<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
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: 0-23930
TARGETED GENETICS CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1549568
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 OLIVE WAY, SUITE 100, SEATTLE, WASHINGTON 98101
(Address of principal executive offices) (Zip Code)
(206) 623-7612
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, $.01 PAR VALUE 20,115,668
(Class) (Outstanding at July 29, 1996)
</TABLE>
<PAGE> 2
TARGETED GENETICS CORPORATION
Quarterly Report on Form 10-Q
June 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995 3
b) Condensed Consolidated Statements of Operations - for the three
and six months ended June 30, 1996 and 1995 4
c) Condensed Consolidated Statements of Cash Flows - for the three
and six months ended June 30, 1996 and 1995 5
d) Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
* No information is provided due to inapplicability of the item.
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,238,531 $ 2,154,814
Securities available for sale 17,193,038 12,287,748
Deposits, prepaid expenses and other 529,888 196,150
------------ ------------
Total current assets 24,961,457 14,638,712
Property, plant and equipment, net 5,143,386 4,959,502
Other assets 400,730 362,246
------------ ------------
$ 30,505,573 $ 19,960,460
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,489,743 $ 564,403
Accrued payroll and other liabilities 279,595 336,713
Current portion of long-term obligations 1,053,308 881,210
------------ ------------
Total current liabilities 3,822,646 1,782,326
Long-term obligations 2,428,852 2,405,298
Shareholders' equity:
Preferred stock -- --
Common stock (19,540,848 and 12,317,183 shares
outstanding at June 30, 1996 and December 31,
1995, respectively) 71,117,882 43,295,436
Deficit accumulated during development stage (46,863,807) (27,522,600)
------------ ------------
Total shareholders' equity 24,254,075 15,772,836
------------ ------------
$ 30,505,573 $ 19,960,460
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
March 9, 1989
(date of
inception)
Three months ended Six months ended through
June 30, June 30, June 30,
----------------------------- ----------------------------- -------------
1996 1995 1996 1995 1996
----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Investment and other income $ 230,277 $ 179,459 $ 413,813 $ 311,996 $ 2,665,720
Expenses:
Research and development 2,431,607 1,956,580 4,797,639 3,934,896 27,568,759
In-process research and development 13,517,911 -- 13,517,911 -- 13,517,911
General and administrative 554,111 534,121 1,170,973 1,235,134 7,745,693
Interest 103,125 78,464 195,506 153,304 690,492
----------- ----------- ----------- ----------- ------------
Total expenses 16,606,754 2,569,165 19,682,029 5,323,334 49,522,855
------------ ----------- ------------ ----------- ------------
Net loss $(16,376,477) $(2,389,706) $(19,268,216) $(5,011,338) $(46,857,135)
============ =========== ============ =========== ============
Net loss per share $ (1.26) $ (0.27) $ (1.52) $ (0.56)
============ =========== ============ ===========
Shares used in computation of
net loss per share 13,031,247 8,974,194 12,690,294 8,970,614
============ =========== ============ ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from
March 9, 1989
(date of
inception)
Three months ended Six months ended through
June 30, June 30, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash used in operating
activities $ (2,956,376) $ (2,297,800) $ (5,558,934) $ (4,736,131) $(29,527,199)
Investing activities:
Purchases of property, plant and
equipment (472,111) (234,736) (991,593) (507,500) (8,162,190)
Purchases of securities available
for sale (10,990,684) (761,090) (12,504,553) (2,733,976) (67,595,075)
Sales of securities available for sale 4,353,409 3,286,462 7,720,112 6,124,761 50,672,132
Net cash acquired in RGene
acquisition 2,977,185 -- 2,977,185 -- 2,977,185
Increase in other assets -- (32,500) -- (62,500) (574,179)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities (4,132,201) 2,258,136 (2,798,849) 2,820,785 (22,682,127)
Financing activities:
Advances from Immunex -- -- -- -- 2,807,316
Net proceeds from sale of capital stock 12,948,559 440 13,245,848 8,735 53,667,968
Proceeds from equipment financing 92,933 -- 646,996 237,459 4,493,290
Payments under capital leases
and installment loans (240,457) (155,426) (451,344) (296,252) (1,520,717)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities 12,801,035 (154,986) 13,441,500 (50,058) 59,447,857
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 5,712,458 (194,650) 5,083,717 (1,965,404) 7,238,531
Cash and cash equivalents, beginning
of period 1,526,073 536,225 2,154,814 2,306,979 --
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end
of period $ 7,238,531 $ 341,575 $ 7,238,531 $ 341,575 $ 7,238,531
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements included herein have
been prepared by Targeted Genetics Corporation (the "Company"), without audit,
according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The
financial statements reflect, in the opinion of management, all adjustments
(which consist solely of normal recurring adjustments) necessary to present
fairly the financial position and results of operations as of and for the
periods indicated.
