<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1996
REGISTRATION NO. 333-05209
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AVIRON
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 2836 77-0306986
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
------------------------
297 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 919-6500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
J. LEIGHTON READ, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
AVIRON
297 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 919-6500
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN C. MENDELSON, ESQ. ALAN K. AUSTIN, ESQ.
ROBERT J. BRIGHAM, ESQ. ELIZABETH R. FLINT, ESQ.
Cooley Godward Castro Huddleson & Tatum ELIZABETH M. KURR, ESQ.
Five Palo Alto Square Wilson, Sonsini, Goodrich & Rosati
3000 El Camino Real 650 Page Mill Road
Palo Alto, California 94306 Palo Alto, California 94304
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. / /
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AVIRON
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page
3. Summary Information; Risk Factors; and Ratio of
Earnings to Fixed Charges........................ Inside Front Cover Page; Summary; Risk Factors
4. Use of Proceeds................................... Use of Proceeds
5. Determination of Offering Price................... Outside Front Cover Page; Underwriting
6. Dilution.......................................... Dilution
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered........ Summary; Capitalization; Description of Capital Stock
10. Interests of Named Experts and Counsel............ Legal Matters; Experts
11. Information with Respect to the Registrant........ Outside Front and Inside Front Cover Pages; Summary;
Risk Factors; Dividend Policy; Capitalization; Selected
Financial Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions; Principal
Stockholders; Description of Capital Stock; Shares
Eligible for Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities...................................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 20, 1996
[LOGO]
3,000,000 SHARES
COMMON STOCK
All of the 3,000,000 shares of Common Stock offered hereby are being issued
and sold by Aviron (the "Company"). Prior to this offering there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price of the Common Stock will be between
$11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
Concurrent with this offering, the Company intends to sell 333,333 shares of
its Common Stock to Sang-A Pharm. Co., Ltd. ("Sang-A") in a private placement at
the initial public offering price (the "Sang-A Shares"), with the number of
shares to be sold to Sang-A subject to adjustment under certain conditions. See
"Business -- Collaborative Agreements" and "Underwriting."
----------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY (1)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total (2).......................................... $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $600,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 450,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
----------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California on or about , 1996.
ROBERTSON, STEPHENS & COMPANY
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
The date of this Prospectus is , 1996
<PAGE>
AVIRON USES BOTH ITS RATIONAL VACCINE DESIGN TECHNOLOGY AND
CLASSICAL METHODS OF LIVE VACCINE DISCOVERY
RATIONAL VACCINE DESIGN TECHNOLOGY
[Virus particle containing genetic
information; three segments are highlighted
to correspond with methods of modifying the
virus' genetic information.]
DELETE VIRULENCE ADD GENETIC INFORMATION
PROTEINS Insert genes to enhance
Remove genes for viral components the virus'
thought to be important in disease stimulation of the
mechanism immune system
[Virus particle containing genetic [Virus particle
information; one segment of genetic containing genetic
information being removed.] information; one
segment of genetic
information being
added.]
DOWN-REGULATE
REPLICATION
Alter genetic information used
by the virus in controlling its replication
["Tree" structure comprised of 15 dots
symbolizing virus replication; second
structure comprised of 3 dots symbolizing
virus' reduced ability to replicate.]
VACCINE CANDIDATES
SPECIES SELECTION FOREIGN CELL ADAPTION TO PHYSICAL
Strains originate from PASSAGE CONDITIONS
non-human species Human virus mutates as it Human virus mutates as it
is propagated in cells is propagated in cells
from non-human species under unusual conditions,
e.g., cold temperature
[Graphic of a chicken and [Graphic of cells (3) [Petri dishes (2), each
a cow.] sequentially connected by with a corresponding
arrows.] graphic representation of
a thermometer. One
thermometer shows a higher
temperature than the
other.]
CLASSICAL METHODS
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
"Aviron" is a trademark of the Company. Certain other trademarks of the
Company and other companies are used in this Prospectus.
<PAGE>
AVIRON'S PROPOSED NASAL SPRAY
VACCINE FOR INFLUENZA
Genes from Genes from cold
naturally-occurring adapted master
influenza viruses as influenza virus strain
selected by public
health authorities
[Silhouette of human [Virus particle with box [Virus particle with box
head with lines coming around 2 of 8 segments around 6 of 8 segments
from nasal area leading of genetic information. of genetic information.]
to virus particle to the ------------------------
right.] Dashed lines connecting
to second virus particle
with box around 6 of 8
segments.]
[Virus particle
containing 8 segments of
genetic information; six
segments of the same
color, two segments of
different colors.]
AVIRON'S INFLUENZA VACCINE
COMBINES GENES FROM
NATURALLY OCCURRING VIRUSES
WITH GENES FROM THE COLD
ADAPTED MASTER STRAIN
[Photograph of a human hand holding a device
which is used to administer a vaccine in an
aerosol spray (to the upper respitory
tract-not shown). A spray effect is shown
which serves as the backdrop for an image of
a virus particle to the upper right.]
THE POTENTIAL IMPACT OF INFLUENZA IN THE COMMUNITY
[Photo of five young [Photo of one child from [Photo of woman from
children playing with previous picture in bed previous picture now in
blocks in a pre-school at home with mother at an office setting with 5
setting. Lines bedside. Child is ill, other adults. Lines
symbolically show how a and is shown with symbolically show how the
virus spreads from one thermometer in mouth, virus might spread to
child to the next.] mother touching forehead, others in the room.]
tissues and medication
bottle by bedside. Mother
is on the telephone.
Lines symbolically show
virus spreading from
child to mother.]
AGE GROUP: Children 1-18
ESTIMATED INFLUENZA ATTACK RATE: 36 per 100
BURDEN OF ILLNESS: illness, doctor visits, middle ear
infections, school absenteeism,
parents' lost work
ESTIMATED UNITED STATES POPULATION: 69 million
AVIRON PRODUCT STATUS: Phase I/II studies conducted
<PAGE>
THE COMPANY'S COLD ADAPTED NASAL SPRAY VACCINE IS AN INVESTIGATIONAL BIOLOGIC
AND HAS NOT BEEN APPROVED FOR SALE IN ANY COUNTRY. THE COMPANY DOES NOT
ANTICIPATE APPLYING FOR REGULATORY APPROVAL TO MARKET THIS PROPOSED VACCINE FOR
SEVERAL YEARS, IF EVER, AND WILL BE REQUIRED TO SUCCESSFULLY COMPLETE CLINICAL
TRIALS TO DEMONSTRATE ITS SAFETY AND EFFICACY PRIOR TO FILING FOR REGULATORY
APPROVAL. SEE "RISK FACTORS."
IMMUNE RESPONSE TO INFLUENZA VACCINES
[Silhouette of human head and torso [Silhouette of human head and torso
within which is visible the within which is visible the
circulatory system (red). The figure circulatory system (red) and the
is receiving an injection in the upper respiratory tract (blue). The
upper arm by syringe. The injected figure is receiving an aerosol spray
vaccine forms a small pool of liquid directed into the nasal passages and
at the site of injection.] upper respiratory tract by nasal
spray administration.]
INJECTABLE INACTIVATED NASAL SPRAY
VACCINE VACCINE
- Strongly stimulates - Stimulates mucosal
circulating antibodies immunity in
respiratory tract
- Stimulates cell-mediated
immunity
- Stimulates circulating
antibodies
[Photo of man from previous picture [The elderly woman from the previous
(presumably infected with the virus) picture is shown ill in bed in a
visiting with his elderly mother in hospital setting. Some medical
her home. He is kneeling beside a equipment is visible to the left; a
chair in which she is sitting and he healthcare worker or nurse is at her
is presenting her with a gift. A bedside. She appears awake and
line symbolically shows the virus alert.]
being passed between them.]
Adults 19-65 Elderly over 65
16 per 100 10 per 100
illness, doctor visits, lost illness, doctor visits,
work hospitalization, death
159 million 32 million
Phase II studies conducted Clinical trials planned for
co-administration with
injectable inactivated vaccine
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 4
Risk Factors.............................................................. 7
Use Of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 26
Management................................................................ 51
Certain Transactions...................................................... 58
Principal Stockholders.................................................... 60
Description Of Capital Stock.............................................. 63
Shares Eligible For Future Sale........................................... 66
Underwriting.............................................................. 68
Legal Matters............................................................. 69
Experts................................................................... 69
Additional Information.................................................... 69
Index to Financial Statements............................................. F-1
</TABLE>
3
<PAGE>
SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND THE
FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Aviron is a biopharmaceutical company whose strategy is to focus on
prevention of disease. The Company's goal is to become a leader in the
discovery, development, manufacture and marketing of live virus vaccines which
are sufficiently cost effective to justify their use in immunization programs
targeting the general population. Live virus vaccines, such as those for
smallpox, polio, measles, mumps and rubella, have had a long record of success
in preventing, and in some cases eliminating, disease. The Company currently is
analyzing data from Phase I and Phase II clinical trials in children and adults
of its live cold adapted intranasal vaccine for influenza. The Company has
recently in-licensed a live intranasal vaccine for Parainfluenza Virus Type 3
("PIV-3") which has been tested by others in Phase I/II clinical trials. The
Company also is developing a subunit vaccine for Epstein-Barr Virus ("EBV"). In
addition, Aviron is using its proprietary "Rational Vaccine Design" technology
to discover new live virus vaccines. Rational Vaccine Design involves the
deletion or modification of virulence proteins, changes to the virus' genetic
control signals to slow down its replication, or addition of information to
enhance the virus' stimulation of the immune system. The Company is applying
this technology to develop candidates for the prevention of influenza in elderly
persons and diseases caused by Cytomegalovirus ("CMV"), Herpes Simplex Virus
Type 2 ("HSV-2") and Respiratory Syncytial Virus ("RSV").
Aviron's age-specific influenza programs address three distinct population
groups: children, adults and the elderly. Influenza affects 20 to 50 million
Americans each year resulting in approximately 20,000 deaths annually, primarily
in the elderly, despite the availability of an injectable inactivated vaccine
that has been reported to be 60% to 80% effective. The United States Food and
Drug Administration (the "FDA") estimates that approximately 75 million doses of
influenza vaccine were manufactured for use in the United States in 1995.
Experts suggest that, although over half of Americans at high risk for
complications from influenza receive the annual influenza vaccine, relatively
few of the 70 million children under the age of 18 are vaccinated.
To address the need for more convenient influenza prophylaxis, the Company
has in-licensed the rights to a cold adapted influenza vaccine from the
University of Michigan and the National Institute of Allergy and Infectious
Disease (the "NIAID"), a division of the National Institutes of Health (the
"NIH"). Formulations of this vaccine were tested in over 7,000 persons prior to
Aviron's acquisition of the vaccine, and subsequently have been studied in
clinical trials conducted by the Company involving over 700 children and adults.
The cold adapted influenza vaccine elicits an immune response similar to that of
the natural infection by stimulating mucosal immunity in the nose, cellular
components of the immune system and circulating antibodies. Aviron intends to
develop the cold adapted influenza vaccine for widespread annual use in children
and adults, and for co-administration with the injectable inactivated vaccine
for improved protection in the elderly. In addition, Aviron is developing a
genetically engineered influenza vaccine that is intended to be a better immune
stimulus in the elderly than either the cold adapted vaccine or the inactivated
vaccine alone, and therefore more suitable for use as a single-dose vaccine in
this population.
Aviron also is conducting research and development on additional vaccine
targets, including:
PARAINFLUENZA VIRUS TYPE 3. PIV-3 is a common respiratory virus of
childhood which causes croup, cough, fever and pneumonia. Over 80% of
children have been infected by age four, many having experienced several
cases of PIV-3 infection. The Company has in-licensed the rights to a bovine
PIV-3 ("bPIV-3") vaccine from the NIH which has been tested in over 100
infants and adults. Aviron intends to develop the bPIV-3 vaccine for use in
preventing childhood PIV-3 illness.
4
<PAGE>
EPSTEIN-BARR VIRUS. EBV infects most people at some point in their
lifetime. Half or more of the approximately 10% of students who first become
infected with the virus in high school and college develop infectious
mononucleosis. EBV also has been shown to be a contributing factor in the
development of certain types of cancer and lymphoma. The Company is
conducting preclinical evaluation of a subunit EBV vaccine candidate in
conjunction with SmithKline Beecham Biologicals S.A. ("SmithKline Beecham").
CYTOMEGALOVIRUS. Most people also become infected with CMV at some time
in their lives, but the resulting disease is typically serious only for
those with impaired immune systems or for babies of women infected in the
first trimester of pregnancy. The Company is developing and evaluating its
engineered vaccine candidates in preclinical models to create a prophylactic
vaccine.
HERPES SIMPLEX VIRUS TYPE 2. Genital herpes is an incurable disease
characterized by recurrent, often painful genital sores, with over 700,000
new cases estimated in the United States each year. The Company currently is
developing and evaluating vaccine candidates in preclinical models to create
a prophylactic vaccine.
RESPIRATORY SYNCYTIAL VIRUS. RSV is the major cause of lower
respiratory tract illness in the very young, responsible for over 90,000
hospitalizations and more than 4,000 deaths per year in the United States.
Aviron is using its proprietary technology to create candidate vaccines to
prevent RSV disease.
Aviron intends to enter into selected collaborative agreements to gain
access to complementary technologies, capabilities and financial support for its
programs. In addition to acquiring rights from third parties to augment its
Rational Vaccine Design technology and the cold adapted influenza vaccine
technology, the Company has entered into a collaborative agreement with
SmithKline Beecham covering worldwide rights to its EBV vaccine, and a
collaboration with Sang-A involving certain marketing and manufacturing rights
to its products in Korea.
The Company was incorporated in California in April 1992, and intends to
reincorporate in Delaware in June 1996. The Company's executive offices are
located at 297 North Bernardo Avenue, Mountain View, California 94043, and its
telephone number is (415) 919-6500.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the 3,000,000 shares
Company............................
Common Stock Outstanding After the 12,285,990 shares (1)
Offering...........................
Use of Proceeds..................... For research and development, including
preclinical testing and clinical trials;
capital expenditures; and working capital
and general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market AVIR
Symbol.............................
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 15, 1992 THREE MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
TO ------------------------------------ ------------------------
DECEMBER 31, 1992 1993 1994 1995 1995 1996
--------------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......................... $ -- $ -- $ -- $ 1,707 $ -- $ 188
Operating expenses:
Research and development.............. 320 2,073 4,216 10,220 3,088 3,044
General and administrative............ 470 1,874 2,493 3,252 701 1,063
----- ----------- ----------- ---------- ----------- -----------
Total operating expenses............ 790 3,947 6,709 13,472 3,789 4,107
----- ----------- ----------- ---------- ----------- -----------
Loss from operations.................... (790) (3,947) (6,709) (11,765) (3,789) (3,919)
Interest income, net of interest
expense................................ 37 175 207 362 32 183
----- ----------- ----------- ---------- ----------- -----------
Net loss................................ $ (753) $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736)
----- ----------- ----------- ---------- ----------- -----------
----- ----------- ----------- ---------- ----------- -----------
Pro forma net loss per share (2)........ $ (0.56) $ (0.73) $ (1.24) $ (0.41) $ (0.41)
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
Shares used in computing pro forma net
loss per share (2)..................... 6,696 8,948 9,183 9,062 9,223
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................................... $ 14,494 $ 51,374
Working capital..................................................................... 12,804 49,684
Total assets........................................................................ 17,275 54,155
Accumulated deficit................................................................. (26,192) (26,192)
Total stockholders' equity.......................................................... 14,167 51,047
</TABLE>
- ------------------------
(1) Includes the estimated 333,333 shares intended to be sold to Sang-A in a
private placement concurrent with this offering. Excludes (i) 643,480 shares
of Common Stock issuable upon exercise of options outstanding as of June 1,
1996, at a weighted average exercise price of approximately $1.22 per share,
(ii) an aggregate of 1,556,520 shares reserved for future grants or
purchases pursuant to the Company's 1996 Equity Incentive Plan, Employee
Stock Purchase Plan and Non-Employee Director Stock Option Plan, (iii)
118,395 shares issuable upon exercise of warrants outstanding as of June 1,
1996 at a weighted average exercise price of $6.65 per share, and (iv)
warrants to purchase 29,750 shares which become exercisable at the close of
the offering at 125% of the initial public offering price.
(2) See Note 1 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used to compute pro forma per share
amounts.
(3) As adjusted to give effect to the sale of 3,000,000 shares of Common Stock
at an assumed initial public offering price of $12.00 per share and the
estimated 333,333 shares intended to be sold to Sang-A in a private
placement concurrent with this offering, and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS REFLECTS A
ONE-FOR-FIVE REVERSE SPLIT OF THE COMPANY'S COMMON STOCK EFFECTED IN MAY 1996
AND ASSUMES (I) REINCORPORATION OF THE COMPANY IN DELAWARE PRIOR TO THE
OFFERING, (II) THE CONVERSION OF ALL OUTSTANDING SHARES OF ITS PREFERRED STOCK
INTO SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING AT A RATE OF ONE
SHARE OF COMMON STOCK FOR FIVE SHARES OF PREFERRED STOCK, AND (III) NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
The following risk factors should be considered carefully in evaluating the
Company and its business before purchasing shares of the Common Stock offered
hereby.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining required regulatory approvals for the commercial sale of
any of its products under development, the Company must demonstrate through
preclinical testing and clinical trials that each product is safe and effective
for use in each target indication. The results from preclinical testing and
early clinical trials may not be predictive of results obtained in later
clinical trials and large-scale testing. Companies in the pharmaceutical,
biopharmaceutical and biotechnology industries have suffered significant
setbacks in various stages of clinical trials, even in advanced clinical trials
after promising results had been obtained in earlier trials. The Company's
vaccines are intended for use primarily in healthy individuals. To obtain
regulatory approval, the Company must demonstrate safety and efficacy in healthy
people which likely will require a lengthier process and involve a larger number
of trials and patients than would be customary for clinical trials of
therapeutics for disease management. There can be no assurance that the
Company's clinical trials will demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals or will result in marketable products.
The Company recently completed a Phase II challenge study of its cold adapted
influenza vaccine in adults. Preliminary analysis of the results indicated a
very low level of illness in both the placebo and treated groups, and the
Company believes that this study is unlikely to show statistically significant
efficacy in preventing influenza. Regardless of the results of this study, the
Company intends to discuss with the FDA its plans to proceed directly to Phase
III clinical trials in adults and does not intend to conduct other challenge
studies. If the Company's cold adapted influenza vaccine is not shown to be safe
and effective in Aviron's clinical trials, the resulting delays in developing
this and other vaccine candidates and conducting related preclinical testing and
clinical trials, as well as the need for additional financing, would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's cold adapted influenza vaccine is based on technology licensed
from the NIH and the University of Michigan. Wyeth-Ayerst Laboratories
("Wyeth-Ayerst"), a division of American Home Products Corporation, licensed
certain rights to the vaccine in 1989 and was developing it for sale in
collaboration with the NIH until relinquishing its rights in 1993. In addition,
Kaketsuken, a Japanese research foundation ("Kaketsuken"), licensed certain
rights to the vaccine in 1993 and was developing it for sale in Japan until
relinquishing such rights in 1996. Formulations of the vaccine have been the
subject of a number of clinical trials performed by Wyeth-Ayerst, the NIAID of
the NIH and Kaketsuken. The Company has reviewed the data from these trials and
believes that it can submit such data in partial support of its application for
regulatory approval from the FDA. The Company did not participate in these
trials and cannot be confident in the accuracy of the data collected. Although a
large proportion of this data was positive, a number of trials included results
that were not. Very few of the trials involved a trivalent vaccine delivered
through nasal spray. The Company will need to perform additional trials of its
vaccine candidate to support its application to the FDA. There can be no
assurance that the data from these third-party trials is accurate, that the
Company will be able to obtain favorable results from its own trials, or that
the Company can complete these trials on a timely basis, or at all. See
"Business -- Influenza Clinical Trials."
The rate of completion of the Company's clinical trials may be delayed by
many factors. For example, delays may be encountered in enrolling a sufficient
number of patients fitting the appropriate trial profile, preparing the modified
vaccine strain for certain influenza seasons, or in manufacturing clinical trial
materials. The Company's late-stage clinical trials of its cold adapted
influenza vaccine must be conducted during the influenza season and must be
commenced early enough in the approximately five-month season so that subjects
may be vaccinated well in advance of a challenge by the wild-type virus.
Additionally, there is a risk that there will not be enough natural influenza in
the community in a given influenza season to achieve statistically significant
results
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from clinical trials. As a result, if the Company is unable to commence its
clinical trials on a timely basis, it will be required to wait until the next
influenza season, which will not occur for another year in that country. There
can be no assurance that delays in, or termination of, clinical trials will not
occur. Any delays in, or termination of, the Company's clinical trial efforts
would have a material adverse effect on the Company's business, financial
condition and results of operations.
There can be no assurance that Aviron will be permitted by regulatory
authorities to undertake additional clinical trials for its cold adapted
influenza vaccine or initiate clinical trials for its other programs or, if any
such trials are conducted, that any of the Company's product candidates will
prove to be safe and effective or will receive regulatory approvals. See
"Business -- Vaccine Products Under Development."
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
Aviron commenced its operations in April 1992 and until recently was a
development stage company. All of the Company's product candidates are in the
research or development stage. With the exception of two in-licensed product
candidates, none of the Company's proposed products has yet been approved for
clinical trials. To date, the Company has had no revenue from product sales and
all of its resources have been dedicated to the development of vaccines. There
can be no assurance that product revenues will be realized on a timely basis, if
ever.
The development of safe and effective vaccines for the prevention of viral
diseases such as influenza, herpes simplex and other target diseases is highly
uncertain and subject to numerous risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found ineffective or cause harmful side
effects during preclinical testing or clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. Aviron has not yet
requested or received the regulatory approvals that are required to market its
products. Aviron does not expect that any of its proposed products will be ready
for commercialization for the next several years, if at all. To achieve
profitability, the Company, alone or with others, must successfully identify,
develop, test, manufacture and market its products. There can be no assurance
that Aviron will succeed in the development and marketing of any product. Any
potential product will require significant additional investment, development,
preclinical testing and clinical trials prior to potential regulatory approval
and commercialization.
The Company's cold adapted influenza vaccine involves a complex development
process. If the Company were to successfully develop an influenza vaccine, its
composition would require annual modification. Influenza viruses have a high
mutation rate and the surface antigens of influenza viruses that induce
protective immunity are variable from year to year. Each spring, the FDA and the
United States Centers for Disease Control and Prevention (the "CDC") select
circulating influenza strains that will be included in the following season's
influenza vaccines. As a result, manufacturers of vaccines must modify their
influenza vaccines each year to include the selected strains in a form that
meets FDA guidelines within an approximately six-month period in order to make
it available before the influenza season. On one occasion in the past, the
Company experienced difficulty in preparing modified vaccine strains in time to
conduct clinical trials during the influenza season. Even if the Company is able
to develop an influenza vaccine for a particular year, it must also establish a
dependable process by which the vaccine may be modified and manufactured on a
timely basis to include additional strains each year. If the Company were unable
to develop an influenza vaccine for a particular year that meets FDA and CDC
guidelines and establish a manufacturing process for the vaccine, its business,
financial condition and results of operations would be materially adversely
affected. No assurance can be given that delays in preparing vaccines for use in
clinical trials or commercial sales will not be encountered. In addition, there
can be no assurance that the Company's development efforts will be successful,
that required regulatory approvals, including those with respect to
Investigational New Drug ("IND") applications, will be obtained or that any
products, if introduced, will be successfully marketed. See "Business -- Vaccine
Products Under Development."
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NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
The Company's operations to date have consumed substantial and increasing
amounts of cash. The negative cash flow from operations is expected to continue
and to accelerate in the foreseeable future. The development of the Company's
technology and proposed products will require a commitment of substantial funds
to conduct the costly and time-consuming research, preclinical testing and
clinical trials necessary to develop and optimize such technology and proposed
products, to establish manufacturing and marketing capabilities and to bring any
such products to market. The Company's future capital requirements will depend
upon many factors, including continued scientific progress in the research and
development of the Company's technology and vaccine programs, the size and
complexity of these programs, the ability of the Company to establish and
maintain collaborative arrangements, progress with preclinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the cost involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims or trade secrets, and product commercialization activities.
The Company anticipates that the proceeds of this offering and the sale of
the Sang-A Shares, together with the interest thereon, and revenues from
existing collaborations, cash, cash equivalents and short-term investments will
enable it to maintain its current and planned operations at least through 1997.
The Company is actively seeking additional collaborative agreements with
corporate partners and may seek additional funding through public or private
equity or debt financing. There can be no assurance that any additional
collaborative agreements will be entered into or that additional financing will
be available on acceptable terms, if at all. If additional funds are raised by
issuing equity securities, further dilution to stockholders may result. If
adequate funds are not available, the Company may be required to delay, reduce
the scope of, or eliminate one or more of its research or development programs
or to obtain funds through collaborative arrangements with others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or products that the Company would otherwise seek to develop or
commercialize itself. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS
The Company currently does not have the facilities to manufacture products
for large-scale clinical trials or in commercial quantities and has no
experience in commercial-scale manufacturing. To manufacture its products for
large-scale clinical trials or on a commercial scale, the Company will have to
build or gain access to a large-scale manufacturing facility which will require
a significant amount of funds. The Company currently is evaluating the costs and
benefits of developing internal manufacturing capabilities or contracting with
third-party manufacturers. The production of the Company's cold adapted
influenza vaccine is subject to the availability of a large number of
pathogen-free hen eggs, for which there are currently a limited number of
suppliers. Contamination or disruption of this source of supply would adversely
affect the ability to manufacture the Company's cold adapted influenza vaccine.
In addition, to make the vaccine available for clinical trials or commercial
sales before the influenza season, the Company must successfully modify the
vaccine within a six-month period to include selected strains for a particular
year in time for manufacturing and distribution. The Company currently is
considering whether to construct manufacturing facilities capable of producing
both pilot-scale and commercial quantities of its potential vaccine products and
is presently building a pilot manufacturing facility. This scale-up process will
require the Company to develop advanced manufacturing techniques and rigorous
process controls. Furthermore, the Company will be required to register its
facility with the FDA and with the California Department of Health Services and
will be subject to state and federal inspections confirming the Company's
compliance with current Good Manufacturing Practices ("cGMP") regulations
established by the FDA. No assurance can be given as to the ability of the
Company to produce commercial quantities of its potential products in compliance
with applicable regulations or at an acceptable cost, if at all.
The Company is alternatively considering the use of contract manufacturers
for the commercial production of its potential products. The Company currently
relies on Evans Medical Limited, a subsidiary of Medeva plc ("Evans"), for the
manufacture of its influenza vaccine for clinical trials. The Company is aware
of only a limited number of manufacturers which it believes have the ability and
capacity to manufacture its potential products, including the cold adapted
influenza vaccine, in a timely manner. There can be no assurance that the
Company would be able to contract with any of these manufacturers for the
manufacture of its products on acceptable
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terms, if at all. If the Company enters into an agreement with a third-party
manufacturer, it will be required to relinquish control of the manufacturing
process, which might adversely affect the Company's results of operations.
Furthermore, a third-party manufacturer also will be required to manufacture the
Company's products in compliance with state and federal regulations. Failure of
any such third-party manufacturer to comply with state and federal regulations
and to deliver the required quantities on a timely basis and at commercially
reasonable prices would materially adversely affect the Company's business,
financial condition and results of operations. No assurance can be given that
the Company, alone or with a third party, will be able to make the transition to
commercial-scale production of its potential products successfully, if at all,
or that if successful, the Company will be able to maintain such production. See
"Business -- Manufacturing" and "-- Government Regulation."
UNCERTAINTY OF FUTURE PROFITABILITY; ACCUMULATED DEFICIT
The Company has experienced significant and increasing operating losses
since its inception in April 1992. As of March 31, 1996, the Company had an
accumulated deficit of approximately $26.2 million. Aviron has not received any
product revenue to date and does not expect to generate revenues from the sale
of products for several years, if at all. The Company expects to incur
significant and increasing operating losses over at least the next several years
as the Company's research and development efforts and preclinical testing and
clinical trial activities expand. The Company's ability to achieve profitability
depends in part upon its ability, alone or with others, to complete development
of its proposed products, to obtain required regulatory approvals and to
successfully manufacture and market such products. To the extent that the
Company is unable to obtain third-party funding for expenses, the Company
expects that its increased expenses will result in increased losses from
operations. There can be no assurance that Aviron will obtain required
regulatory approvals or successfully identify, develop, test, manufacture and
market any product candidates, or that the Company will ever achieve product
revenues or profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS; DEPENDENCE ON TRADE
SECRETS
The Company's success will depend in part on its ability to maintain its
technology licenses, maintain trade secrets, obtain patents and operate without
infringing the proprietary rights of others, both in the United States and in
other countries. Since patent applications in the United States are maintained
in secrecy until patents issue and since publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, the Company
cannot be certain that it was the first to make the inventions covered by each
of its pending patent applications or that it was the first to file patent
applications for such inventions. The patent positions of biotechnology and
pharmaceutical companies can be highly uncertain and involve complex legal and
factual questions, and therefore the breadth of claims allowed in biotechnology
and pharmaceutical patents, or their enforceability, cannot be predicted. There
can be no assurance that any of the Company's patents or patent applications
will issue or, if issued, will not be challenged, invalidated or circumvented,
or that the rights granted thereunder will provide proprietary protection or
competitive advantages to the Company.
The commercial success of Aviron also will depend, in part, upon the
Company's not infringing patents issued to others. A number of pharmaceutical
companies, biotechnology companies, universities and research institutions have
filed patent applications or received patents in the areas of the Company's
programs. Some of these applications or patents may limit or preclude the
Company's applications, or conflict in certain respects with claims made under
the Company's applications.
On May 22, 1996, the Company received notice from Chiron Corporation
("Chiron") that Chiron intends to file a lawsuit against Aviron, unless a prompt
negotiated settlement can be reached, alleging that certain of Aviron's patent
applications relating to its EBV program are based on Chiron proprietary
information which was improperly conveyed to Aviron by a former Chiron employee.
Aviron believes that Chiron's allegations are without merit and, if a complaint
is filed, intends to vigorously defend itself against any such action. Aviron
does not utilize the alleged proprietary information in any of its programs. The
Company has received terms of a proposed settlement from Chiron and is in
discussions with Chiron regarding a possible settlement of the dispute. No
assurance can be given that litigation will not ensue, which could be costly and
time-consuming.
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The Company is aware of pending patent applications that have been filed by
others that may pertain to certain aspects of the Company's programs or its
issued or pending patent applications. If patents have been or are issued to
others containing preclusive or conflicting claims and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. No
assurance can be given that patents have not been issued, or will not be issued,
to third parties that contain preclusive or conflicting claims with respect to
the cold adapted influenza vaccine or any of the Company's other programs. The
Company's breach of an existing license or failure to obtain a license to
technology required to commercialize its products may have a material adverse
effect on the Company's business, financial condition and results of operations.
Litigation, which could result in substantial costs to the Company, may also be
necessary to enforce any patents issued to the Company or to determine the scope
and validity of third-party proprietary rights. If competitors of the Company
prepare and file patent applications in the United States that claim technology
also claimed by the Company, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to the
Company, even if the eventual outcome is favorable to the Company. An adverse
outcome could subject the Company to significant liabilities to third parties
and require the Company to license disputed rights from third parties or to
cease using such technology.
The Company has no issued patents on the technology related to its cold
adapted influenza vaccine. The Company's rights to this technology are based on
a license of materials and know-how from the University of Michigan, which owns
the master strains from which the vaccine is derived, and on a license of
know-how and clinical trial data from the NIH. There can be no assurance that a
third party will not reproduce the Company's cold adapted influenza vaccine or
that a third party will not develop another live-virus influenza vaccine which
might be comparable to Aviron's in terms of safety and effectiveness.
The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. Certain of the Company's licensors also rely on trade secrets to
protect technology which has been licensed to Aviron, and as a result, the
Company is dependent on the efforts of such licensors to protect such trade
secrets. For example, the University of Michigan relies, in part, on trade
secrets to protect the master strains of the cold adapted influenza virus used
by the Company. Aviron protects its proprietary technology and processes, in
part, by confidentiality agreements with its employees, consultants,
collaborators and certain contractors. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets or those of its licensors
will not otherwise become known or be independently discovered by competitors.
To the extent that Aviron or its consultants or research collaborators use
intellectual property owned by others in their work for the Company, disputes
may also arise as to the rights in related or resulting know-how and inventions.
See "Business -- Patents and Proprietary Rights."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
The production and marketing of the Company's products and its ongoing
research and development activities are subject to extensive regulation by
numerous government authorities in the United States and other countries. Prior
to marketing in the United States, any product developed by the Company must
undergo rigorous preclinical testing and clinical trials and an extensive
regulatory approval process implemented by the FDA under the Food, Drug and
Cosmetic Act. Satisfaction of such regulatory requirements, which includes
demonstrating that the product is both safe and effective, typically takes
several years or more depending upon the type, complexity and novelty of the
product and requires the expenditure of substantial resources. This process may
be more demanding for vaccines intended for use in healthy people compared to
therapeutics used for treatment of people with diseases. Preclinical studies
must be conducted in compliance with the FDA's Good Laboratory Practice ("GLP")
regulations. Clinical testing must meet requirements for Institutional Review
Board ("IRB") oversight and informed consent, as well as FDA prior review,
oversight and good clinical practice requirements. The Company has limited
experience in conducting and managing the clinical trials necessary to obtain
regulatory approval. Furthermore, the Company or the FDA may suspend clinical
trials at any time if it believes that the subjects participating in such trials
are being exposed to unacceptable health risks.
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Before receiving FDA approval to market a product, the Company will have to
demonstrate that the product is safe and effective and represents an improved
form of health management compared to existing approaches. Data obtained from
preclinical testing and clinical trials are susceptible to varying
interpretations which could delay, limit or prevent regulatory approvals. In
addition, delays or rejections may be encountered based upon additional
government regulation from future legislation or administrative action or
changes in FDA
policy during the period of product development, clinical trials and FDA
regulatory review. Similar delays may also be encountered in foreign countries.
There can be no assurance that even after such time and expenditures, regulatory
approval will be obtained for any products developed by the Company. If
regulatory approval of a product is granted, such approval will be limited to
those specific segments of the population for which the product is effective, as
demonstrated through clinical trials. Furthermore, approval may entail ongoing
requirements for post-marketing studies. Even if such regulatory approval is
obtained, a marketed product, its manufacturer and its manufacturing facilities
are subject to continual review and periodic inspections. The regulatory
standards for manufacturing are currently being applied stringently by the FDA.
Discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
costly recalls or even withdrawal of the product from the market. There can be
no assurance that any product developed by the Company alone or in conjunction
with others will prove to be safe and efficacious in clinical trials and will
meet all of the applicable regulatory requirements needed to receive marketing
approval.
Outside the United States, the Company's ability to market a product is
contingent upon receiving marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Union (the "EU"), procedures
are available to companies wishing to market a product in more than one EU
member state. If the regulatory authorities are satisfied that adequate evidence
of safety, quality and efficacy has been presented, a marketing authorization
will be granted. This foreign regulatory approval process includes all of the
risks associated with FDA approval set forth above. See "Business -- Government
Regulation."
INTENSE COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE
The Company operates in a rapidly evolving field. Any product developed by
the Company would compete with existing and new drugs and vaccines being created
by pharmaceutical, biopharmaceutical and biotechnology companies. If the Company
were able to successfully develop its vaccines, it would be competing with
larger companies that have already introduced vaccines and have significantly
greater marketing, manufacturing, financial and managerial resources. For
example, with respect to its cold adapted influenza vaccine, the Company will be
competing against larger companies such as Pasteur Merieux Connaught,
Wyeth-Ayerst, Parke-Davis Group ("Parke-Davis"), a subsidiary of Warner-Lambert
Company, and Evans. Each of these companies sell the injectable inactivated
influenza vaccine in the United States, have significantly greater financial
resources than Aviron and have established marketing and distribution channels
for such products. The Company is also aware of several companies that are
marketing or are in late-stage development of products to prevent CMV or HSV
disease, including Glaxo Wellcome plc ("Glaxo"), SmithKline Beecham and Chiron
Biocine Corporation. In addition, the Company is aware of the use in Russia of a
cold adapted influenza vaccine, research programs by some of the competitors
listed above, among others, to develop more effective influenza vaccines and a
cold adapted PIV-3 vaccine developed with NIH support which may be licensed to a
large vaccine company.
New developments are expected to continue in both the pharmaceutical and
biotechnology industries and in academia. Other companies may succeed in
developing products that are safer, more effective or less costly than any that
may be developed by the Company. Such companies may also be more effective than
the Company in the production and marketing of their products. Furthermore,
rapid technological development by competitors may result in the Company's
products becoming obsolete before the Company is able to recover its research,
development or commercialization expenses incurred in connection with any such
product. Many potential competitors have substantially greater financial,
technical and marketing resources than the Company. Some of these companies also
have considerable experience in preclinical testing, clinical trials and other
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regulatory approval procedures. Moreover, certain academic institutions,
government agencies and other research organizations are conducting research in
areas in which the Company is working. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. These institutions
may also market competitive commercial products on their own or through joint
ventures.
Aviron believes that competition in the markets it is addressing will
continue to be intense. The vaccine industry is characterized by intense price
competition, and the Company anticipates that it will face this and other forms
of competition. There can be no assurance that pharmaceutical, biopharmaceutical
and biotechnology companies will not develop more effective products than those
of the Company or will not market and sell their products more effectively than
the Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Competition."
DEPENDENCE ON COLLABORATIVE AGREEMENTS
The Company's strategy for the development, clinical trials, manufacturing
and commercialization of certain of its products includes maintaining and
entering into various collaborations with corporate partners, licensors,
licensees and others. There can be no assurance that the Company will be able to
maintain existing collaborative agreements, negotiate collaborative arrangements
in the future on acceptable terms, if at all, or that any such collaborative
arrangements will be successful. To the extent that the Company is not able to
maintain or establish such arrangements, the Company would be required to
undertake product development and commercialization activities at its own
expense, which would increase the Company's capital requirements or require the
Company to limit the scope of its development and commercialization activities.
In addition, the Company may encounter significant delays in introducing its
products into certain markets or find that the development, manufacture or sale
of its products in such markets is adversely affected by the absence of such
collaborative agreements.
In October 1995, the Company signed an agreement with SmithKline Beecham
defining a collaboration on the Company's EBV vaccine technology (the "SB
Agreement"). Under the terms of the SB Agreement, the Company granted SmithKline
Beecham an exclusive license to produce, use and sell non-live EBV vaccines
incorporating the Company's technology for prophylactic and therapeutic uses on
a worldwide basis, except in South and North Korea (together, "Korea").
SmithKline Beecham made an initial upfront payment to the Company and agreed to
make additional payments upon the achievement of certain product development
milestones. No assurance can be given, however, that the Company will receive
any additional payments from SmithKline Beecham or that SmithKline Beecham will
not terminate its agreement with the Company. The SB Agreement may be terminated
by SmithKline Beecham with respect to any country at any time. In May 1995, the
Company entered into a Development and License Agreement with Sang-A. The
Company granted to Sang-A exclusive clinical development, manufacturing and
marketing rights in Korea for specified products developed by Aviron, including
vaccines for influenza (cold adapted and recombinant), EBV, CMV, HSV-2 and RSV.
Sang-A also will make payments to the Company upon the Company's meeting certain
regulatory milestones for each product in Korea and will pay a royalty to the
Company on net sales of such products in Korea. No assurance can be given,
however, that the Company will receive any payments from Sang-A or that Sang-A
will not terminate its agreement with the Company.
The Company cannot control the amount and timing of resources which its
collaborative partners devote to the Company's programs or potential products,
which may vary because of factors unrelated to the potential products. If any of
the Company's collaborative partners breach or terminate their agreements with
the Company or otherwise fail to conduct their collaborative activities in a
timely manner, the preclinical or clinical development or commercialization of
product candidates or research programs will be delayed, and the Company would
be required to devote additional resources to product development and
commercialization, or terminate certain development programs. These
relationships generally may be terminated at the discretion of the Company's
collaborative partners, in some cases with only limited notice to the Company.
The termination of collaborative arrangements could have a material adverse
effect on the Company's business, financial condition and results of operations.
There also can be no assurance that disputes will not arise in the future with
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respect to the ownership of rights to any technology developed with third
parties. These and other possible disagreements between collaborators and the
Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates, or could result in litigation
or arbitration, which would be time consuming and expensive, and would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, Aviron's collaborative partners may develop, either alone or
with others, products that compete with the development and marketing of the
Company's products. Competing products of the Company's collaborative partners
may result in their withdrawal of support with respect to all or a portion of
the Company's technology, which would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Collaborative Agreements."
UNCERTAINTY OF MARKET ACCEPTANCE
Even if the requisite regulatory approvals are obtained for the Company's
potential products, uncertainty exists as to whether such products will be
accepted in United States or foreign markets. The Company believes, for example,
that widespread use of the Company's proposed vaccines in the United States is
unlikely without positive recommendations from the Advisory Committee on
Immunization Practices (the "ACIP") of the CDC, the American Academy of
Pediatrics or the American College of Physicians. There can be no assurance that
such authorities will recommend the use of the Company's proposed products. The
lack of such recommendations would have a material adverse effect on the
Company's business, financial condition and results of operations.
A number of additional factors may affect the rate and overall market
acceptance of Aviron's cold adapted influenza vaccine and any other products
which may be developed by the Company, including the rate of adoption of
Aviron's vaccines by health care practitioners, the rate of vaccine acceptance
by the target population, the timing of market entry relative to competitive
products, the availability of alternative technologies, the price of the
Company's products relative to alternative technologies, the availability of
third-party reimbursement and the extent of marketing efforts by the Company,
collaborative partners and third-party distributors or agents retained by the
Company. Side effects or unfavorable publicity concerning Aviron's products or
any product incorporating live virus vaccines could have an adverse effect on
the Company's ability to obtain physician, patient or third-party payor
acceptance and efforts to sell the Company's products. The Company's current
formulation of the cold adapted influenza vaccine for clinical trials requires
frozen storage, which may adversely affect market acceptance in certain foreign
countries where adequate refrigeration is not commonly available. There can be
no assurance that physicians, patients or third-party payors will accept new
live virus vaccine products or any of the Company's products as readily as other
types of vaccines, or at all. See "Business -- Vaccine Products Under
Development."
LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
The Company currently has no sales, marketing or distribution capability. To
market any products, Aviron must either obtain the assistance of a third party
with a suitable distribution system, develop a direct sales and marketing staff
of its own or combine the efforts of a third party with its own efforts. Other
than SmithKline Beecham and Sang-A, the Company to date has no agreements for
marketing or distributing its potential products.
The success and commercialization of the Company's products is dependent in
part upon the ability of the Company to maintain and enter into additional
collaborative agreements with corporate partners for the development, testing
and marketing of certain of its vaccines and upon the ability of these third
parties to perform their responsibilities. Although Aviron believes that parties
to any such arrangements would have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of
resources devoted to these activities will not be within the control of the
Company. There can be no assurance that any such agreements or arrangements will
be available on terms acceptable to the Company, if at all, that such third
parties would perform their obligations as expected, or that any revenue would
be derived from such arrangements. If Aviron is not able to enter into such
agreements or arrangements, it could encounter delays in introducing its
products into the market or be forced to limit the scope of its
commercialization activities. If the
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Company were to market products directly, significant additional expenditures,
management resources and time would be required to develop a sales and marketing
staff within the Company. In addition, the Company would also be competing with
other companies that currently have experienced and well-funded marketing and
sales operations. There can be no assurance that the Company will be able to
establish its own sales and marketing force or that any such force, if
established, would be successful. See "Business -- Marketing and Sales" and "--
Collaborative Agreements."
