<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
AVIGEN, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 13-3647113
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
------------------------------------
1201 HARBOR BAY PARKWAY, #1000
ALAMEDA, CA 94502
(510) 748-7150
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------
JOHN MONAHAN, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AVIGEN, INC.
1201 HARBOR BAY PARKWAY, #1000
ALAMEDA, CA 94502
(510) 748-7150
(Name, address, including zip code, and telephone number; including area code,
of agent for service)
------------------------------------
Copies to:
ALAN C. MENDELSON, ESQ.
COOLEY GODWARD LLP
FIVE PALO ALTO SQUARE
3000 EL CAMINO REAL
PALO ALTO, CALIFORNIA 94306
(415) 843-5000
------------------------------------
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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities 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, 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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE (1) OFFERING PRICE (1) FEE
- -------------------------------------------------------------------------------------------------------
Common Stock..$.001
par value 243,905 Shares $6.31 $1,539,040.55 $466.56
</TABLE>
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(1) Estimated in accordance with Rule 457(c) solely for the purpose of computing
the amount of the registration fee based on the average of the high and low
prices of the Company's Common Stock as reported on the Nasdaq National
Market on November 12, 1996.
------------------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
AVIGEN, INC.
------------------------------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- -------------------------------------------------------- -------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Not applicable
6. Dilution......................................... Not applicable
7. Selling Stockholders............................. Principal and Selling Stockholders
8. Plan of Distribution............................. Outside Front Cover Page;
Plan of Distribution
9. Description of Securities to be Registered....... Description of Capital Stock
10. Interests of Named Experts and Counsel........... Not applicable
11. Information with Respect to the Registrant....... Outside Front and Inside Front Cover
Page; Prospectus Summary; The
Company; Risk Factors; Dividend
Policy; Selected Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal
Stockholders; Description of Capital
Stock; Shares Eligible for Future
Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not applicable
</TABLE>
<PAGE> 3
PROSPECTUS
243,905 SHARES
AVIGEN, INC.
COMMON STOCK
------------------------
This Prospectus relates to a total of 243,905 shares of Common Stock (the
"Shares") with a par value of $.001 of Avigen, Inc. ("Avigen" or the "Company")
which are being offered and sold by certain stockholders of the Company (the
"Selling Stockholders"). Of such shares (i) 30,780 (the "1994 Shares") were
issued by the Company in a private financing in 1994 and (ii) 213,125 are
issuable upon the exercise of warrants (the "Warrants") issued by the Company in
a private financing in 1996 (the "1996 Bridge Financing").
The Shares may be offered by the Selling Stockholders from time to time in
transactions on the Nasdaq National Market System, in privately negotiated
transactions or a combination of such methods of sale, at fixed prices that may
be changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). See "Selling
Stockholders" and "Plan of Distribution."
The Company will receive all of the proceeds from the exercise of the
Warrants, but will not receive any of the proceeds from the sale of the Shares
by the Selling Stockholders hereof. See "Plan of Distribution." The Company's
Common Stock is traded on the Nasdaq National Market ("Nasdaq") under the symbol
"AVGN." The last reported sales price of the Company's Common Stock on Nasdaq on
November 12, 1996 was $6.13 per share.
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
No underwriting commissions or discounts will be paid by the Company in
connection with this offering. Estimated expenses payable by the Company in
connection with this offering are $85,967. The aggregate proceeds to the Selling
Stockholders from the sale of the Shares will be the purchase price of the
Shares sold less the aggregate agents' commissions and underwriters' discounts,
if any, and other expenses of issuance and distribution not borne by the
Company. See "Plan of Distribution."
The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Act"), and any commission received by them and any profit
on the resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Act. The Company has agreed to indemnify the
Selling Stockholders and certain other persons against certain liabilities,
including liabilities under the Act.
November 15, 1996
THE DATE OF THIS PROSPECTUS IS NOVEMBER 15, 1996
<PAGE> 4
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and any information or representation not contained or incorporated herein must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, by
any person in any jurisdiction in which it is unlawful for such person to make
such offer or solicitation. Neither the delivery of this Prospectus at any time
nor any sale made hereunder shall, under any circumstances, imply that the
information herein is correct as of any date subsequent to the date hereof.
AVAILABLE INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Commission, Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits and schedules thereto.
A copy of the Registration Statement may be inspected by anyone without
charge at the Commission's principal office in Washington, D.C. and copies of
all or any part thereof may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
upon payment of certain fees prescribed by the Commission. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such Web site is http://www.sec.gov. The Company's
Common Stock is quoted on NASDAQ, and such reports, proxy statements and other
information can also be inspected at the office of The Nasdaq Operations at 1735
K Street, N.W., Washington, D.C. 20006.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus.
THE COMPANY
Avigen is a leader in the development of gene therapy products derived from
adeno-associated virus ("AAV") for the treatment of inherited and acquired
diseases. The Company's proposed gene therapy products are designed for in vivo
administration to achieve the production of therapeutic proteins within the
body. The Company is developing two broad-based proprietary gene delivery
technologies: AAV vectors and the Targeted Vector Integration ("TVI") system.
The Company believes AAV vectors can be used to deliver genes for the treatment
of brain, liver and prostate cancer, anemia, hemophilia, hyperlipidemia and
metabolic storage diseases. The Company also believes its TVI system will allow
it to pursue more effective treatments for blood cell-related diseases,
including sickle cell anemia, beta-thalassemia and human immunodeficiency virus
("HIV") infection.
AAV Vectors. The Company's gene therapy products are based on gene
delivery systems called vectors. AAV vectors are derived from AAV, a common
non-pathogenic human virus, and take advantage of the natural efficiency with
which viruses deliver genes to cells. To produce an AAV vector, the virus is
modified by removing the viral genes and replacing them with genes for
therapeutic proteins. The Company believes that AAV vectors combine desirable
properties of viral and non-viral vectors and may offer several potential
advantages over other gene therapy vectors. These advantages include efficient
delivery of genes to both dividing and non-dividing target cells, absence of
viral genes that may be responsible for causing an undesirable immune response,
in vivo administration to patients, higher levels of gene expression and
improved stability allowing AAV vectors to be manufactured, stored and handled
like more traditional pharmaceutical products. Avigen believes that its
proprietary manufacturing process will simplify manufacturing and purification
and achieve increased yield of high purity AAV vectors.
In spite of the potential advantages, the use of AAV vectors for gene
therapy also presents potential disadvantages. Since the genome of the natural
AAV virus is relatively small, the amount of the genetic material that can be
included in an AAV vector is limited. Therefore, large genes cannot be delivered
by AAV vectors. In addition, in vivo administration of AAV vectors may result in
the production of antibodies which may limit the effectiveness of repeat dosing
of these vectors. Furthermore, direct administration of AAV vectors may result
in their distribution to inappropriate tissues.
TVI System. The Company's proprietary TVI system utilizes components of
AAV to integrate large segments of DNA at a specific location on human
chromosome 19. Integration is essential for certain gene therapy applications
where the genes must be passed on to the progeny of the cell. The Company
believes gene therapy vectors that integrate at a specific site, such as the
site on chromosome 19 where the non-pathogenic AAV normally integrates, will
have an increased safety profile relative to vectors that integrate randomly.
The Company also believes that the ability to integrate large segments of DNA
could lead to gene therapy applications involving the delivery of multiple genes
or requiring precise or controllable gene regulation.
Product Development. Based on encouraging results in animal models, the
Company has initiated two preclinical development programs using AAV vectors for
the treatment of brain tumors and anemia. Additionally, the Company has a number
of research programs and collaborations intended to generate product development
candidates for liver and prostate cancer, hemophilia, hyperlipidemia, metabolic
storage diseases, hemoglobin disorders and HIV infection. Avigen believes that
the number of potential applications for gene therapy will increase
significantly as advances are made in the area of genomics. These advances are
enabling scientists to link diseases to specific gene defects. As more genes are
discovered, the need for improved gene delivery technologies is expected to
increase. With the identification of new disease-related
3
<PAGE> 6
genes, the Company believes that its AAV vectors and its TVI system will provide
it with significant opportunities for new gene therapy products.
Corporate Partnering Strategy. The Company is seeking to develop long-term
strategic collaborations with pharmaceutical companies that can provide funding
for research and development activities and clinical trials as well as access to
complementary technologies, including gene sequences. The Company believes that
its broad-based proprietary gene delivery technologies can be used to deliver a
number of different genes, giving rise to multiple product and corporate
partnering opportunities.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock outstanding before the 7,285,193 shares(1)
Offering...................................
Common Stock offered by the Selling 243,905(2)
Stockholders...............................
Common Stock to be outstanding after the 7,498,318 shares(2)
Offering...................................
Use of proceeds.............................. Proceeds to the Company from the exercise of
the Warrants will be used for general
corporate purposes. The Company will not
receive any of the proceeds from the sale of
the Shares by the Selling Stockholders.
Nasdaq National Market symbol................ AVGN
</TABLE>
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(1) Based on shares outstanding at October 31, 1996. Excludes 1,175,324 shares
of Common Stock issuable upon the exercise of outstanding stock options as
of October 31, 1996 at a weighted average exercise price of $1.51, the
213,125 Warrants covered by this Registration Statement, and 507,880
warrants outstanding at October 31, 1996 at exercise prices ranging from
$4.87 to $9.60. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Description of Capital Stock," and Notes 5 and 7 to Notes to Financial
Statements at June 30, 1996.
(2) Assumes exercise of the Warrants.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD FROM
YEAR ENDED OCTOBER 22, 1992
JUNE 30, SEPTEMBER 30, (INCEPTION)
---------------------------- ------------------- THROUGH
1994 1995 1996 1995 1996 SEPTEMBER 30, 1996
------- ------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Grant Revenue.................................. $ -- $ 178 $ 87 $ 44 $ -- $ 265
Expenses:
Research and development....................... 2,558 2,290 2,550 581 632 8,962
General and administrative..................... 1,283 1,334 1,102 281 346 4,602
------- ------- ------- ------ ------ -------
Total expenses................................. 3,841 3,624 3,652 862 978 13,564
------- ------- ------- ------ ------ -------
Loss from operations........................... (3,841) (3,446) (3,565) (818) (978) (13,299)
Other income (expense), net.................... (8) 181 (533) (5) 106 (278)
------- ------- ------- ------ ------ -------
Net loss....................................... $(3,849) $(3,265) $ (4,097) $ (823) $ (872) $(13,577)
======= ======= ======= ====== ====== =======
Net loss per share (1)......................... $ (0.12)
------
Shares used in computing net loss per share
(1).......................................... 7,253
------
Pro forma net loss per share (1)............... $ (0.62) $ (0.80) $ (0.15)
======= ======= ======
Shares used in computing pro forma net loss per
share (1).................................... 5,295 5,142 5,410
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996 SEPTEMBER 30, 1996
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<S> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.............................. $ 16,443 $ 17,153
Working capital............................................................... 15,364 15,870
Total assets.................................................................. 17,532 18,695
Capital lease obligations, noncurrent portion................................. 176 151
Deficit accumulated during the development stage.............................. (12,705) (13,576)
Stockholders' equity.......................................................... 16,027 17,016
</TABLE>
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(1) See Note 1 of Notes to Financial Statements describing the shares used in
calculating net loss per share and pro forma net loss per share.
Except for the historical information contained herein, the discussion in
this Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as those discussed elsewhere in this Prospectus.
Avigen(SM) is a service mark of the Company.
5
<PAGE> 8
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby:
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
Gene therapy is a new and rapidly evolving technology. To date, there has
been only limited research and development in gene therapy using AAV vectors.
The Company is not aware of any gene therapy products which have obtained
marketing approval from the United States Food and Drug Administration ("FDA").
Because there is only limited research regarding the safety and efficacy of AAV
vectors, the Company believes that clinical trials will proceed more slowly than
clinical trials involving traditional drugs and biologics.
Avigen is at an early stage of development. All of the Company's potential
products are in research or early preclinical development. There can be no
assurance that the Company's research and development activities will be
completed successfully or will support the initiation of clinical trials or that
any proposed products will prove to be efficacious or safe. Before obtaining
regulatory approval for the commercial sale of any of its products under
development, the Company must demonstrate through preclinical studies and
clinical trials that the proposed product is safe and efficacious for its
intended use. None of the Company's proposed products has been tested in humans.
There can be no assurance that the Company will not encounter problems with the
clinical trials which will require the Company to delay, suspend or terminate
such trials. All of the Company's products in research and development may prove
to have undesirable and unintended side effects or other characteristics that
may prevent or limit their commercial use. Even if successfully developed, there
can be no assurance that any potential products will be cleared for marketing by
United States or foreign regulatory authorities or that such products can be
manufactured at acceptable cost or that any approved products can be
successfully marketed. Products resulting from the Company's research and
development efforts, if any, are not expected to be commercially available and
revenues from the sale of any such products are not expected for at least the
next several years.
HISTORY OF LOSSES; ACCUMULATED DEFICIT
To date, the Company has been engaged in research and development
activities and has not generated any revenues from product sales. As of October
31, 1996, the Company had an accumulated deficit of $13.6 million. The process
of developing the Company's products will require significant research and
development, preclinical testing and clinical trials, as well as regulatory
approval. These activities, together with the Company's general and
administrative expenses, are expected to result in operating losses for the
foreseeable future. The Company's ability to achieve profitability is dependent,
in part, on its ability to successfully complete development of its proposed
products, obtain required regulatory approvals and manufacture and market its
products directly or through partners. There can be no assurance that the
Company will achieve revenues or profitability in the future.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial additional funding in order to
complete the research and development activities currently contemplated and to
commercialize its proposed products. The Company anticipates that its existing
capital resources will be adequate to fund its capital needs for at least the
next 12 months. The Company's future capital requirements will depend on many
factors, including continued scientific progress in research and development
programs, the scope and results of preclinical studies and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting and enforcing patent claims, competing technological
developments, the cost of manufacturing scale-up, the cost of commercialization
activities and other factors which may not be within the Company's control.
The Company intends to seek additional funding through public or private
equity or debt financing, when market conditions allow. If additional funds are
raised by issuing equity securities, further dilution to the
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<PAGE> 9
existing stockholders may result. There can be no assurance that the Company
will be able to enter into such collaborative or financing arrangements on
acceptable terms or at all. Without such additional funding, the Company may be
required to delay, reduce the scope of or eliminate one or more of its research
or development programs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
NEED FOR ESTABLISHMENT OF CORPORATE PARTNER RELATIONSHIPS
The Company does not currently have a corporate partner relationship with
respect to any of its technologies or potential products. Given the very high
cost of funding clinical trials and bringing a proposed product through the
governmental approval process to the commercial market, the Company believes
that successful development and commercialization of its technologies and
products will depend in large part on the establishment of one or more such
relationships. There can be no assurance that the Company will be able to
establish such relationships on favorable terms, if at all. In addition, the
failure to raise needed future capital could put the Company at a disadvantage
with respect to negotiating favorable terms with such potential corporate
partners.
NEED TO OBTAIN RIGHTS TO PROPRIETARY GENES AND TECHNOLOGY
A number of the gene sequences or proteins encoded by certain of those
sequences that the Company is investigating or may use in its products are or
may become patented by others. As a result, the Company may be required to
obtain licenses to such gene sequences or proteins or other technology in order
to test, use or market such products. For example, in connection with its anemia
program, the Company anticipates that it may need to obtain a license to a gene
for erythropoietin. There can be no assurance that the Company will be able to
obtain such a license on terms favorable to the Company, if at all. In
connection with the Company's efforts to obtain rights to such gene sequences or
proteins, the Company may find it necessary to convey rights to its technology
to others. See "Business -- Patents and Intellectual Property."
The Company has entered into agreements for the license from third parties
of certain technologies related to its gene therapy product development
programs. Certain of these license agreements provide for the achievement of
development milestones at various times beginning in February 1997. In the event
the Company fails to achieve such milestones or to obtain extensions, certain of
the license agreements may be terminated by the licensor with relatively short
notice to the Company. Termination of any of the Company's license agreements
could have a material adverse effect on the Company's business.
Some of the Company's gene therapy products may require the use of multiple
proprietary technologies. Consequently, the Company may be required to make
cumulative royalty payments to several third parties. Such cumulative royalties
could be commercially prohibitive. While the Company believes the third parties
will be motivated to adjust the royalty structure under such circumstances,
there can be no assurance that the Company will be able to successfully
negotiate such royalty adjustments. See "Business -- Licensing and Research
Agreements."
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's success is dependent on acceptance of its gene therapy
products. The Company believes that recommendations by physicians and health
care payors will be essential for market acceptance of its gene therapy
products. In the past, concerns have arisen regarding the potential safety and
efficacy of gene therapy products derived from pathogenic viruses such as
retroviruses and adenoviruses. While the Company's proposed gene therapy
products are derived from AAV which is a non-pathogenic virus, there can be no
assurance that physicians and health care payors will conclude that the
technology is safe. In addition, health care payors can indirectly affect the
attractiveness of the Company's proposed products by regulating the maximum
amount of reimbursement they will provide for such proposed products. There can
be no assurance that the Company's products will achieve significant market
acceptance among patients, physicians or third party payors, even if necessary
regulatory and reimbursement approvals are obtained. Failure to achieve
7
<PAGE> 10
significant market acceptance will have a material adverse effect on the
Company's business, financial condition and results of operations.
GOVERNMENT REGULATION
The production and marketing of the Company's proposed products and its
ongoing research and development activities are subject to extensive regulation
by governmental authorities in the United States and foreign countries. At the
present time, the Company believes that its products will be regulated as
biologics by the FDA and comparable foreign regulatory bodies. Gene therapy is,
however, a relatively new technology and has not been extensively tested in
humans. The regulatory requirements governing gene therapy products are
uncertain and are subject to change. No gene therapy products have been approved
to date in the United States or any foreign country. Failure to comply with
applicable FDA or other applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of products, total or
partial suspension of production or injunction, as well as other regulatory
action against the Company.
The Company is currently conducting preclinical studies and is planning
clinical trials of its AAV vectors. Prior to marketing in the United States, any
drug developed by the Company must undergo rigorous preclinical and clinical
testing and an extensive regulatory approval process implemented by the FDA
under the federal Food, Drug and Cosmetic Act. Satisfaction of such regulatory
requirements, which includes satisfying the FDA that the product is both safe
and efficacious, typically takes several years or more depending on the type,
complexity and novelty of the product, and requires a substantial commitment of
resources. The Company may encounter significant delays or excessive costs in
its efforts to secure regulatory approvals, particularly because gene therapy is
a novel method of treatment and regulatory requirements are evolving and
uncertain. Preclinical studies must be conducted in conformance with the FDA's
Good Laboratory Practices regulations. Before commencing clinical trials, the
Company must submit to and receive FDA authorization of an investigational new
drug application ("IND"). There can be no assurance that submission of an IND
would result in FDA authorization to commence clinical trials.
Clinical trials must meet FDA regulatory requirements for Institutional
Review Board ("IRB") oversight and informed consent and good clinical practice
regulations. The Company has limited experience in conducting preclinical
studies and no experience in conducting clinical trials necessary to obtain
regulatory approval. There can be no assurance that those clinical trials can be
conducted at preferred sites, sufficient test subjects can be recruited or
clinical trials will be started or completed successfully in a timely fashion,
if at all. Furthermore, the FDA may suspend clinical trials at any time if it
believes the subjects participating in such trials are being exposed to
unacceptable health risks or if it finds deficiencies in the IND or conduct of
the investigation. There can be no assurance that the Company will not encounter
problems in clinical trials which cause the Company or the FDA to delay, suspend
or terminate such trials.
In addition to the FDA requirements, the National Institutes of Health
("NIH") has established guidelines for research involving recombinant DNA
molecules, which are utilized by the Company in its research. These guidelines
apply to recombinant DNA research which is conducted at or supported by the NIH.
Under current guidelines, proposals to conduct clinical research involving gene
therapy at institutions supported by the NIH must be approved by the NIH's
Recombinant DNA Advisory Committee.
There can be no assurance that any product developed by the Company will
prove to be safe and efficacious in clinical trials or will meet all of the
applicable regulatory requirements necessary to receive marketing approval. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent regulatory approvals. If
regulatory approval is granted for a product, such approval will be limited to
those disease states and conditions for which the product is useful, as
demonstrated through clinical trials. Furthermore, approval may require ongoing
requirements for postmarketing studies. Even if a product is approved for
marketing, the product, its manufacturer and its manufacturing facilities are
continuously subject to review and periodic inspections. Discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on such product or manufacturer, including withdrawal of the
product from the market.
8
<PAGE> 11
In order to market its products outside of the United States, the Company
also must comply with numerous and varying foreign regulatory requirements,
implemented by foreign health authorities, governing the design and conduct of
human clinical trials and marketing approval. The approval procedure varies
among countries and can involve additional testing, and the time required to
obtain approval may differ from that required to obtain FDA approval. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA approval set forth above, and approval by the FDA does not ensure
approval by the health authorities of any other country. See "Business --
Government Regulation."
UNCERTAINTY OF PRODUCT PRICING AND THIRD PARTY REIMBURSEMENT
The business and financial condition of biotechnology companies such as the
Company are affected by the efforts of government and third party payors to
contain or reduce the cost of health care through various means. In the United
States, there have been and will continue to be a number of federal and state
proposals to implement government control on pricing. In addition, the emphasis
on managed care in the United States has increased and will continue to increase
the pressure on the pricing of pharmaceutical products. While the Company cannot
predict whether any legislative or regulatory proposals will be adopted or the
effect such proposals or managed care efforts may have on its business, the
announcement of such proposals or efforts could have a material adverse effect
on the Company's ability to raise capital, and the adoption of such proposals
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, in both the United States and
elsewhere, sales of medical products and treatments are dependent, in part, on
the availability of reimbursement to the consumer from third-party payors, such
as government and private insurance plans. Third-party payors are increasingly
challenging the prices charged for medical products and services. If the Company
succeeds in bringing its proposed products to the market, there can be no
assurance that these products will be considered cost-effective and that
reimbursement to the consumer will be available or will be sufficient to allow
the Company to sell its products on a competitive basis.
COMPETITION
The field of gene therapy is new and rapidly evolving and is expected to
undergo significant technological change in the future. Competition from fully
integrated pharmaceutical companies and more established biotechnology companies
is expected to increase. Most of these companies have significantly greater
financial resources and expertise than the Company in research and development,
preclinical studies and clinical trials, obtaining regulatory approvals,
manufacturing, marketing and distribution. Smaller companies may also prove to
be significant competitors, particularly through collaborative arrangements with
large pharmaceutical companies. Academic institutions, government agencies and
other public and private research organizations also conduct research, seek
patent protection and establish collaborative arrangements for product
development and marketing. In addition, these companies and institutions compete
with the Company in recruiting and retaining highly qualified scientific and
management personnel. There can be no assurance that the Company's competitors
will not develop more effective or more affordable products, or achieve earlier
product commercialization than the Company.
The Company is aware that other companies are conducting preclinical
studies and clinical trials for viral and non-viral gene therapy products. One
of these companies is supporting clinical studies for use of AAV vectors in the
treatment of cystic fibrosis.
Avigen believes the primary competitive factors for success in the gene
therapy field will be product efficacy, safety, manufacturing capability, the
timing and scope of regulatory approvals, the timing of market introduction,
marketing and sales capability, reimbursement coverage, price and patent
position. There can be no assurance that the Company's competitors will not
develop more effective or more affordable products, or achieve earlier product
commercialization than the Company. See "Business -- Competition."
9
<PAGE> 12
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; POSSIBLE CLAIMS OF OTHERS
To date, the Company has filed a number of patent applications in the
United States relating to the Company's technologies. In addition, the Company
has acquired exclusive and non-exclusive licenses to certain issued patents and
pending patent applications. There is no assurance that patents will issue from
these applications or that any patent will issue on technology arising from
additional research or, if patents do issue, that claims allowed will be
sufficient to protect the Company's technologies.
The patent application process takes several years and entails considerable
expense. The failure to obtain patent protection on the technologies underlying
the Company's proposed products may have a material adverse effect on the
Company's competitive position and business prospects. Important legal issues
remain to be resolved as to the scope of patent protection for biotechnology
products, and the Company expects that administrative proceedings, litigation or
both will be necessary to determine the validity and scope of its and others'
biotechnology products. Such proceedings or litigation may require a significant
commitment of the Company's resources in the future. If patents can be obtained,
there can be no assurance that any such patents will provide the Company with
any competitive advantage. For example, there can be no assurance that others
will not independently develop similar technologies, others will not duplicate
any technology developed by the Company, or any such patent will not be
invalidated in litigation. In addition, two of the Company's patent applications
are co-owned with co-inventors. Under the terms of agreements with such
co-inventors, the Company has an option to obtain an exclusive, worldwide,
transferable, royalty-bearing license for such technology, and is currently in
discussions with one of the co-inventors to obtain such a license. In the event
the Company is unable to negotiate exclusive rights to such co-owned technology,
each co-inventor may have rights to independently make, use, offer to sell or
sell the patented technology. Commercialization, assignment or licensing of such
technology by a co-inventor could have a material adverse effect on the
Company's business, financial condition and results of operations.
There can be no assurance that third parties will not assert patent or
other intellectual property infringement claims against the Company with respect
to its products or technology or other matters. There may be third-party patents
and other intellectual property relevant to the Company's products and
technology which are not known to the Company. Although no third party has
asserted that the Company is infringing such third party's patent rights or
other intellectual property, there can be no assurance that litigation asserting
such claims will not be initiated, that the Company would prevail in any such
litigation, or that the Company would be able to obtain any necessary licenses
on reasonable terms, if at all. Any such claims against the Company, with or
without merit, as well as claims initiated by the Company against third parties,
can be time-consuming and expensive to defend or prosecute and to resolve. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the Patent and Trademark
Office to determine priority of invention, which could result in substantial
cost to the Company, even if the outcome is favorable to the Company. In
addition, to the extent outside collaborators apply technological information
developed independently by them or by others to the Company's product
development programs or apply Avigen's technologies to other projects, disputes
may arise as to the ownership of proprietary rights to such technologies.
The Company also relies on a combination of trade secret and copyright law,
employee and third-party nondisclosure agreements and other protective measures
to protect intellectual property rights pertaining to its products and
technologies. There can be no assurance that these measures will provide
meaningful protection of the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how or other proprietary information.
In addition, the laws of certain foreign countries do not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States. There can be no assurance that the Company will be able to protect its
intellectual property successfully. See "Business -- Patents and Intellectual
Property."
