AVIRON, S-3, 1997-12-05

AVIRON
S-3, 1997-12-05
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1997
REGISTRATION NO. 333-_____
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
AVIRON
(Exact name of Registrant as specified in its charter)

DELAWARE 77-0309686
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)

------------------------------
297 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 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
297 NORTH BERNANDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 919-6500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
_______________
COPIES TO:

ALAN C. MENDELSON, ESQ.
ROBERT J. BRIGHAM, ESQ.
COOLEY GODWARD LLP
FIVE PALO ALTO SQUARE
3000 EL CAMINO REAL
PALO ALTO, CA 94306-2155
(650) 843-5000
_______________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
_______________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is filed in 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 of the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
_______________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>

PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE (1) OFFERING PRICE (1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Common Stock, $0.001 par value 1,714,286 $21.94 $37,611,434.84 $11,095.37
====================================================================================================================================
</TABLE>

(1) Estimated in accordance with Rule 457(c) solely for the purpose of
computing the amount of the registration fee based on the average of the
high and low prices of the Company's Common Stock as reported on the Nasdaq
National Market System on December 3, 1997.
----------------------------
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>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED DECEMBER 5, 1997

PROSPECTUS

1,714,286 SHARES

AVIRON

COMMON STOCK

___________________

This Prospectus relates to 1,714,286 shares of Aviron ("Aviron" or the
"Company") Common Stock, par value $.001 (the "Common Stock"), which are being
offered and sold by a certain stockholder of the Company (the "Selling
Stockholder"). The Selling Stockholder, directly or through agents, broker-
dealers or underwriters, may sell the Common Stock offered hereby from time to
time on terms to be determined at the time of sale, in transactions on the
Nasdaq National Market or in privately negotiated transactions or in a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at a price related to such
prevailing prices or at negotiated prices. The Selling Stockholder may effect
such transactions by selling shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholder or the purchasers of the shares for
whom such broker-dealers may act as agents or to whom they sell as principal or
both (which compensation to a particular broker-dealer may be in excess of
customary commissions). The Company will not receive any proceeds from the sale
of shares by the Selling Stockholder. See "Selling Stockholder" and "Plan of
Distribution."

The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "AVIR." The last reported sales price of the Company's Common
Stock on the Nasdaq National Market on December 4, 1997 was $22.25 per share.

____________________

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGES 8-19.
_____________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

No underwriting commissions or discounts will be paid by the Company in
connection with this offering. Estimated expenses payable by the Company in
connection with this offering are $45,000. The aggregate proceeds to the
Selling Stockholder from the Common Stock will be the purchase price of the
Common Stock sold less the aggregate agents' commissions and underwriters'
discounts, if any, and other expenses of issuance and distribution not borne by
the Company. See "Plan of Distribution."

The Selling Stockholder and any agents, broker-dealers or underwriters that
participate in the distribution of the Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Act"), and any commission received by them and any profit on the resale of the
Common Stock purchased by them may be deemed to be underwriting discounts or
commissions under the Act. The Company has agreed to indemnify the Selling
Stockholder and certain other persons against certain liabilities, including
liabilities under the Act.

The date of this Prospectus is ___________ __, ____

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No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained or incorporated by
reference in this Prospectus, and any information or representation not
contained or incorporated herein must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, by any person in any jurisdiction in which
it is unlawful for such person to make such offer or solicitation. Neither the
delivery of this Prospectus at any time nor any sale made hereunder shall, under
any circumstances, imply that the information herein is correct as of any date
subsequent to the date hereof.

ADDITIONAL INFORMATION

A Registration Statement on Form S-3 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. The Commission maintains a World-Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's Web site is http://www.sec.gov.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and at 500 West Madison St., Suite
1400, Chicago, Illinois 60661. Copies may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Common Stock of the Company is traded on the
Nasdaq National Market. Reports and other information concerning the Company may
be inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, filed with the Commission under the Exchange Act
(File No. 0-20815) are hereby incorporated by reference into this Prospectus:

(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed on or about March 26, 1997, including all material
incorporated by reference therein;

(b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997, filed on or about May 15, 1997, including all material
incorporated by reference therein;

(d) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997, filed on or about August 13, 1997, including all material
incorporated by reference therein;

(e) The Company's Current Report on Form 8-K dated October 8, 1997, filed
on or about October 10, 1997; and

3
<PAGE>

(f) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997, filed on or about November 14, 1997, including all
material incorporated by reference therein.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in this Prospectus or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently-filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the documents that have been
incorporated by reference herein (not including exhibits to such documents
unless such exhibits are specifically incorporated by reference herein or into
such documents). Such request may be directed to: Investor Relations, Aviron,
297 North Bernardo Avenue, Mountain View, California 94043.

4
<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 by the more detailed
information, including "Risk Factors," appearing elsewhere in this Prospectus or
incorporation by reference in this Prospectus.

THE COMPANY

Aviron is a biopharmaceutical company whose focus is the prevention of
disease through innovative vaccine technology. 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's lead product candidate, a live cold adapted intranasal
influenza vaccine, was recently shown to provide a high protection rate against
influenza, with minimal adverse effects, in a pivotal Phase III clinical trial
in children. Aviron is developing this vaccine for administration to children,
healthy adults and the elderly and high risk individuals. The Company recently
filed an Investigational New Drug Application ("IND") for a live intranasal
vaccine for Parainfluenza Virus Type 3 ("PIV-3") and the Company plans to
initiate Phase II clinical trials for this vaccine candidate by the end of
1997. The Company is also developing a subunit vaccine for Epstein-Barr Virus
("EBV"), in collaboration with SmithKline Beecham Biologicals, S.A.
("SmithKline Beecham"), which entered Phase I clinical trials in Europe in
December 1997. 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, the
alteration of the virus' genetic control signals to slow down its replication,
or the addition of antigenic information to enhance the virus' stimluation of
the immune system. The Company is applying this technology to develop vaccine
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").

Influenza. Influenza affects 35 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 90% effective. The United States Food and Drug
Administration (the "FDA") estimates that approximately 75 million doses of the
injectable influenza vaccine were manufactured for use in the United States in
1996. 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.

In July 1997, the National Institute of Allergy and Infectious Diseases
("NIAID") of the National Institutes of Health ("NIH") and the Company announced
the results of an initial analysis of the first stage of a pivotal Phase III
clinical trial of Aviron's live cold adapted intranasal influenza vaccine
involving 1,602 children. In this trial, the vaccine demonstrated a 93%
protection rate against culture-confirmed influenza in those children receiving
two doses of the vaccine, the primary endpoint of the study. Only 1% of the
children who received two doses experienced culture-confirmed influenza,
compared to 18% of those receiving placebo. These results were statistically
significant. To date, the data have not yet been peer reviewed, however, the
clinical investigators intend to submit findings of this trial in 1997 for
publication in a peer-reviewed medical journal. The Company plans to conduct
the second stage of this Phase III clinical trial during the 1997/98 influenza
season to collect immunogenicity data, as well as additional safety and efficacy
data. In 1996, the Company completed a Phase II challenge study of this vaccine
in 92 adults which demonstrated an 85% protection rate, compared to placebo,
against culture-confirmed influenza. These results were also statistically
significant. Previously, Aviron conducted Phase I/II clinical trials of this
vaccine in approximately 600 children and healthy adults. Prior to Aviron's in-
licensing of the cold adapted vaccine, formulations of this vaccine had been
tested in over 7,000 patients.

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

5
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develop the live cold adapted influenza vaccine for widespread annual use in
children and adults, and for co-administration with the inactivated injectable
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.

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, children and
adults for prevention of PIV-3 illness. Aviron has submitted an IND for a Phase
II clinical trial which the Company expects to begin by the end of 1997.

Epstein-Barr Virus. EBV infects most people at some point in their
lifetime. At least half 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 has delivered
clinical trial materials to SmithKline Beecham to begin a Phase I clinical
trial of the subunit vaccine, which was initiated by SmithKline Beecham in
Europe in December 1997.

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 has selected several Rational Vaccine Design
candidates for clinical testing for the prevention of CMV disease.

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 several Rational Vaccine Design 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
Rational Vaccine Design technology to develop intranasal vaccine candidates to
prevent RSV disease.

Aviron has entered into, and intends to enter into additional, 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 Pharm. Co., Ltd. ("Sang-A")
involving certain marketing and manufacturing rights to the Company's products
in Korea. In addition, the Company entered into a contract manufacturing
agreement with Evans Medical Limited, a subsidiary of Medeva plc ("Evans"), for
the commercial manufacture of its cold adapted influenza vaccine.

The Company was incorporated in California in April 1992 as Vector
Pharmaceuticals, Inc., changed its name to Aviron in February 1993, and
reincorporated in Delaware in November 1996. The Company's executive offices
are located at 297 North Bernardo Avenue, Mountain View, California 94043, and
its telephone number is (650) 919-6500.

RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information presented or referenced herein, the
discussion of risk factors on pages 8 to 19 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. The risks
associated with an investment in the Company include the following factors:
Uncertainties Related to Clinical Trials; Uncertainties Related to Early Stage
of Development; Technological Uncertainty; Lack of Manufacturing Experience;
Reliance on Contract Manufacturers; Need for Future Funding; Uncertainty of
Access to Capital; Uncertainty of Future Profitability; Accumulated Deficit;
Uncertainty of Protection of Patents and Proprietary Rights; Dependence on Trade
Secrets; Lack of Patent Protection of Cold Adapted Influenza Technology;
Government Regulation; No Assurance of Regulatory Approvals; Uncertainty of
Market Acceptance; Lack of Marketing Experience; Dependence on Third Parties;
Intense Competition and Risk of Technological Obsolescence; Dependence on
Collaborative Agreements; Volatility of Common Stock Price; Potential Adverse
Effects of Shares Eligible for Future Sale; Risk of Product Liability; and
Uncertainty of Availability of Insurance.

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Uncertainty Related to Pharmaceutical Pricing and Reimbursement; Need to Attract
and Retain Key Employees and Consultants; Risks Associated with Hazardous
Materials; Dilution; Absence of Dividends; and Anti-Takeover Effects of Delaware
Law and Certain Charter Provisions. For a discussion of the risks associated
with an investment in the Company, see "Risk Factors" below.

THE OFFERING

Shares offered.................. Up to 1,714,286 Shares, all of which are
being offered by the Selling Stockholder.(1)

Use of Proceeds................. The Company will not receive any of the
proceeds from the sale of the Shares by the
Selling Stockholder.

Nasdaq National Market Symbol... AVIR.

- ------------
(1) The 1,714,286 shares of Common Stock were issued by the Company pursuant to
the Common Stock Purchase Agreement between the Company and Biotech
Target, S.A. dated March 27, 1997.

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<PAGE>

RISK FACTORS

In addition to the other information 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 large
clinical trials. 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. If the Company's cold adapted
influenza vaccine is not shown to be safe and effective in Aviron's future
clinical trials, the resulting delays in obtaining regulatory approvals for this
vaccine, 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 a trivalent vaccine
delivered as a nasal spray that 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 1991 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 of its
cold adapted influenza vaccine 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 these data was positive, a number of trials
included results that were not. Very few of the trials involved a trivalent
vaccine delivered as a nasal spray. The Company has performed and will need to
perform additional trials of its cold adapted influenza vaccine candidate to
support its application to the FDA. There can be no assurance that the data
from these third-party trials are 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.

To date, none of the data announced by the Company from its clinical trials
have been submitted for publication in peer-reviewed journals. Moreover, the
data necessary to calculate the primary endpoints in the Company's pivotal Phase
III clinical trial of its live cold adapted intranasal influenza vaccine only
became available in July 1997. There can be no assurance that the analysis of
the data regarding the primary endpoint announced by the Company and the
conclusions drawn from this analysis will not change as a result of further
study by the Company or its collaborators of the primary endpoint or secondary
endpoints or in the course of peer review for publication or regulatory review
for licensing. Such changes could have an adverse effect on the Company's
product development efforts and its prospects for regulatory approval of the
vaccine. The Company plans to conduct the second stage of its Phase III
clinical trial during the 1997/98 influenza season. There can be no assurance
that the results of this trial will support the results of the recently
completed first stage of this trial. Failure to do so would have a material
adverse effect on the regulatory approval or labeling of the cold adapted
intranasal influenza vaccine and could have a material adverse effect on the
Company's business, financial results and results of operations. See "Business
- -- Influenza Clinical Trials."

The 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 manufacturing clinical trial
materials. The Company's late-stage clinical trials of its live 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. Were
the influenza season to commence earlier than anticipated, the number of
subjects that could participate in a particular study might be reduced in that
season due to the subjects' possible exposure to wild-type influenza 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 from clinical trials. As a result, the Company would be required to
gather data in the

8
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next influenza season, which would not occur for another year in that community,
thus delaying the Company's development program. 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 continue 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 live 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 until at least the 1999/2000 influenza season, 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 requires 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 will
be obtained or that any products, if introduced, will be successfully marketed.
See "Business -- Vaccine Products Under Development" and "--Production and
Manufacturing."

LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS

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<PAGE>

The Company plans to obtain any commercial quantities of its cold adapted
influenza vaccine product, if approved by the FDA, initially from Evans.
Pursuant to an agreement entered into by the Company and Evans in April 1997,
Evans has agreed to manufacture the Company's live cold adapted influenza
vaccine until December 31, 2000. To meet any supply needs thereafter, the
Company will be required to either extend its contract with Evans, contract with
an alternative commercial supplier or obtain a commercial manufacturing
facility, which would require a significant amount of funds. There can be no
assurance that the agreement with Evans can be extended on terms satisfactory to
the Company, on a timely basis, or at all. There can be no assurance that an
agreement with any alternative commercial supplier with respect to the
commercial manufacture of the cold adapted influenza vaccine can be reached, or
if reached, on terms satisfactory to the Company and in time for the relevant
influenza season. As part of the regulatory, approval process, before
commercial launch of the cold adapted influenza vaccine, the Company will need
to obtain, in addition to an approval of a Product License Application ("PLA"),
an approval of an Establishment License Application ("ELA") for the Evans
facility to manufacture the Company's live cold adapted influenza vaccine.

The production of the Company's cold adapted influenza vaccine is subject
to the availability of a large number of specific 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. The production of the
cold adapted influenza vaccine is also subject to the availability of the device
for delivery of the vaccine intranasally. The Company is negotiating an
agreement for the commercial manufacture and supply of such devices. Although
the device will not be reviewed separately by regulatory authorities, the
Company will rely on the manufacturer to make available the manufacturing
process of the device as part of the PLA submission for the cold adapted
influenza vaccine. There can be no assurance that an agreement with this or any
other device supplier can be reached on satisfactory terms, on a timely basis,
or at all.

In addition, to make the vaccine available for clinical trials or
commercial sales before each influenza season, the Company must successfully
modify the vaccine within a six-month period to include selected strains for a
particular 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 an IND or PLA and
ELA applications, will be obtained or that any products, if introduced, will be
successfully marketed.

The Company also currently does not have facilities to manufacture any of
its other potential products in commercial quantities and has no experience with
commercial manufacture of vaccine products. To manufacture its other potential
products for large-scale clinical trials or on a commercial scale, the Company
may be required to build a large-scale manufacturing facility, which would
require a significant amount of funds. The scale-up of manufacturing for
commercial production would require the Company to develop advanced
manufacturing techniques and rigorous process controls. Furthermore, the
Company would be required to register its facility with the FDA and with the
California Department of Health Services and would be subject to state and
federal inspections confirming the Company's compliance with current good
manufacturing practice ("cGMP") regulations established by the FDA. However, no
assurance can be given as to the ability of the Company to produce commercial
quantifies 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 may be required to
relinquish control of the manufacturing process, which could 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 production of its
potential products successfully, if at all, or that if successful, the Company
will be able to maintain such production. See "Business -- Production and
Manufacturing" and "-- Government Regulation."

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<PAGE>

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, marketing and sales 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 revenues from existing collaborations, cash,
cash equivalents and short-term investments will enable it to maintain its
current and planned operations at least through mid-1999. The Company is 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, which could materially
adversely affect the Company's business, financial condition or results of
operations.

UNCERTAINTY OF FUTURE PROFITABILITY; ACCUMULATED DEFICIT

The Company has experienced significant and increasing operating losses
since its inception in April 1992. As of September 30, 1997, the Company had an
accumulated deficit of approximately $56.7 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.

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 or its licensors' patents or
patent applications will issue or, if issued, will not be reexamined, reissued,
opposed, challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to the
Company. In May 1996, American Cyanamid Company filed an opposition to the
grant of the Company's European patent with claims directed to chimeric negative
strand RNA viruses and to methods of engineering these viruses to express
foreign proteins and antigens. American Cyanamid Company primarily challenges
the breadth of the claims which the Company was granted. While the Company is
responding to the opposition, no assurance can be given as to the scope of the
claims,

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<PAGE>

if any, which the European Patent Office ultimately will find patentable.
Failure of the Company to prevail in the opposition would impede the Company's
ability to prevent competitors from using this technology in Europe.

The commercial success of Aviron additionally will depend, in part, upon
the Company 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 patent applications or patents may limit the scope of
claims issuing from the Company's patent applications, prevent certain claims
from being issued, 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
the Company's influenza vaccine, or to its issued patents or pending patent'
applications. The Company is aware of a claim by a third party, regarding
inventorship of subject matter claimed in a United States patent which, along
with its related foreign counterpart patents and applications, is licensed to
the Company and which is directed to certain aspects of technology, relating to
herpes viruses. This claim may also relate to a pending United States patent
application, which is a continuation of the licensed patent. It is presently
unclear whether this claim of inventorship is valid, and, if valid, it could
affect ownership of the subject United States patent and patent application as
well as their foreign counterparts. 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 patent laws of European and certain other foreign countries generally
do not allow for the issuance of patents for methods of treatment of the human
body. To the extent the Company's patent portfolio includes claims for methods
of treating humans, these methods may not be protectable in Europe and certain
other foreign countries.

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 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 or material transfer
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 "-- Lack of Patent
Protection of Cold Adapted Influenza Technology," "Business -- Patents and
Proprietary Rights."

LACK OF PATENT PROTECTION OF COLD ADAPTED INFLUENZA 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
substantially based on an exclusive worldwide license of materials and know-how
from the University of Michigan, which owns the master strains from which the
vaccine is derived. and on an exclusive license of know-how and clinical trial
data from the NIH. Neither the University of Michigan nor the NIH rely on
patents for ownership of the rights licensed to Aviron. There can be no
assurance that a third party will not gain access by some means to University of
Michigan master strains, reproduce the Company's cold adapted influenza vaccine
or develop another live-virus influenza vaccine which might be comparable to
Aviron's in terms of safety and effectiveness. See "-- Uncertainty

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<PAGE>

of Protection of Patents and Proprietary Rights; Dependence on Trade Secrets,"
"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 ("GCP") regulations. 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 either believes that the subjects participating
in such trials are being exposed to unacceptable health risks.

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 biologic 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 PLA, together with an
ELA; and (e) FDA approval of the applications, including approval of all product
labeling.

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. 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.

Before receiving FDA approval to market a product in accordance with the
above procedures, 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 or maintain marketing
approval.

The Company believes that the approval process for vaccines may be longer
than for therapeutic products, since vaccines are administered to healthy
individuals. 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.

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

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<PAGE>

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."

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 safety and efficacy results
in the Company's clinical trials, 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 means and frequency of administration,
the availability of third-party, reimbursement and the extent of marketing and
sales 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
freezer capacity 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 or
experience. 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. The amount and timing of resources
devoted to these activities is not 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 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 in gaining market acceptance for any
products that may be developed by the Company. See "Business -- Marketing and
Sales" and "-- Collaborative Agreements."

INTENSE COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE

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<PAGE>

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, the supplier of the Company's cold adapted influenza
vaccine. Each of these companies sells the injectable inactivated influenza
vaccine in the United States, has significantly greater financial resources than
Aviron and has established marketing and distribution channels for such
products. In addition the Company is aware of improved inactivated injectable
influenza vaccines being developed by Chiron (Chiron Biocine Division);
intranasally administered inactivated vaccines by Swiss Serum and Vaccine
Institute, Biovector Therapeutics, S.A. and Viral Research Institute; a "naked
DNA" vaccine by Vical, Inc.; and a commercially available cold adapted influenza
vaccine in Russia. 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"), and a cold adapted PIV-3
vaccine developed with NIH support which is licensed to Wyeth-Ayerst.