VOLATILITY OF COMMON STOCK PRICE
The market prices for securities of pharmaceutical, biopharmaceutical and
biotechnology companies have historically been highly volatile. The market has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. In addition,
factors such as fluctuations in the Company's operating results, future sales of
Common Stock, announcements of technological innovations or new therapeutic
products by the Company or its competitors, announcements of collaborators,
clinical trial results, government regulation, developments in patent or other
proprietary rights, public concern as to the safety of drugs developed by the
Company or others, comments made by securities analysts and general market
conditions can have an adverse effect on the market price of the Common Stock.
In particular, the realization of any of the risks described in these "Risk
Factors" could have a significant and adverse impact on such market price.
RISK OF PRODUCT LIABILITY; UNCERTAINTY OF AVAILABILITY OF INSURANCE
The Company's business exposes it to potential product liability risks that
are inherent in the testing, manufacturing and marketing of vaccines. The
Company has obtained clinical trial liability insurance for its clinical trials,
but there can be no assurance that it will be able to maintain adequate
insurance for its clinical trials. The Company also intends to seek product
liability insurance in the future for products approved for marketing, if any.
However, no assurance can be given that the Company will be able to acquire or
maintain insurance or that insurance can be acquired or maintained at a
reasonable cost or in sufficient amounts to protect the Company. There can be no
assurance that insurance coverage and the resources of the Company would be
sufficient to satisfy any liability resulting from product liability claims. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on its business, financial
condition and results of operations. The Company intends to seek inclusion of
certain of its products in the United States National Vaccine Injury
Compensation Program, a no-fault compensation program for claims against vaccine
manufacturers, which administers a trust funded by excise taxes on sales of
certain recommended childhood vaccines. There can be no assurance that this
government program will continue or that the Company's proposed vaccines will be
included in the program.
UNCERTAINTY RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Recent initiatives to
reduce the federal deficit and to reform health care delivery are increasing
cost-containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause the Company or its
collaborative partners to limit or eliminate spending on development projects.
Legislative debate is expected to continue in the future, and market forces are
expected to demand reduced costs. Aviron cannot predict what impact the adoption
of any federal or state health care reform measures or future private sector
reforms may have on its business.
In both domestic and foreign markets, sales of the Company's proposed
vaccines will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services. Significant
15
<PAGE>
uncertainty exists as to the reimbursement status of newly approved health care
products. There can be no assurance that the Company's proposed products will be
considered cost effective or that adequate third-party reimbursement will be
available to enable Aviron to maintain price levels sufficient to realize an
appropriate return on its investment in product development. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for medical products. If adequate
coverage and reimbursement levels are not provided by the government and
third-party payors for the Company's products, the market acceptance of these
products would be adversely affected, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS
The Company is highly dependent on the principal members of its scientific
and management staff. In addition, the Company relies on consultants and
advisors, including its scientific advisors, to assist the Company in
formulating its research and development strategy. Attracting and retaining
qualified personnel, consultants and advisors will be critical to the Company's
success. To pursue its product development and marketing plans, the Company will
be required to hire additional qualified scientific personnel to perform
research and development, as well as personnel with expertise in conducting
clinical trials, government regulation, manufacturing and marketing and sales.
Expansion in product development and marketing is also expected to require the
addition of management personnel and the development of additional expertise by
existing management personnel. The Company faces competition for qualified
individuals from numerous pharmaceutical, biopharmaceutical and biotechnology
companies, universities and other research institutions. There can be no
assurance that the Company will be able to attract and retain such individuals.
In addition, a portion of the Company's research and development is
conducted under sponsored research programs with several universities and
research institutions. The Company depends on the availability of a principal
investigator for each such program, and the Company cannot assure that these
individuals or their research staffs will be available to conduct research and
development for Aviron. The Company's academic collaborators are not employees
of the Company. As a result, the Company has limited control over their
activities and can expect that only limited amounts of their time will be
dedicated to Company activities. The Company's academic collaborators may have
relationships with other commercial entities, some of which could compete with
the Company. See "Business -- Scientific Advisory Board" and "Management."
RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
The Company's research and development involves the controlled use of
hazardous materials, chemicals, various radioactive substances and viruses.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company. The Company may incur substantial
costs to comply with environmental regulations if the Company develops
manufacturing capacity.
DILUTION
The assumed initial public offering price is substantially higher than the
pro forma net tangible book value per share of the Company's Common Stock.
Investors purchasing shares of Common Stock in this offering and the Sang-A
Shares will therefore incur immediate, substantial dilution of approximately
$7.82 per share. In addition, investors purchasing shares of Common Stock in
this offering will incur additional dilution to the extent outstanding options
and warrants are exercised. See "Dilution."
NO PRIOR PUBLIC MARKET
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that a regular trading market will
develop and continue after this offering or that the market price
16
<PAGE>
of the Common Stock will not decline below the initial public offering price.
The initial public offering price will be determined through negotiations
between the Company and the Representatives of the Underwriters and may not be
indicative of the market price of the Common Stock following this offering.
Among the factors considered in such negotiations will be prevailing market
conditions, certain financial information of the Company, market valuations of
other companies that the Company and the Representatives of the Underwriters
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant. See "Underwriting."
POTENTIAL ADVERSE EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial amount of Common Stock in the public market following
this offering could adversely affect the market price for the Company's Common
Stock. Upon completion of this offering and the sale of the Sang-A Shares, the
Company will have 12,285,990 shares of Common Stock outstanding. In addition to
the 3,000,000 shares of Common Stock offered hereby, approximately 149,329
shares will be available for sale in the public market upon the effective date
of the Registration Statement pursuant to subsection (k) of Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Act"). Approximately 37,395
shares of Common Stock will be available for sale in the public market pursuant
to Rule 144 or Rule 701 under the Act beginning 90 days after the date of this
Prospectus, subject in certain cases to volume and manner of sale restrictions.
In addition, 283,160 shares subject to vested options will be available for sale
90 days after the date of this Prospectus pursuant to Rule 701. Beginning 180
days from the date of this Prospectus, 5,311,881 shares of outstanding, 33,726
shares subject to additional vested options and 148,145 shares subject to
exercisable warrants will be available for sale, subject in certain cases to
volume limitations, upon the expiration of agreements not to sell such
outstanding shares or shares subject to such options. Robertson, Stephens &
Company may, in its sole discretion and at any time without notice, release all
or any portion of the shares subject to lock-up agreements. Additional shares
held by existing shareholders will become eligible for sale from time to time in
the future. After this offering, the holders of approximately 8,433,659 shares
of Common Stock and warrants to purchase approximately 148,145 shares of Common
Stock will be entitled to certain demand and piggyback registration rights with
respect to registration of such shares under the Act. If such holders, by
exercising their demand or piggyback registration rights, cause a large number
of securities to be registered and sold in the public market, such sales could
have an adverse effect on the market price for the Company's Common Stock. If
the Company were to include in a Company-initiated registration shares held by
such holders pursuant to the exercise of their piggyback registration rights,
such sales may have an adverse effect on the Company's ability to raise needed
capital. See "Shares Eligible for Future Sale" and "Underwriting."
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company's 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 Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. While the Company has no present intention to
issue shares of Preferred Stock, such issuance, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. In addition,
the Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 could have the effect of delaying or preventing a
change of control of the Company. The Company's Certificate of Incorporation
provides for staggered terms for the members of the Board of Directors. The
staggered Board of Directors and certain other provisions of the Company's
Certificate of Incorporation and Bylaws may have the effect of delaying or
preventing changes in control or management of the Company, which could
adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter
Provisions."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be $32.9 million ($37.9 million if the
Underwriters' over-allotment option is exercised in full) after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company. In addition, the net proceeds to the Company from the sale of
the Sang-A Shares are estimated to be $4.0 million.
The Company anticipates using approximately $24.0 million of the net
proceeds from this offering and from the sale of the Sang-A Shares for product
research and development, including preclinical testing and clinical trials and
approximately $8.0 million for capital expenditures. The balance of the net
proceeds will be used for working capital and general corporate purposes. The
amounts and timing of the expenditures for these purposes may vary significantly
depending on numerous factors, such as the status of the Company's research and
development efforts, the regulatory approval process, technological advances,
determinations as to commercial potential, the terms of collaborative agreements
entered into by the Company, the status of competitive products and the
possibility of the Company's construction of a commercial-scale manufacturing
facility for its potential products. In addition, the Company's research and
development expenditures will vary as projects are added, extended or terminated
and as a result of variations in funding from existing or future collaborative
agreements. The Company may also use a portion of such net proceeds to acquire
or invest in businesses, products and technologies that are complementary to
those of the Company, although no such acquisitions are planned or being
negotiated as of the date of this Prospectus, and no portion of the net proceeds
has been allocated for any specific acquisition.
The Company believes that its available cash, cash equivalents, short-term
investments and revenues from existing collaborations, together with the net
proceeds of this offering and from the sale of the Sang-A Shares, and the
interest thereon, will be sufficient to meet its capital requirements at least
through 1997. Pending application of the net proceeds as described above, the
Company intends to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its Common Stock
since inception and does not intend to pay any cash dividends in the foreseeable
future. Future cash dividends, if any, will be determined by the Board of
Directors.
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1996, (i) the pro forma
capitalization of the Company, giving effect to the conversion of all
outstanding shares of Preferred Stock of the Company into Common Stock, and (ii)
the pro forma capitalization as adjusted to reflect the receipt of the estimated
net proceeds from the sale of 3,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per share,
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company, and the estimated proceeds from the
sale of the Sang-A Shares:
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
PRO FORMA AS ADJUSTED
----------- -----------
(in thousands)
<S> <C> <C>
Capital lease obligations, noncurrent.................. $ 545 $ 545
----------- -----------
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; 8,874,456 shares issued and outstanding
pro forma, and 12,207,789 shares issued and
outstanding as adjusted (1)......................... 9 12
Additional paid-in capital........................... 41,598 78,475
Notes receivable from stockholders................... (310) (310)
Deferred compensation................................ (938) (938)
Accumulated deficit.................................. (26,192) (26,192)
----------- -----------
Total stockholders' equity..................... 14,167 51,047
----------- -----------
Total capitalization......................... $ 14,712 $ 51,592
----------- -----------
----------- -----------
</TABLE>
- -------------------
(1) Excludes (i) 78,201 shares of Common Stock issued subsequent to March 31,
1996 upon exercise of stock options, (ii) 643,480 shares of Common Stock
issuable upon exercise of options outstanding as of June 1, 1996 at a
weighted average exercise price of approximately $1.22 per share, (iii) an
aggregate of 1,556,520 shares reserved for future grants or purchases
pursuant to the Company's 1996 Equity Incentive Plan, Employee Stock
Purchase Plan and Non-Employee Director Stock Option Plan, (iv) 118,395
shares issuable upon exercise of warrants outstanding as of June 1, 1996 at
a weighted average exercise price of $6.65 per share, and (v) warrants to
purchase 29,750 shares which become exercisable at the close of the offering
at 125% of the initial public offering price.
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company, as of March 31, 1996,
was $14,167,000 or $1.60 per share of Common Stock. Pro forma net tangible book
value per share is determined by dividing the pro forma net tangible book value
(pro forma tangible assets less total liabilities) of the Company by the number
of shares of Common Stock outstanding at that date, including shares of Common
Stock to be issued upon conversion of the Preferred Stock immediately prior to
the consummation of this offering. After giving effect to the receipt of the net
proceeds from the sale of the 3,000,000 shares of Common Stock offered by the
Company at an assumed initial public offering price of $12.00 per share and the
estimated proceeds from the sale of the Sang-A Shares, the pro forma net
tangible book value of the Company as of March 31, 1996 would have been
$51,047,000 or $4.18 per share. This represents an immediate increase in such
pro forma net tangible book value of $2.58 per share to existing stockholders
and an immediate dilution of $7.82 per share to new public investors and Sang-A.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.................. $ 12.00
Pro forma net tangible book value before offering.... $ 1.60
Increase attributable to new investors............... 2.58
---------
Pro forma net tangible book value after offering....... 4.18
---------
Dilution to new investors.............................. $ 7.82
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors purchasing shares in this
offering and purchasing the Sang-A Shares at an assumed initial public offering
price of $12.00 per share and before deducting underwriting discounts and
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 8,874,456 72.7% $ 41,454,000 50.9% $ 4.67
New investors............................... 3,333,333 27.3 40,000,000 49.1 12.00
------------ ----- ------------- -----
Total................................... 12,207,789 100.0% $ 81,454,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
The foregoing table excludes (i) 78,201 shares of Common Stock issued
subsequent to March 31, 1996 upon exercise of stock options, (ii) 643,480 shares
of Common Stock issuable upon exercise of options outstanding as of June 1,
1996, at a weighted average exercise price of approximately $1.22 per share,
(iii) an aggregate of 1,556,520 shares reserved for future grants or purchases
pursuant to the Company's 1996 Equity Incentive Plan, Employee Stock Purchase
Plan and Non-Employee Director Stock Option Plan, (iv) 118,395 shares issuable
upon exercise of warrants outstanding as of June 1, 1996 at a weighted average
exercise price of $6.65 per share, and (v) warrants to purchase 29,750 shares
which become exercisable at the close of the offering at 125% of the initial
public offering price.
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus. The statement of operations data for the years ended December
31, 1993, 1994 and 1995, and the balance sheet data at December 31, 1994 and
1995, are derived from the financial statements of the Company included
elsewhere in this Prospectus which have been audited by Ernst & Young LLP,
independent auditors, whose report is included elsewhere in this Prospectus. The
statement of operations data from inception (April 15, 1992) through December
31, 1992 and the balance sheet data as of December 31, 1992 and 1993, are
derived from audited financial statements not included herein. Financial data as
of March 31, 1996 and for the three-month periods ended March 31, 1995 and 1996,
is derived from unaudited financial statements included elsewhere herein, and,
in the opinion of management, includes all normal recurring adjustments that the
Company considers necessary for a fair presentation of its results of
operations. The results of operations for the interim periods are not
necessarily indicative of results to be expected for any future period. The
Company has not declared or paid cash dividends on its Common Stock since
inception and does not intend to pay any cash dividends in the foreseeable
future.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM THREE MONTHS ENDED
APRIL 15, 1992 YEAR ENDED DECEMBER 31, MARCH 31,
(DATE OF INCEPTION) ------------------------------------ ------------------------
TO DECEMBER 31, 1992 1993 1994 1995 1995 1996
--------------------- ----------- ----------- ---------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues....................... $ -- $ -- $ -- $ 1,707 $ -- $ 188
Operating expenses:
Research and development........... 320 2,073 4,216 10,220 3,088 3,044
General and administrative......... 470 1,874 2,493 3,252 701 1,063
----- ----------- ----------- ---------- ----------- -----------
Total operating expenses......... 790 3,947 6,709 13,472 3,789 4,107
----- ----------- ----------- ---------- ----------- -----------
Loss from operations................. (790) (3,947) (6,709) (11,765) (3,789) (3,919)
----- ----------- ----------- ---------- ----------- -----------
Interest income, net of interest
expense............................. 37 175 207 362 32 183
----- ----------- ----------- ---------- ----------- -----------
Net loss............................. $ (753) $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736)
----- ----------- ----------- ---------- ----------- -----------
----- ----------- ----------- ---------- ----------- -----------
Pro forma net loss per share (1)..... $ (0.56) $ (0.73) $ (1.24) $ (0.41) $ (0.41)
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
Shares used in computing pro forma
net loss per share (1).............. 6,696 8,948 9,183 9,062 9,223
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------ ----------
1992 1993 1994 1995 1996
------------ ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.......... $ 1,492 $ 12,410 $ 6,449 $ 17,819 $ 14,494
Working capital............................................ 1,355 12,155 5,877 16,775 12,804
Total assets............................................... 1,901 13,206 7,789 19,878 17,275
Capital lease obligations, noncurrent...................... -- -- (750) (618) (545)
Deferred compensation (2).................................. -- -- -- 180 938
Accumulated deficit........................................ (753) (4,525) (11,060) (22,444) (26,192)
Total stockholders' equity................................. 1,722 12,893 6,362 17,537 14,167
</TABLE>
- --------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used to compute pro forma per share
amounts.
(2) In May 1996, the Company recorded approximately $463,000 of deferred
compensation related to grants of employee stock options. See Note 7 of
Notes to Financial Statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.
OVERVIEW
Since its inception in April 1992, Aviron has devoted substantially all of
its resources to its research and development programs. To date, Aviron has not
generated any revenues from the sale of products and does not expect to generate
any such revenues for at least several years, if at all. Aviron has incurred
cumulative net losses of approximately $26.2 million as of March 31, 1996, and
it expects to incur increasing operating losses for a number of years.
Aviron has financed its operations through proceeds from private placements
of Preferred Stock, revenue from its collaborative agreements, including
reimbursement of certain of Aviron's research and development expenses,
equipment lease financing and investment income earned on cash balances and
short-term investments.
The Company expects its research and development expenditures to increase
substantially over the next several years as the Company expands its research
and development efforts and preclinical testing and clinical trials with respect
to certain of its programs. In addition, general and administrative expenses are
expected to continue to increase as the Company expands its operations and
incurs the additional expenses associated with operating as a public company.
In October 1995, the Company signed an agreement with SmithKline Beecham
defining a collaboration on the Company's EBV vaccine technology (the "SB
Agreement"). Under the terms of the SB Agreement, the Company granted SmithKline
Beecham an exclusive license to produce, use and sell non-live EBV vaccines
incorporating the Company's technology for prophylactic and therapeutic uses on
a worldwide basis, except in South and North Korea (together, "Korea"). The
Company has retained the right to co-distribute a monovalent formulation of the
vaccine in certain markets in the United States and to have SmithKline Beecham
supply such vaccine. SmithKline Beecham has agreed to fund research and
development at the Company related to the EBV vaccine, in specified minimum
amounts, during the first two years of the SB Agreement. SmithKline Beecham made
an initial upfront payment to the Company and agreed to make additional payments
upon the achievement of certain product development milestones. The Company is
entitled to royalties from SmithKline Beecham based on net sales of the vaccine.
No assurance can be given, however, that the Company will receive any additional
payments from SmithKline Beecham or that SmithKline Beecham will not terminate
its agreement with the Company. See "Business -- Collaborative Agreements."
In May 1995, the Company entered into a Development and License Agreement
with Sang-A. The Company granted to Sang-A exclusive clinical development,
manufacturing and marketing rights in Korea for specified products developed by
Aviron, including vaccines for influenza (cold adapted and recombinant), EBV,
CMV, HSV-2 and RSV. However, the Company is under no obligation to develop any
product. Sang-A also will make payments to the Company upon the Company's
meeting certain regulatory milestones for each product in Korea and will pay a
royalty to the Company on net sales of such products in Korea. No assurance can
be given, however, that the Company will receive any payments from Sang-A or
that Sang-A will not terminate its agreement with the Company. See "Business --
Collaborative Agreements."
The Company currently is evaluating the costs and benefits of developing
internal manufacturing capabilities or contracting with third-party
manufacturers. The Company presently is funding the construction of its pilot
manufacturing facility through a capital lease line of credit, however, if the
Company decides to establish its own commercial-scale manufacturing facility, it
would require a significant amount of funds. See "Business -- Manufacturing."
22
<PAGE>
The Company's business is subject to significant risks, including but not
limited to the risks inherent in its research and development efforts, including
preclinical testing and clinical trials, uncertainties associated both with
obtaining and enforcing its patents and with the patent rights of others, the
lengthy, expensive and uncertain process of seeking regulatory approvals,
uncertainties regarding government reforms and product pricing and reimbursement
levels, technological change and competition, manufacturing uncertainties and
dependence on third parties. Even if the Company's product candidates appear
promising at an early stage of development, they may not reach the market for
numerous reasons. Such reasons include the possibilities that the products will
be found unsafe or ineffective during clinical trials, will fail to receive
necessary regulatory approvals, will be difficult to manufacture on a large
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
REVENUES
Total revenue for the three months ended March 31, 1996 was $188,000, and no
revenue was earned for the three months ended March 31, 1995. Revenue in the
three months ended March 31, 1996 resulted primarily from the Company's license
and development agreement with SmithKline Beecham. See "Business --
Collaborative Agreements -- SmithKline Beecham Biologicals S.A."
OPERATING EXPENSES
Research and development expenses were $3.0 million for the three months
ended March 31, 1996 and $3.1 million for the three months ended March 31, 1995.
Included in research and development expenses for the three months ended March
31, 1995 is a one-time charge of $1.6 million relating to Aviron's agreement
with the University of Michigan (see Note 2 of Notes to Financial Statements).
Without the one-time charge, research and development expenses increased 103%
between the three months ended March 31, 1996 and 1995. These increases were
primarily due to increases in research and development staffing, licensing fees,
expenses associated with clinical trials of the Company's cold adapted influenza
vaccine and preclinical testing associated with other programs.
General and administrative expenses increased 52% to $1.1 million in the
three months ended March 31, 1996 from $701,000 in the three months ended March
31, 1995. These increases were incurred to support the Company's expanded
research and development efforts and facilities, patent and legal expenses, and
corporate development activities.
NET INTEREST INCOME
The Company's net interest income increased to $183,000 in the three months
ended March 31, 1996, from $32,000 in the three months ended March 31, 1995. The
increase reflects the effect of the Comany's higher average cash and cash
equivalents and short-term investment balances.
YEARS ENDED DECEMBER 31, 1995 AND 1994
REVENUES
Total revenue for 1995 was $1.7 million, and no revenue was earned in the
year ended December 31, 1994. Revenue in the year ended December 31, 1995
resulted primarily from the Company's license and development agreement with
SmithKline Beecham. See "Business -- Collaborative Agreements -- SmithKline
Beecham Biologicals S.A."
OPERATING EXPENSES
Research and development expenses increased 142% to $10.2 million in the
year ended December 31, 1995 from $4.2 million in the year ended December 31,
1994. These increases were primarily due to increases in research and
development staffing, licensing fees (including the one-time charge relating to
Aviron's agreement with the University of Michigan discussed above), and
expenses associated primarily with clinical trials of its cold adapted influenza
vaccine and preclinical testing associated with the herpes simplex virus
program. General and administrative expenses increased 30% to $3.3 million in
the year ended December 31, 1995 from
23
<PAGE>
$2.5 million in the year ended December 31, 1994. These increases were incurred
to support the Company's expanded research and development efforts and
facilities, patent and legal expenses, and corporate development activities.
NET INTEREST INCOME
The Company's net interest income increased 75% to $362,000 in the year
ended December 31, 1995, from $207,000 in the year ended December 31, 1994. The
increase in 1995 reflects the effect of the Company's higher average cash and
cash equivalents and short-term investment balances, offset by increased
interest expense related to capital lease obligations.
YEARS ENDED DECEMBER 31, 1994 AND 1993
OPERATING EXPENSES
Research and development expenses increased 103% to $4.2 million in the year
ended December 31, 1994, from $2.1 million in the year ended December 31, 1993.
These increases were primarily due to increases in research and development
staffing and preclinical testing. General and administrative expenses increased
33% from $2.5 million in the year ended December 31, 1994, from $1.9 million in
the year ended December 31, 1993. These increases were incurred to support the
Company's expanded research and development efforts and facilities and patent
and legal expenses.
NET INTEREST INCOME
The Company's net interest income increased 18% to $207,000 in the year
ended December 31, 1994, from $175,000 in the year ended December 31, 1993. The
increase reflected the effect of the Company's higher average cash and cash
equivalents and short-term investment balances, offset by interest expense
related to capital lease obligations in 1994.
NET OPERATING LOSS CARRYFORWARD
As of December 31, 1995, the Company had a federal net operating loss
carryforward of approximately $20.0 million available to offset future taxable
income, if any. The net operating loss carryforward will expire at various dates
beginning from 2007 through 2010, if not utilized. Utilization of the net
operating losses and credits may be subject to substantial annual limitation due
to the "change in ownership" provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation may result in the expiration of
net operating losses and credits before utilization. See Note 8 of Notes to
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Aviron had cash, cash equivalents and short-term investments at March 31,
1996 of approximately $14.5 million. In order to preserve principal and maintain
liquidity, the Company's funds are invested in United States Treasury
obligations, highly-rated corporate obligations and other short-term
investments.
The Company has financed its operations since inception primarily through
private placements of Preferred Stock. Through March 31, 1996, the Company had
raised approximately $38.4 million from such sales net of offering expenses.
Cash used in operations was $3.4 million, $6.1 million, $8.9 million and $3.0
million in 1993, 1994, 1995 and the first quarter of 1996, respectively. Cash
expended for capital additions and to repay lease financing arrangements
amounted to approximately $593,000, $472,000, $622,000 and $659,000 in 1993,
1994 and 1995 and the first quarter of 1996, respectively. The Company expects
expenditures for capital additions will increase in 1996 as a result of the
construction of a pilot manufacturing facility. The Company expects expenditures
for research and development, clinical trials and general administrative
expenditures will continue to increase in 1996 as the Company develops its
products and expands its clinical trials.
The Company anticipates that the proceeds of this offering, and the sale of
Sang-A Shares together with the interest thereon, revenues from existing
collaborations, cash, cash equivalents and short-term investments, will enable
it to maintain its current and planned operations at least through 1997. The
Company's future cash requirements will depend on numerous factors, including
continued scientific progress in the research and development of the Company's
technology and vaccine programs, the size and complexity of these programs, the
ability of the Company to establish and maintain collaborative arrangements,
progress with preclinical
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<PAGE>
testing and clinical trials, the time and costs involved in obtaining regulatory
approvals, the cost involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims, and product commercialization activities. The Company
is seeking additional collaborative agreements with corporate partners and may
seek access to the public or private equity markets. There can be no assurance,
however, that any such agreements will be entered into or that they will reduce
the Company's funding requirements or that additional funding will be available.
The Company expects that additional equity or debt financings will be required
to fund its operations. There can be no assurance that such funds will be
available on favorable terms, if at all. If adequate funds are not available,
the Company may be required to delay, reduce the scope of, or eliminate one or
more of its research or development programs or to obtain funds through
collaborative agreements with others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would otherwise seek to develop or commercialize itself, which would
materially adversely affect the Company's business, financial condition and
results of operations.
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BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Aviron is a biopharmaceutical company whose strategy is to focus on
prevention of disease. The Company's goal is to become a leader in the
discovery, development, manufacture and marketing of live virus vaccines which
are sufficiently cost effective to justify their use in immunization programs
targeting the general population. Live virus vaccines, such as those for
smallpox, polio, measles, mumps and rubella, have had a long record of success
in preventing, and in some cases eliminating, disease. The Company currently is
analyzing data from Phase I and Phase II clinical trials in children and adults
of its live cold adapted intranasal vaccine for influenza. The Company has
recently in-licensed a live intranasal vaccine for Parainfluenza Virus Type 3
(PIV-3) which has been tested by others in Phase I/II clinical trials. The
Company also is developing a vaccine for Epstein-Barr virus (EBV). In addition,
Aviron is using its proprietary "Rational Vaccine Design" technology to discover
new live virus vaccines. Rational Vaccine Design involves the deletion or
modification of virulence proteins, changes to the virus' genetic control
signals to slow down its replication, or addition of information to enhance the
virus' stimulation of the immune system. The Company is applying this technology
to develop candidates for the prevention of influenza in elderly persons and
diseases caused by Cytomegalovirus (CMV), Herpes Simplex Virus Type 2 (HSV-2)
and Respiratory Syncytial Virus (RSV).
BACKGROUND
PREVENTION TECHNOLOGY IN THE ERA OF MANAGED CARE AND COST CONTAINMENT
Market-based changes already underway in the United States health care
system are dramatically altering prospects for technologies which can be used to
manage disease or lower the cost of health care for patients in managed health
plans. Medical cost-containment efforts and the reorganization of United States
health care delivery into managed care systems are changing the basis of
competition for producers of health care products. Health maintenance
organization enrollment was approximately 54 million in the United States in
1995 and is growing rapidly. Decision makers in the United States, such as HMO
medical directors, clinical practice committees, and government health
authorities, are increasingly evaluating whether preventive technologies are
more cost effective than treating disease once it is present. For example,
vaccinations are widely used by managed care organizations and in government
programs. In determining whether to use an FDA-approved vaccine, decision makers
consider whether it has been recommended by the Advisory Committee on
Immunization Practices (the ACIP) of the CDC and whether it is cost effective.
Health care cost containment efforts are also evident in many of the
developed economies outside the United States. These efforts include physician
budgets in Germany and general practice schemes in the United Kingdom, where
doctors are given responsibility for the cost of their patients' overall care.
THE IMMUNE SYSTEM AND VACCINES
Infections occur when a pathogenic microorganism, such as a virus or
bacterium, invades body tissues and begins to replicate. The human immune system
responds with a battery of resources to contain and eliminate this threat. The
process begins when specialized cells recognize that molecules on the surface of
invading pathogens are foreign (antigens). Immune responses to contain and
eliminate the threat include:
- ANTIBODIES: Antigens stimulate the immune system to produce specific
molecules (antibodies) which bind to and neutralize the virus or
bacterium.
- CELL-MEDIATED RESPONSE: An effective immune response typically also leads
to the multiplication of specific types of white blood cells (a
cell-mediated response) which have the ability to inactivate the pathogen
or to destroy infected cells, thereby limiting replication of the virus or
bacterium.
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- MUCOSAL IMMUNITY: In addition to circulating antibodies and the
cell-mediated response, antibodies are produced in the mucous membranes,
such as those which line the nose and throat. Mucosal immunity is
important in protecting against pathogens which cause disease in the
respiratory, gastrointestinal and genitourinary systems, or which enter
the body through these portals.
Vaccines are designed to stimulate a person's immune system through one or
more of the above mechanisms to induce memory of specific antigens prior to the
invasion of a pathogen. This memory primes the immune system so that it can
inactivate the specific pathogen if encountered again. This may be achieved
through one of several techniques, including introduction of a live attenuated
(weakened) virus or bacterium, administration of an antigen fragment (a
subunit), or administration of an inactivated (killed) virus.
HISTORY OF VACCINES
The first successful vaccine against an infectious disease was created by
Edward Jenner who, in 1796, demonstrated that introduction of infected material
from a diseased cow could be used to protect humans from the deadly smallpox
virus. Smallpox vaccination programs based on this live virus vaccine were
gradually adopted by industrialized countries, and a concerted global effort by
public health authorities in this century succeeded in eradicating smallpox from
the human population in the 1970s.
Vaccines against two life-threatening bacterial diseases, diphtheria and
tetanus, came into use early in this century. These vaccines consist of
bacterial toxins which have been chemically inactivated. These are often
administered in combination with an inactivated pertussis bacterium vaccine to
prevent whooping cough. This combination is known as the "DTP" vaccine. Just
prior to World War II, a live attenuated virus vaccine was developed against
yellow fever, used primarily in protecting military personnel and those
traveling to areas where this disease is endemic. In the years after the war
following several widespread polio epidemics, Jonas Salk created the first
successful polio vaccine by growing the wild-type virus and inactivating it
before injection. Salk's vaccine was introduced into widespread use in the early
1950s, but was supplanted in the United States and many other countries by the
orally administered live attenuated polio virus vaccine developed by Albert
Sabin and first introduced in 1961. In the 1960s and 1970s, live attenuated
virus vaccines against measles, mumps and rubella (German measles) were
successfully developed and recommended by the ACIP to be included in childhood
immunization programs.
After a period of almost two decades during which no new vaccines came into
widespread use, a genetically engineered subunit vaccine for hepatitis B was
introduced in the mid-1980s and is now part of the ACIP-recommended childhood
immunization program. In 1990, a vaccine for bacterial meningitis was also added
to this program. Two inactivated vaccines against the hepatitis A virus were
approved in the United States in 1995 and 1996. In 1995, the ACIP also
recommended that children be vaccinated against chicken pox using a live virus
vaccine recently approved by the FDA.
Current challenges for vaccine innovation include providing effective
protection against the major infectious diseases for which no vaccines are
currently available and improving on current vaccines to achieve higher efficacy
or greater ease of administration.
TYPES OF VACCINES
LIVE VIRUS VACCINES
Live virus vaccines expose the immune system to an attenuated form of the
virus which is sufficiently infectious to stimulate a lasting immune response to
the natural (or wild-type) virus. All of the live virus vaccines in use today
are strains derived from natural infections of humans. Attenuation of live
viruses, including polio, yellow fever, measles, mumps and rubella, and chicken
pox vaccines was accomplished by "passaging," or propagating, the virus
repeatedly in non-human cells. As a result of this process, viruses may acquire
mutations that decrease the ability of the virus to cause disease in humans.
After an arbitrary number of passages, the mutated strain is tested for
attenuation in animal models, if available, or directly in human subjects.
Following assessment of safety and immunogenicity (stimulation of an immune
response) in a limited number of human subjects, larger-scale trials are used to
demonstrate efficacy in preventing naturally acquired infections.
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Live virus vaccines mimic the natural disease-causing infection and
therefore may activate the same protective mechanisms of the human immune system
as the disease itself. This process results in a balanced immune response
activating all parts of the immune system including systemic and local
antibodies as well as cell-mediated immunity. As a result, live viruses are
often considered to be more effective than other types of vaccines in providing
immunity to natural variations in the wild-type viruses which cause disease. For
example, the live polio vaccine is believed to be more effective in eliminating
wild-type polio virus than inactivated polio vaccines. The basis of these
advantages is that live vaccines typically present all of the surface and
internal antigens associated with the natural pathogen. Live virus vaccines may
also be easier to administer through their natural route of infection,
intranasally or orally, as in the case of the oral polio vaccine.
However, an attenuated live vaccine could cause disease resembling natural
infection, as might occur in people with an immune system impaired by a
congenital disease, HIV infection or drug treatment for cancer or organ
transplantation. To date, the live virus vaccines in widespread use rarely have
been associated with significant adverse events. For example, the 19 million
doses of live attenuated polio vaccine administered annually in the United
States are thought to be responsible for only eight to 10 cases of clinical
polio per year. To further reduce the number of these cases, the ACIP is
recommending that the inactivated polio vaccine be given for the initial infant
dose, now that wild-type polio has been virtually eradicated in the United
States.
Live virus strains can change as they replicate in human hosts, and it is
possible that a vaccine virus could revert to the wild-type characteristics.
This reversion potential is a small but recognized problem for some of the
current live vaccines, including polio. Finally, there are two theoretical
concerns regarding live attenuated viruses. First, an attenuated vaccine virus
may exchange genetic information with wild-type strains after immunization, with
the resulting strain being more dangerous than either alone. Second, the DNA of
a live virus vaccine could integrate into the genome of the host and cause
cancer or other problems in the future.
INACTIVATED AND SUBUNIT VIRUS VACCINES
Inactivated virus vaccines are produced by killing a virus using chemicals.
Some vaccines, such as the hepatitis A vaccine, are based on the whole,
inactivated virus. Other vaccines are the result of various degrees of
purification to concentrate certain surface glycoproteins (subunits) most
responsible for producing immunity. A different approach is used to make the
current hepatitis B vaccine, the first successful recombinant subunit vaccine.
For this vaccine, the tools of molecular biology were applied to clone and
express the dominant hepatitis surface glycoprotein in a yeast production
system. Inactivated and subunit vaccines offer the advantage of little or no
risk of infection from the vaccine itself, assuming the virus has been
adequately inactivated. Good manufacturing techniques also minimize the
possibility of contamination with other viruses or fragments of DNA which could
integrate into the recipient's genes.
The principle disadvantage of inactivated and subunit vaccines for many
viruses has been a lack of success in creating protective immunity. A successful
subunit vaccine requires knowledge of which specific antigens are responsible
for providing protection. Subunit and inactivated vaccines may produce
reasonable levels of circulating antibodies, but are less able to stimulate
antibodies in the mucosal sites of viral entry, such as the lining of the
respiratory, gastrointestinal or genitourinary tracts. To improve stimulation of
the cellular components of the immune system, adjuvants (non-specific immune
stimulants) are typically added to inactivated or subunit vaccines. Only alum
(an aluminum salt preparation) is approved for use as an adjuvant in the United
States. Several new adjuvants are in clinical testing and show promise for
boosting the immune response to subunit antigens. The mechanism by which
adjuvants work is still poorly understood, so each vaccine-adjuvant combination
must be evaluated in a trial and error process in animal models and clinical
trials. Finally, certain inactivated vaccines in clinical trials left recipients
more vulnerable to disease after vaccination, due to an unbalanced immune
response. For example, in trials of experimental inactivated vaccines against
RSV and measles, some children were shown to experience more severe, atypical
disease when they later acquired the natural viral infection following
vaccination.
EMERGING VACCINE TECHNOLOGIES
Several companies and academic scientists have reported that direct
injection of DNA encoding viral antigens can be used to stimulate an immune
response. Although at an early stage, this approach shows promise.
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However, it is not clear whether the sustained expression of viral antigens
obtainable by this approach is advantageous in eliciting a better immune
response. In addition, it is possible that the administered DNA may integrate
into the genes of the recipient and cause potential unwanted effects.
Another new technology for vaccination is based on genetic engineering to
modify one virus so that it carries antigens which may stimulate an immune
response to protect against other pathogens. For example, pox virus vector
strains, related to the virus used successfully to eradicate smallpox, have
shown usefulness in protecting dogs and cats against rabies. Other pox virus
vectors are being evaluated in experimental models of human malaria and in a
hybrid regimen combining doses of a modified live virus with a subunit HIV
vaccine to protect high-risk individuals.
AVIRON'S TECHNOLOGY
Aviron's vaccine programs are based on both classical live virus vaccine
attenuation techniques and the Company's proprietary genetic engineering
technology.
COLD ADAPTED INFLUENZA TECHNOLOGY
The Company is applying its expertise in the molecular biology of influenza
to develop a live virus vaccine discovered using classical cold-adaption
techniques. This cold adapted influenza vaccine technology was first developed
by Dr. H.F. Maassab at the University of Michigan in 1967. Dr. Maassab created
attenuated influenza strains by propagating the virus in progressively colder
conditions until these strains had lost the ability to grow well at human body
temperature. The Company has obtained exclusive rights to this cold adapted
influenza vaccine technology.
The cold adapted influenza vaccine technology includes the master strains
for influenza A and B, as well as techniques useful for updating the vaccine
each year according to recommendations of the CDC and the FDA. Updated strains
are made by mating the master strains with recent strains to obtain viruses with
the attenuated properties of the cold adapted master strain and the antigenic
properties of the current wild-type strain. This process is called genetic
reassortment. After cultured cells are infected with two different strains of
virus, the eight RNA genes of influenza mix at random in the cells and it is
possible to select the two genes for the antigens of the expected epidemic
strain and the six remaining genes from the cold adapted master donor strain.
The Company has received the technology for updating the cold adapted master
strains from the University of Michigan and has extended this approach by the
introduction of Aviron's proprietary techniques, including those of reverse
genetics, which may facilitate the annual process of creating a reassorted
vaccine.
RATIONAL VACCINE DESIGN
Since the Company's founding, its core vaccine discovery strategy has been
to apply genetic engineering techniques to create live attenuated virus vaccine
candidates for targets where traditional discovery techniques have been
inadequate. The Company believes that this "Rational Vaccine Design" approach is
more flexible and systematic than traditional methods of live vaccine discovery
and is a platform that can be applied to many viral targets and, potentially, to
the creation of viruses used in gene therapy and the treatment of cancer.
Furthermore, Aviron believes that a particular advantage of Rational Vaccine
Design is that engineered viruses can be designed so that they are less likely
to revert to wild-type characteristics than classically derived vaccines. Three
ways of implementing this approach are:
- DELETING OR MODIFYING SPECIFIC VIRAL GENES WHICH ENCODE VIRULENCE
PROTEINS. Virulence proteins are viral components thought to be
particularly important in the mechanism of disease, but which are not
required for the virus to replicate and stimulate a strong immune
response. An example of this strategy is the Company's program to create a
live attenuated vaccine against the HSV-2 virus which causes genital
herpes. One of the Company's founders, Dr. Bernard Roizman, discovered a
particular protein important in the ability of HSV-2 to grow in nerve
cells. Since nerve ganglia are the reservoir from which HSV-2 reseeds
itself to cause painful skin lesions, deletion of the gene encoding this
protein is the basis of the Company's Rational Vaccine Design program for
development of a vaccine for this target.
- ALTERING THE GENETIC INFORMATION USED BY THE VIRUS IN CONTROLLING ITS
REPLICATION. An example of this strategy is work by Company scientists to
create live attenuated vaccine candidates for influenza. Until recently,
it
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was impossible to genetically engineer vaccine strains of influenza
because influenza genes are composed of negative-strand RNA rather than
DNA or positive-strand RNA. Dr. Peter Palese, one of the Company's
founders, discovered how to create recombinant negative-strand RNA viruses
using reverse genetics. Company scientists have employed this reverse
genetics technology to engineer mutations into a gene used by the
influenza virus to make copies of itself. The resulting strains are
attenuated in animal models and at least one strain has been identified as
a potential candidate for clinical trials.
- ADDING ANTIGENIC INFORMATION DISPLAYED BY THE VACCINE VIRUS. An example of
this strategy is the Company's approach to the creation of a live
attenuated CMV vaccine, which begins with a vaccine candidate thought to
be over-attenuated and thus insufficiently immunogenic. Aviron recently
discovered genes for certain antigen structures present in wild-type CMV
viruses. These genes are being engineered into an over-attenuated vaccine
candidate to create a potentially more immunogenic vaccine. The Company
believes this technique of adding antigen structures may enable the
Company to create combination vaccines expressing antigens of more than
one virus in a single vaccine strain.
BUSINESS STRATEGY
Aviron's objective is to become a leader in the discovery, development,
manufacture and marketing of live virus vaccines which are sufficiently cost
effective to justify their use in immunization programs targeting the general
population. The Company's strategy is to:
ADDRESS INFECTIOUS DISEASES WHICH MERIT WIDESPREAD IMMUNIZATION
PROGRAMS. The concept of universal immunization is well established for certain
infectious diseases where safe and effective vaccines are already available,
including immunization against pathogens such as polio, measles, mumps, rubella
and hepatitis B. For each of its potential products, the Company's objective is
to produce vaccine strains which are sufficiently safe and cost effective to
obtain official recommendations for universal use in childhood vaccine regimens
or, in the case of influenza, annual use in the general population.
APPLY RATIONAL VACCINE DESIGN TECHNOLOGY TO A RANGE OF VIRAL
TARGETS. Aviron believes that its proprietary genetic engineering technologies
may be used to create live attenuated vaccines for a wide range of viral
targets, such as viruses related to influenza and herpes viruses.
SELECT PROGRAMS AND MARKET VACCINES BASED ON PHARMACOECONOMIC DATA. Public
health agencies and managed care systems are increasingly concerned with the
economic impact of potential new mandates for vaccines. In setting its internal
product development priorities, the Company considers the costs of implementing
widespread vaccine programs based on its products in relation to potential cost
savings to the government and managed health care systems and intends to perform
rigorous cost-effectiveness analyses on its products.
IN-LICENSE PROMISING VACCINE TECHNOLOGY. Aviron evaluates in-licensing
opportunities and intends to add programs which complement the Company's core
technologies and capabilities. For example, the Company obtained exclusive
rights to the cold adapted influenza vaccine technology from the University of
Michigan and the NIH, and to the PIV-3 vaccine from the NIH.
ESTABLISH COLLABORATIVE ARRANGEMENTS TO ENHANCE PRODUCT DEVELOPMENT
EFFORTS. Aviron intends to enter into collaborative arrangements to gain access
to specific technologies and skills which may accelerate product development and
provide additional financial resources to support its research and development
and commercialization efforts, particularly outside of the United States. The
Company has entered into collaborative arrangements with SmithKline Beecham for
development of an EBV vaccine and with Sang-A for certain rights to the
Company's products in Korea.