10
<PAGE> 13
LACK OF MANUFACTURING AND SALES AND MARKETING EXPERIENCE
The Company has no experience in, and currently lacks the resources and
capability to, manufacture or market any of its proposed products on a
commercial basis. In addition, the Company's proprietary process for
manufacturing AAV vectors has not yet implemented the FDA's regulations
concerning Current Good Manufacturing Practices ("cGMP"). Initially, the Company
anticipates that it will be dependent to a significant extent on collaborative
partners or other entities for commercial scale manufacturing of its products.
In the event the Company decides to establish a commercial scale manufacturing
facility, the Company will require substantial additional funds and personnel
and will be required to comply with extensive regulations applicable to such
facility. There can be no assurance that the Company will be able to develop
adequate commercial manufacturing capabilities either on its own or through
third parties. In addition, the Company does not anticipate establishing its own
sales and marketing capabilities in the foreseeable future. There can be no
assurance that the Company will be able to develop adequate marketing
capabilities either on its own or through third parties. See "Business --
Corporate Partnering Strategy" and "-- Manufacturing."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on certain members of its management and
research and development staff. The loss of any of these persons could have a
material adverse effect on the Company's business. In addition, the Company
relies on consultants and advisors to assist the Company in formulating its
research and development strategy. Recruiting and retaining qualified technical
and managerial personnel will also be critical to the Company's success. There
can be no assurance that the Company will be successful in attracting and
retaining skilled personnel who generally are in high demand in the
pharmaceutical and biotechnology industries. The loss of certain key employees
or the Company's inability to attract and retain other qualified employees could
have a material adverse effect on the Company's business. A majority of the
Company's scientific advisors are engaged by the Company on a consulting basis
and are employed on a full-time basis by employers other than the Company and
some have consulting or other advisory arrangements with other entities that may
conflict or compete with their obligations to the Company.
SIGNIFICANT PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
The manufacture and sale of medical products entail significant risk of
product liability claims. The Company currently does not carry product liability
insurance although it intends to obtain such coverage prior to commencing
clinical trials. There can be no assurance that such coverage will be adequate
to protect the Company from any liabilities it might incur in connection with
the use or sale of the Company's products. In addition, the Company may require
increased product liability coverage as additional products are commercialized.
Such insurance is expensive and in the future may not be available on acceptable
terms, if at all. A successful product liability claim or series of claims
brought against the Company in excess of its insurance coverage could have a
material adverse effect on the Company's business and results of operations. The
Company must indemnify certain of its licensors against any product liability
claims brought against them arising out of products developed by the Company
under these licenses. See "Business -- Product Liability and Insurance."
HAZARDOUS MATERIALS
The Company's research and development efforts involve the use of hazardous
materials, chemicals and various radioactive compounds. The Company is subject
to federal, state and local laws and regulations governing the storage, use, 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 federal, state and local regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of an accident, the Company could be held
liable for any damages that result and any such liability could exceed the
resources of the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops its own commercial
manufacturing facility.
11
<PAGE> 14
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER
PROVISIONS AND DELAWARE LAW
The Company's officers, directors and principal stockholders beneficially
own approximately 18.63% of the Company's Common Stock. As a result, such
persons may have the ability to effectively control the Company and direct its
affairs and business. Such concentration of ownership may also have the effect
of delaying, deferring or preventing a change in control of the Company. In
addition, the Company's Board of Directors will have the authority to issue up
to 5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject to,
and may be materially adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. The Company
has no present plans to issue shares of Preferred Stock. Furthermore, certain
provisions of the Company's Restated Certificate of Incorporation may have the
effect of delaying or preventing changes in control or management of the
Company, which could adversely affect the market price of the Company's Common
Stock. In addition, the Company is subject to the provisions of Section 203 of
the Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law.
See "Principal Stockholders" and "Description of Capital Stock."
LIMITED PRIOR TRADING HISTORY; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering there has been a public market for the Company's
Common Stock for only approximately six months, and there can be no assurance
that an active market will develop or be maintained. The Company believes that
various factors, including announcements of technological innovations or
regulatory approvals, results of clinical trials, announcements of new products
by the Company or by its competitors, healthcare or reimbursement policy changes
by governments or insurance companies, developments in relationships with
corporate partners or a change in securities analysts' recommendations, may
cause the market price of the Common Stock to fluctuate, perhaps substantially.
In addition, in recent years the stock market in general, and the shares of
biotechnology and healthcare companies in particular, have experienced extreme
price fluctuations. These broad market and industry fluctuations may materially
adversely affect the market price of the Company's Common Stock.
POTENTIAL DILUTION FROM ADDITIONAL FINANCING
The Company may be required or may choose to sell equity securities to
obtain financing in the future. If the Company sells additional equity
securities at a price per share less than the public offering price, investors
purchasing shares of Common Stock in this offering would incur additional
dilution. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market following
the offering made hereby could have a material adverse effect on the price of
the Common Stock. In addition to the 243,905 shares offered hereby approximately
2,139,235 shares were eligible for sale in the public market upon the effective
date of the Registration Statement (the "Effective Date") in reliance on Rule
144(k) under the Securities Act. In addition, approximately 1,633,773 shares of
common stock are eligible for sale in the public market pursuant to Rule 144,
subject to the resale limitations of Rule 144, after the Effective Date. The
remaining 762,185 shares of Common Stock will become eligible for sale under
Rule 144 and Rule 701 at various dates thereafter as the holding period
provisions of Rule 144 are satisfied. See "Shares Eligible for Future Sale."
After the offering, the holders of 3,424,535 shares of Common Stock and
warrants to purchase 442,606 shares of Common Stock are entitled to certain
demand and piggyback registration rights with respect to such shares. If such
holders, by exercising their demand registration rights, cause a large number of
shares to be registered and sold in the public market, such sales may have a
material adverse effect on the market price of the Common Stock. If the Company
is required to include in a Company-initiated registration shares
12
<PAGE> 15
held by such holders pursuant to the exercise of their piggyback registration
rights, such sales may have a material adverse effect on the Company's ability
to raise needed capital. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future. See "Dividend Policy."
THE COMPANY
The Company's predecessor was incorporated in New York in July 1991 under
the name "Vestmark, Inc." Avigen, Inc. was incorporated in Delaware in October
1992. In December 1992, Vestmark, Inc., which had no operations, merged with and
into Avigen, Inc. pursuant to an Agreement and Plan of Merger, with Avigen, Inc.
as the surviving corporation. Unless the context otherwise requires, "Avigen"
and the "Company" refer to Avigen, Inc., a Delaware corporation and its
predecessor "Vestmark, Inc." The Company's executive offices are located at 1201
Harbor Bay Parkway, #1000, Alameda, California 94502 and its telephone number is
(510) 748-7150.
USE OF PROCEEDS
The purpose of this offering is to register the Shares. Proceeds to the
Company from the exercise of the Warrants will be used for general corporate
purposes. The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. If the Warrants are exercised in full, the
gross proceeds to the Company will be $1,376,400.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future.
13
<PAGE> 16
SELECTED FINANCIAL DATA
The following 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 the Notes thereto included
elsewhere in this Prospectus. The statement of operations data for each of the
three years ended June 30, 1996 and the balance sheet data at June 30, 1995 and
1996 are derived from, and should be read in conjunction with, the Company's
Financial Statements and Notes thereto audited by Ernst & Young LLP, independent
auditors, included elsewhere in this Prospectus. The balance sheet data at June
30, 1993 and 1994 and the statement of operations data for the period from
October 22, 1992 (inception) to June 30, 1993 are derived from audited financial
statements not included elsewhere herein. The statement of operations data for
the three month periods ended September 30, 1995 and 1996 and for the period
from October 22, 1992 (inception) through September 30, 1996 and the balance
sheet data at September 30, 1996 have been derived from unaudited interim
financial statements included elsewhere in this Prospectus and include, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position at, and results
of operations for, such periods. The operating results for the three months
ended September 30, 1996 are not necessarily indicative of the results to be
expected for the full year or any future period. The Company has not paid or
declared cash dividends.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
OCTOBER 22, 1992 OCTOBER 22, 1992
(INCEPTION) THROUGH YEARS ENDED THREE MONTHS ENDED (INCEPTION) THROUGH
JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------------------- --------------------- -------------------
1993 1994 1995 1996 1995 1996 1996
------------------- ------- ------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Grant Revenue........ -$- $ -- $ 178 $ 87 $ 44 $ -- $ 265
Expenses:
Research and
development........ 932 2,558 2,290 2,550 581 632 8,962
General and
administrative..... 538 1,283 1,334 1,102 281 346 4,602
------- ------- ------- -------- ----- ----- --------
Total expenses....... 1,470 3,841 3,624 (3,565) 862 978 13,564
------- ------- ------- -------- ----- ----- --------
Loss from
operations......... (1,470) (3,841) (3,446) (3,655) (818) (978) (13,299)
Other income
(expense), net..... (24) (8) 181 (533) (5) 106 (278)
------- ------- ------- -------- ----- ----- --------
Net loss............. $(1,494) $(3,849) $(3,265) $ (4,097) $ (823) $ (872) $ (13,577)
======= ======= ======= ======== ===== ===== ========
Net loss per share
(1)................ $ (0.12)
=====
Shares used in
computing net loss
per share (1)...... 7,253
=====
Pro forma net loss
per share (1)...... $ (0.62) $ (0.80) $ (0.15)
======= ======== =====
Shares used in
computing pro forma
net loss per share
(1)................ 5,295 5,142 5,410
======= ======== =====
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1996
------- ------- ------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities......................... $ 666 $ 244 $ 203 $ 16,443 $ 17,153
Working capital (deficit)................................................ 199 (1,615) (916) 15,364 15,870
Total assets............................................................. 1,920 2,133 1,841 17,532 18,695
Capital lease obligations, noncurrent portion............................ -- 27 214 176 151
Deficit accumulated during the development stage......................... (1,494) (5,343) (8,608) (12,705) (13,576)
Stockholders' equity..................................................... 1,441 (69) 184 16,027 17,016
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements describing the shares used in
calculating net loss per share and pro forma net loss per share.
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception, the Company has devoted substantially all of its
resources to research and development activities. The Company is a development
stage company and has not received any revenue from the sale of products. The
Company does not anticipate generating revenue from the sale of products in the
foreseeable future. The Company expects its source of revenue, if any, for the
next several years to consist of government grants and payments under
collaborative arrangements. The Company has incurred losses since its inception
and expects to incur substantial losses over the next several years due to
ongoing and planned research and development efforts, including preclinical
studies and clinical trials. At September 30, 1996, the Company had an
accumulated deficit of $13.6 million.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
RESULTS OF OPERATIONS
YEARS ENDED JUNE 30, 1994, 1995, AND 1996
Grant revenue increased from zero for the year ended June 30, 1994 to
$178,000 for the year ended June 30, 1995, and decreased to $87,000 for the year
ended June 30, 1996. Grant revenue for 1995 and 1996 consisted of reimbursements
under a NIH grant. Revenues earned under research grants are determined by the
timing of the award from the issuing agency. As a result, research grant revenue
earned in one period is not predictive of research grant revenue to be earned in
future periods.
The Company's research and development expenses decreased from $2.6 million
for the year ended June 30, 1994, to $2.3 million for the year ended June 30,
1995, and increased to $2.6 million for the year ended June 30, 1996. The
decrease from fiscal 1994 to fiscal 1995 was due primarily to the concentration
of costs associated with startup in 1994. The increase from fiscal 1995 to
fiscal 1996 was due primarily to increases in personnel in the fourth quarter of
1996. The Company expects research and development spending to increase
significantly over the next several years as the Company expands research and
product development efforts.
General and administrative expenses remained constant at $1.3 million for
the years ended June 30, 1994 and June 30, 1995, and decreased to $1.1 million
for the year ended June 30, 1996. The decrease from fiscal 1995 to fiscal 1996
was primarily due to lower in personnel and support costs. General and
administrative expenses are expected to continue to increase as the level of the
Company's activities increases but to decrease as a percentage of total
expenses, with the expansion of the research and development efforts.
Interest expense increased from $34,000 for the year ended June 30, 1995 to
$581,000 for the year ended June 30, 1996, primarily as a result of the 1996
Bridge Financing, including $300,000 relating to the issuance of the Warrants in
connection with the 1996 Bridge Financing.
THREE MONTHS ENDED SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996
Grant revenue decreased from $44,000 for the period ended September 30,
1995 to zero for the period ended September 30, 1996. Grant revenue consisted of
reimbursements under a NIH grant. Revenues earned under research grants are
determined by the timing of the award from the issuing agency. As a result,
research grant revenue earned in one period is not predictive of research grant
revenue to be earned in future periods.
The Company's research and development expenses increased from $581,000 for
the period ended September 30, 1995 to $632,000 for the period ended September
30, 1996, primarily due to the increased number of personnel. The Company
expects research and development spending to increase significantly over the
next several years as the Company expands research and product development
efforts.
General and administrative expenses increased from $281,000 for the period
ended September 30, 1995, to $346,000 for the period ended September 30, 1996.
The increase was primarily due to increased personnel and support costs. General
and administrative expenses are expected to increase at the level of the
Company's activities increases, but to decrease as a percentage of total
expenses, with the expansion of research and development efforts.
15
<PAGE> 18
Interest income (expense) increased from ($5,200) for the period ended
September 30, 1995 to $105,000 for the period ended September 30, 1996 primarily
as a result of the Company's investment of proceeds from its initial public
offering in May 1996.
LIQUIDITY AND CAPITAL RESOURCES
In May 1996, the Company consummated an initial public offering (the
"Offering") of 2,500,000 shares of Common Stock which raised approximately $17.7
million, net of expenses. In July 1996, the Company issued 250,000 additional
shares of Common Stock in connection with the exercise of the underwriters'
over-allotment option. Net proceeds from such sale were approximately
$1,850,000.
Prior to May 1996, the Company financed its operations primarily through
private placements of Common Stock and Preferred Stock and the 1996 Bridge
Financing. Through March 31, 1996, the Company had raised approximately $11.0
million, net of financing costs, from the sale of Common Stock and Preferred
Stock and $1.9 million from the 1996 Bridge Financing.
In March 1996, the Company completed the 1996 Bridge Financing in which the
Company issued $1,937,500 principal amount of promissory notes (the "Notes") and
the Warrants of Common Stock at an exercise price equal to $6.40 per share. The
Notes accrued interest at the rate of 12% per year and were paid in June 1996
with a portion of the proceeds from the Company's initial public offering. The
Warrants expire in March 2001. The Warrants were assigned a value of $300,000.
This amount was reflected as a discount on the Notes and was accreted as
additional financing (interest) expense over the term of the Notes. In
connection with the 1996 Bridge Financing, the Company paid the placement agent
a commission equal to 10% of the gross proceeds and Warrants to purchase 19,375
shares of Common Stock at an exercise price equal to $7.04 per share. The
Warrants issued to the placement agent expire in May, 2001.
At September 30, 1996, the Company had cash, cash equivalents and
investments in marketable securities of approximately $17.2 million. The Company
expects its cash requirements to increase significantly in future periods. The
Company will require substantial funds to conduct the research and development
activities and preclinical studies and clinical testing of its potential
products and to market any products that are developed. The Company's facility
is an approximately 23,000 square foot facility leased through May 2003. The
Company presently anticipates that it will either be able to renew the lease of
this facility or find suitable alternate facilities in the same general area
without a material disruption of its operations. Within the 23,000 square foot
facility, the Company proceeded in August 1996 with the commencement of a 7,000
square foot expansion of its research and development facilities and
administrative offices. The construction is expected to cost approximately
$450,000. To the extent the Company decides to develop its own manufacturing
facilities, the Company would require substantial additional capital. During
July 1996 the Company entered into an equipment lease with the Republic Group
LLC for approximately $300,000 over a 60 month term at an annual interest rare
of 9.4%. No amounts had been drawn on the lease through September 30, 1996.
The Company's cash requirements may vary materially from those now planned
because of the results of research, development and clinical trials, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements, the development of commercialization
activities and arrangements and the purchase or lease of additional capital
equipment.
The Company believes that the available cash and cash equivalents and
short-term investments will be sufficient to meet the Company's operating
expenses and capital requirements for at least the next 12 months. The company
will be required to seek additional funds through public or private financings
or collaborative arrangements with corporate partners. Issuances of additional
equity securities could result in substantial dilution to stockholders. There
can be no assurances that additional fundings will be available on terms
acceptable to the Company, if at all. The failure to fund its capital
requirements would have a material adverse effect on the Company's business.
16
<PAGE> 19
BUSINESS
Avigen is a leader in the development of gene therapy products derived from
adeno-associated virus ("AAV") for the treatment of inherited and acquired
diseases. The Company's proposed gene therapy products are designed for in vivo
administration to achieve the production of therapeutic proteins within the
body. The Company is developing two broad-based proprietary gene delivery
technologies: AAV vectors and the Targeted Vector Integration ("TVI") system.
The Company believes AAV vectors can be used to deliver genes for the treatment
of brain, liver and prostate cancer, anemia, hemophilia, hyperlipidemia and
metabolic storage diseases. The Company also believes its TVI system will allow
it to pursue more effective treatments for blood cell-related diseases,
including sickle cell anemia, beta-thalassemia and human immunodeficiency virus
("HIV") infection.
AAV Vectors. The Company's gene therapy products are based on gene
delivery systems called vectors. AAV vectors are derived from AAV, a common
non-pathogenic human virus, and take advantage of the natural efficiency with
which viruses deliver genes to cells. To produce an AAV vector, the virus is
modified by removing the viral genes and replacing them with genes for
therapeutic proteins. The Company believes that AAV vectors combine desirable
properties of viral and non-viral vectors and may offer several potential
advantages over other gene therapy vectors. These advantages include efficient
delivery of genes to both dividing and non-dividing target cells, absence of
viral genes that may be responsible for causing an undesirable immune response,
in vivo administration to patients, higher levels of gene expression and
improved stability allowing AAV vectors to be stored and handled like more
traditional pharmaceutical products. Due to the complex replication cycle of the
natural virus, AAV vectors have been difficult to produce. Avigen believes that
its proprietary manufacturing process will simplify manufacturing and
purification and achieve increased yield of high purity AAV vectors.
In spite of the potential advantages, the use of AAV vectors for gene
therapy also presents potential disadvantages. Since the genome of the natural
AAV virus is relatively small, the amount of the genetic material that can be
included in an AAV vector is limited. Therefore, large genes cannot be delivered
by AAV vectors. In addition, in vivo administration of AAV vectors may result in
the production of antibodies which may limit the effectiveness of repeat dosing
of these vectors. Furthermore, direct administration of AAV vectors may result
in their distribution to inappropriate tissues.
TVI System. The Company's proprietary TVI system utilizes components of
AAV to integrate large segments of DNA at a specific location on human
chromosome 19. There are 23 pairs of chromosomes in human cells. Integration is
essential for certain gene therapy applications where the genes must be passed
on to the progeny of the cell. The Company believes gene therapy vectors that
integrate at a specific site, such as the site on chromosome 19 where the
non-pathogenic AAV normally integrates, will have an increased safety profile
relative to vectors that integrate randomly. The Company also believes that the
ability to integrate large segments of DNA could lead to gene therapy
applications involving the delivery of multiple genes or requiring precise or
controllable gene regulation.
Product Development. Based on encouraging results in animal models, the
Company has initiated two preclinical development programs using AAV vectors for
the treatment of brain tumors and anemia. Additionally, the Company has a number
of research programs and collaborations intended to generate product development
candidates for liver and prostate cancer, hemophilia, hyperlipidemia, metabolic
storage diseases, hemoglobin disorders and HIV infection. Avigen believes that
the number of potential applications for gene therapy will increase
significantly as advances are made in the area of genomics. These advances are
enabling scientists to link diseases to specific gene defects. As more genes are
discovered, the need for improved gene delivery technologies is expected to
increase. With the identification of new disease-related genes, the Company
believes that its AAV vectors and its TVI system will provide it with
significant opportunities for new gene therapy products.
Corporate Partnering Strategy. The Company is actively seeking to develop
long-term strategic collaborations with pharmaceutical companies that can
provide funding for research and development activities and clinical trials as
well as access to complementary technologies, including gene sequences. The
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Company believes that its broad-based proprietary gene delivery technologies can
be used to deliver a number of different genes, giving rise to multiple product
and corporate partnering opportunities.
GENE THERAPY BACKGROUND
Gene therapy is an approach to the treatment of inherited and acquired
diseases whereby genes are delivered into patients' cells in order to direct the
cells to produce therapeutic proteins. Genes are regions of DNA that contain the
instructions that direct cells to produce proteins, one of the basic building
blocks of all cells. Each cell in the body has the ability to produce proteins
necessary for cellular structure, growth and function. The process that results
in protein production by the cell is known as gene expression. By directing the
cells to produce proteins, gene therapy offers the opportunity to correct
defects or diseases at the molecular level.
All gene therapy approaches contain three key components: (i) the vector,
(ii) the gene cassette, and (iii) the target cell. The vector is the vehicle
used to deliver the gene cassette to target cells. The gene cassette is the
segment of DNA containing the gene for the therapeutic protein and the necessary
control elements. The vector containing the gene cassette is delivered to the
target cell capable of producing the therapeutic protein.
Vectors. One of the most critical factors for the success of gene therapy
products is the development of vectors that can practically, efficiently and
safely deliver genes into cells. The process of gene transfer may be
accomplished in vivo (by administering the vector directly to patients) or ex
vivo (by removing patients' cells and combining them with the vector). Viral
vectors are derived from naturally occurring viruses. Non-viral vectors are
produced by standard recombinant DNA techniques.
Viral vectors take advantage of the natural efficiency with which viruses
transport their own genetic information into cells. Viral vectors are
constructed by removing some or all of the viral genes and replacing them with a
gene cassette. Viral vectors have been the most extensively studied method of
gene delivery, and most gene therapy applications currently undergoing clinical
evaluation involve the use of viral vectors. However, viral vectors currently
under clinical investigation have limitations which may affect their safety or
efficacy. Viral vectors based on retroviruses ("retroviral vectors"), for
example, require that target cells be dividing or multiplying to achieve gene
delivery. Because most target cells in the body are not dividing or divide very
slowly and because retroviruses become rapidly inactivated in the blood, most
clinical applications currently under evaluation employing retroviral vectors
involve a complex and expensive procedure whereby patient cells are removed and
the gene is delivered to these cells ex vivo.
Another type of viral vector is derived from adenovirus. Adenoviral vectors
are capable of efficiently delivering genes to several dividing and non-dividing
cell types. However, adenoviral vectors contain and express genes from the
naturally occurring virus, and as a result, the body's immune system is
triggered following their administration. This immune response is believed to
limit the length of time that gene expression can be maintained in the target
cell.
Additional safety issues have been raised by the use of retroviral and
adenoviral vectors since both vectors are derived from pathogenic viruses.
During the manufacture of these vectors, there is a possibility of generating a
small amount of the natural virus. Although considered a low risk, such a
possibility necessitates additional costly product testing. In addition,
retroviral vectors randomly integrate the gene cassette into the target cell.
Any gene therapy approach that involves the random integration of genetic
material into the target cell's DNA could, theoretically, cause the activation
of another gene involved in the development of cancer or the inactivation of a
beneficial gene. It is generally believed that such events would be rare.
Non-viral vectors are produced by standard recombinant DNA techniques and
are delivered to target cells either unmodified ("naked DNA") or combined with
lipids (e.g., liposomes) or proteins designed to facilitate the entry of DNA
into the cells. Because they have no components derived from viruses, they are
perceived to be safer. In addition, non-viral vectors are capable of delivering
large segments of DNA to target cells. However, non-viral vectors are relatively
inefficient at delivering genes to cells, and in general, have resulted in
temporary or low levels of gene expression in target cells.
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In contrast to retroviral and adenoviral vectors, AAV vectors are derived
from a non-pathogenic human virus to which the majority of the population has
been exposed. In spite of its name, AAV is genetically unrelated to adenovirus.
AAV, as it exists in nature, can only reproduce in the presence of another
virus. AAV vectors are derived from AAV by removing all of the viral genes and
replacing them with an appropriate gene cassette. The Company believes that AAV
vectors offer several potential advantages over other viral and non-viral
vectors. These advantages include efficient delivery of genes to both dividing
and non-dividing target cells, absence of viral genes that may be responsible
for causing an undesirable immune response, in vivo administration to patients,
higher levels of gene expression and improved stability allowing AAV vectors to
be manufactured, stored and handled like more traditional pharmaceutical
products. The Company believes that AAV vectors combine the desired properties
of viral and non-viral vectors and may offer a safer and more practical
alternative to the other gene therapy vectors. Two clinical trials evaluating
AAV vectors manufactured by another company for the treatment of cystic fibrosis
are currently being conducted.
Gene Cassette. Packaged inside a gene therapy vector is the gene cassette,
containing the gene for a desired therapeutic protein and the control elements
which direct protein production by the cell. The design of the gene cassette
depends on the therapeutic application. The gene may be a naturally occurring
gene for a therapeutic protein (e.g., erythropoietin or factor VIII), one that
sensitizes cancer cells to chemotherapy (a "suicide gene") or a man-made gene
with novel anti-viral properties. The control elements that regulate expression
of the delivered genes are equally important in the success of gene therapy
products. Certain control elements permit gene expression in many cell types
while other cell-specific control elements direct expression only in a
particular type of cell. The Company believes that inclusion of the
cell-specific control elements in a gene therapy vector may increase safety in
certain gene therapy applications by limiting gene expression to a desired organ
or tissue.
Target Cells. The three major types of cell targets for gene therapy are
differentiated cells, cancer cells and stem cells. Differentiated cells
constitute the majority of cells in the body, including cells in muscle, heart,
skin, brain and liver. The Company's research has demonstrated that AAV vectors
are well-suited for gene delivery to specific differentiated cell types. These
cell types have limited, if any, capacity to divide or multiply. To be effective
in clinical applications involving differentiated cells, a gene therapy vector
must be capable of efficiently delivering genes to a sufficiently large number
of non-dividing cells to produce appropriate levels of the therapeutic protein.
Similarly, for cancer cells, an effective gene therapy vector must be able to
efficiently deliver genes to a significant number of cells within a tumor. The
Company believes that AAV vectors may be useful for the treatment of several
cancer types. Stem cells are cells that give rise to differentiated cells. Bone
marrow stem cells, which give rise to the mature red and white cells in the
blood, are the most extensively studied target cell for gene therapy. To be
effective for gene therapy applications involving stem cells, a gene therapy
vector must be capable of integrating or inserting its gene cassette into the
genome of the stem cell. Therefore, as the stem cells multiply and divide, the
gene cassette will be passed on to subsequent generations of cells. The Company
believes the shortcomings of current gene therapy approaches limit their
applications to stem cells and is developing its TVI system to address these
needs.
