<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-20815
AVIRON
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0309686
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
297 NORTH BERNARDO AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(650) 919-6500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK $.001 PAR VALUE 15,887,315 SHARES
---------------------------- ---------------------------------
(CLASS) (OUTSTANDING AT NOVEMBER 9, 1999)
1
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AVIRON
TABLE OF CONTENTS
<TABLE>
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PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES (UNAUDITED)
Condensed Balance Sheets as of September 30, 1999
and December 31, 1998 3
Condensed Statements of Operations for the three-
and nine-month periods ended September 30, 1999 and 1998 4
Condensed Statements of Cash Flows for the nine-
month periods ended September 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
PART II. OTHER INFORMATION 20
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. CHANGES IN SECURITIES 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVIRON
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED) (NOTE 1)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................................... $ 7,729 $ 28,164
Short-term investments .................................................. 36,808 60,692
Accounts receivable ..................................................... 4,011 75
Inventory ............................................................... 2,029 --
Prepaid expenses and other current assets ............................... 797 1,228
--------- ---------
Total current assets .................................................. 51,374 90,159
Long-term investments ..................................................... 4,360 6,002
Property and equipment, net ............................................... 25,762 18,521
Deposits and other assets ................................................. 7,484 6,303
--------- ---------
TOTAL ASSETS .............................................................. $ 88,980 $ 120,985
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ........................................................ $ 3,820 $ 2,792
Accrued compensation .................................................... 1,319 804
Accrued clinical trial costs ............................................ 730 757
Accrued interest ........................................................ 2,875 1,445
Accrued expenses and other liabilities .................................. 7,315 4,584
Current portion of capital lease obligations ............................ 224 408
--------- ---------
Total current liabilities ............................................. 16,283 10,790
Deferred rent ............................................................. 1,958 1,116
Capital lease obligations, noncurrent ..................................... 20 113
Convertible debt .......................................................... 100,000 100,000
--------- ---------
Total liabilities ......................................................... 118,261 112,019
--------- ---------
Commitments and contingencies
Stockholders' Equity (Deficit):
Preferred stock, $0.001 par value; 5.0 million shares authorized,
issuable in series; none outstanding at September 30, 1999 and
December 31, 1998 ..................................................... -- --
Common stock, $0.001 par value; 30.0 million shares authorized,
15.8 million and 15.7 million shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively ............. 16 16
Additional paid-in capital .............................................. 131,588 130,524
Notes receivable from stockholders ...................................... (83) (83)
Deferred compensation ................................................... (132) (237)
Accumulated deficit ..................................................... (160,670) (121,254)
--------- ---------
Total stockholders' equity (deficit) ...................................... (29,281) 8,966
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ...................... $ 88,980 $ 120,985
========= =========
</TABLE>
See accompanying notes
3
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AVIRON
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Contract revenues and grants ................ $ 1,363 $ 107 $ 19,838 $ 494
-------- -------- -------- --------
OPERATING EXPENSES:
Research and development .................... 19,593 12,469 47,960 33,126
General, administrative and marketing ....... 3,602 2,673 9,435 7,325
-------- -------- -------- --------
TOTAL OPERATING EXPENSES ...................... 23,195 15,142 57,395 40,451
-------- -------- -------- --------
LOSS FROM OPERATIONS .......................... (21,832) (15,035) (37,557) (39,957)
-------- -------- -------- --------
OTHER INCOME/(EXPENSE):
Interest income ............................. 804 1,668 3,077 4,468
Interest expense ............................ (1,590) (1,606) (4,777) (3,267)
-------- -------- -------- --------
TOTAL OTHER INCOME (EXPENSE), NET ............. (786) 62 (1,700) 1,201
-------- -------- -------- --------
NET LOSS ...................................... $(22,618) $(14,973) $(39,257) $(38,756)
======== ======== ======== ========
Basic and diluted net loss per share .......... $ (1.43) $ (0.95) $ (2.49) $ (2.46)
======== ======== ======== ========
Shares used in computing basic and diluted
net loss per share .......................... 15,814 15,643 15,755 15,739
</TABLE>
See accompanying notes.