New developments are expected to continue in the pharmaceutical,
biopharmaceutical and biotechnology industries and in academia, government
agencies and other research organizations. 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, marketing and sales 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. 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 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. Pursuant to its agreement,

15
<PAGE>

Sang-A is required to 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 any 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.

ARCH Development Corporation ("ARCH"), an Illinois not-for-profit
corporation associated with the University of Chicago, has recently asserted an
interpretation of the financial terms of its agreement with the Company,
relating to the license by Aviron of its EBV technology to SmithKline Beecham,
which would require the Company to pay ARCH one-half of any future or past
payments (including sub-license fees and milestone payments) received by Aviron
under its agreement with SmithKline Beecham. The Company disputes ARCH's
interpretation of the financial terms of the agreement. No assurance can be
given, however, that the Company's interpretation will prevail. Failure of the
Company to prevail could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business --
Collaborative Agreements -- SmithKline Beecham Biologicals S.A." and "-- ARCH
Development Corporation."

In January, 1997, the Hanbo Group, the conglomerate that owns Sang-A,
declared bankruptcy. The Company is unable to predict what, if any, effect the
bankruptcy of the Hanbo Group will have on Hanbo Group subsidiaries, including
Sang-A. The Company may be required to seek an alternative partner to market
its potential products in Korea. There can be no assurance that the Company
will be able to enter into an agreement with any such alternative partner on
acceptable terms, if at all. See "Business -- Collaborative Agreements --
Sang-A Pharm. Co., Ltd."

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
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."

VOLATILITY OF COMMON STOCK PRICE

The market prices for securities of pharmaceutical, biopharmaceutical and
biotechnology companies have historically been highly volatile. The market from
time to time experiences 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 regarding
collaborative agreements, 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, changes in reimbursement
policies, 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.

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.

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Of the shares outstanding, all are freely tradable without restriction or
further registration under the Securities Act, except for (i) 239,200 shares
purchased by Sang-A on November 8, 1996 and December 10, 1996 in connection with
the initial public offering of the Company, (ii) shares purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act") and (iii) the shares
being registered pursuant to this Form S-3.

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 effect 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

17
<PAGE>

reimbursement levels are not provided by the government and third-party payors
for the Company's potential 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, marketing and sales.
Expansion in the areas of product development, marketing and sales 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."

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 and could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity.

DILUTION; ABSENCE OF DIVIDENDS

Investors purchasing shares of Common Stock in this offering will incur
dilution to the extent outstanding options and warrants are exercised. Under an
agreement with the University of Michigan, the Company is obligated to issue a
warrant to purchase shares of Common Stock at an exercise price of $10.00 per
share, for a number of shares to be based on 1.25% of the Common Stock
outstanding on the date, if any, of the first commercial sale of the Company's
cold adapted intranasal influenza vaccine. Investors will incur additional
dilution to the extent this warrant is issued and exercised. See "Dilution." The
Company has not paid any dividends on its Common Stock since inception and does
not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy."

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 October
1997, the Company's Board of Directors adopted a Share Purchase Rights Plan,
commonly referred to as a "poison pill." 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

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<PAGE>

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.

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<PAGE>

BUSINESS

OVERVIEW

Aviron is a biopharmaceutical company whose focus is the prevention of
disease through innovative vaccine technology. 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's lead product candidate, a live cold adapted intranasal
influenza vaccine, was recently shown to provide a high protection rate
against influenza, with minimal adverse effects, in a pivotal Phase III
clinical trial in children. Aviron is developing this vaccine for
administration to children, healthy adults and the elderly and high risk
individuals. The Company recently filed an IND for a live intranasal vaccine
for PIV-3 and the Company plans to initiate Phase II clinical trials for this
vaccine candidate by the end of 1997. The Company is also developing a subunit
vaccine for EBV, in collaboration with SmithKline Beecham, which entered Phase
I clinical trials in Europe in December 1997. In addition, Aviron is also
using its proprietary "Rational Vaccine Design" technology to discover new
live virus vaccines. Rational Vaccine Design involves the deletion or
modification of virulence proteins, the alteration of the virus' genetic
control signals to slow down its replication, or the addition of antigenic
information to enhance the virus' stimulation of the immune system. The
Company is applying this technology to develop vaccine candidates for the
prevention of influenza in elderly persons and diseases caused by CMV, HSV-2
and RSV.

In July 1997, the NIAID of the NIH and the Company announced the results of
an initial analysis of the first stage of a pivotal Phase III clinical trial
of Aviron's live cold adapted intranasal influenza vaccine involving 1,602
children. In this trial, the vaccine demonstrated a 93% protection rate
against culture-confirmed influenza in those children receiving two doses of
the vaccine, the primary endpoint of the study. Only 1% of the children who
received two doses experienced culture-confirmed influenza, compared to 18% of
those receiving placebo. These results were statistically significant. To
date, the data have not yet been peer-reviewed; however, the clinical
investigators intend to submit findings of this trial in 1997 for publication
in a peer-reviewed medical journal. The Company plans to conduct the second
stage of this Phase III clinical trial during the 1997/98 influenza season to
collect immunogenicity data, as well as additional safety and efficacy data.
In 1996, the Company completed a Phase II challenge study of this vaccine in
92 adults which demonstrated an 85% protection rate, compared to placebo,
against culture-confirmed influenza. These results were also statistically
significant. Previously, Aviron conducted Phase I/II clinical trials of this
vaccine in approximately 600 children and healthy adults. Prior to Aviron's
in-licensing of the cold adapted vaccine, formulations of this vaccine were
also tested in over 7,000 patients.

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.

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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.

. 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 or
bacterium.

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

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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, a virus belonging
to the herpes virus family, using an FDA-approved live virus vaccine.

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.

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 may be given for the
initial two infant doses, 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

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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 principal 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. 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 weakened 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 worldwide exclusive rights to
this cold adapted influenza vaccine technology.

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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 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
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 has identified several vaccine candidates using this approach.
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.

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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.

Establish Marketing and Sales Capabilities. The Company intends to market
and sell its cold adapted influenza vaccine product in the United States by
developing its own sales force. Aviron believes that, due to the concentrated
nature of the vaccine market, a small, dedicated sales force can be effective
in the marketing and sales of its cold adapted influenza vaccine. For
marketing and sales outside the United States, the Company intends to
establish collaborative relationships with companies having strong
capabilities in local markets.

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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
Children Cold adapted live Pivotal Phase III Aviron
virus Clinical Trial-
Stage 1 Completed,
Stage 2 Planned
Manufacturing
Consistency Lot Trial
Underway
Adults Cold adapted live Challenge Efficacy Aviron
virus Study Completed
Phase III Safety and
Effectiveness Trial
Planned
Elderly and High Risk Cold adapted live Clinical Trials Aviron
Adults virus Planned
(co-administered with
inactivated vaccine)
Genetically Preclinical Aviron
engineered
live virus
Parainfluenza Virus Type Bovine live virus IND Supplement Filed Aviron
3
Epstein-Barr Virus Recombinant subunit Phase I Clinical SmithKline
glycoprotein Trial in Progress Beecham/
Aviron (3)
Cytomegalovirus Genetically IND Filing Planned Aviron
engineered
live virus
Herpes Simplex Virus Type Genetically Preclinical Aviron
2 engineered
live virus
Respiratory Syncytial Genetically Research Aviron
Virus engineered
live virus
</TABLE>
--------
(1) "Pivotal Phase III Clinical Trial-Stage 1 Completed, Stage 2 Planned"
means Aviron has completed a multi-center, double-blind, placebo-
controlled clinical trial for safety and efficacy. Stage 2 will enroll
the same patients to collect immunogenicity data as well as additional
safety and efficacy data.
"Manufacturing Consistency Lot Trial Underway" means Aviron is
conducting a clinical trial to demonstrate consistency across lots to
submit as part of a PLA.
"Challenge Efficacy Study Completed" means Aviron completed vaccination
of patients in a multi-center, double-blind, placebo-controlled clinical
trial for safety, immunogenicity and efficacy.
"Phase III Safety and Effectiveness Trial Planned" indicates that Aviron
intends to conduct a clinical trial to assess safety and effectiveness,
measured by utilization of health care services and absenteeism.
"Clinical Trials Planned" indicates that no clinical trial has been
conducted by Aviron to date, but Aviron intends to proceed directly to
Phase II clinical trials for safety to support a labeling claim to
include in or supplement its PLA filing.
"IND Filing Planned" means the Company has selected several vaccine
candidates for testing in clinical trials in preparation for preparing
an IND filing.
"Preclinical" includes assessment of specific vaccine candidates for
growth properties in cell culture and for attenuation and immunogenicity
in animal models.
"IND Supplement Filed" indicates that no clinical trials have been
conducted by Aviron to date, but the FDA has received the IND and
allowed the 30-day comment period to expire.
"Phase I Clinical Trial Planned" indicates that SmithKline Beecham began a
Phase I clinical trial in Europe in December 1997 to demonstrate safety and
immunogenicity. "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 (except Korea) licensed to SmithKline Beecham; Aviron
retains certain United States co-promotion rights. See "--
Collaborative Agreements."

26
<PAGE>

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, 35 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 90% 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, including 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, children and teenagers receiving
long-term aspirin therapy and therefore at risk of developing Reye's syndrome,
and pregnant women. 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 approximately 75 million influenza vaccine doses
were manufactured for use in the United States in 1996. According to the CDC,
55% of the 34 million Americans over age 65 received the annual influenza
vaccine during the 1994 calendar year, up from less than approximately 25% a
few years earlier. The United States Department of Health and Human Services
has set a goal for administrating the influenza vaccine to at least 60% of
Americans over age 65, by the year 2000. 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

27
<PAGE>

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 discovered by
Dr. H. F. Maassab, licensed from the University of Michigan and subject to a
Cooperative Research and Development Agreement ("CRADA") with the NIH. The
cold adapted influenza vaccine is currently undergoing extensive clinical
trials by Aviron, many of which are coordinated with NIH-sponsored
investigators. Prior to Company-initiated trials, at least 65 clinical trials
of the cold adapted influenza vaccine technology were 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 is developing a cold adapted influenza vaccine for widespread
annual use in children, adults, high-risk individuals 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. However, before delivery methods are
established in these settings, the Company will be required to formulate the
cold adapted influenza vaccine to ensure stability of the vaccine in such
settings. There can be no assurance that the Company will be able to do so or
that regulatory authorities will approve such delivery methods.

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 and other medical advisory bodies
for use of the cold adapted influenza vaccine in the appropriate population.

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 next 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

28
<PAGE>

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 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
intranasal vaccine program for PIV-3 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 seen 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 clinical trials in over 100 adults, children and infants. In
all age groups, the bPIV-3 vaccine appeared satisfactorily attenuated, safe
and genetically stable. Eighty-five percent of seronegative infants and
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 has filed
an IND for a Phase II clinical trial of bPIV-3 using the existing bPIV-3
vaccine supply produced and tested for the NIAID and expect that the trials
will begin by the end of 1997. There can be no assurance that this trial 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.

29
<PAGE>

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).

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. SmithKline Beecham began a
Phase I clinical trial in Europe of the subunit vaccine in December 1997 to
demonstrate safety and immunogenicity. There can be no assurance that this trial
will be commenced or, if commenced, will be successful, or that FDA approval
will be obtained for any vaccine candidate. 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 and potentially lifelong custodial 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 has selected several vaccine
candidates for testing in clinical trials for the prevention of CMV disease.
However, no assurance can be given that clinical trials will be commenced or,
if commenced, will be successful, or that the Company will develop
successfully and receive FDA approval of its CMV vaccine candidate.

30
<PAGE>

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.

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. One company recently
reported a lack of efficacy in Phase III clinical trials of a subunit vaccine.
A second company is conducting a Phase III clinical trial of a different
subunit vaccine.

Aviron has used its Rational Vaccine Design approach to create injectable
live attenuated vaccine candidates intended to prevent HSV disease in
uninfected children and young adults. 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 has evaluated 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 is developing additional vaccine
candidates and intends to use the results of further animal studies to select
one or more candidates 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.

In July 1996, Aviron licensed certain of its patent rights covering or
related to the use of HSV-2 for treatment of cancer and for gene therapy, but
excluding use for vaccines, to NeuroVir Research, Inc., a private Canadian
corporation ("NeuroVir"). In exchange, Aviron received shares of capital stock
and warrants to purchase shares of capital stock, representing in the
aggregate approximately 16% of the outstanding equity securities of NeuroVir
on a fully-diluted basis after the first round of financing. Aviron is under
no obligation to fund development of this technology.

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

31
<PAGE>

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. The only
prevention for RSV currently available is passive administration of polyclonal
antibodies, 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 Aviron

The Company has conducted and continues to conduct clinical trials to
demonstrate safety and efficacy of its cold adapted influenza vaccine. To
date, the Company has tested the trivalent vaccine in over 2,300 children and
adults. While the Company believes that it can use previous trial data from
others to support its regulatory filings, the Company's use of the previous
data to establish safety and efficacy of its proposed vaccine is limited
because very few of the clinical trials involved a vaccine delivered through a
nasal spray. The Aviron clinical trials relate to the safety and efficacy of
the trivalent 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,
92 patients in a Phase II challenge study in adults in collaboration with the
NIH, and 1,602 children in a pivotal Phase III clinical trial.

Aviron conducted a safety and immunogenicity study involving 239 healthy
adults at three university research centers. Patients were randomly assigned
to receive either Aviron's live cold adapted influenza vaccine by nasal spray
or nose drops, or placebo by nasal spray or nose drops. No serious adverse
events attributable to Aviron's vaccine were seen in any subjects, and 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. Statistically significant serum antibody responses to all
three strains in the vaccine were observed in the subjects receiving the live
cold adapted influenza vaccine compared to placebo. The magnitude of these
antibody responses was within the range of responses seen in previous trials
by others of the live cold adapted influenza vaccine, which are lower than the
serum responses typically observed following immunizations with the
inactivated influenza vaccine.

Two hundred thirty-eight children between the ages of 18 months and five
years were enrolled at four Vaccine Treatment Evaluation Units ("VTEUs") and
118 children were enrolled at the Center for Vaccine Development in Santiago,
Chile, in a Phase I/II double-blind, placebo-controlled 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, and there were no statistically
significant differences in the occurrences of fever, sore throat, runny nose,
cough, wheezing, or irritability assessed in the study between the vaccine or
placebo or between the different types of administration. Statistically
significant serum antibody responses to all of the three strains were observed
in the subjects receiving the higher dose of the live cold adapted influenza
vaccine compared to placebo. The magnitude of these antibody responses was
within the range of responses seen in previous trials by others of the
trivalent cold adapted influenza vaccine.

Aviron's intranasal spray formulation of the live cold adapted influenza
vaccine also has been tested in a double-blind, placebo-controlled Phase II
challenge study at two VTEUs involving 92 healthy young adults. Subjects were
randomized to receive either the live cold adapted intranasal vaccine, the
inactivated injectable vaccine or placebo. There were no serious adverse
events attributable to Aviron's vaccine seen in any subjects,

32
<PAGE>

and there were no statistically significant differences in the occurrence of any
potential reactions assessed in the study between either vaccine or placebo.
Following vaccination and subsequent intranasal administration of the wild-type
challenge virus, the incidence of laboratory-documented influenza, a
prospectively defined primary endpoint of the trial, was 7% in subjects
vaccinated with the live cold adapted intranasal influenza vaccine, 13% in
subjects vaccinated with the inactivated injectable influenza vaccine and 45% in
subjects who received placebo. The reduction in laboratory-documented influenza
compared to placebo was statistically significant for the live cold adapted
vaccine (p is less than 0.001) and the inactivated vaccine (p = 0.01). The other
prospectively defined primary endpoint of the study was the proportion of
subjects shedding the challenge virus after its administration. No significant
differences were seen between the two vaccines and placebo in viral shedding.

Of the recipients of the live cold adapted influenza vaccine, 10%
experienced moderate or severe respiratory symptoms following administration
of the wild-type influenza challenge virus, a statistically significant
reduction compared to 39% of placebo recipients (p = 0.01). The rate of
moderate or severe respiratory symptoms observed following challenge virus in
the inactivated injectable vaccine was 22% which was not statistically
significant compared to placebo. While the rate of respiratory illness seen in
the placebo group was consistent with previous influenza challenge efficacy
trials by others, the rate of febrile or systemic illness following challenge
was lower than in previous trials. These data have not been peer reviewed,
however, and no assurance can be given that the conclusions drawn from this
analysis will not change as a result of further study by the Company or during
the peer review process.

Based on trials by others which showed that a modest immune response in
young children to one or two of the strains after a single dose could be
boosted significantly by a second dose approximately two months later, the
Company initiated a two-year pivotal Phase III clinical trial to evaluate one-
and two-dose regimens in children. The Company's clinical trial data suggest
that a repeat or booster dose may be required in young children due to their
lack of previous exposure to influenza or influenza vaccines. Two doses of the
inactivated injectable influenza vaccine are recommended annually for young
children receiving influenza prophylaxis for the first time. The Company
enrolled 1,602 children at 10 clinical sites in the pivotal Phase III clinical
trial, of which 1,314 were vaccinated with a second dose 46 to 74 days after
initial vaccination. The primary endpoint of the first stage of the study was
defined as protection of children from culture-confirmed influenza during
naturally occurring epidemics of influenza.

The data were unblinded in July 1997 following a single year of patient
accrual due to the adequate incidence of influenza in the study population,
rather than continuing to collect efficacy data for a second influenza season.
The Company and NIAID announced that, based on an initial analysis of the
first stage of the Phase III trial, Aviron's live cold adapted intranasal
vaccine for influenza demonstrated a 93% protection rate against culture
confirmed influenza in those children receiving two doses, the primary
endpoint of the study. Only 1% of children receiving two doses experienced
culture-confirmed influenza, compared to 18% of those receiving the placebo.
These results were statistically significant. Although the data have not yet
been peer-reviewed, the clinical investigators intend to present the initial
findings of this trial at scientific conferences in fall 1997 and to submit
their findings in 1997 for publication in a peer-reviewed medical journal. The
Company intends to submit a PLA to the FDA based on the data from this trial
and prior studies, and will support its PLA with additional data from the
second stage of this Phase III clinical trial as well as other trials.

The Company plans to conduct the second stage of its pivotal Phase III
clinical trial during the 1997/98 influenza season in the same patients as the
first stage of this trial. The second stage of the clinical trial will collect
immunogenicity data, as well as additional safety and efficacy data. There can
be no assurance that the results of this trial will support the results of the
recently completed first stage of this trial. Failure to do so could have a
material adverse effect on the regulatory approval or labeling of the cold
adapted intranasal influenza vaccine and could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, the Company also plans to conduct a clinical trial for use of the
vaccine in children with asthma during the 1997/98 influenza season.

33
<PAGE>

Aviron is currently conducting a manufacturing consistency lot trial in 500
children at the Center for Vaccine Development at the University of
California, Los Angeles. Approval to market vaccines typically requires
evidence from such a trial demonstrating that the product can be manufactured
consistently from lot to lot.

The Company has completed a Phase II challenge study in adults for its live
cold adapted intranasal vaccine for influenza. The Company intends to conduct
a Phase III trial in healthy adults during the 1997/98 influenza season to
determine safety and effectiveness, measured by utilization of health care
services and absenteeism. The Company intends to seek labeling claims for use
of this vaccine in healthy adults in future PLA supplements, based on prior
trials, as well as the Phase II challenge study and any additional data
available from the Phase III clinical trial for safety and effectiveness.
However, there can be no assurance that the Phase III trial will be successful
or that the Company's PLA filings will be approved for healthy adults.