AVIGEN TECHNOLOGY
AAV VECTORS
AAV vectors are emerging as a promising gene delivery system because they
combine the efficiency with which viral vectors deliver their DNA to cells with
a potential safety profile closer to that of non-viral vectors. A major
limitation in the development of clinical applications for AAV vectors has been
the lack of an efficient production method. Current methods, in general, result
in low yields of AAV vectors and require the input of an infectious virus, most
commonly adenovirus, to initiate vector replication. The Company has developed a
proprietary manufacturing process which allows for the more efficient production
of larger quantities of AAV vectors and does not require the use of an
infectious virus, thereby eliminating some potentially harmful contaminants. The
Company believes that its process will simplify manufacturing and purification
of AAV vectors for clinical trials. In addition, the Company believes that its
proprietary process will result in a product that will be safer and, as a
result, more commercially viable than AAV vectors produced by commonly employed
methods.
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AAV, as it occurs in nature, has a single-stranded DNA genome which is
encased in a protein coat. The AAV genome consists of three elements. The first
is the "rep" gene which directs production of the proteins that enable the virus
to replicate its genome and integrate into a specific site on human chromosome
19. The second is the "cap" gene which directs production of the protein coat.
These two viral genes are bound by two short identical stretches of DNA called
inverted terminal repeats ("ITRs") that are also required for integration and
genome replication. In addition, the ITRs contain the instructions for insertion
of the viral genome into the protein coat. AAV vectors are derived from the
naturally occurring virus by recombinant DNA techniques. The viral genome
extracted from the virus is "cloned" into a plasmid to facilitate its
modification. The viral rep and cap genes are then removed, and a gene cassette
is inserted in their place between the viral ITRs. In order to produce AAV
vectors, the resulting "vector plasmid" is introduced into "packaging cells" in
tissue culture along with a "helper plasmid" containing the rep and cap genes.
Previous methods for AAV vector production also required infection of the
packaging cells with a "helper virus," most typically adenovirus, in order to
trigger AAV vector production by these cells. The Company's proprietary
manufacturing process eliminates the need for a helper virus. This eliminates
the risk of adenovirus contamination of the final product, rather than depending
on the inactivation of the virus during the manufacturing process. The Company's
manufacturing process also results in substantially increased yield of AAV
vector. The result of this effort is a versatile method suitable for the
production of high grade and high titer AAV vector preparations that the Company
is currently using to support its preclinical studies and research. The Company
is in the process of scaling up this process in anticipation of clinical trials
and believes that it can be readily adapted to the FDA's current Good
Manufacturing Practice regulations ("cGMP").
TARGET VECTOR INTEGRATION (TVI) SYSTEM
The Company's proprietary TVI system utilizes components of AAV to
integrate large segments of DNA at a specific location on human chromosome 19.
Integration is essential for gene therapy applications where the gene cassette
is delivered to a cell which is capable of multiplying and dividing and where
the gene cassette must be passed on to the progeny of the cell. In addition, the
ability to target integration of a gene cassette to a specific site on a
chromosome may increase the predictability of therapeutic protein production and
the product safety profile. Delivering large segments of DNA is important for
gene therapy applications that require the delivery of several genes or
regulatory elements too large to be accommodated in the current generation of
gene therapy vectors.
The Company's TVI system utilizes the AAV ITR and Rep proteins to achieve
site-specific integration of DNA segments. The Company believes that no current
gene therapy vectors are capable of achieving site-specific integration. Avigen
scientists have demonstrated that large segments of DNA attached to an AAV ITR
can be targeted for integration into human chromosome 19 in the presence of Rep
proteins; however, these results have not been independently verified.
Development of TVI technology is at an early stage and several issues
remain to be addressed. The Company is currently developing methods to
incorporate TVI into novel gene therapy vectors for the delivery of genes into
target cells. Because several genes and control elements could be incorporated
into a single gene therapy vector, the Company believes gene therapy
applications could be developed involving precise gene regulation or complex
control systems, such as gene activation with orally active drugs (so-called
"gene switches"). Initially, the Company is focusing on developing TVI vectors
to deliver genes to bone marrow stem cells for the treatment of
hemoglobinopathies (sickle cell anemia and beta-thalassemia) and Acquired Immune
Deficiency Syndrome ("AIDS").
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PRODUCT DEVELOPMENT PROGRAMS
The Company has selected its product development programs based on
experimental data that demonstrate the feasibility of gene delivery to specific
target cells. The Company believes that its technologies may be used with
several different genes, giving rise to multiple product and corporate
partnering opportunities. Avigen believes that further advances in genomics,
including the sequencing, mapping and identification of genes linked to
diseases, may offer other product opportunities. The following table summarizes
the Company's current product development programs:
AAV VECTOR-BASED GENE THERAPY PROGRAMS
<TABLE>
<S> <C> <C> <C>
INDICATION TARGET STATUS(1)
PROGRAM CELL
Cancer Brain Tumors Tumor Preclinical
Hepatocellular Tumor Research
Carcinoma
Prostate Cancer Tumor Research
Blood Diseases Anemia(2) Muscle Preclinical
Hemophilia Muscle/Liver Research
Metabolic Diseases Hyperlipidemia Muscle Research
Storage Diseases Muscle Research
TVI-BASED GENE THERAPY PROGRAMS
INDICATION TARGET STATUS(1)
PROGRAM CELL
Anemia(3) Bone Research
Marrow
Stem
Blood Diseases Cells
HIV Bone Research
Marrow
Stem
Infectious Diseases Cells
</TABLE>
- ---------------
(1) "Research" indicates activities related to designing, constructing and
testing vectors in specific target cell types in order to evaluate gene
expression. "Preclinical" indicates in vitro and animal studies to evaluate
efficacy, pharmacology and toxicology.
(2) Includes programs utilizing delivery of an erythropoietin gene for the
treatment of renal failure, sickle cell anemia and beta-thalassemia.
(3) Includes programs utilizing delivery of a hemoglobin gene for the treatment
of sickle cell anemia and beta-thalassemia.
CANCER
Avigen has focused on the treatment of cancer as one of its earliest
applications of AAV gene therapy. Cancer is currently the second-leading cause
of death in the United States with 1.2 million cases diagnosed each year and
more than 500,000 deaths annually. Greater than 2.3 million cases are diagnosed
each year worldwide. Conventional strategies for treatment of cancer include
surgery, radiation therapy and chemotherapy. Potential gene therapy strategies
for cancer include the delivery of genes to tumor cells which increase the
susceptibility of these cells to the cytotoxic effect of drugs ("suicide gene
therapy"), the delivery of genes to tumor cells to enhance their destruction by
the body's immune system ("immunotherapy") and the delivery of genes to tumor
cells that directly promote cell death. The Company is in the process of
developing AAV vectors to treat solid tumors in the brain, liver and prostate.
Brain Tumors. Primary brain tumors represent a significant health problem
with an incidence estimated to be approximately 18,000 new cases in 1996 in the
United States. Glioblastoma multiforme ("GBM"), a type of brain tumor,
represents 20-30% of all such tumors. Patients with GBM have a particularly grim
prognosis, with a median survival rate of approximately ten months after surgery
and high-dose radiation. Systemically administered chemotherapy has not
significantly increased either survival or quality of life. After recurrence of
GBM, the median survival rate is approximately nine months even with treatment.
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In collaboration with investigators in the Department of Neurosurgery at
Nagoya University, Japan, the Company has demonstrated the efficacy of AAV
vector-based gene therapy for GBM in an experimental animal model. For this
initial study, which was published in the journal of Gene Therapy in November
1996, the Company designed and produced an AAV vector containing the gene for
the enzyme, thymidine kinase ("TK"). When expressed in dividing cells such as
tumor cells, the TK gene renders these cells sensitive to the toxic effect of
the FDA-approved antiviral drug, ganciclovir ("GCV"). TK converts the relatively
non-toxic GCV into by-product which is toxic to the dividing tumor cells.
Following a single injection of an AAV-TK vector into brain tumors arising from
human glioma cells implanted in the brains of mice, a significant reduction in
tumor size was observed in all animals that also received GCV. In addition,
there was evidence of a "bystander effect" whereby tumor cells that did not
receive the TK gene but that were in contact with cells that did were also
killed. The Company believes that the bystander effect significantly contributes
to the efficacy of this therapeutic strategy.
The Company believes that this approach offers the potential for increased
efficacy and decreased toxicity as compared to the systemic administration of
chemotherapeutic agents. The AAV vector can be injected directly into the tumor
or applied to the surgical field following removal of the tumor. In addition,
the toxic by-product of GCV only kills dividing cells, sparing the surrounding
non-dividing brain cells, and is produced only in response to the systemic
administration of GCV. Therefore, the Company believes that potential side
effects can be reduced or eliminated by controlling the administration of GCV.
Clinical trials are currently being performed by investigators at several
academic institutions in collaboration with another gene therapy company to
evaluate suicide gene therapy using retroviral vectors to deliver the TK gene.
However, since retroviral vectors generally are ineffective when administered
directly into the body, these protocols involve the delivery of mouse cells that
produce the retroviral vectors into the brains of patients. The Company believes
that its AAV vector approach offers a safer and potentially more effective
alternative with greater potential for commercialization.
The Company is also investigating the utility of combining the suicide gene
strategy with immunotherapy. The Company through its collaborators at Nagoya
University has demonstrated that AAV vectors can be used to deliver and achieve
the simultaneous expression of both the TK gene and an immunostimulatory
lymphokine gene in tumor cells in vitro. The Company's collaborators have
recently evaluated the effects of using AAV vectors to deliver the genes for
immunostimulatory factors to mice with experimentally-induced brain tumors. The
Company believes that this combined approach may increase the efficacy and the
potential utility of AAV vectors for the treatment of brain tumors.
Hepatocellular Carcinoma. Hepatocellular carcinoma, or liver cancer, is
among the most common form of cancer worldwide. Based on industry sources, the
Company believes that there are over 10,000 new cases of liver cancer in the
United States each year. Current therapeutic modalities include surgical
resection, regional chemotherapy or tumor embolization. Long-term survival rates
are poor.
An Avigen collaborator and scientific advisor at the University of
California, San Francisco ("UCSF") has demonstrated that AAV vectors can deliver
the TK gene to human hepatoma cells in tissue culture and sensitize them to the
toxic effects of GCV. In addition, those studies employed a hepatoma-specific
promoter which restricted expression of the TK gene to hepatoma cells. This
collaborator is currently evaluating the efficacy of the Company's AAV-TK
vectors in animal models of hepatoma. As part of this collaboration, the Company
has also constructed and produced an AAV vector containing both the TK gene and
the gene for the immunostimulatory lymphokine, interleukin-2 ("IL-2"), under
control of the hepatoma-specific promoter. It is believed that the inclusion of
IL-2 may increase the effectiveness of this approach by initiating a systemic
immune response to the tumor. Residual tumor can then be eliminated by the
administration of GCV.
Prostate Cancer. Prostate cancer is the most common cancer among American
men and is second only to lung cancer as a cause of male cancer deaths. The
American Cancer Society has estimated that there will be 300,000 cases diagnosed
in the United States in 1996 and 40,000 deaths. Currently, prostate cancer is
responsible for about 3% of all deaths in men over 55 years of age. Because the
incidence of prostate cancer increases more rapidly with age than any other form
of cancer and the average age of American men is rising, the number of United
States patients with prostate cancer is expected to rise steadily over the next
decade.
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Present therapy for prostate cancer depends on the stage or extent of
disease at the time of diagnosis. Until recently, the diagnosis of prostate
cancer was generally made by the detection of a nodule or mass on routine rectal
examination or during evaluation for difficulty with urination. The development
of sensitive blood tests to detect prostate cancer and the utilization of
sonogram detection systems have increased the diagnosis of prostate cancer,
particularly in individuals with early stage disease. Approximately 50% of
patients are diagnosed when the disease is still localized to the prostate. Such
patients generally have the option of surgical removal of the prostate or
externally applied radiation therapy. Although either of these treatment options
results in long-term survival rates equal to or approaching age-matched
individuals without prostate cancer, these costly procedures may result in
significant treatment-related side effects, including impotence, urinary
incontinence and even death. Some clinicians recommend no treatment in older
patients because of the morbidity and cost.
The Company is pursuing gene therapy as a treatment for early stage
prostate cancer. The Company's AAV vectors are well suited for treatment of
prostate cancer because prostate tumor cells divide extremely slowly and tumors
are frequently localized to a particular site. In addition, prostate tumors can
be easily accessed by direct injection.
In collaboration with investigators at Baylor College of Medicine, the
Company is evaluating the use of AAV vectors for the treatment of prostate
cancer. These investigators have demonstrated that following injection of an AAV
vector containing a "marker" gene directly into the prostate in mice, expression
of the marker protein is observed within the prostate epithelium. Recently, they
have also developed a model of prostate cancer in mice. Currently, these
investigators are evaluating the antitumor effects of direct injection of an AAV
vector containing a tumor-suppressor gene into these tumors. These vectors will
incorporate a prostate-specific promoter designed to limit gene expression to
the prostate cells.
BLOOD DISEASES
Anemia. Anemia results from a variety of inherited and acquired conditions
resulting in a reduction of the number of red blood cells and hemoglobin, the
red blood cell protein that carries oxygen. In the case of sickle cell anemia
and beta-thalassemia, two inherited diseases, anemia results from the production
of inadequate or abnormal hemoglobin molecules. In acquired cases such as renal
failure, AIDS or as the result of the administration of chemotherapy for cancer,
anemia is generally due to the inadequate production of red blood cells.
Erythropoietin ("EPO") is the protein produced by the kidney that
stimulates cells in the bone marrow to produce red blood cells and is involved
in the production of hemoglobin. Recombinant human EPO, a drug first developed
by Amgen, Inc., is administered several times a week by injection for the
treatment of anemia secondary to renal failure, AIDS or chemotherapy. Currently,
there are approximately 140,000 renal failure patients receiving dialysis in the
United States and an equivalent number in Europe. It is estimated that about
85,000 renal failure patients receiving dialysis are presently receiving EPO
worldwide. In addition, it is estimated that approximately 50,000 AIDS patients
are also currently being treated with EPO. The incidence of anemia in the
approximately 1 million cancer patients in the United States is estimated at
14%, providing a potential additional 140,000 patients who also may be
candidates for EPO therapy.
There are an estimated 60,000 patients with sickle cell anemia in the
United States. The Company believes that there are approximately 8,000 to 10,000
cases of beta-thalassemia in the United States. Currently, there is no effective
and widely available therapy for beta-thalassemia and sickle cell anemia.
Studies in animals and clinical trials in a small number of patients suggest
that administration of large doses of EPO, either alone or in combination with
other agents, in certain individuals with beta-thalassemia and sickle cell
anemia can increase the production of functional hemoglobin molecules and
perhaps ameliorate the symptoms of disease.
Avigen scientists have demonstrated that biologically active levels of EPO
can be achieved in mice following a single intramuscular administration of an
AAV vector containing a gene for human EPO. Mice treated in this study showed a
dose-dependent increase in the amount of EPO in their serum and
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a proportional increase in red blood cells. In this ongoing study, increased EPO
levels and red blood cell production have persisted undiminished for greater
than eleven months. The results of this study have not been independently
verified. Preclinical studies are in progress to evaluate the efficacy of
intramuscularly administered AAV vectors containing the EPO gene in animal
models and beta-thalassemia.
The Company is also developing a separate approach for the treatment of
sickle cell anemia and beta-thalassemia by delivering normal hemoglobin genes to
patients' defective bone marrow stem cells using TVI technology. Company
scientists are developing vectors to deliver large regions of the hemoglobin
gene "locus," containing the hemoglobin gene and the surrounding control
regions, for integration into human chromosome 19. All current applications for
treating bone marrow cells involve removing cells from the body. The Company
believes that potential treatments arising from this work will involve exposure
of patients' bone marrow stem cells ex vivo employing currently available
clinical procedures. The Company has entered into a collaboration with
Children's Hospital Los Angeles and Children's Hospital Oakland Research
Institute to develop an animal model for sickle cell anemia which will be useful
for testing vectors which incorporate the TVI system for the treatment of this
disease.
Hemophilia. Hemophilia is a hereditary disorder characterized by the
decrease or absence of clotting factor activity in the plasma. The most common
forms are caused by a defect or deficiency in protein coagulation factor VIII
("hemophilia A") or factor IX ("hemophilia B"). Approximately 10,000
individuals, mostly male, were treated for hemophilia A and about 2,800
individuals were treated for hemophilia B in the United States in 1994.
Worldwide, there are about 80,000 hemophiliacs. Patients with either disease
experience acute and often life-threatening bleeding episodes and can also
suffer joint deformities from repeated bleeding into joints. Depending on the
severity of disease, treatment consists of either intermittent or chronic
administration of clotting factor which has either been purified from plasma or,
more recently, is in the form of a recombinant DNA-derived protein.
Transmissions of viral agents have been significantly reduced with the increased
use of highly purified or recombinant clotting factors.
The Company believes that AAV vectors may be useful to deliver the genes
for factor VIII or factor IX and achieve long-term expression in vivo. The
Company is currently evaluating the use of AAV vectors to deliver the gene for
factor IX in animals. In addition, the Company intends to initiate
collaborations to evaluate the use of AAV vectors to deliver the gene for factor
VIII to muscle or liver in animals.
METABOLIC DISEASES
Hyperlipidemia. Disorders of lipid metabolism contribute to a number of
common human diseases. Hyperlipidemia, characterized by elevation of cholesterol
or triglycerides in the blood, is a risk factor for atherosclerosis which leads
to heart attacks, strokes and peripheral vascular disease. Elevation of
triglycerides ("hypertriglyceridemia") often accompanies diabetes and may
contribute to the acceleration of atherosclerosis observed in that patient
population. In addition, high triglyceride levels, resulting from an underlying
genetic disease, can also lead to life-threatening pancreatitis, which is
frequently unresponsive to current therapies.
Treatment of elevated lipids has been shown to decrease the risk of
atherosclerosis. There is evidence that elevated triglycerides, particularly in
combination with low HDL cholesterol ("good cholesterol") in the blood is a
substantial risk factor associated with coronary artery disease. While dietary
control and exercise are important methods to treat high cholesterol, many
individuals do not achieve adequate results with these conservative measures.
Drug therapy for high cholesterol has been successful at reducing the
complications of atherosclerosis. Although drugs to lower blood triglycerides
are widely available, medical management of this condition is often problematic
and treatment regimens are often poorly tolerated by patients. The lack of a
uniformly effective therapy for hypertriglyceridemia provides a rationale for
development of novel, alternative treatments, including gene therapy.
Deficiency of the enzyme lipoprotein lipase ("LPL") is believed to be
common in patients with hypertriglyceridemia, and there may be a correlation
between decreased expression of LPL, which is normally produced in the muscle
and fat, and hypertriglyceridemia. Based on the Company's research demonstrating
that AAV vectors efficiently deliver genes to muscle resulting in sustained
protein production, the Company is
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working with a collaborator who is conducting studies in animals to evaluate the
effectiveness of delivering an AAV vector containing the LPL gene to muscle to
lower triglyceride levels.
Storage diseases. Storage diseases are a diverse set of inherited
disorders characterized by a deficiency of one of several proteins that are
necessary for the function of cellular lysosomes. Lysosomes are the compartments
in all cells that process macromolecules as a part of normal turnover and tissue
remodeling. Storage diseases are characterized by abnormal cell function and
cell death resulting in a variety of clinical manifestations such as progressive
neurologic dysfunction, including mental retardation, enlarged organs or
skeletal abnormalities. Gaucher's disease and Tay-Sachs disease are two of the
more well-known examples of this class of disease.
Based on the finding that long-term production of therapeutic proteins can
be obtained following the intramuscular injection of an AAV vector containing
the relevant gene, the Company has entered into two collaborations to evaluate
this approach for the treatment of storage diseases. In collaboration with
investigators at The Johns Hopkins School of Medicine, the Company is evaluating
gene therapy for the treatment of Pompe's disease. This disease, caused by
deficient production of the enzyme, acid maltase, leads to lethal skeletal and
cardiac abnormalities in affected individuals. These investigators intend to
determine whether, following the intramuscular administration of an AAV vector
containing the acid maltase gene, the muscle will produce a sufficient amount of
this enzyme to reverse or prevent the manifestations of this disease. In
collaboration with an investigator at Childrens Hospital Los Angeles, the
Company has evaluated a similar approach for the treatment of deficiency of the
enzyme alpha-iduronidase (Hurler's disease). Although these conditions are rare,
there is currently no available treatment for these devastating diseases. In
addition, the Company believes that research on such conditions will benefit the
Company's product development efforts because the clinical endpoints are
relatively clear and measurable and the results are expected to be sufficiently
generalizable to allow for the design of AAV vector gene therapy for several
other diseases.
INFECTIOUS DISEASES
HIV. The Center for Disease Control estimates that as of the middle of
1995 there were 460,000 cases of AIDS in the United States and 4.5 million cases
worldwide. HIV, the cause of AIDS, is spread by a transfer of bodily fluids
primarily through sexual contact, blood transfusions, sharing intravenous
needles, accidental needle sticks or transmission from infected mothers to
newborns.
The Company is developing vectors incorporating TVI to deliver genes to
bone marrow stem cells. These cells can also be used as target cells for the
delivery of genes designed to protect blood cells from infection with HIV. As in
the case of thalassemia and sickle cell anemia, the Company believes that
potential treatments arising from this work will involve exposure of patients'
bone marrow stem cells to vector ex vivo. The Company is also participating in a
National Cooperative Drug Discovery Grant program with Johns Hopkins and The
University of Alabama at Birmingham to utilize capsid targeted viral
inactivation technology for the treatment of AIDS. An anti-viral effect has been
demonstrated in tissue culture for a virus (Moloney murine leukemia virus)
related to HIV. The Company holds an exclusive, worldwide, royalty-bearing
license to a patent application relating to certain synthetic genes which direct
the production of proteins with specific antiviral properties. The Company
believes such research may lead to the development of proprietary hybrid genes
that can be delivered to bone marrow stem cells using its gene therapy vectors.
CORPORATE PARTNERING STRATEGY
The Company is actively seeking to develop long-term strategic
collaborations with pharmaceutical companies that can provide funding for
research and development activities and clinical trials. The Company believes
that its technologies are proprietary and broad-based and can be used with
several different genes, giving rise to multiple product and corporate
partnering opportunities.
The Company has initiated discussions with a number of pharmaceutical
companies in the United States, Europe and Asia. The Company has not entered
into any definitive agreements with respect to any corporate partnering
arrangements. Avigen's strategy is to contribute both technology and expertise
in the gene therapy
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field while seeking corporate partners who can provide access to complementary
technologies, including gene sequences. In addition, the Company intends to rely
on corporate partners, licensees or other entities for marketing of its
products, when and if such products achieve regulatory approval. There can be no
assurance, however, that the Company will be able to reach satisfactory
arrangements with such parties or that such arrangements will be successful.
LICENSING AND RESEARCH AGREEMENTS
Research Corporation Technologies. In May 1992, the Company entered into a
license agreement with Research Corporation Technologies, Inc. ("RCT") for
rights to a patent and patent application relating to a cell-specific promoter
in AAV vectors. The license is exclusive and worldwide. In consideration for the
license, the Company paid an initial license fee and issued 247,949 shares of
its Common Stock. In addition, the Company is required under the agreement to
pay RCT royalties based on net sales of products which utilize the licensed
technology, with certain minimum annual royalty payments due beginning in 1999.
Avigen must exercise its best efforts to commercially develop, promote and sell
products covered by the licensed patent rights, and is obligated to file an IND
by the end of 1997 and a product license application or a new drug application
by the end of 2000. In the event the Company fails to achieve any of these
milestones by their applicable deadlines, the Company has the right to pay RCT
additional fees of up to $250,000 to extend certain of the deadlines for
specified periods. RCT may terminate the agreement if the Company becomes
insolvent or bankrupt or fails to perform any of its obligations under the
agreement.
The University of Manitoba. In February 1994, the Company entered into an
agreement with the University of Manitoba for an exclusive, worldwide license to
patent applications relating to a prostate-specific promoter for use in gene
therapy. Under this agreement, the Company paid an initial license fee and has
agreed to make additional cash payments on achievement of certain development
milestones and to make royalty payments based on net sales of products which
utilize the licensed technology. The Company is required to diligently pursue
clinical studies by February 1997 and to diligently pursue commercialization of
licensed products as soon as practicable. The Company currently is negotiating a
one year extension of the development milestone dates, and there can be no
assurance that an extension can be obtained on acceptable terms, if at all. The
University of Manitoba may terminate the agreement if the Company becomes
insolvent or bankrupt or fails to perform any of its obligations under the
agreement.
The Johns Hopkins University. In November 1992, the Company entered into
an agreement with The Johns Hopkins University under which it issued an
aggregate of 152,702 shares of its Common Stock and agreed to make certain cash
payments in exchange for an exclusive, worldwide, royalty bearing license to a
patent application relating to certain synthetic genes which direct the
production of proteins with specific antiviral properties and which the Company
believes may be useful in its infectious disease programs. Under the agreement,
Johns Hopkins has control over the prosecution and maintenance of the licensed
patent application. The Company is obligated to exercise its best efforts to
develop and commercialize products which utilize the subject technology. Under
the terms of the agreement, as amended, the Company is required to meet the
following development milestones: initiation of large animal studies for a
licensed potential product by the end of 1997, submission to the FDA of at least
one clinical protocol utilizing a licensed potential product by the end of 1998,
initiation of at least one clinical study utilizing a licensed potential product
by the end of 1999 and receipt of FDA approval to market a licensed product by
the end of 2002. If the Company fails to perform any of its obligations under
the agreement, Johns Hopkins may terminate the agreement upon 60 days' written
notice.
The Company has entered into other exclusive and nonexclusive license
agreements with certain research institutions and their representatives.
Although specific terms of the licenses vary, all of such licenses require the
Company to achieve certain development milestones. In addition, the agreements
require Avigen to pay certain license fees and royalties to the licensors. All
of the licenses provide for a term which extends for the life of the underlying
patent.
The failure to achieve any required development milestones or to negotiate
appropriate extensions of any of the Company's license agreements or to make all
required milestone and royalty payments when due and
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<PAGE> 29
the subsequent decision of any such institution to terminate such license could
have a material adverse effect on the Company.