4
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AVIRON
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $(39,257) $(38,756)
Adjustment to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ..................... 3,423 1,918
Amortization of debt issuance costs ............... 429 279
Amortization of deferred compensation ............. 105 307
Changes in assets and liabilities:
Accounts receivable ............................... (3,936) 29
Inventory ......................................... (2,029) --
Prepaid expenses and other current assets ......... 431 (54)
Deposits and other assets ......................... (1,610) (405)
Accounts payable .................................. 1,028 1,549
Accrued expenses and other liabilities ............ 4,649 (144)
Deferred rent ..................................... 842 396
-------- --------
Net cash used in operating activities .................... (35,925) (34,881)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments .......................... (40,282) (55,305)
Maturities of investments ......................... 65,649 47,734
Expenditures for property and equipment ........... (10,664) (11,485)
-------- --------
Net cash provided by (used in) investing activities ...... 14,703 (19,056)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligation .... (277) (374)
Proceeds from convertible debt offering, net ...... -- 96,000
Repurchase of Common Stock ........................ -- (13,337)
Proceeds from issuance of Common Stock, net: ...... 1,064 725
-------- --------
Net cash provided by financing activities ................ 787 83,014
-------- --------
Net increase (decrease) in cash and cash equivalents ..... (20,435) 29,077
Cash and cash equivalents at beginning of period ......... 28,164 15,239
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 7,729 $ 44,316
======== ========
</TABLE>
See accompanying notes.
5
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AVIRON
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X.
The financial information as of September 30, 1999 and for the three-month
and nine-month periods ended September 30, 1999 and 1998 are unaudited, but
includes all adjustments (consisting only of normal recurring adjustments) which
Aviron (the Company) considers necessary for a fair presentation of the
financial position at such date and the operating results and cash flows for
those periods. The balance sheet data at December 31, 1998 is derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The accompanying condensed financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. The results of the Company's operations for any interim
period are not necessarily indicative of the results of the Company's operations
for a full fiscal year.
Accounts Receivable
Accounts receivable is comprised principally of amounts receivable from
partners in connection with reimbursement of certain expenses associated with
the development and commercialization of FLUMIST(TM), the Company's live
cold-adapted virus vaccine.
Inventory
Inventory is comprised principally of sprayer components that will be used
in the manufacture of commercial batches of FLUMIST(TM) for sale. Inventory is
valued at the lower of cost (FIFO) or market value.
Comprehensive Income (Loss)
Comprehensive income (loss) is not presented separately as it approximates
the net loss presented in the statement of operations for the three-month and
nine-month periods ended September 30, 1998 and 1999.
2. Net Loss Per Share
The Company calculates net loss per share in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). SFAS 128
requires the presentation of basic earnings (loss) per share and diluted
earnings per share, if more dilutive, for all periods presented. Basic net loss
per share is computed using the weighted average number of common shares
outstanding during the period. Diluted net loss per share has not been presented
separately as, given the Company's net loss position, the result would be
anti-dilutive.
3. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
which is required to be adopted for the year ending December 31, 2001.
Management does not anticipate that the adoption of SFAS 133 will have a
significant effect on the results of operations or the financial position of the
Company.
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As of January 1, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 requires companies to capitalize certain
qualifying computer software costs, which are incurred during the application
development stage, and amortize them over the software's estimated useful life.
The adoption of SOP 98-1 did not have a significant effect on the results of
operations or the financial position of the Company.
4. Collaboration Agreement
On January 12, 1999, the Company announced a worldwide collaboration for the
marketing of FLUMIST(TM) with Wyeth Lederle Vaccines, a business unit of
Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products
Corporation (Wyeth). On March 15, 1999, the Federal Trade Commission granted
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1996 regarding this collaboration.
