<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AVIGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8731 13-3647113
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1201 HARBOR BAY PARKWAY, SUITE 1000
ALAMEDA, CA 94502
(510) 748-7150
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN J. MONAHAN, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AVIGEN, INC.
1201 HARBOR BAY PARKWAY, SUITE 1000
ALAMEDA, CA 94502
(510) 748-7150
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
COOLEY GODWARD LLP CRAVATH, SWAINE & MOORE
ALAN C. MENDELSON, ESQ. JOHN W. WHITE, ESQ.
BRETT D. WHITE, ESQ. WORLDWIDE PLAZA
FIVE PALO ALTO SQUARE 825 EIGHTH AVENUE
3000 EL CAMINO REAL NEW YORK, NY 10019-7475
PALO ALTO, CA 94306-2155 (212) 474-1000
(650) 843-5000
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as possible after the effective date of this Registration Statement
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities 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
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value........................ 4,600,000 Shares $63.625 $292,675,000 $77,266
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</TABLE>
(1) Includes 600,000 shares subject to the underwriters' over-allotment option.
(2) Estimated in accordance with Rule 457(c) under the Securities Act of 1933,
as amended (the "Securities Act"), solely for the purpose of computing the
amount of the registration fee based on the average of the high and low
prices of the Common Stock of the Registrant as reported on the Nasdaq
National Market on February 15, 2000.
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
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 17, 2000
PROSPECTUS
4,000,000 SHARES
[AVIGEN LOGO]
COMMON STOCK
$ PER SHARE
------------------
We are selling 4,000,000 shares of our common stock. We have granted the
underwriters a 30-day option to purchase up to an additional 600,000 shares of
common stock to cover over-allotments.
Our common stock is quoted on the Nasdaq National Market under the symbol
"AVGN." The last reported sale price of our common stock on the Nasdaq National
Market on February 16, 2000 was $66.81 per share.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------- -------------------
<S> <C> <C>
Public Offering Price.................................... $ $
Underwriting Discount.................................... $ $
Proceeds to Avigen, Inc. (before expenses)............... $ $
</TABLE>
The underwriters expect to deliver the shares to purchasers on or about
, 2000.
------------------
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
ING BARINGS
, 2000
<PAGE> 3
Description of artwork for EDGAR
INSIDE COVER
[Diagram illustrating the basic principles of delivering genes to patients using
AAV vectors. The diagram shows the structure of an AAV virus, a twenty
equal-sided geometric figure containing DNA strands. An arrow points to an AAV
virus broken apart, the AAV viral genes removed and the therapeutic gene added.
This is shown as an AAV vector. The AAV vector is depicted as being injected
into the muscle tissue of the patient. The therapeutic protein is depicted as
entering the patient's cells.]
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 2
Summary Financial Information............................... 4
Risk Factors................................................ 5
Information Regarding Forward-Looking Statements............ 13
Use of Proceeds............................................. 14
Market Price of Common Stock................................ 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 21
Management.................................................. 35
Principal Stockholders...................................... 37
Underwriting................................................ 38
Legal Matters............................................... 40
Experts..................................................... 40
Where You Can Find More Information......................... 40
Incorporation by Reference.................................. 41
</TABLE>
The Avigen logo, the name Avigen and Coagulin-A and Coagulin-B are
trademarks of Avigen. This prospectus also contains trademarks of companies
other than Avigen.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read this entire prospectus carefully, including the "Risk Factors"
section. In addition, we incorporate by reference important business and
financial information in this prospectus.
OUR COMPANY
OVERVIEW
We are a leader in the development of gene therapy products for the
treatment of inherited diseases. We are developing our proprietary
adeno-associated virus vector technology, known as "AAV vectors," to deliver DNA
to patients that are suffering from genetic diseases. AAV vectors are a
relatively new system for gene therapy. We believe our AAV vectors can be used
to deliver genes for the treatment of hemophilia, Gaucher disease, hereditary
emphysema and [beta]-Thalassemia.
All of our products in development are based on our proprietary gene
delivery technology in AAV vectors. Adeno-associated virus, or "AAV," is a
common, harmless human virus present in over 90% of the human population. AAV
vectors take advantage of the natural efficiency with which viruses deliver
genes to cells without the safety concerns of disease-related viruses.
We believe our AAV vector gene therapy approach offers novel treatment
alternatives for diseases that are currently poorly addressed. We believe
benefits of our AAV vector gene therapy technology include:
- SAFETY. AAV has never been associated with a human disease of any kind.
- EFFICIENCY. AAV by nature is very efficient at delivering genes to cells.
- VERSATILITY. AAV vectors are capable of delivering the vast majority of
genes to a wide range of cell types.
- SIMPLICITY. AAV vectors can be administered to the patient in a simple
procedure on an outpatient basis.
- STABILITY. AAV vectors are stable under a wide range of conditions.
OUR PRODUCTS
We are applying our AAV vector gene therapy technology initially to develop
products to address the following five genetic diseases: Hemophilia A,
Hemophilia B, Gaucher disease, hereditary emphysema and [beta]-Thalassemia.
Industry analysts estimate that current sales of protein therapeutics to treat
these diseases exceed $2 billion annually in the United States alone.
Our initial product candidate is Coagulin-B for the treatment of Hemophilia
B. Hemophilia B is a blood clotting disorder characterized by the reduction or
absence of a protein called factor IX. Hemophilia B is a genetic disease that
primarily affects males. Hemophilia B affects approximately one in every 30,000
males, afflicting an estimated 10,000 - 15,000 individuals in developed
countries worldwide. We believe the cost of treating Hemophilia B patients in
the United States is over $400 million per year.
In our preclinical studies, we treated five dogs suffering from Hemophilia
B. Following a single administration into the muscle, our AAV vector containing
the gene for factor IX demonstrated that it could produce sustained levels of
factor IX protein in the dogs for over a year with a corresponding improvement
in blood clotting. In the dogs receiving the greatest quantities of our AAV
vector, the levels were above 1% of normal level, a level that is known to be
beneficial to humans. These data provided strong support for the feasibility of
using the same approach to treat hemophilia patients and formed the basis for
FDA approval to begin clinical trials in humans.
On June 2, 1999, we began a Phase I/II clinical trial with Coagulin-B.
After delivering Coagulin-B into the thigh muscle, factor IX protein activity
was detected in the blood of the first two of the three
2
<PAGE> 6
hemophilia patients treated at the lowest of three dosage levels. The increase
in factor IX protein activity correlated with a significant reduction of factor
IX protein usage by the first two patients. These patients began to make factor
IX protein within eight weeks of being treated with Coagulin-B and as of six
months continue to express factor IX. The third patient, treated at this lowest
dose, showed no increase in his factor IX protein levels. To date no adverse
effects have been detected in any of these patients.
OUR BUSINESS STRATEGY
We are committed to being a leader in the development of gene-based
products through the application of our proprietary AAV vector gene delivery
technology. To achieve this goal, we are pursuing a focused strategy that
includes:
- REDUCING DRUG DEVELOPMENT RISK BY PURSUING GENETIC DISEASES WITH
WELL-DEFINED GENE FUNCTION. We focus our drug discovery activities and
expenditures on applications of our AAV vector technology to develop drug
candidates that address genetic diseases that are well understood.
- RETAINING DEVELOPMENT AND COMMERCIALIZATION RIGHTS FOR OUR PRODUCTS IN
THE UNITED STATES. Our strategy is to retain all rights to our products
and directly market them to patients and physicians in the United States
with a small, specialized sales force.
- ENSURING THAT WE HAVE THE INTELLECTUAL PROPERTY NEEDED TO FREELY DEVELOP
OUR PRODUCTS AND PROTECT OUR MARKET. We aggressively pursue patents and
licenses to cover all of the technology we develop or use.
------------------------
Avigen was incorporated in October 1992. Our principal executive offices
are located at 1201 Harbor Bay Parkway, Suite 1000, Alameda, California 94502,
and our telephone number is (510) 748-7150. Our Web site address is
www.avigen.com. We do not incorporate by reference into this prospectus the
information on our Web site, and you should not consider it as part of this
prospectus.
THE OFFERING
Common stock offered........................ 4,000,000 shares
Common stock outstanding after this
offering.................................... 18,998,632 shares
Use of proceeds.............................
To fund research and
development, preclinical studies
and clinical trials of our drug
candidates, working capital and
general corporate purposes
Nasdaq National Market symbol...............
"AVGN"
Unless we otherwise indicate, the information in this prospectus does not
take into account the issuance of up to 600,000 shares of common stock which the
underwriters have the option to purchase solely to cover over-allotments. If the
underwriters exercise their over-allotment option in full, 19,598,632 shares of
common stock will be outstanding after the offering.
The number of shares of common stock to be outstanding immediately after
the offering is based upon shares outstanding as of December 31, 1999 and does
not take into account 3,868,885 shares of common stock issuable upon exercise of
options and warrants outstanding at a weighted average exercise price of $8.03
per share, and 715,368 shares reserved under our existing stock option plan and
employee stock purchase plan.
3
<PAGE> 7
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
1992
(INCEPTION) SIX MONTHS ENDED
THROUGH YEARS ENDED JUNE 30, DECEMBER 31,
DECEMBER 31, --------------------------- -----------------
1999 1997 1998 1999 1998 1999
------------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Grant revenue.................... $ 587 $ 98 $ -- $ 185 $ 174 $ 39
Expenses:
Research and development....... 28,466 4,033 6,235 6,490 3,097 3,378
General and administrative..... 15,050 2,352 2,990 3,445 1,597 2,006
-------- ------- ------- ------- ------- -------
Total expenses.............. 43,516 6,385 9,225 9,935 4,694 5,384
Net interest income.............. 1,155 710 365 148 46 502
Other income (expense)........... 154 (1) (17) (9) (2) (6)
-------- ------- ------- ------- ------- -------
Net loss......................... $(41,620) $(5,578) $(8,877) $(9,611) $(4,476) $(4,849)
======== ======= ======= ======= ======= =======
Net loss per share.............................. $ (0.77) $ (1.22) $ (0.99) $ (0.54) $ (0.37)
======= ======= ======= ======= =======
Weighted average shares outstanding............. 7,286 7,298 9,684 8,310 13,105
</TABLE>
The as-adjusted information that follows gives effect to this offering and
assumes no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 48,863 $299,444
Total assets................................................ 50,396 300,977
Deficit accumulated during the development stage............ (41,620) (41,620)
Total stockholders' equity.................................. 48,901 299,482
</TABLE>
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<PAGE> 8
RISK FACTORS
An investment in our common stock involves significant risks. You should
carefully consider the following risks before you decide to buy our common
stock.
WE EXPECT TO CONTINUE TO OPERATE AT A LOSS, AND WE MAY NEVER ACHIEVE
PROFITABILITY
Since our inception in 1992, we have not been profitable, and we cannot be
certain that we will ever achieve and sustain profitability. To date, we have
been engaged in research and development activities and have not generated any
revenues from product sales. As of December 31, 1999, we had an accumulated
deficit of $41.6 million. The process of developing our products will require
significant research and development, preclinical testing and clinical trials,
as well as regulatory approval. We expect these activities, together with our
general and administrative expenses, to result in operating losses for the
foreseeable future. Our ability to achieve profitability will depend, in part,
on our ability to successfully complete development of our proposed products,
obtain required regulatory approvals and manufacture and market our products
directly or through partners.
THE RESULTS OF OUR CLINICAL TRIALS FOR COAGULIN-B FOR THE TREATMENT OF
HEMOPHILIA B ARE BASED ON A SMALL NUMBER OF PATIENTS OVER A SHORT PERIOD OF
TIME, AND THE SUCCESSES REPORTED MAY NOT BE INDICATIVE OF RESULTS IN A LARGE
NUMBER OF PATIENTS OR HAVE LASTING EFFECTS
We recently reported that our gene therapy product candidate, Coagulin-B,
for treating Hemophilia B is showing early indications of therapeutic benefit.
These results, however, are extremely preliminary and are based upon the results
in only three patients, only two of whom have shown improvement. Actual results
with more data points may show less favorable results. In addition, we do not
yet know if these results will have a lasting effect. If a larger population of
patients does not experience similar results, or these results do not have a
lasting effect, this product candidate may not receive approval from the Food
and Drug Administration, commonly referred to as the "FDA." In addition, any
report of clinical trial results that are below the expectations of financial
analysts or investors would most likely cause our stock price to drop
dramatically.
THE SUCCESS OF OUR TECHNOLOGY IN ANIMAL MODELS DOES NOT GUARANTEE THAT THESE
RESULTS WILL BE REPLICATED IN HUMANS
Even though our product candidates have shown successful results in animal
models, animals are different than humans and these results may not be
replicated in our clinical trials with humans. For example, the results of our
gene therapy treatment for Hemophilia B in dogs were different from our
expectations following our studies with mice. In addition, the results we have
seen to date in humans in our clinical trials for Coagulin-B are different from
our expectations following our studies with dogs. Consequently, you should not
rely on the results in our animal models as being predictive of the results that
we will see in our clinical trials with humans.
BECAUSE OUR PRODUCT CANDIDATES ARE IN AN EARLY STATE OF DEVELOPMENT, THERE IS A
HIGH RISK THAT THEY MAY NEVER BE COMMERCIALIZED
None of our product candidates have received regulatory approval for
commercial sale, and we face the risk that none of our product candidates will
ever receive regulatory approval. All of our product candidates are in early
stages of development. We have only one product candidate, Coagulin-B for the
treatment of Hemophilia B, in clinical trials, and this product candidate is in
the earliest stages of clinical trials. We are not aware of any gene therapy
products that have received regulatory approval. None of our prospective
products, including Coagulin-B for the treatment of Hemophilia B, is expected to
be commercially available for at least several years. Based on results at any
stage of clinical trials, we may decide to discontinue development of one or
more of our potential products.
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<PAGE> 9
TECHNOLOGICAL CHANGE MAY MAKE OUR POTENTIAL PRODUCTS AND TECHNOLOGIES LESS
ATTRACTIVE OR OBSOLETE
Gene therapy is a new and rapidly evolving field and is expected to
continue to undergo significant and rapid technological change. Rapid
technological development could result in our actual and proposed technologies,
products or processes becoming less attractive or obsolete.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY IMPACT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF OUR POTENTIAL PRODUCTS
The recent death of a patient undergoing a viral-based gene therapy has
been widely publicized. This death and other adverse events in the field of gene
therapy that may occur in the future could result in greater governmental
regulation of our potential products and potential regulatory delays relating to
the testing or approval of our potential products. For example, as a result of
this death, the Recombinant DNA Advisory Committee of the National Institutes of
Health may become more active in reviewing the clinical trials or proposed
clinical trials of all companies involved in gene therapy. It is uncertain what
effect this increased scrutiny will have on our product development efforts or
clinical trials.
The commercial success of our potential products will depend in part on
public acceptance of the use of gene therapy for the prevention or treatment of
human diseases. Public attitudes may be influenced by claims that gene therapy
is unsafe, and consequently our products may not gain the acceptance of the
public or the medical community. Negative public reaction to gene therapy in
general could result in greater government regulation and stricter labeling
requirements of gene therapy products, including any of our products, and could
cause a decrease in the demand for any products we may develop.
OUR POTENTIAL PRODUCTS MUST UNDERGO RIGOROUS CLINICAL TESTING AND REGULATORY
APPROVALS, WHICH COULD SUBSTANTIALLY DELAY OR PREVENT US FROM MARKETING ANY
PRODUCTS
The clinical trial process is complex, uncertain and expensive. Positive
results from preclinical studies and early clinical trials do not ensure
positive results in clinical trials designed to permit application for
regulatory approval. Prior to marketing in the United States, any product
developed by us must undergo rigorous preclinical testing and clinical trials as
well as an extensive regulatory approval process implemented by the FDA. The FDA
approval process is typically lengthy and expensive, and approval is never
certain. Because of the risks and uncertainties in biopharmaceutical
development, our gene therapy products could take a significantly longer time to
gain regulatory approval than we expect or may never gain FDA approval. If we do
not receive these necessary approvals from the FDA, we will not be able to
generate substantial revenues and will not become profitable. We may encounter
significant delays or excessive costs in our efforts to secure regulatory
approvals. Factors that raise uncertainty in obtaining these regulatory
approvals include:
- 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, which we believe will cause clinical trials to
proceed more slowly than clinical trials involving traditional drugs;
- we must obtain FDA approval to begin clinical trials of our potential
products, which we may not be able to obtain;
- we must demonstrate through clinical trials that the proposed product is
safe and effective for its intended use;
- we are not aware of any gene therapy products that have obtained
marketing approval from the FDA;
- whether or not our product candidates cause patients to develop
antibodies to these potential products or the proteins produced by these
potential products;
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<PAGE> 10
- the regulatory requirements governing gene therapy products are uncertain
and are subject to change;
- none of our proposed products have been tested in humans for their
effectiveness; and
- data obtained from preclinical and clinical activities are susceptible to
varying interpretations which could delay, limit or prevent regulatory
approvals.
