<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
=====================
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 0-26034
ORAVAX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3085209
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification Number)
38 SIDNEY STREET, CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 494-1339
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT: NOT APPLICABLE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUERS CLASS OF COMMON STOCK, AS OF
LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AS OF JULY 31, 1997
- ----------------------------- -------------------------------
COMMON STOCK, $.001 PAR VALUE 10,052,056
----------------------------------------------------------------
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ORAVAX, INC.
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
PAGE
----
PART 1. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996.................................................. 3
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 1997 and 1996............................ 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996................................ 5
Notes to Condensed Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 7
PART II. OTHER INFORMATION............................................ 12
- ---------------------------
SIGNATURES............................................................. 14
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------
ORAVAX, INC.
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS EXCEPT SHARE DATA
----------
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 12,113 $ 14,916
Short-term investments 1,188 7,209
Prepaid and other current assets 234 230
-------- --------
Total current assets 13,535 22,355
Property and equipment, net 4,479 5,454
Investment in and advances to joint venture 292 619
Other assets 289 316
-------- --------
Total assets $ 18,595 $ 28,744
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 3,747 $ 4,788
Deferred joint venture revenue 473 946
Obligation under capital leases 1,541 1,597
Obligation under installment debt 330 330
-------- --------
Total current liabilities 6,091 7,661
Obligation under capital leases, excluding current portion 934 1,665
Installment debt, excluding current portion 1,076 994
-------- --------
Total liabilities 8,101 10,320
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 in 1997 and 1996; issued and outstanding
10,052,056 and 9,975,821 shares in 1997 and 1996 10 10
73,565 73,519
Additional paid-in capital
Deferred compensation (124) (223)
Accumulated deficit (62,957) (54,882)
-------- --------
Total stockholders' equity 10,494 18,424
-------- --------
Total liabilities and stockholders' equity $ 18,595 $ 28,744
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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ORAVAX, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
-----------
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Collaborative research and
development - related party $ 1,850 $ 1,703 $ 3,712 $ 3,274
Government grants 81 176 202 368
Interest 199 254 434 564
---------- ---------- ---------- ----------
2,130 2,133 4,348 4,206
---------- ---------- ---------- ----------
Expenses:
Research and development 3,485 6,269 7,176 11,549
General and administrative 849 976 1,839 1,819
Interest 114 133 237 272
---------- ---------- ---------- ----------
4,448 7,378 9,252 13,640
---------- ---------- ---------- ----------
Loss from operations (2,318) (5,245) (4,904) (9,434)
Equity in operations of joint
venture (1,514) (1,153) (3,171) (2,239)
---------- ---------- ---------- ----------
Net loss $ (3,832) $ (6,398) $ (8,075) $ (11,673)
========== ========== ========== ==========
Net loss per common share and
common equivalent $ (0.38) $ (0.84) $ (0.81) $ (1.53)
Weighted average number of common
and common equivalent shares
outstanding 9,988,768 7,643,602 9,984,637 7,637,302
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
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ORAVAX, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
----------
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss from operations $(8,075) $(11,673)
Adjustments to reconcile net loss from operations to net
cash used in operating activities:
Depreciation and amortization 1,117 1,027
Equity in operations of joint venture 3,171 2,239
Amortization of debt discount 82 -
Non-cash compensation 76 36
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (4) 27
Other assets 27 (708)
Accounts payable and accrued expenses (1,041) 3,329
Deferred revenue - related party (473) (60)
------- --------
Net cash used in operating activities (5,120) (5,783)
------- --------
Cash flows from investing activities:
Net purchases (sales) of short-term investments 6,021 13,745
Expenditures for property and equipment (142) (1,068)
Proceeds from sale-leaseback of property and equipment -- 408
Investment in joint venture (2,844) (2,251)
------- --------
Net cash provided by investing activities 3,035 10,834
------- --------
Cash flows from financing activities:
Proceeds from stock issuances, net 69 100
Principal payments under capital lease obligations (787) (793)
Principal payments of installment debt - (576)
------- --------
Net cash used in financing activities (718) (1,269)
------- --------
Net increase (decrease) in cash and cash equivalents (2,803) 3,782
Cash and cash equivalents at beginning of period 14,916 11,882
------- --------
Cash and cash equivalents at end of period $12,113 $ 15,664
======= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
ORAVAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED.
