---------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Lance K. Gordon.............. -- $ -- 57,605/111,621 $597,845/$1,086,368

Samuel K. Ackerman........... 5,125 49,675 43,325/73,100 404,425/676,119

Thomas B. Monath............. 7,976 94,060 62,788/84,271 669,627/840,869

Robert B. Rombauer........... 1,615 19,653 52,286/55,889 562,139/562,576

Keith S. Ehrlich............. 6,770 66,455 15,189/34,710 141,231/320,169
<FN>

- ------------------------------
(1) Represents the difference between the exercise price and the fair market
value on the date of exercise.

(2) Based on the fair value of the Common Stock on December 31, 1995 ($11.75),
less the option exercise price.
</TABLE>

EMPLOYMENT AGREEMENTS

Under the terms of an employment agreement dated July 19, 1990, Dr. Gordon
serves as President, Chief Executive Officer and a director of the Company and
is entitled to receive an annual base salary, as determined by the Board of
Directors, of $250,000 for 1996, plus a bonus based upon the achievement of
certain defined management objectives. The employment agreement automatically
renews for successive 12-month periods. Dr. Gordon's employment is terminable
(i) by the Company or Dr. Gordon at any time upon not less than six months'
prior written notice or (ii) by the Company, for "cause" (as defined in the
employment agreement), immediately upon written notice. In the event the Company
elects not to extend the employment agreement or terminates Dr. Gordon without
"cause," the Company must pay Dr. Gordon a one time severance payment equal to
fifty percent (50%) of his annual base salary in effect at the time. Dr. Gordon
has agreed, for a period of one year following termination of his employment,
not to engage in any business activity that directly or indirectly competes with
the Company or to provide any services to the Company's competition or its
clients. Dr. Gordon also has agreed not to disclose any of the Company's
proprietary information to third parties without the written approval of the
Company either during or after his employment. In connection with the execution
of his employment agreement, the Company agreed to sell, and Dr. Gordon agreed
to buy, 70,834 shares of the Company's Common Stock at a purchase price of
$0.235 per share. See "Certain Transactions."

Under the terms of an employment agreement dated December 1, 1993, Dr.
Ackerman serves as Vice President of Development and Regulatory Affairs and is
entitled to receive an annual salary of $231,525 in 1996, plus a bonus based
upon the achievement of certain defined management objectives. Pursuant to the
employment agreement, the Company granted to Dr. Ackerman an option to purchase
85,000 shares of the Company's Common Stock at $2.353 per share, vesting over a
four-year period, and reimbursed Dr. Ackerman for expenses associated with his
relocation to the Boston, Massachusetts area.

Under the terms of an employment agreement dated October 18, 1991, Dr.
Monath serves as Vice President, Research and Development and is entitled to
receive an annual base salary of $190,000 for 1996. Pursuant to the employment
agreement, the Company granted Dr. Monath an option to purchase 39,006

45
<PAGE> 48

shares of the Company's Common Stock at $0.706 per share, vesting over a
four-year period, and reimbursed Dr. Monath for expenses associated with his
relocation to the Boston, Massachusetts area.

Under the terms of an employment agreement dated May 1, 1992, Dr. Rombauer
serves as Vice President, Business Development and is entitled to receive an
annual salary of $157,290 for 1996. Pursuant to the employment agreement, the
Company granted to Dr. Rombauer an option to purchase 27,625 shares of the
Company's Common Stock at $0.706 per share, vesting over a four-year period;
provided, however, that the option will become fully vested at any time in the
event of (i) a change of control of the Company, (ii) Dr. Rombauer's death or
disability, or (iii) termination of Dr. Rombauer's employment without cause. The
Company also agreed to reimburse Dr. Rombauer for expenses associated with his
relocation to the Boston, Massachusetts area.

Under the terms of an employment agreement dated October 8, 1993, Mr.
Ehrlich serves as the Vice President of Finance and Administration and Chief
Financial Officer and is entitled to receive an annual salary of $145,000 for
1996, plus a bonus based upon the achievement of certain defined management
objectives. Pursuant to the employment agreement, the Company granted to Mr.
Ehrlich an option to purchase 35,419 shares of Common Stock at $2.353 per share,
vesting over a four-year period.

The employment agreements with Drs. Ackerman, Monath and Rombauer and Mr.
Ehrlich (each an "Executive" and collectively, the "Executives") are each for an
initial period of three years and are thereafter automatically renewable for
successive twelve-month periods unless terminated by either party by giving six-
months' prior written notice to the other. Each of the Executive's employment is
terminable by the Company, by giving prior written notice, at any time, with or
without "cause" (as defined in each employment agreement). In the event the
Company terminates any Executive's employment without "cause," the Executive is
entitled to receive his then current salary for a period of six months following
such termination. In addition, each Executive has agreed, for a period of three
years in the case of Dr. Monath and one year for Drs. Rombauer and Ackerman and
Mr. Ehrlich, not to engage in any business activity that directly or indirectly
competes with the Company or to provide any services to the Company's
competition. Each Executive has also entered into a Confidential Information and
Invention Assignment Agreement with the Company pursuant to which each Executive
has agreed (i) not to disclose any of the Company's proprietary information to
third parties without the prior written approval of the Company either during or
after his employment and (ii) to assign to the Company his full right and title
in and to any inventions made during the course of his employment with the
Company.

EMPLOYEE STOCK PLANS

1995 STOCK OPTION PLAN

The Company's 1995 Stock Option Plan (the "1995 Option Plan") was adopted
by the Board of Directors and approved by the stockholders of the Company in
March 1995. The 1995 Option Plan provides for the grant of stock options to
employees, officers and directors of, and consultants or advisers to, the
Company and its subsidiaries. Under the 1995 Option Plan, the Company may grant
options that are intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") ("incentive stock options"), or options not intended to qualify as
incentive stock options ("nonstatutory options"). Incentive stock options may
only be granted to employees of the Company. A total of 300,000 shares of Common
Stock may be issued upon the exercise of options granted under the 1995 Option
Plan. As of April 15, 1996, options to purchase a total of 96,125 shares of
Common Stock at a weighted average exercise price of $13.225 per share were
outstanding under the 1995 Option Plan. These options generally vest in five
equal annual installments commencing on the date of grant. The maximum number of
shares with respect to which options may be granted to any employee under the
1995 Option Plan shall not exceed 100,000 shares of Common Stock during any
calendar year.

The 1995 Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1995 Option Plan, the
Compensation Committee has the authority to select the employees to whom options
are granted and determine the terms of each option, including (i) the number of
shares of Common Stock subject to the option, (ii) when the option becomes
exercisable, (iii) the option

46
<PAGE> 49

exercise price, which, in the case of incentive stock options, must be at least
100% (110% in the case of incentive stock options granted to a stockholder
owning in excess of 10% of the Company's Common Stock) of the fair market value
of the Common Stock as of the date of grant, and (iv) the duration of the option
(which, in the case of incentive stock options, may not exceed ten years).

Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash and Common Stock or by any other method (including
delivery of a promissory note payable on terms specified by the Compensation
Committee) approved by the Compensation Committee consistent with Section 422 of
the Code and Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Options are not assignable or transferable except by will
or the laws of descent and distribution and, in the case of nonstatutory
options, pursuant to a qualified domestic relations order (as defined in the
Code).

As of April 15, 1996, the Company had approximately 73 full-time employees
who were eligible to participate in the 1995 Option Plan. The number of persons
receiving stock options varies from year to year depending on various factors,
such as the number of promotions and the Company's hiring needs during the year,
and thus the Company cannot now determine award recipients.

The Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1995 Option Plan,
including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Compensation Committee, so long as not
inconsistent with the 1995 Option Plan or applicable law. The Compensation
Committee may also, in its sole discretion, accelerate or extend the date or
dates on which all or any particular option or options granted under the 1995
Option Plan may be exercised.

1995 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in March 1995 and became effective upon the closing of the Company's
initial public offering. The Purchase Plan authorizes the issuance of up to a
total of 100,000 shares of Common Stock to participating employees. As of April
15, 1996, a total of 82,331 shares remained available for purchase under the
Purchase Plan.

All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible to
participate. As of April 15, 1996, approximately 64 of the Company's employees
were eligible to participate in the Purchase Plan.

On the first day of a designated payroll deduction period (the "Offering
Period"), the Company grants to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 15%
of such employee's regular pay) to be deducted by the Company from such pay
during the Offering Period. On the last day of the Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase Plan,
the option price is an amount equal to 85% of the fair market value per share of
the Common Stock on either the first day or the last day of the Offering Period,
whichever is lower. In no event may an employee purchase in any one Offering
Period a number of shares which is more than 15% of the employee's annualized
base pay divided by 85% of the market value of a share of Common Stock on the
commencement date of the Offering Period. The Compensation Committee may, in its
discretion, choose an Offering Period of 12 months or less for each of the
Offerings and choose a different Offering Period for each Offering.

If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An

47
<PAGE> 50

employee's rights under the Purchase Plan terminate upon voluntary withdrawal
from the Purchase Plan at any time, or when such employee ceases employment for
any reason, except that upon termination of employment because of death, the
employee's beneficiary has certain rights to elect to exercise the option to
purchase the shares which the accumulated payroll deductions in the
participant's account would purchase at the date of death.

1990 STOCK OPTION PLAN

The Company's 1990 Stock Option Plan (the "1990 Option Plan") was approved
by the Board of Directors and the stockholders in September 1990 and provides
for the grant of options to purchase up to an aggregate of 850,000 shares of
Common Stock. The purpose of the 1990 Option Plan is to secure for the Company
and its stockholders the benefits arising from capital stock ownership by
employees, officers and directors of, and consultants and advisors to, the
Company who are expected to contribute to the Company's future growth and
success. As of April 15, 1996, options to purchase a total of 769,838 shares of
Common Stock at a weighted average exercise price of $2.129 per share were
outstanding under the 1990 Option Plan.

401(K) SAVINGS AND RETIREMENT PLAN

In March 1994, the Company adopted a 401(k) Savings and Retirement Plan
(the "401(k) Plan"), a tax-qualified plan covering all of its employees who are
at least 21 years of age and have completed six months of service with the
Company. Each employee may elect to reduce his or her current compensation by up
to 15%, subject to the statutory limit (a maximum of $9,500 in 1996) and have
the amount of the reduction contributed to the 401(k) Plan. The 401(k) Plan
provides that the Company may, as determined from time to time by the Board of
Directors, provide a matching contribution which may be made in the form of
either cash or Common Stock. In addition, the Company may contribute an
additional amount to the 401(k) Plan, as determined by the Board of Directors,
which will be allocated based on the proportion of the employee's compensation
for the plan year to the aggregate compensation for the plan year for all
eligible employees.

All employee and Company contributions to the 401(k) Plan are fully vested
at all times. Upon termination of employment, a participant may elect a lump sum
distribution or, if his or her total amount in the 401(k) Plan is greater than
$3,500, may elect to receive benefits as retirement income.

For the fiscal year ended December 31, 1995, the Company declared aggregate
discretionary matching contributions to the plan of $68,000 in the form of 5,758
shares of Common Stock contributed to the 401(k) Plan. At December 31, 1995,
there were 44,242 shares of Common Stock reserved for future issuances to the
401(k) Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In 1995, the members of the Compensation Committee of the Board of
Directors were Mr. MacMaster and Drs. Lamotte and Charpie.