Failure to comply with applicable FDA or other regulatory requirements may
result in criminal prosecution, civil penalties and other actions that would
seriously impair our ability to conduct our business. Even if regulatory
approval is granted for a product, this approval will be limited to those
disease states and conditions for which the product is useful, as demonstrated
through clinical trials.
WE HAVE LIMITED EXPERIENCE IN CONDUCTING CLINICAL TRIALS, WHICH MAY CAUSE DELAYS
IN COMMENCING AND COMPLETING CLINICAL TRIALS OF OUR PRODUCTS
Clinical trials must meet FDA regulatory requirements. We have limited
experience in conducting the preclinical studies and clinical trials necessary
to obtain FDA regulatory approval. Consequently, we may encounter problems in
clinical trials which cause us or the FDA to delay, suspend or terminate these
trials. Problems we may encounter include the chance that we may not be able to
conduct clinical trials at preferred sites, obtain sufficient test subjects or
begin or successfully complete clinical trials in a timely fashion, if at all.
Furthermore, the FDA may suspend clinical trials at any time if it believes the
subjects participating in trials are being exposed to unacceptable health risks
or if it finds deficiencies in the clinical trial process or conduct of the
investigation.
WE MAY NOT BE SUCCESSFUL IN OBTAINING REQUIRED FOREIGN REGULATORY APPROVALS,
WHICH WOULD PREVENT US FROM MARKETING OUR PRODUCTS INTERNATIONALLY
We cannot be certain that we will obtain any regulatory approvals in other
countries. In order to market our products outside of the United States, we also
must comply with numerous and varying foreign regulatory requirements
implemented by foreign regulatory authorities. The approval procedure varies
among countries and can involve additional testing. 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.
WE HAVE NO EXPERIENCE IN MANUFACTURING, MARKETING OR SELLING ANY OF OUR
POTENTIAL PRODUCTS, WHICH RAISES UNCERTAINTY IN OUR ABILITY TO COST-EFFECTIVELY
COMMERCIALIZE OUR POTENTIAL PRODUCTS
Even if we are able to develop our potential products and obtain necessary
regulatory approvals, we have no experience in, and currently lack the resources
and capability to, manufacture or market any of our proposed products on a
commercial basis. If we are unable to manufacture our products in a cost-
effective manner, we will not become profitable. While we have implemented the
FDA's regulations concerning current good manufacturing practices on a limited
basis, we may fail to do so as required in the future. We may not be able to
develop adequate commercial manufacturing capabilities either on our own or
through third parties. To establish commercial scale manufacturing facilities,
we will need substantial additional funds and personnel and will be required to
comply with extensive regulations applicable to these facilities. In addition,
we do not anticipate establishing our own sales and marketing capabilities in
the foreseeable future. We may not be able to develop adequate marketing
capabilities either on our own or through third parties.
WE MAY BE REQUIRED TO OBTAIN RIGHTS TO PROPRIETARY GENES AND OTHER TECHNOLOGIES
TO FURTHER DEVELOP OUR BUSINESS, WHICH MAY NOT BE AVAILABLE OR MAY BE COSTLY
We currently investigate and use certain gene sequences or proteins encoded
by those sequences that are or may become patented by others. As a result, we
may be required to obtain licenses to these gene
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<PAGE> 11
sequences or proteins or other technology in order to test, use or market
products. We may not be able to obtain these licenses on terms favorable to us.
In connection with our efforts to obtain rights to these gene sequences or
proteins, we may find it necessary to convey rights to our technology to others.
Some of our gene therapy products may require the use of multiple proprietary
technologies. Consequently, we may be required to make cumulative royalty
payments to several third parties. These cumulative royalties could be
commercially prohibitive. We may not be able to successfully negotiate these
royalty adjustments.
IF WE DO NOT ACHIEVE CERTAIN MILESTONES, WE MAY NOT BE ABLE TO RETAIN LICENSES
TO OUR INTELLECTUAL PROPERTY
We have entered into license agreements with third parties for technologies
related to our gene therapy product development programs. Some of these license
agreements provide for the achievement of development milestones. If we fail to
achieve these milestones or to obtain extensions, the licensor may terminate
these license agreements with relatively short notice to us. Termination of any
of our license agreements could harm our business.
WE EXPECT THAT WE WILL FACE INTENSE COMPETITION, WHICH MAY LIMIT OUR ABILITY TO
BECOME PROFITABLE
Our competitors may develop more effective or more affordable products, or
commercialize products earlier than we do, which would limit the prices that we
could charge for the products that we are able to market, and prevent us from
becoming profitable. We expect increased competition from fully integrated
pharmaceutical companies and more established biotechnology companies. Most of
these companies have significantly greater financial resources and expertise
than we do in the following:
- research and development;
- preclinical studies and clinical trials;
- obtaining regulatory approvals;
- manufacturing; and
- 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 us in recruiting and
retaining highly qualified scientific and management personnel.
We are 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. See "Business -- Competition" for a more detailed discussion
of the competition we face.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO EFFECTIVELY PROTECT OUR PATENTS AND
PROPRIETARY RIGHTS, WHICH WE MAY NOT BE ABLE TO DO
Our success will depend to a significant degree on our ability to obtain
patents and licenses to patent rights, preserve trade secrets and to operate
without infringing on the proprietary rights of others. If we are not successful
in these endeavors, our business will be substantially impaired.
To date, we have filed a number of patent applications in the United States
relating to our technologies. In addition, we have acquired exclusive and
non-exclusive licenses to certain issued patents and pending patent
applications. We cannot assure you 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 our technologies.
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The patent application process takes several years and entails considerable
expense. The failure to obtain patent protection on the technologies underlying
our proposed products may have a material adverse effect on our competitive
position and business prospects. Important legal issues remain to be resolved as
to the scope of patent protection for biotechnology products, and we expect that
administrative proceedings, litigation or both will be necessary to determine
the validity and scope of our and others' biotechnology products. These
proceedings or litigation may require a significant commitment of our resources
in the future. If patents can be obtained, we cannot assure you that any of
these patents will provide us with any competitive advantage. For example,
others may independently develop similar technologies or duplicate any
technology developed by us, and patents may be invalidated in litigation. In
addition, at least two of our patent applications are co-owned with
co-inventors. Under the terms of these agreements with the co-inventors, we have
an option to obtain an exclusive, worldwide, transferable, royalty-bearing
license for the technology. To date, we have negotiated exclusive licenses for
two of the more significant co-invented technologies, including worldwide rights
to the treatment of Hemophilia B using AAV vector technology and the
administration of AAV vectors into muscle tissue. If we cannot negotiate
exclusive rights to other 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 the technology by a co-inventor
could harm our business.
We also rely 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 our products and
technologies. We cannot be certain that these measures will provide meaningful
protection of our trade secrets, know-how or other proprietary information in
the event of any unauthorized use, misappropriation or disclosure of our trade
secrets, know-how or other proprietary information. In addition, the laws of
certain foreign countries do not protect our intellectual property rights to the
same extent as do the laws of the United States. We cannot assure you that we
will be able to protect our intellectual property successfully.
OTHER PERSONS MAY ASSERT RIGHTS IN OUR PROPRIETARY TECHNOLOGY, WHICH WOULD BE
COSTLY TO CONTEST OR SETTLE
Third parties may assert patent or other intellectual property infringement
claims against us with respect to our products or technology or other matters.
Any claims against us, with or without merit, as well as claims initiated by us
against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve. There may be third-party patents and other
intellectual property relevant to our products and technology which are not
known to us. We have not been accused of infringing any third party's patent
rights or other intellectual property, but we cannot assure you that litigation
asserting claims will not be initiated, that we would prevail in any litigation,
or that we would be able to obtain any necessary licenses on reasonable terms,
if at all. If our competitors prepare and file patent applications in the United
States that claim technology also claimed by us, we 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 us,
even if the outcome is favorable to us. In addition, to the extent outside
collaborators apply technological information developed independently by them or
by others to our product development programs or apply our technologies to other
projects, disputes may arise as to the ownership of proprietary rights to these
technologies.
IF OUR PRODUCTS ARE NOT ACCEPTED BY PHYSICIANS AND INSURERS, WE WILL NOT BE
SUCCESSFUL
Our success is dependent on acceptance of our gene therapy products. We
cannot assure you that our products will achieve significant market acceptance
among patients, physicians or third-party payors, even if we obtain necessary
regulatory and reimbursement approvals. Failure to achieve significant market
acceptance will harm our business. We believe that recommendations by physicians
and health care payors will be essential for market acceptance of our gene
therapy products. In the past, there has been concern regarding the potential
safety and efficacy of gene therapy products derived from pathogenic viruses
such as retroviruses and adenoviruses. While our proposed gene therapy products
are derived from AAV, which
9
<PAGE> 13
is a non-pathogenic virus, we cannot be certain that physicians and health care
payors will conclude that the technology is safe.
EVEN IF WE BRING PRODUCTS TO MARKET, WE MAY BE UNABLE TO EFFECTIVELY PRICE OUR
PRODUCTS OR OBTAIN ADEQUATE REIMBURSEMENT FOR SALES OF OUR PRODUCTS, WHICH WOULD
PREVENT OUR PRODUCTS FROM BECOMING PROFITABLE
If we succeed in bringing our proposed products to the market, we cannot
assure you that these products will be considered cost-effective and that
reimbursement to the consumer will be available or will be sufficient to allow
us to sell our products on a competitive basis. 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. Our business
and financial condition is 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 controls 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. We
cannot predict whether any legislative or regulatory proposals will be adopted
or the effect these proposals or managed care efforts may have on our business.
WE MAY BE UNABLE TO ATTRACT AND RETAIN THE QUALIFIED EMPLOYEES THAT WE NEED TO
BE SUCCESSFUL
We are highly dependent on certain members of our management and research
and development staff. The loss of any of these persons, or our inability to
recruit additional personnel necessary to our business, could substantially
impair our research and development efforts and impede our ability to develop
and commercialize any of our products. Recruiting and retaining qualified
technical and managerial personnel will also be critical to our success. Our
business is located in the San Francisco Bay Area in California, where demand
for personnel with these skills is extremely high and is likely to remain high.
As a result, competition for and retention of personnel, particularly for
employees with technical expertise, is intense and the turnover rate for these
people is high. In addition, we rely on consultants and advisors to assist us in
formulating our research and development strategy. A majority of our scientific
advisors are engaged by us on a consulting basis and are employed on a full-time
basis by employers other than us and some have consulting or other advisory
arrangements with other entities that may conflict or compete with their
obligations to us.
WE MUST SECURE ADDITIONAL FINANCING, OTHERWISE WE WILL NOT BE ABLE TO DEVELOP
OUR PRODUCTS
We will require substantial additional funding to complete the research and
development activities currently contemplated and to commercialize our products.
If we do not obtain these funds, we will not be able to develop our products. We
anticipate that our existing capital resources will be adequate to fund our
needs for at least through 2001. Our 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 our control.
10
<PAGE> 14
We intend to seek additional funding through public or private equity or
debt financing, when market conditions allow. If we raise additional funds by
issuing equity securities, there may be further dilution to existing
stockholders. We cannot assure you that we will be able to enter into financing
arrangements on acceptable terms, if at all. Without additional funding, we may
be required to delay, reduce the scope of or eliminate one or more of our
research or development programs.
WE FACE THE RISK OF PRODUCT LIABILITY CLAIMS WHICH MAY EXCEED THE SCOPE OR
AMOUNT OF OUR INSURANCE COVERAGE
The manufacture and sale of medical products entail significant risk of
product liability claims. We currently carry product liability insurance;
however, we cannot assure you that this coverage will remain in place or that
this coverage will be adequate to protect us from all liabilities which we might
incur in connection with the use or sale of our products. In addition, we may
require increased product liability coverage as additional products are
commercialized. This 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 us in excess of our insurance coverage could
harm our business. We must indemnify certain of our licensors against any
product liability claims brought against them arising out of products developed
by us under these licenses.
OUR USE OF RADIOACTIVE AND OTHER HAZARDOUS MATERIALS EXPOSES US TO THE RISK OF
MATERIAL ENVIRONMENTAL LIABILITIES, AND WE MAY INCUR SUBSTANTIAL ADDITIONAL
COSTS TO COMPLY WITH ENVIRONMENTAL LAWS IN THE EVENT THAT WE DEVELOP OUR OWN
MANUFACTURING FACILITY
Because we use radioactive materials and other hazardous substances in our
research and development operations, we are potentially subject to material
liabilities related to personal injuries or property damages that may be caused
by the spread of radioactive contamination or by other hazardous substance
releases or exposures at, or from, our research facility. Decontamination costs
associated with radioactivity releases, other clean-up costs, and related
damages or liabilities could harm our business.
We are required to comply with increasingly stringent laws and regulations
governing environmental protection and workplace safety, including requirements
governing the handling, storage and disposal of radioactive and other hazardous
substances and wastes, and laboratory operating and safety procedures. These
laws and regulations can impose substantial fines and criminal sanctions for
violations. In the event that we develop our own commercial manufacturing
facility, we would incur substantial additional capital and operating costs to
comply with such requirements, including significant start-up costs. These costs
could decrease our ability to conduct manufacturing operations in a
cost-effective manner.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS AND THE DELAWARE LAW MAY
NEGATIVELY AFFECT THE ABILITY OF A POTENTIAL BUYER TO PURCHASE SOME OR ALL OF
OUR STOCK AT AN OTHERWISE ADVANTAGEOUS PRICE, WHICH MAY LIMIT THE PRICE
INVESTORS ARE WILLING TO PAY FOR OUR COMMON STOCK
Certain provisions of our charter and the Delaware Law may negatively
affect the ability of a potential buyer to attempt a takeover of Avigen, which
may have a negative effect on the price investors are willing to pay for our
common stock. For example, our board of directors has 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 Avigen. We have no present
plans to issue shares of preferred stock. In addition, our board of directors is
divided into three classes, and each year on a rotating basis the directors of
one class are elected for a three-year term. This provision could have the
effect of making it less likely that a third party would attempt to obtain
control of Avigen. Furthermore, certain other provisions of our restated
certificate of incorporation may have the effect of delaying or preventing
changes in control or management, which could adversely
11
<PAGE> 15
affect the market price of the our common stock. In addition, we are subject to
the provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law.
OUR STOCK PRICE IS VOLATILE AND, AS A RESULT, YOU COULD LOSE SOME OR ALL OF YOUR
MONEY
We believe that various factors may cause the market price of the common
stock to fluctuate, perhaps substantially, including announcements of:
- technological innovations or regulatory approvals;
- results of clinical trials;
- new products by us or our competitors;
- developments or disputes concerning patents or proprietary rights;
- our failing to achieve certain developmental milestones;
- public concern as to the safety of gene therapy products;
- health care or reimbursement policy changes by governments or insurance
companies;
- developments in relationships with corporate partners; or
- a change in financial estimates or securities analysts' recommendations
In addition, in recent years the stock market in general, and the shares of
biotechnology and health care companies in particular, have experienced extreme
price fluctuations. These broad market and industry fluctuations may cause the
market price of our common stock to decline dramatically.
12
<PAGE> 16
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking
statements are principally contained in the sections called "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." These statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performances or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not
limited to:
- the progress of our product development programs, including Coagulin-B;
- developments with respect to clinical development of drug candidates,
clinical trials and the regulatory approval process;
- our expectations as to the various products that we are developing;
- our estimates regarding our capital requirements and our needs for
additional financing; and
- developments relating to our selection and licensing of targets.
In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "could," "would," "expects," "plans," "anticipates,"
"believes," "estimates," "projects," "predicts," "potential" and similar
expressions intended to identify forward-looking statements. These statements
reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these uncertainties,
you should not place undue reliance on these forward-looking statements. We
discuss many of these risks in greater detail under the heading "Risk Factors."
Also, these forward-looking statements represent our estimates and assumptions
only as of the date of this prospectus.
You should read this prospectus and the documents that we incorporate by
reference in this prospectus completely and with the understanding that our
actual future results may be materially different from what we expect. We may
not update these forward-looking statements, even though our situation may
change in the future. We qualify all of our forward-looking statements by these
cautionary statements.
13
<PAGE> 17
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of our
common stock in this offering will be approximately $250.6 million, or
approximately $288.3 million if the underwriters fully exercise their
over-allotment option, based on an assumed offering price of $66.81 per share
and after deducting the estimated underwriting discounts and offering expenses.
We expect to use the net proceeds of this offering as follows:
- to fund research and development;
- to fund preclinical studies and clinical trials of our drug candidates;
- for working capital; and
- for general corporate purposes.
We have not determined the amount of net proceeds to be used for each of
the specific purposes listed. Accordingly, we will have broad discretion to use
the proceeds as we see fit.