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VACCINE PRODUCTS UNDER DEVELOPMENT
The following table summarizes Aviron's most advanced potential products
under research and development. This table is qualified in its entirety by
reference to the more detailed descriptions appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
COMMERCIAL
PROGRAM VACCINE TYPE STATUS (1) RIGHTS (2)
---------------------------- ---------------------------------------- ------------------ --------------
<S> <C> <C> <C>
Influenza
Adults Cold adapted live virus Phase II Conducted Aviron
Children Cold adapted live virus Phase I/II Aviron
Conducted
Elderly Cold adapted live virus Clinical Trials Aviron
(co-administered with inactivated Planned
vaccine)
Genetically engineered live virus Preclinical Aviron
Parainfluenza Virus Type 3 Bovine live virus IND Planned Aviron
Epstein-Barr Virus Recombinant subunit glycoprotein Preclinical SmithKline
Beecham/
Aviron (3)
Cytomegalovirus Genetically engineered live virus Preclinical Aviron
Herpes Simplex Virus Type 2 Genetically engineered live virus Preclinical Aviron
Respiratory Syncytial Virus Genetically engineered live virus Research Aviron
----------------
(1) "Phase II Conducted" means Aviron is evaluating data from multi-center, double-blind,
placebo-controlled clinical trials for safety, immunogenicity and efficacy and the Company intends to
proceed directly to Phase III clinical trials.
"Phase I/II Conducted" means Aviron is evaluating data from multi-center, double-blind,
placebo-controlled clinical trials for safety and immunogenicity in a limited patient population and
the Company intends to proceed directly to Phase III clinical trials.
"Clinical Trials Planned" indicates that no clinical trials have been conducted by Aviron to date.
Aviron intends to discuss with the FDA its plans to proceed directly to Phase III clinical trials.
"Preclinical" includes assessment of specific vaccine candidates for growth properties in cell culture
and for attenuation and immunogenicity in animal models.
"IND Planned" indicates that no clinical trials have been conducted by Aviron to date. The Company is
evaluating the timing and level of commitment for Aviron-sponsored clinical trials.
"Research" includes identification of vaccine candidates and approaches to create new candidate
strains. See "Government Regulation."
(2) Commercial rights for Korea for most listed programs are licensed to Sang-A. See "-- Collaborative
Agreements."
(3) Worldwide rights licensed to SmithKline Beecham; Aviron retains certain United States co-promotion
rights.
</TABLE>
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INFLUENZA
Every year in mid- to late-winter, influenza spreads across the globe,
infecting an average of approximately 10% to 20% of the United States
population. In the United States, 20 to 50 million cases of influenza occur
annually. Influenza cases are associated with symptoms lasting for at least
three to five days, an average of approximately three days of lost work or
missed school, and approximately 20,000 deaths each year. Field studies indicate
the attack rate ranges from a low of 10% in persons over age 65 to a high of 36%
in children aged one to 18. Children are also a major factor in spreading
influenza to other population segments, including those at high risk of
contracting the disease. At the peak of a typical epidemic, reportedly 9% to 22%
of all physician office visits are for flu-like symptoms. Over 90% of
influenza-related deaths occur in people over age 65, but children under age
five and women in the third trimester of pregnancy are also at higher risk for
serious complications. Several times this century, influenza has appeared as a
much more serious pandemic. These major pandemics occur when the influenza virus
undergoes "antigenic shift" in which one influenza subtype is replaced by a
different strain for which the population has not developed antibodies and,
therefore, for which it is extremely susceptible to infection.
The variability of certain components of the influenza virus requires that
the influenza vaccine be modified annually. The CDC and the World Health
Organization (the "WHO") maintain a global network which generates data required
to select strains for the coming influenza season's vaccine and monitor the
occurrence of especially severe epidemics. Based on these data, the FDA and the
CDC discuss circulating influenza strains which are candidates for inclusion in
the following season's influenza vaccine. A similar process is undertaken in
Europe by the WHO and various national authorities. Currently available
inactivated influenza vaccines contain three strains of influenza virus (two
strains of influenza A and one strain of influenza B) and are therefore called
trivalent vaccines. Typically one or sometimes two of the strains in these
trivalent vaccines are recommended for updating annually. Current vaccines have
been variously reported to be 60% to 80% effective in preventing illness,
pneumonia, hospitalization and death due to complications from influenza.
The ACIP has identified the principal target groups for the current
influenza vaccine as those at increased risk for influenza-related
complications: persons age 65 or older, residents of chronic-care facilities,
adults and children with chronic disorders of the pulmonary or cardiovascular
system, adults and children who have required regular medical follow-up or
hospitalization during the preceding year because of chronic metabolic diseases
or immunosuppression, and children and teenagers receiving long-term aspirin
therapy and therefore at risk of developing Reye's syndrome. The next level of
priority for vaccination identified by the ACIP includes certain groups, such as
health care personnel and household members (including children), that may
transmit influenza to high-risk persons. Furthermore, the ACIP recommends that
physicians administer influenza vaccine to any person who wishes to reduce the
chance of becoming ill with influenza.
The FDA estimates that over 75 million influenza vaccine doses were
manfactured for use in the United States in 1995. According to the CDC, over
half of the 34 million Americans over age 65 received the annual influenza
vaccine for the 1993 influenza season, up from less than approximately 25% a few
years ago. The Company believes that a lower percentage of high-risk individuals
under age 65 were vaccinated in 1994, and that the majority of influenza doses
used in the United States are being administered to healthy adults under age 65,
many of whom participate in voluntary work place immunization programs. Experts
suggest that very few of the 70 million children under age 18 receive the annual
influenza vaccine.
In addition to the currently available vaccines, two oral drugs are
currently approved for use in the prevention and treatment of influenza A:
amantadine, which has been on the market for many years, and rimantidine, a
closely related compound which produces fewer side effects. Both agents have
been shown to be effective in reducing the severity of influenza A disease and
the number of days of disability, but are not effective against influenza B.
Both are also recommended for daily use during the influenza season by certain
high-risk persons for whom the influenza vaccine is contraindicated. However,
there is a concern that widespread prophylactic use could lead to emergence of
drug-resistant strains.
AVIRON'S COLD ADAPTED INFLUENZA VACCINE. The Company's most advanced
program is based on the live cold adapted influenza vaccine technology licensed
from the University of Michigan and on a Cooperative Research and Development
Agreement ("CRADA") with the NIH. The cold adapted influenza vaccine is
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currently undergoing extensive clinical trials by Aviron with a network of
NIH-sponsored investigators. Prior to Company-initiated trials, at least 65
clinical trials of the cold adapted influenza vaccine technology have been
performed since 1977, involving more than 15,000 volunteers, of whom over 7,000
received the cold adapted influenza vaccine. See "-- Influenza Clinical Trials."
The Company intends to develop the cold adapted influenza vaccine for
widespread annual use in children and adults, and for co-administration with the
inactivated vaccine for improved protection in the elderly. The quality of the
immune response induced by cold adapted influenza vaccine differs from that
induced by inactivated influenza vaccines. The cold adapted influenza vaccine
elicits an immune response to multiple viral proteins mimicking the natural
immunobiology of influenza, whereas the response to the classical inactivated
vaccine is directed primarily to one component of the virus. Because the cold
adapted influenza vaccine is delivered as a nasal spray, the Company believes it
would provide the first practical way to immunize children on an annual basis.
Children are an important target because, while the elderly experience the
greatest mortality from the annual influenza epidemic, much of the morbidity and
illness occurs in young children. Children are also thought to be important in
the spread of influenza in the population. In addition to its proposed use in
physician's offices, Aviron believes that the nasal spray delivery of this
vaccine will enable it to be administered by adults without special medical
training, so that it will be practical to consider delivery via pharmacies,
schools, day care centers, and possibly in the home.
Aviron also is targeting healthy adults, many of whom are being offered
influenza prophylaxis by their employer and who may prefer Aviron's intranasal
administration to injection. The Company believes that many adults who regularly
receive the inactivated influenza vaccine will select the intranasal vaccine if
given the choice, and that people who have avoided "flu shots" in the past will
receive a vaccination if the intranasal alternative is available. In addition,
the Company is developing its vaccine for co-administration by nasal spray with
the inactivated influenza vaccine injection for the elderly. While efficacy in
the elderly has not been conclusively demonstrated, nursing home studies suggest
that simultaneous administration of the intranasal cold adapted influenza
vaccine with an injection of the inactivated vaccine offers added protection
compared to administration of the inactivated vaccine alone. Aviron intends to
seek recommendations from the ACIP and the American Academy of Pediatrics for
use of the cold adapted influenza vaccine in the appropriate population.
The Company has completed enrollment of 259 adults and 356 children in
multicenter Phase I/II clinical trials designed to show that Aviron's trivalent
formulation and nasal spray delivery system are generally safe, well tolerated
and immunogenic. These studies were followed by a Phase II challenge study in 92
adults. Data from these studies are under analysis. Additional large-scale
clinical trials are planned for the influenza seasons of 1996 through 1998. In
addition, the Company intends to discuss with the FDA its plans for Phase III
clinical trials to demonstrate efficacy of the co-administration with the
inactivated influenza vaccine in the elderly. No assurances can be given that
the Company will commence clinical trials as planned, or that if commenced, such
trials can be successfully completed on a timely basis, if at all. See "--
Clinical Trials."
AVIRON'S NEXT-GENERATION GENETICALLY ENGINEERED INFLUENZA VACCINE. The
Company is using its proprietary reverse genetics technology to engineer future
generations of influenza vaccines which are designed to the needs of various age
groups in the population. The Company's first priority is to develop strains
which offer improved protection in the elderly compared to the currently
available inactivated vaccines. Since most elderly persons have had experience
with several influenza infections in their lifetime, pre-existing antibodies may
prevent the cold adapted virus from multiplying sufficiently to be used as an
alternative to the currently available vaccines in the elderly. To address this
problem, Aviron scientists have created new strains of influenza vaccine
candidates which have been evaluated and shown to be attenuated in ferrets, an
animal model for influenza. Vaccinated animals were protected from subsequent
challenge with a virulent strain of influenza. Some of the Company's genetically
engineered strains have been found to better replicate in the upper respiratory
tract of these animals than the cold adapted influenza vaccine, while retaining
the property of restricted growth in the lower respiratory tract. Work with the
cold adapted influenza vaccine has shown that these features are associated with
desirable characteristics of attenuation in humans. However, animal model
results are not necessarily predictive of results in humans. The Company
believes that these strains may be more
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immunogenic than the cold adapted vaccine and, therefore, more suitable for use
as a single-dose vaccine for the elderly. No assurance can be given that the
Company will be able to commence or successfully complete clinical trials on a
timely basis, if at all.
PARAINFLUENZA VIRUS TYPE 3
PIV-3 is a common respiratory virus of childhood which causes croup, cough,
fever and pneumonia. Every year, primarily during the spring and summer months,
PIV-3 infects infants, children and adults. In the United States, at least 60%
of children are infected by the time they reach two years of age, and 80% by
four years of age. These cases are associated with symptoms lasting from three
to eight days and approximately 17,000 hospitalizations per year. Children are
also a major factor in introducing PIV-3 infection into the family setting.
PIV-3 frequently reoccurs and children typically experience two to three
infections of decreasing severity. Unlike influenza, PIV-3 undergoes only a very
minor degree of variation in the surface proteins from year to year; therefore,
a PIV-3 vaccine will not require annual updates.
Both serum and nasal antibodies directed to PIV-3 surface proteins play a
role in protection against PIV-3 disease. It is thought that protection of the
lower respiratory tract from PIV-3 replication and disease requires high serum
antibody levels, whereas resistance to infection and protection against disease
in the upper respiratory tract requires mucosal antibodies in the nose. There is
currently no available vaccine to protect against PIV-3 infection, and no drug
for treatment of PIV-3 disease.
AVIRON'S LIVE PARAINFLUENZA VIRUS TYPE 3 VACCINE. The Company's live PIV-3
vaccine program utilizes bovine PIV-3 (bPIV-3) vaccine technology licensed from
the NIH. Use of bPIV-3 as a vaccine to protect humans against human PIV-3
strains is based on the successful strategy first used by Jenner for smallpox
vaccination, in which an animal virus is used to protect humans from the
analogous human virus. It is thought that the attenuation of bPIV-3 in primates
is due to mutations sustained throughout its genome during its long evolutionary
adaptation to the bovine host.
Prior to the Company's in-licensing of the bPIV-3 vaccine, it had been
tested in Phase I/II clinical trials in adults, children and infants. In all age
groups, the bPIV-3 vaccine appeared satisfactorily attenuated, safe and
genetically stable. Eighty-five percent of seronegative children (six to 60
months of age) were infected by the tested dose, and 61% of bPIV-3 recipients
developed a level of antibody to PIV-3 previously associated with protection
from disease. The vaccine strain infected 92% of infants younger than six months
of age, even in the presence of maternally-derived PIV-3 antibodies. Infection
with the bPIV-3 vaccine stimulated an immune response to PIV-3 in 42% of these
young infants. The Company is evaluating the timing and level of commitment for
Aviron-sponsored Phase II clinical trials of bPIV-3 using the existing bPIV-3
vaccine supply produced and tested for the NIAID. There can be no assurance that
this vaccine supply will be suitable for clinical trials or that these or any
additional clinical trials will be commenced or, if commenced, will be
successful, or that the Company will develop successfully and receive FDA
approval of its bPIV-3 vaccine.
EPSTEIN-BARR VIRUS
Epstein-Barr virus, a herpes virus that causes infectious mononucleosis,
infects most people at some point in their lifetime. Infection at a young age
may cause mild symptoms, but the debilitating syndrome of infectious
mononucleosis is most common where infection first occurs in adolescence or
young adulthood via exchange of saliva. Sore throat and swollen neck glands are
followed by a period of fatigue and lethargy which can last for weeks or even
months. Approximately 10% of high school and college students become infected
with EBV each year in the United States, of which half or more may develop
infectious mononucleosis. The disease usually runs its course without
significant medical intervention; however, the long duration of infectious
mononucleosis can be a serious problem for high school and college students and
workers. Enlargement of the liver and spleen are also common, so doctors
typically prohibit participation in athletic activities to prevent serious
injuries. EBV is one of the viruses implicated as a contributing cause of cancer
in humans, including Hodgkin's disease, post-transplant and other lymphomas,
nasopharyngeal carcinoma (the most common head and neck cancer in large regions
of Asia) and Burkitt's lymphoma (a significant disease in Africa).
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The Company is developing a subunit vaccine for EBV based on the single
surface antigen responsible for most of the neutralizing antibodies stimulated
by EBV infection. Quantities of this antigen have been expressed, purified and
evaluated in a rabbit model, where preliminary results indicate that the antigen
is immunogenic when combined with an adjuvant. In 1995, the Company entered into
a worldwide collaboration with SmithKline Beecham, excluding Korea, whereby
SmithKline Beecham will fund the development of Aviron's EBV vaccine in exchange
for certain marketing rights. See "-- Collaborative Agreements."
CYTOMEGALOVIRUS
Most people become infected with CMV, another member of the herpes virus
family, at some time in their life, and in the United States 40% to 60% of
infections occur in childhood. These infections are typically asymptomatic or
result in mild illness with sore throat, headache, fatigue and swollen glands.
CMV also can cause an infectious mononucleosis syndrome clinically
indistinguishable from that associated with EBV infection. More serious CMV
disease is also often associated with a weakened immune system, as is often
found in AIDS, cancer and transplant patients, which may be due to reactivation
of CMV acquired early in life or a primary infection. In addition, if a woman is
first exposed to this virus early in pregnancy, the resulting infection can
cause serious fetal abnormalities. Approximately 40,000 infants in the United
States are infected each year, resulting in varying levels of brain damage or
deafness in over 10% of these infants. Congenital CMV syndrome results in
significant expenditures for neonatal intensive care.
No vaccine currently is available for CMV. Antibodies from persons with high
levels of immunity are available in the form of hyperimmune globulins for
certain high-risk patients, but use of these products can be costly and of
limited efficacy. The Company believes that widespread vaccination of children
with a safe effective CMV vaccine is justified for the same reason that children
in the United States are vaccinated against rubella: to protect unborn children
from birth defects by reducing the risk that mothers are exposed to infected
children.
A live attenuated CMV vaccine candidate, known as the Towne strain, has been
tested by third parties in several hundred people. This strain was reported to
be well tolerated, but did not provide sufficient protection in pregnant mothers
of children in day care who were at risk for congenital CMV, or in transplant
recipients at risk of acquiring CMV from the donor organs. Aviron scientists
have discovered differences between the genome of the Towne strain and that of
wild-type CMV. Based on this knowledge, the Company has used its Rational
Vaccine Design approach to create new recombinant CMV vaccine candidates in an
attempt to strike the appropriate balance between attenuation and protection.
Some of these vaccine candidates have been made and tested by Aviron in a
specialized animal model. The Company expects to select a vaccine candidate to
prevent CMV infection for testing in clinical trials. However, no assurance can
be given that the Company will be successful in identifying a CMV vaccine
candidate.
HERPES SIMPLEX VIRUS TYPE 2
It is estimated that HSV-2, the cause of genital herpes, infects one out of
five persons in the United States. Only one-third of those infected experience
symptoms, but a significant portion of new infections are caused by transmission
from asymptomatic individuals. Genital herpes is a non-lethal but incurable
disease that invades the body once and settles in for a lifetime, often
manifesting its presence several times a year with painful sores in the genital
area. It is estimated that there are over 700,000 new cases of genital herpes
per year in the United States, and that the disease is responsible for over
500,000 physician visits per year.
Genital herpes also can be acquired by newborn babies as they pass through
the birth canal of infected mothers. Neonatal herpes simplex infection can
result in serious damage to the brain and many other organs. Even with therapy,
over 20% of the 1,500 infants infected each year in the United States die, and
many of the survivors are seriously impaired. In addition, efforts to prevent
neonatal herpes contribute significantly to the cost of the disease. Thousands
of women in the United States with a history of genital herpes are advised to
undergo a Cesarean section when prenatal cultures or examinations suggest a
recurrence near the time of delivery. HSV-2 infection can also lead to serious
and fatal complications in adults with impaired immune systems due to AIDS or
drug therapy for organ transplants.
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The most widely used drug therapy for HSV-2 disease is acyclovir (Zovirax),
which has been shown to reduce the severity and duration of herpetic lesions,
although most patients treated still experience symptoms for several days. When
taken several times a day as a prophylaxis for HSV-2, acyclovir also has been
shown to reduce the frequency of recurrences. Several additional therapeutics
are available or are in the late stages of clinical trials, and several
prophylactic vaccines are in clinical trials; however, no vaccine currently is
available to prevent genital herpes. At least two companies are in Phase III
clinical trials of subunit vaccines for the primary prevention of genital
herpes.
Aviron is using its Rational Vaccine Design approach to create an injectable
live attenuated vaccine to be used in uninfected children and young adults to
prevent genital herpes. Two of the Company's founders, Dr. Bernard Roizman and
Dr. Richard Whitley, in collaboration with Pasteur Merieux Serums et Vaccins,
developed a prototype live herpes vaccine based on an oral herpes virus (HSV-1)
backbone. After extensive preclinical testing, the virus was tested in humans;
however, the immune response following vaccination was deemed insufficient. This
insufficiency was attributed to the use of the HSV-1 backbone from which too
many important genes had been deleted, thus rendering the virus over-attenuated.
Aviron has licensed this technology, along with patents covering strategies for
more specific deletions, from ARCH Development Corporation. Aviron has used this
technology to create live vaccine candidates using an HSV-2 backbone, which it
currently is evaluating in preclinical models. Several candidates have shown
attenuation in various rodent models, as well as efficacy in protecting guinea
pigs and primates from challenge with a lethal dose of wild-type HSV-2. The
Company intends to use the results of animal studies to select these or other
strains under development for evaluation in clinical trials. There can be no
assurance, however, that the Company will commence or successfully complete
clinical trials on a timely basis, if at all.
Aviron is currently in discussions with a third party to license certain of
Aviron's patent rights covering or related to the use of HSV for cancer and gene
therapy (excluding vaccines).
RESPIRATORY SYNCYTIAL VIRUS
RSV is the major cause of lower respiratory tract illness in the very young,
responsible for over 90,000 hospitalizations and more than 4,000 deaths a year
in the United States. Infection is manifested as cough and fever and, in some
cases, pneumonia. While RSV infection can occur at any time of year, epidemics
generally occur in the winter. Most cases are in children under age four, with
the peak of severe illness under six months of age, particularly in infants with
pre-existing heart and lung disease. No vaccine for RSV currently is available,
although certain third parties are testing a cold adapted live attenuated RSV
vaccine in infants. Available drug therapy is reserved for the most serious
cases as it has significant side effects. Aviron is developing a genetically
engineered live attenuated virus vaccine for RSV using its proprietary reverse
genetics technology. Aviron's objective is to use this technology to create a
number of live virus vaccine candidates which can be tested in animal models
before selecting a candidate for testing in humans. However, no assurance can be
given that the Company will be successful in identifying a vaccine candidate.
INFLUENZA CLINICAL TRIALS
CLINICAL TRIALS CONDUCTED BY OTHERS
The Company's most advanced vaccine product is based on the cold adapted
influenza vaccine technology licensed from the University of Michigan and the
NIH. The Company has obtained from the NIH and the University of Michigan
exclusive rights to trial results and data from the work at the Vaccine
Treatment Evaluation Units (the "VTEUs") and Wyeth-Ayerst. Aviron has reviewed
the data from over 65 previous clinical trials of influenza vaccine viruses
derived from the University of Michigan master strains. These studies, performed
since 1976, involved more than 15,000 volunteers, of whom over 7,000 received
the cold adapted influenza vaccine. Most of these trials were conducted by
academic investigators to explore the biology of the vaccines and were not
designed to support an application to the FDA for approval to market a product.
Each of the 15 vaccine strains that were tested were derived from the master
strains and typically corresponded to the contemporaneous inactivated influenza
vaccine for the year of testing.
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Those who received the cold adapted vaccine ranged in age from two months to
over 80 years. More than 50 of these trials studied strains of influenza A
vaccine, involving more than 13,000 volunteers, and 15 of the trials studied
strains of influenza B vaccines, involving approximately 2,200 volunteers. In
the aggregate, these clinical trials involved over 2,000 children. Nearly all of
these trials used monovalent (one strain) or bivalent (two strains)
formulations, containing only one or two of the three strains usually found in
the current trivalent inactivated vaccine. These trials used either placebo or
an inactivated virus vaccine as controls. In these clinical trials, trivalent
formulations were administered to about 350 adults and 200 children. The cold
adapted influenza vaccine was given in most of these clinical trials as nose
drops, although in some instances it was given as a nasal spray.
The effectiveness of the cold adapted influenza vaccine in preventing
influenza infection in adults and children has been evaluated in seven adult and
three pediatric challenge studies. Six of these adult challenge studies were
placebo-controlled and involved 254 seronegative (relatively low levels of prior
antibodies to the influenza strains used in the study) adults who were
challenged within six months of vaccination. A challenge study is a clinical
trial in which, typically, 20 to 30 adult volunteers are given wild-type
influenza by nose drops, one to two months following immunization with the
experimental or control vaccine preparation. Compared to placebo rates, the cold
adapted influenza strains resulted in significant reduction (66% to 100%) in
systemic illness compared to the placebo group and a reduction (17% to 100%) in
infection as measured by evidence of challenge virus replication, or virus
shedding, in the nose of the recipient. Two of these six studies included a
comparison group of subjects treated with the inactivated virus vaccines. While
these studies did not have a sufficient number of patients to detect a
statistical difference between the cold adapted and inactivated vaccines, the
cold adapted vaccine protection rates were equal or better than those seen for
the inactivated vaccine in each of the five studies. In one study where adults
were challenged seven months after immunization, less protection was seen as
measured by infection or any illness for both inactivated and cold adapted
vaccines. However, protection rates against systemic illness, such as fever,
were 79% to 100% for the cold adapted vaccine and 67% to 84% for the inactivated
vaccine.
Children are challenged in such studies using the cold adapted influenza
vaccine as the challenge virus rather than virulent wild-type virus. The
endpoint measured in children is protection from infection, defined as vaccine
virus growth in the nose after challenge. Of the three placebo-controlled
studies in 86 children, prior immunization with the cold adapted influenza
vaccine was associated with a significant reduction (52% to 100%) in the percent
of children infected with the challenge virus compared to placebo. In the only
children's study that included a comparison to inactivated vaccine, the cold
adapted vaccine resulted in a 52% reduction in virus shedding, whereas the
inactivated vaccine reduced shedding by 6% compared to the placebo.
Cold adapted influenza vaccines also have been tested in field trials where
children and adults were vaccinated before the influenza season, and are then
followed during the next six months in order to assess protection against
influenza disease. The largest study was conducted over four consecutive
influenza seasons. Approximately 1,500 children and adults from ages three to 65
were randomly assigned to each arm of this double-blind, placebo-controlled
study. This study design only allowed comparison of the inactivated and cold
adapted influenza A components. Both vaccines were considered to be
well-tolerated, with slightly increased redness and tenderness at the injection
site in those receiving the inactivated vaccine and slightly increased sore
throat or runny nose, lethargy and aches in those receiving the vaccine nose
drops. This study showed that both cold adapted and inactivated influenza
vaccines were well tolerated and reduced infection and morbidity due to
influenza A. The relative efficacy of the two vaccines differed from one
epidemic year to another and according to which measurement was used to assess
efficacy. As measured by rises in circulating antibodies during the influenza
season (seroconversion), the inactivated vaccine appeared more effective.
However, it is not clear how well this correlates with actual protection, as the
cold adapted and inactivated vaccines both protected recipients from
culture-positive disease at rates which did not differ by an amount which was
statistically significant.
CLINICAL TRIALS BY AVIRON
The Company intends to conduct additional clinical trials to demonstrate
safety and efficacy of its cold adapted influenza vaccine. While the Company
believes that it can use the previous data to support its regulatory filings,
the Company's use of the previous trial data to establish safety and efficacy of
its proposed
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vaccine is limited because very few of the clinical trials involved a trivalent
vaccine delivered through a nasal spray. The additional studies will relate to
the safety of the formulation as well as the safety of its delivery by
intranasal spray. Aviron enrolled a total of 615 patients in Phase I/II clinical
trials and 92 patients in a Phase II challenge study in five VTEUs as part of
the Company's CRADA with the NIH.
The first study, conducted at three university research laboratories, was a
safety and immunogenicity study involving 259 healthy adults. Patients were
randomly assigned to receive either Aviron's trivalent cold adapted influenza
vaccine by nasal spray or nose drops, or placebo by nasal spray or nose drops.
No serious adverse events were seen in any subjects. In a preliminary analysis
based on approximately 80% of the patients enrolled, there were no statistically
significant differences in the occurrence of fever, sore throat, runny nose,
cough, headache or any other potential reaction assessed in the study between
the vaccine or placebo or between the different types of administration. The
Company is in the process of assessing additional safety and immunogenicity data
from this study.
Two hundred thirty-eight children between the ages of 18 months and five
years were enrolled at four VTEUs and 118 children were enrolled at the Center
for Vaccine Development in Santiago, Chile, in a Phase I/ II safety,
immunogenicity and dose-escalation study. The study design and endpoints were
similar to the adult study, except that the initial phases used a dose lower
than that given to adults. No serious adverse events were seen in any subjects
in any of the three phases of the dose escalation. Based on a statistical
analysis of safety data by an NIH-appointed data monitoring and safety committee
following each of the escalating dose phases of the children's study, the
Company received notification from the committee that it had no objection to the
Company proceeding with a larger-scale Phase III pivotal trial in children at
the highest dose tested. The Company intends to initiate such a large-scale
field trial in the second half of the year. However, the FDA must review data
from its completed Phase I/II trials before the Company can enroll subjects in
the pivotal trial. The Company intends to enroll approximately 900 children who
will be vaccinated with either the cold adapted influenza vaccine or a placebo
and observed for evidence of illness or infection during the 1996-1997 influenza
season and, if required, revaccinated and observed during the 1997-1998
influenza season.
Aviron's trivalent intranasal spray formulation of the cold adapted
influenza vaccine also has been tested in a Phase II challenge study at two
VTEUs involving ninety-two healthy young adults. Subjects were randomized to
receive either the trivalent cold adapted intranasal vaccine, the trivalent
inactivated vaccine injection or a placebo. There were no serious adverse events
attributed to the study vaccine seen in any subjects. The Company is in the
process of analyzing safety and efficacy data from this study. Preliminary
analysis of clinical illness and viral shedding following exposure to the
challenge virus indicates that a lower than expected percentage of subjects in
the placebo group experienced influenza-like illness than had been seen in
previous challenge studies. The Company believes that this may have been due to
a problem with the challenge virus used to produce influenza in the subjects or
to a problem with selection of subjects based on their prior exposure to
influenza. Therefore, the Company believes that the challenge study is unlikely
to show statistically significant efficacy on the primary endpoint of preventing
laboratory-confirmed influenza. Regardless of the results of this study, the
Company intends to discuss with the FDA its plans to proceed directly to Phase
III clinical trials in adults and does not intend to conduct other challenge
studies.
Additional trials in children, adults and the elderly will be required to
assess the safety and efficacy of the Company's cold adapted influenza vaccine.
There can be no assurance that these or any additional trials will be successful
or that the Company will successfully develop and receive FDA approval of its
cold adapted influenza vaccine.
ADDITIONAL RESEARCH PROGRAMS
LIVE VIRUSES AS VECTORS
Aviron believes that its virus engineering technology may be used to create
strains which carry "foreign" genes and are able to deliver genetic or antigenic
information to specific tissues in the host. For example, it is possible to
engineer antigens from other viruses into influenza, as has already been
demonstrated for small antigenic regions from agents such as HIV and malaria.
RSV and PIV-3 are two other important causes of childhood infections which may
be targeted by using the influenza virus as a vector to deliver antigens.
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Members of the herpes virus family may also serve as vectors to deliver
antigens to make vaccines which protect against other viruses. Due to the
natural properties of this virus, it may be useful to delivery genetic
information to the central nervous system. Aviron is considering entering into a
collaboration to develop the Company's proprietary technology for the use of
herpes simplex virus as a vector in gene therapy. There can be no assurance that
the Company will be able to enter into a collaboration or that the Company,
alone or with others, will be successful in developing this technology.
MODIFIED HERPES SIMPLEX VIRUSES TO TREAT BRAIN CANCER
The Company's proprietary technology to modify herpes simplex viruses has
been evaluated by others in animal models for the treatment of brain cancer.
Malignant glioma is the most lethal of the common tumors originating in the
brain. In spite of surgical therapy, radiotherapy and chemotherapy, five-year
survival rates of approximately 5% are seen. Many new therapies have been
investigated, including radiation, hyperthermia, phototherapy, immunotherapy,
novel drug delivery for chemotherapy and gene therapy. Two of Aviron's founders,
Dr. Richard Whitley and Dr. Bernard Roizman, modified the herpes simplex virus
using genetic engineering and have tested this virus in an animal model of
malignant glioma. Preliminary results show that tumor size was reduced by the
modified viruses, resulting in a survival benefit for the treated animals.
However, no assurance can be given that the Company will be successful in
developing this technology.
MANUFACTURING
All of the vaccine material being used in the Company's current clinical
trials is being supplied by Evans Medical Limited, a subsidiary of Medeva plc
("Evans"). Evans is one of the four companies licensed by the FDA to produce
influenza vaccine for sale in the United States. Evans has also agreed to supply
clinical vaccine material for the 1996-1997 influenza season. The Company
currently does not have facilities to manufacture products for large-scale
clinical trials or in commercial quantities and has no experience in
commercial-scale manufacturing. To manufacture its products for large-scale
clinical trials or on a commercial scale, the Company will have to build or gain
access to a large-scale manufacturing facility which will require a significant
amount of funds. The production of the Company's cold adapted influenza vaccine
is subject to the availability of a large number of pathogen-free hen eggs, for
which there are currently a limited number of suppliers. Contamination or
disruption of this source of supply would adversely affect the ability to
manufacture the Company's cold adapted influenza vaccine. In addition, to make
the vaccine available for clinical trials or commercial sales before the
influenza season, the Company must successfully modify the vaccine within a
six-month period to include selected strains for a particular year.
The Company currently is considering whether to construct manufacturing
facilities capable of producing both pilot-scale and commercial quantities of
its potential vaccine products and is presently building a pilot manufacturing
facility for its potential vaccine products other than cold-adapted influenza.
This scale-up process will require the Company to develop advanced manufacturing
techniques and rigorous process controls. Furthermore, the Company will be
required to register its facility with the FDA and with the California
Department of Health Services and will be subject to state and federal
inspections confirming the Company's compliance with cGMP regulations
established by the FDA. However, no assurance can be given as to the ability of
the Company to produce commercial quantities of its potential products in
compliance with applicable regulations or at an acceptable cost, or at all.
The Company is alternatively considering the use of contract manufacturers
for the commercial production of its potential products. The Company is aware of
only a limited number of manufacturers which it believes have the ability and
capacity to manufacture its potential products, including the cold adapted
influenza vaccine, in a timely manner. There can be no assurance that the
Company would be able to contract with any of these companies for the
manufacture of its products on acceptable terms, if at all. If the Company
enters into an agreement with a third-party manufacturer, it will be required to
relinquish control of the manufacturing process, which might adversely affect
the Company's results of operations. Furthermore, a third-party manufacturer
also will be required to manufacture the Company's products in compliance with
state and federal regulations. Failure of any such third-party manufacturer to
comply with state and federal regulations and to deliver the required quantities
on a timely basis and at commercially reasonable prices would materially
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adversely affect the Company's business, financial condition and results of
operations. No assurance can be given that the Company, alone or with a third
party, will be able to make the transition to commercial-scale production of its
potential products successfully, if at all, or that if successful, the Company
will be able to maintain such production.
In November 1995, the Company and Evans entered into a manufacturing and
development agreement (the "Evans Agreement"). Under the terms of the Evans
Agreement, Evans is performing the development of a manufacturing process for
production of a cold adapted influenza vaccine and will produce such vaccine in
sufficient quantities to enable the Company to conduct its planned field trials
and large-scale clinical trials of the vaccine, subject to certain limitations.
In addition, in the event that the Company seeks to offer manufacturing rights
to a third party, Evans has a right of first negotiation to supply a portion of
the Company's commercial requirements for the vaccine in certain European
markets. The Company also granted Evans a right of first negotiation with
respect to distribution rights for the vaccine in Europe. After December 31,
1996, either party may terminate the Evans Agreement upon six months notice to
the other party.
MARKETING AND SALES
The current purchasers of vaccines are principally physicians, large HMOs
and state and federal government agencies. However, the United States health
care system is undergoing significant changes and the relative proportion that
each group will represent in the future will depend on factors such as
legislative changes and the economy. The Company intends to sell its products
directly to HMOs and state and federal health care agencies, and to other buyers
through partners with strong capabilities in local markets. Outside the United
States, the Company plans to sell its potential products through collaborative
agreements with strategic partners. Aviron intends to use rigorous
cost-effectiveness analysis as a guide for its pricing strategy and in support
of its marketing plans.
The Company currently has no marketing, sales or distribution capabilities.
To market any products, Aviron must either obtain the assistance of a third
party with a suitable distribution system, develop a direct sales and marketing
staff of its own or combine the efforts of a third party with its own efforts.
Other than SmithKline Beecham and Sang-A, the Company to date has no agreements
for marketing or distributing its potential products.
The success and commercialization of the Company's products is dependent in
part upon the ability of the Company to maintain and enter into additional
collaborative agreements with corporate partners for the development, testing
and marketing of certain of its vaccines and upon the ability of these third
parties to perform their responsibilities. Although Aviron believes that parties
to any such arrangements would have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of
resources devoted to these activities will not be within the control of the
Company. There can be no assurance that any such agreements or arrangements
would be available on terms acceptable to the Company, if at all, that such
third parties would perform their obligations as expected, or that any revenue
would be derived from such arrangements. If Aviron is not able to enter into
such agreements or arrangements, it could encounter delays in introducing its
potential products into the market or be forced to limit the scope of its
commercialization activities. If the Company were to market products directly,
significant additional expenditures, management resources and time would be
required to develop a marketing and sales staff within the Company. In addition,
the Company would also be competing with other companies that currently have
experienced and well-funded marketing and sales operations. There can be no
assurance that the Company will be able to establish its own marketing and sales
force or that any such force, if established, would be successful.
COLLABORATIVE AGREEMENTS
The Company's strategy for the development, clinical trials, manufacturing
and commercialization of certain of its products includes maintaining and
entering into various collaborations with corporate partners, licensors,
licensees and others. There can be no assurance that the Company will be able to
maintain existing
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collaborative agreements, negotiate collaborative arrangements in the future on
acceptable terms, if at all, or that any such collaborative arrangements will be
successful. To date the Company has entered into the following collaborative
agreements.
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES -- PARAINFLUENZA VIRUS
TYPE 3
In May 1996, the Company obtained exclusive rights from the NIAID of the NIH
to certain biological materials and clinical trial data for its PIV-3 program.
The NIH granted to the Company exclusive rights in specific strains of bovine
parainfluenza virus (the "Licensed Materials") to develop, test, manufacture,
use and sell products for vaccination against human parainfluenza virus and
other human and animal diseases ("Licensed Products"). In addition, the Company
obtained from the NIAID the right to reference an existing IND and certain data
relating to the Licensed Materials. The NIH retained certain rights to the
Licensed Materials on behalf of the United States Government to conduct research
and to grant research licenses to third parties under certain circumstances. In
return for the rights granted by NIH, the Company will make payments to NIH on
the achievement of specified milestones and will make certain royalty payments
to NIH. Unless otherwise terminated, the Agreement will terminate on cessation
of commercial sales of Licensed Products by the Company or its sublicensee. The
Company has the unilateral right to terminate the Agreement in any country upon
providing 60 days notice to NIH.
SMITHKLINE BEECHAM BIOLOGICALS S.A.
In October 1995, the Company signed an agreement with SmithKline Beecham
defining a collaboration on the Company's EBV vaccine technology (the "SB
Agreement"). Under the terms of the SB Agreement, the Company granted SmithKline
Beecham an exclusive license to produce, use and sell non-live EBV vaccines
incorporating the Company's technology for prophylactic and therapeutic uses on
a worldwide basis, except in South and North Korea (together, "Korea"). The
Company has retained the right to co-distribute a monovalent formulation of the
vaccine in certain markets in the United States and to have SmithKline Beecham
supply such vaccine. In addition, SmithKline Beecham obtained a right of first
refusal to an exclusive, worldwide (except Korea) license under any intellectual
property rights relating to any live EBV vaccine technology developed or
controlled by the Company during the term of the SB Agreement.
SmithKline Beecham has agreed to fund research and development at the
Company related to the EBV vaccine, in specified minimum amounts, during the
first two years of the SB Agreement. SmithKline Beecham made an initial upfront
payment to the Company and agreed to make additional payments upon the
achievement of certain product development milestones. The Company is entitled
to royalties from SmithKline Beecham based on net sales of the vaccine. Unless
otherwise terminated, the SmithKline Beecham Agreement will expire upon the
expiration or invalidation of the last remaining patent covered by the SB
Agreement or 10 years from the date of first commercial sale of the vaccine,
whichever is later. The SB Agreement may be terminated by SmithKline Beecham
with respect to any country at any time.
SANG-A PHARM. CO., LTD.
In May 1995, the Company entered into a Development and License Agreement
with Sang-A. The Company granted to Sang-A exclusive clinical development,
manufacturing and marketing rights in Korea for specified products developed by
Aviron, including vaccines for influenza (cold adapted and recombinant), EBV,
CMV, HSV-2 and RSV. However, the Company is under no obligation to develop any
product. Sang-A also will make payments to the Company upon the Company's
meeting certain regulatory milestones for each product in Korea and will pay a
royalty to the Company on net sales of such products in Korea.
Sang-A also is obligated to establish a manufacturing facility with at least
enough capacity to meet demand for all Korean product requirements for each
product that reaches commercialization, if any. In the event that Sang-A's
manufacturing capabilities satisfy certain objective criteria and subject to an
obligation to cooperate with the Company's future corporate partners for any
given products, Sang-A has a right of first refusal to
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manufacture a portion of the total requirements of the Company, its affiliates
and sublicensees for the specified products, with the exception of the EBV
vaccine, in specified countries, including the United States, provided that it
can do so at a competitive price, quality and timeline.
The term of this agreement extends, on a product-by-product basis, until 10
years from the date of first commercial sale of each product in Korea. At the
conclusion of the term, Sang-A has an option to extend the agreement on a
product-by-product basis, for the longer of an additional 10 years or the
expiration of the patents covering such product. During any such extension,
Sang-A will have either no royalty obligation to the Company or a reduced
royalty obligation, depending on the product.
In return for the rights granted to Sang-A, Sang-A made an equity investment
in the Company in May 1995 of approximately $4.0 million. Sang-A subsequently
made an additional equity investment of approximately $1.6 million in the
Company's private placement of Series C Preferred Stock and currently owns
4,265,480 shares of the Company's Series C Preferred Stock, convertible into
853,096 shares of the Company's Common Stock, representing approximately 9% of
the Company's Common Stock (on an as-converted basis) outstanding prior to this
offering. In addition, Sang-A has agreed to purchase, if so requested by Aviron,
10% of any subsequent offerings by the Company of new securities at the same
price offered to other purchasers in any such offering. This purchase obligation
expires following the closing of the first firmly underwritten public offering
of the Company's Common Stock. Concurrent with this offering, Aviron intends to
sell to Sang-A in a private placement, at the initial public offering price, a
number of shares of Common Stock equal to 10% of the aggregate number of shares
sold in the offering and in the private placement, provided however, that the
total number of shares to be purchased by Sang-A will not exceed $5,000,000
divided by the initial public offering price.
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES -- COLD ADAPTED INFLUENZA
VACCINE
Following a competitive application process, the Company entered into a
CRADA in March 1995 with the National Institute of Allergy and Infectious
Diseases of the NIH to conduct clinical trials of the Company's cold adapted
influenza vaccine. Wyeth-Ayerst licensed certain rights to the vaccine from the
NIH in 1989 and was developing it for sale in collaboration with the NIH until
relinquishing its rights in 1993. Aviron has obtained from the NIH and the
University of Michigan exclusive rights to trial results and data from the work
at the VTEUs and Wyeth-Ayerst. The NIH has agreed to support the trials by
enrolling subjects in its network of VTEUs. In addition, the Company acquired
exclusive commercial rights to data generated from all previous clinical trials
conducted by the NIH and Wyeth-Ayerst using the vaccine. The term of the CRADA
will not exceed five years without a written amendment by the parties. Either
party may terminate the CRADA for material breach.
UNIVERSITY OF MICHIGAN
In February 1995, the Company entered into a materials transfer and
intellectual property agreement (the "Michigan Agreement") with the University
of Michigan. Pursuant to the Michigan Agreement, the University of Michigan
granted the Company exclusive rights to certain intellectual property and
technology relating to a cold adapted influenza vaccine and proprietary donor
strains of influenza viruses useful in the production of products for
vaccination against influenza and potentially for gene therapy and other uses
(the "Master Strains"). Specifically, the Company obtained the exclusive right
to develop, manufacture, use, market and sell products incorporating any such
intellectual property or utilizing the Master Strains in all countries of the
world except Japan. Aviron is in the process of acquiring the Japanese rights
from the University of Michigan for no additional consideration. In
consideration for the rights granted to the Company, the Company (i) made an
initial cash payment to the University of Michigan; (ii) agreed to pay a royalty
to the University of Michigan on net sales of products subject to the license;
(iii) entered into a sponsored research agreement with the University of
Michigan for a period of at least two years; and (iv) issued to the University
of Michigan 1,323,734 shares of Series B Preferred Stock, convertible into
264,746 shares of the Company's Common Stock, representing approximately 3% of
the Company's Common Stock (on an as-converted basis) outstanding prior to this
offering. In addition, in the event that Aviron receives approval to
commercially market a product based on the University of Michigan technology,
the Company has agreed to issue a warrant to the University of Michigan to
purchase
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shares of the Company's Common Stock, for a number of shares to be based on
1.25% of the Common Stock outstanding on the date of the first commercial sale
of the product incorporating the University of Michigan technology. See
"Description of Capital Stock -- Warrants."