Under the agreement, Aviron is granting Wyeth exclusive worldwide rights to
market FLUMIST(TM). Wyeth and Aviron will co-promote FLUMIST(TM) in the United
States, while Wyeth will have the exclusive right to market the product outside
the United States. In each case, Wyeth will hold the marketing rights for up to
eleven years. The collaboration excludes Korea, Australia, New Zealand and
certain South Pacific countries. The companies will collaborate on the
regulatory, clinical, and marketing programs for the product.
As consideration under the agreement, the Company received a cash payment of
$15.0 million for the initial license that was recognized as revenue during the
quarter ended March 31, 1999. During the period from March 15 through September
30, 1999, the Company recorded $3.7 million of revenue in expense reimbursement
from Wyeth for a portion of its clinical development and commercialization
costs.
In addition, the Company will receive $15.5 million upon acceptance for
filing with the U.S. Food and Drug Administration (FDA), and $20 million upon
FDA marketing approval for FLUMIST(TM). Compensation for achieving additional
development and regulatory milestones is included in the agreement terms. The
granting of certain rights under the license would trigger additional payments
in excess of $140 million to the Company. Consideration for the license also
includes a commitment to provide up to $40 million in future financing to the
Company from Wyeth, a portion of which is contingent upon regulatory approval of
the product, with the remaining amount to come from participation in the
Company's future securities offerings. The potential value for the license fees,
milestones and financing support that the Company could receive under the
collaboration exceeds $400 million. In addition to the payments mentioned above,
the Company anticipates that it will earn product revenues from Wyeth, in the
form of product transfer payments and royalties, which increase at higher sales
levels. The Company will incur expenses to supply and co-promote the product.
5. Credit Facilities
During 1999, the Company entered into two new credit facilities that could
provide a total of up to $27 million of additional financing during 1999 and
2000. The credit facilities are secured by various assets of the Company and
require the maintenance of a minimum balance of cash and investments in the
amount of $20 million. As of September 30, 1999, no amounts have been drawn
against either of these credit lines. Once drawn, the loans will be repaid over
varying terms ranging from 48 to 73 months in monthly payments.
6. Manufacturing Agreement
On July 2, 1999 the Company and Medeva Pharma Limited (Medeva Pharma), a
subsidiary of Medeva PLC, extended their collaboration covering the manufacture
of key components of FLUMIST(TM) through December 2005. The Company paid Medeva
Pharma $1.0 million upon execution of the agreement and will pay an additional
$1.0 million on December 31, 1999.
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Under the terms of the new agreement, the Company will make specified
payments to Medeva for reaching certain technological, regulatory, and
employment milestones, supplying the vaccine components of FLUMIST(TM), and
providing the use of facilities. The Company is required to make annual minimum
payments to Medeva Pharma totaling 25 million British Pounds Sterling over the
term of the agreement. These minimum payments include all of the milestone,
supply, and facility use payments described above.
In addition, the Company will make payments to Medeva Pharma totaling $20
million over the term of the agreement based on net sales of FLUMIST(TM).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains, in addition to historical information,
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the Company's Registration Statement on Form S-3 (No. 333-87185),
filed in September 1999, in the section entitled "Risk Factors."
OVERVIEW
Since its inception in April 1992, Aviron has devoted substantially all of
its resources to its research and development programs. To date, Aviron has not
generated any revenues from the sale of products and does not expect to generate
any such revenues until 2001 at the earliest. Aviron has incurred cumulative net
losses of approximately $160.7 million as of September 30, 1999 and it expects
to incur substantial operating losses over at least the next few years. Aviron
has financed its operations through proceeds from private placements of
preferred stock, two public offerings and a private placement of Common Stock, a
private placement of convertible subordinated notes, revenue from its
collaborative agreements, equipment lease financings and investment income
earned on cash, cash equivalent balances and marketable securities.
