<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1996.
REGISTRATION NO. 333-03592
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TARGETED GENETICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
WASHINGTON 2836 91-1549568
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1100 OLIVE WAY, SUITE 100
SEATTLE, WASHINGTON 98101
(206) 623-7612
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
H. STEWART PARKER
CHIEF EXECUTIVE OFFICER
1100 OLIVE WAY, SUITE 100
SEATTLE, WASHINGTON 98101
(206) 623-7612
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN M. GRAHAM CHARLES W. MULANEY, JR.
STEPHANIE G. DALEY-WATSON SKADDEN, ARPS, SLATE, MEAGHER & FLOM
PERKINS COIE 333 WEST WACKER DRIVE
1201 THIRD AVENUE, 40TH FLOOR CHICAGO, ILLINOIS 60606
SEATTLE, WASHINGTON 98101-3099 (312) 407-0700
(206) 583-8888
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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 of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS, DATED JUNE 13, 1996
PROSPECTUS
3,500,000 SHARES
TARGETED GENETICS LOGO
COMMON STOCK
All of the 3,500,000 shares of Common Stock offered hereby are being sold
by Targeted Genetics Corporation ("Targeted Genetics" or the "Company"). The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
"TGEN." On May 24, 1996, the last reported sale price for the Common Stock was
$5.75 per share. See "Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
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.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
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UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
Per Share.................................... $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)..................................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $350,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
525,000 additional shares of Common Stock on the same terms and conditions
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made at the
offices of the agent of Vector Securities International, Inc., in New York, New
York, on or about , 1996.
---------------------------
Vector Securities International, Inc. Genesis Merchant Group
Securities
, 1996
<PAGE> 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere in this Prospectus
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions; competition; technological
advances; ability to obtain rights to technology; ability to obtain and enforce
patents; ability to commercialize and manufacture products; results of clinical
studies; results of research and development activities; business abilities and
judgment of personnel; availability of qualified personnel; changes in, or
failure to comply with, governmental regulations; ability to obtain adequate
financing in the future; and other factors referenced in this Prospectus. See
"Risk Factors."
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE 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."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus,
including information under "Risk Factors." Except as otherwise noted, all
information in this Prospectus, including financial information and share and
per share data, assumes no exercise of the Underwriters' over-allotment option.
See "Underwriting." Special Note: Certain statements set forth below constitute
"forward-looking statements" within the meaning of the Reform Act. See "Special
Note Regarding Forward-Looking Statements" on page 2 for additional factors
relating to such statements.
THE COMPANY
Targeted Genetics is focused on the development of gene and cell therapies
for the treatment of certain acquired and inherited diseases. The Company is
developing a broad base of core technologies that it believes will allow it to
address a variety of such diseases. These technologies include proprietary viral
and non-viral gene delivery systems as well as novel techniques for cytotoxic T
lymphocyte ("CTL") immunotherapy. In order to expand its technology base with
respect to non-viral gene delivery systems and to enhance its product
development programs, the Company recently agreed to acquire RGene Therapeutics,
Inc. ("RGene"), a privately held company focused on the development and use of
non-viral gene delivery systems. The Company is using its core technology
platform to develop potential products for the treatment of various genetic
disorders, cancer and infectious diseases, and is currently conducting clinical
trials in certain of these indications.
The Company believes that in the area of gene therapy, different disease
targets will require different methods of gene delivery, depending on the target
cell to be modified, the duration of gene expression required and the need for
ex vivo or in vivo delivery. Accordingly, the Company is developing multiple
gene delivery systems based on three different vector technologies:
adeno-associated viral ("AAV"), retroviral and non-viral. The Company believes
these systems may provide it with the flexibility necessary to develop gene
therapies for a broader range of diseases than would be possible using a single
gene delivery system. Targeted Genetics was the first company to initiate
clinical trials using AAV vectors and is not aware of any other company
conducting clinical trials using these vectors. In addition, the Company has
exclusive rights to an improved type of retroviral vector which has been shown
in preclinical experiments to be more efficient than earlier retroviral vectors
at delivering genes into certain types of blood cells. The Company also is
developing non-viral gene delivery systems which may provide greater flexibility
relative to the size and sequence of transferred genes and allow targeted
delivery in vivo.
Through its pending acquisition of RGene (the "RGene Acquisition"), the
Company will acquire rights to proprietary non-viral gene delivery technology
based on the use of cationic lipids that promote the uptake of DNA into cells.
This technology includes several formulations with the potential for increased
stability and improved transduction efficiency, as well as the potential ability
to deliver genes to specific target cells. The Company will also acquire rights
to the E1A tumor suppressor gene which is currently in clinical trials for the
treatment of ovarian and breast cancer.
In the area of cell therapy, the Company's expertise with CTLs enables it
to isolate from patients and efficiently multiply antigen-specific CTLs, which
are immune cells that target and kill specific diseased cells. This expertise
forms the basis for a series of potential immunotherapies for the treatment of
cancer and infectious diseases. The CTL immunotherapy program is based on the
Company's proprietary Rapid Expansion Method ("REM") technology, which is used
to grow CTLs ex vivo prior to infusion into the patient. The Company has
demonstrated that REM enables it to grow billions of CTLs from individual cloned
cells over several weeks, while preserving the cells' specific disease-fighting
capabilities in vitro. Other methods of expanding CTL clones generally require
several months.
Targeted Genetics is currently conducting multiple clinical trials
utilizing its viral gene delivery systems as well as its CTL immunotherapy
technology. Following the completion of the RGene Acquisition, the Company also
will have a clinical trial using a non-viral gene delivery system. The Company
is currently conducting a Phase I and a Phase I/II clinical trial examining the
use of AAV
3
<PAGE> 5
vectors to deliver in vivo the cystic fibrosis transmembrane regulator ("CFTR")
gene for the treatment of cystic fibrosis. The Phase II part of the latter trial
is expected to begin in late 1996. RGene has initiated a Phase I clinical trial
of a non-viral system to deliver in vivo the E1A tumor suppressor gene to
patients with ovarian or breast cancer. In addition, the Company is conducting a
Phase I clinical trial examining the use of HIV-specific CTLs to prevent the
onset of full-blown AIDS in HIV-infected patients. The Company also is
collaborating on two physician-sponsored Phase I clinical trials examining gene
therapies for the treatment of Gaucher disease and melanoma. Patient accrual for
all these Phase I clinical trials is expected to be completed by the end of
1996.
Effective May 1996, RGene and Laboratoires Fournier S.C.A. ("Fournier")
entered into a license, research and marketing agreement under which Fournier
received exclusive rights to develop and commercialize in Europe RGene's E1A
tumor suppressor product candidate and any other product candidates based on the
E1A tumor suppressor gene and developed pursuant to the agreement. Under the
agreement, the parties will undertake a joint clinical program to coordinate
product development and clinical trials in the United States and Europe.
Fournier has paid RGene a $5 million upfront license fee, $2.5 million of which
was paid as an option fee prior to execution of the agreement. RGene may receive
additional payments if the parties achieve certain development milestones and
royalties on sales of resulting products, if any. In addition, if the parties
are able to negotiate a mutually acceptable supply agreement, RGene will be
entitled to manufacture products for Fournier in return for manufacturing fees.
Upon completion of the RGene Acquisition, the rights and obligations of RGene
under the agreement will be assumed by the Company.
The Company was incorporated in Washington in 1989 as a wholly owned
subsidiary of Immunex Corporation ("Immunex"), and commenced operations in 1992.
The Company's headquarters are located at 1100 Olive Way, Suite 100, Seattle,
Washington 98101. Its telephone number is (206) 623-7612.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.................................. 3,500,000 shares
Common Stock to be outstanding after the Offering..... 19,533,848 shares (1)
Nasdaq National Market symbol......................... TGEN
Use of proceeds....................................... For research and development;
clinical testing; capital
expenditures, including expansion of
existing facilities; working capital;
and general corporate purposes.
</TABLE>
- ---------------
(1) Based on shares outstanding as of March 31, 1996. Includes 3,636,364 shares
to be issued to RGene stockholders upon completion of the RGene Acquisition.
Excludes (i) 1,177,014 shares issuable upon exercise of options outstanding
at March 31, 1996, with a weighted average exercise price of $3.20 per
share; (ii) 831,614 shares issuable upon exercise of warrants outstanding at
March 31, 1996, with a weighted average exercise price of $4.78 per share;
(iii) 281,686 shares reserved for issuance under the Company's stock option
plans at March 31, 1996; and (iv) an indeterminate number of additional
shares of Common Stock that may be issued to RGene stockholders in the event
certain milestones are achieved before December 31, 1998. See
"Management -- Benefit Plans" and "RGene Acquisition."
4
<PAGE> 6
SUMMARY ACTUAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------- -------------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 (1) 1995 1996 1996 (2)
------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 412 $ 449 $ 842 $ 1,195 $ 132 $ 183 $ 2,706
Expenses:
Research and
development........ 4,261 6,763 8,195 11,268 1,978 2,366 4,636
General and
administrative..... 1,217 1,892 2,267 3,020 701 617 888
Interest............. -- 193 302 302 75 92 92
------- ------- ------- -------- ------- ------- -------
Total expenses... 5,478 8,848 10,764 14,590 2,754 3,075 5,616
------- ------- ------- -------- ------- ------- -------
Net loss............... $(5,066) $(8,399) $(9,922) $(13,395) $(2,622) $(2,892) $ (2,910)
======= ======= ======= ======== ======= ======= =======
Net loss per share..... $ (0.94) $ (0.95) $ (0.29) $ (0.23) $ (0.18)
======= ======== ======= ======= =======
Shares used in
computation of net
loss per share....... 10,533 14,169 8,966 12,343 15,979
Pro forma, assuming
conversion of
Preferred Stock to
Common Stock (3):
Net loss per share... $ (1.03)
=======
Shares used in
computation of net
loss per share..... 8,152
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
-------- ------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available for sale.............. $ 11,878 $ 14,105 $ 32,622
Working capital....................................................... 10,408 11,017 29,534
Total assets.......................................................... 17,381 19,930 38,447
Long-term obligations................................................. 2,634 2,634 2,634
Deficit accumulated during development stage.......................... (30,481) (44,550) (44,550)
Total shareholders' equity............................................ 13,119 13,904 32,421
</TABLE>
- ------------------
(1) Gives effect to the RGene Acquisition as if it had occurred on January 1,
1995. See "Unaudited Pro Forma Consolidated Financial Statements."
(2) Gives effect to the RGene Acquisition as if it had occurred on January 1,
1996. See "Unaudited Pro Forma Consolidated Financial Statements."
(3) Computed on the basis described in Note 2 of Notes to Targeted Genetics
Financial Statements.
(4) Gives effect to the RGene Acquisition as if it had occurred on March 31,
1996. See "Unaudited Pro Forma Consolidated Financial Statements."
(5) Gives effect to the RGene Acquisition as if it had occurred on March 31,
1996, the sale by the Company of the 3,500,000 shares of Common Stock
offered hereby at an assumed public offering price of $5.75 per share and
the receipt of the estimated net proceeds therefrom. See "Use of Proceeds."
5
<PAGE> 7
RGENE ACQUISITION
In keeping with its strategy of building a broad-based technology platform,
in April 1996, the Company entered into a definitive merger agreement (the
"Merger Agreement") with RGene pursuant to which the Company has agreed to
acquire RGene by merging a wholly owned subsidiary of the Company formed to
facilitate the transaction with and into RGene. The Merger Agreement provides
that, in exchange for all of the issued and outstanding shares of capital stock
of RGene, Targeted Genetics will issue 3,636,364 shares of the Common Stock
(representing an aggregate value of $18.7 million, assuming a price of $5.13 per
share, the closing price of the Common Stock on the date of execution of the
Merger Agreement) to the RGene stockholders upon closing of the RGene
Acquisition. In addition, the RGene stockholders would have the right to receive
up to an additional $5 million of the Common Stock if certain milestones
relating to RGene's potential products and technology are achieved prior to
December 31, 1998. The first such milestone (the "First Milestone") relates to
the enrollment of at least one patient in a Phase II clinical trial for RGene's
E1A tumor suppressor gene therapy in the United States and the enrollment of at
least one patient in a similar clinical trial in a member country of the
European Economic Union. Achievement of the First Milestone would result in the
issuance of $1 million, $2 million or $3 million of the Common Stock, depending
upon whether the First Milestone is achieved on or before December 31, 1997 or
December 31, 1998, and depending upon whether the First Milestone is achieved in
the United States only or in the United States and Europe, as set forth in the
following table:
<TABLE>
<CAPTION>
MILESTONE ACHIEVEMENT
GEOGRAPHIC TERRITORY DEADLINE COMMON STOCK ISSUABLE
- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
United States only December 31, 1997 $2 million
Europe only December 31, 1997 $0
United States and Europe December 31, 1997 $3 million
United States only December 31, 1998 $1 million
Europe only December 31, 1998 $1 million(1)
United States and Europe December 31, 1998 $2 million(2)
</TABLE>
- ---------------
(1) To be issued only if the First Milestone is achieved in the United States
during calendar year 1998. If the First Milestone is achieved in the United
States prior to January 1, 1998, or if it is not achieved at all in the
United States, then no Common Stock will be issued for achieving the First
Milestone in Europe during 1998.
(2) The maximum amount of Common Stock that may be issued in the event that the
First Milestone is not achieved in the United States until 1998 is $2
million.
The second milestone (the "Second Milestone") is the execution on or before
December 31, 1997 of a definitive collaboration agreement with a third party for
the development of genetic vaccines using RGene's technology, which
collaboration agreement must provide minimum revenue to the Company of $2
million during the first year following its execution, of which at least $1.5
million may not be subject to any specific funding commitment under any license
or research agreement. Achievement of the Second Milestone would result in the
issuance of $2 million of the Common Stock.
The aggregate number of shares of Common Stock issued upon achievement of a
milestone will equal the applicable aggregate value of such shares issuable upon
achievement of such milestone divided by the milestone average trading price,
which is the average closing sale price for the Common Stock for the 30 trading
days preceding the date of achievement of the milestone. Such shares will be
issued pro rata, based upon the number of shares of RGene capital stock
outstanding on the closing of the RGene Acquisition, to the former RGene
stockholders as promptly as practicable, but in no event later than 20 days
after the achievement of the applicable milestone.
Assuming the milestone average trading price equals $5.75 (the closing sale
price per share of Common Stock as reported on the Nasdaq National Market on May
24, 1996), achievement of both milestones would result in the issuance of a
maximum of 869,565 shares of Common Stock. Based upon the number of shares
outstanding as of May 24, 1996, and assuming the issuance of 3,636,364
6
<PAGE> 8
shares of Common Stock at the closing of the RGene Acquisition, upon issuance,
such shares representing the additional consideration would represent
approximately 6% of the outstanding Common Stock. The shares of Common Stock
issued to RGene stockholders are subject to certain limitations on transfer and
are covered by certain registration rights. See "Risk Factors -- Shares Eligible
for Future Sale; Registration Rights" and "Description of Capital
Stock -- Registration Rights."
For a period of one year after completion of the RGene Acquisition, the
Company will hold in escrow 363,636 of the shares issued to RGene stockholders
upon the closing of the RGene Acquisition in order to satisfy potential claims
made by the Company against the former RGene stockholders in connection with any
breach of any representation or warranty, or any failure to comply with any
covenant or agreement, contained in the Merger Agreement.
Promptly following the closing of the RGene Acquisition, the Targeted
Genetics Board of Directors will appoint Austin M. Long, III and Martin P.
Sutter as RGene's designees to the Targeted Genetics Board of Directors. Messrs.
Long and Sutter will stand for election at the next annual meeting of
shareholders.
Completion of the RGene Acquisition is subject to the approval of the
shareholders of both companies and the satisfaction of customary conditions,
such as no material adverse change in the condition of either company. Holders
of a number of RGene shares sufficient to approve the RGene Acquisition have
agreed to vote their shares in favor of the transaction. Because Targeted
Genetics will be issuing shares of Common Stock to the RGene stockholders in an
amount in excess of 20% of the shares of Common Stock outstanding prior to the
RGene Acquisition, the Company's shareholders must approve the issuance of such
shares under applicable provisions of Schedule D to the Bylaws of the National
Association of Securities Dealers, Inc. The approval required is a majority of
the total votes cast on the proposal in person or by proxy at a special meeting
called for the purpose of approving such issuance. Subject to receipt of
shareholder approval and satisfaction or waiver of the conditions precedent, the
Company anticipates that the RGene Acquisition will be completed before the end
of the second quarter of 1996. The Company does not intend to complete the
Offering until the RGene Acquisition is consummated.
7
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information in this Prospectus. Special
Note: Certain statements set forth below constitute "forward-looking statements"
within the meaning of the Reform Act. See "Special Note Regarding
Forward-Looking Statements" on page 2 for additional factors relating to such
statements.
EARLY STAGE OF PRODUCT DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY. The Company
has no commercial products and all of its potential products are in research,
development or early-stage clinical trials. As such, the Company cannot predict
when or if any of its products under development will be commercialized.
Products, if any, resulting from the Company's research and development programs
are not expected to be commercially available for a number of years, if at all,
even if they are successfully developed and proven safe and effective.
While many approaches to gene therapy and cell therapy are being pursued by
pharmaceutical and biotechnology companies, there are currently no marketed gene
therapies and a limited number of marketed cell therapies. Existing preclinical
and clinical data relating to the Company's specific gene and cell therapy
approaches are very limited. Prior to any commercial use, the products and
technologies currently under development by the Company will require significant
additional research and development efforts, extensive preclinical and clinical
testing and regulatory approval. Clinical trials in humans are necessary to
determine product safety and efficacy. Product development involving new
therapies is highly uncertain and unanticipated developments, clinical and
regulatory delays, adverse or unexpected side effects or immune responses or
inadequate therapeutic efficacy could slow or prevent the successful completion
of the Company's product and technology development efforts and have a material
adverse effect on the Company's business, financial condition and results of
operations.
In addition, gene and cell therapy products are subject to the risks of
failure inherent in the development of products based on innovative
technologies. There can be no assurance that Targeted Genetics will be permitted
to undertake additional or complete ongoing clinical trials of its potential
products within the time periods indicated in this Prospectus or otherwise, that
sufficient numbers of patients can be accrued for such trials or that clinical
trials will demonstrate that the products tested are safe and effective. Even if
clinical trials are successful, there can be no assurance that the Company will
obtain regulatory approval for any indication, that an approved product can be
produced in commercial quantities at reasonable costs or gain acceptance for use
by physicians and healthcare providers or that any potential products will be
successfully marketed at prices that would permit the Company to operate
profitably, any of which would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Development Programs."
HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS. Targeted Genetics is
a development stage company and has generated minimal revenues since inception.
At March 31, 1996, the Company had an accumulated deficit of approximately $30.5
million. On a pro forma basis, giving effect to the RGene Acquisition as if it
had occurred on March 31, 1996, the accumulated deficit would have been
approximately $44.6 million. Losses have resulted from expenses incurred in the
Company's research and development programs and, to a lesser extent, from
general and administrative and interest expenses. The Company expects to incur
substantial additional losses over at least the next several years and expects
cumulative losses to increase substantially as it continues or expands its
research and development activities. Payments from collaborative partners, if
any, and investment income are expected to be the only sources of revenue for
the foreseeable future and revenues from commercial sales of products are not
expected for a number of years, if at all. To achieve profitable operations,
Targeted Genetics, alone or with corporate collaborative partners, must
successfully develop, manufacture, obtain regulatory approvals and market
potential products, of which there can be no assurance. The time required to
reach sustained profitability is highly uncertain and there can be no assurance
that the Company will be able to achieve profitability on a sustained basis, if
at all. Moreover, if
8
<PAGE> 10
profitability is achieved, the level of profitability cannot be predicted and it
may vary significantly from quarter to quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
UNCERTAINTIES RELATING TO CLINICAL TRIALS AND PRODUCT
DEVELOPMENT. Existing data on the safety and efficacy of gene and cell therapy
treatments are very limited. The Company has performed only limited preclinical
and clinical testing of certain of its product candidates and technologies under
development. Preclinical studies of product candidates may not predict and do
not ensure safety or efficacy in humans and are not necessarily indicative of
the results that may be achieved in clinical trials with humans. Possible
serious side effects of retroviral vector-based gene transfer include viral
infections resulting from contamination with replication-competent retroviruses.
In addition, the development of cancer in a patient is theoretically a possible
side effect of all methods of gene transfer. Furthermore, as with most other
biopharmaceutical products, there is also a possibility of toxicity or decreased
efficacy associated with a host immune response toward any vector used in the
Company's treatments. The possibility of such response may be increased if there
is a need to deliver the vector frequently. There can be no assurance that
unacceptable side effects will not be discovered during preclinical and clinical
testing of the Company's potential products. Even after being cleared by the
United States Food and Drug Administration (the "FDA") or the regulatory
authorities of other countries, a product may later be shown to be unsafe or to
not have its purported effect, thereby preventing its widespread use or
requiring its withdrawal from the market. The rate of completion of the
Company's clinical trials depends on, among other factors, the rate of patient
enrollment. Patient enrollment is a function of many factors, including the size
of the patient population, the nature of the clinical protocol, the proximity of
patients to clinical sites and the eligibility criteria for the trial. Delays in
planned patient enrollment may result in increased costs, delays or termination
of clinical trials, which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company has a limited clinical staff and, as a result, will rely on third
parties to assist it in overseeing and monitoring clinical trials, which may
result in delays in completing, or failure to complete, clinical trials if such
third parties fail to perform under their agreements with the Company or fail to
meet regulatory standards in the performance of their obligations under such
agreements. See "Business -- Governmental Regulation."
NEED FOR ADDITIONAL CAPITAL. The Company expects negative cash flow from
operations to continue and to increase for the foreseeable future. The Company
will require substantial additional funds to continue research and development;
to conduct further preclinical studies and clinical trials; to establish
pilot-scale and commercial-scale manufacturing processes and facilities; and to
expand or establish quality-control, regulatory, marketing, sales and
administrative capabilities. The Company's future capital requirements will
depend on numerous factors, including the successful consolidation of RGene with
the Company; continued scientific progress in the Company's research and
development programs; the results of research and development activities;
preclinical studies and clinical trials; acquisition of products or technology,
if any; relationships with corporate collaborators, if any; 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. The Company estimates that, at
its planned rate of spending, adjusted to reflect the increased expenses
expected to result from the RGene Acquisition, its existing cash, cash
equivalents and securities available for sale, together with the projected
amount of cash or investments expected to be obtained as a result of the RGene
Acquisition, the net proceeds of the Offering and the interest income thereon,
will be sufficient to meet its capital requirements until late 1997. There can
be no assurance that the underlying assumed levels of revenue and expense will
prove to be accurate. Whether or not these assumptions prove to be accurate, the
Company will need to raise substantial additional capital to fund operations.
The Company intends to seek additional funding through public or private
financing, including equity financing, and through collaborative arrangements.
Adequate funds for these purposes, whether obtained through financial markets or
from collaborative or other arrangements with corporate partners or other
sources, may not be available when needed or may not be available on terms
favorable to
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the Company. If additional funds are raised by issuing equity securities,
dilution to existing shareholders may result. In addition, in the event that
additional funds are obtained through arrangements with collaborative partners,
such arrangements may require the Company to relinquish rights to certain of its
technologies or potential products that it would otherwise seek to develop or
commercialize itself. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
EFFECT OF FAILURE TO OBTAIN ADEQUATE FUNDING. If funding is insufficient
at any time in the future, the Company may be required to delay, scale back or
eliminate some or all of its research and development programs or to license
third parties to commercialize products or technologies that the Company would
otherwise seek to develop itself. Furthermore, the terms of any such license
agreements might be less favorable than if the Company were negotiating from a
stronger position. Moreover, if funding is insufficient at any time in the
future, and the Company's existing funds are depleted, the Company may be
required to cease operations.
UNCERTAINTY OF PATENT POSITION AND PROPRIETARY RIGHTS; ACCESS TO
PROPRIETARY GENES. The Company's success will depend in part on the ability of
the Company and its licensors to obtain and maintain patent protection for the
Company's technology and to preserve its trade secrets and operate without
infringing on the proprietary rights of others, both in the United States and in
other countries. The failure of the Company or its licensors to obtain and
maintain patent protection for the Company's technology could have a material
adverse effect on the Company. Patent positions in the biotechnology field are
highly uncertain and involve complex legal, scientific and factual questions. To
date, there has emerged no consistent policy regarding the breadth of claims
allowed in biotechnology patents, particularly in regard to human therapeutic
uses. There can be no assurance that patent applications relating to the
technology used by the Company will result in patents being issued or that, if
issued, the patent will not be subjected to further proceedings limiting the
scope of the rights under the patent or that such patent will provide a
competitive advantage or will afford protection against competitors with similar
technology, or will not be challenged successfully, invalidated or circumvented
by competitors. Moreover, because patent applications in the United States are
maintained in secrecy until patents issue and patent applications in certain
other countries generally are not published until more than 18 months after they
are filed, and since publication of discoveries in scientific or patent
literature often lags behind actual discoveries, the Company cannot be certain
that it or any licensor was the first creator of inventions covered by pending
patent applications or that it or such licensor was the first to file patent
applications for such inventions. The Company is currently involved in one
patent interference proceeding declared by the United States Patent and
Trademark Office (the "USPTO") to determine priority of invention relating to
certain components that may be useful in retroviral vectors, and may have to
participate in additional interference proceedings. Although the Company does
not anticipate that material expenditures will be made in connection with such
proceedings, participation could result in substantial cost to the Company, even
if the eventual outcome were favorable to it. In addition, although the Company
believes that the technology which is the subject of the current patent
interference proceeding is not material to its current product development
programs, there can be no assurance that such technology will not become
material in the future. If the outcome of the current or any additional
interference proceeding were unfavorable, the Company may be unable to obtain
rights to the invention involved. With respect to the lipid DC cholesterol ("DC
Chol") technology to be acquired through the RGene Acquisition, the Company is
responding in the respective patent applications in Europe, Japan and Australia
to third-party observations based on prior-art publications that question the
patentability of the pending claims. The possibility of an adverse decision in
these proceedings, or in a subsequent opposition proceeding if the respective
patents issue, cannot be excluded. In addition, the Company may become involved
in further proceedings before the USPTO concerning RGene's issued DC Chol
patent. The costs associated with such proceedings or an unfavorable outcome in
any such proceedings may have a material adverse effect on the Company's
business, financial condition and results of operations.
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The Company's processes and potential products may conflict with patents
that have been or may be granted to competitors, universities or others. For
example, a U.S. patent directed to ex vivo gene therapy using human cells has
been issued to other parties. As the biotechnology industry expands and more
patents are issued, the risk increases that the Company's processes and
potential products may give rise to claims that they infringe the patents of
others. Such other persons could bring legal actions against the Company
claiming damages and seeking to enjoin clinical testing, manufacturing and
marketing of the affected product or use of the affected process. Litigation may
be necessary to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company or to determine the enforceability, scope and
validity of proprietary rights of others. If the Company becomes involved in
such litigation, it could result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. In addition to any potential liability for significant damages, the
Company could be required to obtain a license to continue to manufacture or
market the affected product or use the affected process. Costs associated with
any licensing arrangement may be substantial and could include ongoing
royalties. There can be no assurance that any license required under any such
patent would be made available to the Company on acceptable terms, if at all. If
such licenses could not be obtained on acceptable terms, the Company could be
prevented from manufacturing and marketing its potential products. Accordingly,
an adverse determination in such litigation could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company also relies upon unpatented proprietary technology. There can
be no assurance that the Company can meaningfully protect its rights in such
unpatented proprietary technology, that any obligation to maintain the
confidentiality of such proprietary technology will not be breached by
employees, consultants, advisors or others, or that others will not
independently develop substantially equivalent technology.
The genes that the Company expects to deliver as part of any gene therapy
products are generally the subject of issued patents or patent applications. The
Company has entered into licenses granting it certain rights to the use of
certain genes currently required in the Company's product development programs.
Failure by the Company to obtain or maintain in effect a license to any genes it
may require to commercialize its potential products may have a material adverse
effect on its business, financial condition and results of operations.
Some of the vectors the Company currently produces for its product
development programs are based on technology in the public domain, as well as
nonexclusive licenses to patented technology. In addition, disputes may arise as
to the ownership of proprietary rights to the extent that outside collaborators
apply technological information developed independently by them or by others to
Company projects or apply Company technology to other projects. See
"Business -- Patents and Proprietary Rights" and "-- Research Collaborations and
Licensing Agreements."
UNCERTAINTY OF GOVERNMENTAL REGULATORY REQUIREMENTS; LENGTHY APPROVAL
PROCESS. The Company's potential products are subject to extensive regulation
by the FDA and foreign governmental authorities. The process of obtaining
regulatory approvals for clinical trials or for the manufacturing or marketing
of the Company's potential products is costly and time-consuming and is subject
to unanticipated delays. Because gene and cell therapy are relatively new
technologies and have not been extensively tested in humans, the regulatory
requirements governing gene and cell therapy products and related clinical
procedures are uncertain and are likely to be modified. There can be no
assurance as to the length of the clinical trial period or the number of
patients required to be enrolled in clinical trials in order to establish the
safety, efficacy and potency of therapeutic products. Accordingly, delays,
rejections or unexpected costs may be encountered based on changes in the policy
or regulations of the FDA or foreign governmental authorities during the period
of product development and regulatory review, which changes may result in
limitations or restrictions on the Company's ability to utilize its technology
or develop its product candidates. Regulatory requirements ultimately imposed
could also adversely affect the ability of the Company to clinically test,
manufacture or market products. In addition, many academic institutions and
companies conducting research in the gene and cell therapy
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fields are using a variety of approaches and technologies. Any adverse results
obtained by such researchers in preclinical studies or clinical trials could
materially adversely affect the regulatory environment for gene and cell therapy
products generally, possibly leading to delays in the regulatory review and
approval process for the Company's potential products. Furthermore, the Company
or governmental authorities may suspend clinical trials at any time if it is
determined that the subjects participating in such trials are exposed to
unacceptable health risks. There can be no assurance that the Company will not
encounter these or other problems in clinical trials that will cause the Company
or governmental authorities to delay or suspend such trials. Even if regulatory
approval of a potential product is obtained, such approval may entail
limitations on the indicated uses for which such product may be marketed, which
may restrict the patient population for which any product may be prescribed. In
addition, a marketed product is subject to continual FDA review. Later discovery
of previously unknown problems or failure to comply with the applicable
regulatory requirements may result in restrictions on marketing a product or
withdrawal of the product from the market, as well as possible criminal or civil
sanctions.
To commercialize any product and prior to submitting the application for
marketing approval in the United States, the Company must sponsor and file an
Investigational New Drug application ("IND") for each proposed product and must
be responsible for initiating and overseeing the clinical studies to demonstrate
the safety and efficacy that are necessary to obtain FDA approval of such
product. Certain of the Company's current and planned Phase I clinical trials
are under investigator-sponsored INDs. Although the Company expects to be able
to use data from such clinical trials in proceeding with clinical trials in the
United States and in Europe, there can be no assurance that the FDA or foreign
governmental authorities will permit the Company to rely on such data. In
addition, there can be no assurance that the Company will be able to obtain the
necessary clearances for clinical trials or approvals for manufacturing or
marketing any of its product candidates.
After completion of clinical trials of a new product, FDA marketing
approval must be obtained. At that time, the Company must submit relevant data,
including the results of product development activities, preclinical studies and
clinical trials, in addition to detailed manufacturing information.
Notwithstanding the submission of relevant data, the FDA may withhold marketing
approval and may require additional clinical trials. All manufacturing
operations also are subject to the FDA's current Good Manufacturing Practice
("cGMP") requirements on an ongoing basis. There can be no assurance that the
Company will be able to attain or maintain compliance with cGMP requirements.
The Company is similarly subject to regulation by foreign governmental
authorities.
Failure to obtain regulatory approvals for its product candidates or to
either attain or maintain compliance with cGMP or other manufacturing
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Governmental
Regulation."
INTENSE COMPETITION. The Company is experiencing intense competition from
companies developing gene and cell therapy technologies as well as those using
more traditional approaches to treating human diseases. The Company is aware of
a number of companies and institutions that are developing or considering the
development of potential gene and cell therapy treatments, including early-stage
gene therapy companies, fully integrated pharmaceutical companies, universities,
research institutions, governmental agencies and other healthcare providers. In
addition, the Company's potential products will be required to compete with
existing pharmaceutical products, or products developed in the future, that are
based on established technologies. Many of the Company's competitors have
substantially more financial and other resources, larger research and
development staffs, and more experience and capabilities in researching,
developing and testing products in clinical trials, in obtaining FDA and other
regulatory approvals, and in manufacturing, marketing and distribution than the
Company. In addition, the competitive positions of other early-stage companies
may be enhanced significantly through their collaborative arrangements with
large pharmaceutical companies or academic institutions. The Company's
competitors may succeed in developing, obtaining patent protection for,
receiving FDA and other regulatory approvals for, or commercializing products
more rapidly than the
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Company. If the Company is successful in commercializing its products, it will
be required to compete with respect to manufacturing efficiency and marketing
capabilities, areas in which it has no experience. The Company also competes
with others in acquiring products or technology from research institutions or
universities. The Company's competitors may develop new technologies and
products that are available for sale prior to the Company's potential products
or that are more effective than the Company's potential products. In addition,
competitive products may be manufactured and marketed more successfully than the
Company's potential products. Such developments could render the Company's
potential products less competitive or obsolete, and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RAPID TECHNOLOGICAL CHANGE. Gene and cell therapy are new and rapidly
evolving fields, and are expected to continue to undergo significant and rapid
technological change. Considerable experimentation and clinical testing must be
completed successfully before gene and cell therapies are used in practice.
Rapid technological development could result in actual and proposed
technologies, products or processes of the Company becoming obsolete prior to
successful commercialization. There can be no assurance that the Company's
research and development efforts will be successful.
DEPENDENCE ON REIMBURSEMENT. Successful commercial sales of the Company's
potential products will depend in part on the availability of reimbursement from
third-party payors, such as government and private insurance plans. There is
significant uncertainty concerning the reimbursement status of newly approved
healthcare products, and third-party payors are increasingly challenging the
prices charged for medical products and services. There can be no assurance that
adequate third-party reimbursement will be available for the Company's potential
products, or that any third-party reimbursement that is obtained will be
adequate to enable the Company to maintain price levels sufficient to realize an
adequate return on its investments in manufacturing and product development. If
adequate reimbursement is not provided by government and third-party payors for
the Company's potential products, the Company's business, financial condition
and results of operations would be materially adversely affected.
HEALTHCARE REFORM. The healthcare industry in the United States and in
Europe is undergoing fundamental changes as the result of political, economic
and regulatory influences. Reforms proposed from time to time include mandated
basic healthcare benefits, controls on healthcare spending through limitations
on the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups and fundamental
changes to the healthcare delivery system. The Company anticipates that
alternative healthcare delivery systems and methods of payment will continue to
be reviewed and assessed, and public debate of these issues will likely
continue. The Company cannot predict whether any reform initiatives will result
or, if adopted, what impact they might have on the Company, and there can be no
assurance that the adoption of reform proposals will not have a material adverse
effect on the Company's business, financial condition and results of operations.
Announcements of reform proposals and the investment community's reaction to
such proposals, announcements by competitors and payors of their strategy in
responding to reform initiatives, and general industry conditions could produce
volatility in the trading and market price of the Common Stock.
DEPENDENCE ON KEY PERSONNEL AND SCIENTIFIC COLLABORATORS. The Company is
highly dependent on the principal members of its scientific and management
staff. Loss of any of these persons could materially adversely affect the
Company's business, financial condition and results of operations. The Company
does not have any employment contracts or key person life insurance. The
Company's success will depend in large part on its ability to attract and retain
key employees and scientific advisors. Competition among biotechnology and
pharmaceutical companies for highly skilled scientific and management personnel
is intense. There can be no assurance that the Company will be successful in
retaining its existing personnel or advisors, or in attracting additional
qualified employees. The Company's anticipated expansion of existing functions
and entry into new areas and activities requiring additional expertise, such as
clinical testing, regulatory compliance, manufacturing, marketing and
distribution, are expected to place increased demands on the Company's
resources. These
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activities are expected to require the addition of new personnel with expertise
in these areas and the development of additional expertise by existing
personnel. The failure to attract and retain such personnel, loss of existing
personnel or failure to develop such expertise could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company also depends on the continued availability of outside
scientific collaborators who perform research, which may be funded by the
Company, in certain areas relevant to the Company's research. The Company's
scientific collaborators are not employees of the Company and generally may
terminate their relationship with the Company at any time. In addition, certain
of the Company's collaborators have consulting or other advisory relationships
with other entities that may conflict with their obligations to the Company. As
a result, the Company has limited control over their activities and can expect
that only limited amounts of their time will be dedicated to Company activities.
For these reasons, there can be no assurance that inventions or processes
developed by the Company's collaborators will become the property of the
Company. Although certain of the Company's scientific collaborators have agreed
not to engage in activities that would involve a conflict of interest with the
Company, there can be no assurance that this will not occur. The Company has
relied upon scientific, technical, clinical, commercial and other data supplied
and disclosed by outside collaborators and will rely in part on such data in
support of INDs and subsequent clinical trials for its potential products. There
can be no assurance that such information will not contain errors or omissions
of fact or will not otherwise prove inadequate to support the Company's research
and development efforts.
NO COMMERCIAL MANUFACTURING, DISTRIBUTION OR MARKETING CAPABILITY. The
Company's current facilities and staff will need to be expanded or supplemented
for large-scale clinical or commercial production of its potential products.
Large-scale manufacturing of gene and cell therapy products has not been
demonstrated by any third party. The Company will be required to contract with
others or to construct a production facility in order to complete all the
clinical trials necessary for product commercialization. Certain of the
Company's products under development may be delivered through the processing of
patient cells in specialized laboratories. The Company will be required to
construct its own commercial-scale laboratories or contract with others for such
processing. In addition, the Company has no experience in sales and marketing.
To market any products that may result from its development programs, Targeted
Genetics will have to develop marketing and sales capabilities, either on its
own or in conjunction with others. The Company will depend to a significant
extent on collaborative partners, licensees or other entities for development,
manufacturing and commercialization of its potential products. There can be no
assurance that the Company will be able to enter into any such arrangements on
acceptable terms, if at all. If the Company is unable to obtain or retain third-
party manufacturing on commercially acceptable terms, its ability to
commercialize potential products may be delayed or foreclosed. The Company's
dependence upon third parties for the manufacture, marketing and sale of its
potential products may materially adversely affect the Company's ability to
develop and deliver products on a timely and competitive basis. In addition, the
terms of the collaborative arrangement between RGene and Laboratoires Fournier
S.C.A. ("Fournier"), effective May 1996, contemplate that, upon the negotiation
and execution of a definitive supply agreement, RGene will have the right,
subject to certain conditions, to manufacture and supply to Fournier its
requirements for RGene's E1A tumor suppressor product candidate, for which RGene
would receive manufacturing fees. There can be no assurance that RGene, either
independently or with third parties, will be able to manufacture such product in
compliance with applicable regulatory requirements and in sufficient quantities
on a timely and cost-effective basis, if at all, or that any manufacturing fees
will be received. If the Company engages in commercial-scale manufacturing and
marketing of its or its collaborative partners' potential products, it will
require substantial additional funds, personnel and production facilities. See
"-- Need for Additional Capital," "-- Dependence on Corporate Collaborators" and
"Business -- Research Collaborations and Licensing Agreements -- RGene
Agreements."
UNCERTAINTY ASSOCIATED WITH INTEGRATION. Immediately after the RGene
Acquisition, integration of the operations of RGene into the operations of
Targeted Genetics will require dedication of significant management resources.
Although RGene has only seven employees, its operations are limited and
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its assets consist primarily of intellectual property and contract rights,
successful integration with Targeted Genetics will distract Targeted Genetics'
management from the day-to-day business of the Company. Accordingly, any delays
in achieving integration may have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON CORPORATE COLLABORATORS. The Company expects to rely in the
future on corporate collaborative partners to conduct clinical trials, obtain
regulatory approvals and manufacture and market any resulting products. Although
the Company believes that such collaborative partners would have an economic
motivation to commercialize products that result from the Company's research and
development efforts, the amount and timing of resources devoted to these
activities by such parties could depend on the achievement of technical and
research goals by the Company and generally would be controlled by such
partners. The sale of products may depend on the successful completion of
arrangements with future partners, licensees or distributors in each territory.
There can be no assurance that the Company will be successful in establishing
any such collaborative arrangements or that any such future partner would be
successful in commercializing products. Effective May 1996, RGene entered into a
collaborative arrangement with Fournier under which Fournier received exclusive
rights to develop and commercialize in Europe RGene's E1A tumor suppressor
product candidate and any other product candidates based on the E1A tumor
suppressor gene and developed pursuant to the agreement. Fournier has agreed to
coordinate development of the E1A tumor suppressor product candidate in Europe
by conducting clinical trials, preparing and filing submissions for regulatory
approval in its territory and paying all associated costs, while RGene has
corresponding responsibilities with respect to development and commercialization
in the United States. The agreement provides that Fournier will make milestone
payments to RGene upon the achievement of specified goals by Fournier or RGene
and also will pay to RGene manufacturing fees if RGene manufactures products for
Fournier and royalties on sales of resulting products, if any. Because Fournier
has been granted exclusive development and commercialization rights with respect
to the E1A tumor suppressor product candidate in Europe, the success of the E1A
tumor suppressor product candidate and related products in Europe depends upon
the efforts of Fournier. There can be no assurance that Fournier will perform
its obligations under the agreement, that it or RGene will successfully develop
or market any products under the agreement, or that RGene will ever receive any
milestone payments, royalties or manufacturing fees under the agreement, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, there can be no assurance that
present or future collaborators will not pursue existing or alternative
technologies in preference to potential products being developed in
collaboration with the Company. See "Business -- Research Collaborations and
Licensing Agreements."
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. The Company's research and
development activities involve the controlled use of hazardous materials,
chemicals, biological materials and radioactive compounds. The Company is
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by such
laws and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any resulting damages, and any such liability
could exceed the Company's resources. The Company may be required to incur
significant costs to comply with environmental laws and regulations in the
future. Current or future environmental laws or regulations may have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Governmental Regulation."
PRODUCT LIABILITY. The testing, manufacture, marketing and sale of human
healthcare products entail the inherent risk of liability claims or product
recalls and associated adverse publicity. The Company currently has a limited
amount of product liability insurance. Such insurance is expensive and there can
be no assurance that it will continue to be available in sufficient amounts and
on acceptable terms, if at all. In addition, pursuant to the terms of certain of
its collaborative arrangements, including RGene's agreement
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<PAGE> 17
with Fournier, RGene has agreed to indemnify certain of its collaborative
partners with respect to certain losses incurred as a result of the manufacture,
supply or sale of potential product candidates. A product liability claim or
product recall could inhibit or prevent commercialization of products being
developed by the Company. Any product liability claim, including an
indemnification claim under the Fournier agreement or any other collaborative
agreement, or product recall could have a material adverse effect on the
Company's business, financial condition and results of operations.
POTENTIAL VOLATILITY OF STOCK PRICE; ABSENCE OF DIVIDENDS. Since the
Company's initial public offering, the market price of the Common Stock has
fluctuated significantly. The stock market has experienced significant price and
volume fluctuations that are often unrelated to the operating performance of
particular companies. In addition, the market price of the Common Stock, similar
to that of securities of other biotechnology companies, may, at times, be highly
volatile. Factors such as the results of preclinical studies and clinical trials
by the Company or its competitors, other evidence of the safety or efficacy of
products of the Company or its competitors, announcements of technological
innovations or new products by the Company or its competitors, changes in
governmental regulation, developments in patent or other proprietary rights of
the Company or its competitors, including litigation, fluctuations in the
Company's operating results and changes in general market conditions for
biotechnology stocks could have a significant impact on the future price of the
Common Stock. The Company has never paid cash dividends on the Common Stock and
does not anticipate paying cash dividends in the foreseeable future. See "Price
Range of Common Stock" and "Dividend Policy."
CONCENTRATION OF OWNERSHIP AND ANTITAKEOVER CONSIDERATIONS. As of May 24,
1996, the Company's directors, executive officers and principal shareholders
owned beneficially approximately 50% of the outstanding shares of Common Stock.
In particular, Immunex owned beneficially approximately 21% of such outstanding
shares. Accordingly, these shareholders have significant influence over the
election of the Company's directors and most other shareholder actions. The
Company has the authority to issue up to 6,000,000 shares of Preferred Stock in
one or more series and to fix the powers, designations, preferences and relative
rights thereof without any further vote or action by the Company's shareholders.
The issuance of Preferred Stock could dilute the voting power of holders of
Common Stock and could have the effect of delaying, deferring or preventing a
change in control of the Company. Certain provisions of the Company's Restated
Articles of Incorporation (the "Articles of Incorporation"), the Amended and
Restated Bylaws (the "Bylaws") and employee benefit plans, as well as Washington
law, may operate in a manner that could discourage or render more difficult a
takeover of the Company, the removal of directors or the ability to call a
special meeting of the shareholders, or may limit the price certain investors
may be willing to pay in the future for shares of Common Stock. See
"Management -- Benefit Plans," "Principal Shareholders" and "Description of
Capital Stock -- Certain Charter Provisions and Washington Law."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of shares of
Common Stock in the public market following the Offering or the perception that
such sales could occur could have a material adverse effect on the price of the
Common Stock. Upon completion of the Offering, the Company will have 19,537,248
shares of Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option), including the 3,636,364 shares of Common Stock issuable
in connection with the RGene Acquisition. Of these shares, the 3,500,000 shares
to be sold in the Offering and, as of May 24, 1996, approximately 8,309,573
additional shares of Common Stock (as well as an additional 769,598 shares
issuable upon exercise of warrants to purchase Common Stock) will be or are
freely tradable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"). The remaining 7,727,675 outstanding shares of Common
Stock (including the 3,636,364 shares issuable in connection with the RGene
Acquisition) are restricted shares ("Restricted Shares") under the Securities
Act and may only be sold if they are registered or qualify for an exemption from
registration under Rule 144 of the Securities Act ("Rule 144"). The Company's
current directors and executive officers and certain shareholders, who
immediately after the Offering will hold in the aggregate
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<PAGE> 18
4,088,850 shares of Common Stock (all of which are Restricted Shares), have
agreed not to sell any of these shares for 90 days after the date of this
Prospectus without the prior written consent of Vector Securities International,
Inc. Commencing 91 days from the date of this Prospectus, all the shares of
Common Stock subject to such agreements will be available for immediate sale in
the public market, subject to certain volume, manner of sale and other
limitations under Rule 144. In addition, it is a condition to closing the RGene
Acquisition that the RGene stockholders, who will hold 3,636,364 shares of
Common Stock, agree not to sell any such shares (or shares issued in connection
with the milestone payments) for a period of 30 months following the closing of
such transaction, subject to the release of such shares from the lock-up
agreements in increments of 20% at the end of each six-month period following
the closing of the RGene Acquisition. Prior to the one-year anniversary of the
closing of the RGene Acquisition, the Company is obligated to file a
registration statement under the Securities Act in order to register for sale in
the public market 50% of the 3,636,364 shares of Common Stock issuable to the
RGene stockholders, as well as shares issued in connection with the milestone
payments. The Company has agreed to cause such registration statement, which the
Company may defer under certain circumstances, to remain effective for a period
ending 24 months after the completion of the RGene Acquisition. Following the
closing of the Offering, the holders of 3,806,775 shares of Common Stock (as
well as 62,016 shares issuable upon exercise of outstanding warrants) will be
entitled to certain rights with respect to registration of such shares for sale
in the public market. See "Description of Capital Stock -- Registration Rights."