Based upon the current status of our product development programs, we
believe that the net proceeds from this offering, together with interest on
those net proceeds and our existing capital resources, will satisfy our capital
requirements through at least 2001.
Pending these uses, we intend to invest the net proceeds of this offering
in short-term, interest-bearing, investment-grade instruments, certificates of
deposit or direct or guaranteed obligations of the United States or its
agencies.
MARKET PRICE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"AVGN." We completed the initial public offering of our common stock on May 22,
1996. The following table shows the range of high and low sale prices per share
of our common stock as reported by the Nasdaq National Market for the periods
indicated.
<TABLE>
<CAPTION>
COMMON STOCK PRICE
--------------------
HIGH LOW
------ ------
<S> <C> <C>
Year ended June 30, 1998:
First Quarter............................................. $ 5.00 $ 2.22
Second Quarter............................................ 4.50 2.13
Third Quarter............................................. 3.38 1.88
Fourth Quarter............................................ 3.81 1.94
Year ended June 30, 1999:
First Quarter............................................. $ 3.56 $ 1.50
Second Quarter............................................ 7.81 2.00
Third Quarter............................................. 8.00 4.63
Fourth Quarter............................................ 6.63 4.69
Year ended June 30, 2000:
First Quarter............................................. $13.25 $ 5.63
Second Quarter............................................ 37.00 12.25
Third Quarter (through February 16, 2000)................. 67.50 28.00
</TABLE>
On February 16, 2000, the last sale price of our common stock reported by
the Nasdaq National Market was $66.81 per share. As of December 31, 1999, there
were 293 holders of record of our common stock.
DIVIDEND POLICY
We have not declared or paid cash dividends on our common stock in the past
and do not intend to pay dividends on our common stock in the foreseeable
future.
14
<PAGE> 18
CAPITALIZATION
The following table describes our capitalization as of December 31, 1999:
- on an actual basis; and
- on an as adjusted basis to reflect the sale of 4,000,000 shares of common
stock in this offering, at an assumed public offering price of $66.81 per
share, and after deducting the estimated underwriting discounts and
offering expenses.
You should read this table together with the section of this prospectus
with the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and the related notes
appearing elsewhere or incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash, cash equivalents and marketable securities............ $ 48,863 $299,444
======== ========
Capital lease obligations, less current portion............. 43 43
-------- --------
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; none issued and outstanding................ -- --
Common stock, $0.001 par value; 30,000,000 shares
authorized; 14,998,632 shares issued and outstanding,
and 18,998,632 shares issued and outstanding as
adjusted for this offering............................. 15 19
Additional paid-in capital................................ 90,506 341,083
Deficit accumulated during the development stage.......... (41,620) (41,620)
-------- --------
Total stockholders' equity............................. 48,901 299,482
-------- --------
Total capitalization................................. $ 48,944 $299,525
======== ========
</TABLE>
The above data excludes 3,868,885 shares of common stock issuable upon
exercise of options and warrants outstanding as of December 31, 1999 at a
weighted average exercise price of $8.03 per share.
15
<PAGE> 19
DILUTION
Our net tangible book value as of December 31, 1999 was approximately $48.9
million, or $3.26 per share. Net tangible book value per share represents the
amount of our total tangible assets less total liabilities divided by the total
number of shares of common stock outstanding. After giving effect to the sale by
us of 4,000,000 shares of common stock offered by us at an assumed offering
price of $66.81 per share and after deducting estimated underwriting discounts
and offering expenses, our net tangible book value at December 31, 1999 would
have been approximately $299.5 million, or $15.76 per share. This represents an
immediate increase in net tangible book value of $12.50 per share to existing
stockholders and an immediate dilution of $51.05 per share to new investors in
this offering, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $ 66.81
Net tangible book value per share before this offering.... $ 3.26
Increase per share attributable to this offering.......... 12.50
-------
Net tangible book value per share after this offering....... 15.76
-------
Dilution per share to new investors......................... $ 51.05
=======
</TABLE>
In addition, the above computations assume no exercise of options to
purchase 1,664,998 shares of common stock outstanding at December 31, 1999 at a
weighted average exercise price of $4.28 per share and no exercise of warrants
to purchase 2,203,887 shares of common stock at a weighted average exercise
price of $10.87 per share outstanding on this date. To the extent these options
and warrants are exercised, there will be further dilution to investors.
16
<PAGE> 20
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
the financial statements and related notes incorporated by reference in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus. The selected
historical financial data below as of and for each of the five years ended June
30, 1999 have been derived from our audited financial statements. Our selected
historical financial data as of December 31, 1999, the six months ended December
31, 1998 and 1999 and for the period from October 22, 1992 (inception) through
December 31, 1999 were derived from our unaudited condensed financial
statements. We believe that the unaudited financial data fairly reflects our
results of operations and financial condition for the respective periods.
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
1992
(INCEPTION) SIX MONTHS ENDED
THROUGH YEARS ENDED JUNE 30, DECEMBER 31,
DECEMBER 31, --------------------------------------------------- ------------------
1999 1995 1996 1997 1998 1999 1998 1999
------------ ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Grant revenue........................ $ 587 $ 178 $ 87 $ 98 $ -- $ 185 $ 174 $ 39
Expenses:
Research and development........... 28,466 2,290 2,550 4,033 6,235 6,490 3,097 3,378
General and administrative......... 15,050 1,334 1,102 2,352 2,990 3,445 1,597 2,006
-------- ------- ------- ------- ------- ------- ------- -------
Total expenses................... 43,516 3,624 3,652 6,385 9,225 9,935 4,694 5,384
-------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................. (42,929) (3,446) (3,565) (6,287) (9,225) (9,750) (4,520) (5,345)
Interest expense..................... (1,185) (34) (581) (70) (222) (178) (102) (55)
Interest income...................... 2,340 25 50 780 587 326 148 557
Other income (expense)............... 154 189 (1) (1) (17) (9) (2) (6)
-------- ------- ------- ------- ------- ------- ------- -------
Net loss............................. $(41,620) $(3,265) $(4,097) $(5,578) $(8,877) $(9,611) $(4,476) $(4,849)
======== ======= ======= ======= ======= ======= ======= =======
Net loss per share................................. $ (0.62) $ (0.80) $ (0.77) $ (1.22) $ (0.99) $ (0.54) $ (0.37)
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding................ 5,295 5,142 7,286 7,298 9,684 8,310 13,105
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
------- -------- -------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.... $ 203 $ 16,443 $ 13,309 $ 4,477 $ 14,881 $ 48,863
Total assets........................................ 1,841 17,532 14,760 5,997 16,183 50,396
Deficit accumulated during the development stage.... (8,608) (12,705) (18,283) (27,160) (36,771) (41,620)
Total stockholders' equity.......................... 184 16,027 12,341 3,583 14,323 48,901
</TABLE>
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our financial statements and related notes incorporated in this prospectus by
reference.
OVERVIEW
Since our inception, we have devoted substantially all of our resources to
research and development activities. We are a development stage company, and we
have not received any revenue from the sale of products. We do not anticipate
generating revenue from the sale of products in the foreseeable future. We
expect our source of revenue, if any, for the next several years to consist of
government grants and payments under collaborative arrangements. We have
incurred losses since our inception and expect 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 December 31, 1999
we had an accumulated deficit of $41.6 million.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
Grant revenue was $39,000 for the six-month period ended December 31, 1999
compared to $174,000 for the same period in 1998. Grant revenue consisted of
reimbursements under a National Institutes of Health grant. Revenues earned
under research grants are determined by the timing and amounts of the award from
the issuing agency and achievement of milestones by us. As a result, research
grant revenue earned in one period is not predictive of research grant revenue
to be earned in future periods.
Our research and development expenses were $3.4 million for the six-month
period ended December 31, 1999, an increase of $281,000, or 9%, from the prior
year. This increase was primarily due to costs associated with our initiation of
a clinical trial for the treatment of Hemophilia B, which had not yet been
approved prior to December 31, 1998, and the recruitment of additional
scientific staff. These increases were partially reduced by lower depreciation
charges from leasehold improvements and laboratory equipment which had been
fully depreciated, as well as lower expenses for external scientific
consultants.
General and administrative expenses were $2.0 million for the six-month
period ended December 31, 1999, an increase of $409,000, or 26%, from the prior
year. The increase was primarily due to higher license and legal fees related to
our patents and other intellectual property, as well as higher filing fees and
other costs incurred in December 1999 in connection with the registration of
newly issued stock and new and existing warrants for the purchase of common
stock. The increase in total general and administrative expenses also includes
higher costs related to the compensation of key employees and external business
consultants.
Net interest income increased to $502,000 for the period ended December 31,
1999 from $46,000 for the same period in 1998, primarily resulting from the
increase in short-term investments from the application of the proceeds received
from the private placements of common stock and warrants since December 31,
1998.
FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
Grant revenue was $185,000 in fiscal year ended June 30, 1999 compared to
none for fiscal 1998 and $98,000 for fiscal 1997. Grant revenue for fiscal 1999
and 1997 consisted of reimbursements under a National Institutes of Health
grant. Revenues earned under research grants are determined by the timing and
amounts of the award from the issuing agency and the achievement of milestones
by us. As a result, research grant revenue earned in one period is not
predictive of research grant revenue to be earned in future periods.
18
<PAGE> 22
Our research and development expenses increased to $6.5 million in fiscal
year ended June 30, 1999 from $6.2 million for fiscal 1998 and $4.0 million for
fiscal 1997. The increase from fiscal 1997 to fiscal 1998 was due primarily to
increases in personnel, employee related expenses, outside laboratory expenses,
temporary employees and increases in depreciation expense. The increase from
fiscal 1998 to fiscal 1999 was due primarily to the write-off of equipment and
increases in laboratory expenses and temporary employees. We expect research and
development spending to increase significantly over the next several years as we
expand research and product development efforts.
General and administrative expenses increased to $3.4 million for fiscal
year ended June 30, 1999 from $3.0 million for fiscal 1998 and $2.4 million for
fiscal 1997. These increases were due primarily to increases in the number of
executive personnel and the increased travel activities associated with seeking
corporate partners and legal fees associated with generating the appropriate
documentation for patents. We expect general and administrative expenses to
increase as the level of our activities increases, but to decrease as a
percentage of total expenses, as we continue to expand our research and
development efforts.
Net interest income decreased to $148,000 in fiscal year ended June 30,
1999 from $365,000 for fiscal 1998 and $710,000 for fiscal 1997. The decreases
from fiscal 1997 to fiscal 1998 and fiscal 1998 to fiscal 1999 were due
primarily to the decreasing balance of the proceeds of the initial public
offering and private placements.
LIQUIDITY AND CAPITAL RESOURCES
Cash expenditures have exceeded revenue since our inception. Our operations
have principally been funded through a public offering and private placements of
equity securities. Since our initial public offering in May 1996, we have
completed four private placements of our common stock and warrants to purchase
our common stock, raising net proceeds of approximately $57.6 million. In
addition, we have attempted to contain costs and reduce cash flow requirements
by renting scientific equipment and facilities, contracting with other parties
to conduct research and development and using consultants. We expect to incur
additional expenses, resulting in significant losses, as we continue and expand
our research and development activities and undertake additional preclinical
studies and clinical trials of our gene therapy products candidates. We also
expect to incur substantial expenses relating to the filing, prosecution,
maintenance, defense and enforcement of patent and other intellectual property
claims.
At December 31, 1999, we had cash and cash equivalents of approximately
$48.9 million, an increase of $34.0 million from June 30, 1999. This increase
was principally due to the $37.2 million of net proceeds raised from a private
placement of our common stock and warrants that was completed in November 1999.
Our current offices and facility is an approximately 23,000 square foot
facility leased through May 2003. We are also in the process of seeking
additional facilities. We believe that we will be able to renew the lease for
our current facility and find suitable additional or alternate facilities in the
same general area without a material disruption of our operations. We anticipate
that we will be required to pay a premium for our new facilities, as the overall
rates in our geographical area have increased and are expected to continue to
increase. In November 1996, we secured a $2.0 million revolving line of credit
with Wells Fargo Bank that has been renewed annually and continues to remain
available to us. In May 1997, we secured a capital lease facility under which,
at December 31, 1999, we owed $443,000 and had no further availability. To the
extent we decide to develop our own manufacturing facilities, we will require
substantial additional capital.
We believe that our available funds, including the net proceeds from this
offering, will be sufficient to fund our operations at least through 2001.
However, there may be changes that would consume available resources
significantly before this time. Our long-term capital requirements and the
adequacy of our available funds will depend upon many factors, including:
- continued scientific progress in research and development programs;
- the scope and results of preclinical studies and clinical trials;
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- the time and costs involved in obtaining regulatory approvals;
- the costs involved in filing, prosecuting and enforcing patents claims;
- competing technological developments;
- the cost of manufacturing scale-up;
- the costs of commercialization activities; and
- other factors which may not be within our control.
We intend to seek additional funding through public or private equity or
debt financing, when market conditions allow. If we raise additional funds by
issuing equity securities, there may be further dilution to existing
stockholders. We cannot assure you that we will be able to enter into these
financing arrangements on acceptable terms or at all. Without additional
funding, we may be required to delay, reduce the scope of or eliminate one or
more of our research or development programs.
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BUSINESS
OVERVIEW
We are a leader in the development of gene therapy products for the
treatment of inherited diseases. We are developing our proprietary AAV vector
technology to deliver DNA to patients that are suffering from genetic diseases.
AAV vectors are a relatively new system for gene therapy. AAV is a common,
harmless human virus present in over 90% of the human population. AAV vectors
take advantage of the natural efficiency with which viruses deliver genes to
cells without the safety concerns of disease-related viruses. We are applying
our AAV vector gene therapy technology initially to develop products to address
the following five genetic diseases: Hemophilia A, Hemophilia B, Gaucher
disease, hereditary emphysema and [beta]-Thalassemia. Our initial product
candidate is Coagulin-B for the treatment of Hemophilia B.
TRADITIONAL APPROACHES TO GENE DELIVERY
All living organisms are made up of cells that contain thousands of
different proteins essential for cell structure, growth and function. Proteins
are made of building blocks called amino acids that together define the
structure and function of the protein. The specific order of these amino acids
in the protein is determined by a set of genetic instructions encoded by DNA, a
commonly used acronym for a chemical that contains all the information necessary
to control a cell's biological processes.
DNA is organized into segments called genes with each gene containing the
information required to produce a specific protein. There are over one hundred
thousand genes in each human cell. Gene expression is the production of proteins
using the DNA as a blueprint. Occasionally, the DNA for one or more genes can be
defective, resulting in the absence or improper production of a functioning
protein in the cell. This improper expression can alter a cell's normal function
and can frequently result in a disease. The goal of gene therapy is to treat
these diseases by delivering DNA containing the corrected gene into cells. This
is intended to result in the normal protein being produced in that cell.
There are several different ways of delivering genes to cells. Each of the
methods of delivery uses carriers, called "vectors," to transport the genes into
cells. These carriers can be either man-made components or modified viruses. The
use of viruses takes advantage of their natural ability to introduce DNA into
cells. Gene therapy takes advantage of this property by replacing viral DNA with
a specific gene. Once the gene is in the cell, it acts as a blueprint directing
the cell to make the therapeutic protein.
There are four major approaches under investigation utilizing different
vectors for human gene therapy:
- RETROVIRAL VECTORS. These were the first vectors used in human gene
therapy trials. The advantage of retroviral vectors is that the virus is
well understood and is quite efficient at getting genes into cells.
However, their limitation is that the cells must be actively growing for
the vector to work effectively. This typically requires that the cells be
removed from the patient, grown outside the body, exposed to the
retroviral vector and later re-implanted back into the patient. This
process limits the commercial viability of these vectors as a generalized
approach to gene therapy.
- ADENOVIRAL VECTORS. These vectors are also currently being evaluated in
human gene therapy trials. They have the advantage that the cells do not
have to be removed from the patient in order for the gene transfer
process to take place. Adenovirus can cause disease in humans, creating
safety concerns about the use of adenovirus vectors. Although gene
transfer using adenovirus can be efficient, typically the production of
the protein is short-lived.
- NON-VIRAL VECTORS. These also are currently being evaluated in human
clinical trials. They consist of either DNA or DNA mixed with other
chemical compounds. These vectors are much less efficient than viral
vectors at getting DNA into the cells and are generally not capable of
delivering large amounts of the intended protein for extended periods of
time.
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- ADENO-ASSOCIATED VIRUS VECTORS. AAV vectors are a relatively new system
for gene therapy. AAV is a common, harmless human virus present in over
90% of the human population. The virus, however, has never been
associated with a disease or illness of any kind.
OUR AAV VECTOR TECHNOLOGY
OVERVIEW
All of our products in development are based on our proprietary gene
delivery technology in AAV vectors. AAV vectors take advantage of the natural
efficiency with which viruses deliver genes to cells without the safety concerns
of disease related viruses. The figure below illustrates the structure of AAV
and AAV vectors.