The Company has also entered into agreements with certain research
institutions and corporate entities with respect to its research and development
efforts. Under such agreements the Company has provided specific vectors and
other materials for research purposes conducted at the direction of a principal
investigator. Generally, the agreements also provide that: (i) the Company
remains the sole and exclusive owner of the transferred materials; (ii)
ownership of improvements will be determined under patent law principles, based
upon the parties' relative contributions to the improvements; and (iii) the
Company has the right to prosecute patents on jointly-owned improvements.
Although specific terms of each agreement vary, the Company is generally
granted, with respect to jointly owned improvements, an irrevocable,
nonexclusive, royalty-free license and an option to negotiate in good faith an
exclusive license at royalty rates to be mutually agreed upon. There can be no
assurance that exclusive rights to any such improvements can be obtained on
terms acceptable to the Company, if at all. In addition, the Company engages
from time to time in discussions with other prospective academic partners
regarding potential research and development projects and may, in the future,
enter into arrangements in addition to those described above.
MANUFACTURING
The Company has developed a proprietary manufacturing process for AAV
vectors. The Company believes it currently has the capacity to manufacture AAV
vectors in amounts sufficient to conduct clinical trials, but it will be
required to implement cGMP policies and procedures prior to manufacturing
material for preclinical studies and clinical trials. The Company believes that
its manufacturing process will simplify manufacturing and purification and will
allow the Company to produce amounts of AAV vector required for clinical trials.
The processes used by the Company are new, however, and there can be no
assurance that such processes will be feasible or cost-effective.
Avigen currently does not operate manufacturing facilities for commercial
production of its gene therapy products. Avigen's strategy for the manufacture
of its gene therapy products may be to enter into alliances with pharmaceutical
and other biotechnology companies. In addition, the Company does not have, and
has no intention of developing, the facilities necessary to perform cell
processing which may be required for TVI. The Company intends to rely on
corporate partners or others for such cell processing. There can be no assurance
that the Company will be able to negotiate satisfactory arrangements with such
parties, that such arrangements will be successful or that its corporate
partners will be able to develop adequate manufacturing capabilities for
commercial scale production. In the event the Company decides to establish a
commercial scale manufacturing facility, the Company will require substantial
additional funds and personnel and will be required to comply with extensive
regulations applicable to such facility.
GOVERNMENT REGULATION
The production and marketing of the Company's proposed products and its
research and development activities are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. In the United States, pharmaceutical products are subject
to rigorous regulation by the FDA under the federal Food, Drug, and Cosmetic
Act. Biological products, in addition to being subject to certain provisions of
this act, are also regulated under the Public Health Service Act. These laws and
the regulations promulgated thereunder govern, among other things, testing,
manufacturing, safety, efficacy, labeling, storage, record keeping, advertising
and promotional practices and import and export of drugs and biological
products. In general, the Center for Biologics Evaluation and Research holds
primary responsibility for the regulation of biological products and has handled
the IND submissions of most gene therapy products to date. At the present time,
the Company believes that its products will be regulated as biologics by the FDA
and comparable foreign regulatory bodies. Gene therapy is, however, a relatively
new technology and has not been extensively tested in humans. The regulatory
requirements governing gene therapy products are uncertain and are subject to
change. No gene therapy products have been approved to date in the United States
or any foreign country.
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Under the NIH Guidelines for Research Involving Recombinant DNA Molecules,
clinical protocols involving recombinant DNA are conducted at institutions
receiving NIH funds must be reviewed by the Recombinant DNA Advisory Committee
("RAC") and approved by the NIH Director. The NIH has established the RAC to
advise the NIH Director concerning approval of research involving the use of
recombinant DNA. A proposal will be considered by the RAC only after the
protocol has been approved by the Institutional Review Board ("IRB") at the
institution where the study will be conducted. This process can be conducted in
parallel with the IND review process but may add considerable time and expense.
The Company intends to submit its gene therapy clinical protocols to the RAC for
review and approval even when it may not be subject to the NIH review process.
The steps required before a new drug, including a biologic, may be marketed
in the United States generally include (i) preclinical laboratory tests and
preclinical animal studies, (ii) the submission to the FDA of an IND for human
clinical testing, which must become effective before human clinical trials
commence, (iii) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product, (iv) the submission to the FDA of a
Product License Application and Establishment License Application ("PLA/ELA")
for a biologic and (v) FDA approval of the PLA/ELA prior to any commercial sale
or shipment of the biologic. The FDA has proposed regulations that would
eliminate the separate requirement for an ELA for certain biotechnology
products, including certain recombinant DNA products, that satisfy the
regulatory definition of a "well-characterized product." The FDA, however, has
indicated that gene therapy products are not considered "well-characterized" at
this time.
Domestic manufacturing establishments are subject to inspections at any
time by the FDA and must comply with cGMP regulations enforced by the FDA
through its facilities inspection program. Manufacturers of biological products
also must comply with FDA general biological product standards. In addition, the
Company must obtain a drug manufacturing license from the State of California
for any of its products administered to humans, including products intended for
clinical trials.
Preclinical safety studies include laboratory evaluation of the product, as
well as animal studies to assess the potential safety and, if possible, efficacy
of the product. Preclinical studies must be conducted by laboratories that
comply with FDA regulations regarding Good Laboratory Practices. The results of
the preclinical tests, together with manufacturing information and analytical
data, are submitted to the FDA as part of an IND, which must become effective
before human clinical trials may be commenced. The IND will become automatically
effective 30 days after its receipt by the FDA unless the FDA indicates prior to
the end of the 30-day period that it does not wish the trials to proceed as
outlined in the IND. In such case, the IND sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials.
Clinical trials must be conducted in accordance with FDA's Good Clinical
Practice regulations and must be approved by the IRB at the institution where
the study will be conducted. The IRB will consider, among other things, safety
and ethical issues, proper informed consent of the human subjects, possible
issues relating to health care costs and potential liability of the institution.
The IRB may require changes in a protocol, and there can be no assurance that an
IRB will permit any given study to be initiated or completed.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. Phase I typically involves the initial introduction of the
drug into patients primarily to determine the drug's metabolism,
pharmacokinetics and pharmacological actions in humans and the side effects
associated with increasing doses. Phase II typically involves studies in a
limited patient population to (i) determine the efficacy of the drug for
specific indications, (ii) determine dosage tolerance and optimal dosage and
(iii) further identify possible adverse effects and safety risks. If the drug is
found to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to evaluate efficacy and safety
within an expanded patient population typically at geographically dispersed
clinical study sites. There can be no assurance that Phase I, Phase II or Phase
III testing will be completed successfully within any specific time period, if
at all, with respect to any of the Company's products subject to such testing.
Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that patients are being exposed to an unacceptable health
risk. FDA regulations also subject sponsors of clinical investigations to
numerous
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regulatory requirements related to, among other things, selection of qualified
investigators, proper monitoring of investigations, record keeping and record
retention and notice to investigators and FDA of any death or adverse serious
reaction. In addition, the FDA may require post marketing clinical studies
(Phase IV) which will require extensive patient monitoring and recordkeeping and
may result in restricted marketing of the product for an extended period of
time.
The results of the pharmaceutical development, preclinical studies and
clinical trials are submitted to the FDA in the form of a PLA/ELA for approval
of the manufacture, marketing and commercial shipment of the biologic. The
testing and approval process is likely to require substantial time and effort
and there can be no assurance that any approval will be granted on a timely
basis, if at all. The FDA may deny a PLA/ELA if applicable regulatory criteria
are not satisfied, require additional testing or information, or require
postmarketing testing and surveillance to monitor the safety or efficacy of a
product. Moreover, if regulatory approval of a biologic is granted, such
approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing. Among the conditions for PLA/ELA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to cGMP, which must be followed at all times. In complying with standards set
forth in these regulations, manufacturers must continue to expend time,
financial resources and effort in the area of production and quality control.
In accordance with the Orphan Drug Act, the FDA may grant Orphan Drug
status to certain drugs intended to treat a "rare disease or condition" defined
as a disease or condition which affects fewer than 200,000 people in the United
States, or which affects more than 200,000 people for which the cost of
developing and marketing the drug will not be recovered from sales of the drug
in the United States. An approved Orphan Drug may provide certain benefits
including exclusive marketing rights in the United States to the drug for the
approved indication for seven years following marketing approval and federal
income tax credits for certain clinical trial expenses. The Company believes
that some of its future products may qualify for Orphan Drug status but there
can be no assurance that such products will receive FDA approval. In addition,
there is no assurance that potential benefits provided by the Orphan Drug Act
will not be significantly limited by amendment by the United States Congress
and/or reinterpretation by the FDA.
For clinical investigation and marketing outside the United States, the
Company is also subject to foreign regulatory requirements governing clinical
trials and marketing approval for pharmaceutical products. In Europe, the
approval process for the commencement of clinical trials varies from country to
country. The foreign regulatory approval process includes all of the risks
associated with FDA approval set forth above.
In addition to regulations enforced by the FDA, the Company also is 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 various 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 regulations, it could be held liable for any damages that result from
accidental contamination or injury and any such liability could exceed the
resources of the Company.
COMPETITION
The field of gene therapy is new and rapidly evolving, and is expected to
undergo significant technological change in the future. The Company believes its
primary competitors in the AAV gene therapy market are Genetic Therapy, Inc.
(recently acquired by Sandoz, Ltd.), Genzyme Corporation, Somatix Therapy
Corporation and Targeted Genetics Corporation. In addition, competition from
fully integrated pharmaceutical companies and other biotechnology companies is
expected to increase, particularly as large pharmaceutical companies acquire
smaller gene therapy companies. Most of these companies have significantly
greater financial resources and expertise than the Company in research and
development, preclinical studies and clinical trials, obtaining regulatory
approvals, manufacturing, marketing and distribution. One of these companies is
supporting clinical studies for use of AAV vectors in the treatment of cystic
fibrosis. Smaller
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companies may also prove to be significant competitors, particularly through
collaborative arrangements with large pharmaceutical companies. Academic
institutions, governmental agencies and other public and private research
organizations also conduct research, seek patent protection and establish
collaborative arrangements for product development and marketing. In addition,
these companies and institutions compete with the Company in recruiting and
retaining highly qualified scientific and management personnel.
The Company is aware that other companies are conducting clinical trials
and preclinical studies for viral and non-viral gene therapy products. These
companies include Cell Genesys, Inc., GeneMedicine, Inc., Systemix, Inc.,
Viagene, Inc. (recently acquired by Chiron Corporation) and Vical Incorporated.
Avigen believes the primary competitive factors for success in the gene therapy
field will be product efficacy, safety, manufacturing capability, the timing and
scope of regulatory approvals, the timing of market introduction, marketing and
sales capability, reimbursement coverage, price and patent position. There can
be no assurance that the Company's competitors will not develop more effective
or more affordable products, or achieve earlier product commercialization than
the Company.
PATENTS AND INTELLECTUAL PROPERTY
Patents and other proprietary rights are important to the Company's
business. The Company's policy is to file patent applications and protect
technology, inventions and improvements to inventions that are commercially
important to the development of its business. The Company also relies on trade
secrets, know-how, continuing technology innovations and licensing opportunities
to develop and maintain its competitive position.
The Company has filed six United States patent applications, two of which
are co-owned with co-inventors, and has one exclusive worldwide license to an
issued patent and two nonexclusive licenses to two issued patents for use in the
United States. In addition, the Company has acquired exclusive worldwide
licenses to four patent applications. There is no assurance that patents will
issue from these applications or that any patent will issue on technology
arising from additional research or, if patents do issue, that claims allowed
will be sufficient to protect the Company's technology. The patent application
process takes several years and entails considerable expense. In addition, with
respect to each of the Company's co-owned patent applications, the Company has
an option to obtain an exclusive, worldwide, transferable, royalty-bearing
license for such technology, and is currently in discussions with one of the
co-inventors to obtain such a license. In the event the Company is unable to
negotiate exclusive rights to such co-owned technology, each co-inventor may
have rights to independently make, use, offer to sell or sell the patented
technology. Commercialization, assignment or licensing of such technology by a
co-inventor could have a material adverse effect on the Company's business,
financial condition and results of operations. The failure to obtain patent
protection on the Company's technologies or proposed products may have a
material adverse effect on the Company's competitive position and business
prospects.
The patent positions of pharmaceutical and biotechnology firms are
generally uncertain and involve complex legal and factual questions. To date,
there has emerged no consistent policy regarding the breadth of claim allowed in
biotechnology patents. Patent applications in the United States are maintained
in secrecy until a patent issues, and the Company cannot be certain that others
have not filed applications for technology covered by the Company's patent
applications or that the Company was first to file patent applications for such
technology. Competitors may have filed applications for, or may have received
patents and may obtain additional patents and proprietary rights relating to
compounds or processes that block or compete with those of the Company.
There can be no assurance that third parties will not assert patent or
other intellectual property infringement claims against the Company with respect
to its products or technology or other matters. There may be third-party patents
and other intellectual property relevant to the Company's products and
technology which are not known to the Company. A number of the gene sequences or
proteins encoded by certain of those sequences that the Company is investigating
or may use in its products are or may become patented by others. As a result,
the Company may be required to obtain licenses to such gene sequences or other
technology in order to test, use or market products that contain proprietary
gene sequences or encode proprietary proteins.
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For example, in connection with its anemia program, the Company anticipates that
it may need to obtain a license to a gene for human erythropoietin. There can be
no assurance that the Company will be able to obtain this or any other license
on terms favorable to the Company, if at all.
Patent litigation is becoming more widespread in the biotechnology
industry. Litigation may be necessary to defend against or assert claims of
infringement, to enforce patents issued to the Company, to protect trade secrets
owned by the Company, or to determine the scope and validity of proprietary
rights of third parties. Although no third party has asserted that the Company
is infringing such third party's patent rights or other intellectual property,
there can be no assurance that litigation asserting such claims will not be
initiated, that the Company would prevail in any such litigation, or that the
Company would be able to obtain any necessary licenses on reasonable terms, if
at all. Any such claims against the Company, with or without merit, as well as
claims initiated by the Company against third parties, can be time-consuming and
expensive to defend or prosecute and to resolve. If competitors of the Company
prepare and file patent applications in the United States that claim technology
also claimed by the Company, the Company may have to participate in interference
proceedings declared by the Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to the Company, even if the
outcome is favorable to the Company. In addition, to the extent outside
collaborators apply technological information developed independently by them or
by others to the Company's product development programs or apply Avigen's
technologies to other projects, disputes may arise as to the ownership of
proprietary rights to such technologies.
The Company also relies on a combination of trade secret and copyright law,
employee and third-party nondisclosure agreements, and other protective measures
to protect intellectual property rights pertaining to its products and
technology. There can be no assurance, however, that these agreements will
provide meaningful protection of the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how or other proprietary information.
In addition, the laws of certain foreign countries do not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States. There can be no assurance that the Company will be able to protect its
intellectual property successfully.
PRODUCT LIABILITY INSURANCE
The manufacture and sale of medical products entail significant risk of
product liability claims. The Company currently does not carry product liability
insurance, although it intends to obtain such coverage prior to beginning
clinical trials. There can be no assurance that such coverage will be adequate
to protect the Company from any liabilities it might incur in connection with
the sale of the Company's products. In addition, the Company may require
increased product liability coverage as products are commercialized. Such
insurance is expensive and in the future may not be available on acceptable
terms, if at all. A successful product liability claim or series of claims
brought against the Company in excess of its insurance coverage could have a
material adverse effect on the Company's business and results of operations.
EMPLOYEES
As of October 31, 1996, the Company had 23 full-time employees, 8 of whom
have Ph.D. or M.D. degrees, including 17 employees in research and development,
and 5 in general administration and finance. The Company also relies on several
part-time employees and consultants. None of the Company's employees is
represented by a collective bargaining agreement nor has the Company ever
experienced a work stoppage. The Company believes that its relationship with its
employees is good.
FACILITIES
The Company's facility, located in Alameda, California, is an approximately
23,000 square foot facility leased through May 2003. The Company believes that
it will be able to renew the lease of this facility or find suitable alternate
facilities in the same general area without a material disruption of its
operations.
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SCIENTIFIC ADVISORY BOARD
The Company has established a Scientific Advisory Board, consisting of
experts in the field of medicine, genetics and molecular biology, which reviews
and evaluates the Company's research programs and advises the Company with
respect to technical matters in fields in which the Company is involved. The
members of the Scientific Advisory Board are prominent scholars in their field
and, as a result, may serve as consultants to a wide variety of companies. The
Company's Scientific Advisory Board includes:
Gary J. Kurtzman, M.D., is Chairman of the Scientific Advisory Board. Dr.
Kurtzman serves as Vice President, Research and Development for the Company.
"See Management -- Directors and Executive Officers."
Jef D. Boeke, Ph.D., co-invented capsid targeted viral inactivation
technology that provides a basis for Avigen's infectious disease product
development program. Dr. Boeke is a professor of Molecular Biology and Genetics
at The Johns Hopkins University School of Medicine and has authored more than
100 publications.
Jerome E. Groopman, M.D., serves as chief of Hematology/Oncology at Harvard
University's New England Deaconess Hospital in Boston and holds the Dina and
Raphael Recantati Chair at Harvard Medical School. In addition, Dr. Groopman
serves on the Board of Directors of the American Foundation for AIDS Research
and is a member of the FDA Biological Response Modifiers Advisory Committee.
Mark A. Israel, M.D., is Professor of Neurological Surgery and Pediatrics
and Director, The Preuss Laboratory of Molecular Neuro-oncology at the
University of California, San Francisco. Prior to that, Dr. Israel was Head,
Molecular Genetics Section in the Pediatric Branch of the National Cancer
Institute. Dr. Israel's research has focused on the molecular and cellular
biology of tumors of the nervous system and he is the author of more than 150
publications. In addition, he has received numerous honors for his work in this
field and is a member of the editorial boards of a number of scientific
journals.
Yuichi Iwaki, M.D., Ph.D., serves as a director of the Company. "See
Management -- Directors and Executive Officers."
Y.W. Kan, M.D., D.Sc., is the Louis K. Diamond Professor of Hematology at
the University of California at San Francisco. He also is an Investigator of the
Howard Hughes Medical Institute. Dr. Kan was the 1991 recipient of the Albert
Lasker Clinical Medical Research Award and is noted as a leader in the fields of
sickle cell anemia and thalassemia.
Keiya Ozawa, M.D., Ph.D., is a professor of Molecular Biology, Institute of
Hematology, at Jichi Medical School in Japan, where he has established a
research and preclinical program in gene therapy. Dr. Ozawa is regarded as one
of the leading authorities on gene therapy in Japan and is responsible for
drafting the Japanese government's gene therapy guidelines. Dr. Ozawa holds both
a M.D. and a Ph.D. from the University of Tokyo and is the author of more than
90 publications regarding virology, hematology and gene therapy.
Jeffrey M. Rosen, Ph.D., is a professor of Cell Biology at Baylor College
of Medicine. Dr. Rosen is an internationally recognized expert in the field of
gene expression. His research has focused primarily on the mechanisms of
tissue-specific gene expression in the mammary and prostate glands. Dr. Rosen
has served on the editorial board of the Journal of Biological Chemistry,
Molecular and Cellular Endocrinology, Molecular Endocrinology and as executive
editor of Nucleic Acids Research.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages as of
October 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Philip J. Whitcome, Ph.D................. 48 Chairman of the Board
John Monahan, Ph.D....................... 50 President, Chief Executive Officer and
Director
Thomas J. Paulson........................ 50 Vice President, Finance and Chief
Financial Officer and Secretary
Wanda deVlaminck......................... 54 Vice President, Clinical and Regulatory
Affairs
Gary J. Kurtzman, M.D.................... 41 Vice President, Research and Development
Zola Horovitz, Ph.D.(1)(2)............... 62 Director
Yuichi Iwaki, M.D., Ph.D................. 47 Director
Richard T. Pratt(1)(2)................... 59 Director
John K.A. Prendergast, Ph.D.(1).......... 42 Director
Lindsay A. Rosenwald, M.D.(1)............ 41 Director
Leonard P. Shaykin(2).................... 53 Director
</TABLE>
- ------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Philip J. Whitcome, Ph.D., 48, has served as a director of the Company
since December 1992. In April 1995, Dr. Whitcome was elected Chairman of the
Board and from March 1996 to September 1996, he served as acting Chief Financial
Officer. From 1988 to 1994, Dr. Whitcome was President and Chief Executive
Officer of Neurogen Corporation, a biopharmaceutical company. From 1981 to 1988,
Dr. Whitcome was employed at Amgen Inc. ("Amgen"), a biopharmaceutical company,
serving most recently as Director of Strategic Planning. Prior to joining Amgen,
he served as Manager of Corporate Development for Medical Products at
Bristol-Myers Squibb Co. ("Bristol-Myers"), a pharmaceutical and health care
products company, and held research and marketing management positions with the
Diagnostics Division of Abbott Laboratories, a pharmaceutical and medical
products company. Dr. Whitcome received a Ph.D. in Molecular Biology from the
University of California at Los Angeles, an M.B.A. from the Wharton School at
the University of Pennsylvania and a B.S. in Physics from Providence College.
John Monahan, Ph.D., 49, has served as President, Chief Executive Officer
and a director of the Company since its inception in 1992. Prior to joining
Avigen, Dr. Monahan was Vice President of Research and Development at Somatix
Therapy Corporation ("Somatix"), a gene therapy company, from 1989 to 1992,
where he was responsible for the initiation and development of all research
programs. From 1983 to 1988, he was Director of Molecular and Cell Biology at
Berlex Laboratories, a pharmaceutical company. From 1981 to 1983, he was Group
Research Chief at Hoffmann La Roche, a pharmaceutical company. Dr. Monahan
received his Ph.D. in biochemistry from McMaster University, Hamilton, Canada
and his B.S. degree in science from University College, Dublin, Ireland.
Thomas J. Paulson, 50, has served as Vice President, Finance and Chief
Financial Officer and Secretary of the Company since September 1996. Prior to
joining Avigen, Mr. Paulson was president of Paulson Associates, a biotechnology
consulting firm where Avigen has been a client for the past two years. From its
inception in 1989 until 1994, Mr. Paulson was Chief Financial Officer of
Neurogen Corporation. From 1986 to 1989, he was Director of Finance at
CibaCorning Diagnostics, Gilford Systems. From 1984 to 1986, Mr. Paulson served
various financial management positions at Abbott Laboratories. Mr. Paulson holds
a M.B.A. from the University of Chicago Graduate School of Business and a B.B.A.
in Accounting from Loyola University in Chicago.
Wanda deVlaminck, 54, has served as Vice President, Clinical and Regulatory
Affairs of the Company since its inception in 1992 and as Secretary from March
1996 to September 1996. From 1989 to 1992,
33
<PAGE> 36
Ms. deVlaminck was Vice President, Regulatory Affairs at Somatix. In this
position, she was responsible for Somatix's compliance with all local, state and
federal regulations pertaining to environmental issues, personnel safety and
products that come under the jurisdiction of the FDA. In addition, Ms.
deVlaminck managed intellectual property and license agreements at Somatix. From
1988 to 1989, Ms. deVlaminck worked on assignments in Israel, Japan, and the
United States as a regulatory affairs consultant. From 1983 to 1988, she was
Senior Director Regulatory Affairs at Cetus Corporation, a biotechnology
company. Ms. deVlaminck received a B.S. degree in microbiology from the
University of California at Berkeley and is a licensed Public Health
Microbiologist in California.
Gary J. Kurtzman, M.D., 41, has served as Vice President, Research and
Development since October 1994. From December 1993 to October 1994, Dr. Kurtzman
served as Senior Director of Research and Development of the Company. From 1991
to 1993, Dr. Kurtzman was the Virology Group Leader at Gilead Sciences, Inc, a
biotechnology company, where he was responsible for research related to drug
discovery and preclinical development of antiviral compounds. From 1989 to 1993,
he served as Associate at the Howard Hughes Medical Institute at Stanford
University. From 1984 to 1988, Dr. Kurtzman was employed by the National
Institutes of Health, initially as a medical staff fellow and later as a senior
staff fellow in the Hematology Branch of the National Heart, Lung and Blood
Institute. Dr. Kurtzman received his M.D. degree from Washington University, St.
Louis, Missouri and completed his internship and residency in internal medicine
at Barnes Hospital in St. Louis, Missouri. Dr. Kurtzman is board-certified in
internal medicine, with a hematology subspecialty, and is a licensed medical
practitioner in California.
Zola Horovitz, Ph.D., 62, has served as a director of the Company since
November 1994. From 1991 through May 1994, Dr. Horovitz served as Vice
President, Business Development and Planning and from 1990 to 1991 as Vice
President, Licensing at Bristol-Myers. Prior to this, Dr. Horovitz served from
1959 through 1989 in various positions at the Squibb Institute for Medical
Research, including Vice President, Research, Planning & Scientific Liaison,
Vice President, Drug Development, and Vice President, Biological and
Pharmaceutical R&D. Dr. Horovitz currently serves on the Board of Directors of
Biocryst Pharmaceuticals, Diacrin, Inc., InfoMed Corp., Magainin
Pharmaceuticals, Procept Corp. and Synaptic Pharmaceuticals and formerly served
as a Commissioner of the New Jersey Cancer Research Commission. From 1975
through 1993 Dr. Horovitz served on the Scientific Advisory Council at Princeton
University and from 1976 through 1989 on the Advisory Board of Rutgers
University College of Pharmacy. Dr. Horovitz serves on the Board of Directors of
Roberts Pharmaceuticals, Inc., a pharmaceutical products company, and Clinicor,
Inc., a clinical research organization. Dr. Horovitz received a Ph.D. in
Pharmacology, and both an M.S. in Pharmacology and a B.S. in Pharmacy from the
University of Pittsburgh.
Yuichi Iwaki, M.D., Ph.D., 46, has served as a director of the Company
since November 1994. Since 1992, Dr. Iwaki has held two professorships at the
University of Southern California School of Medicine in the Departments of
Urology, and Pathology and is Director of the Transplantation Immunology and
Immunogenetic Laboratory. In addition, he holds visiting professorships at Tokai
University School of Medicine and Nihon University School of Medicine in Japan,
and at the University of Pittsburgh School of Medicine and is the author of more
than 170 publications. Prior to joining the University of Southern California
Medical School faculty, Dr. Iwaki held professorships at the University of
Pittsburgh in the Departments of Urology and Pathology from 1989 through 1991.
Dr. Iwaki received an M.D. and a Ph.D. from Sapporo Medicine School in Sapporo,
Japan.