SCIENTIFIC ADVISORY BOARD

The Company's Scientific Advisory Board currently consists of five
individuals with recognized expertise in vaccine development. These individuals
advise the Company from time to time on matters relating to its current and
long-term scientific planning and research and development. The members of the
Scientific Advisory Board are compensated for advising the Company. The Company
paid an aggregate of $110,000 for such services in 1995. In 1993, the Company
granted an option to purchase 6,375 shares of Common Stock, at an exercise price
of $1.059, to Martin J. Blaser, M.D., a member of the Scientific Advisory Board.
All members of the Scientific Advisory Board are employed by employers other
than the Company, primarily academic institutions, and may have commitments to
or consulting or advisory agreements with other entities that may limit their
availability to the Company. These entities may also be competitors of OraVax.
In certain circumstances, the academic institutions that employ members of the
Scientific Advisory Board may assert ownership rights to inventions or other
technology that result from advice provided by such members to the

48
<PAGE> 51

Company. In such circumstances, the Company would seek to negotiate licenses to
such inventions or technology from the academic institutions. While academic
institutions routinely grant licenses of this sort, there can be no assurance
that the Company would be able to obtain such licenses on commercially
reasonable terms. No members of the Scientific Advisory Board are expected to
devote more than a small portion of their time to the Company.

The following individuals are the current members of the Scientific
Advisory Board:

JEAN-PIERRE KRAEHENBUHL, M.D., a scientific founder of the Company, has
been a Professor of Biochemistry at the University of Lausanne and senior staff
member at the Swiss Institute for Experimental Cancer Research since 1983. Dr.
Kraehenbuhl's research is focused on the cellular and molecular mechanisms which
mediate transepithelial transport processes with special emphasis on the
membrane proteins involved in mucosal antibody transport. Dr. Kraehenbuhl has
also held faculty positions at the Institute of Biochemistry, Lausanne
Switzerland, Yale University School of Medicine and Rockefeller University. He
received his M.D. from the Medical School of the University of Lausanne.

MARIAN R. NEUTRA, PH.D., a scientific founder of the Company, is a
Professor of Pediatrics at Harvard University Medical School and Director of the
GI Cell Biology Laboratory at Children's Hospital, Boston, Massachusetts. Dr.
Neutra's research is focused on the function of the intestinal epithelium at
cellular and subcellular levels, with emphasis on antigen transport, microbial
adherence, and secretion. Dr. Neutra received her Ph.D. in Cell Biology from
McGill University and joined the Harvard University Medical School Faculty in
1973.

MAURICE HILLEMAN, PH.D. is Director, Merck Institute for Therapeutic
Research, Merck Sharp & Dohme Research Laboratories, where he has also held the
position of Senior Vice President and Director of Virus and Cell Biology
Research. From 1948 to 1958, he was Chief of Viral Respiratory Disease Research
at the Walter Reed Army Institute of Research ("WRAIR"). Prior to that time, he
was Chief of Viral Disease at E.R. Squibb & Sons. He received an adjunct
professorship in Pediatrics in the School of Medicine at the University of
Pennsylvania and had prior appointments at the University of Maryland and
Rutgers University. Dr. Hilleman has engaged in a wide variety of basic and
applied research activities in virology, immunology, epidemiology, vaccine
development and clinical evaluation. He has served as a long-term advisor to the
United States government and the World Health Organization. He received a Ph.D.
degree from the University of Chicago in Microbiology and Virology.

MARTIN J. BLASER, M.D. is the Addison B. Scoville Professor of Medicine,
Professor of Microbiology and Immunology and the Director of the Division of
Infectious Diseases at the Vanderbilt University School of Medicine. Dr.
Blaser's research is focused on the role of gastrointestinal bacteria in human
disease. He has concentrated on the pathogenesis and immunology of Helicobacter
and Campylobacter infections. Dr. Blaser received a B.A. from the University of
Pennsylvania and an M.D. from New York University School of Medicine.

PHILIP K. RUSSELL, M.D. recently retired as Commanding General of the
United States Army Medical Research and Development Command and is currently
Special Advisor to the Children's Vaccine Initiative of the World Health
Organization and is a Professor at Johns Hopkins University. Dr. Russell
previously held a number of positions in biomedical research. He was Chief of
the Division of Communicable Diseases and later, Commander of WRAIR. In this
capacity, he directed a wide range of research efforts on vaccine and drug
development for malaria, leishmaniasis, enteric bacterial infections, gonorrhea,
meningitis, dengue, and viral hepatitis. Dr. Russell has served as a scientific
councilor to the Centers for Disease Control and as a consultant to numerous
organizations. He is past President of the American Society of Tropical Medicine
& Hygiene. Dr. Russell received an A.B. from Johns Hopkins University and an
M.D. from the University of Rochester.

49
<PAGE> 52

CERTAIN TRANSACTIONS

In June 1994, November 1994 and January 1995, respectively, the Company
sold an aggregate of 510,694 shares (which was converted into 2,170,426 shares
of Common Stock upon the closing of the Company's initial public offering) of
the Company's Series E Convertible Preferred Stock ("Series E Stock") to a group
of existing and new investors, including Ampersand, Laboratory Partners,
Laboratory Partners I, MSP, MSP II, MSP II-Co, Alta IV, Sofinnova and
Betainvest, at a purchase price of $39.00 per share ($9.176 on a common
equivalent basis) for an aggregate purchase price of $19,917,066. The Series E
Stock purchase price was paid, in part, by the cancellation and conversion of
promissory notes (plus accrued interest) issued to certain of the Series E
Purchasers by the Company in January and February 1994. Dr. Charpie, a director
of the Company, is Managing General Partner of ASMV, which is the General
Partner of Ampersand and is Managing General Partner of LAB-I which is the
General Partner of Laboratory Partners and Laboratory Partners I. Dr. Lamotte, a
director of the Company, is the Managing General Partner of MSV, the General
Partner of MSP and is the Managing General Partner of MSV II, the General
Partner of MSP II and MSP II-Co. Dr. Deleage, a director of the Company, is the
Managing General Partner of Burr, Egan. Burr, Egan serves as the investment
advisor to Alta IV and Sofinnova. Dr. Deleage is also a General Partner of Alta
IV MP, the General Partner of Alta IV.

For a description of certain transactions between the Company and Mr.
MacMaster, a director of the Company, see "Management -- Director Compensation."
For a description of certain employment and other arrangements between the
Company and its executive officers, see "Management -- Executive Compensation"
and "Management -- Employment Agreements."

In May 1994, the Company guaranteed an interim loan made by The First
National Bank of Boston to Dr. Gordon, President and Chief Executive Officer and
a director of the Company, of up to $90,000 in connection with Dr. Gordon's
relocation to, and purchase of a home in Boston, Massachusetts. This loan was
fully repaid prior to December 31, 1995.

For a description of certain registration rights held by Dr. Gordon and
certain stockholders of the Company, see "Description of Capital Stock."

The Company believes that the securities issued in the transactions
described above were sold at their then fair market value and that the terms of
the transactions described above were no less favorable than the Company could
have obtained from unaffiliated third parties.

The Company has a policy that all material transactions between the Company
and its officers, directors and other affiliates must (i) be approved by a
majority of the members of the Company's Board of Directors and by a majority of
the disinterested members of the Company's Board of Directors and (ii) be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties. In addition, this policy requires that any loans by the Company
to its officers, directors or other affiliates be for bona fide business
purposes only.

50
<PAGE> 53

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 15, 1996 (i) by each person
known by the Company to beneficially own more than 5% of the outstanding shares
of Common Stock, (ii) by each Director, (iii) by each of the Named Executive
Officers, and (iv) by all executive officers and Directors as a group.

<TABLE>
<CAPTION>
NAME AND NUMBER OF SHARES PERCENTAGE OF
ADDRESS OF BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED(1) SHARES(1)(2)
-------------------------------------------------------- ---------------- -------------
<S> <C> <C>
5% STOCKHOLDERS
Medical Science Partners, L.P(3)........................ 600,857 7.9%
20 William Street
Wellesley, MA 02181
Betainvest(4)........................................... 481,315 6.3
Avenue Montbenon 2
1002 Lausanne
Switzerland
DIRECTORS
Lance K. Gordon(5)...................................... 139,778 1.8
Jean J. Deleage(6)...................................... 336,281 4.4
Richard Charpie(7)...................................... 373,834 4.9
Andre L. Lamotte(8)..................................... 603,225 7.9
Douglas MacMaster(9).................................... 11,050 *
Allen Misher............................................ -- *
OTHER NAMED EXECUTIVE OFFICERS
Samuel K. Ackerman(10).................................. 47,068 *
Keith S. Ehrlich(11).................................... 18,358 *
Thomas P. Monath(12).................................... 92,409 1.2
Robert B. Rombauer(13).................................. 69,422 *
All Directors and executive officers as a group (10
persons)(14).......................................... 1,691,425 21.3
</TABLE>

- ---------------

* Less than 1%.

(1) Each stockholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise noted. Amounts shown include shares
issuable within the 60-day period following April 15, 1996 pursuant to the
exercise of options.

(2) Based on 9,643,306 shares outstanding as of April 15, 1996.

(3) Includes 26,320 shares held by MSP II-Co and 149,544 shares held by MSP II.
MSP is an affiliate of MSP II-Co and MSP II and may be deemed to be the
beneficial owner of shares held by such entities.

(4) Betainvest disclaims beneficial ownership of the shares registered in its
name.

(5) Includes 77,406 shares of Common Stock which Dr. Gordon has the right to
acquire upon exercise of options within 60 days after April 15, 1996.

(6) Includes 281,523 shares held by Alta IV and 51,361 shares held by
Sofinnova. Burr, Egan serves as the investment advisor to Alta IV and
Sofinnova. Dr. Deleage is the Managing Partner of Burr, Egan and is a
General Partner of Alta IV Management Partners, L.P., the General Partner
of Alta IV, and may be deemed to share voting and investment powers for the
shares held by Alta IV and Sofinnova. Burr, Egan serves as an advisor to
Sofinnova. The principals of Burr, Egan disclaim beneficial ownership of
all such shares held by Alta IV and Sofinnova except to the extent of their
proportionate pecuniary interest therein. Mr. Deleage disclaims beneficial
ownership of all the shares for Alta IV and Sofinnova except to the extent
of his proportionate pecuniary interest therein.

51
<PAGE> 54

(7) Includes 187,828 shares held by Ampersand, 54,504 shares held by Laboratory
Partners and 127,171 shares held by Laboratory Partners I. Dr. Charpie is a
General Partner of the General Partner of Ampersand, Laboratory Partners
and Laboratory Partners I and may be considered the beneficial owner of the
shares held by Ampersand, Laboratory Partners and Laboratory Partners I
although Dr. Charpie disclaims beneficial ownership of such shares.

(8) Includes 424,993 shares held by MSP, 26,320 shares held by MSP II-Co and
149,544 shares held by MSP II. Dr. Lamotte is the Managing General Partner
of the General Partner of (i) MSP, and (ii) MSP II and MSP II-Co, and may
be deemed to be the beneficial owner of the shares held by MSP, MSP II and
MSP II-Co although Dr. Lamotte disclaims beneficial ownership of such
shares.