DILUTION. The assumed public offering price in the Offering is
substantially higher than the book value per share of Common Stock. Investors
purchasing shares of Common Stock in the Offering will incur immediate and
substantial dilution. Additional dilution is likely to occur upon the exercise
of outstanding warrants and stock options. See "Dilution."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered hereby (after deducting the underwriting discounts and
commissions and estimated offering expenses) at an assumed public offering price
of $5.75 per share are estimated to be approximately $18,517,000 ($21,347,000 if
the Underwriters' over-allotment option is exercised in full). The Company
anticipates that the net proceeds of the Offering will be used principally to
fund research and development; clinical testing; capital expenditures, including
expansion of existing facilities; working capital; and for general corporate
purposes. Research and development activities to be funded by the net proceeds
will involve hiring additional scientific staff and conducting clinical trials.
Net proceeds may also be used to acquire technology, products or businesses that
complement the Company's business. No such transactions involving a material
amount of cash consideration are being negotiated as of the date of this
Prospectus. The amounts actually expended for each purpose will depend on
numerous factors, including the successful consolidation of RGene with the
Company; continued scientific progress in the Company's 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, if any; 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. The Company estimates that, at its planned rate of spending, adjusted
to reflect the increased expenses expected to result from the RGene Acquisition,
the net proceeds of the Offering and the interest income thereon, together with
existing cash, cash equivalents, securities available for sale and the projected
amount of cash or investments expected to be obtained as a result of the RGene
Acquisition, will be sufficient to meet its capital requirements until late
1997. In the event that all outstanding warrants with an exercise price of $4.68
per share and expiring in July 1997 are exercised, the Company will receive an
additional $3.6 million, which amount should enable the Company to fund its
capital requirements until early 1998. There can be no assurance that the
underlying assumed levels of revenue and expense will prove to be accurate or
that any warrants will in fact be exercised. If the Company is successful in its
efforts to establish one or more collaborative research and development
arrangements with corporate partners, funding received under such arrangements
would extend the period during which the net offering proceeds, together with
existing resources, would fund the Company's capital requirements. See "Risk
Factors -- History of Losses and Uncertainty of Future Results" and "-- Need for
Additional Capital" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Pending the above uses, the net proceeds of the Offering will be invested
in investment grade, interest-bearing securities.
18
<PAGE> 20
PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering on May 20, 1994. The
Common Stock is quoted on the Nasdaq National Market under the symbol "TGEN." On
May 24, 1996, the last reported sale price for the Common Stock on the Nasdaq
National Market was $5.75 per share. The following table sets forth, for the
periods indicated, the high and low sale prices for the Common Stock as reported
by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1994
Second Quarter (beginning May 20, 1994).................. $7.13 $5.63
Third Quarter............................................ 6.13 3.81
Fourth Quarter........................................... 5.75 3.75
1995
First Quarter............................................ $6.38 $3.88
Second Quarter........................................... 5.63 3.50
Third Quarter............................................ 6.50 3.63
Fourth Quarter........................................... 5.63 3.75
1996
First Quarter............................................ $7.25 $4.00
Second Quarter (through May 24, 1996).................... 6.25 5.00
</TABLE>
As of May 24, 1996, there were approximately 1,500 holders of the Common
Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock. The Company
currently intends to retain any future earnings to finance the growth and
development of its business and therefore does not anticipate paying cash
dividends on the Common Stock in the foreseeable future.
19
<PAGE> 21
DILUTION
At March 31, 1996, the Company had a pro forma net tangible book value of
approximately $13,679,000, or $0.85 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities divided by the number of shares of Common Stock
outstanding and gives effect to the RGene Acquisition. Without taking into
account any other changes in pro forma net tangible book value after March 31,
1996, other than to give effect to the receipt of the estimated net proceeds
from the sale of the 3,500,000 shares of Common Stock offered hereby at an
assumed public offering price of $5.75 per share, the pro forma net tangible
book value of the Company at March 31, 1996 would have been approximately
$32,196,000, or $1.65 per share. This represents an immediate increase in pro
forma net tangible book value of $0.80 per share to existing shareholders and an
immediate dilution of $4.10 per share to purchasers of shares of Common Stock in
the Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.............................. $5.75
Pro forma net tangible book value per share at March 31, 1996...... $0.85
Increase per share attributable to new investors................... 0.80
-----
Pro forma net tangible book value per share after the Offering....... 1.65
-----
Dilution per share to new investors.................................. $4.10
=====
</TABLE>
The foregoing table assumes no exercise of outstanding stock options or
warrants. The Company has reserved 1,520,000 shares of Common Stock for issuance
pursuant to its stock option plans, 1,177,014 of which were issuable upon the
exercise of stock options outstanding as of March 31, 1996, at exercise prices
ranging from $0.50 to $6.25 per share, with a weighted average exercise price of
$3.20 per share. In addition, the Company has reserved 831,614 shares of Common
Stock for issuance upon exercise of outstanding warrants, at exercise prices
ranging from $4.68 to $8.75 per share, with a weighted average exercise price of
$4.78 per share. To the extent these options or warrants are exercised, there
will be further dilution to new investors. The table does not take into account
the issuance of an indeterminate number of shares of Common Stock that may be
issued to RGene stockholders in the event certain milestones are achieved by
December 31, 1998. See "Management -- Benefit Plans," "Description of Capital
Stock -- Warrants," "RGene Acquisition" and Note 6 of Notes to Targeted Genetics
Financial Statements.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of March 31, 1996; (ii) such capitalization after giving pro forma effect to
the RGene Acquisition; and (iii) such pro forma capitalization as adjusted to
reflect the receipt of the estimated net proceeds from the sale of the 3,500,000
shares of Common Stock offered hereby, based on an assumed offering price of
$5.75 per share. The information set forth in this table should be read in
conjunction with the Company's Financial Statements and Notes thereto included
elsewhere herein. See "Unaudited Pro Forma Consolidated Financial Statements."
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA(2) AS ADJUSTED(3)
--------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations................................. $ 2,634 $ 2,634 $ 2,634
Shareholders' equity:
Preferred Stock, $.01 par value; 6,000,000 shares
authorized: no shares outstanding................ -- -- --
Common Stock, $.01 par value; 40,000,000 shares
authorized: 12,397,484 shares issued and
outstanding, actual; 16,033,848 shares issued and
outstanding, pro forma; and 19,533,848 shares
issued and outstanding, pro forma as adjusted.... 43,605 58,459 76,976
Unrealized losses on securities available for
sale............................................. (5) (5) (5)
Deficit accumulated during development stage........ (30,481) (44,550) (44,550)
-------- -------- --------
Total shareholders' equity....................... 13,119 13,904 32,421
-------- -------- --------
Total capitalization........................... $ 15,753 $ 16,538 $ 35,055
======== ======== ========
</TABLE>
- ------------------
(1) Excludes 1,177,014 shares issuable upon exercise of options outstanding at
March 31, 1996, with a weighted average exercise price of $3.20 per share,
and 831,614 shares issuable upon exercise of warrants outstanding at March
31, 1996, with a weighted average exercise price of $4.78 per share. See
"Management -- Benefit Plans," "Description of Capital Stock -- Warrants"
and Note 6 of Notes to Targeted Genetics Financial Statements.
(2) Includes the 3,636,364 shares to be issued upon completion of the RGene
Acquisition. Excludes an indeterminate number of shares of Common Stock to
be issued to RGene stockholders in the event certain milestones are achieved
before December 31, 1998. See "RGene Acquisition."
(3) Gives effect to the RGene Acquisition as if it had occurred on March 31,
1996, the sale by the Company of the 3,500,000 shares of Common Stock
offered hereby at an assumed public offering price of $5.75 per share and
the receipt of the estimated net proceeds therefrom. See "Use of Proceeds."
21
<PAGE> 23
SELECTED FINANCIAL DATA
The selected financial data presented below with respect to the Company's
statements of operations for each of the three years in the period ended
December 31, 1995 and balance sheet at December 31, 1994 and 1995 are derived
from the Company's financial statements that have been audited by Ernst & Young
LLP, independent auditors, which are included elsewhere herein, and are
qualified by reference to such Financial Statements and Notes related thereto.
The selected financial data with respect to the Company's statements of
operations for the years ended December 31, 1991 and 1992 and the balance sheets
at December 31, 1992 and 1993 are derived from the audited financial statements
of the Company that have been audited by Ernst & Young LLP, independent
auditors, which are not included herein. The financial data at March 31, 1996
and for the three months ended March 31, 1995 and 1996 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of the financial position and
results of operations for those periods. The selected financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and Notes
thereto included elsewhere in this Prospectus. The pro forma financial statement
data at March 31, 1996 and for the year ended December 31, 1995 and the three
months ended March 31, 1996 are unaudited.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995 (1) 1995 1996 1996(2)
-------- ------- ------- ------- ------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $ -- $ 549 $ 412 $ 449 $ 842 $ 1,195 $ 132 $ 183 $ 2,706
Expenses:
Research and
development.......... 1,084 1,477 4,261 6,763 8,195 11,268 1,978 2,366 4,636
General and
administrative....... 299 466 1,217 1,892 2,267 3,020 701 617 888
Interest............... -- -- -- 193 302 302 75 92 92
------- ------- ------- ------- ------- -------- ------- ------- -------
Total expenses..... 1,383 1,943 5,478 8,848 10,764 14,590 2,754 3,075 5,616
------- ------- ------- ------- ------- -------- ------- ------- -------
Net loss................. $(1,383) $(1,394) $(5,066) $(8,399) $(9,922) $(13,395) $(2,622) $(2,892) $(2,910)
======= ======= ======= ======= ======= ======== ======= ======= =======
Net loss per share....... $ (0.94) $ (0.95) $ (0.29) $ (0.23) $ (0.18)
======= ======== ======= ======= =======
Shares used in
computation of net loss
per share.............. 10,533 14,169 8,966 12,343 15,979
Pro forma, assuming
conversion of Preferred
Stock to Common Stock
(3):
Net loss per share..... $ (1.03)
=======
Shares used in
computation of net
loss per share....... 8,152
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------------
------------------------------------------- PRO FORMA
1992(4) 1993 1994 1995 1996 1996(5)
-------- ------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available for
sale.................................................. $ 15,266 $ 6,797 $ 11,475 $ 14,443 $ 11,878 $ 14,105
Working capital......................................... 14,776 6,021 10,178 12,856 10,408 11,017
Total assets............................................ 15,877 12,115 17,046 19,960 17,381 19,930
Long-term obligations................................... 15 1,015 2,253 2,405 2,634 2,634
Deficit accumulated during development stage............ (4,202) (9,267) (17,667) (27,589) (30,481) (44,550)
Total shareholders' equity.............................. 15,297 10,231 13,242 15,773 13,119 13,904
</TABLE>
- ------------------
(1) Gives effect to the RGene Acquisition as if it had occurred on January 1,
1995. See "Unaudited Pro Forma Consolidated Financial Statements."
(2) Gives effect to the RGene Acquisition as if it had occurred on January 1,
1996. See "Unaudited Pro Forma Consolidated Financial Statements."
(3) Computed on the basis described in Note 2 of Notes to Targeted Genetics
Financial Statements.
(4) Prior to 1992, the Company was a wholly owned subsidiary of Immunex and,
accordingly, balance sheet data did not exist.
(5) Gives effect to the RGene Acquisition as if it had occurred on March 31,
1996. See "Unaudited Pro Forma Consolidated Financial Statements."
22
<PAGE> 24
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Pro Forma Consolidated Financial Statements as of March 31,
1996, for the year ended December 31, 1995 and for the three months ended March
31, 1996 are unaudited. The Unaudited Pro Forma Consolidated Balance Sheet was
prepared as if the RGene Acquisition was effective at March 31, 1996. The
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1995 was prepared as if the RGene Acquisition was effective as of
January 1, 1995. The Unaudited Pro Forma Statement of Operations for the three
months ended March 31, 1996 was prepared as if the RGene Acquisition was
effective as of January 1, 1996. The Unaudited Pro Forma Consolidated Financial
Statements do not purport to represent what the Company's financial position or
results of operations would actually have been if the RGene Acquisition had in
fact occurred on such dates or to project the Company's financial position or
results of operations as of any future date or for any future period. The
Unaudited Pro Forma Consolidated Financial Statements are based on the
historical financial statements of the Company and RGene and give effect to the
RGene Acquisition under the purchase method of accounting. The Unaudited Pro
Forma Consolidated Balance Sheet, as adjusted, reflects the application of the
net proceeds from the sale of 3,500,000 shares of Common Stock offered by the
Company hereby (after deducting the underwriting discounts and commissions and
estimated offering expenses) at an assumed offering price of $5.75 per share.
The Unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the Targeted Genetics and RGene audited Financial Statements
and Notes thereto included elsewhere herein.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
TARGETED PRO FORMA ADJUSTMENTS PRO FORMA,
GENETICS RGENE ADJUSTMENTS PRO FORMA FOR OFFERING AS ADJUSTED
-------- ------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 1,526 $1,677 $ 550(1) $ 3,753 $ 18,517(6) $ 22,270
Securities available for sale............ 10,352 -- -- 10,352 -- 10,352
Deposits, prepaid expenses and other..... 158 146 -- 304 -- 304
-------- ------- ------- -------- -------- --------
Total current assets................... 12,036 1,823 550 14,409 18,517 32,926
Property, plant and equipment, net......... 4,991 176 -- 5,167 -- 5,167
In-process research and development........ -- -- 14,069(1) -- -- --
(14,069)(2)
Other assets............................... 354 -- -- 354 -- 354
-------- ------- ------- -------- -------- --------
$17,381 $1,999 $ 550 $ 19,930 $ 18,517 $ 38,447
======== ======= ======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 403 $ 264 $ -- $ 667 $ -- $ 667
Notes payable to related parties......... -- 1,000 (1,000)(3) -- -- --
Accrued payroll and other liabilities.... 229 -- -- 229 -- 229
Payable to related parties............... -- 1,500 -- 1,500 -- 1,500
Current portion of long-term
obligations............................ 996 -- -- 996 -- 996
-------- ------- ------- -------- -------- --------
Total current liabilities.............. 1,628 2,764 (1,000) 3,392 -- 3,392
Long-term obligations...................... 2,634 -- -- 2,634 -- 2,634
Shareholders' equity (deficit):
Preferred stock.......................... -- 4,000 (4,000)(4) -- -- --
Common stock............................. 43,605 360 1,000(3) 58,459 18,517(6) 76,976
(1,360)(4)
14,854(5)
Unrealized losses on securities available
for sale............................... (5) -- -- (5) -- (5)
Deficit accumulated during development
stage.................................. (30,481) (5,125) (14,069)(2) (44,550) -- (44,550)
5,125(4)
-------- ------- ------- -------- -------- --------
Total shareholders' equity (deficit)... 13,119 (765) 1,550 13,904 18,517 32,421
-------- ------- ------- -------- -------- --------
$17,381 $1,999 $ 550 $ 19,930 $ 18,517 $ 38,447
======== ======= ======= ======== ======== ========
</TABLE>
23
<PAGE> 25
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TARGETED PRO FORMA
GENETICS RGENE ADJUSTMENTS PRO FORMA
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Investment income................................... $ 668 $ 53 $ -- $ 721
Other............................................... 174 300 -- 474
------- ------- ---- --------
Total revenues................................... 842 353 -- 1,195
------- ------- ---- --------
Expenses:
Research and development............................ 8,195 3,073 -- 11,268
General and administrative.......................... 2,267 753 -- 3,020
Interest............................................ 302 22 (22)(3) 302
------- ------- ---- --------
Total expenses................................... 10,764 3,848 (22) 14,590
------- ------- ---- --------
Net loss.............................................. $(9,922) $(3,495) $ 22 $(13,395)
======= ======= ==== ========
Net loss per share.................................... $ (0.94) $ (0.95)
======= ========
Shares used in computation of net loss per share...... 10,533(7) 14,169 (8)
======= ========
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TARGETED PRO FORMA
GENETICS RGENE ADJUSTMENTS PRO FORMA
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
License and other fees.............................. $ -- $ 2,500 $ -- $ 2,500
Investment income................................... 183 23 -- 206
------- ------- ---- --------
Total revenues................................... 183 2,523 -- 2,706
------- ------- ---- --------
Expenses:
Research and development............................ 2,366 2,270 -- 4,636
General and administrative.......................... 617 271 -- 888
Interest............................................ 92 32 (32)(3) 92
------- ------- ---- --------
Total expenses................................... 3,075 2,573 (32) 5,616
------- ------- ---- --------
Net loss.............................................. $(2,892) $ (50) $ 32 $ (2,910)
======= ======= ==== ========
Net loss per share.................................... $ (0.23) $ (0.18)
======= ========
Shares used in computation of net loss per share...... 12,343 (7) 15,979 (8)
======= ========
</TABLE>
24
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Unaudited Pro Forma Consolidated Financial Statements give
effect to the RGene Acquisition using the purchase method of accounting. The
allocation of the purchase price in the accompanying Unaudited Pro Forma
Consolidated Financial Statements is based on the Company's estimates. Amounts
allocated to RGene assets and liabilities will be based on the estimated fair
values at the actual time of the RGene Acquisition. The consideration to be paid
for RGene consists of 3,636,364 shares of Common Stock. These shares are
unregistered and, accordingly, cannot be freely traded until such shares are
registered or an exemption from registration is available. The Company is
obligated to register 50% of such shares for resale under the Securities Act
prior to the one-year anniversary of the effective date of the RGene
Acquisition. Additionally, all of such shares are restricted pursuant to lock-up
agreements under which the shares are released in 20% increments every six
months beginning six months after the effective date of the RGene Acquisition.
For purposes of the Unaudited Pro Forma Consolidated Financial Statements, the
shares have been valued at an average price of approximately $4.08 per share.
This valuation was calculated using the closing price of the Common Stock on
April 16, 1996, the date the Merger Agreement was signed, discounted at rates
that reflect the varying periods of restriction. The resulting total
consideration of $16,618,000 includes liabilities assumed totaling $1,764,000.
Such liabilities include $1.5 million payable to related parties under the
existing terms of certain license agreements. Under the terms of the Merger
Agreement, prior to the closing of the RGene Acquisition, RGene is required to
negotiate changes to a license agreement such that this liability and future
payments under the agreement will be substantially reduced. The amount of the
reduction cannot be estimated at this time. The total consideration does not
reflect the additional $5 million of Common Stock which may be issuable to RGene
stockholders upon the achievement of certain milestones. At the time any such
Common Stock becomes issuable, the Company will be required to record additional
noncash expense, representing in-process research and development, equal to the
value of such Common Stock. See "RGene Acquisition."
The pro forma adjustments are described in the following notes:
(1) Allocates the estimated purchase price to identifiable assets acquired
and liabilities assumed as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
TOTAL RGENE BALANCE SHEET
PURCHASE PRICE BALANCE SHEET ADJUSTMENTS
-------------- ------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 2,227 $ 1,677 $ 550
Deposits, prepaid expenses and other.......... 146 146 --
Property, plant and equipment, net............ 176 176 --
In-process research and development........... 14,069 -- 14,069
------- ----- -------
$ 16,618 $ 1,999 $14,619
======= ===== =======
</TABLE>
The amount allocated to cash and cash equivalents reflects $550,000 of
additional capital being contributed by RGene's existing investors under the
terms of the Merger Agreement.
(2) Records the write-off of in-process research and development acquired
by the Company. This adjustment has not been reflected in the Unaudited Pro
Forma Statement of Operations as the charge is considered nonrecurring.
(3) Reflects the conversion of notes payable into shares of RGene common
stock prior to the merger and eliminates interest expense thereon.
(4) Eliminates the historical stockholders' equity accounts of RGene.
(5) Reflects the issuance of 3,636,364 shares of Common Stock to the
stockholders of RGene, valued as described above.
(6) Reflects the receipt of the estimated net proceeds of the Offering. See
"Use of Proceeds."
(7) Computed on the basis described in Note 2 of Notes to Targeted Genetics
Financial Statements.
(8) Reflects the issuance of 3,636,364 shares of Common Stock to the
stockholders of RGene.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include the factors discussed below as well as the factors discussed
in "Risk Factors" and elsewhere in this Prospectus. Special Note: Certain
statements set forth below constitute "forward-looking statements" within the
meaning of the Reform Act. See "Special Note Regarding Forward-Looking
Statements" on page 2 for additional factors relating to such statements.
OVERVIEW
Targeted Genetics, a development stage company, was incorporated in March
1989 as a wholly owned subsidiary of Immunex. The Company's activities were
carried out as a project within Immunex through December 31, 1991. In 1992, the
Company began to operate independently of Immunex and raised $16.6 million, net
of expenses, in a private placement of Preferred Stock. The Company subsequently
raised an additional $23.8 million in two public offerings of Common Stock.
Currently, the Company has no significant revenue sources other than interest
income earned on investments, and it has generated an accumulated deficit of
approximately $30.5 million through March 31, 1996.
It is not anticipated that the Company will have any product-related
revenues for a number of years. Accordingly, the Company expects to generate
substantial additional losses in the future attributable to the continuation of
preclinical and clinical research programs, development of manufacturing
capabilities and the preparation for commercialization of its products under
development. The Company's ability to achieve profitability depends in part on
its ability alone and/or with others to complete the development of product
candidates, obtain regulatory approvals, comply with applicable regulatory
requirements and manufacture and market such products, of which there can be no
assurance.
In April 1996, the Company entered into the Merger Agreement with RGene,
another development stage company, pursuant to which it agreed to complete the
RGene Acquisition, subject to, among other things, final approval of the
shareholders of both companies. The effect of the RGene Acquisition on the
Company's results of operations is discussed in "-- Results of
Operations -- RGene Acquisition." The effect of the RGene Acquisition on the
Company's liquidity and capital resources is also discussed below. See
"Unaudited Pro Forma Consolidated Financial Statements."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1996
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.
For the three months ended March 31, 1996, interest income increased to
$183,000 compared to $132,000 during the three months ended March 31, 1995. The
increase was attributable to a higher average investment balance and higher
rates of return on those balances compared to the same period in 1995.
Research and development expenses were $1,978,000 and $2,366,000 for the
three-month periods ended March 31, 1995 and 1996, respectively. Factors that
contributed to this increase were: additional employees and related expenses in
preclinical immunology and clinical affairs; a moderate increase in
26
<PAGE> 28
the level of expenses related to development, manufacturing, quality control and
regulatory activities; and increased employee benefits costs.
General and administrative expenses were $701,000 and $617,000 for the
three months ended March 31, 1995 and 1996, respectively. The decrease reflects
a one-time expense of $185,000 related to certain corporate development
activities in the quarter ended March 31, 1995. Otherwise, during the first
quarter of 1996, higher expenses related to corporate communications,
shareholder reporting and employee benefits contributed to the increase compared
to the first quarter of 1995.
Interest expense was $75,000 and $92,000 for the three months ended March
31, 1995 and 1996, respectively. The increase was attributable to additional
equipment leases entered into by the Company.
Years Ended December 31, 1993, 1994 and 1995
Revenues were $412,000, $449,000 and $842,000 for the years ended December
31, 1993, 1994 and 1995, respectively. The significant increase in 1995 was
attributable to a higher average investment balance during the year and higher
rates of return on those balances. In 1995, the Company earned other income of
$175,000 from research and development arrangements.
Research and development expenses were $4,261,000, $6,763,000 and
$8,195,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
For the year ended December 31, 1994, the increase in research and development
expenses was largely due to the increased emphasis on supporting the advancement
of clinical, manufacturing process development and regulatory programs. The
increase in research and development expenses in 1995 was largely attributable
to the continued expansion of manufacturing process development expertise and
other nominal increases in research, clinical and regulatory expenses, including
staffing. Research and development expenses will continue to increase in the
future, especially as related to clinical trials. Continued growth in expenses,
however, is dependent on the availability of capital.
General and administrative expenses were $1,217,000, $1,892,000 and
$2,267,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
The increase in general and administrative expenses in 1994 was attributable to
the addition of administrative staff in the areas of business development,
finance, human resources and facility management to support research and
development activities. During 1994, the Company also experienced an increase in
expenses associated with being a publicly traded company. For the year ended
December 31, 1995, the Company experienced modest growth in general and
administrative expenses compared with 1994. The growth was related to an
increase in corporate development activities and, to a lesser extent, additional
administrative staffing. Over the three years presented, the increase in general
and administrative expenses has roughly tracked the rate of increase in research
and development spending. The Company expects this relationship to continue in
future years.
The Company began incurring interest expense in 1994 related to equipment
financing transactions. The substantial increase for the year ended December 31,
1995 versus 1994 is due to an increased level of equipment financing. It is
expected that the Company will continue to finance equipment purchases if
favorable terms are available.
RGene Acquisition
On a pro forma basis, after giving effect to the RGene Acquisition as if it
had occurred on January 1, 1995, the net loss for the year ended December 31,
1995 would have been $13.4 million. The increase over the Company's actual net
loss of $9.9 million for such period is primarily attributable to added research
and development expenses of $3.1 million and general and administrative expenses
of $753,000, offset by $300,000 of license fee revenues. The Company expects
that such 1995 expense additions are generally indicative of the increases in
the Company's operating expenses that, going forward, will result from the RGene
Acquisition, in that (i) RGene's research and clinical programs,
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and the related costs, are expected to be maintained and (ii) there are no
significant savings expected from the elimination of duplicative expenses. There
can be no assurance, however, that future expenses will be consistent with 1995
expenses. The pro forma results of operations for the three months ended March
31, 1996 reflect operating expense levels higher than what are expected to
result from the RGene Acquisition due to the inclusion of (i) $157,000 of
noncash compensation expense related to RGene stock purchase agreements and
stock options, all of which will be exercised prior to the closing of the RGene
Acquisition, and (ii) $1.5 million payable to related parties related to option
fees received by RGene during the quarter. Additional payments to related
parties are only anticipated to be payable in the future in the event RGene or
the Company receives additional license-related fees. Furthermore, the amount of
any such payments is expected to be substantially reduced as a result of
provisions in the Merger Agreement requiring RGene to negotiate changes to an
existing license agreement. For both the year ended December 31, 1995 and the
three months ended March 31, 1996, the pro forma results of operations include
revenues from license and option fees. Future license and related milestone
revenues under an existing RGene license agreement or any other agreements under
negotiation cannot be predicted.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash, cash equivalents and securities
available for sale totaling $14.4 million, compared to $11.5 million at December
31, 1994. The increase was primarily attributable to the completion of a
self-managed stock and warrant offering, which resulted in net proceeds of $12.2
million in July 1995. The Company also completed equipment financing
transactions totaling $1.1 million during 1995. Offsetting these increases, the
Company used $8.5 million to fund its operations, $1.4 million for purchases of
equipment, laboratory expansion and acquisition of technology and patent rights
and $657,000 for payments under equipment leases and notes.
The Company had cash, cash equivalents and securities available for sale
totaling $11.9 million at March 31, 1996, compared to $14.4 million at December
31, 1995. The decrease was primarily attributable to the Company's use of $2.6
million to fund its operations during the first three months of 1996.
The Company expects that its cash needs will continue to increase in future
periods, in part because of the RGene Acquisition, due to expansion of research
and development programs, increased clinical trial activity, growth of
administrative staff and expansion of its facilities to accommodate increased
numbers of employees. Accordingly, the Company will need to raise substantial
additional funds to continue development and commercialization of its products.
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.
The Company estimates that, at its planned rate of spending, adjusted to
reflect the increased expenses expected to result from the RGene Acquisition,
its existing cash, cash equivalents and securities available for sale, together
with the projected amount of cash or investments expected to be obtained as a
result of the RGene Acquisition, the net proceeds of the Offering and the
interest income thereon will be sufficient to meet its capital requirements
until late 1997. In the event that all outstanding warrants with an exercise
price of $4.68 per share and expiring in July 1997 are exercised, the Company
will receive an additional $3.6 million, which amount should enable the Company
to fund its capital requirements until early 1998. There can be no assurance
that the underlying assumed levels of revenue and expense will prove to be
accurate or that any warrants will in fact be exercised. In order to further
strengthen its cash position, the Company is aggressively pursuing agreements
with corporate partners that would provide research and development funding and
equity investment. If the Company is successful in these efforts, funding
received under such arrangements could extend the
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period during which the aforementioned resources would fund the Company's
capital requirements. The Company also intends to seek additional funding
through public or private financing, including equity financing. There can be no
assurance, however, that adequate funds will be available when needed or will be
available on terms favorable to the Company. See "Risk Factors -- Effect of
Failure to Obtain Adequate Funding."
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<PAGE> 31
BUSINESS
Targeted Genetics is focused on the development of gene and cell therapies
for the treatment of certain acquired and inherited diseases. The Company is
developing a broad base of core technologies that it believes will allow it to
address a variety of such diseases. These technologies include proprietary viral
and non-viral gene delivery systems as well as novel techniques for cytotoxic T
lymphocyte ("CTL") immunotherapy. In order to expand its technology base with
respect to non-viral gene delivery systems and to enhance its product
development programs, the Company recently agreed to acquire RGene Therapeutics,
Inc. ("RGene"), a privately held company focused on the development and use of
non-viral gene delivery systems. The Company is using its core technology
platform to develop potential products for the treatment of various genetic
disorders, cancer and infectious diseases, and is currently conducting clinical
trials in certain of these indications.
The Company believes that in the area of gene therapy, different disease
targets will require different methods of gene delivery, depending on the target
cell to be modified, the duration of gene expression required and the need for
ex vivo or in vivo delivery. Accordingly, the Company is developing multiple
gene delivery systems based on three different vector technologies:
adeno-associated viral ("AAV"), retroviral and non-viral. The Company believes
these systems may provide it with the flexibility necessary to develop gene
therapies for a broader range of diseases than would be possible using a single
gene delivery system. Targeted Genetics was the first company to initiate
clinical trials using AAV vectors and is not aware of any other company
conducting clinical trials using these vectors. In addition, the Company has
exclusive rights to an improved type of retroviral vector which has been shown
in preclinical experiments to be more efficient than earlier retroviral vectors
at delivering genes into certain types of blood cells. The Company also is
developing non-viral gene delivery systems which may provide greater flexibility
relative to the size and sequence of transferred genes and allow targeted
delivery in vivo.
Through its pending acquisition of RGene (the "RGene Acquisition"), the
Company will acquire rights to proprietary non-viral gene delivery technology
based on the use of cationic lipids that promote the uptake of DNA into cells.
This technology includes several formulations with the potential for increased
stability, and improved transduction efficiency as well as the potential ability
to deliver genes to specific target cells. The Company will also acquire rights
to the E1A tumor suppressor gene which is currently in clinical trials for the
treatment of ovarian and breast cancer.
In the area of cell therapy, the Company's expertise with CTLs enables it
to isolate from patients and efficiently multiply antigen-specific CTLs, which
are immune cells that target and kill specific diseased cells. This expertise
forms the basis for a series of potential immunotherapies for the treatment of
cancer and infectious diseases. The CTL immunotherapy program is based on the
Company's proprietary Rapid Expansion Method ("REM") technology, which is used
to grow CTLs ex vivo prior to infusion into the patient. The Company has
demonstrated that REM enables it to grow billions of CTLs from individual cloned
cells over several weeks, while preserving the cells' specific disease-fighting
capabilities in vitro. Other methods of expanding CTL clones generally require
several months.
Targeted Genetics is currently conducting multiple clinical trials
utilizing its viral gene delivery systems as well as its CTL immunotherapy
technology. Following the completion of the RGene Acquisition, the Company also
will have a clinical trial using a non-viral gene delivery system. The Company
is conducting a Phase I and a Phase I/II clinical trial examining the use of AAV
vectors to deliver in vivo the cystic fibrosis transmembrane regulator ("CFTR")
gene for the treatment of cystic fibrosis. The Phase II part of the latter trial
is expected to begin in late 1996. RGene has initiated a Phase I clinical trial
of a non-viral system to deliver in vivo the E1A tumor suppressor gene to
patients with ovarian or breast cancer. In addition, the Company is conducting a
Phase I clinical trial examining the use of HIV-specific CTLs to prevent the
onset of full-blown AIDS in HIV-infected patients. The Company also is
collaborating on two physician-sponsored Phase I clinical trials examining gene
therapies for the treatment of Gaucher disease and melanoma. Patient accrual for
all these Phase I clinical trials is expected to be completed by the end of
1996. There can be no assurance that these clinical trials will proceed or will
be completed as indicated or that any products or technologies being
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<PAGE> 32
tested will prove safe and effective, meet applicable regulatory standards or be
successfully marketed. See "Risk Factors -- Early Stage of Product Development;
Technological Uncertainty" and "-- Uncertainties Relating to Clinical Trials and
Product Development."
DEVELOPMENT PROGRAMS
Targeted Genetics is utilizing its core technologies to develop potential
products for the treatment of single-gene disorders, cancer and infectious
diseases. As part of its product development strategy, Targeted Genetics is
using early clinical trials to assess product opportunities and determine the
effectiveness of using its vector technologies to administer genes to patients,
as well as to support its overall development activities. The most advanced
product-directed development programs are the AAV gene therapy for the treatment
of cystic fibrosis, the E1A non-viral gene therapy for the treatment of ovarian
and breast cancer and CTL immunotherapy for HIV infection. The following table
summarizes the Company's and RGene's development programs and related
technologies:
<TABLE>
<CAPTION>
TECHNOLOGY
----------------------------------------------------
DEVELOPMENT PROGRAM TYPE OF THERAPY DELIVERY SYSTEM GENE STATUS
- --------------------- --------------------- ----------------- ---------- -----------
<S> <C> <C> <C> <C>
SINGLE-GENE DISORDERS
Cystic Fibrosis Gene Therapy AAV Vector CFTR Phase I/II
Gaucher Disease Stem Cell Gene Retroviral Vector GC Phase I
Therapy
CANCER
Ovarian/Breast* Gene Therapy Non-Viral Vector E1A Tumor Phase I
Suppressor
Melanoma Tumor Vaccine Retroviral Vector IL-7 Phase I
Breast/Colon CTL Immunotherapy -- -- Preclinical
(Tumor-Specific CTLs)
INFECTIOUS DISEASES
HIV CTL Immunotherapy -- -- Phase I
(HIV-Specific CTLs)
</TABLE>
- ------------------
* To be acquired through the RGene Acquisition.
SINGLE-GENE DISORDERS
CYSTIC FIBROSIS. Cystic fibrosis is the most common single-gene deficiency
affecting the Caucasian population, afflicting approximately 30,000 people in
the United States and 60,000 people worldwide. The disease is caused by a
dysfunctional CFTR gene, which results in a build up of mucus in the lungs,
infections and early death. Current treatments for cystic fibrosis offer only
symptomatic relief and cannot cure or halt the progression of the disease.
Based on preclinical findings by the Company and its scientific
collaborators, the Company believes that the persistence of expression and lack
of toxicity obtained with its AAV-based gene delivery vector potentially make it
better suited for delivery of the CFTR gene to the lung than other vectors. In
preclinical studies in rabbits, the Company and its collaborators at The Johns
Hopkins University ("Johns Hopkins") were able to detect expression of the CFTR
gene for periods of up to six months with no observed side effects when single
doses of an AAV-CFTR vector were instilled directly into the right lower lobe of
the rabbit lung with a bronchoscope. These results were confirmed in similar
studies in rhesus monkeys, in which gene transfer occurred in up to 50% of
target airway cells, and gene expression, which was confirmed in all animals,
persisted for up to six months. In these
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studies, there was no evidence of toxicity, as indicated by the absence of any
significant changes in clinical parameters and levels of inflammatory cytokines.
Furthermore, histopathology examination showed no evidence of any cellular
immune response. In addition, the monkeys used in the study were seropositive
for AAV, and thus a preexisting humoral immune response did not prevent gene
transfer. The studies compare favorably to preclinical studies known to the
Company with other delivery systems in which only short-term gene expression was
observed in the lung. Based on these preclinical data, the Company began two
clinical trials in late 1995 to evaluate the safety and feasibility of in vivo
gene therapy for the treatment of cystic fibrosis by direct delivery of the CFTR
gene using an AAV vector.
The first clinical trial, which began in November 1995, is a Phase I
clinical trial at Johns Hopkins in which an AAV vector containing the CFTR gene
is being delivered to the nose and lung of adult cystic fibrosis patients having
mild lung disease. The trial is designed as an interpatient dose escalation
trial and will enroll a total of 12 patients. Two patients are being treated at
each of six escalating dose levels. An AAV-CFTR vector will be administered in
an open-label single dose to the right lower lobe of the lung via bronchoscopy.
Additionally, each patient will be randomized to receive a single dose of an
AAV-CFTR vector administered to one nostril and a placebo to the other. Patients
will be monitored for, among other things, safety and assessment of gene
transfer and expression. The nasal administration is intended to determine if
physiologic measurement of CFTR function can be obtained in the nasal
epithelium. The Company expects to complete this clinical trial in late 1996. If
the results of the trial confirm the Company's preclinical findings of safety
and gene transfer, the Company intends to conduct subsequent clinical trials in
1997 involving aerosol delivery of an AAV-CFTR vector to the whole lung. The
Company is currently developing aerosol formulations for testing in preclinical
models.
The second clinical trial began in December 1995 at Stanford University.
This trial is designed as a Phase I/II trial, pursuant to which an AAV-CFTR
vector will be administered to the maxillary sinuses of cystic fibrosis patients
with chronic sinusitis. The Phase I part of this trial is designed as a dose
escalation study. Six patients will be enrolled, and each patient will initially
receive one dose in one maxillary sinus and a subsequent dose in the
contralateral maxillary sinus approximately one to two months later. The trial
will assess safety and efficacy of gene transfer and also may provide an initial
assessment of the effect of repeat delivery on gene transfer and expression.
Additionally, the dose level will be established for the Phase II part of the
trial, in which up to 50 patients will receive an AAV-CFTR vector in one sinus
and a placebo in the other. Patients in the Phase II trial will be monitored to
assess the ability of an AAV-CFTR vector to prevent the relapse of chronic
sinusitis. The Company expects to complete patient accrual for the Phase I trial
in mid-1996 and to initiate the Phase II trial in late 1996.
There can be no assurance that clinical trials will proceed or be completed
as indicated, or that the AAV-CFTR gene therapy will prove safe and effective,
receive applicable regulatory approvals or be successfully developed or
marketed. See "Risk Factors -- Early Stage of Product Development; Technological
Uncertainty" and "-- Uncertainties Relating to Clinical Trials and Product
Development."
GAUCHER DISEASE. Gaucher disease results from the deficiency of a gene
that produces an enzyme called glucocerebrosidase ("GC"), which normally
metabolizes a lipid called glucocerebroside. The enzyme deficiency results in
accumulation of this lipid in cells in the spleen, liver and bone marrow.
Symptoms of the disease include hematologic disorders, enlargement of the liver
and spleen, bone erosion and pain. The estimated annual incidence of Gaucher
disease in the United States is 5,000 severe cases and 15,000 mild to moderate
cases. Current therapies for Gaucher disease include bone marrow transplantation
from sibling-matched donors and enzyme replacement therapy. Only 25% of patients
are candidates for bone marrow transplantation due to lack of appropriate
donors. Furthermore, the risk of transplant-related morbidity and mortality
restricts this therapy to severely affected individuals. Although enzyme
replacement therapy appears to be effective, this therapy is currently extremely
expensive.
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Targeted Genetics selected Gaucher disease as an initial disease target for
the assessment of its stem cell gene therapy technology based on the scientific
theory that genetic correction in as little as 5% of a Gaucher disease patient's
blood cells may be adequate to achieve reversal of the disease. The Company
believes that although stem cell transduction techniques, including its own, may
not provide adequate levels of gene transfer and expression, current clinical
trials will provide baseline data that are necessary to facilitate the
development of improved methods for stem cell transduction. The Company is
collaborating on a physician-sponsored Phase I clinical trial at the Fred
Hutchinson Cancer Research Center (the "Hutchinson Center") in which peripheral
blood stem cells are being reinfused into Gaucher disease patients after ex vivo
transduction with a retroviral vector containing the GC gene. Patients
undergoing this therapy will be monitored for safety and long-term persistence
of the genetically modified cells. The Company believes that a series of Phase I
trials to test potentially improved techniques for stem cell gene transfer will
be required prior to initiation of a Phase II Gaucher disease clinical trial.
See "-- Core Technologies -- Retroviral Vectors."
CANCER
Cancer is the second leading cause of death in the United States, with over
one million new cases diagnosed each year. The Company is pursuing two primary
approaches for the treatment of cancer. In the first approach, the Company and
its collaborators are investigating the uses of CTL-based immunotherapy to
enhance the immune system's natural ability to eliminate cancer cells
selectively. The second approach, which will be acquired by the Company through
the RGene Acquisition, will utilize RGene's proprietary non-viral system to
deliver in vivo an E1A tumor suppressor gene to cancer cells.
E1A TUMOR SUPPRESSOR GENE THERAPY. This program is designed to test the
feasibility of treating certain cancers by introducing the proprietary E1A tumor
suppressor gene into cancer cells using RGene's proprietary non-viral delivery
system. Overexpression of the Her-2/neu oncogene occurs in approximately 30% of
a number of cancers, including ovarian, breast, head and neck, stomach,
pancreatic, liver, cervical and prostate cancer, and has been associated with
enhanced metastatic potential, drug resistance and poor survival rates. The E1A
tumor suppressor gene has been shown to inhibit the overexpression of the
Her-2/neu oncogene in certain tumor cells in vitro. In addition, in preclinical
mouse studies the E1A tumor suppressor gene was shown to inhibit the
intraperitoneal growth of ovarian cancer cells that were overexpressing the
Her-2/neu oncogene, and significantly increase the long-term survival of the
mice. A Phase I clinical trial of the E1A tumor suppressor gene therapy in
patients with metastatic ovarian or breast cancer that overexpresses the
Her-2/neu oncogene is now open for enrollment at M.D. Anderson Cancer
Center/University of Texas ("M.D. Anderson").
In the Phase I trial, 12 patients with ovarian cancer and 12 patients with
breast cancer that overexpress the Her-2/neu oncogene will be administered
weekly doses of the E1A tumor suppressor gene for a six-month period. The doses
will be administered using RGene's proprietary non-viral delivery system. This
trial will be conducted as an interpatient, ascending dose study with doses of
the E1A tumor suppressor gene delivered intraperitoneally in the ovarian cancer
patients and intrapleurally in the breast cancer patients. The objectives of the
trial are to assess safety, levels of gene transfer and expression and tumor
response. It is expected that this clinical trial will be completed in mid-1997.
Effective May 1996, RGene entered into a license, research and marketing
agreement with Fournier under which Fournier received exclusive rights to
develop and commercialize in Europe RGene's E1A tumor suppressor product
candidate. See "-- Research Collaborations and Licensing Agreements" and "Risk
Factors -- Dependence on Corporate Collaborators."
There can be no assurance that the clinical trials of the E1A tumor
suppressor gene will proceed or be completed as indicated or that the E1A tumor
suppressor gene therapy will prove safe and effective, receive applicable
regulatory approvals or be successfully developed or marketed. See "Risk
Factors -- Early Stage of Product Development; Technological Uncertainty" and
"-- Uncertainties Relating to Clinical Trials and Product Development."
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<PAGE> 35
CTL IMMUNOTHERAPY. The objective of the Company's cancer CTL immunotherapy
program is to restore an effective immune response through the infusion of large
numbers of antigen-specific CTLs, immune cells that target and kill specific
tumor cells. The CTL immunotherapy program is based on the Company's proprietary
REM technology, which is used to grow CTLs prior to infusion. The program
involves isolating antigen-specific CTLs, multiplying them ex vivo and
reinfusing them into the patient. The Company believes that therapies based on
antigen-specific CTLs may be more effective and have fewer side effects than
other types of cell therapies that utilize broader classes of T cells or
lymphocytes.
The first clinical trial using antigen-specific CTLs was conducted by the
Company's scientific collaborators at the Hutchinson Center in an examination of
a CTL immunotherapy for the prevention of cytomegalovirus ("CMV") disease in
patients undergoing bone marrow transplants for the treatment of certain
cancers. CMV is a virulent infection that occurs frequently in immunocompromised
patients and causes severe illness that may lead to death. In this trial, 14
patients were administered donor-derived CMV-specific CTLs. None of the patients
who received the CTLs developed CMV viremia or disease. Based on this Hutchinson
Center trial, the Company believes that CTL immunotherapy may be useful in
treating or preventing a number of diseases, such as cancer, that may occur due
to a lack of adequate T cell response.
The Company is conducting preclinical studies directed to the isolation and
ex vivo multiplication of tumor-specific CTLs against certain types of cancer,
including breast and colon cancers. The Company plans to use the data generated
by these preclinical studies to design clinical trials of CTL immunotherapy for
the treatment of these cancers. To date, the Company has been able to generate
CTLs specific to peptides associated with human prostate and melanoma tumors,
multiply these CTLs in the REM process and use them to kill cancer cells in
vitro.
IL-7 TUMOR VACCINE. The Company is collaborating with clinicians at the
University of California at Los Angeles on an investigator-sponsored Phase I
clinical trial involving the administration of an IL-7 gene to nine patients
with metastatic melanoma in an attempt to stimulate CTL responses against the
tumor. The Company is collaborating in this investigator-sponsored study to
determine whether antigen-specific CTLs can be isolated and then multiplied
using the Company's REM process and retain their potency. IL-7 is an
immunomodulatory protein that has been demonstrated to activate antigen-specific
CTLs in in vivo preclinical studies and cause them to infiltrate tumor cells. In
connection with this trial, a melanoma tumor cell line was genetically modified
to produce IL-7. These modified cells are mixed with the patient's own tumor
cells and the cell mixture is injected into the patient. These modified tumor
cells may act to enhance the immune system's ability to recognize cancer cells
as foreign and to generate a potent CTL response against the tumor. As part of
this trial the Company has been able to isolate melanoma-specific CTLs from
blood samples of patients who have received the therapy and is currently
examining these CTLs to assess their ability to kill cancer cells.
INFECTIOUS DISEASES: HUMAN IMMUNODEFICIENCY VIRUS ("HIV")
CTL IMMUNOTHERAPY. HIV is a retrovirus that is the cause of AIDS, a
condition that is characterized by loss of CD4 cells and progressive immunologic
impairment and death. Currently there is no effective treatment for AIDS, and no
effective way to prevent an HIV-infected person from developing AIDS. According
to the Centers for Disease Control and Prevention, approximately one million
people in the United States have been infected with HIV. The World Health
Organization estimates that approximately 17 million people worldwide have been
infected with HIV and projects that the worldwide incidence of HIV infection
will grow to 30 million to 40 million people by the end of the century.
The Company and certain other researchers believe that the key to
successful HIV therapy may lie in manipulating and harnessing the cell-mediated
arm of the immune response. Researchers have found that HIV-infected people who
remain symptom-free for prolonged periods have high levels of CTLs that suppress
viral proliferation in CD4 cells. In addition, uninfected partners of
HIV-infected
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<PAGE> 36
people, and uninfected infants born to HIV-infected mothers, have been found to
have high levels of HIV-specific CTLs, which appear to have kept them HIV-free.
The Company believes that the provision of large quantities of cloned
HIV-specific CTLs may provide a means of allowing HIV-infected people to
maintain an effective immune response, thereby delaying the onset of full-blown
AIDS.