The Company is also planning a Phase II clinical trial for safety in the
elderly and high risk adults for the use of an intranasal vaccine for
coadministration with the currently available injectable vaccine during the
1997/98 influenza season. The Company intends to use this data to support a
label claim for safety for such coadministration in high risk adults and the
elderly. In addition, the Company is planning to conduct an open label
clinical trial in adults and children who volunteer to participate in the
trial. The data from this trial is intended to support the safety and efficacy
of the Company's cold adapted influenza vaccine.

To date, none of the data announced by the Company from its clinical trials
have been submitted for publication in peer-reviewed journals. Moreover, the
data necessary to calculate the primary endpoints the first stage of the
Company's pivotal Phase III clinical trial only became available in July 1997.
There can be no assurance that the analysis of data regarding the primary
endpoint announced by the Company and the conclusions drawn from this analysis
will not change as a result of further study by the Company or its
collaborators of the primary endpoints or secondary endpoints or in the course
of peer review for publication or regulatory review for licensing. Such
changes could have an adverse effect on the Company's product development
efforts and its prospect for regulatory approvals of its live cold adapted
influenza vaccine candidate. Furthermore, there can be no assurance that the
Company will commence clinical trials as planned, or that if commenced, such
trials can be completed on a timely basis, or at all.

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 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.

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.

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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 5,200 children and adults from ages one 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.

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 deliver genetic
information to the central nervous system.

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 in humans 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 longer life and reduced
neurological deficit for the treated animals.

Aviron has entered into a collaboration with Neurovir to develop the
Company's proprietary technology for the use of herpes simplex virus to treat
brain cancer and as a vector for gene therapy for treatment of cancer and
neurological disease. No assurance can be given that Neurovir will be
successful in developing this technology.

PRODUCTION AND MANUFACTURING

The Company currently does not have facilities to manufacture the cold
adapted influenza vaccine and has no experience with clinical or commercial
manufacture of this potential product. All of the cold adapted vaccine
material used in the Company's clinical trials is being supplied by Evans
pursuant to a manufacturing and development agreement entered into in November
1995 (the "Evans Clinical Agreement"). Evans is one of four companies licensed
by the FDA to produce influenza vaccine for sale in the United States and
produces an injectable influenza vaccine that would compete with the Company's
cold adapted influenza vaccine. Under the Evans Clinical Agreement, Evans is
producing and supplying the Company with sufficient quantities of cold adapted
influenza vaccine to conduct its current clinical trials and those planned for
the 1997/98 influenza season, subject to certain limitations. Under the
agreement, Evans is also collaborating with Aviron to develop a formulation of
the cold adapted influenza vaccine requiring only refrigeration rather than
frozen storage. The Company also granted Evans a right of first negotiation
with respect to distribution rights for the vaccine in Europe. Either party
may terminate the Evans Clinical Agreement upon six months notice to the other
party.

The Company is currently conducting clinical trials to demonstrate lot-to-
lot consistency of the cold adapted vaccine being supplied by Evans.
Consistency information is necessary for the Company's FDA submission.

The Company plans to obtain initial commercial quantities of its cold
adapted influenza vaccine, if approved by the FDA, for its first two influenza
seasons of commercial production from Evans. Pursuant to an agreement entered
into in April 1997 (the "Evans Commercial Agreement"), Evans has agreed to
manufacture the Company's live cold adapted influenza vaccine until December
31, 2000, the expiration of the initial term of the Evans Commercial
Agreement. Thereafter, the Company will be required to either extend its
contract with Evans, contract with an alternative commercial supplier or
obtain a commercial manufacturing facility, which would require a significant
amount of funds. There can be no assurance that the Company will be able to
extend the term of the Evans Commercial Agreement or that an alternative
commercial supplier for the commercial manufacture of the cold adapted
influenza vaccine can be reached, or if reached, on terms satisfactory to the
Company and in time for the relevant influenza season. In addition, as part of
the regulatory approval process, before commercial launch of the cold adapted
influenza vaccine, the Company will need to obtain, in addition to an approval
of a PLA, an approval of an ELA for the Evans facility to manufacture the
Company's cold adapted influenza vaccine.

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The production of the Company's cold adapted influenza vaccine is subject to
the availability of a large number of specific 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. The production of
the cold adapted influenza vaccine is also subject to the availability of the
device for delivery of the vaccine intranasally. The Company is negotiating an
agreement for the commercial manufacture and supply of such devices. Although
the device will not be reviewed separately by regulatory authorities, the
Company will rely on the manufacturer to make available the manufacturing
process of the device as part of the PLA submission for the cold adapted
influenza vaccine. There can be no assurance that an agreement with this or
any other device supplier can be reached on satisfactory terms, on a timely
basis, or at all.

In addition, to make the vaccine available for clinical trials or commercial
sales before each influenza season, the Company must successfully modify the
vaccine within a six-month period to include selected strains for a particular
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 IND or PLA and
ELA applications, will be obtained or that any products, if introduced, will
be successfully marketed.

In April 1996, the Company completed construction of a pilot manufacturing
facility for its potential vaccine products other than the cold adapted
influenza vaccine. Funding was obtained through the Company's existing capital
lease line of credit. The Company currently does not have facilities to
manufacture any of its other potential products in commercial quantities and
has no experience with commercial manufacture of vaccine products. To
manufacture its other potential products for large-scale clinical trials or on
a commercial scale, the Company may be required to build a large-scale
manufacturing facility, which would require a significant amount of funds. The
scale-up of manufacturing for commercial production would require the Company
to develop advanced manufacturing techniques and rigorous process controls.
Furthermore, the Company would be required to register its facility with the
FDA and with the California Department of Health Services and would 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 may be required
to relinquish control of the manufacturing process, which could 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
production of its potential products successfully, if at all, or that if
successful, the Company will be able to maintain such production.

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

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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, large employers and state and
federal health care agencies, and to other buyers outside the United States
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

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.

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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 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 EBV 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 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 additional equity investments of approximately $1.6 million in the
Company's private placement of Series C Preferred Stock and $1.9 million in
the Company's initial public offering of Common Stock.

In January 1997, the Hanbo Group declared bankruptcy. Hanbo Group is the
conglomerate that owns Sang-A. The Company is unable to predict what, if any,
effect the bankruptcy of Hanbo Group will have on Hanbo Group subsidiaries,
including Sang-A.

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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 1991 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 worldwide 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
worldwide. 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,
which automatically converted into 264,746 shares of the Company's Common
Stock at the time of the Company's initial public 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 shares of the Company's
Common Stock at a price of $10.00 per share, 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.

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 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

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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 four warrants to purchase up to a total
of 45,000 shares of the Company's Common Stock, each exercisable for a term of
five years commencing upon the occurrence of certain milestone events.
Warrants to purchase 9,000 shares are currently exercisable at a per share
exercise price of $4.50. Warrants to purchase 29,750 shares became exercisable
at the effective date of the Company's initial public offering at a per share
exercise price of $10.00. Warrants to purchase the remaining 6,250 shares were
terminated on the effective date of the Company's initial public offering
according to their terms. In 1996, warrants to purchase 3,124 shares were
distributed by Mount Sinai to certain inventors of the relevant technology.

ARCH Development Corporation

In July 1992, the Company entered into a license agreement with ARCH,
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 shares of the Company's
Series A, B and C Preferred Stock, which automatically converted into a total
of 222,799 shares of the Company's Common Stock upon the closing of the
Company's initial public offering. ARCH has recently asserted an
interpretation of the financial terms of this agreement with the Company,
relating to the license by Aviron of its EBV technology to SmithKline Beecham,
which would require the Company to pay ARCH one-half of any future or past
payments (including sub-license fees and milestone payments) received by
Aviron under the SB Agreement. The Company disputes ARCH's interpretation of
the financial terms of the agreement. No assurance can be given, however, that
the Company's interpretation will prevail. Failure of the Company to prevail
could have a material adverse effect on the Company's business, financial
condition or results of operations.

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 nine issued
United States patents.

The Company has no issued patents on the technology directly related to its
cold adapted influenza vaccine. The Company's rights to this technology are
substantially based on an exclusive worldwide license of materials and know-
how from the University of Michigan, which owns the master strains from which
the vaccine is derived, and on an exclusive license of know-how and clinical
trial data from the NIH. Neither the University of Michigan nor the NIH rely
on patents for ownership of the rights licensed to Aviron. There can be no
assurance that a third party will not gain access to the University of
Michigan master strains, or reproduce the Company's cold adapted influenza
vaccine or develop another live-virus influenza vaccine which might be
comparable to Aviron's in terms of safety and efficacy.

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The patent laws of European and certain other foreign countries generally do
not allow for the issuance of patents for methods of treatment of the human
body. To the extent the Company's patent portfolio includes claims for methods
of treating humans, these methods may not be protectable in Europe and certain
other foreign countries.

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 or material transfer
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 maintain
its technology licenses, maintain trade secrets, obtain patents and operate
without infringing the 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 or its
licensor's patents or patent applications will issue, or if issued, will not
be reexamined, reissued, opposed, challenged, invalidated or circumvented, or
that the rights granted thereunder will provide proprietary protection or
competitive advantages to the Company. In May 1996, American Cyanamid Company
filed an opposition to the grant of the Company's European patent with claims
directed to chimeric negative strand RNA viruses and to methods of engineering
these viruses to express foreign proteins and antigens. American Cyanamid
Company primarily challenges the breadth of the claims which the Company was
granted. While the Company is responding to the opposition, no assurance can
be given as to the scope of the claims, if any, which the European Patent
Office ultimately will find patentable. Failure of the Company to prevail in
the opposition would impede the Company's ability to prevent competitors from
using this technology in Europe.

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 the scope
of claims issuing from the Company's applications, prevent certain claims from
being issued, or conflict in certain respects with claims made under the
Company's applications.

42
<PAGE>

subject matter claimed in a United States patent which, along with its related
foreign counterpart patents and applications, is licensed to the Company and
which is directed to certain aspects of technology relating to herpes viruses.
This claim may also relate to a pending United States patent application,
which is a continuation of the licensed patent. It is presently unclear
whether this claim of inventorship is valid, and, if valid, it could affect
ownership of the subject United States patent and patent application as well
as their foreign counterparts. 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 cease using such technology.

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 PLA; and
(e) FDA approval of the applications, including approval of all product
labeling.

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. 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 GLP 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 IRB and with patient informed consent.
The IRB will consider, among other things, ethical factors, the safety of
human subjects and the possible liability of the institution conducting the
clinical trial.

43
<PAGE>

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 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 potential 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 potential 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

44
<PAGE>

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, since vaccines are administered to
healthy individuals. 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.

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, sales, 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, the supplier
of the Company's cold adapted influenza vaccine. 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, marketing and sales 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

45
<PAGE>

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 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 potential 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.

46
<PAGE>

EMPLOYEES

As of June 30, 1997, the Company had 62 full-time employees. Thirty-five of
the Company's employees were in research and development, nine were in
regulatory affairs, quality assurance and quality control, six were in
clinical research and 12 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 13,000 square
feet of space to two subtenants. One sublease runs through March 1998 and may
be extended or renegotiated at Aviron's discretion; one sublease for 6,667
square feet runs through December 1997 and may be extended or renegotiated at
Aviron's discretion. The Company believes that this facility is adequate to
meet its needs for the foreseeable future.

SCIENTIFIC ADVISORY BOARD

Aviron's scientific advisors are consultants who each 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.

47
<PAGE>

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 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
patented technology developed in his laboratory, 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).

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<PAGE>

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholder in the offering.

DIVIDEND POLICY

Aviron has never paid any cash dividends on its Common Stock. The Company
presently intends to retain earnings for use in its business and therefore does
not anticipate paying cash dividends in the foreseeable future.

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<PAGE>

SELLING STOCKHOLDER

The following table sets forth the name of the Selling Stockholder, the
number of shares of Common Stock owned beneficially by the Selling Stockholder
as of December 3, 1997 and the number of shares which may be offered pursuant
to this Prospectus. This information is based upon information provided by the
Selling Stockholder. The Selling Stockholder may sell all, some or none of
their Common Stock being offered.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER SHARES BENEFICIALLY
OWNED PRIOR TO OF SHARES OWNED AFTER
OFFERING(1) BEING OFFERING(1)(3)
---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
NAME NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
- ---- --------- ------- --------- -------- --------

Biotech Target, S.A.... 2,385,286 14.85% 1,714,286 671,000 4.18%
</TABLE>

(1) The entity named in the table has sole voting and investment power with
respect to all shares beneficially owned.

(2) Applicable percentage of ownership is based on 16,060,955 shares of Common
Stock outstanding on December 3, 1997. Assumes the sale of all shares
offered hereby. See "Plan of Distribution."

(3) Assumes the sale of all shares offered hereby.

PLAN OF DISTRIBUTION

The Company is registering the shares of Common Stock offered by the
Selling Stockholder hereunder pursuant to contractual registration rights
contained in the Common Stock Purchase Agreement between Aviron and Biotech
Target, S.A. executed on March 27, 1997 (the "Stock Purchase Agreement"). Sales
may be made on the Nasdaq National Market or in private transactions or in a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholder may
from time to time enter into short sales and use the shares registered hereunder
to cover such short positions. The Selling Stockholder may effect such
transactions by selling shares to or through broker-dealers, and such broker-
dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholder or the purchasers of the shares for
whom such broker-dealers may act as agents or to whom they sell as principal or
both (which compensation to a particular broker-dealer may be in excess of
customary commissions). The Selling Stockholder and any persons who participate
in the distribution of the Common Stock offered hereby may be deemed to be
underwriters within the meaning of the Act, and any discounts, commissions or
concessions received by them and any provided pursuant to the sale of shares by
them might be deemed to be underwriting discounts and commissions under the Act.

In order to comply with the securities laws of certain states, if
applicable, the Common Stock may be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.

The Company has agreed in the Stock Purchase Agreement to register the
shares of Aviron Common Stock received by the Selling Stockholder pursuant to
the Stock Purchase Agreement under applicable Federal and state securities laws
under certain circumstances and at certain times. Pursuant to such agreement,
the Company has filed a registration statement related to the shares offered
hereby and has agreed to keep such registration statement effective until the
earlier of (i) March 27, 1999; or (ii) the sale of all the securities registered
thereunder or (iii) such time as all shares may be sold without restriction
under Rule 144. The Company will pay substantially all of the expenses incident
to the offering and sale of the Common Stock to the public, other than
commissions, concessions and discounts of underwriters, dealers or agents. Such
expenses (excluding such commissions and discounts), are estimated to be
$45,000. The Stock Purchase Agreement provides for cross-indemnification of
the Selling Stockholder and

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<PAGE>

the Company to the extent permitted by law, for losses, claims, damages,
liabilities and expenses arising, under certain circumstances, out of any
registration of the Common Stock.

LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Cooley Godward LLP, Palo Alto, California.
Cooley Godward LLP possesses a warrant for 16,666 shares of the Company's
Common Stock. Certain attorneys at Cooley Godward LLP who have performed
services for the Company own approximately an aggregate of 1,780 shares of
Common Stock.

EXPERTS

The financial statements of Aviron appearing in Aviron's Annual Report
(Form 10-K) for the year ended December 31, 1996 have been audited by Ernst &
Young LLP, independent auditors, as set forth in this report included therein
and incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.

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<PAGE>

===========================================================

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS
BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION AND REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
SOLICITATION OF AN OFFER TO BUY, SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE AN OFFER
OR SOLICITATION WOULD BE 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.

------------------------

TABLE OF CONTENTS

PAGE
----

Available Information....................... 3
Additional Information...................... 3
Incorporation of Certain
Documents by Reference...................... 3
Risk Factors................................ 8
The Company................................. 20
Use of Proceeds............................. 49
Dividend Policy............................. 49
Selling Stockholder......................... 50
Plan of Distribution........................ 50
Legal Matters............................... 51
Experts..................................... 51

===========================================================

1,714,286 SHARES

AVIRON

COMMON STOCK

----------------------

PROSPECTUS

-----------------------

December 5, 1997

===========================================================

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses payable by the Registrant in
connection with the sale, issuance and distribution of the securities being
registered, other than underwriting discounts and commissions. All amounts are
estimates except the SEC registration fee. None of these expenses will be paid
by the Selling Securityholder.

SEC Registration Fee.............. $15,000
Printing Expenses................. 5,000
Legal Fees and Expenses........... 15,000
Accounting Fees and Expenses...... 10,000

Total............................. $45,000
------

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Section 145 of the Delaware General Corporation Law, Aviron has broad
powers to indemnify its directors and officers against liabilities they may
incur in such capacities, including liabilities under the Act. Aviron'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 not prohibited by Delaware General Corporation Law.

Aviron's Certificate of Incorporation provides for the elimination of
liability for monetary damages for breach of the directors' fiduciary duty of
care to Aviron and its stockholders. These provisions do not eliminate the
director's duty of care, and in appropriate circumstances, equitable remedies
such as 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 Company, for acts
or omissions not in good faith or involving intentional misconduct or a knowing
violation 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
also does not affect a director's responsibilities under any other laws, such as
the federal securities laws or state or federal environmental laws.

II-1
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
1.1 Form of Underwriting Agreement.(1)
3.1 Bylaws of the Registrant. (2)
3.2 Restated Certificate of Incorporation of the Registrant. (2)
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Stock Certificate. (1)
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. (1)
4.6 Warrant for Series A Preferred Stock, issued to The Mount Sinai
School of Medicine of the City of New York. (1)
4.7 Warrant for Series C Preferred Stock, issued to Raymond, James &
Associates. (1)
4.8 Investors Rights Agreement, dated July 18, 1995, among the
Registrant and the investors named thereon. (1)
4.9 Common Stock Purchase Agreement between the Registrant and Biotech
Target, S.A., dated as of March 27, 1997. (3)
4.10 Rights Agreement between the Registrant and BankBoston, N.A., dated
as of October 8, 1997.(5)
5.1 Opinion of Cooley Godward LLP.
+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 Institute 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. (1)
+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. (1)
+10.14 Biological Materials License Agreement between the Registrant and
the National Institutes of Health, dated May 31, 1996. (1)
+10.15 Contract Manufacture Agreement between the Registrant and Evans
Medical Limited, dated as of April 16, 1997. (4)
++10.16 Production Agreement between the Registrant and Packaging
Coordinators, Inc. dated as of October 31, 1997.
10.17 Facility Reservation Agreement between the Registrant and Packaging
Coordinators, Inc. dated as of October 31, 1997.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.

- ------------------
+ Confidential treatment has been granted for portions of this exhibit
++ Confidential treatment has been requested for portions of this exhibit.
(1) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Registration Statement on Form S-1, File No. 333-05209, filed
June 5, 1996, as amended.
(2) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996, File No. 0-20815, filed December 20, 1996.
(3) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, File No. 0-20815, filed May 15, 1997.
(4) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Current Report on Form 8-K File No. 0-20815, dated April 16,
1997 and filed July 21, 1997.
(5) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Current Report on Form 8-K File No. 0-20815, dated October 8,
1997 and filed October 10, 1997.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;

(2) That, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof; and

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 15, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

II-2
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palo Alto, State of California, on December 4, 1997.

AVIRON

By /s/ J. Leighton Read, M.D.
_____________________________________
J. Leighton Read, M.D.
Chairman of the Board &
Chief Executive Officer
(Principal Executive Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. Leighton Read, M.D. and Vera
Kallmeyer, M.D., Ph.D. and each or any one of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents, in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his or her substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capabilities and
on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ J. Leighton Read, M.D. Chairman of the Board & Chief December 4, 1997
- ------------------------------ Executive Officer (Principal Executive
J. Leighton Read, M.D. Officer)

/s/ Vera Kallmeyer, M.D., Ph.D. Chief Financial Officer (Principal December 4, 1997
- ------------------------------ Financial and Accounting Officer)
Vera Kallmeyer, M.D., Ph.D.

/s/ Reid W. Dennis Director December 4, 1997
- ------------------------------
Reid W. Dennis

/s/ Paul H. Klingenstein Director December 4, 1997
- ------------------------------
Paul H. Klingenstein

/s/ Bernard Roizman, Sc.D. Director December 4, 1997
- ------------------------------
Bernard Roizman, Sc.D.