The results of operations for the three and six months ended June 30,
1996 are not necessarily indicative of the results to be expected for the full
year.
Note 2. Acquisition of RGene Therapeutics, Inc.
On June 19, 1996, the Company completed its acquisition of RGene
Therapeutics, Inc. ("RGene"), a privately held gene therapy company. The Company
issued 3,636,364 shares of common stock in exchange for all the outstanding
capital stock of RGene at approximately $4.08 per share. The shares are
currently unregistered but the Company has agreed to register 50 percent of the
shares issued in the merger one year from the date of the closing.
The transaction was accounted for as a purchase and the consideration
issued by the Company was allocated to tangible assets acquired based on their
estimated fair values on the acquisition date. The aggregate purchase price of
$17,822,000 consisted of (in thousands):
<TABLE>
<S> <C>
Market value of capital stock $14,854
Acquisition costs and expenses 650
Liabilities assumed 2,318
-------
Total purchase price $17,822
</TABLE>
6
<PAGE> 7
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Note 2. Acquisition of RGene Therapeutics, Inc. (continued)
The aggregate purchase price exceeded the fair value of RGene's
tangible assets by $13,518,000. This amount was allocated to acquired in-process
research and development and written off to operations in the second quarter of
1996. The allocation of the aggregate purchase price was as follows (in
thousands):
<TABLE>
<S> <C>
Current assets $ 4,304
In-process technology 13,518
--------
$ 17,822
</TABLE>
The following summarized unaudited pro forma results of operations for
the six-month periods ended June 30, 1996 and 1995, respectively, assume the
acquisition occurred as of the beginning of the respective periods (dollars in
thousands, except for per share amounts):
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Revenue $ 5,455 $ 357
Net loss (4,983) (6,349)
Net loss per share (0.31) (0.50)
</TABLE>
The pro forma results presented above do not include certain one-time
charges related to the acquisition of RGene.
The Company may issue up to $5 million in additional common stock to
RGene's former stockholders based on the achievement of certain clinical and
business-related milestones prior to December 31, 1998.
Note 3. Subsequent Events
On July 11, 1996, the Company's underwriters exercised their
over-allotment option to purchase an additional 525,000 shares of stock at the
offering price of $4.00 per share. The option was granted on June 20, 1996, in
connection with the Company's public offering of 3.5 million shares of common
stock.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
The Company had cash, cash equivalents and securities available for
sale totaling $24.4 million as of June 30, 1996, compared to $14.4 million at
December 31, 1995. The increase was primarily attributable to net proceeds of
$12.9 million from the Company's recent public offering and $3.0 million from
the acquisition of RGene Therapeutics, Inc. ("RGene"), offset by the use of $5.6
million to fund its operations during the first six months of 1996.
The Company is a development stage company conducting gene and cell
therapy research and development. Income earned from investments has been its
only significant source of revenue. Gene and cell therapy products are subject
to the risks of failure inherent in the development of products based on
innovative technologies. Although the Company's technology appears promising, it
is unknown whether any commercially viable products will result from the
research and development. It is not anticipated that the Company will have any
product-related revenues for a number of years. Accordingly, the Company expects
to incur substantial additional losses over the next several years and to use
its capital resources to fund preclinical and clinical research programs,
development of manufacturing capabilities and the preparation for
commercialization of its products under development.