1. NATURE OF BUSINESS
OraVax, Inc. (the "Company"), based in Cambridge, Massachusetts, is a
biopharmaceutical company engaged in the discovery and development of innovative
vaccines and antibody products to prevent or treat diseases which infect the
human body at its mucosal linings. The Company has programs focused on
Helicobacter pylori ( H. pylori), the cause of peptic ulcers and stomach cancer;
respiratory syncytial virus (RSV), which causes viral pneumonia in infants;
Clostridium difficile (C. difficile), which causes antibiotic-associated
diarrhea and colitis in hospitalized and nursing home elderly; and Japanese
Encephalitis (JE), a potentially fatal neurotropic viral infection.
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, competition, dependence on
key personnel, protection of proprietary technology and compliance with
government regulations.
2. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1997, and the
condensed consolidated statements of operations and cash flows for the three
and six months ended June 30, 1997 and 1996 are unaudited, have been prepared
on a basis substantially consistent with the audited financial statements, and,
in the opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary for a fair presentation of results for these
interim periods. The preparation of interim 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 interim financial statements and the reported amounts of revenues and
expenses during the reporting period. The results for the six months ended June
30, 1997 are not necessarily indicative of results for the entire year,
although the Company expects to incur a significant loss for the year ending
December 31, 1997. These interim financial statements should be read in
conjunction with the annual consolidated financial statements included in the
Company's annual report filed on Form 10-K for the year ended December 31,
1996.
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ITEM 2. 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 innovative vaccines and antibody products to
prevent or treat diseases which infect the human body at its mucosal linings.
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 resulted 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 JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1996
The Company's total revenues were $2,130,000 in the three months ended
June 30, 1997 as compared to $2,133,000 in the three months ended June 30, 1996.
In the three months ended June 30, 1997, the Company's revenues consisted of
$1,850,000 of collaborative research revenues earned under the Company's
collaboration (the "Joint Venture") with Pasteur Merieux Connaught ("PMC"),
$81,000 from government grants and $199,000 in interest earned on invested
funds. In the three months ended June 30, 1996, the Company's revenues consisted
of $1,703,000 of collaborative research revenues earned under the Joint Venture,
$176,000 from government grants and $254,000 in interest earned on invested
funds.
The Company's total costs and expenses decreased to $4,448,000 in the
three months ended June 30, 1997 from $7,378,000 in the three months ended June
30, 1996. Research and development expenses decreased 44% to $3,485,000 in the
three months ended June 30, 1997 from $6,269,000 in the three months ended June
30, 1996. Significant contributors to the Company's research and development
expenses during the second quarter of 1996 included conducting a Phase II
clinical trial under its H. pylori program and a Phase III clinical trial under
its RSV program. Similar expenses were not incurred in the second quarter of
1997 other than the costs of statistical analysis of the results of the Phase
III clinical trial, and the Company reduced its workforce by approximately 25%
in early April 1997. General and administrative expenses decreased 13% to
$849,000 in three months ended June 30, 1997 from $976,000 in the three months
ended June 30, 1996. This decrease was attributable principally to reduced
patent costs, together with decreases in travel, marketing and other expenses
in connection with the Company's reduction of its workforce. Interest expense
decreased to $114,000 in the three months ended June 30, 1997 from $133,000 in
the three months ended June 30, 1996.
The Company accounts for its investment in the Joint Venture under the
equity method of accounting. Accordingly, the Company recorded its $1,514,000
and $1,153,000 share of the Joint
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<PAGE> 8
Venture's losses in the second quarter of 1997 and 1996, respectively. The
increased loss was principally attributable to increased budgeted activities of
the Joint Venture in 1997 as compared with 1996.
The Company incurred a net loss of $3,832,000 in the three months ended
June 30, 1997 compared to a net loss of $6,398,000 in the three months ended
June 30, 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
The Company's total revenues increased to $4,348,000 in the six months
ended June 30, 1997 from $4,206,000 in the six months ended June 30, 1996. In
the six months ended June 30, 1997, the Company's revenues consisted of
$3,712,000 of collaborative research revenues earned under the Company's Joint
Venture with PMC, $202,000 from government grants and $434,000 in interest
earned on invested funds. In the six months ended June 30, 1996, the Company's
revenues consisted of $3,274,000 of collaborative research revenues earned under
the Joint Venture, $368,000 from government grants and $564,000 in interest
earned on invested funds.