[Diagram illustrating the structure of AAV and AAV vectors. The figure
shows a twenty equal-sided geometric figure containing a small horizontal bar
representing viral genes. The horizontal bar is enlarged immediately below the
AAV figure to demonstrate that it is comprised wholly of viral genes. Another
twenty equal-sided geometric figure depicts an AAV vector containing a small
horizontal bar representing the gene cassette that has replaced the viral genes,
and includes an enlargement of the gene cassette to show that the viral genes of
AAV have been replaced by the therapeutic gene to produce an AAV vector.]
To produce an AAV vector requires two steps. In the first step, the
adeno-associated virus is modified by removing all viral genes and replacing
them with a gene for a therapeutic protein, as shown in the figure above. To
manufacture these vectors, a second step is required in which a human cell line
is constructed containing, among other things, the original AAV viral genes.
However, these genes are not allowed to be packaged within our AAV vector
products. Instead, they program the cell to make large quantities of AAV
vectors. This process also normally requires the use of a helper virus,
typically adenovirus, which may contaminate the final product. We have developed
a proprietary method that does not require a helper virus, which we believe
results in a safer product.
ADVANTAGES OF AAV VECTOR TECHNOLOGY
Our AAV vector gene therapy approach offers novel treatment alternatives
for diseases that are currently poorly addressed. Benefits of AAV vector gene
therapy technology include:
- SAFETY. Our AAV vectors are based on a virus that has never been
associated with a human disease of any kind. Over the past eight years,
both our internal work and that of others in the scientific community
have confirmed in animals that AAV vectors are safe for gene therapy
applications.
- EFFICIENT DELIVERY OF GENES TO CELLS. AAV by nature is very efficient at
getting into cells. Consequently, our AAV vectors are very effective at
delivering genes to cells. Once in the cell,
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genes delivered by AAV vectors in animal models have produced large
amounts of protein on a continuous basis, often for months or even years
from a single administration.
- AAV VECTORS CAN DELIVER MANY DIFFERENT GENES. The vast majority of genes
fit into AAV vectors and have been successfully delivered to a wide range
of cell types. Consequently, AAV vectors have the potential to treat many
diseases including hemophilia, Gaucher disease, inherited emphysema,
[beta]-Thalassemia, Parkinson's and other neurological diseases,
cardiovascular disease and cancer.
- SIMPLE TO ADMINISTER. We intend to administer our AAV vector-based
products on an outpatient basis. For example, our Coagulin-B product for
the treatment of hemophilia is being delivered to patients in the ongoing
Phase I/II clinical trial by injection in the thigh muscle of the
patient.
- STABILITY. Unlike other viruses, AAV is stable under a wide range of
conditions. This allows our AAV vectors to be handled like normal
pharmaceutical products, lending themselves to traditional shipping and
storing procedures.
OUR BUSINESS STRATEGY
We are committed to being a leader in the development of gene-based
products through the application of our proprietary AAV vector gene delivery
technology. To achieve this goal, we are pursuing a focused strategy that
includes:
- REDUCE DRUG DEVELOPMENT RISK BY PURSUING GENETIC DISEASES WITH
WELL-DEFINED GENE FUNCTION. We focus our drug discovery activities and
expenditures on applications of our AAV vector technology to develop drug
candidates that address genetic diseases that are well understood. In
order to reduce the technical and commercial risks that are inherent in
the development of new drugs, we pursue diseases that meet the following
criteria:
-- the gene function is well defined;
-- partial correction of the disease is established through
administration of a commercially available protein product;
-- a clear cost and clinical benefit exists for patients and health care
providers; and
-- clinical testing can be conducted in a relatively small number of
patients within a reasonably short time period.
- RETAIN DEVELOPMENT AND COMMERCIALIZATION RIGHTS FOR OUR PRODUCTS IN THE
UNITED STATES. Our strategy is to retain all rights to our products and
directly market them to patients and physicians in the United States with
a small, specialized sales force. We believe that we will be able to
successfully execute this strategy for a number of reasons, including:
-- the relatively small patient populations of our targeted diseases;
-- many genetic diseases have well-organized patient support groups;
-- treatment decisions are made at regional centers or specialized
institutions;
-- our AAV vector technology allows patients to be treated on a
relatively infrequent basis; and
-- the patient populations of our targeted diseases can be addressed
with a small-scale manufacturing facility.
We believe that by retaining development and commercialization rights we
can better maintain quality control over our products and better capture
the commercial value of our products. However, we may pursue strategic
collaborations with pharmaceutical or other companies to develop products
targeted at markets with larger patients populations or for the marketing
of our products in international markets.
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- ENSURE THAT WE HAVE THE INTELLECTUAL PROPERTY NEEDED TO FREELY DEVELOP
OUR PRODUCTS AND PROTECT OUR MARKET. We aggressively pursue patents and
licenses to cover all of the technology we develop or use. We have nine
issued patents and 25 patent applications in the United States and
internationally covering:
-- AAV vectors;
-- methods of using AAV vectors;
-- methods of manufacturing AAV vectors; and
-- methods of delivering AAV vectors to specific tissues.
We have three exclusive and two non-exclusive licenses to develop and
utilize AAV vectors for gene therapy that allow us to freely develop and
protect our products. When needed, we intend to acquire or obtain licenses
for selected technologies which would augment our existing patent and
product portfolio.
OUR PRODUCTS IN DEVELOPMENT
We are applying our AAV vector gene therapy technology initially to the
development of products to address the following five genetic diseases:
Hemophilia A, Hemophilia B, Gaucher disease, hereditary emphysema and
[beta]-Thalassemia. Industry analysts estimate that current sales of protein
therapeutics to treat these diseases exceeds $2 billion annually in the United
States alone. The following table summarizes our current product development
programs.
<TABLE>
<CAPTION>
DISEASE PROTEIN TARGET CELL DEVELOPMENT STATUS
- -------------------- ------------------- ------------ ------------------
<S> <C> <C> <C>
Hemophilia B Factor IX Muscle Phase I/II
Hemophilia A Factor VIII Liver Preclinical
Gaucher Disease Glucocerebrosidase Muscle/Liver Research
Hereditary Emphysema Alpha-1 Antitrypsin Muscle/Liver Research
[beta]-Thalassemia Erythropoietin Muscle Research
</TABLE>
HEMOPHILIA B
Our initial product candidate is Coagulin-B for the treatment of Hemophilia
B. Hemophilia B is a blood clotting disorder characterized by the reduction or
absence of a protein called factor IX. Hemophilia B is a genetic disease which
primarily affects males. Due to the lack of sustained levels of factor IX
protein, patients with Hemophilia B experience frequent internal bleeding during
the course of normal daily activities. Currently, patients with a severe form of
the disease inject themselves with factor IX protein several times a week to
stop these bleeding episodes. These factor IX protein injections provide
temporary relief, but the protein breaks down after a few days and the bleeding
reoccurs. Since the bleeding typically takes place in the joints and soft
tissue, these patients frequently suffer crippling bone and joint problems. A
small percentage suffer permanent disability or even die from bleeding into the
central nervous system.
Hemophilia B affects approximately one in every 30,000 males, afflicting an
estimated 10,000 - 15,000 individuals in developed countries worldwide. The cost
of currently available protein factor IX can exceed $100,000 per year per
patient. Because protein therapy cannot prevent bone and joint damage, each
patient may require an additional $100,000 - $150,000 in medical treatment costs
annually. We believe the cost of treating Hemophilia B patients in the United
States to be over $400 million per year.
Extensive experience with factor IX over the last 25 years has established
that factor IX protein levels equivalent to only 1% of the normal level found in
humans greatly improves the patient's condition. To maintain these levels using
conventional injections is impractical. Our approach is designed to continuously
deliver levels above 1% of normal level of factor IX protein in the blood of
these patients. We believe
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Coagulin-B has the potential to substantially reduce the need for daily or
weekly injections of factor IX protein and to improve the patient's quality of
life.
Preclinical Studies
In our initial studies, five dogs suffering from Hemophilia B were treated.
As depicted in the graph below, following a single administration into the
muscle, we demonstrated that our AAV vector containing the gene for factor IX
could produce sustained levels of factor IX protein in the dogs for over a year
with a corresponding improvement in blood clotting. The more AAV vector was
delivered, the more factor IX was produced. In the dogs receiving the greatest
quantities of our AAV vector, the levels were above 1% of normal level, which
level is known to be beneficial to humans. These data provided strong support
for the feasibility of using the same approach to treat hemophilia patients and
formed the basis for FDA approval to begin clinical trials in humans.
[A graph depicting the response of a dog with Hemophilia B after factor IX
gene therapy. The figure shows a line graph demonstrating the factor IX activity
levels in a dog following gene therapy treatment over a 61-week period. The data
points on the graph from weeks 1 through 12 show no change in factor IX activity
levels. The data points from weeks 13 through 49 show factor IX activity at or
above levels that are 1% of normal. Data points for weeks 49 through 61 show a
drop in activity just below the 1% level and a subsequent increase above the 1%
level.]
Clinical Trials
On June 2, 1999, we began treating human subjects with our first product
candidate, Coagulin-B, in a Phase I/II clinical trial. The design and goal of
this initial trial is primarily to address the safety of the product in humans.
To assess the safety of the product, a total of nine patients will have
Coagulin-B injected into their thigh muscles. The clinical trials are being
carried out at The Children's Hospital of Philadelphia and Stanford University
Medical Center. The nine patients will be divided into three groups. The trial
design provides that the first three patients receive the lowest dose of AAV
vector, the next three patients receive an intermediate dose and the final three
patients receive the highest dose. The dose range was selected based on the
preclinical studies with the objective of reaching factor IX levels above 1% at
the highest dose.
This is an ongoing clinical study. Data from the first two of the low dose
patients was presented at the American Society of Hematology meeting in New
Orleans in December 1999. After delivering the low doses of Coagulin-B into the
thigh muscles of the three patients, factor IX protein activity was detected in
the blood of the first two hemophilia patients treated with the low dose. The
increase in factor IX protein activity correlated with a significant reduction
of factor IX protein usage by the first two patients. The following figure shows
how often each patient injected himself with factor IX protein after receiving
the Coagulin-B treatment. The treatment timelines are marked off in 20-day
intervals. The first half of the
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timeline shows the frequency at which each patient injected himself with factor
IX protein before receiving the Coagulin-B treatment, as indicated by one arrow
for each injection. The patients were then treated with a single administration
of Coagulin-B. Based on our preclinical studies in animals, the AAV vector
requires at least six to eight weeks before measurable results can be detected,
as indicated in the figure by diagonal lines. Patient A has experienced a 50%
reduction in factor IX protein usage over a period of more than 220 days, and
patient B has experienced an 80% reduction in factor IX protein usage over a
period of more than 200 days. Muscle biopsies also confirmed the presence of
factor IX in the muscles of patients A and B, showing that factor IX protein is
being produced. These patients began to make factor IX protein within eight
weeks of being treated with Coagulin-B and after six months continue to express
factor IX. The third patient, who also received a low dose, has had no
significant change in factor IX protein levels or use of factor IX protein. The
third patient, however, had a much lower frequency of injecting himself with
factor IX protein prior to treatment with Coagulin-B. These results are
extremely preliminary. We cannot guarantee that additional patients in this
study will demonstrate the same results or that the current patients will
continue to exhibit beneficial results.
[The figure depicts use of factor IX by patients A and B. The figure shows
two horizontal bars over a 400-day timeline for patient A and a 360-day timeline
for patient B representing use of factor IX before and after AAV factor IX gene
therapy. Arrows along each bar represent self-administration of recombinant
factor IX for the time prior to commencement of gene therapy, for an
intermittent 40-day period when no therapeutic impact is expected and during the
time following the intermittent period. Patient A self-administered recombinant
factor IX sixteen times prior to the commencement of gene therapy, three times
during the intermittent period and nine times after the intermittent period.
Patient B self-administered recombinant factor IX fifteen times prior to the
commencement of gene therapy, two times during the intermittent period and two
times after the intermittent period.]
HEMOPHILIA A
We are also developing Coagulin-A for the treatment of Hemophilia A. Like
Hemophilia B, Hemophilia A is a genetic disorder found in males that is
characterized by a protein deficiency in the blood, causing patients to have a
reduced ability to form blood clots. Instead of lacking the protein factor IX,
patients with Hemophilia A lack the protein factor VIII.
Hemophilia A affects approximately one in every 5,000 - 10,000 males,
afflicting an estimated 40,000 - 50,000 individuals in developed countries
worldwide. The cost of currently available protein factor VIII can exceed
$100,000 per year per patient. Because protein therapy cannot prevent bone and
joint damage, each patient may require $100,000 - $150,000 in additional medical
treatment costs annually. In total, we believe the cost of treating Hemophilia A
patients worldwide to be over $3 billion per year.
Preclinical Studies
In our initial studies, mice were given AAV vectors containing the gene for
factor VIII. Following an injection into the blood supply feeding the liver, our
AAV vector demonstrated that it could produce sustained levels of factor VIII
protein in the mice for as long as 11 months. Moreover, these levels were above
the 1% of normal level known to be beneficial to humans. No side effects were
observed. These data provided strong support for the feasibility of using the
same approach with AAV vectors containing the factor VIII gene to treat human
subjects.
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GAUCHER DISEASE
Gaucher disease is a potentially fatal inherited disorder caused by a
defect in the gene for a protein called glucocerebrosidase which results in
abnormalities in blood cells and bone marrow cells. The 10,000-20,000 patients
with the disease frequently suffer from anemia, bone damage, and enlarged livers
and spleens. The disease is currently treated by replacement therapy with
commercially available protein with sales approaching $500 million worldwide
annually. Building on the same technology platform and principles used in the
hemophilia programs, we plan to develop a product to treat Gaucher disease. We
believe this approach is feasible based on our work with AAV vectors in animal
models of related diseases such as Sly syndrome and Hurler's disease.
[beta]-THALASSEMIA
[beta]-Thalassemia is a commonly occurring genetic disease affecting
millions of people worldwide. The patients are missing a red blood cell protein
which results in low red blood cell count or severe anemia. Current treatment
options are limited and only marginally effective, leading to a short life
expectancy. A commercially available protein called erythropoietin, or "EPO," at
high doses shows promise in treating this disease but is impractical due to the
large amounts of protein required. As shown in the graph below, we demonstrated
that an AAV vector containing the human EPO gene delivered into mouse muscle
increases the number of red blood cells, referred to as the hematocrit level.
These high levels have been sustained for periods beyond one year from a single
administration. When this vector was injected into mice with moderate and severe
[beta]-Thalassemia, significant improvement in the anemia and associated
pathology was observed, suggesting a possible treatment for [beta]-Thalassemia.
[The figure depicts the response in mice following intramuscular administration
of AAV-EPO. The figure shows a chart with two graphed lines, one representing
control data points and one representing AAV-EPO data points. The data points
show the hematocrit levels over a period of 300 days. The line representing the
AAV-EPO increases from levels of 53% to approximately 70% over a 290-day period
while the line representing the control remains at a level of approximately 50%
over the same time period.]
HEREDITARY EMPHYSEMA
The deficiency of Alpha-1 antitrypsin, a protective protein, is a
hereditary defect that is estimated to affect 100,000 patients in the United
States. The gene defect results in failure of the liver to produce this protein,
the absence of which results in damage of the lungs leading to emphysema. A
treatment using protein derived from blood has been partially effective, but the
requirement for continuous levels of the protein in the blood over long periods
suggests that treatment is better suited to a gene therapy approach. We hope
that delivering the normal gene to patients affected by hereditary emphysema
will elevate protein levels in the blood preventing the development of
emphysema.
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PATENTS AND INTELLECTUAL PROPERTY
Patents and other proprietary rights are important to our business. Our
policy is to file patent applications and protect technology, inventions and
improvements to inventions that are commercially important to the development of
our business. With respect to products, we seek patent protection on:
- the product itself;
- methods of using the product;
- methods of manufacturing the product; and
- methods of administering the product to certain tissues.
We also rely on trade secrets, know-how, continuing technology innovations
and licensing opportunities to develop and maintain our competitive position.
As of February 7, 2000, we have nine issued U.S. patents and 25 pending
U.S. patent applications, most of which have been filed internationally. Some of
the patent applications are co-owned with co-inventors. We have three exclusive
worldwide licenses to patents and patent applications, one of which is to a
patent co-owned by us. We also have non-exclusive licenses to two U.S. patents.
The patents we hold or license are set to expire between 2009 and 2019.
We currently investigate and use certain gene sequences or proteins encoded
by those sequences that are or may become patented by others. As a result, we
may be required to obtain licenses to these gene sequences or proteins or other
technology in order to test, use or market products. However, we may not be able
to obtain these licenses on terms favorable to us.