On June 19, 1996, the Company completed a merger with RGene, a private
biotechnology firm located in The Woodlands, Texas. As a result of this
transaction, Targeted Genetics acquired proprietary non-viral gene delivery
technology that complements the viral technologies the Company currently has
under development, a potential gene therapy product for the treatment of cancer
and key consulting and collaborative relationships with other leading scientists
in the gene therapy field. Under terms of the merger agreement, the Company
acquired all the outstanding shares of RGene stock in exchange for approximately
3.64 million unregistered shares of the Company's common stock. The transaction
was accounted for using the purchase method of accounting and the consideration
issued by the Company was allocated to the tangible and intangible assets
acquired. The Company acquired $2,977,000 of cash and cash equivalents in the
transaction, $1,425,000 of which will be used to satisfy liabilities assumed
from RGene.
The Company recently raised $14 million through the completion of a
public offering of 3.5 million shares of common stock at $4.00 per share. The
net proceeds of the offering will be used to fund continuing operations in
research and development, clinical testing and for capital expenditures. The
Company currently estimates that, at its planned rate of spending, adjusted to
reflect the increased expenses expected to result from the RGene merger, its
existing cash, cash equivalents and securities available for
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Financial Condition (continued)
sale will be sufficient to meet its capital requirements until at least late
1997. Such estimates include the impact of future milestone payments potentially
receivable under RGene collaborative agreements assumed by the Company in the
merger. There can be no assurance that the underlying assumed levels of revenue
and expense will prove to be accurate. Substantial additional funds will be
needed to continue the development and commercialization of the Company's
products. Accordingly, the Company is seeking to establish additional
collaborative agreements with corporate partners that would provide research and
development funding and equity investment. The Company also may seek to raise
additional equity capital whenever conditions in the financial markets allow it
to do so. There can be no assurance, however, that adequate funds will be
available when needed or will be available on terms favorable to the Company.
The above forward-looking statement regarding the Company's future
capital requirements is subject to certain risks and uncertainties that could
cause the actual results to differ materially from those projected. The
Company's future cash requirements will depend on many factors, including the
successful consolidation of RGene with the Company; continued scientific
progress in its research and development programs; the results of research and
development, preclinical studies and clinical trials; acquisition of products or
technology, if any; relationships with corporate collaborators; competing
technological and market developments; the time and costs involved in obtaining
regulatory approvals; the costs involved in filing, prosecuting and enforcing
patent claims; the time and costs of manufacturing scale-up and
commercialization activities; and other factors. Readers are cautioned not to
place undue reliance on this forward-looking statement, which speaks only as of
the date of this report. The Company undertakes no obligation to publicly
release the results of any revisions to this forward-looking statement that may
be made to reflect events or circumstances after the date of this report or to
reflect the occurrence of unanticipated events.
Results of Operations
Over the past several years, the Company's net loss has grown,
consistent with the growth in the Company's scope and size of operations. In the
near term, the Company plans additional moderate growth in employee headcount
necessary to address increasing requirements in the areas of manufacturing,
quality control, clinical and regulatory affairs. Assuming capital is available
to finance such growth, the Company's operating expenses will continue to
increase as a result. At least until such time as the Company enters into an
arrangement providing research and development funding, the net loss will
continue to increase as well.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (continued)
For the three and six months ended June 30, 1996, investment and other
income increased to $230,000 and $414,000 compared to $179,000 and $312,000
during the three and six months ended June 30, 1995. The increase was
attributable to a higher average cash balance for investment and higher rates of
return on those balances compared to the same period in 1995.
Research and development expenses were $2,432,000 and $4,798,000 for
the three and six months ended June 30, 1996, and $1,957,000 and $3,935,000 for
the three and six months ended June 30, 1995. Factors that contributed to the
increase in both current year periods compared to the same periods in 1995 were:
an increase in the level of expenses for development, manufacturing, quality
control, and regulatory activities supporting the Company's clinical trials;
additional employees and related expenses in preclinical immunology; and
increased employee benefits costs.