Richard T. Pratt, 59, has served as a director of the Company since January
1994 and served as Chairman of the Board of Directors from January 1994 to April
1995. Since 1993, Mr. Pratt has held a faculty position at the University of
Utah, where he teaches graduate and undergraduate courses in corporate finance,
banking and real estate. From 1983 through 1993, Mr. Pratt was employed at
Merrill Lynch & Co., a financial services company, first as Chairman of Merrill
Lynch Mortgage Capital Inc. and later as Managing Director, Financial
Institutions Group. Mr. Pratt is also Chairman of Richard T. Pratt Associates, a
financial consulting company. From 1981 to 1983, Mr. Pratt served as Chairman of
the Federal Home Loan Bank Board in Washington D.C. as chief federal regulator
of all federally insured savings and loan associations. Mr. Pratt has a D.B.A.
degree in Finance from Indiana University and M.B.A. and B.S. degrees from the
University of Utah.
34
<PAGE> 37
John K.A. Prendergast, Ph.D., 42, is a co-founder of the Company and has
served as a director of the Company since December 1992. From December 1992 to
March 1996, Dr. Prendergast also served as a Vice President and the Treasurer of
the Company. Dr. Prendergast has also served as a Managing Director of Paramount
Capital Investments, LLC ("Paramount Investments"), a medical technology venture
capital firm, since 1991. Dr. Prendergast is a director of Xenometrix, a medical
technology company, and Atlantic Pharmaceuticals, Inc., a medical technology
company. Dr. Prendergast received M.Sc. and Ph.D. degrees from the University of
New South Wales, Sydney, Australia and a C.S.S. in Administration and Management
from Harvard University.
Lindsay A. Rosenwald, M.D., 41, is a co-founder of the Company and has
served as a director since its inception in 1992. Dr. Rosenwald has served as
the President and Chairman of the Board of Directors of both Paramount
Investments and Paramount Capital Incorporated, an investment banking firm
specializing in biomedical technology companies, since their respective
inceptions in 1990 and 1992. Dr. Rosenwald also serves as the Chairman of the
Board of Directors and founder of Interneuron Pharmaceuticals, Inc., a
biotechnology company. In addition, Dr. Rosenwald serves on the Board of
Directors of Ansan, Inc., Atlantic Pharmaceuticals, Inc., Biocryst
Pharmaceuticals, Inc., Neose Technologies, Inc., Sparta Pharmaceuticals, Inc.,
VIMRX, Inc., and Xenometrix, Inc., all of which are medical technology
companies. Dr. Rosenwald received an M.D. from Temple University School of
Medicine and a B.A. in finance from Pennsylvania State University.
Leonard P. Shaykin, 52, has served as a director of the Company since June
1995. Mr. Shaykin is a principal of Shaykin & Co., LLC, a private investment and
management holding company. From 1983 to 1994, Mr. Shaykin was a managing
partner of Adler & Shaykin, an investment partnership organized to sponsor
leveraged buyouts. Prior to forming Adler & Shaykin in 1983, Mr. Shaykin was
Vice President, director and a member of the Investment Committee of Citicorp
Venture Capital Ltd. and Citicorp Capital Investors, Inc., where he was
responsible for establishing and subsequently managing a $100 million equity
fund dedicated to management leveraged buyouts. Mr. Shaykin is Chairman of the
Board of Directors of NaPro BioTherapeutics, Inc. He also serves as Chairman of
The Neuroblastoma Foundation, is a governing trustee of The Jackson Laboratory
and a trustee of the University of Chicago's Graduate School of Business. Mr.
Shaykin received an M.B.A., M.A., and B.A. from the University of Chicago.
Each officer serves at the discretion of the Board of Directors. Each of
the Company's officers and directors, other than non-employee directors, devotes
substantially full time to the affairs of the Company. The Company's Chairman of
the Board and the other non-employee directors devote such time to the affairs
of the Company as is necessary to discharge their duties. There are no family
relationships among any of the directors, officers or key employees of the
Company.
BOARD COMPOSITION
The Company currently has authorized eight directors. In accordance with
the terms of the Company's Amended and Restated Certificate of Incorporation,
the terms of office of the Board of Directors are divided into three classes:
Class I, whose term will expire at the annual meeting of stockholders to be held
in 1996; Class II, whose term will expire at the annual meeting of stockholders
to be held in 1997; and Class III, whose term will expire at the annual meeting
of stockholders to be held in 1998. The Class I directors are Drs. Monahan,
Horovitz and Iwaki, the Class II directors are Drs. Whitcome and Prendergast and
Mr. Pratt, and the Class III directors are Dr. Rosenwald and Mr. Shaykin. At
each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the Company's Amended and Restated Certificate
of Incorporation provides that the authorized number of directors may be changed
only by resolution of the Board of Directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of the Board of Directors may
have the effect of
35
<PAGE> 38
delaying or preventing changes in control or management of the Company. Although
directors of the Company may be removed for cause by the affirmative vote of the
holders of a majority of the Common Stock, the Company's Amended and Restated
Certificate of Incorporation provides that holders of two-thirds of the Common
Stock must vote to approve the removal of a director without cause.
BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with and reviews the services
provided by the Company's independent auditors. The Compensation Committee of
the Board of Directors reviews and recommends to the Board the compensation and
benefits of all officers of the Company and reviews general policy relating to
compensation and benefits of employees of the Company. The Compensation
Committee also administers the issuance of stock options and other awards under
the Company's stock plans.
DIRECTOR COMPENSATION
Each non-employee director receives no cash compensation but is reimbursed
for certain expenses in connection with attendance at Board and Committee
meetings. In the fiscal year ended June 30, 1996, the compensation of the
non-employee directors included options to Drs. Iwaki and Horovitz and Messrs.
Shaykin and Pratt to purchase 1,975, 1,693, 846 and 9,969 shares, respectively,
of Common Stock at an exercise price of $0.71 per share and an option to Dr.
Whitcome to purchase 515,248 shares of Common Stock at an exercise price of
$0.49 per share in connection with his services as Chairman of the Board.
In March 1996, the Board of Directors adopted and in April 1996 the
stockholders approved the 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") and reserved 200,000 shares of Common Stock for issuance
under the Directors' Plan. The Directors Plan provides for automatic grants of
options to purchase shares of Common Stock to non-employee directors of the
Company ("Non-Employee Directors"). Pursuant to the terms of the Directors'
Plan, each Non-Employee Director elected after completion of this offering will
automatically be granted an option to purchase 15,000 shares of Common Stock on
the date of his election to the Board. In addition, at each annual meeting of
the Company's stockholders, each Non-Employee Director who has continuously
served as a director since the last annual meeting of the Company's stockholders
shall be granted an option to purchase 5,000 shares of Common Stock. A
Non-Employee Director who has not served for a full year shall be granted an
option to purchase a pro-rated number of shares. As of October 31, 1996, no
options have been granted under the Directors' Plan.
Outstanding options under the Directors' Plan will vest at the rate of 33%
of the shares subject to the option on the first anniversary of the date of
grant, 34% of the shares subject to the option on the second anniversary of the
date of grant and 33% of the shares subject to the option on the third
anniversary of the date of grant. The exercise price of options granted under
the Directors' Plan must equal the fair market value of the Common Stock on the
date of grant. No option granted under the Directors' Plan may be exercised
after the expiration of ten years from the date it was granted. Options granted
under the Directors' Plan are generally non-transferable. The Directors' Plan
will terminate in March 2006, unless earlier terminated by the Board.
In the event of a merger or consolidation, or a reverse merger or
reorganization in which the Company is not the surviving corporation, options
outstanding under the Directors' Plan will automatically become fully vested and
will terminate if not exercised prior to such event.
36
<PAGE> 39
EXECUTIVE COMPENSATION
The following table shows for the fiscal years ended June 30, 1996 and 1995
compensation awarded or paid to, or earned by the Company's Chief Executive
Officer and its other two most highly compensated executive officers at June 30,
1996 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL AWARDS (2)
COMPENSATION (1) ----------------------------
------------------- SECURITIES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) ($) (3)
- -------------------------------------- ---- ------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
John Monahan Ph.D..................... 1996 163,274 -- 11,286 576
President and Chief 1995 159,935 -- -- 576
Executive Officer
Wanda deVlaminck...................... 1996 132,017 -- 16,930 492
Vice President, Clinical 1995 127,200 -- 7,900 491
and Regulatory Affairs
Gary J. Kurtzman, M.D................. 1996 125,000 -- 16,930 461
Vice President, Research 1995 120,000 -- 22,573 461
and Development
</TABLE>
- ---------------
(1) As permitted by rules promulgated by the Commission, no amounts are shown
for fiscal year ending June 30, 1994.
(2) The Company has no restricted stock awards, stock appreciation rights (SARs)
or long-term incentive plans (LTIPs).
(3) Represents insurance premiums paid by the Company with respect to term life
insurance for the benefit of the named executive.
EMPLOYMENT AGREEMENTS
In August and October 1992, the Company entered into employment agreements
with John Monahan, the Company's President, and with Wanda deVlaminck, the
Company's Vice President, Clinical and Regulatory Affairs. The employment
agreements provide for, among other items, (i) a minimum base salary of at least
$150,000 and $120,000 per year for Dr. Monahan and Ms. deVlaminck, respectively,
and (ii) severance payments and benefits at the standard compensation rate for
12 months or until new employment in the gene therapy field is commenced, unless
termination is for just cause. The employment agreements automatically renew for
successive one year periods unless 30 days prior written notice is provided by
either party or unless terminated by either party for just cause.
In August 1996, the Company entered into an employment agreement with
Thomas J. Paulson, the Company's Vice President, Finance, Chief Financial
Officer and Secretary. The employment agreement provides for, among other items,
(i) a minimum base salary of $160,000, (ii) conditional upon approval by the
Board of Directors, an option grant for 100,000 of the Company's Common Stock,
and (iii) relocation expenses. The employment arrangement with Mr. Paulson is at
will.
In October 1996, the Company entered into an employment agreement (the
"Agreement") with Robert M. Maurer, the Company's Vice President, Business
Development. The Agreement provides for, among other items, (i) a minimum base
salary of $160,000 per year, (ii) conditional upon approval by the Board of
Directors, an option grant for 100,000 of the Company's Common Stock, and (iii)
relocation expenses. The Agreement with Mr. Maurer is at will.
In October 1996, the Company entered into an Independent Consultant
Agreement (the "Agreement") with Philip J. Whitcome, a director of the Company,
pursuant to which the Company agreed to pay
37
<PAGE> 40
Dr. Whitcome $100,000 in monthly installments of $8,333.33 in connection with
his services as a consultant to the Company. The Agreement terminates October 1,
1997, unless terminated earlier by the Company.
1993 STOCK OPTION PLAN
The Company's 1993 Stock Option Plan (the "1993 Stock Plan") was adopted by
the Board of Directors in October 1993 and approved by its stockholders in
November 1993. The 1993 Stock Plan provides for grants of incentive stock
options to key employees (including officers and employee directors) and
nonstatutory stock options to key employees (including officers and employee
directors) and consultants of the Company. A total of 338,600 shares of Common
Stock have been reserved for issuance under the 1993 Stock Plan. As of October
31, 1996, the Company has granted options to purchase an aggregate of 283,198
shares of Common Stock at exercise prices ranging from $0.44 to $0.71 per share.
A total of 30,573 shares of Common Stock are available for future issuance under
the 1993 Stock Plan, and shares subject to options which expire, are cancelled
or terminate without having been exercised may again be subject to options under
the 1993 Stock Plan. However, the Board of Directors determined that no further
options would be granted under the 1993 Stock Plan after May 1996. The 1993
Stock Plan is administered by the Compensation Committee of the Board of
Directors, which determines recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award and the
exercisability thereof.
The term of a stock option granted under the 1993 Stock Plan generally may
not exceed 10 years. Options granted pursuant to the 1993 Stock Plan become
exercisable at a rate of at least twenty percent (20%) per year of the total
number of shares granted over a period of no more than five years from the date
of grant. The exercise price of options granted under the 1993 Stock Plan is
determined by the Board of Directors; provided that, in the case of an incentive
stock option, the exercise price cannot be less than 100% of the fair market
value of the Common Stock on the date of grant or, in the case of 10%
stockholders, not less than 110% of the fair market value of the Common Stock on
the date of grant. No option may be transferred by the optionee other than by
will or the laws of descent or distribution. An optionee whose employment with
the Company ceases for any reason (other than by death or permanent and total
disability) may exercise options in the 90 day period following such termination
(unless such options terminate or expire sooner by their terms).
The 1993 Stock Plan will terminate in September 2003, unless terminated
sooner by the Board of Directors.
1996 EQUITY INCENTIVE PLAN
In March 1996, the Board of Directors adopted and in April 1996 the
stockholders approved the 1996 Equity Incentive Plan (the "Incentive Plan") and
reserved 600,000 shares of Common Stock for issuance under the Incentive Plan.
The Incentive Plan provides for grants of incentive stock options to employees
(including officers and employee directors) and nonstatutory stock options,
restricted stock purchase awards, stock bonuses and stock appreciation rights to
employees (including officers and employee directors) and consultants of the
Company. As of October 31, 1996, no restricted stock awards, stock bonuses or
stock appreciation rights and 376,878 options to purchase shares of the
Company's Common Stock at an exercise price of $3.63 per share had been granted
under the Incentive Plan. The Incentive Plan is administered by the Compensation
Committee, which determines recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award and the
exercisability thereof.
The term of a stock option granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors; provided that, in the case of a
nonstatutory stock option the exercise price cannot be less than 85% of the fair
market value on the date of grant, and in the case of an incentive stock option,
cannot be less than 100% of the fair market value of the Common Stock on the
date of grant or, in the case of 10% stockholders, not less than 110% of the
fair market value of the Common Stock on the date of grant. No option may be
transferred by the optionee other than by will or the laws of descent or
distribution or, in certain limited instances, pursuant to a qualified domestic
relations order. An optionee whose relationship with the Company or any related
corporation ceases for any reason (other than by death or permanent and total
disability) may exercise options
38
<PAGE> 41
in the three-month period following such cessation (unless such options
terminate or expire sooner by their terms) or in such longer period as may be
determined by the Board of Directors.
Shares subject to options which have expired or terminated may again be
subject to options granted under the Incentive Plan. Furthermore, the Board of
Directors may offer to exchange new options for existing options, with the
shares subject to the existing options again becoming available for grant under
the Incentive Plan. In the event of a decline in the value of the Company's
Common Stock, the Board of Directors has the authority to offer optionees the
opportunity to replace outstanding higher priced options with new lower priced
options.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule determined by the Board. The purchase price of such
awards will be at least 85% of the fair market value of the Common Stock on the
date of grant. Stock bonuses may be awarded in consideration for past services
without a purchase payment. Stock appreciation rights authorized for issuance
under the Incentive Plan may be tandem stock appreciation rights, concurrent
stock appreciation rights or independent stock appreciation rights.
Upon any merger, consolidation or similar transaction in which the Company
is not the surviving corporation, all outstanding awards under the Incentive
Plan shall either be assumed or substituted by the surviving entity. If the
surviving entity determines not to assume or substitute such awards, the time
during which such awards may be exercised shall be accelerated and the awards
terminated if not exercised prior to the transaction. The Incentive Plan will
terminate in March 2006, unless terminated sooner by the Board of Directors.
OPTION GRANTS IN LAST FISCAL YEAR
The following tables show for the fiscal year ended June 30, 1996, certain
information regarding options granted to, exercised by, and held at year end by,
the Named Executive Officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
GRANTED TO PRICE APPRECIATION FOR
EMPLOYEES IN EXERCISE OR OPTION TERM (1)
OPTIONS FISCAL BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#)(2) YEAR % (3) ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------- -------------- ---------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John Monahan...................... 11,286 1.6 $0.49 9/15/05 141,639 228,316
Wanda deVlaminck.................. 16,930 2.4 $0.49 9/15/05 212,471 342,494
Gary J. Kurtzman, M.D............. 16,930 2.4 $0.49 9/15/05 212,471 342,494
</TABLE>
- ------------------
(1) The potential realizable value is based on the term of the option at the
time of grant (10 years). Assumed stock price appreciation of 5% and 10% is
used pursuant to rules promulgated by the commission. The potential
realizable value is calculated by assuming that the Company's initial public
offering price of $8.00 per share appreciates at the indicated rate, for the
entire term of the option and that the option is exercised and sold on the
last day of its term at the appreciated price.
(2) Options granted become exercisable at the rate of 6.25% of the shares
subject to the option each quarter for four years. The options expire 10
years from the date of grant, or earlier upon termination of employment.
(3) Based on 708,724 options granted to employees and directors of, and
consultants to, the Company during the fiscal year ended June 30, 1996.
39
<PAGE> 42
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE (1) UNEXERCISABLE (2)
- --------------------------------- ------------- ------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
John Monahan..................... -- -- 2,116/9,170 $13,775/$59,697
Wanda deVlaminck................. -- -- 6,632/18,198 $43,307/$118,833
Gary J. Kurtzman, M.D............ -- -- 24,336/33,224 $159,157/$217,285
</TABLE>
- ------------------
(1) Reflects shares vested and unvested at June 30, 1996. Certain options
granted under the 1993 Plan are immediately exercisable, but are subject to
the Company's right to repurchase unvested shares on termination of
employment.
(2) Fair market value of the Company's Common Stock at June 30, 1996 ($7.00)
minus the exercise price of the options.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware Law, the Company's Amended and Restated
Certificate of Incorporation provides that no director of the Company will be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or to its stockholders, (ii)
for acts or omissions not made in good faith or which involved intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware Law, relating to prohibited dividends or distributions or the
repurchase or redemption of stock, or (iv) for any transaction from which the
director derives an improper personal benefit. In addition, the Company's
Certificate of Incorporation provides that any director or officer who was or is
a party or is threatened to be made a party to any action or proceeding by
reason of his or her services to the Company will be indemnified to the fullest
extent permitted by the Delaware Law.
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's
Amended and Restated Bylaws.
There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.
CERTAIN TRANSACTIONS
In October 1996, the Company entered into an Independent Consultant
Agreement (the "Agreement") with Philip J. Whitcome, a director of the Company,
pursuant to which the Company agreed to pay Dr. Whitcome $100,000 in monthly
installments of $8,333.33 in connection with his services as a consultant to the
Company. The Agreement terminates October 1, 1997, unless terminated earlier by
the Company.
In March 1996, in connection with the 1996 Bridge Financing, the Company
entered into a Placement Agency Agreement with Paramount Capital Incorporated
("Paramount"), pursuant to which the Company agreed to pay Paramount a selling
commission of 7% of the gross proceeds from the financing, and a non-accountable
expense allowance of 3% of the gross proceeds and warrants to purchase a number
of newly issued shares of Common Stock equal to 10% of the warrants issued in
the offering to Paramount and its designees at an exercise price of 110% of the
exercise price of the warrants in connection with its services as placement
agent. Dr. Rosenwald, a director of the Company, is the Chairman of the Board,
President and sole stockholder of Paramount. In addition, Mr. Shaykin, a
director of the Company, purchased $25,000 aggregate principal amount of notes
in the 1996 Bridge Financing and received a warrant to purchase 2,500 shares of
Common Stock at an exercise price equal to $6.40 per share. The warrant is
exercisable until March 2001.
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<PAGE> 43
In March 1996, the Company completed a private placement of its Series D
Preferred Stock ("Series D Private Placement"). Pursuant to a March 1995
Engagement Agreement between the Company and Dr. Yuichi Iwaki, a director of the
Company, Dr. Iwaki received a fee for identifying investors in the amount of
$25,279. In addition, the Company issued warrants to purchase up to 45,272
shares of Series D Preferred Stock at an exercise price of $7.80 per share,
which equaled 110% of the purchase price of the Series D Preferred Stock. The
warrants are exercisable until March 2001.
In October 1995, the Company entered into an agreement with The Aries Trust
pursuant to which The Aries Trust extended a bridge loan in the principal amount
of $80,000. The loan bore interest at the rate of 12% per year and was due and
payable on the earlier of April 1996 or the receipt by the Company of an equity
investment in excess of $500,000. In December 1995, the Company paid the
principal amount of $80,000 plus accrued interest in the amount of $1,707 and
issued warrants to purchase 1,805 shares of Common Stock at an exercise price of
$7.09 per share. The warrants are exercisable until November 2005. Dr. Rosenwald
is the President of Aries Financial Services, which serves as the investment
manager for The Aries Trust.
In September 1995, the Company entered into an agreement with the Aries
Domestic Fund pursuant to which the Aries Domestic Fund extended a bridge loan
in the principal amount of $120,000. Dr. Rosenwald is President of the sole
general partner to the Aries Domestic Fund. Dr. Iwaki is a director of the Aries
Domestic Fund. The loan bore interest at the rate of 12% and was due and payable
on the earlier of March 1996 or the receipt by the Company of an equity
investment in excess of $500,000. In December 1995, the Company paid the
principal amount of $120,000, accrued interest in the amount of $2,880 and
issued warrants to purchase 2,708 shares of Common Stock at an exercise price of
$7.09. The warrants are exercisable until October 2005.
In July 1995, the Company granted to Dr. Whitcome an option to purchase
515,248 shares of Common Stock at $0.49 per share, exercisable for ten years
from the date of grant. The shares vest in equal monthly installments over
thirty-six months. The shares issuable upon exercise of such option are subject
to repurchase at the original price per share upon cessation of service prior to
vesting in such shares. Such grant was made outside of the 1993 Stock Plan.
In July 1995, the Company completed a private placement of shares of its
Series C Preferred Stock in which Paramount acted as placement agent. Under the
agreement, Paramount received (i) a commission of 9% of gross proceeds received
by the Company from investors, (ii) a nonaccountable expense allowance equal to
4% of the gross proceeds and (iii) warrants to purchase 10% of the Series C
Preferred Shares sold by Paramount. For a period of eighteen months from the
final closing date, Paramount was entitled to receive a commission of 9% and a
non-accountable expense allowance equal to 4% of any securities sold by the
Company, other than in a public offering, to individuals or entities who
purchased the Series C Preferred Stock through Paramount prior to the final
closing date. As of October 31, 1996, Paramount had received cash payments in
the amount of $156,024 and warrants to purchase 24,471 shares of Series C
Preferred Stock, at an exercise price of $5.36 per share. The warrants are
exercisable until June 2005. In addition, Mr. Shaykin, a director of the
Company, and an immediate family member purchased a total of 47,198 shares of
Series C Preferred Stock at a price of $4.87 per share in the private placement.
Dr. Rosenwald has personally guaranteed the Company's five-year lease with
1201 Harbor Bay Partnership, the landlord of the Company's office and laboratory
facilities at 1201 Harbor Bay Parkway, Alameda, California. The Company has
agreed to indemnify Dr. Rosenwald for any losses or expenses that he may incur
as a result of this guarantee.
The Company has entered into indemnification agreements with certain
directors and executive officers for the indemnification of and advancement of
expenses to such persons to the full extent permitted by law. The Company
intends to execute such agreements with its future directors and executive
officers. See "Management -- imitation of Liability and Indemnification
Matters."
41
<PAGE> 44
PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 31, 1996 and as adjusted
to reflect the sale of the Common Stock being offered hereby by: (i) each
stockholder who is known by the Company to own beneficially more than 5% of the
Common Stock; (ii) each Named Executive Officer of the Company; (iii) each
director of the Company; (iv) all directors and executive officers of the
Company as a group and (v) the Selling Stockholders:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED
OFFERING (1) AFTER OFFERING (1)
-------------------- --------------------
NUMBER PERCENT NUMBER PERCENT
-------- ------- -------- -------
<S> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
Lindsay A. Rosenwald, M.D. (2)..................... 569,241 7.81% 569,241 7.59%
c/o The Castle Group Ltd.
375 Park Ave.
New York, NY 10152
John Monahan, Ph.D. (3)............................ 236,236 3.24 236,236 3.15
c/o Avigen, Inc.
1201 Harbor Bay Parkway, #1000
Alameda, CA 94502
Philip J. Whitcome, Ph.D. (4)...................... 228,998 3.14 228,998 3.05
Yuichi Iwaki, M.D., Ph.D. (5)...................... 108,598 1.49 108,598 1.45
Wanda deVlaminck(6)................................ 69,706 * 69,706 *
John K. A. Prendergast, Ph.D....................... 58,608 * 58,608 *
Leonard P. Shaykin (7)............................. 47,953 * 47,953 *
Gary J. Kurtzman, M.D. (8)......................... 31,530 * 31,530 *
Richard T. Pratt (9)............................... 9,969 * 9,969 *
Zola Horovitz, Ph.D. (10).......................... 5,078 * 5,078 *
All directors and executive officers as a group
(10 persons) (11).................................. 1,357,567 18.63% 1,357,567 18.10%
SELLING STOCKHOLDERS
Mark Abehouse...................................... 250 * 250 *
Ross D. Ain........................................ 2,500 * 2,500 *
Aries Domestic Fund................................ 5,130 * 5,130 *
The Aries Trust.................................... 5,130 * 5,130 *
Armen Partners, L.P................................ 20,000 * 20,000 *
Garrett Bewkes..................................... 5,130 * 5,130 *
Ammon and Caren Barness............................ 5,000 * 5,000 *
Ronald S. Baruch................................... 5,000 * 5,000 *
Dr. Arie Belldegrun................................ 2,500 * 2,500 *
Judith Bercuvitz................................... 2,500 * 2,500 *
Mark Berg.......................................... 5,000 * 5,000 *
Robert J. Conrads.................................. 5,000 * 5,000 *
Domaco............................................. 2,500 * 2,500 --
M. Robert Dussler.................................. 1,250 * 1,250 *
Joseph Edelman..................................... 242 * 242 *
Malcolm P. Fairbairn............................... 2,500 * 10,000 *
S. Edmond Farber................................... 3,000 * 3,000 *
Forum Partners..................................... 5,000 * 5,000 --
Roger A. Gerber.................................... 2,500 * 2,500 *
Michael J. and Diane M. Gordon..................... 2,500 * 2,500 *
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED
OFFERING (1) AFTER OFFERING (1)
NUMBER PERCENT NUMBER PERCENT
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Robert P. Gordon................................... 5,000 * 5,000 *
Stuart Gruber...................................... 5,000 * 5,000 *
Hare & Company..................................... 10,000 * 10,000 --
The Holding Company................................ 2,500 * 2,500 *
Peter M. Kash...................................... 3,590 * 3,590 *
Scott Katzman...................................... 2,426 * 2,426 *
Edward Justin Kelly................................ 5,000 * 5,000 *
Donald R. Kendall, Jr.............................. 10,000 * 10,000 *
Robert Klein, M.D.................................. 10,000 * 10,000 *
Martin Kratchman................................... 63 * 63 *
Nicole and Michael Kubin........................... 2,500 * 2,500 *
Larich Associates.................................. 2,500 * 2,500 *
Ronald Lazar....................................... 2,500 * 2,500 *
Lenny Corp......................................... 5,130 * 5,130 *
Tim McInerney...................................... 3,375 * 3,375 *
Alexander Mitchell................................. 2,500 * 2,500 --
Palmetto Partners.................................. 10,000 * 10,000 *
Anthony G. Polak................................... 2,500 * 2,500 --
Anthony G. Polak ("S")............................. 2,500 * 2,500 --
Bruce Pomper....................................... 5,000 * 5,000 --
RHL Associates..................................... 5,000 * 5,000 --
RL Capital......................................... 4,500 * 4,500 *
Marc Roberts....................................... 2,500 * 2,500 --
Lindsay A. Rosenwald............................... 6,773 * 6,773 *
Jonathan Rothschild................................ 2,500 * 2,500 --
Wayne L. Rubin..................................... 1,328 * 1,328 *
Richard and Judith Segal........................... 5,000 * 5,000 --
Richard S. and Kathe R. Serbin..................... 2,500 * 2,500 --
Leonard P. Shaykin................................. 2,500 * 2,500 --
Robert H. Shaykin.................................. 5,130 * 5,130 *
Edmund H. Shea, Jr................................. 10,000 * 10,000 --
Catherine L. Steinmann............................. 2,500 * 2,500 --
Techknowledge Consulting........................... 2,500 * 2,500 --
William Walters.................................... 2,565 * 2,565 *
Michael S. Weiss................................... 1,328 * 1,328 --
Alan and Teri Wise Jtwros.......................... 2,500 * 2,500 --
Fred and Barbara Wise.............................. 2,500 * 2,500 --
Zapco.............................................. 2,500 * 2,500 *
Zebadiah........................................... 2,565 * 2,565 *
Uzi Zucker......................................... 2,500 * 2,500 --
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Percentage of beneficial ownership is based on
7,285,193 shares of Common Stock outstanding as of October 31, 1996 and
7,498,318 shares of Common Stock outstanding after completion of this
offering.