In 1995, the Company completed a Phase I clinical trial of HIV-specific
CTLs modified with a HyTK safety gene at the Hutchinson Center. Individual
clones of these CTLs specific for the HIV gag protein were isolated, modified
with a retroviral vector containing the HyTK gene and multiplied to more than
one billion cells. The HyTK gene was used to mark the cells and allow for
ablation of the cells by administration of ganciclovir if undesirable side
effects resulted from the therapy. After ex vivo expansion, the autologous
HyTK-transduced gag-specific CTL clones were reinfused intravenously in four
ascending doses administered at 14-day intervals. Based on the six patients
tested, the CTLs were shown to engraft, and the therapy appeared to be safe and
well tolerated, with no significant side effects. No patients required ablation
with ganciclovir. Once reinfused, the HIV-specific CTLs did not persist as long
as anticipated, apparently because of a primary CTL response directed against
the HyTK gene. Since the CTL immunotherapy appears to be safe, the use of the
HyTK gene for the original reason of safety will no longer be required.
In early 1996, the Company began a follow-up Phase I clinical trial, also
at the Hutchinson Center, in which up to eight HIV-infected patients are being
administered five escalating doses of HIV gag-specific CTLs. The first three
doses will consist of unmarked cells and the last two will consist of cells
modified with a retroviral vector containing the neo gene, a marking gene that
has not been shown to be immunogenic. Patients in the trial will be monitored
for safety, persistence of the infused CTLs and changes in viral burden. Patient
accrual in this trial is expected to be complete in late 1996.
There can be no assurance that the clinical trials will proceed or be
completed as indicated or that the CTL immunotherapy will prove safe and
effective, receive applicable regulatory approvals, or be successfully developed
or marketed. See "Risk Factors -- Early Stage of Product Development;
Technological Uncertainty" and "-- Uncertainties Relating to Clinical Trials and
Product Development."
INTRACELLULAR VACCINE IN CD4 CELLS. As a complementary approach to its CTL
immunotherapy for the treatment of HIV, the Company is collaborating on the
preclinical and clinical development of intracellular vaccines for HIV with Dr.
Philip Greenberg of the Hutchinson Center. In the planned physician-sponsored
Phase I trial, HIV-infected patients will be treated with genetically modified
CD4 helper cells. Two subgroups of these CD4 cells will be modified with
retroviral vectors expressing two different intracellular vaccine candidates for
which preclinical data indicate potential utility as protective agents against
HIV replication. These candidates are genes that express RNA molecules that can
act as decoys to bind HIV proteins essential for HIV replication. A third
subgroup of CD4 cells will be unmodified except for a marking gene. The trial's
goal is to provide general safety data and comparative data as to which of the
intracellular vaccine constructs may be more promising, based on length of cell
persistence in vivo versus the marked cells.
Since only a small fraction of the patient's CD4 cells will be modified to
resist HIV in this trial, it is unlikely that long-term therapeutic benefit will
result. To generate larger numbers of HIV-resistant CD4 cells, it will be
necessary to introduce the intracellular vaccine gene into stem cells from which
CD4 cells are derived. The Company believes that continued improvement in the
efficiency of stem cell gene transfer and expression will be necessary to
provide the rationale for future clinical testing of intracellular vaccines for
HIV in stem cells. See "-- Core Technologies -- Gene Therapy -- Retroviral
Vectors."
OTHER THERAPEUTIC AREAS
In addition to the development program for cystic fibrosis, the Company is
conducting research to assess the potential for delivery of genes to other
target cells using AAV vectors. Also, upon completion of the RGene Acquisition,
the Company expects to begin investigating the treatment of cancer using
antisense molecules to inhibit the activity of certain oncogenes.
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CARDIOVASCULAR. The Company is collaborating with researchers at the
Bowman Gray School of Medicine in Winston-Salem, North Carolina to examine, in
animal models, the ability of AAV vectors to deliver genes in vivo to certain
cardiovascular cells. These studies are investigating in vivo delivery of AAV
vectors in monkeys exhibiting arteriosclerotic disease. AAV vectors are being
used to deliver genes via a balloon catheter inserted into a monkey artery. To
date, these studies have demonstrated that certain vascular endothelial cells
can be targeted for gene expression with AAV vectors, indicating that AAV
vectors may be feasible delivery systems for gene therapy treatments directed at
various cardiovascular disorders, including the inhibition of cell growth
associated with restenosis or the treatment of vascular disease with angiogenic
factors.
MUCOSAL IMMUNITY. The Company is evaluating the feasibility of using AAV
vectors to deliver genes for applications relating to mucosal immunity. Certain
inflammatory and immune-related diseases may be treated by delivery of
anti-inflammatory or immune stimulating genes to mucosal surfaces such as the
gastrointestinal tract. In initial studies using in vivo animal models, the
Company is assessing the ability of AAV vectors to deliver genes directly to
cells of the intestinal epithelium.
ANTISENSE OLIGONUCLEOTIDES. RGene is investigating the potential treatment
of cancer by using antisense molecules to inhibit the activity of certain
oncogenes. Antisense molecules can prevent expression of the protein product of
a gene by binding to the messenger RNA copied from the DNA coding for that gene.
These antisense molecules are composed of oligonucleotides, which are short
pieces of DNA. Antisense molecules can be incorporated into liposomes for
delivery to target cells.
Chronic myelogenous leukemia ("CML") is a cancer associated with the
presence of an aberrant chromosome, the Philadelphia chromosome, which results
in generation of an oncogene, the bcr-abl fusion gene. The protein product of
the bcr-abl oncogene is believed to be involved in the pathogenesis of CML by
promoting selective proliferation of myeloid cells. The bcr-abl gene is present
only in leukemia cells and may be specifically targeted with antisense
oligonucleotides.
RGene plans to test a proprietary liposomal anti-bcr-abl oligonucleotide
for treatment of CML, in collaboration with Dr. Gabriel Lopez-Berestein at M.D.
Anderson. In in vitro experiments this formulation was shown to selectively
inhibit proliferation of the cancer cells. An initial Phase I/II dose escalation
study to test the safety and efficacy of repeated intravenous injections of the
liposomal/antisense complex is being planned in chronic-phase CML patients who
are not candidates for bone marrow transplants and who have received no benefit
from standard therapy. There can be no assurance that these clinical trials will
proceed or will be completed as indicated or that any products or technologies
being tested will prove safe and effective, meet applicable regulatory standards
or be successfully marketed. See "Risk Factors -- Early Stage of Product
Development; Technological Uncertainty" and "-- Uncertainties Relating to
Clinical Trials and Product Development."
CORE TECHNOLOGIES
The Company is developing a broad range of core technologies that it
believes will allow it to address issues specific to a variety of diseases. The
Company believes that in the area of gene therapy, different disease targets
will require different methods of gene delivery, depending on the target cell to
be modified, the duration of gene expression required and the need for ex vivo
or in vivo delivery. Accordingly, the Company is developing multiple gene
delivery systems based on three different vector technologies: AAV, retroviral
and non-viral. In certain treatments, for which in vivo modification of slowly
dividing or nondividing target cells is required or preferred, such as
modification of lung cells to treat cystic fibrosis, the Company is utilizing
its AAV vector technology. The Company uses its retroviral vector technology in
therapeutic areas where permanent modification of rapidly dividing cells may be
necessary. In therapeutic indications where the use of AAV and retroviral
vectors is not desirable or feasible, the Company is utilizing its non-viral
delivery systems. The Company believes that non-viral vectors may provide
greater flexibility relating to the size and sequence of transfer genes and may
also allow targeted delivery in vivo. The Company's non-viral technology
platform will be significantly enhanced as a result of the RGene Acquisition.
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In the area of cell therapy, the Company's CTL immunotherapy expertise
enables it to efficiently isolate and multiply CTLs, immune cells that target
and kill only specific diseased cells, and forms the basis for a series of
potential immunotherapies.
GENE THERAPY
OVERVIEW. Gene therapy is an approach to the treatment and prevention of
genetic and acquired diseases that involves the insertion of genetic information
into target cells to produce specific proteins needed to correct or modulate
disease conditions. Proteins are the fundamental components of all living cells
and are essential to cellular structure, growth and function. Proteins are
produced by cells from a set of genetic instructions encoded in DNA, which
contains all the information necessary to control cellular biological processes.
DNA is organized into segments called genes, with each gene containing the
information required to express, or produce, a specific protein.
An alteration in the function of, or absence of, specific genes is
responsible for causing some diseases, including inherited diseases such as
cystic fibrosis and Gaucher disease and certain types of cancer. Gene therapy
may be used to treat such diseases by replacing a missing or defective gene to
facilitate the normal protein production capabilities of cells. In addition,
gene therapy may be used to enable cells to perform additional roles in the
body, such as enhancing the function of the immune system to fight infectious
diseases or cancer. Gene therapy may also be used to inhibit production of
undesirable proteins or viruses within cells.
A key factor in the progress of gene therapy is the development of safe and
efficient methods of transferring genes into cells. For transfer into cells, the
gene is incorporated into a delivery system called a vector. Vectors may be
derived from either viral or non-viral systems. The most common gene delivery
approach to date relies on viral gene transfer, whereby modified viruses are
used to transfer the desired genetic material into host cells. The process of
gene transfer can be accomplished ex vivo (outside the body), in which cells are
removed from the patient, genetically modified, and then reinfused into the
patient, or in vivo (inside the body), in which vectors are introduced directly
into the patient's body.
The use of viruses takes advantage of their natural ability to introduce
genes into host cell and use the host's metabolic machinery to produce proteins
essential for the survival and function of the virus. In gene therapy
applications, viruses are genetically modified to contain the desired genes and
to inhibit the ability of the virus to reproduce. Successful application of
viral gene transfer to indications requiring long-term gene expression entails a
number of essential technical requirements, including the ability of the viral
vector to carry desired segments of genes, to transfer genes into a sufficient
number of target cells and to enable genes contained in the viral vector to
persist in the host cell. A number of different viral vectors, including AAV and
retroviral vectors, are being used for potential gene therapy applications
requiring long-term gene expression.
Current non-viral vector systems generally consist of DNA incorporating the
desired gene, combined with various compounds aimed at enabling the DNA to be
taken up by the host cell. These in vivo gene delivery approaches include
encapsulating genes into lipid carriers such as liposomes, which facilitate the
entry of DNA into cells; ionically binding negatively charged DNA to the surface
of cationic lipids which are positively charged prior to infusion; injecting
pure plasmid or "naked" DNA in an aqueous solution; and directing DNA to
receptors on target cells by combining the gene with protein carriers that are
taken up by the cell.
AAV VECTORS. Targeted Genetics and its scientific collaborators have
developed significant expertise with respect to the design and use of AAV
vectors in gene therapy. The Company believes that certain features of AAV
vectors make them particularly well suited for the treatment of a number of
diseases: (i) AAV has never been associated with causing any human disease; (ii)
AAV generally cannot replicate without the presence of a helper virus; (iii) AAV
vectors contain no viral genes that, if present, might produce unwanted immune
responses leading to side effects or reduced efficacy; (iv) unlike some other
types of viral systems, AAV vectors can introduce genes into nondividing or
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slowly dividing cells, such as cells lining the airway of the lung; (v) AAV
vectors may persist in the host cell to provide relatively long-term expression;
and (vi) AAV vectors can be purified and concentrated, and thereby may allow for
more efficient manufacturing.
The Company is building a proprietary position in AAV through the
development or acquisition of exclusive rights to inventions that (i) provide
important enhancements to AAV vectors; (ii) demonstrate novel approaches to the
use of AAV vectors for gene therapy; and (iii) establish new and improved
methods for large-scale production of AAV vectors. The Company has exclusive
rights from the National Institutes of Health (the "NIH") to a patent for use of
a novel AAV vector for cystic fibrosis. Notice of allowance has been granted
with respect to this patent. See "-- Patents and Proprietary Rights" and "Risk
Factors -- Uncertainty of Patent Position and Proprietary Rights; Access to
Proprietary Genes."
NON-VIRAL VECTORS. As a result of the RGene Acquisition, the Company will
acquire rights to a significant body of non-viral gene delivery technology based
on the use of cationic lipids to promote the uptake of DNA into cells. The
Company believes that non-viral vectors may have several characteristics that
may make them particularly well suited for the treatment of certain diseases,
including (i) the ability to target such vectors to a specific cell type; (ii)
relative ease of manufacture; and (iii) the ability to transfer relatively large
segments of DNA in a single vector. RGene's vectors are formulated by complexing
negatively charged DNA with cationic lipids which are positively charged to
promote DNA uptake by cells. Such complexes appear to have good safety profiles
and can be used ex vivo as well as in vivo. For in vivo use, these complexes can
potentially be delivered topically, intravenously, intraperitoneally,
intrapleurally or by aerosol.
The Company will be utilizing a series of these non-viral delivery
technologies developed by Dr. Leaf Huang of the University of Pittsburgh. His
original DC Chol system, which appears to have a favorable clinical toxicity
profile, has been used in two previous clinical trials by other unaffiliated
investigators for other disease indications and is now being used in the E1A
tumor suppressor gene clinical trial. The Company will be acquiring an exclusive
license to an issued U.S. patent for the original DC Chol system for the
treatment of certain cancers, including, among others, breast, ovarian and lung
cancers. Dr. Huang is developing a series of non-viral delivery systems for
which RGene has exclusive worldwide rights in the field of cancer. RGene is
currently engaged in negotiations with the University of Pittsburgh of the
Commonwealth System of Higher Education ("Pittsburgh") to expand the license to
additional fields and technologies. See "-- Research Collaborations and
Licensing Agreements -- RGene Agreements -- University of Pittsburgh." One type
of system under development employs additional analogs of DC Chol that may have
a more favorable toxicity profile. In another system, the DNA is condensed into
particles of defined size that have transduction efficiency that is fifty- to
eighty-fold higher than the original DC Chol system. An alternate version of
this system is being developed that includes specific ligands to enhance
delivery to specific target cells and to increase stability when delivered
intravenously. An additional system being developed also has increased
efficiency of gene transduction and higher stability in serum for intravenous
delivery. Specific formulations will be chosen for various applications based on
the type of target cell, desired mode of administration and biology of the
disease.
RETROVIRAL VECTORS. The Company is using retroviral vectors to modify T
cells and stem cells. These cells multiply to generate large numbers of progeny
(daughter) cells and are well suited as targets for retroviral vectors that can
modify only rapidly dividing cells. The Company believes that it has positioned
itself at the forefront of retroviral gene delivery technology through its
exclusive relationship with Dr. A. Dusty Miller, a leader in the development of
packaging cell lines for retroviral vectors. One of Dr. Miller's more recent
inventions in this area is a new type of retroviral vector packaging cell line
called PG13, which the Company has licensed exclusively from the Hutchinson
Center. Vectors produced in this cell line have been shown to have improved
efficiency for ex vivo transduction of human blood cells such as T cells and
stem cells. Hematopoietic stem cells are the progenitor cells from which all
circulating blood cells are derived. Thus, a large number of genetic diseases
might be treated using stem cell gene therapy. However, Targeted Genetics
believes that many
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of these diseases cannot be successfully treated using currently available gene
delivery technologies. Increased efficiency of gene transfer and expression will
be required to achieve the level of genetically modified cells necessary to
result in modulation of many such diseases. Accordingly, the Company's effort in
stem cell gene therapy is directed to improving the efficiency of gene transfer
and expression in stem cells using the PG13 retroviral vector together with an
internally developed proprietary stem cell transduction protocol.
CTL IMMUNOTHERAPY
OVERVIEW. The immune system is the body's major defense mechanism
responsible for protecting against disease. It functions through a complex
interplay of components and allows the body to detect foreign agents and thereby
defend against infections and diseases. The immune system recognizes parts of
proteins called antigens that are present on the surface of diseased cells but
are not present on normal cells. The immune response to an antigen involves the
integrated action of various classes of white blood cells, including
lymphocytes. Lymphocytes comprise two major classes: B cells, which produce
antibodies that mediate humoral immunity, and T cells, which direct
cell-mediated immunity.
T cells direct cell-mediated immunity by recognizing antigens on diseased
cells. The two main classes of T cells are CD4 cells and CD8 cells. In general,
CD8 cells are CTLs that recognize, contact and kill the diseased cells. CD4
cells are primarily helper cells that coordinate the function of other immune
cells, including CTLs, by secreting growth factors known as cytokines. CTLs are
disease-specific, i.e., they individually recognize and bind to only a single,
specific antigen. Furthermore, only in the presence of CD4 helper cells do these
specific CTLs proliferate to produce the large population of antigen-specific
CTLs required to elicit an effective immune response.
In some disease states, the immune system fails to mount or maintain an
effective immune response. For certain diseases, including HIV and cancer, it is
believed such failure may be associated with an inadequate CTL response. For
example, HIV infects and kills CD4 cells, which leads to subsequent loss of CTL
function and, thus, to destruction of the immune system by the virus. One
approach to the treatment of immune deficiencies, adoptive immunotherapy, has
been demonstrated in animal models to be effective against certain cancers and
infectious diseases. Adoptive immunotherapy is designed to harness and bolster
the body's natural immune capabilities to fight or prevent disease. In adoptive
immunotherapy, cells are harvested from the patient, multiplied ex vivo and
reinfused. However, the efficacy of adoptive immunotherapies has been limited to
date, due in part to the lack of uniform antigen specificity in the expanded
cell population and side effects resulting from the activation of a broad-based
immune response. Targeted Genetics believes that the more uniform specificity
obtained by expanding individual clones of antigen-specific CTLs may potentially
enhance the efficacy and reduce the side effects of adoptive immunotherapies.
THE COMPANY'S CTL IMMUNOTHERAPY PROGRAM. Targeted Genetics is working to
develop a highly targeted form of cell therapy, which is intended to produce a
powerful, disease-specific immune response through the infusion of large numbers
of antigen-specific CTLs. The Company's CTL immunotherapy program involves
isolating antigen-specific CTLs from a small sample of the patient's blood,
multiplying them to large numbers ex vivo and reinfusing them into the patient.
In essence, the Company's CTL immunotherapy is intended to amplify the natural
disease-fighting function of the immune system relating to specific infected or
cancerous cells.
The Company believes that its CTL immunotherapy represents an improvement
over other approaches to immunotherapy because it is based on cloned,
antigen-specific CTLs. The Company believes that the efficacy of its CTL
immunotherapy may be more effective than other immunotherapy approaches because
virtually all of the reinfused cells will be CTLs targeting the specific
diseased cells. The Company also believes that the safety and side effect
profile may be improved over other immunotherapy approaches because of the
uniformity and consistency of the reinfused cells.
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The Company's focus on antigen-specific CTLs as a basis for immunotherapy
originated from research conducted by its collaborators at the Hutchinson
Center, Drs. Philip Greenberg and Stanley Riddell. These researchers conducted a
Phase I clinical trial to evaluate the safety of infusing donor-derived,
CMV-specific CTLs to bone marrow transplant patients, and the potential of this
approach for providing an immune response against CMV during the short period in
which transplant patients have a high probability of developing CMV. This trial,
which was published in The New England Journal of Medicine in October 1995, was
the first clinical trial in which cloned, antigen-specific CTLs had been used in
a clinical trial. None of the 14 patients receiving the CTLs developed CMV
viremia or disease. See "-- Development Programs -- Cancer -- Infectious
Diseases: Human Immunodeficiency Virus ("HIV") -- CTL Immunotherapy."
RAPID EXPANSION METHOD. The CTL immunotherapy program is based on the
Company's proprietary REM technology, which is used to rapidly grow CTLs prior
to infusion into the patient. REM represents a significant improvement over
other methods of multiplying T cell clones. Using REM, CTL clones can be
multiplied over a thousandfold in less than two weeks. The Company has
demonstrated that REM enables it to grow billions of CTLs from individual cloned
cells over several weeks, while preserving the cells' disease-fighting
capabilities in vitro. The Company has seen consistent results from REM in both
CD8 and CD4 T cells and for all disease specificities tested to date. The
Company has shown that REM is effective for growing CTLs specific for HIV, CMV,
malignant melanoma and prostate tumor peptides. Clinical testing will be
required to determine whether cloned cells maintain their disease-fighting
capabilities and are effective after being reinfused into humans, as to which
there can be no assurance. See "-- Development Programs -- Cancer -- CTL
Immunotherapy" and "-- Development Programs -- Infectious Diseases: Human
Immunodeficiency Virus ("HIV") -- CTL Immunotherapy." The Company has filed
patent applications, on a worldwide basis, relating to the original process and
to process improvements. See "-- Patents and Proprietary Rights" and "Risk
Factors -- Uncertainty of Patent Position and Proprietary Rights; Access to
Proprietary Genes."
GENETIC MODIFICATION OF CTLS. The Company believes that, on a long-term
basis, the effectiveness of CTL immunotherapy may be further improved through
genetic modification of the CTL clones. Currently, the Company is developing
methods to genetically modify CTLs to give them the capability of producing
their own cytokines, which are required for CTL proliferation and activation.
TUMOR SUPPRESSOR GENES
Many pathways of gene regulation control cell growth and division, and
cancer arises from
disruption of these pathways. Certain of these pathways are regulated by
cellular oncogenes or tumor suppressor genes. Cancer may result from the
structural alteration and abnormal expression of cellular oncogenes or from
mutation or deletion of tumor suppressor genes. Certain genes, including Her-
2/neu, abl, bcr, crkl, and bcl-2, function as parts of signal transduction
pathways that promote cell growth and division. Tumor suppressor genes function
by inhibiting cell growth and the expression of cellular growth factors.
Malfunctioning oncogenes and tumor suppressor genes represent targets through
which the growth of malignant cancer cells may be regulated. Thus, introduction
of tumor suppressor genes may be a viable approach to down-regulate the
expression of oncogenes or to replace functions lost by mutation or deletion of
a tumor suppressor gene.
Some viruses have evolved genes that may mimic functions normally exhibited
by cellular genes. One such example is the E1A gene of the adenovirus type 5.
The E1A gene was shown by Dr. Mien-Chie Hung, in experiments conducted at M.D.
Anderson, to function as a tumor suppressor and to suppress expression of the
Her-2/neu oncogene, which is known to be overexpressed in certain cancers. As a
result of the RGene Acquisition, the Company will have worldwide rights to use
the E1A gene as a tumor suppressor. An open Phase I clinical trial is evaluating
the ability of the E1A tumor suppressor gene to down-regulate the Her-2/neu
oncogene in ovarian and breast cancers. Preclinical research is also being
conducted to assess the feasibility of using non-viral delivery systems to
deliver a
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variety of other cellular tumor suppressor genes to treat certain cancers. See
"-- Development Programs -- Cancer -- E1A Tumor Suppressor Gene Therapy."
RESEARCH COLLABORATIONS AND LICENSING AGREEMENTS
Targeted Genetics and RGene have entered into a number of research
collaboration and licensing agreements. Generally, under the license agreements,
the Company and RGene have agreed to pay (i) an initial fee upon execution of
the agreement; (ii) annual maintenance or royalty fees; (iii) milestone payments
upon realization of certain benchmarks; and (iv) royalties on sublicense fees
and sales of products, if any, incorporating the underlying technology. Under
the research collaboration agreements, the companies are generally obligated to
pay research fees, and receive options to obtain exclusive licenses to
technology developed under these agreements. There can be no assurance that any
of the research collaborations and licensing agreements will result in the
Company's acquisition of valuable rights. In addition, RGene has entered into
licensing agreements with Pasteur Merieux Serums & Vaccins S.A. ("Pasteur
Merieux") and Fournier in which RGene has received upfront payments comprised of
license and other fees and is entitled to receive payments upon the achievement
of certain development milestones and royalties on sales of resulting products,
if any. The following is a summary of the principal agreements of both Targeted
Genetics and RGene.
TARGETED GENETICS AGREEMENTS
FRED HUTCHINSON CANCER RESEARCH CENTER -- ADOPTIVE TRANSFER OF IMMUNE
CELLS. Between January 1994 and February 1995, Targeted Genetics entered into
research and license agreements with the Hutchinson Center and the University of
Washington in connection with the Company's CTL-based immunotherapy product
development program. The Company agreed to pay the Hutchinson Center and the
University of Washington annual research support until December 1996 and July
1996, respectively, for research to be conducted by Drs. Philip Greenberg and
Stanley Riddell at the University of Washington and the Hutchinson Center,
respectively, in the area of methods of conferring immunity in humans by
adoptive transfer of genetically modified CTLs. These agreements replaced other
contractual arrangements that had been entered into by Targeted Genetics with
the Hutchinson Center and the University of Washington between 1991 and 1993 in
this area. Pursuant to these agreements, Targeted Genetics has acquired an
exclusive worldwide license to inventions previously licensed by Targeted
Genetics or developed under these prior agreements, and has a continuing right,
effective until termination of this program, to incorporate and add new
inventions arising from this program to the research and license agreements.
FRED HUTCHINSON CANCER RESEARCH CENTER -- RETROVIRAL VECTORS. In November
1991, the Company entered into an agreement with the Hutchinson Center pursuant
to which the Company obtained a nonexclusive license to develop and market
products utilizing the PG13 packaging cell line technology for retroviral
vectors. In addition, in March 1994, Targeted Genetics entered into an agreement
with the Hutchinson Center pursuant to which the Company obtained an exclusive
license to develop and market products utilizing a second packaging cell line
technology for retroviral vectors. A patent covering this technology was issued
by the USPTO in November 1995.
THE JOHNS HOPKINS UNIVERSITY. In April 1993, Targeted Genetics entered
into a sponsored research agreement with Johns Hopkins pursuant to which the
Company agreed to pay Johns Hopkins an annual fee for a one-year period for
research to be conducted under the direction of Dr. Terence Flotte in the area
of developing AAV vectors for in vivo gene delivery. In March 1994, Targeted
Genetics entered into an agreement with Johns Hopkins for technology relating to
methods for producing AAV vectors co-invented by scientists at Johns Hopkins and
Targeted Genetics under this research program, pursuant to which Johns Hopkins
granted the Company an exclusive license to its interest in such technology.
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MEDICAL COLLEGE OF OHIO. In March 1994, Targeted Genetics entered into an
agreement with the Medical College of Ohio pursuant to which the Company
obtained an exclusive worldwide license to develop and market products utilizing
technology relating to methods for producing AAV vectors.
NATIONAL INSTITUTES OF HEALTH. In March 1994, Targeted Genetics entered
into an agreement with the NIH pursuant to which the Company obtained an
exclusive worldwide license to a patent application covering an AAV vector
capable of expression from a novel promoter for the field of viral vector-based
gene therapy for the treatment of cystic fibrosis. In February 1996, the USPTO
issued a notice of allowance for this patent application.
UNIVERSITY OF MICHIGAN. In March 1994, the Company entered into a
nonexclusive license agreement with the University of Michigan and HSC (Hospital
for Sick Children) Research and Development Limited Partnership for a patent
application covering the CFTR gene used in the Company's AAV therapy for the
treatment of cystic fibrosis.
RGENE AGREEMENTS
Following the RGene Acquisition, the Company will assume all the rights and
obligations of the following agreements previously entered into by RGene.
LABORATOIRES FOURNIER S.C.A. Effective May 1996, RGene and Fournier entered
into a license, research and marketing agreement under which Fournier received
exclusive rights to develop and commercialize in Europe RGene's E1A tumor
suppressor product candidate and any other product candidates based on the E1A
tumor suppressor gene and developed pursuant to the agreement. Fournier has
agreed to coordinate development of RGene's E1A tumor suppressor product
candidate in Europe by conducting clinical trials, preparing and filing
submissions for regulatory approval in its territory and paying all associated
costs, while RGene has corresponding responsibilities with respect to
development and commercialization in the United States.
Fournier has paid RGene a $5 million upfront license fee, $2.5 million of
which was paid as an option fee prior to completion of the agreement. The
agreement provides that Fournier will make milestone payments to RGene upon the
achievement of specified goals by Fournier or RGene and royalties on sales of
resulting products, if any. In addition, if the parties are able to negotiate a
mutually acceptable supply agreement, RGene will be entitled to manufacture
products for Fournier in return for manufacturing fees. Pursuant to the
agreement, RGene has agreed to indemnify Fournier with respect to losses
incurred as a result of the manufacture, supply or sale of the E1A tumor
suppressor product candidate. The agreement may be terminated if the parties
mutually agree on or about the second anniversary of the agreement that the
results of the collaboration are unsatisfactory. There can be no assurance that
RGene and Fournier will be successful in developing or commercializing any
products using RGene's E1A tumor suppressor product candidate or that such
agreement will not terminate prior to its expiration. As such, there can be no
assurance that any milestones will be achieved or that any royalties or other
payments contemplated by the agreement will ever be made. See "Risk
Factors -- Dependence on Corporate Collaborators."
ARONEX PHARMACEUTICALS, INC. In April 1994, RGene and Argus
Pharmaceuticals, Inc. (now Aronex Pharmaceuticals, Inc. ("Aronex")) entered into
a Development Agreement, an Assignment and Assumption Agreement and a Sublicense
Agreement. As part of the exchange for 642,307 shares of RGene's common stock,
Aronex licensed to RGene, on a nonexclusive, royalty-free basis, certain of
Aronex's technology, including technology in the area of liposomal drug delivery
and manufacturing, which may be useful or necessary in the development of
certain products. Aronex also assigned to RGene certain rights in an exclusive
license agreement between the University of Texas Board of Regents, M.D.
Anderson and Aronex for a patent relating to liposomal methylphosphonate
oligonucleotides for the treatment of cancer. In addition, Aronex granted to
RGene an exclusive worldwide sublicense to patent applications and technology
relating to delivery of genes into cells using novel cationic cholesterol
derivatives for use in certain fields, including lung, colon, breast, ovarian
and
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hematological cancers. This technology was licensed exclusively by Aronex from
the University of Tennessee Research Corporation ("UTRC") for use in certain
fields in November 1993.
Under the Development Agreement, Aronex and RGene agreed to conduct certain
research and experiments and to develop certain products incorporating Aronex
technology, the costs of which are borne by RGene. The patent rights to jointly
conduct research are governed by the Assignment and Assumption Agreement and the
Sublicense Agreement. The Development Agreement expires in April 1997, and can
be extended by mutual agreement of the parties.
M.D. ANDERSON CANCER CENTER/UNIVERSITY OF TEXAS. In March 1994, RGene
entered into a license agreement with the University of Texas Board of Regents
and M.D. Anderson pursuant to which RGene obtained an exclusive worldwide
license to develop and market products utilizing the E1A tumor suppressor gene
for Her-2/neu targeted cancer therapy. This agreement was amended in December
1994 to provide RGene an exclusive worldwide license to develop and market
products utilizing lipid technology to deliver oligonucleotides for the
treatment of CML.
In addition to the license agreement, in March 1994, RGene entered into a
sponsored research agreement with M.D. Anderson pursuant to which RGene agreed
to pay M.D. Anderson an annual fee for three years for research to be performed
under the supervision of Dr. Mien-Chie Hung in the area of Her-2/neu targeted
cancer therapy. RGene entered into a second sponsored research agreement with
M.D. Anderson in March 1994 pursuant to which RGene agreed to pay M.D. Anderson
an annual fee for two years for research to be performed under the supervision
of Dr. Lopez-Berestein in the area of targeting and delivery of oligonucleotides
to leukemic cells.
UNIVERSITY OF TENNESSEE RESEARCH CORPORATION. In October 1995, RGene
entered into an agreement with UTRC pursuant to which RGene obtained an
exclusive worldwide license to develop and market products utilizing technology
relating to delivery of genes into cells using certain novel cholesterol
derivatives.
UNIVERSITY OF PITTSBURGH. In October 1994, RGene entered into an exclusive
worldwide license agreement with Pittsburgh to develop and market products
utilizing technology related to non-viral delivery systems for cancer treatment
(the "Field of Research") developed by Dr. Leaf Huang. Also in October 1994,
RGene entered into a sponsored research agreement with Pittsburgh pursuant to
which RGene agreed to pay Pittsburgh an annual fee for four years for research
to be performed under the supervision of Dr. Huang in the area of developing
gene therapy products to treat cancer. Dr. Huang's research program includes
developing novel cationic lipids and the bacteriophage T-7-based expression
system. Any inventions made under this agreement in the Field of Research will
be incorporated into the October 1994 exclusive license agreement. In addition,
RGene has a right of first refusal to acquire an exclusive license to any
inventions developed under the sponsored research agreement outside of the Field
of Research. RGene is currently engaged in negotiations with Pittsburgh to
expand the Field of Research to other areas of interest to RGene. There can be
no assurance that such negotiations will be successful. See "-- Core
Technologies -- Non-Viral Vectors."
PASTEUR MERIEUX. In December 1995, RGene entered into an agreement with
Pasteur Merieux pursuant to which RGene granted to Pasteur Merieux an exclusive
worldwide license and sublicense to certain technology and patent rights
relating to DC Chol as an immunoadjuvant in traditional vaccines. In
consideration of such grant, RGene was paid a process development fee and an
upfront license fee. In addition, it may receive milestone payments upon
realization of certain benchmarks and a royalty on sales of the products, if
any, incorporating the underlying technology.
PATENTS AND PROPRIETARY RIGHTS
Patents and licenses are important to the Company's business. The Company's
policy is to file patent applications to protect technology, inventions and
improvements to inventions that are considered important to the development of
its business. The Company also relies on trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its
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competitive position. To date, the Company has filed or exclusively licensed 24
patent applications relating to its product and vector development programs with
the USPTO, as well as foreign counterparts of certain of these applications in
Europe, Japan and certain other countries, as follows: CTL immunotherapy
program, nine; AAV vector program, seven; other vector development programs,
eight. Of the 24 patent applications, four patents licensed exclusively to the
Company have been issued or allowed by the USPTO. No U.S. or foreign patent has
been issued directly to the Company to date. One of the issued patents, in the
CTL immunotherapy field, covers a method for generating helper-independent CTLs.
With respect to the Company's AAV program, a notice of allowance has been
received for the patent application covering the vector being used in the
Company's cystic fibrosis program. Two patents have issued relating to Targeted
Genetics' other vector development programs, including one covering PG13, the
novel retrovirus packaging cell line exclusively licensed from the Hutchinson
Center.
Among Targeted Genetics' 24 patent applications relating to development
programs are three key patent applications relating to the Company's proprietary
REM technology. In addition, the Company has filed or exclusively licensed three
patent applications relating to proprietary methods for manufacturing AAV
vectors. A patent application has also been filed by Targeted Genetics relating
to an improved method of delivering genes to hematopoietic stem cells.
In addition to the intellectual property that Targeted Genetics owns or has
exclusively licensed, the Company has licensed several issued and pending
patents that relate to its development programs on a nonexclusive basis. Among
these are the two key patents that relate to the use of AAV vectors for gene
therapy licensed from the NIH and the University of Florida Research Foundation.
In addition, the Company has acquired nonexclusive rights to the cystic fibrosis
gene being delivered in an AAV vector.
Through the RGene Acquisition, Targeted Genetics will acquire rights and an
exclusive license with respect to eight patent applications filed with the
USPTO, as well as foreign counterparts of certain of these applications. Five of
these patent applications, two of which have issued, relate to non-viral gene
delivery technology covering the use of DC Chol and other cholesterol-based
systems for delivering genes into cells and the use of liposomal antisense
oligonucleotides. With respect to the patent applications relating to DC Chol in
Europe, Australia and Japan, prior art has been brought to the Company's
attention. The Company is presently responding to such prior art in the foreign
patent offices. With respect to the two U.S. pending patent applications, that
and other prior art has been brought by UTRC to the attention of the USPTO.
There can be no assurance that such prior art will not result in further
proceedings in the USPTO with respect to the issued patent.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions for
which important legal principles are largely unresolved, particularly in regard
to human therapeutic uses. In addition, the coverage claimed in a patent
application can be significantly reduced before a patent is issued.
Consequently, the Company does not know whether any patent applications will
result in the issuance of patents or, if any patents are issued, whether the
patents will be subjected to further proceedings limiting their scope, whether
they will provide significant proprietary protection or will be circumvented or
invalidated. Since patent applications in the United States are maintained in
secrecy until patents issue and patent applications in certain other countries
generally are not published until more than 18 months after they are filed, and
since publication of discoveries in scientific or patent literature often lags
behind actual discoveries, the Company cannot be certain that it or any licensor
was the first creator of inventions covered by pending patent applications or
that it or such licensor was the first to file patent applications for such
inventions. Moreover, the Company is currently involved in one patent
interference proceeding declared by the USPTO to determine priority of invention
relating to certain components that may be useful in retroviral vectors, and may
have to participate in additional interference proceedings. Although the Company
does not anticipate that material expenditures will be made in connection with
such proceedings, participation could result in substantial cost to the Company,
even if the eventual outcome were favorable to it. In addition, although the
Company believes that the technology which is the subject of the current patent
interference proceeding is not material to its
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<PAGE> 46
current product development programs, there can be no assurance that such
technology will not become material in the future. If the outcome of the current
or any additional interference proceeding were unfavorable, the Company may be
unable to obtain rights to the invention involved. There can be no assurance
that the Company's patents, if issued, would be held valid or enforceable by a
court or that a competitor's technology or product would be found to infringe
such patents. Litigation, which could result in substantial cost to the Company,
may be necessary to enforce the Company's patents or to determine the scope and
validity of other parties' proprietary rights. If the outcome of any such
litigation were adverse, the Company's business could be materially adversely
affected. The Company is unable to predict how courts will resolve any future
issues relating to the validity and scope of its patents should they be
challenged.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies or patent applications. Such conflict could limit the
scope of the patents, if any, that the Company may be able to obtain or result
in denial of the Company's patent applications. In addition, if patents that
cover the Company's activities are issued to other companies, there can be no
assurance that the Company would be able to develop or obtain alternative
technology.
Furthermore, as the biotechnology industry expands and more patents are
issued, the risk increases that the Company's processes and potential products
may give rise to claims that they infringe the patents of others. Such other
persons could bring legal actions against the Company claiming damages and
seeking to enjoin clinical testing, manufacturing and marketing of the affected
product or use of the affected process. Litigation may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company or to determine the enforceability, scope and validity of proprietary
rights of others. If the Company becomes involved in such litigation, it could
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. If there were an adverse
outcome of any such litigation, the Company's business could be materially
adversely affected. In addition to any potential liability for significant
damages, the Company could be required to obtain a license to continue to
manufacture or market the affected product or use the affected process. Costs
associated with any licensing arrangement may be substantial and could include
ongoing royalties. There can be no assurance that any license required under any
such patent would be made available to the Company on acceptable terms, if at
all.
In addition to patent protection, the Company also relies upon trade secret
protection for its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology. To protect its trade secrets, the
Company requires its employees, consultants, scientific advisors and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of employment, the consulting relationship or the collaboration
with the Company. In the case of employees, the agreements also provide that all
inventions resulting from work performed by them while in the employ of the
Company will be the exclusive property of the Company. There can be no
assurance, however, that these agreements will provide meaningful protection of
the Company's trade secrets or adequate remedies in the event of unauthorized
use or disclosure of such information. See "Risk Factors -- Uncertainty of
Patent Position and Proprietary Rights; Access to Proprietary Genes."
COMPETITION
The Company is aware of a number of companies and institutions that are
developing or considering the development of potential gene therapy and cell
therapy treatments, including early-stage gene therapy companies, fully
integrated pharmaceutical companies, universities, research institutions,
governmental agencies and other healthcare providers. In addition, the Company's
potential products will be required to compete with existing pharmaceutical
products, or products developed in the future, that are based on established
technologies. Many of the Company's competitors have substan-
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<PAGE> 47
tially more financial and other resources, larger research and development
staffs, and more experience and capabilities in researching, developing and
testing products in clinical trials, in obtaining FDA and other regulatory
approvals, and in manufacturing, marketing and distribution than the Company. In
addition, the competitive positions of other early-stage companies may be
enhanced significantly through their collaborative arrangements with large
pharmaceutical companies or academic institutions. The Company's competitors may
succeed in developing, obtaining patent protection for, receiving FDA and other
regulatory approvals for, or commercializing products more rapidly than the
Company. If the Company is successful in commercializing its products, it will
be required to compete with respect to manufacturing efficiency and marketing
capabilities, areas in which it has no experience. The Company also competes
with others in acquiring products or technology from research institutions or
universities. The Company's competitors may develop new technologies and
products that are available for sale prior to the Company's potential products
or that are more effective than the Company's potential products. In addition,
competitive products may be manufactured and marketed more successfully than the
Company's potential products. Such developments could render the Company's
potential products less competitive or obsolete, and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
GOVERNMENTAL REGULATION
All of the Company's potential products will require regulatory approval by
U.S. and foreign governmental agencies prior to commercialization in such
countries. Human therapeutic products are subject to rigorous preclinical and
clinical testing and other premarket approval procedures administered by the FDA
and similar authorities in foreign countries. The FDA exercises regulatory
authority over the development, testing, formulation, manufacture, labeling,
storage, record keeping, reporting, quality control, advertising, promotion,
export and sale of the Company's potential products. Similar requirements are
imposed by foreign regulators. In some cases, state requirements also apply. See
"Risk Factors -- Uncertainty of Governmental Regulatory Requirements; Lengthy
Approval Process."
Gene therapy and cell therapy are relatively new technologies and have not
been extensively tested in humans. The regulatory requirements governing gene
and cell therapy products and related clinical procedures are uncertain and are
subject to change. Obtaining approval from the FDA and other regulatory
authorities for a new therapeutic product is likely to take several years, if
ever, and involve substantial expenditures. Moreover, ongoing compliance with
applicable requirements can entail the expenditure of substantial resources.
Difficulties or unanticipated costs may be encountered by the Company in its
efforts to secure necessary governmental approvals, which could delay or
preclude the Company from marketing its products.
The activities required before a new therapeutic agent may be marketed in
the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation and may require animal studies to assess the product's
potential safety and efficacy. Animal safety studies must be conducted in
accordance with the FDA's Good Laboratory Practice regulations. The results of
these studies must be submitted to the FDA as part of an IND, which must be
reviewed and cleared by the FDA before proposed clinical testing can begin.
Clinical trials must be conducted in accordance with Good Clinical Practices
under protocols that detail the objectives of the trial, the parameters to be
used to monitor safety and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. The FDA's review or approval of
a study protocol does not necessarily mean that, if the trial is successful, it
will constitute proof of efficacy or safety. Further, each clinical trial must
be approved by and conducted under the auspices of an independent Institutional
Review Board ("IRB") at the institution at which the trial will be conducted.
The IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution. The IRB is also
responsible for continuing oversight of the approved protocols in active trials.
An IRB may require changes in a protocol, and there can be no assurance that an
IRB will permit any given trial to be initiated or completed.
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Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, gene therapy clinical trials
generally are conducted with a small number of patients, who may or may not be
afflicted with a specific disease, to determine the preliminary safety profile.
In Phase II, clinical trials are conducted with larger groups of patients
afflicted with a specific disease in order to determine preliminary efficacy and
optimal dosages and to obtain expanded evidence of safety. In Phase III,
large-scale, multicenter, comparative clinical trials are conducted with
patients afflicted with a target disease in order to provide enough data for the
statistical proof of efficacy and safety required by the FDA and others for
market approval. The FDA receives reports on the progress of each phase of
clinical testing, and it may require the modification, suspension or termination
of clinical trials if an unwarranted risk is presented to patients. Because gene
therapy products are a new category of therapeutics, there can be no assurance
as to the length of the clinical trial period or the number of patients the FDA
will require to be enrolled in the clinical trials in order to establish to its
satisfaction the safety and efficacy of such products.
FDA marketing approval must be obtained after completion of clinical trials
of a new product. The Company expects that its products will be regulated as
biologic drugs. According to the FDA's 1993 notice outlining its regulatory
approach to somatic and gene therapy products, these products are also subject
to the drug provisions of the Federal Food, Drug and Cosmetic Act. This notice
also stated, however, that the FDA's regulatory approach may evolve as
scientific knowledge increases in the area of somatic and gene therapy. Current
regulations relating to biologic drugs will require the Company to submit to the
FDA both a Product License Application ("PLA") and an Establishment License
Application ("ELA"), which must be approved by the FDA before commercial
marketing is permitted. The PLA/ELA must include results of product development
activities, preclinical studies and clinical trials, in addition to detailed
manufacturing information. FDA approval of PLA/ELAs generally takes at least one
year. The process may take substantially longer if the FDA has questions or
concerns about a product. The FDA may also request additional data relating to
safety or efficacy. Notwithstanding the submission of relevant data, the FDA may
ultimately decide that a PLA/ELA does not satisfy its regulatory criteria for
approval. The FDA may also modify the scope of the desired claims or require the
addition of warnings or other safety-related information and require additional
clinical tests following approval to confirm product safety and efficacy (Phase
IV trials). Even if FDA regulatory clearances are obtained, a marketed product
is subject to continual review, and later discovery of previously unknown
problems or failure to comply with the applicable regulatory requirements may
result in restrictions on marketing a product or in withdrawal of the product
from the market, as well as possible civil or criminal sanctions.
The FDA requires that manufacturers of a product comply with cGMP
requirements, both as a condition of product approval and on a continuing basis.
In complying with cGMP requirements, manufacturers must expend time, money and
effort on a continuing basis in production, record keeping and quality control.
Manufacturing facilities are subject to periodic inspections by the FDA to
ensure compliance. Failure to pass such inspections may subject the manufacturer
to possible FDA action such as the suspension of manufacturing, seizure of the
product, withdrawal of approval or other regulatory sanctions. The FDA may also
require the manufacturer to recall a product.
In addition to regulations enforced by the FDA, the Company is also subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other federal, state and local regulations. The Company's
research and development activities involve the controlled use of hazardous
materials, chemicals, biological materials and radioactive compounds. Although
the Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any resulting damages, and any such liability
could exceed the Company's resources. See "Risk Factors -- Uncertainty of
Governmental Regulatory Requirements; Lengthy Approval Process" and
"-- Hazardous Materials; Environmental Matters."
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HUMAN RESOURCES
At March 31, 1996, Targeted Genetics had 77 employees; 62 of these
employees were directly involved in research and development, of whom 18 had
Ph.D. or M.D. degrees. A significant number of the Company's management and
professional employees have prior experience with other biotechnology or
pharmaceutical companies. The Company considers its relations with its employees
to be good.
The Company's success will depend in large part on its ability to attract
and retain key employees and scientific advisors. Competition among
biotechnology and pharmaceutical companies for highly skilled scientific and
management personnel is intense. There can be no assurance that the Company will
be successful in retaining its existing personnel or advisors, or in attracting
additional qualified employees. See "Risk Factors -- Dependence on Key Personnel
and Scientific Collaborators."
FACILITIES
Targeted Genetics currently occupies approximately 33,000 square feet of
laboratory and office space in a single facility in Seattle, Washington. Rental
payments in 1995 totaled $396,220. The lease expires on April 1, 1999 and
includes options to extend the lease term for three consecutive five-year
periods. The Company believes this facility, together with approximately 2,000
square feet of expansion space and space available in an adjoining office
complex, will be adequate to meet its projected needs for the next two to three
years. Within that time frame, the Company may be required to locate alternative
facilities, depending on the Company's growth and development.
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MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The following are the directors, director nominees and executive officers
of Targeted Genetics, and their ages as of March 31, 1996, each of whom will
serve in the capacities noted until their successors are duly appointed and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -------------------------------------------------
<S> <C> <C>
H. Stewart Parker.................... 40 President, Chief Executive Officer and Director
Barrie J. Carter, Ph.D............... 51 Executive Vice President and Director of Research
and Development
Richard Daifuku, M.D., Ph.D.......... 43 Vice President, Clinical Affairs
James A. Johnson..................... 39 Vice President, Finance, Chief Financial Officer,
Treasurer and Secretary
Jeremy Curnock Cook.................. 47 Director
Stephen A. Duzan..................... 54 Director
James D. Grant....................... 63 Director
Donald E. O'Neill.................... 70 Director
Austin M. Long, III.................. 51 Director Nominee
Martin P. Sutter..................... 41 Director Nominee
</TABLE>
The Company's directors are divided into three classes and will serve for
terms of three years, with one class being elected by the shareholders each
year. The terms of the current directors expire as follows: Stephen A. Duzan and
James D. Grant in 1996, H. Stewart Parker in 1997 and Donald E. O'Neill in 1998.