A one-time expense resulting from the acquisition of RGene was charged
against income in the second quarter of 1996. The RGene purchase price exceeded
the fair value of tangible assets acquired by $13,518,000. This amount was
allocated to RGene's existing in-process technology and was written off in the
current period to in-process research and development expense.
General and administrative expenses were $554,000 and $1,171,000 for
the three and six months ended June 30, 1996, and $534,000 and $1,235,000 for
the three and six months ended June 30, 1995. The Company experienced a moderate
increase in the expenses for the three- and six-month periods consistent with
the Company's growth. The impact of a one-time expense of $196,000 related to
certain corporate development activities is reflected in the six-month period
ended June 30, 1995.
Interest expense was $103,000 and $196,000 for the three and six months
ended June 30, 1996, and $78,000 and $153,000 for the three and six months ended
June 30, 1995. The increases were attributable to the additional equipment
leases entered into by the Company.
10
<PAGE> 11
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the Company's shareholders ("Shareholders") was
held on Thursday, May 2, 1996 (the "Annual Meeting"). Of the 12,397,484 shares
outstanding as of the record date, March 8, 1996, 10,572,222 shares, or 85.3% of
the total shares eligible to vote at the Annual Meeting, were represented in
person or by proxy.
Two matters were submitted to a vote of the Shareholders at the Annual
Meeting. First, an amendment to the 1992 Stock Option Plan providing for an
increase in the number of shares available for grant from 1,400,000 to 2,000,000
was approved by 92.3% of the votes represented at the meeting. Second, Jeremy
Curnock Cook, Stephen A. Duzan and James D. Grant were elected as Directors of
the Company by 95.9% of the shares represented at the meeting.
A special meeting of Shareholders was held on Wednesday, June 19, 1996
(the "Special Meeting"). Of the 12,398,284 shares outstanding as of the record
date, April 23, 1996, 8,791,837 shares, or 70.9% of the total shares eligible to
vote at the Special Meeting, were represented in person or by proxy.
One matter was submitted to a vote of the Shareholders at the Special
Meeting. The Shareholders were asked to approve the issuance of 3,636,364 shares
of common stock plus additional shares, upon the achievement of certain
milestones, having a value of up to $5 million under the terms of a merger
agreement, pursuant to which the Company would acquire all of the outstanding
shares of RGene Therapeutics, Inc. This matter was approved by 99.8% of the
votes represented at the meeting.
No other matters were submitted to a vote of the Shareholders.
11
<PAGE> 12
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this report.
Exhibit No. Description
----------- -----------
10.1 Amendment to the First Amended and Restated License
Agreement, between The University of Tennessee Research
Corporation and RGene Therapeutics, Inc., dated as of
June 19, 1996.
27 Financial Data Schedule.
(b) A Current Report on Form 8-K dated April 16, 1996 was filed with the
Securities and Exchange Commission reporting that Targeted Genetics Corporation
had entered into a merger agreement with RGene Therapeutics, Inc.
12
<PAGE> 13
SIGNATURES
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.
TARGETED GENETICS CORPORATION
-----------------------------------------------
(Registrant)
Date August 12, 1996 /s/ H. STEWART PARKER
-------------------------------------------------
H. Stewart Parker, Chief Executive Officer
(Principal Executive Officer)
Date August 12, 1996 /s/ JAMES A. JOHNSON
--------------------------------------------------
James A. Johnson, Vice President, Finance
(Principal Financial and Accounting Officer)
13
<PAGE> 1
EXHIBIT 10.1
TO
FORM 10-Q
"[*]" = confidential information omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
<PAGE> 2
AMENDMENT TO THE FIRST AMENDED AND RESTATED
LICENSE AGREEMENT
BETWEEN
THE UNIVERSITY OF TENNESSEE RESEARCH
CORPORATION
AND
RGENE THERAPEUTICS, INC.
To All Those Concerned:
This is an Amendment to the First Amended And Restated License
Agreement between The University Of Tennessee Research Corporation and RGene
Therapeutics, Inc. having an effective date of October 12, 1995 (the
"Agreement"). UTRC and RGENE agree to amend the Agreement as of June 19, 1996,
effective as of October 12, 1995, as stated below.