The Company's total costs and expenses decreased to $9,252,000 in the
six months ended June 30, 1997 from $13,640,000 in the six months ended June 30,
1996. Research and development expenses decreased 38% to $7,176,000 in the six
months ended June 30, 1997 from $11,549,000 in the six months ended June 30,
1996. Significant contributors to the Company's research and development
expenses during the first half of 1996 included conducting a Phase II clinical
trial under its H. pylori program and a Phase III clinical trial under its RSV
program and production of necessary supplies of clinical materials for its Phase
III clinical trial. Similar expenses were not incurred in the first half of 1997
other than the costs of statistical analysis of the results of the Phase III
clinical trial, and the Company reduced its workforce by approximately 25% in
early April 1997. General and administrative expenses increased 1% to
$1,839,000 in the six months ended June 30, 1997 from $1,819,000 in the six
months ended June 30, 1996 as decreased expenses associated with the workforce
reduction in the second quarter of 1997 offset increases which had occurred in
the first quarter of 1997 as compared to the same period in 1996. Interest
expense decreased to $237,000 in the six months ended June 30, 1997 from
$272,000 in the six months ended June 30, 1996.
The Company recorded its $3,171,000 and $2,239,000 share of the Joint
Venture's losses during the six months ended June 30, 1997 and 1996,
respectively. The increased loss was principally attributable to increased
budgeted activities of the Joint Venture in 1997 as compared with 1996.
The Company incurred a net loss of $8,075,000 in the six months ended
June 30, 1997 compared to a net loss of $11,673,000 in the six months ended June
30, 1996.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128) which is effective for fiscal years ending after December 15, 1997
including interim periods. Earlier application is not permitted. SFAS 128
specifies the computation, presentation, and disclosure requirements for
earnings per share. The Company will adopt SFAS 128 in 1997 but has not yet
determined the impact.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) which is effective for fiscal years ending after December
15, 1997. SFAS 130 requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. The Company will adopt the new standard beginning in the
first quarter of the fiscal year ending December 31, 1998.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131) which is
effective for fiscal years ending after December 15, 1997. SFAS 131 specifies
new guidelines for determining a company's operating segments and related
requirements for disclosure. The Company is in the process of evaluating the
impact of the new standard on the presentation of the financial statements and
the disclosure therein. The Company will adopt SFAS 131 for the fiscal year
ending December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's aggregate cash and investments were $13,301,000 at June
30, 1997, a decrease of $8,824,000 since December 31, 1996. Net cash used by
operations during the six months ended June 30, 1997, principally to support
research and development, was $5,120,000. The Company expended $142,000 for
property and equipment, and repaid $787,000 of its capital lease obligations
during the period. In addition, the Company invested $2,844,000 in the Joint
Venture.
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 PMC, government grants and interest income. The
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 funding of the Company's share of the
expenses
8
<PAGE> 9
of the Joint Venture or similar arrangements, 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 PMC
and facilities and equipment financing. Based upon current plans, which followed
a reduction in the Company's workforce of approximately 25% in April 1997 and
which exclude any expenditures for conduct of additional clinical trials under
its RSV program, the Company believes its capital resources, together with
interest earned thereon, will be sufficient to meet the Company's operating
expenses and capital requirements into the second quarter of 1998. The Company
will require additional funds, preferably from a collaborative partner, to
conduct additional clinical trials under its RSV program. 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 its successful product
candidates, if any. The Company intends to seek additional funding through
public or private financing 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, will be available on terms satisfactory to the
Company. The Company's inability to obtain needed funding on satisfactory terms
would 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 relinquish rights to certain technologies or
product candidates that the Company would not otherwise issue or relinquish.
9
<PAGE> 10
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results are difficult to predict and may be
affected by a number of factors, including the following, that could cause
actual results to differ materially from those indicated by the forward-looking
statements made herein and presented elsewhere by management from time to time.
EARLY STAGE OF PRODUCT DEVELOPMENT. 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. 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 competitors
or other parties will preclude the Company from marketing such products; or that
competitors or other parties will market superior or equivalent products.