(9) Represents shares which Mr. MacMaster may acquire upon the exercise of
options within 60 days after April 15, 1996.

(10) Includes 43,325 shares which Dr. Ackerman may acquire upon the exercise of
options within 60 days after April 15, 1996.

(11) Includes 15,189 shares which Mr. Ehrlich may acquire upon the exercise of
options within 60 days after April 15, 1996.

(12) Includes 87,794 shares which Dr. Monath may acquire upon the exercise of
options within 60 days after April 15, 1996.

(13) Includes 67,107 shares which Dr. Rombauer and his spouse may acquire upon
the exercise of options within 60 days after April 15, 1996.

(14) Includes 301,871 shares which all Directors and executive officers as a
group may acquire upon the exercise of options within 60 days after April
15, 1996. See also Notes (5) through (13) above.

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<PAGE> 55

DESCRIPTION OF CAPITAL STOCK

As of April 15, 1996, there were 7,643,306 shares of Common Stock
outstanding, held of record by 202 stockholders.

COMMON STOCK

The Company's Second Amended and Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") authorizes the issuance of up to
25,000,000 shares of Common Stock, $.001 par value per share. Holders of Common
Stock are entitled to one vote for each share held on all matters submitted to a
vote of stockholders and do not have cumulative voting rights. Accordingly,
holders of a majority of the shares of Common Stock entitled to vote in any
election of directors may elect all of the directors standing for election.
Holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor and subject to any preferential dividend rights of any then outstanding
Preferred Stock. Upon the liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive ratably the net assets of
the Company available after the payment of all debts and other liabilities and
subject to any preferential dividend rights of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable.

PREFERRED STOCK

The Company has an authorized class of undesignated Preferred Stock
consisting of 2,000,000 shares, $.001 par value per share. The Board of
Directors will be authorized, subject to any limitations prescribed by law,
without further stockholder approval, to issue from time to time up to 2,000,000
shares of Preferred Stock, in one or more series. Each such series of Preferred
Stock shall have such number of shares, designations, preferences, voting
powers, qualifications and special or relative rights or privileges as shall be
determined by the Board of Directors, which may include, among others, dividend
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights.

The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. The Company
has no present plans to issue any shares of Preferred Stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.

The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the corporation entitled to vote. Under the Restated
Certificate of Incorporation, any vacancy on the Board of Directors, however
occurring,

53
<PAGE> 56

including a vacancy resulting from an enlargement of the Board, may only be
filled by vote of a majority of the directors then in office. The classification
of the Board of Directors and the limitations on the removal of directors and
filling of vacancies could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of the Company.

The Restated Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of the Company at an
annual meeting or special meeting of stockholders may only be taken if it is
properly brought before such meeting and may not be taken by written action in
lieu of a meeting. The Restated Certificate of Incorporation further provides
that special meetings of the stockholders may only be called by the Chairman of
the Board of Directors, the Chief Executive Officer or, if none, the President
of the Company or by the Board of Directors. Under the Company's Amended and
Restated By-Laws (the "By-Laws"), in order for any matter to be considered
"properly brought" before a meeting, a stockholder must comply with certain
requirements regarding advance notice to the Company. The foregoing provisions
could have the effect of delaying until the next stockholders' meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Company's
Common Stock, because such person or entity, even if it acquired a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only at
a duly called stockholders' meeting, and not by written consent.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or By-Laws,
unless a corporation's Certificate of Incorporation or By-Laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation and
the By-Laws require the affirmative vote of the holders of at least 75% of the
shares of capital stock of the Company issued and outstanding and entitled to
vote to amend or repeal any of the provisions described in the prior two
paragraphs.

The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.

REGISTRATION RIGHTS

As of April 15, 1996, the holders of 3,677,277 shares of Common Stock are
entitled to certain demand and piggyback registration rights with respect to
such shares. Any exercise of such registration rights may hinder the efforts by
the Company to arrange future financings or have an adverse effect on the market
price of the Common Stock. See "Shares Eligible for Future Sale."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.

54
<PAGE> 57

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, based upon the number of shares
outstanding at April 15, 1996, there will be 9,643,306 shares of Common Stock of
the Company outstanding. Of these shares, approximately 7,464,117 shares,
consisting of 2,000,000 shares sold in this offering, 2,300,000 shares sold in
the Company's initial public offering, and 3,164,117 shares eligible for resale
pursuant to Rule 144(k) of the Securities Act of 1933, as amended (the
"Securities Act"), will be immediately eligible for resale in the public market
without restriction under the Securities Act. Beginning in June 1996 and January
1997, approximately 1,028,061 shares and 737,374 additional shares,
respectively, will become eligible for immediate resale in the public market
subject to compliance with applicable provisions of Rule 144.

The Company, the executive officers and directors of the Company, and
certain stockholders of the Company, collectively holding 1,691,425 shares of
Common Stock at April 15, 1996, have agreed pursuant to certain agreements that
they will not, without the prior written consent of the Representatives of the
Underwriters, offer, sell or otherwise dispose of any shares of Common Stock
beneficially owned by them for a period of 90 days from the date of this
Prospectus, provided the Company (i) may grant options pursuant to the Company's
benefit plans described herein, (ii) may issue shares of Common Stock upon
exercise of an option or warrant on the conversion of a security outstanding on
the date hereof and (iii) may issue up to 100,000 shares in respect of the
acquisition by the Company of the assets or capital stock of another person or
entity provided that such shares may not be publicly sold for the remainder of
such 90-day period.

In general, under Rule 144 as currently in effect, a stockholder, including
an "affiliate" of the Company as that term is defined in Rule 144 ("Affiliate"),
who has beneficially owned his or her restricted securities (as that term is
defined in Rule 144) for at least two years from the later of the date such
securities were acquired from the Company or (if applicable) the date they were
acquired from an Affiliate is entitled to sell, within any three-month period, a
number of such shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 96,433 shares immediately
after this offering) or the average weekly trading volume in the Common Stock
during the four calendar weeks preceding the date on which notice of such sale
was filed under Rule 144, provided certain requirements concerning availability
of public information, manner of sale and notice of sale are satisfied. In
addition, under Rule 144(k), if a period of at least three years has elapsed
between the later of the date restricted securities were acquired from the
Company or (if applicable) the date they were acquired from an Affiliate of the
Company, a stockholder who is not an Affiliate of the Company at the time of
sale and has not been an Affiliate of the Company for at least three months
prior to the sale is entitled to sell the shares immediately without compliance
with the foregoing requirements under Rule 144.

The Securities and Exchange Commission (the "Commission") has proposed an
amendment to Rule 144 which would reduce the holding period for shares subject
to Rule 144 to be eligible for sale in the public market. If this proposal is
adopted, an additional 1,765,435 shares will become eligible for sale upon
completion of this offering.

Securities issued in reliance on Rule 701 are also restricted securities
and may be sold by stockholders other than Affiliates of the Company subject
only to the manner of sale provisions of Rule 144 and by Affiliates under Rule
144 without compliance with its two-year holding period requirement.

The Company has filed registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1995
Option Plan, the Purchase Plan and the 1990 Option Plan. Shares issued upon the
exercise of stock options will be eligible for resale in the public market
without restriction, subject to Rule 144 limitations applicable to Affiliates
and the lock-up agreements noted above.

At the completion of this offering, certain persons and entities will be
entitled to certain rights with respect to the registration under the Securities
Act of a total of approximately 3,677,277 shares (the "Registrable Shares") of
Common Stock pursuant to the terms of an agreement among the Company and such
shareholders. Shareholders holding in the aggregate of at least 40% of the
Registrable Shares then held by all shareholders may request that the Company
effect the registration of Registrable Shares then owned by

55
<PAGE> 58

such shareholder or shareholders subject to certain conditions and limitations.
The Company will not be required to effect more than three such registrations.
Furthermore, the Company is not required to file more than one registration
statement in any six-month period. The Registration Agreement also provides that
in the event the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company for its own account or
the account of another person, or both, such shareholders shall be entitled to
include Registrable Shares in the registration, subject to certain conditions
and limitations. At any time after the Company becomes eligible to file a
registration statement on Form S-3, such shareholder may request the Company to
effect the registration on Form S-3 of Registrable Shares owned by such
shareholder; provided that the sale of such number of Registrable Shares to be
included in the registration on Form S-3 shall result in aggregate proceeds of
at least $1,000,000. The Company is generally required to bear the expenses of
all such registrations, except underwriting discounts and commissions. All of
the obligations of the Company to register the Registrable Shares terminate on
August 31, 2001.

The Company has entered into a Stock Restriction Agreement (the "Stock
Restriction Agreement") with Dr. Gordon pursuant to which Dr. Gordon has been
granted the right, subject to certain conditions and limitations, to include in
any registration undertaken by the Company the 70,834 shares sold to him under
the Stock Restriction Agreement. The Company is required to bear the expenses of
such registration, except underwriting discounts and commissions.

No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.

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<PAGE> 59

UNDERWRITING

Subject to the terms and condition of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company and Donaldson, Lufkin & Jenrette Securities Corporation, have
severally agreed to purchase from the Company the following respective numbers
of shares of Common Stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
--------------------------------------------------------------------- ----------------
<S> <C>
Cowen & Company...................................................... 2,000,000
Donaldson, Lufkin & Jenrette Securities Corporation.................. 550,000
Bear, Stearns & Co. Inc. ............................................ 45,000
Dillon, Read & Co. Inc. ............................................. 45,000
Hambrecht & Quist LLC ............................................... 45,000
Lehman Brothers Inc. ................................................ 45,000
J.P. Morgan Securities Inc. ......................................... 45,000
Morgan Stanley & Co. Incorporated ................................... 45,000
Oppenheimer & Co., Inc. ............................................. 45,000
Prudential Securities Incorporated .................................. 45,000
UBS Securities LLC .................................................. 45,000
Paribas Corporation ................................................. 45,000
Advest, Inc. ........................................................ 25,000
Robert W. Baird & Co. Incorporated .................................. 25,000
The Buckingham Research Group Incorporated .......................... 25,000
Equitable Securities Corporation .................................... 25,000
First Albany Corporation ............................................ 25,000
First of Michigan Corporation ....................................... 25,000
Furman Selz LLC ..................................................... 25,000
Janney Montgomery Scott Inc. ........................................ 25,000
McDonald & Company Securities, Inc. ................................. 25,000
Needham & Company, Inc. ............................................. 25,000
Nutmeg Securities ................................................... 25,000
The Ohio Company .................................................... 25,000
Parker/Hunter Incorporated .......................................... 25,000
Pennsylvania Merchant Group Ltd. .................................... 25,000
Punk, Ziegel & Knoell ............................................... 25,000
Raymond James & Associates, Inc. .................................... 25,000
Vector Securities International, Inc. ............................... 25,000
Wheat First Butcher Singer, Inc. .................................... 25,000
----------------
Total...................................................... 2,000,000
=============
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of Common Stock offered hereby if any of
such shares are purchased.

The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $.25 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $.10 per share to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Representatives of the Underwriters.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments

57
<PAGE> 60

made in connection with the sale of shares of Common Stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the 2,000,000 shares are being offered.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.