43
<PAGE> 46
(2) Includes warrants to purchase 23,877 shares of Common Stock held by Dr.
Rosenwald. Also includes 160,573 shares held by Dr. Rosenwald's immediate
family members and 66,914 shares held in trust for the benefit of Dr.
Rosenwald's immediate family members, which he disclaims beneficial
ownership of except to the extent of his pecuniary interest therein. Also
includes 5,130 shares of Common Stock and warrants to purchase 3,221 shares
of Common Stock held by the Aries Domestic Fund. Dr. Rosenwald is President
of the sole general partner of the Aries Domestic Fund and disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein. Also includes 5,130 shares of Common Stock and warrants
to purchase 2,318 shares of Common Stock held by the Aries Trust. Dr.
Rosenwald is President of the sole investment advisor to the Aries Trust
and disclaims beneficial ownership of such shares except to the extent of
his pecuniary interest therein. Includes 89,606 shares of Common Stock held
by Huntington Street Co. and June Street Co. Dr. Rosenwald is the sole
proprietor of both entities.
(3) Includes 3,522 shares granted in September 1995 and issuable upon the
exercise of options held by Dr. Monahan that are exercisable within 60
days.
(4) Includes 228,998 shares granted in July 1995 and issuable upon the exercise
of options held by Dr. Whitcome that are exercisable within 60 days.
(5) Includes 5,360 shares issuable upon the exercise of options and warrants to
purchase 89,244 shares of Common Stock held by Dr. Iwaki that are
exercisable within 60 days. Also includes 5,130 shares of Common Stock and
warrants to purchase 3,221 shares of Common Stock exercisable within 60
days held by the Aries Domestic Fund. Dr. Iwaki is a director of the Aries
Domestic Fund and disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein.
(6) Includes 9,735 shares issuable upon the exercise of options held by Ms.
deVlaminck that are exercisable within 60 days.
(7) Includes 3,385 shares issuable upon the exercise of options held by Mr.
Shaykin that are exercisable within 60 days. Also includes warrants to
purchase 2,500 shares of Common Stock held by Mr. Shaykin.
(8) Includes 31,530 shares issuable upon the exercise of options held by Dr.
Kurtzman that are exercisable within 60 days.
(9) Includes 9,969 shares issuable upon the exercise of options held by Mr.
Pratt that are exercisable within 60 days.
(10) Includes 5,078 shares issuable upon the exercise of options held by Dr.
Horovitz that are exercisable within 60 days.
(11) Includes 416,237 shares issuable upon the exercise of options and warrants
held by all directors and executive officers that are exercisable within 60
days.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value ("Preferred Stock").
COMMON STOCK
As of October 31, 1996, there were 7,285,193 shares of Common Stock
outstanding held of record by approximately 250 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The 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. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of
44
<PAGE> 47
Common Stock are, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plan to issue any shares of Preferred Stock.
WARRANTS
As of October 31, 1996, the Company had outstanding warrants to purchase
507,880 shares of Common Stock (excluding warrants issued pursuant to the 1996
Bridge Financing) at exercise prices ranging from $4.87 per share to $9.60 per
share. The warrants expire at various times from May 1998 to November 2005. Each
warrant contains provisions for the adjustment of the exercise price and the
aggregate number of shares issuable upon the exercise of the warrant under
certain circumstances, including stock dividends, stock splits, reorganizations,
reclassification, consolidations and certain dilutive sales of the securities
for which the warrant is exercisable below the then existing exercise price.
Each warrant may be exercised, without the payment of cash, for the number of
shares of Common Stock purchasable, at the current market value of the Common
Stock, by the difference between the aggregate exercise price of the warrant and
the value, at the current market price per share of Common Stock of the
aggregate number of shares purchasable under the warrant.
In connection with the 1996 Bridge Financing, the Company issued the
Warrants in March 1996. Warrants to purchase 193,750 shares of the Company's
Common Stock were issued at an exercise price equal to $6.40 per share and
Warrants to purchase 19,375 shares of Common Stock at an exercise price equal to
$7.04 per share. The Warrants expire in March 2001. Each Warrant contains
provisions for the adjustment of the exercise price and the aggregate number of
shares issuable upon the exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassification, and
consolidations. In addition, the warrants to purchase 19,375 shares granted to
the Placement Agent provide that such warrants may be exercised, without the
payment of cash, for the number of shares of Common Stock purchasable, at the
current market value of the Common Stock, by the differences between the
aggregate exercise price of the warrant and the value, at the current market
price per share of Common Stock of the aggregate number of shares purchasable
under the warrant.
REGISTRATION RIGHTS
Following this offering, holders of 3,424,535 shares of Common Stock and
warrants to purchase 442,606 shares of Common Stock (excluding warrants issued
pursuant to the 1996 Bridge Financing) will be entitled to certain rights with
respect to the registration of their shares under the Securities Act. Under the
terms of their respective subscription agreements or warrants, if the Company
proposes to register any of its securities under the Securities Act at any time
commencing 12 months after the closing of this offering, either for its own
account or the account of others, the holders are entitled to notice of such
registration and are entitled to include their shares of Common Stock; provided,
among other conditions, that the underwriters of any offering have the right to
limit the number of such shares included in such registration. The holders may
also require the Company to file a registration statement under the Securities
Act at the Company's expense with respect to their shares of Common Stock, and
the Company is required to use its best efforts to effect such registration.
45
<PAGE> 48
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
Law, an anti-takeover law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws also require that,
effective upon the closing of this offering, any action required or permitted to
be taken by stockholders of the Company must be effected at a duly called annual
or special meeting of the stockholders and may not be effected by a consent in
writing. In addition, special meetings of the stockholders of the Company may be
called only by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer of the Company or by any person or persons holding shares
representing at least 10% of the outstanding capital stock. The Company's
Certificate of Incorporation also provides for a classified Board and specifies
that the authorized number of directors may be changed only by resolution of the
Board of Directors. See "Management -- Board Composition." These provisions may
have the effect of deterring hostile takeovers or delaying changes in control or
management of the Company. TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company has been appointed as the transfer
agent and registrar for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and assuming no exercise of outstanding
options or warrants, the Company will have outstanding 7,498,318 shares of
Common Stock. Of these shares, 4,635,193 shares of Common Stock held by existing
stockholders (the "Restricted Shares") were issued and sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act.
These shares may be sold in the public market only if registered or pursuant to
an exemption from registration such as Rules 144, 144(k), or 701 under the
Securities Act, which are summarized below.
In addition to the 243,905 shares offered hereby, approximately 2,139,255
of these Restricted Shares will be eligible for sale in the public market upon
the date of this offering pursuant to Rule 144(k). In the absence of the
restrictions contained in the agreements not to sell described below,
approximately 1,633,773 additional Restricted Shares will be eligible for sale
after the date of this offering pursuant to Rule 144 and Rule 701.
As of October 31, 1996, there were 1,175,324 shares of Common Stock
issuable upon exercise of outstanding options. The Company has filed a
registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under the 1993 Stock Plan, the 1996 Equity Incentive
Plan, the Directors' Plan and pursuant to an option granted to a director of the
Company outside of the Plan, thus permitting the sale of such shares by
non-affiliates in the public market without restriction under the Securities
Act. Such registration statement became effective immediately upon filing on
September 16, 1996. Holders of vested options to purchase approximately 355,463
shares will be entitled to exercise such options and immediately sell such
shares.
In general, under Rule 144 as currently in effect, an Affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned Restricted Shares for at least two years, is entitled to sell in any
three-month period a number of shares that does not exceed the greater of (i) 1%
of the then outstanding shares of the Company's Common Stock (approximately
74,983 shares immediately after this offering) or (ii) the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are subject to certain requirements
46
<PAGE> 49
relating to manner of sale, notice and availability of current public
information about the Company. A person (or person whose shares are aggregated)
who is not deemed to have been an Affiliate of the Company at any time during
the 90 days immediately preceding the sale and who has beneficially owned
Restricted Shares for at least three years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions. In addition, non-Affiliates may sell Rule
701 shares without complying with the public information, volume and notice
provisions of Rule 144.
Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices prevailing from time to time. Sales of
substantial amounts of Common Stock of the Company in the public market could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
PLAN OF DISTRIBUTION
The shares of Common Stock offered by the Selling Stockholders may be sold
from time to time to purchasers directly by the Selling Stockholders acting as
principal for its own account in one or more transactions at a fixed price,
which may be changed, or at varying prices determined at the time of sale or at
negotiated prices. Alternatively, the Selling Stockholders may from time to time
offer the Common Stock through underwriters, dealers or agents who may receive
compensation in the form of underwriting discounts, commissions or concessions
from the Selling Stockholders and/or the purchasers of shares from whom they may
act as agent. Sales may be made on Nasdaq or in private transactions.
The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of the Common Stock offered hereby may be deemed
to be underwriters within the meaning of the Act and any discounts, commissions
or concessions received by them and any provided pursuant to the sale of shares
by them might be deemed to be underwriting discounts and commissions under the
Act.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.
The Company has agreed to register the Common Stock issuable upon exercise
of the warrants under applicable federal and state securities laws. The Company
will pay substantially all of the expenses incident to the offering and sale of
the Common Stock to the public, other than commissions, concessions and
discounts of underwriters, dealers or agents. Such expenses (excluding such
commissions and discounts) are estimated to be $85,967.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward LLP, Palo Alto, California.
EXPERTS
The financial statements of Avigen as of June 30, 1995 and 1996 for each of
the three years in the period ended June 30, 1996 and for the period from
October 22, 1992 (inception) through June 30, 1996 appearing in this Prospectus
and 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
on the authority of such firm as experts in accounting and auditing.
47
<PAGE> 50
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements at June 30, 1996 and 1995 and for each of the three years
in the period ended June 30, 1996 and for the period from October 22, 1992
(inception) to June 30, 1996........................................................
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Stockholders' Equity (Deficit).......................................... F-5
Statements of Cash Flows.............................................................. F-7
Notes to Financial Statements......................................................... F-8
Unaudited Condensed Financial Statements at September 30, 1996 and for the three-month
periods ended September 30, 1995 and 1996 and for the period from October 22, 1992
(inception) to September 30, 1996...................................................
Condensed Balance Sheets.............................................................. F-16
Condensed Statements of Operations.................................................... F-17
Condensed Statements of Cash Flows.................................................... F-18
Notes to Condensed Financial Statements............................................... F-19
</TABLE>
F-1
<PAGE> 51
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Avigen, Inc.
We have audited the accompanying balance sheets of Avigen, Inc. (a
development stage company) as of June 30, 1996 and 1995 and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended June 30, 1996 and for the period from
October 22, 1992 (inception) through June 30, 1996. 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 Avigen, Inc. at June 30,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1996 and for the period from
October 22, 1992 (inception) through June 30, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Walnut Creek, California
August 23, 1996
F-2
<PAGE> 52
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 8,091,645 $ 203,400
Investments in marketable securities........................... 8,351,349 --
Stock subscription receivable.................................. -- 135,081
Prepaids and other assets...................................... -- 12,603
------------ ------------
Total current assets................................... 16,442,994 351,084
Property and equipment, net...................................... 1,053,438 1,455,337
Deposits and other assets........................................ 35,525 34,128
------------ ------------
Total assets........................................... $ 17,531,957 $ 1,840,549
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 701,885 $ 615,199
Accrued compensation and related expenses...................... 87,994 70,583
Other accrued liabilities...................................... 258,265 577,944
Current portion of capital lease obligations................... 31,061 3,761
------------ ------------
Total current liabilities.............................. 1,079,205 1,267,487
Accrued rent..................................................... 249,263 174,556
Capital lease obligations, less current portion.................. 176,266 214,250
Commitments
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized,
none issued and outstanding at June 30, 1996, 2,069,326
shares issued and outstanding at June 30, 1995.............. -- 2,069
Common stock, $.001 par value, 30,000,000 shares authorized,
7,035,193 shares issued and outstanding at June 30, 1996,
1,942,653 shares issued and outstanding at June 30, 1995.... 7,035 1,942
Class B convertible common stock, $.001 par value, no shares
authorized and none issued and outstanding at June 30, 1996,
500,000 shares authorized and 90,293 shares issued and
outstanding at June 30, 1995................................ -- 90
Additional paid-in capital..................................... 28,852,767 8,788,046
Deferred compensation.......................................... (127,453) --
Deficit accumulated during the development stage............... (12,705,126) (8,607,891)
------------ ------------
Total stockholders' equity............................. 16,027,223 184,256
------------ ------------
Total liabilities and stockholders' equity............. $ 17,531,957 $ 1,840,549
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 53
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22, 1992
YEAR ENDED JUNE 30, (INCEPTION)
------------------------------------------- THROUGH
1996 1995 1994 JUNE 30, 1996
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Grant revenue....................... $ 87,402 $ 177,804 $ -- $ 265,206
Expenses:
Research and development.......... 2,550,377 2,289,881 2,557,698 8,330,099
General and administrative........ 1,101,758 1,333,756 1,283,727 4,257,130
----------- ----------- ----------- ------------
3,652,135 3,623,637 3,841,425 12,587,229
----------- ----------- ----------- ------------
Loss from operations................ (3,564,733) (3,445,833) (3,841,425) (12,322,023)
Interest expense.................... (580,679) (33,892) (12,085) (660,141)
Interest income..................... 49,809 25,313 4,384 89,249
Other income (expense).............. (1,632) 189,421 -- 187,789
----------- ----------- ----------- ------------
Net loss............................ $(4,097,235) $(3,264,991) $(3,849,126) $(12,705,126)
=========== =========== =========== ============
Pro forma net loss per share........ $(0.80)
===========
Shares used in calculation of pro
forma
net loss per share................ 5,141,951
===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 54
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM OCTOBER 22, 1992 (INCEPTION) THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
CLASS B
CONVERTIBLE
COMMON
PREFERRED STOCK COMMON STOCK STOCK
--------------------- --------------------- -----------
SHARES AMOUNT SHARES AMOUNT SHARES
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance at October 22, 1992 (inception)............................. -- $ -- -- $ -- --
Issuance of common stock at $.004 per share in November and
December 1992................................................... -- -- 896,062 896 --
Issuance of common stock at $.554 per share from January to June
1993 for services rendered...................................... -- -- 20,316 20 --
Issuance of common stock at $.004 to $.222 per share from November
1992 to March 1993 for cash..................................... -- -- 1,003,406 1,003 --
Issuance of Class B common stock at $.004 per share in December
1992 for cash................................................... -- -- -- -- 90,293
Issuance of Series A preferred stock at $4.43 per share from March
to June 1993 for cash (net of issuance costs of $410,900)....... 678,865 679 -- -- --
Issuance of Series A preferred stock at $3.85 per share in March
1993 for cancellation of note payable and accrued interest...... 68,991 69 -- -- --
Issuance of common stock at $.004 per share in November 1993
pursuant to antidilution rights................................. -- -- 22,869 23 --
Issuance of Series A preferred stock at $4.43 per share from July
to November 1993 for cash and receivable (net of issuance costs
of $187,205).................................................... 418,284 418 -- -- --
Issuance of Series B preferred stock at $5.54 per share in March
1994 for cash (net of issuance costs of $34,968)................ 128,031 128 -- -- --
Net loss from inception to June 30, 1994.......................... -- -- -- -- --
----------
-
--------- --------- --------- ---------- -
Balance at June 30, 1994............................................ 1,294,171 1,294 1,942,653 1,942 90,293
Issuance of Series C preferred stock at $4.87 per share from July
1994 to June 1995 for cash and receivables (net of issuance
costs of $259,620).............................................. 739,655 740 -- -- --
Issuance of Series C preferred stock at $4.87 per share in June
1995 for cancellation of notes payable.......................... 35,500 35 -- -- --
Net loss.......................................................... -- -- -- -- --
----------
-
--------- --------- --------- ---------- -
Balance at June 30, 1995............................................ 2,069,326 2,069 1,942,653 1,942 90,293
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE STOCKHOLDERS'
PAID-IN DEFERRED DEVELOPMENT EQUITY
AMOUNT CAPITAL COMPENSATION STAGE (DEFICIT)
------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 22, 1992 (inception)........................ $ -- $ -- $ -- $ -- $ --
Issuance of common stock at $.004 per share in November and
December 1992.............................................. -- 4,074 -- -- 4,970
Issuance of common stock at $.554 per share from January to
June 1993 for services rendered............................ -- 11,230 -- -- 11,250
Issuance of common stock at $.004 to $.222 per share from
November 1992 to March 1993 for cash....................... -- 54,267 -- -- 55,270
Issuance of Class B common stock at $.004 per share in
December 1992 for cash..................................... 90 310 -- -- 400
Issuance of Series A preferred stock at $4.43 per share from
March to June 1993 for cash (net of issuance costs of
$410,900).................................................. -- 2,595,922 -- -- 2,596,601
Issuance of Series A preferred stock at $3.85 per share in
March 1993 for cancellation of note payable and accrued
interest................................................... -- 265,833 -- -- 265,902
Issuance of common stock at $.004 per share in November 1993
pursuant to antidilution rights............................ -- 78 -- -- 101
Issuance of Series A preferred stock at $4.43 per share from
July to November 1993 for cash and receivable (net of
issuance costs of $187,205)................................ -- 1,665,377 -- -- 1,665,795
Issuance of Series B preferred stock at $5.54 per share in
March 1994 for cash (net of issuance costs of $34,968)..... -- 673,904 -- -- 674,032
Net loss from inception to June 30, 1994..................... -- -- -- (5,342,900) (5,342,900)
-- --
--------- ----------- -----------
Balance at June 30, 1994....................................... 90 5,270,995 -- (5,342,900) (68,579)
Issuance of Series C preferred stock at $4.87 per share from
July 1994 to June 1995 for cash and receivables (net of
issuance costs of $259,620)................................ -- 3,344,086 -- -- 3,344,826
Issuance of Series C preferred stock at $4.87 per share in
June 1995 for cancellation of notes payable................ -- 172,965 -- -- 173,000
Net loss..................................................... -- -- -- (3,264,991) (3,264,991)
-- --
--------- ----------- -----------
Balance at June 30, 1995....................................... 90 8,788,046 -- (8,607,891) 184,256
</TABLE>
F-5
<PAGE> 55
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
PERIOD FROM OCTOBER 22, 1992 (INCEPTION) THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
CLASS B
CONVERTIBLE
COMMON
PREFERRED STOCK COMMON STOCK STOCK
--------------------- -------------------- -------
SHARES AMOUNT SHARES AMOUNT SHARES
---------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
Issuance of Series C preferred stock at $4.87 per share in July 1995
for cash (net of issuance costs of $26,000).......................... 41,042 $ 41 -- $ -- --
Issuance of Series D preferred stock at $7.09 per share from October
1995 to February 1996 for cash (net of issuance costs of
$25,279).......................................................... 205,351 205 -- -- --
Issuance of Series D preferred stock at $7.09 per share in March
1996 in settlement of accounts payable............................ 22,574 23 -- -- --
Issuance of common stock at $.004 per share in March 1996 pursuant
to antidilution rights............................................ -- -- 17,630 18 --
Issuance of stock options in February 1996 in settlement of certain
accrued liabilities............................................... -- -- -- -- --
Conversion of Class B common stock to common stock.................. -- -- 231,304 231 (90,293)
Issuance of warrants to purchase common stock in connection with
1996 Bridge financing in March 1996............................... -- -- -- -- --
Conversion of preferred stock to common stock in May 1996........... (2,338,293) (2,338) 2,355,753 2,356 --
Issuance of common stock at $8.00 per share in connection with the
May 1996 initial public offering (net of issuance costs of
$798,414 and underwriting discount of $1,500,000)................. -- -- 2,500,000 2,500 --
Proceeds from exercise of options in June 1996...................... -- -- 6,178 6 --
Repurchase of common stock.......................................... -- -- (18,325) (18 ) --
Deferred compensation............................................... -- -- -- -- --
Net loss............................................................ -- -- -- -- --
------- -------
-- ----
--------- --------- --------
---
Balance at June 30, 1996.............................................. -- $ -- 7,035,193 $7,035 --
------- -------
-- ----
--------- --------- --------
---
<CAPTION>
AMOUNT
------
<S> <C<C>
Issuance of Series C preferred stock at $4.87 per share in July 1995
for cash (net of issuance costs of $26,000).......................... $ --
Issuance of Series D preferred stock at $7.09 per share from October
1995 to February 1996 for cash (net of issuance costs of
$25,279).......................................................... --
Issuance of Series D preferred stock at $7.09 per share in March
1996 in settlement of accounts payable............................ --
Issuance of common stock at $.004 per share in March 1996 pursuant
to antidilution rights............................................ --
Issuance of stock options in February 1996 in settlement of certain
accrued liabilities............................................... --
Conversion of Class B common stock to common stock.................. (90)
Issuance of warrants to purchase common stock in connection with
1996 Bridge financing in March 1996............................... --
Conversion of preferred stock to common stock in May 1996........... --
Issuance of common stock at $8.00 per share in connection with the
May 1996 initial public offering (net of issuance costs of
$798,414 and underwriting discount of $1,500,000)................. --
Proceeds from exercise of options in June 1996...................... --
Repurchase of common stock.......................................... --
Deferred compensation............................................... --
Net loss............................................................ --
Balance at June 30, 1996.............................................. $ --
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN DEFERRED DEVELOPMENT
CAPITAL COMPENSATION STAGE
----------- ------------ ------------
<S> <C> <C> <C>
Issuance of Series C preferred stock at $4.87 per share in July 1995
for cash (net of issuance costs of $26,000).......................... $ 173,959 $ -- $ --
Issuance of Series D preferred stock at $7.09 per share from October
1995 to February 1996 for cash (net of issuance costs of
$25,279).......................................................... 1,430,005 -- --
Issuance of Series D preferred stock at $7.09 per share in March
1996 in settlement of accounts payable............................ 160,027 -- --
Issuance of common stock at $.004 per share in March 1996 pursuant
to antidilution rights............................................ 60 -- --
Issuance of stock options in February 1996 in settlement of certain
accrued liabilities............................................... 137,396 -- --
Conversion of Class B common stock to common stock.................. (141) -- --
Issuance of warrants to purchase common stock in connection with
1996 Bridge financing in March 1996............................... 300,000 -- --
Conversion of preferred stock to common stock in May 1996........... (1,005) -- --
Issuance of common stock at $8.00 per share in connection with the
May 1996 initial public offering (net of issuance costs of
$798,414 and underwriting discount of $1,500,000)................. 17,699,086 -- --
Proceeds from exercise of options in June 1996...................... 2,793 -- --
Repurchase of common stock.......................................... (63) -- --
Deferred compensation............................................... 162,604 (127,453) --
Net loss............................................................ -- -- (4,097,235)
--
--------- -----------
Balance at June 30, 1996.............................................. $28,852,767 $ (127,453) $(12,705,126)
========= == ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C<C>
Issuance of Series C preferred stock at $4.87 per share in July 1995
for cash (net of issuance costs of $26,000).......................... $ 174,000
Issuance of Series D preferred stock at $7.09 per share from October
1995 to February 1996 for cash (net of issuance costs of
$25,279).......................................................... 1,430,210
Issuance of Series D preferred stock at $7.09 per share in March
1996 in settlement of accounts payable............................ 160,050
Issuance of common stock at $.004 per share in March 1996 pursuant
to antidilution rights............................................ 78
Issuance of stock options in February 1996 in settlement of certain
accrued liabilities............................................... 137,396
Conversion of Class B common stock to common stock.................. --
Issuance of warrants to purchase common stock in connection with
1996 Bridge financing in March 1996............................... 300,000
Conversion of preferred stock to common stock in May 1996........... (987)
Issuance of common stock at $8.00 per share in connection with the
May 1996 initial public offering (net of issuance costs of
$798,414 and underwriting discount of $1,500,000)................. 17,701,586
Proceeds from exercise of options in June 1996...................... 2,799
Repurchase of common stock.......................................... (81)
Deferred compensation............................................... 35,151
Net loss............................................................ (4,097,235)
-----------
Balance at June 30, 1996.............................................. $ 16,027,223
===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 56
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22, 1992
YEAR ENDED JUNE 30, (INCEPTION)
------------------------------------------- THROUGH
1996 1995 1994 JUNE 30, 1996
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................... $(4,097,235) $(3,264,991) $(3,849,126) $(12,705,126)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 412,107 367,710 309,783 1,116,551
Amortization of deferred compensation....... 35,151 -- -- 35,151
Write-off of organization costs............. -- 145,741 -- 145,741
Noncash interest expense.................... 493,750 -- -- 509,652
Common stock issued for services............ -- -- -- 11,250
Changes in operating assets and liabilities:
Prepaids, deposits and other assets....... 11,206 9,869 388,097 (35,525)
Accounts payable, accrued liabilities and
accrued compensation and related
expenses................................ 81,864 75,981 718,651 1,345,590
Accrued rent.............................. 74,707 82,144 82,144 249,263
----------- ----------- ----------- ------------
Net cash used in operating activities......... (2,988,450) (2,583,546) (2,350,451) (9,327,453)
INVESTING ACTIVITIES
Purchases of property and equipment......... (57,241) (144,299) (1,098,263) (1,917,881)
Disposal of property and equipment.......... 47,033 -- -- 47,033
Organization costs.......................... -- -- -- (218,601)
Purchase of marketable securities........... (8,351,349) -- -- (8,351,349)
----------- ----------- ----------- ------------
Net cash used in investing activities......... (8,361,557) (144,299) (1,098,263) (10,440,798)
FINANCING ACTIVITIES
Proceeds from notes payable................. 200,000 173,000 889,800 2,132,800
Repayment of notes payable.................. (200,000) (889,800) -- (1,709,800)
Proceeds from 1996 bridge financing......... 1,937,500 -- -- 1,937,500
Payment of bridge financing costs........... (193,750) -- -- (193,750)
Repayment of 1996 bridge financing.......... (1,937,500) -- -- (1,937,500)
Payments on capital lease obligations....... (10,684) (6,640) (1,630) (18,954)
Proceeds from issuance of preferred stock,
net of issuance costs..................... 1,738,304 3,411,148 2,138,424 9,884,477
Proceeds from issuance of common stock, net
of issuance costs and repurchases......... 17,704,382 -- 101 17,765,123
----------- ----------- ----------- ------------
Net cash provided by financing activities..... 19,238,252 2,687,708 3,026,695 27,859,896
Net increase (decrease) in cash and cash
equivalents................................. 7,888,245 (40,137) (422,019) 8,091,645
Cash and cash equivalents, beginning of
period...................................... 203,400 243,537 665,556 --
----------- ----------- ----------- ------------
Cash and cash equivalents, end of period...... $ 8,091,645 $ 203,400 $ 243,537 $ 8,091,645
=========== =========== =========== ============
Supplemental disclosure:
Issuance of preferred stock for cancellation
of accounts payable, notes payable and
accrued interest.......................... $ 160,050 $ 173,000 $ -- $ 598,952
Issuance of stock options for repayment of
certain accrued liabilities............... $ 137,396 $ -- $ -- $ 137,396
Issuance of warrants in connection with
bridge financing.......................... $ 300,000 $ -- $ -- $ 300,000
Deferred compensation related to stock
option grants............................. $ 162,604 $ -- $ -- $ 162,604
Purchase of property and equipment under
capital lease financing................... $ -- $ 193,400 $ 32,881 $ 226,281
Cash paid for interest...................... $ 86,929 $ 33,892 $ 12,085 $ 166,391
</TABLE>
See accompanying notes.