Pursuant to the Michigan Agreement, the Company is required to grant to the
University of Michigan an irrevocable, royalty-free license for research
purposes, or for transfer to a subsequent licensee should the Michigan Agreement
be terminated, to (i) all improvements developed by the Company, its affiliates
or sublicensees, whether or not patentable, relating to delivery mechanisms and
processes for administration and manufacturing of products, as well as
packaging, storage and preservation processes for the Master Strains, and (ii)
all new technical information acquired by the Company, its affiliates or
sublicensees relating to the Master Strains and products.
The term of the Michigan Agreement is until the later of the last to expire
of the the University of Michigan patents licensed to the Company or 20 years
from the date of first commercial sale of a product incorporating the Michigan
technology. The Company has the further right to terminate for any reason upon
12 months notice to the University of Michigan.
THE MOUNT SINAI SCHOOL OF MEDICINE
In February 1993, the Company entered into a technology transfer agreement
with The Mount Sinai School of Medicine of the City University of New York
("Mount Sinai"). Under this agreement, Mount Sinai assigned to the Company all
of its rights, title and interest in and to certain patents and patent
applications, as well as all associated know-how and other technical
information, relating to recombinant negative strand RNA virus expression
systems and vaccines, attenuated influenza viruses and certain other technology.
Mount Sinai also granted the Company (i) an option to acquire any improvements
to the inventions disclosed in the assigned patents and patent applications
thereafter developed by Mount Sinai and (ii) a right of first negotiation for a
license or assignment to certain additional related technology. In consideration
for the rights granted to the Company, the Company issued to Mount Sinai 35,000
shares of the Company's Common Stock. The Company also issued to Mount Sinai
three warrants to purchase up to a total of 225,000 shares of the Company's
Series A Preferred Stock, each exercisable for a term of five years commencing
upon the occurrence of certain milestone events which accelerate upon the
effectiveness of this offering. Warrants to purchase 45,000 of the shares of
Series A Preferred Stock (convertible into 9,000 shares of Common Stock) are
exercisable at a purchase price of $4.50 per share of Common Stock. Warrants to
purchase 148,750 shares of Series A Preferred Stock (convertible into 29,750
shares of Common Stock), will become exercisable at the effective date of this
offering at a price per share of Common Stock of 125% of the initial public
offering price of the Company's Common Stock. The warrant to purchase the
remaining 31,250 shares of Series A Preferred Stock will be cancelled on the
effective date of this offering. See "Capital Stock -- Warrants."
ARCH DEVELOPMENT CORPORATION
In July 1992, the Company entered into a license agreement with ARCH
Development Corporation ("ARCH"), an Illinois not-for-profit corporation
associated with the University of Chicago, pursuant to which the Company
obtained an exclusive, worldwide commercialization license, with the right to
sublicense, to certain patent rights and related intellectual property and
materials pertaining to the herpes simplex viruses, EBV and various recombinant
methods and materials. In return for the rights granted to the Company under
this agreement, the Company will make payments to ARCH upon the achievement of
certain milestones in the development of products covered by the license and
will pay royalties to ARCH on net sales of such products. ARCH also granted the
Company certain rights to improvements and additional related technology. The
term of this agreement extends until the expiration of the last-to-expire patent
rights covered under the license. In connection with this agreement, ARCH
purchased 40,000 shares of the Company's Common Stock. Subsequent to this
agreement, affiliates of ARCH made equity investments in Aviron, purchasing
700,000, 300,000 and 113,999 shares of the Company's Series A, B and C Preferred
Stock, respectively, convertible into a total of 222,799 shares of the Company's
Common Stock. ARCH and its affiliates together own shares representing
approximately 2.5% of the Company's Common Stock (on an as-converted basis)
outstanding prior to this offering.
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PATENTS AND PROPRIETARY RIGHTS
Aviron believes that patent and trade secret protection is important to its
business and that its future will depend in part on its ability to maintain its
technology licenses, maintain trade secret protection, obtain patents and
operate without infringing the proprietary rights of others. The Company owns or
has licensed rights to United States and foreign patents and patent applications
covering aspects of technology relating to herpes viruses, including EBV, CMV,
and HSV-2 and negative strand RNA viruses, such as influenza and RSV
technologies. Aviron has acquired or licensed rights to over a dozen patent
applications pending in the United States, and seven issued United States
patents.
The Company has no issued patents on the technology related to its cold
adapted influenza vaccine. The Company's rights to this technology are based on
a license of materials and know-how from the University of Michigan, which owns
the master strains from which the vaccine is derived, and on a license of
know-how and clinical trial data from the NIH. There can be no assurance, that a
third party will not reproduce the Company's cold adapted influenza vaccine or
that a third party will not develop another live-virus influenza vaccine which
might be comparable to Aviron's in terms of safety and efficacy.
The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. Certain of the Company's licensors also rely on trade secrets to
protect technology which has been licensed to Aviron, and as a result, the
Company is dependent on the efforts of these licensors to protect such trade
secrets. For example, the University of Michigan relies in part on trade secrets
to protect the master strains of the cold adapted influenza virus used by the
Company and the NIH relies in part on trade secrets to protect the master
strains of the bPIV-3 virus. Aviron protects its proprietary technology and
processes, in part, by confidentiality agreements with its employees,
consultants, collaborators and certain contractors. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets or those of its
licensors will not otherwise become known or be independently discovered by
competitors. To the extent that Aviron or its consultants or research
collaborators use intellectual property owned by others in their work for the
Company, disputes may also arise as to the rights in related or resulting
know-how and inventions.
The Company's success also will depend in part on its ability to obtain
patents, both in the United States and in other countries. Since patent
applications in the United States are maintained in secrecy until patents issue
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, the Company cannot be certain that it was
the first to make the inventions covered by each of its pending patent
applications or that it was the first to file patent applications for such
inventions. The patent positions of biotechnology and pharmaceutical companies
can be highly uncertain and involve complex legal and factual questions, and
therefore the breadth of claims allowed in biotechnology and pharmaceutical
patents or their enforceability cannot be predicted. There can be no assurance
that any of the Company's patents or patent applications will issue, or if
issued, will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide proprietary protection or competitive advantages
to the Company.
The commercial success of Aviron additionally will depend, in part, upon the
Company's not infringing patents issued to others. A number of pharmaceutical
companies, biotechnology companies, universities and research institutions have
filed patent applications or received patents in the areas of the Company's
programs. Some of these applications or patents may limit or preclude the
Company's applications, or conflict in certain respects with claims made under
the Company's applications.
The Company is aware of pending patent applications that have been filed by
others that may pertain to certain aspects of the Company's programs, including
a genetically engineered influenza vaccine, the Company's herpes virus program
or other of its issued or pending patent applications. If patents are issued to
others containing preclusive or conflicting claims and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. No
assurance can be given that patents have not been issued, or will not be issued,
to third parties that contain preclusive or conflicting claims with respect to
the cold adapted influenza vaccine or any of the Company's other programs. The
Company's breach of an existing license or failure to obtain a license to
technology required to commercialize its products may have a material adverse
effect on the Company's business, financial condition and results of
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operations. Litigation, which could result in substantial costs to the Company,
may also be necessary to enforce any patents issued to the Company or to
determine the scope and validity of third-party proprietary rights. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome is favorable to
the Company. An adverse outcome could subject the Company to significant
liabilities to third parties and require the Company to license disputed rights
from third parties or to cease using such technology.
On May 22, 1996, the Company received notice from Chiron that Chiron intends
to file a lawsuit against Aviron, unless a prompt negotiated settlement can be
reached, alleging that certain of Aviron's patent applications relating to its
EBV program are based on Chiron proprietary information which was improperly
conveyed to Aviron by a former Chiron employee. Aviron believes that Chiron's
allegations are without merit and, if a complaint is filed, intends to
vigorously defend itself against any such action. Aviron does not utilize the
alleged proprietary information in any of its programs. The Company has received
terms of a proposed settlement from Chiron and is in discussions with Chiron
regarding a possible settlement of the dispute. No assurance can be given that
litigation will not ensue, which could be costly and time-consuming.
GOVERNMENT REGULATION
Regulation by government authorities in the United States and other
countries will be a significant factor in the manufacturing and marketing of any
products that may be developed by the Company. All of the Company's products
will require regulatory approval by government agencies prior to
commercialization. The Company's vaccine products are subject to rigorous
preclinical testing and clinical trial and other approval procedures by the FDA
and similar health authorities in foreign countries. Various federal statutes
and regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of such products.
The Company believes that its vaccine products will be classified by the FDA
as "biologic products," as opposed to "drug products." The steps ordinarily
required before a drug or biological product may be marketed in the United
States include (a) preclinical testing and clinical trials; (b) the submission
to the FDA of an IND, which must become effective before clinical trials may
commence; (c) adequate and well-controlled clinical trials to establish the
safety and efficacy of the drug; (d) the submission to the FDA of a Product
License Application ("PLA") together with an Establishment License Application
("ELA"); and (e) FDA approval of the application, including approval of all
product labeling and, in some instances, advertising.
Preclinical testing includes laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Preclinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the preclinical tests are submitted to the FDA as part
of an IND and are reviewed by the FDA before the commencement of clinical
trials. Unless the FDA objects to an IND, the IND will become effective 30 days
following its receipt by the FDA. There can be no assurance that submission of
an IND will result in FDA authorization to commence clinical trials or that the
lack of an objection means that the FDA will ultimately approve an application
for marketing approval.
Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. Clinical
trials must be conducted in accordance with Good Clinical Practices under
protocols submitted to the FDA as part of the IND. In addition, each clinical
trial must be approved and conducted under the auspice of an Institutional
Review Board and with patient informed consent. The Institutional Review Board
will consider, among other things, ethical factors, the safety of human subjects
and the possible liability of the institution conducting the clinical trial.
Phase I clinical trials are generally performed in healthy human subjects.
The goal of the Phase I clinical trials is to establish initial data about
safety and tolerance of the vaccine in humans. Also, the data regarding the
immune response to a vaccine may be obtained. In Phase II clinical trials,
evidence is sought about the desired therapeutic efficacy of a drug or antibody,
or the immune response to a vaccine, in limited studies with small numbers of
carefully selected subjects. Efforts are made to evaluate the effects of various
dosages and to
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establish an optimal dosage level and dosage schedule. Additional safety data
are also gathered from these studies. The Phase III clinical trial program
consists of expanded, large-scale, multicenter studies of persons who are
susceptible to the disease. The goal of these studies is to obtain definitive
statistical evidence of the efficacy and safety of the proposed product and
dosage regimen.
All data obtained from this comprehensive development program are submitted
as a PLA to the FDA and the corresponding agencies in other countries for review
and approval. FDA approval of the PLA and the associated ELA is required before
marketing may begin in the United States. The FDA will present to the Vaccine
and Related Biological Products Advisory Committee documentation on most of
Aviron's products for review and recommendation before PLA approval. Although
the FDA's policy is to review priority applications within 180 days of their
filing, in practice longer times may be required. The FDA frequently requests
that additional information be submitted requiring significant additional review
time. All proposed products of the Company will be subject to demanding and
time-consuming PLA or similar approval procedures in the countries where the
Company intends to market its products. These regulations define not only the
form and content of the development of safety and efficacy data regarding the
proposed product, but also impose specific requirements regarding manufacture of
the product, quality assurance, packaging, storage, documentation and record
keeping, labelling and advertising, and marketing procedures. Effective
commercialization also requires inclusion of the Company's products in national,
state, provincial, or institutional formularies or cost reimbursement systems.
FDA approval of the Company's products, including a review of the
manufacturing processes and facilities used to produce such products, will be
required before such products may be marketed in the United States. The process
of obtaining approvals from the FDA can be costly, time consuming and subject to
unanticipated delays. The FDA may refuse to approve an application if it
believes that applicable regulatory criteria are not satisfied. The FDA may also
require additional testing for safety and efficacy of the drug. Moreover, if
regulatory approval of a drug product is granted, the approval will be limited
to specific indications. There can be no assurance that approvals of the
Company's proposed products, processes or facilities will be granted on a timely
basis, if at all. Any failure to obtain or delay in obtaining such approvals
would have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, even if regulatory approval is
granted, such approval may include significant limitations on indicated uses for
which a product could be marketed.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Nuclear Regulatory
Commission, the Resource Conservation and Recovery Act and other present and
potential future federal, state or local regulations. The Company's research and
development involves the controlled use of hazardous materials and chemicals.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, there can be no assurance that accidental contamination or
injury from these materials will not occur. In the event of such an accident,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities may be necessary in foreign countries prior to
the commencement of marketing of the product in such countries. The approval
procedure varies among countries, can involve additional testing, and the time
required may differ from that required for FDA approval. Although there is now a
centralized European Union approval mechanism in place, each European country
may nonetheless impose its own procedures and requirements, many of which are
time consuming and expensive. Thus, there can be substantial delays in obtaining
required approvals from both the FDA and foreign regulatory authorities after
the relevant applications are filed. The Company expects to rely on corporate
partners and licensees, along with Company expertise, to obtain governmental
approval in foreign countries of drug formulations utilizing its candidates.
The Company believes that the approval process for vaccines may be longer
than for other therapeutic products. In addition, regulatory scrutiny may be
particularly intense for products, such as Aviron's cold-attenuated influenza
vaccine, which are designed to be given to otherwise healthy children.
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COMPETITION
The Company operates in a rapidly evolving field. Any product developed by
the Company would compete with existing and new drugs and vaccines being created
by pharmaceutical, biopharmaceutical and biotechnology companies. If the Company
were able to successfully develop its vaccines, it would be competing with
larger companies that have already introduced vaccines and have significantly
greater marketing, manufacturing, financial and managerial resources. For
example, with respect to its cold adapted influenza vaccine, the Company will be
competing against larger companies such as Pasteur Merieux Connaught,
Wyeth-Ayerst, Parke-Davis and Evans. Each of these companies sells the
inactivated injectable influenza vaccine in the United States, has significantly
greater financial resources than Aviron and has established marketing and
distribution channels for such products. The Company is also aware of several
companies that are marketing or are in late-stage development of products to
prevent HSV disease, including Glaxo, SmithKline Beecham and Chiron Biocine
Corporation. In addition, the Company is also aware of the use in Russia of a
cold adapted influenza vaccine, research programs by some of the competitors
listed above, among others, to develop more effective influenza vaccines and a
cold adapted PIV-3 vaccine developed with NIH support which may be licensed to a
large vaccine company.
New developments are expected to continue in both the pharmaceutical and
biotechnology industries and in academia. Other companies may succeed in
developing products that are safer, more effective or less costly than any that
may be developed by the Company. Such companies may also be more effective than
the Company in the production and marketing of their products. Furthermore,
rapid technological development by competitors may result in the Company's
products becoming obsolete before the Company is able to recover its research,
development or commercialization expenses incurred in connection with any such
product. Many potential competitors have substantially greater financial,
technical and marketing resources than the Company. Some of these companies also
have considerable experience in preclinical testing, clinical trials and other
regulatory approval procedures. Moreover, certain academic institutions,
government agencies and other research organizations are conducting research in
areas in which the Company is working. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. These institutions
may also market competitive commercial products on their own or through joint
ventures.
Aviron believes that competition in the markets it is addressing will
continue to be intense. The vaccine industry is characterized by intense price
competition, and the Company anticipates that it will face this and other forms
of competition. There can be no assurance that pharmaceutical, biopharmaceutical
and biotechnology companies will not develop more effective products than those
of the Company or will not market and sell their products more effectively than
the Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
PHARMACEUTICAL PRICING AND REIMBURSEMENT
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Recent initiatives to
reduce the federal deficit and to reform health care delivery are increasing
cost-containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause the Company or its
collaborative partners to limit or eliminate spending on development projects.
Legislative debate is expected to
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continue in the future, and market forces are expected to demand reduced costs.
Aviron cannot predict what impact the adoption of any federal or state health
care reform measures or future private sector reforms may have on its business.
In both domestic and foreign markets, sales of the Company's proposed
vaccines will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
There can be no assurance that the Company's proposed products will be
considered cost effective or that adequate third-party reimbursement will be
available to enable Aviron to maintain price levels sufficient to realize an
appropriate return on its investment in product development. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for medical products. If adequate
coverage and reimbursement levels are not provided by the government and
third-party payors for the Company's products, the market acceptance of these
products would be adversely affected, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
Several of the Company's proposed vaccines are intended for use in children.
Widespread use of these proposed vaccines is unlikely without recommendations
for their use in childhood immunization programs from authorities such as the
ACIP, the American Academy of Pediatrics and the American College of Physicians.
The ACIP has a role in making recommendations which affect the market for most,
if not all, of the products Aviron intends to make. The CDC develops
epidemiologic data in support of the need for new vaccines and monitors vaccine
usage and changes in disease incidence. In addition, CDC staff frequently act as
key advisors to the FDA in their review process. There can be no assurance that
such authorities will recommend the use of the Company's proposed products,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
EMPLOYEES
As of June 1, 1996, the Company had 70 full-time employees. Thirty-eight of
the Company's employees were in research and development, 16 were in regulatory
affairs, quality assurance and quality control, and 16 were in administration.
No Company employee is represented by a labor union, and the Company has not
experienced any work stoppages. The Company considers its employee relations to
be good.
FACILITIES
Aviron leases approximately 52,800 square feet of office and laboratory
space in Mountain View, California. The Company has leased this facility through
October 2005 and has two options to extend the lease for successive five-year
terms. The Company currently subleases approximately 15,000 square feet of space
to three subtenants. The subleases run through June 1996 and may be extended at
Aviron's discretion. The Company believes that this facility is adequate to meet
its needs for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings. However, on
May 22, 1996, the Company received notice from Chiron that Chiron intends to
file a lawsuit against Aviron, unless a prompt negotiated settlement can be
reached, alleging that certain of Aviron's patent applications relating to its
EBV program are based on Chiron proprietary information which was improperly
conveyed to Aviron by a former Chiron employee. Aviron believes that Chiron's
allegations are without merit and, if a complaint is filed, intends to
vigorously defend itself against any such action. Aviron does not utilize the
alleged proprietary information in any of its programs. The Company has received
terms of a possible settlement from Chiron and is in discussions with Chiron
regarding a proposed settlement of the dispute. No assurance can be given that
litigation will not ensue, which could be costly and time-consuming.
48
<PAGE>
SCIENTIFIC ADVISORY BOARD
Aviron's scientific advisors are consultants who devote six to 20 days per
year to the Company. Some meet frequently with Company employees to discuss
specific projects and others participate primarily via the Company's two annual
meetings of the Scientific Advisory Board.
ANN ARVIN, M.D., Professor of Pediatrics, Microbiology and Immunology at the
Stanford University School of Medicine, has been a member of the Company's
Scientific Advisory Board since 1992. Dr. Arvin has conducted research on the
epidemiology of maternal-to-infant transmission of HSV-2 and she directs one of
the leading laboratories in the study of the interaction of the human immune
system with the varicella zoster (chicken pox) virus in natural and vaccine
infections.
HARRY GREENBERG, M.D., Professor of Medicine, Microbiology and Immunology
and Chief of the Division of Gastroenterology and Associate Chairman for
Academic Affairs, Department of Medicine at the Stanford University School of
Medicine, has been a member of the Company's Scientific Advisory Board since
1992. Dr. Greenberg's research deals with the immunology and pathogenesis of the
principal viruses which cause infectious diarrhea and hepatitis.
ELLIOT KIEFF, M.D., PH.D., Albee Professor of Medicine, Microbiology and
Molecular Genetics and Chairman of the Virology Program at Harvard University,
and Director of Infectious Disease at the Brigham and Women's Hospital, has been
a member of the Company's Scientific Advisory Board since 1992. Dr. Kieff's
laboratory conducts research on the molecular mechanisms of how EBV is a
contributory cause of cancer in humans.
JOSHUA LEDERBERG, PH.D., the Raymond and Beverly Sackler Foundation Scholar
and former President of The Rockefeller University, has been a member of the
Company's Scientific Advisory Board since 1992. He received the Nobel Prize in
Physiology or Medicine for his discovery of genetic recombination in bacteria.
His laboratory at the Rockefeller University studies molecular genetics and he
is active in formulation of national policy concerning emerging infections.
HUNEIN F. MAASSAB, PH.D., Chairman of the Department of Epidemiology, School
of Public Health, at the University of Michigan, has been a member of the
Company's Scientific Advisory Board since 1995. He is the inventor of the cold
adapted influenza vaccine licensed to the Company by the University of Michigan
and has published numerous papers on this subject. His laboratory is studying
the molecular basis of influenza virus attenuation and is involved in
development of new vaccines for other respiratory viruses.
EDWARD MOCARSKI, JR., PH.D., Professor and Chairman of the Department of
Microbiology and Immunology at the Stanford University School of Medicine, has
been a member of the Company's Scientific Advisory Board since 1992. His
laboratory engineered the first recombinant CMV providing the first
demonstration of this virus as a vector and is one of the leading groups
conducting research on CMV gene regulation.
PETER PALESE, PH.D., a founder of the Company and member of the Scientific
Advisory Board since 1992, is Professor and Chairman of the Department of
Microbiology at The Mount Sinai School of Medicine of the City University of New
York. His laboratory developed the first successful strategy for making
genetically engineered influenza viruses. This invention is the subject of a
United States patent issued in 1992 covering the genetic engineering of negative
strand RNA viruses rights to which patent have been acquired by the Company. Dr.
Palese's research group has been responsible for developing a genetic map for
influenza virus, elucidating the function of viral proteins, and the creation of
recombinant influenza strains which demonstrate the use of this virus as a
vector.
GERALD V. QUINNAN, JR., M.D., Professor of Preventive Medicine, Medicine and
Microbiology, Department of Preventive Medicine and Biometrics at the Uniformed
Services University of the Health Sciences in Bethesda, Maryland, has been a
member of the Company's Scientific Advisory Board since 1995. Dr. Quinnan was
employed by the FDA from 1977 until 1993. From 1980 to 1988, he was Director of
the Virology Division, subsequently serving as Deputy Director and Acting
Director, of the Center for Biologics Evaluation and Research. Dr. Quinnan's
research concerns aspects of HIV immunology related to vaccine development.
BERNARD ROIZMAN, SC.D., a founder and director of the Company and member of
the Scientific Advisory Board since 1992, is the Joseph Regenstein Distinguished
Service Professor of the Departments of Molecular
49
<PAGE>
Genetics and Cell Biology and of Biochemistry and Molecular Biology at The
University of Chicago. His laboratory is a leading center of research on
neurovirulence of the herpes simplex viruses, created the first example of a
large DNA virus which had been genetically engineered and provided the first
demonstration of herpes simplex virus as a vector. Dr. Roizman is a member of
the United States National Academy of Sciences. The Company's HSV-2 vaccine
program is based on his patented technology, licensed to Aviron.
JOHN SKEHEL, PH.D., FRS, Director of the National Institute of Medical
Research of the Medical Research Council and the WHO Influenza Surveillance
Center in Mill Hill near London, has been a member of the Company's Scientific
Advisory Board since 1992. His laboratory has contributed new knowledge on the
structure of the influenza virus as well as the molecular epidemiology of this
virus.
RICHARD WHITLEY, M.D., a founder of the Company and member of the Scientific
Advisory Board since 1992, is Professor of Pediatrics, Microbiology, and
Medicine and Vice Chairman of the Department of Pediatrics at the University of
Alabama School of Medicine in Birmingham. He has conducted pharmacologic and
clinical studies on many antiviral drugs and his laboratory is a leading center
of research on the mechanism by which herpes simplex virus causes disease, and
he is studying the use of modified herpes viruses to treat brain cancer. Dr.
Whitley is former Chairman of the NIH Data Monitoring and Safety Committee for
AIDS Therapy and a member of the Committee on Infectious Disease of the American
Academy of Pediatrics (The Redbook Committee).
MAX WILHELM, PH.D., is a consultant to the biotechnology industry and has
been a member of the Company's Scientific Advisory Board since 1993. He has
retired from a 35-year career at Ciba-Geigy where he was most recently a member
of the Pharmaceuticals Division Committee overseeing worldwide research and
development operations. He was involved in the formation of The Biocine Company,
a joint venture vaccine company between Ciba-Geigy and Chiron, serving as one of
its original directors, and is currently Chairman of the Board of Directors of
Genelabs Technologies, Inc.
50
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of June 1, 1996 is
set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------- --- -----------------------------------
<S> <C> <C>
J. Leighton Read, M.D............ 45 Chairman, Chief Executive Officer
and Chief Financial Officer
Martin L. Bryant, M.D., Ph.D..... 47 Vice President, Research
Victor Jegede, Ph.D.............. 51 Vice President, Technical Affairs
Vera Kallmeyer, M.D., Ph.D....... 37 Vice President, Corporate
Development
Paul M. Mendelman, M.D........... 48 Vice President, Clinical Research
Eric J. Patzer, Ph.D............. 47 Vice President, Development
Reid W. Dennis (1)(2)............ 70 Director
Paul H. Klingenstein (1)(2)...... 40 Director
Jane E. Shaw, Ph.D............... 57 Director
L. James Strand, M.D. (1)(2)..... 54 Director
Bernard Roizman, Sc.D............ 67 Director
Alan C. Mendelson................ 48 Secretary
</TABLE>
- -------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
J. LEIGHTON READ, M.D., a founder of the Company, has been Chairman, Chief
Executive Officer and Chief Financial Officer of the Company since 1992. In
1989, he co-founded Affymax N.V. with Dr. Alejandro Zaffaroni, serving initially
as its Executive Vice President and Chief Operating Officer and later, from 1990
to 1991, as President of the Pharma Division and as a Managing Director of the
parent company. From 1991 to 1993, Dr. Read was a principal with Interhealth
Limited, an investment partnership. Prior to 1989, Dr. Read held appointments at
the Harvard Medical School and School of Public Health, where his research dealt
with techniques for assessing the cost effectiveness of pharmaceutical products.
He has served on the boards of a number of private biotechnology companies and
is currently on the board of a private biotechnology company. Dr. Read holds a
B.S. in Biology and Psychology from Rice University and an M.D. from the
University of Texas Health Science Center at San Antonio.
MARTIN L. BRYANT, M.D., PH.D., has been Vice President, Research of the
Company since 1995. Dr. Bryant also currently is Consulting Associate Professor
of Pediatrics, Microbiology and Immunology at the Stanford University School of
Medicine and Adjunct Associate Professor of Molecular Microbiology at the
Washington University School of Medicine. From 1991 to 1995, he was Director,
Infectious Disease Research for G. D. Searle & Co./Monsanto, a pharmaceutical
company. From 1990 to 1991, he was an Instructor in Pediatric Infectious
Diseases at the Washington University School of Medicine. Dr. Bryant holds a
B.A. in Chemistry from Duke University, an M.A. in Chemistry from San Diego
State University, and an M.D. and a Ph.D. from the University of Southern
California.
VICTOR JEGEDE, PH.D., has been Vice President, Technical Affairs of the
Company since 1995. From 1992 to 1994, Dr. Jegede was Vice President, Regulatory
Affairs and Quality for Creative BioMolecules, Inc., a biopharmaceuticals
company, and from 1989 to 1992, he was Director, Regulatory Affairs and Quality
for WelGen Manufacturing Partnership (BW Manufacturing, Inc.), a division of
Burroughs Welcome Manufacturing, Inc., a pharmaceutical manufacturer. Dr. Jegede
holds a B.S. and an M.S. in Biology, and a Ph.D. in Bacteriology from Boston
College.
51
<PAGE>
VERA KALLMEYER, M.D., PH.D., has been Vice President, Corporate Development
of the Company since 1994. From 1993 to 1994, Dr. Kallmeyer was Vice President,
Healthcare Banking/Biotech at Flemings, a London-based merchant bank. From 1990
to 1993, she was an Associate in Investment Banking at Wasserstein Perella and
Company. In 1994, she co-founded Pacific Futures, an investment advisory
business located in Hong Kong, for which she currently serves as Senior Advisor.
Dr. Kallmeyer holds an M.D. and a Ph.D. in Pediatric Cardiology from
Ludwig-Alexander University in Erlangen, Germany, and an M.B.A. from Stanford
University. She has also studied at the Harvard Medical School and the Royal
Postgraduate Medical School in London.
PAUL M. MENDELMAN, M.D., has been Vice President, Clinical Research of the
Company since May 1996. Prior to joining the Company, Dr. Mendelman was
Director, Clinical Research, Infectious Diseases for Merck Research
Laboratories, a pharmaceutical company, since September 1991. From 1983 to 1991,
Dr. Mendelman was Clinical Instructor, Assistant Professor and then Associate
Professor of Pediatrics at the University of Washington. Dr. Mendelman holds a
B.S. and an M.D. from Ohio State University and is a fellow of the American
Academy of Pediatrics.
ERIC J. PATZER, PH.D., has been Vice President, Development of the Company
since 1996. Prior to joining the Company, Dr. Patzer had held various positions
with Genentech, Inc., a pharmaceutical company, since 1981, most recently as
Vice President, Development. Dr. Patzer holds a B.S. in Mechanical Engineering
from The Pennsylvania State University and a Ph.D. in Microbiology from the
University of Virginia.
REID W. DENNIS has been a director of the Company since 1992. Mr. Dennis has
been active in venture capital investments since 1952. He founded Institutional
Venture Partners ("IVP"), a venture capital firm, in 1980, and has acted as
general partner of IVP since that time. He is currently a director of Collagen
Corporation, as well as several private companies. Mr. Dennis holds a B.S. in
Electrical Engineering and an M.B.A. from Stanford University.
PAUL H. KLINGENSTEIN has been a director of the Company since 1993. Mr.
Klingenstein has been associated with Accel Partners, a venture capital firm,
since 1986, where he has been a General Partner since 1988. He is a director of
several private health care and biopharmaceutical companies. Mr. Klingenstein
holds an A.B. from Harvard University and an M.B.A. from Stanford University.
BERNARD ROIZMAN, SC.D., has been a director of the Company since 1992. Dr.
Roizman has been the Joseph Regenstein Distinguished Service Professor of
Virology at the University of Chicago since 1984. He holds B.A. and M.S. degrees
from Temple University and an Sc.D. from The Johns Hopkins University. Dr.
Roizman is also a member of the Company's Scientific Advisory Board.
JANE E. SHAW, PH.D., has been a Director of the Company since May 1996. Dr.
Shaw has been associated with The Stable Network, a biopharmaceutical consulting
company, since she founded it in 1995. From 1987 to 1994, Dr. Shaw was President
and Chief Operating Officer of ALZA Corporation, a pharmaceutical company, where
she began her career as a research scientist in 1970. Dr. Shaw is also a
director of Intel Corporation, McKesson Corporation and Boise Cascade
Corporation. Dr. Shaw holds a B.Sc. and a Ph.D. in physiology from Birmingham
University, England, and an honorary Doctorate of Science degree from the
Worcester Polytechnic Institute.
L. JAMES STRAND, M.D., has been a director of the Company since 1992. Dr.
Strand began consulting for IVP, a venture capital firm, in 1986, was named Life
Sciences Venture Partner of IVP in 1993 and a General Partner in 1994. From 1983
to 1993, Dr. Strand was President of Advanced Marketing Decisions, a biomedical
marketing and product development consulting company. Dr. Strand is a director
of Microcide Pharmaceuticals, Inc. and several privately-held health care and
biomedical companies. He holds B.S., M.A. and M.D. degrees from the University
of California at San Francisco and an M.B.A. from Santa Clara University and is
a fellow of the American College of Physicians.
ALAN C. MENDELSON has served as Secretary of the Company since 1992. He has
been a partner of Cooley Godward Castro Huddleson & Tatum, counsel to the
Company, since 1980 and served as Managing Partner of its Palo Alto office from
1990 to 1995. Mr. Mendelson also served as Secretary and Acting General Counsel
of Amgen Inc., a biopharmaceutical company, from 1990 to 1991, and served as
Acting General Counsel at
52
<PAGE>
Cadence Design Systems, Inc., an electronic design automation software company,
from 1995 to 1996. He is a director of Acuson Corporation, CoCensys, Inc.,
Elexsys International, Inc. and Isis Pharmaceuticals, Inc. Mr. Mendelson holds a
B.A. from the University of California at Berkeley, and a J.D. from the Harvard
Law School.
The Board of Directors has an Audit Committee which consists of Messrs.
Dennis, Klingenstein and Strand. The Audit Committee makes recommendations to
the Board regarding the selection of independent accountants, reviews the
results and scope of the audit and other services provided by the Company's
independent accountants, and reviews and evaluates the Company's control
functions. The Board of Directors has a Compensation Committee which consists of
Messrs. Dennis, Klingenstein and Strand. The Compensation Committee makes
recommendations to the Board concerning salaries and incentive compensation for
employees and consultants of the Company.
The Board of Directors presently consists of six members who hold office
until the annual meeting of stockholders and until a successor is duly elected
and qualified. Effective upon the Company's reincorporation into Delaware, the
Board of Directors will be divided into three classes of equal size. One class
of directors will be elected annually and its members will hold office for a
three year term or until their successors are duly elected and qualified, or
until their earlier removal or resignation. The number of directors will
initially be six and may be changed by a resolution of the Board of Directors.
Executive officers are elected by the Board of Directors. There are no family
relationships among any of the directors and executive officers of the Company.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation from the Company for their
services as members of the Board of Directors. They are reimbursed for certain
expenses in connection with attendance at Board and Committee meetings.
All of Aviron's non-employee directors are entitled to receive
non-discretionary annual stock option grants under the Company's 1996
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). Each option
granted pursuant to the Directors' Plan has an exercise price equal to the fair
market value of the Common Stock on the date of grant, and is subject to
three-year vesting in equal annual installments. The Directors' Plan provides
for initial grants of options to purchase 15,000 shares for each non-employee
director who joins the Board following the offering, plus annual grants of
options to purchase 3,000 shares.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the fiscal year ended December 31, 1995 to its President and
Chief Executive Officer and four of the Company's other executive officers who
earned more than $100,000 during the year ended December 31, 1995 (collectively,
the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY COMPENSATION COMPENSATION (1)
- -------------------------------------------------- -------- -------------- ----------------
<S> <C> <C> <C>
J. Leighton Read, M.D. ........................... $210,000 $ -- $ 743
Chairman, Chief Executive Officer and Chief
Financial Officer
Francis R. Cano, Ph.D. (2) ....................... 222,500 -- 20,381
President and Chief Operating Officer
Martin L. Bryant, M.D., Ph.D. (3) ................ 153,333 121,351(4)(5) 940
Vice President, Research
Victor Jegede, Ph.D. (6) ......................... 156,667 94,195(4) 1,555
Vice President, Technical Affairs
Vera Kallmeyer, M.D., Ph.D. ...................... 148,167 -- 304
Vice President, Corporate Development
</TABLE>
53
<PAGE>
- -------------------
(1) Includes group term life insurance paid by the Company and reimbursement by
the Company of $18,120 paid by Dr. Cano as a premium payment on his split
dollar life insurance policy.
(2) Dr. Cano resigned as a director, officer and employee of the Company in
April 1996.
(3) Dr. Bryant began his employment with the Company on January 16, 1995.
(4) Includes reimbursement of moving, housing and other expenses incurred in
connection with relocating to California as follows: for Dr. Bryant, $45,308
in direct reimbursement, $16,000 in relocation assistance, $8,000 in monthly
housing assistance, and $25,953 in federal income tax gross-up; for Dr.
Jegede, $47,042 in direct reimbursement, $16,000 in relocation assistance,
$6,500 in monthly housing assistance, and $23,097 in federal income tax
gross-up.
(5) Includes $25,000 paid to Dr. Bryant in March 1995 as reimbursement for a
bonus forfeited upon Dr. Bryant's leaving his former employer.
(6) Dr. Jegede began his employment with the Company on January 9, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------
NUMBER OF % POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES OF TOTAL ANNUAL RATES OF STOCK PRICE
UNDERLYING OPTIONS GRANTED EXERCISE APPRECIATION FOR OPTION TERM (3)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION --------------------------------------
NAME GRANTED FISCAL YEAR (1) SHARE (2) DATE 0% 5% 10%
- ----------------------------------- ------------ --------------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Leighton Read, M.D.............. 60,000 19.4% $ 0.50 05/08/05 $ 690,000 $ 1,124,700 $ 1,787,100
20,000(4) 6.5 0.50 05/08/05 230,000 374,900 595,700
20,000(4) 6.5 1.25 12/12/05 215,000 350,450 556,850
Francis R. Cano, Ph.D. (5)......... 40,000 12.9 0.50 05/08/05 460,000 749,800 1,191,400
Martin L. Bryant, Ph.D............. 24,000 7.8 0.50 03/14/05 276,000 449,880 714,840
Victor Jegede, Ph.D................ 24,000 7.8 0.50 03/14/05 276,000 449,880 714,840
Vera Kallmeyer, M.D., Ph.D......... 4,000 1.3 0.50 05/08/05 46,000 74,980 119,140
5,000 1.6 0.50 05/08/05 57,500 93,725 148,925
15,000 4.9 0.50 05/08/05 172,500 281,175 446,775
20,000 6.5 1.25 12/12/05 215,000 350,450 556,850
</TABLE>
- -------------------
(1) Based on an aggregate of 309,000 options granted to employees and directors
of the Company in fiscal 1995, including the Named Executive Officers set
forth in the "Summary Compensation Table" above and directors set forth in
"Director Compensation" above.
(2) The exercise price is equal to 100% of the fair market value of the Common
Stock at the date of grant.
(3) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of five percent
and ten percent is assumed pursuant to rules promulgated by the Securities
and Exchange Commission and does not represent the Company's prediction of
its stock price performance. The potential realizable value of 0%
appreciation measures the value of the option at effectiveness based on the
assumed initial public offering price per share of $12.00 less the exercise
price. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the assumed initial public offering price
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
(4) Options granted outside of the 1996 Equity Incentive Plan.
(5) Dr. Cano resigned as a director, officer and employee of the Company in
April 1996.
54
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1995 AT DECEMBER 31, 1995
ACQUIRED ON VALUE -------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE (1)
- ------------------------------ ------------- --------- ----------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
J. Leighton Read, M.D......... 60,000(2) $ 15,000 40,000 -- $ 445,000 $ --
Francis R. Cano, Ph.D......... -- -- 110,000 30,000 1,282,500 352,500
Martin L. Bryant, Ph.D........ -- -- -- 24,000 -- 276,000
Victor Jegede, Ph.D........... -- -- -- 24,000 -- 276,000
Vera Kallmeyer, M.D., Ph.D.... -- -- 14,780 49,220 169,970 551,030
</TABLE>
- -------------------
(1) Based on the assumed initial public offering price of $12.00 per share,
minus the exercise price, multiplied by the number of shares underlying the
option.
(2) As of June 1, 1996, 34,200 of the shares acquired upon exercise were subject
to repurchase by the Company.
EXECUTIVE OFFICER AND EMPLOYMENT ARRANGEMENTS
The Company's offer of employment to Martin L. Bryant, Ph.D., the Company's
Vice President, Research, in December 1994, provided for an initial annual
salary of $160,000 and payment of $25,000 as reimbursement for a bonus forfeited
by Dr. Bryant when he left his previous employer. The Company also agreed to pay
certain relocation expenses and to loan Dr. Bryant up to $50,000 in aggregate
principal amount due in five years, at 7.75% simple interest, to assist him in
the purchase of a home. Interest on this loan will be forgiven annually, and
principal will be forgiven annually at the rate of 20% per year as long as Dr.
Bryant remains with the Company.
The Company's offer of employment to Victor A. Jegede, Ph.D., the Company's
Vice President, Technical Affairs, in December 1994, provided for an initial
annual salary of $160,000. The Company also agreed to pay certain relocation
expenses and to loan Dr. Jegede up to $50,000 in aggregate principal amount due
in five years, at 7.75% simple interest, to assist him in the purchase of a
home. Interest on this loan will be forgiven annually, and principal will be
forgiven annually at the rate of 20% per year as long as Dr. Jegede remains with
the Company.
The Company's offer of employment to Eric J. Patzer, Ph.D., the Company's
Vice President, Development, in December 1995, provided for an initial annual
salary of $185,000 and a bonus payment of $25,000 upon signing of the agreement
and $25,000 after the completion of one year of service. The Company also agreed
to pay certain relocation expenses and to loan Dr. Patzer up to $100,000 in
aggregate principal amount due in five years, at 7.75% simple interest, to
assist him in the purchase of a home. Interest on this loan, when made, will be
forgiven annually, and principal will be forgiven annually at the rate of 20%
per year as long as Dr. Patzer remains with the Company.
The Company's offer of employment to Paul M. Mendelman, M.D., the Company's
Vice President, Clinical Research, in April 1996, provided for an initial annual
salary of $185,000 and a bonus payment of $25,000 upon Dr. Mendelman's
acceptance of the offer. The Company also agreed to reimburse Dr. Mendelman for
certain relocation expenses and to loan Dr. Mendelman up to $100,000 in
aggregate principal amount due in five years, at 7.75% simple interest, to
assist him in the purchase of a home. Interest on this loan, when made, will be
forgiven annually and principal will be forgiven at the rate of 20% per year as
long as Dr. Mendelman remains with the Company.
Francis R. Cano, Ph.D. resigned as Director, President and Chief Operating
Officer of the Company effective April 19, 1996. Pursuant to an agreement
between Dr. Cano and the Company, Dr. Cano will continue to be employed as a
consultant by the Company until April 18, 1997. In consideration for Dr. Cano's
consulting services, the Company will continue to pay Dr. Cano's salary and
benefits during the consulting period.
55
<PAGE>
STOCK OPTION PLANS
EQUITY INCENTIVE PLAN. In March 1996, the Board adopted the 1996 Equity
Incentive Plan (the "Incentive Plan") as an amendment and restatement of its
1992 Stock Option Plan and increased the number of shares reserved for issuance
under the Incentive Plan to 1,750,000 shares. The Incentive Plan provides for
grants of incentive stock options to employees (including officers and employee
directors) and nonstatutory stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to employees (including officers and
employee directors) and consultants of the Company. It is intended that the
Incentive Plan will be administered by the Compensation Committee, which
determines recipients and types of awards to be granted, including the exercise
price, number of shares subject to the award and the exercisability thereof.
The term of a stock option granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, but, in the case of an incentive
stock option, cannot be less than 100% of the fair market value of the Common
Stock on the date of grant or, in the case of 10% stockholders, not less than
110% of the fair market value of the Common Stock on the date of grant. Options
granted under the Incentive Plan to new employees and consultants generally will
vest at the rate of of the shares subject to the option on the first annual
anniversary of the date of hire and 1/48th of such shares at the end of each
calendar month thereafter. No option may be transferred by the optionee other
than by will or the laws of descent or distribution or, in certain limited
instances, pursuant to a qualified domestic relations order. An optionee whose
relationship with the Company or any related corporation ceases for any reason
(other than by death or permanent and total disability) may exercise options in
the three-month period following such cessation (unless such options terminate
or expire sooner by their terms) or in such longer period as may be determined
by the Board of Directors.