Section 2.7 is hereby amended to recite:
2.7 It is specifically acknowledged that i) UTRC licensed
certain Technology to Argus Pharmaceuticals, Inc. ("Argus") through an agreement
effective as of November 1, 1993; ii) that effective October 12, 1995, Argus
Pharmaceuticals, Inc. changed its name to Aronex Pharmaceuticals, Inc.
("Aronex"); and iii) that Aronex and UTRC amended the November 1, 1993 Agreement
though a First Amended and Restated License Agreement executed on December 6 and
8, 1995. It is also specifically acknowledged that Aronex, then Argus, granted
RGENE a sublicense to its UTRC Technology through the Sublicense Agreement
effective April 6, 1994.
Section 4.1 is hereby amended to recite:
4.1 As consideration for the license hereby granted to
RGENE, including a license to the Technology licensed
to Aronex by UTRC and sublicensed to RGENE as set
forth above in Section 2.7, and which consideration
shall be accepted by UTRC as including payment in full
satisfaction of any consideration due UTRC by Aronex:
Section 4.1 C and 4.1 C (1) of the Agreement are hereby
amended to recite:
<PAGE> 3
C. RGENE shall pay to UTRC Running Royalties in an amount
equal to [*] of all Net Sales by RGENE and Affiliate
Sublicensees of Licensed Products that are covered by
a claim of an issued and unexpired patent included
within Licensed Patent Rights in the place of
manufacture, use, or sale, provided:
(1) If, in order to manufacture or sell any
Licensed Product covered by this Article
4.1C, RGENE or any Affiliate Sublicensees
are required to obtain from one or more
third parties who are not Affiliates other
royalty bearing license(s) for additional
drug delivery technology, the Running
Royalty rate payable hereunder on Net Sales
of that Licensed Product shall be reduced by
[*] for each such license actually entered
into by RGENE or an Affiliate Sublicensee,
provided that in no event shall the Running
Royalty rate be less than [*] of Net Sales
and further provided that the reduced
Running Royalty rate shall apply only to
sales of that Licensed Product on which
RGENE or an Affiliate Sublicensee actually
owes and pays a royalty to a non-Affiliate
third party.
Section 4.1 D and 4.1 D (1) of the Agreement are hereby
amended to recite:
D. RGENE shall pay UTRC Running Royalties in an amount
equal to [*] of all Net Sales of Licensed Products
that are not covered by the provisions of Article 4.1C
above by RGENE and Affiliate Sublicensees during each
calendar quarter during the term of this Agreement,
provided:
(1) If, in order to manufacture or sell any
Licensed Product covered by this Article
4.1D, RGENE or any Affiliate Sublicensees
are required to obtain from one or more
non-Affiliate third parties other royalty
bearing license(s) for additional drug
delivery technology, the Running Royalty
rate payable hereunder on Net Sales of that
Licensed Product shall be reduced by [*] for
each such license actually entered into by
RGENE or an Affiliate Sublicensee, provided
that in no event shall the Running Royalty
rate be less than [*] of Net Sales and
further provided that the reduced Running
Royalty rate shall apply only to sales of
that Licensed Product on which RGENE or an
Affiliate Sublicensee actually owes and pays
a royalty to a non-Affiliate third party.
Section 4.1 E of the Agreement is hereby amended to recite:
- ---------------------------------
[*] Confidential Treatment Requested
-2-
<PAGE> 4
E. RGENE shall pay to UTRC Sublicense Fees and Royalties
as follows:
(1) Sublicense Fees
For each sublicense and option to sublicense granted
hereunder, RGENE shall pay UTRC [*] of the net
compensation received by RGENE. The term "net
compensation" as used herein shall mean the gross
compensation received by RGENE under such sublicenses
less (a) running royalties and (b) any payment
received by RGENE from the sublicensee for (i)
purchase of Licensed Product from RGENE (the amount
excluded hereunder not to exceed RGENE's direct
out-of-pocket cost of manufacturing and shipping such
Licensed Product) and (ii) services provided by RGENE
to the sublicensee, directly or indirectly (the amount
deducted hereunder not to exceed RGENE's direct
out-of-pocket cost of providing such services).