/s/ L. James Strand, M.D. Director December 4, 1997
- ------------------------------
L. James Strand, M.D.

/s/ Jane E. Shaw, Ph.D. Director December 4, 1997
- -----------------------------
Jane E. Shaw, Ph.D.
</TABLE>

II-3
<PAGE>

INDEX TO EXHIBITS

<PAGE>

EXHIBIT 5.1

[LETTERHEAD]

December 4, 1997

Aviron
297 North Bernardo Avenue
Mountain View, CA 94043

RE: AVIRON FORM S-3

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection
with the filing by Aviron (the "Company") of a Registration Statement on Form
S-3 (the "Registration Statement") with the Securities and Exchange
Commission, including a prospectus (the "Prospectus"), covering the offering of
1,714,286 shares of the Company's Common Stock, with a par value of $0.001
(the "Shares") to be sold by one certain stockholder as described in the
Registration Statement. Of such Shares, all were issued by the Company
pursuant to a Common Stock Purchase Agreement by and between the Company and
Biotech Target, S.A., dated as of March 27, 1997. Defined terms used herein
shall have the meanings attributed to such terms in the Registration Statement
unless otherwise stated herein.

In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation, the Company's Restated Bylaws, and the
originals or copies certified to our satisfaction of such documents, records,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below. We have
assumed the genuineness and authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies thereof, and the due execution and delivery of all documents where due
execution and delivery are a prerequisite to the effectiveness thereof.

On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, are validly issued, fully paid, and nonassessable.

We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.

Very truly yours,

Cooley Godward LLP

By: /s/ Robert J. Brigham
------------------------
Robert J. Brigham

cc: J. Leighton Read, M.D.

<PAGE>

Exhibit 10.16

PRODUCTION AGREEMENT
BETWEEN
PACKAGING COORDINATORS, INC.
AND
AVIRON

This Agreement made effective as of October 31, 1997 (the "Effective
Date") by and between Packaging Coordinators, Inc., a Pennsylvania corporation
with offices at 3001 Red Lion Road, Philadelphia, Pennsylvania 19114
(hereinafter called "PCI"); and Aviron, a Delaware corporation with offices at
297 N. Bernardo Avenue, Mountain View, CA 94043 (hereinafter called "Aviron").
PCI and Aviron may be referred to herein as a "Party" or, collectively, as
"Parties."

WITNESSETH

WHEREAS, PCI specializes in packaging for the pharmaceutical industries
and has certain technical and commercial information and know-how relating to,
among other things, performing assembly functions and packaging of
pharmaceutical products.

WHEREAS, Aviron is a corporation that develops, conducts stability
trials, registers, and intends to market pharmaceutical products, and is the
owner of certain proprietary technical and commercial information and know-how
relating to, among other things, the formulation and development of such
products.

WHEREAS, Aviron desires to engage PCI to provide certain services to
Aviron in connection with the manufacture of certain of Aviron's products; and
WHEREAS, Aviron desires to collaborate with PCI to construct and develop an
appropriate site for such manufacture at PCI's facility;

NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein and intending to be legally bound hereby, the Parties agree as
follows:

1. DEFINITIONS
-----------

The following terms as used in this Agreement shall have the meanings set forth
in this Article unless otherwise specifically provided herein:

1.1 "Affiliate(s)" shall mean any corporation, firm, partnership or
other entity which controls, is controlled by or is under common
control with a Party. For purposes of this definition, "control"
shall mean the ownership of at least fifty (50%) percent of the
voting share capital of such entity or any other comparable
equity or ownership interest.

1.2 "Agency" shall mean any governmental regulatory authority
involved in regulating any aspect of the development,
Manufacture, Storage and sale of the Product.

[*]= CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1.
<PAGE>

1.3 "Aviron Production Equipment" shall mean the [*] equipment
purchased by Aviron set forth in Appendix 1 attached hereto,
which may be amended from time to time.

1.4 "Aviron Area" shall mean the area reserved for [*] Production
pursuant to, and more fully described in, the Facility
Reservation Agreement.

1.5 "cGMP" shall mean all the laws, regulations and standards
relating to Primary and Secondary Production, including but not
limited to, the United States Food And Drug Administration (FDA)
current Good Manufacturing Practices, as set forth in the Code
Of Federal Regulations (CFR), and the EEC Good Manufacturing
Guidelines, Volume IV as such Regulations and Guidelines may be
revised from time to time, and any other applicable laws,
guidelines and regulations. If there should be a conflict
between the FDA and EEC standards, the more stringent of the two
shall apply. Aviron shall be responsible to advise PCI of cGMP
and other Agency requirements which shall apply to Primary and
Secondary Production conducted hereunder.

1.6 "Delivery Date" shall mean the date on which Product is
delivered to the carrier for shipment from PCI to Aviron
pursuant to Section 7.2.

1.7 "Facility" shall mean PCI's facility at [*] or other facility
that may be mutually agreed in writing by the Parties.

1.8 "Facility Reservation Agreement" shall mean that certain
agreement dated October 31, 1997 under which the Parties agreed
to construct and build-out the Aviron Area and reserve the
Aviron Area for Aviron.

1.9 "FDA" shall mean the United States Food and Drug Administration
and any successor agency having substantially the same function.

1.10 "Manufacture" shall mean the process of [*] Production.

1.11 "Materials" shall mean all components utilized in [*] Production
except for the Vaccine and Syringes.

1.12 "Michigan" shall mean the Regents of the University of Michigan,
a constitutional corporation of the State of Michigan with
offices located at Wolverine Tower, Room 2071, 3003 South State
Street, Ann Arbor, Michigan, 48109-1280, USA.

1.13 "Michigan Agreement" shall mean a certain Materials Transfer and
Intellectual Property Agreement between Aviron and Michigan
dated 24 February 1995.

1.14 "PCI Production Equipment" shall mean all of the [*] purchased
by PCI as set forth in Appendix 2, which may be amended from
time to time.

[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
2.
<PAGE>

1.15 [ * ] Production" shall mean the [ * ] as set forth in Appendix
3.

1.16 "Product" shall mean the product which is the result of [*]
Production.

1.17 "Proprietary Information" shall have the meaning set forth in
Article 12.

1.18 "[ * ] Production" shall mean [ * ] as set forth in Appendix 3.

1.19 "Specifications" shall mean the procedures, test results,
requirements, quality standards data and other documentation
with respect to Materials, Syringes, [*] Production,
[*] Production, Product, Production Equipment, and Vaccine
and Storage of the Vaccine and the Product to be determined by
the parties as set forth in Section 6.7, and, once completed, to
be appended hereto as Appendix 3, as may be amended from time to
time.

1.20 "Store" or "Storage" shall mean the storage of [ * ] as set
forth in the Specifications.

1.21 "Syringe" shall mean the unfilled syringe and holder supplied to
PCI by Aviron as set forth in the Specifications.

1.22 "Vaccine" shall mean the bulk cold-adapted multivalent influenza
vaccine provided to PCI by Aviron as set forth in the
Specifications.

2. FACILITY
--------

2.1 CONSTRUCTION AND RESERVATION OF AVIRON AREA. The Parties agree
to collaborate on the construction, build-out and reservation of
the Aviron Area pursuant to the Facility Reservation Agreement
attached as Appendix 4 hereto.

3. PRODUCTION EQUIPMENT
--------------------

3.1 INSTALLATION AND QUALIFICATION. Each Party will, at its sole
expense, provide, install in the Aviron Area and qualify its
respective Production Equipment in compliance with cGMP.

3.2 MAINTENANCE. PCI agrees to maintain and operate the Aviron and
PCI Production Equipment used, directly or indirectly, for
[ * ] Production, in all material respects, in accordance with
(i) cGMPs, (ii) applicable Agency requirements and (iii) the
Specifications. PCI shall be responsible for routine maintenance
in accordance with the equipment manufacturers' guidelines,
cGMPs and other applicable laws and regulations, and for other
repairs required as a result of the negligence or intentional
misconduct of PCI or its employees. Aviron shall bear all other
expenses incurred for the maintenance (other than routine
maintenance), repair and/or replacement, as needed of the Aviron
Production Equipment. For the purpose of this Agreement,
"routine

[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

3.
<PAGE>

maintenance" shall mean preventive maintenance as set forth in
the Specifications.

3.3 OWNERSHIP. Aviron shall at all times hold all right, title and
interest in the Aviron Production Equipment. PCI shall not, at
any time during the term of this Agreement, encumber the Aviron
Production Equipment. PCI shall at all times hold all right,
title and interest in the PCI Production Equipment. Aviron shall
not, at any time during the term of this Agreement, encumber the
PCI Production Equipment. Prior to the commencement of [ * ]
Production, each Party shall provide evidence to the other
Party's reasonable satisfaction indicating that Party's
Production Equipment is insured and that such insurance covers
the other Party (as an additional insured) for any loss or
damage to the other Party, or its property or employees, except
where such loss or damage is a result of the negligence or
intentional misconduct of the other Party or its employees.

4. SUPERVISION WITHIN THE AVIRON AREA
----------------------------------

4.1 AVIRON TECHNICAL REPRESENTATIVE. Aviron shall have the right to
have one or more representatives in the Aviron Area during
[ * ] Production to (i) review Production Equipment and [ * ]
Production, (ii) review any relevant records in connection with
such [ * ] Production and assess its compliance with cGMP and
quality assurance standards set forth in the Specifications and
(iii) discuss any related issues with PCI's management. Aviron's
technical representatives, when on-site, shall comply with PCI's
rules and regulations. Aviron shall indemnify and hold PCI and
its Affiliates harmless from all liability, including claims by
Aviron's technical representatives for workers' compensation,
resulting from the presence of Aviron's technical
representatives at the Facility except for claims resulting from
the negligent or willful misconduct on the part of PCI and its
employees.

4.2 RESPONSIBILITIES. Aviron's technical representative, if present,
shall not have responsibility for the supervision of PCI's
personnel conducting [ * ] Production. However, if at any time
Aviron's technical representatives feel that PCI is operating in
a manner inconsistent with this Agreement, he/she is to notify
PCI immediately to cease operations until such condition is
remedied. PCI will immediately cease operations and will not
recommence [ * ] Production operations without Aviron's
approval. PCI shall use its best efforts to remedy any such
condition and Aviron shall authorize PCI to resume [ * ]
Production upon reasonable satisfaction that such condition has
been remedied. Nothing herein shall amend or alter the status of
PCI as an independent contractor.

5. FORECAST, PURCHASE AND SUPPLY OF PRODUCT
----------------------------------------

5.1 PURCHASE AND SUPPLY. During the term of this Agreement, Aviron
shall purchase and PCI shall supply such quantities of Product
as may be set forth on purchase orders placed by Aviron under
this Agreement. All purchases of Product hereunder shall be
governed by the terms of this Agreement which shall

[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
4.
<PAGE>

supersede any inconsistent provisions in any purchase order
delivered by Aviron to PCI.

5.2 FORECASTS. On or before September 30 and March 31 of each year
during the term of this Agreement, Aviron will provide PCI with
a written eighteen (18) month rolling forecast, to be updated in
six (6) month intervals, of the quantity of Product which Aviron
expects to require from PCI during each of the next eighteen
(18) months. The first six (6) months of the first such rolling
forecast shall be binding upon Aviron. Aviron's first forecast
shall include (i) the required Delivery Date for the binding
portion of the forecast and (ii) the quantity of Product to be
delivered.

5.3 ORDERS. Following the Effective Date, Aviron will provide PCI
with one or more purchase orders at six month intervals. Each
such purchase order will set forth (i) the quantity of Product
ordered for delivery during the six months after the date on
which the purchase order is deemed to be received, (ii) the
requested Delivery Date for such order, (iii) the quantity of
Product to be delivered to Aviron as a quality control sample,
(iv) the quantity of Product to be delivered on the Delivery
Date in each form of packaging and (v) the lot numbers to be
applied to such Product. Such purchase order shall be delivered
no later than ninety (90) days prior to the earliest requested
Delivery Date.

5.4 CONFIRMATION; ORDERS GREATER THAN FORECAST. Within fifteen (15)
days of receipt of any purchase order, PCI shall confirm in
writing such order and the Delivery Date therefor. PCI shall use
reasonable commercial efforts to supply the quantity of Product
ordered, regardless of the quantity forecast by Aviron, subject
to the capacity limitations of the Aviron and PCI Production
Equipment. In the event that PCI is unable to fill any order,
PCI shall so notify Aviron in its written confirmation.

5.5 AMENDMENT OF PURCHASE ORDERS. PCI will use best efforts to
accommodate a request to amend a purchase order to increase or
decrease the quantity of Product to be delivered.

5.6 CANCELLATIONS. Aviron may cancel any purchase order by providing
PCI written notice at least ninety (90) days prior to the
confirmed Delivery Date. In the event that Aviron cancels any
order for Product, Aviron shall reimburse PCI for non-
cancellable direct costs reasonably incurred by PCI in
connection with performance of such purchase order up to the
time of receipt of such notice.

5.7 SUPPLY COMMITMENTS. Subject to the limitations set forth in
Section 5.4, PCI represents and warrants that it has the ability
to, and hereby covenants that it will, supply the quantity of
Product ordered by Aviron.

5.8 LIMITED WARRANTY. PCI WARRANTS THAT PRODUCT DELIVERED HEREUNDER
WILL (i) BE MANUFACTURED BY PCI IN ACCORDANCE WITH cGMP AND
OTHER APPLICABLE FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS,
INCLUDING BUT NOT LIMITED TO FDA REGULATIONS, (ii) BE
MANUFACTURED IN ACCORDANCE WITH THE SPECIFICATIONS AND

5.
<PAGE>

(iii) CONFORM TO THE APPLICABLE SPECIFICATIONS, AS THEN IN
EFFECT, AS OF THE DELIVERY DATE. EXCEPT AS SET FORTH HEREIN, PCI
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE
PRODUCTS, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR ANY PARTICULAR PURPOSE.

6. SUPPLY AND PROCESSING OF VACCINE, SYRINGES, HOLDERS AND MATERIALS
-----------------------------------------------------------------

6.1 LICENSE; INVENTIONS. (a) Aviron hereby grants to PCI, during the
term of this Agreement, a non-exclusive, non-transferable,
royalty-free license during the term of this Agreement to use
the data, information and technology provided by Aviron related
to the Vaccine for the limited purpose of assisting PCI in
carrying out its obligations set forth in this Agreement. (b)
PCI agrees that any and all ideas, improvements, inventions and
works of authorship conceived, written or first reduced to
practice in the performance of this Agreement whether by PCI's
employees alone or in conjunction with Aviron, that are related
to the Vaccine or [ * ] Production (the "Aviron Inventions")
shall be the sole and exclusive property of Aviron and PCI
hereby assigns to Aviron all right, title and interest in and to
any and all such Aviron Inventions. (c) Aviron agrees that any
and all ideas, improvements, inventions and works of authorship
conceived, written or first reduced to practice in the
performance of this Agreement that are related to [ * ]
Production (the "PCI Inventions") shall be the sole and
exclusive property of PCI and Aviron assigns all right, title
and interest in and to any and all such PCI Inventions. PCI
hereby grants to Aviron a non-exclusive, worldwide, royalty-free
license to use and practice such PCI Inventions for the
manufacture, by or for Aviron of any of Aviron's products. Such
license shall survive the termination or expiration of this
Agreement.

6.2 SUPPLY OF VACCINE AND SYRINGES. Aviron shall, at Aviron's
expense, deliver or cause to be delivered, sufficient quantities
of Vaccine and Syringes meeting the Specifications to the
Facility such that PCI can fill purchase orders for the
Manufacture of the Product submitted pursuant to Section 5.3.

6.3 RISK OF LOSS OF VACCINE AND SYRINGE. PCI shall bear all risk of
loss for Vaccine and Syringes delivered to PCI under Section 6.2
which results from PCI's failure to comply with the
Specifications or from the negligence or intentional misconduct
of PCI or its employees. If, for any purpose under this
Agreement, PCI is required to obtain Vaccine or Syringes from
Aviron at PCI's expense, Aviron's charges to PCI for such
Vaccine or Syringes will be equal to Aviron's direct costs to
deliver such Vaccine or Syringes to PCI.

6.4 SUPPLY OF MATERIALS. Unless otherwise notified by Aviron, PCI
shall purchase all Materials, including but not limited to those
set forth in the Specifications, required to complete the
[ * ] Production of the Product. PCI shall provide Aviron
with a monthly inventory of all Vaccine, Syringes and Materials.
Detailed Material usage reports will be provided to Aviron by
PCI each month. In the event Aviron desires to obtain the
Materials from sources other than PCI, it shall have the right
to do so, at its own expense, provided Aviron notifies PCI
ninety

[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

6.
<PAGE>

(90) days in advance. In the event Aviron purchases such
Materials itself, the price for Product shall be adjusted as set
forth in Section 13.

6.5 LABELS AND [ * ] PRODUCTION.

(a) Thirty (30) days prior to the intended date of
commencement of commercial production, Aviron shall
provide PCI with: (i) any particular Specifications it
may have with respect to labels and packaging materials
and (ii) camera-ready artwork for reproduction on the
labels, package inserts and packaging materials. Such
information shall include, but need not be limited to,
the quality, weight and color of the packaging materials
and labels, the type and colors of ink to be used in
printing the labels or packaging materials and any
special requirements for the labels or packaging for the
Product to be delivered to specific countries. The
method to assign lot numbers will be set forth in the
Specifications.

(b) PCI shall reproduce the artwork on the labels, packages
inserts and packaging materials and imprint the
appropriate lot number on each individual unit and each
carton of Product in accordance with the lot numbers
designated on the applicable purchase order. PCI shall
conduct all [ * ] Production in accordance with the
Specifications and the applicable purchase order (to the
extent not inconsistent with the Specifications).

(c) In the event that Aviron desires to change any label,
packaging insert or packaging Material for all or any
portion of the Product, Aviron shall supply PCI with new
camera-ready artwork and work with PCI to promptly
coordinate the use of such new artwork into [ * ]
Production process. In such event, Aviron shall purchase
from PCI, at a price equal to PCI's cost, all Materials
in PCI's inventory made obsolete by such changes.

6.6 [ * ] PRODUCTION OF PRODUCT.

(a) PCI shall conduct [ * ] Production of the Vaccine in
accordance with the Specifications and applicable
federal, state and local laws and regulations
including, without limitation, cGMP. PCI shall notify
Aviron of any difficulty in meeting Specifications or
any deviation therefrom as soon as reasonably possible.
PCI shall not conduct [ * ] Production nor Store
Materials or Product at any other location other than
the Facility without the prior written approval of
Aviron. Before, during and after [ * ] Production of
each batch of Vaccine, PCI shall monitor the
Manufacturing environment and keep such records as all
of the foregoing are required by the Specifications and
cGMP. Both Parties shall promptly notify the other of
any new instructions or specifications required by the
FDA or the United States Federal Food, Drug and Cosmetic
Act, and of other applicable rules and regulations, and
shall confer with each other with respect to the best

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means to comply with such requirements and shall [ * ]
of implementing such changes on an [ * ]

(b) The Parties agree that it is their intention to identify
ways in which to enhance efficiencies in the [ * ]
Production and the [ * ] Production and so reduce
production costs ("Cost Reduction Measures") In the
event PCI expends amounts in undertaking Cost Reduction
Measures, including, for example, the purchasing of
additional production equipment and provided such costs
are agreed upon in advance by the parties in writing,
Aviron shall reimburse PCI for such amounts. Any
additional equipment paid for by Aviron under this
Section 6.6(b) shall be deemed Aviron Equipment.