The Company (subject to certain exceptions), all of its executive officers
and directors and certain stockholders of the Company each have agreed not to,
directly or indirectly, offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any Common Stock or any securities convertible
into or exercisable or exchangeable for such Common Stock or cause to be filed
with the Securities and Exchange Commission a registration statement under the
Securities Act to register any shares of the Common Stock or, in any manner,
transfer all or a portion of the economic consequences associated with the
ownership of the Common Stock, without the prior written consent of Cowen &
Company for a period of 90 days after the date of this Prospectus.

In connection with this offering, certain Underwriters may engage in
passive market making transactions in the Common Stock on The Nasdaq National
Market in accordance with Rule 10b-6A under the Securities Exchange Act of 1934.
Passive market making consists of displaying bids on The Nasdaq National Market
limited by the prices of independent market makers and effecting purchases
limited by such prices and in response to order flow. Net purchases by a passive
market maker on each day are limited in amount to a specified percentage of the
passive market maker's average daily trading volume in Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of Common Stock at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.

LEGAL MATTERS

The validity of the Common Stock being offered hereby will be passed upon
by Hale and Dorr, Boston, Massachusetts, counsel to the Company. John M.
Westcott, Jr., a partner of Hale and Dorr, is Assistant Secretary of the Company
and holds 408 shares of Common Stock. Certain legal matters have been passed
upon for the Underwriters by Davis Polk & Wardwell, New York, New York.

EXPERTS

The consolidated balance sheets of the Company as of December 31, 1994 and
1995 and the related consolidated statements of operations, stockholders equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1995 and the combined financial statements of OraVax Merieux Co.
and Merieux OraVax Co. as of December 31, 1995 and for the period from inception
(March 31, 1995) through December 31, 1995, included in this Prospectus, have
been included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

The statements in the Prospectus under the captions "Risk
Factors -- Patents and Proprietary Rights" and "Business -- Patents and
Proprietary Rights; Technology Agreements" have been reviewed and approved by
Fish & Richardson P.C., patent counsel for the Company, as experts on patent
matters, and are included herein in reliance upon that review and approval and
the authority of such counsel as experts in patent law.

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports and other information with the
Commission. Reports, proxy statements and other information filed by the Company
with the Commission pursuant to the informational requirements of the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials also may
be obtained from the

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<PAGE> 61

Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.

The Company has filed with the Commission, a Registration Statement (which
term shall include all amendments, exhibits and schedules thereto) on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, to which Registration Statement reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.

59
<PAGE> 62

GLOSSARY OF TECHNICAL TERMS

Active Immunity............... Immunity acquired by stimulating the body's
immune system by the administration of a
vaccine or by natural infection with a virus,
bacteria or other antigen. Active immunity may
persist for months or years after stimulation.

Adjuvant...................... A natural or artificial substance that is
administered with a vaccine to enhance the
immune response to the vaccine.

Antibody...................... A protein produced by the immune system that
eliminates or neutralizes bacteria, toxins and
viruses; synonymous with immunoglobulin.

Antigen....................... A foreign substance, e.g. a portion of a virus
or bacterium, that induces an immune response.

Antigen Binding Site.......... Portion of the antibody (immunoglobulin)
molecule that recognizes and interacts with an
antigen.

B-Cells....................... Lymphocytes that originate in the bone marrow
and differentiate into cells that secrete
antibodies.

Category 1 Carcinogen......... A "definite" carcinogen (cancer-causing
substance) as defined by the World Health
Organization.

Center for Biologics.......... Division of the FDA responsible for regulating
vaccines, blood products and related
biopharmaceutical products.

Chronic gastritis............. Chronic inflammation of the mucosal lining of
the stomach.

Clostridium difficile (C.
difficile).................... A common intestinal bacterium causing diarrhea
and inflammation of the large intestine.

CRADA......................... Cooperative Research and Development Agreement:
a legal instrument for technology transfer
between private industry and a government
agency.

ELA........................... Establishment License Application: an
application for licensing a manufacturing
facility for human biological products.

FDA........................... United States Food and Drug Administration.

GMP........................... Good Manufacturing Practices. A legal framework
stipulating methods for manufacturing
pharmaceutical or medical device products for
human use.

H2 antagonist................. Drugs designed to block the histamine receptor
on gastric parietal cells, the cells that
acidify the stomach, thus reducing acid
secretion.

Haemophilus influenzae b...... A bacterium which, prior to the availability of
vaccines caused the majority of acquired mental
retardation in developed countries. Current
vaccines are recommended for use in all
children under 6 years.

Helicobacter pylori (H.
pylori)....................... Widespread, gastrointestinal bacterium causing
an increased incidence of gastritis, peptic
ulcer and stomach cancer.

IgA........................... Immunoglobulin A; the major class or chemical
type of antibody that eliminates or neutralizes
bacterial or viral particles at mucosal
surfaces.

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<PAGE> 63

IgG........................... Immunoglobulin G: the major class or chemical
type of antibody present in blood.

Immune Cell................... Cell that initiates and promotes an immune
response.

Immune Globulin............... Antibodies prepared from the blood of donors
and formulated for intravenous and
intramuscular administration to prevent or
treat infections.

Immunoglobulin................ Antibody proteins produced by immune cells that
neutralize pathogens and foreign particles.

IND Application............... Investigational New Drug Application;
regulatory document required by the FDA to
initiate human trials of pharmaceuticals and
vaccines.

LT Adjuvant................... The heat-labile enterotoxin (LT) which is
naturally produced by some strains of E. coli
bacteria. Low doses of LT are believed to be
safe and have demonstrated adjuvant activity
when formulated with oral vaccines.

Lymphoid Follicle............. Small organs containing highly organized
collections of lymphocytes found within the
wall of the intestinal tract and elsewhere in
the mucosal surfaces serving as the site of
activation of the immune response.

M-Cells....................... Specialized cells found on mucosal surfaces
that recognize and transport foreign materials
as the essential first step in initiating a
mucosal immune response.

Monoclonal Antibody........... Homogeneous antibody produced by a clone of
hybridoma cells.

Mucosal Immunity.............. The branch of the immune system located in
mucosal tissues that detects pathogens and
produces antibodies against the pathogens.

Mucosal Tissues............... The moist tissues including the linings of the
gastrointestinal, respiratory and genitourinary
tracts and the surface of the eye.

Multivalent................... Having many binding sites (as in antibody
molecules).

NDA........................... New Drug Application; an application for
licensing a drug through the FDA.

Neutralizing Antibody......... An antibody that inactivates a virus or
microorganism.

Passive Immunity.............. Immunity acquired by the administration of
antibodies. Also refers to the immunity
transferred from mother to infant through the
placenta or by breast feeding.

Pathogen...................... Microorganism that causes disease.

PLA........................... Product License Application: an application for
licensing a new biological product (vaccine or
blood-related product) through the FDA.

Proton Pump Inhibitor......... A drug designed to directly block the mechanism
("proton pump") by which gastric parietal cells
acidify the stomach, thus reducing gastric
acidity.

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<PAGE> 64

Protozoan Parasites........... Single cell motile parasites, such as amoebae,
often causing disease in the intestinal tract.

Respiratory Syncytial Virus
(RSV)......................... A major cause of acute respiratory diseases in
young children which can result in severe
pneumonia and death.

Secretory Component........... Stabilizing protein that allows IgA to resist
acidic conditions and enzymes of the
gastrointestinal tract.

Systemic Immunity............. Antibodies and immune cells in blood and
tissues.

T-Cells....................... Lymphocytes dependent on the thymus for their
differentiation. T-Cells play an important role
in the generation of active immunity and in
killing invading viruses and bacteria.

Urease........................ An enzyme that catalyzes the splitting of urea
to form ammonia and decrease acidity.

Vector System................. A bacteria, virus or segment of DNA genetically
engineered to deliver genes into another
bacteria, virus or living cell.

Virus Shedding................ Release of virus from infected tissues; the
amount of virus released is an indicator of
severity of infection.

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<PAGE> 65

ORAVAX, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS OF ORAVAX, INC. PAGE
- ------------------------------------------------- ----
<S> <C>
Report of Independent Accountants..................................................... F-2

Consolidated Balance Sheets as of December 31, 1994 and 1995 and the three months
ended March 31, 1996 (unaudited).................................................... F-3

Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited)................. F-4

Consolidated Statement of Stockholders' Equity (Deficit) for the years ended December
31, 1993, 1994 and 1995 and the three months ended March 31, 1996 (unaudited)....... F-5

Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited)................. F-6

Notes to Consolidated Financial Statements............................................ F-7

COMBINED FINANCIAL STATEMENTS OF ORAVAX MERIEUX CO. AND MERIEUX ORAVAX CO.
- --------------------------------------------------------------------------

Report of Independent Accountants..................................................... F-17

Combined Balance Sheet as of December 31, 1995........................................ F-18

Combined Statement of Operations for the period from inception (March 31, 1995)
through December 31, 1995........................................................... F-19

Combined Statement of Partners' Capital for the period from inception (March 31, 1995)
through December 31, 1995........................................................... F-20

Combined Statement of Cash Flows for the period from inception (March 31, 1995)
through December 31, 1995........................................................... F-21

Notes to Combined Financial Statements................................................ F-22
</TABLE>

F-1
<PAGE> 66

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of OraVax, Inc.:

We have audited the accompanying consolidated balance sheets of OraVax,
Inc. as of December 31, 1994 and 1995 and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of OraVax, Inc. as
of December 31, 1994 and 1995, and the consolidated results of its operations
and cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Boston, Massachusetts
February 20, 1996

F-2
<PAGE> 67

ORAVAX, INC.

<TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- ---------------
1994 1995 1996
-------- -------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 3,706 $ 11,882 $ 11,729
Short-term investments............................... -- 15,749 10,814
Prepaid and other current assets..................... 134 306 392
-------- -------- -------
Total current assets................................. 3,840 27,937 22,935
Property and equipment, net.......................... 1,276 1,330 5,656
Investment in joint venture.......................... -- 450 37
Other assets......................................... 79 116 458
-------- -------- --------
Total assets......................................... $ 5,195 $ 29,833 $ 29,086
======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable..................................... $ 851 $ 1,061 $ 1,522
Accrued expenses..................................... 1,127 2,352 3,050
Obligation under capital leases...................... 462 516 1,386
Deferred joint venture revenue....................... -- 899 325
-------- -------- --------
Total current liabilities............................ 2,440 4,828 6,283
Obligation under capital leases, excluding current
portion............................................ 462 492 2,239
Installment debt..................................... -- -- 1,211
-------- -------- --------
Total liabilities.................................... 2,902 5,320 9,733
Commitments and contingencies........................
Redeemable Convertible Preferred Stock, $.001 par
value; 1,145,032 shares authorized in 1994; issued
and outstanding 964,803 in 1994 (liquidation
preference $28,273 in 1994)........................ 27,331 -- --
Stockholders' equity (deficit):
Preferred stock, $.001 par value; 2,000,000 shares
authorized in 1995 and 1996; none issued or
outstanding..................................... -- -- --
Common stock, $.001 par value; 6,141,386,
25,000,000 and 25,000,000 shares authorized in
1994, 1995 and 1996; issued and outstanding
230,661, 7,615,865 and 7,642,650 in 1994, 1995
and 1996........................................ -- 8 8
Additional paid-in capital......................... 245 58,061 58,158
Deferred compensation.............................. (220) (296) (278)
Accumulated deficit................................ (25,063) (33,260) (38,535)
-------- -------- --------
Total stockholders' equity (deficit)................. (25,038) 24,513 19,353
-------- -------- --------
Total liabilities and stockholders' equity
(deficit).......................................... $ 5,195 $ 29,833 $ 29,086
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
<PAGE> 68

ORAVAX, INC.