Shares subject to options which have lapsed or terminated may again be
subject to options granted under the Incentive Plan. Furthermore, the Board of
Directors may offer to exchange new options for existing options, with the
shares subject to the existing options again becoming available for grant under
the Incentive Plan. In the event of a decline in the value of the Company's
Common Stock, the Board of Directors has the authority to offer optionees the
opportunity to replace outstanding higher priced options with new lower priced
options.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule determined by the Board. The purchase price of such
awards will be at least 85% of the fair market value of the Common Stock on the
date of grant. Stock bonuses may be awarded in consideration for past services
without a purchase payment. Stock appreciation rights authorized for issuance
under the Incentive Plan may be tandem stock appreciation rights, concurrent
stock appreciation rights or independent stock appreciation rights.
Upon any merger or consolidation in which the Company is not the surviving
corporation, all outstanding awards under the Incentive Plan shall either be
assumed or substituted by the surviving entity. If the surviving entity
determines not to assume or substitute such awards, the time during which such
awards may be exercised shall be accelerated and the awards terminated if not
exercised prior to the merger or consolidation.
As of June 1, 1996, 643,480 options were outstanding under the Incentive
Plan, with 1,106,520 shares reserved for future grants or purchases. The
Incentive Plan will terminate in January 2006, unless terminated sooner by the
Board of Directors. See Note 7 of Notes to Financial Statements.
EMPLOYEE STOCK PURCHASE PLAN. In March 1996, the Board adopted the Employee
Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 250,000
shares of Common Stock. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no more than 27
months.
Employees are eligible to participate if they are employed by the Company,
or an affiliate of the Company designated by the Board of Directors, for at
least 20 hours per week and are employed by the Company, or an affiliate of the
Company designated by the Board, for at least five months per calendar year.
Employees who
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<PAGE>
participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld will then be used to purchase
shares of the Common Stock on specified dates determined by the Board of
Directors. The price of Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or on the specified purchase date.
Employees may end their participation in the offering at any time during the
offering period. Participation ends automatically on termination of employment
with the Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, in which the Company is not the surviving corporation,
the Board of Directors has discretion to provide that each right to purchase
Common Stock will be assumed or an equivalent right substituted by the successor
corporation, or the Board may shorten the offering period and provide for all
sums collected by payroll deductions to be applied to purchase stock immediately
prior to such merger or other transaction. The Purchase Plan will terminate at
the Board's discretion. The Board has the authority to amend or terminate the
Purchase Plan, subject to the limitation that no such action may adversely
affect any outstanding rights to purchase Common Stock. See Note 7 of Notes to
Financial Statements.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. In March 1996, the Board
adopted the 1996 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") to provide for the automatic grant of options to purchase shares of
Common Stock to non-employee directors of the Company. The Directors' Plan is
administered by the Board of Directors, unless the Board delegates
administration to a committee comprised of members of the Board.
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 200,000. Pursuant to the terms of
the Directors' Plan, each director of the Company not otherwise employed by the
Company and who is first elected as a non-employee director after the completion
of this offering automatically will be granted an option to purchase 15,000
shares of Common Stock upon such election. Finally, each director who continues
to serve as a non-employee director of the Company will be granted an additional
option to purchase 3,000 shares of Common Stock on December 31 of each year. All
such options vest one-third on the first anniversary of the date of grant and
one-third per year thereafter.
In the event of a merger, consolidation, reverse reorganization,
dissolution, sale of substantially all of the assets of the Company, or certain
changes in the beneficial ownership of the Company's securities representing at
least a 50% change of such ownership, then options outstanding under the
Directors' Plan will automatically become fully vested and will terminate if not
exercised prior to such event.
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. The exercise price of
options under the Directors' Plan will equal the fair market value of the Common
Stock on the date of grant. The Directors' Plan will terminate in January 2006,
unless earlier terminated by the Board. See Note 7 of Notes to Financial
Statements.
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CERTAIN TRANSACTIONS
In June and July 1992, 14 investors purchased an aggregate of 5,000,000
shares of the Company's Series A Preferred Stock at a per share price of $0.50.
Institutional Venture Partners V and Institutional Venture Management V, each
affiliated with Institutional Venture Partners ("IVP"), purchased 2,955,000 and
45,000 shares, respectively, of Series A Preferred Stock. IVP is a 5%
stockholder of the Company, and Reid W. Dennis and L. James Strand, directors of
the Company, are each General Partners of IVP. J. Leighton Read, M.D., Chairman
of the Board of Directors, Chief Executive Officer and Chief Financial Officer
of the Company, and Bernard Roizman, a director of the Company, purchased
500,000 and 100,000 shares, respectively, of Series A Preferred Stock. Albert L.
Zesiger, a member of Zesiger Capital Group LLC, a 5% stockholder of the Company,
purchased 300,000 shares of Series A Preferred Stock. Peter Palese and Richard
Whitley, two of the founders of the Company, purchased 100,000 and 10,000
shares, respectively, of Series A Preferred Stock. The Series A Preferred Stock
purchased by the IVP affiliates and by Drs. Read, Roizman, Palese and Whitley
were purchased on the same terms and conditions as Series A Preferred Stock
purchased by other investors. The Series A Preferred Stock is convertible into
Common Stock of the Company at the rate of one share of Common Stock for each
five shares of Series A Preferred Stock owned.
In September 1993, 34 investors purchased an aggregate of 16,666,667 shares
of the Company's Series B Preferred Stock at a per share price of $0.90.
Institutional Venture Partners V and Institutional Venture Management V
purchased 1,361,667 and 27,767 shares, respectively, of Series B Preferred
Stock. In addition, Institutional Venture Partners V and Institutional Venture
Management V received 1,633,333 shares and 33,333 shares, respectively, of
Series B Preferred Stock upon conversion of promissory notes, bearing interest
at a 4% annualized rate and aggregating $1,500,000, which the Company issued to
these entities in connection with bridge loan financing in June 1993. Entities
affiliated with Accel Partners, a 5% stockholder of the Company, purchased
shares of Series B Preferred Stock as follows: Accel IV L.P., 2,811,111 shares
and Accel Japan L.P., 244,444 shares. Paul H. Klingenstein, a director of the
Company, is a General Partner of Accel Partners. Entities controlled by Zesiger
Capital Group LLC, an affiliate of Abingworth Bioventures SICAV, purchased
2,065,000 shares of Series B Preferred Stock. Abingworth Bioventures, a 5%
stockholder of the Company, purchased 2,777,778 shares of Series B Preferred
Stock. Entities affiliated with Brinson Partners, Inc., a 5% stockholder of the
Company, purchased shares of Series B Preferred Stock as follows: Brinson Trust
Company as trustee of the Brinson MAP Venture Capital Fund III, 311,598 shares,
and Brinson Venture Capital Fund III, 1,910,624 shares. Peter Palese also
purchased 55,556 shares of Series B Preferred Stock. The Series B Preferred
Stock purchased by the affiliates of 5% stockholders of the Company and by Dr.
Palese were purchased on the same terms and conditions as the Series B Preferred
Stock purchased by other investors. The Series B Preferred Stock is convertible
into Common Stock of the Company at the rate of one share of Common Stock for
each five shares of Series B Preferred Stock owned.
In September 1993, the Company issued warrants to purchase 400,000 shares of
its Series B Preferred Stock at an exercise price of $1.25 per share to entities
affiliated with IVP. The warrants expired unexercised in June 1995.
In May 1995, Sang-A Pharm. Co., Ltd., a 5% stockholder of the Company,
purchased 2,941,863 shares of Series C Preferred Stock at $1.35 per share. The
Series C Preferred Stock is convertible into Common Stock of the Company at the
rate of one share of Common Stock for each five shares of Series C Preferred
Stock owned.
From July through November 1995, 66 investors purchased an aggregate of
13,099,707 shares of the Company's Series C Preferred Stock at a per share price
of $1.35. Dr. Bernard Roizman purchased 20,000 shares of Series C Preferred
Stock. Institutional Venture Partners V and Institutional Venture Management V
purchased 653,332 and 13,335 shares, respectively, of Series C Preferred Stock.
Various entities affiliated with Accel Partners purchased shares of Series C
Preferred Stock as follows: Accel Investors '93 L.P., 41,112 shares; Accel IV
L.P., 930,000 shares; Accel Japan L.P., 88,890 shares; Accel Keiretsu L.P.,
20,000 shares; Ellmore C. Patterson Partners, 24,444 shares; and Prosper
Partners, 6,666 shares. Sang-A Pharm. Co., Ltd. purchased 1,187,295 shares of
Series C Preferred Stock. Orefund, whose investment in the Company is controlled
by Zesiger Capital Group LLC, purchased 1,481,400 shares of Series C Preferred
Stock. Abingworth Bioventures SICAV purchased 370,370 shares of Series C
Preferred Stock. Biotech Growth, a 5% stockholder of the
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Company, purchased 3,000,000 shares of Series C Preferred Stock. Entities
affiliated with Brinson Partners, Inc. purchased shares of Series C Preferred
Stock as follows: First National Bank of Chicago, as custodian to the Brinson
MAP Venture Capital Fund III, 36,872 shares, and First National Bank of Chicago,
as custodian to the Brinson Venture Capital Fund III, 226,091 shares. Sally
Whitley, wife of Richard Whitley purchased 10,000 shares of Series C Preferred
Stock. The Series C Preferred shares purchased by the 5% stockholders of the
Company and their affiliates and by Dr. Roizman and Mrs. Whitley were purchased
on the same terms and conditions as Series C Preferred shares purchased by other
investors. The Series C Preferred Stock is convertible into Common Stock of the
Company at the rate of one share of Common Stock for each five shares of Series
C Preferred Stock owned.
In March 1996, Sang-A Pharm Co., Ltd. purchased 136,326 shares of Series C
Preferred Stock, at a price of $1.35 per share. The Series C Preferred Stock is
convertible into Common Stock of the Company at the rate of one share of Common
Stock for each five shares of Series C Preferred Stock owned.
Vera Kallmeyer, Vice President, Corporate Development of the Company, is a
founder, senior advisor, and 15% shareholder of Pacific Futures (formerly
Pacific Century), a Hong Kong-based investment advisory business. Pacific
Futures received a sales commission on the sale of Series C Preferred Stock to
Sang-A, in an aggregate amount of $334,462 during 1995. Dr. Kallmeyer received
no portion of such sales commission, and is currently receiving no salary from
Pacific Futures.
Pursuant to certain offer letters to certain of its senior officers, the
Company made loans to these officers to facilitate home purchases and certain
other commitments. As of June 1, 1996, the amounts outstanding for principal and
interest on these loans was $40,388 to Martin L. Bryant and $40,388 to Victor A.
Jegede. See "Management -- Employment Contracts."
In January 1996, the Company extended loans to certain senior officers to
facilitate the early exercise of options to purchase shares of Common Stock,
including loans of $70,000 to Dr. Patzer; $65,000 to Dr. Bryant; $65,000 to Dr.
Jegede; $70,000 to Dr. Cano; and $40,000 to Dr. Kallmeyer. The loans bear simple
interest at a rate of 5.73% per year. Principal on each loan is due on the
earlier of 50 months from the date of the underlying option grant or the date of
employment termination.
See also "Management -- Employment Contracts."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 1, 1996 held by (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director and Named Executive
Officer of the Company, and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law. Except as otherwise noted below, the
address of each person listed below is c/o the Company, 297 North Bernardo
Avenue, Mountain View, California 94043.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY
OWNED (1)
SHARES -------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED (1) OFFERING OFFERING
- ---------------------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with Institutional Venture Partners (2) ................ 1,344,553 15.02% 10.94%
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Sang-A Pharm. Co., Ltd. (3) ................................................ 853,096 9.53% 9.66%
640-9 Deung Chon Dung
Kangseo-Ku
Seoul, South Korea
Entities affiliated with Accel Partners (4) ................................ 833,330 9.31% 6.78%
One Embarcadero Center, Suite 3820
San Francisco, CA 94111
Entities controlled by Zesiger Capital Group LLC (5) ....................... 769,280 8.59% 6.26%
320 Park Avenue
New York, NY 10022
Abingworth Bioventures SICAV ............................................... 629,629 7.03% 5.12%
26 St. James's Street
London SW1A 1HA England
Biotech Growth ............................................................. 600,000 6.70% 4.88%
Bellevue Asset Management
Grundstrasse 12
CH-6343 Rotkreuz
Switzerland
Entities affiliated with Brinson Partners, Inc. (6) ........................ 497,035 5.55% 4.05%
209 South LaSalle Street, Suite 114
Chicago, IL 60604-1295
J. Leighton Read, M.D. (7).................................................. 395,000 4.41% 3.22%
Martin L. Bryant, M.D., Ph.D. (8)........................................... 34,640 * *
Victor Jegede, Ph.D. (9).................................................... 34,640 * *
Vera Kallmeyer, M.D., Ph.D. (10)............................................ 45,673 * *
Eric J. Patzer, Ph.D. (11).................................................. 40,000 * *
Reid W. Dennis (2).......................................................... 1,344,553 15.02% 10.94%
Paul H. Klingenstein (4).................................................... 833,330 9.31% 6.78%
Bernard Roizman, Sc.D. (12)................................................. 175,200 1.96% 1.43%
Jane E. Shaw, Ph.D. (13).................................................... 4,000 * *
L. James Strand, M.D. (14).................................................. 1,354,553 15.12% 11.02%
All directors and executive officers as a group
(11 persons) (15)......................................................... 2,917,036 32.38% 23.63%
</TABLE>
- -------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
the Company's Common Stock.
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(1) Calculated as if all outstanding shares of Preferred Stock have been
converted into Common Stock at a ratio of five shares of Preferred Stock for
one share of Common Stock. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities. Beneficial
ownership also includes shares of stock subject to options and warrants
currently exercisable or convertible, or exercisable or convertible within
60 days of the date of this table. Percentage of beneficial ownership is
based on 8,952,657 shares of Common Stock outstanding as of June 1, 1996,
and 12,285,990 shares of Common Stock outstanding after completion of this
offering and the concurrent sale of the Sang-A Shares.
(2) Includes 1,320,666 shares held by Institutional Venture Partners V and
23,887 shares held by Institutional Venture Management V, of which Mr.
Dennis, a Director of the Company is a general partner. Institutional
Venture Management V is the general partner of Institutional Venture
Partners V. Mr. Dennis disclaims beneficial ownership of the shares held by
Institutional Venture Partners V and Institutional Venture Management V,
except to the extent of his pecuniary interests therein.
(3) Percentage of shares beneficially owned after offering includes the
estimated 333,333 shares Sang-A intends to purchase concurrent with the
offering.
(4) Includes 697,500 shares held by Accel IV, L.P., 66,666 shares held by Accel
Japan, L.P., 30,833 shares held by Accel Investors '93, L.P., 18,332 shares
held by Ellmore C. Patterson Partners, 15,000 shares held by Accel Keiretsu,
L.P. and 4,999 shares held by Prosper Partners. Mr. Klingenstein, a Director
of the Company is a general partner of Accel Partners. Mr. Klingenstein
disclaims beneficial ownership of the shares held by Accel IV, L.P., Accel
Japan, L.P., Accel Investors '93, L.P., Ellmore C. Patterson Partners,
Prosper Partners and Accel Keiretsu, L.P., except to the extent of his
pecuniary interests therein.
(5) Includes 8,000 shares held by A. Carey Zesiger Revocable Trust, 22,000
shares held by Atwell & Co., 11,000 shares held by Batrus & Co., 11,000
shares held by Booth & Co., 11,000 shares held by Calmont & Co., 100,000
shares held by Comply & Co., 33,000 shares held by Daly & Co., 28,000 shares
held by Heil & Co., 17,000 shares held by J.C. Orr & Co., 90,000 shares held
by Kane & Co., 17,000 shares held by Domenic Mizio, 296,280 shares held by
Orefund, 28,000 shares held by Sigler & Co., 60,000 shares held by Albert L.
Zesiger, 7,000 shares held by Alexa L. Zesiger, 22,000 shares held by Barry
Ramsay Zesiger and 8,000 shares held by Nicola L. Zesiger. Zesiger Capital
Group LLC disclaims beneficial ownership of all such shares.
(6) Includes 427,342 shares held by Brinson Venture Capital Fund III, L.P. and
69,693 shares held by Brinson Trust Company as Trustee of The Brinson MAP
Venture Capital Fund III.
(7) Includes 40,000 shares Dr. Read acquired pursuant to the exercise of stock
options. Also includes an aggregate of 110,000 shares acquired pursuant to
an early exercise of stock options, of which an aggregate of 76,400 will be
subject to repurchase by the Company as of July 31, 1996. Also includes an
aggregate of 32,000 shares held by The Travis Read 1993 Trust and The Haley
Read 1993 Trust (the "Trusts") of which Robert Fitzwilson is the trustee.
Dr. Read disclaims beneficial ownership of the shares held by the Trusts.
(8) Includes 26,000 shares acquired pursuant to an early exercise of stock
options, of which 22,880 will be subject to repurchase by the Company as of
July 31, 1996. Also includes 8,640 shares Dr. Bryant has the right to
acquire pursuant to options exercisable as of July 31, 1996.
(9) Includes 26,000 shares acquired pursuant to an early exercise of stock
options, of which 22,880 will be subject to repurchase by the Company as of
July 31, 1996. Also includes 8,640 shares Dr. Jegede has the right to
acquire pursuant to options exercisable as of July 31, 1996.
(10) Includes 16,000 shares acquired pursuant to an early exercise of stock
options, of which 14,080 will be subject to repurchase by the Company as of
July 31, 1996. Also includes 29,673 shares Dr. Kallmeyer has the right to
acquire pursuant to options exercisable as of July 31, 1996.
(11) Includes 40,000 shares acquired pursuant to an early exercise of stock
options, all of which are subject to repurchase by the Company.
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(12) Includes 12,000 shares which are subject to repurchase by the Company and
1,200 shares Dr. Roizman has the right to acquire pursuant to options
exercisable as of July 31, 1996.
(13) Includes 4,000 shares Dr. Shaw has the right to acquire pursuant to options
exercisable as of July 31, 1996.
(14) Includes 1,320,666 shares held by Institutional Venture Partners V ("IVP
V"), of which Dr. Strand is a limited partner, and 23,887 shares held by
Insitutional Venture Management V, which is the general partner of IVP V,
and 5,000 shares Dr. Strand has the right to acquire pursuant to options
exercisable as of July 31, 1996. Dr. Strand disclaims beneficial ownership
of the shares held by IVP V and Institutional Venture Management V.
(15) Includes 2,177,883 shares held by entities affiliated with certain
directors of the Company as described in footnotes 2 and 3 above and 57,153
shares subject to options exercisable as of July 31, 1996.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws to be
effective upon completion of this offering is a summary and is qualified in its
entirety by the provisions of the Certificate of Incorporation and Bylaws, which
have been filed as exhibits to the Company's Registration Statement, of which
this Prospectus is a part.
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, par value $0.001 and
5,000,000 shares of Preferred Stock, par value $0.001.
COMMON STOCK
Upon completion of this offering, there will be 12,285,990 shares of Common
Stock outstanding (plus up to 38,888 shares that may be issued upon exercise of
outstanding warrants). The holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders. The holders of Common Stock are not entitled to cumulative voting
rights with respect to the election of directors, and as a consequence, minority
stockholders will not be able to elect directors on the basis of their votes
alone.
Subject to preferences that may be applicable to any then outstanding shares
of Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefore. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding Preferred Stock of the
Company will be converted into Common Stock. The Board of Directors will have
the authority, without further action by the stockholders, to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, without any further vote or action by the
stockholders. The issuance of Preferred Stock could adversely affect the voting
power of holders of Common Stock and the likelihood that such holders will
receive dividend payments and payments upon liquidation may have the effect of
delaying, deferring or preventing a change in control of the Company, which
could have a depressive effect on the market price of the Company's Common
Stock. The Company has no present plan to issue any shares of Preferred Stock.
WARRANTS
In February 1993, the Company entered into an agreement with The Mount Sinai
School of Medicine of the City University of New York ("Mount Sinai"), under
which Mount Sinai transferred to the Company rights to certain patents, patent
applications, and associated know-how and other technical information. Mount
Sinai also granted the Company (i) an option to acquire any improvements to the
inventions disclosed in the licensed patents and patent applications thereafter
developed by Mount Sinai and (ii) a right of first negotiation for a license or
assignment to certain related technology. In connection with these agreements,
the Company issued to Mount Sinai warrants (the "Mount Sinai Warrants") to
purchase, in the aggregate, 225,000 shares of the Company's Series A Preferred
Stock (45,000 shares of Common Stock upon conversion of the Series A Preferred
Stock). Each Mount Sinai Warrant is exercisable for a period of five years
commencing upon the occurrence of specified milestone events, which accelerate
upon the effectiveness of this offering. Warrants to purchase 45,000 of the
shares are exercisable at a purchase price of $0.90 per share (convertible into
9,000 shares of Common Stock) issuable upon exercise of the warrants. Warrants
to purchase 148,750 of the shares will become exercisable upon the effective
date of this offering, at a purchase price per share of Common Stock receivable
upon
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<PAGE>
conversion of the Series A Preferred Stock issuable upon exercise of the
warrants equal to 125% of the per share price of this offering. Warrants to
purchase the remaining 31,250 shares will be canceled on the effective date of
this offering. See "Business -- Collaborative Agreements -- The Mount Sinai
School of Medicine of the City University of New York."
In connection with an agreement entered into in February 1995 with the
University of Michigan ("Michigan"), under which Michigan transferred to the
Company certain intellectual property rights and technology (the "Michigan
Technology"), the Company agreed to issue to Michigan a warrant (the "Michigan
Warrant") to purchase shares of its Common Stock upon the first commercial sale
of a product incorporating the Michigan Technology, for a number of shares equal
to 1.25% of the total issued and outstanding shares of the Company's Common
Stock as of the date of such first commercial sale (excluding shares of the
Company's Common Stock issued by the Company in connection with its acquisition
of another company, in connection with any corporate partnering transaction,
issued in connection with other technology transfers not involving the Michigan
Technology, or unvested employee or director option shares), at a per share
exercise price equal to 125% of the price of this Offering. See "Business --
Collaborative Agreements -- University of Michigan."
In connection with a private placement of Series C Preferred Stock, the
Company issued to the placement agent a warrant to purchase 352,536 shares of
its Series C Preferred Stock at an exercise price of $1.62 per share
(convertible into 70,507 shares of Common Stock), exercisable at any time
through November 9, 2000.
REGISTRATION RIGHTS
The holders (or their permitted transferees) ("Holders") of approximately
8,433,659 shares of Common Stock and warrants to purchase approximately 148,145
shares of Common Stock are entitled to certain rights with respect to the
registration of such shares under the Securities Act. If the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders, the Holders are entitled
to notice of the registration and are entitled to include, at the Company's
expense, such shares therein. In addition, certain of the Holders may require
the Company at its expense on not more than two occasions to file a Registration
Statement under the Securities Act, with respect to their shares of Common
Stock, and the Company is required to use its best efforts to effect the
registration, subject to certain conditions and limitations. Further, the
Holders may require the Company at its expense to register their shares on Form
S-3 when such form becomes available to the Company, subject to certain
conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Upon completion of the Company's reincorporation in Delaware, the Company
will be subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "Delaware Law"), an anti-takeover law. In general, the
statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
Upon completion of the Company's reincorporation in Delaware, the Company's
Certificate of Incorporation will provide that each director will serve for a
three-year term, with approximately one-third of the directors to be elected
annually. Candidates for director may be nominated only by the Board of
Directors or by a stockholder who gives written notice to the Company at least
20 days before the annual meeting. The Company may have the number of directors
as determined from time to time to pursuant to a resolution of the Board, which
currently consists of six members. Between stockholder meetings, the Board may
appoint new directors to fill vacancies or newly created directorships. The
Certificate will not provide for cumulative voting at stockholder meetings for
election of directors. As a result, stockholders controlling more than 50% of
the outstanding Common Stock can elect the entire Board of Directors, while
stockholders controlling 49% of the outstanding Common Stock may not be able to
elect any directors. A director may be removed from office only for cause by the
affirmative vote of a majority of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors.
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Upon completion of the Company's reincorporation in Delaware, the Company's
Certificate of Incorporation will require that any action required or permitted
to be taken by stockholders of the Company must be effected at a duly called
annual or special meeting of stockholders and may not be effected by a consent
in writing. The Company's Certificate of Incorporation also provides that the
authorized number of directors may be changed only by resolution of the Board of
Directors. See "Management -- Directors and Executive Officers." Delaware Law
and these charter provisions may have the effect of deterring hostile takeovers
or delaying changes in control or management of the Company, which could have a
depressive effect on the market price of the Company's Common Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Upon completion of the Company's reincorporation in Delaware, the Company's
Certificate of Incorporation will contain certain provisions permitted under
Delaware Law relating to the liability of directors. These provisions eliminate
a director's personal liability for monetary damages resulting from a breach of
fiduciary duty, except in certain circumstances involving certain wrongful acts,
such as (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derives an improper personal benefit. These provisions do not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a breach of
director's fiduciary duty. These provisions will not alter a directors liability
under federal securities laws. The Company's Certificate of Incorporation also
contains provisions indemnifying the directors and officers of the Company to
the fullest extent permitted by Delaware General Corporation Law. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
TRANSFER AGENT
The transfer agent for the Common Stock of the Company is The First National
Bank of Boston.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Further sales of substantial amounts of Common Stock in
the open market may adversely affect the market price of the Common Stock
offered hereby.
Upon completion of this offering, based on the number of shares outstanding
as of June 1, 1996, the Company will have outstanding an aggregate of 12,285,990
shares of Common Stock assuming (i) the issuance by the Company of 3,000,000
shares of Common Stock offered hereby, (ii) the issuance of the 333,333 Sang-A
Shares, (iii) no issuance of 148,145 shares of Common Stock relating to
outstanding warrants to purchase Common Stock, (iv) no exercise of outstanding
options exercisable to purchase 643,480 shares of Common Stock, and (v) no
exercise of the Underwriters' over-allotment option to purchase 450,000 shares
of Common Stock. Of these shares, 3,000,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, except for shares held by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act (whose sales would be subject to
certain limitations and restrictions described below) and the regulations
promulgated thereunder.
The remaining 8,952,657 shares held by officers, directors, employees,
consultants and other shareholders of the Company were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted" securities within the meaning of Rule 144 under the
Securities Act. Approximately 149,329 of these shares of Common Stock will be
eligible for sale in the public market upon the effective date of the
Registration Statement of which this Prospectus is a part (the "Effective Date")
in reliance on Rule 144(k) under the Securities Act. Beginning 90 days after the
Effective Date, an additional 37,395 of these shares will become eligible for
sale subject to the provisions of Rule 144 and Rule 701 of the Securities Act.
Beginning 180 days after the Effective Date, an additional 5,311,881 of these
shares will become eligible for sale subject to the provisions of Rule 144 or
Rule 701 upon the expiration of agreements not to sell such shares. In addition,
90 days after the Effective Date, 283,160 shares subject to vested options will
be available for sale, subject to compliance with Rule 701, and an additional
33,726 shares subject to additional vested options and 148,145 shares subject to
exercisable warrants will be available for sale upon the expiration of the
Lock-Up Period described below.
Each officer, director and certain stockholders of the Company have agreed
with the representatives of the Underwriters for a period of 180 days after the
effective date of this Prospectus (the "Lock-Up Period"), subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock owned as
of the date of this Prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of Robertson, Stephens & Company.
However, Robertson, Stephens & Company may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. In addition, the Company has agreed that during the Lock-Up
Period, the Company will not, without the prior written consent of Robertson,
Stephens & Company, subject to certain exceptions, issue, sell, contract to
sell, or otherwise dispose of, any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell, within any three-month period
commencing 90 days after the Effective Date, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 122,860 shares outstanding immediately after this offering) or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale, subject to the filing of a Form 144 with
respect to such sale and certain other limitations and restrictions. In
addition, a person who is not deemed to have been an affiliate of the Company at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least three years, would be entitled
to sell such shares under Rule 144(k) without regard to the
66
<PAGE>
requirements described above. To the extent that shares were acquired from an
affiliate of the Company, such stockholder's holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate.
Any employee, officer or director of or consultant to the Company who
purchased shares or was granted options to purchase shares pursuant to a written
compensatory plan or contract ("Rule 701 Shares") is entitled to rely on the
resale provisions of Rule 701. Rule 701 permits non-affiliates to sell their
Rule 701 Shares without having to comply with the public-information,
holding-period, volume-limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 Shares without having to comply with the
holding period restrictions of Rule 144, in each case commencing 90 days after
the Effective Date. However, all officers and directors and certain other
stockholders have agreed not to sell or otherwise dispose of Common Stock of the
Company during the Lock-Up Period without the prior written consent of
Robertson, Stephens & Company. See "Underwriting."
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Option
Plan, thus permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act. Such registration statement
will become effective immediately upon filing.
67
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives
Robertson, Stephens & Company LLC, Bear, Stearns & Co. Inc., and Hambrecht &
Quist LLC (the "Representatives"), have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their names below. The
Underwriters are committed to purchase and pay for all such shares, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------- ----------
<S> <C>
Robertson, Stephens & Company LLC................................
Bear, Stearns & Co. Inc..........................................
Hambrecht & Quist LLC............................................
----------
Total........................................................ 3,000,000
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 3,000,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
3,000,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 3,000,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each executive officer and director and certain other shareholders of the
Company have agreed with the Representatives for the Lock-Up Period not to offer
to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock owned as of the date of this Prospectus
or thereafter acquired directly by such holders or with respect to which they
have or hereinafter acquire the power of disposition, without the prior written
consent of Robertson, Stephens & Company LLC. However, Robertson, Stephens &
Company LLC may, in its sole discretion at any time or from time to time,
without notice, release all or any portion of the securities subject to the
lock-up agreements. Approximately 5,311,881 of such shares will be eligible for
immediate public sale following expiration of the Lock-Up Period, subject to the
provisions of Rule 144. In addition, the Company has agreed that during the
Lock-Up Period, it will not, without the prior written consent of Robertson,
Stephens & Company LLC, issue, sell, contract to sell or otherwise dispose of
any shares of Common Stock, any options or warrants to purchase any shares of
Common Stock or any securities convertible into, exercisable for or exchangeable
for shares of Common Stock other than the issuance of Common Stock upon the
exercise of outstanding options and under the existing employee stock purchase
plan and the Company's issuance of options under existing employee stock option
plans. See "Shares Eligible For Future Sale."
68
<PAGE>
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby was determined through negotiations among the Company and
the Representatives. Among the factors considered in such negotiations were
prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
In addition to the 3,000,000 shares of Common Stock to be sold by the
Company in this offering, concurrent with this offering the Company intends to
sell in a private placement a number of shares of Common Stock equal to 10% of
the aggregate number of shares sold in this offering and in the private
placement at the initial public offering price per share (333,333 shares
assuming a purchase price of $12.00 per share); provided however, that the total
number of shares to be purchased by Sang-A will not exceed $5,000,000 divided by
the initial public offering price. Such sale will be effected pursuant to a
separate agreement with Sang-A and not pursuant to the Underwriting Agreement.
An individual associated with Bear, Stearns & Co. Inc. beneficially owns
10,000 shares of the Company's Common Stock.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward Castro Huddleson & Tatum, Palo Alto,
California. GC&H Investments, an entity affiliated with Cooley Godward Castro
Huddleson & Tatum, beneficially owns 22,000 shares of the Company's Common
Stock. Certain legal matters will be passed upon for the Underwriters by Wilson
Sonsini Goodrich & Rosati, Palo Alto, California.
EXPERTS
The financial statements of Aviron as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report theron appearing elsewhere
herein and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, the
New York Regional Office located at 7 World Trade Center, 13th Floor, New York,
New York 10048, and the Chicago Regional Office located at Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511, and copies of all
or any part thereof may be obtained from the Public Reference Branch of the
Commission upon the payment of certain fees prescribed by the Commission.
69
<PAGE>
AVIRON
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Audited Financial Statements
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statement of Stockholders' Equity......................................... F-5
Statements of Cash Flows.................................................. F-7
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Aviron
We have audited the accompanying balance sheets of Aviron as of December 31,
1994 and 1995, and the related statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aviron at December 31, 1994
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
January 26, 1996,
except as to the first paragraph of Note 1 and
Note 10, for which the date is May 30, 1996
F-2
<PAGE>
AVIRON
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
MARCH 31, UNAUDITED
1996 PRO FORMA
----------- STOCKHOLDERS'
EQUITY AT
(UNAUDITED) MARCH 31,
1996
-----------
(NOTE 10)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 952 $ 11,532 $ 10,000
Short-term investments.................................. 5,497 6,287 4,494
Prepaid expenses and other current assets............... 105 679 873
--------- --------- -----------
Total current assets...................................... 6,554 18,498 15,367
Property and equipment, net............................... 1,216 1,275 1,816
Deposits and other assets................................. 19 105 92
--------- --------- -----------
Total assets............................................ $ 7,789 $ 19,878 $ 17,275
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 101 $ 312 $ 703
Accrued compensation.................................... 68 130 149
Accrued clinical trial costs............................ -- 545 470
Accrued expenses and other liabilities.................. 201 108 319
Deferred revenue........................................ -- 208 437
Current portion of capital lease obligations............ 307 420 485
--------- --------- -----------
Total current liabilities................................. 677 1,723 2,563
Capital lease obligations, noncurrent..................... 750 618 545
Commitments
Stockholders' equity:
Preferred Stock, no par value; 43,000,000 shares
authorized, issuable in series; 21,666,667, 39,031,971
and 39,168,297, convertible preferred shares issued and
outstanding at December 31, 1994 and 1995 and March 31,
1996 respectively, aggregate liquidation preference of
$40,347,481 and $40,531,520 at December 31, 1995 and
March 31, 1996, respectively (pro forma at March 31,
1996 -- $0.001 par value, 5,000,000 shares authorized,
none issued and outstanding)........................... 17,406 39,844 40,028 $ --
Common Stock, no par value; 53,000,000 shares
authorized; 695,414, 758,306 and 1,040,822 shares
issued and outstanding at December 31, 1994 and 1995,
and March 31, 1996 respectively (pro forma at March 31,
1996 -- $0.001 par value 30,000,000 shares authorized,
8,874,456 shares issued and outstanding)............... 16 317 1,579 9
Additional paid-in capital.............................. -- -- -- 41,598
Notes receivable from stockholders...................... -- -- (310) (310)
Deferred compensation................................... -- (180) (938) (938)
Accumulated deficit..................................... (11,060) (22,444) (26,192) (26,192)
--------- --------- -----------
Total stockholders' equity................................ 6,362 17,537 14,167 14,167
--------- --------- ----------- -----------
Total liabilities and stockholders' equity.............. $ 7,789 $ 19,878 $ 17,275 $ 17,275
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
AVIRON
STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License revenue..................................... $ -- $ -- $ 1,500 $ -- $ --
Contract revenue.................................... -- -- 207 -- 188
---------- ---------- ---------- ---------- ----------
Total revenues........................................ -- -- 1,707 -- 188
Operating expenses:
Research and development............................ 2,073 4,216 10,220 3,088 3,044
General and administrative.......................... 1,874 2,493 3,252 701 1,063
---------- ---------- ---------- ---------- ----------
Total operating expenses.............................. 3,947 6,709 13,472 3,789 4,107
---------- ---------- ---------- ---------- ----------
Loss from operations.................................. (3,947) (6,709) (11,765) (3,789) (3,919)
Other income (expense):
Interest income..................................... 175 306 520 71 220
Interest expense.................................... -- (99) (158) (39) (37)
---------- ---------- ---------- ---------- ----------
Total other income, net............................... 175 207 362 32 183
---------- ---------- ---------- ---------- ----------
Net loss.............................................. $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma net loss per share.......................... $ (0.56) $ (0.73) $ (1.24) $ (0.41) $ (0.41)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Shares used in computing pro forma net loss per
share................................................ 6,696,454 8,948,240 9,182,642 9,061,525 9,223,033
</TABLE>
See accompanying notes.
F-4
<PAGE>
AVIRON
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------- ---------------------- NOTES DEFERRED
SHARES AMOUNT SHARES AMOUNT RECEIVABLE COMPENSATION
--------- ----------- --------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992......... 5,000,000 $ 2,471 648,000 $ 3 -- $ --
Issuance of Series B Convertible
Preferred Stock at $0.90 per share
for cash and conversion of notes
payable in September 1993, net of
issuance costs of $65.............. 16,666,667 14,935 -- -- -- --
Issuance of Common Stock at $0.25
per share in April 1993 for certain
technology and patent rights....... -- -- 35,000 9 -- --
Exercise of stock options at $0.25
per share for cash................. -- -- 2,550 1 -- --
Net loss............................ -- -- -- -- -- --
--------- ----------- --------- ----------- ----- -----
Balance at December 31, 1993.......... 21,666,667 17,406 685,550 13 -- --
Exercise of stock options at $0.25
to $0.50 per share for cash........ -- -- 9,864 3 -- --
Net unrealized loss on available-
for-sale investments............... -- -- -- -- -- --
Net loss............................ -- -- -- -- -- --
--------- ----------- --------- ----------- ----- -----
Balance at December 31, 1994.......... 21,666,667 17,406 695,414 16 -- --
Issuance of Series B Convertible
Preferred Stock at $1.20 per share
in February 1995 for certain
in-process technology.............. 1,323,734 1,588 -- -- -- --
Issuance of Series C Convertible
Preferred Stock at $1.35 per share
for cash in June through November
1995, net of issuance costs of
$807............................... 16,041,570 20,850 -- -- -- --
Exercise of stock options at $0.25
to $0.50 per share for cash........ -- -- 62,892 31 -- --
Deferred compensation related to the
grant of certain stock options..... -- -- -- 270 -- (270)
Amortization of deferred
compensation....................... -- -- -- -- -- 90
Change in net unrealized loss on
available-for-sale investments..... -- -- -- -- -- --
Net loss............................ -- -- -- -- -- --
--------- ----------- --------- ----------- ----- -----
Balance at December 31, 1995.......... 39,031,971 $ 39,844 758,306 $ 317 -- $ (180)
Issuance of Series C Convertible
Preferred Stock at $1.35 per share
for cash in March 1996
(unaudited)........................ 136,326 184 -- -- -- --
Exercise of stock options at $0.25
to $2.50 per share for cash
(unaudited)........................ -- -- 114,516 168 -- --
Exercise of stock options at $0.50
to $2.50 per share for notes
receivable (unaudited)............. -- -- 168,000 310 (310) --
Deferred compensation related to the
grant of certain stock options
(unaudited)........................ -- -- -- 784 -- (784)
Amortization of deferred
compensation (unaudited)........... -- -- -- -- -- 26
Change in net unrealized gain on
available-for-sale Investments
(unaudited)........................ -- -- -- -- -- --
Net loss (unaudited)................ -- -- -- -- -- --
--------- ----------- --------- ----------- ----- -----
Balance at March 31, 1996
(unaudited).......................... 39,168,297 $ 40,028 1,040,822 $ 1,579 $ (310) $ (938)
--------- ----------- --------- ----------- ----- -----
--------- ----------- --------- ----------- ----- -----
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- -------------
<S> <C> <C>
Balances at December 31, 1992......... $ (753) $ 1,721
Issuance of Series B Convertible
Preferred Stock at $0.90 per share
for cash and conversion of notes
payable in September 1993, net of
issuance costs of $65.............. -- 14,935
Issuance of Common Stock at $0.25
per share in April 1993 for certain
technology and patent rights....... -- 9
Exercise of stock options at $0.25
per share for cash................. -- 1
Net loss............................ (3,772) (3,772)
------------- -------------
Balance at December 31, 1993.......... (4,525) 12,894
Exercise of stock options at $0.25
to $0.50 per share for cash........ -- 3
Net unrealized loss on available-
for-sale investments............... (33) (33)
Net loss............................ (6,502) (6,502)
------------- -------------
Balance at December 31, 1994.......... (11,060) 6,362
Issuance of Series B Convertible
Preferred Stock at $1.20 per share
in February 1995 for certain
in-process technology.............. -- 1,588
Issuance of Series C Convertible
Preferred Stock at $1.35 per share
for cash in June through November
1995, net of issuance costs of
$807............................... -- 20,850
Exercise of stock options at $0.25
to $0.50 per share for cash........ -- 31
Deferred compensation related to the
grant of certain stock options..... -- --
Amortization of deferred
compensation....................... -- 90
Change in net unrealized loss on
available-for-sale investments..... 19 19
Net loss............................ (11,403) (11,403)
------------- -------------
Balance at December 31, 1995.......... $ (22,444) $ 17,537
Issuance of Series C Convertible
Preferred Stock at $1.35 per share
for cash in March 1996
(unaudited)........................ -- 184
Exercise of stock options at $0.25
to $2.50 per share for cash
(unaudited)........................ -- 168
Exercise of stock options at $0.50
to $2.50 per share for notes
receivable (unaudited)............. -- --
Deferred compensation related to the
grant of certain stock options
(unaudited)........................ -- --
Amortization of deferred
compensation (unaudited)........... -- 26
Change in net unrealized gain on
available-for-sale Investments
(unaudited)........................ (12) (12)
Net loss (unaudited)................ (3,736) (3,736)
------------- -------------
Balance at March 31, 1996
(unaudited).......................... $ (26,192) $ 14,167
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
AVIRON
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 223 416 544 127 110
Acquired technology and patent rights.................... 9 -- 1,588 1,588 --
Amortization of deferred compensation.................... -- -- 90 -- 26
Changes in assets and liabilities:
Prepaid expenses and other current assets.............. (16) (46) (574) (66) (194)
Deposits and other assets.............................. (1) (4) (86) -- 13
Accounts payable....................................... (34) (39) 211 61 391
Accrued expenses and other liabilities................. 168 96 514 (19) 155
Deferred revenue....................................... -- -- 208 -- 229
--------- --------- --------- --------- ---------
Net cash used in operating activities...................... (3,423) (6,079) (8,908) (2,066) (3,006)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments........................ (7,854) (9,755) (9,493) (441) (3,147)
Maturities of short-term investments....................... 1,815 11,579 8,722 4,257 4,928
Expenditures for property and equipment.................... (593) (260) (238) (75) (545)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities........ (6,632) 1,564 (1,009) 3,741 1,236
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital lease line of credit................. -- 620 -- -- --
Principal payments on capital lease obligation............. -- (212) (384) (85) (114)
Proceeds from notes payable................................ 1,500 -- -- -- --
Cash proceeds from issuance of:
Series B Convertible Preferred Stock..................... 13,434 -- -- -- --
Series C Convertible Preferred Stock..................... -- -- 20,850 -- 184
Common Stock............................................. 1 3 31 1 168
--------- --------- --------- --------- ---------
Cash flows provided by financing activities................ 14,935 411 20,497 (84) 238
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents....... 4,880 (4,104) 10,580 1,591 (1,532)
Cash and cash equivalents at beginning of year............. 176 5,056 952 952 11,532
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year................... $ 5,056 $ 952 $ 11,532 $ 2,543 $ 10,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Issuance of Common Stock and Preferred Stock for certain
technology and patent rights.............................. $ 9 $ -- $ 1,588 $ 1,588 $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Conversion of notes payable to Series B Preferred Stock.... $ 1,500 $ -- $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Equipment acquired under line of credit.................... $ -- $ 648 $ 365 $ 114 $ 106
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred compensation related to the grant of certain stock
options................................................... $ -- $ -- $ 270 $ -- $ 784
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Aviron (the "Company") was incorporated in the State of California on April
15, 1992 and will be reincorporated in the State of Delaware in June, 1996. The
Company was organized to develop and commercialize cost-effective forms of
disease prevention and treatment based on live virus vaccines. Prior to October
1995, the Company was considered to be in the development stage.