6.7 PRODUCT SPECIFICATIONS; TESTING.

(a) The Parties agree and acknowledge that the
Specifications will be developed and defined by Aviron
after the Effective Date and following validation and
qualification, subject to input, review and approval by
PCI. Each Party agrees to act in good faith in defining
and finalizing the Specifications. Once finalized, the
Specifications will be appended to this Agreement as
Appendix 3. The Parties further agree and acknowledge
that the final piece price to be charged Aviron for the
Product under Section 13.1. can be determined only after
the final Specifications have been agreed upon. The
Parties acknowledge that, once agreed upon, the
Specifications set forth in Appendix 3 may need to be
refined and modified as the Parties gain experience with
[ * ] Production, testing and use of Product.
Accordingly, the Parties agree to negotiate in good
faith to modify Appendix 3 from time to time as the
Parties' experience with Primary and Secondary
Production, testing and use of Product warrant; and PCI
further agrees that it will facilitate changes to
Appendix 3 that are necessary or appropriate in light of
FDA or other regulatory requirements. The Parties agree
to allocate on an equitable basis any special costs of
developing and implementing revised procedures.

(b) Product supplied hereunder will conform to the
Specifications, and such conformance will be verified in
accordance with the testing standards and procedures
specified therein. PCI will forward a sample of each
batch of Product to Aviron for testing and supply Aviron
with a certificate of analysis ("Certificate of
Analysis") confirming that such Product meets the
Specifications.

6.8 FDA AND REGULATORY SUPPORT.

(a) PCI agrees to establish and maintain a Drug Master File
("DMF") in accordance with the requirements of the FDA,
as well as any comparable files required by other
Agencies, and to provide Aviron with letters of access
to the DMF, any other comparable files and documents
regarding its [ * ] Production. Aviron shall have sole

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responsibility for obtaining from any
Agency all permits and/or licenses necessary or required
for the sale, marketing or commercialization of Product.
Aviron shall be responsible for all other filings
necessary for approval and import of Product into
countries outside the United States. PCI further agrees
to use reasonable commercial efforts to assist Aviron in
obtaining any government or Agency approval which may be
required for the marketing of Product in any country.
Aviron shall provide PCI with written notice of any
additional regulatory requirements of countries other
than the United States that relate to [ * ] Production
of Product. PCI shall use its reasonable commercial
efforts to comply with such additional requirements and
shall provide Aviron with prompt written notice of
whether it is able to do so. PCI will provide Aviron
copies of all supporting documentation in PCI's
possession required for FDA licensing of the Product.
Aviron will hold the FDA and any other Agency license(s)
for the Product.

(b) Upon request, PCI shall allow the Aviron Area and the
Facility to be inspected by FDA or other Agency
officials. In the event that the Aviron Area is audited
or inspected by an Agency, PCI will provide Aviron with
prompt written notice of such audit. PCI will also
promptly provide Aviron with copies of any
correspondence or reports relating to such audit or
inspection.

6.9 cGMP COMPLIANCE AND QA AUDITS. Within ten days of Aviron's
written request, PCI shall supply Aviron with copies of PCI's
manufacturing records, including its batch records, for the
purposes of assuring product quality and compliance with the
Specifications. Any found discrepancies, other than
discrepancies resulting from directions received from Aviron or
its representatives, will be reported to PCI and PCI will [ * ]
correct said discrepancies to Aviron's reasonable satisfaction.
Failure to do so will give Aviron the [ * ]. Aviron's failure to
exercise its right to audit PCI's Facility will not represent a
waiver of any future exercise of this right or of any other
rights under this Agreement, nor does it represent acceptance of
any conditions past or present that might exist or result from
such conditions at the Facility. Aviron acknowledges that all
copies of PCI's manufacturing records shall be subject to the
confidentiality provisions of Article 12.

6.10 COMPLIANCE WITH LAWS. PCI shall comply with all applicable
present and future orders, regulations, requirements and laws of
any and all applicable, federal, state, and local authorities
and Agencies, including without limitation all laws and
regulations of applicable to the transportation, storage, use,
handling and disposal of hazardous materials. PCI represents and
warrants to Aviron that it has and will maintain during the term
of this Agreement all government permits, including without
limitation health, safety and environmental permits, necessary
for the conduct of the actions and procedures that it undertakes
pursuant to this Agreement.

6.11 DOCUMENTATION. PCI shall keep, for a period of [ * ], complete,
accurate and authentic accounts, notes, data and records of the
work performed

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under this Agreement. Each Party shall maintain complete and
adequate records pertaining to the methods and Facility used for
[ * ] Production, testing, and distribution of Product in
accordance with the Specifications, cGMP, Michigan Agreement and
other applicable laws and regulations.

6.12 REWORK. PCI shall not rework any batch of Product without
Aviron's prior written consent, which consent shall not be
unreasonably withheld.

6.13 SAMPLES. PCI shall retain quantities of samples of Product in
accordance with cGMP. Within ten (10) days following Aviron's
written request, PCI shall provide Aviron, at Aviron's expense,
with up to one-half the original amount of the retained samples.

6.14 STORAGE AND HANDLING. PCI shall Store and handle Materials,
Syringes, Vaccine and Product as required by the Specifications.

6.15 CORRECTIVE ACTION. In the event any Agency shall request or
order, or if Aviron shall determine to undertake, any corrective
action with respect to Products supplied hereunder, including
any Product recall, customer notice, restriction, change,
corrective action or market action, and the cause or basis for
such corrective action results from the material breach by PCI
of Section 5.8, then PCI shall replace and reship only the
lot(s) of Products which are subject to such corrective action.
PCI shall pay all costs incurred in replacing such Product,
including the Vaccine, Syringes, Materials and shipping costs,
subject to the limitations set forth in Section 9.2. Any costs
resulting from corrective actions for any other cause, including
but not limited to the Specifications or product tampering after
the Products have been shipped from PCI's Facility, shall be the
sole responsibility of Aviron. Aviron shall promptly notify PCI
in writing upon the occurrence of any such corrective action
(or, to the extent practicable, not less than ten days prior
thereto).

7. DELIVERY AND ACCEPTANCE OF FINISHED PRODUCT
-------------------------------------------

7.1 QUALITY CONTROL SAMPLE OF PRODUCT. Prior to the delivery of any
batch of Product, PCI shall provide Aviron with (i) a quality
control sample of such batch for the purpose of confirming that
such batch meets the Specifications, (ii) a copy of the batch
records for such batch, together with written confirmation that
such batch records have been reviewed and approved by PCI's
quality assurance unit and (iii) a Certificate of Analysis. The
quality control sample shall consist of the number of individual
Product units specified in the relevant purchase order delivered
pursuant to Section 5.3 above. No delivery of Product shall be
deemed to have been made until Aviron accepts or is deemed to
have accepted the quality-control sample and associated
documentation in accordance with the Specifications and Section
7.3.

7.2 DELIVERY OF PRODUCT. All deliveries shall be shipped [ * ],
unless otherwise agreed upon by PCI and Aviron in a particular
purchase order. [ * ]

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shall be responsible for [ * ] and [ * ] and shall [ * ] of
[ *] of the Product [ * ] of [ * ] to [ * ].

7.3 ACCEPTANCE AND REJECTION OF PRODUCT.

(a) Aviron may reject any quality control sample or batch
delivery which does not conform with the Specifications
or with applicable documentation or other requirements.
Any such notice of rejection shall be in writing and
shall indicate the reasons for such rejection.

(b) In order to reject or put on hold delivery of Product
based on testing of a quality control sample, Aviron
must give written notice to PCI of Aviron's rejection of
any delivery within (i) [ * ], or (ii) [ * ] after
receipt of the applicable quality control sample,
whichever is later (the "Acceptance Period"). If no such
notice of rejection/hold is received during such time
period, Aviron shall be deemed to have accepted such
quality control sample upon the expiration of the
Acceptance Period, and PCI shall be authorized to make
delivery of the Product.

(c) After notice of rejection/hold is given, Aviron shall
cooperate with PCI in determining whether rejection is
necessary or justified and, in situations in which the
type of damage so warrants, provide PCI with the
allegedly non-conforming Product for PCI evaluation. PCI
will evaluate the cause for such non-compliance. PCI
shall notify Aviron as promptly as reasonably possible
whether it accepts Aviron's basis for any rejection. If
PCI disagrees with Aviron's determination that certain
Product does not meet the Specifications, [ * ]. Whether
or not PCI accepts Aviron's basis for rejection,
promptly on receipt of a notice of rejection/hold of
Product, PCI shall use reasonable commercial efforts at
Aviron's request to replace such rejected Product. [ * ]
shall bear the expenses of such replacement. If [ * ],
Aviron guarantees to purchase that Product and any
replacement Product which PCI has delivered to Aviron at
the price set forth in Section 13.1. [ * ].

7.4 DESTRUCTION OF PRODUCT. Neither Party may destroy any Product
alleged not to meet Specifications until [ * ]. Thereafter, upon
Aviron's written request, PCI shall return to Aviron or promptly
destroy any rejected Product. The Party determined [ * ]

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[ * ] shall bear all costs for such return or destruction. In
the event PCI destroys such Product, PCI shall provide Aviron
with certification of such destruction.

7.5 REPLACEMENT PRODUCT. In the event that PCI bears responsibility
for the failure of Product, promptly following the rejection of
any Product, Aviron shall, at PCI's expense, deliver sufficient
quantities of Vaccine and Syringes to the Facility in order for
PCI to comply with Section 7.3(c). In accordance with the terms
of Section 6.6 and 6.7, PCI shall Manufacture enough Product to
deliver to Aviron the amount of Product originally ordered for
the rejected delivery and shall do so as promptly as technically
feasible.

8. REPRESENTATIONS AND WARRANTIES
------------------------------

8.1 EXISTENCE AND POWER. Each Party hereby represents and warrants
to the other Party that such Party (i) is duly organized,
validly existing and in good standing under the laws of the
state in which it is organized, (ii) has the power and authority
and the legal right to own and operate its property and assets,
and to carry on its business as it is now being conducted, and
(iii) is in compliance with all requirements of applicable law,
except to the extent that any noncompliance would not materially
adversely affect such party's ability to perform its obligations
under the Agreement.

8.2 AUTHORIZATION AND ENFORCEMENT OF OBLIGATIONS. Each Party hereby
represents and warrants to the other Party that such Party (i)
has the power and authority and the legal right to enter into
the Agreement and to perform its obligations hereunder and
thereunder and (ii) has taken all necessary action on its part
to authorize the execution and delivery of the Agreement and the
performance of its obligations hereunder. The Agreement has been
duly executed and delivered on behalf of such Party, and
constitutes a legal, valid, binding obligation, enforceable
against such Party in accordance with its terms.

8.3 NO CONSENTS. Each Party hereby represents and warrants to the
other Party that all necessary consents, approvals and
authorizations of all Agencies and other persons required to be
obtained by such Party in connection with the Agreement have
been obtained.

8.4 NO CONFLICT. Each Party hereby represents and warrants to the
other Party that the execution and delivery of the Agreement and
the performance of such party's obligations hereunder and
thereunder (i) does not conflict with or violate any requirement
of applicable laws or regulations or any material contractual
obligation of such Party and (ii) does not materially conflict
with, or constitute a material default or require any consent
under, any material contractual obligation of such Party.

8.5 NON-DEBARMENT. PCI represents and warrants that PCI is not and
does not, to the best of its knowledge, use in any capacity the
services of any person barred by an applicable Agency
(including, but not limited to, the FDA) from providing such
services. PCI covenants it will not in the performance of its
obligations

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hereunder use in any capacity the services of any person that it
knows is barred by an applicable Agency and will immediately
disclose in writing to Aviron promptly, before it becomes aware
of any person who is performing services hereunder is so barred
or if any action, suit, claim, investigation or legal or
administrative proceeding is pending or, to the best of PCI's
knowledge, threatened, relating to the debarment of PCI or any
person performing services hereunder by any applicable Agency.

9. INDEMNIFICATION
---------------

9.1 INDEMNITY.

(a) Except to the extent that claims, suits, losses,
damages, costs, fees or expenses arise or result from
any negligent or wrongful act or omission of PCI or
PCI's breach of Section 5.8, Article 8, or Article 15,
Aviron agrees to indemnify, hold harmless and defend PCI
and PCI's directors, officers, employees and agents, and
the directors, officers, employees and agents of any PCI
parent, subsidiary or related company (the "PCI
Indemnitees") from and against any and all claims,
suits, losses, damages, costs, fees and expenses
resulting from or arising out of [ * ], including
without limiting the generality of the foregoing any
damages, losses or liabilities whatsoever with respect
to death or injury to person or damage to property.

(b) To the extent that such claims, suits, losses, damages,
costs, fees or expenses arise or result from any
negligent or wrongful act or omission of PCI or the
breach by PCI of Section 5.8, Article 8 or Article 15,
PCI agrees to indemnify, hold harmless and defend Aviron
and Aviron's directors, officers, employees and agents,
and the directors, officers, employees and agents of any
Aviron parent, subsidiary or related company (the
"Aviron Indemnitees") from and against any and all
claims, suits, losses, damages, costs, fees and expenses
resulting from or arising out of [ * ], including
without limiting the generality of the foregoing any
damages, losses or liabilities whatsoever with respect
to death or injury to person or damage to property.

9.2 [ * ].

(a) Notwithstanding anything to the contrary in this
Agreement, PCI's liability (individually or in the
aggregate) under this Agreement or in any manner arising
out of this Agreement [ * ]

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[ * ].

(b) In the case where two claims are made, one based upon
the [ * ] Production (or upon other than negligence in
PCI's conduct of the [ * ] Production) and another
based upon PCI's negligence in the conduct of the
[ * ] Production, whether contemporaneously or
serially, the[ * ]

(c) IN NO EVENT SHALL EITHER AVIRON OR PCI BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL LOSS,
DAMAGE, COSTS OR EXPENSES OF ANY NATURE WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, LOST REVENUES OR PROFITS.

9.3 NOTICE AND PAYMENT.

(a) Promptly after acquiring knowledge of any damage, loss,
deficiency, liability, encumbrances, penalty, cost,
expense, action, suit, investigation, proceeding,
assessment, audit, judgment, or claim against which
Aviron or PCI must indemnify the other pursuant to
Section 9.1 (the "Indemnifying Party"), the Indemnified
Party shall give to the Indemnifying Party written
notice thereof, specifying the nature of the claim for
indemnity (the "Claim Notice"); provided, however, that
the delay or failure to give a Claim Notice shall not be
a bar to indemnification hereunder, except and to the
extent that the indemnifying Party is materially
prejudiced by the delay or failure to give such Claim
Notice.

(b) With respect to any claim, action, suit, investigation,
proceedings, demand, assessment or audit brought by a
Third Party ("Third Party Matter"), the Indemnifying
Party shall have the right, at its own expense, to
contest and defend against or attempt to settle or
compromise (subject to the limitations set forth below),
such Third Party Matter and any damages, losses,
deficiencies, liabilities, encumbrances, penalties,
costs, expenses and assessments ("Damages") resulting
therefrom. If the Indemnifying Party so elects, such
defense shall be instituted promptly and the
Indemnifying Party shall receive from the Indemnified
Party all necessary and reasonable cooperation in said
defense. If the

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Indemnifying Party is successful in respect of any
counterclaim asserted by it in defending a Third Party
Matter, any sums recovered shall first be applied to
reimburse the Indemnifying Party for its reasonable out-
of-pocket expenses in connection therewith, and any sums
in excess of such amount shall be paid to the
Indemnified Party.

(c) In the event that an Indemnifying Party, after written
notice from the Indemnified Party, elects not to defend
the same or fails to so notify the Indemnified Party
within thirty (30) days of the giving of the Claim
Notice, the Indemnifying Party shall be deemed to have
elected not to defend and if the Indemnified Party
elects to contest and defend against such claim, it
shall have the right to do so with counsel of its own
choosing, at the cost and expense of the Indemnifying
Party.

(d) Neither the Indemnified Party nor the Indemnifying Party
shall have the right to settle, compromise or make
payment with respect to any claim, demand, or litigation
without the written consent of the other party, except
that the Indemnified Party shall have the right to
settle, compromise or make payment with respect to any
claim, demand, or litigation against it without such
consent if it has given a Claim Notice to the
Indemnifying Party, and (i) the Indemnifying Party has
elected, or shall be deemed to have elected, not to
defend the same or (ii) the Indemnifying Party fails to
promptly attempt to settle or compromise the claim.

9.4 PCI INSURANCE. Throughout the term of this Agreement and for
[ * ] thereafter, PCI shall maintain the following minimum
insurance coverage with insurance carriers reasonably acceptable
to Aviron:

(a) Comprehensive General Liability in the amount of at
least [ * ] combined single limit, including contractual
coverage for bodily injury and property damage, which
shall name Aviron as an additional insured and may not
be canceled by PCI or its insurer without [ * ] days
prior written notice to Aviron; and

(b) Worker's Compensation Insurance to the full extent
required by applicable state law.

9.5 AVIRON INSURANCE. Aviron shall purchase and maintain, during the
term of this Agreement and for a period of [ * ] thereafter, at
its own cost, liability insurance coverage in an amount of at
least [ * ] and worker's compensation insurance coverage in
amounts required pursuant to applicable state laws, from an
insurer reasonably acceptable to PCI to cover liabilities which
may arise under this Agreement, which insurance shall name PCI
as an additional insured and may not be canceled by Aviron or
its insurer without [ * ] prior written notice to PCI.

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10. TERM AND TERMINATION
--------------------

10.1 Unless earlier terminated as provided herein, the term of this
Agreement is seven (7) years and shall begin on October 31, 1997
and shall continue through October 31, 2004. The term of this
Agreement may be extended by the mutual written agreement of the
Parties.

10.2 Aviron may terminate this Agreement at any time [ * ] prior
written notice to PCI; provided, however that in the event that
Aviron terminates because it desires to [ * ], Aviron shall
provide PCI with [ * ] prior written notice of termination of
this Agreement.

10.3 Any time following [ * ], PCI may deliver to Aviron written
notice of PCI's intention to terminate this Agreement and not to
renew, such termination to be effective [ * ] following receipt
of such notice.

10.4 Either Party shall have the right to immediately terminate this
Agreement if the other Party files a petition in bankruptcy, or
enters into an agreement with its creditors, or applies for or
consents to the appointment of a receiver or trustee, or makes
an assignment for the benefit of creditors, or suffers or
permits the entry of an order adjudicating it to be bankrupt or
insolvent, provided that such bankruptcy is not discharged
within thirty (30) days.

10.5 If either Party materially breaches any of the provisions of
this Agreement and such breach is not cured within [ * ] after
the giving of written notice, the Party claiming the breach
shall have the right to terminate this Agreement.

10.6 Either Party may terminate this Agreement upon ninety (90) days
written notice and without penalty in the event of failure to
obtain FDA approval for the Product in the United States or any
license, permit or certificate required by any governmental or
regulatory agency is not approved and/or issued by any
applicable Agency, provided that such other party may no longer
appeal such decision, reapply or otherwise pursue such permit,
license or certificate.

10.7 In the event of expiration or termination of this Agreement, (i)
Aviron shall pay for all completed Product whether or not Aviron
takes delivery of such Product, (ii) Aviron shall bear no
responsibility for the payment of any [*] not completed prior to
termination of this Agreement, (iii) PCI shall promptly, at
Aviron's request and expense, destroy or return to a location to
be specified by Aviron, any remaining inventory of Vaccine,
Syringes, Materials and Product to Aviron, unless such
termination shall have been as a result of termination or a
breach of this Agreement by PCI, in which case such Vaccine,
Syringes and Materials shall be returned or destroyed at PCI's
expense, and Aviron shall reimburse PCI for the cost of all
Materials so returned, (iv) each Party shall promptly return all
Proprietary Information (as described in Article 12) to the
disclosing Party, and (v) Aviron shall remove the Aviron
Production Equipment from the Aviron Area in accordance with the
Facility Reservation Agreement. [ * ]

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[ * ].

10.8 Termination of this Agreement shall not affect any rights or
claims of either Party that accrued prior to the date of such
termination. The rights and obligations of each of the Parties
under the provisions of Sections 6.8, 6.9, 6.11, 6.13, 6.15,
10.7, 10.8, 13.3, and Articles 9, 11 and 12 shall survive the
termination or expiration of this Agreement for any reason.

10.9 Upon termination of this Agreement, the Facility Reservation
Agreement shall terminate, and the consequences of such
termination shall be as set forth in Section 10 of that
agreement.