<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<CAPTION>
FOR THE YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------- -------------------------
1993 1994 1995 1995 1996
------- -------- -------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Collaborative research and
development
-- related party................ -- -- $ 4,868 -- $ 1,571
-- other........................ -- -- 3,816 $ 3,190 --
Government grants............... $ 349 $ 257 311 78 192
Interest........................ 78 51 1,080 79 310
------- -------- -------- -------- ----------
427 308 10,075 3,347 2,073
------- -------- -------- -------- ----------
Expenses:
Research and development........ 5,981 8,406 12,450 2,775 5,280
General and administrative...... 1,848 2,580 3,299 1,165 843
Interest........................ 92 190 87 21 139
------- -------- -------- -------- ----------
7,921 11,176 15,836 3,961 6,262
------- -------- -------- -------- ----------
Loss from operations.............. (7,494) (10,868) (5,761) (614) (4,189)
Equity in operations of joint
venture......................... -- -- (2,436) -- (1,086)
------- -------- -------- -------- ----------
Net loss.......................... (7,494) (10,868) (8,197) (614) (5,275)
Accretion to redemption value of
preferred stock................. -- 100 108 57 --
------- -------- -------- -------- ----------
Net loss to common stockholders... $(7,494) $(10,968) $ (8,305) $ (671) $ (5,275)
======= ======== ======== ======== ==========
Net loss per common and common
equivalent share................ $ (1.86) $ (1.13) $ (0.69)
======== ======== ==========
Weighted average number of common
and common equivalent shares
outstanding..................... 4,465,955 595,266 7,630,778
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE> 69

ORAVAX, INC.

<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

<CAPTION>
TOTAL
COMMON COMMON PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES STOCK CAPITAL COMPENSATION DEFICIT EQUITY (DEFICIT)
--------- ------ ------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992............. 187,700 -- $ 18 -- $ (6,701) $ (6,683)
Issuance of common stock............... 8,500 -- 20 -- -- 20
Exercise of common stock options....... 10,662 -- 5 -- -- 5
Net loss............................... -- -- -- -- (7,494) (7,494)
--
--------- --- ------- ------ --------- --------
Balance, December 31, 1993............. 206,862 -- 43 -- (14,195) (14,152)
Issuance of common stock-401k.......... 22,907 -- 81 -- -- 81
Issuance of common stock options....... -- 220 $ (220) -- --
Exercise of common stock options....... 892 -- 1 -- -- 1
Accretion of redeemable convertible
preferred stock to redemption
value................................ -- -- (100) -- -- (100)
Net loss............................... -- -- -- -- (10,868) (10,868)
--
--------- --- ------- ------ --------- --------
Balance, December 31, 1994............. 230,661 -- 245 (220) (25,063) (25,038)
Conversion of redeemable convertible
preferred stock to common stock...... 5,019,383 $5 36,666 -- -- 36,671
Issuance of common stock............... 2,310,197 3 20,745 -- -- 20,748
Issuance of common stock-401k.......... 5,758 -- 68 -- -- 68
Issuance of common stock options....... -- -- 141 (141) -- --
Exercise of common stock options....... 44,982 -- 54 -- -- 54
Exercise of common stock warrants...... 4,884 -- -- -- -- --
Vesting of compensatory common stock
options.............................. -- -- 250 -- -- 250
Accretion of redeemable convertible
preferred stock to redemption
value................................ -- -- (108) -- -- (108)
Amortization of deferred
compensation......................... -- -- -- 65 -- 65
Net loss............................... -- -- -- -- (8,197) (8,197)
--
--------- --- ------- ------ --------- --------
Balance, December 31, 1995............. 7,615,865 8 58,061 (296) (33,260) 24,513
--
--------- --- ------- ------ --------- --------
Issuance of common stock............... 7,472 -- 86 -- -- 86
Exercise of common stock options....... 19,313 -- 11 -- -- 11
Amortization of deferred
compensation......................... -- -- -- 18 -- 18
Net loss............................... -- -- -- -- (5,275) (5,275)
--
--------- --- ------- ------ --------- --------
Balance, March 31, 1996................ 7,642,650 $ 8 $58,158 $ (278) $ (38,535) $ 19,353
========= === ======= ====== ========= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE> 70

ORAVAX, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<CAPTION>
FOR THE YEARS ENDED DECEMBER THREE MONTHS
31, ENDED MARCH 31,
----------------------------- -------------------
1993 1994 1995 1995 1996
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss from operations................... $(7,494) $(10,868) $ (8,197) $ (614) $ (5,275)
Adjustments to reconcile net loss from
operations to net cash used in operating
activities:
Depreciation............................ 549 554 708 164 501
Equity in operations of joint venture... -- -- 2,436 -- 1,086
Interest paid in preferred stock........ 42 114 -- -- --
Non-cash compensation................... 20 81 383 261 18
Changes in operating assets and
liabilities:
Prepaid expenses and other current
assets............................. 12 141 (172) (54) (86)
Other assets.......................... (217) 200 (37) (30) (342)
Accounts payable...................... 270 315 210 (267) 462
Accrued expenses...................... 497 449 1,225 843 698
Deferred revenue...................... -- -- 899 -- (574)
------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities................................. (6,321) (9,014) (2,545) 303 (3,512)
Cash flows from investing activities:
Purchases of short-term investments........ -- -- (26,189) -- (2,984)
Sales and maturities of short-term
investments............................. -- -- 10,440 -- 7,919
Expenditures for property and equipment.... (400) (376) (762) (47) (230)
Proceeds from sale-leaseback of property
and equipment........................... 460 257 614 116 216
Investment in joint venture................ -- -- (2,886) -- (674)
------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities................................. 60 (119) (18,783) 69 4,247
------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from common stock issuances,
net..................................... 5 1 20,802 4 97
Proceeds from preferred stock issuances,
net..................................... 5,523 8,396 9,232 9,232 --
Principal payments under capital lease
obligations............................. (120) (333) (530) (112) (372)
Proceeds from notes payable to
stockholders............................ 54 3,733 -- -- --
------- -------- -------- -------- --------
Principal payments of installment debt..... -- -- -- -- (613)
Net cash provided by (used in) financing
activities................................. 5,462 11,797 29,504 9,124 (888)
------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................ (799) 2,664 8,176 9,496 (153)
Cash and cash equivalents at beginning of
period..................................... 1,841 1,042 3,706 3,706 11,882
------- -------- -------- -------- --------
Cash and cash equivalents at end of period... $ 1,042 $ 3,706 $ 11,882 $ 13,202 $ 11,729
======= ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE> 71

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

A. NATURE OF BUSINESS:

OraVax, Inc. (the "Company") is a leader in the discovery and development
of oral vaccines and non-injected antibody products to prevent and treat
diseases which infect the human body at its mucosal linings. Prior to the first
quarter of 1995, the Company operated as a development stage enterprise,
devoting substantially all of its efforts to establishing the new business and
carrying on research and development activities. Beginning in 1995, the Company
is no longer classified as a development stage enterprise.

The ultimate success of the Company is dependent upon its ability to raise
capital through equity placement, receipt of contract revenue, sale of product
and interest income on invested capital. The Company's capital requirements may
change depending upon numerous factors, including progress of the Company's
research and development programs, time required to obtain regulatory approvals,
resources the Company devotes to self-funded projects, proprietary manufacturing
methods and advanced technologies and demand for the Company's products, if and
when approved.

While management believes that additional capital will be available to fund
operations, there can be no assurance that additional funds will be available
when required, on terms acceptable to the Company.

The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology and compliance with government regulations.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, OraVax JVM, Inc. and OraVax Securities Corp.,
which were incorporated in 1995. Intercompany transactions and balances have
been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments. The Company
restricts temporary cash investments to institutions with high credit standing.

F-7
<PAGE> 72

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

Short-term Investments

<TABLE>
Short-term interest-bearing investments are those which, when purchased,
have maturities of less than one year but greater than three months. At December
31, 1995, the Company had the following short-term investments available for
sale which it expects to utilize for working capital purposes, carried at
amortized cost plus accrued interest, which approximates fair market value (in
thousands):

<S> <C>
US Government and Agency obligations, due February 1996 to April
1996, 0.00% - 6.46%.............................................. $ 7,664
Commercial paper, due February 1996 to May 1996, 5.02% - 7.875%.... 8,085
-------
$15,749
=======
</TABLE>

Property and Equipment

Property and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over the lesser of the lease term or
the estimated useful lives of the related assets, generally three to five years.

When assets are retired or otherwise disposed of, the assets and related
accumulated depreciation and amortization are eliminated from the accounts and
any resulting gains and losses are included in operations in the period of
disposal.

New Accounting Pronouncement

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which is effective for transactions entered into in
fiscal years that begin after December 15, 1995. SFAS 123 established a fair
value based method of accounting for stock-based compensation plans. The Company
plans to adopt the disclosure method in 1996. The Company has not determined, on
a pro forma basis, the effect on 1995 net loss and loss per share of applying
fair value accounting rules to grants of stock-based awards in 1995.

Revenue Recognition

Revenue under the Company's collaborative research and development
agreement is recognized as related expenses are incurred. The Company recognizes
milestone payments as revenue when the milestones are achieved. (See Note J)

The Company recognizes government grant revenue as the related expenses are
incurred.

Research and Development Costs

Research and development costs are expensed as incurred.

Net Loss Per Common and Common Equivalent Share

Net loss per common share is computed based upon the weighted average
number of common shares and common equivalent shares (using the treasury stock
method) outstanding after certain adjustments described below. Common equivalent
shares are not included in the per-share calculations where the effect of their
inclusion would be anti-dilutive, except that, in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all common and common
equivalent shares issued during the twelve-month period prior to the initial
filing (June 8, 1995) of the initial public offering (the "IPO"), have been
included in

F-8
<PAGE> 73

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

the calculation as if they were outstanding for all periods prior to the IPO,
using the treasury stock method and the IPO price of $10.00 per share. In the
computation of net loss per common share, accretion of preferred stock is
included as an increase to net loss attributable to common stockholders.

<TABLE>
Net loss per common share on a historical basis was as follows for the
years ended December 31, 1993 and 1994:

<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1993 1994
-------- --------
<S> <C> <C>
Net loss per common share.................................. $(13.52) $(19.20)
Weighted average number of common and common equivalent
shares outstanding....................................... 554,431 571,327
</TABLE>

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial reporting
and tax bases of liabilities and assets using enacted tax rates in effect in the
years in which the differences are expected to reverse. Potential future income
tax benefits resulting from net operating losses, unused research and
experimentation credits, and other timing differences will be recognized as
taxable income becomes available to absorb them.

C. PROPERTY AND EQUIPMENT:

<TABLE>
Property and equipment consisted of the following (in thousands):

<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------- -------------
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Furniture and equipment.......................... $ 544 $ 534 $ 480
Computer hardware and software................... 89 100 106
Leasehold improvements........................... 366 147 2,035
Equipment under capital lease.................... 1,378 1,992 4,981
------ ------ -------
2,377 2,773 7,602
Less accumulated depreciation.................... 1,101 1,443 (1,946)
------ ------ -------
Property and equipment, net...................... $1,276 $1,330 $ 5,656
====== ====== =======
</TABLE>

The net book value of equipment under capital lease was $886,000, $964,000
and $3,548,000 at December 31, 1994 and 1995 and March 31, 1996, respectively.