The Company anticipates working on a number of long-term development
projects which will involve experimental and unproven technology. The projects
may require many years and substantial expenditures to complete, and which may
ultimately be unsuccessful. Therefore, the Company will need to obtain
additional funds from outside sources to continue its research and development
activities, fund operating expenses, pursue regulatory approvals and build
production, sales and marketing capabilities, as necessary. Management believes
it has sufficient capital to achieve planned business objectives including
supporting preclinical development and clinical testing, through at least 1996.
INTERIM FINANCIAL INFORMATION
The financial information at March 31, 1996, for the three months ended
March 31, 1995 and 1996 is unaudited but includes all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position at such date and of the operating
results and cash flows for those periods. Results of the 1996 period are not
necessarily indicative of results expected for the entire year.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. Cash equivalents include
$11,831,000 and $9,667,000 in money market funds at December 31, 1995 and March
31, 1996, respectively.
SHORT-TERM INVESTMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115") for investments held as of or acquired after
January 1, 1994.
The Company's entire short-term investment portfolio is currently classified
as available-for-sale and is carried at fair value based on quoted market prices
with the unrealized gains and losses included in stockholders' equity. The
amortized cost of debt securities classified as available-for-sale is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains or losses and
declines in value judged to be other-than-temporary are included in other
income. The cost of securities sold is based on the specific identification
method. The Company has not experienced any significant realized gains or losses
on its investments.
F-7
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the respective assets
which range from three to seven years. Leasehold improvements are amortized on a
straight-line basis over the shorter of their useful lives or the term of the
lease.
REVENUE RECOGNITION
Collaborative research revenue earned is based on research expenses
incurred. Amounts received in advance of services to be performed are recorded
as deferred revenue until the related expenses are incurred. Milestone payments
are recognized as revenue in the period earned.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The
Statement is effective for Aviron beginning in 1996. Under SFAS No. 123,
stock-based compensation expense to employees is measured using either the
intrinsic-value method as prescribed by Accounting Principle Board Opinion No.
25 or the fair-value method described in SFAS No. 123. Companies choosing the
intrinsic-value method will be required to disclose but not actually record the
pro forma impact of the fair-value method on net income and earnings per share.
The Company plans to adopt the SFAS No. 123 in 1996 using the intrinsic-value
method for stock awards to employees. There will be no effect of adopting the
SFAS No. 123 on the Company's financial position or results of operations.
RECENT PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires the Company to review for
impairment of long-lived assets. SFAS 121 will become effective for the
Company's year ending December 31, 1996. The Company has studied the
implications of SFAS 121 and, based on its initial evaluation, does not expect
it to have a material impact on the Company's financial condition or results of
operations.
NET LOSS PER SHARE
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
from stock options, convertible preferred stock and warrants are excluded from
the computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares issued during the period beginning 12 months prior to the
initial filing of the proposed public offering at prices substantially below the
assumed public offering price have been included in the calculation as if they
were outstanding for all periods presented (using the treasury stock method and
the assumed public offering price for stock options and warrants and the
if-converted method for convertible preferred stock).
F-8
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net loss per share...................... $ (0.82) $ (1.41) $ (2.47) $ (0.81) $ (0.81)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Shares used in computing net loss per
share.................................. 4,600,440 4,614,907 4,624,721 4,624,078 4,624,953
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of convertible preferred shares not included
above that will automatically convert upon completion of the Company's initial
public offering (using the if-converted method) from the original date of
issuance.
2. LICENSE AGREEMENTS
ARCH DEVELOPMENT CORPORATION
On July 1, 1992, the Company entered into an exclusive license agreement
with ARCH Development Corporation ("ARCH") to acquire the rights to use or
sublicense certain technology and make, use or sell certain licensed products.
The agreement calls for the Company to make certain payments to ARCH totaling as
much as $2.6 million as certain milestones are met. No benchmark payments were
made or were due through 1995. If commercialization is achieved, the Company
will be required to pay ARCH royalties based on net sales of the licensed
products. Further, if the Company were to sublicense the technology, it would be
required to pay ARCH royalties on net sales of the sublicensee and, under
certain circumstances, up to 50% of the license fee paid by the sublicensee. In
conjunction with this license agreement, the Company sold 40,000 shares of
Common Stock to ARCH at $0.005 per share in 1992. Subsequent to this agreement,
affiliates of ARCH purchased 700,000, 300,000 and 113,999 shares of the
Company's Series A, B and C Preferred Stock, respectively.
THE MOUNT SINAI SCHOOL OF MEDICINE
In 1993, the Company entered into a technology transfer agreement with The
Mount Sinai School of Medicine of the City University of New York ("Mount
Sinai") to acquire certain patent rights and technical information. Pursuant to
the agreement, the Company issued to Mount Sinai 35,000 shares of Common Stock
which resulted in a charge to research and development expense of $8,750, and
warrants to purchase, in the aggregate, 225,000 shares of Series A Preferred
Stock. The warrants become exercisable upon the occurrence of specific
milestones and expire five years from such date or on the day preceding the sale
of the Company. Upon the closing of an initial public offering by the Company,
warrants covering 148,750 shares of Series A Preferred Stock will become
exercisable at a price per share of Common Stock of 125% of the initial public
offering price of the Common Stock. The remaining warrants will be cancelled. At
December 31, 1995 and March 31, 1996, warrants covering 45,000 shares of Series
A Preferred Stock are exercisable at $0.90 per share. The Company is also
required to reimburse Mount Sinai for costs incurred in connection with the
maintenance and protection of certain patents.
UNIVERSITY OF MICHIGAN
In February 1995, the Company signed a license agreement with the University
of Michigan. The license agreement gives the Company a worldwide license to the
University of Michigan's inventions and discoveries
F-9
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. LICENSE AGREEMENTS (CONTINUED)
related to a cold adapted influenza vaccine, including the ability to develop,
use, sublicense, manufacture and sell products and processes claimed in the
patent rights. Under the arrangement, the Company paid the University of
Michigan and expensed a $100,000 fee and issued 1,323,734 shares of Series B
Preferred Stock which resulted in a charge to research and development expense
of $1,588,481. Upon commercialization of the vaccine product, the license
agreement provides that the Company will pay royalties based on net revenues as
well as issuing warrants to purchase 1.25% of the Company's then total
outstanding Common Stock at an exercise price equal to 125% of the per share
price of Common Stock in the Company's initial public offering of Common Stock.
The warrant will be exercisable for five years after its issuance date. In
conjunction with the license agreement, the Company signed a research agreement
with the University of Michigan which obligates the Company to fund
approximately $530,000 of specific research projects. As of December 31, 1996,
the Company had funded $184,000 for research under this agreement. The Company
had also paid the University of Michigan $67,000 for other research services.
3. DEVELOPMENT AGREEMENTS
SMITHKLINE BEECHAM BIOLOGICALS S.A.
In October 1995, the Company signed an agreement with SmithKline Beecham
Biologicals S.A. ("SmithKline Beecham") which grants SmithKline Beecham
exclusive worldwide (excluding Korea) rights to produce and market any
prophylactic and therapeutic Epstein-Barr Virus ("EBV") vaccines under the
Company's patents. Under the Agreement, SmithKline Beecham paid the Company a
$1,500,000 nonrefundable licensing fee and is required to make additional
benchmark payments as certain milestones are met. Upon commercialization,
SmithKline Beecham will pay the Company a royalty based on net sales (by
country). In conjunction with the licensing rights, SmithKline Beecham will fund
the Company's development of the EBV vaccine for a minimum of two years based on
approved budgeted amounts. For the year ended December 31, 1995, the Company
recognized $1,500,000 of license revenue and $125,000 of development revenue
pursuant to the agreement. As of December 31, 1995, the Company has recorded
$208,000 in deferred revenue relating to development that will be recognized in
1996.
SANG-A PHARM. CO., LTD.
In May 1995, the Company signed a development and licensing agreement with
Sang-A Pharm. Co., Ltd. ("Sang-A"), a Korean pharmaceutical company. The
agreement covers a wide range of vaccine products and grants Sang-A the
exclusive rights and licenses to such products in South and North Korea
("Korea"). Under the terms of the agreement, Sang-A will conduct all clinical
development work necessary for approval in Korea at its expense, and is required
to make payments based on certain milestones and, upon commercialization of each
product, to pay royalties based on net revenues. The agreement also gives Sang-A
the first right of refusal to supply a percentage of Aviron's products in
selected countries.
In connection with this agreement, Sang-A purchased 2,941,863 shares of
Series C Preferred Stock for $3,971,515. Sang-A subsequently purchased 1,187,295
additional shares of Series C Preferred Stock for $1,602,848. In the future,
Sang-A is required to purchase 10% of any offering of new securities (as
defined) of the Company, if requested by the Company, until the earlier of 36
months following Sang-A's initial investment or an initial public offering.
During the three months ended March 31, 1996, Sang-A purchased 136,326 shares of
Series C Preferred Stock for $184,040.
F-10
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
4. SHORT-TERM INVESTMENTS
At December 31, 1994 and 1995, the Company's short-term investments
consisted of the following debt securities, all of which had maturities of one
year or less (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
As of December 31, 1994:
U.S. Treasury securities and
obligations of U.S. government
agencies............................ $2,261 $ -- $(22) $2,239
U.S. corporate commercial paper...... 2,983 -- (1) 2,982
U.S. corporate obligations........... 514 -- (1) 513
Foreign government securities........ 520 -- (9) 511
------ ---------- --- ---------
$6,278 $ -- $(33) $6,245
------ ---------- --- ---------
------ ---------- --- ---------
As of December 31, 1995:
U.S. Treasury securities and
obligations of U.S. government
agencies............................ $1,025 $ 2 $ (4) $1,023
U.S. corporate commercial paper...... 3,705 -- -- 3,705
U.S. corporate obligations........... 1,571 -- (12) 1,559
------ ---------- --- ---------
$6,301 $ 2 $(16) $6,287
------ ---------- --- ---------
------ ---------- --- ---------
</TABLE>
Included in the above table as of December 31, 1994 are corporate debt
obligations with a fair value of $748 which are classified as cash equivalents
in the accompanying balance sheet.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Laboratory equipment................................... $ 1,220 $ 1,512 $ 1,601
Computer equipment..................................... 199 323 370
Office equipment....................................... 68 90 100
Leasehold improvements................................. 336 62 567
--------- --------- -----------
1,823 1,987 2,638
Less accumulated depreciation and amortization......... (607) (712) (822)
--------- --------- -----------
$ 1,216 $ 1,275 $ 1,816
--------- --------- -----------
--------- --------- -----------
</TABLE>
6. LEASE ARRANGEMENTS
In April 1994, the Company entered into a $2,500,000 equipment and leasehold
improvement lease line of credit that bears interest based on an average of the
three-year and five-year indices of U.S. Treasury bonds. Outstanding balances
under the line are secured by the related equipment purchased. The lease line
was extended and expires December 31, 1996. At March 31, 1996, $761,000 of the
line was available. In connection with this financing arrangement, the Company
issued warrants to purchase 116,667 shares of the Company's Series B Preferred
Stock. These warrants are exercisable at an exercise price of $0.90 per share
and will expire at the earlier of March 2000 or upon the initial public offering
of the Company's Common Stock. As consideration for extending the expiration
date of the lease line, the Company issued warrants in 1995 to purchase 77,778
F-11
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. LEASE ARRANGEMENTS (CONTINUED)
shares of the Company's Series B Preferred Stock. These warrants are exercisable
at an exercise price of $0.90 per share and will expire at the earlier of May
2001 or upon the initial public offering of the Company's Common Stock. As of
March 31, 1996, none of the warrants had been exercised.
Included in property and equipment at December 31, 1995 and March 31, 1996
are assets with a cost of $1,826,125 and $2,032,532, respectively, and
accumulated amortization of $688,594 and $786,784, respectively, which have been
financed pursuant to the lease line of credit.
The Company has entered into an operating lease agreement for office and
research facilities which expires in 2005 and includes an option allowing the
Company to extend the lease for two additional five-year terms. The agreement
requires the Company to pay operating costs, including property taxes,
utilities, insurance and maintenance. Rent expense for the years ended December
31, 1993, 1994 and 1995 was $130,400, $167,568 and $412,869, respectively.
At December 31, 1995, the Company's aggregate commitment under such
arrangements are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING
OBLIGATIONS LEASE
------------- -----------
<S> <C> <C>
Years ending December 31,
1996................................................. $ 528 $ 747
1997................................................. 424 866
1998................................................. 226 919
1999................................................. 49 924
2000................................................. -- 950
Thereafter........................................... -- 4,910
------ -----------
1,227 $ 9,316
-----------
-----------
Less amounts representing interest..................... (189)
------
1,038
Less current portion................................... (420)
------
$ 618
------
------
</TABLE>
7. STOCKHOLDERS' EQUITY
COMMON STOCK
During June and July 1992, 648,000 shares of Common Stock were issued to the
Company's founders, consultants and a licensor of technology at $0.005 per
share. These shares are subject to certain transfer restrictions. Certain of
these shares, until vested, are subject to repurchase at $0.005 per share
(adjusted to reflect any stock splits or stock dividends) on termination of
employment. In addition, certain shares of Common Stock issued to members of
management in 1995 and 1996 through exercises of stock options are subject to
repurchase by the Company at $0.50-$2.50 per share. The above shares vest over
periods specified by the Board of Directors. At December 31, 1995 and March 31,
1996, 101,700 and 268,480 shares remain subject to the Company's right of
repurchase, respectively.
PREFERRED STOCK
Preferred Stock is issuable in series. Series A, Series B and Series C
Preferred Stock are convertible into 0.20 share of Common Stock of the Company
at the option of the holder, and carry voting rights equivalent to
F-12
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock on a share-for-share basis. The conversion rate of the Preferred
Stock is subject to adjustment in the event of, among other things, stock splits
and stock dividends. Each share of Preferred Stock automatically converts into
0.20 shares of Common Stock in the event of an initial public offering of the
Company's Common Stock in which the gross offering proceeds equal or exceed
$10.0 million or upon approval of the conversion by a majority of the preferred
stockholders voting together as a single class. The Series A, Series B and
Series C preferred stockholders are entitled to noncumulative dividends at the
rate of $0.05, $0.09 and $0.135 per share, respectively, when and if declared by
the board of directors. None have been declared.
The Series A, Series B and Series C Preferred Stock are subject to a
liquidation preference of $0.50, $0.90 and $1.35 per share, respectively, plus
all declared but unpaid dividends.
The Preferred Stock authorized, issued and outstanding at December 31, 1995
is as follows:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED LIQUIDATION
AUTHORIZED AND OUTSTANDING PREFERENCE
------------ --------------- -------------
<S> <C> <C> <C>
Series A............................................... 5,225,000 5,000,000 $ 2,500,000
Series B............................................... 18,650,000 17,990,401 16,191,361
Series C............................................... 18,000,000 16,041,570 21,656,120
Undesignated........................................... 1,125,000 -- --
------------ --------------- -------------
43,000,000 39,031,971 $ 40,347,481
------------ --------------- -------------
------------ --------------- -------------
</TABLE>
In November 1995, in conjunction with the private placement of Series C
Preferred Stock, the Company issued to the placement agent warrants to purchase
352,536 shares of the Company's Series C Preferred Stock. These warrants have an
exercise price of $1.62 per share and will expire in November 2000. As of March
31, 1996, none of the warrants had been exercised.
A total of 771,981 shares of Preferred Stock have been reserved for issuance
upon exercise of outstanding warrants as of December 31, 1995 and March 31,
1996.
In addition, 8,600,000 shares of Common Stock have been reserved for
issuance upon the conversion of convertible Preferred Stock.
STOCK OPTIONS
On September 15, 1992, the board of directors adopted the 1992 Stock Option
Plan (the "1992 Plan"). The Company initially reserved 272,000 shares of Common
Stock for issuance under the 1992 Plan which was increased by 200,000 shares in
1993 and 300,000 shares in 1994.
The 1992 Plan provides for both incentive and nonqualified stock options to
be granted to employees, directors and consultants. The 1992 Plan provides that
incentive stock options will be granted at no less than the fair value of the
Company's Common Stock (no less than 85% of the fair value for nonqualified
stock options), as determined by the board of directors at the date of the
grant. If, at the time the Company grants an option, the optionee owns more than
10% of the total combined voting power of all the classes of stock of the
Company, the option price shall be at least 110% of the fair value and the
option shall not be exercised more than five years after the date of grant. The
options vest and become exercisable over periods determined by the board of
directors. Except as noted above, options expire no more than 10 years after the
date of grant, or earlier if employment terminates.
F-13
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Option activity under the Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------
SHARES EXERCISE
AVAILABLE NUMBER OF PRICE PER
FOR GRANT SHARES SHARE
--------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992..................................... 157,100 114,900 $ 0.25
Options authorized............................................. 200,000 -- --
Options granted................................................ (235,117) 235,117 $0.25-$0.50
Options exercised.............................................. -- (2,550) $ 0.25
Options canceled............................................... 9,550 (9,550) $ 0.25
--------- ----------- -------------
Balance at December 31, 1993..................................... 131,533 337,917 $0.25-$0.50
Options authorized............................................. 300,000 -- --
Options granted................................................ (71,230) 71,230 $ 0.50
Options exercised.............................................. -- (9,864) $0.25-$0.50
Options canceled............................................... 29,996 (29,996) $0.25-$0.50
--------- ----------- -------------
Balance at December 31, 1994..................................... 390,299 369,287 $0.25-$0.50
Options granted................................................ (269,000) 269,000 $0.50-$1.25
Options exercised.............................................. -- (62,892) $0.50-$1.25
Options canceled............................................... 2,357 (2,357) $0.25-$0.50
--------- ----------- -------------
Balance at December 31, 1995..................................... 123,656 573,038 $0.25-$1.25
Options granted (unaudited).................................... (96,625) 96,625 $ 2.50
Options exercised (unaudited).................................. -- (64,516) $0.25-$0.50
Options canceled (unaudited)................................... 735 (735) $0.25-$2.50
--------- ----------- -------------
Balance at March 31, 1996 (unaudited)............................ 27,766 604,412 $0.25-$2.50
--------- ----------- -------------
--------- ----------- -------------
</TABLE>
In addition, during 1995 fully-vested non-qualified stock options covering
40,000 shares were issued outside of the 1992 Plan at exercise prices of
$0.50-$1.25 per share. During January 1996, 208,000 non-qualified stock options
were issued outside the 1992 Plan at exercise prices of $1.75-$2.50 per share.
Of the stock options issued outside of the 1992 Plan, 218,000 options were
exercised at exercise prices of $0.50-$2.50 per share during the quarter ending
March 31, 1996.
During the three months ended March 31, 1996, officers of the Company
exercised options for 168,000 shares by signing promissory notes amounting to
$310,000 which bear interest at 5.73%.
As of December 31, 1995 and March 31, 1996, options to purchase 347,893 and
291,491 shares of Common Stock were exercisable.
For certain options granted during 1995 and 1996, the Company recognized as
deferred compensation the excess of the deemed value for financial reporting
purposes of the Common Stock issuable upon the exercise of such options over the
aggregate exercise price of such options. Total deferred compensation of
$270,000 recorded through December 31, 1995 is being amortized over the vesting
period of such options. A portion of these options vested immediately upon
grant. In January 1996, the Company granted an additional 304,625 options with
exercise prices of $1.75 to $2.50 and recorded related deferred compensation of
approximately $784,000. In May 1996, the Company granted 102,950 options with an
exercise price of $2.50 and recorded related deferred compensation of
approximately $463,000.
F-14
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
In March 1996, the Company amended and restated the 1992 Plan as the 1996
Equity Incentive Plan (the "1996 Plan"). Total shares of Common Stock reserved
for future issuance under the 1996 Plan were increased to 1,750,000. The 1996
Plan provides for the grant of incentive and nonstatutory stock options to
employees and consultants of the Company.
In March 1996, the Company adopted the 1996 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") under which 200,000 shares of Common Stock
are reserved for issuance pursuant to nonstatutory stock options.
In March 1996, the Company also adopted the Employee Stock Purchase Plan
(the "Purchase Plan"). A total of 250,000 shares of Common Stock are reserved
for issuance under the Purchase Plan. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions at a price equal
to the lower of 85% of the fair market value of the Company's Common Stock at
the beginning or end of the applicable offering period.
8. INCOME TAXES
As of December 31, 1995, the Company had a federal net operating loss
carryforward of approximately $20,000,000. The net operating loss carryforward
will expire at various dates beginning from 2007 through 2010, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "ownership change" provisions of the
Internal Revenue Code of 1986.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Net operating loss carryforward.......................................... $ 1,500 $ 3,800 $ 7,100
Capitalized research expenses............................................ -- 200 1,060
Research tax credits (expires from 2007-2010)............................ 100 300 550
Other.................................................................... 200 100 140
--------- --------- ---------
Net deferred tax assets.................................................. 1,800 4,400 8,850
Valuation allowance...................................................... (1,800) (4,400) (8,850)
--------- --------- ---------
$ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
Because of the Company's lack of earnings history, the net deferred tax
asset has been fully offset by a valuation allowance. The valuation allowance
increased by approximately $1,500,000 in 1993.
9. RELATED PARTY TRANSACTIONS
In 1995, the Company made unsecured loans to officers totalling $100,000
which bear interest at 7.75% and are due in April 2000.
An officer of the Company is a shareholder in an investment advisory
business which was paid a commission by the Company of approximately $334,000
during 1995 related to the Sang-A transaction (see Note 3). The officer received
no direct compensation from the transaction.
10. SUBSEQUENT EVENT -- PROPOSED PUBLIC OFFERING AND RELATED MATTERS
On May 30, 1996, the board of directors authorized management of the Company
to file a Registration Statement with the Securities and Exchange Commission
offering shares of its Common Stock to the public. If the offering is
consummated under the terms presently anticipated, all of the Preferred Stock
outstanding will
F-15
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
10. SUBSEQUENT EVENT -- PROPOSED PUBLIC OFFERING AND RELATED MATTERS (CONTINUED)
automatically convert into 7,833,634 shares of Common Stock upon the closing of
the offering. Unaudited pro forma stockholders' equity as of December 31, 1995
as adjusted for the assumed conversion of the Preferred Stock is set forth on
the accompanying balance sheet.
In May 1996, the Company filed restated Articles of Incorporation in
California to effect a one-for-five reverse stock split of all outstanding
shares of Common Stock, Common Stock options and warrants. The conversion ratio
of all outstanding shares of Convertible Preferred Stock were adjusted such that
each preferred share converts into .20 shares of common stock. All common share
and per share data in the accompanying financial statements has been adjusted
retroactively to give effect to the reverse stock split. In conjunction with the
registration, the board of directors also authorized the reincorporation of the
Company in Delaware.
F-16
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts are estimates except for
the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.......................................... $ 15,466
NASD filing fee........................................... 4,985
Blue sky qualification fees and expenses.................. 5,000
Printing and engraving expenses........................... 125,000
Legal fees and expenses................................... 300,000
Accounting fees and expenses.............................. 130,000
Transfer agent and registrar fees......................... 10,000
Miscellaneous............................................. 9,549
---------
Total................................................. $ 600,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and agents to the fullest extent
permitted by Delaware law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement, will provide for indemnification by the Underwriters and their
controlling persons, on the one hand, and of the Registrant and its controlling
persons on the other hand, for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, the Registrant has sold and issued the following
unregistered securities (adjusted to give effect to the one-for-five reverse
stock split):
(1) From April 1992 through June 1, 1996, the Registrant has granted
stock options to purchase 889,822 shares of the Company's Common Stock at a
weighted average exercise price of $1.02 per share to employees, consultants
and directors pursuant to its 1996 Equity Incentive Plan, or predecessor
plans (the "Plans"). Of these options, 58,318 have been canceled without
being exercised, 218,024 have been exercised and 613,480 remain outstanding.
In January 1996, 208,000 options were issued outside the Plan to certain
senior executives and founders of the Company, at exercise prices ranging
from $1.75 to $2.50 per share.
II-1
<PAGE>
(2) In June and July 1992, the Registrant issued 5,000,000 shares of
Series A Preferred Stock to 14 purchasers at $0.50 per share, for an
aggregate purchase price of $2,500,000. Shares of Series A Preferred Stock
are convertible into shares of Common Stock at the rate of one share of
Common Stock for each five shares of Series A Preferred Stock owned.
(3) In February 1993, the Company issued warrants to purchase up to
225,000 shares of Series A Preferred Stock to The Mount Sinai School of
Medicine of the City University of New York ("Mount Sinai") in connection
with the transfer by Mount Sinai to the Company of certain technology
rights. The shares of Series A Preferred Stock issuable upon exercise of the
warrants are convertible into shares of Common Stock at the rate of one
share of Common Stock for each five shares of Series A Preferred Stock
owned.
(4) In September 1993, the Registrant issued 16,666,667 shares of Series
B Preferred Stock to 34 purchasers (including two purchasers who received
1,666,666 shares upon conversion of promissory notes aggregating $1,500,000)
at $0.90 per share, for an aggregate purchase price of $15,000,000. Shares
of Series B Preferred Stock are convertible into shares of Common Stock at
the rate of one share of Common Stock for each five shares of Series B
Preferred Stock owned.
(5) In September 1993, the Registrant issued warrants to purchase
400,000 shares of its Series B Preferred Stock, at an exercise price of
$1.25 per share, to entitles affiliated with IVP. These warrants expired
unexercised in June 1995.
(6) In February 1995, the Registrant entered into a license agreement
with the University of Michigan under which, in return for certain rights to
the University of Michigan's inventions and discoveries related to a cold
adapted influenza vaccine, the Registrant issued 1,323,734 shares of the
Registrant's Series B Preferred Shares, plus a warrant to purchase up to
1.25% of the Registrant's outstanding Common Stock under certain conditions.
Shares of Series B Preferred Stock are convertible into shares of Common
Stock at the rate of one share of Common Stock for each five shares of
Series B Preferred Stock owned.
(7) In April 1994 and May 1995, the Registrant issued warrants to
purchase an aggregate of 194,445 shares of Series B Preferred Stock at an
exercise price of $0.90 per share to Lease Management Services, Inc.
(8) In May 1995, the Registrant entered into a license agreement with
Sang-A Pharm Co., Ltd., ("Sang-A") under which, in return for certain rights
to certain of the Registrant's products in Korea, Sang-A purchased 2,941,863
of the Registrant's Series C Preferred Stock for $3,971,575, or $1.35 per
share. Shares of Series C Preferred Stock are convertible into shares of
Common Stock at the rate of one share of Common Stock for each five shares
of Series C Preferred Stock owned.
(9) From July through November 1995, the Registrant issued 13,099,707
shares of Series C Preferred Stock to 66 purchasers at a purchase price of
$1.35 per share (including 1,187,295 shares to Sang-A), for an aggregate
purchase price of $17,684,604. Shares of Series C Preferred Stock are
convertible into shares of Common Stock at the rate of one share of Common
Stock for each five shares of Series C Preferred Stock owned.
(10) In November 1995, the Registrant issued a warrant to purchase
352,536 shares of the Series C Preferred Stock of the Company to Raymond,
James & Associates, Inc., for an exercise price of $1.62 per share
(convertible into 70,507 shares of Common Stock) issuable upon exercise of
the warrant. Shares of Series C Preferred Stock are convertible into shares
of Common Stock at the rate of one share of Common Stock for each five
shares of Series C Preferred Stock owned.
(11) In March 1996, the Registrant issued 136,315 shares of Series C
Preferred Stock to Sang-A Pharm Co., Ltd. at $1.35 per share, for an
aggregate purchase price of $184,025. Shares of Series C Preferred Stock are
convertible into shares of Common Stock at the rate of one share of Common
Stock for each five shares of Series C Preferred Stock owned.
The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of Rule
701 of the Securities Act. The sales and issuances of securities described in
paragraphs (2) through (9) above were deemed to be exempt from registration
under the
II-2
<PAGE>
Securities Act by virtue of Rule 4(2) of the Securities Act. The sale and
issuance of securities described in paragraph (10) above were deemed to be
exempt from registration under the Securities Act by virtue of Rule 3(a)(9) of
the Securities Act.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits filed as a part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- ------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the
Registrant, as amended.(1)
3.2 Amendment to the Amended and Restated Articles of
Incorporation of the Registrant.
3.3 Bylaws of the Registrant.(1)
*3.4 Form of Certificate of Incorporation of the Registrant to be
filed upon reincorporation in Delaware.
*3.5 Form of Bylaws of the Registrant to be effective upon
reincorporation in Delaware.
*3.6 Form of Restated Certificate of Incorporation of the
Registrant, to be filed after completion of this offering.
*3.7 Form of Restated Bylaws of the Registrant, to be effective
upon the completion of this offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4., 3.5 and
3.6.
*4.2 Specimen Stock Certificate.
4.3 Warrant for Series A Preferred Stock, issued to The Mount
Sinai School of Medicine of the City of New York.(1)
4.4 Warrant for Series A Preferred Stock, issued to The Mount
Sinai School of Medicine of the City of New York.(1)
*4.5 Warrant for Series A Preferred Stock, issued to The Mount
Sinai School of Medicine of the City of New York.
*4.6 Warrant for Series A Preferred Stock, issued to The Mount
Sinai School of Medicine of the City of New York.
*4.7 Warrant for Series C Preferred Stock, issued to Raymond,
James & Associates.
4.8 Investors Rights Agreement, dated July 18, 1995, among the
Registrant and the investors named therein.(1)
5.1 Opinion of Cooley Godward Castro Huddleson & Tatum.(1)
+10.1 License Agreement between the Registrant and ARCH
Development Corporation, dated July 1, 1992.(1)
+10.2 Technology Transfer Agreement between the Registrant and The
Mount Sinai School of Medicine of the City University of
New York, dated February 9, 1993.(1)
+10.3 Materials Transfer and Intellectual Property Agreement
between the Registrant and the Regents of the University of
Michigan, dated February 24, 1995.(1)
10.4 Stock Transfer Agreement between the Registrant and the
Regents of the University of Michigan, dated February 24,
1995.(1)
+10.5 Development and License Agreement between the Registrant and
Sang-A Pharm. Co., Ltd., dated May 3, 1995.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- ------------------------------------------------------------
<C> <S>
+10.6 Cooperative Research and Development Agreement between the
Registrant and the National Institutes of Health, dated May
30, 1995.(1)
+10.7 Heads of Agreement between the Registrant and SmithKline
Beecham Biologicals S.A., dated October 8, 1995.
+10.8 Manufacturing and Development Agreement between the
Registrant and Evans Medical Limited, dated November 7,
1995.(1)
10.9 1996 Equity Incentive Plan.(1)
10.10 1996 Non-Employee Directors' Stock Option Plan.(1)
10.11 1996 Employee Stock Purchase Plan.(1)
10.12 Industrial Lease between the Registrant and the Vanni
Business Park General Partnership, dated August 29,
1995.(1)
+10.13 First Amendment to License Agreement between the Registrant
and ARCH Development Corporation, dated March 15, 1996.
+10.14 Biological Materials License Agreement between the
Registrant and the National Institutes of Health, dated May
31, 1996.
11.1 Statement regarding Computation of Pro Forma Net Loss Per
Share.(1)
23.1 Consent of Ernst & Young LLP.
24.2 Consent of Cooley Godward Castro Huddleson & Tatum.
Reference is made to Exhibit 5.1.
25.1 Power of Attorney. Reference is made to page II-5.(1)
27.1 Financial Data Schedules.(1)
</TABLE>
- -------------------
* To be filed by amendment.
+ Confidential treatment has been requested for portions of this exhibit.
(1) Previously filed with the Registration Statment on Form S-1.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will governed by the final adjudication of such issue.
The undersigned Registrant 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 the 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 the registration statement as of the time it was declared effective, and
(2) for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, in the City of Moutain View, County of Santa
Clara, State of California, on the 19th day of June, 1996.
AVIRON
By: /s/ J. LEIGHTON READ
-----------------------------------
J. Leighton Read, M.D.
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT WAS SIGNED BELOW BY THE FOLLOWING
PERSON IN THE CAPACITIES AND ON THE DATES STATED.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------ ------------------------------ --------------
Chairman, Chief Executive
Officer and Chief Financial
/s/ J. LEIGHTON READ Officer
-------------------------------------- (PRINCIPAL EXECUTIVE OFFICER June 19, 1996
J. Leighton Read, M.D. AND PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
*
-------------------------------------- Director June 19, 1996
Reid W. Dennis
*
-------------------------------------- Director June 19, 1996
Paul H. Klingenstein
*
-------------------------------------- Director June 19, 1996
Bernard Roizman, Sc.D.
*
-------------------------------------- Director June 19, 1996
L. James Strand, M.D.
*
-------------------------------------- Director June 19, 1996
Jane E. Shaw, Ph.D.
/s/ J. LEIGHTON READ
--------------------------------------
* (Attorney-in-fact)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- --------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
*1.1 Form of Underwriting Agreement.............................................................
3.1 Amended and Restated Articles of Incorporation of the Registrant, as amended(1)............
3.2 Amendment to the Amended and Restated Articles of Incorporation of the Registrant..........
3.3 Bylaws of the Registrant(1)................................................................
*3.4 Form of Certificate of Incorporation of the Registrant to be filed upon reincorporation in
Delaware..................................................................................
*3.5 Form of Bylaws of the Registrant to be effective upon reincorporation in Delaware..........
*3.6 Form of Restated Certificate of Incorporation of the Registrant, to be filed after
completion of this offering...............................................................
*3.7 Form of Restated Bylaws of the Registrant, to be effective upon the completion of this
offering..................................................................................
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4., 3.5 and 3.6.............................
*4.2 Specimen Stock Certificate.................................................................
4.3 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the
City of New York(1).......................................................................
4.4 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the
City of New York(1).......................................................................
*4.5 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the
City of New York..........................................................................
*4.6 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the
City of New York..........................................................................
*4.7 Warrant for Series C Preferred Stock, issued to Raymond, James & Associates................
4.8 Investors Rights Agreement, dated July 18, 1995, among the Registrant and the investors
named therein(1)..........................................................................
5.1 Opinion of Cooley Godward Castro Huddleson & Tatum(1)......................................
+10.1 License Agreement between the Registrant and ARCH Development Corporation, dated July 1,
1992(1)...................................................................................
+10.2 Technology Transfer Agreement between the Registrant and The Mount Sinai School of Medicine
of the City University of New York, dated February 9, 1993(1).............................
+10.3 Materials Transfer and Intellectual Property Agreement between the Registrant and the
Regents of the University of Michigan, dated February 24, 1995(1).........................
10.4 Stock Transfer Agreement between the Registrant and the Regents of the University of
Michigan, dated February 24, 1995(1)......................................................
+10.5 Development and License Agreement between the Registrant and Sang-A Pharm. Co., Ltd., dated
May 3, 1995(1)............................................................................
+10.6 Cooperative Research and Development Agreement between the Registrant and the National
Institutes of Health, dated May 30, 1995(1)...............................................
+10.7 Heads of Agreement between the Registrant and SmithKline Beecham Biologicals S.A., dated
October 8, 1995...........................................................................
+10.8 Manufacturing and Development Agreement between the Registrant and Evans Medical Limited,
dated November 7, 1995(1).................................................................
10.9 1996 Equity Incentive Plan(1)..............................................................
10.10 1996 Non-Employee Directors' Stock Option Plan(1)..........................................
10.11 1996 Employee Stock Purchase Plan(1).......................................................
10.12 Industrial Lease between the Registrant and the Vanni Business Park General Partnership,
dated August 29, 1995(1)..................................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- --------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
+10.13 First Amendment to License Agreement between the Registrant and ARCH Development
Corporation, dated March 15, 1996.........................................................
+10.14 Biological Materials License Agreement between the Registrant and the National Institutes
of Health, dated May 31, 1996.............................................................
11.1 Statement regarding Computation of Pro Forma Net Loss Per Share(1).........................
23.1 Consent of Ernst & Young LLP...............................................................
24.2 Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to Exhibit 5.1.......
25.1 Power of Attorney. Reference is made to page II-5(1).......................................
27.1 Financial Data Schedules(1)................................................................
</TABLE>
- -------------------
* To be filed by amendment.
+ Confidential treatment has been requested for portions of this exhibit.
(1) Previously filed with the Registration Statment on Form S-1.
<PAGE>
[Letterhead]
STATE OF CALIFORNIA
SECRETARY OF STATE
CORPORATE DIVISION
I, BILL JONES, Secretary of State of the State of California, hereby
certify:
That the annexed transcript has been compared with the corporate record
on file in this office, of which it purports to be a copy, and that same is
full, true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal
of the State of California this
May 29, 1996
----------------------------------------
[Seal of the State of California] /s/ BILL JONES
Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
AVIRON
J. Leighton Read and Alan C. Mendelson certify that:
1. They are the Chief Executive Officer and the Secretary, respectively,
of Aviron, a California corporation (the "Corporation").
2. Article III.C.4(f) of the Amended and Restated Articles of the
Corporation is amended and restated as follows:
"f. AUTOMATIC CONVERSION. Each share of Preferred Stock
shall automatically be converted into shares of Common Stock
at the then effective Conversion Price immediately upon (i)
the closing of the sale of the Corporation's Common Stock in
a firm commitment, underwritten public offering registered
under the Securities Act of 1933, as amended (other than a
registration relating solely to a transaction under Rule 145
under such Act (or any successor thereto) or to an employee
benefit plan of the Company), with aggregate proceeds to the
Corporation (before deduction for underwriter commissions
and expenses relating to the issuance, including without
limitation fees of the Corporation's counsel) of which equal
or exceed $10,000,000 or (ii) upon receipt by the
Corporation of the affirmative vote at a duly noticed
shareholders meeting or pursuant to a duly solicited written
consent of approval of the holders of at least a majority of
the then outstanding shares of the Series A Preferred Stock,
the Series B Preferred Stock, and the Series C Preferred
Stock, voting together as a single class in favor of the
conversion of all of the shares of Preferred Stock into
Common Stock."
3. The following is added to Article III of the Amended and Restated
Articles of the Corporation:
"D. Effective at the time of filing of this Certificate of Amendment
with the Secretary of State of California (the "Effective Time"), each
five shares of the Corporation's Common Stock, issued and outstanding
or held in treasury at the Effective Time shall, automatically and
without any action on the part of
<PAGE>
the respective holders thereof, be reclassified into one (1) share of
Common Stock, of the Corporation. No fractional shares will be issued
and, in lieu thereof, any holder of less than one share of Common
Stock shall be entitled to receive cash for such holder's fractional
share based on the fair market value of the Common Stock as of the
Effective Time, as determined by the Board of Directors of the
Corporation."
4. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the Board of Directors.
5. The foregoing amendment has been duly approved by the required vote of
the shareholders of the Corporation in accordance with Sections 902
and 903 of the California Corporations Code. The total number of
outstanding shares of the Corporation is 5,330,965 shares of Common
Stock, 5,000,000 shares of Series A Preferred Stock, 17,990,401 shares
of Series B Preferred Stock and 16,041,570 shares of Series C
Preferred Stock. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote
required was more than 50% of the outstanding shares of the Common
Stock and more than 50% of the outstanding shares of the Preferred
Stock, each class voting separately.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: February 26, 1996
/s/ J. LEIGHTON READ
-----------------------------------------
J. Leighton Read, Chief Executive Officer
/s/ ALAN C. MENDELSON
-----------------------------------------
Alan C. Mendelson, Secretary
2.
<PAGE>
EXHIBIT 10.7
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT HAS BEEN DELETED, AS
MARKED BY BRACKETS, AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
HEADS OF AGREEMENT
by and between
SMITHKLINE BEECHAM BIOLOGICALS S.A.
and
AVIRON
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS 3
2. LICENSE GRANT 6
3. OPTION RETAINED BY AVIRON 7
4. RESEARCH AND DEVELOPMENT SUPPORT 8
5. DEVELOPMENT 9
6. LICENSE FEES AND MILESTONES 9
7. ROYALTIES 10
8. DUE DILIGENCE 11
9. COMPULSORY LICENSES 12
10. EXCHANGE OF INFORMATION AND CONFIDENTIALITY 12
11. PATENT PROSECUTION AND LITIGATION 14
12. TRADEMARKS 15
13. STATEMENTS AND REMITTANCES 16
14. TERM AND TERMINATION 17
15. RIGHTS AND DUTIES UPON TERMINATION 18
16. WARRANTIES AND REPRESENTATIONS 18
17. LIABILITY AND INDEMNIFICATION 19
18. FORCE MAJEURE 20
19. GOVERNING LAW 20
20. ARBITRATION 20
21. SEPARABILITY 20
22. ENTIRE AGREEMENT AND BINDING EFFECT 21
23. NO WAIVER 21
24. NOTICES 21
25. ASSIGNMENT 22
APPENDICES
2.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
HEADS OF AGREEMENT
by and between
SMITHKLINE BEECHAM BIOLOGICALS S.A.
Rue de l'Institut 89, B 1330 Rixensart, Belgium
and
AVIRON
1450 Rollins Road, Burlingame, CA 94010, USA
These Heads of Agreement are made this eight day of October 1995, between
SMITHKLINE BEECHAM BIOLOGICALS S.A. a company organised under Belgian law and
having its registered office at 89 rue de l'Institut, B-1330 Rixensart,
Belgium and AVIRON, a company organised under Californian law and having its
offices at 1450 Rollins Road, Burlingame, California 94010, USA (hereinafter
"AVIRON"). The parties have been in discussions concerning the grant to SB of
an exclusive license under AVIRON's patents and know-how relating to
prophylactic and therapeutic Epstein-Barr virus ("EBV") vaccines.
While the parties acknowledge the need, as the case may be, for supplementary
binding documents, such as a SUBLICENSE AGREEMENT (as hereinafter defined), (a)
Supply Agreement(s), a Research Outline, a Commercial Agreement for Korea, the
parties now set forth the heads of a license agreement and their definitive
agreement on certain main principles thereof, which are as follows:
1. DEFINITIONS
(a) "AFFILIATE(S)" shall mean any corporation, firm, partnership or other
entity, whether DE JURE or DE FACTO, which directly or indirectly
owns, is owned by or is under common ownership with a party to these
Heads of Agreement to the extent of [ ] of the
equity (or such lesser percentage which is the maximum allowed to be
owned by a foreign corporation in a particular jurisdiction) having
the power to vote on or direct the affairs of the entity and any
person, firm, partnership, corporation or other entity actually
controlled by, controlling or under common control with a party to
these Heads of Agreement.
(b) "CONFIDENTIAL INFORMATION" as used in these Heads of Agreement shall
mean any confidential or proprietary information (including data,
schematics, drawings, techniques, whether tangible or intangible)
relating to any research project, work in progress, future
development, scientific engineering, manufacturing, marketing,
financial or personnel matter of the disclosing party, whether in oral
(and, if practicable, confirmed in written summary form), written,
graphic or electronic form. In particular, "CONFIDENTIAL INFORMATION"
of AVIRON shall include (i) all proprietary information with respect
to the PATENTS [ ] and any KNOW-HOW made
available by AVIRON to SB and (ii) the terms and provisions of the
Arch
3.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Corporation/Aviron Agreement and CONFIDENTIAL INFORMATION of SB shall
include all information disclosed to AVIRON pursuant to Section 8 of
these Heads of Agreement.
(c) "FIELD" shall mean any and all prophylactic and therapeutic EBV
vaccines.
(d) [ ]
(e) "KNOW-HOW" shall mean all present and future technical information,
materials and know-how developed, owned, proprietary to and/or
controlled by AVIRON with the right to sublicense, which is [
] and which is
necessary for or useful to the development or commercialization of
products in the FIELD and shall include, without limitation, [
] relating thereto. KNOW-HOW shall not include
any information, know-how or materials which are generally
ascertainable from publicly available information.