We cannot assure you that other patents will issue from any of the
applications by or licensed to us, 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 our technology. The patent application process
takes several years and entails considerable expense. In addition, with respect
to each of our co-owned patent applications, we have executed or are in
discussions with co-inventors to execute an option to obtain an exclusive,
worldwide, transferable, royalty-bearing license for the technology. In the
event we are unable to negotiate exclusive rights to the 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 the
technology by a co-inventor could harm our business. The failure to obtain
patent protection on our technologies or proposed products may harm our
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 we cannot be certain that others have not
filed applications for technology covered by our patent applications or that we
were first to file patent applications for the 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 our patents.
We cannot assure you that third parties will not assert patent or other
intellectual property infringement claims against us with respect to our
products or technology or other matters. There may be third-party patents and
other intellectual property relevant to our products and technology that are not
known to us. A number of the gene sequences or proteins encoded by certain of
those sequences that we are investigating or may use in our products are or may
become patented by others. As a result, we may be required to obtain licenses to
the gene sequences or other technology in order to test, use or market products
that contain proprietary gene sequences or encode proprietary proteins. For
example, in connection with our anemia program, we anticipate that we may need
to obtain a license to a gene for human EPO. We cannot assure you that we will
be able to obtain this or any other license on terms favorable to us, if at all.
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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 us, to protect trade secrets owned by
us, or to determine the scope and validity of proprietary rights of third
parties. Although no third party has asserted that we are infringing the third
party's patent rights or other intellectual property we cannot assure you that
litigation asserting these claims will not be initiated, that we would prevail
in any litigation, or that we would be able to obtain any necessary licenses on
reasonable terms, if at all. Any claims against us, with or without merit, as
well as claims initiated by us against third parties, can be time-consuming and
expensive to defend or prosecute and to resolve. If our competitors prepare and
file patent applications in the United States that claim technology also claimed
by us, we 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 us, even if the outcome is favorable to us. In
addition, to the extent outside collaborators apply technological information
developed independently by them or by others to our product development programs
or apply our technologies to other projects, disputes may arise as to the
ownership of proprietary rights to the technologies.
We also rely 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 our products and technology.
We cannot assure you that these agreements will provide meaningful protection of
our trade secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of our trade secrets, know-how
or other proprietary information. In addition, the laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
do the laws of the United States. We cannot assure you that we will be able to
protect our intellectual property successfully.
MANUFACTURING
We have developed a proprietary manufacturing process for AAV vectors and
implemented government approved manufacturing policies and procedures. The
manufacturing process involves the introduction into cells of a set of genes
that provide the cells with the instructions to make the AAV vector. After a
period of AAV vector production, the cells are recovered, broken apart and AAV
vectors are purified from the resulting mixture. We perform a set of tests to
confirm the purity and activity of the material. Our manufacturing process does
not involve the use of adenovirus. We have the capacity to manufacture AAV
vectors in amounts sufficient to conduct clinical trials and are developing a
larger scale manufacturing system to meet our future research, clinical and
commercial needs. We expect to complete a new expanded manufacturing facility of
approximately 10,000 square feet later this year.
COMPETITION
The field of gene therapy drug development is new and rapidly evolving, and
it is expected to continue to undergo significant and rapid technological
change. We expect we will experience intense competition both from other
companies in the gene therapy field and from companies that have other forms of
treatment for the diseases we are targeting. We are aware of several
development-stage and established enterprises, including major pharmaceutical
and biotechnology firms, that are exploring gene-based drugs or are actively
engaged in gene delivery research and development. These include companies
making protein therapies for hemophilia, Gaucher disease, and anemia such as
Amgen Inc., Aventis S.A., Bayer Corporation, Baxter Healthcare Corporation,
Genzyme Corporation, Johnson & Johnson and Wyeth-Ayerst Laboratories. In
addition, companies directly engaged in gene therapy product development
include: Cell Genesys, Inc., Chiron Corporation, Targeted Genetics Corporation,
Transkaryotic Therapies, Inc. and Urogen Corp.
Many of our competitors or potential competitors have substantially greater
financial and other resources, larger research and development staffs, and more
extensive marketing and manufacturing organizations, than we do. In addition,
some of them have considerable experience in preclinical testing, clinical
trials and other regulatory approval procedures. There are also academic
institutions, governmental
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agencies and other research organizations that are conducting research in areas
in which we are working. They may also market commercial products, either on
their own or through collaborative efforts.
Companies that complete clinical trials, obtain required regulatory
approvals and commence commercial sales of their products before their
competitors may achieve a significant competitive advantage. We are aware that
other companies or institutions are pursuing development of new drugs and
technologies directly targeted at applications for which we are developing our
drug compounds. For example, we are aware that Chiron is conducting a Phase I/II
clinical trial to treat Hemophilia A using a retroviral-based system. In
addition, we are aware that Transkaryotic Therapies is conducting a Phase I/II
clinical trial to treat Hemophilia A using a nonviral vector-based system.
In order to compete successfully, we must develop proprietary positions in
patented products for therapeutic markets that have not been satisfactorily
addressed by conventional research strategies and, in the process, expand our
expertise in our AAV vector gene therapy products. Our products, even if
successfully tested and developed, may not be adopted by physicians over other
products and may not offer economically feasible alternatives to other
therapies.
GOVERNMENT REGULATION
The production and marketing of our proposed products and 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 investigational new drug, or "IND," application submissions of most gene
therapy products to date. At the present time, we believe that our 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.
Under the National Institutes of Health guidelines for research involving
recombinant DNA molecules, clinical protocols involving human gene transfer
conducted at institutions receiving National Institutes of Health funds cannot
be initiated without simultaneous submission of information describing the
proposed clinical protocol to both the National Institutes of Health and the
FDA. Submission to the National Institutes of Health shall be for registration
purposes and determination regarding the necessity of full review by the
Recombinant DNA Advisory Committee, or "RAC," of the National Institutes of
Health. Full RAC review of an individual human gene transfer protocol can be
initiated by the National Institutes of Health director or recommended to the
National Institutes of Health director by three or more RAC members or other
federal agencies. An individual human gene transfer protocol that is recommended
for full RAC review should represent novel characteristics deserving of public
discussion. Prior to submission of a human gene transfer experiment to National
Institutes of Health, the principal investigator must obtain Institutional
Biosafety Committee approval from each institution that will handle recombinant
DNA material that is to be administered to human subjects and institutional
review board, or "IRB," approval from each institution in which human subjects
will undergo gene transfer. Submission of human gene transfer protocols to the
FDA will be in the form of an IND application. The review process conducted by
National Institutes of Health and the FDA can be unpredictable and may result in
considerable time and expense to us.
30
<PAGE> 34
The steps required before a new drug, including a biological product, may
be marketed in the United States generally include:
- preclinical laboratory tests and preclinical animal studies;
- the submission to the FDA of an IND application for human clinical
testing, which must become effective before human clinical trials
commence;
- adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product;
- the submission to the FDA of a Biologics License Application, or "BLA,"
for a biological product; and
- FDA approval of the BLA prior to any commercial sale or shipment of the
biological product.
Domestic manufacturing establishments are subject to inspections at any
time by the FDA and must comply with good manufacturing practices 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, we have obtained a drug manufacturing license from the
State of California for any of our 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 this case, the IND sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. We cannot assure you
that submission of an IND will result in FDA authorization to commence clinical
trials.
Clinical trials must be conducted in accordance with the FDA's good
clinical practice guidelines 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 we cannot assure you
that the 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 determine the efficacy of the drug for specific diseases;
- to determine dosage tolerance and optimal dosage; and
- to further identify possible adverse effects and safety risks.
If the drug appears 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. We cannot assure you 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 our products subject to
this 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 regulatory requirements related to, among other
things, selection of qualified investigators, proper monitoring of
investigations,
31
<PAGE> 35
record keeping and record retention and notice to investigators and the FDA of
any death or serious adverse reaction. In addition, the FDA may require post
marketing clinical studies, sometimes referred to as Phase IV clinical trials,
which will require extensive patient monitoring and record keeping 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 BLA for approval of
the manufacture, marketing and commercial shipment of the biological product.
The testing and approval process is likely to require substantial time and
effort and we cannot assure you that any approval will be granted on a timely
basis, if at all. The FDA may deny a BLA if applicable regulatory criteria are
not satisfied, require additional testing or information, or require post
marketing testing and surveillance to monitor the safety or efficacy of a
product. Moreover, if regulatory approval of a biological product is granted,
this 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 BLA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to good manufacturing practices, 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 disease for seven years following marketing approval and federal income
tax credits for certain clinical trial expenses. We believe that some of our
future products may qualify for Orphan Drug status but we cannot assure you that
these products will receive FDA approval or that they will receive any benefit
under the Orphan Drug Act. 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, we are
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, we are also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other federal, state and local regulations. Our research and
development activities involve the controlled use of hazardous materials,
chemicals, biological materials and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of these materials
comply with the standards prescribed by state and federal regulations, we could
be held liable for any damages that result from accidental contamination or
injury and this liability could exceed our resources.
PRODUCT LIABILITY INSURANCE
The manufacture and sale of medical products entail significant risk of
product liability claims. We have established product liability insurance prior
to beginning our clinical trials. We cannot assure you that this coverage will
be adequate to protect us from any liabilities we might incur in connection with
the sale or testing of our products. In addition, we may require increased
product liability coverage as products are commercialized. This 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 us in
excess of our insurance coverage could have a material adverse effect on our
business and results of operations.
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<PAGE> 36
EMPLOYEES
As of February 3, 2000, Avigen had 63 full-time employees, 17 of whom have
Ph.D. or M.D. degrees, including 49 employees in research and development, and
14 in general administration and finance. We also rely on a number of part-time
employees and consultants. None of our employees are represented by a collective
bargaining agreement nor have we ever experienced a work stoppage. We believe
that our relationship with our employees is good.
FACILITIES
We lease approximately 23,000 square feet of manufacturing, research
laboratory and office space in an established commercial neighborhood in
Alameda, California. Our lease expires in 2003, and we are currently negotiating
an extension of this lease with an additional 29,000 square feet in the same
building set to expire in 2008.
Within our existing facilities, we have manufactured sufficient quantities
of pharmaceutical-grade product to supply our ongoing clinical trials. We will
need additional facilities to conduct our ongoing and planned future clinical
trails, and are currently seeking such facilities.
SCIENTIFIC ADVISORY BOARD
We have established a scientific advisory board, consisting of experts in
the field of medicine, genetics and molecular biology, which reviews and
evaluates our research programs and advises us with respect to technical matters
in fields in which we are 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.
Our scientific advisory board consists of the following individuals:
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------------ ----------------------------------------------------
<S> <C>
Alan McClelland, Ph.D. (Chairman)... Vice President, Research and Development, of Avigen.
Jef D. Boeke, Ph.D.................. Professor of Molecular Biology and Genetics at The
Johns Hopkins University School of Medicine.
Katherine A. High, M.D. ............ William H. Bennett Associate Professor of Pediatrics
at the University of Pennsylvania; and the Director
of Research of the Hematology Division at Children's
Hospital of Philadelphia.
Mark A. Israel, M.D. ............... Professor of Neurological Surgery and Pediatrics,
and Director of the Preuss Laboratory of Molecular
Neuro-oncology, at the University of California, San
Francisco.
Yuichi Iwaki, M.D., Ph.D............ Director of Avigen; former Professor at the
University of Southern California School of Medicine
in the Departments of Urology and Pathology;
Director of the Transplantation Immunology and
Immunogenetic Laboratory; and Visiting Professor at
Tokai University School of Medicine and Nihon
University School of Medicine in Japan and at the
University of Pittsburgh School of Medicine.
Y.W. Kan, M.D., D.Sc................ Louis K. Diamond Professor of Hematology at the
University of California at San Francisco; an
Investigator of the Howard Hughes Medical Institute;
and the 1991 recipient of the Albert Lasker Clinical
Medical Research Award.
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------------ ----------------------------------------------------
<S> <C>
Mark Kay, M.D., Ph.D. .............. Director, Program in Human Gene Therapy, and
Associate Professor, Department of Pediatrics and
Genetics, at Stanford University School of Medicine;
a recipient of the Upjohn Achievement Award for
Excellence in Clinical Pharmacology and the Henry
Christian Award for Excellence in Research; and
electee to the Board of Directors of the newly
formed American Society of Gene Therapy.
Haig H. Kazazian, Jr., M.D.......... Professor and Chairman in the Department of Genetics
at the University of Pennsylvania School of
Medicine; and Director of the Cell Center Services
Facility and DNA Sequencing Facility, and Medical
and Laboratory Director of the Genetic Diagnostic
Laboratory, of the University of Pennsylvania.
Keiya Ozawa, M.D., Ph.D............. Professor of Molecular Biology, Institute of
Hematology, at Jichi Medical School in Japan.
Jeffrey M. Rosen, Ph.D. ............ Professor of Cell Biology at Baylor College of
Medicine.
</TABLE>
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<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table shows information about our executive officers and
directors as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Philip J. Whitcome, Ph.D. ....... 51 Chairman of the Board
John J. Monahan, Ph.D. .......... 53 President, Chief Executive Officer and Director
Thomas J. Paulson................ 53 Vice President, Finance and Chief Financial Officer
and Secretary
Alan McClelland, Ph.D. .......... 43 Vice President, Research and Development
Kenneth G. Chahine, Ph.D., 34 Vice President, Business Development
J.D. ..........................
Zola Horovitz, Ph.D.............. 65 Director
Yuichi Iwaki, M.D., Ph.D. ....... 50 Director
John K.A. Prendergast, Ph.D. .... 45 Director
</TABLE>
Drs. Horovitz and Prendergast are members of our Compensation Committee and
Drs. Horovitz, Iwaki and Prendergast are members of our Audit Committee.
Philip J. Whitcome, Ph.D. has served as a director of Avigen 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., 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, and held research
and marketing management positions with the Diagnostics Division of Abbott
Laboratories, a pharmaceutical and medical products company. Dr. Whitcome holds
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 J. Monahan, Ph.D. has served as President, Chief Executive Officer and
a director of Avigen since its inception in 1992. Prior to joining Avigen, Dr.
Monahan was Vice President of Research and Development at Somatix Therapy
Corporation, a gene therapy company subsequently acquired by Cell Genesys, Inc.,
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. in science from University College,
Dublin, Ireland.
Thomas J. Paulson was appointed Vice President, Finance and Chief Financial
Officer and Secretary of Avigen effective September 20, 1996. Prior to joining
Avigen, Mr. Paulson was president of Paulson Associates, a biotechnology
consulting firm. 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 as financial director at Quidel Corporation. From 1971 to 1984,
Mr. Paulson held various financial management positions at Abbott Laboratories.
Mr. Paulson holds an M.B.A. from the University of Chicago Graduate School of
Business and a B.B.A. in Accounting from Loyola University in Chicago.
Alan McClelland, Ph.D. was appointed Vice President, Research and
Development in April of 1999. From 1997 until joining Avigen, Dr. McClelland was
Vice President of Research at Genetic Therapy, Inc., a Novartis company, and
from 1992 to 1997 served as its Director of Molecular and Cell Biology. From
1985 to 1992, Dr. McClelland was a Senior Researcher with Molecular
Therapeutics, Inc., a research and discovery unit of Bayer AG. Dr. McClelland
conducted postdoctoral research at Yale University, and holds
35
<PAGE> 39
a Ph.D. from the University of London. Dr. McClelland graduated with a first
class honors B.S. degree in Molecular Biology from the University of Edinburgh,
Scotland.
Kenneth Chahine, Ph.D., J.D. was appointed Vice President, Business
Development in February of 1998. Prior to joining Avigen, Dr. Chahine worked at
the patent law firm of Madson and Metcalf, P.C. in Salt Lake City from 1994 to
1998. Between 1992 and 1993, Dr. Chahine worked as a research scientist at
Parke-Davis Pharmaceuticals and held another research scientist post at the
University of Utah Department of Human Genetics from 1994 through 1996. Dr.
Chahine also serves as Western Regional News and Legal Correspondent for Nature
Biotechnology. Dr. Chahine holds a J.D. from the University of Utah and a Ph.D.
in Biochemistry and Molecular Biology form the University of Michigan.
Zola Horovitz, Ph.D. has served as a director of Avigen 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 Squibb Co., a pharmaceutical and health care products
company. 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, Inc.,
Diacrin, Inc., Roberts Pharmaceuticals, Magainin Pharmaceuticals, Procept Corp.,
Synaptic Pharmaceuticals and Clinicor, Inc., all of which are biotechnology
companies. 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 received a Ph.D. in
Pharmacology, and both a M.S. in Pharmacology and B.S. in Pharmacy from the
University of Pittsburgh.