Jeremy Curnock Cook was elected to the Board of Directors in July 1995 to fill a
vacancy and has been nominated for election at Targeted Genetics' 1996 annual
shareholders meeting for a term expiring in 1998.
Pursuant to the Merger Agreement, the Company's Board of Directors will
appoint Austin M. Long, III and Martin P. Sutter as RGene's designees to the
Company's Board of Directors. The Company has agreed to cause Messrs. Long and
Sutter to be nominated for election at the Company's 1997 annual meeting of
shareholders.
H. STEWART PARKER managed the formation of Targeted Genetics as a wholly
owned subsidiary of Immunex and has been President, Chief Executive Officer and
a director since the Company's inception in 1989. She served in various
capacities at Immunex from August 1981 through December 1991, most recently as
Vice President, Corporate Development. Ms. Parker also served as President and a
director of Receptech Corporation, a company formed by Immunex in 1989 to
accelerate the development of soluble cytokine receptor products, from February
1991 to January 1993, and was Chairperson of the Washington State Biotechnology
Association. She received her B.A. and M.B.A. from the University of Washington.
BARRIE J. CARTER, PH.D. is Executive Vice President and Director of
Research and Development of Targeted Genetics. He joined the Company in August
1992. For the previous 22 years he was employed by the NIH in Bethesda, Maryland
where he was Chief of the Laboratory of Molecular and Cellular Biology in the
National Institute for Diabetes, Digestive and Kidney Diseases from 1982 to
1992. He spent a period of postdoctoral training at the Imperial Cancer Research
Fund Laboratories in London, England before joining the NIH. His long-term
research interests are in molecular biology of viruses, development of AAV
vectors and gene therapy. Dr. Carter serves on the Editorial Boards of Journal
of Virology, Gene Therapy Newsletter and Human Gene Therapy, and as an Associate
Editor of Virology. He is an Affiliate Professor of Medicine at the University
of Washington Medical School. Dr. Carter received his B.Sc. (Honors) from the
University of Otago, Dunedin, New Zealand and his Ph.D. in the Biochemistry
Department of the University of Otago Medical School.
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<PAGE> 51
RICHARD DAIFUKU, M.D., PH.D. joined the Company in January 1995 as Vice
President, Clinical Affairs. From January 1992 to January 1995, Dr. Daifuku
served in a variety of positions at Amgen Corporation, a biotechnology company,
including Associate Director, Infectious Diseases and Product Development Team
Leader. From June 1990 to January 1992, he was Associate Medical Director at
Cetus Corporation, a biotechnology company, and a Clinical Instructor at the
University of California at San Francisco. Dr. Daifuku is board-certified in
internal medicine and, from 1987 to 1990, completed his fellowship in infectious
disease at the UCLA Center for Health Sciences. Dr. Daifuku received his B.A. in
biology from Boston University, his M.S. in Environmental Health Sciences from
Harvard School of Public Health and his M.D. and Ph.D. in Epidemiology from the
University of Washington.
JAMES A. JOHNSON joined the Company in March 1994 as Vice President,
Finance, Chief Financial Officer, Treasurer and Secretary. He was employed by
Immunex from January 1988 to February 1994, initially as Director of Finance and
as Vice President, Finance beginning in February 1990. Mr. Johnson has served as
Treasurer of Targeted Genetics from its inception in 1989 to the present. From
November 1989 to January 1993, he also served as Treasurer and Assistant
Secretary of Receptech Corporation. He received his B.A. from the University of
Washington.
JEREMY CURNOCK COOK has been a director of the Company since 1995. Mr. Cook
is a director of Rothschild Asset Management Limited and has been responsible
for the Rothschild Bioscience Unit since 1987. Mr. Cook founded the
International Biochemicals Group in 1975, which he subsequently sold to Royal
Dutch Shell in 1985, remaining as Managing Director until 1987. He currently
serves on the board of directors of Cell Therapeutics Inc., Creative
BioMolecules Inc. and Ribozyme Pharmaceuticals Inc., as well as several public
and privately held companies outside the United States, including International
Biotechnology Trust plc ("IBT").
STEPHEN A. DUZAN has been a director of the Company since its inception in
1989. He is currently Chairman of the Board and Chief Executive Officer of Key
Computer Systems, Inc. He was a co-founder of Immunex, and served as its Chief
Executive Officer and as a director from its formation in 1981 until his
retirement in September 1993. He also served as President of Immunex from 1981
through 1990. He currently serves as a consultant to Immunex and is on the board
of directors of IBT, Ergo Science Corporation and a number of private companies
and nonprofit organizations.
JAMES D. GRANT has been a director of the Company since February 1993. He
is a business consultant in addition to serving as the Chairman of the Board of
T Cell Sciences, Inc., a biotechnology company ("T Cell"). Mr. Grant previously
served as Chairman and Chief Executive Officer of T Cell from 1986 until his
retirement in 1992. Previously, he was Vice President of CPC International,
Inc., a multinational food and industrial products company, from 1972 to 1986.
Mr. Grant served as Deputy Commissioner of the FDA from 1969 to 1972, and was
Vice Chairman of the Advisory Committee of the FDA from 1990 to 1991. Mr. Grant
currently serves on the board of directors of Biocompatibles, Ltd. (U.K.) and
IBT.
DONALD E. O'NEILL has been a director of the Company since November 1992.
From March 1971 to March 1991, he held various positions at Warner-Lambert
Company, a healthcare company, most recently as Executive Vice President,
Chairman of International Operations and as a director. He currently serves on
the board of directors of Alliance Pharmaceutical Corp., Cytogen Corporation,
Immunogen, Inc., New Jersey Resources Corporation, Scios Nova, Inc., MDL
Information Systems, Inc. and Fuisz Technologies.
AUSTIN M. LONG, III will be nominated by the Board of Directors to become a
director of the Company upon the closing of the RGene Acquisition. Mr. Long has
been the Director of Private Investments at the University of Texas since 1987.
MARTIN P. SUTTER will be nominated by the Board of Directors to become a
director of the Company upon the closing of the RGene Acquisition. Mr. Sutter
has been a General Partner of The Woodlands/Essex Management Partners, L.P., a
venture capital firm, since September 1994. He has also been the Managing
General Partner of The Woodlands Venture Partners, L.P. since October 1988. Mr.
Sutter
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is currently a member of the Biomedical Advisory Board of the Houston Advanced
Research Center, Chairman of the Board of Aronex and Zonagen, Inc. and a
director of LifeCell Corporation.
SCIENTIFIC ADVISORY BOARD
The Company has retained a group of scientific advisors to serve on its
Scientific Advisory Board. The Scientific Advisory Board provides Targeted
Genetics with specific expertise in areas of molecular biology, immunology, cell
biology and clinical medicine relevant to the product and technology development
efforts now underway at the Company. The Company's scientific advisors are Drs.
David Cosman, Philip Greenberg, A. Dusty Miller, Richard Palmiter and George
Stamatoyannopoulos. Upon completion of the RGene Acquisition, Drs. Leaf Huang
and Mien-Chie Hung are expected to join the Company's Scientific Advisory Board.
The Scientific Advisory Board meets bimonthly with the Company's scientific
personnel and management to discuss the Company's present research and
development activities and long-term strategies. The members of the Scientific
Advisory Board are employed by entities other than Targeted Genetics and may
have commitments to or consulting contracts with other entities that may limit
their availability to the Company. With the exception of Dr. Cosman, who is a
member of the Scientific Advisory Board in connection with the Company's
relationship with Immunex, each member of the Scientific Advisory Board has
agreed not to perform services for another person or entity that would create a
conflict of interest with the services provided to the Company, although there
can be no assurance that such a conflict will not arise. Under such agreements,
inventions or processes discovered by members of the Scientific Advisory Board
in their capacity as such will not, unless invented or discovered in the course
of providing consulting services to Targeted Genetics, including pursuant to the
collaborative agreements provided in this Prospectus, become the property of the
Company, but will remain the property of such members or their employers. See
"Business -- Research Collaborations and Licensing Agreements."
DR. COSMAN has been a member of the Scientific Advisory Board since 1995.
Since 1988, Dr. Cosman has been Vice President, Molecular Biology at Immunex. In
1980, Dr. Cosman received his Ph.D. in Microbiology from the Pennsylvania State
University College of Medicine.
DR. GREENBERG has been a member of the Scientific Advisory Board since
February 1992. He joined the University of Washington School of Medicine in
1976, and since 1988 has been a Professor of Immunology and Oncology. He has
been a member of the Hutchinson Center since 1976, where he has pioneered
techniques for adoptive immunotherapy as a cancer treatment. He has served on
various National Cancer Institute and NIH committees and study sections,
including the Clinical Cancer Program Project Review Committee, the Special
Study Section for the Biological Response Modifiers Program, the Immunobiology
Study Section and the U.S.-Japan Cancer Research Cooperation Program. He has
served as an editor for various journals, including Journal of Immunology,
Journal of the National Cancer Institute, Journal of Gene Therapy, Human Gene
Therapy and Therapeutic Immunology. Dr. Greenberg received his B.A. from
Washington University and his M.D. from the State University of New York.
DR. MILLER has been a member of the Scientific Advisory Board since
February 1992. He is a leading researcher in the field of retroviral vectors,
and has developed certain packaging cell lines utilized by the Company in its
gene therapy systems. Dr. Miller joined the Hutchinson Center in 1984, where he
is a full member of the Department of Molecular Medicine. He is also an
Affiliate Professor of Pathology at the University of Washington. The Hutchinson
Center has patented several of Dr. Miller's inventions. He currently serves on
the editorial boards of several journals, including Somatic Cell and Molecular
Genetics and Journal of Virology, and is an associate editor of Human Gene
Therapy. He is also a former member of the NIH Recombinant DNA Advisory
Committee. Dr. Miller received his B.S. from Brown University and his Ph.D. in
pharmacology from Stanford University.
DR. PALMITER has been a member of the Scientific Advisory Board since
February 1992. Since 1981, he has been a Professor of Biochemistry at the
University of Washington. Since 1976, Dr. Palmiter has
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<PAGE> 53
also been an Investigator at the Howard Hughes Medical Institute. Dr. Palmiter
is a leading researcher on gene regulation and expression. He is a Fellow of the
American Association for the Advancement of Science, a member of the National
Academy of Sciences, and a member of the American Academy of Arts and Sciences.
He received his A.B. from Duke University and his Ph.D. from Stanford
University.
DR. STAMATOYANNOPOULOS has been a member of the Scientific Advisory Board
since February 1992. He is a leader in the field of hemoglobin gene regulation.
He has been a Professor of Medicine and Genetics at the University of Washington
since 1975 and has served as head of the Division of Medical Genetics,
Department of Medicine of the University of Washington. Dr. Stamatoyannopoulos
also currently serves as the Director of the Lucille P. Markey Molecular
Medicine Center. He is the past-president of the American Society of Hematology.
He has served on various NIH committees and international scientific panels. Dr.
Stamatoyannopoulos received his M.D. from the University of Athens, Greece.
DR. HUANG is currently a member of the RGene scientific advisory board and
has agreed to join the Company's Scientific Advisory Board upon completion of
the RGene Acquisition. He is a leader in the area of lipid-based gene delivery.
Dr. Huang is a Professor in the Department of Pharmaceutical Sciences and
Director of Liposome Vector Core, Pittsburgh Center for Human Gene Therapy at
the University of Pittsburgh. Dr. Huang has been affiliated with the University
of Pittsburgh since 1991. Dr. Huang was at the University of Tennessee from 1985
to 1991 and is a founder of RGene.
DR. HUNG is currently a member of the RGene scientific advisory board and
has agreed to join the Company's Scientific Advisory Board upon completion of
the RGene Acquisition. He is a leader in the fields of tumor biology and
oncogenes. Dr. Hung is Professor of Virology in the Department of Tumor Biology,
Section of Virology, at M.D. Anderson and Director of Breast Cancer Basic
Research. Dr. Hung has been affiliated with M.D. Anderson since 1986. He is one
of the original scientists involved in cloning the Her-2/neu oncogene and is a
founder of RGene.
With the exception of Dr. Cosman, each existing member of the Scientific
Advisory Board has been issued Common Stock in consideration for service to the
Company. Drs. Greenberg and Miller also receive annual consulting fees pursuant
to agreements with the Company. Upon completion of the RGene Acquisition, Drs.
Huang and Hung will also receive fees in connection with consulting agreements
that are to be entered into after completion of the RGene Acquisition.
DIRECTOR COMPENSATION
Directors who are employees of Targeted Genetics do not receive any fee for
their services as directors. Directors who are not employees of Targeted
Genetics are compensated pursuant to the Targeted Genetics Corporation Stock
Option Plan for Nonemployee Directors (the "Directors Plan"). Additionally,
nonemployee directors are reimbursed for travel expenses incurred in connection
with attendance at meetings. See "-- Benefit Plans -- Directors Plan."
COMMITTEES OF THE BOARD AND MEETINGS
Targeted Genetics has established standing committees of the Board,
including Audit and Compensation Committees. Each of these committees is
responsible to the full Board, and its activities are therefore subject to
approval of the Board. The functions performed by these committees can be
summarized as follows:
AUDIT COMMITTEE. The Audit Committee reviews the corporate accounting and
reporting practices, internal accounting controls, audit plans and results,
investment policies, and financial reports of Targeted Genetics in order to
ensure that Targeted Genetics' assets are appropriately safeguarded and to
ensure the quality and integrity of its financial records. Additionally, the
Audit Committee recommends to the Board the independent auditors to be retained
by Targeted Genetics. The original members of this committee during 1995 were
James D. Grant and Donald L. Murfin. After Mr. Murfin's resignation from the
Board, the Board appointed Donald E. O'Neill to fill the vacancy on
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the committee. On October 11, 1995, Jeremy Curnock Cook was appointed to be the
third member of this committee.
COMPENSATION COMMITTEE. The Compensation Committee establishes salaries,
incentives and other forms of compensation for directors, officers and other
executives of Targeted Genetics. This committee also administers Targeted
Genetics' various incentive compensation and benefit plans, including stock
option plans, and recommends the establishment of policies relating to such
incentive compensation and benefit plans. The members of this committee are
Stephen A. Duzan, James D. Grant and Donald E. O'Neill.
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth certain information with respect to
compensation paid by the Company for the fiscal year ended December 31, 1995 and
for the two prior fiscal years to (i) the Company's Chief Executive Officer and
(ii) the Company's most highly compensated executive officers whose salary and
bonus exceeded $100,000 for services performed during the fiscal year ended
December 31, 1995 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SHARES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- ----------------------------------- ----- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
H. Stewart Parker.................. 1995 $ 165,000 $ 41,250 39,186 $ 235
President and Chief Executive 1994 154,000 45,000 50,000 137
Officer 1993 140,000 -- -- 119
Barrie J. Carter, Ph.D............. 1995 140,000 28,000 26,982 6,018
Executive Vice President and 1994 132,550 30,000 40,000 5,975
Director of Research and 1993 120,500 -- -- 44,262
Development
Richard Daifuku, M.D., Ph.D. (2)... 1995 150,974 -- 40,000 65,303
Vice President, Clinical Affairs 1994 -- -- -- --
1993 -- -- -- --
James A. Johnson (3)............... 1995 128,000 19,200 25,038 103
Vice President, Finance, Chief 1994 102,500 -- 60,000 96
Financial Officer, Treasurer and 1993 -- -- -- --
Secretary
</TABLE>
- ------------------
(1) For Ms. Parker and Mr. Johnson, consists of excess life insurance premiums;
for Dr. Carter, consists of reimbursement for relocation expenses of $38,517
in 1993, extinguishment of debt associated with initial purchases of Common
Stock of $5,500 in each of 1993, 1994 and 1995, and excess life insurance
premiums of $245, $475 and $518 in 1993, 1994 and 1995, respectively; and
for Dr. Daifuku, consists of reimbursement for relocation expenses of
$53,079, extinguishment of debt associated with relocation costs of $12,000,
and excess life insurance premiums of $224.
(2) Dr. Daifuku began his employment with Targeted Genetics on January 23, 1995.
(3) Mr. Johnson began his employment with Targeted Genetics on March 1, 1994.
53
<PAGE> 55
OPTION GRANTS
The following table sets forth certain information regarding stock options
granted during the fiscal year ended December 31, 1995 to the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
---------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SHARES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED(#)(1) FISCAL YEAR(1)(2) ($/SHARE) DATE 5%($) 10%($)
- ---------------------------- ------------- ----------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
H. Stewart Parker........... 39,186 17.6% $4.00 1/27/2005 $ 98,575 $249,810
Barrie J. Carter, Ph.D. .... 26,982 12.1% 4.00 1/27/2005 67,875 172,009
Richard Daifuku, M.D.,
Ph.D. .................... 40,000 17.9% 4.00 1/27/2005 100,623 254,999
James A. Johnson............ 25,038 11.2% 4.00 1/27/2005 62,985 159,616
</TABLE>
- ------------------
(1) Options are granted at the fair market value on the date of grant and
generally vest over five years with 20% of each grant becoming exercisable
annually beginning on the first anniversary of the date of grant. Certain
changes in control of Targeted Genetics can trigger accelerated vesting of
stock options and rights to related payments.
(2) Options to purchase 223,237 shares of Common Stock were granted by the
Company to its employees during 1995.
(3) The dollar amounts under these columns are the result of calculations at
assumed rates of 5% and 10% and are not intended to forecast future
appreciation. No value will be realized if the stock price does not exceed
the exercise price of the options.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information as of December 31, 1995,
regarding options held by the Named Executive Officers. None of such individuals
exercised any options during the fiscal year ended December 31, 1995.
AGGREGATED FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
H. Stewart Parker.............................. 34,000 95,186 $ 128,220 $ 170,353
Barrie J. Carter, Ph.D......................... 8,000 58,982 5,040 64,141
Richard Daifuku, M.D., Ph.D.................... -- 40,000 -- 65,200
James A. Johnson............................... 12,000 73,038 27,560 151,052
</TABLE>
- ------------------
(1) Represents the aggregate number of outstanding options multiplied by the
difference between $5.63 (the closing price of the Common Stock as reported
on the Nasdaq National Market on December 29, 1995) and the exercise price
of such options.
BENEFIT PLANS
1992 RESTATED STOCK OPTION PLAN
The Company's 1992 Restated Stock Option Plan (the "1992 Option Plan"),
which was amended and restated in March 1994, provides for the grant of options
to acquire a maximum of 1,400,000 shares of Common Stock. The Company's Board of
Directors has adopted a proposal, subject to approval by the Company's
shareholders at the 1996 annual shareholders meeting, to increase such option
pool to 2,000,000 shares of Common Stock. As of March 31, 1996, options to
purchase 61,300 shares of
54
<PAGE> 56
Common Stock granted under the 1992 Option Plan had been exercised, options to
purchase 1,138,014 shares of Common Stock were outstanding and options to
purchase 200,686 shares of Common Stock remained available for grant. The
outstanding options were held by 77 individuals and were exercisable at a
weighted average exercise price of $3.15 per share. Outstanding options to
purchase an aggregate of 683,129 shares were held by employees who are not
officers or directors of the Company.
The 1992 Option Plan permits the granting of incentive stock options
("ISOs") to employees or nonqualified stock options ("NSOs") to employees,
directors, officers, agents, consultants, advisors and independent contractors
(any such person, an "Optionee") at the discretion of the administrator of the
1992 Option Plan (the "Plan Administrator"). The Compensation Committee of the
Board of Directors is currently the Plan Administrator. Subject to the terms of
the 1992 Option Plan, the Plan Administrator determines the terms and conditions
of options granted under the 1992 Option Plan, including the exercise price. The
maximum number of shares with respect to which an option or options may be
granted to any Optionee in any taxable year may not exceed 200,000 shares.
Additionally, the 1992 Option Plan provides that the Plan Administrator must
establish an exercise price for ISOs that is not less than the fair market value
per share at the date of grant. Each option must expire within ten years of the
date of grant. However, if ISOs are granted to persons owning more than 10% of
the voting stock of the Company, the 1992 Option Plan provides that the exercise
price shall not be less than 110% of the fair market value per share on the date
of grant and that the ISOs' term shall not exceed five years. NSOs generally
expire ten years from the date of grant. Unless otherwise provided by the Plan
Administrator, options granted under the 1992 Option Plan vest at a rate of 20%
per year over a five-year period.
During an Optionee's lifetime, an option is exercisable only by the
Optionee and no option may be transferred by the Optionee other than by will or
the laws of descent and distribution or, in the case of NSOs, pursuant to a
qualified domestic relations order (as defined in the Internal Revenue Code of
1986, as amended); provided, however, that to the extent permitted by Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Plan Administrator may permit a recipient of an option to transfer such option
or designate, by giving written notice to the Plan Administrator, a person who
may exercise the option after such Optionee's death. An Optionee whose
relationship with the Company or any related corporation ceases for any reason
(other than termination for cause, death or total disability, as such terms are
defined in the 1992 Option Plan) may exercise, in the three-month period
following such cessation (unless such options terminate or expire sooner by
their terms), or such longer period as determined by the Plan Administrator,
that portion of the Optionee's options that is exercisable at the time of such
cessation. In the event the Optionee is terminated for cause, the options
terminate upon the Company's discovery of such cause. In the event the Optionee
dies or becomes totally disabled, the options vested as of the date of death or
total disability may be exercised prior to the earlier of the option's specified
expiration date or one year from the date of the Optionee's death or disability.
Unexercised options granted under the 1992 Option Plan terminate upon the
occurrence of certain events, including certain mergers. In a stock merger, the
options would convert into options to purchase shares of the other corporation
involved in the merger, unless the Company and such other corporation, in their
sole discretion, determine that such options shall terminate. The converted
options would continue to vest in accordance with the vesting requirements of
the 1992 Option Plan. Upon the occurrence of a consolidation, reorganization or
sale of assets of the Company other than a stock merger, Optionees may exercise
such options immediately prior to such transaction without regard to whether the
vesting requirements have been satisfied.
Shares subject to options granted under the 1992 Option Plan that have
lapsed or terminated may again be subject to options granted under the 1992
Option Plan. Furthermore, the Plan Administrator may offer to exchange new
options for existing options, with the shares subject to the existing options
being again available for grant under the 1992 Option Plan. Unless sooner
terminated by the Board of Directors, the 1992 Option Plan terminates on January
21, 2002.
55
<PAGE> 57
DIRECTORS PLAN
The Directors Plan was approved by the Board of Directors and by the
Company's shareholders in March 1994. An aggregate of 120,000 shares of Common
Stock may be issued under the Directors Plan. The Directors Plan provides for
automatic grants of NSOs to nonemployee directors of Targeted Genetics at an
exercise price equal to the fair market value per share on the date of grant. On
June 1, 1994, the effective date of the Directors Plan, an option to purchase
3,000 shares of Common Stock was automatically awarded to each nonemployee
director. In the future, each nonemployee director who is initially elected or
appointed to the Board will, upon such election or appointment, be automatically
granted an option to purchase 15,000 shares of Common Stock. In addition, the
Directors Plan provides for the annual grant of options to purchase 5,000 shares
of Common Stock to each continuing nonemployee director. Any options granted
after the effective date of the Directors Plan vest in three equal annual
installments beginning one year after the date of grant. The options that were
granted on the effective date of the Directors Plan became fully exercisable on
June 1, 1995, 12 months after such effective date. As of March 31, 1996, options
to purchase 39,000 shares of Common Stock had been granted under the Directors
Plan. Messrs. Duzan, Grant and O'Neill each received options in 1995 to purchase
5,000 shares of Common Stock. Mr. Cook received an option to purchase 15,000
shares of Common Stock upon his appointment to the Board in July 1995.
During a nonemployee director's lifetime, an option granted under the
Directors Plan may be exercised only by such optionee and is nontransferable
other than by will or the laws of descent and distribution; provided, however,
that to the extent permitted by Rule 16b-3 under the Exchange Act, the Plan
Administrator, which is currently the Board of Directors, may permit a recipient
of an NSO to designate, by giving written notice to the Plan Administrator, a
person who may exercise the option after such optionee's death. Options expire
within ten years of the date of grant or, if earlier, three months after a
nonemployee director's termination of service as a director or 12 months after a
nonemployee director's death.
Unexercised options granted under the Directors Plan terminate upon the
occurrence of certain events, including mergers. In a stock merger, the options
would convert into options to purchase shares of the other corporation involved
in the merger, unless Targeted Genetics and such other corporation, in their
sole discretion, determine that such options shall terminate. Optionees may
exercise options immediately prior to the occurrence of a consolidation,
reorganization or sale of assets of Targeted Genetics other than a stock merger
without regard to whether the vesting requirements have been satisfied.
Unless sooner terminated by either the Board of Directors or the
shareholders of Targeted Genetics, the Directors Plan will terminate on March 2,
2004.
56
<PAGE> 58
CERTAIN TRANSACTIONS
Targeted Genetics was formed in 1989 as a subsidiary of Immunex, a
biotechnology company that develops immunoregulatory proteins as therapeutics.
Immunex owns 2,613,122 shares of Targeted Genetics' Common Stock.
Subject to availability of resources, Immunex has agreed to provide certain
services to Targeted Genetics in areas such as immunology, clinical and
regulatory affairs, quality control, administration and consulting by specific
Immunex employees. Targeted Genetics reimburses Immunex for these services on a
fully burdened cost basis. During the years ended December 31, 1994 and 1995,
Targeted Genetics incurred expenses of $83,915 and $29,249, respectively, for
such services.
Between July 13, 1995 and July 17, 1995, Targeted Genetics issued an
aggregate of 830,598 units (the "Units"), consisting of four shares of Common
Stock and one warrant ("Warrant") to purchase one share of Common Stock, in a
self-managed public offering at a price of $15 per Unit. The Warrants are
convertible into shares of Common Stock. The purchasers of the Units included,
among others, the following greater-than-5% shareholders of the Company:
<TABLE>
<CAPTION>
NAME NO. OF UNITS
------------------------------------------------------------------------ ------------
<S> <C>
International Biotechnology Trust plc................................... 300,000
State of Wisconsin Investment Board..................................... 100,000
T. Rowe Price Associates, Inc........................................... 135,000
Oracle Partners, L.P. and affiliates.................................... 100,000
</TABLE>
See "Description of Capital Stock -- Warrants -- 1995 Unit Offering."
57
<PAGE> 59
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 31, 1996, certain information
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known by Targeted Genetics to own beneficially more than 5% of the shares
of Common Stock, (ii) each director and director nominee of Targeted Genetics,
(iii) each of the Named Executive Officers, and (iv) all directors and executive
officers of Targeted Genetics as a group. Except as otherwise noted, the
information in the following table does not reflect the issuance of shares of
Common Stock in connection with the RGene Acquisition. In addition, except as
otherwise noted, Targeted Genetics believes that the beneficial owners of the
shares of Common Stock listed below, based on information furnished by such
owners, have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
NUMBER OF OWNED
SHARES ----------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING(1)
- ------------------------------------------------------------ ------------ -------- -----------
<S> <C> <C> <C>
5% OWNERS:
Immunex Corporation....................................... 2,613,122 21.1% 13.4%
51 University Street
Seattle, WA 98101
International Biotechnology Trust plc..................... 1,500,000(2) 11.8% 7.6%
c/o Rothschild Asset Management Limited
Five Arrows House
St. Swithin's Lane
London, EC4N 8NR England
State of Wisconsin Investment Board....................... 1,112,500(3) 8.9% 5.7%
121 East Wilson Street
P.O. Box 7842
Madison, WI 53707
T. Rowe Price Associates, Inc. ........................... 670,000(4) 5.3% 3.4%
100 East Pratt Street
Baltimore, MD 21202
Oracle Partners, L.P. and affiliates...................... 651,000(5) 5.2% 3.3%
712 Fifth Avenue, 45th Floor
New York, NY 10019
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS:
H. Stewart Parker......................................... 178,502(6) 1.4% *
Barrie J. Carter, Ph.D. .................................. 140,061(7) 1.1% *
Richard Daifuku, M.D., Ph.D. ............................. 8,000(8) * *
James A. Johnson.......................................... 28,008(9) * *
Jeremy Curnock Cook....................................... 1,500,000(2) 11.8% 7.6%
Stephen A. Duzan.......................................... 16,130(10) * *
James D. Grant............................................ 10,200(8) * *
Donald E. O'Neill......................................... 20,200(11) * *
Austin M. Long, III....................................... -- -- 1.1%(12)
Martin P. Sutter.......................................... -- -- 8.1%(13)
All Directors, Director Nominees and Executive Officers as
a group (10 persons)................................... 1,901,101(14) 14.8% 18.5%(15)
</TABLE>
- ------------------
* Less than 1%.
(1) Assumes the issuance of 3,636,634 shares of Common Stock in the RGene
Acquisition.
(2) Represents 1,200,000 shares of Common Stock and warrants to purchase
300,000 shares of Common Stock owned by International Biotechnology Trust
plc ("IBT"), an investment trust the shares of which are traded on the
London Stock Exchange. Mr. Cook is a managing director of Rothschild Asset
Management Limited, the investment manager and
58
<PAGE> 60
secretary of IBT, and thereby has power to direct IBT's investments. Mr.
Cook disclaims beneficial ownership of the securities owned by IBT.
(3) Includes warrants to purchase 100,000 shares of Common Stock.
(4) Represents 535,000 shares of Common Stock and warrants to purchase 135,000
shares of Common Stock owned by T. Rowe Price New Horizons Fund, Inc., for
which T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment advisor with power to direct investments and/or sole power to
vote the securities. Although for purposes of the Exchange Act Price
Associates is deemed to be a beneficial owner of such securities, Price
Associates expressly disclaims that it is, in fact, the beneficial owner of
such securities.
(5) Represents 551,000 shares of Common Stock and warrants to purchase 100,000
shares of Common Stock owned by Oracle Partners, L.P. and affiliated
investment limited partnerships, of which Larry N. Feinberg is the managing
general partner and over which Mr. Feinberg has investment discretion. Mr.
Feinberg has the power to vote, direct the vote of, dispose of or direct
the disposition of all such securities.
(6) Includes warrants to purchase 3,333 shares of Common Stock and 41,837
shares subject to options that may be exercised within 60 days.
(7) Includes warrants to purchase 1,333 shares of Common Stock and 13,396
shares subject to options that may be exercised within 60 days.
(8) Represents shares subject to options that may be exercised within 60 days.
(9) Includes warrants to purchase 600 shares of Common Stock and 25,008 shares
subject to options that may be exercised within 60 days.
(10) Includes warrants to purchase 1,666 shares of Common Stock and 7,800 shares
subject to options that may be exercised within 60 days.
(11) Includes warrants to purchase 2,000 shares of Common Stock and 10,200
shares subject to options that may be exercised within 60 days.
(12) Represents 208,557 shares of Common Stock to be issued to the University of
Texas Board of Regents in the RGene Acquisition. Mr. Long is the Director
of Private Investments at the University of Texas and thereby has power to
vote the securities. Although for purposes of the Exchange Act Mr. Long is
deemed to be the beneficial owner of such securities, Mr. Long expressly
disclaims that he is, in fact, the beneficial owner of such securities.
(13) Represents 444,421 shares of Common Stock to be issued to Aronex in the
RGene Acquisition, 370,031 shares of Common Stock to be issued to The
Woodlands Venture Fund, L.P. in the RGene Acquisition and 771,280 shares of
Common Stock to be issued to The Woodlands/Essex Venture Partners III, L.P.
in the RGene Acquisition. Mr. Sutter is Chairman of the Board of Aronex. In
addition, he is (i) a General Partner of The Woodlands/Essex Management
Partners, L.P., which is the General Partner of The Woodlands/Essex Venture
Partners III, L.P., and (ii) the Managing General Partner of The Woodlands
Venture Partners, L.P., which is the General Partner of The Woodlands
Venture Fund, L.P., and thereby has the power to vote the securities.
Although for purposes of the Exchange Act Mr. Sutter is deemed to be the
beneficial owner of such securities, Mr. Sutter expressly disclaims that he
is, in fact, the beneficial owner of such securities.
(14) Includes 1,200,000 shares of Common Stock and warrants to purchase 300,000
shares of Common Stock owned by IBT, which are attributable to Mr. Cook;
also includes additional warrants to purchase 8,932 shares of Common Stock
and 116,441 shares subject to options that may be exercised within 60 days.
(15) Includes, in addition to the 1,901,101 shares of Common Stock listed in the
table, 208,557 shares of Common Stock to be issued to the University of
Texas Board of Regents in the RGene Acquisition, which are attributable to
Mr. Long, and 444,421 shares of Common Stock to be issued to Aronex in the
RGene Acquisition, 370,031 shares of Common Stock to be issued to The
Woodlands Venture Fund, L.P. in the RGene Acquisition and 771,280 shares of
Common Stock to be issued to The Woodlands/Essex Venture Partners III, L.P.
in the RGene Acquisition, all of which are attributable to Mr. Sutter. See
footnotes (12) and (13) above.
59
<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, par value $.01 per share, and 6,000,000 shares of Preferred
Stock, par value $.01 per share. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Articles of Incorporation and the Bylaws of the Company, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders and are not entitled to cumulative
voting rights with respect to the election of directors. Holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor, subject to preferences
that may be applicable to any outstanding Preferred Stock. In the event of
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. All the outstanding shares of Common Stock are, and all
shares of Common Stock to be outstanding upon completion of the Offering will
be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 6,000,000 shares of
Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the Company's shareholders. The issuance
of Preferred Stock could adversely affect the voting power of holders of Common
Stock and could have the effect of delaying, deferring or preventing a change in
control of the Company. No shares of Preferred Stock are currently outstanding.
The Company has no present plans to issue any shares of Preferred Stock.
WARRANTS
Equipment Financing Transactions
In conjunction with equipment financing transactions completed in December
1993 through October 1995, the Company issued warrants (the "Equipment Financing
Warrants") to purchase an aggregate of 62,016 shares of Common Stock at an
average exercise price of $6.00 per share, expiring through December 2003. The
Equipment Financing Warrants may be exercised for cash or on a cashless basis,
whereby the holder tenders the number of shares necessary to satisfy the
exercise price. Holders of the Equipment Financing Warrants are entitled to
certain rights with respect to registration under the Securities Act of the
shares of Common Stock issuable upon exercise of such warrants. See
"-- Registration Rights."
1995 Unit Offering
In July 1995, the Company completed a self-managed public offering of
830,598 Units, consisting of four shares of Common Stock and one Warrant. The
Warrants were issued under a Warrant Agreement dated July 7, 1995 between
Targeted Genetics and First Interstate Bank of Washington, N.A., as Warrant
Agent. The Warrants were immediately exercisable upon issuance at an exercise
price of $4.68 per share (the "Exercise Price") and will expire on July 31,
1997. From and after the sale and issuance of the Units, the Warrants and the
shares of Common Stock traded separately. As of May 24, 1996, 769,598 of such
Warrants were outstanding.
60
<PAGE> 62
In case of any reclassification or capital reorganization, or in case of
any consolidation or merger of Targeted Genetics with or into another
corporation or any sale, lease or transfer to another corporation of all or
substantially all the assets of Targeted Genetics, the holder of each
outstanding Warrant will have the right, upon subsequent exercise of a Warrant,
to purchase the kind and amount of shares of stock or other securities and
property receivable upon such reclassification, capital reorganization,
consolidation, merger, sale, lease or transfer by a holder of the number of
shares of Common Stock that would have been received upon the exercise of such
Warrant immediately prior thereto, and the Exercise Price will be appropriately
adjusted. The Warrants do not confer upon the holder any voting or preemptive
rights, or any other rights as a shareholder of Targeted Genetics.
CERTAIN CHARTER PROVISIONS AND WASHINGTON LAW
The Articles of Incorporation and Bylaws of the Company include provisions
that may have the effect of impeding a hostile takeover of the Company. The
Articles of Incorporation and Bylaws provide for a classified Board of Directors
consisting of three classes of directors. The Company's directors may be removed
only for cause by shareholders holding not less than two-thirds of the shares
entitled to elect the director or directors whose removal is sought. The
Articles of Incorporation and Bylaws direct that special meetings of the
Company's shareholders may be called only by the Board of Directors, the
Chairman of the Board or the President of the Company or at the direction of 30%
of the Company's shareholders. The Bylaws require that shareholder nominations
for directors to be elected to the Board of Directors be made pursuant to timely
notice and in proper written form to the Secretary of the Company. To be timely,
the shareholders' notice must be received by the Company not less than 60 or
more than 90 days prior to an annual meeting (or within 10 days of the mailing
by the Company of notice of the date of the annual meeting if such Company
notice is made less than 60 days prior to the date of the annual meeting) and no
more than seven days following the date on which notice is given to shareholders
if the election is to take place at a special meeting. There are also specific
content requirements for such notice. Requests to present matters to the
shareholders at an annual meeting must also be received by the Company not less
than 60 or more than 90 days prior to the meeting, and such requests must meet
specific content requirements.
These provisions, as well as the availability of Preferred Stock for
issuance without shareholder approval, may have the effect of lengthening the
time required for a person to acquire control of the Company through a proxy
contest or the election of a majority of the Board of Directors, and may deter
any potential unfriendly offers or other efforts to obtain control of the
Company, thereby possibly depriving the Company's shareholders of opportunities
to realize a premium for their Common Stock, and could make removal of incumbent
directors more difficult. At the same time, these provisions may have the effect
of inducing any persons seeking control of the Company to negotiate terms
acceptable to the Board of Directors.
Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. First, subject to certain
exceptions, including approval of the transaction by a majority of the
corporation's disinterested directors or the satisfaction of a statutory "fair
price" provision, a merger, sale of assets or liquidation of a corporation
involving an "Interested Shareholder" (defined as a person who owns beneficially
20% or more of the corporation's outstanding voting securities) must be approved
by the holders of two-thirds of the corporation's outstanding voting securities,
other than those of the Interested Shareholder. A corporation may, in its
articles of incorporation, exempt itself from coverage of this provision. The
Company has not done so. Washington law also prohibits a corporation, with
certain exceptions, from engaging in certain significant business transactions
with a person or group of persons that holds 10% or more of the Company's
outstanding voting securities for a period of five years after such acquisition.
The prohibited transactions include, among others, a merger with, disposition of
assets to, or issuance or redemption of stock to or from, such person or group
of persons or allowing such person or group of persons to receive any
disproportionate benefit as a shareholder. A corporation may not "opt out" of
this statute. These
61
<PAGE> 63
provisions may have the effect of delaying, deferring or preventing a change in
control of the Company. See "Risk Factors -- Concentration of Ownership and
Antitakeover Considerations."
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Company's Bylaws contain provisions indemnifying the Company's
directors and officers to the fullest extent permitted by law. The Company has
also entered into indemnity agreements pursuant to which it has agreed, among
other things, to indemnify its directors and executive officers against certain
liabilities. In addition, the Articles of Incorporation contain provisions
limiting the personal liability of directors to the Company or its shareholders
to the fullest extent permitted by law.
REGISTRATION RIGHTS
The holders of an aggregate of 7,505,155 shares of Common Stock are
entitled to certain registration rights as set forth below:
RGene Acquisition
Under the terms of the Merger Agreement, the RGene stockholders are
entitled to certain registration rights with respect to 3,636,364 shares of
Common Stock issuable to such stockholders upon the closing of the merger, as
well as up to $5 million of Common Stock issuable in connection with the
achievement of certain milestones. Subject to certain limitations, the Company
must register 50% of such shares under the Securities Act prior to the one-year
anniversary of the closing of the RGene Acquisition. The Company has agreed to
cause such registration to remain effective for a period ending 24 months after
completion of the RGene Acquisition. See "RGene Acquisition."
Registration Rights Agreement
Pursuant to the terms of a Registration Rights Agreement, dated as of April
27, 1992 (the "Registration Rights Agreement"), between the Company and certain
of the Company's shareholders, including Immunex, such shareholders are entitled
to certain registration rights with respect to 3,806,775 shares of Common Stock
(the "Registrable Securities"). Subject to certain limitations in the
Registration Rights Agreement, the holders of at least 30% of the Registrable
Securities, and their permitted transferees, may require that the Company, on
two occasions, use its best efforts to register such securities for public
resale. In addition, if the Company registers any shares of Common Stock either
for its own account or for the accounts of other holders of Common Stock, the
parties to the Registration Rights Agreement are entitled to include their
Registrable Securities in such registration, subject to the ability of any
underwriters to limit the number of shares included in the offering to no less
than 20% of such offering. The parties to the Registration Rights Agreement also
may require the Company, not more than once in any 12-month period, to register
all or a portion of their Registrable Securities on Form S-3, provided, among
other things, that the proposed aggregate selling price is at least $1 million.
Of the Registrable Securities, 1,193,653 shares are available for immediate
sale in the public market under Rule 144(k). The 2,613,122 shares of Common
Stock held by Immunex will be available for sale in the public market 91 days
after the date of this Prospectus, subject to the limitations provided in Rule
144.
Equipment Financing Warrants
The holders of the Equipment Financing Warrants are entitled to certain
registration rights with respect to 62,016 shares issuable upon exercise of such
warrants. Generally, such registration rights are comparable to the rights
provided to holders of the Registrable Securities under the Registration Rights
Agreement, provided that the holders of the Equipment Financing Warrants have no
demand registration rights and are entitled to include their securities in a
registration statement if and only to the extent that the inclusion of such
securities would not reduce the amount of Registrable Securities included in
such offering.
As of May 24, 1996, Equipment Financing Warrants exercisable for the
purchase of 40,016 shares of Common Stock had an exercise price at or below the
closing sales price for the Common Stock as reported by Nasdaq on such date.
62
<PAGE> 64
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom Vector Securities
International, Inc. ("Vector Securities") and Genesis Merchant Group Securities
are acting as representatives (the "Representatives"), have severally agreed to
purchase, subject to the terms and conditions of the Underwriting Agreement, and
the Company has agreed to sell to the Underwriters, the following respective
number of shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
Vector Securities International, Inc......................................
Genesis Merchant Group Securities.........................................
---------
Total..................................................................... 3,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased.
The Underwriters propose to offer the shares of Common Stock directly 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 $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the public offering of the shares of Common Stock, the offering
price and other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time during the 30-day period after the date of this Prospectus, to purchase up
to an additional 525,000 shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus, less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the Offering. To the extent
such option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
listed in the table.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereto.
Vector Securities was retained by the Company to render a fairness opinion
to the Targeted Genetics Board of Directors in connection with the RGene
Acquisition, for which it received customary fees.
63
<PAGE> 65
The executive officers, directors and certain other shareholders of the
Company have agreed that they will not, without the prior written consent of
Vector Securities International, Inc., offer, sell or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them for a period of 90 days after the date of this Prospectus. The Company has
agreed that it will not, without the prior written consent of Vector Securities
International, Inc., offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock for a period of 90
days after the date of this Prospectus, except that the Company may grant
additional options under its stock option plans, or issue shares upon the
exercise of outstanding stock options or warrants.
In connection with the Offering, certain Underwriters and selling group
members (if any) who are qualified registered market makers on the Nasdaq
National Market may engage in passive market-making transactions in the Common
Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the
Exchange Act during the two-business-day period before commencement of sales in
the Offering. The passive market-making transactions must comply with applicable
volume and price limits and be identified as such. In general, a passive market
maker may display its bid at a price not in excess of the highest independent
bid for the security. If all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded. Net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market-making average
daily trading volume in the Common Stock during a price period and must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the 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
for the Company by Perkins Coie, Seattle, Washington. Certain legal matters will
be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom,
Chicago, Illinois.
EXPERTS
The financial statements of Targeted Genetics Corporation at December 31,
1993, 1994 and 1995 appearing in this Prospectus and the Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of RGene Therapeutics, Inc. appearing in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy or information statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy or information statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048; and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street,
64
<PAGE> 66
N.W., Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
or information statements and other information concerning the Company may be
inspected at the offices of Nasdaq, 1735 K Street, N.W., Washington, D.C.
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement. Statements contained herein
concerning certain provisions of documents are necessarily summaries of such
documents and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.
65
<PAGE> 67
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TARGETED GENETICS CORPORATION
Report of Ernst & Young LLP, Independent Auditors.................................... F-2
Balance Sheets....................................................................... F-3
Statements of Operations............................................................. F-4
Statements of Shareholders' Equity................................................... F-5
Statements of Cash Flows............................................................. F-6
Notes to Financial Statements........................................................ F-7
RGENE THERAPEUTICS, INC.