F-9
<PAGE> 74

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

D. ACCRUED EXPENSES:
<TABLE>
Accrued expenses consisted of the following (in thousands):
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------- -------------
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Research and development contracts............... $ 199 $1,191 $ 1,905
License fees..................................... 25 270 75
Compensation..................................... 231 235 213
Patent expenses.................................. 123 47 37
Series Preferred Stock placement fees............ 170 -- --
Legal and accounting fees........................ 95 82 61
Fixed assets..................................... -- 151 98
Other............................................ 284 376 661
------ ------ -------
Total accrued expenses........................... $1,127 $2,352 $ 3,050
====== ====== =======
</TABLE>

E. INCOME TAXES:

<TABLE>
Deferred tax liabilities and assets are determined based on the difference
between financial statement and tax bases using enacted federal income tax rates
in effect for the year in which the differences are expected to reverse. The
components of deferred taxes were as follows (in thousands):

<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1994 1995
------- --------
<S> <C> <C>
Capitalization of general and administrative costs............ $ 1,700 $ 2,190
Property, plant and equipment................................. 127 156
Capital leased equipment ..................................... (310) (388)
Capital leases................................................ 323 406
Accrued expenses.............................................. 82 110
Net operating loss and tax credits............................ 7,811 11,324
------- --------
Gross deferred tax asset...................................... 9,733 13,798
Valuation allowance........................................... (9,733) (13,798)
------- --------
Net deferred tax asset........................................ $ -- $ --
======= ========
</TABLE>

As of December 31, 1995, the Company had available net operating loss
carryforwards of approximately $26,946,000 and $1,580,000 of tax credits, which
may be used to offset future taxable income. These carryforwards expire
beginning in 2005. Due to the uncertainty surrounding the realization of the net
operating loss carryforwards in future tax returns, the net deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased approximately $4,065,000 from December 31, 1994 to December 31, 1995.

The Company has experienced ownership changes as defined under Section 382
of the Internal Revenue Code. Ownership changes limit the future use of the net
operating loss and credit carryforwards created prior to the ownership change.
If the full amount of the limitation is not used in any year, the amount not
used increases the allowable limit in the subsequent year.

F-10
<PAGE> 75

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

F. CAPITAL LEASES:

During 1995, the Company entered into a master lease agreement to finance
up to $1,000,000 of capital equipment. During the year ended December 31, 1995,
$614,000 of equipment was financed through sale-leaseback arrangements under the
1995 master lease agreement and a 1994 lease line agreement which expired during
1995. As of December 31, 1995, approximately $700,000 remained available under
the lease line. In January 1996, an equipment lease was assumed by the Company
in connection with its lease of a manufacturing facility in Canton,
Massachusetts and capitalized in the amount of $2,773,000. (See Note M).
Interest paid on capital leases during the years ended December 31, 1993, 1994
and 1995 was $36,000, $76,000 and $87,000, respectively, and $21,000 and
$102,000 for the three months ended March 31, 1995 and 1996, respectively.

<TABLE>
Minimum future payments under the Company's capital leases as of December
31, 1995 and March 31, 1996 were as follows (in thousands):

<CAPTION>
PERIOD ENDING DECEMBER 31, MARCH 31,
DECEMBER 31, 1995 1996
------------- ------------ ---------
<S> <C> <C>
1996.................................................. $ 580 $ 1,312
1997.................................................. 326 1,548
1998.................................................. 133 1,162
1999.................................................. 72 135
2000.................................................. -- 15
------ -------
1,111 4,172
Less amount representing interest..................... 103 547
------ -------
1,008 3,625
Less current obligation............................... 516 1,386
------ -------
Long-term obligation.................................. $ 492 $ 2,239
====== =======
</TABLE>

G. COMMITMENTS AND CONTINGENCIES:

Operating Leases

<TABLE>
The Company leases office and laboratory facilities in Cambridge,
Massachusetts under an operating lease which contains renewal options and
expires in March 2001. In January 1996, an operating lease for a manufacturing
facility in Canton, Massachusetts, containing renewal and purchase options and
expiring in June 2002, was assumed by the Company. (See Note M). The
noncancelable future payments as of December 31, 1995 and March 31, 1996 were as
follows (in thousands):

Rent expense for leased facilities during the years ended December 31,
1993, 1994 and 1995 was $514,000, $565,000 and $689,000, respectively, and
$134,000 and $526,000 for the three months ended March 31, 1995 and 1996,
respectively.

F-11
<PAGE> 76

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

Agreements

<TABLE>
The Company is party to various agreements, principally contracted research
and clinical trials, for which noncancelable minimum future payments as of
December 31, 1995 were as follows (in thousands):

<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1996............................................................. $1,863
1997............................................................. 80
1998............................................................. 60
</TABLE>

In addition, under certain of these and other agreements, the Company may
pay royalties on future sales of specified products.

H. REDEEMABLE CONVERTIBLE PREFERRED STOCK:

The Company issued an aggregate of 964,803 shares of Series Redeemable
Convertible Preferred Stock for net cash proceeds of $27,231,000 (the "Series
Preferred Stock") at various dates since its inception through December 31,
1994.

In January and March 1995, the Company issued an aggregate of 216,237
shares of Series Preferred Stock for net cash proceeds of $9,232,000.

During 1994 and 1995, accretion of $100,000 and $108,000, respectively, to
accrete the redeemable convertible preferred stock to its redemption value on a
straight-line basis, was recorded in noncash transactions.

In June 1995, all outstanding shares of Series Preferred Stock were
converted to 5,019,383 shares of common stock in connection with the closing of
the Company's initial public offering.

I. STOCKHOLDERS' EQUITY:

Common Stock

In June 1995, the Company sold 2,300,000 shares of its common stock, par
value $.001 per share, for $10.00 per share in an initial public offering,
providing net proceeds of $20,676,000 to the Company. In connection with the
initial public offering, all outstanding shares of Series Preferred Stock were
converted to common stock.

The historical financial statements, common share and per share amounts,
including net loss per common share amounts, have been restated to reflect a
4.25-for-1 common stock split effected in the form of a 325% common stock
dividend approved by the Company's stockholders in April 1995, as if it had
occurred at the beginning of all periods presented. In March 1995, the Company's
stockholders approved an increase in the authorized shares of common stock to
25,000,000 shares and authorized 2,000,000 shares of a new class of preferred
stock, par value $.001 per share.

Stock Options

Incentive stock options granted under the Company's 1990 and 1995 stock
option plans (the "Plans") may not be granted at a price less than the fair
market value of the common stock on the date of grant (or less than 110% of fair
market value in the case of employees or officers holding 10% or more of the
voting stock of the Company). Nonqualified stock options may be granted at an
exercise price established by the Board of Directors, which may be less than,
equal to or greater than the fair value of the common stock on the date of

F-12
<PAGE> 77

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

grant. Options granted under the Plans generally vest over three- to five-year
periods, and expire not more than ten years from the date of grant, or not more
than five years from the date of grant in the case of incentive stock options
granted to an employee or officer holding 10% or more of the voting stock of the
Company.

<TABLE>
Information related to stock option activity under the Plans for the years
ended December 31, 1993, 1994 and 1995 and the three months ended March 31, 1996
is as follows:

<CAPTION>
SHARES OPTION PRICE
------- -------------
<S> <C> <C>
Outstanding at December 31, 1992............................ 129,456 $ .001 - .75
Granted................................................... 362,477 .706 - 2.353
Exercised................................................. (10,662) .235 - .706
Canceled.................................................. (4,164) .471 - .765
-------
Outstanding at December 31, 1993............................ 477,107 .001 - 2.353
Granted................................................... 290,855 2.353 - 2.706
Exercised................................................. (892) .706
Canceled.................................................. (5,651) .706 - .765
-------
Outstanding at December 31, 1994............................ 761,419 .001 - 2.706
Granted................................................... 92,104 3.529 - 15.75
Exercised................................................. (44,982) .471 - 2.706
Canceled.................................................. (5,734) .765 - 3.529
-------
Outstanding at December 31, 1995............................ 802,807 .001 - 15.75
Granted................................................... 68,225 12.25 - 14.25
Exercised................................................. (19,313) .001 - 3.529
-------
Outstanding at March 31, 1996............................... 851,719 .001 - 15.75
=======
</TABLE>

At December 31, 1995 and March 31, 1996, there were 279,588 and 318,741
options exercisable and options to purchase 287,121 and 218,896 shares,
respectively, of and common stock remained available for future grants under the
Plans. At December 31, 1995 and March 31, 1996, 1,089,928 shares and 1,070,615
shares, respectively, of common stock remained reserved to satisfy the issuance
of shares under outstanding and future grants under the Plans.

In connection with certain stock option grants in 1995, the Company
recorded $141,000 of deferred compensation expense which is being amortized and
charged to operations over the five-year vesting period of the related options.
In addition, $250,000 of compensation expense was recorded in 1995 in connection
with the vesting of certain milestone-based stock options.

Employee Stock Purchase Plan

In March 1995, the Company's stockholders approved the 1995 Employee Stock
Purchase Plan (the "ESPP") under which employees may purchase common stock of
the Company at the lesser of 85% of its fair value at the beginning or end of
related six month payroll withholding periods.

During 1995, 10,197 shares were sold to employees under the ESPP. At
December 31, 1995, 89,803 shares of common stock remained reserved for future
issuances under the ESPP.

J. JOINT VENTURE:

In March 1995, the Company entered into a collaboration (the "Joint
Venture") with Pasteur Merieux Serums & Vaccins, S.A. ("Merieux") for the
development, manufacturing, marketing and sale of immuno-

F-13
<PAGE> 78

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

therapeutic and preventive vaccines against H. pylori infection in humans. Under
the Joint Venture, OraVax and Merieux agreed to develop vaccines which use the
urease protein or any of its sub-units as an antigen (the "Target Products").
OraVax and Merieux will share equally in profits from the sales of the Target
Products and in all future research, development, clinical and commercialization
costs. Merieux made an initial milestone payment of $2.6 million directly to
OraVax, paid the Company directly $0.6 million for research and development in
the first quarter of 1995 and purchased $2.5 million of the Company's Series
Preferred Stock. Subsequently, Merieux purchased an additional $1.0 million of
common stock in the Company's initial public offering. In addition, Merieux
agreed to pay the Company directly up to an additional $12.0 million during the
development period, subject to the achievement of certain clinical and
regulatory milestones, of which $0.6 million was paid to OraVax in December
1995. Merieux is providing technical expertise and will also provide marketing
to the Joint Venture. Beginning in the second quarter of 1995, research,
development and commercialization activities of the Joint Venture were conducted
through two equally controlled partnerships (the "Joint Venture Partnerships")
which have contracted with OraVax and Merieux to perform the research,
development and clinical trial activities. OraVax earned $4,868,000 under such
contracts during 1995. The Joint Venture provides for certain rights of
termination, but, absent any breach, neither party may unilaterally terminate
the Joint Venture prior to March 31, 1997.