Yuichi Iwaki, M.D., Ph.D. has served as a director of Avigen 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 University of
California, Irvine, School of Medicine and Nihon University School of Medicine
in Japan and at the University of Pittsburgh School of Medicine. Prior to
joining the University of Southern California Medical School faculty in 1992,
Dr. Iwaki held professorships at the University of Pittsburgh in the Departments
of Surgery and Pathology from 1989 through 1991. Dr. Iwaki received an M.D. and
a Ph.D. from Sapporo Medicine School in Sapporo, Japan.
John K.A. Prendergast, Ph.D. is a co-founder of Avigen and has served as a
director of Avigen since December 1992. He is currently President of SummerCloud
Bay Inc., a consulting firm providing services to the biotechnology industry.
From December 1992 to March 1996, Dr. Prendergast also served as a Vice
President and the Treasurer of Avigen. Dr. Prendergast served as a Managing
Director of Paramount Capital Investments, LLC, The Castle Group, Ltd., a
medical technology venture capital firm, from 1991 to 1996. Dr. Prendergast is a
co founder and director of a number of publicly held biotechnology companies
including AVAX Technologies, Inc., Palatin Technology Inc., and Xenometrix Inc.
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.
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<PAGE> 40
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of our common stock as of December 31, 1999 by: (i) each director; (ii) each of
the executive officers named below; (iii) all of our executive officers and
directors as a group; and (iv) all those known by us to be beneficial owners of
more than five percent of our common stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
------------------------------
SHARES ISSUABLE
PURSUANT TO
OPTIONS AND PERCENTAGE
TOTAL WARRANTS BENEFICIALLY OWNED
NUMBER OF EXERCISABLE (%)
SHARES WITHIN 60 DAYS -------------------
BENEFICIALLY OF DECEMBER 31, BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED 1999 OFFERING OFFERING
- ----------------------------------------------------- ------------ --------------- -------- --------
<S> <C> <C> <C> <C>
Philip J. Whitcome, Ph.D.(1)......................... 543,910 526,723 3.5 2.8
John J. Monahan, Ph.D.(2)............................ 281,964 231,304 1.9 1.5
Yuichi Iwaki, M.D., Ph.D.(3)......................... 197,358 153,077 1.3 1.0
John K. A. Prendergast, Ph.D......................... 73,520 58,608 * *
Zola Horovitz, Ph.D. ................................ 23,465 23,465 * *
Thomas J. Paulson.................................... 84,323 81,323 * *
Kenneth G. Chahine, Ph.D., J.D. ..................... 7,187 7,187 * *
All executive officers and directors as a group
(8 persons)........................................ 1,219,220 864,847 7.7 6.1
</TABLE>
- -------------------------
* Less than one percent.
(1) Includes 17,187 shares of common stock held by the Whitcome Family Trust.
Dr. Whitcome is a trustee of the Whitcome Family Trust and disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest therein.
(2) Includes 115,652 shares held by Nazil Monahan over which Dr. Monahan has
voting rights.
(3) Includes 3,000 shares of common stock held in the names of members of Mr.
Iwaki's immediate family. Also includes 5,130 shares of common stock, and
warrants to purchase 3,221 shares of common stock held by the Aries Domestic
Fund and warrants to purchase 37,081 shares of common stock held by Iwaki &
Associates. Dr. Iwaki is a director of the Aries Domestic Fund and partner
of Iwaki & Associates and disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest therein.
37
<PAGE> 41
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement,
each underwriter named below has severally agreed to purchase, and we have
agreed to sell to the underwriter, the number of shares set forth opposite the
name of the underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Salomon Smith Barney Inc....................................
CIBC World Markets Corp.....................................
ING Barings LLC.............................................
---------
Total.................................................. 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and other conditions, including receipt of
certificates from us, receipt of letters from our accountants, the status of the
trading of our common stock on the Nasdaq National Market or securities on the
New York Stock Exchange or the Nasdaq National Market and the absence of a
banking moratorium, hostilities or a crisis. The underwriters are obligated to
purchase all the shares (other than those covered by the over-allotment option
described below) if they purchase any of the shares.
The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a concession not in excess of $ per share on sales to
other dealers. If all of the shares are not sold at the initial offering price,
the representatives may change the public offering price and the other selling
terms.
We have granted the underwriters a 30-day option to purchase up to an
additional 600,000 shares to cover over-allotments, if any. The underwriters may
exercise this option solely for the purpose of covering over-allotments, if any,
in connection with this offering. To the extent this option is exercised, each
underwriter will be obligated, subject to the conditions stated above, to
purchase a number of additional shares approximately proportionate to the
underwriter's initial purchase commitment.
Our officers and directors have agreed that, for a period of 90 days from
the date of this prospectus, they will not, without the prior written consent of
Salomon Smith Barney Inc., dispose of or hedge any shares of our common stock or
any securities convertible into or exchangeable for common stock. Salomon Smith
Barney Inc. in its sole discretion may release any of the securities subject to
these lock-up agreements at any time without notice.
The common stock is quoted on the Nasdaq National Market under the symbol
"AVGN."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY US
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate
38
<PAGE> 42
short positions. Stabilizing transactions consist of certain bids or purchases
of common stock made for the purchase of preventing or retarding a decline in
the market price of the common stock while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of these transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
In addition, in connection with this offering, the underwriters (and
selling group members) may engage in passive market making transactions in the
common stock on the Nasdaq National Market, prior to the pricing and completion
of the offering. Passive market making consists of displaying bids on the Nasdaq
National Market no higher than the bid prices of independent market makers and
making purchases at prices no higher than those independent bids and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited to a specified percentage of the passive market maker's average daily
trading volume in the common stock during a specified period and must be
discontinued when this limit is reached. Passive market making may cause the
price of the common stock to be higher than the price that otherwise would exist
in the open market in the absence of these transactions. If passive market
making is commenced, it may be discontinued at any time.
We estimate that the total expenses, excluding underwriting discounts and
commissions, of this offering will be $625,000.
We have agreed to indemnify the underwriters against liabilities to which
they may become subject, including liabilities that may arise under the
Securities Act of 1933, the Securities Exchange Act of 1934 or other federal or
state statutory law or regulation, at common law or otherwise or to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
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<PAGE> 43
LEGAL MATTERS
The validity of the common stock being offered in this prospectus will be
passed upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal
matters will be passed upon for the underwriters by Cravath, Swaine & Moore, New
York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K for the year ended June
30, 1999, as set forth in their report, which is incorporated by reference in
this prospectus and elsewhere in this registration statement. Our financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934 and in accordance with its requirements file annual and quarterly
reports, proxy statements and other information with the Securities and Exchange
Commission, or the "Commission." These reports, proxy statements and other
information may be inspected, and copies of these materials may be obtained upon
payment of the prescribed fees, at the Commission's Public Reference Section,
Room 1024, 450 Fifth Street, Suite 1300, N.W., Washington D.C. 20549, as well as
at the Commission's Regional Offices at Seven World Trade Center, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You may obtain more information on the operation of the
Commission's Public Reference Section by calling the Commission at (800)
SEC-0330. In addition, we are required to file electronic versions of these
materials with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Our common
stock is quoted on the Nasdaq National Market, and reports and other information
concerning us may be inspected at the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006-1500.
We have filed with the Commission a Registration Statement on Form S-3
under the Securities Act of 1933 with respect to the common stock offered by
this prospectus. This prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and the schedules thereto.
For further information with respect to us and our common stock, you should read
the Registration Statement, including its exhibits and schedules. Statements
contained in this prospectus, including documents incorporated by reference, as
to the contents of any contract or other document referred to are not
necessarily complete, and, with respect to any contract or other document filed
as an exhibit to the Registration Statement, each statement is qualified in all
respects by reference to the corresponding exhibit. Copies of the Registration
Statement and its exhibits are on file at the offices of the Commission and may
be obtained upon payment of the prescribed fee or may be examined without charge
at the Commission's Public Reference Section, as well as at the Commission's
Regional Offices in New York 10048 and Chicago, at the addresses listed above.
Copies of these materials can be obtained from the Public Reference Section of
the Commission, upon payment of the prescribed fees or via the EDGAR database.
40
<PAGE> 44
INCORPORATION BY REFERENCE
The Commission allows us to "incorporate by reference" information we file
with them into this prospectus. This means that we can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is considered to be
part of this prospectus, and information that we file later with the Commission
will automatically update and supersede the information in this prospectus. This
prospectus incorporates by reference the documents set forth below that we have
previously filed with the Commission. These documents contain important
information about us and our financial condition.
- Our Annual Report on Form 10-K for the year ended June 30, 1999, as
amended by our Form 10-K/A filed with the Commission on February 11,
2000;
- Our Quarterly Reports on Form 10-Q for the quarters ended September 30,
1999 and December 31, 1999;
- Our current report on Form 8-K filed February 3, 2000; and
- The description of the common stock contained in our Registration
Statement on Form 8-A, as filed on April 22, 1996 with the SEC under the
Securities Exchange Act of 1934 September 29, 1997.
We incorporate by reference any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
whether before or after the effective date of the registration statement of
which this prospectus forms a part.
You should consider any statement contained in a document incorporated or
considered incorporated by reference into this prospectus to be modified or
superseded to the extent that a statement contained in this prospectus, or in
any other subsequently filed document that is also incorporated or deemed to be
incorporated by reference in this prospectus, modifies or conflicts with the
earlier statement. You should not consider any statement modified or superseded,
except as so modified or superseded, to constitute a part of this prospectus.
You may request a copy of these filings at no cost by writing or
telephoning us at the following address: 1201 Harbor Bay Parkway, Suite 1000,
Alameda, California 94502, telephone number (510) 748-7150.
41
<PAGE> 45
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
AVIGEN, INC.
COMMON STOCK
[AVIGEN LOGO]
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
ING BARINGS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 46
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, if any, all of which will be paid 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........................................ $ 77,266
Nasdaq Additional Listing Fees.............................. $ 17,500
NASD Fee.................................................... 29,768
Accounting Fees............................................. $ 40,000
Legal Fees and Expenses..................................... $350,000
Printing and Engraving...................................... $100,000
Miscellaneous............................................... $ 10,466
--------
Total..................................................... $625,000
========
</TABLE>
ITEM 15. 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.
The Registrant has entered into indemnification agreements with each
director which provides indemnification under certain circumstances for acts and
omissions which may not be covered by any directors' and officers' liability
insurance.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <S>
1.1 Form of Underwriting Agreement
4.1* Specimen Common Stock Certificate
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1
24.1 Power of Attorney (Reference to the signature page herein)
</TABLE>
- ------------------
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-3220) and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 15 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
II-1
<PAGE> 47
of the Registrant in the successful defense of any action, suit, or proceeding)
is asserted by such director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Alameda, County of Alameda, State of California, on
February 17, 2000.
AVIGEN, INC.
By: /s/ JOHN MONAHAN
------------------------------------
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 hereby constitutes and appoints John Monahan, Ph.D. and Thomas J.
Paulson, and each of them, his true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to (i) act on, sign
and file with the Securities and Exchange Commission any and all amendments
(including post-effective amendments) to this registration statement together
with all schedules and exhibits thereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, together with all schedules and exhibits thereto, (ii) act on, sign and
file such certificates, instruments, agreements and other documents as may be
necessary or appropriate in connection therewith, (iii) act on and file any
supplement to any prospectus included in this registration statement or any such
amendment or any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and (iv) take any and all actions
which may be necessary or appropriate to be done, as fully for all intents and
purposes as he or she might or could do in person, hereby approving, ratifying
and confirming all that such agent, proxy and attorney-in-fact or any of his
substitutes may lawfully do or cause to be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JOHN MONAHAN President, Chief Executive February 17, 2000
- --------------------------------------------------- Officer and Director
John Monahan, Ph.D. (Principal Executive Officer)
/s/ THOMAS J. PAULSON Vice President Finance, Chief February 17, 2000
- --------------------------------------------------- Financial Officer and Secretary
Thomas J. Paulson (Principal Accounting Officer)
/s/ PHILIP J. WHITCOME Chairman of the Board February 17, 2000
- ---------------------------------------------------
Philip J. Whitcome, Ph.D.
/s/ ZOLA HOROVITZ Director February 17, 2000
- ---------------------------------------------------
Zola Horovitz, Ph.D.
/s/ YUICHI IWAKI Director February 17, 2000
- ---------------------------------------------------
Yuichi Iwaki, M.D., Ph.D.
/s/ JOHN K.A. PRENDERGAST Director February 17, 2000
- ---------------------------------------------------
John K.A. Prendergast
</TABLE>
II-3
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
1.1 Form of Underwriting Agreement
4.1* Specimen Common Stock Certificate
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
Consent of Cooley Godward LLP. Reference is made to Exhibit
23.2 5.1
24.1 Power of Attorney (Reference to the signature page herein)
</TABLE>
- ------------------
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-3220) and incorporated herein by reference.
<PAGE> 1
EXHIBIT 1.1
Avigen, Inc.
4,000,000 shares of Common Stock, par value of $.001
[Form of Underwriting Agreement]
New York, New York
March __, 2000
Salomon Smith Barney Inc.
CIBC World Markets Corp.
ING Barings LLC
As Representatives of
the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, NY 10013
Ladies and Gentlemen:
Avigen, Inc., a corporation organized under the laws of Delaware
(the "Company"), proposes to sell to the several underwriters named in Schedule
I hereto (the "Underwriters"), for whom you (the "Representatives") are acting
as representatives, 4,000,000 shares of Common Stock, par value of $.001 (the
"Common Stock") of the Company (said shares to be issued and sold by the Company
being hereinafter called the "Underwritten Securities"). The Company also
proposes to grant to the Underwriters an option to purchase up to 600,000
additional shares of Common Stock to cover over-allotments (the "Option
Securities"; the Option Securities, together with the Underwritten Securities,
being hereinafter called the "Securities"). To the extent there are no
additional Underwriters listed on Schedule I other than you, the term
Representatives as used herein shall mean you, as Underwriters, and the terms
Representatives and Underwriters shall mean either the singular or plural as the
context requires. Any reference herein to the Registration Statement, a
Preliminary Prospectus or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Exchange Act on or before the Effective Date of the
Registration Statement or the issue date of such Preliminary Prospectus or the
Prospectus, as the case may be; and any reference herein to the terms "amend",
"amendment" or "supplement" with respect to the Registration Statement, any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and include
the filing of any document under the Exchange Act after the Effective Date of
the Registration Statement, or the issue date of any Preliminary Prospectus
<PAGE> 2
2
or the Prospectus, as the case may be, deemed to be incorporated therein by
reference. Certain terms used herein are defined in Section 17 hereof.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, each Underwriter as set forth below in this
Section 1.
(1) The Company meets the requirements for use of Form S-3 under
the Act and has prepared and filed with the Commission a registration
statement (file number 333- ) on Form S-3, including a related
preliminary prospectus, for registration under the Act of the offering
and sale of the Securities. The Company may have filed one or more
amendments thereto, including a related preliminary prospectus, each of
which has previously been furnished to you. The Company will next file
with the Commission one of the following: either (1) prior to the
Effective Date of such registration statement, a further amendment to
such registration statement (including the form of final prospectus) or
(2) after the Effective Date of such registration statement, a final
prospectus in accordance with Rules 430A and 424(b). In the case of
clause (2), the Company has included in such registration statement, as
amended at the Effective Date, all information (other than Rule 430A
Information) required by the Act and the rules thereunder to be included
in such registration statement and the Prospectus. As filed, such
amendment and form of final prospectus, or such final prospectus, shall
contain all Rule 430A Information, together with all other such required
information and, except to the extent the Representatives shall agree in
writing to a modification, shall be in all substantive respects in the
form furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to
the Execution Time, will be included or made therein.
(2) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in accordance
with Rule 424(b) and on the Closing Date (as defined herein) and on any
date on which Option Securities are purchased, if such date is not the
Closing Date (a "settlement date"), the Prospectus (and any supplements
thereto) will, comply in all material respects with the applicable
requirements of the Act, the Exchange Act and the respective rules
thereunder; on the Effective Date and at the Execution Time, the
Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date and any settlement date,
the Prospectus (together with any supplement thereto) will not include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
the information contained in or omitted from the Registration Statement,
or the Prospectus (or any supplement thereto) in reliance upon and in
conformity with information furnished in writing to the Company by or on
behalf of
<PAGE> 3
3
any Underwriter through the Representatives specifically for inclusion
in the Registration Statement or the Prospectus (or any supplement
thereto).
(3) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation with full corporate power and
authority to own or lease, as the case may be, and to operate its
properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification, except where the failure to be so qualified or be in good
standing could not reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company (a "Material Adverse Effect"); (1)
(4) The Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities have been duly and validly authorized, and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be fully paid and nonassessable; the Securities are duly
listed, and admitted and authorized for trading, subject to official
notice of issuance, on the Nasdaq National Market; the certificates for
the Securities comply with the requirements of Delaware law; the holders
of outstanding shares of capital stock of the Company are not entitled
to preemptive or other rights to subscribe for the Securities and,
except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or rights
to convert any obligations into or exchange any securities for, shares
of capital stock of or ownership interests in the Company are
outstanding.