For the purposes of this paragraph 1 (e) and this Agreement, the
terms:
(i) [ ] shall mean [
]
(ii) [ ] shall mean that [
]
(iii) [ ] shall mean that [
]
(f) "NET SALES" shall mean the gross receipts from sales of PRODUCT by SB,
its Affiliates, sublicensees or distributors, but not by or to AVIRON,
to third parties hereunder after deducting:
4.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
(i) [ ] to cover transportation
charges, including insurance; and
(ii) SB's standard costs for [
] and
(iii) sales and excise taxes and duties paid or allowed by a
selling party and any other governmental charges imposed
upon the production, importation, use or sale of PRODUCT,
including without limitation, government - mandated vaccine
insurance premiums, such as the National Childhood Vaccine
Injury Act; and
(iv) reasonable and customary trade, quantity and cash discounts,
commissions and other customary rebates; and
(v) allowances or credits to customers or charges back from
customers on account of rejection or return of PRODUCT or on
account of retroactive price reductions all to the extent
actually allowed or given; and
(vi) [
] and
(vii) the [
]
Sales between or among SB and its AFFILIATES, sublicensees or
distributors shall be excluded from the computation of NET SALES
except where such AFFILIATES, sublicensees or distributors are
end users, but NET SALES shall include the subsequent final sales
to third parties by the AFFILIATES or sublicensees or
distributors.
In the event of a PRODUCT incorporating one or more non-EBV
antigens (hereinafter "COMBINATION PRODUCT"), NET SALES shall
exclude the VALUE, as specified below, of any non-EBV antigens
included in the PRODUCT. "VALUE" for purpose of [
] this paragraph shall mean [
] To
determine the NET SALES of COMBINATION PRODUCT for royalty
calculation purposes, NET SALES of COMBINATION PRODUCT shall be
multiplied by A/(A+B) whereby [
]
(g) "PATENTS" shall mean all patents and patent applications which are or
become owned and/or controlled, in whole or in part, by AVIRON, as to
which AVIRON otherwise has, now or in the future, the right to grant
licenses or sublicenses [ ] which
generically or specifically
5.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
claim vaccines against EBV. [
] Included within the definition of PATENTS
are any continuations, continuations-in-part, divisions, patents of
addition, reissues, renewals or extensions thereof. Also included
within the definition of PATENTS are any patents or patent
applications which generically or specifically claim [
] during the term of these Heads
of Agreement. The current list of patent applications and patents
encompassed within PATENTS is set forth in Appendix A attached hereto.
(h) "PRODUCT" shall mean any [ ] product, in
any configuration or formulation including COMBINATION PRODUCT(S), for
the prevention and/or treatment of EBV, the manufacture, use or sale
of which is covered by a pending or issued and unexpired claim of one
or more of the PATENTS in the particular country in which it is sold
and/or which utilizes, contains, is based upon, or is derived from the
KNOW-HOW.
(i) "SB" shall mean SmithKline Beecham Biologicals S.A. and its
AFFILIATES.
(j) "SUBLICENSE AGREEMENT" shall mean the definitive agreement between
AVIRON and SB by which AVIRON shall sublicense to SB the rights under
the [ ] to make, have made, use, have used,
import, offer for sale, sell and have sold PRODUCTS in the FIELD [
]
(k) "TERRITORY" shall mean all the countries and territories of the world
[ ]
2. LICENSE GRANT
(a) Subject to AVIRON's option as provided in section 3 below, AVIRON
hereby grants to SB an exclusive license in the TERRITORY, subject to
any residual rights [ ] the US Government, with the right to
grant sublicenses on conditions at least as favourable to AVIRON as
the ones contained herein, under any and all PATENTS and KNOW-HOW now
and during these Heads of Agreement, to make, have made, use, have
used, import, export, offer for sale, sell and have sold PRODUCTS in
the FIELD.
(b) AVIRON hereby grants SB a right of first refusal to an exclusive
licence in all countries of the TERRITORY under any patents and/or
other intellectual property rights relating to any live-virus
vaccines technology developed and/or controlled by AVIRON in the
FIELD and/or under which AVIRON has now or in the future the right
to grant licences.
(c) The parties hereto will enter into a definitive SUBLICENSE AGREEMENT
[ ] promptly after the execution of these
Heads of
6.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Agreement. Such sub-licence grant shall be construed as conferring
upon SB the same rights to make, have made, use, have used, import,
export, sell and have sold PRODUCT [
] Further, the parties agree that the SUBLICENSE AGREEMENT
shall contain such provisions as are necessary to properly effectuate
such sublicense [ ] to SB.
(d) SB agrees and acknowledges that the PATENTS and KNOW-HOW licensed
and/or transferred to SB by AVIRON under this Section 2 [
] in the development and/or manufacture of
PRODUCTS. During the life of these Heads of Agreement AVIRON shall be
[
]
3. OPTION RETAINED BY AVIRON
(a) AVIRON retains an option to co-distribute itself in the United States,
including co-selling and co-marketing, PRODUCT in monovalent finished
form, delivered by SB to AVIRON [
] for sale by AVIRON in the [ ] United
States market only [
] This
option is transferable only upon consent of SB, which consent shall be
at SB's sole discretion, and must be exercised under written notice by
AVIRON, prior to, and not later than, [
] Upon exercise of such option by
AVIRON, the parties shall negotiate in good faith and execute a Supply
Agreement which will be customary in the field and under which SB
shall use its reasonable efforts to supply AVIRON with all of AVIRON's
requirements of monovalent PRODUCT for sale in the United States
[ ] market, and provided that SB uses its reasonable efforts to
supply AVIRON with all such AVIRON's requirements of PRODUCT. SB
shall be entitled to [
]
unless SB fails to supply AVIRON with its requirements of monovalent
PRODUCT in accordance with the terms of the Supply Agreement as
contemplated hereabove. If AVIRON has failed to exercise its option
when [
] AVIRON's option to co-
distribution will revert back to SB.
(b) In the event AVIRON exercises its option under Section 3 (a) and later
ceases co-distribution, co-sale and co-marketing of the PRODUCT, [
7.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
]
(c) SB shall not sublicense the rights to co-distribute, co-sell or co-
market the PRODUCT in monovalent finished form to any entity other
than AVIRON until such time as AVIRON declines to exercise its option
or AVIRON's rights under its option revert to SB pursuant to Section 3
(a) above.
(d) AVIRON shall support royalties SB otherwise would have to pay on
AVIRON's sales of PRODUCT in the United States, other than royalties
to [
] for which SB shall be responsible, without however causing the
delivery price of PRODUCT to AVIRON to exceed [
] Aviron shall be responsible for all its
expenses related to the promotion, distribution and selling of PRODUCT
by AVIRON hereunder.
(e) SB shall use its reasonable efforts to supply AVIRON's [ ] in
North Korea and South Korea ("Sang-A") with [
] for distribution in North Korea and South
Korea under the terms of a Supply Agreement to be negotiated in good
faith between the parties hereto. At SB's discretion, SB shall
discuss with AVIRON the conditions for supplying Sang-A with [
] for North Korea and South Korea. In any
event, Sang-A shall not be authorised to sell PRODUCT [
] outside North Korea and South Korea.
4. RESEARCH AND DEVELOPMENT SUPPORT
(a) A collaborative research program ("Research Program") shall be
performed by AVIRON dedicated to the development of a PRODUCT for two
(2) years starting on [ ] such period extendable
by mutual written agreement at least [ ] before the
expiration of the initial two (2) year period. The parties shall
agree on the scientific objectives, activities, and responsibilities
for the collaborative research program, the principles of which shall
be set forth in a Research Outline to be attached as an Appendix C to
these Heads of Agreement. SB shall provide research funding to AVIRON
[
] to support these activities,
in an amount of: [
] and
[
] AVIRON
shall undertake all reasonable efforts to fulfill SB's requests with
regard to how the R&D funding shall be spent and shall, upon SB's
request, provide a complete accounting of all R&D expenses.
For the duration of these Heads of Agreement AVIRON shall not enter
into any collaborative research agreement with a third party with
respect to the development or research of [ ] in the
FIELD unless mutually agreed upon by AVIRON and SB in writing.
(b) Any invention or discovery that arises out of the Research Program
made solely by an employee or agent of SB shall belong to SB alone.
8.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Any invention or discovery that arises out of the Research Program
made solely by an employee or agent of AVIRON shall be owned by
AVIRON.
Any invention or discovery that arises out of the Research Program
made by an employee or agent of AVIRON jointly with a SB employee or
agent,[
]shall be jointly owned by SB and AVIRON.
(c) SB shall have the first right to prepare, file, prosecute, and
maintain patent application on any invention or discovery arising out
of the Research Program at its own expense. Any patent application
arising out of an invention or discovery made solely by an employee or
agent of SB shall be filed in the name of SB. Any patent application
arising out of an invention or discovery made solely by an employee or
agent of AVIRON shall be filed in the name of AVIRON. Any patent
application arising out of an invention or discovery jointly made by
AVIRON and SB shall be filed in the joint names of SB and AVIRON.
5. DEVELOPMENT
As part of the Research Program, AVIRON shall provide to SB all [
] related to or useful for development of the PRODUCT
and shall prepare [ ]
Aviron shall supply SB with all [ ] as appropriate.
SB shall prepare [ ] which shall be tested by AVIRON according to
[
]
6. LICENSE FEES AND MILESTONES
(a) SB will pay AVIRON a licensing fee of one million five hundred
thousand US dollars (US $1,500,000) within fifteen (15) days from
execution of these Heads of Agreement.
(b) SB shall also pay AVIRON, within thirty (30) days, upon achievement of
particular milestones relating to the first PRODUCT, or the first
COMBINATION PRODUCT, whichever occurs first as follows:
[ ]:[ ]
[ ]:[
]
[ ]:[ ]
[ :[
] ]
[ ] :[
]
9.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
[ ]:[
]
[ :[
]
]
------------------------------------
TOTAL [
]
[
]
7. ROYALTIES
(a) SB shall pay AVIRON a royalty on NET SALES covered by a valid claim of
a granted PATENT in the particular country where sales are made, as
follows:
(i) In United States:
[
]
(ii) In other countries:
[
]
(b) SB shall pay AVIRON a royalty of [ ] on NET SALES in countries where
there is no valid claim of a granted PATENT, except [
]
(c) [
10.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
]
[
]
(d) The royalty specified in subparagraph 7(a).(i) shall be reduced by[
]
(e) The parties shall share any costs associated with [
] through a credit
against royalties due by SB to AVIRON, [
] Any dispute between
AVIRON and SB arising under this Section 7(e)[
] shall be resolved by the procedure set forth
in Section 20(b).
(f) Notwithstanding anything else to the contrary in these Heads of
Agreement, SB agrees that for the calculation of the royalty to be
paid by SB on NET SALES of PRODUCTS by SB in the United States
pursuant to subparagraph 7(a)(i), the definition of NET SALES as set
forth in the Aviron/Arch Agreement attached hereto as Appendix B and
Incorporated by reference herein, shall be used to calculate a
[ ] royalty payable to AVIRON under these Heads of
Agreement. The remaining [ ] royalty
due AVIRON, as applicable [
] shall be calculated using the definition of NET SALES
provided for in subparagraph 1(f) of these Heads of Agreement.
8. DUE DILIGENCE
(a) Except for AVIRON's responsibilities pursuant to the Research Program
and paragraphs 4 and 5, SB will be responsible for, and shall bear a
expenses associated with, the research, development, manufacture and
commercialization of PRODUCTS. SB will [
] SB
11.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
will keep AVIRON informed on a regular basis [ ] of
its progress in the development of PRODUCTS.
(b) SB shall [
] within
[
] In addition, SB agrees to use diligent efforts to
promote the sale, marketing and distribution of the PRODUCT in the
TERRITORY, consistent with applicable legal requirements and with
accepted business practices, [
] SB will
keep AVIRON informed on a regular basis of its progress in the
commercialization of PRODUCTS in the TERRITORY.
9. COMPULSORY LICENSES
In the event that, subsequent to the execution of these Heads of Agreement,
a governmental agency in any country or territory grants or compels AVIRON
to grant a license to any third party for PRODUCT provided such license is
not granted pursuant to the US Government march-in rights :(i) SB shall be
responsible and have control over any such compulsory licence arrangements
provided that SB shall use its best efforts to keep the level of royalty to
AVIRON consistent with the one set forth in these Heads of Agreement and
provided further that AVIRON's consent shall be required if such royalty
rate falls below the one set forth herein; (ii) SB shall have the benefit in
such country or territory (and in any other country(ies) affected by such
compulsory license) of the terms granted to such third party to the extent
that such terms are more favourable to the third party than those of these
Heads of Agreement.
10. EXCHANGE OF INFORMATION AND CONFIDENTIALITY
(a) During the term of these Heads of Agreement, AVIRON shall promptly
disclose to SB and/or supply SB with all KNOW-HOW.
(b) During the term of these Heads of Agreement, each party shall promptly
inform the other party of any information that it obtains or develops
regarding the utility and safety of PRODUCT and shall promptly report
to the other party any confirmed information of serious or unexpected
reactions or side effects related to the utilisation or medical
administration of PRODUCT. In particular, each party shall provide
the other with any and all phase IV results and data related to
safety/adverse effects issues of which it will be or become aware,
anywhere in the TERRITORY. [
]
(c) During the term of these Heads of Agreement and for [ ] years
thereafter, irrespective of any termination earlier than the
expiration of the term of these Heads of Agreement, AVIRON and SB shall
not use or reveal or disclose to third parties any CONFIDENTIAL
INFORMATION received from the other party or otherwise developed by
either party in the performance of activities in furtherance of these
Heads of Agreement without first obtaining the written
12.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
consent of the disclosing party, except as may be otherwise provided
herein, or as may be required for purposes of investigating,
developing, manufacturing or marketing PRODUCT or for securing
essential or desirable authorisations, privileges or rights from
governmental agencies, or is required to be disclosed to a
governmental agency, or is necessary to file or prosecute patent
applications concerning PRODUCT or to carry out any litigation
concerning PRODUCT. This confidentiality obligation shall not apply
to such information which is or becomes a matter of public knowledge,
or is already in the possession of the receiving party without
restrictions on disclosure, or is disclosed to the receiving party by
a third party having the right to do so, or is subsequently and
independently developed by employees of the receiving party or
AFFILIATES thereof who had no knowledge of the CONFIDENTIAL
INFORMATION disclosed. The parties shall take reasonable measures to
assure that no unauthorised use or disclosure is made by others to
whom access to such information is granted.
(d) Nothing herein shall be construed as preventing SB from disclosing
any information received from AVIRON to an AFFILIATE, sublicensee or
distributor of SB, provided such AFFILIATE, sublicensee or
distributor has undertaken a similar obligation of confidentiality
with respect to the CONFIDENTIAL INFORMATION.
(e) All CONFIDENTIAL INFORMATION disclosed by one party to the other shall
remain the intellectual property of the disclosing party. In the
event that a court or other legal or administrative tribunal, directly
or through an appointed master, trustee or receiver, assumes partial
or complete control over the assets of a party to these Heads of
Agreement based on the insolvency or bankruptcy of such party, the
bankrupt or insolvent party shall promptly notify the court or other
tribunal (i) that CONFIDENTIAL INFORMATION received from the other
party under these Heads of Agreement remains the property of the other
party and (ii) of the confidentiality obligations under these Heads of
Agreement. In addition, the bankrupt or insolvent party shall, to the
extent permitted by law, take all steps necessary or desirable to
maintain the confidentiality of the other party's CONFIDENTIAL
INFORMATION and to insure that the court, other tribunal or appointee
maintains such information in confidence in accordance with the terms
of these Heads of Agreement.
(f) The parties shall make a public announcement concerning the existence
of these Heads of Agreement promptly following execution thereof, the
content of which shall be mutually agreed upon. [
] The party
desiring to make any such other public announcement or other
disclosure shall inform the other party of the proposed announcement
or disclosure in reasonable sufficient time prior to public release,
and shall provide the other party with a written copy thereof, in
order to allow such other party to comment upon such announcement or
disclosure.
13.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
(g) Neither SB nor AVIRON shall submit for written or oral publication any
manuscript, abstract or the like which includes CONFIDENTIAL
INFORMATION generated and provided by the other party without first
obtaining the prior written consent of the other party. The
contribution of each party shall be noted in all publications or
presentations by acknowledgment or coauthorship, whichever is
appropriate.
11. PATENT PROSECUTION AND LITIGATION
(a) AVIRON shall disclose to SB the complete texts of all patent
applications within the PATENTS filed by AVIRON as well as all
information received by AVIRON concerning the institution or possible
institution of any interference, opposition, re-examination, reissue,
revocation, nullification or any official proceeding involving a
PATENT, [ ] anywhere in the TERRITORY. [
] SB shall hold all information
disclosed to it under this section as CONFIDENTIAL INFORMATION subject
to the provisions of Section 10.
(b) [
] AVIRON shall during
the term of these Heads of Agreement disclose to SB any and all
patentable improvements made and/or controlled by AVIRON in the FIELD
to the extent they relate to the manufacture, use and/or sale of
PRODUCT and/or under which AVIRON has the right to grant licenses and
the parties hereto shall together determine whether and where patent
filings should be sought.
(c) SB shall have the right to assume responsibility for any PATENT or any
part of a PATENT which AVIRON intends to abandon or otherwise cause or
allow to be forfeited. AVIRON shall provide SB with a reasonable
notice of its intention to abandon any PATENT or part of a PATENT.
The foregoing provisions of this subparagraph 10(c) shall not apply
to [ ] which shall be subject to [
]
(d) SB agrees to and hereby does indemnify and hold AVIRON, its employees
and directors, harmless from and will defend against any and all
claims, damages, losses, costs and expenses, including reasonable
attorney's fees, which AVIRON may incur arising out of or resulting
from any claim by a third party that a patent or other right owned by
it is infringed or misappropriated by the manufacture, use, sale,
distribution or marketing of the PRODUCT(S) provided, however, (i)
that SB will have control over the defense and settlement of any such
action or claim, (ii) that AVIRON give prompt notice of any such
claim, (iii) that AVIRON cooperate, at AVIRON'S expense, in the
defense of such claim, and (iv) [
14.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
]
(e) In the event that AVIRON or SB becomes aware of actual or threatened
infringement of a PATENT anywhere in the TERRITORY, that party shall
promptly notify the other party in writing, [
] In
any event, AVIRON and SB shall assist one another and cooperate in
any such litigation at the other's request without expense to the
requesting party. The foregoing revisions of this subparagraph 10(e)
shall apply to [
]
(f) AVIRON and SB shall recover their respective actual out-of-pocket
expenses, or equitable proportions thereof, associated with any
litigation or settlement thereof under paragraph 11 (e) from any
recovery made by any party. Any excess amount shall be shared between
the parties with the litigating party receiving [ ] and
the other party receiving [ ] of such excess.
(f) The parties shall keep one another informed of the status of and of
their respective activities regarding any litigation or settlement
thereof concerning PRODUCT(S).
(g) AVIRON shall authorise SB to act as AVIRON's agent for the purpose of
making any application for any extensions of the term of PATENTS and
shall provide reasonable assistance therefor to SB, at AVIRON's
expense. (In the United States of America as permitted under Title 35
of the United States Code).
(h) AVIRON, on behalf of itself, its officers, agents and successors
hereby waives any and all actions and causes of action, claims and
demands whatsoever in law or equity of any kind against SB'S or its
AFFILIATES' performance of SB's rights under paragraph 11 (c).
12. TRADEMARKS
(a) SB, at its expense, shall be responsible for the selection,
registration and maintenance of all trademarks which it employs in
connection with PRODUCT(S) and COMBINATION PRODUCT(S) and shall own
and/or control such trademarks. SB shall mention on any packaging of
PRODUCT that the latter is manufactured under a licence from AVIRON,
provided such mention is in compliance with local legal requirements.
(b) AVIRON shall be responsible, in consultation with SB, for the
selection, registration and maintenance of its own trademarks for
distribution of
15.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
PRODUCT in monovalent form in the United States, pursuant to Section 3
above.
(c) Nothing in these Heads of Agreement shall be construed as a grant of
rights, by license or otherwise, to use the trademarks of the other
party for any purpose. However, as and within the time limits
required by US laws, the parties shall agree upon a joint labelling of
the PRODUCT provided AVIRON has exercised in Option pursuant to
Section 3 above.
13. STATEMENTS AND REMITTANCES
(a) SB shall keep and require its AFFILIATES, sublicensees and
distributors to keep complete and accurate records of all sales of
PRODUCT(S) and COMBINATION PRODUCT(S) under the licenses granted
herein in sufficient detail to permit the royalties payable under
these Heads of Agreement to be determined. AVIRON shall have the
right, at AVIRON's expense, through a certified public accountant or
like person reasonably acceptable to SB, to examine such records
during regular business hours during the life of these Heads of
Agreement and for [ ] after their termination; provided,
however, that such examination shall not take place more often than
[ ] and shall not cover such records for more than [
] and provided further that such accountant
shall report to AVIRON only as to the accuracy of the royalty
statements and payments.
(b) Within [ ] after the close of each calendar quarter, SB
shall deliver to AVIRON a true accounting of all PRODUCTS and
COMBINATION PRODUCTS sold by SB, its sublicensees and distributors
during such quarter and shall at the same time pay all royalties due.
Such accounting shall show sales on a country-by-country and product-
by-product basis.
(c) Any tax paid or required to be withheld by SB on account of royalties
payable to AVIRON under these Heads of Agreement shall be deducted
from the amount of royalties otherwise due. SB shall secure and send
to AVIRON proof of any such taxes withheld and paid by SB, its
sublicensees or distributors for the benefit of AVIRON.
(d) All royalties due under these Heads of Agreement shall be payable in
US Dollars. If governmental regulations prevent remittances from a
foreign country with respect to sales made in that country, the
obligation of SB to pay royalties on sales in that country shall be
suspended until such remittances are possible. AVIRON shall have the
right, upon giving written notice to SB, to receive payment in that
country in local currency.
(e) Monetary conversions from the currency of a foreign country in which
PRODUCT is sold into US currency shall be made at the exchange rate in
force on the last business day of the period for which the royalties
are being paid as published by the Generale de Banque of Brussels,
Belgium, or on another basis mutually agreed to by both parties in
writing.
16.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
14. TERM AND TERMINATION
(a) Royalty obligations in each country of the TERRITORY where there is a
valid claim of a granted PATENT covering PRODUCT(S) shall expire upon
the expiration or invalidation of the last remaining PATENT in such
country provided that if such expiration or invalidation occurs prior
to [ ] after the date of the [
] a royalty for KNOW-HOW shall be due by SB
to AVIRON pursuant to Section 7 (b) ABOVE, until the end of such [
] period. Royalty obligations on PRODUCT in the countries of the
TERRITORY where there is no valid claim of a granted PATENT covering
PRODUCT(S) pursuant to Section 7 (b) above, shall expire [ ]
from the date of [ ]
(b) Unless otherwise terminated, these Heads of Agreement shall expire
upon the expiration, lapse or invalidation of the last remaining
PATENT in the TERRITORY. Expiration of these Heads of Agreement under
this provision shall not preclude SB from continuing to market PRODUCT
and to use KNOW-HOW for the purpose of making, having made, importing,
offering, for sale and selling PRODUCT without any further royalty
payments.
(c) If either party fails or neglects to perform covenants or provisions
of these Heads of Agreement and if such default is not corrected
within [ ] after receiving written notice from the other
party with respect to such default, such other party shall have the
right to terminate these Heads of Agreement by giving written notice
to the party in default provided the notice of termination is given
[ ]
(d) SB may terminate these Heads of Agreement with respect to any country
by giving AVIRON at least [ ] written notice thereof at any
time before SB first markets PRODUCT in such country(ies). After
marketing PRODUCT, SB may terminate these Heads of Agreement with
respect to any country by giving AVIRON at least [ ] prior
written notice thereof.
(e) Either party may terminate these Heads of Agreement if, at any time,
the other party shall file in any court or agency pursuant to any
statute or regulation of any state or country, a petition in
bankruptcy or insolvency or for reorganisation or for an arrangement
or for the appointment of a receiver or trustee of the party or of its
assets, or if the other party proposes a written agreement of
composition or extension of its debts, or if the other party shall be
served with an involuntary petition against it, filed in any
insolvency proceeding, and such petition shall not be dismissed with
sixty (60) days after the filing thereof, or if the other party shall
propose or be a party to any dissolution or liquidation, or if the
other party shall make an assignment for the benefit of creditors.
(f) Notwithstanding the bankruptcy of AVIRON, or the impairment of
performance by AVIRON of its obligations under these Heads of
Agreement as a result of bankruptcy or insolvency of AVIRON, SB shall
be entitled to retain the licenses granted herein, without any further
obligations to AVIRON other than royalty obligations, subject to
AVIRON's right to terminate these Heads
17.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
of Agreement for reasons other than bankruptcy or insolvency as
expressly provided in these Heads of Agreement.
15. RIGHTS AND DUTIES UPON TERMINATION
(a) Upon termination of these Heads of Agreement, AVIRON shall have the
right to retain any sums already paid by SB hereunder, and SB shall
pay all sums accrued hereunder which are then due.
(b) Upon termination of these Heads of Agreement in its entirety or with
respect to any country under Paragraph 14 (c), 14 (d) or 14 (e), SB
shall notify AVIRON of the amount of PRODUCT SB and its sublicensees
and distributors then have on hand, the sale of which would, but for
the termination, be subject to royalty, and SB and its sublicensees
and distributors shall thereupon be permitted to sell that amount of
PRODUCT provided that SB shall pay the royalty thereon at the time
herein provided for.
(c) Termination of these Heads of Agreement shall terminate all
outstanding obligations and liabilities between the parties arising
from these Heads of Agreement except those described in Paragraphs 10
(c), 10 (d), 10 (e), 10 (f), 10 (g), 11 (c), 11 (e), 11 (f), 11 (g),
12 (a), 12 (b), 13 (a), 13 (b), 13 (c), 13 (d), 13 (e), 15 (a), 15
(b), 15 (c) and Sections 19, 20 and 24.
(d) In the event of termination of these Heads of Agreement by AVIRON for
breach by SB in accordance with Paragraph 14 (c) above. SB shall give
AVIRON a right of reference to the PLA held by SB for PRODUCT.
16. WARRANTIES AND REPRESENTATIONS
[
]
Nothing in these Heads of Agreement shall be construed as a representation
or warranty that any issued patent contained within the PATENTS is or will
be valid or enforceable or that the manufacture, use, importation, offer
for sale or sale of PRODUCT(S) does not infringe any patent or
proprietary rights of third parties.
[
]
[
]
18.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
[
]
17. LIABILITY AND INDEMNIFICATION
(a) SB agrees to and hereby does indemnify and hold AVIRON harmless from
and against all third party claims, including without limitation, any
claims with respect to death or injury to a person or damage to
property, and all damages, losses, costs and expenses, including
reasonable attorney's fees, which AVIRON may incur arising out of or
resulting from (i) the development of the PRODUCT by SB, its
AFFILIATES or sublicensees and the conduct of human clinical trials
therefore by SB, its AFFILIATES or sublicensees (ii) the manufacture,
handling or storage of the PRODUCT by SB, its AFFILIATES or
sublicensees (iii) the sale or other distribution of PRODUCTS by SB,
its AFFILIATES or sublicensees (iv) any representation made or
warranty given by SB, its AFFILIATES or sublicensees with respect to
the PRODUCT (other than the labelling for the PRODUCT as approved by
FDA or other governmental authority), and (v) the negligence,
recklessness or wilful misconduct of SB its AFFILIATES or sublicensees
or each of their officers, employees or agents. SB shall have no
obligation towards AVIRON with respect to claims, damages, losses,
costs, expenses or liability arising out of the negligent acts.
recklessness or wilful misconduct of AVIRON, its officers, employees
or agents.
(b) AVIRON agrees to and hereby does indemnify and hold SB harmless from
and against all third party claims, including without limitation, any
claims with respect to death or injury to a person or damage to
property, and all damages, losses, costs and expenses. Including
reasonable attorney's fees, which SB may incur arising out of or
result from (i) the handling or storage of the PRODUCT by AVIRON, or
its [ ] in North Korea and/or South Korea (ii) the sale or
other distribution of PRODUCTS by AVIRON, or, its [ ] in North
Korea and/or South Korea, or use of PRODUCTS by any purchasers from
AVIRON (iii) any representation made or warranty given by AVIRON, with
respect to the PRODUCT (other than the labelling for the PRODUCT as
approved by FDA or other governmental authority), and (iv) the
negligence, recklessness or wilful misconduct of AVIRON, or each of
its officers, employees or agents. AVIRON shall have no obligation
towards SB with respect to claims, damages, losses, costs, expenses or
liability arising out of the negligent acts, recklessness or wilful
misconduct of SB, its officers, employees or agents.
(c) The party seeking indemnification under this Section 17 (the
"Indemnified Party") shall (i) give the other party (the "Indemnifying
Party") notice to the relevant claim, (ii) cooperate with the
Indemnifying Party, at the Indemnifying Party's expense, in the
defence of such claim, and (iii) give the Indemnifying party the right
to control the defence and settlement of any such claim, except that
the Indemnifying Party shall not enter into any settlement that
affects the Indemnified Party's rights or interest without the
Indemnified Party's prior written approval. The Indemnified Party
shall have no authority to settle any claim on behalf to the
Indemnifying Party.
19.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
18. FORCE MAJEURE
If the performance of any part of these Heads of Agreement by either party,
or of any obligation under these Heads of Agreement, is prevented,
restricted, interfered with or delayed by reason of any cause beyond the
reasonable control of the party liable to perform, unless conclusive
evidence to the contrary is provided, the party so affected shall, upon
giving written notice to the other party, be excused from such performance
to the extent of such prevention, restriction, interference or delay,
provided that the affected party shall use its reasonable best efforts to
avoid or remove such causes of non-performance and shall continue
performance with the utmost dispatch whenever such causes are removed.
When such circumstances arise, the parties shall discuss what, if any,
modification of the terms of these Heads of Agreement may be required in
order to arrive at an equitable solution.
19. GOVERNING LAW
These Heads of Agreement shall be deemed to have been made in the United
States of America and their form, execution, validity, construction and
effect shall be determined in accordance with the laws of the State of New
York.
20. ARBITRATION
(a) Any dispute, controversy or claim arising out of or relating to these
Heads of Agreement, or the breach, termination, or invalidity thereof,
shall be settled by arbitration. The appointing authority shall be
the American Arbitration Association, in New York, and the case shall
be administrated in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. The number of arbitrators
shall be three (3). The arbitration decision shall be binding and
shall not be appealable to any court in any jurisdiction and the
prevailing party may enter such decision in any court having
jurisdiction.
(b) [
]
21. SEPARABILITY
In the event any portion of these Heads of Agreement shall be held illegal,
void or ineffective, the remaining portions hereof shall remain in full
force and effect.
If any of the terms or provisions of these Heads of Agreement are in
conflict with any applicable statute or rule of law, then such terms or
provisions shall be deemed inoperative to the extent that they may conflict
therewith and shall be deemed to be modified to conform with such statute
or rule of law.
20.
<PAGE>
In the event that the terms and conditions of these Heads of Agreement are
materially altered as a result of provisions of this Section 21, the
parties will renegotiate the terms and conditions of these Heads of
Agreement to resolve any inequities.
22. ENTIRE AGREEMENT AND BINDING EFFECT
These Heads of Agreement, entered into as of the date first written above,
constitutes the entire agreement between the parties relating to the
subject matter hereof and supersedes all previous writings and
understandings. No terms or provisions of these Heads of Agreement shall
be varied or modified by any prior or subsequent statement, conduct or act
of either of the parties, except that the parties may amend these Heads of
Agreement by written instruments specifically referring to and executed in
the same manner as these Heads of Agreement.
These Heads of Agreement shall be legally binding regarding the
transactions described herein. It is recognized that the transactions
contemplated by these Heads of Agreement may involve the execution by the
parties of one or more additional agreements. However, neither the
execution, non-execution or substance of any such additional agreement
shall in any way limit or negate the legally binding effect of these Heads
of Agreement.
23. NO WAIVER
The failure of either party at any time to exercise any of their respective
rights under these Heads of Agreement shall not be deemed a waiver thereof,
nor shall such failure in any way prevent either party, as the case may be,
from subsequently asserting or exercising such rights.
24. NOTICES
Any notice required or permitted under these Heads of Agreement shall be
sent by registered air mail, postage pre-paid, international cable or telex
to the following addresses of the parties:
if to AVIRON:
AVIRON
1450 Rollins Road,
Burlingame, CA 94010
USA
if to SB:
SMITHKLINE BEECHAM BIOLOGICALS S.A.
rue de l'Institut 89
1330 Rixensart, Belgium
Attention: Senior Vice President, General Manager
Any notice required or permitted to be given concerning these Heads of
Agreement shall be effective upon receipt by the party to whom it is
addressed.
21.
<PAGE>
25. ASSIGNMENT
These Heads of Agreement and the licenses herein granted shall be binding
upon and inure to the benefit of the successors in interest of the
respective parties. Neither these Heads of Agreement nor any interest
hereunder shall be assignable by either party without the written consent
of the other provided, however, that either party may assign these Heads of
Agreement (but not without all PATENTS and KNOW-HOW owned and/or controlled
by it) to any AFFILIATE or to any corporation with which it may merge or
consolidate without obtaining the consent of the other party, provided such
assignment does not negatively affect the rights granted by AVIRON to SB
hereunder. Notwithstanding this right to assign, it is understood that the
rights retained by AVIRON under paragraph 3, whether or not AVIRON has
exercized the option thereunder, are not assignable, not sublicensable and
not transferable under any circumstance.
IN WITNESS WHEREOF, the parties, through their authorized officers, have
executed these Heads of Agreement as of the date first written above.
SMITHKLINE BEECHAM BIOLOGICALS S.A. AVIRON
/s/ J. STEPHENNE /s/ V. KALLMEYER
By: J. STEPHENNE By: V. KALLMEYER
Senior Vice President, General Manager Vice President, Corporate
Development
22.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
APPENDIX A - PATENTS AND PATENT APPLICATIONS
1.[
]
2.[
]
For the purposes of these Heads of Agreement, the patent applications set
forth in item two above expressly exclude [
]
23.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
APPENDIX B
NET SALES DEFINITION OF THE LICENSE AGREEMENT BETWEEN [
]
"Net Sales" means:
(a) with respect to Licensed Products, the gross sales price actually charged
by Licensee or an Affiliate or sublicensee of Licensee in the Commercial
Sale of such Licensed Product less:
(i) trade, prompt payment, quantity or cash discounts, rebates, and non-
affiliated brokers' or agents' commissions, each as actually and
customarily allowed and taken;
(ii) amounts actually repaid or credited to customers on account of
rejections or returns of specified products on which Royalties have
been paid hereunder or on account of retroactive price reductions
affecting such products;
(iii) customary freight and other transportation costs, including Insurance
charges, and duties, tariffs, sales, use and excise taxes and other
governmental charges based directly on sales, turnover or delivery of
the specified products and actually paid or allowed by Licensee, an
Affiliate of Licensee or a sublicensee; and
(iv) commercially reasonable allowances for bad debts incurred with respect
to the initial Licensed Product during the first full year of
Commercial Sales of such Licensed Product, provided that such bad debt
reserve shall be deemed extinguished within hundred eighty (180) days
of the end of such first full year, and any amount of such reserve not
actually debited in accordance with commercially reasonable practices
during that period shall be deemed to be receipts of Net Sales for all
purposes of this Agreement; and
(b) with respect to Combination Products, the gross sales price actually
charged by Licensee or an Affiliate or sublicensee of Licensee in the
Commercial Sale of such Combination Product, less the deductions set forth
in subsections (a) (i) - (iv) above, multiplied by a fraction having (i) a
numerator of [
]
and (ii) a denominator of [
] The
"fair market value" for any Licensed Product or Other Agent shall be
determined for [
] When no fair market value is available, the fraction set forth
above shall be changed to a fraction having (x) a numerator of [
] and (y) a denominator of [
] provided that in no event shall the fraction be less than (A)
[ ] if only one Other Agent is included with a Licensed
Product(s) in such Combination Product, (B)[ ] if two Other
Agents are included with a
24.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Licensed Product(s) in such Combination Product, and (C) [ ] if
three or more Other Agents are included with a Licensed Product(s) in such
Combination Product. "Cost" as used above means [
]
"Commercial Sale" means any transfer to another person or entity, for value,
after which transfer the seller has no right or power to determine the
transferee's resale price, if any. A transfer by Licensee to an Affiliate or
sublicensee shall not constitute a Commercial Sale. "Commercial Sale" does not
include distribution of free promotional samples of any Licensed Product or
Combination Product by Licensee or any of its Affiliates or sublicensees in
amounts determined to be commercially reasonable by Vector.
25.
<PAGE>
APPENDIX C
RESEARCH OUTLINE
[Not Completed In Original Document]
26.
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT HAS BEEN DELETED,
AS MARKED BY BRACKETS, AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
Confidential Treatment Requested
Exhibit 10.13
FIRST AMENDMENT TO LICENSE AGREEMENT
This First Amendment to License Agreement (the "Amendment") is entered
into this 15th day of March, 1996 by and between ARCH DEVELOPMENT CORPORATION,
an Illinois not-for-profit corporation ("ARCH") and AVIRON, a California
corporation formerly known as Vector Pharmaceuticals, Inc. ("Licensee"), with
respect to the following facts.
BACKGROUND
ARCH and Licensee have entered into that certain License Agreement dated
as of July 1, 1992 (the "Agreement"), whereunder ARCH granted to Licensee an
exclusive license to practice the Inventions within the Licensed Field and in
the Territory.
Licensee and the University have previously entered into that certain
Materials Transfer Agreement ("MTA") attached hereto as Exhibit 1, whereunder
Licensee shall supply to the University certain Materials (as defined in the
MTA) for use by [ ] as principal investigator, solely for
the conduct of certain Research (as defined in the MTA).
[ ] is an employee of the University of Chicago (the
"University"), and an inventor or co-inventor of many of the Inventions
licensed to Licensee under the Agreement.
ARCH and [ ] desire that Licensee return to ARCH certain of
the rights licensed to Licensee under the Agreement that have not been
commercially developed, and Licensee is willing to return such rights to
ARCH, all as set forth in and in accordance with the terms of this Agreement.
Now, therefore, in consideration of the mutual obligations set forth
herein and of other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, ARCH and Licensee agree as follows:
AGREEMENT
1. Definitions
a. All capitalized terms used herein if not defined herein shall have
the meaning assigned thereto in the Agreement, unless explicitly otherwise
provided.
b. The following definition shall be added to Article I of the
Agreement:
"[ ]" means and is limited to the practice of any
Invention for the making, having made, using, selling, identification,
development, and commercialization of products that [
] The [ ]
expressly excludes the making, using, or selling of any vector or vaccine
claimed or disclosed in the Licensed Patents.
2. Partial Reversion of License Rights
The following shall be added as new Section 2.8 of Article II of the
Agreement:
2.8 REVERSION OF RIGHTS TO [ ]
(a) Subject to the terms and conditions of this Amendment, the
exclusive license granted to
<PAGE>
Confidential Treatment Requested
Licensee under Section 2.1 (a) of the Agreement, to the extent such license
covers the [ ] is terminated in its entirety as of
[ ]. In addition, all other Sections of the Agreement and the
MTA are hereby revised as of said date to exclude from their terms the
[ ] including, without limiting the generality of the
foregoing, the definitions of Licensed Field, Improvements and Later
Developments.
(b) The termination of Licensee's rights to the [ ]
shall in no way affect Licensee's other rights under the Agreement,
including, without limitation, Licensee's (i) license to use and practice the
Inventions under Licensed Patent Rights to make, use and sell Licensed
Products in the Licensed Field, but outside the [ ] (ii) right
to continue to prosecute and maintain the Licensed Patent Rights as provided
in Article V of the Agreement, but outside the [ ] as more
fully set out in Subsection (c), and subject to (d) below, and (iii) right to
enforce the Licensed Patent Rights as set forth in Article VI of the
Agreement, but outside the [ ]
(c) For any patent application which solely covers or for any claim
contained in a patent application of the Licensed Patent Rights which covers
any portion of the [ ] ARCH shall have the sole right to
prosecute such applications and claims. With respect to all other applications
and claims of the Licensed Patent Rights, shall have the sole right to
prosecute such applications and claims in accordance with the terms of
Sections 5.1, 5.2 and 5.3 of the Agreement. Where an application or any claim
of an application of the Licensed Patent Rights covers any portion of both
the [ ] and the Licensed Field retained by, both parties shall
agree on the prosecution of such application or claim and will cooperate in
good faith to do so. If any party desires to abandon any such application or
claim referred to in the foregoing sentence, the other party shall have the
right to pursue the same on its own (as a separate divisional application),
at its own discretion, at its own cost and in ARCH's name. In the case of,
shall prosecute and maintain any such application in accordance with the
terms of Sections 5.1, 5.2 and 5.3 of the Agreement. Each party shall pay a
pro rata share of the patent prosecution and maintenance costs of each of the
applications and issued patents within the Licensed Patent Rights, based upon
the ratio of that party's claims to the total number of claims in the relevant
application or patent.
(d) If a license to any claim of any patent of the Licensed Patent
Rights retained by is necessary for ARCH, or any licensee of the
[ ] from ARCH, to practice the Inventions in the
[ ] hereby grants to ARCH a worldwide, royalty-free, perpetual
non-exclusive license to such claim of any such patent, with the right to
sublicense to any licensee of the [ ] from ARCH, solely for the
purpose of practicing the Inventions outside the [ ] but within
the retained Licensed Field.
(e) If a license to any claim of any patent of the Licensed Patent
Rights in the [ ] is necessary for Licensee, or any sublicensee
of the retained Licensed Patent Rights from Licensee, to practice the
Inventions outside the [ ] but within the retained Licensed
Field, ARCH hereby grants Licensee a worldwide, royalty-free, perpetual
non-exclusive license to such claim of any such patent, with the right to
sublicense to a any sublicensee of the retained Licensed Patent Rights from
Licensee, solely for the purpose of practicing the Inventions outside the
[ ] but within the retained Licensed Field.
(f) If ARCH enters into negotiations with a third party to license
some or all of its rights in the [ ] ARCH shall [
] such third party's agreement
that it will either pay to ARCH (for payment to Licensee) or directly to
Licensee an amount equal to [
]
<PAGE>
Confidential Treatment Requested
3. Sublicenses.
Licensee represents and warrants that, except as stated in this Section, it
did not, at any time prior to the date of this Amendment, grant any rights or
grant any sublicense or any rights to obtain a sublicense to any third party
(i) to the [ ] or (ii) that would in any way restrict or
interfere wth ARCH's (including Affiliates and sublicensees or ARCH) rights to
the [ ] as set forth in this Amendment. In an agreement dated
May 5, 1995, Licensee granted a sublicense for South and North Korea to
Sang-A Pharm, Co., Ltd., a Korean corporation. ("Sang-A") to certain of the
rights licensed to Licensee under the Agreement, including certain rights to
the [ ] such sublicense to become effective under certain
circumstances. Licensee hereby assigns to ARCH [
]
at any time on and after the date hereof specifically for the rights granted
Sang-A to the [ ] Licensee agrees to execute any and all
documents requested by ARCH which are reasonably necessary to perfect ARCH's
rights under this Section. The parties agree that notwithstanding the
foregoing, any equity investment by Sang-A under or pursuant to the Sang-A
agreement is expressly excluded from the foregoing assignment.
IN WITNESS WHEREOF, the parties hereto, in accordance with Section 10.3
of the Agreement, have caused this Amendment to be executed by their
respective duly authorized officers or representatives on the date first
above written.