F-7
<PAGE> 57
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Avigen, Inc. (the "Company") was incorporated on October 22, 1992 in
Delaware for the purpose of development and commercialization of gene-based
therapeutic products.
The Company's activities since inception have consisted principally of
acquiring product rights, raising capital, establishing facilities and
performing research and development. Accordingly, the Company is considered to
be in the development stage.
Since inception, the Company has incurred cumulative net losses of
approximately $12.7 million. Management expects to incur additional losses for
at least the next several years to continue its research and development
activities, fund operating expenses, pursue regulatory approval and build
production, sales and marketing capabilities, as necessary. Accordingly,
management may seek to raise additional capital as required through the issuance
of equity or debt securities or through strategic alliances with other entities.
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 could differ from those estimates.
CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company accounts
for its marketable securities in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company's marketable securities consist principally of
available-for-sale government and corporate debt securities with a minimum short
term rating of A1/P1 and a minimum long-term rating of A and with maturities of
less than one year. Realized and unrealized gains and losses have been
insignificant to the results of operations and financial position of the
Company. Total cash, cash equivalents, and marketable securities at cost which
approximates fair market value are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1995
----------- --------
<S> <C> <C>
Cash in banks............................................... $ 91,645 $203,400
Corporate debt securities................................... 13,353,693 --
Federal Home Loan Mortgage Obligation....................... 2,997,656 --
----------- --------
$16,442,994 $203,400
=========== ========
</TABLE>
RESTRICTED CASH
Deposits and other assets include a $32,500 certificate of deposit which is
being maintained as a deposit for an equipment lease, expiring March 31, 1999.
GRANT REVENUE
Revenue consists of revenue from grants which are recognized in accordance
with the terms of the related agreements.
F-8
<PAGE> 58
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the respective
assets, which range from five to seven years, using the straight-line method.
Leasehold improvements and assets under capital leases are amortized over
the lives of the related leases or their estimated useful lives, whichever is
shorter, using the straight-line method. Accumulated amortization of assets
under capital leases was $66,418 and $19,834 at June 30, 1996 and 1995,
respectively.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" ("SFAS 121") was issued. The Company will adopt SFAS 121 beginning
in fiscal year 1997, and based on current circumstances, management does not
believe adoption will have a material effect on the Company's results of
operations or financial position.
STOCK-BASED COMPENSATION
In October 1995, the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") was issued and is
effective for the Company's fiscal year 1997. As permitted under SFAS 123, the
Company intends to continue to account for employee stock options in accordance
with APB Opinion No. 25 and will make the necessary pro forma disclosures
mandated by SFAS 123 beginning in fiscal year 1997.
NET LOSS PER SHARE
Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares (stock options, warrants and
preferred stock) issued during the period commencing 12 months prior to the
initial filing of the Company's initial public offering at prices below the
public offering price have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method for stock
options and warrants and the if-converted method for preferred stock). Per share
information calculated on the above noted basis is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net loss per share................................ $ (1.13) $ (0.91) $ (1.08)
========= ========= =========
Shares used in calculating net loss per share..... 3,611,181 3,568,767 3,559,345
========= ========= =========
</TABLE>
Pro forma net loss per share, as presented in the accompanying statement of
operations, has been computed as described above and also gives effect, pursuant
to SEC policy, to common equivalent shares from convertible preferred stock
issued more than twelve months from the proposed initial public offering that
automatically converted upon completion of the Company's initial public offering
(using the if-converted method) from the original date of issuance.
RECLASSIFICATIONS
Certain amounts presented for prior years have been reclassified to conform
to the 1996 presentation.
F-9
<PAGE> 59
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LICENSING AGREEMENTS
The Company has entered into various license agreements with universities
and medical research centers for the use of certain technologies. Generally,
such agreements require the Company to pay the licensor a royalty on sales of
products incorporating the licensed technology. Certain of these agreements
require the payment of minimum royalties for specified periods and payments upon
the achievement of specified milestones. These agreements are generally
cancelable by the Company upon written notice without significant financial
penalty, or by the licensor if the Company does not meet development milestones
specified in the agreements.
The Company entered into an exclusive license agreement for the use of
patented technology with Research Corporation Technology ("RCT"). This agreement
requires the Company to achieve certain development milestones in order to
continue to use the technology. In the event the Company fails to achieve any of
these milestones by their applicable deadlines, the Company has the right to pay
RCT additional fees of up to $250,000 to extend certain of the deadlines for
specified periods. If the Company has not made good faith and diligent efforts
in connection with the initial extension, RCT can terminate the agreement.
3. NOTES PAYABLE
In March 1996, the Company completed a bridge financing pursuant to which
the Company issued $1,937,500 principal amount of bridge notes, including
$295,000 to certain shareholders and members of the Board of Directors and
warrants to purchase 193,750 shares of common stock (see Note 5). The bridge
notes were paid, together with interest at the rate of 12% per annum, ten days
following the Company's May 1996 initial public offering.
4. LEASE ARRANGEMENTS
The Company leases its facility under a noncancelable operating lease
agreement. The lease agreement has variable payment terms; however, the Company
is recognizing rent expense on a straight-line basis over the life of the lease.
The lease expires in May 2003. The Company also has entered into various capital
leases for office furniture and laboratory equipment. Future minimum lease
payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING JUNE 30 LEASES LEASE
------------------------------------------------------------- -------- ----------
<S> <C> <C>
1997.................................................... $ 57,078 $ 397,670
1998.................................................... 84,282 419,250
1999.................................................... 81,998 419,250
2000.................................................... 43,834 419,250
2001.................................................... -- 419,250
Thereafter.............................................. -- 786,600
-------- ----------
Total minimum lease payments.......................... 267,192 $2,861,270
==========
Less amount representing interest............................ (59,865)
--------
Present value of minimum lease payments...................... 207,327
Less current portion of capital lease obligations............ (31,061)
--------
Long-term capital lease obligations.......................... $176,266
========
</TABLE>
Rent expense for fiscal year 1996 was $377,378 ($342,361 in 1995 and
$369,610 in 1994).
F-10
<PAGE> 60
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCKHOLDERS' EQUITY
COMMON STOCK
In May 1996, the Company consummated an initial public offering of
2,500,000 shares of common stock which raised approximately $17.7 million, net
of expenses.
In May 1996, in contemplation of the initial public offering, the Company
filed an Amended and Restated Certificate of Incorporation to effect a one for
4.43 reverse stock split of all outstanding shares of common stock, preferred
stock, stock options and warrants. All shares and per share data in the
accompanying financial statements have been adjusted retroactively to give
effect to the reverse stock split. The Amended and Restated Certificate of
Incorporation also reduced the authorized stock of the Company such that the
Company is authorized to issue 5,000,000 shares of $.001 par value "blank check"
preferred stock, and 30,000,000 shares of $.001 par value common stock.
CLASS B COMMON STOCK
In July 1995, upon the receipt by the Company of cumulative capital
contributions of $10,000,000 from the date of incorporation the Class B common
stock outstanding at June 30, 1995 automatically converted into 231,304 shares
of common stock equal to 5% of the fully diluted capitalization of the Company.
PREFERRED STOCK
Upon the closing of the initial public offering in May 1996, all
outstanding shares of preferred stock were converted into 2,355,753 shares of
common stock.
WARRANTS
In March 1993, in connection with a financing arrangement, the Company
issued warrants to purchase 6,899 shares of Series A preferred stock at an
exercise price of $4.87 to a relative of a member of the Board of Directors. The
warrants are exercisable at any time for a period of five years from the date of
issuance.
In connection with offerings of preferred stock, the Company issued to
related parties (see Note 7) warrants to purchase 108,583 shares of Series A
preferred stock, 12,802 shares of Series B preferred stock, 78,065 shares of
Series C preferred stock and 45,272 shares of Series D preferred stock at
exercise prices of $4.87, $6.11, $5.36 and $7.80 per share, respectively. The
warrants are exercisable at any time for a period of five years from the closing
of the respective offering.
In connection with a financing arrangement during 1996, the Company issued
warrants to purchase 4,513 shares of common stock at an exercise price of $7.09
to entities managed by related parties (see Note 7). The warrants are
exercisable at any time for a period of ten years from the date of issuance.
In connection with a bridge financing completed in March 1996, the Company
issued 193,750 warrants to purchase common stock of which 29,500 were to related
parties. The warrants were issued at an exercise price per share equal to the
greater of $0.25 per share and 80% of the initial public offering price ("the
bridge warrants"). The warrants expire in March 2001. The bridge warrants were
assigned a value of $300,000. This amount was reflected as a discount on the
bridge notes and was accreted as additional financing (interest) expense over
the term of the notes.
In connection with the initial public offering in May 1996, the Company
issued to the underwriters warrants to purchase 250,000 shares of common stock
at an exercise price of $9.60. The warrants expire in May 2001.
F-11
<PAGE> 61
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
All warrants for preferred stock converted to warrants for common stock
upon the closing of the Company's initial public offering.
STOCK OPTIONS
In 1993, the Company established a stock option plan ( "the 1993 Plan")
under which incentive and nonqualified stock options may be granted to key
employees, directors and consultants of the Company to purchase up to 338,600
shares of common stock. Under the 1993 Plan, options may be granted at a price
per share not less than the fair market value at the date of grant as determined
by the Board of Directors. Options granted generally have a maximum term of 10
years from the grant date and become exercisable over four years. Option
activity was as follows:
<TABLE>
<CAPTION>
OPTIONS PRICE
------- --------
<S> <C> <C>
Outstanding at June 30, 1993.................................... 4,514 $ .44
Granted....................................................... 58,690 .44
Canceled...................................................... -- --
------- --------
Outstanding at June 30, 1994.................................... 63,204 $ .44
Granted....................................................... 115,237 .44-.66
Canceled...................................................... (16,930) .44
------- --------
Outstanding at June 30, 1995.................................... 161,511 $.44-.66
Granted....................................................... 193,476 .44-.71
Canceled...................................................... (65,611) .44-.66
Exercised..................................................... (6,178) .44-.49
------- --------
Outstanding at June 30, 1996.................................... 283,198 $.44-.71
------- --------
</TABLE>
At June 30, 1996 and 1995, options to purchase 115,115 shares and 35,561
shares, respectively, of common stock were exercisable at prices ranging from
$.44 to $.71 per share. At June 30, 1996, 49,224 options were available for
future grant under the 1993 Plan; however, the Board of Directors has determined
that no further options will be granted under the 1993 Plan.
In July 1995, the Company granted a board member an option to purchase
515,248 shares of common stock at $0.49 per share, exercisable for five years
from the date of grant. The shares vest in equal monthly installments over
thirty-six months (157,437 shares were vested at June 30, 1996). The shares
issuable upon exercise of such option may be issued prior to vesting but such
shares are subject to repurchase at the original price per share upon
termination of services to the Company. Such grant was made outside of the 1993
Plan.
For certain options granted, the Company recognized as deferred
compensation the excess of the deemed value for financial reporting purposes of
the common stock issuable upon the exercise of such options over the aggregate
exercise price of such options. Total deferred compensation of $162,604 recorded
during the year is being amortized over the vesting period for such options.
In March 1996, the Board of Directors adopted and in April 1996 the
stockholders approved the 1996 Equity Incentive Plan ("the Incentive Plan") and
reserved 600,000 shares of common stock for issuance thereunder. The Incentive
Plan provides for grants of incentive stock options to employees and
nonstatutory stock options, restricted stock purchase awards, stock bonuses and
stock appreciation rights to employees and consultants of the Company. No
options, restricted stock awards, stock bonuses or stock appreciation rights
have been granted under the Incentive Plan.
In March 1996, the Board of Directors adopted and in April 1996 the
stockholders approved the 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") and reserved 200,000 shares of common
F-12
<PAGE> 62
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock for issuance under the Directors' Plan. The Directors' Plan provides for
automatic grants of options to purchase shares of common stock to non-employee
directors of the Company. The Directors' Plan was effective upon the closing of
the initial public offering and no options have been granted under the
Directors' Plan.
6. BALANCE SHEET DETAIL
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1996 1995
----------- ----------
<S> <C> <C>
Accrued consulting fees.................................... $ 66,500 $ 393,125
Accrued license fees....................................... 83,753 109,776
Other...................................................... 108,012 75,043
----------- ----------
$ 258,265 $ 577,944
=========== ==========
Property and equipment consist of the following:
Leasehold improvements..................................... $ 1,116,109 $1,116,109
Office equipment........................................... 79,654 44,386
Furniture and fixtures..................................... 33,120 32,700
Laboratory equipment....................................... 637,692 667,445
Furniture under capital lease.............................. 32,881 32,881
Laboratory equipment under capital lease................... 193,400 193,400
----------- ----------
Property and equipment..................................... 2,092,856 2,086,921
Accumulated depreciation and amortization.................. (1,039,418) (631,584)
----------- ----------
$ 1,053,438 $1,455,337
=========== ==========
</TABLE>
7. RELATED PARTY TRANSACTIONS
As part of its continuous program of research and development, the Company
retains consultants to consult with and advise the Company. Certain of the
consultants are holders of the Company's common stock or options to purchase
common stock. Consulting expenses relating to these stockholders and option
holders were $275,000, $275,000, and $193,000 for the years ended June 30, 1996,
1995 and 1994, respectively. The amounts payable to these consultants at June
30, 1996 and 1995 were $66,498 and $393,125, respectively.
A stockholder and director of the Company (the "Director") is an officer
and sole stockholder of Paramount Capital (the "Placement Agent"). In connection
with the Series A convertible preferred stock offerings, the Placement Agent
received a commission of $442,110, an expense allowance of $50,000, and warrants
to purchase up to 47,569 shares of Series A convertible preferred stock (as
described in Note 5). In connection with the Series C convertible preferred
stock offering, the Placement Agent received a commission of $129,025 and
warrants to purchase 24,471 shares of Series C convertible preferred stock (see
Note 5). In connection with the March 1996 Bridge Financing (See Note 3), the
Company paid the Placement Agent a commission equal to $193,750 and issued
warrants to purchase 19,375 shares of common stock at an exercise price per
share equal to 110% of the greater of $0.25 and 80% of the offering price.
In May 1995, two promissory notes totaling $173,000 from the Director were
converted into 35,500 shares of Series C convertible preferred stock at $4.87
per share. During fiscal year ended June 30, 1996, entities managed by the
Director and another member of the Board of Directors loaned the Company
F-13
<PAGE> 63
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$200,000 which was repaid in December 1995. In connection with these agreements,
the Company issued warrants to purchase 4,513 shares of common stock (see Note
5).
The Director has personally guaranteed the Company's lease on the office
and laboratory facilities (see Note 4).
The Company has entered into non-exclusive agreements with Maxzen Medical
Technologies ("Maxzen") for the purpose of identifying potential investors in
Japan. A director of the Company is affiliated with Maxzen. Under the terms of
the agreements, Maxzen receives commissions, payable in cash and warrants,
determined based on investments in the Company initiated by Maxzen. Through June
30, 1996, Maxzen has earned commissions under the agreements amounting to
$298,840 and warrants for the purchase of 61,014 shares of Series A preferred
stock, 12,802 shares of Series B preferred stock, 53,594 shares of Series C
preferred stock and 45,272 shares of Series D preferred stock (see Note 5).
All warrants to purchase preferred stock converted to warrants to purchase
common stock upon the close of the Company's initial public offering.
8. INCOME TAXES
The Company uses the liability method to account for income taxes as
required by Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using enacted tax rules and laws that
will be in effect when the differences are expected to reverse.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
------------------------- -------------------------
FEDERAL STATE FEDERAL STATE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net operating loss
carryforward................... $ 3,818,000 $ 183,000 $ 2,543,000 $ 111,000
Research and development credit
carryforward................... 335,000 120,000 335,000 88,000
Accelerated depreciation......... 231,000 41,000 135,000 24,000
Deferred rent expense............ 85,000 15,000 59,000 10,000
Capitalized research and
development.................... -- 281,000 -- 284,000
Other............................ 53,000 9,000 69,000 12,000
----------- --------- ----------- ---------
Gross deferred tax assets........ 4,522,000 649,000 3,141,000 529,000
Valuation allowance.............. (4,522,000) (649,000) (3,141,000) (529,000)
----------- --------- ----------- ---------
Net deferred tax assets.......... $ -- $ -- $ -- $ --
=========== ========= =========== =========
</TABLE>
The valuation allowance increased by $1,501,000, $1,381,000 and $1,751,000
for the fiscal years ended in 1996, 1995 and 1994, respectively.
At June 30, 1996, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $11,230,000 and
$3,041,000, respectively, which expire in tax years 1997 through 2010. At June
30, 1996, the Company has research and development credit carryforwards for
federal tax purposes of approximately $335,000, which expire in 2007 through
2009.
Because of the "change in ownership" provisions of the Tax Reform Act of
1986, utilization of the Company's tax net operating loss carryforward and tax
credit carryforwards may be subject to an annual
F-14
<PAGE> 64
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
limitation in future periods. As a result of the annual limitation, a portion of
these carryforwards may expire before ultimately becoming available to reduce
future income tax liabilities.
9. EMPLOYEE PROFIT SHARING/401(K) PLAN
In January 1996, the Company adopted a profit sharing/401(k) plan (the
"Plan") for the employees. Eligible employees can contribute amounts to the Plan
via payroll withholding subject to certain limitations. The Company's
contributions to the Plan are discretionary. In fiscal year 1996, no
contributions were made by the Company.
10. SUBSEQUENT EVENTS
In July 1996, the Company issued 250,000 shares of common stock in
connection with the exercise of the underwriters' over-allotment option from the
initial public offering. Net proceeds from such sale were approximately
$1,850,000.
F-15
<PAGE> 65
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
JUNE 30, 1996 ------------------
------------- (UNAUDITED)
(NOTE)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 8,091,645 $ 493,408
Investment in marketable securities......................... 8,351,349 16,659,696
----------- ------------
Total current assets..................................... 16,442,994 17,153,104
Property and equipment, net................................... 1,053,438 1,491,789
Deposits and other assets..................................... 35,525 50,215
----------- ------------
Total assets........................................ $ 17,531,957 $ 18,695,108
=========== ============
LIABILTIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable............................................ $ 701,885 $ 948,681
Accrued compensation and related expenses................... 87,994 101,727
Other accrued liabilities................................... 258,265 195,564
Capital lease obligations -- current portion................ 31,061 36,718
----------- ------------
Total current liabilities................................ 1,079,205 1,282,690
Accrued rent................................................ 249,263 246,305
Capital lease obligations................................... 176,266 150,553
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued and outstanding.................. -- --
Common Stock, $.001 par value, 30,000,000 shares authorized,
7,035,193 shares issued and outstanding at June 30, 1996,
7,285,193 shares issued and outstanding at September 30,
1996..................................................... 7,035 7,285
Additional paid-in capital.................................. 28,852,767 30,702,517
Deferred compensation....................................... (127,453) (117,302)
Deficit accumulated during the development stage............ (12,705,126) (13,576,940)
----------- ------------
Total stockholders' equity............................... 16,027,223 17,015,560
----------- ------------
Total liabilities and stockholders' equity.......... $ 17,531,957 $ 18,695,108
=========== ============
</TABLE>
Note: The balance sheet at June 30, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed financial statements.
See accompanying notes.
F-16
<PAGE> 66
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
THREE MONTHS ENDED 1992 (INCEPTION)
SEPTEMBER 30, THROUGH
----------------------- SEPTEMBER 30,
1995 1996 1996
--------- --------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Grant revenue........................................ $ 43,699 -- $ 265,206
Expenses:
Research and development........................... 581,253 631,584 8,961,683
General and administrative......................... 280,990 345,634 4,602,764
--------- --------- ------------
Total expenses..................................... 862,243 977,218 13,564,447
--------- --------- ------------
Loss from operations................................. (818,544) (977,218) (13,299,241)
Interest expense..................................... (7,138) (34,033) (694,174)
Interest income...................................... 1,922 139,437 228,686
Other income......................................... -- -- 187,789
--------- --------- ------------
Net loss................................... $(823,760) $(871,814) $ (13,576,940)
========= ========= ============
Net loss per share................................... $ (0.12)
=========
Shares used in calculation of net loss per share..... 7,252,584
=========
Pro forma net loss per share......................... $ (0.15)
=========
Shares used in calculation of pro forma net loss per
share.............................................. 5,409,716
=========
</TABLE>
F-17
<PAGE> 67
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD FROM OCTOBER 22,
SEPTEMBER 30, 1992 (INCEPTION)
--------------------------- THROUGH
1995 1996 SEPTEMBER 30, 1996
----------- ----------- -----------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................... $ (823,760) $ (871,814) $ (13,576,940)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 106,579 114,947 1,231,498
Amortization of deferred compensation.... -- 10,151 45,302
Write-off of organization costs.......... -- -- 145,741
Noncash interest expense................. -- -- 509,652
Common stock issued for services......... -- -- 11,250
Changes in operating assets and
liabilities:
Deposits and other assets.............. 46,731 (14,690) (50,215)
Accounts payable, accrued liabilities
and accrued compensation and related
expenses............................ 29,380 197,828 1,543,418
Accrued rent........................... 12,615 (2,958) 246,305
----------- ----------- ------------
Net cash used in operating activities....... (628,455) (566,536) (9,893,989)
INVESTING ACTIVITIES
Purchases of property and equipment......... (8,871) (553,298) (2,471,179)
Disposal of property and equipment.......... 47,033 -- 47,033
Organization costs.......................... -- -- (218,601)
Purchase of marketable securities........... -- (9,768,892) (18,120,241)
Sale of marketable securities............... -- 1,460,545 1,460,545
----------- ----------- ------------
Net cash provided by (used in) investing
activities............................... 38,162 (8,861,645) (19,302,443)
FINANCING ACTIVITIES
Proceeds from notes payable................. 120,000.... -- 2,132,800
Repayment of notes payable.................. -- -- (1,709,800)
Proceeds from 1996 bridge financing......... -- -- 1,937,500
Payment of bridge financing costs........... -- -- (193,750)
Repayment of 1996 bridge financing.......... (1,937,500)
Payments on capital lease obligations....... (2,622) (20,056) (39,010)
Proceeds from issuance of preferred stock,
net of issuance costs.................... 309,081 -- 9,884,477
Proceeds from issuance of common stock, net
of issuance costs and repurchases........ (81) 1,850,000 19,615,123
----------- ----------- ------------
Net cash provided by financing activities... 426,378 1,829,944 9,689,840
----------- ----------- ------------
Net (decrease) increase in cash and cash
equivalents.............................. (163,915) (7,598,237) 493,408
Cash and cash equivalents, beginning of
period................................... 203,400 8,091,645 --
----------- ----------- ------------
Cash and cash equivalents, end of period.... $ 39,485 $ 493,408 $ 493,408
=========== =========== ============
</TABLE>
F-18
<PAGE> 68
AVIGEN, INC.
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements include all adjustments, consisting only of normal recurring
adjustments and accruals, Avigen, Inc. (the "Company") considers necessary for a
fair presentation of the Company's financial position as of September 30, 1996
and the results of operations and cash flows for the three months ended
September 30, 1995 and 1996. These unaudited interim financial statements should
be read in conjunction with the audited financial statements of the Company and
the notes thereto included in the Company's annual report on form 10-K for the
year ended June 30, 1996, filed with the Securities and Exchange Commission.
Operating results for these months ended September 30, 1996, are not
necessarily indicative of the results to be achieved for the full fiscal year
ending June 30, 1997.
2. GRANT REVENUE
Revenue consists of revenue from grants which are recognized in accordance
with the terms of the related agreements.
3. NET LOSS PER SHARE
Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares (stock options, warrants and
preferred stock) issued during the period commencing 12 months prior to the
initial filing of the Company's initial public offering at prices below the
public offering price have been included in the calculation as if they were
outstanding for all periods prior to March 31, 1996 (using the treasury stock
method for stock options and warrants and the if-converted method for preferred
stock). Net loss per share calculated on this basis was ($0.23) for the three
months ended September 30, 1996.