(5) There is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not described
or filed as required.
(6) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms.
(7) The Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(8) No consent, approval, authorization, filing with or order of
any court or governmental agency or body is required in connection with
the transactions
<PAGE> 4
4
contemplated herein, except such as have been obtained under the Act and
such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by the
Underwriters in the manner contemplated herein and in the Prospectus.
(9) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to, (i) the charter
or by-laws of the Company, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the
Company is a party or bound or to which its property is subject, or
(iii) any statute, law, rule, regulation, judgment, order or decree
applicable to the Company of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its properties.
(10) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement, except
for such rights as have been effectively waived.
(11) The historical financial statements and schedules of the
Company included in the Prospectus and the Registration Statement
present fairly in all material respects the financial condition, results
of operations and cash flows of the Company as of the dates and for the
periods indicated, comply as to form with the applicable accounting
requirements of the Act and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted therein). The
selected financial data set forth under the caption "Prospectus Summary
-- Summary Financial Data" and "Selected Financial Data" in the
Prospectus and Registration Statement fairly present, on the basis
stated in the Prospectus and the Registration Statement, the information
included therein.
(12) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or its property is pending or, to the knowledge of the Company
after due inquiry, threatened that (i) could reasonably be expected to
have a material adverse effect on the performance of this Agreement or
the consummation by the Company of any of the transactions contemplated
by the Company hereby or (ii) could reasonably be expected to have a
Material Adverse Effect, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
<PAGE> 5
5
(13) The Company owns or leases all such properties as are
necessary to the conduct of its operations as presently conducted.
(14) The Company is not in violation or default of (i) any
provision of its charter or bylaws, (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan agreement
or other agreement, obligation, condition, covenant or instrument to
which it is a party or bound or to which its property is subject, or
(iii) any statute, law, rule, regulation, judgment, order or decree of
any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or
any of its properties, as applicable.
(15) Ernst & Young LLP, who have audited certain financial
statements of the Company and delivered their report with respect to the
audited consolidated financial statements and schedules included in the
Prospectus, are independent public accountants with respect to the
Company within the meaning of the Act and the applicable published rules
and regulations thereunder.
(16) There are no transfer taxes or other similar fees or
charges under federal law or the laws of any state, or any political
subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance by the Company
or sale by the Company of the Securities.
(17) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not
have a Material Adverse Effect, whether or not arising from transactions
in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto))
and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable, except for any such assessment, fine
or penalty that is currently being contested in good faith or as would
not have a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement thereto).
(18) To the Company's knowledge, after due inquiry, no labor
problem or dispute with the employees of the Company exists or is
threatened or imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its principal
suppliers, contractors or customers, that could have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company, taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
<PAGE> 6
6
(19) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent in the businesses in which it is engaged; all policies of
insurance insuring the Company's businesses, assets, employees, officers
and directors are in full force and effect; the Company is in compliance
with the terms of such policies and instruments in all material
respects; and there are no claims by the Company under any such policy
or instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause; the Company has not been
refused any insurance coverage sought or applied for; and the Company
has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(20) The Company possess all licenses, certificates, permits and
other authorizations issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct its businesses, and the
Company has not received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could reasonably be expected to
have a Material Adverse Effect whether or not arising from transactions
in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(21) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(22) The Company has not taken, directly or indirectly, any
action that has constituted or that was designed to or might reasonably
be expected to cause or result in, under the Exchange Act or otherwise,
the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(23) The Company is (i) in compliance with any and all
applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received and is in compliance with
<PAGE> 7
7
all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct its businesses and (iii) has
not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or
toxic substances or wastes, pollutants or contaminants, except where
such non-compliance with Environmental Laws, failure to receive required
permits, licenses or other approvals, or liability would not have,
individually or in the aggregate, a Material Adverse Effect, whether or
not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto). The Company has not been named as a "potentially
responsible party" under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
(24) In the ordinary course of its business, the Company
periodically reviews the effect of Environmental Laws on the business,
operations and properties of the Company, in the course of which it
identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws,
or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis
of such review, the Company has reasonably concluded that such
associated costs and liabilities would not have, singly or in the
aggregate, a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(25) The Company has fulfilled its obligations, if any, under
the minimum funding standards of Section 302 of the United States
Employee Retirement Income Security Act of 1974 ("ERISA") and the
regulations and published interpretations thereunder with respect to
each "plan" (as defined in Section 3(3) of ERISA and such regulations
and published interpretations) in which employees of the Company are
eligible to participate and each such plan is in compliance in all
material respects with the presently applicable provisions of ERISA and
such regulations and published interpretations. The Company has not
incurred any unpaid liability to the Pension Benefit Guaranty
Corporation (other than for the payment of premiums in the ordinary
course) or to any such plan under Title IV of ERISA.
<PAGE> 8
8
(26) The Company owns, possesses, licenses or has other rights
to use, on reasonable terms, all patents, patent applications, trade and
service marks, trade and service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets, technology, know-how
and other intellectual property (collectively, the "Intellectual
Property") necessary for the conduct of the Company's business as now
conducted or as proposed in the Prospectus to be conducted. Except as
set forth in the Prospectus under the caption "Business--Patents and
Intellectual Property," (a) there are no rights of third parties to any
such Intellectual Property; (b) there is no infringement by third
parties of any such Intellectual Property; (c) there is no pending or,
to the Company's knowledge after due inquiry, threatened action, suit,
proceeding or claim by others challenging the Company's rights in or to
any such Intellectual Property, and the Company is unaware of any facts
which would form a reasonable basis for any such claim; (d) there is no
pending or threatened action, suit, proceeding or claim by others
challenging the validity or scope of any such Intellectual Property, and
the Company is unaware of any facts which would form a reasonable basis
for any such claim; (e) there is no pending or, to the Company's
knowledge after due inquiry, threatened action, suit, proceeding or
claim by others that the Company infringes or otherwise violates any
patent, trademark, copyright, trade secret or other proprietary rights
of others, and the Company is unaware of any other fact which would form
a reasonable basis for any such claim; (f) to the knowledge of the
Company after due inquiry, there is no U.S. patent or published U.S.
patent application which contains claims that dominate or may dominate
any Intellectual Property described in the Prospectus as being owned by
or licensed to the Company or that interferes with the issued or pending
claims of any such Intellectual Property; and (g) to the knowledge of
the Company after due inquiry, there is no prior art of which the
Company is aware that may render any U.S. patent held by the Company
invalid or any U.S. patent application held by the Company unpatentable
which has not been disclosed to the U.S. Patent and Trademark Office.
(27) The statements contained in the Prospectus under the
captions "Risk Factors -- Our success is dependent upon our ability to
effectively protect our patents and proprietary rights, which we may not
be able to do", "Risk Factors - Other persons may assert rights in our
proprietary technology, which would be costly to contest or settle" and
"Business -- Patents and Licenses," insofar as such statements summarize
legal matters, agreements, documents, or proceedings discussed therein,
are accurate and fair summaries of such legal matters, agreements,
documents or proceedings.
(28) The Company has such permits, licenses, franchises,
authorizations and clearances ("Permits") of governmental or regulatory
authorities, including, without limitation, the Food and Drug
Administration (the "FDA") of the U.S. Department of Health and Human
Services and/or any committee thereof, as are necessary to own, lease
and operate its properties and to conduct its business in the manner
described in the Prospectus, subject to such qualifications as may be
set forth
<PAGE> 9
9
in the Prospectus, except where such failure to receive such Permits
would not, individually or in the aggregate, have a Material Adverse
Effect or except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto); subject to such qualifications as
may be set forth in the Prospectus, the Company has fulfilled and
performed all its material obligations with respect to the Permits, and
no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any Permit, subject
in each case to such qualification as may be set forth in the
Prospectus. Except as is set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto), none of the Permits contains any
restriction that is materially burdensome to the Company.
(29) Except as set forth in or contemplated in the Registration
Statement and the Prospectus (exclusive of any supplement thereto), the
clinical, pre-clinical and other studies and tests conducted by or on
behalf of or sponsored by the Company or in which the Company or the
Company's products under development have participated that are
described in the Prospectus or the results of which are referred to in
the Prospectus were and, if still pending, are being conducted in
accordance with standard medical and scientific research procedures. The
descriptions of the results of such studies and tests are accurate and
complete in all material respects and fairly present the data derived
from such studies and tests, and the Company has no knowledge of any
other studies or tests the results of which are inconsistent with or
otherwise call into question the results described or referred to in the
Prospectus. Except as set forth in or contemplated in the Registration
Statement and the Prospectus (exclusive of any supplement thereto), the
Company has operated and currently is in compliance in all material
respects with all applicable FDA rules, regulations and policies. Except
as set forth in or contemplated in the Registration Statement and the
Prospectus (exclusive of any supplement thereto), the Company has not
received any notices or other correspondence from the FDA or any other
governmental agency requiring the termination, suspension or
modification of any clinical or pre-clinical studies or tests that are
described in the Prospectus or the results of which are referred to in
the Prospectus.
(30) The Company does not have any "significant subsidiaries" as
such term is defined by Rule 1-02 of Regulation S-X.
Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters in connection
with the offering of the Securities shall be deemed a representation and
warranty by the Company, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions
and in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from
<PAGE> 10
10
the Company, at a purchase price of $ per share, the amount of the
Underwritten Securities set forth opposite such Underwriter's name in Schedule
I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
an aggregate of 600,000 Option Securities at the same purchase price per share
as the Underwriters shall pay for the Underwritten Securities. Said option may
be exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several Underwriters are exercising the option and the settlement date. The
number of Option Securities to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
March __, 2000, or at such time on such later date not more than three Business
Days after the foregoing date as the Representatives shall designate, which date
and time may be postponed by agreement between the Representatives and the
Company or as provided in Section 9 hereof (such date and time of delivery and
payment for the Securities being herein called the "Closing Date"). Delivery of
the Securities shall be made to the Representatives for the respective accounts
of the several Underwriters against payment by the several Underwriters through
the Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. Delivery of the Underwritten Securities and the Option Securities
shall be made through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised
after the third Business Day prior to the Closing Date, the Company will deliver
the Option Securities (at the expense of the Company) to the Representatives on
the date specified by the Representatives (which shall be within three Business
Days after exercise of said option) for the respective accounts of the several
Underwriters, against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. If settlement for the Option Securities occurs after the Closing
Date, the Company will deliver to the Representatives on the settlement date for
the Option Securities, and the obligation of the Underwriters to purchase the
Option Securities shall be conditioned
<PAGE> 11
11
upon receipt of, supplemental opinions, certificates and letters confirming as
of such date the opinions, certificates and letters delivered on the Closing
Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters
that:
(1) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectus or any Rule
462(b) Registration Statement unless the Company has furnished you a
copy for your review prior to filing and will not file any such proposed
amendment or supplement to which you reasonably object. Subject to the
foregoing sentence, if the Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the Prospectus is
otherwise required under Rule 424(b), the Company will cause the
Prospectus, properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence satisfactory
to the Representatives of such timely filing. The Company will promptly
advise the Representatives (1) when the Registration Statement, if not
effective at the Execution Time, shall have become effective, (2) when
the Prospectus, and any supplement thereto, shall have been filed (if
required) with the Commission pursuant to Rule 424(b) or when any Rule
462(b) Registration Statement shall have been filed with the Commission,
(3) when, prior to termination of the offering of the Securities, any
amendment to the Registration Statement shall have been filed or become
effective, (4) of any request by the Commission or its staff for any
amendment of the Registration Statement, or any Rule 462(b) Registration
Statement, or for any supplement to the Prospectus or for any additional
information, (5) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (6) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the institution or threatening of any proceeding for
such purpose. The Company will use its best efforts to prevent the
issuance of any such stop order or the suspension of any such
qualification and, if issued, to obtain as soon as possible the
withdrawal thereof.
(2) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act, any event occurs as a result
of which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary
<PAGE> 12
12
to amend the Registration Statement or supplement the Prospectus to
comply with the Act or the Exchange Act or the respective rules
thereunder, the Company promptly will (1) notify the Representatives of
such event, (2) prepare and file with the Commission, subject to the
second sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (3) supply any supplemented Prospectus to you in such
quantities as you may reasonably request.
(3) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an earnings
statement or statements of the Company which will satisfy the provisions
of Section 11(a) of the Act and Rule 158 under the Act.
(4) The Company will furnish to the Representatives and counsel
for the Underwriters, without charge, signed copies of the Registration
Statement (including exhibits thereto) and to each other Underwriter a
copy of the Registration Statement (without exhibits thereto) and, so
long as delivery of a prospectus by an Underwriter or dealer may be
required by the Act, as many copies of each Preliminary Prospectus and
the Prospectus and any supplement thereto as the Representatives may
reasonably request. The Company will pay the expenses of printing or
other production of all documents relating to the offering.
(5) The Company will arrange, if necessary, for the
qualification of the Securities for sale under the laws of such
jurisdictions as the Representatives may designate and will maintain
such qualifications in effect so long as required for the distribution
of the Securities and will pay any fee of the National Association of
Securities Dealers, Inc., in connection with its review of the offering;
provided that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to
take any action that would subject it to service of process in suits,
other than those arising out of the offering or sale of the Securities,
in any jurisdiction where it is not now so subject.
(6) The Company will not, without the prior written consent of
Salomon Smith Barney Inc., offer, sell, contract to sell, pledge, or
otherwise dispose of, (or enter into any transaction which is designed
to, or might reasonably be expected to, result in the disposition
(whether by actual disposition or effective economic disposition due to
cash settlement or otherwise) by the Company or any affiliate of the
Company or any person in privity with the Company or any affiliate of
the Company) directly or indirectly, including the filing (or
participation in the filing) of a registration statement with the
Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the
meaning of Section 16 of the Exchange Act, any other shares of Common
Stock or any securities convertible into, or exercisable, or
exchangeable for, shares of Common Stock; or publicly announce an
intention to effect any such transaction, for
<PAGE> 13
13
a period of 90 days after the date of the Underwriting Agreement,
provided, however, that the Company may issue and sell Common Stock
pursuant to any employee stock option plan, stock ownership plan or
dividend reinvestment plan of the Company in effect at the Execution
Time and the Company may issue Common Stock issuable upon the conversion
of securities or the exercise of warrants outstanding at the Execution
Time.
(7) The Company will not take, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(1) If the Registration Statement has not become effective prior
to the Execution Time, unless the Representatives agree in writing to a
later time, the Registration Statement will become effective not later
than (i) 6:00 PM New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to
3:00 PM New York City time on such date or (ii) 9:30 AM on the Business
Day following the day on which the public offering price was determined,
if such determination occurred after 3:00 PM New York City time on such
date; if filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b), the Prospectus, and any such
supplement, will be filed in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceedings
for that purpose shall have been instituted or threatened.
(2) The Company shall have requested and caused Cooley Godward
LLP, counsel for the Company, to have furnished to the Representatives
their opinion, dated the Closing Date and addressed to the
Representatives, to the effect that:
(1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with full corporate power and authority to
own or lease, as the case may be, and to operate its properties
and conduct its business as described in the Prospectus, and is
duly qualified to do business as a foreign corporation and is in
good standing under the laws of each jurisdiction which requires
such qualification;
<PAGE> 14
14
(2) the Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company
conforms in all material respects to the description thereof
contained in the Prospectus; the outstanding shares of Common
Stock have been duly and validly authorized and issued; the
Securities have been duly and validly authorized, and, when
issued and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be fully paid and
nonassessable; the Securities are duly listed, and approved for
trading, subject to official notice of issuance on the Nasdaq
National Market; the certificates for the Securities are in
valid and sufficient form; the holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or
other rights to subscribe for the Securities; and, except as set
forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or rights to
convert any obligations into or exchange any securities for,
shares of capital stock of or ownership interests in the Company
are outstanding;
(3) to the knowledge of such counsel after due inquiry, there is
no pending or threatened action, suit or proceeding by or before
any court or governmental agency, authority or body or any
arbitrator involving the Company or its property of a character
required to be disclosed in the Registration Statement which is
not adequately disclosed in the Prospectus, and there is no
franchise, contract or other document of a character required to
be described in the Registration Statement or Prospectus, or to
be filed as an exhibit thereto, which is not described or filed
as required; and the statements included or incorporated by
reference in the Prospectus under the heading "Business --
Government Regulation", insofar as such statements summarize
legal matters, agreements, documents, or proceedings discussed
therein, are accurate and fair summaries of such legal matters,
agreements, documents or proceedings;
(iv) the Registration Statement has become effective
under the Act; any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b);
to the knowledge of such counsel after due inquiry, no stop
order suspending the effectiveness of the Registration Statement
has been issued, no proceedings for that purpose have been
instituted or threatened and the Registration Statement and the
Prospectus (other than the financial statements and other
financial information contained therein as to which such counsel
need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the
Exchange Act and the respective rules thereunder; and such
counsel has no reason to believe that on the Effective Date or
the date the Registration Statement was last deemed amended the
Registration Statement contained any untrue statement of a
<PAGE> 15
15
material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading or that the Prospectus as of its date and on the
Closing Date included or includes any untrue statement of a
material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (in
each case, other than the financial statements and other
financial information contained therein, as to which such
counsel need express no opinion);
(v) this Agreement has been duly authorized, executed
and delivered by the Company;
(vi) the Company is not and, after giving effect to the
offering and sale of the Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of
1940, as amended;
(vii) no consent, approval, authorization, filing with
or order of any court or governmental agency or body is required
in connection with the transactions contemplated herein, except
such as have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities
by the Underwriters in the manner contemplated in this Agreement
and in the Prospectus and such other approvals (specified in
such opinion) as have been obtained;
(viii) neither the issue and sale of the Securities, nor
the consummation of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation of or imposition
of any lien, charge or encumbrance upon any property or assets
of the Company pursuant to, (i) the charter or by-laws of the
Company, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to
which the Company is a party or bound or to which its property
is subject, or (iii) any statute, law, rule, regulation,
judgment, order or decree applicable to the Company of any
court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the
Company or any of its properties; and
(ix) no holders of securities of the Company have rights
to the registration of such securities under the Registration
Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
State of Delaware or the Federal
<PAGE> 16
16
laws of the United States, to the extent they deem proper and specified
in such opinion, upon the opinion of other counsel of good standing whom
they believe to be reliable and who are satisfactory to counsel for the
Underwriters and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and
public officials. References to the Prospectus in this paragraph (b)
include any supplements thereto at the Closing Date.