11. DISPUTE RESOLUTION
------------------

11.1 Any controversy, claim, or dispute (the "Dispute") between the
Parties arising out of or relating to this Agreement, or the
breach thereof, shall be submitted to the chief executive
officer of PCI and the Chief Executive Officer of Aviron for
twenty (20) days for resolution. If the Dispute has not been
resolved in such period, the Dispute shall be resolved through
arbitration before three (3) arbitrators. Such arbitration shall
take place in Philadelphia and shall proceed in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association (Commercial Rules) and the laws of Pennsylvania
without regard to the provisions thereof concerning conflict of
laws. Within thirty (30) calendar days of either Party making a
demand for arbitration, Aviron and PCI shall each select one (1)
arbitrator. A third arbitrator shall be selected by the
arbitrators selected by the Parties within ninety (90) days of
the demand for arbitration. In the event that either Party shall
fail to appoint its arbitrator, or the two arbitrators selected
by the Parties fail to appoint the third arbitrator, in either
case within the prescribed time period, then either Party may
apply to the American Arbitration Association for the
appointment of such arbitrator. The determination of a majority
of the panel of arbitrators shall be the decision of the
arbitrators and shall be binding regardless of whether one of
the Parties fails or refuses to participate in the arbitration;
said determination shall be enforceable by any court of
competent jurisdiction. Each Party shall [ * ] for the
arbitrator it selects with the cost of the third arbitrator
being divided equally between the Parties. All other costs
related to the arbitration shall be borne by the Party incurring
such costs, unless otherwise agreed to by the Parties.

12. CONFIDENTIALITY
---------------

12.1 DEFINITION. As used in this Agreement, the term "Proprietary
Information" shall mean any information, either enabling or
disabling, including the terms of this Agreement, any batch
record, any purchase order or other commercial relationship
between the Parties, know-how, trade secrets, research, data,
process, technique, algorithm, program, design, drawing,
formula, experimental design or test data relating to any
research project, work in process, future development,
scientific, manufacturing, marketing, business plan, financial
or

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personnel matter relating to the disclosing Party (the
"Disclosing Party"), its present or future products, sales,
suppliers, customers, employees, investors or business, whether
in oral, written, graphic or electronic form and whether
received from the Disclosing Party or a third party. The term
"Proprietary Information" shall include, without limitation, (i)
any cost information related to the manufacture of Product, and
(iii) the Specifications for Product, each of which has
previously been disclosed to PCI.

12.2 OBLIGATION. During the term of this Agreement and for a period
of [ * ] thereafter, the receiving Party (the "Receiving Party")
shall maintain in confidence all Proprietary Information, as
defined in Section 12.1 above, and shall not use, disclose or
grant use of such Proprietary Information except as expressly
authorized by this Agreement. The Receiving Party may disclose
Proprietary Information, as authorized hereunder, only to those
employees, agents or consultants of the Receiving Party
reasonably requiring access. The Receiving Party shall use the
standard of care which is practical to ensure that such
employees do not disclose or make any unauthorized use of
Proprietary Information. The Receiving Party shall promptly
notify the Disclosing Party upon discovery of any unauthorized
use of disclosure of Proprietary Information.

12.3 EXCLUSIONS. The term "Proprietary Information" shall not be
deemed to include information which the Receiving Party can
demonstrate by competent written proof (i) is now, or hereafter
becomes, through no act or failure to act on the part of the
Receiving Party, generally known or available, (ii) is known by
the Receiving Party at the time of receiving such information as
evidenced by its records, (iii) is hereafter furnished to the
Receiving Party by a third party, as a matter of right and
without restriction on disclosure, or (iv) is the subject of a
written permission to disclose provided by the Disclosing Party.
Further, the obligations of confidentiality under this Article
12 shall not apply to the extent that the Receiving Party is
required to disclose Proprietary Information in support of
applying for, obtaining or maintaining a product approval or
other filings with, by an order or regulation of, an Agency or
in the course of litigation or other legal or administrative
proceedings, provided that in all cases the Receiving Party
shall to the extent permitted give the other Party prompt notice
of the pending disclosure and shall cooperate in such other
party's attempts, at such other party's sole expense, to seek an
order maintaining the confidentiality of the Proprietary
Information.

13. FEES & PAYMENT TERMS
--------------------

13.1 PRODUCT PRICING.

(a) The definitive piece price per unit of Product shall be
comprised of the following components: (i) [ * ]; (ii)
[ * ] and (iii) [ * ]

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18.
<PAGE>

[ * ]. An example of the pricing for 20 million units of
Product, incorporating the price components set forth
above, is set forth on Appendix 5. In the event Aviron
purchases itself any Materials, the Materials Unit Cost
attributable to such Materials shall be deducted from
the price per unit charged by PCI. The Parties agree
that where the number of units manufactured in a twelve
(12) month period is less than 5 million, the [ * ]
shall be at a rate mutually agreed upon by the Parties
at such time.

(b) The Parties agree and acknowledge that the [ * ] Rate,
the [ * ] and the [ * ] shall remain in effect with
respect to all Product ordered and shipped prior to
[ * ]. After such date such cost factors are subject to
annual upward or downward adjustment in accordance with
the Product Price Index for Pharmaceutical preparations,
S.I.C. Code Number 2834.

(c) The price for Product shall be invoiced to Aviron within
[ * ] after completion of the [ * ] of such Product, net
[ * ]. In the event Aviron rejects Product pursuant to
Section 7.3, any such amount paid by Aviron for such
rejected Product shall be credited to Aviron's account
immediately.

13.2 All amounts due hereunder shall be paid to PCI in U.S. dollars
by check or wire transfer per PCI's instructions. Failure by
Aviron to make a payment when due shall be deemed to be a
material breach for purposes of Section 10.5.

13.3 PCI shall keep accurate records in sufficient detail to permit
the determination of all invoices and fees payable, credits due,
and units of Product packaged hereunder and, within ten (10)
days following a request by Aviron shall permit either Aviron or
its agents, to examine during ordinary business hours such
records for the purpose of verifying the correctness of any such
invoices, fees, credits and units.

13.4 The cost of employee training on the Parties' Production
Equipment, as defined and determined by [ * ], during the
validation phase will be charged to [ * ] at a rate of $[ * ]
per hour up to a total number of hours to be agreed upon by the
Parties. After [ * ] begins, on-going employee training will be
at [ * ] expense.

14. GENERAL
-------

14.1 INTERPRETATION. The construction, validity, and performance of
this Agreement shall be governed in all respects by the laws of
Pennsylvania, exclusive of its conflict-of-law provisions. This
Agreement was negotiated by sophisticated parties at arms'
length and neither party shall be construed as the drafting
party against which the Agreement could be construed.

[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

19.
<PAGE>

14.2 FORCE MAJEURE. Failure or omission by either Party hereto in the
performance of any obligation of this Agreement (other than
obligations to pay amounts due hereunder) shall not be deemed a
breach of this Agreement and shall not create any liability if
the same shall arise from any cause or causes beyond the
reasonable control of such Party, including, but not limited to,
(other than the failure or refusal of the FDA to approve the
Product for sale), fire, storm, flood, earthquake, accident,
acts of the public enemy, war, rebellion, insurrection, riot,
and invasion. In the event of Force Majeure, the Party affected
shall promptly notify the other Party, and shall use reasonable
commercial efforts to eliminate, cure or overcome such event and
to resume performance of its obligation hereunder.
Notwithstanding the foregoing, should any event of force majeure
as defined above prevent the Parties from performing the
Agreement for a period exceeding three (3) months, the non-
affected Party shall have the right to terminate this Agreement
without further notice. It is expressly agreed by the Parties
that strikes, lockouts and other labor problems shall not be
deemed incidences of Force Majeure.

14.3 NOTICES. Any notice or consent required to be given by either
Party shall be given in writing addressed to the Party for whom
it is intended at the address set forth in the preamble to this
Agreement, or such other address as such Party may designate in
writing, and sent by overnight courier or certified mail, return
receipt requested, or confirmed facsimile. Such facsimile to be
sent to (215) 281-9190 in the case of PCI and (650) 919-6610 in
the case of Aviron.

14.4 WAIVER. The failure on the part of any Party to exercise or
enforce any rights conferred upon it hereunder shall not be
deemed to be a waiver of any such rights nor operate to bar the
exercise or enforcement thereof at any time or times thereafter.

14.5 ASSIGNABILITY. Neither Party may assign this Agreement or any
rights granted hereunder in whole or in part (other than a
transaction involving or between PCI and Cardinal Health, Inc.
or other subsidiaries or divisions of Cardinal Health, Inc.,
provided such assignee is an Affiliate of Cardinal Health, Inc.)
without the prior written consent of the other Party, except
either Party may assign this Agreement in whole or in part to
one of its Affiliates or to the successor(s) to or assignee(s)
of all or substantially all of the part of its business to which
this Agreement relates. The Parties agree that any change of
ownership or control of either Aviron or PCI shall not affect
the Parties' rights and obligations under this Agreement.

14.6 ENTIRE AGREEMENT. This Agreement and the Schedules, Exhibits and
Appendices hereto, constitute the entire agreement between the
Parties concerning the subject matter hereof and supersede all
prior agreements or understandings whether written or oral
between the Parties with respect to the subject matter hereof.

14.7 TITLES. The headings appearing at the beginning of the numbered
Articles hereof have been inserted for convenience only and do
not constitute any part of this Agreement.

20.

<PAGE>

14.8 PUBLICITY AND PRESS RELEASES. Except to the extent necessary
under applicable laws, each Party agrees that no press releases
or other publicity relating to the existence or substance of the
matters contained herein will be made without the other Party's
prior written approval; provided, however, that any press
release containing information released in a prior release
approved of by the Parties shall require no additional consent.

14.9 RELATIONSHIP OF THE PARTIES. Notwithstanding any provision
hereof, for all purposes of this Agreement each Party shall be
and act as an independent contractor and not as partner, joint
venture, or agent of the other and shall not bind nor attempt to
bind the other to any contract.

14.10 MODIFICATIONS. No changes or modifications or waivers are to be
made to this Agreement unless evidenced in writing and signed
for and on behalf of both Parties.

14.11 SEVERABILITY. In the event that any provision of this Agreement
shall be determined to be illegal or unenforceable, that
provision will be limited or eliminated to the minimum extent
necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.

15. MICHIGAN LICENSE
----------------

15.1 PCI accepts:

(a) The Vaccine may be used only for the Manufacture of
Product; and

(b) Except as set forth in this Agreement, PCI shall not
provide any Vaccine or derivatives thereof to any third
party. PCI shall limit access to the Vaccine supplied by
Aviron to those employees reasonably requiring such
access for [*], which employees are governed by PCI's
customary confidentiality obligations.

15.2 Aviron shall:

(a) use every reasonable effort to honor and observe its
obligations under the Michigan Agreement and shall not
act or fail to act in any way which might jeopardize or
cause to be terminated the Michigan Agreement; and,

(b) promptly notify PCI of any amendment to the Michigan
Agreement that affects PCI's performance under this
Agreement; and,

(c) make every reasonable effort to notify PCI in writing of
the expiration or termination of the Michigan Agreement
at least six weeks prior to either event.

15.3 PCI will use every reasonable effort to conduct [*] and to Store
the Vaccine and Product in accordance with all applicable
government laws and regulations.

[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

21.
<PAGE>

15.4 Aviron, on Michigan's behalf, may request from PCI at reasonable
times and in reasonable quantities at a cost equal to PCI's cost
for production of Product as it may desire, provided that PCI
shall be under no obligation under this sub-clause or otherwise
to produce extra batches of Product solely or substantially to
meet Michigan's requirements. Any requirements of Michigan shall
be supplied from Product being produced for Aviron with Aviron
being solely responsible for apportioning such part thereof to
Michigan as Aviron sees fit. Aviron shall promptly pay to PCI
the difference between the cost of Product supplied to Michigan
hereunder and the price of Product as set forth in Section 13.1.

15.5 PCI acknowledges Michigan's warranty disclaimer and limitation
of liability contained in the Michigan Agreement but makes no
assessment or admission of its validity or reasonableness.
Notwithstanding such, PCI will not make any statements,
representations or warranties inconsistent with such warranty
disclaimer or limitation of liability other than in pursuance or
prosecution of its own rights and remedies.

15.6 PCI will indemnify Michigan, its fellows, officers, employees
and agents for and against any and all claims, damages, losses
and expenses of any nature resulting from, but not limited to,
death, personal injury, illness or property damage, arising
directly and solely as a result of;

(a) any Manufacture, use or other disposition by PCI of the
Vaccine or Product;

(b) the use by PCI, its agents or employees of Vaccine or
Product made or used by PCI;

(d) the unauthorized and negligent use by PCI of any know-
how, or technical data sub-licensed to Aviron from
Michigan (and of which know-how and technical data
Aviron has expressly notified PCI as being sub-licensed
to Aviron by Michigan) or developed by PCI pursuant to
the Manufacture, where but only where such claims,
damages, losses and expenses are a direct consequence of
the negligence of PCI, its agents or employees.

15.7 PCI shall not use the name of Michigan in publicity or
advertising concerning the Product or the Vaccine without the
prior written consent of Michigan, such consent not to be
unreasonably or arbitrarily withheld nor delayed. Reports in
scientific literature and presentations of joint research and
development work are not considered publicity for the purpose of
this clause.

22.
<PAGE>

IN WITNESS WHEREOF, the Parties hereto have caused this
Agreement to be executed by their respective duly authorized officers or
representatives as of the day and year first above written.

PACKAGING COORDINATORS, INC. AVIRON

By: /s/ Dan Gerner By: /s/ J. Leighton Read, M.D.
------------------------------- --------------------------------

Name: Name:
----------------------------- -------------------------------

Chairman and
Title: President Title: Chief Executive Officer
---------------------------- -------------------------------

23.
<PAGE>

APPENDIX 1
----------

Aviron Production Equipment
---------------------------

Master Equipment List

ID # Equipment Vendor

[ * ] [ * ] [ * ]

[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

24.
<PAGE>

APPENDIX 2
----------

PCI Production Equipment
------------------------

====================================================
Function Manufacturer
----------------------------------------------------
* *
[___________] [___________]
====================================================

*
[___________]

[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.

25.
<PAGE>

APPENDIX 3
----------

Specifications
--------------

(INTENTIONALLY BLANK)

26.
<PAGE>

APPENDIX 4
----------

Facility Reservation Agreement
------------------------------

See Exhibit 10.17

27.

<PAGE>

APPENDIX 5
----------

AVIRON PROJECT PRICING
APPENDIX 5

All prices shown are per syringe when packaged two (2) syringes per carton.
All production rates are based on an average of [*] syringes per hour.

[*] Production------------------

[*] Production labor rate of [*]. PCI and Aviron
will develop a [*] labor reporting system. [*] costs will be billed upon [*].

[*]
- -------------------
<TABLE>
<CAPTION>
====================================================================================================================================
Target Price
Reduction [*] Increase
Potential Syringes Potential
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[*] Subtract [*] for each [*] decrease in material cost [*] Add [*] for each [*] increase in material cost

[*] Subtract [*] for each [*] decrease in material cost [*] Add [*] for each [*] increase in material cost

Shift crew size Subtract [*] for each person less than [*] [*] Add [*] for each additional person over [*]
for [*] is
[*] people
- ------------------------------------------------------------------------------------------------------------------------------------
Secondary Total: [*] [*] [*]
====================================================================================================================================

NOTE: REDUCTION/INCREASE POTENTIAL FOR [*] TOTALS SHOW EFFECT OF ALL ITEMS
CHANGING. THE LIKELIHOOD OF THIS HAPPENING IS REMOTE. FINAL PRICE IS LIKELY TO
BE A BLENDED COMBINATION.
</TABLE>

[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.

28.

<PAGE>

EXHIBIT 10.17

FACILITY RESERVATION AGREEMENT

BY AND BETWEEN

PACKAGING COORDINATORS, INC.

AND

AVIRON
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 REFERENCE........................................................... 1
1.1 Definitions......................................................... 1

ARTICLE 2 AVIRON AREA, TERM AND POSSESSION.................................... 2
2.1 Demise of Aviron Area............................................... 2
2.2 Term of this Agreement.............................................. 2
2.3 Construction of the Building; Acceptance of Possession; Allowance... 3
2.4 Delivery of Possession.............................................. 3
2.5 Repayment of Aviron Improvement Allowance........................... 3
2.6 Surrender of Possession............................................. 3
2.7 PCI Access to the Aviron Area....................................... 3

ARTICLE 3 BASE MONTHLY FEE AND DEFERRED FEE................................... 4
3.1 Base Monthly Fee.................................................... 4
3.2 Deferred Fee........................................................ 4

ARTICLE 4 USE OF AVIRON AREA.................................................. 4
4.1 Permitted Use....................................................... 4
4.2 Compliance with Laws and Private Restrictions....................... 4
4.3 Compliance with Insurance Requirements.............................. 4
4.4 Environmental Compliance and Hazardous Materials.................... 5

ARTICLE 5 REPAIRS, MAINTENANCE, SERVICES AND UTILITIES........................ 5
5.1 Repair and Maintenance.............................................. 5
5.2 Utilities........................................................... 5

ARTICLE 6 ALTERATIONS AND IMPROVEMENTS........................................ 5
6.1 By Aviron........................................................... 5
6.2 Ownership of Improvements........................................... 5
6.3 Liens............................................................... 6

ARTICLE 7 LIMITATION ON PCI's LIABILITY AND INDEMNITY......................... 6
7.1 Limitation on PCI's Liability and Release........................... 6
7.2 Aviron's Indemnification of PCI..................................... 6

</TABLE>

i
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 8 INSURANCE.......................................................... 6
8.1 Aviron's Insurance................................................. 6
8.2 PCI's Insurance.................................................... 8
8.3 Certificate of Insurance........................................... 8
8.4 Mutual Waiver of Subrogation....................................... 8

ARTICLE 9 DAMAGE TO AVIRON AREA.............................................. 9
9.1 PCI's Duty to Restore.............................................. 9
9.2 PCI's Right to Terminate........................................... 9
9.3 Aviron's Right to Terminate........................................ 9
9.4 Abatement of Fee................................................... 10

ARTICLE 10 DEFAULT, REMEDIES AND TERMINATION.................................. 10
10.1 Events of Aviron's Default......................................... 10
10.2 PCI's Remedies..................................................... 10
10.3 PCI's Default...................................................... 11
10.4 Aviron's Remedies.................................................. 11
10.5 Termination........................................................ 11
10.6 Termination of Production Agreement................................ 12

ARTICLE 11 ASSIGNMENT......................................................... 12
11.1 Assignment and Subletting.......................................... 12
11.2 Exceptions......................................................... 12

ARTICLE 12 GENERAL PROVISIONS................................................. 13
12.1 Taxes.............................................................. 13
12.2 Subordination to Mortgages......................................... 13
12.3 Aviron's Attornment Upon Foreclosure............................... 13
12.4 Estoppel Certificate............................................... 13
12.5 Transfer by PCI.................................................... 14
12.6 Force Majeure...................................................... 14
12.7 Notices............................................................ 14
12.8 General Waivers.................................................... 15
12.9 Holding Over....................................................... 15
12.10 Miscellaneous..................................................... 15
12.11 Entire Agreement.................................................. 16
</TABLE>

ii
<PAGE>

FACILITY RESERVATION AGREEMENT

THIS FACILITY RESERVATION AGREEMENT (the "Agreement") is made by and
between PACKAGING COORDINATORS, INC., a Pennsylvania corporation with offices at
3001 Red Lion Road, Philadelphia, Pennsylvania ("PCI") and AVIRON, a Delaware
corporation with offices at 297 N. Bernardo Avenue, Mountain View, California
94043 ("Aviron"), to be effective and binding upon the parties as of October 31,
1997 (the "Effective Date").

ARTICLE 1

REFERENCE

1.1 DEFINITIONS. Any term that is given a special meaning by any
provision in this Agreement shall, unless otherwise specifically stated, have
such meaning wherever used in this Agreement or in any Exhibit attached hereto.
In addition, the following terms shall have the following meanings:

"AVIRON AREA" shall mean all the interior space within the Building
consisting of approximately 34,380 square feet, including reasonable rights of
ingress and egress, as mutually agreed from time to time.