Pro forma net loss per share, as presented in the accompanying statement of
operations, has been computed as described above and also gives effect, pursuant
to SEC policy, to common equivalent shares from convertible preferred stock
issued more than twelve months from the proposed initial public offering that
automatically converted upon completion of the Company's initial public offering
(using the if-converted method) from the original date of issuance.
4. STOCKHOLDERS' EQUITY
In July 1996, the Company issued 250,000 shares of Common Stock in
connection with the exercise of the underwriters' over-allotment option from the
initial public offering. Net proceeds from such sale were approximately
$1,850,000.
F-19
<PAGE> 69
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
I,2 ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON 243,905 SHARES
AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING STOCKHOLDER OR
ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER
COMMON STOCK
ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY
OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
- --------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................. 2
</TABLE>
-----------------------------------------------------------------------
<TABLE>
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
The Company............................ 13
</TABLE>
-----------------------------------------------------------------------
<TABLE>
<S> <C>
Use of Proceeds........................ 13
Dividend Policy........................ 13
Selected Financial Data................ 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 15
Business............................... 17
Management............................. 33
</TABLE>
AVIGEN, INC.
<TABLE>
<S> <C>
Certain Transactions................... 40
Principal Shareholders and
Selling Stockholders................... 42
Description of Capital Stock........... 44
Shares Eligible for Future Sale........ 46
Plan of Distribution................... 47
</TABLE>
NOVEMBER 15, 1996
<TABLE>
<S> <C>
Legal Matters.......................... 47
Experts................................ 47
Index to Financial Statements.......... F-1
</TABLE>
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the distribution of the Common Stock being registered. All amounts are
estimated, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Filing Fee:
<TABLE>
<S> <C>
SEC Registration Fee................... $ 467
Accounting Fees.......................................... 20,000
Legal Fees and Expenses.................................. 50,000
Transfer Agent and Registrar Fees........................ 2,000
Printing and Engraving................................... 13,500
Total............................................... 85,967
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Restated Certificate of Incorporation provides that
directors of the Registrant shall not be personally liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a
director, to the fullest extent permitted by the General Corporation Law of the
State of Delaware. The Registrant's Restated Bylaws provide for indemnification
of officers and directors to the full extent and in the manner permitted by
Delaware law. Section 145 of the Delaware General corporation Law makes
provision for such indemnification in terms sufficiently broad to cover officers
and directors under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act").
The Registrant has entered into indemnification agreements with each
director which provide indemnification under certain circumstances for acts and
omissions which may not be covered by any directors' and officers' liability
insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since November 1993, the Company has sold and issued the following
unregistered securities:
(1) In November 1993, the Registrant completed a private placement of
1,097,149 shares of Series A Preferred Stock, convertible into 1,097,149 shares
of Common Stock and warrants to purchase 115,482 shares of Series A Preferred
Stock at an exercise price of $4.87 per share, to sixty-one (61) accredited
investors for cash in the aggregate amount of $4,860,370. In connection with the
private placement, the Registrant paid commissions to the placement agents equal
to $548,105 and issued warrants to purchase 108,583 shares of Series A Preferred
Stock at an exercise price of $4.87 per share. In addition, one of the placement
agents received an accountable expense allowance of $50,000.
(2) From February 1994 to November 1994, the Registrant sold 128,031 shares
of Series B Preferred Stock, convertible into 145,491 shares of Common Stock, to
eight (8) accredited investors for cash in the aggregate amount of $709,000. In
connection with the private placement, the Registrant paid a commission to the
placement agent Maxzen equal to $34,968 and issued warrants to purchase 12,802
shares of Series B Preferred Stock at an exercise price of $6.11 per share.
(3) From August 1994 to July 1995, the Registrant sold 816,197 shares of
Series C Preferred Stock, convertible into 816,197 shares of Common Stock to
twenty-nine (29) accredited investors, including one director, for cash in the
aggregate amount of $3,977,446 and satisfaction of certain obligations under a
$173,000 loan. In connection with the private placement, the Registrant paid
commissions to the placement agents Maxzen and Paramount equal to $285,620 and
issued warrants to purchase 78,065 shares of Series C Preferred Stock at an
exercise price of $5.36 per share.
II-1
<PAGE> 71
(4) In October 1995, the Company issued warrants to purchase 2,708 shares
of Common Stock at an exercise price of $7.09 per share to an accredited
investor in connection with the extension and repayment of a $120,000 bridge
loan.
(5) In November 1995, the Registrant issued warrants to purchase 1,805
shares of Common Stock at an exercise price of $7.09 per share to an accredited
investor in satisfaction of a $80,000 bridge loan.
(6) From December 1995 to March 1996, the Registrant issued 227,925 shares
of Series D Preferred Stock, convertible into 227,925 shares of Common Stock for
cash and forgiveness of certain accrued expenses in the aggregate amount of
$1,611,800. In connection with the private placement, the Registrant paid a
finder's fee to Dr. Iwaki equal to $25,279 and issued warrants to purchase
45,272 shares of Series D Preferred Stock at an exercise price of $7.80 per
share.
(7) In March 1996, the Registrant completed the 1996 Bridge Financing
pursuant to which the Company issued $1,937,500 aggregate principal amount of
promissory notes and Warrants to purchase 193,750 shares of Common Stock at an
exercise price per share equal to the greater of $0.25 and 80% of the initial
public offering price to forty-four (44) accredited investors. In connection
with the 1996 Bridge Financing, the Registrant paid a commission to the
placement agent equal to $193,750 and issued warrants to purchase 19,375 shares
of Common Stock at an exercise price per share equal to 110% of the greater of
$0.25 and 80% of the initial public offering price.
(8) Since inception, the Registrant has granted incentive stock options and
nonqualified stock options to employees, directors and consultants covering an
aggregate of 1,264,043 shares of Common Stock, at an average exercise price of
$1.51 per share. The Registrant has issued 6,178 shares of Common Stock pursuant
to the exercise of stock options, at exercise prices ranging from $44 to $49 per
share.
The sales and issuances of securities in the transactions described in
paragraphs (1) through (8) were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2), Regulation D or Regulation S
promulgated thereunder. With respect to the grant of stock options described in
paragraph (8), an exemption from registration was unnecessary in that none of
the transactions involved a "sale" of securities as such term is used in Section
2(3) of the Securities Act.
Appropriate legends are affixed to the stock certificate issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
3.1+ Amended and Restated Certificate of Incorporation of the Registrant
3.2+ Restated Bylaws of the Registrant
4.1+ Specimen Common Stock Certificate
4.2 Reference is made to Exhibits 3.1 and 3.2
5.1 Opinion of Cooley Godward LLP as to legality of the Common Stock
10.2+ 1993 Stock Option Plan
10.3+ 1996 Equity Incentive Plan
</TABLE>
II-2
<PAGE> 72
<TABLE>
<C> <S>
10.4+ Form of Incentive Stock Option Grant
10.5+ Form of Nonstatutory Stock Option Grant
10.6+ 1996 Non-Employee Director Stock Option Plan
10.7+ Form of Series C Investors' Rights Agreement
10.8+ Form of Indemnification Agreement between the Registrant and its directors and
executive officers
10.9+ Form of Common Stock Warrant
10.10+ Form of Series A Preferred Stock Warrant
10.11+ Form of Series B Preferred Stock Warrant
10.12+ Form of Series C Preferred Stock Warrant
10.13+ Form of Series D Preferred Stock Warrant
10.14+ Form of Series A Preferred Stock Subscription Agreement
10.15+ Form of Series B Preferred Stock Subscription Agreement
10.16+ Form of Series C Preferred Stock Subscription Agreement
10.17+ Form of Unit Purchase Agreement
10.18+ Form of Bridge Note
10.19+ Form of Warrant
10.20+ License Agreement between the Registrant and Research Corporation Technologies,
Inc., dated May 15, 1992, as amended as of March 21, 1996 and April 26, 1996
10.21+ License Agreement between the Registrant and The Johns Hopkins University, dated
November 23, 1993, as amended as of March 21, 1996
10.22+ License Agreement between the Registrant and The University of Manitoba,
dated February 2, 1994
10.24+ Lease Agreement between Registrant and Redding Management, Inc.,
dated September 15, 1992, as amended June 30, 1995
10.25+ Registration Rights Agreement between the Registrant and certain stockholders named
therein, dated November 1992
10.26+ Registration Rights and Transfer Restriction Agreement between the Registrant and
Research Corporation Technologies, Inc., The Indiana University Foundation and Arun
Srivastava,
dated May 15, 1992, as amended October 1992
10.27+ Employment Agreement, dated August 10, 1992, between the Company and John Monahan.
10.28+ Employment Agreement, dated October 19, 1992, between the Company and
Wanda deVlaminck.
10.29 Employment Agreement, dated August 14, 1996, between the Company and Thomas J.
Paulson.
10.30 Independent Consultant Agreement, dated October 1, 1996, between the Company and
Philip J. Whitcomb.
10.31 Employment Agreement, dated October 23, 1996, between the Company and Robert M.
Maurer.
11.1 Statement re computation of net loss per share
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page II-6)
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Incorporated herein by reference into this Registration Statement by the
Registrant's Registration Statement No. 333-3220 filed with the Commission on
April 4, 1996.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
II-3
<PAGE> 73
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 provisions described in Item 14 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 its 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:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-4
<PAGE> 74
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: November 15, 1996 AVIGEN, INC.
/s/JOHN MONAHAN
By:
John Monahan, Ph.D.
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John Monahan, Ph.D. and Philip J.
Whitcome, or either of them, each with the power of substitution, his or her
attorney-in-fact, to sign any amendments to this Registration Statement
(including post-effective amendments), with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ---------------------------------- ------------------
<C> <S> <C>
/s/JOHN MONAHAN President, Chief Executive Officer November 15, 1996
- ------------------------------------- and Director (Principal Executive
John Monahan, Ph.D. Officer)
/s/THOMAS J. PAULSON Vice President Finance, Chief November 15, 1996
- ------------------------------------- Financial Officer and Secretary
Thomas J. Paulson (Principal Accounting Officer)
/s/PHILIP J. WHITCOME Chairman of the Board November 15, 1996
- -------------------------------------
Philip J. Whitcome, Ph.D.
/s/ZOLA HOROVITZ Director November 15, 1996
- -------------------------------------
Zola Horovitz, Ph.D.
/s/YUICHI IWAKI Director November 15, 1996
- -------------------------------------
Yuichi Iwaki, M.D., Ph.D.
/s/RICHARD T. PRATT Director November 15, 1996
- -------------------------------------
Richard T. Pratt
Director November 15, 1996
- -------------------------------------
John K.A. Prendergast, Ph.D.
/s/LINDSAY A. ROSENWALD Director November 15, 1996
- -------------------------------------
Lindsay A. Rosenwald, M.D.
/s/LEONARD P. SHAYKIN Director November 15, 1996
- -------------------------------------
Leonard P. Shaykin
</TABLE>
II-5
<PAGE> 75
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, 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 August 23,
1996, in the Registration Statement (Form S-1) and related Prospectus of Avigen,
Inc. for the registration of 243,905 shares of its Common Stock.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
November 13, 1996
II-6
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
3.1+ Amended and Restated Certificate of Incorporation of the Registrant....
3.2+ Restated Bylaws of the Registrant......................................
4.1+ Specimen Common Stock Certificate......................................
4.2 Reference is made to Exhibits 3.1 and 3.2..............................
5.1 Opinion of Cooley Godward LLP as to legality of the Common Stock.......
10.2+ 1993 Stock Option Plan.................................................
10.3+ 1996 Equity Incentive Plan.............................................
10.4+ Form of Incentive Stock Option Grant...................................
10.5+ Form of Nonstatutory Stock Option Grant................................
10.6+ 1996 Non-Employee Director Stock Option Plan...........................
10.7+ Form of Series C Investors' Rights Agreement...........................
10.8+ Form of Indemnification Agreement between the Registrant and its
directors and executive officers.......................................
10.9+ Form of Common Stock Warrant...........................................
10.10+ Form of Series A Preferred Stock Warrant...............................
10.11+ Form of Series B Preferred Stock Warrant...............................
10.12+ Form of Series C Preferred Stock Warrant...............................
10.13+ Form of Series D Preferred Stock Warrant...............................
10.14+ Form of Series A Preferred Stock Subscription Agreement................
10.15+ Form of Series B Preferred Stock Subscription Agreement................
10.16+ Form of Series C Preferred Stock Subscription Agreement................
10.17+ Form of Unit Purchase Agreement........................................
10.18+ Form of Bridge Note....................................................
10.19+ Form of Warrant........................................................
10.20+ License Agreement between the Registrant and Research Corporation
Technologies, Inc., dated May 15, 1992, as amended as of March 21, 1996
and April 26, 1996.....................................................
10.21+ License Agreement between the Registrant and The Johns Hopkins
University, dated November 23, 1993, as amended as of March 21, 1996...
10.22+ License Agreement between the Registrant and The University of
Manitoba, dated February 2, 1994.......................................
10.24+ Lease Agreement between Registrant and Redding Management, Inc., dated
September 15, 1992, as amended June 30, 1995...........................
10.25+ Registration Rights Agreement between the Registrant and certain
stockholders named therein, dated November 1992........................
10.26+ Registration Rights and Transfer Restriction Agreement between the
Registrant and Research Corporation Technologies, Inc., The Indiana
University Foundation and Arun Srivastava, dated May 15, 1992, as
amended October 1992...................................................
10.27+ Employment Agreement, dated August 10, 1992, between the Company and
John Monahan...........................................................
10.28+ Employment Agreement, dated October 19, 1992, between the Company and
Wanda deVlaminck.......................................................
10.29 Employment Agreement, dated August 14, 1996, between the Company and
Thomas J. Paulson......................................................
10.30 Independent Consultant Agreement, dated October 1, 1996, between the
Company and Philip J. Whitcomb.........................................
10.31 Employment Agreement, dated October 23, 1996, between the Company and
Robert M. Maurer.......................................................
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
11.1 Statement re computation of net loss per share.........................
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page II-6).....
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)................
24.1 Power of Attorney (see page II-5)......................................
27.1 Financial Data Schedule................................................
</TABLE>
<PAGE> 1
Exhibit 5.1
[COOLEY GODWARD LETTERHEAD]
November 15, 1996
Avigen, Inc.
1201 Harbor Bay Parkway, #1000
Alameda, California 94502
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Avigen, Inc. (the "Company") of a Registration Statement on
Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission, covering the offering of a total of 243,905 shares of the Company's
Common Stock with a par value of $0.001 (the "Shares"). Of such Shares, (i)
30,780 were issued by the Company in a private financing in 1994 and (ii)
213,125 are issuable upon the exercise of warrants issued by the Company in a
private financing in 1996. All of the Shares are to be sold by certain
stockholders as described in the Registration Statement.
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation and Restated Bylaws, and the originals or
copies certified to our satisfaction of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below. We have assumed the
genuineness and authenticity of all documents submitted to us as originals, and
the conformity to originals of all documents where due execution and delivery
are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included on the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By
Alan C. Mendelson
<PAGE> 1
EXHIBIT 10.29
[AVIGEN LETTERHEAD]
August 14, 1996
Thomas J. Paulson
76 Middlebeach Road West
Madison, CT 06443
Dear Tom:
Let me express how enthusiastic we are about the possibility of you joining the
Avigen team as Vice President, Finance and Chief Financial Officer, beginning on
August 16, 1996. This letter confirms the terms of our offer.
1. Your annual salary will be $160,000, payable twice monthly.
2. You will be enrolled in the Company's prepaid group health, dental and
disability plans.
3. You will have the option of enrolling in the Company's 401(k) program.
4. You will have three weeks of paid vacation per year.
5. Pending approval of Avigen's Board of Directors, we plan to offer you
options on 100,000 shares of common stock of Avigen at the price applicable
at the time of the option grant, as determined by the Board.
6. Avigen will pay your relocation expenses in moving from Connecticut to the
Bay Area.
7. You will sign Avigen's Proprietary Information and Invention Agreement for
Employees.
8. You will agree to follow Avigen's company policy that employees must not
disclose any information regarding salary, bonuses, or stock allocation to
other employees, either directly or indirectly.
Regarding item 6 above, please give me an estimate of your anticipated
relocation expenses.
There are two copies of this letter enclosed. If all of the foregoing is
satisfactory, please sign and date each copy, and return one copy to me in the
envelope marked Confidential, saving the other copy for yourself.
Sincerely,
/s/ JOHN MONAHAN
- -------------------
John Monahan, Ph.D.
President and CEO
Enclosure
cc: Glenn Bauer
I have read, understand and hereby accept the foregoing terms and conditions of
employment.
NAME: /s/ THOMAS J. PAULSON DATE: 8/14/96
--------------------- -------
<PAGE> 1
EXHIBIT 10.30
INDEPENDENT CONSULTANT AGREEMENT
THIS INDEPENDENT CONSULTANT AGREEMENT (the "Agreement") is made and
entered into as of October 1, 1996 by and between AVIGEN, INC., a Delaware
corporation ("the Company") and PHILIP J. WHITCOME ("Consultant") effective
October 1, 1996 (the "Effective Date"). Whereas the Company and Consultant
desire to create an "independent contractor" relationship in connection with
certain consulting services to be provided by Consultant to the Company, as
described below, the parties agree to the following terms of this engagement.
1. POSITION
Consultant, as an independent contractor, agrees to provide certain
business and financial services to the Company ("Services").
2. TERM
2.1 COMPLETION OF SERVICES. This Agreement will become effective
on the Effective Date and shall continue in effect until October 1, 1997 unless
terminated earlier as set forth in Section 2.2.
2.2 TERMINATION.
This Agreement may be terminated by the Company with or
without cause effective ten (10) days after the date notice of termination is
delivered to Consultant. In the event of termination the Company will pay
Consultant the reasonable value of services rendered up to the date of notice
of termination, not to exceed the compensation set forth in Section 3 of this
Agreement.
3. COMPENSATION
Consultant shall be paid compensation in the amount of $100,000,
payable in monthly installments of $8,333.33. Such monthly installments shall
be due and payable on the first business day of each month and shall be
compensation for services to be performed during that month.
4. REIMBURSEMENT
Consultant shall be reimbursed for Consultant's out-of-pocket
expenses, if any, in connection with the performance of Consultant's
responsibilities under Paragraph 5 and reasonably incurred in the performance
of Consultant's duties under this Agreement.
1.
<PAGE> 2
5. RESPONSIBILITIES
(a) Consultant shall use its reasonable best efforts to perform
and promptly complete the Services.
(b) Consultant agrees to accept exclusive liability for the
payment of payroll taxes, self-employment taxes, and social security and other
contributions that are based on the compensation to be paid to Consultant under
this Agreement and on the wages or other compensation paid to any agents or
employees of Consultant which the Company has authorized Consultant to engage.
Consultant agrees to indemnify and defend the Company against all such taxes or
contributions.
6. INDEPENDENT CONTRACTOR STATUS
Consultant acknowledges that the Services rendered under this
Agreement are for a specified fee for certain intended results, and that
Consultant is under the control of the Company only as to the result of the
Services and not as to the means by which this result is accomplished. As
such, Consultant acknowledges that Consultant is an independent contractor
within the meaning of California Labor Code Section 3353, and accepts the legal
consequences of this status, including without limitation that (1) the Company
has no obligation to Consultant to maintain liability insurance to cover the
risk, if any, that Consultant creates in performing Services under this
Agreement, (2) Consultant is excluded from the benefits of any applicable state
workers' compensation insurance and acknowledges that Consultant must maintain
his own desired levels of medical, disability, life and other insurance or
benefits, whether or not he is injured while performing Services for the
Company, (3) Consultant is excluded from receiving state unemployment and
disability insurance benefits, (4) the Company will not deduct from
Consultant's compensation any amounts for federal or state income tax
withholding, "FICA" contributions, contributions to state disability funds or
similar withholding, and (5) Consultant is excluded from coverage of state and
federal labor laws that may regulate the payment of overtime wages or other
matters affecting employees.
7. ASSIGNMENT
The rights and obligations of Consultant are personal in nature and
may not be assigned without the Company's prior written consent. The rights
and obligations of the Company under this Agreement shall inure to the benefit
of and shall be binding upon the successors and assignees of the Company.
8. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
respecting the Services expected to be rendered by Consultant to the Company,
and there are no representations, warranties or commitments which may be relied
upon by either party except as specifically set forth in this Agreement. This
Agreement supersedes all prior or contemporaneous agreements, commitments,
2.
<PAGE> 3
representations, writings, and discussions between the Company and Consultant,
whether oral or written. This Agreement may be amended only by an instrument
in writing executed by the parties hereto. Consultant expressly acknowledges
that Consultant has read the terms of this Agreement, has had the opportunity
to discuss those terms with his own legal counsel, and understands that this is
a legally binding contract.
9. NOTICES
Any notice, request, demand or other communication hereunder shall be
in writing and shall be deemed to be duly given when personally delivered to an
officer of the Company or to Consultant, as the case may be, or three days
after deposit in the United States Mail with postage prepaid addressed, if to
the Company, at 1201 Harbor Bay Parkway #1000, Alameda, California or if to
Consultant, at 99 Field Brook Road, Madison, Connecticut or to such other
address as either party may specify by notice to the other as provided in this
Paragraph.
10. COUNTERPARTS
This Agreement and the other agreements referred to above may be
executed in counterparts, each of which shall be deemed to be an original.
11. PUBLICITY
During the term of this Agreement the Company may refer to
Consultant's name and role with the Company in its presentations and published
material with Consultant's prior consent.
3.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the first date written above.
,
------------------------------------
By
----------------------------------
President
CONSULTANT
-------------------------------------
4.
<PAGE> 1
EXHIBIT 10.31
[AVIGEN LETTERHEAD]
October 23, 1996
Robert M. Maurer
11 West Sandpiper Lane
Lake Forest, Illinois 60045
RE: Employment Terms
Dear Bob:
Avigen, Inc. is pleased to offer you the position of Vice President,
Business Development on the following terms:
You will be responsible for licensing, business development and
corporate partnering activities and will report to me. You will work at our
facility located at 1201 Harbor Bay Parkway, Alameda, California. Of course,
Avigen may change your position, duties and work location from time to time as
it deems necessary.
Your compensation will be $160,000 per year, less all required
withholding for taxes and social security. You will be paid semi-monthly and
you will be eligible for the following standard Avigen benefits: medical
insurance, vacation, sick leave and holidays. Details about these benefits are
available for your review. Avigen may modify compensation and benefits from
time to time as it deems necessary.
Subject to approval by Avigen's Board of Directors, and to the terms of
the Avigen stock option plan and your stock option agreement, you will receive
an option to purchase 100,000 shares of Avigen's common stock at a price and
vesting schedule to be determined by the Board.
Avigen will also help towards the relocation of you and your family to
the bay area. Towards this end the company will pay direct costs for your
relocation that are not directly tax deductible up to a maximum of $50,000. It
is to be understood this whole process will be completed within a year.
As an Avigen employee, you will be expected to abide by the company's
rules and regulations, acknowledging in writing that you have read the
company's Employee Handbook, and sign and comply with a Proprietary Information
and Inventions Agreement which prohibits unauthorized use or disclosure of
Avigen's proprietary information.
Normal working hours are from 8:30 a.m. to 5:30 p.m. Monday through
Friday. As an exempt salaried employee, you will be expected to work
additional hours as required by the nature of your work assignments.
You may terminate your employment with Avigen at any time and for any
reason whatsoever simply by notifying Avigen. Likewise, Avigen may terminate
your employment at any time for any reason whatsoever, with or without cause or
advance notice. This at-will employment cannot be changed except in writing
and signed by an Avigen officer.
The employment terms in this letter supersede any other agreements or
promises made to you by anyone, whether oral or written.
Please sign and date this letter, and return it to me by October 30,
1996, if you wish to accept employment at Avigen under the terms described
above. If you accept our offer, we would like you to start on November 4, 1996.
We look forward to your favorable reply and to a productive and
enjoyable work relationship.
Sincerely,
/s/ JOHN MONAHAN, Ph.D.
- ------------------------------
John Monahan, Ph.D.
President & CEO
Accepted by:
/s/ ROBERT M. MAURER
- ------------------------------
Robert M. Maurer
Date: October 28, 1996
<PAGE> 1
Exhibit 11.1
Computation of Net Loss Per Share
Avigen Inc.
(a development stage company)
<TABLE>
<CAPTION>
Year Ended June 30, Three Months Ended
--------------------------------------------------------------------
1994 1995 1996 9/30/95 9/30/96
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Loss $(3,849,126) $(3,264,991) $(4,097,235) $(823,760) $(871,814)
====================================================================
Weighted average common shares
Outstanding 2,023,524 2,032,946 2,459,315 2,020,635 7,252,584
Shares related to Staff
Accounting Bulletin Topic 4D:
Common Stock 158,641 158,641 118,981 158,641
Common Stock Options 663,135 663,135 497,351 663,135
Preferred Stock 502,493 502,493 376,870 502,493
Common & Preferred
Stock Warrants 211,552 211,552 158,664 211,552
--------------------------------------------------------------------
Total shares outstanding for
primary and fully diluted net
loss per share 3,559,345 3,568,767 3,611,181 3,556,456 7,252,584
====================================================================
Net loss per share $(1.08) $(0.91) $(1.13) $(0.23) $(0.12)
====================================================================
Calculation of shares
outstanding for computing
pro forma net loss per share:
Shares used in computing net
loss per share 3,568,767 3,611,181 3,556,456
Adjustment to reflect the
effect of the assumed
conversion of convertible
preferred stock from the
date of issuance 1,726,297 1,530,770 1,853,260
---------------------------------------
Total shares outstanding
for pro forma net loss
per share 5,295,064 5,141,951 5,409,716
=======================================
Pro forma net loss per share $(0.62) $(0.80) $(0.15)
=======================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 493,408
<SECURITIES> 16,659,696
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,153,104
<PP&E> 2,646,152
<DEPRECIATION> 1,154,363
<TOTAL-ASSETS> 18,695,108
<CURRENT-LIABILITIES> 1,282,690
<BONDS> 150,553
0
0
<COMMON> 7,285
<OTHER-SE> 17,008,275
<TOTAL-LIABILITY-AND-EQUITY> 18,695,108
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (977,218)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (34,033)
<INCOME-PRETAX> (871,814)
<INCOME-TAX> 0
<INCOME-CONTINUING> (871,814)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (871,814)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