Report of Independent Public Accountants............................................. F-13
Balance Sheets....................................................................... F-14
Statements of Operations............................................................. F-15
Statements of Stockholders' Equity................................................... F-16
Statements of Cash Flows............................................................. F-17
Notes to Financial Statements........................................................ F-18
</TABLE>
F-1
<PAGE> 68
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Targeted Genetics Corporation
We have audited the accompanying balance sheets of Targeted Genetics
Corporation (a development stage company) as of December 31, 1994 and 1995, and
the related statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995 and the period
from March 9, 1989 (date of inception) through 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 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 financial position of Targeted Genetics
Corporation (a development stage company) at December 31, 1994 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 and the period from March 9, 1989 (date of
inception) through December 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
February 9, 1996, except for Note 9
as to which the date is April 16, 1996
F-2
<PAGE> 69
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 2,306,979 $ 2,154,814 $ 1,526,073
Securities available for sale....................... 9,167,808 12,287,748 10,352,493
Deposits, prepaid expenses and other................ 254,225 196,150 157,800
------------ ------------ ------------
Total current assets............................. 11,729,012 14,638,712 12,036,366
Property, plant and equipment, net.................... 5,038,812 4,959,502 4,990,602
Other assets.......................................... 278,057 362,246 354,176
------------ ------------ ------------
$ 17,045,881 $ 19,960,460 $ 17,381,144
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 704,804 $ 564,403 $ 402,510
Accrued payroll and other liabilities............... 261,562 336,713 229,447
Current portion of long-term obligations............ 584,371 881,210 995,919
------------ ------------ ------------
Total current liabilities........................ 1,550,737 1,782,326 1,627,876
Long-term obligations................................. 2,252,999 2,405,298 2,633,765
Commitments
Shareholders' equity:
Preferred stock, $.01 par value, 6,000,000 shares
authorized, none outstanding..................... -- -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 8,958,831, 12,317,183 and 12,397,484
outstanding at December 31, 1994 and 1995, and
March 31, 1996, respectively..................... 31,024,884 43,295,436 43,605,225
Unrealized gains (losses) on securities available
for sale......................................... (116,104) 66,319 (5,064)
Deficit accumulated during development stage........ (17,666,635) (27,588,919) (30,480,658)
------------ ------------ ------------
Total shareholders' equity....................... 13,242,145 15,772,836 13,119,503
------------ ------------ ------------
$ 17,045,881 $ 19,960,460 $ 17,381,144
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 70
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 9, MARCH 9,
1989 1989
(DATE OF (DATE OF
INCEPTION) THREE MONTHS ENDED INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH MARCH 31, THROUGH
------------------------------------------- DECEMBER 31, --------------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues:
Investment
income........ $ 412,076 $ 448,822 $ 667,835 $ 2,077,282 $ 132,537 $ 183,536 $ 2,260,818
Other........... -- -- 174,625 174,625 -- -- 174,625
----------- ----------- ----------- ------------ ----------- ----------- ------------
Total
revenues.... 412,076 448,822 842,460 2,251,907 132,537 183,536 2,435,443
----------- ----------- ----------- ------------ ----------- ----------- ------------
Expenses:
Research and
development... 4,261,154 6,763,549 8,194,913 22,771,120 1,978,316 2,366,032 25,137,152
General and
administrative... 1,216,434 1,891,947 2,267,516 6,574,720 701,013 616,862 7,191,582
Interest........ -- 192,671 302,315 494,986 74,840 92,381 587,367
----------- ----------- ----------- ------------ ----------- ----------- ------------
Total
expenses.... 5,477,588 8,848,167 10,764,744 29,840,826 2,754,169 3,075,275 32,916,101
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net loss.......... $(5,065,512) $(8,399,345) $(9,922,284) $(27,588,919) $(2,621,632) $(2,891,739) $(30,480,658)
========== ========== ========== =========== ========== ========== ===========
Net loss per
share........... $ (3.73) $ (1.40) $ (0.94) $ (0.29) $ (0.23)
========== ========== ========== ========== ==========
Shares used in
computation of
net loss per
share........... 1,359,840 6,005,141 10,532,950 8,966,194 12,342,748
========== ========== ========== ========== ==========
Pro forma,
assuming
conversion of
preferred stock
to common stock:
Net loss per
share......... $ (0.73) $ (1.03) $ (0.94)
========== ========== ==========
Shares used in
computation of
net loss per
share......... 6,955,826 8,151,547 10,532,950
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 71
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
PERIOD FROM MARCH 9, 1989 (DATE OF INCEPTION) THROUGH MARCH 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
GAINS DEFICIT
(LOSSES) ON ACCUMULATED
ADVANCES SECURITIES DURING TOTAL
PREFERRED COMMON FROM AVAILABLE FOR DEVELOPMENT SHAREHOLDERS'
STOCK STOCK IMMUNEX SALE STAGE EQUITY
------------ ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net loss from March 9, 1989
(date of inception) through
December 31, 1991................. $ -- $ -- $ 2,807,316 $ -- $(2,807,316) $ --
Sale of 1,080,000 shares of common
stock........................... -- 27,600 -- -- -- 27,600
Issuance of 1,920,000 shares of
Series A convertible preferred
stock to Immunex in repayment of
advances........................ 2,807,316 -- (2,807,316) -- -- --
Sale of 3,675,986 shares of Series
B preferred stock, net of
issuance costs of $772,415...... 16,597,399 -- -- -- -- 16,597,399
Issuance of 120,000 shares of
common stock as compensation.... -- 66,000 -- -- -- 66,000
Net loss -- 1992.................. -- -- -- -- (1,394,462) (1,394,462)
------------ ----------- ----------- --------- ------------ -----------
Balance at December 31, 1992........ 19,404,715 93,600 -- -- (4,201,778) 15,296,537
Net loss -- 1993.................. -- -- -- -- (5,065,512) (5,065,512)
------------ ----------- ----------- --------- ------------ -----------
Balance at December 31, 1993........ 19,404,715 93,600 -- -- (9,267,290) 10,231,025
Sale of 2,154,345 shares of common
stock in initial public
offering, net of issuance costs
of $1,404,056................... -- 11,522,014 -- -- -- 11,522,014
Conversion of Series A and B
preferred stock to 5,595,986
shares of common stock.......... (19,404,715) 19,404,715 -- -- -- --
Exercise of stock options......... -- 4,555 -- -- -- 4,555
Unrealized losses on securities
available for sale.............. -- -- -- (116,104) -- (116,104)
Net loss -- 1994.................. -- -- -- -- (8,399,345) (8,399,345)
------------ ----------- ----------- --------- ------------ -----------
Balance at December 31, 1994........ -- 31,024,884 -- (116,104) (17,666,635) 13,242,145
Sale of 3,322,392 shares of common
stock and 830,598 warrants, net
of issuance costs of $214,509... -- 12,244,461 -- -- -- 12,244,461
Exercise of stock options......... -- 26,091 -- -- -- 26,091
Unrealized gains on securities
available for sale.............. -- -- -- 182,423 -- 182,423
Net loss -- 1995.................. -- -- -- -- (9,922,284) (9,922,284)
------------ ----------- ----------- --------- ------------ -----------
Balance at December 31, 1995........ -- 43,295,436 -- 66,319 (27,588,919) 15,772,836
Exercise of stock options
(unaudited)..................... -- 11,809 -- -- -- 11,809
Exercise of 61,000 warrants
(unaudited)..................... -- 285,480 -- -- -- 285,480
Expenses paid with 2,461 shares of
common stock (unaudited)........ -- 12,500 -- -- -- 12,500
Unrealized loss on securities
available for sale
(unaudited)..................... -- -- -- (71,383) -- (71,383)
Net loss -- 1996 (unaudited)...... -- -- -- -- (2,891,739) (2,891,739)
------------ ----------- ----------- --------- ------------ -----------
Balance at March 31, 1996
(unaudited)....................... $ -- $43,605,225 $ -- $ (5,064) $(30,480,658) $13,119,503
============ =========== =========== ========= ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 72
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 9, 1989
(DATE OF PERIOD FROM
INCEPTION) MARCH 9, 1989
YEAR ENDED DECEMBER 31, THROUGH THREE MONTHS ENDED (DATE OF
----------------------------------------- DECEMBER 31, MARCH 31, INCEPTION)
1993 1994 1995 1995 ------------------------- THROUGH
----------- ------------ ------------ ------------- 1995 1996 MARCH 31,
----------- ----------- 1996
(UNAUDITED) (UNAUDITED) -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating activities:
Net loss................ $(5,065,512) $ (8,399,345) $ (9,922,284) $(27,588,919) $(2,621,632) $(2,891,739) $(30,480,658)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Expenses paid with
common stock........ -- -- -- 66,000 -- 12,500 78,500
Depreciation and
amortization........ 411,652 1,264,848 1,484,549 3,162,881 340,023 446,855 3,609,736
(Increase) decrease in
deposits, prepaid
expenses and
other............... (8,610) (161,827) (49,865) (295,290) (26,850) 3,350 (291,940)
(Increase) decrease in
accrued interest on
securities available
for sale............ 124,180 (29,750) (9,287) (82,928) (14,931) 11,038 (71,890)
Increase (decrease) in
current
liabilities......... 133,735 88,493 (17,955) 769,991 (114,941) (184,562) 585,429
----------- ------------ ------------ ------------ ------------ ------------ ------------
Net cash used in
operating
activities...... (4,404,555) (7,237,581) (8,514,842) (23,968,265) (2,438,331) (2,602,558) (26,570,823)
Investing activities:
Purchases of property,
plant and equipment... (4,546,933) (885,604) (1,335,876) (7,170,597) (272,764) (519,482) (7,690,079)
Purchases of securities
available for sale.... (8,770,199) (12,990,428) (13,047,852) (55,090,522) (1,972,886) (1,513,869) (56,604,391)
Sales of securities
available for sale.... 14,049,110 9,369,127 10,119,622 42,952,020 2,838,299 3,366,703 46,318,723
Increase in other
assets................ (199,749) (177,500) (76,500) (574,179) (30,000) -- (574,179)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Net cash provided
by (used in)
investing
activities...... 532,229 (4,684,405) (4,340,606) (19,883,278) 562,649 1,333,352 (18,549,926)
Financing activities:
Advances from Immunex... -- -- -- 2,807,316 -- -- 2,807,316
Net proceeds from sale
of capital stock...... -- 11,526,569 12,270,552 40,422,120 8,295 297,289 40,719,409
Proceeds from equipment
financing............. 806,114 1,950,391 1,089,789 3,846,294 237,459 554,063 4,400,357
Payments under capital
leases and installment
loans................. -- (412,315) (657,058) (1,069,373) (140,826) (210,887) (1,280,260)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Net cash provided
by financing
activities...... 806,114 13,064,645 12,703,283 46,006,357 104,928 640,465 46,646,822
----------- ------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
cash and cash
equivalents............. (3,066,212) 1,142,659 (152,165) 2,154,814 (1,770,754) (628,741) 1,526,073
Cash and cash equivalents,
beginning of period..... 4,230,532 1,164,320 2,306,979 -- 2,306,979 2,154,814 --
----------- ------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents,
end of period........... $ 1,164,320 $ 2,306,979 $ 2,154,814 $ 2,154,814 $ 536,225 $ 1,526,073 $ 1,526,073
=========== ============ ============ ============ ============ ============ ============
Supplemental disclosures
of noncash investing and
financing activities:
Deferred sales tax on
leasehold improvements
and equipment......... $ 363,933 $ 114,589 $ 16,407 $ 509,588 $ 9,256 $ -- $ 509,588
=========== ============ ============ ============ ============ ============ ============
Preferred stock issued
to Immunex in payment
of advances........... $ -- $ -- $ -- $ 2,807,316 $ -- $ -- $ 2,807,316
=========== ============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 73
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION
Targeted Genetics Corporation (the "Company") is developing gene therapy
products for the treatment of certain acquired and inherited diseases. As a
development stage company, the Company has devoted substantially all of its
efforts to date to conducting research and development activities, recruiting
personnel and raising capital.
The Company was incorporated in the state of Washington in March 1989 as a
wholly owned subsidiary of Immunex Corporation ("Immunex"). In February 1992,
the Company issued 1,920,000 shares of Series A convertible preferred stock to
Immunex in exchange for the grant of a license to certain technology, settlement
of advances from Immunex and cancellation of 40,000 shares of common stock
issued by the Company to Immunex on March 28, 1989. At December 31, 1995,
Immunex held 21% of the outstanding stock of the Company.
The Company estimates that, at its current rate of expenditures, its
existing cash, cash equivalents and securities available for sale will be
sufficient to meet operating requirements through the end of 1996. Accordingly,
the Company is pursuing one or more collaborative arrangements with corporate
partners, with the intent of generating both research and development funding
and equity capital. The Company may also elect to seek additional equity capital
via the public or private markets, depending on market conditions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The financial information at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Operating results for the March 31,
1996 period are not necessarily indicative of the results that may be expected
for the entire year.
Cash Equivalents
The Company considers all short-term investments with a purchased maturity
of three months or less to be cash equivalents. Cash equivalents, valued at cost
which approximates market, consist principally of money market accounts and
short-term government obligations.
Securities Available for Sale
Securities available for sale consist primarily of corporate debt
securities and U.S. Government notes, all of which mature within two years.
Management currently classifies the Company's entire investment portfolio, other
than cash equivalents, as securities available for sale. Such securities are
stated at market value, with the unrealized gains and losses included in
shareholders' equity. The cost of debt securities in this category is adjusted
for amortization of premiums and accretion of discounts to maturity, which are
included in investment income. Realized gains and losses and declines in value
judged to be other than temporary on securities available for sale are also
included in investment income. The cost of securities sold is calculated using
the specific identification method.
F-7
<PAGE> 74
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of furniture
and equipment is provided using the straight-line method over the assets'
estimated useful lives, ranging from five to seven years. Furniture and
equipment under capitalized leases are amortized over the life of the lease.
Leasehold improvements are amortized over the life of the improvements or the
term of the lease, whichever is shorter.
Net Loss Per Share
Net loss per share is computed based upon the weighted average number of
common shares outstanding during the period. Common equivalent shares are not
included in the computation because the effect of their inclusion would be
antidilutive, except that, in accordance with Securities and Exchange Commission
requirements, common equivalent shares issued during the twelve months prior to
the Company's initial public offering have been included in the calculation as
if they were outstanding for all periods through March 31, 1994.
Upon completion of the Company's initial public offering, all 5,595,986
shares of preferred stock converted to common stock. Unaudited pro forma net
loss per share reflects the assumption that all such shares had converted to
common stock as of the beginning of the periods reported.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Statement No. 123 is effective for fiscal years beginning after
December 15, 1995. Under Statement No. 123, stock-based compensation expense is
measured using either the intrinsic value method, as prescribed by Accounting
Principles Board Opinion No. 25, or the fair value method described in Statement
No. 123. Companies choosing the intrinsic value method will be required to
disclose the pro forma impact of the fair value method on net income and
earnings per share. The Company plans to implement Statement No. 123 in 1996
using the intrinsic value method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
F-8
<PAGE> 75
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
3. SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1994:
U.S. corporate securities............ $ 3,349,999 $ 2,961 $ 34,653 $ 3,318,307
U.S. Government obligations.......... 5,933,913 -- 84,412 5,849,501
---------- ------- -------- -----------
$ 9,283,912 $ 2,961 $119,065 $ 9,167,808
========== ======= ======== ===========
December 31, 1995:
U.S. corporate securities............ $ 2,473,549 $ 8,803 $ -- $ 2,482,352
U.S. Government obligations.......... 9,747,880 57,516 -- 9,805,396
---------- ------- -------- -----------
$12,221,429 $ 66,319 $ -- $12,287,748
========== ======= ======== ===========
March 31, 1996:
U.S. corporate securities............ $ 2,398,777 $ 3,584 $ 191 $ 2,402,170
U.S. Government obligations.......... 7,958,780 7,714 16,171 7,950,323
---------- ------- -------- -----------
$10,357,557 $ 11,298 $ 16,362 $10,352,493
========== ======= ======== ===========
</TABLE>
The gross realized gains on sales of securities available for sale totaled
$15,901 and $25,047, and the gross realized losses totaled $55,576 and $48,013
in 1994 and 1995, respectively. For the three months ended March 31, 1995, the
gross realized gains on sales of securities available for sale totaled $18,158
and there were no gross realized losses.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment............................ $2,835,223 $3,862,632 $4,241,598
Leasehold improvements............................. 3,608,599 3,948,678 4,004,597
---------- ---------- ----------
6,443,822 7,811,310 8,246,195
Less accumulated depreciation and amortization..... 1,405,010 2,851,808 3,255,593
---------- ---------- ----------
$5,038,812 $4,959,502 $4,990,602
========== ========== ==========
</TABLE>
The Company has leased furniture and equipment, primarily laboratory
equipment, under three capital leases. The total cost of furniture and equipment
leased at December 31, 1994 and 1995 was $2,009,604 and $2,655,998,
respectively, with related accumulated depreciation of $489,541 and $1,076,712
at December 31, 1994 and 1995, respectively. At March 31, 1996, the total cost
of furniture and equipment leased was $3,298,545, and the related accumulated
depreciation was $1,238,622.
At December 31, 1994 and 1995, the Company had pledged furniture and
equipment, having a total cost of $616,441 and $853,900, respectively, as
collateral under an installment loan agreement. Accumulated depreciation related
to these assets was $63,911 and $221,410 at December 31, 1994 and 1995,
respectively. At March 31, 1996, the total cost of pledged furniture and
equipment was $853,900, and the related accumulated depreciation was $260,924.
F-9
<PAGE> 76
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred state sales tax.......................... $ 493,181 $ 509,588 $ 509,588
Installment note payable, effective rate of 16.73%
due in monthly installments through 1999........ 741,004 822,214 778,190
Capitalized lease obligations (see note 7)........ 1,603,185 1,954,706 2,341,906
---------- ---------- ----------
2,837,370 3,286,508 3,629,684
Less current portion.............................. 584,371 881,210 995,919
---------- ---------- ----------
$2,252,999 $2,405,298 $ 2,633,765
========== ========== ==========
</TABLE>
The state of Washington granted the Company a deferral of state sales tax
on new construction and equipment used in research and development activities.
The related obligation is payable over six years beginning in 1996.
Principal payments related to long-term obligations for each of the five
years ending December 31, 2000 are $881,210, $1,024,238, $658,800, $430,932 and
$162,539, respectively.
6. SHAREHOLDERS' EQUITY
Common Stock
The Company sold 1,200,000 shares of common stock to its scientific
advisors and founders in February and November 1992. The Company has the right
to repurchase certain of these shares in the event the holder's relationship
with the Company terminates. The repurchase rights expire in annual increments
ending in 1996. The shares were sold at prices ranging from $0.03 to $0.55 per
share. At December 31, 1995, 216,000 shares were subject to repurchase at the
original sales price. At March 31, 1996, 24,000 shares were subject to
repurchase at the original sales price.
Stock Options
The Company has adopted two stock option plans under which 1,520,000 shares
of common stock were reserved for issuance. Generally, options vest in annual
increments over a three- or five-year period. All options expire ten years from
date of grant. Options have been granted at market value or, prior to the
Company's initial public offering, at fair value at the date of grant as
established by the Company's Board of Directors and, accordingly, no
compensation expense has been recorded. As of December 31, 1995, options on
268,620 shares were exercisable and 443,123 shares were available for future
grant. As of March 31, 1996, options on 312,126 shares were exercisable and
281,686 shares were available for future grant.
F-10
<PAGE> 77
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of activity related to the Company's stock option plans follows:
<TABLE>
<CAPTION>
SHARES UNDER
OPTION OPTION PRICE
------------ ------------
<S> <C> <C>
Balance, January 1, 1995.................................. 838,000 $0.50 - 6.25
Cancelled............................................... (22,860) 0.55 - 6.25
Granted................................................. 253,237 4.00 - 5.13
Exercised............................................... (35,960) 0.50 - 5.00
--------- ----------
Balance, December 31, 1995................................ 1,032,417 0.50 - 6.25
</TABLE>
<TABLE>
<S> <C> <C>
Cancelled............................................... (6,920) 0.55 - 5.00
Granted................................................. 168,357 5.00
Exercised............................................... (16,840) 0.50 - 5.00
------------ ------------
Balance, March 31, 1996................................... 1,177,014 $0.50 - 6.25
========== ===========
</TABLE>
Warrants
In July 1995, the Company issued warrants to purchase 830,598 shares of
common stock in conjunction with an offering of its common stock. The warrants
are immediately exercisable at a price of $4.68 per share, expiring July 1997.
The Company has issued a total of 62,016 warrants related to equipment financing
agreements. The warrants have a weighted average exercise price of $6.00 per
share and expire from May 1999 to December 2003. At December 31, 1995 and March
31, 1996, 892,614 shares and 831,614 shares, respectively, of common stock were
reserved for these warrants.
7. LEASE COMMITMENTS
The Company leases its research and office facility under a noncancellable
operating lease that expires April 1, 1999. The lease may be extended under
three five-year renewal options at the then prevailing fair market value rental
rate.
Future minimum rental payments under noncancellable leases at December 31,
1995 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- ----------
<S> <C> <C>
Year ending December 31:
1996....................................................... $ 433,880 $ 873,814
1997....................................................... 457,446 873,814
1998....................................................... 474,233 303,740
1999....................................................... 119,607 358,866
2000....................................................... -- --
---------- ----------
Total minimum lease payments................................. $1,485,166 2,410,234
==========
Less amount representing interest............................ 455,528
----------
Present value of minimum capitalized lease payments.......... $1,954,706
==========
</TABLE>
Rent expense under operating leases for the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1996 was $256,354, $321,307,
$396,220 and $101,923, respectively.
F-11
<PAGE> 78
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
8. INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $24.2 million and research and experimental credit carryforwards
of approximately $817,000. The carryforwards are available to offset future
federal income taxes and begin to expire in 2007. At December 31, 1994 and 1995,
the Company recognized a valuation allowance to offset deferred tax assets due
to the uncertainty of realizing the related benefits.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $5,162,000 $8,223,000
Research and experimental credit carryforwards............. 654,000 817,000
Depreciation............................................... 29,000 156,000
Other...................................................... 55,000 54,000
---------- ----------
Total deferred tax assets.................................... $5,900,000 $9,250,000
========== ==========
Valuation allowance for deferred tax assets.................. $5,900,000 $9,250,000
========== ==========
</TABLE>
9. SUBSEQUENT EVENTS
On April 16, 1996, the Company entered into a definitive merger agreement
with RGene Therapeutics, Inc. ("RGene") to acquire 100% of the outstanding stock
of RGene. The Company will issue to the RGene stockholders 3,636,364 shares of
its common stock. The RGene stockholders will have the right to receive an
additional $5 million of the Company's common stock if certain milestones
relating to RGene's potential products are achieved prior to December 31, 1998.
Completion of the RGene acquisition is subject to customary conditions,
including the approval of the shareholders of both companies.
On April 16, 1996, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell up to 4,025,000 shares of common stock
in a public offering.
F-12
<PAGE> 79
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RGene Therapeutics, Inc.:
We have audited the accompanying balance sheets of RGene Therapeutics, Inc.
(a Delaware corporation in the development stage), as of December 31, 1994 and
1995, and the related statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1994 and 1995, and the period from
inception (August 27, 1993) through 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 financial position of RGene Therapeutics, Inc., as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1994 and 1995, and the period from
inception (August 27, 1993) through December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has operated as a development stage enterprise
since its inception, devoting substantially all of its efforts to financial
planning, raising capital and performing research and development. Consequently,
as shown in the accompanying financial statements, the Company has not realized
any revenues from product sales and has a cumulative loss of $5,075,183 since
its inception, all of which raises substantial doubt about its ability to
continue as a going concern. Accordingly, the Company's continued existence is
dependent upon its ability to obtain additional financing to develop,
manufacture and market its products and to attain successful future operations.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts of other current
assets and property and equipment or the amount of liabilities that might result
should the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
The Woodlands, Texas
April 10, 1996
F-13
<PAGE> 80
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- ----------- MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 2,300,235 $ 239,361 $ 1,677,083
Other current assets............................... 83,473 84,700 146,235
----------- ----------- -----------
Total current assets............................ 2,383,708 324,061 1,823,318
Furniture, equipment and leasehold improvements, net
of accumulated depreciation of $10,839, $56,828 and
$70,263, respectively.............................. 174,332 176,370 176,179
----------- ----------- -----------
Total assets.................................... $ 2,558,040 $ 500,431 $ 1,999,497
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........... $ 36,458 $ 152,138 $ 149,028
Payable to contract manufacturer................... 74,057 154,997 115,131
Payable to related parties......................... -- 65,000 1,500,000
Notes payable to related parties................... -- 1,000,000 1,000,000
----------- ----------- -----------
Total current liabilities....................... 110,515 1,372,135 2,764,159
Commitments and contingencies (Note 9)
Stockholders' equity:
Undesignated serial preferred stock, $.001 par
value; 4,196,428 shares authorized; none issued
and outstanding at December 31, 1994 and 1995
and March 31, 1996.............................. -- -- --
Series A convertible preferred stock, $.001 par
value; 5,803,572 shares authorized; 3,571,430
issued and outstanding at December 31, 1994 and
1995 and March 31, 1996......................... 3,571 3,571 3,571
Common stock, $.001 par value; 15,000,000 shares
authorized; 3,264,176, 3,394,176 and 3,394,176
issued and outstanding at December 31, 1994 and
1995 and March 31, 1996, respectively........... 3,264 3,394 3,394
Additional paid-in capital......................... 4,020,884 4,196,514 4,353,314
Deficit accumulated during the development stage... (1,580,194) (5,075,183) (5,124,941)
----------- ----------- -----------
Total stockholders' equity (deficit)............ 2,447,525 (871,704) (764,662)
----------- ----------- -----------
Total liabilities and stockholders'
equity................................... $ 2,558,040 $ 500,431 $ 1,999,497
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 81
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(AUGUST 27, 1993) FOR THE PERIOD
YEAR ENDED DECEMBER 31, THROUGH THREE MONTHS FROM INCEPTION
------------------------- DECEMBER 31, ENDED MARCH 31, (AUGUST 27, 1993)
1994 1995 1995 ------------------------- THROUGH
----------- ----------- ----------------- 1995 1996 MARCH 31,
----------- ----------- 1996
(UNAUDITED) (UNAUDITED) -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License and other
fees................ $ -- $ 300,000 $ 300,000 $ -- $ 2,500,000 $ 2,800,000
Interest income........ 56,266 53,277 109,543 26,092 23,048 132,591
----------- ----------- ----------- ----------- ----------- -----------
Total
revenues..... 56,266 353,277 409,543 26,092 2,523,048 2,932,591
Expenses:
Research and
development......... 976,786 3,073,268 4,050,054 447,902 2,269,934 6,319,988
General and
administrative...... 659,674 752,943 1,412,617 194,708 270,772 1,683,389
Interest expense....... -- 22,055 22,055 -- 32,100 54,155
----------- ----------- ----------- ----------- ----------- -----------
Total
expenses..... 1,636,460 3,848,266 5,484,726 642,610 2,572,806 8,057,532
----------- ----------- ----------- ----------- ----------- -----------
Net loss................. $(1,580,194) $(3,494,989) $(5,075,183) $ (616,518) $ (49,758) $(5,124,941)
=========== =========== =========== =========== =========== ===========
Loss per share........... $ (0.61) $ (1.06) $ (0.19) $ (0.01)
=========== =========== =========== ===========
Weighted average shares
used in computing loss
per share.............. 2,598,449 3,289,820 3,264,176 3,394,176
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 82
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 27, 1993) THROUGH MARCH 31, 1996
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING TOTAL
------------------ ------------------ PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL STAGE EQUITY
--------- ------ --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception, August 27, 1993..... -- $ -- -- $ -- $ -- $ -- $ --
Warrants issued to purchase shares of
common stock in conjunction with bridge
loan on September 27, 1993.............. -- -- -- -- -- -- --
Issuance of common stock for cash,
February 14, 1994, through April 4, 1994
($.001 per share)....................... -- -- 1,763,462 1,763 -- -- 1,763
Issuance of common stock for cash,
February 24, 1994 ($.01 per share)...... -- -- 215,000 215 1,935 -- 2,150
Issuance of common stock for license
agreement rights, April 6, 1994, through
April 8, 1994 ($.001 per share)......... -- -- 1,284,614 1,285 -- -- 1,285
Issuance of Series A preferred stock for
cash, April 8, 1994, through September
22, 1994 ($1.12 per share).............. 3,571,430 3,571 -- -- 3,996,429 -- 4,000,000
Issuance of common stock for services,
August 17, 1994 ($.11 per share)........ -- -- 1,100 1 120 -- 121
Compensation expense related to stock
purchase agreements..................... -- -- -- -- 22,400 -- 22,400
Net loss.................................. -- -- -- -- -- (1,580,194 ) (1,580,194)
--------- ------- --------- ------- --------- ----------- ----------
Balance, December 31, 1994................ 3,571,430 3,571 3,264,176 3,264 4,020,884 (1,580,194 ) 2,447,525
Warrants issued to purchase shares of
common stock in conjunction with bridge
loan on September 29, 1995.............. -- -- -- -- -- -- --
Issuance of common stock for license
agreement rights, October 20, 1995 ($.11
per share).............................. -- -- 130,000 130 14,170 -- 14,300
Compensation expense related to stock
purchase agreements and stock options... -- -- -- -- 161,460 -- 161,460
Net loss.................................. -- -- -- -- -- (3,494,989 ) (3,494,989)
--------- ------- --------- ------- --------- ----------- ----------
Balance, December 31, 1995................ 3,571,430 3,571 3,394,176 3,394 4,196,514 (5,075,183 ) (871,704)
Compensation expense related to stock
purchase agreements and stock options
(unaudited)............................. -- -- -- -- 156,800 -- 156,800
Net loss (unaudited)...................... -- -- -- -- -- (49,758 ) (49,758)
--------- ------- --------- ------- --------- ----------- ----------
Balance, March 31, 1996................... 3,571,430 $3,571 3,394,176 $3,394 $4,353,314 $(5,124,941) $ (764,662)
========= ======= ========= ======= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 83
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(AUGUST 27, 1993) FOR THE PERIOD
DECEMBER 31, THROUGH THREE MONTHS FROM INCEPTION
------------------------- DECEMBER 31, ENDED MARCH 31, (AUGUST 27, 1993)
1994 1995 1995 ------------------------ THROUGH
----------- ----------- ----------------- 1995 1996 MARCH 31,
---------- ----------- 1996
(UNAUDITED) (UNAUDITED) -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(1,580,194) $(3,494,989) $(5,075,183) $ (616,518) $ (49,758) $(5,124,941)
Adjustments to reconcile net
loss to net cash used in
operating activities --
Depreciation.............. 10,839 45,989 56,828 10,063 13,435 70,263
Issuance of common stock
for license agreement
rights.................. 1,285 14,300 15,585 -- -- 15,585
Compensation expense
related to stock
purchase agreements and
stock options........... 22,400 161,460 183,860 -- 156,800 340,660
Changes in assets and
liabilities --
(Increase) decrease in
other current
assets............... (83,473) (1,227) (84,700) 54,983 (61,536) (146,236)
Increase (decrease) in
accounts payable,
accrued liabilities
and payable to
contract
manufacturer......... 110,515 196,620 307,135 (776) (42,975) 264,161
Increase in payable to
related parties...... -- 65,000 65,000 -- 1,435,000 1,500,000
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (1,518,628) (3,012,847) (4,531,475) (552,248) 1,450,966 (3,080,508)
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from investing
activities:
Purchase of fixed assets..... (185,171) (48,027) (233,198) (18,347) (13,244) (246,443)
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (185,171) (48,027) (233,198) (18,347) (13,244) (246,443)
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Issuance of common stock..... 4,034 -- 4,034 -- -- 4,034
Issuance of Series A
preferred stock........... 4,000,000 -- 4,000,000 -- -- 4,000,000
Proceeds from notes
payable................... -- 1,000,000 1,000,000 -- -- 1,000,000
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 4,004,034 1,000,000 5,004,034 -- -- 5,004,034
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
cash......................... 2,300,235 (2,060,874) 239,361 (570,595) 1,437,722 1,677,083
Cash and cash equivalents,
beginning of period.......... -- 2,300,235 -- 2,300,235 239,361 --
----------- ----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end
of period.................... $ 2,300,235 $ 239,361 $ 239,361 $1,729,640 $ 1,677,083 $ 1,677,083
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 84
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
1. ORGANIZATION AND BUSINESS
RGene Therapeutics, Inc. (the Company), a Delaware corporation in the
development stage, was incorporated on August 27, 1993, and effectively
commenced operations in 1994. The Company is developing gene therapy products to
deliver genes that may provide unique clinical benefits in the treatment of a
number of human diseases. The Company's initial research and drug discovery
programs are based on inventions by leading scientists at The University of
Texas M. D. Anderson Cancer Center (MDACC) and the University of Pittsburgh
(UP).
The Company is a development stage company and has not yet generated
revenue from product sales or other sources, nor is there any assurance that the
Company will generate significant revenue in the future. The research and
development activities engaged in by the Company involve a high degree of risk
and uncertainty. The ability of the Company to successfully develop, manufacture
and market its proprietary products is dependent upon many factors. These
factors include, but are not limited to, the need for additional financing,
attracting and retaining key personnel and consultants, dependence on licenses,
patents and know-how, and successfully developing manufacturing, sales and
marketing operations. The Company's ability to develop these operations may be
immensely impacted by uncertainties related to patents and proprietary
technologies, technological change and obsolescence, product development,
competition, government regulations and approvals, healthcare reform and product
liability exposure. As a result of the aforementioned factors and the related
uncertainties, there can be no assurance of the Company's future success.
The Company believes that its current cash balance will be sufficient to
satisfy its funding needs through mid-1996. The Company must raise additional
funds during the next 12 months to maintain its research and development
activities. The Company's future funding requirements will depend on many
factors, including the progress of the Company's research and development and
the establishment of other collaborative relationships. Accordingly, the Company
is considering all of its financing alternatives, including corporate partnering
relationships with pharmaceutical companies to license some of its technology
and/or jointly develop products or the combination of the Company with another
entity (see Note 10). As a result of the aforementioned factors and the related
uncertainties, there is substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts of other current assets and furniture, equipment and leasehold
improvements or the amount and classification of liabilities that might result
from the outcome of this uncertainty.
2. SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make 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.
Interim financial statements
The interim financial statements as of March 31, 1996 and for the three
months ended March 31, 1995 and 1996 are unaudited, and certain information and
footnote disclosures, normally included in
F-18
<PAGE> 85
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
such financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows for
the interim periods then ended, have been included. The results of operations
for the interim periods are not necessarily indicative of the results that may
be expected for the entire year.
Cash and cash equivalents
All highly liquid investments purchased with a remaining maturity of three
months or less are considered to be cash equivalents.
Furniture, equipment and leasehold improvements
Furniture, equipment and leasehold improvements are carried at cost and
depreciated on a straight-line basis over the estimated useful economic lives of
the assets involved. The estimated useful lives employed in computing
depreciation are three to seven years. When property is retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in income. Maintenance and repairs
that do not extend the life of assets are charged to expense when incurred.
Revenue recognition
Option, license and milestone payments under collaborative agreements are
recorded as earned based on the provisions of each agreement.
Research and development costs
Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various entities that
perform certain research on behalf of the Company. Payments related to the
acquisition and patenting of technology rights, for which development work is in
process, are expensed and considered a component of research and development
costs.
Loss per share
Loss per share has been computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the periods. During
the noted periods, all common stock equivalents were antidilutive.
F-19
<PAGE> 86
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- -------- MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment........................... $ 31,094 $ 72,087 $ 85,331
Lab equipment..................................... 146,985 146,706 146,706
Leasehold improvements............................ 7,092 14,405 14,405
-------- -------- --------
185,171 233,198 246,442
Less -- Accumulated depreciation and
amortization.................................... 10,839 56,828 70,263
-------- -------- --------
$174,332 $176,370 $ 176,179
======== ======== ========
</TABLE>
4. NOTES PAYABLE
On September 29, 1995, the Company executed $1,000,000 in promissory notes
from certain stockholders of the Company. The promissory notes bear interest at
prime (8.5 percent at December 31, 1995) and are secured by the Company's
patents. The notes matured on December 31, 1995; the principal amount of
$1,000,000 and accrued interest of $22,055 and $54,155 are included in current
liabilities in the accompanying financial statements as of December 31, 1995 and
March 31, 1996, respectively. Management believes that the principal and accrued
interest on the notes will be converted into the Company's common stock in
conjunction with the contemplated merger (see Note 10).
5. STOCKHOLDERS' EQUITY
Series A convertible preferred stock
For the period from April 1994 through September 1994, the Company issued
3,571,430 shares of Series A convertible preferred stock, at a price of $1.12
per share, for cash proceeds of $4,000,000.
Series A convertible preferred shares are convertible at the option of the
holder into common stock as determined by dividing $1.12 by the conversion price
($1.12 at December 31, 1995) in effect at the time of conversion. At December
31, 1995, the Company reserved 3,571,430 shares of common stock for the
conversion of Series A convertible preferred stock. Series A convertible
preferred stock shall automatically be converted into common stock upon the
closing of a public offering with total proceeds of at least $7,500,000. The
holders of Series A convertible preferred stock have the right to vote on all
stockholder matters on an as-if-converted basis.
Series A convertible preferred stockholders may receive dividends at the
discretion of the Company's board of directors. To date, no dividends have been
declared.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A convertible preferred stock are entitled to receive
preference over any distribution to the holders of common stock in the amount of
$1.12 per share. The holders of Series A convertible preferred stock have
registration rights as defined in the stock purchase agreement.
F-20
<PAGE> 87
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Warrants
In connection with the bridge loans provided by two stockholders of the
Company, the Company issued each of the two stockholders warrants to purchase
50,000 shares of common stock at a price of $.10 per share. In April 1994, the
bridge loans were converted to Series A preferred stock. At the date of
issuance, the warrants were estimated to have a de minimis value and,
accordingly, the warrants were recorded at zero in the financial statements. The
warrants expire if not exercised before September 27, 1998.
During 1995, the Company issued warrants to purchase $250,000 of common
stock in conjunction with the $1,000,000 bridge loans provided by certain
stockholders of the Company. The number of shares of common stock to be issued
upon exercise of the warrants is to be determined by dividing $250,000 by the
price of the next equity financing. According to their original terms, the
warrants are exercisable at a price per share equal to the price of the next
equity financing and expire on September 28, 2000. In connection with the
contemplated merger (see Note 10), the Company and the warrant holders have
agreed that the warrants to purchase $250,000 of common stock shall be exercised
prior to completion of the merger at a price of $1.40 per share (unaudited) in
exchange for 178,571 shares of the Company's common stock. At the date of
issuance, the warrants were estimated to have a de minimis value and,
accordingly, the warrants have been recorded at zero in the financial
statements.
Options
During 1995, the board of directors approved the expansion of the incentive
stock option pool to a total of the greater of (a) 750,000 shares of common
stock or (b) 10 percent of the total common stock issued of the Company. The
options under the 1994 Stock Option Plan (the Plan) have a term of 10 years.
Options to purchase 388,000 shares of common stock vest upon the achievement of
specific milestones. Options to purchase 168,000 shares of common stock vest
over a period of five years for each year of employment with the Company. At
December 31, 1995 and March 31, 1996, 144,216 and 152,566 options, respectively
were exercisable. The Company has recorded $74,100 and $156,800 of compensation
expense for the difference between the grant price and the deemed fair value, as
of December 31, 1995 and March 31, 1996, respectively, for financial statement
presentation purposes related to options which vest based upon the successful
completion of milestones.
F-21
<PAGE> 88
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
5. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity for the Plan follows:
<TABLE>
<CAPTION>
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- -----------
<S> <C> <C>
Balance at inception (August 27, 1993)..................... -- $ --
Granted.................................................. 52,000 $ .10
-------
Balance at December 31, 1994............................... 52,000 $ .10
Granted.................................................. 505,000 $.10 to .11
Forfeited................................................ (1,000) $ .11
-------
Balance at December 31, 1995............................... 556,000 $.10 to .11
Granted (unaudited)...................................... -- $ --
Forfeited (unaudited).................................... -- $ --
-------
Balance at March 31, 1996 (unaudited)...................... 556,000 $.10 to .11
=======
</TABLE>
Prior to completion of the contemplated merger (see Note 10), in accordance
with the Plan, all outstanding stock options shall become immediately
exercisable, and will be exercised prior to the merger.
6. FEDERAL INCOME TAXES
The Company has had losses since inception and, therefore, has not been
subject to federal income taxes. As of December 31, 1995, the Company has
generated net operating loss (NOL) carryforwards of approximately $3.2 million
and approximately $70,000 of research and development credits available to
reduce future income taxes. These carryforwards begin to expire in 2008.
The Tax Reform Act of 1986 provides for an annual limitation following
certain ownership changes on the use of NOL and credit carryforwards that could
significantly limit the Company's ability to utilize its carryforwards. The
Company's ability to utilize its current and future NOLs to reduce future
taxable income and tax liabilities may be limited. Additionally, because United
States tax laws limit the time during which these carryforwards may be applied
against future taxes, the Company may not be able to take full advantage of
these attributes for federal income tax purposes.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109), requires an asset and liability approach for financial
accounting and reporting for income taxes. Under SFAS 109, an NOL requires the
recognition of a deferred tax asset. As the Company has had cumulative losses
and there is no assurance of future taxable income, a valuation allowance has
been
F-22
<PAGE> 89
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
6. FEDERAL INCOME TAXES (CONTINUED)
established to fully offset the deferred tax assets at December 31, 1994 and
1995. The components of the Company's deferred tax assets are as follows at
December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Net operating loss carryforwards............................ $ 306,000 $ 1,088,000
Research and development tax credits........................ 27,000 70,000
--------- ----------
Total deferred tax assets......................... 333,000 1,158,000
Less -- Valuation allowance................................. (333,000) (1,158,000)
--------- ----------
Net deferred tax assets........................... $ -- $ --
========= ==========
</TABLE>
7. LICENSE AND RESEARCH AGREEMENTS
In March 1994, the Company entered into a license agreement with the Board
of Regents of The University of Texas System (the System) and MDACC, a component
institution of the System, whereby the Company has an exclusive noncancelable
worldwide license to certain technology rights. In exchange for the grant of
this exclusive license, the Company issued 642,307 shares of its common stock
pursuant to the stockholder agreement entered into in April 1994. The Company
will pay MDACC for 15 years, beginning with the first commercial sale of a
product incorporating the licensed technologies, a royalty based on net sales by
the Company or its affiliates or by sublicense agreement of products
incorporating any of such technologies. The Company is obligated by the
agreement to reimburse any of MDACC's costs that may be incurred in connection
with obtaining necessary patents. Failure by the Company to make all
commercially reasonable efforts to commercialize a licensed product could result
in termination of the license agreement rights.
In April 1994, the Company entered into an assignment agreement and
development agreement with Aronex Pharmaceuticals, Inc. (Aronex), formerly Argus
Pharmaceuticals, Inc. The assignment agreement transfers to the Company all
rights and obligations with respect to certain technology rights and related
patent applications invented by a research scientist licensed under an exclusive
license agreement between Aronex and the System. The development agreement
provides that the Company bear all costs in funding the research and development
of the technology and patent rights assigned above that is performed by Aronex.
The development agreement has an initial term of three years. In connection with
the above agreements and the sublicense agreement mentioned below, the Company
issued 321,154 shares of its common stock at a price of $.001 per share to the
research scientist referred to above. In addition, in exchange for the
sublicense agreement and assignment agreement described below, the Company
issued to Aronex 642,307 shares of its common stock pursuant to a stock purchase
agreement.
In April 1994, the Company entered into a sublicense agreement with Aronex,
whereby the Company has an exclusive worldwide sublicense to the technology
licensed under Aronex's license agreement with the University of Tennessee
Research Corporation (UTRC) dated May 25, 1992. Under the original license
agreement between Aronex and UTRC, any sales of licensed products by a
sublicensee are subject to royalties based on net sales.
F-23
<PAGE> 90
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
7. LICENSE AND RESEARCH AGREEMENTS (CONTINUED)
In October 1995, the Company entered into a license agreement with UTRC. In
consideration for the license granted, the Company paid a license fee of
$250,000 to UTRC. As additional consideration, the Company issued 130,000 shares
of its common stock at a price of $.11 per share to UTRC, three research
scientists and McMaster University. The Company has committed to pay royalties
to UTRC in an amount based on net sales of the licensed technology and on any
sublicense of the licensed technology. As of December 31, 1995, royalties of
$65,000 are payable to UTRC. In addition, pursuant to the agreement, the Company
has commitments to UTRC for annual license maintenance fees as follows: $30,000
per year for 1996 through 1999; $40,000 per year for 2000 through 2004; and
$50,000 per year for 2005 and each year thereafter during the term of the
agreement. As of March 31, 1996, the Company paid $30,000 pertaining to this
annual license maintenance fee.
In October 1994, the Company entered into a license agreement with UP
whereby the Company has an exclusive worldwide license to certain technology
rights. Upon execution of the agreement, the Company paid UP an initial license
fee of $15,000. The Company has committed to pay an additional $35,000
immediately upon the filing of the first patent application with respect to the
licensed technology. The Company has committed to pay royalties to UP in an
amount based on net sales of the licensed technology.
In August 1995, the Company entered into a nonexclusive license agreement
with QIAGEN GmbH (Qiagen). Under the license agreement, the Company has the
right to produce or sell a product made with Qiagen technology. As consideration
for the license agreement, the Company is committed to pay a royalty on net
sales.
In December 1995, the Company entered into a license agreement with Pasteur
Merieux Serums & Vaccins S.A. (PMSV). Under the terms of the agreement, the
Company is to receive license and milestone fees upon the completion of certain
performance milestones. In 1995, the Company received $300,000 in license and
other fees in accordance with the agreement. In addition, as consideration of
the license granted, the Company will receive royalties on net sales from PMSV.
The Company has sponsored research agreements with MDACC and UP to fund
research and clinical studies. During fiscal 1994 and 1995 and the three months
ended March 31, 1996, the Company paid $375,741, $771,214 and $193,164,
respectively, pursuant to those agreements and has committed to pay a minimum of
approximately $900,000 through 1998 to continue funding research and clinical
activities. The payments are recorded as research and development expense.
8. CONSULTING AND RELATED AGREEMENTS
The Company has consulting agreements with research scientists associated
with the System and UP, to provide technical know-how, expertise and other
assistance. Pursuant to these agreements, the Company has commitments through
1998 with remaining payments through that date totaling $153,000. In connection
with these two consulting agreements, the Company issued 1,121,154 shares of
common stock for a purchase price of $.001 per share. Pursuant to these
stockholder agreements, the Company has certain repurchase rights.
The Company has stock purchase agreements with an officer of the Company.
Under the stock purchase agreements, the Company issued 321,154 shares of common
stock at a price of $.001 per
F-24
<PAGE> 91
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
8. CONSULTING AND RELATED AGREEMENTS (CONTINUED)
share. In the event the officer is terminated, the Company can elect to
repurchase a specified number of shares at a price of $.001 per share, based on
the length of employment prior to termination. The Company also issued 215,000
shares of common stock at a price of $.01 per share, of which, 200,000 shares
are subject to repurchase by the Company if certain performance milestones are
not met by the officer. The Company recorded compensation expense of $20,000,
$78,000, and $80,000 for fiscal 1994 and 1995 and for the three months ended
March 31, 1996, respectively, in connection with these agreements. In addition,
if the Company terminates the officer before the term of the employment
agreement has expired, the officer shall have the option to require the Company
to repurchase 24,000 shares at a price per share based on the fair value at the
date of termination. The Company recorded compensation expense of $2,400,
$9,360, and $9,600 in 1994, 1995 and the three months ended March 31, 1996,
respectively, in connection with this aspect of the officer's employment
agreement.
9. COMMITMENTS AND CONTINGENCIES
The Company leases its principal office under a lease which expires on
December 31, 1996. Monthly rental under the lease is $2,331. Lease expense
totaled $4,662, $27,972 and $5,439 for 1994 and 1995 and the three months ended
March 31, 1996, respectively.
10. SUBSEQUENT EVENTS
License, research and marketing agreement
On December 28, 1995, the Company granted a pharmaceutical company an
exclusive option to enter into a license agreement. In connection with the
execution of the option agreement, in January 1996 the pharmaceutical company
paid the Company a nonrefundable fee of $2,000,000 to maintain the option until
February 16, 1996. On February 22, 1996, the Company agreed to an outline of
principal terms in contemplation of a license agreement with the pharmaceutical
company. In consideration for the outline of principal terms and the extension
of the option period to April 30, 1996, the pharmaceutical company paid an
additional nonrefundable fee of $500,000 to the Company in March 1996. The $2.5
million received from the pharmaceutical company has been recorded as revenue as
of March 31, 1996 and, as a result, $1.5 million has been recorded as a payable
to related parties (see Note 7). Such amounts received are nonrefundable and are
creditable toward the license fee due upon execution of the license agreement.
On April 30, 1996, the option was extended to May 17, 1996. Effective May 1996,
the Company and the pharmaceutical company entered into a license, research and
marketing agreement under which the pharmaceutical company received exclusive
rights to develop and commercialize in Europe the Company's E1A tumor suppressor
product candidate and other product candidates based on the E1A tumor suppressor
gene and developed pursuant to the agreement. An additional $2.5 million
(unaudited) has been received in June 1996 as an upfront license fee. The
Company may receive additional payments if the parties achieve certain
development milestones and royalties on sales of resulting products, if any. An
additional $1.5 million may be payable to related parties (see Note 7). In
addition, if the parties are able to negotiate a mutually acceptable supply
agreement, the Company will be entitled to manufacture products for the
pharmaceutical company in return for manufacturing fees.
F-25
<PAGE> 92
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
10. SUBSEQUENT EVENTS (CONTINUED)
Merger (unaudited)
On April 16, 1996, the Company entered into a definitive merger agreement
(the Merger Agreement) with Targeted Genetics Corporation (Targeted). Pursuant
to the Merger Agreement, Targeted will acquire the Company by merging the
Company with and into TGC Acquisition Corporation (TGC), a wholly owned
subsidiary of Targeted. Under the Merger Agreement, Targeted will issue
3,636,364 shares of common stock in exchange for 100 percent of the outstanding
stock of the Company. Prior to completion of the merger, in accordance with the
Plan, all outstanding stock options will become immediately exercisable. All of
the Company's outstanding stock options and warrants are expected to be
exercised. Pursuant to the Merger Agreement and prior to the merger, an
additional $550,000 shall be advanced under the promissory notes from certain
stockholders of the Company (see Note 4). Such advances, together with the
$1,000,000 in promissory notes from certain stockholders of the Company, shall
be converted at or prior to the merger into common stock of the Company at a
conversion price of $1.40 per share. The Company stockholders will have the
right to receive up to an additional $5 million of Targeted's common stock if
certain milestones are achieved.