From inception of the Joint Venture through December 31, 1995, OraVax and
Merieux each invested approximately $2.9 million to fund the Joint Venture's
operations. OraVax accounts for its investments in the Joint Venture
Partnerships under the equity method of accounting and, accordingly, recorded
its $2,436,000 share of the Joint Venture Partnerships' net losses during 1995.
Following are the Joint Venture Partnerships' summarized combined balance sheet
as of December 31, 1995 and the summarized combined statement of operations for
the period March 31, 1995 (inception) through December 31, 1995.

F-14
<PAGE> 79

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

JOINT VENTURE PARTNERSHIPS
COMBINED BALANCE SHEET
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1995
-----------
<S> <C>
Prepaid contract research expense.............................. $ 899
-------
$ 899
=======

LIABILITIES AND PARTNERS' CAPITAL

<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Partners' capital:
OraVax Merieux Co............................................ $ 450
Merieux OraVax S.N.C......................................... 449
--------
$ 899
========
</TABLE>

<TABLE>
JOINT VENTURE PARTNERSHIPS
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)

<CAPTION>
MARCH 31, 1995
(INCEPTION)
THROUGH
DECEMBER 31,
1995
--------------
<S> <C>
Contract research expense -- OraVax, Inc....................... $ 4,868
--------
Net loss....................................................... $ (4,868)
========
</TABLE>

K. RELATED PARTIES:

The Company has a consulting agreement with the chairman of its Board of
Directors under which, and together with fees paid to him for his services as
chairman, he was paid $37,000 and $57,000 during 1994 and 1995, respectively.

The Company guaranteed a $90,000 demand loan, on behalf of one of its
officers to facilitate the relocation of his residence to Massachusetts, which
was fully repaid in 1995.

L. EMPLOYEE BENEFITS:

The Company has a 401(k) retirement plan in which substantially all of its
permanent employees are eligible to participate. Participants may contribute up
to 15% of their annual compensation to the plan, subject to statutory
limitations. For 1994 and 1995, the Company declared discretionary matching
aggregate contributions to the plan of $62,000 and $68,000, respectively, paid
in 22,907 and 5,758 shares of the Company's common stock, respectively. In 1994,
the Company recorded $19,000 of compensation expense in

F-15
<PAGE> 80

ORAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED

connection with the stock issuance. At December 31, 1995, there were 44,242
shares of common stock reserved for future issuances under the plan.

M. SUBSEQUENT EVENT -- MANUFACTURING FACILITY:

In January 1996, the Company leased an approximately 47,000 square foot,
good manufacturing practices-compliant, manufacturing facility in Canton,
Massachusetts and acquired related equipment and leasehold improvements from the
former tenant. The facility is intended to be used for commercial production of
the Company's monoclonal antibody (HNK20), designed to prevent viral pneumonia
in children caused by respiratory syncytial virus. This facility was
specifically designed and equipped by the former tenant for the manufacture of
monoclonal antibodies for pharmaceutical use, although other production uses are
possible. Existing building and capital equipment leases, which contain renewal
and purchase options, were assumed by the Company. (See Notes F and G) In
addition, the Company purchased leasehold improvements and other related assets
(initially capitalized by the Company in the amount of $1,824,000) from the
former tenant, payable in installments through 1999.

<TABLE>
As of March 31, 1996, future minimum payments under the installment debt
were as follows (in thousands):

<CAPTION>
PERIOD ENDING
DECEMBER 31, AMOUNT
------------- ------
<S> <C>
1996................................................................ $ --
1997................................................................ 330
1998................................................................ 260
1999................................................................ 1,050
------
1,640
Less amount representing interest................................... 429
------
1,211
Less current obligation............................................. --
------
Long-term obligation................................................ $1,211
======
</TABLE>

F-16
<PAGE> 81

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of OraVax Merieux Co. and Merieux OraVax Co.:

We have audited the accompanying combined balance sheet of OraVax Merieux
Co. and Merieux OraVax Co. as of December 31, 1995 and the related statements of
operations, partners' capital, and cash flows for the period from inception
(March 31, 1995) through December 31, 1995. These financial statements are the
responsibility of the partnerships' management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of OraVax Merieux Co.
and Merieux OraVax Co. as of December 31, 1995, and the combined results of
their operations and cash flows for the period from inception (March 31, 1995)
through December 31, 1995, in conformity with generally accepted accounting
principles.

Coopers & Lybrand L.L.P.

Boston, Massachusetts
March 21, 1996

F-17
<PAGE> 82

ORAVAX MERIEUX CO. AND
MERIEUX ORAVAX CO. PARTNERSHIPS

<TABLE>
COMBINED BALANCE SHEET
DECEMBER 31, 1995

<S> <C>
ASSETS
Cash............................................................................ $ --
Prepaid expenses................................................................ 899,289
-----------
Total assets.................................................................... $ 899,289
===========

LIABILITIES AND PARTNERS' CAPITAL
Liabilities..................................................................... --
Partners' capital:
Capital contributions........................................................... $ 5,767,088
Accumulated deficit............................................................. (4,867,799)
-----------
Total partners' capital......................................................... 899,289
-----------
Total liabilities and partners' capital......................................... $ 899,289
===========
</TABLE>

F-18
<PAGE> 83

ORAVAX MERIEUX CO. AND
MERIEUX ORAVAX CO. PARTNERSHIPS

<TABLE>
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MARCH 31, 1995) THROUGH DECEMBER 31, 1995

<S> <C>
Expenses:
Contract research expense -- OraVax, Inc. .................................... $ 4,867,799
-----------
Total expenses.................................................................. 4,867,799
-----------
Net loss........................................................................ $(4,867,799)
===========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-19
<PAGE> 84

ORAVAX MERIEUX CO. AND
MERIEUX ORAVAX CO. PARTNERSHIPS

<TABLE>
COMBINED STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (MARCH 31, 1995) THROUGH DECEMBER 31, 1995

<CAPTION>
PASTEUR
MERIEUX MERIEUX
ORAVAX SERUMS & AMERICA
JVM, INC. VACCINS S.A. HOLDING, INC TOTAL
--------- ------------ ------------ -----
<S> <C> <C> <C> <C>
Capital contributions.................. $ 2,885,851 $ 2,014,444 $ 866,793 $ 5,767,088
Net loss............................... (2,435,847) (1,700,322) (731,630) (4,867,799)
----------- ------------ --------- -----------
Balance, December 31, 1995............. $ 450,004 $ 314,122 $ 135,163 $ 899,289
=========== ============ ========= ===========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-20
<PAGE> 85

ORAVAX MERIEUX CO. AND
MERIEUX ORAVAX CO. PARTNERSHIPS

<TABLE>
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 31, 1995) THROUGH DECEMBER 31, 1995

<S> <C>
Cash flows from operating activities:
Net loss...................................................................... $(4,867,799)
Changes in operating assets and liabilities:
Prepaid expenses......................................................... (899,289)
-----------
Net cash used by operating activities........................................... (5,767,088)
Cash flows from financing activities:
Capital contributions......................................................... 5,767,088
Net cash provided by financing activities....................................... 5,767,088
-----------
Net increase in cash and cash equivalents....................................... --
Cash and cash equivalents at beginning of period................................ --
-----------
Cash and cash equivalents at end of period...................................... $ --
===========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-21
<PAGE> 86

ORAVAX MERIEUX CO. AND
MERIEUX ORAVAX CO. PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS

A. NATURE OF BUSINESS:

A collaboration between Pasteur Merieux Serums & Vaccins S.A. (PMsv), a
societe anonyme existing and organized under the laws of the Republic of France,
and OraVax, Inc. (OraVax), a corporation existing and organized under the laws
of the State of Delaware, was formed on March 31, 1995 (the "Collaboration").

In accordance with the Master Agreement of the Collaboration (the
"Agreement"), two partnerships, Merieux OraVax Co. and OraVax Merieux Co. (the
"Partnerships") were formed. The Partnerships conduct all activities relative to
the research, development, registration, commercialization, manufacturing,
marketing, sales and distribution of immunotherapeutic and preventative vaccines
against Helicobacter pylori infections in humans which use the urease protein or
any of its sub-units as an antigen. The partnerships began operations on April
1, 1995.

Merieux OraVax Co. is a societe en nom collectif (partnership) organized
under the laws of the Republic of France, whose partners are PMsv and OraVax
JVM, Inc. ("OraVax JVM"), a wholly-owned subsidiary of OraVax. The term of the
partnership is ninety-nine years.

The initial interest of each partner in Merieux OraVax Co., based upon
capital contributions, is as follows:
PMsv.................................. 49.9%
OraVax JVM............................ 50.1%

Additional capital contributions will be required of each partner as
specified by the Agreement. Each partner's interest in Merieux OraVax Co. will
fluctuate based on its share of additional capital contributions. Profits and
losses will be split in accordance with each partner's interest in the capital
of the partnership.

OraVax Merieux Co. is a general partnership organized under the laws of the
Commonwealth of Massachusetts, whose partners are OraVax JVM and Merieux
American Holding, Inc. ("MAHI"), an affiliate of PMsv. The term of the
partnership is unlimited. The initial interest of each partner in OraVax Merieux
Co. is as follows:
MAHI.................................. 50.1%
OraVax JVM............................ 49.9%

Profits and losses will be split in accordance with each partner's interest
in the capital of the partnership until the time MAHI receives $100,000 return
of capital above its capital contribution to OraVax Merieux Co. At that time,
profits and losses are to be split evenly between the partners.

The partners of OraVax Merieux Co. and Merieux OraVax Co. have agreed to
fund through the Partnerships the research and development, clinical and
pharmaceutical development costs of the Collaboration as approved by its
executive committee, at least through March 1997.

The ultimate success of the Partnerships is dependent upon their ability to
raise capital through partners' contributions, equity and debt placement, sale
of product and interest income on invested capital. The Partnerships' capital
requirements may change depending upon numerous factors, including progress of
their research and development programs, time required to obtain regulatory
approvals, resources the partnerships devote to self-funded projects,
proprietary manufacturing methods and advanced technologies and demand for the
Partnerships' products, if and when approved.

The Partnerships are subject to risks common to entities in the
biotechnology industry including, but not limited to, development by the
Partnerships or their competitors of new technological innovations, dependence
on key personnel, protection of proprietary technology and compliance with
government regulations.

F-22
<PAGE> 87

ORAVAX MERIEUX CO. AND
MERIEUX ORAVAX CO. PARTNERSHIPS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Combination

The combined financial statements include the accounts of OraVax Merieux
Co. and Merieux OraVax Co. Intercompany transactions and balances have been
eliminated in combination.

Prepaid Expenses

To the extent funds have been transferred by the Partnerships in advance of
performance under research and development contracts, the expenditures are
recognized as prepaid expenses.

Research and Development Costs

Research and development costs are expensed as incurred.

Income Taxes

In conformity with the Internal Revenue Code and applicable state and local
tax statutes, taxable income or loss of the Partnerships is required to be
reported in the tax returns of the partners in accordance with the terms of the
partnership agreements and, accordingly, no provision has been made in the
accompanying financial statements for income taxes.

Use of Estimates

C. RELATED PARTY TRANSACTIONS:

The Partnerships entered into a Research and Development Agreement, dated
March 31, 1995, with OraVax, Inc., a parent company of OraVax JVM, to perform
contract research and development for the Partnerships. Funds transferred to
OraVax for the period from inception through December 31, 1995 were $5,767,088.
Contract research and development performed by OraVax during the same period was
$4,867,799.