ARCH Development Corporation Aviron
By /s/ Thomas Churchwell By /s/ L. Read
_____________________________ __________________________
Title: President Title: CEO
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT HAS BEEN DELETED,
AS MARKED BY BRACKETS, AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
PUBLIC HEALTH SERVICE
BIOLOGICAL MATERIALS LICENSE AGREEMENT -- EXCLUSIVE
COVER PAGE
- ----------------------------------------------------------------
For Office of Technology Transfer/NIH internal use only:
- ----------------------------------------------------------------
Biological Materials License Agreement Number: L-058-96
Reference Number For Licensed Materials: B-007-96/0
Licensee: Aviron and its Affiliates
CRADA Number (if applicable): None
Additional Remarks: None
- -----------------------------------------------------------------
This Biological Materials License Agreement, hereinafter referred to as the
"AGREEMENT", consists of this Cover Page, an attached AGREEMENT, a Signature
Page, Appendix A (Licensed Materials), Appendix B (Licensed Products, Fields of
Use and Territory), Appendix C (Royalties), Appendix D (Benchmarks), Appendix E
(Deliverables), and Appendix F (List of Known Recipients). The Parties to this
AGREEMENT are:
1) The National Institutes of Health ("NIH"), the Centers for Disease
Control and Prevention ("CDC"), or the Food and Drug Administration
("FDA"), hereinafter singly or collectively referred to as "PHS",
agencies of the United States Public Health Service within the
Department of Health and Human Services ("DHHS"); and
2) The person, corporation, or institution identified above and/or on the
Signature Page, having offices at the address indicated on the
Signature Page, and its AFFILIATES (defined below in Paragraph 2.10),
hereinafter referred to as "LICENSEE".
<PAGE>
PHS BIOLOGICAL MATERIALS LICENSE AGREEMENT -- EXCLUSIVE
PHS and LICENSEE agree as follows:
1. BACKGROUND
1.01 In the course of conducting biomedical and behavioral
research, PHS investigators made tangible embodiments of
inventions that may have commercial applicability.
1.02 DHHS, on behalf of the United States Government, owns any
tangible embodiments of these inventions actually reduced to
practice by PHS, regardless of whether United States or foreign
patent applications or patents claiming such inventions exist.
1.03 Pursuant to Sections 301(a) and 402(c) of the Public Health
Services Act, PHS has the authority to enter into this AGREEMENT
for the licensing of rights to these tangible embodiments.
1.04 PHS desires to transfer the tangible embodiments of these
inventions to the private sector through commercialization
licenses to facilitate the commercial development of products and
processes for U.S. public use and benefit.
1.05 LICENSEE desires to acquire exclusive commercialization
rights to the tangible embodiments of these inventions in order
to develop processes, methods, or marketable products for U.S.
public use and benefit.
2. DEFINITIONS
2.01 "LICENSED MATERIALS" means the biological materials
identified in Appendix A.
2.02 "LICENSED PRODUCT(S)" means the products identified in
Appendix B.
NIH Office of Technology Transfer (L-058-96)
PHS BIOLOGICAL MATERIALS LICENSE AGREEMENT -- EXCLUSIVE
Page 2 -- (FINAL) -- Aviron -- May 29, 1996 CONFIDENTIAL
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Confidential Treatment Requested
2.03 "LICENSED TERRITORY" means the geographical area identified
in Appendix B.
2.04 "LICENSED FIELDS OF USE" means the fields of use described
in Appendix B.
2.05 "NET SALES" means the amounts actually received for sales of
LICENSED PRODUCTS by or on behalf of LICENSEE or its
sublicensees, and from leasing, renting, or otherwise making
LICENSED PRODUCTS available to others without sale or other
dispositions, whether invoiced or not, less (i) returns and
allowances actually granted, (ii) packing costs, insurance costs
and freight out, (iii) taxes or excise duties imposed on the
transaction (if separately invoiced), (iv) wholesaler and cash
discounts in amounts customary in the trade. No deductions shall
be made for commissions paid to individuals, whether they be with
independent sales agencies or regularly employed by LICENSEE or
sublicensees, and on its payroll, or for the cost of
collections. Sales of LICENSED PRODUCTS intended for
resale to third parties, made internally amongst LICENSEE and
its sublicensees, shall not be deemed sales for purposes of
calculating NET SALES. On sales of LICENSED PRODUCTS by LICENSEE
to sublicensees or affiliated parties or on sales made in other
than an arm's-length transaction, which LICENSED PRODUCTS are not
intended for resale to third parties, the value of the NET SALES
attributed under this Paragraph 2.05 to such a transaction shall
be [
]
With respect to COMBINATION PRODUCTS (defined below in Paragraph
2.06), NET SALES shall mean the amounts actually received for
sales of COMBINATION PRODUCTS, and from leasing, renting, or
otherwise making COMBINATION PRODUCTS available to others without
sale or other dispositions, whether invoiced or not, less the
deductions set forth above, multiplied by a fraction having (i) a
NIH Office of Technology Transfer (L-058-96)
PHS BIOLOGICAL MATERIALS LICENSE AGREEMENT -- EXCLUSIVE
Page 3 -- (FINAL) -- Aviron -- May 29, 1996 CONFIDENTIAL
<PAGE>
Confidential Treatment Requested
numerator of the [
] The [
] for any LICENSED PRODUCT shall be determined for a
[
] When [
] for the LICENSED PRODUCT is [
] the fraction set forth above shall be changed to
a fraction having (x) [
] and (y) [
]
2.06 "COMBINATION PRODUCT" means any product that is comprised in
part of a LICENSED PRODUCT and in part of one or more
biologically active agents which are not themselves LICENSED
PRODUCTS (the "OTHER AGENTS"). OTHER AGENTS excludes [
.]
2.07 [ ] in
exchange for cash or some equivalent to which value can be
assigned for the purpose of determining NET SALES.
2.08 "GOVERNMENT" means the government of the United States
of America.
2.09 "EFFECTIVE DATE" shall have the meaning set forth in
Paragraph 11.01.
2.10 "AFFILIATE" shall mean any entity that directly or
indirectly owns, is owned by or is under common ownership with a
party to this AGREEMENT, where "own" or "ownership" means direct
or indirect
NIH Office of Technology Transfer (L-058-96)
PHS BIOLOGICAL MATERIALS LICENSE AGREEMENT -- EXCLUSIVE
Page 4 -- (FINAL) -- Aviron -- May 29, 1996 CONFIDENTIAL
<PAGE>
Confidential Treatment Requested
possession of at least fifty percent (50%) of the
outstanding voting securities of a corporation or a comparable
equity interest in any other type of entity.
2.11 "COMPETITIVE PRODUCT" shall mean [
.]
2.12 "DELIVERABLES" shall mean the biological materials set forth
in Appendix E.
3. GRANT OF RIGHTS
3.01 PHS hereby grants and LICENSEE accepts, subject to the terms
and conditions of this AGREEMENT, an exclusive right and license
in the LICENSED TERRITORY to make, have made, use, and transfer
pursuant to Article 4 LICENSED MATERIALS and to develop, test,
make, have made, use, have used, offer for sale, sell and have
sold any LICENSED PRODUCTS in the LICENSED FIELDS OF USE.
3.02 Promptly after receipt by PHS of LICENSEE's initial installment
of the license issue royalty and the minimum annual royalty (pro-
rated for calendar year 1996) as set forth in Appendix C, PHS
agrees to provide LICENSEE with such quantities of LICENSED
MATERIALS and DELIVERABLES as are set forth in Appendices A and E
and, as available, to replace them at reasonable cost to LICENSEE
in the event of their unintentional destruction. LICENSEE agrees
to retain control over the LICENSED MATERIALS and DELIVERABLES
and shall not distribute or release them to others, without the
prior written consent of PHS, except as otherwise permitted by
this AGREEMENT. If, [
NIH Office of Technology Transfer (L-058-96)
PHS BIOLOGICAL MATERIALS LICENSE AGREEMENT -- EXCLUSIVE
Page 5 -- (FINAL) -- Aviron -- May 29, 1996 CONFIDENTIAL
<PAGE>
Confidential Treatment Requested
. ]
3.03 In order to ensure and preserve the exclusive nature of the
rights granted LICENSEE under Paragraph 3.01, PHS warrants that
it has not, prior to the EFFECTIVE DATE, entered into, and
covenants that it will not in the future, enter into, any
agreements with third parties for use of the LICENSED MATERIALS
for the purpose of the commercial manufacture, distribution or
sale of LICENSED PRODUCTS in the LICENSED TERRITORY. PHS
further covenants that it will not transfer or authorize the
transfer of any LICENSED MATERIALS to any third party in the
LICENSED TERRITORY except transfers required by the GOVERNMENT or
by statute, as set forth in Paragraphs 5.01 or 5.05 of this
AGREEMENT. PHS acknowledges that the foregoing covenants are
material obligations of PHS under this AGREEMENT.
3.04 This AGREEMENT confers no license or rights by implication,
estoppel, or otherwise under any patent applications or patents
of PHS.
3.05 PHS represents that all third parties who have received samples
of the LICENSED MATERIALS directly from PHS, or where known by
PHS, indirectly from PHS, as of the EFFECTIVE DATE are listed on
the List of Known Recipients, which is attached hereto as
Appendix F, and PHS will inform LICENSEE promptly if it discovers
any third party in possession of LICENSED MATERIALS, which party
is not listed in Appendix F. If, after the EFFECTIVE DATE, PHS
discloses to LICENSEE or LICENSEE discovers any entity in
possession of LICENSED MATERIALS, and neither disclosed in
Appendix G nor permitted to receive LICENSED MATERIALS under
Paragraphs 5.01 or 5.05, PHS will make a good faith effort to
retrieve LICENSED MATERIALS or obtain certification of
destruction of same by such recipient. If, after the EFFECTIVE
DATE, PHS discloses to LICENSEE or LICENSEE discovers any
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third party with [ ] LICENSED MATERIALS in
possession of LICENSED MATERIALS, LICENSEE may, at its election
and in its sole discretion, effective immediately upon written
notice to PHS, terminate this AGREEMENT and return LICENSED
MATERIALS AND DELIVERABLES to PHS, or convert the license granted
hereunder into a non-exclusive license. Concurrently with such
conversion, [
]
3.06 Nothing in this AGREEMENT shall preclude or prohibit
LICENSEE from, or otherwise adversely affect LICENSEE's efforts
in, obtaining a license from PHS to make, use and sell products
which are derived from the [
] or any other reagents and
materials in the LICENSED FIELD OF USE, [
. ]
4. SUBLICENSING; TRANSFER OF LICENSED MATERIALS
4.01 LICENSEE may sublicense to third parties the rights granted
to it under this AGREEMENT; provided, however, that LICENSEE
shall not sublicense such rights to any entity which is barred
from doing business with the GOVERNMENT.
4.02 Notwithstanding Paragraph 3.01, PHS recognizes and
acknowledges that, in the normal course of the conduct of
LICENSEE's business and the course of the development, testing,
manufacture and use of the LICENSED PRODUCTS and LICENSED
MATERIALS, LICENSEE shall have the right, at its discretion, [
.]
LICENSEE agrees that such transfers will be done pursuant to
written agreement and that such agreement will provide
restrictions on the further transfer and the use of such
transferred LICENSED MATERIALS as
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are appropriate to the subject activity of such agreement.
4.03 LICENSEE agrees that any sublicenses granted by it shall
provide that the obligations to PHS of Paragraphs 5.01-5.05,
7.01, 9.01, 9.02, and 11.08-11.10 of this AGREEMENT shall
be binding upon the sublicensee as if it were a party to this
AGREEMENT. LICENSEE further agrees to attach copies of these
Paragraphs to all sublicense agreements.
4.04 Any sublicenses granted by LICENSEE shall provide for the
termination of the sublicense, or the conversion to a license
directly between such sublicensees and PHS, at the option of the
sublicensee, upon termination of this AGREEMENT under Article 12.
Such conversion is contingent upon (i) acceptance by the
sublicensee of the remaining provisions of this AGREEMENT; and
(ii) the sublicensee's compliance, at the time of conversion of
the license, with the prerequisite set forth in Paragraph 4.01.
4.05 LICENSEE agrees to forward to PHS a copy of each fully
executed sublicense agreement postmarked within sixty (60) days
of the execution of such agreement, which sublicense agreement
shall be subject to the confidentiality provisions of Paragraph
8.08.
5. PHS REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS
5.01 On behalf of the GOVERNMENT, PHS reserves an irrevocable,
nonexclusive, nontransferable, royalty-free license to use, for
research purposes only (and not for commercial use or sale) the
LICENSED MATERIALS throughout the world by or on behalf of the
GOVERNMENT and on behalf of any foreign government or
international organization pursuant to any existing or future
treaty or agreement to which the GOVERNMENT is a signatory.
5.02 LICENSEE agrees to use its reasonable best efforts, based on
commercial needs, to cause products used
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or sold in the United States embodying LICENSED PRODUCTS
to be manufactured substantially in the United States.
5.03 LICENSEE acknowledges that PHS may enter into Cooperative
Research and Development Agreements (CRADAs) under the Federal
Technology Transfer Act of 1986 that relate to the subject matter
of this AGREEMENT, subject to restrictions set forth in Paragraph
3.03. LICENSEE agrees not to unreasonably deny requests for
sublicense or cross-license rights for research purposes from
such collaborators with PHS when acquiring such derivative rights
is necessary in order to make a CRADA project feasible. LICENSEE
may request an opportunity to join as a party to the proposed
CRADA.
5.04 DHHS has responsibility for funding basic biomedical
research (including research on vaccines), for review and
approval of vaccine products and for ensuring the availability of
vaccines to state public health authorities in some instances.
Because of these responsibilities, and the public investment in
the research that culminated in the LICENSED MATERIALS, LICENSEE
agrees, upon regulatory approval for marketing of a LICENSED
PRODUCT, to use its expertise to increase public awareness of the
critical role vaccines play in protecting the public health and
to contribute to the understanding of employers and managed care
organizations of the positive cost-benefit opportunities
presented by vaccines.
5.05 In addition to the license of Paragraph 5.01 above, PHS reserves
the right to grant nonexclusive licenses to make and to use
LICENSED MATERIALS and progeny and subclones thereof produced by
PHS for purposes of research involving same, and not for purposes
of commercial manufacture or in lieu of purchase. The purpose of
this research license is to encourage basic research, whether
conducted at an academic or corporate facility. In order to
safeguard the LICENSED MATERIALS, however, PHS shall consult with
LICENSEE before granting to any
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third party such a license or providing to them
samples of the LICENSED MATERIALS. If PHS, in other
license agreements with such commercial entities, grants
other rights under Paragraph 5.05 with respect to similar
materials which may become [
] In the event that LICENSEE can provide
[ ] to PHS that a commercial entity to
which a research license to the LICENSED MATERIALS has been
granted is developing the LICENSED MATERIALS for [
] then LICENSEE can request that PHS [
]
6. ROYALTIES AND REIMBURSEMENT
6.01 LICENSEE agrees to pay to PHS a noncreditable, nonrefundable
license issue royalty as set forth in Appendix C. The first
installment of such license issue royalty shall be due within
thirty (30) days after the EFFECTIVE DATE.
6.02 LICENSEE agrees to pay to PHS a [ ]
royalty as set forth in Appendix C. The [ ] royalty
shall be invoiced to LICENSEE on [
] except for calendar year 1996, in which the [
] royalty shall be invoiced within thirty (30) days of the
EFFECTIVE DATE of this AGREEMENT and shall be [
] the postmarked date of such invoice.
The [ ] royalty due for the first calendar year of
this Agreement shall be [ ] of
the calendar year remaining between the EFFECTIVE DATE of this
AGREEMENT and the next subsequent [ ]
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The [ ]
6.03 LICENSEE agrees to pay PHS earned royalties as set forth in
Appendix C.
6.04 LICENSEE agrees to pay PHS benchmark royalties, as set forth in
Appendix C, for the first LICENSED PRODUCT to achieve the
respective benchmark. If development of a LICENSED PRODUCT is
discontinued, and a new LICENSED PRODUCT is developed in its
place ("REPLACEMENT PRODUCT"), [
] The
benchmark royalty for Benchmark (4) listed in Appendix C shall be
[
]
6.05 LICENSEE shall provide to PHS [
] In addition, LICENSEE shall provide
[
] Any
[ ] in the earned royalties due from LICENSEE as a result
of the sale of such [ ] in that country shall
be applied [
] and shall be available
during the [
] The reduction in earned royalties shall extend for
a period of time [
] from the market in that country, which
period of time shall [
]
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7. RECORD KEEPING
7.01 LICENSEE agrees to keep accurate and correct records of LICENSED
PRODUCTS made, used, or sold under this AGREEMENT as appropriate
to determine the amount of royalties due PHS. Such records shall
be retained for [ ] following a given
reporting period. They shall be available during normal business
hours for inspection at the expense of PHS, no more than once
per calendar year, by an accountant or other designated auditor
selected by PHS for the sole purpose of verifying reports and
payments hereunder. The accountant or auditor shall only
disclose to PHS information relating to the accuracy of reports
and payments made under this AGREEMENT. If an inspection shows
an underreporting or underpayment in excess of five percent (5%)
for any twelve (12) month period, then LICENSEE shall reimburse
PHS for the cost of the inspection at the time LICENSEE pays the
unreported royalties, including any late charges as required by
Paragraph 7.06 of this AGREEMENT. All payments required under
this Paragraph shall be due within thirty (30) days of the date
PHS provides LICENSEE notice of the payment due.
8. REPORTS ON PROGRESS, BENCHMARKS, SALES, AND PAYMENTS
8.01 Prior to signing this AGREEMENT, LICENSEE has provided to
PHS a written commercialization plan ("COMMERCIAL DEVELOPMENT
PLAN") under which LICENSEE intends to bring the subject matter
of the LICENSED MATERIALS into commercial use. The COMMERCIAL
DEVELOPMENT PLAN is hereby incorporated by reference into this
AGREEMENT. Based on this plan, performance benchmarks are
determined as specified in Appendix D ("BENCHMARKS").
8.02 LICENSEE shall provide written annual reports on its product
development progress or efforts to commercialize under the
COMMERCIAL DEVELOPMENT PLAN for each of the LICENSED FIELDS OF
USE within sixty
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(60) days after December 31 of each calendar
year. These progress reports shall include, but not be limited
to: progress on research and development, status of applications
for regulatory approvals, manufacturing, sublicensing, marketing,
and sales during the preceding calendar year, as well as plans
for the present calendar year. If reported progress differs
materially from that projected in the COMMERCIAL DEVELOPMENT PLAN
and BENCHMARKS, LICENSEE shall explain the reasons for such
differences. LICENSEE may propose amendments in any such annual
report to the COMMERCIAL DEVELOPMENT PLAN, acceptance of which by
PHS may not unreasonably be denied. LICENSEE agrees to provide
any additional data reasonably required by PHS to evaluate
LICENSEE'S performance. LICENSEE may amend the BENCHMARKS at any
time upon written consent by PHS, which consent shall not
unreasonably be withheld. PHS shall not unreasonably withhold
approval of any request of LICENSEE to extend the time periods of
this schedule if such request is supported by a reasonable
showing by LICENSEE of diligence in its performance under the
COMMERCIAL DEVELOPMENT PLAN and toward bringing the LICENSED
PRODUCTS to the point of practical application as defined in 37
CFR 404.3(d). LICENSEE shall amend the COMMERCIAL DEVELOPMENT
PLAN and BENCHMARKS at the request of PHS to address any LICENSED
FIELDS OF USE not specifically addressed in the plan originally
submitted.
8.03 LICENSEE shall report to PHS the date of the [
] in each country in the LICENSED TERRITORY within
thirty (30) days of such occurrence.
8.04 After the date of [ ] LICENSEE shall
submit to PHS within sixty (60) days after each calendar half-
year ending June 30 and December 31 a royalty report setting
forth for the preceding half-year period the amount of the
LICENSED PRODUCTS sold by or on behalf of LICENSEE in each
country within the LICENSED TERRITORY, the NET SALES, and the
amount of royalties accordingly due. With each such royalty
report, LICENSEE shall
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submit payment of the earned royalties
due. If no earned royalties are due to PHS for any reporting
period, the written report shall so state. The royalty report
shall be certified as correct by an authorized officer of
LICENSEE and shall include a detailed listing of all deductions
made under Paragraph 2.05 to determine NET SALES made under
Paragraph 2.05 to determine royalties due under Article 6.
8.05 LICENSEE agrees to forward semi-annually to PHS a copy of
such reports received by LICENSEE from its sublicensees during
the preceding half-year period as shall be pertinent to a royalty
accounting to PHS by LICENSEE for activities under the
sublicense.
8.06 Royalties due under Article 6 shall be paid in U.S. dollars.
For conversion of foreign currency to U.S. dollars, the
conversion rate shall be the rate quoted in THE WALL STREET
JOURNAL on the day that the payment is due. All checks and bank
drafts shall be drawn on United States banks and shall be payable
to "NIH/Patent Licensing" at the address shown on the Signature
Page below. Any loss of exchange, value, taxes, or other expenses
incurred in the transfer or conversion to U.S. dollars shall be
paid entirely by LICENSEE. All royalty payments due under this
AGREEMENT shall be mailed to the following address: NIH, P.O. Box
360120, Pittsburgh, Pennsylvania 15251-6120. The royalty report
required by Paragraph 8.04 of this AGREEMENT shall accompany each
such payment and a copy of such report shall also be mailed to
PHS at its address for notices indicated on the Signature Page of
this AGREEMENT.
8.07 Late charges will be applied to any overdue payments as
required by the U.S. Department of Treasury in the Treasury
Fiscal Requirements Manual, Section 8025.40. The payment of such
late charges shall not prevent PHS from exercising any other
rights it may have as a consequence of the lateness of any
payment.
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Confidential Treatment Requested
8.08 All plans and reports required by this Article 8 and marked
"confidential" by LICENSEE and LICENSEE's license application
shall be treated by PHS as commercial and financial information
obtained from a person and as privileged and confidential
information and, to the extent permitted by law, shall not be
subject to disclosure under the Freedom of Information Act, 5
U.S.C. 552.
9. PERFORMANCE
9.01 LICENSEE shall use its [ ] to
introduce the LICENSED PRODUCTS into the commercial market for
commercial use as soon as practicable. [
] for the purpose of this provision shall include, but
not be limited to, [
] The efforts of a sublicensee shall
be considered the efforts of LICENSEE.
9.02 Upon the [ ] until the expiration of this
AGREEMENT, LICENSEE shall use its [
] to keep LICENSED PRODUCTS reasonably accessible to the
U.S. public.
10. NEGATION OF WARRANTIES; INDEMNIFICATION
10.01 PHS does not warrant that the LICENSED MATERIALS may be
exploited without infringing patents or other intellectual
property rights of third parties.
10.02 PHS MAKES NO WARRANTIES WITH RESPECT TO THE LICENSED MATERIALS,
EXPRESSED OR IMPLIED, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
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10.03 LICENSEE shall indemnify and hold PHS, its employees,
students, fellows, agents, and consultants harmless from and
against all liability, demands, damages, expenses, and losses,
including but not limited to death, personal injury, illness, or
property damage in connection with or arising out of a) the use
by or on behalf of LICENSEE, its sublicensees, directors,
employees, or third parties of any LICENSED MATERIALS OR
DELIVERABLES, or b) the design, manufacture, distribution, or use
of any LICENSED PRODUCTS, DELIVERABLES LICENSED MATERIALS or
other materials, products or processes developed in connection
with or arising out of the LICENSED MATERIALS. LICENSEE agrees to
maintain a liability insurance program consistent with sound
business practice.
11. TERM, TERMINATION, AND MODIFICATION OF RIGHTS
11.01 This AGREEMENT is effective when signed by all parties and
shall terminate upon cessation of all commercial sales of
LICENSED PRODUCTS by LICENSEE (or its sublicensee), unless sooner
terminated as provided in this Article 11.
11.02 In the event that LICENSEE is in default in the performance
of any material obligations under this AGREEMENT, and if the
default has not been remedied within ninety (90) days after the
date of notice in writing of such default, or, if such default
cannot be remedied within 90 days of such notice and LICENSEE has
not made a good faith effort to remedy such default, PHS may
terminate this AGREEMENT by written notice.
11.03 In the event that LICENSEE becomes insolvent, files a
petition in bankruptcy, has such a petition filed against it,
determines to file a petition in bankruptcy, or receives notice
of a third party's intention to file an involuntary petition in
bankruptcy, LICENSEE shall immediately notify PHS in writing.
Furthermore, PHS shall have the right to terminate this AGREEMENT
by giving LICENSEE
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sixty (60) days written notice, provided that such petition is
not dismissed within sixty (60) days of filing. Termination of
this AGREEMENT is effective upon expiration of the notice
period.
11.04 LICENSEE shall have a unilateral right to terminate this
AGREEMENT and/or any licenses in any country by giving PHS sixty
(60) days written notice to that effect.
11.05 PHS shall specifically have the right to terminate or
modify, at its option, this AGREEMENT, if PHS determines that the
LICENSEE: 1) is not executing the COMMERCIAL DEVELOPMENT PLAN
submitted with its request for a license, as such PLAN may be
amended from time to time, and the LICENSEE cannot otherwise
demonstrate to PHS's satisfaction that the LICENSEE has taken, or
can be expected to take within a reasonable time, effective steps
to achieve practical application of the LICENSED MATERIALS; 2)
has not achieved the BENCHMARKS as may be modified under
Paragraph 8.02; 3) has willfully made a false statement of, or
willfully omitted, a material fact in the license application or
in any report required by the license agreement; 4) has committed
a material breach of a covenant or agreement contained in the
license; 5) cannot reasonably justify a failure to comply with
the domestic production requirement of Paragraph 5.01 unless
waived; or 6) has failed to reasonably satisfy requirements for
U.S. public use as specified by Federal regulations issued after
the date of the license. In making this determination, PHS will
take into account the normal course of such commercial
development programs conducted with sound and reasonable business
practices and judgment and the annual reports submitted by
LICENSEE under Paragraph 8.02. PHS will also consider whether
LICENSEE's actions under items 1) through 6) affect only one
LICENSED FIELD OF USE and if so, PHS's remedy under this
Paragraph 11.05 shall be invoked only as to the affected LICENSED
FIELD OF USE. Prior to invoking this right, PHS shall give
written notice to LICENSEE providing LICENSEE specific notice of,
and a ninety (90) day
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opportunity to respond to, PHS's concerns as to the previous
items 1) to 6). If LICENSEE fails to alleviate PHS's concerns
as to the previous items 1) to 6) or fails to initiate
corrective action to PHS's satisfaction, PHS may terminate or
modify this AGREEMENT.
11.06 If PHS believes that LICENSEE (or its sublicensee) is not
keeping LICENSED PRODUCTS reasonably available to the U.S. public
after commercial use commences, it shall request LICENSEE, within
sixty (60) days, to submit (1) a response demonstrating that
LICENSED PRODUCTS are reasonably available or (2) a development
plan to make LICENSED PRODUCTS reasonably available to the U.S.
public. If following receipt of the response or development
plan, and after opportunity for a meeting between the parties,
PHS determines (1) that the LICENSED PRODUCTS are not reasonably
available to the U.S. public, (2) any development plan submitted
by LICENSEE will not make LICENSED PRODUCTS so available, and (3)
the granting of a sublicense would materially increase the
availability to the U.S. public of the LICENSED PRODUCTS, then
PHS shall have the right to require LICENSEE to grant sublicenses
to responsible applicants, on reasonable terms, in the applicable
LICENSED FIELD(S) OF USE.
11.07 Within thirty (30) days of receipt of written notice of
PHS's unilateral decision to modify or terminate this AGREEMENT,
LICENSEE may appeal the decision by written submission to the
Director of NIH or designee. The decision of the NIH Director or
designee shall be the final agency decision. LICENSEE may
thereafter exercise any and all administrative or judicial
remedies that may be available.
11.08 Within ninety (90) days of the termination or expiration of
this AGREEMENT under this Article 11, LICENSEE agrees to: (a)
return all LICENSED MATERIALS, DELIVERABLES, and LICENSED
PRODUCTS to PHS, or provide PHS with certification of their
destruction; and (b) submit a final product development progress
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report pursuant to Paragraph 8.02 and a final royalty report
pursuant to Paragraph 8.04, as applicable. Any royalty payments
due to PHS shall become immediately due and payable upon
termination or expiration. If terminated under this Article 11,
sublicensees may elect to convert their sublicenses to direct
licenses with PHS pursuant to Paragraph 4.04.
12. GENERAL PROVISIONS
12.01 Neither Party may waive or release any of its rights or
interests in this AGREEMENT except in writing. The failure of the
GOVERNMENT to assert a right hereunder or to insist upon
compliance with any term or condition of this AGREEMENT shall not
constitute a waiver of that right by the GOVERNMENT or excuse a
similar subsequent failure to perform any such term or condition
by LICENSEE.
12.02 This AGREEMENT constitutes the entire agreement between the
Parties relating to the subject matter of commercial use of the
LICENSED MATERIALS, and all other prior negotiations,
representations, agreements, and understandings are merged into,
extinguished by, and completely expressed by this AGREEMENT.
12.03 The provisions of this AGREEMENT are severable, and in the
event that any provision of this AGREEMENT shall be determined to
be invalid or unenforceable under any controlling body of law,
such determination shall not in any way affect the validity or
enforceability of the remaining provisions of this AGREEMENT.
12.04 If either Party desires a modification to this AGREEMENT,
the Parties shall, upon reasonable notice of the proposed
modification by the Party desiring the change, confer in good
faith to determine the desirability of such modification. No
modification will be effective until a written amendment is
signed by the signatories to this AGREEMENT or their designees.
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12.05 The construction, validity, performance, and effect of this
AGREEMENT shall be governed by Federal law as applied by the
Federal courts in the District of Columbia.
12.06 All notices required or permitted by this AGREEMENT shall be
given by prepaid, first class, registered or certified mail
properly addressed to the other Party at the address designated
on the following Signature Page, or to such other address as may
be designated in writing by such other Party, and shall be
effective as of the date of the postmark of such notice.
12.07 This AGREEMENT shall not be assigned by LICENSEE except a)
with the prior written consent of PHS, such consent not to be
withheld unreasonably; or b) as part of a sale or transfer of all
or substantially all of the business of LICENSEE relating to
operations which concern this AGREEMENT. LICENSEE shall notify
PHS within ten (10) days of any assignment of this AGREEMENT by
LICENSEE.
12.08 LICENSEE agrees in its use of any LICENSED MATERIALS,
DELIVERABLES, or LICENSED PRODUCTS to comply with all applicable
statutes, regulations, and guidelines, including Public Health
Service and National Institutes of Health regulations and
guidelines. LICENSEE agrees not to use LICENSED MATERIALS,
DELIVERABLES, or LICENSED PRODUCTS for research involving human
subjects or clinical trials in the United States without
complying with 21 CFR Part 50 and 45 CFR Part 46. LICENSEE agrees
not to use the LICENSED MATERIALS, DELIVERABLES, or LICENSED
PRODUCTS for research involving human subjects or clinical trials
outside of the United States without notifying PHS, in writing,
of such research or trials and complying with the applicable
regulations of the appropriate national control authorities.
Written notification to PHS of research involving human subjects
or clinical trials outside of the United States shall be given no
later than sixty (60) days prior to commencement of such research
or trials.
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12.09 LICENSEE acknowledges that it is subject to and agrees to
abide by the United States laws and regulations (including the
Export Administration Act of 1979 and Arms Export Control Act)
controlling the export of technical data, computer software,
laboratory prototypes, biological material, and other
commodities. The transfer of such items may require a license
from the cognizant agency of the GOVERNMENT or written assurances
by LICENSEE that it shall not export such items to certain
foreign countries without prior approval of such agency. PHS
neither represents that a license is or is not required or that,
if required, it shall be issued.
12.10 By entering into this AGREEMENT, PHS does not directly or
indirectly endorse any product or service provided, or to be
provided, by LICENSEE whether directly or indirectly related to
this AGREEMENT. LICENSEE shall not state or imply that this
AGREEMENT is an endorsement by the GOVERNMENT, PHS, any other
GOVERNMENT organizational unit, or any GOVERNMENT employee.
Additionally, LICENSEE shall not use the names of NIH, PHS, DHHS,
THE GOVERNMENT, or their employees in any advertising or sales
literature written or developed by LICENSEE without the prior
written consent of PHS.
12.11 The Parties agree to attempt to settle amicably any
controversy or claim arising under this AGREEMENT or a breach of
this AGREEMENT, except for appeals of modification or termination
decisions provided for in Article 12. LICENSEE agrees first to
appeal any such unsettled claims or controversies to the Director
of NIH, or designee, whose decision shall be considered the final
agency decision. Thereafter, LICENSEE may exercise any
administrative or judicial remedies that may be available.
12.12 Nothing relating to the grant of a license, nor the grant
itself, shall be construed to confer upon any person any immunity
from or defenses under the antitrust laws.
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12.13 Paragraphs 4.03, 7.01, 8.06, 8.07, 10.01-10.03, 11.07,
11.08, and 12.11 of this AGREEMENT shall survive termination of
this AGREEMENT.
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PHS BIOLOGICAL MATERIAL LICENSE AGREEMENT--EXCLUSIVE
SIGNATURE PAGE
FOR PHS:
by: Barbara McGarey 5/31/96
------------------------------------ -----------------------
Barbara McGarey, J.D. Date
Deputy Director, Office of Technology Transfer
National Institutes of Health
Mailing Address for Notices:
Office of Technology Transfer
National Institutes of Health
6011 Executive Boulevard, Suite 325
Rockville, Maryland 20852
FOR LICENSEE (Upon information and belief, the undersigned expressly certifies
or affirms that the contents of any statements of LICENSEE made or referred to
in this document are truthful and accurate.):
by: J. Leighton Read, M.D. May 29, 1996
------------------------------------ -----------------------
J. Leighton Read, M.D. Date
Chairman and CEO
Mailing Address for Notices:
Aviron
297 North Bernardo Avenue
Mountain View, California 94043
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PHS BIOLOGICAL MATERIALS LICENSE AGREEMENT -- EXCLUSIVE
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APPENDIX A -- LICENSED MATERIALS
LICENSED MATERIALS:
(1) [
]
(2) Earlier passages of (1), as follows:
(a) [ ]
(b) [ ]
(c) [ ]
(d) [ ]
(e) [ ]
(3) [
]
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APPENDIX B -- LICENSED PRODUCTS, FIELDS OF USE AND TERRITORY
LICENSED PRODUCTS:
"LICENSED PRODUCTS" shall mean (i) BPIV PRODUCTS and (ii) BPIV-VECTOR
PRODUCTS.
"BPIV PRODUCTS" shall mean any products, in any formulation, for use in the
LICENSED FIELDS OF USE, derived from items (1), (2) or (3) of the LICENSED
MATERIALS in Appendix A, [
] A BPIV PRODUCT may be [
]
"BPIV-VECTOR PRODUCTS" shall mean any products, in any formulation, for
use in the LICENSED FIELDS OF USE, derived from [
]
LICENSED TERRITORY: Worldwide
LICENSED FIELDS OF USE:
(1) [
]
(2) [
]
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APPENDIX C -- ROYALTIES
ROYALTIES:
LICENSE ISSUE ROYALTY
LICENSEE agrees to pay to PHS a [ ] license issue
royalty in [ ] according to the following schedule:
(1) [
]
(2) [
]
(3) [
]
(4) [
]
(5) [
]
[ ]
LICENSEE agrees to pay to PHS a [
]
EARNED ROYALTIES FOR NET SALES OF BPIV PRODUCTS BY LICENSEE:
(1) LICENSEE agrees to pay to PHS earned royalties of [
]
(2) [However, [ ]
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]
EARNED ROYALTIES FOR NET SALES OF BPIV PRODUCTS BY SUBLICENSEE(S):
(1) LICENSEE agrees to pay to PHS earned royalties of [
]
(2) [However, [ ]
]
(3) LICENSEE agrees to pay to PHS earned royalties of [
]
(4) However, [
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] and
(5) LICENSEE further agrees to pay to PHS [
]
EARNED ROYALTIES FOR NET SALES OF BPIV-VECTOR PRODUCTS:
LICENSEE agrees to pay to PHS earned royalties of [ ] of
LICENSEE's and sublicensees' NET SALES of BPIV-VECTOR PRODUCTS in the human
LICENSED FIELDS OF USE.
EARNED ROYALTIES FOR NET SALES OF ANY LICENSED PRODUCTS [IN THE [
]
For LICENSED PRODUCTS in the [ ], LICENSEE agrees to
pay to PHS:
(1) [ ] of NET SALES by LICENSEE of LICENSED PRODUCTS in the
[ ]
(2) [ ] actually paid to LICENSEE by a
sublicensee in exchange for the right to sell LICENSED PRODUCTS in the
[ ] including earned royalties
paid to LICENSEE by such sublicensee, provided, however, that such payment
obligation shall not apply to amounts received from such sublicensee for
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[
]
BENCHMARK ROYALTIES
LICENSEE agrees to pay PHS benchmark royalties as follows:
(1) [
] and
(2) [
] and
(3) [
] and
(4) [
]
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APPENDIX D -- BENCHMARKS
Licensee agrees to the following BENCHMARKS for its performance under this
AGREEMENT and, within [ ] of achieving a BENCHMARK, shall notify
PHS that the BENCHMARK has been achieved:
(1) [
]
(2) [
]
(3) [
]
(4) [
]
(5) [
]
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APPENDIX E - DELIVERABLES
All biological materials ("DELIVERABLES") listed in this Appendix E are being
provided to LICENSEE for research use only.
(1) [
]
(2) [
]
(3) [
]
(4) [
]
(5) [
]
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APPENDIX F - LIST OF KNOWN RECIPIENTS
The following persons and entities are known by PHS to have received the
quantities of the LICENSED MATERIALS set forth below. The amounts in brackets
are those which PHS believes remain in the possession of the Known Recipients.
PHS will make a good faith effort to retrieve these materials or to facilitate
delivery of same to LICENSEE.
<TABLE>
<CAPTION>
Person/Entity Description of Material Quantity
------------ ---------------------- --------
<S> <C> <C>
1. [
]
2. [
]
3. [
]
4. [
]
5. [
]
</TABLE>
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[LOGO] [LETTERHEAD]
May 31, 1996
The National Institutes of Allergy and Infectious Diseases
National Institutes of Health
Re: License of Rights to Information relating to Bovine Parainfluenza Virus
Type 3 ("BPIV3") strain 15626
Ladies and Gentlemen:
Aviron has licensed from The National Institutes of Health or the Centers for
Disease Control (collectively,"PHS") pursuant to that certain License Agreement
dated as of May 31, 1996 (the "License Agreement") the worldwide and exclusive
right to make, use and sell products ("Licensed Products") derived from the
Licensed Materials (defined below) . In connection with that license, Aviron
wishes to obtain from The National Institutes of Allergy and Infectious Diseases
("NIAID") certain information rights. This letter ("Letter Agreement") sets
forth the parties' agreement with respect to those rights.
NIAID understands that Aviron (or its sublicensee) is to file and own any new
IND for the Licensed Products. NIAID acknowledges that it is the holder
currently of IND No. [
] NIAID hereby grants Aviron an exclusive right of reference
to the Existing IND, and any new IND filed by NIAID with respect to the Licensed
Materials, including all Raw Data (defined below). All Clinical Data and
Research Results (defined below) of NIAID shall be made available exclusively to
Aviron for use in obtaining regulatory approval for the commercialization and
marketing of Licensed Products. However, nothing contained within this Letter
Agreement shall prohibit NIAID from publishing summary data of such Raw Data or
Clinical Data and Research Results, consistent with NIAID policy. NIAID shall
take appropriate precautions to ensure that Aviron may review, cross reference
or, as appropriate, otherwise use the Existing IND in conducting clinical trials
within the scope of this Agreement and the License Agreement, and in fulfilling
all the requirements necessary for obtaining FDA approval to market Licensed
Products.
We agree that Confidential Information (defined below) of either party
obtained or disclosed as a result of activities performed under this Letter
Agreement shall not be further disclosed, copied, reproduced, or otherwise
made available to any person or entity without the consent of the disclosing
party except as required under court order or the Freedom of Information Act
(5 U.S.C. Section 552). Each party agrees to use its best efforts to maintain
in confidence such Confidential Information and not to use such Confidential
Information except as provided in this Letter Agreement. Each party agrees
that the other party is not
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Aviron/NIAID May 31, 1996 Page 2
liable for the disclosure of Confidential Information the disclosing party
determines may not lawfully be withheld, provided the concerned party has been
given an opportunity to obtain a court order to enjoin disclosure. The
obligation to maintain the confidentiality of Confidential Information shall
expire [
] provided that upon the expiration of such [ ]
Licensee may request a [ ] to this term when necessary
to protect Confidential Information relating to Licensed Products not yet
commercialized. NIAID may not unreasonably deny such request and shall, upon
such notice, refrain from disclosing any such Confidential Information for such
[ ]
The following definitions shall apply:
"Confidential Information" shall mean all technical, scientific, product,
manufacturing, production, business, and financial information, whether
developed under the License Agreement, this Letter Agreement or existing prior
to this Letter Agreement and disclosed by either party to the other under this
Agreement, which is maintained as a trade secret by the disclosing party or
would be a trade secret or otherwise privileged or confidential if developed by
Licensee or its sublicensee in its ordinary course of business, provided that
such information:
(i) is not publicly known or available from other resources who are not under
a confidentiality obligation to the source of the information;
(ii) has not been made available by the disclosing party to others without a
confidentiality obligation;
(iii) is not already known by or available to the receiving party without a
confidentiality obligation; or
(iv) cannot be demonstrated through adequate written documentation as having
been independently developed or acquired by the receiving Party without
reference to or reliance upon such Confidential Information. Confidential
Information includes all Clinical Data and Research Results and all Raw
Data. All information to be deemed confidential under this Letter
Agreement shall be clearly marked "CONFIDENTIAL," "PROPRIETARY" or
equivalent by the disclosing party within forty-five (45) days of such
disclosure. Notwithstanding the foregoing, the parties may disclose any
information relating to potential hazards or cautionary warnings
associated with production, handling, or use of the Licensed Materials to
any government authority in accordance with applicable laws and
regulations.
Notwithstanding any other provisions of this Letter Agreement, all information
submitted to FDA under this Agreement by Aviron shall be deemed by NIAID to be
Confidential Information of Aviron.
"Clinical Data and Research Results" means all information, data, case
report forms, tangible materials, and results first developed or obtained in
connection with the development, testing, use, manufacture or sale of License
Products, including information obtained under any clinical trials of the
Licensed Materials. Such term includes all
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Aviron/NIAID May 31, 1996 Page 3
information required to be submitted with an application for approval of a
biological product under 21 Code of Federal Regulations Part 601.
"Raw Data" means the primary quantitative and empirical data first
collected by clinical investigators or others from experiments and clinical
trials conducted in connection with the development, testing, use, manufacture
or sale of Licensed Products, including case report forms and all information
required to be submitted in support of an Investigational New Drug Application
under 21 Code of Federal Regulations Part 312.
Very truly yours,
/s/ J. Leighton Read
J. Leighton Read, M.D.
Accepted and agreed to:
/s/ [illegible]
National Institute of Allergy
and Infectious Diseases
for Anthony S. Fauci, M.D.
Director, NIAID
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 26,
1996 (except as to the first paragraph of Note 1 and Note 10 as to which the
date is May 30, 1996), in Amendment No. 1 to the the Registration Statement
(Form S-1 No. 333-05209) and related Prospectus of Aviron for the registration
of 3,450,000 shares of its Common Stock.
Palo Alto, California
June 18, 1996