F-26
<PAGE> 93
- -------------------------------------------------------
- -------------------------------------------------------
No dealer, sales representative or any other person is authorized in
connection with any offering made hereby to give any information or to make any
representation not contained herein and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any security other than the securities offered
hereby, nor does it constitute an offer to sell or a solicitation of an offer to
buy any such securities to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof or 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
RGene Acquisition........................... 6
Risk Factors................................ 8
Use of Proceeds............................. 18
Price Range of Common Stock................. 19
Dividend Policy............................. 19
Dilution.................................... 20
Capitalization.............................. 21
Selected Financial Data..................... 22
Unaudited Pro Forma Consolidated Financial
Statements................................ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 26
Business.................................... 30
Management.................................. 49
Certain Transactions........................ 57
Principal Shareholders...................... 58
Description of Capital Stock................ 60
Underwriting................................ 63
Legal Matters............................... 64
Experts..................................... 64
Additional Information...................... 64
Index to Financial Statements............... F-1
</TABLE>
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
3,500,000 SHARES
TARGETED GENETICS CORPORATION
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
Vector Securities International, Inc.
Genesis Merchant Group Securities
, 1996
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to a letter agreement dated as of November 28, 1995 between the
Registrant and Lehman Brothers, Inc., the Registrant issued to Lehman Brothers,
Inc. 2,461 shares of its Common Stock in payment of certain advisory fees in a
transaction not involving a public offering and therefore exempt pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
1.1** -- Form of Underwriting Agreement
2.1+ -- Form of Agreement and Plan of Merger dated as of April 16, 1996, by and among
Targeted Genetics Corporation, TGC Acquisition Corporation and RGene Therapeutics,
Inc.
3.1 -- Restated Articles of Incorporation (Exhibit 3.1)(B)
3.2 -- Amended and Restated Bylaws (Exhibit 3.2)(C)
4.1 -- Warrant to Purchase 11,000 shares of Series B Preferred Stock of Targeted Genetics
Corporation issued to MMC/GATX Partnership No. 1 on December 27, 1993 (Exhibit
4.2)(A)
4.2 -- Warrant to Purchase 11,000 shares of Series B Preferred Stock of Targeted Genetics
Corporation issued to LINC Capital Management Services, Ltd. on December 27, 1993
(Exhibit 4.3)(A)
4.3 -- Warrant to Purchase 18,701 shares of Common Stock of Targeted Genetics Corporation
issued to MMC/GATX Partnership No. 1 on November 30, 1994 (Exhibit 4.3)(B)
4.4 -- Warrant Agreement between Targeted Genetics Corporation and First Interstate Bank
of Washington, N.A., as Warrant Agent (Exhibit 4.4)(D)
4.5 -- Specimen Warrant Certificate (Exhibit 4.5)(C)
4.6 -- Warrant to Purchase 21,315 shares of Common Stock of Targeted Genetics Corporation
issued to Financing for Science International, Inc. on November 30, 1995(D)
5.1+ -- Opinion of Perkins Coie regarding legality of shares
10.1* -- Scientific Advisory Board Agreement, dated February 15, 1992, between Targeted
Genetics Corporation and Philip D. Greenberg (Exhibit 10.1)(A)
10.2* -- Scientific Advisory Board Agreement, dated February 15, 1992, between Targeted
Genetics Corporation and A. Dusty Miller (Exhibit 10.2)(A)
10.3* -- Scientific Advisory Board Agreement, dated February 15, 1992, between Targeted
Genetics Corporation and Richard D. Palmiter (Exhibit 10.3)(A)
10.4* -- Scientific Advisory Board Agreement, dated February 15, 1992, between Targeted
Genetics Corporation and George Stamatoyannopoulos (Exhibit 10.4)(A)
10.5 -- Form of Indemnification Agreement between the registrant and its officers and
directors (Exhibit 10.6)(A)
10.6* -- Non-exclusive License Agreement, dated as of November 19, 1991, between Fred
Hutchinson Cancer Research Center and Immunex Corporation (Exhibit 10.7)(A)
</TABLE>
II-1
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
10.7* -- Gene Transfer Technology License Agreement, dated as of February 18, 1992, between
Immunex Corporation and Targeted Genetics Corporation (Exhibit 10.8)(A)
10.8* -- License Agreement, dated as of June 1, 1992, between Wisconsin Alumni Research
Foundation and Targeted Genetics Corporation (Exhibit 10.9)(A)
10.9* -- License Agreement, dated as of August 14, 1992, between Leland Stanford Junior
University and Targeted Genetics Corporation (Exhibit 10.10)(A)
10.10* -- PHS Patent License Agreement -- Non-exclusive, dated as of July 13, 1993, between
National Institutes of Health Centers for Disease Control and Targeted Genetics
Corporation (Exhibit 10.13)(A)
10.11* -- Non-exclusive Patent License Agreement, dated as of December 25, 1993, between The
University of Florida Research Foundation, Inc. and Targeted Genetics Corporation
(Exhibit 10.14)(A)
10.12* -- Research and Exclusive License Agreement, dated as of January 1, 1994, between
Targeted Genetics Corporation and Fred Hutchinson Cancer Research Center (Exhibit
10.19)(A)
10.13* -- PHS Patent License Agreement -- Exclusive, dated as of March 10, 1994, between
National Institutes of Health Centers for Disease Control and Targeted Genetics
Corporation (Exhibit 10.15)(A)
10.14* -- Exclusive License Agreement, dated as of March 14, 1994, between Medical College
of Ohio and Targeted Genetics Corporation (Exhibit 10.16)(A)
10.15* -- License Agreement, dated as of March 16, 1994, between The Johns Hopkins
University and Targeted Genetics Corporation (Exhibit 10.17)(A)
10.16* -- License Agreement, dated as of March 28, 1994, between Targeted Genetics
Corporation and the University of Michigan (Exhibit 10.18)(A)
10.17* -- Exclusive License Agreement, dated as of March 28, 1994, between Fred Hutchinson
Cancer Research Center and Targeted Genetics Corporation (Exhibit 10.20)(A)
10.18* -- Exclusive License Agreement, dated as of August 25, 1994, between Targeted
Genetics Corporation and Fred Hutchinson Cancer Research Center (Exhibit 10.20)(B)
10.19 -- Olive Way Building Lease, dated as of November 20, 1993, between Metropolitan
Federal Savings and Loan Association and Targeted Genetics Corporation (Exhibit
10.21)(A)
10.20 -- First Amendment to Olive Way Building Lease, dated as of December 10, 1994,
between Targeted Genetics Corporation and Metropolitan Federal Savings and Loan
Association (Exhibit 10.22)(B)
10.21 -- MMC/GATX Partnership No. 1 Equipment Lease Agreement, dated as of December 27,
1993 (Exhibit 10.22)(A)
10.22 -- LINC Capital Management, Ltd. Equipment Lease Agreement, dated as of December 27,
1993 (Exhibit 10.23)(A)
10.23 -- Loan and Security Agreement, dated as of November 30, 1994, between MMC/GATX
Partnership No. 1 and Targeted Genetics Corporation (Exhibit 10.25)(B)
10.24 -- Master Equipment Lease Agreement, dated as of October 17, 1995, between Financing
for Science International, Inc. and Targeted Genetics Corporation (Exhibit
10.28)(D)
10.25 -- Registration Rights Agreement, dated as of April 27, 1992, among Targeted Genetics
Corporation and the holders of the Series A and Series B Convertible Preferred
Stock (Exhibit 10.26)(A)
10.26 -- 1992 Restated Stock Option Plan (Exhibit 10.26)(B)
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
10.27 -- Stock Option Plan for Nonemployee Directors (Exhibit 10.31)(D)
10.28*+ -- Development Agreement dated April 6, 1994, by and between Argus Pharmaceuticals,
Inc. and RGene Therapeutics, Inc.
10.29*+ -- Patent and Technology License Agreement effective as of March 1, 1994, by and
among the Board of Regents of the University of Texas M.D. Anderson Cancer Center
and RGene Therapeutics, Inc.
10.30*+ -- First Amended and Restated License Agreement effective October 12, 1995, by and
between The University of Tennessee Research Corporation and RGene Therapeutics,
Inc.
10.31*+ -- License Agreement dated October 12, 1994, by and between The University of
Pittsburgh -- of the Commonwealth System of Higher Education and RGene
Therapeutics, Inc.
10.32* -- Agreement dated as of May 28, 1996 by and between RGene Therapeutics, Inc. and
Laboratoires Fournier S.C.A.
11.1 -- Computation of net loss per share (D)
23.1 -- Consent of Ernst & Young LLP (contained on page II-6)
23.2 -- Consent of Arthur Andersen LLP (contained on page II-7)
23.3+ -- Consent of Perkins Coie (contained in the opinion filed as Exhibit 5.1 hereto)
24.1+ -- Power of Attorney
99.1+ -- Consent of Martin P. Sutter as Director Nominee
99.2+ -- Consent of Austin M. Long, III as Director Nominee
</TABLE>
- ------------------
+ Previously filed.
* Confidential treatment has been requested from the Securities and Exchange
Commission for portions of these agreements.
** To be filed by amendment.
(A) Incorporated by reference to the designated exhibit included with the
registrant's Form S-1 Registration Statement (Registration No. 33-77054)
filed March 30, 1994, as amended.
(B) Incorporated by reference to the designated exhibit included with the
registrant's Form 10-K for the year ended December 31, 1994.
(C) Incorporated by reference to the designated exhibit included with the
registrant's Form S-1 Registration Statement (No. 33-91500) filed April 24,
1995, as amended.
(D) Incorporated by reference to the designated exhibit included with the
registrant's Form 10-K for the year ended December 31, 1995.
(b) Financial Statement Schedules
All financial statement schedules have been omitted because the required
information is either included in the financial statements or the notes thereto
or is not applicable.
II-3
<PAGE> 97
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on the 13th day of June, 1996.
TARGETED GENETICS CORPORATION
By: /s/ James A. Johnson
----------------------------------------
James A. Johnson, Vice President,
Finance, Chief Financial Officer,
Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 13th day of June, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
*H. Stewart Parker President, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
H. Stewart Parker
/s/ James A. Johnson Vice President, Finance, Chief Financial
- --------------------------------------------- Officer, Treasurer and Secretary
James A. Johnson (Principal Financial Officer)
*Stephen A. Duzan Director
- ---------------------------------------------
Stephen A. Duzan
*James D. Grant Director
- ---------------------------------------------
James D. Grant
*Donald E. O'Neill Director
- ---------------------------------------------
Donald E. O'Neill
*Jeremy Curnock Cook Director
- ---------------------------------------------
Jeremy Curnock Cook
*By: /s/ James A. Johnson
- ---------------------------------------------
James A. Johnson
As Attorney-in-Fact
</TABLE>
II-5
<PAGE> 99
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 9,
1996, except for Note 9 as to which the date is April 16, 1996 in the
Registration Statement (Form S-1) and related Prospectus of Targeted Genetics
Corporation for the registration of its common stock.
ERNST & YOUNG LLP
Seattle, Washington
June 11, 1996
II-6
<PAGE> 100
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
The Woodlands, Texas
June 12, 1996
II-7
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 ** Form of Underwriting Agreement
2.1+ Form of Agreement and Plan of Merger dated as of April 16, 1996, by and
among Targeted Genetics Corporation, TGC Acquisition Corporation and
RGene Therapeutics Inc.
3.1 Restated Articles of Incorporation (Exhibit 3.1) (B)
3.2 Amended and Restated Bylaws (Exhibit 3.2) (C)
4.1 Warrant to Purchase 11,000 shares of Series B Preferred Stock of (A)
Targeted Genetics Corporation issued to MMC/GATX Partnership No. 1 on
December 27, 1993 (Exhibit 4.2)
4.2 Warrant to Purchase 11,000 shares of Series B Preferred Stock of (A)
Targeted Genetics Corporation issued to LINC Capital Management
Services, Ltd. on December 27, 1993 (Exhibit 4.3)
4.3 Warrant to Purchase 18,701 shares of Common Stock of Targeted Genetics (B)
Corporation issued to MMC/GATX Partnership No. 1 on November 30, 1994
(Exhibit 4.3)
4.4 Warrant Agreement between Targeted Genetics Corporation and First (D)
Interstate Bank of Washington, N.A., as Warrant Agent (Exhibit 4.4)
4.5 Specimen Warrant Certificate (Exhibit 4.5) (C)
4.6 Warrant to Purchase 21,315 shares of Common Stock of Targeted Genetics (D)
Corporation issued to Financing for Science International, Inc. on
November 30, 1995
5.1+ Opinion of Perkins Coie regarding legality of shares
10.1 * Scientific Advisory Board Agreement, dated February 15, 1992, between (A)
Targeted Genetics Corporation and Philip D. Greenberg (Exhibit 10.1)
10.2 * Scientific Advisory Board Agreement, dated February 15, 1992, between (A)
Targeted Genetics Corporation and A. Dusty Miller (Exhibit 10.2)
10.3 * Scientific Advisory Board Agreement, dated February 15, 1992, between (A)
Targeted Genetics Corporation and Richard D. Palmiter (Exhibit 10.3)
10.4 * Scientific Advisory Board Agreement, dated February 15, 1992, between (A)
Targeted Genetics Corporation and George Samatoyannopoulos (Exhibit
10.4)
10.5 Form of Indemnification Agreement between the registrant and its (A)
officers and directors (Exhibit 10.6)
10.6 * Non-exclusive License Agreement, dated as of November 19, 1991, between (A)
Fred Hutchinson Cancer Research Center and Immunex Corporation (Exhibit
10.7)
10.7 * Gene Transfer Technology License Agreement, dated as of February 18, (A)
1992, between Immunex Corporation and Targeted Genetics Corporation
(Exhibit 10.8)
10.8 * License Agreement, dated as of June 1, 1992, between Wisconsin Alumni (A)
Research Foundation and Targeted Genetics Corporation (Exhibit 10.9)
10.9 * License Agreement, dated as of August 14, 1992, between Leland Stanford (A)
Junior University and Targeted Genetics Corporation (Exhibit 10.10)
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.10* PHS Patent License Agreement -- Non-exclusive, dated as of July 13, (A)
1993, between National Institutes of Health Centers for Disease Control
and Targeted Genetics Corporation (Exhibit 10.13)
10.11* Non-exclusive Patent License Agreement, dated as of December 25, 1993, (A)
between The University of Florida Research Foundation, Inc. and Targeted
Genetics Corporation (Exhibit 10.14)
10.12* Research and Exclusive License Agreement, dated as of January 1, 1994, (A)
between Targeted Genetics Corporation and Fred Hutchinson Cancer
Research Center (Exhibit 10.19)
10.13* PHS Patent License Agreement -- Exclusive, dated as of March 10, 1994, (A)
between National Institutes of Health Centers for Disease Control and
Targeted Genetics Corporation (Exhibit 10.15)
10.14* Exclusive License Agreement, dated as of March 14, 1994, between Medical (A)
College of Ohio and Targeted Genetics Corporation (Exhibit 10.16)
10.15* License Agreement, dated as of March 16, 1994, between The Johns Hopkins (A)
University and Targeted Genetics Corporation (Exhibit 10.17)
10.16* License Agreement, dated as of March 28, 1994, between Targeted Genetics (A)
Corporation and the University of Michigan (Exhibit 10.18)
10.17* Exclusive License Agreement, dated as of March 28, 1994, between Fred (A)
Hutchinson Cancer Research Center and Targeted Genetics Corporation
(Exhibit 10.20)
10.18* Exclusive License Agreement, dated as of August 25, 1994, between (B)
Targeted Genetics Corporation and Fred Hutchinson Cancer Research Center
(Exhibit 10.20)
10.19 Olive Way Building Lease, dated as of November 20, 1993, between (A)
Metropolitan Federal Savings and Loan Association and Targeted Genetics
Corporation (Exhibit 10.21)
10.20 First Amendment to Olive Way Building Lease, dated as of December 10, (B)
1994, between Targeted Genetics Corporation and Metropolitan Federal
Savings and Loan Association (Exhibit 10.22)
10.21 MMC/GATX Partnership No. 1 Equipment Lease Agreement, dated as of (A)
December 27, 1993 (Exhibit 10.22)
10.22 LINC Capital Management, Ltd. Equipment Lease Agreement, dated as of (A)
December 27, 1993 (Exhibit 10.23)
10.23 Loan and Security Agreement, dated as of November 30, 1994, between (B)
MMC/GATX Partnership No. 1 and Targeted Genetics Corporation (Exhibit
10.25)
10.24 Master Equipment Lease Agreement, dated as of October 17, 1995, between (D)
Financing for Science International, Inc. and Targeted Genetics
Corporation (Exhibit 10.28)
10.25 Registration Rights Agreement, dated as of April 27, 1992, among (A)
Targeted Genetics Corporation and the holders of the Series A and Series
B Convertible Preferred Stock (Exhibit 10.26)
10.26 1992 Restated Stock Option Plan (Exhibit 10.26) (B)
10.27 Stock Option Plan for Nonemployee Directors (Exhibit 10.31) (D)
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.28*+ Development Agreement dated April 6, 1994, by and between Argus
Pharmaceuticals, Inc. and RGene Therapeutics, Inc.
10.29*+ Patent and Technology License Agreement effective as of March 1, 1994,
by and among the Board of Regents of the University of Texas M.D.
Anderson Cancer Center and RGene Therapeutics, Inc.
10.30*+ First Amended and Restated License Agreement effective October 12, 1995,
by and between The University of Tennessee Research Corporation and
RGene Therapeutics, Inc.
10.31*+ License Agreement dated October 12, 1994, by and between The University
of Pittsburgh -- of the Commonwealth System of Higher Education and
RGene Therapeutics, Inc.
10.32* Agreement dated as of May 28, 1996 by and between RGene Therapeutics,
Inc. and Laboratoires Fournier S.C.A.
11.1 Computation of net loss per share(D)
23.1 Consent of Ernst & Young LLP (contained on page II-6)
23.2 Consent of Arthur Andersen LLP (contained on page II-7)
23.3 Consent of Perkins Coie (contained in the opinion filed as Exhibit 5.1
hereto)
24.1 Power of Attorney
99.1+ Consent of Martin P. Sutter as Director Nominee
99.2+ Consent of Austin M. Long, III as Director Nominee
</TABLE>
- ------------------
+ Previously filed.
* Confidential treatment has been requested from the Securities and Exchange
Commission for portions of these agreements.
** To be filed by amendment.
(A) Incorporated by reference to the designated exhibits included with the
registrant's Form S-1 Registration Statement (Registration No. 33-77054)
filed March 30, 1994, as amended.
(B) Incorporated by reference to the designated exhibit included with the
registrant's Form 10-K for the year ended December 31, 1994.
(C) Incorporated by reference to the designated exhibit included with the
registrant's Form S-1 Registration Statement (No. 33-91500) filed April 24,
1995, as amended.
(D) Incorporated by reference to the designated exhibit included with the
registrant's Form 10-K for the year ended December 31, 1995.
<PAGE> 1
Redacted Version
AGREEMENT
BY AND BETWEEN
RGENE THERAPEUTICS, INC.
AND
LABORATOIRES FOURNIER S.C.A.
DATED AS OF MAY 28, 1996
[*] = omitted, confidential material, which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE> 2
Redacted Version
TABLE OF CONTENTS
1.0 Definitions ....................................................... 2
2.0 License Grant ..................................................... 8
3.0 FOURNIER Due Diligence ............................................ 9
4.0 Regulatory Approval ............................................... 10
5.0 Manufacturing ..................................................... 13
6.0 Payments And Royalties ............................................ 20
7.0 Improvements ...................................................... 23
8.0 Confidentiality ................................................... 24
9.0 Enforcement ....................................................... 26
10.0 Patents and Inventions ............................................ 30
11.0 Term .............................................................. 30
12.0 Assignment ........................................................ 32
13.0 Indemnity ......................................................... 32
14.0 Miscellaneous Provisions .......................................... 33
15.0 Representations and Warranties .................................... 36
<PAGE> 3
AGREEMENT
This Agreement ("AGREEMENT"), effective as of the 28th day of May, 1996, is
entered into by and between RGENE Therapeutics, Inc., a corporation organized
under the laws of the State of Delaware and having its principal place of
business at 2170 Buckthorne Place, #230, The Woodlands, Texas 77380, U.S.A.
(hereinafter "RGENE"), and Laboratoires Fournier S.C.A., a corporation organized
under the laws of France and having its principal place of business at 42 rue de
Longvic, 21300 Chenove, France (hereinafter "FOURNIER").
WHEREAS, the Board of Regents (hereinafter the "BOARD") of The University
of Texas System is the owner of certain patent and technology rights relating to
E1A subject matter disclosed and/or claimed in European Patent Application No.
EP 92 90 2782.9 for "Method and Compositions for the Suppression of neu Mediated
Transformation" and International Patent Application PCT/US94/13868.
WHEREAS, the BOARD, through an agreement effective as of March 1, 1994,
granted RGENE an exclusive, world-wide license to the E1A subject matter with
the right to grant sublicenses consistent with the March 1, 1994 agreement.
WHEREAS, The University of Tennessee Research Corporation (hereinafter
"UTRC") and McMaster University (hereinafter "McMaster") jointly own certain
patent and technology rights to the cationic lipid subject matter disclosed
and/or claimed in European Patent Application No. EP 92 92 0321.4.
WHEREAS, UTRC has the exclusive right to commercialize the cationic lipid
subject matter, including the right to grant licenses to any PERSON (as defined
below), through an agreement entered into between UTRC and McMaster effective as
of May 25, 1992.
WHEREAS, UTRC has granted RGENE exclusive rights with respect to the
LICENSED FIELDS (as defined below), including the right to sublicense such
rights to any PERSON, through an agreement effective October 12, 1995, as
amended by the First Amended and Restated License Agreement Between The
University of Tennessee Research Corporation and RGENE Therapeutics, Inc.
executed by UTRC and RGENE on December 6, 1995 and December 8, 1995,
respectively.
WHEREAS, Argus Pharmaceuticals, Inc. (now known as Aronex Pharmaceuticals,
Inc.) obtained certain rights to UTRC's cationic lipid subject matter
<PAGE> 4
from UTRC under an agreement dated November 1, 1993 with the right to sublicense
such technology to any PERSON.
WHEREAS, Argus Pharmaceuticals, Inc. granted RGENE an exclusive license
with respect to UTRC's rights to the cationic lipid subject matter by an
agreement entered into between Argus Pharmaceuticals, Inc. and RGENE effective
as of April 6, 1994.
WHEREAS, FOURNIER desires to obtain the right to use, develop, have
developed, market, have marketed, sell, or have sold, and a limited right to
make or have made, LICENSED E1A PRODUCTS in the LICENSED TERRITORY (as those
terms are defined below).
NOW, THEREFORE, in consideration of the premises, the mutual covenants
recited herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed as follows:
1.0 DEFINITIONS
For the purposes of this AGREEMENT, the following terms shall have the
meanings indicated (such meanings to be equally applicable to both the singular
and plural forms of the terms defined).
1.01 (A) AFFILIATE shall mean, with respect to any PERSON, any other
PERSON which, directly or indirectly, controls, is controlled by, or is under
common control with such PERSON or any AFFILIATE of such PERSON pertaining to
the subject matter of this AGREEMENT. "Control" shall mean ownership of fifty
percent (50%) or more of the issued share capital or the legal power to cause
the direction of the general management and policies of the entity in question.
(B) PERSON shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, firm, joint stock company,
estate, entity, or GOVERNMENTAL AUTHORITY.
1.02 AFFILIATE SUBLICENSE shall mean a sublicense granted by FOURNIER
under this AGREEMENT to an AFFILIATE of FOURNIER. AFFILIATE SUBLICENSEE shall
mean any sublicensee of FOURNIER under this AGREEMENT who is an AFFILIATE of
FOURNIER.
1.03 ASSOCIATE SUBLICENSE shall mean a sublicense granted by FOURNIER
under this AGREEMENT that provides for FOURNIER to receive as consideration
anything of value in lieu of money. ASSOCIATE SUBLICENSEE shall
-2-
<PAGE> 5
mean any sublicensee of FOURNIER under an ASSOCIATE SUBLICENSE. Notwithstanding
the foregoing, if a sublicensee qualifies as both an AFFILIATE SUBLICENSEE and
an ASSOCIATE SUBLICENSEE, such sublicensee shall be deemed an AFFILIATE
SUBLICENSEE for all purposes, and the sublicense granted to such sublicensee
shall be considered an AFFILIATE SUBLICENSE.
1.04 DEVELOPMENT COMMITTEE shall mean a joint committee of PERSONS
appointed by each of RGENE and FOURNIER, which committee shall recommend
guidelines and strategy for developing and improving the LICENSED E1A PRODUCT in
the LICENSED TERRITORY and the United States. RGENE and FOURNIER shall each be
entitled to appoint three (3) PERSONS to the DEVELOPMENT COMMITTEE. THE
DEVELOPMENT COMMITTEE shall be established within sixty (60) days after the
effective date of this AGREEMENT, and may make non-binding recommendations
concerning the strategy for developing and improving the LICENSED E1A PRODUCT in
the LICENSED TERRITORY and the United States.
1.05 LICENSED E1A SUBJECT MATTER shall mean any inventions disclosed
and/or claimed, and related LICENSED TECHNOLOGY and LICENSED PATENT RIGHTS,
relating to the tumor suppressor E1A gene described in European Patent
Application No. EP 92 90 2782.9, and International Patent Application
PCT/US94/13868, and IMPROVEMENTS thereto subject to Sections 7.01 and 7.02
hereof.
1.06 LICENSED CATIONIC LIPID SUBJECT MATTER shall mean any inventions
disclosed and/or claimed, and related LICENSED TECHNOLOGY and LICENSED PATENT
RIGHTS, relating to the cationic lipid subject matter described in European
Patent Application No. EP 92 92 0321.4, and IMPROVEMENTS thereto subject to
Sections 7.01 and 7.02 hereof.
1.07 LICENSED E1A PRODUCT shall mean any method, product or
composition, any part of which comprises LICENSED E1A SUBJECT MATTER with or
without the LICENSED CATIONIC LIPID SUBJECT MATTER.
1.08 LICENSED FIELD shall mean: (A) with respect the LICENSED E1A
SUBJECT MATTER, any method, product or composition and fields of use of the
LICENSED E1A SUBJECT MATTER, including all human and veterinary therapeutics,
prophylactic, and diagnostic applications of the LICENSED E1A SUBJECT MATTER;
and (B) with respect to the LICENSED CATIONIC LIPID SUBJECT MATTER, use of the
LICENSED CATIONIC LIPID SUBJECT MATTER
-3-
<PAGE> 6
in combination with the LICENSED E1A PRODUCT for therapeutic and prophylactic
applications of the LICENSED E1A SUBJECT MATTER for all cancers, [*]. LICENSED
FIELD shall be extended to include the excluded cancers if and when RGENE
obtains a license to such cancers which RGENE has the right to sublicense. The
sale for research purposes of cationic lipid(s), reagent(s), and/or other
products based upon or incorporating the LICENSED CATIONIC LIPID SUBJECT MATTER
shall also be excluded from the LICENSED FIELD. RGENE shall use its best
good-faith efforts that are commercially reasonable to have the excluded cancers
included within the LICENSED FIELD, and shall promptly notify FOURNIER in
writing as soon as RGENE has obtained the rights necessary to include the
excluded cancers within the LICENSED FIELD. Any cost or expense necessary to
include such excluded cancers in the LICENSED FIELD shall be borne solely by
RGENE.
1.09 LICENSED TERRITORY shall mean the countries set forth in Appendix
A hereto.
1.10 LICENSED PATENT RIGHTS shall mean the inventions described and
claimed in European Patent Application Nos. EP 92 90 2782.9 and EP 92 92 0321.4,
and International Patent Application PCT/US94/13868, together with any
divisions, continuations, substitution or other applications based thereon, any
patents issuing thereon or extensions thereof, any and all counterparts
corresponding thereto listed in Appendix B hereto, including foreign counterpart
patent applications, issued foreign patents and amendments thereto, in the
LICENSED TERRITORY, which claim priority from, establishes the priority claim
for, or shares a common priority claim with, either European Patent Application
No. EP 92 90 2782.9, European Patent Application No. EP 92 92 0321.4 or the
International Patent Application PCT/US94/13868, and any and all IMPROVEMENTS
subject to Sections 7.01 and 7.02 hereof.
1.11 LICENSED TECHNOLOGY shall mean any unpatented technical
information or know-how now existing or developed during the term of this
AGREEMENT relating to either LICENSED E1A SUBJECT MATTER or the LICENSED
CATIONIC LIPID SUBJECT MATTER for use with the LICENSED E1A SUBJECT MATTER,
including the technical information in all current and future patent
applications, regulatory submissions to GOVERNMENTAL AUTHORITIES for the
purposes of obtaining marketing approval, manuals, formulas, specifications,
test data and procedures, flow charts, apparatus plans, papers, software,
drawings, laboratory notebooks, and other information.
- --------
* Confidential Treatment Requested
-4-
<PAGE> 7
1.12 (A) IMPROVEMENT shall mean all developments in the LICENSED
PATENT RIGHTS or LICENSED TECHNOLOGY conceived or reduced to practice prior to
any termination of this AGREEMENT, including any delivery system to which RGENE
has access, whether or not patentable, which are invented, developed, or
discovered relating to the LICENSED E1A SUBJECT MATTER or the LICENSED CATIONIC
LIPID SUBJECT MATTER to the extent such IMPROVEMENT in the LICENSED CATIONIC
LIPID SUBJECT MATTER is for use with the LICENSED E1A SUBJECT MATTER.
(B) IMPROVEMENTS in which the BOARD has rights shall be treated
as any other IMPROVEMENT under this AGREEMENT, except as specifically set forth
in Article 7.0 hereof and shall include any inventions and discoveries which are
IMPROVEMENTS under this AGREEMENT and are within the scope of either (i) the
BOARD's pending applications, issued patents, and/or patent applications,
whether domestic or foreign, and all divisionals, continuations,
continuation-in-part, reissue, reexaminations or extensions thereof, and any
letters patent that issue therefrom for the inventions disclosed in European
Patent Application No. EP 92 90 2782.9 and International Patent Application
PCT/US94/13868 or (ii) technology sponsored by RGENE under the supervision of
Mien-Chie Hung, Ph.D., and developed in the Labatoires of either Mien-Chie Hung,
Ph.D. or Gabriel Lopez-Berestein, M.D. at The University of Texas M.D. Anderson
Cancer Center.
1.13 NET SALES shall mean the sale of any LICENSED E1A PRODUCT by:
(A) FOURNIER to a PERSON other than an AFFILIATE. If any separate
consideration payable wholly in money, then NET SALES shall mean the aggregate
gross selling price of such LICENSED E1A PRODUCT in the form in which such
LICENSED E1A PRODUCT is sold, whether or not such LICENSED E1A PRODUCT is in
final form (and without excluding therefrom any components or subassemblies
thereof, whatever their origin). The distribution of free samples of LICENSED
E1A PRODUCT by FOURNIER shall not exceed the normal practice of FOURNIER for its
other products;
(B) FOURNIER for consideration other than money. If any LICENSED
E1A PRODUCT is sold for other than separate consideration payable wholly in
money, then NET SALES shall be determined in good faith by FOURNIER by assuming
that FOURNIER received the same NET SALES (as defined in Section 1.13(A) hereof)
that would have been realized in a transaction with an unaffiliated buyer in an
arm's length sale of such LICENSED E1A PRODUCT for money; and
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(C) any AFFILIATE SUBLICENSEE or ASSOCIATE SUBLICENSEE. If any
LICENSED E1A PRODUCT is sold by any AFFILIATE, then such sale shall be
considered a sale by FOURNIER.
(D) NET SALES shall reflect the following deductions:
(i) usual and customary trade discounts and rebates actually
given;
(ii) customary credits for claims, allowances, retroactive
price reductions, returns, refunds, and recalls;
(iii) charges for packaging, transportation, handling, and
insurance actually paid in connection with the LICENSED E1A PRODUCT; and
(iv) taxes, duties, customs, tariffs, and other charges or
assessments imposed by GOVERNMENTAL AUTHORITIES and actually paid in connection
with the LICENSED E1A PRODUCT.
(E) In the event the LICENSED E1A PRODUCT is sold as a
combination product containing one or more active components in addition to such
LICENSED E1A PRODUCT, then NET SALES for such combination product shall be
calculated by multiplying such NET SALES by the fraction A/(A+B), where A is the
invoice price of the LICENSED E1A PRODUCT if sold separately and B is the total
invoice price of any other active component(s) in the combination if sold
separately by FOURNIER or an AFFILIATE. If the other active component or
components in the combination are not sold separately by FOURNIER or an
AFFILIATE of FOURNIER, NET SALES for the combination product shall be calculated
by multiplying NET SALES of the combination by the fraction C/(C +D), where C is
FOURNIER's or such AFFILIATE's total actual cost of the LICENSED E1A PRODUCT at
the point of formulation into the combination product and D is FOURNIER's or
such AFFILIATE's total actual cost of the other active component(s) included in
the combination product.
1.14 PARTY shall mean either RGENE or FOURNIER. PARTIES shall mean
RGENE and FOURNIER.
1.15 FISCAL YEAR shall mean the period from January 1 through December
31.
1.16 PROPOSING PARTY shall have the meaning set forth in Section 7.04
hereof.
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1.17 NON-PROPOSING PARTY shall have the meaning set forth in Section
7.04 hereof.
1.18 SUPPLY AGREEMENT shall have the meaning set forth in Section 5.01
hereof.
1.19 CONFIDENTIAL INFORMATION shall have the meaning set forth in
Section 8.01 hereof.
1.20 DEVELOPMENT PLAN shall mean the plan made or agreed to by the
DEVELOPMENT COMMITTEE, and any amendment thereto or modification thereof made or
agreed to by the PARTIES, which plan in all cases shall not be binding upon the
PARTIES.
1.21 EMEA shall mean the European Medicines Evaluation Agency or any
successor agency.
1.22 FDA shall mean the United States Food and Drug Administration or
any successor agency.
1.23 GOVERNMENTAL AUTHORITY shall mean any federal, national, state,
county or local governmental authority or quasi-governmental authority of the
United States or any country within the LICENSED TERRITORY, or any subdivision,
commission, department, branch, instrumentality, agency, or court thereof,
including, without limitation, the FDA and the EMEA.
1.24 ND shall mean any application made to the FDA or any other
applicable GOVERNMENTAL AUTHORITY, seeking permission to test any LICENSED E1A
PRODUCT.
1.25 LICENSORS shall mean the BOARD, UTRC, McMaster, and Aronex
Pharmaceuticals, Inc., or any of them.
1.26 NDA shall mean any application made to the FDA or any other
applicable GOVERNMENTAL AUTHORITY, seeking permission to market any LICENSED E1A
PRODUCT.
1.27 PLA shall mean any application made to the FDA or any other
applicable GOVERNMENTAL AUTHORITY, seeking permission to license any LICENSED
E1A PRODUCT.
1.28 TRANSFER PRICE shall have the meaning set forth in Section 5.03(A)
hereof. AGGREGATE TRANSFER PRICE shall mean the amount equal to
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the TRANSFER PRICE multiplied by the number of units of LICENSED E1A PRODUCT
purchased or sold during a calendar quarter or FISCAL YEAR, as the case may be.
2.0 LICENSE GRANT
2.01 During the term of this AGREEMENT, RGENE hereby grants to
FOURNIER, and FOURNIER hereby accepts, the exclusive right and license to use,
develop, have developed, market, have marketed, sell, or have sold the LICENSED
E1A PRODUCT in the LICENSED TERRITORY in the LICENSED FIELD upon the terms and
conditions set forth in this AGREEMENT, and further subject to the royalty-free,
non-exclusive and other rights held by the United States Government. RGENE also
grants FOURNIER a limited right to make and have made the LICENSED E1A PRODUCT
subject to the terms and conditions set forth in Sections 2.03 and 5.07 hereof.
2.02 Right To Sublicense
(A) FOURNIER shall have the right to sublicense or co-promote
the license to any PERSON, subject to RGENE's approval (which approval shall not
be unreasonably withheld by RGENE) and RGENE's underlying licenses from the
LICENSORS. In the event that FOURNIER exercises its right to sublicense pursuant
to this Section 2.02, FOURNIER acknowledges and agrees that: (i) such sublicense
shall not relieve FOURNIER of any of its obligations under this AGREEMENT; (ii)
subject to Section 11.02 hereof, any act or omission of a sublicensee of
FOURNIER that would constitute a breach of this AGREEMENT if such act or
omission had been taken or omitted by FOURNIER shall be considered an act or
omission of FOURNIER; and (iii) no sublicense agreement shall expand or amend
FOURNIER's rights or obligations under this AGREEMENT.
(B) FOURNIER shall deliver to RGENE a true and correct copy of
each sublicense agreement prior to execution by FOURNIER, a copy of the executed
agreement, and any modification or termination thereof (excluding in each of the
foregoing cases all financial terms contained therein), within thirty (30) days
after such execution, modification, or termination.
2.03 Limited Right To Manufacture LICENSED E1A PRODUCT
(A) RGENE shall use its best efforts to revise its license
agreements covering the LICENSED E1A PRODUCT to provide for FOURNIER to become
the direct licensee of the LICENSED E1A PRODUCT in the LICENSED TERRITORY in the
event RGENE's rights under any of the license agreements are
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terminated. If the applicable license rights granted to RGENE by the LICENSORS
are terminated, then FOURNIER shall have the right to develop, produce,
manufacture, and market the LICENSED E1A PRODUCT in the LICENSED TERRITORY in
accordance with the terms of agreements FOURNIER has reached with the BOARD and
UTRC. Acceptance of FOURNIER to become a direct licensee of the LICENSORS shall
be as set forth in the letters from the LICENSORS dated May 22, 1996 and May 23,
1996, copies of which are attached hereto as Appendix E.
(B) FOURNIER shall have a right to cure any default of RGENE that
might cause any termination of RGENE's license rights from the LICENSORS.
2.04 FOURNIER shall have the right to transfer the license granted
pursuant to, and its rights and obligations under, this AGREEMENT: (i) as
permitted by Section 2.02(A) hereof; (ii) to an AFFILIATE of FOURNIER; or (iii)
in connection with the sale of all or substantially all of the business of
FOURNIER or the sale of such business to which this AGREEMENT relates.
2.05 RGENE makes no warranties that the LICENSED PATENT RIGHTS will
prevent all PERSONS from marketing product(s) in the LICENSED TERRITORY in the
LICENSED FIELD which would compete with the LICENSED E1A PRODUCT. Such
occurrence shall not constitute a breach by RGENE of this AGREEMENT, and, in
such case, FOURNIER shall not have any claim for damages under this AGREEMENT
against RGENE, the BOARD or UTRC; provided, however, that in the event of such
occurrence, the PARTIES shall promptly meet and negotiate in good faith any
appropriate changes to this AGREEMENT in accordance with Section 9.05 hereof.
2.06 FOURNIER shall not utilize the LICENSED TECHNOLOGY or the
LICENSED PATENT RIGHTS for any purpose other than that encompassed by the
license granted under this AGREEMENT.
3.0 FOURNIER DUE DILIGENCE
3.01 FOURNIER shall use its best good-faith efforts that are
commercially reasonable in conducting clinical trials, obtaining regulatory
approval, and marketing the LICENSED E1A PRODUCT in the LICENSED TERRITORY.
3.02 FOURNIER shall use its best good-faith efforts that are
commercially reasonable to bring one or more LICENSED E1A PRODUCTS to market in
the LICENSED FIELD in the LICENSED TERRITORY. If RGENE, in good faith,
reasonably believes that a market for the LICENSED E1A PRODUCT in
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the LICENSED TERRITORY and/or LICENSED FIELD is not being adequately penetrated
by FOURNIER (or its AFFILIATES or sublicensees), then RGENE shall notify
FOURNIER in writing as to this belief. The PARTIES shall then meet expeditiously
and discuss measures to revise, if necessary, FOURNIER's marketing strategy. If
the PARTIES mutually agree that a revision to FOURNIER's marketing strategy is
required, then FOURNIER shall cooperate with RGENE to develop a revised
marketing strategy that is commercially reasonable using best good-faith
efforts. Subject to this Section 3.02 and Section 3.01 hereof, FOURNIER shall
implement any such revised marketing strategy.
4.0 REGULATORY APPROVAL
4.01 FOURNIER Obligations
(A) FOURNIER shall be responsible for diligently pursuing
regulatory approval of the LICENSED E1A PRODUCT by GOVERNMENTAL AUTHORITIES in
the LICENSED TERRITORY.
(B) FOURNIER shall be responsible for conducting the clinical
development of the LICENSED E1A PRODUCT in the LICENSED TERRITORY and funding
all clinical trials in the LICENSED TERRITORY for the LICENSED E1A PRODUCT.
FOURNIER shall use its best good-faith efforts that are commercially reasonable
to diligently pursue the clinical trials in the LICENSED TERRITORY.
(C) FOURNIER shall be responsible for preparation of the EMEA
regulatory approval file.
(D) If FOURNIER fails to fulfill its obligations under Section
4.01(B) hereof for a period of six (6) months without good cause, then, after
the notice provisions of this AGREEMENT have been satisfied, in addition to any
remedies available to RGENE for breach, RGENE's obligations as set forth in
Section 4.03(C) hereof shall cease.
4.02 RGENE Obligations
(A) RGENE and any sublicensee shall use their best good-faith
efforts that are commercially reasonable in obtaining all requisite approvals of
the LICENSED E1A PRODUCT by GOVERNMENTAL AUTHORITIES in the United States,
including, without limitation, conducting the clinical trials required to be
conducted in the United States.
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(B) If RGENE sublicenses the development rights to the LICENSED
E1A PRODUCT in the United States, then RGENE's sublicensees shall (i) comply
with the applicable terms and conditions of this AGREEMENT, including, without
limitation, Sections 4.02(A) and 4.03 hereof, and (ii) use their best good-faith
efforts that are commercially reasonable to develop and market the LICENSED E1A
PRODUCT. Nothing contained in a sublicense agreement between RGENE and a
sublicensee shall diminish the obligations of RGENE or the rights of FOURNIER
under this AGREEMENT.
(C) If RGENE or its sublicensees fail to fulfill the obligations
under Section 4.02(A) or 4.02(B) hereof for a period of six (6) months without
good cause, then, after the notice provisions of this AGREEMENT have been
satisfied, in addition to any remedies available to FOURNIER for breach,
FOURNIER's obligations as set forth in Section 4.03(C) hereof shall cease.
4.03 Joint Development Strategy and Obligations
(A) RGENE or its sublicensees shall be responsible for, and shall
pay all costs and expenses arising out of and relating to, the preclinical
studies and trials of the LICENSED E1A PRODUCT in the United States. FOURNIER or
its sublicensees shall be responsible for, and shall pay all costs and expenses
arising out of and relating to, the preclinical studies and trials of the
LICENSED E1A PRODUCT in the LICENSED TERRITORY.
(B) The LICENSED E1A PRODUCT shall be manufactured and developed
by RGENE and any sublicensees to the highest ethical and professional standards
and in accordance with Section 5.01 hereof, and coordinated with RGENE's
preclinical and clinical development of the LICENSED E1A PRODUCT in the United
States.
(C) (i) All available information, findings, data, and files
developed or maintained by a PARTY in connection with obtaining and/or
maintaining regulatory approval of the LICENSED E1A PRODUCT shall be promptly
made available, without charge, to the other PARTY upon request, but in no event
later than thirty (30) days after receipt of such request. All such information,
findings, data, and files shall be subject to the confidentiality provisions of
Article 8.0 hereof. Subject to the foregoing sentence, all available information
under the control of a PARTY, whether generated in the United States, the
LICENSED TERRITORY, or any other country outside the LICENSED TERRITORY, shall
be accumulated in a "global file," and such information shall be the basis for
submissions for approval in the United States, the LICENSED TERRITORY, or any
other country outside the LICENSED TERRITORY.
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(ii) Each PARTY shall have complete access to the global
file, and shall have the right to refer to and cross-reference the other PARTY's
submissions to GOVERNMENTAL AUTHORITIES, including, without limitation, any IND,
NDA, PLA, and any revision or supplement thereto, consistent with the purpose of
this AGREEMENT and the guidelines set forth in the DEVELOPMENT PLAN. Any data or
information relied on by a PARTY in support of such submissions shall be
appropriately documented and, if not contained in the global file, shall,
subject to Sections 4.01(D) and 4.02(C) hereof, be made available to the other
PARTY. The PARTIES agree to cooperate with all GOVERNMENTAL AUTHORITIES and,
within their respective territories, to comply with all applicable requirements
of such authorities necessary to allow a PARTY to rely on the other PARTY's
data, submissions, or files used in support of a request for approval by such
authorities.
(iii) Each PARTY shall continue to have access to the global
file and, subject to Sections 4.01(D) and 4.02(C) hereof, the other PARTY's
development information after termination of this AGREEMENT, unless such
termination occurs as a result of the failure to meet the obligations set forth
in Section 4.01, 4.02, or 4.03 hereof.
(iv) During the term of this AGREEMENT, each PARTY shall have
a continuing obligation to use due diligence (but in no event later than
seventy-two (72) hours after notification) in reporting to the other PARTY any
adverse reactions associated with the use of the LICENSED E1A PRODUCT in animals
or humans, and shall comply with all applicable requirements in reporting to the
other PARTY and GOVERNMENTAL AUTHORITIES such adverse reaction. Each PARTY shall
immediately transmit to the other PARTY any notice from any GOVERNMENTAL
AUTHORITY that requires such PARTY to perform additional work or provide
additional information regarding the LICENSED E1A PRODUCT or has a material
impact on the marketability of the LICENSED E1A PRODUCT.
(v) The obligation to exchange information, findings, data,
and files developed or maintained by a PARTY in connection with obtaining and/or
maintaining regulatory approval of the LICENSED E1A PRODUCT shall extend to any
AFFILIATE and sublicensee of such PARTY including, without limitation, any
United States and Japanese sublicensees selected by RGENE.
(vi) A PARTY which fails to carry out its obligations as set
forth in Section 4.01 or 4.02 hereof shall be denied access to the other PARTY's
development information as set forth in Section 4.03(C) hereof.
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(vii) The sublicensee of a PARTY shall have access to the
information which is or should be contained in the global file to the same
extent as such PARTY.
(D) Each PARTY shall consult with the other PARTY regarding
indications, taking into account feasibility and market data, and shall develop
the LICENSED E1A PRODUCT in conjunction with the other PARTY consistent with the
DEVELOPMENT PLAN. Nothing in this AGREEMENT shall prevent RGENE from utilizing
its sole judgment with respect to the development strategy for the LICENSED E1A
PRODUCT outside the LICENSED TERRITORY. RGENE's activities concerning the
development strategy for the LICENSED E1A PRODUCT in the United States shall be
consistent with RGENE's obligations under Section 4.02 hereof.
(E) Development tasks necessary to obtain regulatory approval in
the LICENSED TERRITORY shall be implemented consistent with the guidelines
established by the DEVELOPMENT COMMITTEE. In case of disagreements, experts,
mutually agreed upon by RGENE and FOURNIER, as well as the respective chief
executive officers of the PARTIES, shall be consulted. In the case of a
deadlock, the PARTIES shall request the opinion of regulatory authorities
including, without limitation, Agence du Medicament and EMEA, or may mutually
agree upon an expert to break such deadlock.