F-23
<PAGE> 88

[SEE APPENDIX A FOR DESCRIPTION]
<PAGE> 89

- ------------------------------------------------------------
- ------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF
THE UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY A SECURITY OTHER THAN THE
SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Recent Developments.................... 12
Use of Proceeds........................ 13
Price Range of Common Stock............ 14
Dividend Policy........................ 14
Capitalization......................... 15
Dilution............................... 16
Selected Financial Data................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 22
Management............................. 41
Scientific Advisory Board.............. 48
Certain Transactions................... 50
Principal Stockholders................. 51
Description of Capital Stock........... 53
Shares Eligible for Future Sale........ 55
Underwriting........................... 57
Legal Matters.......................... 58
Experts................................ 58
Available Information.................. 58
Glossary............................... 60
Index to Financial Statements.......... F-1
</TABLE>

- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------

2,000,000 SHARES

LOGO
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

JUNE 26, 1996

- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 90

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1++ Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of the Registrant, as amended.
3.2* Form of Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.3* Amended and Restated By-Laws of the Registrant.
4* Specimen Certificate for shares of Common Stock, $.001 par value, of the
Registrant.
</TABLE>

<TABLE>
<S> <C>
5++ Opinion of Hale and Dorr with respect to the validity of the securities being
offered.
10.1* 1990 Stock Option Plan, as amended.
10.2* 1995 Stock Option Plan.
10.3* 1995 Employee Stock Purchase Plan.
10.4* 401(k) Savings and Retirement Plan.
10.5* Employment Agreement between the Company and Lance K. Gordon dated as of July 19,
1990.
10.6* Employment Agreement between the Company and Thomas P. Monath dated October 18,
1991.
10.7* Employment Agreement between the Company and Robert B. Rombauer dated May 1,
1992.
10.8* Employment Agreement between the Company and Keith S. Ehrlich dated October 8,
1993.
10.9* Employment Agreement between the Company and Samuel K. Ackerman dated December 1,
1993.
10.10* Stock Purchase Agreement between the Company and Lance K. Gordon dated as of
September 28, 1990.
10.11*** Letter Agreement dated February 5, 1996 between the Company and Dr. Allen Misher.
10.12* Master Lease Agreement between Comdisco and the Company dated March 31, 1993,
together with Series D Stock Warrant.
10.13* Equipment Schedule to Master Lease Agreement between Comdisco and the Company
dated June 21, 1994, together with Series E Stock Warrant.
10.14+* Invention and License Administration Agreement between the President and Fellows
of Harvard College and the Swiss Institute for Experimental Cancer Research dated
October 22, 1990.
10.15+* Research and Development Agreement among the Company, Foundation Pour La
Recherche Des Maladies Gastro-Intestinales, Dr. Andre Blum and Kieta Holding,
S.A. dated April 2, 1992, as amended in February 1993 and January 1994.
10.16+* Invention and License Administration Agreement among Foundation Pour La Recherche
Des Maladies Gastro-Intestinales, the Swiss Institute for Experimental Cancer
Research and Dr. Jean-Pierre Kraehenbuhl dated April 2, 1992.
10.17+* Invention and License Administration Agreement among Foundation Pour La Recherche
Des Maladies Gastro-Intestinales, Max-Planck Institute for Biology and Dr. Rainer
Haas dated April 1992 and related Participation Agreement.
10.18* Participation Agreements by and between the Company and each of Dr. Rainer Haas,
Sven Gustafson, Dr. Jean-Pierre Kraehenbuhl, Dr. Madeleine Heitz, Dr. Pierre
Michetti and Dr. Andre Blum.
10.19+* Agreement between the Company, the Natural Environmental Research Council and Dr.
D.H.L. Bishop dated May 15, 1992.
10.20+* Collaborative Development and License Agreement between the Company and Techlab,
Inc. dated March 31, 1993.
10.21+* Industrial Research Agreement between the Company, Case Western Reserve
University, Dr. Steven J. Czinn and Dr. John G. Nedrud dated October 14, 1993.
</TABLE>

II-1
<PAGE> 91

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
10.22+* Assignment Agreement among the Company, Dr. Steven J. Czinn and Dr. John G.
Nedrud dated October 14, 1993.
10.23+* Cooperative Research and Development Agreement between the Company and Walter
Reed Army Institute of Research dated December 19, 1994.
10.24+* Master Agreement between the Company and Pasteur Merieux Serums & Vaccins S.A.
dated March 31, 1995.
10.25+* Research and Development Agreement between the Company and Merieux OraVax S.N.C.
and OraVax, Merieux Co. dated March 31, 1995.
10.26** Lease dated October 27, 1995 between the Registrant and Forest City 38 Sidney
Street, Inc.
10.27*** Assignment of Lease dated as of January 1, 1996 between Immunogen, Inc. and the
Company.
10.28*** Landlord's Waiver, Consent and Agreement dated as of January 1, 1996 by and among
AEW No. 1 Corporation, Aberlyn Capital Management Limited Partnership and the
Company.
10.29*** Consent to Assignment and Leasehold Mortgage dated as of January 1, 1996 by and
among AEW No. 1 Corporation, Immunogen, Inc. and the Company.
10.30++*** License Agreement dated as of February 6, 1996 between Institut Pasteur and the
Company.
11++ Calculation of shares used in determining historical net loss per common share.
21*** Subsidiaries of the Registrant.
23.1++ Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3++ Consent of Fish & Richardson.
24++ Powers of Attorney.
</TABLE>

- ------------------------------

* Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 33-90936.

** Incorporated by reference from Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter dated September 30, 1995.

*** Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.

++ Previously filed.

+ Confidential treatment granted as to certain portions, which portions are
omitted and filed separately with the Commission.

++ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.

(b) FINANCIAL STATEMENT SCHEDULES

All schedules have been omitted because they are not required or because
the required information is given in the Financial Statements or Notes thereto.

II-2
<PAGE> 92

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Cambridge, Commonwealth of Massachusetts, on this 25th day of June, 1996.

ORAVAX, INC.

By: /s/ LANCE K. GORDON

------------------------------------
Lance K. Gordon
President and Chief
Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ LANCE K. GORDON President, Chief Executive June 25, 1996
- ------------------------------------------ Officer and Director
Lance K. Gordon (Principal Executive Officer)
/s/ KEITH S. EHRLICH Vice President, Finance and June 25, 1996
- ------------------------------------------ Administration, Treasurer and
Keith S. Ehrlich Chief Financial Officer
(Principal Financial and
Accounting Officer)
DOUGLAS MACMASTER* Director June 25, 1996
- ------------------------------------------
Douglas MacMaster
RICHARD A. CHARPIE* Director June 25, 1996
- ------------------------------------------
Richard A. Charpie
JEAN J. DELEAGE* Director June 25, 1996
- ------------------------------------------
Jean J. Deleage
ANDRE L. LAMOTTE* Director June 25, 1996
- ------------------------------------------
Andre L. Lamotte
ALLEN MISHER* Director June 25, 1996
- ------------------------------------------
Allen Misher
</TABLE>

*By: /s/ LANCE K. GORDON

------------------------------
Lance K. Gordon
Attorney-in-fact

II-3
<PAGE> 93

EXHIBIT INDEX
<TABLE>
<CAPTION>

EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1++ Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of the Registrant, as amended.
3.2* Form of Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.3* Amended and Restated By-Laws of the Registrant.
4* Specimen Certificate for shares of Common Stock, $.001 par value, of the
Registrant.
5++ Opinion of Hale and Dorr with respect to the validity of the securities being
offered.
10.1* 1990 Stock Option Plan, as amended.
10.2* 1995 Stock Option Plan.
10.3* 1995 Employee Stock Purchase Plan.
10.4* 401(k) Savings and Retirement Plan.
10.5* Employment Agreement between the Company and Lance K. Gordon dated as of July 19,
1990.
10.6* Employment Agreement between the Company and Thomas P. Monath dated October 18,
1991.
10.7* Employment Agreement between the Company and Robert B. Rombauer dated May 1,
1992.
10.8* Employment Agreement between the Company and Keith S. Ehrlich dated October 8,
1993.
10.9* Employment Agreement between the Company and Samuel K. Ackerman dated December 1,
1993.
10.10* Stock Purchase Agreement between the Company and Lance K. Gordon dated as of
September 28, 1990.
10.11*** Letter Agreement dated February 5, 1996 between the Company and Dr. Allen Misher.
10.12* Master Lease Agreement between Comdisco and the Company dated March 31, 1993,
together with Series D Stock Warrant.
10.13* Equipment Schedule to Master Lease Agreement between Comdisco and the Company
dated June 21, 1994, together with Series E Stock Warrant.
10.14+* Invention and License Administration Agreement between the President and Fellows
of Harvard College and the Swiss Institute for Experimental Cancer Research dated
October 22, 1990.
10.15+* Research and Development Agreement among the Company, Foundation Pour La
Recherche Des Maladies Gastro-Intestinales, Dr. Andre Blum and Kieta Holding,
S.A. dated April 2, 1992, as amended in February 1993 and January 1994.
10.16+* Invention and License Administration Agreement among Foundation Pour La Recherche
Des Maladies Gastro-Intestinales, the Swiss Institute for Experimental Cancer
Research and Dr. Jean-Pierre Kraehenbuhl dated April 2, 1992.
10.17+* Invention and License Administration Agreement among Foundation Pour La Recherche
Des Maladies Gastro-Intestinales, Max-Planck Institute for Biology and Dr. Rainer
Haas dated April 1992 and related Participation Agreement.
10.18* Participation Agreements by and between the Company and each of Dr. Rainer Haas,
Sven Gustafson, Dr. Jean-Pierre Kraehenbuhl, Dr. Madeleine Heitz, Dr. Pierre
Michetti and Dr. Andre Blum.
10.19+* Agreement between the Company, the Natural Environmental Research Council and Dr.
D.H.L. Bishop dated May 15, 1992.
10.20+* Collaborative Development and License Agreement between the Company and Techlab,
Inc. dated March 31, 1993.
10.21+* Industrial Research Agreement between the Company, Case Western Reserve
University, Dr. Steven J. Czinn and Dr. John G. Nedrud dated October 14, 1993.
</TABLE>

<PAGE> 94

* Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 33-90936.

** Incorporated by reference from Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter dated September 30, 1995.

*** Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.

++ Previously filed.

+ Confidential treatment granted as to certain portions, which portions are
omitted and filed separately with the Commission.

++ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
</TABLE>

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Amendment No. 3 to the registration
statement of OraVax, Inc. on Form S-1 (File No. 333-3056) of our report, dated
February 20, 1996, on our audit of the consolidated financial statements of
OraVax, Inc. as of December 31, 1995, and for the years ended December 31, 1995,
1994 and 1993.

We also consent to the inclusion in this registration statement of our
report, dated March 21, 1996, on our audit of the combined financial statements
of OraVax Merieux Co. and Merieux OraVax Co. as of December 31, 1995 and for the
period from inception (March 31, 1995) through December 31, 1995. We also
consent to the references to our firm under the captions "Prospectus
Summary -- Summary Financial Data," "Selected Financial Data" and "Experts" in
the Registration Statement.

COOPERS & LYBRAND, L.L.P.

Boston, Massachusetts

June 26, 1996