"AVIRON IMPROVEMENTS DESIGN PLAN" shall mean the design plans pursuant to
which the Aviron Improvements shall be constructed and which are attached hereto
as Exhibit A.

"AVIRON IMPROVEMENT ALLOWANCE" shall mean the amount of One Million Dollars
provided by PCI for construction of the Building and the Aviron Improvements
pursuant to Section 2.4, five hundred thousand dollars ($500,000) of which will
be repaid to PCI by Aviron in accordance with Section 2.5.

"AVIRON IMPROVEMENTS" shall mean all modifications, alterations and
improvements made or added to the Aviron Area, excluding Aviron's equipment,
moveable improvements and trade fixtures.

"AVIRON SPECIAL FIXTURES" shall mean those of the Aviron Improvements
constituting the USP Water System (exclusive of piping), the SIP System, the
Process Chilled Water/Glycol System and the freezer (including storage rack
system).

"BASE MONTHLY FEE" shall mean $110,016 per month.

"BUILDING" shall mean that certain addition to the building currently
existing on the Property in which the area reserved for Aviron's manufacture,
packaging and storage of pharmaceutical products is located, which addition is
shown outlined on Exhibit B hereto and which will be constructed pursuant to the
Building Design Plan.

1
<PAGE>

"BUILDING DESIGN PLAN" shall mean the plans and specifications pursuant to
which the Building will be constructed and which are attached hereto as Exhibit
C.

"DEFERRED FEE" shall mean that portion of the Base Monthly Fee which is
deferred in accordance with Section 3.2.

"HAZARDOUS MATERIALS" shall mean any toxic substance, hazardous substance,
hazardous material, hazardous constituent, hazardous waste, pollutant or
contaminant which is or becomes regulated by any local governmental authority,
the Commonwealth of Pennsylvania, or the United States government, including any
material or substance defined as a "hazardous waste" pursuant to Section 1004 of
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq. (42
U.S.C. Section 6903) or as a "hazardous substance" pursuant to Section 101 of
the Comprehensive Environmental Response Compensation, and Liability Act, 42
U.S.C. Section 9601, et seq. (42 U.S.C. Section 9601).

"LENDER" shall mean the holder of any promissory note or other evidence of
indebtedness secured in whole or in part by the Property or any portion thereof.

"OCCUPANCY DATE" shall mean the date upon which PCI delivers to Aviron a
certificate signed by the architect for construction of the Building, certifying
that the Building is substantially complete, subject to construction of the
Aviron Improvements.

"PERMITTED USE" shall mean the preparation, blending, aseptic filling,
assembly, packaging, cartoning, palletization, distribution and/or related
storage of pharmaceutical products and related legal uses, and for no other use
whatsoever.

"PRODUCTION AGREEMENT" shall mean that certain Production Agreement between
the Parties dated October 31, 1997 under which PCI shall provide certain
services to Aviron in connection with the manufacture of Aviron's flu vaccine
product.

"PROPERTY" shall mean that certain improved real property owned by PCI and
commonly known as 3001 Red Lion Road, Philadelphia, Pennsylvania.

ARTICLE 2

AVIRON AREA, TERM AND POSSESSION

2.1 DEMISE OF AVIRON AREA. PCI hereby leases to Aviron and Aviron hereby
leases from PCI for the term of this Agreement, and upon the terms and subject
to the conditions of this Agreement, the Aviron Area.

2.2 TERM OF THIS AGREEMENT. Subject to Paragraph 2.4 below, the term of
this Agreement shall begin on the Effective Date and unless extended by mutual
agreement of the Parties, shall end on October 30, 2004 (the "Agreement
Expiration Date").

2
<PAGE>

2.3 CONSTRUCTION OF THE BUILDING; ACCEPTANCE OF POSSESSION; ALLOWANCE.
PCI agrees to construct the Building in accordance with all applicable laws and
the Building Design Plan, and to deliver the Aviron Area to Aviron in good
working order as set forth in the Building Design Plan and in compliance with
the Americans with Disabilities Act. Aviron agrees to construct the Aviron
Improvements pursuant to the Aviron Improvements Design Plan and in compliance
with the Americans with Disabilities Act. PCI agrees to provide the Aviron
Improvement Allowance for construction of the Building. In the event that
construction costs for the Building are less than the Aviron Improvement
Allowance, Aviron may use the remaining amount of the Aviron Improvement
Allowance to make Aviron Improvements, and PCI shall pay the Aviron Improvement
Allowance to Aviron's designated construction contractor upon presentation of
invoices evidencing the work done or installations made. In the event that
construction costs for the Building exceed the Aviron Improvement Allowance,
Aviron shall bear all costs for such construction in excess of the Aviron
Improvement Allowance; provided, however, that Aviron shall not be required to
pay excess costs resulting from change orders or changes to the Building Design
Plan not approved in advance by Aviron.

2.4 DELIVERY OF POSSESSION. Upon receipt of an occupancy certificate for
the Building granted by the appropriate governmental agency, PCI shall deliver
to Aviron possession of the Aviron Area. Such delivery is intended to occur on
or about October 15, 1997 ("the Intended Commencement Date"). If PCI is unable
to so deliver possession of the Aviron Area to Aviron in the agreed condition on
or before the Intended Commencement Date, PCI shall not be in default under this
Agreement; however, the Occupancy Date shall not be deemed to have occurred
until the actual date of delivery.

2.5 REPAYMENT OF AVIRON IMPROVEMENT ALLOWANCE. Aviron agrees that it will
repay to PCI five hundred thousand dollars ($500,000) of the Aviron Improvement
Allowance (the "AI Repayment Amount") through a surcharge of $.02 per unit on
the first twenty-five million units of product sold to Aviron, payable on an
annual basis out of the escrow described below. Aviron will maintain the AI
Repayment Amount (as the same may be calculated from time to time, based on
decreases due to repayment by Aviron to PCI) in an escrow account with a third
party escrow holder reasonably acceptable to PCI until such time as the AI
Repayment Amount has been repaid in full. Any interest accruing on the AI
Repayment Amount shall belong to Aviron.

2.6 SURRENDER OF POSSESSION. Within thirty (30) days following expiration
or termination of this Agreement, Aviron shall remove Aviron's production
equipment and shall vacate and surrender the Aviron Area to PCI broom clean, in
the same condition as existed at the Occupancy Date, reasonable wear and tear
excepted. In addition, prior to termination of this Agreement, Aviron may, in
its discretion, remove from the Aviron Area, any of its equipment, personal
property or trade fixtures and any of the Aviron Special Fixtures. Aviron
shall, at Aviron's sole expense, repair any damage to the Aviron Area, the
Building or the Property, caused by Aviron's removal of such items. Any Aviron
Improvements Aviron does not remove from the Aviron Area shall be deemed to have
been assigned, without cost or further action by Aviron, to PCI. Aviron agrees
to execute such additional documents as PCI may reasonably request to
acknowledge and confirm such assignment.

3
<PAGE>

2.7 PCI ACCESS TO THE AVIRON AREA. PCI shall have access to the Aviron
Area: (i) to comply with its obligations under this Agreement and the Production
Agreement, (ii) for any necessary purpose in the event of an emergency, (iii) to
show the Aviron Area to prospective lenders or purchasers of PCI or the
Property, (iv) to perform any required or necessary maintenance or repairs to
the Building or the Property, and (v) if required to comply with applicable law.
PCI shall retain the master keys to the Aviron Area. PCI may, at its option,
modify the Building to add a separate entrance to the Aviron Area, provided that
such modification is accomplished at PCI's expense, with reasonable prior
written notice to Aviron, in compliance with all applicable laws and
restrictions and does not interfere with Aviron's use of the Aviron Area.

ARTICLE 3

BASE MONTHLY FEE AND DEFERRED FEE

3.1 BASE MONTHLY FEE. Commencing on the Occupancy Date and continuing
throughout the term of this Agreement, Aviron shall pay to PCI, without prior
demand therefor, in advance on the first day of each calendar month, the amount
set forth as the Base Monthly Fee, less the Deferred Fee pursuant to Section 3.2
below.

3.2 DEFERRED FEE. Commencing upon the Occupancy Date and each month
thereafter until January 1, 2000, PCI shall defer receipt of forty percent (40%)
of the Base Monthly Fee (the "Deferred Fee"). Aviron will deposit and maintain
the Deferred Fee (as the same may be increased from time to time) in an escrow
account with a third party escrow reasonably acceptable to PCI holder until
payment of such amount in accordance with this Section. Any interest accruing
on the Deferred Fee shall belong to Aviron. The Deferred Fee shall be released
to PCI as follows: (i) The first installment of the Deferred Fee in an amount
equal to one half the total amount of the Deferred Fee shall be released and
paid to PCI January 1, 2000; (ii) The balance of the Deferred Fee shall be
released and paid to PCI September 1, 2000; provided, however, that in the event
that production does not commence under the Production Agreement prior to
December 31, 1999, the balance of the Deferred Fee shall be further deferred and
shall instead be released and paid to PCI January 1, 2001. Notwithstanding the
foregoing, in Aviron's sole discretion, Aviron may elect to prepay all or any
part of the Deferred Fee prior to its becoming due and payable.

ARTICLE 4

USE OF AVIRON AREA

4.1 PERMITTED USE. Aviron shall be entitled to use the Aviron Area for
the Permitted Use. Office space within the Aviron area shall be allocated for
the use of the Aviron Technical Representative during the term of the Production
Agreement.

4.2 COMPLIANCE WITH LAWS AND PRIVATE RESTRICTIONS. Subject to the
obligations of PCI pursuant to Sections 4.3 and 4.4 below, Aviron agrees that
its use of the Aviron Area will

4
<PAGE>

be in compliance with all laws and regulations respecting its use and occupancy
of the Aviron Area.

4.3 COMPLIANCE WITH INSURANCE REQUIREMENTS. PCI and Aviron shall comply
with all requirements of any insurance company, insurance underwriter, or Board
of Fire Underwriters which are necessary to maintain reasonable insurance
coverages covering the Building, the Aviron Area or the Property.

4.4 ENVIRONMENTAL COMPLIANCE AND HAZARDOUS MATERIALS. PCI will comply with
all local, Commonwealth of Pennsylvania and federal laws regarding environmental
compliance and Hazardous Materials ("Laws") in connection with PCI's operations
in the Aviron Area pursuant to the Production Agreement. Subject to the
foregoing, Aviron will comply with all Laws in its use and occupancy of the
Aviron Area. Aviron will indemnify, defend and hold harmless PCI and PCI's
directors, officers, employees and agents, and the directors, officers,
employees and agents of any PCI parent, subsidiary or related company from and
against any and all claims, suits, losses, damages, costs, fees and expenses
resulting from or arising out of any breach of Aviron's obligations pursuant to
this section relating to its use of Hazardous Materials in the Aviron Area. PCI
will indemnify, defend and hold harmless Aviron and Aviron's directors,
officers, employees and agents from and against any and all claims, suits,
losses, damages, costs, fees and expenses resulting from the presence or release
of Hazardous Materials in and around the Aviron Area (except if caused by Aviron
or its agents or assigns), or otherwise as resulting or arising from any breach
of PCI's obligations pursuant to this section.

ARTICLE 5

REPAIRS, MAINTENANCE, SERVICES AND UTILITIES

5.1 REPAIR AND MAINTENANCE. PCI shall, at all times during the term of
this Agreement and at its sole cost and expense, maintain in good order,
condition and repair the Building and every part thereof including without
limiting the generality of the foregoing, foundation, roof (structure and
membrane), load-bearing and exterior walls, building systems, windows, doors,
skylights, all structural elements of the Building, and all plumbing,
electrical, wiring, conduits, connectors and fixtures; provided, however, that
PCI shall not be responsible for the cost and expense to maintain any plumbing,
heating, ventilation or air conditioning systems (including the 700-ton colling
chiller) within the Aviron Area, such cost and expense being the responsibility
of Aviron.

5.2 UTILITIES. PCI shall pay all charges for water, and storm and
sanitary sewer services supplied to the Aviron Area at Aviron's request or for
its benefit. Aviron shall pay charges for electricity and gas supplied to the
Aviron Area, as recorded by a dedicated meter.

ARTICLE 6

ALTERATIONS AND IMPROVEMENTS

5
<PAGE>

6.1 BY AVIRON. Except as provided in Section 2.3, Aviron shall, at
Aviron's sole expense, construct the Aviron Improvements; provided, however,
that selection of a contractor shall be subject to the approval of PCI.

6.2 OWNERSHIP OF IMPROVEMENTS. All Aviron Improvements shall remain the
property of Aviron during the term of this Agreement. Upon expiration or
termination of this Agreement, any Aviron Improvements not removed from the
Aviron Area in accordance with the provisions of Section 2.6 shall be deemed to
have been assigned, without cost or further action by Aviron, to PCI.

6.3 LIENS. PCI shall keep the Aviron Improvements and any personal
property, equipment or trade fixtures of Aviron located in the Aviron Area
(collectively, the "Aviron Fixtures") free from any liens or encumbrances, and
shall pay when due all bills or obligations incurred by PCI, its agents,
employees or contractors relating to the Building. If any such claim of lien is
recorded against Aviron's interest in any of the Aviron Fixtures or the Aviron
Area or any part thereof, PCI shall bond against, discharge or otherwise cause
such lien to be entirely released within thirty (30) days after the same has
been recorded. As soon as possible following the Effective Date, PCI shall
provide Aviron with lien releases from its existing Lenders covering the Aviron
Fixtures. Aviron shall keep the Building, Property and Aviron Area (but not the
Aviron Improvements) free from any lien caused by it and shall pay when due all
bills or obligations incurred by Aviron, its agents, employees or contractors
relating to the Building and Aviron Improvements. If any such claim of lien is
recorded against PCI's interest in the Aviron Area, the Building or the Property
or any part thereof, Aviron shall bond against, discharge or otherwise cause
such lien to be entirely released within thirty (30) days after the same has
been recorded.

ARTICLE 7

LIMITATION ON PCI'S LIABILITY AND INDEMNITY

7.1 LIMITATION ON PCI'S LIABILITY AND RELEASE. PCI shall not be liable to
Aviron for, and Aviron hereby releases PCI and its officers, agents, employees,
Lenders, attorneys, and consultants from, any and all liability, whether in
contract, tort or on any other basis, for any injury to or any damage sustained
by Aviron, Aviron's agents, employees or contractors in connection with Aviron's
use of the Aviron Area, except to the extent such damage was proximately caused
by PCI's negligence, willful misconduct, or breach of this Agreement. The
provisions of this paragraph shall not release PCI from its obligations or
liability under the Production Agreement.

7.2 AVIRON'S INDEMNIFICATION OF PCI. Aviron shall defend with counsel
reasonably satisfactory to Aviron any claims made or legal actions filed or
threatened against Aviron with respect to the violation of any law, or the
death, bodily injury, personal injury or property damage suffered by any third
party occurring within the Aviron Area and Aviron shall indemnify and hold PCI,
PCI's partners, principals, members, employees, agents and contractors harmless
from any loss liability, penalties, or expense resulting therefrom, except to
the extent

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proximately caused by the negligence or willful misconduct of PCI. This
indemnity agreement shall survive the expiration or termination of this
Agreement.

ARTICLE 8

INSURANCE

8.1 AVIRON'S INSURANCE. Aviron shall maintain insurance complying with
all of the following:

(a) Aviron shall procure, pay for and keep in full force and effect,
at all times during the term of this Agreement the following:

(i) Commercial general liability insurance insuring Aviron
against liability for personal injury, bodily injury, death and damage to
property occurring within the Aviron Area, or resulting from Aviron's use or
occupancy of the Aviron Area, or resulting from Aviron's activities in or about
the Aviron Area, the Building or the Property, with coverage in the amount of
five million dollars ($5,000,000), which insurance shall contain the equivalent
of a "broad form liability" endorsement insuring Aviron's performance of
Aviron's obligations to indemnify PCI as contained in this Agreement;

(ii) Fire and property damage insurance in so-called "fire
and extended coverage" form insuring Aviron against loss from physical damage to
Aviron's personal property, inventory, trade fixtures and improvements within
the Aviron Area, including the Aviron Improvements, with coverage for the full
actual replacement cost thereof; and

(iii) With respect to making of alterations or the
construction of improvements or the like undertaken by Aviron, contingent
liability and builder's risk insurance, in an amount and with coverage
reasonably satisfactory to Aviron; and

(iv) Workers' compensation insurance and any other employee
benefit insurance sufficient to comply with all laws.

(b) Each policy of liability insurance required to be carried by
Aviron pursuant to this paragraph or actually carried by Aviron with respect to
the Aviron Area, the Building or the Property: (i) shall name PCI, and such
others as are designated by PCI, as additional insureds; (ii) shall be primary
insurance providing that the insurer shall be liable for the full amount of the
loss, up to and including the total amount of liability set forth in the
declaration of coverage, without the right of contribution from or prior payment
by any other insurance coverage of PCI; (iii) shall be in a form satisfactory to
PCI; (iv) shall be carried with companies reasonably acceptable to PCI with
Best's ratings of at least A + VI; (v) shall provide that such policy shall not
be subject to cancellation, lapse or change except after at least thirty days
prior written notice to PCI, and (vi) shall contain a so-called "severability"
or "cross liability" endorsement. Each policy of property insurance maintained
by Aviron with respect to the Aviron Area, the Building or the Property (i)
shall provide that such policy shall not be subject

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<PAGE>

to cancellation, lapse or change except after at least thirty days prior written
notice to PCI and (ii) shall contain a waiver and/or a permission to waive by
the insurer of any right of subrogation against PCI, its partners, principals,
members, officers, employees, agents and contractors, which might arise by
reason of any payment under such policy or by reason of any act or omission of
PCI, its partners, principals, members, officers, employees, agents and
contractors.

8.2 PCI'S INSURANCE. With respect to insurance maintained by PCI:

(a) PCI shall maintain, as the minimum coverage required of it by this
Agreement, fire and property damage insurance in so-called "fire and extended
coverage" form insuring PCI (and such others as PCI may designate) against loss
from physical damage to the Building and against loss of Base Monthly Fees for a
period of not less than six months. Such fire and property damage insurance (i)
shall be written in so-called "all risk" form, excluding only those perils
commonly excluded from such coverage by PCI's then property damage insurer; (ii)
shall provide coverage for physical damage to the Building so insured for up to
the entire full actual replacement cost thereof; and/or (iii) may be endorsed to
cover loss or damage caused by any additional perils against which PCI may elect
to insure. PCI shall not be required to cause such insurance to cover any of
Aviron's personal property, inventory, and trade fixtures, or any modifications,
alterations or improvements made or constructed by Aviron to or within the
Aviron Area, including the Aviron Improvements.

(b) PCI shall maintain commercial general liability insurance insuring
PCI (and such others as are designated by PCI) against liability for personal
injury, bodily injury, death, and damage to property occurring in, on or about,
or resulting from the use or occupancy of the Property, the Building and the
Aviron Area, or any portion thereof, with combined single limit coverage of at
least five million dollars ($5,000,000); provided, however, that the liability
insurance coverage maintained by Aviron under Section 8.1 shall be primary. PCI
may carry such greater coverage as PCI or PCI's Lender, insurance broker,
advisor or counsel may from time to time determine is reasonably necessary for
the adequate protection of PCI and the Property.

(c) PCI shall maintain workers' compensation insurance and any other
employee benefit insurance sufficient to comply with all laws.

8.3 CERTIFICATE OF INSURANCE. Prior to the time Aviron or any of its
contractors enters the Aviron Area, each Party shall deliver to the other Party,
with respect to each policy of insurance required to be carried by it pursuant
to this Article, a copy of such policy (appropriately authenticated by the
insurer as having been issued, premium paid) or a certificate of the insurer
certifying in form satisfactory to the other Party that a policy has been
issued, premium paid, providing the coverage required by this Paragraph and
containing the provisions specified herein. With respect to each renewal or
replacement of any such insurance, the requirements of this Paragraph must be
complied with not less than thirty (30) days prior to the expiration or
cancellation of the policies being renewed or replaced.