(F) RGENE shall not take or fail to take any action that would
prevent FOURNIER from undertaking any study that a GOVERNMENTAL AUTHORITY in the
LICENSED TERRITORY may require or has approved.
5.0 MANUFACTURING
5.01 (A) Pursuant to the terms of the SUPPLY AGREEMENT to be
negotiated in good faith by the PARTIES based on reasonable terms consistent
with the needs of both PARTIES under this AGREEMENT, and agreed to by the
PARTIES by such time as the final regulatory submissions are filed, RGENE shall:
(i) manufacture, compound, finish, package, and supply the LICENSED E1A PRODUCT,
including, without limitation, Plasmid 1 and Plasmid 2 material, or cause such
product to be manufactured, compounded, finished, packaged, and supplied, in
strict compliance with the regulations, standards, and specifications of all
applicable GOVERNMENTAL AUTHORITIES and regulatory submissions; (ii) not depart
from such regulations, standards, specifications, and regulatory submissions
without the prior written approval of each of such GOVERNMENTAL AUTHORITIES; and
(iii) not sell, distribute, or otherwise release, or cause to be sold,
distributed or otherwise released, to FOURNIER, any AFFILIATE or sublicensee of
FOURNIER, or any other
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PERSON such LICENSED E1A PRODUCT that is not in full compliance with such
regulations, standards, specifications, and regulatory submissions, including,
without limitation, the appearance, composition, and quality of such LICENSED
E1A PRODUCT. It is understood and agreed by the PARTIES that RGENE shall supply
Plasmid 1 and Plasmid 2 material to FOURNIER in accordance with this Section
5.01, but in the event that Plasmid 2 material is not suitable for commercial
purposes, then RGENE shall continue to supply Plasmid 1 material to FOURNIER.
(B) RGENE may manufacture the LICENSED E1A PRODUCT itself or have the
LICENSED E1A PRODUCT manufactured under contract by an AFFILIATE, sublicensee,
or subcontractor of RGENE or any other PERSON who agrees to manufacture the
LICENSED E1A PRODUCT. RGENE shall deliver to FOURNIER a true and correct copy of
each agreement for the manufacture of the LICENSED E1A PRODUCT prior to its
execution by RGENE, a copy of the executed agreement, and any modification or
termination thereof, within thirty (30) days after such execution, modification,
or termination. No delegation of its obligations under this Section 5.01 or any
other provision of this AGREEMENT shall serve to relieve RGENE of its
responsibilities hereunder, and, in connection with any such delegation, RGENE
shall be solely responsible for the acts, commitments, and omissions by any of
its AFFILIATES, sublicensees, and subcontractors and any PERSON with whom such
AFFILIATES, sublicensees, and subcontractors contract or otherwise deal. RGENE
shall use its best good-faith efforts that are commercially reasonable to obtain
from any AFFILIATE, sublicensee, subcontractor, and other PERSON to whom RGENE
delegates any obligation under this AGREEMENT a commitment or other agreement
that shall provide for the imposition of penalties and other costs or expenses
against such AFFILIATE, sublicensee, subcontractor, and other PERSON in the
event of the failure by any one or all of them to comply with any provision of
this AGREEMENT, including, without limitation, Sections 5.01 and 5.04 hereof. In
the event that RGENE shall obtain any recovery from such AFFILIATE, sublicensee,
subcontractor, or other PERSON under such commitment or other agreement, RGENE
shall pay to FOURNIER a proportionate share of such recovery in an amount agreed
to in good faith by the PARTIES, which share shall reflect the proportionate
loss suffered by each PARTY.
5.02 (A) Subject to Section 5.01 hereof, the pharmaceutical form of
the LICENSED E1A PRODUCT to be supplied by or on behalf of RGENE to FOURNIER
shall be:
(i) Packaged, ready-to-use vials of lyophilized adequate
cationic lipids; and
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(ii) Packaged and vialed, ready-to-use frozen plasmid
material.
(B) FOURNIER shall supply labelling materials for the LICENSED
E1A PRODUCT appropriate for the LICENSED TERRITORY no later than thirty (30)
days prior to (i) the date when such labelling materials are required in
connection with the production of the LICENSED E1A PRODUCT or (ii) the date of
RGENE's confirmation of FOURNIER's purchase order made pursuant to Section 5.04
hereof, whichever is later. Such labelling materials shall include the notation
"Patent Pending" or the number of the appropriate patent or patents, as
prescribed by the applicable GOVERNMENTAL AUTHORITY.
5.03 Transfer Price
(A) TRANSFER PRICE shall mean the unit price agreed to in good
faith by RGENE and FOURNIER to be paid for the LICENSED E1A PRODUCT supplied by
or on behalf of RGENE, whether used for development or commercial purposes,
which price shall be no greater than RGENE's direct cost plus such part of
indirect cost that pertains to quality assurance and control, to be determined
by RGENE in conjunction with FOURNIER, but in no event shall such indirect cost
exceed [*] of RGENE's direct cost. It is understood and agreed by the PARTIES
that, in any FISCAL YEAR of commercial production, the aggregate of (i) the
TRANSFER PRICE (multiplied by the number of units of LICENSED E1A PRODUCT sold
by FOURNIER and its sublicensees) and (ii) the amount of the royalty payment
shall in no instance be greater than the amount of the applicable percentage of
NET SALES as set forth in the schedule under Section 6.04 hereof for said FISCAL
YEAR.
(i) If, at the Phase II consensus conference, the aggregate
of (1) the TRANSFER PRICE (multiplied by the number of units of LICENSED EPA
PRODUCT sold by FOURNIER and its sublicensees) and (2) the amount of the royalty
payment is projected for the first FISCAL YEAR of commercial production to
exceed the amount of the applicable percentage of NET SALES set forth in the
schedule under Section 6.04 hereof for said FISCAL YEAR, then RGENE shall have
no further obligation to manufacture the LICENSED E1A PRODUCT for FOURNIER or
its sublicensees. Additionally, FOURNIER shall, notwithstanding Section 5.07(B)
hereof and in its sole discretion, immediately have the right to manufacture,
have manufactured, develop, have developed, use, produce, and have
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produced the LICENSED E1A PRODUCT, and RGENE shall immediately furnish to
FOURNIER all manufacturing information, technology, and other know-how for the
LICENSED E1A PRODUCT.
(ii) If in the first FISCAL YEAR of commercial production
under this AGREEMENT, the aggregate of (1) the TRANSFER PRICE (multiplied by the
number of units of LICENSED E1A PRODUCT sold by FOURNIER and its sublicensees)
and (2) the amount of the royalty payment exceeds the amount of the applicable
percentage of NET SALES set forth in the schedule under Section 6.04 hereof for
said FISCAL YEAR, then, notwithstanding the foregoing, FOURNIER shall pay to
RGENE, for said FISCAL YEAR only, for LICENSED E1A PRODUCT sold by FOURNIER and
its sublicensees during said FISCAL YEAR an amount equal to the TRANSFER PRICE
(multiplied by the number of units of LICENSED E1A PRODUCT sold by FOURNIER and
its sublicensees), which amount shall not exceed [*] of NET SALES for said
FISCAL YEAR. Any credit due to FOURNIER shall be taken in the subsequent FISCAL
YEAR. There shall be no royalty payment owed by FOURNIER for said FISCAL YEAR
under Section 6.04 hereof, and RGENE shall have no further obligation to
manufacture the LICENSED E1A PRODUCT for FOURNIER or its sublicensees.
Additionally, FOURNIER shall, notwithstanding Section 5.07(B) hereof and in its
sole discretion, immediately have the right to manufacture, have manufactured,
develop, have developed, use, produce, and have produced the LICENSED E1A
PRODUCT, and RGENE shall immediately furnish to FOURNIER all manufacturing
information, technology, and other know-how for the LICENSED E1A PRODUCT.
(iii) In the event FOURNIER exercises its right under
Section 5.03(A)(i) or (ii) hereof, RGENE shall have the opportunity to review
FOURNIER's calculations of its cost to manufacture the LICENSED E1A PRODUCT, and
any underlying financial documentation pertaining thereto, to validate said
calculations.
(B) On the date of the shipment of any LICENSED E1A PRODUCT to
FOURNIER, RGENE shall forward to FOURNIER an invoice for the quantity of such
LICENSED E1A PRODUCT in such shipment. Within thirty (30) days after its receipt
of such invoice, FOURNIER shall pay to RGENE fifty percent (50%) of the amount
of such invoice. FOURNIER shall, subject to Sections 5.03(C) and 5.05 hereof,
pay the unpaid balance of such invoice after FOURNIER confirms delivery of such
shipment by visual inspection, but in no event later than thirty (30)
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days after delivery to the customs department in France or the applicable
LICENSED TERRITORY.
(C) If FOURNIER determines in good faith that any LICENSED E1A
PRODUCT does not conform to the requirements of Section 5.01 hereof, then
FOURNIER, in addition to any other remedies it may have under this AGREEMENT,
shall have the right to return such LICENSED E1A PRODUCT and deduct from the
invoice or any future invoice the AGGREGATE TRANSFER PRICE and all costs and
expenses relating to such return.
5.04 Purchase Orders
(A) Purchase orders for LICENSED E1A PRODUCT, whether for
development or commercial purposes, shall be governed by this Section 5.04,
unless otherwise modified by the SUPPLY AGREEMENT negotiated by the PARTIES
pursuant to Section 5.01 hereof, which agreement shall comply with the terms of
this Article 5.0.
(B) FOURNIER shall provide RGENE with a purchase order for its
required clinical materials in 1996 and 1997 no later than sixty (60) days after
the effective date of this AGREEMENT, and RGENE shall supply to FOURNIER such
materials in the quantity and by the date specified in such purchase order.
There shall be no penalty on the part of RGENE for its failure to provide such
clinical materials, except in the case of gross negligence.
(C) On or before November 30, 1996, or such later date to be
ascertained upon obtaining additional technical information concerning the
stability of the LICENSED E1A PRODUCT and manufacturing capacity, FOURNIER shall
provide RGENE with a purchase order for clinical materials that FOURNIER
reasonably estimates it will require in 1998. If RGENE fails to supply the
clinical materials as specified in such purchase order, then RGENE shall pay to
FOURNIER a penalty of [*] for late delivery, commencing thirty (30) days after
the delivery date specified in such purchase order. RGENE shall have fulfilled
its obligation to deliver the LICENSED E1A PRODUCT by the date specified in such
purchase order by delivering such product by such date to customs in the
applicable LICENSED TERRITORY and shall not be assessed any penalty under this
Section 5.04(C) or Section 5.04(D) hereof for a late shipment resulting from any
delay in processing the
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LICENSED E1A PRODUCT through customs in the applicable LICENSED TERRITORY,
except where such delay is caused by RGENE or is within its control.
(D) On or before November 30, 1997 and on or before November 30
of each subsequent FISCAL YEAR, or such later date to be ascertained upon
obtaining additional technical information concerning the stability of the
LICENSED E1A PRODUCT and manufacturing capacity, FOURNIER shall provide RGENE
with a purchase order for clinical materials that FOURNIER reasonably estimates
it will require in 1999 and each subsequent FISCAL YEAR commencing thirteen (13)
months after such November 30, respectively. If RGENE fails to supply the
clinical materials as specified in any purchase order, then RGENE shall pay to
FOURNIER the penalty specified in Section 5.04(C) hereof, with the exception
described in said section.
(E) Purchase Order Changes
(i) RGENE agrees to use its best good-faith efforts to
accommodate any changes in FOURNIER's purchase orders related to the quantity of
LICENSED E1A PRODUCT and the date of delivery.
(ii) Subject to Sections 5.03(C), 5.04(D), 5.04(E)(i), and
5.04(E)(iv) hereof, FOURNIER shall remain liable for any payments due for a
quantity of LICENSED E1A PRODUCT requested in an original purchase order, unless
FOURNIER notifies RGENE in writing of a revision to such purchase order before
the last date by which the manufacturer of such LICENSED E1A PRODUCT has
specified in writing to FOURNIER that it can accept a change in the quantity of
LICENSED E1A PRODUCT in such purchase order and thereby reduce FOURNIER's
liability.
(iii) RGENE shall not be liable, and shall not be required to
pay any penalty, for failing to deliver to FOURNIER quantities of LICENSED E1A
PRODUCT which are sought by FOURNIER in excess of the amount requested in an
original purchase order.
(iv) Notwithstanding any other provision of this AGREEMENT,
RGENE and FOURNIER may mutually agree to a revised purchase order which shall
supersede the original purchase order to which it relates.
5.05 Title to and risk of loss for any shipment of LICENSED E1A
PRODUCT, or components thereof, by RGENE or any of its AFFILIATES, sublicensees
or subcontractors to FOURNIER or its sublicensees shall pass to FOURNIER upon
receipt by FOURNIER or its sublicenses of such shipment after its
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<PAGE> 21
passage through customs. FOURNIER shall use its best good-faith efforts to
obtain clearance of any such shipment through customs.
5.06 All LICENSED E1A PRODUCT shipped by or on behalf of RGENE or any
of its AFFILIATES, sublicensees, or subcontractors pursuant to this AGREEMENT
shall be in accordance with the provisions of Section 5.01 hereof. RGENE shall
use its best good-faith efforts that are commercially reasonable and permitted
by law or government regulations to afford FOURNIER a priority in replacement of
any LICENSED E1A PRODUCT returned to RGENE pursuant to Section 5.03(C) hereof.
5.07 Secondary Supplier of LICENSED E1A PRODUCT
(A) The PARTIES recognize that it is in their mutual best
interest to provide for a back-up supplier of the LICENSED E1A PRODUCT for both
the LICENSED TERRITORY and the United States to the extent feasible under then
existing regulations in the LICENSED TERRITORY and the United States. The
PARTIES shall consult in good faith regarding the best means of accomplishing
this important objective, within the scope of RGENE's underlying licenses with
the LICENSORS.
(B) RGENE shall grant to FOURNIER the right to manufacture, have
manufactured, develop, have developed, use, produce, and have produced, the
LICENSED E1A PRODUCT for sale by FOURNIER and/or RGENE, provided that: (i) the
LICENSED E1A PRODUCT shall have been marketed and sold in the LICENSED
TERRITORY; (ii) FOURNIER shall have provided RGENE with its good-faith
reasonable projection that FOURNIER's cost to produce the LICENSED E1A PRODUCT
will be no greater that RGENE's total cost to produce the LICENSED E1A PRODUCT,
including applicable subcontractor costs but excluding transportation and
shipping costs (RGENE shall provide to FOURNIER sufficient information for such
projection to be made); and (iii) the consent of the LICENSORS has been
obtained. In the event that RGENE grants to FOURNIER such right, RGENE shall
transfer all manufacturing information, technology, and other know-how to
FOURNIER on the same terms and conditions it would to any other potential
secondary supplier. In the event that FOURNIER becomes a manufacturer of
LICENSED E1A PRODUCT, RGENE shall not be obligated to purchase LICENSED E1A
PRODUCT from FOURNIER. It is understood and agreed by the PARTIES that with
respect to LICENSED E1A PRODUCT comprising LICENSED CATIONIC LIPID SUBJECT
MATTER under the terms of RGENE's license from UTRC, such products sold in the
United States are required to be manufactured substantially in the United
States.
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<PAGE> 22
6.0 PAYMENTS AND ROYALTIES
6.01 In consideration of the license granted by RGENE to the LICENSED
E1A PRODUCT, FOURNIER agrees to pay, and RGENE agrees to accept, the payments
and royalties set forth in this Article 6.0.
6.02 Upfront Payments
(A) FOURNIER shall pay to RGENE an upfront payment in the amount
of Five Million Dollars ($5,000,000 U.S.) on or before June 5, 1996, less the
following payments which RGENE acknowledges and agrees have been heretofore paid
and received by RGENE and are being credited against the amount of the upfront
payments:
(i) Two Million Dollars ($2,000,000 U.S.) paid on or about
December 28, 1995 for FOURNIER's option to become an exclusive licensee; and
(ii) Five Hundred Thousand Dollars ($500,000 U.S.) paid on or
about February 28, 1996 for the extension of such option.
(B) It is understood and agreed by the PARTIES that the sum of
Two Hundred Fifty Thousand Dollars ($250,000) of the total amount paid pursuant
to Section 6.02(A) hereof represents the upfront license fee for the LICENSED
PATENT RIGHTS covering the LICENSED CATIONIC LIPID SUBJECT MATTER.
6.03 Milestone Payments
It is further understood and agreed by the PARTIES that, within thirty (30)
days after receipt by FOURNIER of notice and confirmation of achievement of each
of the milestones set forth in subsections (A), (B), (C), and (D) of this
Section 6.03, and within sixty (60) days after receipt by FOURNIER of notice and
confirmation of achievement of the milestones set forth in subsections (E) and
(F) of this Section 6.03, FOURNIER shall pay to RGENE the sum specified for each
such milestone as FOURNIER's contribution toward the research previously
conducted by RGENE in connection with the LICENSED E1A PRODUCT:
(A) [*]: Enrollment of the first patient in a clinical trial in
the United States for any LICENSED E1A PRODUCT;
- --------
* Confidential Treatment Requested
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<PAGE> 23
(B) [*]: Approval by a GOVERNMENTAL AUTHORITY for European
clinical trials for any LICENSED E1A PRODUCT;
(C) [*]: Approval for any LICENSED E1A PRODUCT, which includes a
second plasmid, to enter clinical trials in the United States;
(D) [*]: Enrollment of more than fifty (50) patients in the
United States in a clinical trial of any LICENSED E1A PRODUCT;
(E) [*]: RGENE or any AFFILIATE or sublicensee of RGENE obtaining
approval of a PLA for any LICENSED E1A PRODUCT; and
(F) [*]: FOURNIER or any AFFILIATE or sublicensee of FOURNIER
obtaining approval by the EMEA for any LICENSED E1A PRODUCT.
6.04 Royalties
(A) Subject to Sections 5.03(A), 6.04(C), 6.04(D), and 6.05
hereof, FOURNIER shall pay royalties to RGENE for any FISCAL YEAR during the
term of this AGREEMENT according to the following schedule:
NET SALES IN A FISCAL YEAR PRICE (ROYALTIES
(U.S. DOLLARS) + COST OF GOODS)
- --------------------------------------------------------------------------------
[*]
- --------------------------------------------------------------------------------
(B) Subject to Section 6.05 hereof, royalties shall be paid at
the end of the first FISCAL YEAR of sales, and thereafter quarterly in
accordance with Section 6.07 hereof.
(C) Subject to Section 5.03 hereof, FOURNIER shall be permitted
to deduct from the total amount of royalty payment due in each period the actual
amount of the AGGREGATE TRANSFER PRICE paid by FOURNIER to RGENE for the
LICENSED E1A PRODUCT bought by FOURNIER which resulted in the NET SALES for
which a royalty is due to RGENE. The amount of the royalty payment due shall be
calculated according to the following formula:
- --------
* Confidential Treatment Requested
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<PAGE> 24
Royalty payment = (Royalty Rate X NET SALES) - AGGREGATE TRANSFER
------------ PRICE.
100
(D) In the event that FOURNIER shall manufacture all or a portion
of the products that are the subject of this AGREEMENT, the PARTIES shall
determine jointly the appropriate TRANSFER PRICE to be deducted for the purpose
of calculating royalty payments, but in no event shall such TRANSFER PRICE be
greater than the TRANSFER PRICE that would have been deducted had RGENE supplied
the LICENSED E1A PRODUCT.
6.05 For purposes of determining when royalties are earned, LICENSED
E1A PRODUCT shall be deemed to have been sold when billed by FOURNIER to a
customer or, if not billed, when delivered or shipped by FOURNIER to a customer.
The failure of any customer to pay an invoice submitted by FOURNIER for such
LICENSED E1A PRODUCT shall not affect the obligation of FOURNIER to pay the
current royalty amount due to RGENE; provided, however, that any royalties paid
on (A) LICENSED E1A PRODUCTS that are returned or not accepted by customers and
(B) billings or shipments for which FOURNIER does not receive payment shall be
credited against subsequent royalty payments due RGENE under this AGREEMENT. In
the case of a sale of a LICENSED E1A PRODUCT for consideration other than money,
such sale shall be considered to have been made on the date of delivery or
shipment.
6.06 FOURNIER shall keep accurate records showing the number of sales,
NET SALES prices, and date of sale of all LICENSED E1A PRODUCTS sold by FOURNIER
and its sublicensees. FOURNIER shall, within seventy-five (75) days after the
end of each calendar quarter, furnish to RGENE a statement showing the number of
sales and NET SALES prices of all LICENSED E1A PRODUCTS sold by FOURNIER and its
sublicensees during such calendar quarter. FOURNIER shall, upon written request
by RGENE, make the records available for inspection by an independent certified
public accountant appointed by RGENE once each FISCAL YEAR at FOURNIER's place
of business during normal business hours and on a confidential basis. In the
event that the amounts due to RGENE are determined, by such accountant, to have
been underpaid by ten percent (10%) or more, FOURNIER shall pay the cost of such
examination and accrued interest on the amount of such underpayment at a rate of
twelve percent (12%) per annum or at the highest rate allowed by law, if lower.
6.07 Within seventy-five (75) days after the end of the first FISCAL
YEAR of sales under this Agreement, FOURNIER shall pay to RGENE the royalty
amount due for such FISCAL YEAR, as calculated in accordance with Sections 5.03,
6.04 and 6.05 hereof. For each calendar quarter of a FISCAL YEAR thereafter,
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<PAGE> 25
FOURNIER shall submit to RGENE, along with the statement prepared pursuant to
Section 6.06 hereof, the total amount of royalties shown thereby to be due, as
calculated pursuant to Sections 5.03, 6.04 and 6.05 hereof. Each payment made to
RGENE pursuant to this AGREEMENT shall be made in lawful funds of the United
States of America. Any conversion of currency into United States dollars for the
purpose of making a payment to RGENE for royalties shall be at the prevailing
rate of exchange of the currency of the country in which the sale of the
LICENSED E1A PRODUCT was made as quoted by CITIBANK, N.A. of New York for the
last business day of the calendar quarter for which the royalties are payable.
6.08 Any royalty payment which is overdue shall be subject to a late
payment charge which shall be equal to the prime rate quoted in The Wall Street
Journal for a major New York bank on the date due (or if not quoted on that
date, the next date on which the prime rate is quoted) during the entire period
of delinquency. The maximum amount of the late charge shall not exceed that
permitted by law for such a charge.
7.0 IMPROVEMENTS
7.01 Any IMPROVEMENT made or otherwise developed by only one PARTY
shall be solely owned by such PARTY. Any IMPROVEMENT made or otherwise developed
jointly by the PARTIES shall be owned by RGENE and FOURNIER in common. If
patentable, all IMPROVEMENTS, whether made by a PARTY or both PARTIES, shall be
protected by filing patent applications, prepared by the PARTY or PARTIES in its
or their own name, as the case may be, who made or developed such IMPROVEMENT.
7.02 Each PARTY shall promptly disclose to the other PARTY all
IMPROVEMENTS made by such PARTY or its AFFILIATES or sublicensees. Any
IMPROVEMENT shall become part of the LICENSED TECHNOLOGY or LICENSED PATENT
RIGHTS and, subject to Section 7.04 hereof, made available to the other PARTY
under a royalty-free license for using or selling such IMPROVEMENT. A royalty
for the use of an IMPROVEMENT in which the LICENSORS have rights, shall be paid
by FOURNIER on terms to be negotiated in good faith among RGENE, FOURNIER and
the LICENSORS having rights in the IMPROVEMENT.
7.03 Either PARTY may generate IMPROVEMENTS without approval from or
prior notice to the DEVELOPMENT COMMITTEE or the other PARTY, but shall promptly
thereafter notify the DEVELOPMENT COMMITTEE and the other PARTY of its actions
in accordance with Section 7.02 hereof.
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<PAGE> 26
7.04 If, no later than sixty (60) days after the disclosure of an
IMPROVEMENT by a PARTY ("PROPOSING PARTY") pursuant to Section 7.02 hereof, the
other PARTY (the "NON-PROPOSING PARTY") agrees to continue the joint development
of such IMPROVEMENT, then the NON-PROPOSING PARTY shall immediately pay to the
PROPOSING PARTY an amount equal to fifty percent (50%) of the costs incurred by
the PROPOSING PARTY in generating, conceiving, and developing such IMPROVEMENT
up to the date of such payment by the NON-PROPOSING PARTY, and thereafter the
PROPOSING PARTY and the NON-PROPOSING PARTY shall each pay fifty percent (50%)
of the costs associated with the development of such IMPROVEMENT; provided,
however, that an agreement by the NON-PROPOSING PARTY to continue the job
development of an IMPROVEMENT shall not change the ownership of such IMPROVEMENT
as provided in Section 7.01 hereof. If no decision has been made by the NON-
PROPOSING PARTY with respect to such IMPROVEMENT by the expiration of such sixty
(60)-day period, then the PROPOSING PARTY shall be free to continue development
of such IMPROVEMENT by itself.
7.05 If a NON-PROPOSING PARTY, which had previously not agreed to
continue the joint development of an IMPROVEMENT or contributed to the cost of
development of such IMPROVEMENT in accordance with Section 7.04 hereof, later
desires access to such IMPROVEMENT, then the NON-PROPOSING PARTY shall pay to
the PROPOSING PARTY an amount equal to fifty percent (50%) of the costs incurred
by the PROPOSING PARTY in generating, conceiving, and developing such
IMPROVEMENT up to the date of such payment by the NON-PROPOSING PARTY, shall
continue to pay fifty percent (50%) of the costs associated with the development
of such IMPROVEMENT, and shall be entitled to a license after good-faith
discussions by the PARTIES, which license shall not necessarily be royalty-free,
in the sole discretion of the PROPOSING PARTY.
7.06 If a PARTY manufactures a product developed as an IMPROVEMENT
under either Section 7.04 or 7.05 hereof, then such product shall be made
available to the other PARTY for a price to be negotiated by the PARTIES that
reasonably reflects the cost of manufacture of such product.
8.0 CONFIDENTIALITY
8.01 Each of the PARTIES agrees that it shall use diligent,
reasonable, and prudent efforts to maintain the confidential nature of all
confidential information, including, without limitation, all information
relating to or developed or exchanged pursuant to this AGREEMENT, the LICENSED
E1A SUBJECT MATTER, LICENSED CATIONIC LIPID SUBJECT MATTER, LICENSED TECHNOLOGY,
IMPROVEMENTS, and the information, findings, data, and files pursuant to
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<PAGE> 27
Section 4.03(C) hereof, original documents, patent applications, data analysis,
drawings, models, samples, any organism, cultures, compounds and devices,
mammographs, specifications, flow sheets, descriptions, submissions to
regulatory authorities, and other tangible material and copies thereof
(collectively, the "CONFIDENTIAL INFORMATION") that is not public knowledge.
Each of the PARTIES agrees that all CONFIDENTIAL INFORMATION transferred by one
PARTY to the other PARTY, orally or in writing, shall: (A) be held in strict
confidence, (B) be used only for the purposes contemplated by this AGREEMENT,
and (C) not be disclosed by the receiving PARTY (except as required by law) or
by its officers, directors, employees, or agents without the prior written
consent of the forwarding PARTY, unless such information (i) was in the public
domain at the time of disclosure, (ii) later became part of the public domain
through no act or omission of the receiving PARTY or its officers, directors,
employees, agents, successors or assigns, (iii) was lawfully disclosed to the
receiving PARTY by a PERSON having the right to disclose it, (iv) was already
known to the receiving PARTY, at the time of disclosure as demonstrated by
written documents existing at the time of the initial disclosure, (v) was
independently conceived, discovered, or reduced to practice as demonstrated by
written documents existing at the time of the initial disclosure, (vi) is
required to be submitted to a GOVERNMENTAL AUTHORITY pursuant to any obligation
imposed or right granted hereunder, or (vii) is required by law or court order
to be disclosed. The foregoing obligation of confidentiality shall survive any
termination of this AGREEMENT for a period of ten (10) years.
8.02 It is understood and agreed by the PARTIES that RGENE has an
obligation to fully disclose to UTRC all improvements (as that term is used in
the agreement between RGENE and UTRC dated October 12, 1995) and modifications
of the LICENSED E1A PRODUCTS using the LICENSED CATIONIC LIPID SUBJECT MATTER.
The University of Tennessee, McMaster, and UTRC shall have, during the term of
this AGREEMENT, a non-exclusive, non-transferable royalty-free license to
utilize said improvements and modifications for research and academic purposes
only. In the event that RGENE's rights from UTRC are terminated by UTRC due to a
default by RGENE, UTRC and McMaster shall have the right to obtain from RGENE a
royalty-free license (with the right to sublicense) to manufacture, use and sell
only such IMPROVEMENTS and modifications for any commercial or non-commercial
purpose that are owned solely by RGENE in accordance with Section 7.01 hereof.
The University of Tennessee, UTRC, and McMaster shall have the right to any
IMPROVEMENT or modification that is owned solely by FOURNIER or jointly by
FOURNIER and RGENE for research and academic purposes only.
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<PAGE> 28
8.03 Publications
(A) Neither PARTY shall cause any publication or communication to
the media or the general public of CONFIDENTIAL INFORMATION or information
concerning the LICENSED E1A Product or related clinical data, without the prior
written authorization from the other PARTY. Such authorization shall not be
unreasonably withheld and shall be granted in a timely manner.
(B) Each PARTY shall use its best good-faith efforts that are
commercially reasonable to require any PERSON associated with any clinical trial
to agree to maintain the confidentiality of all CONFIDENTIAL INFORMATION under
terms not materially different from Section 8.01 hereof.
(C) RGENE shall use its best good-faith efforts that are
commercially reasonable to include the confidentiality provisions set forth in
Section 8.01 hereof, or provisions which are not materially different from the
provisions set forth in such section, in its agreements with any of its
AFFILIATES, sublicensees, or subcontractors concerning rights of the LICENSED
E1A PRODUCT outside the LICENSED TERRITORY. RGENE shall notify FOURNIER in
writing prior to authorizing the release of CONFIDENTIAL INFORMATION by any of
its AFFILIATES, sublicensees, or subcontractors.
9.0 ENFORCEMENT
9.01 If either PARTY has knowledge or believes in good faith that any
of the CONFIDENTIAL INFORMATION has been improperly disclosed or otherwise
released or that any of the LICENSED PATENT RIGHTS have been infringed by any
PERSON, then such PARTY shall immediately notify, but in no event later than
five (5) days after its receipt of such knowledge or belief, the other PARTY in
writing, which notice shall set forth the acts and other information relating to
such disclosure, release, or infringement in reasonable detail.
9.02 RGENE and the LICENSORS shall have the responsibility for
enforcing the LICENSED PATENT RIGHTS in the United States and the LICENSED
TERRITORY.
9.03 (A) RGENE and the LICENSORS shall have up to ninety (90) days
following knowledge within which to elect to prosecute or otherwise enforce the
LICENSED PATENT RIGHTS in the LICENSED E1A SUBJECT MATTER in the LICENSED
TERRITORY or to maintain any patent applications or patents that may be included
within such LICENSED PATENT RIGHTS; provided,
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<PAGE> 29
however, that such election shall not be made later than thirty (30) days prior
to any applicable statutory bar or response date. If neither RGENE nor the
LICENSORS elect to prosecute or otherwise enforce such LICENSED PATENT RIGHTS or
to maintain such patent applications or patents, then RGENE shall immediately
notify FOURNIER in writing of such election, and FOURNIER, at its own expense,
shall be entitled to conduct or commence any action, claim, or proceeding to
maintain or prevent disclosure or infringement of such LICENSED PATENT RIGHTS.
RGENE shall be entitled to participate in any monetary recovery obtained by
FOURNIER as a result of such action, claim, or proceeding if and only to the
extent that RGENE has shared equally in or reimbursed fifty percent (50%) of
FOURNIER's costs and expenses incurred in connection with such action, claim, or
proceeding from the inception of same. Subject to Section 9.05 hereof, FOURNIER
shall remain responsible for any royalty payments as may be required under
Section 6.04 hereof. If RGENE or the LICENSORS fail to prosecute or otherwise
enforce the LICENSED PATENT RIGHTS in the LICENSED E1A SUBJECT MATTER in the
United States and such failure adversely affects the supply of the LICENSED E1A
PRODUCT or the financial feasibility of or the ability to sell such product,
FOURNIER shall, notwithstanding Section 5.07(B) hereof, immediately have the
right to manufacture, have manufactured, develop, have developed, use, produce,
and have produced the LICENSED E1A PRODUCT, and RGENE shall immediately furnish
to FOURNIER all manufacturing information, technology, and other know-how for
the LICENSED E1A PRODUCT.
(B) RGENE and the LICENSORS shall have up to ninety (90) days
following knowledge within which to elect to prosecute or otherwise enforce the
LICENSED PATENT RIGHTS in the LICENSED CATIONIC LIPID SUBJECT MATTER in the
LICENSED TERRITORY or to maintain any patent applications or patents that may be
included within such LICENSED PATENT RIGHTS; provided however, that such
election shall not be made later than thirty (30) days prior to any applicable
statutory bar or response date. If (i) RGENE has been given the right by the
LICENSORS to enforce the LICENSED PATENT RIGHTS in the LICENSED CATIONIC LIPID
SUBJECT MATTER; (ii) RGENE elects not to prosecute or otherwise enforce such
LICENSED PATENT RIGHTS; and (iii) the LICENSORS consent to having FOURNIER
prosecute or otherwise enforce such LICENSED PATENT RIGHTS, then RGENE shall
immediately notify FOURNIER in writing of such election, and FOURNIER, at its
own expense, shall be entitled to conduct or commence any action, claim, or
proceeding to maintain or prevent disclosure or infringement of such LICENSED
PATENT RIGHTS. Should FOURNIER conduct or commence any such action, claim, or
proceeding and obtain any recovery of damages, such recovery by FOURNIER shall,
in the first instance, be applied to reimburse FOURNIER for all of its costs and
expenses, including, without
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<PAGE> 30
limitation, attorneys' fees and expenses incurred in connection with such
action, claim, or proceeding, and the balance of any such recovery, if any,
shall be divided equally between FOURNIER and UTRC if RGENE elected not to
participate in such action, claim, or proceeding. RGENE shall be entitled to
receive a portion of such balance of any recovery obtained by FOURNIER as a
result of such action, claim, or proceeding if and only to the extent that RGENE
has shared equally in or reimbursed fifty percent (50%) of FOURNIER's costs and
expenses incurred in connection with such action, claim, or proceeding from the
inception of same. Subject to Section 9.05 hereof, FOURNIER shall remain
responsible for any royalty payments as may be required under Section 6.04
hereof. If RGENE or the LICENSORS fail to prosecute or otherwise enforce the
LICENSED PATENT RIGHTS in the LICENSED CATIONIC LIPID SUBJECT MATTER in the
United States and such failure adversely affects the supply of the LICENSED E1A
PRODUCT or the financial feasibility of or the ability to sell such product,
FOURNIER shall, notwithstanding Section 5.07(B) hereof, immediately have the
right to manufacture, have manufactured, develop, have developed, use, produce,
and have produced the LICENSED E1A PRODUCT, and RGENE shall immediately furnish
to FOURNIER all manufacturing information, technology, and other know-how for
the LICENSED E1A PRODUCT.
9.04 In any action, claim, or proceeding that a PARTY may institute to
prosecute or otherwise enforce the LICENSED PATENT RIGHTS or to maintain the
patent applications that may be included within such LICENSED PATENT RIGHTS, the
other PARTY shall, at the request and expense of the PARTY initiating such
action, claim, or proceeding, (A) cooperate in all respects with such PARTY, (B)
to the extent practicable, have its officers, directors, employees, and agents
testify when requested, and (C) make available all relevant records, papers,
information, samples, specimens, correspondence, documents, patents, patent
applications, and other information relating to the LICENSED PATENT RIGHTS.
9.05 Notwithstanding any of the foregoing, it is understood and agreed
that the PARTIES shall meet promptly and negotiate in good faith whether or not
a reduction in the royalty payments under Section 6.04 hereof or any other
changes to this AGREEMENT are appropriate in the event that there is a
significant change in the market or the economic position of the LICENSED E1A
PRODUCT. The factors to be considered shall include, but are not limited to, (A)
whether RGENE or the LICENSORS are unable to uphold the validity of any granted
patent within the LICENSED PATENT RIGHTS against any alleged infringer, (B) a
determination by a court of last resort from which no appeal may be taken that
any patents in a country within the LICENSED TERRITORY covering the LICENSED E1A
PRODUCT are invalid, and which results in the loss of exclusivity regarding such
products, (C) the
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value of know-how supplied by RGENE, (D) any exclusivity provided
by regulations or statutes of any GOVERNMENTAL AUTHORITIES beyond or in addition
to that provided by patents, (E) any exclusivity provided by patents in
jurisdictions in which the LICENSED E1A PRODUCT is manufactured, (F) marketing
in the LICENSED TERRITORY by any PERSON of a product that infringes any claim of
the LICENSED PATENT RIGHTS, (G) an adverse impact on the supply of the LICENSED
E1A PRODUCT or the financial feasibility of or the ability to sell such product,
and (H) whether the validity or viability of the LICENSED PATENT RIGHTS in the
LICENSED TERRITORY is adversely affected.
9.06 Infringement of a PERSON's Intellectual Property Rights
(A) RGENE makes no warranties that practicing the LICENSED E1A
SUBJECT MATTER will not infringe any PERSON's intellectual property rights. In
the event of such infringement, FOURNIER shall cooperate with RGENE and/or the
LICENSORS to negotiate and settle with any such PERSON concerning infringement
of such PERSON's intellectual property rights and otherwise resolve any such
infringement and secure RGENE's and FOURNIER's continued rights to such PERSON's
intellectual property rights.
(B) RGENE shall have up to ninety (90) days following knowledge
within which to elect to contest or otherwise defend any suit or claim brought
by any PERSON within or outside the LICENSED TERRITORY that alleges infringement
of such PERSON's intellectual property rights by the manufacture of the LICENSED
E1A PRODUCT by RGENE or which may jeopardize the supply of the LICENSED E1A
PRODUCT to FOURNIER or the ability of FOURNIER to sell such LICENSED E1A PRODUCT
in the LICENSED TERRITORY; provided, however, that such election shall not be
made later than thirty (30) days prior to any applicable statutory bar or
response date. If RGENE elects not to contest or otherwise defend any such suit
or claim or is unable or unwilling to obtain a license from such PERSON, then
RGENE shall immediately notify FOURNIER in writing, and FOURNIER shall have the
right, at FOURNIER's cost and expense, to contest or otherwise defend any such
suit or claim brought by any such PERSON within or outside the LICENSED
TERRITORY. Prior to settling or otherwise compromising any such suit or claim,
FOURNIER shall consult with RGENE, and shall not settle or otherwise compromise
any such suit or claim without RGENE's prior consent, which consent shall not be
unreasonably withheld or delayed. Any cost or expense incurred or settlement or
judgment paid by FOURNIER under this Section 9.06 shall be deducted by FOURNIER
from any payment that is due pursuant to Article 6.0 hereof; provided, however,
that the amount of any such deduction in any FISCAL YEAR shall not be greater
than fifty percent (50%) of the payment otherwise due pursuant to
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Article 6.0 hereof. Any balance remaining after application of the fifty percent
(50%) limitation on the deduction shall be carried forward to subsequent FISCAL
YEARS, subject again to the same fifty percent (50%) limitation.
9.07 By the time the LICENSED E1A PRODUCT enters commercial
production, each PARTY shall: (A) have obtained and thereafter carry such
liability insurance as would reasonably be expected of a company based upon and
appropriate for the nature and risk associated with the development,
manufacture, distribution, and sale of a comparable gene therapy product, in an
amount agreed to by the PARTIES on a claims made basis, (B) at all times during
the term of this AGREEMENT when such PARTY or its AFFILIATE, sublicensee, or
subcontractor is engaged in the manufacture of the LICENSED E1A PRODUCT, list
the other PARTY as an additional named insured on the policy of such liability
insurance, and (C) provide written evidence of such insurance to the other PARTY
upon request.
10.0 PATENTS AND INVENTIONS
RGENE shall, at its sole cost and expense, have the responsibility for
searching, filing, prosecuting and maintaining patent applications and patents
relating to the LICENSED PATENT RIGHTS in the LICENSED TERRITORY.
11.0 TERM
11.01 This Agreement shall terminate upon the later of:
(A) The expiration date of the last to expire patent issued
pursuant to the LICENSED PATENT RIGHTS (including any supplemental protection
certificate); provided, however, that if any patent within the LICENSED PATENT
RIGHTS is declared invalid by a court of competent jurisdiction from which no
further appeal may or has been taken, then such patent shall be considered to
have expired; or
(B) Ten (10) years from the date of the first sale of the
LICENSED E1A PRODUCT in the LICENSED TERRITORY.
11.02 (A) A PARTY may terminate this AGREEMENT for breach by the other
PARTY of any material obligation under this AGREEMENT, if such breach is not
remedied within sixty (60) days after receipt of notice in writing of such
breach given by such PARTY, unless (i) such breach was outside the control of
the other PARTY, and (ii) the other PARTY provides, within sixty (60) days after
receipt of notice of such breach, written evidence of its commercially
reasonable, good-faith
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<PAGE> 33
efforts to cure such breach, in which case there shall be no termination of this
AGREEMENT.
(B) A PARTY shall have the right to cure any breach or default of
the other PARTY with respect to any obligation the defaulting PARTY may have to
any PERSON without waiver of any rights the non-defaulting PARTY may have
against the defaulting PARTY and the right of the non-defaulting PARTY to seek
reasonable compensation from the defaulting PARTY to cover the cost associated
with curing such breach or default.
11.03 RGENE may terminate this AGREEMENT for the failure by FOURNIER
to make any payment as required pursuant to Sections 6.03 and 6.04 hereof thirty
(30) days after receipt by FOURNIER of notice of such failure, which notice
shall be sent by RGENE to FOURNIER in accordance with Section 14.02 hereof.
11.04 This AGREEMENT may be terminated due to unsatisfactory results
as determined by mutual consent of the PARTIES at a Phase II consensus
conference to be held by the PARTIES on or about the second anniversary of this
AGREEMENT.
11.05 This AGREEMENT shall automatically terminate, in its entirety,
if FOURNIER shall become bankrupt or insolvent or the business of FOURNIER shall
be placed in the hands of a receiver. In the event that either PARTY enters into
a bankruptcy, insolvency, or receivership, the other PARTY shall have a right of
first refusal to all rights transferred to such PARTY under this AGREEMENT.
11.06 Upon any termination of this AGREEMENT for any reason, nothing
herein shall be construed to release either PARTY from any obligation that has
matured or otherwise become due prior to the effective date of such termination.
FOURNIER may, after the effective date of such termination, sell to customers or
return to RGENE all LICENSED E1A PRODUCT in FOURNIER's possession on such
effective date. In the event that FOURNIER elects to sell such LICENSED E1A
PRODUCT, then FOURNIER shall be obligated to pay royalties in accordance with
Section 6.04 hereof.
11.07 Upon and effective as of the date of termination of this
AGREEMENT by RGENE pursuant to Section 11.02, 11.03 or 11.05 hereof:
(A) All licenses to IMPROVEMENTS granted by FOURNIER to RGENE
under Sections 7.05 and 7.06 hereof shall continue in full force and effect; and
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<PAGE> 34
(B) FOURNIER shall, on terms to be negotiated in good faith by
the PARTIES, grant to RGENE a royalty-free license with the right to sublicense
with respect to any IMPROVEMENTS made solely by FOURNIER in the LICENSED E1A
SUBJECT MATTER, which IMPROVEMENT has not yet been licensed to RGENE, provided
(i) FOURNIER had provided notice of such IMPROVEMENT to the DEVELOPMENT
COMMITTEE or RGENE; and (ii) RGENE had provided notice to FOURNIER in accordance
with Sections 7.04 and 7.05 hereof prior to such termination that RGENE desires
to develop the IMPROVEMENT jointly with FOURNIER and has paid to FOURNIER
contemporaneous with its notice the amounts prescribed in such sections.
12.0 ASSIGNMENT
Except as otherwise provided herein, this AGREEMENT may not be assigned
by a PARTY without the prior written consent of the other PARTY except in
connection with the assignment to wholly-owned subsidiaries of such PARTY or to
successors in interests of the business to which this AGREEMENT relates.
13.0 INDEMNITY
13.01 FOURNIER shall, at its cost and expense, defend, indemnify and
hold harmless RGENE, the LICENSORS, and their respective directors, officers,
employees, agents, and AFFILIATE from and against any and all fines, penalties,
damages, and claims imposed, asserted, suffered or made by any PERSON as a
result of FOURNIER's failure to comply with any term or provision of this
AGREEMENT, including, without limitation, contamination or improper storage by
FOURNIER or its AFFILIATES or sublicensees of any LICENSED E1A PRODUCT;
provided, however, that the foregoing indemnity shall not apply to the extent
that any such fines, penalties, damages, or claims arise out of, are related to,
or are in any way connected with the failure of RGENE to comply with any term or
provision of this AGREEMENT, including without limitation, RGENE's breach of its
agreement to manufacture and deliver to FOURNIER the LICENSED E1A PRODUCT in
accordance with Sections 4.03(B) and 5.01 hereof. The foregoing exclusion of the
indemnity shall apply only with respect to RGENE, and such indemnity shall
remain in force with respect to the LICENSORS and their respective officers,
directors, employees, and agents, except to the extent that such fines,
penalties, damages, or claims arose from the negligence, recklessness or willful
misconduct of the LICENSORS or any of their respective officers, directors,
employees, or agents.
13.02 RGENE shall, at its cost and expense, defend, indemnify and hold
harmless FOURNIER and its directors, officers, employees, agents, and AFFILIATES
from and against any and all fines, penalties, damages, and claims
-32-
<PAGE> 35
imposed, asserted, suffered or made by any PERSON as a result of (A) any
LICENSED E1A PRODUCT manufactured, marketed, sold, or delivered by or on behalf
of RGENE or its AFFILIATES, sublicensees, or subcontractors, (B) the
manufacture, packaging, storage, or shipment of any LICENSED E1A PRODUCT by or
on behalf of RGENE or its AFFILIATES, sublicensees, or subcontractors, (C) any
use of any LICENSED E1A PRODUCT by any PERSON, including, without limitation,
products liability, (D) any act, commitment, or omission by RGENE or its
AFFILIATES, sublicensees, or subcontractors, and (E) any failure by RGENE or its
AFFILIATES, sublicensees, or subcontractors to comply with any term or provision
of this AGREEMENT, including, without limitation, RGENE's breach of its
agreement to manufacture and deliver to FOURNIER the LICENSED E1A PRODUCT in
accordance with Sections 4.03(B) and 5.01 hereof; provided, however, that the
foregoing indemnity shall not apply to the extent that any such fines,
penalties, damages, or claims arise out of an act or omission of FOURNIER,
including, without limitation, a breach by FOURNIER or its AFFILIATES or
sublicensees of Section 4.01 hereof.
14.0 MISCELLANEOUS PROVISIONS
14.01 Duties and Taxes
FOURNIER shall be responsible for any import duties and taxes associated
with the supply, shipment, or sale of LICENSED E1A PRODUCT, as well as
compliance with all applicable foreign laws and regulations.
14.02 Notices
(A) All communications and notices provided for under this
AGREEMENT shall be in writing and be given personally, by courier, or by means
of telex, telecopy or other wire transmission (with provision for assurance of
receipt in a manner typical with respect to communications of that type), or be
mailed by registered or certified first class mail, return receipt requested, at
the address set forth below (or to such other PERSON, address or telecopy (FAX)
number as a PARTY may, from time to time, designate by written notice):
(i) If to RGENE:
RGENE Therapeutics, Inc.