(2) Sublicense Royalties
RGENE shall pay UTRC a Sublicense Royalty equal to
[*] of the running royalties received from RGENE's
sublicensees, RGENE shall be entitled to deduct from
such Sublicense Royalty an amount equal to running
royalties actually paid by RGENE to any non-Affiliate
licensor (other than UTRC) for the Licensed Product
that generated the Sublicense Royalty, provided that
in no event shall the Sublicense Royalty paid to UTRC
be so reduced by more than [*] and further provided
that UTRC shall receive as a Sublicense Royalty not
less than [*] nor more than [*] of the sublicensee's
Net Sales of Licensed Product.
(3) Notwithstanding the foregoing, UTRC will receive [*]
of any compensation received by RGENE as a result of
the License Agreement between RGENE and Pasteur
Merieux Serums & Vaccins S.A. dated December 15, 1995,
excluding sales of Licensed Product by RGENE to
Pasteur Merieux Serums & Vaccins S.A. or its
sublicensee (the amount excluded hereunder not to
exceed RGENE's direct out-of-pocket cost of
manufacturing and shipping such Licensed Product).
Section 8.1 shall be amended to recite:
- ---------------------------------
[*] Confidential Treatment Requested
-3-
<PAGE> 5
8.1 In the event that UTRC, The University of Tennessee, M
McMaster, any of their directors, officers, or employees, or any individual
named as an inventor of Licensed Patent Rights (hereinafter) "Indemnified Party"
is charged with infringement of a patent by a third party or is made a party in
any lawsuit (including but not limited to products liability actions) as a
result of the manufacture, use, or sale of any Licensed Product under this
Agreement or as a result of any obligation or activity of RGENE or its
sublicensees under the Agreement or any sublicense, RGENE shall:
A. defend or settle, at RGENE's expense, any such
claim of infringement or lawsuit;
B. assume all costs, expenses, damages and other
obligations for payments incurred as a consequence
of such charges of infringement or lawsuit; and
C. indemnify and hold such Indemnified Party harmless
for any and all damages, losses, liability, and
costs resulting from such charge of infringement
or lawsuit.
Section 8.6 shall be amended to recite:
8.6. RGENE agrees to carry such liability insurance as would
reasonably be expected of a company of RGENE's size and activities operating in
the pharmaceutical industry. At all times during this the term of this
Agreement, UTRC and McMaster shall be listed as an additional named insured on
such liability insurance policy(ies). RGENE agrees to provide written evidence
of such insurance upon request by UTRC or McMaster.
After 15.11, insert:
16. ARBITRATION
Except for the right of either party to apply to a court
of competent jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief to preserve the status quo or to prevent
irreparable harm, or to enforce the provisions of this Article 16, in the event
any dispute arises between any of the parties to this Agreement as to the
validity, construction, enforceability or performance of the Agreement or any of
its provisions, such dispute shall be settled by arbitration. The arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association with a panel of three (3) arbitrators. The Federal rules of
discovery shall apply to the arbitration. The decision and judgment of the
arbitrators may be entered and enforced in any court having jurisdiction
thereof.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to
have been amended and to be duly executed as of June 18, 1996 with an effective
date of October 12, 1995.
RGENE THERAPEUTICS, INC. THE UNIVERSITY OF TENNESSEE
RESEARCH CORPORATION
By: /s/ Martin Lindenberg By: /s/ Ann J. Roberson
---------------------------------- -------------------
Name: Martin Lindenberg Name: Ann J. Roberson
Title: President and CEO Title: President
Date: June 19, 1996 Date: June 19, 1996
------------------------------- -------------
Approved by MCMASTER UNIVERSITY
By: /s/ Ronald F. Childs
---------------------------
Name: Ronald F. Childs
-------------------------
Title: Vice President, Research
-------------------------
Date: June 19, 1996
-------------------------
-2-
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