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8.4 MUTUAL WAIVER OF SUBROGATION. PCI hereby releases Aviron, and Aviron
hereby releases PCI and their respective partners, principals, members,
officers, agents, employees and servants, from any and all liability for loss,
damage or injury to the property of the other in or about the Aviron Area, the
Building or the Property which is caused by or results from a peril or event or
happening which is covered by insurance actually carried and in force at the
time of the loss by the party sustaining such loss; provided, however, that such
waiver shall be effective only to the extent permitted by the insurance covering
such loss and to the extent such insurance is not prejudiced thereby.

ARTICLE 9

DAMAGE TO AVIRON AREA

9.1 PCI'S DUTY TO RESTORE. If the Aviron Area or the Building are damaged
by any peril after the Occupancy Date of this Agreement, PCI shall restore the
same, as and when required by this paragraph, unless this Agreement is
terminated by Aviron pursuant to Paragraph 9.3 or by PCI pursuant to Paragraph
9.2. If this Agreement is not so terminated, then upon the issuance of all
necessary governmental permits, PCI shall commence and diligently prosecute to
completion the restoration of the Aviron Area or the Building, as the case may
be, to the extent then allowed by law, to substantially the same condition in
which it existed as of the date production in the Aviron Area began.

9.2 PCI'S RIGHT TO TERMINATE. PCI shall have the option to terminate this
Agreement in the event any of the following occurs, which option may be
exercised only by delivery to Aviron of a written notice of election to
terminate within sixty (60) days after the date of such damage or destruction:

(a) The Building is damaged by any peril covered by insurance required
to be carried by PCI pursuant to Article 8 (an "Insured Peril") to such an
extent that the estimated cost to restore the Building exceeds fifty percent
(50%) of the then actual replacement cost thereof; or

(b) The Building is damaged by any peril other than an Insured Peril
and the cost to repair such damage exceeds twenty-five percent (25%) of the then
actual replacement cost thereof; or

(c) The Building is damaged by any peril and, because of the laws then
in force, the Building (i) cannot be restored at reasonable cost or (ii) if
restored, cannot be used for the same use being made thereof before such damage.

9.3 AVIRON'S RIGHT TO TERMINATE. If the Aviron Area or the Building are
damaged by any peril and PCI does not elect to terminate this Agreement or is
not entitled to terminate this Agreement pursuant to this Article, then as soon
as reasonably practicable, PCI shall furnish Aviron with the written opinion of
PCI's architect or construction consultant as to when the restoration work
required of PCI may be complete. Aviron shall have the option to terminate

9
<PAGE>

this Agreement in the event any of the following occurs, which option may be
exercised only by delivery to PCI of a written notice of election to terminate
within sixty (60) days after Aviron receives from PCI the estimate of the time
needed to complete such restoration:

(a) If the time estimated to substantially complete the restoration
exceeds four (4) months from and after the date the architect's or construction
consultant's written opinion is delivered; or

(b) If the damage occurred within twelve (12) months of the last day
of the term of this Agreement and the time estimated to substantially complete
the restoration exceeds ninety (90) days from and after the date such
restoration is commenced.

9.4 ABATEMENT OF FEE. In the event of damage to the Aviron Area which
does not result in the termination of this Agreement, the Base Monthly Fee shall
be temporarily abated during the period of damage and restoration in proportion
in the degree to which Aviron's use of the Aviron Area is impaired by such
damage.

ARTICLE 10

DEFAULT, REMEDIES AND TERMINATION

10.1 EVENTS OF AVIRON'S DEFAULT. Aviron shall be in default of its
obligations under this Agreement upon the occurrence of any of the following:

(a) If Aviron shall have failed to pay when due any sum required to be
paid hereunder by Aviron, and such failure shall continue for fifteen (15) days
after notice thereof by PCI; or

(b) If Aviron shall have failed to perform any term, covenant or
condition of this Agreement other than an obligation to pay money, and such
failure shall continue for thirty (30) days after written notice from PCI to
Aviron specifying the nature of such failure and requesting Aviron to perform
same (provided that, if longer than thirty (30) days is reasonably required in
order to perform such term, covenant or condition, Aviron shall have such longer
period); or

(c) If Aviron shall make a general assignment or general arrangement
for the benefit of creditors, if a petition for adjudication of bankruptcy or
for reorganization is filed by or against Aviron and is not dismissed within
ninety (90) days, if a trustee or receiver is appointed to take possession of
substantially all of Aviron's assets located at the Property or of Aviron's
interest in this Agreement and possession is not restored to Aviron within
ninety (90) days, or if substantially all of Aviron's assets located at the
Property or of Aviron's interest in this Agreement is subjected to attachment,
execution or other judicial seizure which is not discharged within ninety (90)
days.

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<PAGE>

10.2 PCI'S REMEDIES. In the event of any default by Aviron, PCI may, at
PCI's election, terminate this Agreement by giving Aviron written notice of
termination, in which event this Agreement shall terminate on the date set forth
for termination in such notice. Any termination under this subsection shall not
relieve Aviron from its obligation to pay to PCI all Base Monthly Fee then due,
or any other sums due to PCI, or from any claim against Aviron for damages
previously accrued or then or thereafter accruing including any amounts then
owing pursuant to Sections 2.5 and 3.2. Upon delivery of such notice of
termination, Aviron's obligations under Sections 2.5 and 3.2 shall be
accelerated and shall be payable in full within thirty (30) days of the date of
such notice from the escrow account. Notwithstanding anything to the contrary
contained or implied in the foregoing, in no event shall Aviron be liable to PCI
for any special, indirect or consequential loss, damage, costs or expenses of
any nature whatsoever, including, without limitation, lost revenues or profits.

10.3 PCI'S DEFAULT. PCI shall be in default of its obligations under this
Agreement if PCI shall have failed to perform any term, covenant or condition of
this Agreement within thirty (30) days after written notice from Aviron to PCI
specifying the nature of such failure and requesting PCI to perform same
(provided that, if longer than thirty (30) days is reasonably required in order
to perform such term, covenant or condition, PCI shall have such longer period).

10.4 AVIRON'S REMEDIES. In the event of PCI's default, Aviron may proceed
in equity or at law to compel PCI to perform its obligations, to terminate this
Agreement and/or to recover damages proximately caused by such failure to
perform (except as and to the extent Aviron has waived its right to damages as
provided in this Agreement and except that in no event shall PCI be liable to
Aviron for any special, indirect or consequential loss, damage, costs or
expenses of any nature whatsoever, including, without limitation, lost revenues
or profits). Any termination under this subsection shall not relieve from its
obligation to pay PCI the AI Repayment Amount pursuant to Section 2.3 or the
Deferred Fee pursuant to Section 3.2.

10.5 TERMINATION. In the event this Agreement shall terminate or if
either party shall have the right to elect to terminate this Agreement prior to
its expiration date for any reason (other than a right to terminate pursuant to
Article 9), Aviron shall have the following options, any one of which may be
exercised by Aviron in its sole discretion:

(a) PAYMENT OF BUY-BACK AMOUNT. Aviron may elect to have this
Agreement terminate and to receive from PCI an amount in partial compensation
for its contribution to the Aviron Improvements and/or construction of the
Building (the "Buy-Back Amount") as follows:

(i) AMOUNT.

(A) In the event this Agreement shall terminate at any
time during calendar year 1997 or calendar year 1998, no payment
of a Buy-Back Amount shall be required of PCI.

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(B) In the event this Agreement shall terminate at any
time during calendar year 1999 or 2000, the Buy-Back Amount shall
be eight hundred thousand dollars ($800,000);

(C) In the event this Agreement shall terminate at any
time during calendar year 2001 or 2002, the Buy-Back Amount shall
be seven hundred thousand dollars ($700,000);

(D) In the event this Agreement shall terminate at any
time during calendar year 2003, the Buy-Back Amount shall be six
hundred thousand dollars ($600,000); and

(E) The parties agree to negotiate in good faith a Buy-
Back Amount applicable to periods after calendar year 2003.

(ii) PAYMENT. The Buy-Back Amount shall be paid to Aviron
within sixty (60) days after termination of this Agreement, and may be offset
from amounts (if any) owing by Aviron to PCI under the Production Agreement or
this Agreement.

(iii) TITLE TO AVIRON IMPROVEMENTS. Upon payment of the Buy-
Back Amount, PCI shall acquire title to all Aviron Improvements other than the
Aviron Special Fixtures.

(iv) AVIRON SPECIAL FIXTURES. PCI shall have a right of first
refusal to purchase the Aviron Special Fixtures, in the event Aviron shall elect
to sell them.

(b) SUBLEASE TO ANOTHER PARTY. Aviron may elect to keep this
Agreement in effect and sublease the Aviron Area to another party; provided,
however, that such subletting shall be to another party which is acceptable to
both PCI and Aviron and that PCI is the labor provider to said party. Both
Aviron and PCI shall use all reasonable efforts to reach such an agreement.

(c) SUBLEASE TO PCI. In the event that PCI desires to use the Aviron
Area, Aviron may elect to keep this Agreement in effect and sublease the Aviron
Area to PCI for a rent equal to the fair market rental value of the Aviron Area,
taking into account the use intended by PCI. In the event of a sublease to PCI,
PCI shall have a right of first refusal to purchase the Aviron Special Fixtures,
in the event Aviron shall elect to sell them.

10.6 TERMINATION OF PRODUCTION AGREEMENT. Subject to the provisions of
Section 10.6, this Agreement shall terminate effective upon the termination of
the Production Agreement.

ARTICLE 11

ASSIGNMENT

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<PAGE>

11.1 ASSIGNMENT AND SUBLETTING. Aviron shall not assign this Agreement or
sublet the Aviron Area except to another party which is acceptable to both PCI
and Aviron and where PCI is the labor provider to such party. Both Aviron and
PCI shall use all reasonable efforts to reach agreements which would allow such
assignment or subletting.

11.2 EXCEPTIONS. Notwithstanding Section 11.1 above, Aviron, without
consent, may assign its interest in this Agreement to a direct or indirect
parent or subsidiary of Aviron; to a party controlling, controlled by or under
common control with Aviron; to any party with whom Aviron may merge or
consolidate; or to any party acquiring all or substantially all of the assets of
Aviron.

ARTICLE 12

GENERAL PROVISIONS

12.1 TAXES. PCI shall pay before delinquency any and all real property
taxes, assessments, license fees, use fees, permit fees and public charges of
whatever nature or description levied, assessed or imposed by a governmental
agency arising out of, caused by reason of or based upon Aviron's estate in this
Agreement or improvements made by Aviron to the Aviron Area. If any such taxes,
assessments, fees or public charges are levied against Aviron, Aviron shall have
the right to require PCI to pay such taxes.

12.2 SUBORDINATION TO MORTGAGES. This Agreement is subject to and
subordinate to all ground leases, mortgages and deeds of trust which affect the
Building or the Property and which are of public record as of the Effective
Date, and to all renewals, modifications and extensions thereof. Aviron hereby
consents to PCI's ground leasing the land and/or encumbering the Building or the
Property as security for future loans on such terms as PCI shall desire, and
Aviron agrees to subordinate to the interest of any such ground lessor or
encumbrancer; provided, only, that such ground lessor or encumbrancer provide
Aviron with a nondisturbance agreement, in a commercially reasonable and
customary form, pursuant to which such ground lessor or encumbrancer agrees to
recognize Aviron's rights under this Agreement and agrees not to disturb
Aviron's quiet possession of the Aviron Area so long as Aviron is not in default
under this Agreement, and Aviron agrees to execute such documents as may be
necessary to accomplish the purposes of this paragraph.

12.3 AVIRON'S ATTORNMENT UPON FORECLOSURE. Aviron shall, upon request,
attorn (i) to any purchaser of the Building or the Property at any foreclosure
sale or private sale conducted pursuant to any security instruments encumbering
the Building or the Property, (ii) to any grantee or transferee designated in
any deed given in lieu of foreclosure of any security interest encumbering the
Building or the Property, or (iii) to the lessor under an underlying ground
Agreement of the land underlying the Building or the Property, should such
ground Agreement be terminated; provided that such purchaser, grantee or lessor
recognizes Aviron's rights under this Agreement.

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<PAGE>

12.4 ESTOPPEL CERTIFICATE. Aviron will, following any request by PCI,
promptly execute and deliver to PCI an estoppel certificate (i) certifying that
this Agreement is unmodified and in full force and effect, or, if modified,
stating the nature of such modification and certifying that this Agreement, as
so modified, is in full force and effect, (ii) stating the date to which the
Base Monthly Fees are paid in advance, if any, (iii) acknowledging that there
are not, to Aviron's knowledge, any uncured defaults on the part of PCI
hereunder, or specifying such defaults if any are claimed, and (iv) certifying
such other information about this Agreement as may be reasonably requested by
PCI, its Lender or prospective Lenders, investors or purchasers of the Building
or the Property.

12.5 TRANSFER BY PCI. PCI and its successors in interest shall have the
right to transfer their interest in the Building, the Property, or any portion
thereof at any time and to any person or entity. In the event of any such
transfer, PCI (and in the case of any subsequent transfer, the transferor), from
the date of such transfer, (i) shall be automatically relieved, without any
further act by any person or entity, of all liability for the performance of the
obligations of PCI hereunder which may accrue after the date of such transfer
and (ii) shall be relieved of all liability for the performance of the
obligations of PCI hereunder which have accrued before the date of transfer;
provided, however, that its transferee agrees to assume and perform all such
prior obligations of PCI hereunder. Aviron shall attorn to any such transferee.
After the date of any such transfer, the term "PCI" as used herein shall mean
the transferee of such interest in the Building or the Property.

12.6 FORCE MAJEURE. The obligations of each of the parties under this
Agreement (other than the obligations to pay money) shall be temporarily excused
if such party is prevented or delayed in performing such obligations by reason
of any strikes, lockouts or labor disputes; government restrictions,
regulations, controls, action or inaction; civil commotion; or extraordinary
weather, fire or other acts of God.

12.7 NOTICES. Any notice required or desired to be given by a party
regarding this Agreement shall be in writing and shall be personally served, or
in lieu of personal service may be given by reputable overnight courier service,
postage prepaid, addressed to the other party as follows:

If to PCI: Packaging Coordinators, Inc.
3001 Red Lion Road
Philadelphia, Pennsylvania
Attention: Paul Alvater

with a copy to: Cardinal Health, Inc.
5555 Glendon Court
Dublin, Ohio 43016
Attention: David Mason

If to Aviron: Aviron
297 N. Bernardo Avenue

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<PAGE>

Mountain View, CA 94043
Attention: David Wilson

with a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Barbara A. Kosacz

Any notice given in accordance with the foregoing shall be deemed received upon
actual receipt or refusal to accept delivery.

12.8 GENERAL WAIVERS. One party's consent to or approval of any act by
the other party requiring the first party's consent or approval shall not be
deemed to waive or render unnecessary the first party's consent to or approval
of any subsequent similar act by the other party. No waiver of any provision
hereof, or any waiver of any breach of any provision hereof, shall be effective
unless in writing and signed by the waiving party. The receipt by PCI of any
Base Monthly Fee or payment with or without knowledge of the breach of any other
provision hereof shall not be deemed a waiver of any such breach. No delay or
omission in the exercise of any right or remedy accruing to either party upon
any breach by the other party under this Agreement shall impair such right or
remedy or be construed as a waiver of any such breach theretofore or thereafter
occurring. The waiver by either party of any breach of any provision of this
Agreement shall not be deemed to be a waiver of any subsequent breach of the
same or any other provisions herein contained.

12.9 HOLDING OVER. This Agreement shall terminate without further notice
on the date set forth in Section 2.2. Any holding over by Aviron after such
date shall neither constitute a renewal nor extension of this Agreement nor give
Aviron any rights in or to the Aviron Area except as expressly provided in this
Paragraph. Any such holding over to which PCI has consented shall be construed
to be a tenancy from month to month, on the same terms and conditions herein
specified insofar as applicable except that the Base Monthly Fee charged to
Aviron shall be one hundred twenty-five percent (125%) of the Base Monthly Fee
under this Agreement; provided, however, that the Base Monthly Fee shall not
increase in the event Aviron is engaged in good faith negotiations to extend the
terms of this Agreement.

12.10 MISCELLANEOUS. Should any provisions of this Agreement prove to be
invalid or illegal, such invalidity or illegality shall in no way affect, impair
or invalidate any other provisions hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Agreement in which time of performance is
a factor. Any copy of this Agreement which is executed by the parties shall be
deemed an original for all purposes. This Agreement shall, subject to the
provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, administrators and assigns of PCI and Aviron. The term
"party" shall mean PCI or Aviron as the context implies. This Agreement shall
be construed and enforced in accordance with the Laws of the Commonwealth of
Pennsylvania. The captions in this Agreement are for

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<PAGE>

convenience only and shall not be construed in the construction or
interpretation of any provision hereof. When the context of this Agreement
requires, the neuter gender includes the masculine, the feminine, a partnership,
corporation, limited liability company, joint venture, or other form of business
entity, and the singular includes the plural. The terms "must," "shall,"
"will," and "agree" are mandatory. The term "may" is permissive. When a party
is required to do something by this Agreement, it shall do so at its sole cost
and expense without right of reimbursement from the other party unless specific
provision is made therefor. PCI and Aviron shall both be deemed to have drafted
this Agreement, and the rule of construction that a document is to be construed
against the drafting party shall not be employed in the construction or
interpretation of this Agreement.

12.11 ENTIRE AGREEMENT. This Agreement and the Exhibits (as described in
Article 1), which Exhibits are by this reference incorporated herein, and the
Production Agreement dated September 19, 1997, constitute the entire agreement
between the parties, and there are no other agreements, understandings or
representations between the parties relating to the reservation of the Aviron
Area, except as expressed herein.

IN WITNESS WHEREOF, PCI and Aviron have executed this Agreement as of the
respective dates below set forth with the intent to be legally bound thereby as
of the Effective Date of this Agreement first above set forth.

PCI
PACKAGING COORDINATORS, INC.

By: /s/ Dan Gerner
---------------------------------------

Title: President
------------------------------------

Dated:
------------------------------------

AVIRON

By: /s/ J. Leighton Read, M.D.
---------------------------------------

Title: Chairman and Chief Executive Officer
------------------------------------
Dated:
------------------------------------

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EXHIBIT A

AVIRON IMPROVEMENTS DESIGN PLAN

Those certain progress issue drawings prepared by Jacobs/Wyper, Architects,
dated 10/8/97, described as follows:

PAGE TITLE
---- -----

A0.1 Keynote and Designation

A2.1 First Floor Plan

A2.2 Mezzanine Plan

A4.1 Coordination Plan

A5.1 Interior Elevations

A5.2 Interior Elevations

A6.1 Reflected Ceiling Plan: First Floor

A6.2 Reflected Ceiling Plan: Mezzanine

A7.1 Doors and Windows: Details/Schedules

A8.1 Details

<PAGE>

EXHIBIT B

SITE PLAN
<PAGE>

EXHIBIT C

BUILDING DESIGN PLAN

Those certain drawings prepared by McGarvey Development Company described
as follows:

PAGE DATE TITLE
---- ---- -----

A1 8/21/97 Revised 9/15/97 Site Plan

A2 8/21/97 Revised 9/16/97 Floor Plan and Details

A3 8/21/97 Revised 9/5/97 Mech. Mezzanine Plan and Details

A4 8/21/97 Revised 9/12/97 Roof Plan and Elevations

A5 8/21/97 Revised 9/5/97 Wall Sections

<PAGE>

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
---------------------------------------------------

The Board of Directors

We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3) and related Prospectus of Aviron for the
registration of 1,714,286 shares of its common stock and to the incorporation by
reference therein of our report dated February 14, 1997, with respect to the
consolidated financial statements of Aviron included in its Annual Report (Form
10-K) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.

/s/ Ernst & Young LLP

Palo Alto, California
December 3, 1997