FUTURE CAPITAL NEEDS. In addition, 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, the Company believes that its
capital resources, together with interest earned thereon, will be sufficient to
meet the Company's operating expenses and meet its capital requirements into the
second quarter of 1998. There can be no assurance, however, that changes in the
Company's research and development plans, acquisitions or other events affecting
the Company's operations will not result in accelerated or unexpected
expenditures. Thereafter, the Company will need to raise substantial additional
capital to fund its operations. There can be no assurance, however, that
additional financing will be available, or if available, will be available on
acceptable or affordable terms.
MANUFACTURING LIMITATIONS. 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
current Good Manufacturing Practices ("cGMP") imposed by the FDA, OraVax will
need to establish sufficient technical staff to oversee all product operations,
including quality control, quality assurance, technical support and
manufacturing management. 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 cGMP. 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.
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
10
<PAGE> 11
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.
PATENT AND PROPRIETARY RIGHTS. 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. Certain of the technology that may be used in the products of
OraVax is not covered by any patent or patent application. There can be no
assurance that any pending patent applications relating to the Company's product
candidates will result in patents being issued. Moreover, there can be no
assurance that any such patents will afford protection against competitors with
similar technology. There may be pending or issued third-party patents relating
to the product candidates of OraVax. OraVax may need to acquire licenses to, or
to contest validity of, any such third party patents. It is likely that
significant funds would be required to defend any claim that OraVax infringes a
third-party patent, and any such claim could adversely affect sales of the
challenged product of OraVax until the claim is resolved. There can be no
assurance that any license required under any such patent would be made
available.
GOVERNMENT REGULATION. 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 indications 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.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. Government and other third-party
payers are increasingly attempting to contain healthcare costs by limiting both
coverage and the level of reimbursement for new 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 payers for uses of the Company's
products, the market acceptance of these products would be adversely affected.
Because of these and other factors, past financial performance should not
be an indicator of future performance. Investors should not use historical
trends to anticipate future results and should be aware that the trading price
of the Company's common stock may be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, changes in the biotechnology
and pharmaceutical industries and recommendations by analysts or other events.
11
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PART II: OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities
Not Applicable
ITEM 3. Default Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Securities Holders
The Company held its Annual Meeting of Stockholders
on July 8, 1997. At this meeting, the stockholders of
the Company :
1. Elected C. Boyd Clarke (by a vote of 6,709,869
shares of common stock in favor and 48,117 shares of
common stock withheld) and Allen Misher (by a vote of
6,711,234 shares of common stock in favor and 46,752
shares of common stock withheld) to serve as Class II
Directors of the Company until the 2000 Annual
Meeting of Stockholders; and
2. Approved an amendment to the Company's 1995 Stock
Option Plan (by a vote of 2,474,892 shares of common
stock in favor, 1,781,946 shares of common stock
against and 8,475 shares of common stock abstaining;
there were 2,492,673 broker non-votes with respect to
this matter) providing for an increase from 300,000
to 1,300,000 in the number of shares reserved for
issuance; and
3. Ratified the selection of Coopers & Lybrand L.L.P.
as the Company's independent auditors for the
fiscal year ending December 31, 1997 (by a vote of
6,742,072 shares of common stock in favor, 5,454
shares of common stock against and 10,460 shares of
common stock abstaining; there were no broker
non-votes with respect to this matter).
ITEM 5. Other Information
Not Applicable
12
<PAGE> 13
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarterly period ended
June 30, 1997, the Company filed a
Current Report on Form 8-K dated
April 2, 1997 relating to the
declaration by the Company's Board
of Directors of a dividend of one
preferred stock purchase right for
each outstanding share of the
Company's Common Stock to
stockholders of record at the close
of business on April 15, 1997.
13
<PAGE> 14
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OraVax, Inc.
Date: August 14, 1997 /s/ LANCE K. GORDON
------------------- ------------------------------------------
Lance K. Gordon
President and Chief Executive Officer
Date: August 14, 1997 /s/ KEITH S. EHRLICH
------------------- ------------------------------------------
Keith S. Ehrlich
Vice President, Finance and
Administration and Chief Financial
Officer (Principal Financial and
Accounting Officer)
14
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