2170 Buckthorne Place, #230
The Woodlands, Texas 77380 U.S.A.
Attention: Dr. Marin H. Lindenberg
FAX: (713) 367-1661
-33-
<PAGE> 36
With a copy to:
Morgan & Finnegan, L.L.P.
345 Park Avenue
New York, New York 10154
Attention: Kenneth H. Sonnenfeld, Esq.
FAX: (212) 751-6849;
(ii) If to Fournier:
Laboratoires Fournier S.C.A.
42, rue de Longvic
21300 Chenove
France
Attention: Mr. Bernard Majoie
FAX: (33) 80-44-70-04
With a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Peter G. Bergmann, Esq.
FAX: (212) 504-6666.
(B) All such communications and notices given in such manner
shall be deemed given when received by (or when proffered to, if receipt is
refused) the PARTY or PERSON to whom it is addressed.
14.03 Waiver
No failure or delay by any PARTY to insist upon the strict performance of
any term, provision, condition, covenant, or agreement contained in this
AGREEMENT, or to exercise any right, power, or remedy under or consequent upon a
breach of this AGREEMENT shall constitute a waiver of any such term, provision,
condition, covenant, agreement, right, power, or remedy or of any such breach,
or preclude such PARTY from exercising any such right, power, or remedy at any
later time or times.
14.04 Governing Law
Any dispute between the PARTIES arising out of or with regard to any term
or provision of this AGREEMENT, including, without limitation, its construction,
interpretation, breach, and damages for breach, shall be governed by the laws of
the
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<PAGE> 37
State of New York (without regard to its conflict of law principles). Each of
the PARTIES consents to personal jurisdiction in the State of New York for
purposes of any such dispute, and any suit or claim arising out of such dispute
shall be brought only in the courts of the State of New York or the Federal
Court of the United States, located in the Borough of Manhattan, County of New
York.
14.05 Counterparts
This AGREEMENT may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together shall constitute one
and the same AGREEMENT. A facsimile signed copy of this AGREEMENT shall be
deemed valid as between the PARTIES.
14.06 Headings
The headings and divisions of this AGREEMENT are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this AGREEMENT.
14.07 Entire Understanding
This AGREEMENT constitutes the entire understanding between the PARTIES
with respect to the subject matter hereof. No modifications, extensions, or
waivers of any provisions hereof or release of any right hereunder shall be
valid, unless the same is in writing and is consented to by both PARTIES.
14.08 Further Assurances
Each of the PARTIES shall, at the request of the other PARTY, execute and
deliver, or have executed and delivered, all such further assignments,
endorsements, and other documents, and perform all such other acts as may
reasonably be necessary to accomplish the transactions contemplated by this
AGREEMENT.
14.09 Severability
If any provision of this AGREEMENT is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the PARTIES. In any event, all other provisions of this
AGREEMENT shall be deemed valid and enforceable to the full extent permitted by
law.
-35-
<PAGE> 38
14.10 Force Majeure
Neither PARTY shall be liable for failure to perform as required by any
provision of this AGREEMENT where such failure results from a force majeure,
including, without limitation, any order of a GOVERNMENTAL AUTHORITY beyond such
PARTY's control. In the event of any delay attributable to a force majeure, the
time for performance affected thereby shall be extended for a period equal to
the time lost by reason of such delay. If, as a result of a force majeure, RGENE
is unable to manufacture LICENSED E1A PRODUCT for the purposes of this
AGREEMENT, and strictly in accordance with Section 5.01 hereof, then FOURNIER
shall have the right, but not the obligation, to manufacture said LICENSED E1A
PRODUCT.
14.11 Relationship of the PARTIES
This AGREEMENT shall not be construed as constituting either PARTY as a
partner of the other or to create any other form of legal association that would
impose liability upon one PARTY for the act or omission of the other PARTY or as
providing either PARTY with the right, power, or authority to create or impose
any duty or obligation upon the other PARTY.
14.12 Successors and Assigns
This AGREEMENT shall be binding upon, and inure to the benefit of, each of
RGENE and FOURNIER and their respective successors and permitted assigns.
14.13 Expenses
Each of the PARTIES shall bear its respective costs and expenses (including
attorneys' fees and expenses) incurred in connection with the negotiation and
preparation of this AGREEMENT and consummation of the transactions contemplated
hereby.
15.0 REPRESENTATIONS AND WARRANTIES
15.01 Representations and Warranties of RGENE
RGENE hereby represents and warrants to FOURNIER that, as of the date of
this AGREEMENT, the following statements are and shall be true and correct in
all material respects:
(A) Organization and Good Standing. RGENE is a corporation duly
organized, validly existing, and in good standing under the laws of
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<PAGE> 39
the State of Delaware, has the corporate power and authority to conduct the
business in which it presently is engaged, to enter into this AGREEMENT, and to
perform its obligations hereunder, is qualified to do business as a foreign
corporation, and is in good standing in each jurisdiction in which the failure
to be so qualified would have a material adverse effect upon its business or
financial condition.
(B) Authorization and Binding Effect. All corporate action on the
part of RGENE and its officers and directors necessary for the authorization,
execution, and delivery of this AGREEMENT and for the performance of all of
RGENE's obligations hereunder has been taken, and this AGREEMENT, when executed
and delivered, shall constitute a valid and legally binding obligation of RGENE
enforceable against RGENE in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, and other laws affecting creditors'
rights generally or by general equitable principles.
(C) Execution, Delivery and Performance. The execution, delivery,
and performance by RGENE of this AGREEMENT do not (i) violate or breach the
certificate of incorporation or bylaws of RGENE, (ii) violate or conflict with
any applicable law, (iii) violate, breach, cause a default under, or otherwise
give rise to a right of termination, cancellation or acceleration with respect
to (presently, with the giving of notice or the passage of time), any agreement,
contract or instrument to which RGENE is a party or by which any of its assets
are bound, or (iv) result in the creation or imposition of any lien, pledge,
mortgage, claim, charge, or encumbrance upon any assets of RGENE.
(D) Governmental and Other Consents. No consent, authorization,
license, permit, registration or approval of, or exemption or other action by,
any governmental authority or any PERSON other than the UTRC and the BOARD is
required in connection with RGENE's execution and delivery of this AGREEMENT.
(E) Disclosure. To the best of RGENE's knowledge, no
representation or warranty by RGENE contained in this AGREEMENT and no writing,
certificate, exhibit, list, information, document or other instrument furnished
pursuant to this AGREEMENT contain or will contain any untrue statement of a
material fact or omit or will omit any material fact so as to make any statement
or information contained therein misleading.
(F) Intellectual Property. RGENE (i) has delivered to FOURNIER
all information in RGENE's possession or of which RGENE has knowledge concerning
the patent applications that are the subject of this AGREEMENT and the LICENSED
PATENT RIGHTS; (ii) has no knowledge that
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<PAGE> 40
the practice of the LICENSED PATENT RIGHTS would infringe any presently existing
patent; (iii) except as disclosed to FOURNIER on Appendix C hereto, has no
knowledge of any objection or proceeding, pending or threatened, that would
affect the validity of any patent issued pursuant to this AGREEMENT; and (iv)
has furnished to FOURNIER all prior art form, of which it presently has
knowledge, that is material to the validity of the patent claims being
prosecuted in the applications which are licensed to FOURNIER under this
AGREEMENT. RGENE does not have knowledge of any presently existing patents in
the United States or the LICENSED TERRITORY that would be infringed by the
activity contemplated by this AGREEMENT. The representations and warranties of
RGENE as set forth in Section 2.14 of the Agreement and Plan of Merger among
Targeted Genetics Corporation, TGC Acquisition Corporation, and RGene
Therapeutics, Inc. dated as of April 16, 1996, including Schedule 2.14 of the
Company Disclosure Memorandum (as that term is defined in said Agreement and
Plan of Merger), (i) are incorporated herein by reference to the extent that
they relate to the LICENSED E1A SUBJECT MATTER or the LICENSED CATIONIC LIPID
SUBJECT MATTER, (ii) to such extent, shall constitute representations and
warranties under this AGREEMENT, and (iii) are and shall be true and correct in
all respects as of the date of this AGREEMENT. Said Section 2.14 and Schedule
2.14 are attached hereto as Appendix D.
15.02 Representations and Warranties of FOURNIER
FOURNIER hereby represents and warrants to RGENE that, as of the date of
this AGREEMENT, the following statements are and shall be true and correct in
all material respects:
(A) Organization and Good Standing. FOURNIER is a corporation
duly organized, validly existing, and in good standing under the laws of France
and has the corporate power and authority to conduct the business in which it
presently is engaged, to enter into this AGREEMENT, and to perform its
obligations hereunder, is qualified to do business as a foreign corporation, and
is in good standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect upon its business or financial condition.
(B) Authorization and Binding Effect. All corporate action on the
part of FOURNIER and its officers and directors necessary for the authorization,
execution, and delivery of this AGREEMENT and for the performance of all of
FOURNIER's obligations hereunder has been taken, and this AGREEMENT, when
executed and delivered, shall constitute a valid and legally binding obligation
of FOURNIER enforceable against FOURNIER in accordance with its terms, except as
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<PAGE> 41
enforceability may be limited by bankruptcy, insolvency, or other laws affecting
creditors' rights generally or by general equitable principles.
(C) Execution, Delivery and Performance. The execution, delivery,
and performance by FOURNIER of this AGREEMENT do not (i) violate or breach the
certificate of incorporation or bylaws of FOURNIER, (ii) violate or conflict
with any applicable law, (iii) violate, breach, cause a default under, or
otherwise give rise to a right of termination, cancellation or acceleration with
respect to (presently, with the giving of notice or the passage of time), any
agreement, contract or instrument to which FOURNIER is a party or by which any
of its assets are bound, or (iv) result in the creation or imposition of any
lien, pledge, mortgage, claim, charge, or encumbrance upon any assets of
FOURNIER.
(D) Governmental and Other Consents. No consent, authorization,
license, permit, registration or approval of, or exemption or other action by,
any governmental authority or any other PERSON is required in connection with
FOURNIER's execution and delivery of this AGREEMENT.
(E) Disclosure. To the best of FOURNIER's knowledge, no
representation or warranty by FOURNIER contained in this AGREEMENT and no
writing, certificate, exhibit, list, information, document or other instrument
furnished pursuant to this AGREEMENT contain or will contain any untrue
statement of a material fact or omit or will omit any material fact so as to
make any statement or information contained therein misleading.
15.03 Survival
The respective representations and warranties of the PARTIES shall
survive any termination of this AGREEMENT.
IN WITNESS WHEREOF, the PARTIES hereto have executed this AGREEMENT as
of the date and year first written above.
RGENE THERAPEUTICS, INC. LABORATOIRES FOURNIER S.C.A.
By: /s/ Martin H. Lindenberg By: /s/ Francois Picart
------------------------ -----------------------------------
Name: Martin H. Lindenberg Name: Francois Picart
Title: President and CEO Title: Vice President, Legal Department
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<PAGE> 42
APPENDIX A
This AGREEMENT extends to patent rights and know-how in the LICENSED
TERRITORIES listed below:
France Liechtenstein
Germany San Marino
Italy Vatican
Belgium Poland
Luxembourg Czech Republic
Netherlands Slovakia
United Kingdom Hungary
Ireland Macedonia
Denmark Romania
Greece Bulgary
Spain Slovenia
Portugal Croatia
Austria Bosnia
Sweden Serbia
Finland Albania
Switzerland Montenegro
Turkey Latvia
Iceland Estonia
Norway Lithuania
Andorra French-speaking countries of Africa
Monaco
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<PAGE> 43
APPENDIX B
FOREIGN PATENTS AND PATENT APPLICATIONS
RELATED TO E1A SUBJECT MATTER
<TABLE>
<CAPTION>
==============================================================================================================================
COUNTRY SERIAL NO. PATENT NO. TERMINATION DATE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PCT PCT/US91/09100
- ------------------------------------------------------------------------------------------------------------------------------
France EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
Germany EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
Italy EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
Belgium EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
Netherlands EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
United Kingdom EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
Denmark EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
Spain EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
Austria EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
Sweden EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
Switzerland EP 92 902782.9
- ------------------------------------------------------------------------------------------------------------------------------
PCT (CIP of PCT/US94/13868
PCT\US 91/09100)
- ------------------------------------------------------------------------------------------------------------------------------
DESIGNATED COUNTRIES OF PCT/US94/13868:
- ------------------------------------------------------------------------------------------------------------------------------
Armenia
- ------------------------------------------------------------------------------------------------------------------------------
Austria
- ------------------------------------------------------------------------------------------------------------------------------
Australia
- ------------------------------------------------------------------------------------------------------------------------------
Barbados
- ------------------------------------------------------------------------------------------------------------------------------
Bulgaria
- ------------------------------------------------------------------------------------------------------------------------------
Brazil
</TABLE>
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<PAGE> 44
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Belarus
- ---------------------------------------------------------------------------------------------------------------------------
Canada
- ------------------------------------------------------------------------------------------------------------------------
Switzerland/Liechtenstein
- ------------------------------------------------------------------------------------------------------------------------
China
- ---------------------------------------------------------------------------------------------------------------------------
Czech Republic
- ---------------------------------------------------------------------------------------------------------------------------
Germany
- ---------------------------------------------------------------------------------------------------------------------------
Denmark
- ---------------------------------------------------------------------------------------------------------------------------
Spain
- ---------------------------------------------------------------------------------------------------------------------------
Finland
- ---------------------------------------------------------------------------------------------------------------------------
United Kingdom
- ---------------------------------------------------------------------------------------------------------------------------
Georgia
- ---------------------------------------------------------------------------------------------------------------------------
Hungary
- ---------------------------------------------------------------------------------------------------------------------------
Japan
- ---------------------------------------------------------------------------------------------------------------------------
Kenya
- ---------------------------------------------------------------------------------------------------------------------------
Kyrgyzstan
- ---------------------------------------------------------------------------------------------------------------------------
Democratic People's Republic of Korea
- ---------------------------------------------------------------------------------------------------------------------------
Republic of Korea
- ---------------------------------------------------------------------------------------------------------------------------
Kazakhstan
- ---------------------------------------------------------------------------------------------------------------------------
Sri Lanka
- ---------------------------------------------------------------------------------------------------------------------------
Lithuania
- ---------------------------------------------------------------------------------------------------------------------------
Luxembourg
- ---------------------------------------------------------------------------------------------------------------------------
Latvia
- ---------------------------------------------------------------------------------------------------------------------------
Republic of Moldova
- ---------------------------------------------------------------------------------------------------------------------------
Madagascar
- ---------------------------------------------------------------------------------------------------------------------------
Mongolia
- ---------------------------------------------------------------------------------------------------------------------------
Malawi
- ---------------------------------------------------------------------------------------------------------------------------
Netherlands
</TABLE>
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<PAGE> 45
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norway
- ---------------------------------------------------------------------------------------------------------------------------
New Zealand
- ---------------------------------------------------------------------------------------------------------------------------
Poland
- ---------------------------------------------------------------------------------------------------------------------------
Portugal
- ---------------------------------------------------------------------------------------------------------------------------
Romania
- ---------------------------------------------------------------------------------------------------------------------------
Russian Federation
- ---------------------------------------------------------------------------------------------------------------------------
Sudan
- ---------------------------------------------------------------------------------------------------------------------------
Sweden
- ---------------------------------------------------------------------------------------------------------------------------
Slovenia
- ---------------------------------------------------------------------------------------------------------------------------
Slovakia
- ---------------------------------------------------------------------------------------------------------------------------
Tajikistan
- ---------------------------------------------------------------------------------------------------------------------------
Trinidad
- ---------------------------------------------------------------------------------------------------------------------------
Ukraine
- ---------------------------------------------------------------------------------------------------------------------------
Uzbekistan
- ---------------------------------------------------------------------------------------------------------------------------
Viet Nam
- ---------------------------------------------------------------------------------------------------------------------------
ARIPO PATENT: Kenya, Malawi, Sudan and Swaziland.
- -------------------------------------------------------------------------------------------------------------------
EUROPEAN PATENT: Austria, Belgium, Switzerland/Liechtenstein, Germany, Denmark,
Spain, France, United Kingdom, Greece, Ireland, Italy, Luxembourg, Monaco,
Netherlands, Portugal and Sweden.
- -------------------------------------------------------------------------------------------------------------------
OAPI PATENT: Burkina Faso, Benin, Central African Republic, Congo, Cote
d'Ivoire, Cameroon, Gabon, Guinea, Mali, Mauritania, Niger, Senegal, Chad and
Togo.
===================================================================================================================
</TABLE>
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<PAGE> 46
APPENDIX B, CONT.
FOREIGN PATENTS AND PATENT APPLICATIONS
RELATED TO CATIONIC LIPID SUBJECT MATTER
<TABLE>
<CAPTION>
===============================================================================================================================
<S> <C> <C> <C>
COUNTRY SERIAL NO. PATENT NO. TERMINATION DATE
- -------------------------------------------------------------------------------------------------------------------------------
PCT PCT/US92/07290
- -------------------------------------------------------------------------------------------------------------------------------
France EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Germany EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Italy EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Belgium EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Luxembourg EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Netherlands EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
United Kingdom EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Denmark EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Greece EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Spain EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Austria EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Sweden EP 92 920321.4
- -------------------------------------------------------------------------------------------------------------------------------
Switzerland/ EP 92 920321.4
Liechtenstein
- -------------------------------------------------------------------------------------------------------------------------------
Monaco EP 92 920321.4
===============================================================================================================================
</TABLE>
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<PAGE> 47
APPENDIX C
Third-party observations regarding prior art have been filed with the
European Patent Office in connection with European Patent Application No. EP 92
920321.4 relating to the LICENSED CATIONIC LIPID SUBJECT MATTER.
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<PAGE> 48
APPENDIX D
employee benefit plan, policy, program, practice, contract or arrangement
currently (or previously) maintained or contributed to by any ERISA Affiliate.
(j) Payments Resulting From Transactions. Except as set forth
in Schedule 2.13 to the Company Disclosure Memorandum, the consummation of any
transaction contemplated by this Agreement will not result in any (i) payment
(whether of severance pay or otherwise) becoming due from the Company to any
officer, employee, former employee or director thereof or to the trustee under
any "rabbi trust" or similar arrangement; (ii) benefit under any Employee
Benefit Plan of the Company being established or becoming accelerated, vested or
payable; or (iii) payment or series of payments by the Company, directly or
indirectly, to any person that would constitute a "parachute payment" within the
meaning of Section 280G of the Code.
2.14 PATENTS, TRADEMARKS, ETC.
Set forth on Schedule 2.14 to the Company Disclosure Memorandum is a
true and complete list of all patents, trademarks, service marks, trade names,
brand names, and registered copyrights, and any applications for any of the
foregoing (collectively, the "Company Intellectual Property") of any kind used
now or within the two (2) year period immediately preceding the date of this
Agreement in the business of the Company. Such Schedule 2.14 contains a complete
and accurate list of all licenses or agreements that in any way affect the
rights of the Company to any of the Company Intellectual Property or any trade
secret material to the Company (the "Company Intellectual Property Licenses").
No claim with respect to the Company Intellectual Property, any trade secret
material to the Company, or any Company Intellectual Property License is
currently pending or, to the best knowledge of the Company, overtly threatened
by any Person, nor does the Company know of any valid grounds for any bona fide
claim, except as set forth on such Schedule 2.14, (a) to the effect that any
Company operation, Company Intellectual Property, trade secret material to the
Company, or Company Intellectual Property License infringes or misappropriates
any copyright, patent, trademark, service mark or trade secret; (b) to the
effect that any other Person infringes on the Company Intellectual Property or
misappropriates any trade secret material to the Company; (c) challenging the
ownership, validity or effectiveness of any of the Company Intellectual Property
or trade secret material to the Company; or (d) challenging the Company's
license under, or other legally enforceable right under, any Company
Intellectual Property License. The consummation of the transactions contemplated
hereby will not alter or impair the Company's rights to any of the Company
Intellectual Property, any trade secret material to the Company or under any
Company Intellectual Property License. With respect to any Company Intellectual
Property or trade secret material to the Company, the Company owns or has the
right to use such Company Intellectual Property or trade secret in its business.
Except as set forth on such Schedule 2.14 in respect of the Company Intellectual
Property Licenses or otherwise, and except where the failure to so own or be
<PAGE> 49
licensed would not have a Material Adverse Effect upon the Company, the Company
is the sole and exclusive owner or the exclusive licensee pursuant to the
Company Intellectual Property Licenses of the Company Intellectual Property.
Except as set forth on such Schedule 2.14, each of the Company
Intellectual Property Licenses is valid, binding and enforceable in accordance
with its terms against the parties thereto; the Company has performed all
obligations imposed upon it under each of the Company Intellectual Property
Licenses; and neither the Company nor any other party thereto is in default
thereunder, nor, to the Company's best knowledge, is there any event that with
notice or lapse of time, or both, would constitute a default thereunder. Except
as set forth on such Schedule 2.14, the Company has not received notice that any
party to any of the Company Intellectual Property Licenses intends to cancel,
terminate or refuse to renew the same or to exercise or decline to exercise any
option or other right thereunder. Except as set forth on such Schedule 2.14, no
licenses, sublicenses, covenants or agreements have been granted or entered into
by the Company in respect of any of the Company Intellectual Property or any
trade secret material to the Company except the Company Intellectual Property
Licenses. No director, officer, Stockholder or employee of the Company owns,
directly or indirectly, in whole or in part, any of the Company Intellectual
Property or any trade secret material to the Company. To the Company's best
knowledge, none of the Company's officers, employees, consultants, distributors,
agents, representatives or advisors have entered into any agreement relating to
the Company's business regarding know-how, trade secrets, assignment of rights
in inventions, or prohibition or restriction of competition or solicitation of
customers, or any other similar restrictive agreement or covenant, whether
written or oral, with any Person other than the Company.
Except as set forth on such Schedule 2.14, to the Company's best
knowledge, no Person has asserted any claim of infringement or other
interference with third-party rights with respect to the Company Intellectual
Property or any trade secret material to the Company. Except as set forth on
such Schedule 2.14, (a) during the two (2) year period immediately preceding the
date of this Agreement, the Company has not disclosed other than in the ordinary
course consistent with past practice any proprietary information relating to the
Company Intellectual Property, any trade secret material to the Company or the
Company Intellectual Property Licenses to any person other than to Targeted or
Acquisition; (b) the Company has at all times maintained reasonable procedures
to protect and have enforced all trade secrets of the Company; (c) the Company
has disclosed trade secrets to other Persons solely as required for the conduct
of the Company's business and solely under nondisclosure agreements that are
enforceable by the Company and, upon the Closing, will be enforceable by
Acquisition or Targeted in accordance with their terms; and (d) the Company is
not under any contractual or other obligation to disclose any proprietary
information relating to the Company Intellectual Property, any trade secret
material to the Company or the Company Intellectual Property Licenses except
pursuant to the nondisclosure agreements listed on such Schedule 2.14,
-2-
<PAGE> 50
nor, to the best knowledge of the Company, is any other party to the Company
Intellectual Property Licenses under any such obligation to disclose proprietary
information included in or relating to Company Intellectual Property, any trade
secret material to the Company or the Company Intellectual Property Licenses to
any person or entity, and no event has taken place, including the execution of
this Agreement or any related change in the Company's business activities, that
would give rise to such obligation.
2.15 CORPORATE BOOKS AND RECORDS
The Company has furnished to Targeted or its representatives for their
examination true and complete copies of (a) the Certificate of Incorporation and
Bylaws of the Company as currently in effect, including all amendments thereto,
(b) the minute books of the Company, and (c) the stock transfer books of the
Company. Such minutes reflect all meetings of the Company's Stockholders, Board
of Directors and any committees thereof since the Company's inception, and such
minutes accurately reflect in all material respects the events of and actions
taken at such meetings. Such stock transfer books accurately reflect all
issuances and transfers of shares of capital stock of the Company since its
inception.
2.16 LICENSES, PERMITS, AUTHORIZATIONS, ETC.
Except as identified in Schedules 2.1 and 2.5 to the Company Disclosure
Memorandum and except where the failure to have any of the following would not
result in a Material Adverse Effect, the Company has received all governmental
approvals, authorizations, consents, licenses, orders, registrations and permits
of all agencies, whether federal, state, local or foreign that are currently
required in order for the Company to conduct its business as it is currently
conducted. The Company has not received any notifications of any asserted
present failure by it to have obtained any such governmental approval,
authorization, consent, license, order, registration or permit, or past and
unremedied failure to obtain such items.
2.17 COMPLIANCE WITH LAWS
Except as described on Schedule 2.17 to the Company Disclosure
Memorandum and except where the failure to have any of the following would not
result in a Material Adverse Effect, the Company has at all times complied, and
is in compliance, with all federal, state, local and foreign laws, rules,
regulations, ordinances, decrees and orders applicable to it, to its employees,
or to the Company
-3-
<PAGE> 51
SCHEDULE 2.11
CLAIMS AND LEGAL PROCEEDINGS
No pending litigation.
Third-party observations regarding prior art have been filed with the
European Patent Office in connection with the DC-Cholesterol licensed from The
University of Tennessee Research Corporation, as identified in the attached
correspondence. Similarly, an opposition has been filed in response to the
granting of a patent by the Australian patent office for this technology.
See Schedule 2.10, Contracts, item 1 under the heading "Scientific
Collaboration Agreements" for information regarding the Theragen, Inc. release.
<PAGE> 52
SCHEDULE 2.14
PATENTS, TRADEMARKS, ETC.
<TABLE>
<CAPTION>
==================================================================================================================================
PATENT NO.
ISSUE DATE INVENTOR
EXPIRATION TITLE LAW FIRM
DATE APPLICATION SERIAL NO. CONTACT DESCRIPTION &
ASSIGNEE FILING DATE COUNTRY DOCKET NO. STATUS
==================================================================================================================================
<S> <C> <C> <C> <C>
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
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[*] [*] [*] [*] [*]
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[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: 5,417,978 Inventor(s): Ana Tari, Gabriel U.S.A. Law Firm: Description: Lipid delivered
Lopez-Berestein and Albert Arnold, White & antisense for CML
Issue Date: 5/23/95 Deisseroth Durkee
Status: Issued. PCT filed 7/29/94
Expiration Date: Title: Liposomal Antisense Contact:
Methyl Phosphonate Ken Goodman
Assignee: Oligonucleotides & Methods for
Board of Regents, their Preparation & Use Docket No:
The University of UTFC: 346/GOO
Texas System Serial No: 08/099,229
Filing Date: 07/29/93
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Ana Tari, Gabriel PCT Law Firm: Description: Lipid delivered
Lopez-Berestein and Albert Arnold, White & antisense for CML
Issue Date: Deisseroth Durkee
Status: Nationalized into
Expiration Date: Title: Liposomal Antisense Contact: Australia, Canada, European
Methyl Phosphonate Ken Goodman Patent Office and Japan.
Assignee: Oligonucleotides & Methods for
Board of Regents, their Preparation & Use Docket No:
The University of UTFC 346/GOO
Texas System Serial No: PCT/US94/08568
Filing Date: 07/29/94
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
==================================================================================================================================
PATENT NO.
ISSUE DATE INVENTOR
EXPIRATION TITLE LAW FIRM
DATE APPLICATION SERIAL NO. CONTACT DESCRIPTION &
ASSIGNEE FILING DATE COUNTRY DOCKET NO. STATUS
==================================================================================================================================
<S> <C> <C> <C> <C>
Pat No.: Inventor(s): Ana Tari, Gabriel Australia Law Firm: Description: Lipid delivered
Lopez-Berestein and Albert Arnold, White & antisense for CML
Issue Date: Deisseroth Durkee
Status: Pending.
Expiration Date: Title: Liposomal Antisense Contact:
Methyl Phosphonate Ken Goodman
Assignee: Oligonucleotides & Methods for
Board of Regents, their Preparation & Use Docket No:
The University of UTFC: 346-AU
Texas System Serial No: 74079/94
Filing Date: 02/02/96
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Ana Tari, Gabriel Canada Law Firm: Description: Lipid delivered
Lopez-Berestein and Albert Arnold, White & antisense for CML
Issue Date: Deisseroth Durkee
Status: Pending.
Expiration Date: Title: Liposomal Antisense Contact:
Methyl Phosphonate Ken Goodman
Assignee: Oligonucleotides & Methods for
Board of Regents, their Preparation & Use Docket No:
The University of UTFC: 346-CA
Texas System Serial No: 2168243
Filing Date: 01/26/96
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Ana Tari, Gabriel European Law Firm: Description: Lipid delivered
Lopez-Berestein and Albert Patent Arnold, White & antisense for CML
Issue Date: Deisseroth Office Durkee
Status: Pending.
Expiration Date: Title: Liposomal Antisense Contact:
Methyl Phosphonate Ken Goodman
Assignee: Oligonucleotides & Methods for
Board of Regents, their Preparation & Use Docket No:
The University of UTFC: 346E-
Texas System Serial No: 94924066.7
Filing Date: 02/28/96
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Ana Tari, Gabriel Japan Law Firm: Description: Lipid delivered
Lopez-Berestein and Albert Arnold, White & antisense for CML
Issue Date: Deisseroth Durkee
Status: Pending.
Expiration Date: Title: Liposomal Antisense Contact:
Methyl Phosphonate Ken Goodman
Assignee: Oligonucleotides & Methods for
Board of Regents, their Preparation & Use Docket No:
The University of UTFC: 346-JP
Texas System Serial No: 505991/95
Filing Date: 01/29/96
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 54
<TABLE>
<CAPTION>
==================================================================================================================================
PATENT NO.
ISSUE DATE INVENTOR
EXPIRATION TITLE LAW FIRM
DATE APPLICATION SERIAL NO. CONTACT DESCRIPTION &
ASSIGNEE FILING DATE COUNTRY DOCKET NO. STATUS
==================================================================================================================================
<S> <C> <C> <C> <C>
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Mien-Chie Hung, Di- PCT Law Firm: Description: E1A as a tumor
Hua Yu Angabin Matin & Jujiao Arnold, White & suppressor (for HER-2/neu)
Issue Date: Joe Zhang Durkee
Status: Nationalized into
Expiration Date: Title: Methods & Compositions Contact: Australia, Canada, Europe and
for the Suppression of Neu Mark Wilson Japan.
Assignee: Mediated Transformation
Board of Regents, Docket No:
The University of Serial No: PCT/US91/09100 UTFC: 256PCT
Texas System
Filing Date: 12/4/91
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Mien-Chie Hung, Di- Australia Law Firm: Description: E1A as a tumor
Hua Yu Angabin Matin & Jujiao Arnold, White & suppressor (for HER-2/neu)
Issue Date: 11/15/94 Joe Zhang Durkee
Status: Patent issued 11/15/94
Expiration Date: Title: Methods & Compositions Contact:
2/04/07 for the Suppression of Neu Mark Wilson
Mediated Transformation
Assignee: Docket No:
Board of Regents, Serial No: 91469/91 UTFC: 256AU
The University of
Texas System Filing Date: 05/18/93
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Mien-Chie Hung, Di- Canada Law Firm: Description: E1A as a tumor
Hua Yu Angabin Matin & Jujiao Arnold, White & suppressor (for HER-2/neu)
Issue Date: Joe Zhang Durkee
Status: Pending. Requested
Expiration Date: Title: Methods & Compositions Contact: Examination.
for the Suppression of Neu Mark Wilson
Assignee: Mediated Transformation
Board of Regents, Docket No:
The University of Serial No: 2,096,723 UTFC: 346-CA
Texas System
Filing Date: 01/26/96
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No: Inventor(s): Mien-Chie Hung, Di- Europe Law Firm: Description: E1A as a tumor
Hua Yu Angabin Matin & Jujiao Arnold, White & suppressor (for HER-2/neu)
Issue Date: Joe Zhang Durkee
Status: Claims allowed by EPO,
Expiration Date: Title: Methods & Compositions Contact: formalizing patent in individual
for the Suppression of Neu Mark Wilson European countries.
Assignee: Mediated Transformation
Board of Regents,
The University of Serial No: 92,902,782.9 Docket No:
Filing Date: 07/01/93 UTFC: 256EP
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 55
<TABLE>
<CAPTION>
==================================================================================================================================
PATENT NO.
ISSUE DATE INVENTOR
EXPIRATION TITLE LAW FIRM
DATE APPLICATION SERIAL NO. CONTACT DESCRIPTION &
ASSIGNEE FILING DATE COUNTRY DOCKET NO. STATUS
==================================================================================================================================
<S> <C> <C> <C> <C>
Texas System Filing Date: 07/01/93
- -----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Mien-Chie Hung, Japan Law Firm: Description: E1A as a tumor
Di-Hua Yu Angabin Matin & Arnold, White & suppressor (for HER-2/neu)
Issue Date: Jujiao Joe Zhang Durkee
Statuts: Pending
Expiration Date: Title: Methods & Compositions Contact:
for the Suppression of Neu Mark Wilson
Assignee: Mediated Transformation
Board of Regents, Docket No.:
The University of Serial No.: 04-502955 UTFC: 256JP
Texas System
Filing Date: 06/4/93
- -----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Mien-Chie Hung, Di- PCT Law Firm: Description: Use of E1A and
Hua Yu Angabin Matin & Jujiao Arnold, White & SV40 Large T antigen for the
Issue Date: Joe Zhang Durkee repression of Neu
Expiration Date: Title: Methods & Compositions Contact: Status: Pending. Corresponds to
for the Suppression of Neu Mark Wilson U.S. Serial Nos.: 08/162,406 and
Assignee: Mediated Transformation 08/276,359
Board of Regents, Docket No:
The University of Serial No: PCT/US94/13868 UTFC: 416P-
Texas System
Filing Date: 12/2/94
- -----------------------------------------------------------------------------------------------------------------------------------
Pat No.: 5,283,185 Inventor(s): Richard Epand, USA Law Firm: Description: Lipid Gene Delivery
Remo Bottega & Leaf Huang Weiser & Associates System (1st Generation)
Issue Date: 02/1/94
Title: Method for Delivering Contact: Status: Patent Issued 02/01/94
Expiration Date: Nucleic Acids into Cells Gerard Weiser
Assignee: University Serial No: 07/751,873 Docket No:
of Tennessee 372.5830P
Research Corp & Filing Date: 08/28/91
McMaster University
- -----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- -----------------------------------------------------------------------------------------------------------------------------------
Pat No: Inventor(s): Richard Epand, PCT Law Firm: Description: Lipid Gene Delivery
Issue Date: Remo Bottega & Leaf Huang Weiser & Associates System (1st Generation)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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-5-
<PAGE> 56
<TABLE>
<CAPTION>
==================================================================================================================================
PATENT NO.
ISSUE DATE INVENTOR
EXPIRATION TITLE LAW FIRM
DATE APPLICATION SERIAL NO. CONTACT DESCRIPTION &
ASSIGNEE FILING DATE COUNTRY DOCKET NO. STATUS
==================================================================================================================================
<S> <C> <C> <C> <C>
Title: Method for Delivering Contact: Status: Nationalized into the
Expiration Date: Nucleic Acids into Cells Gerard Weiser EPO, Japan, Korea, Canada &
Australia
Assignee: University Serial No: PCT/US92/07290 Docket No:
of Tennessee 372.5849PCT
Research Corp & Filing Date: 08/28/92
McMaster University
- -----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Richard Epand, Japan Law Firm: Description: Lipid Gene Delivery
Remo Bottega & Leaf Huang Weiser & Associates System (1st Generation)
Issue Date:
Title: Method for Delivering Contact: Status: Pending. Request for
Expiration Date: Nucleic Acids into Cells Gerard Weiser examination due August 28, 1998.
Assignee: University Serial No: 5-505302 Docket No:
of Tennessee 372.5979R
Research Corp & Filing Date: 02/24/94
McMaster University
- -----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Richard Epand, Korea Law Firm: Description: Lipid Gene Delivery
Remo Bottega & Leaf Huang Weiser & Associates System (1st Generation)
Issue Date:
Title: Method for Delivering Contact: Status: Pending. Request for
Expiration Date: Nucleic Acids into Cells Gerard Weiser examination due August 28, 1998.
Assignee: University Serial No: 94/700692 Docket No:
of Tennessee 372.5980R
Research Corp & Filing Date: 02/28/94
McMaster University
- -----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Richard Epand, Canada Law Firm: Description: Lipid Gene Delivery
Remo Bottega & Leaf Huang Weiser & Associates System (1st Generation)
Issue Date:
Title: Method for Delivering Contact: Status: Pending. Request for
Expiration Date: Nucleic Acids into Cells Gerard Weiser examination due August 28, 1999.
Assignee: University Serial No: 2,116,676 Docket No:
of Tennessee 372.5983R
Research Corp & Filing Date: 02/28/94
McMaster University
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Richard Epand, Australia Law Firm: Description: Lipid Gene Delivery
Remo Bottega & Leaf Huang Weiser & Associates System (1st Generation)
Issue Date:
Title: Method for Delivering Contact: Status: Pending. Request for
Expiration Date: Nucleic Acids into Cells Gerard Weiser examination was filed on October
19, 1994.
Assignee: University Serial No: 26565/92 Docket No:
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 57
<TABLE>
<CAPTION>
==================================================================================================================================
PATENT NO.
ISSUE DATE INVENTOR
EXPIRATION TITLE LAW FIRM
DATE APPLICATION SERIAL NO. CONTACT DESCRIPTION &
ASSIGNEE FILING DATE COUNTRY DOCKET NO. STATUS
==================================================================================================================================
<S> <C> <C> <C> <C>
of Tennessee 372.5992R
Research Corp &
McMaster University
Filing Date: 10/19/94
- ----------------------------------------------------------------------------------------------------------------------------------
Pat No.: Inventor(s): Richard Epand, Europe Law Firm: Description: Lipid Gene Delivery
Remo Bottega & Leaf Huang Weiser & Associates System (1st Generation)
Issue Date:
Title: Method for Delivering Contact: Status: Pending. Designating 14
Expiration Date: Nucleic Acids into Cells Gerard Weiser countries: Austria, Belgium,
Switzerland & Liechtenstein,
Assignee: University Serial No: 92 920321.4 Docket No: Germany, Denmark, Spain,
of Tennessee 372.5993R France, United Kingdom, Greece,
Research Corp & Filing Date: Italy, Luxembourg, Monaco,
McMaster University Netherlands & Sweden
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 58
See "Licensing and Related Agreements," "Manufacturing and Regulatory
Consultant Agreements" and "Scientific Collaboration Agreements" as set forth in
Schedule 2.10, Contracts above, for information regarding Intellectual Property
Licenses and a listing of same.
See Schedule 2.11, Claims and Legal Proceedings above, for
correspondence regarding third party observations and oppositions to certain
technology licensed from the University of Tennessee Research Corporation.
No representation is made as to exclusivity of the rights above except
to the extent such exclusivity is expressly set forth in the contract or
agreement setting forth the Company's rights as to Company Intellectual Property
and Company Intellectual Property Licenses.
The University of Texas System, the University of Tennessee Research
Corporation and McMaster University, stockholders of the Company, are owners and
licensors of certain of the Company Intellectual Property as reflected in the
foregoing table.
-2-
<PAGE> 59
APPENDIX E
[University of Tennessee Research Corporation Letterhead]
May 22, 1996
Dr. Martin H. Lindenberg, M.D.
President & CEO
RGene Therapeutics, Inc.
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77380
Dr. Alain Munoz
Vice President, Research Development - Licensing
Laboratoires Fournier S.C.A.
50, Rue de Dijon
F-21121 Daix, France
RE: FIRST AMENDED AND RESTATED LICENSE
AGREEMENT ("AGREEMENT"), EFFECTIVE DECEMBER 8, 1995
BY AND BETWEEN THE UNIVERSITY OF TENNESSEE
RESEARCH CORPORATION ("UTRC") AND RGENE
THERAPEUTICS, INC. ("RGENE")
Dear Drs. Lindenberg and Munoz:
This Consent to Sublicense and Successor Letter Agreement is written at
your request in connection with the contemplated agreement between RGene
Therapeutics, Inc. and Laboratoires Fournier S.C.A. ("FOURNIER").
Under Article 2.5 of the AGREEMENT, RGENE must obtain UTRC's prior
written approval prior to entering into any sublicense agreement. UTRC hereby
consents to RGENE entering into the contemplated agreement with FOURNIER which
includes sublicensing to FOURNIER certain of RGENE's rights licensed from UTRC.
<PAGE> 60
Dr. Martin Lindenberg
Dr. Alain Fournier
Page 2
UTRC hereby agrees that in the event that LICENSEE enters into a
written and fully executed sublicense agreement with FOURNIER pursuant to
Article 2.5 of the AGREEMENT, and, subsequent thereto which such sublicense
agreement is in effect, the AGREEMENT with RGENE is terminated, FOURNIER shall,
at its sole option exercisable by written notice to UTRC within sixty (60) days
after termination of the AGREEMENT, have the right to succeed to all of RGENE's
rights and responsibilities under the AGREEMENT as set forth hereinbelow,
provided that:
- - as of the date of termination of the AGREEMENT FOURNIER is not in
default of its obligations under its sublicense agreement with RGENE;
- - FOURNIER shall not assume any liabilities of RGENE to UTRC or succeed
to any claims or right of action of RGENE against UTRC accruing prior
to, or as a result of, said termination of the AGREEMENT; and
- - UTRC shall not assume any liabilities or responsibilities of RGENE to
FOURNIER under the sublicense agreement.
Under the conditions set out herein, UTRC hereby agrees to grant a
license to FOURNIER under European Patent Application No. EP 92920321.4 to allow
FOURNIER to practice under such patent application for the purpose of
manufacturing, using, and selling LICENSED E1A PRODUCT in the LICENSED TERRITORY
in the LICENSED FIELD (as those terms are defined in the above-mentioned
sublicense agreement between FOURNIER and RGENE). UTRC confirms that: (1) the
AGREEMENT WITH LICENSEE is in full force and effect as of the date hereinabove;
and (ii) it has no actual knowledge of present facts or circumstances, including
the contemplated merger with Targeted Genetics Corporation and its wholly-owned
subsidiary, which with the passage of time or otherwise, would cause the
termination of the AGREEMENT.
UTRC has been advised in writing by Aronex Pharmaceuticals, Inc. that
Aronex has no outstanding contract issues with respect to the RGene and UTRC
agreement as referenced in Section 5.18 of Article V (page 52) of the AGREEMENT
AND PLAN OF MERGER AMONG TARGETED GENETICS CORP., TGC ACQUISITION CORPORATION
AND RGENE THERAPEUTICS, INC. dated as of April 16, 1996. Conversely, the UTRC
has no outstanding contract issues that would necessitate modification of UTRC's
existing license agreement with Aronex
<PAGE> 61
Dr. Martin Lindenberg
Dr. Alain Fournier
Page 3
Pharmaceuticals, Inc. (formerly Argus Pharmaceuticals, Inc.); provided however,
that nothing in this Consent to Sublicense and Successor Letter Agreement shall
be construed as a restriction on UTRC's freedom to modify at any point in the
future its agreement with Aronex or any other agreement to which UTRC is a
party.
This Consent to Sublicense and Successor Letter Agreement shall take
the place of all previous letters to you on this subject, which are hereby
withdrawn. If this Consent to Sublicense and Successor Letter Agreement is
acceptable to you, please sign the three (3) originals in the space provided
below and return two (2) of such originals to me at the following address:
Ann J. Roberson
President
The University of Tennessee Research Corporation
415 Communications Building
Knoxville, Tennessee 37996-0344
Sincerely,
/s/ Ann J. Roberson
Ann J. Roberson
President
ACCEPTED ON BEHALF OF RGENE
THERAPEUTICS, INC.
By: _____________________________
Dr. Martin Lindenberg
President and CEO
Date: ___________________________
<PAGE> 62
Dr. Martin Lindenberg
Dr. Alain Fournier
Page 4
ACCEPTED ON BEHALF OF
LABORATOIRES FOURNIER S.C.A.
By: _____________________________
Dr. Alain Munoz
Vice President, Research Development
- Licensing
Date: ___________________________
<PAGE> 63
APPENDIX E
[University of Texas MD Anderson Cancer Center Letterhead]
SUCCESSOR LETTER AGREEMENT
May 23, 1996
Dr. Alain Munoz
Vice President, Research Development - Licensing
Laboratoires Fournier S.C.A.
50, Rue de Dijon
F-21121 Daix, France
RE: PATENT AND TECHNOLOGY LICENSE AGREEMENT
("AGREEMENT"), EFFECTIVE MARCH 1, 1994 BY AND BETWEEN THE
BOARD OF REGENTS ("BOARD") OF THE UNIVERSITY OF
TEXAS SYSTEM ("SYSTEM"), THE UNIVERSITY OF
TEXAS M.D. ANDERSON CANCER CENTER ("MDA"), AND
RGENE THERAPEUTICS, INC. ("LICENSEE")
Dear Mr. Munoz:
This Successor Letter Agreement is written at your request, in
connection with the contemplated agreement between RGene Therapeutics, Inc. and
Laboratoires Fournier S.C.A. ("FOURNIER").
BOARD, SYSTEM and MDA hereby agree that in the event that LICENSEE
enters into a written and fully executed sublicense agreement with FOURNIER
pursuant to Article 4.3 of the AGREEMENT, and, subsequent thereto while such
sublicense agreement is in effect, the AGREEMENT with LICENSEE is terminated,
FOURNIER shall, at its sole option, have the right to succeed to all of
LICENSEE's rights and responsibilities under the AGREEMENT as set forth
hereinbelow, provided, however, that FOURNIER shall not assume any liabilities
of LICENSEE to BOARD, SYSTEM, or MDA accruing prior to, or as a result of, said
termination of the AGREEMENT.
<PAGE> 64
Fournier - Successor Letter Agreement
May 23, 1996
Page 2
Under the conditions set out herein, BOARD, SYSTEM, and MDA hereby
agree to grant a license to FOURNIER under European Patent Application No. EP
92- 90-2782.9 to allow FOURNIER to practice under such patent application for
the purpose of manufacturing, using, and selling LICENSED E1A PRODUCT in the
LICENSED TERRITORY in the LICENSED FIELD (as those terms are defined in the
above-mentioned sublicense agreement between FOURNIER and RGENE). BOARD, SYSTEM,
and MDA confirm that: (i) the AGREEMENT with LICENSEE is in full force and
effect as of the date hereinabove; and (ii) they know of no present facts or
circumstances, including the contemplated merger with Targeted Genetics
Corporation and its wholly-owned subsidiary, which, with the passage of time or
otherwise, would cause the termination of the AGREEMENT.
If this Successor Letter Agreement is acceptable to you, please sign
the three (3) originals in the space provided below and return two (2) of such
originals to me at the following address:
William J. Doly
Director, Technology Development
1020 Holcombe, Suite 1495
Houston, Texas 77950
Very truly yours,
William J. Doly
Director, Technology Development
IN WITNESS WHEREOF, parties hereto have caused their duly authorized
representatives to execute this AGREEMENT.
THE UNIVERSITY OF TEXAS BOARD OF REGENTS OF THE
M.D. ANDERSON CANCER CENTER UNIVERSITY OF TEXAS SYSTEM
By /s/ David J. Bachrach By /s/ R.D. Burok
----------------------------------- ----------------------------------
David J. Bachrach R.D. Burok
Executive Vice President Executive Vice Chancellor for
for Administration and Finance Business Affairs
<PAGE> 65
Fournier - Successor Letter Agreement
May 23, 1996
Page 3
APPROVED AS TO FORM:
By /s/ Dudley R. Dobie, Jr.
-----------------------------------
Dudley R. Dobie, Jr.
Manager, Intellectual Property
LABORATOIRES FOURNIER S.C.A.
By _____________________________