(3) The Representatives shall have received from Cravath, Swaine
& Moore, counsel for the Underwriters, such opinion or opinions, dated
the Closing Date and addressed to the Representatives, with respect to
the issuance and sale of the Securities, the Registration Statement, the
Prospectus (together with any supplement thereto) and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(4) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectus, any supplements to the Prospectus and this Agreement and
that:
(1) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and
as of the Closing Date with the same effect as if made on the
Closing Date and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date;
(2) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or, to the knowledge of the
Company after due inquiry, threatened; and
(3) since the date of the most recent financial statements
included or incorporated by reference in the Prospectus
(exclusive of any supplement thereto), there has been no
material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
<PAGE> 17
17
(5) The Company shall have requested and caused Ernst & Young
LLP to have furnished to the Representatives, at the Execution Time and
at the Closing Date, letters, dated respectively as of the Execution
Time and as of the Closing Date, in form and substance satisfactory to
the Representatives, confirming that they are independent accountants
within the meaning of the Act and the Exchange Act and the respective
applicable rules and regulations adopted by the Commission thereunder
and that they have performed a review in accordance with Statement on
Auditing Standards No. 71 of the unaudited interim financial information
of the Company for the six-month period ended December 31, 1999, and as
at December 31, 1999, stating in effect that:
(1) in their opinion the audited financial statements and
financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus and
reported on by them comply as to form in all material respects
with the applicable accounting requirements of the Act and the
Exchange Act and the related rules and regulations adopted by
the Commission;
(2) on the basis of a reading of the latest unaudited financial
statements made available by the Company; their limited review,
in accordance with standards established under Statement on
Auditing Standards No. 71, of the unaudited interim financial
information for the six-month period ended December 31, 1999 and
as at December 31, 1999; carrying out certain specified
procedures (but not an examination in accordance with generally
accepted auditing standards) which would not necessarily reveal
matters of significance with respect to the comments set forth
in such letter; a reading of the minutes of the meetings of the
stockholders, directors and audit committee of the Company; and
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the
Company as to transactions and events subsequent to June 30,
1999, nothing came to their attention which caused them to
believe that:
(1) any unaudited financial statements included or
incorporated by reference in the Registration Statement
and the Prospectus do not comply as to form in all
material respects with applicable accounting
requirements of the Act and with the related rules and
regulations adopted by the Commission with respect to
financial statements included or incorporated by
reference in quarterly reports on Form 10-Q under the
Exchange Act; and said unaudited financial statements
are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent
with that of the audited financial statements included
or incorporated by reference in the Registration
Statement and the Prospectus;
<PAGE> 18
18
(2) with respect to the period subsequent to December
31, 1999, there were any changes, at a specified date
not more than five days prior to the date of the letter,
in the deficit accumulated during the development stage
or capital stock of the Company or decreases in the
stockholders' equity of the Company or decreases in
working capital of the Company as compared with the
amounts shown on the December 31, 1999, consolidated
balance sheet included or incorporated by reference in
the Registration Statement and the Prospectus, or for
the period from January 1, 2000, to such specified date
there were any decreases, as compared with the
corresponding period in the preceding quarter in
revenues or Interest Income of the Company, except in
all instances for changes or decreases set forth in such
letter, in which case the letter shall be accompanied by
an explanation by the Company as to the significance
thereof unless said explanation is not deemed necessary
by the Representatives; or
(3) the information included or incorporated by
reference in the Registration Statement and Prospectus
in response to Regulation S-K, Item 301 (Selected
Financial Data), Item 302 (Supplementary Financial
Information) is not in conformity with the applicable
disclosure requirements of Regulation S-K; and
(3) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from
the general accounting records of the Company) set forth in the
Registration Statement and the Prospectus and in Exhibit 12 to
the Registration Statement, including the information set forth
under the captions "Summary -- Summary Financial Data" and
"Selected Financial Data" in the Prospectus, the information
included or incorporated by reference in Items 1, 2, 6, 7 and 11
of the Company's Annual Report on Form 10-K, incorporated by
reference in the Registration Statement and the Prospectus, and
the information included in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
included or incorporated by reference in the Company's Quarterly
Reports on Form 10-Q, incorporated by reference in the
Registration Statement and the Prospectus, [insert any
applicable 8-K reference] agrees with the accounting records of
the Company, excluding any questions of legal interpretation.
References to the Prospectus in this paragraph (e) include any
supplement thereto at the date of the letter.
The Company shall have received from Ernst & Young LLP a report
or reports with respect to a review of unaudited interim financial information
of the Company
<PAGE> 19
19
for the six month period ending December 31, 1999, in accordance with Statement
on Accounting Standards No. 71.
(6) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change
specified in the letter or letters referred to in paragraph (e) of this
Section 6 or (ii) any change, or any development involving a prospective
change, in or affecting the condition (financial or otherwise),
earnings, business or properties of the Company, whether or not arising
from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto) the effect of which, in any case referred to in clause (i) or
(ii) above, is, in the sole judgment of the Representatives, so material
and adverse as to make it impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the
Registration Statement (exclusive of any amendment thereof) and the
Prospectus (exclusive of any supplement thereto).
(7) Prior to the Closing Date, the Company shall have furnished
to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
(8) The Securities shall have been approved for trading on the
Nasdaq National Market, and satisfactory evidence of such actions shall
have been provided to the Representatives.
(9) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit A
hereto from the individuals listed on Schedule II hereto, addressed to
the Representatives.
(10) You shall have received on the Closing Date an opinion of
[insert patent firm references], patent counsel for the Company, dated
the Closing Date and addressed to you, that:
(1) to the knowledge of such counsel after due inquiry, the
Company owns or has obtained licenses for all applications
relating to the Intellectual Property described in the
Prospectus as being owned or used by or licensed to the Company;
(2) to the knowledge of such counsel after due inquiry, except
as described in the Prospectus, (A) there are no rights of third
parties to any Intellectual Property described in the Prospectus
as being owned by or licensed to the Company or that is
necessary for the conduct of its business; (B) there is no
infringement by third parties of any such Intellectual Property;
(C) there is no pending or threatened action, suit, proceeding
or claim by
<PAGE> 20
20
others challenging the rights of the Company in or to such
Intellectual Property, and such counsel is unaware of any facts
which would form a reasonable basis for any such claim; (D)
there is no pending or threatened action, suit, proceeding or
claim by others challenging the validity or scope of such
Intellectual Property, and such counsel is unaware of any facts
which would form a reasonable basis for any such claim; (E)
there is no pending or threatened action, suit, proceeding or
claim by others that the Company infringes or otherwise violates
any patent, trademark, copyright, trade secret or other
proprietary right of others, and such counsel is unaware of any
facts which would form a reasonable basis for any such claim;
(F) there is no patent or patent application which contains
claims that dominate or may dominate any Intellectual Property
described in the Prospectus as being owned or used by or
licensed to the Company or that is necessary for the conduct of
its business or that interferes with the issued or pending
claims of any such Intellectual Property; and (G) there is no
prior art that may render any patent held by the Company invalid
or any patent application held by the Company unpatentable which
has not been disclosed to the U.S. Patent and Trademark Office;
and
(3) [the statements in: (A) the Prospectus under the captions
"Risk Factors -- Our success is dependent upon our ability to
effectively protect our patents and proprietary rights, which we
may not be able to do", "Risk Factors -- Other persons may
assert rights in our proprietary technology, which would be
costly to contest or settle", "Business -- Patents and Licenses"
and other references therein to patent and licensing matters,
and (B) the Annual Report of the Company on Form 10-K for the
fiscal year ended June 30, 1999 under the caption "Business --
Patents and Licenses," and other references therein to patent
and licensing matters, insofar as such statements summarize
legal matters, agreements, documents, or proceedings discussed
therein, are accurate and fair summaries of such legal matters,
agreements, documents or proceedings.]
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancelation shall be given to the Company in
writing or by telephone or facsimile confirmed in writing.
<PAGE> 21
21
The documents required to be delivered by this Section 6 shall
be delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, NY 10019-7475, on
the Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through Salomon Smith Barney Inc. on demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities.
8. Indemnification and Contribution. The Company agrees to
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with reference to written information relating to such Underwriter furnished to
the Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may
<PAGE> 22
22
otherwise have. The Company acknowledges that the statements set forth in the
last paragraph of the cover page regarding delivery of the Securities, and,
under the heading "Underwriting", (i) the eighth, ninth and tenth paragraphs,
related to stabilization, syndicate covering transactions and penalty bids and
(ii) the sentences related to concessions and reallowances in the Prospectus
constitute the only information furnished in writing by or on behalf of the
several Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
<PAGE> 23
23
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters severally
agree to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by the Underwriters on the other from the offering of the Securities;
provided, however, that in no case shall any Underwriter (except as may be
provided in any agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting discount
or commission applicable to the Securities purchased by such Underwriter
hereunder. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Underwriters severally shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
of the Underwriters on the other in connection with the statements or omissions
which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the total net proceeds from the offering (before deducting expenses) received by
it, and benefits received by the Underwriters shall be deemed to be equal to the
total underwriting discounts and commissions, in each case as set forth on the
cover page of the Prospectus. Relative fault shall be determined by reference
to, among other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Company on the one hand or the
Underwriters on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls an Underwriter within the meaning of
either the Act or the Exchange Act and each director, officer, employee and
agent of an Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Securities agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the
<PAGE> 24
24
amount of Securities set forth opposite their names in Schedule I hereto bears
to the aggregate amount of Securities set forth opposite the names of all the
remaining Underwriters) the Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase; provided, however, that in the event
that the aggregate amount of Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase shall exceed 10% of the aggregate
amount of Securities set forth in Schedule I hereto, the remaining Underwriters
shall have the right to purchase all, but shall not be under any obligation to
purchase any, of the Securities, and if such nondefaulting Underwriters do not
purchase all the Securities, this Agreement will terminate without liability to
any nondefaulting Underwriter or the Company. In the event of a default by any
Underwriter as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding five Business Days, as the Representatives shall
determine in order that the required changes in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company and any nondefaulting Underwriter for
damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination
in the absolute discretion of the Representatives, by notice given to the
Company prior to delivery of and payment for the Securities, if at any time
prior to such time (i) trading in the Company's Common Stock shall have been
suspended by the Commission or the Nasdaq National Market or trading in
securities generally on the New York Stock Exchange or the Nasdaq National
Market shall have been suspended or limited or minimum prices shall have been
established on such Exchange or the Nasdaq National Market, (ii) a banking
moratorium shall have been declared either by federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the sole judgment of the Representatives, impractical or inadvisable
to proceed with the offering or delivery of the Securities as contemplated by
the Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors, employees, agents or controlling persons referred to in
Section 8 hereof, and will survive delivery of and payment for the Securities.
The provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Salomon Smith Barney Inc. General Counsel (fax
no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney
Inc., 388 Greenwich Street, New York,
<PAGE> 25
25
New York, 10013, Attention: General Counsel; or, if sent to the Company, will be
mailed, delivered or telefaxed to John Monahan, Ph.D., Avigen, Inc., President
and Chief Executive Officer (fax no.: (510) 748-7155) and confirmed to it at
1201 Harbor Bay Parkway, Suite 1000, Alameda, CA 94502, attention of John
Monahan, Ph.D.
13. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated. 1.
"Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York
City or Alameda, California.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
<PAGE> 26
26
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective) and,
in the event any post-effective amendment thereto or any Rule 462(b)
Registration Statement becomes effective prior to the Closing Date,
shall also mean such registration statement as so amended or such Rule
462(b) Registration Statement, as the case may be. Such term shall
include any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under
the Act.
"Rule 430A Information" shall mean information with respect to
the Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the registration statement referred
to in Section 1(a) hereof.
<PAGE> 27
27
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
Avigen, Inc.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
Salomon Smith Barney Inc.
CIBC World Markets Corp.
ING Barings LLC
By: Salomon Smith Barney Inc.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
For themselves and the other several Underwriters, if any, named in Schedule I
to the foregoing Agreement.
<PAGE> 28
28
EXHIBIT A
[LETTERHEAD OF OFFICER, DIRECTOR OR MAJOR STOCKHOLDER OF AVIGEN, INC.]
Avigen, Inc.
Public Offering of Common Stock
, 20
Salomon Smith Barney Inc.
CIBC World Markets Corp.
ING Barings LLC
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), between Avigen,
Inc., a Delaware corporation (the "Company"), and each of you as representatives
of a group of Underwriters named therein, relating to an underwritten public
offering of Common Stock, $.001 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into
the Underwriting Agreement, the undersigned will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge or
otherwise dispose of (or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) directly or indirectly, including the filing (or participation in the
filing of) a registration statement with the Securities and Exchange Commission
in respect of, or establish or increase a put equivalent position or liquidate
or decrease a call equivalent position within the meaning of Section 16 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder with respect to,
any shares of capital stock of the Company or any securities convertible into,
or exercisable or exchangeable for such capital stock, or publicly
<PAGE> 29
29
announce an intention to effect any such transaction, for a period of 90 days
after the date of the Underwriting Agreement, other than shares of Common Stock
disposed of as bona fide gifts approved by Salomon Smith Barney Inc.
If for any reason the Underwriting Agreement shall be terminated
prior to the Closing Date (as defined in the Underwriting Agreement), the
agreement set forth above shall likewise be terminated.
Yours very truly,
[SIGNATURE OF OFFICER, DIRECTOR OR
MAJOR STOCKHOLDER]
[NAME AND ADDRESS OF OFFICER,
DIRECTOR OR MAJOR STOCKHOLDER]
<PAGE> 30
30
SCHEDULE I
<TABLE>
<CAPTION>
Number of Underwritten
Securities to be
Underwriters Purchased
- ------------ ---------
<S> <C>
Salomon Smith Barney Inc.............
CIBC World Markets Corp..............
ING Barings LLC......................
---------
---------
Total................. 4,000,000
</TABLE>
<PAGE> 31
31
SCHEDULE II
[TO COME]
<PAGE> 1
EXHIBIT 5.1
OPINION OF COOLEY GODWARD LLP
February 17, 2000
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., a Delaware corporation (the
"Company"), of a Registration Statement on Form S-3 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission"),
which Registration Statement covers the underwritten public offering of up to
4,600,000 shares of the Company's Common Stock with a par value of $0.001 (the
"Shares") (including 600,000 shares of Common Stock for which the underwriters
will be granted an over-allotment option). All of the Shares are to be sold by
the Company as described in the Registration Statement.
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus included therein, the Company's
Amended and Restated Certificate of Incorporation and 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. We have further
assumed that the price at which the Shares will be sold will have been approved
in a timely manner by the Pricing Committee of the Company's Board of Directors.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Shares, when sold 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 in the Registration Statement and to the filing of
this opinion as an exhibit to the Registration Statement.
Sincerely,
COOLEY GODWARD LLP
By: /s/ BRETT D. WHITE
------------------------------------
Brett D. White
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Avigen, Inc. for the
registration of 4,600,000 shares of its common stock and to the incorporation by
reference therein of our report dated August 6, 1999 with respect to the
financial statements of Avigen, Inc. included in its Annual Report (Form 10-K)
for the year ended June 30, 1999, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young
Palo Alto, California
February 16, 2000