On June 30, 1998, Aviron submitted its first Product License
Application/Establishment License Application (PLA/ELA) to the U.S. Food and
Drug Administration (FDA) for its live cold-adapted influenza vaccine,
FLUMIST(TM), a trivalent vaccine. On August 31, 1998 the Company announced that
it had received notice from the FDA that its submission was not accepted for
filing due to lack of data on manufacturing, validation and stability. On
December 10, 1998, the Company reported on a meeting with the U.S. Food and Drug
Administration Center for Biologics Evaluation and Research (CBER) regarding
plans for submission of the Company's license applications for FLUMIST(TM).
Requirements for completion of the submission include data on manufacturing and
assay validation, stability, and clinical equivalence. The resubmission will be
in the form of a Biologics License Application (BLA) in accordance with current
FDA requirements.
On November 14, 1999, the Company announced that it will not file a BLA for
FLUMIST(TM) in 1999. The schedule change is due to issues that arose in
routine validation tests during the vaccine manufacturing process. The Company
has initiated investigations to evaluate certain tests (assays) which have
provided inconsistent readings. The investigations will determine the need for
any additional validation work on the assays or the manufacturing process.
Separately, Medeva Pharma Limited (Medeva Pharma), formerly Evans Medical
Limited, a subsidiary of Medeva PLC, which manufactures components of the
vaccine, notified Aviron of facilities compliance issues at its facility near
Liverpool, England. Aviron is working closely with Medeva to determine how this
may impact FLUMIST(TM) manufacturing, and the steps necessary to achieve
compliance.
The timing of a BLA filing will depend on the information obtained from
these inquiries. Once they are completed, the Company will announce a new
timeline for filing.
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The Company expects its research and development expenditures to increase
substantially over the next several years as the Company expands its research
and development efforts, preclinical testing and clinical trials with respect to
certain of its programs, and manufacturing activities principally in regard to
FLUMIST(TM). In addition, general, administrative and marketing expenses are
expected to continue to increase as the Company expands its operations and
prepares for the potential commercial launch of FLUMIST(TM).
The Company announced in late 1998 positive preliminary results of a Phase 2
clinical trial for a live intranasal vaccine for Parainfluenza Virus Type 3
(PIV-3) to protect against croup. The Company intends to continue preparation
for further clinical trials for PIV-3.
The Company also is developing a subunit vaccine for Epstein-Barr Virus
(EBV) to protect against infectious mononucleosis in collaboration with
SmithKline Beecham Biologicals, S.A. (SmithKline Beecham). On August 11, 1999,
the Company announced the completion of a Phase 1 clinical trial of this
vaccine. The study showed that the vaccine tested was generally safe and well
tolerated whether or not subjects had been exposed to EBV prior to the study.
Although the study was not designed to evaluate the efficacy of the vaccine,
laboratory tests showed evidence of immune response in vaccine recipients. The
trial was a randomized, double-blind study to evaluate safety and immunogenicity
of two formulations of intramuscularly injected vaccines in healthy young
adults. It was conducted at University Hospital of Liege, Belgium. The vaccine
was administered to 67 subjects. The vaccine under development is based on the
single surface antigen responsible for most of the neutralizing antibodies
stimulated by EBV infection, and combines Aviron's antigen with SmithKline's
proprietary adjuvant technology.
In addition, the Company expects to begin a clinical trial by early 2000 for
a vaccine candidate for Cytomegalovirus (CMV) with the National Institute of
Allergy and Infectious Diseases (NIAID) of the National Institute of Health
(NIH). Aviron is also using its proprietary Rational Vaccine Design technologies
to develop vaccine candidates for diseases caused by Herpes Simplex Virus Type 2
(HSV-2) and Respiratory Syncytial Virus (RSV).
Influenza Clinical Trials
The Company has conducted and continues to conduct clinical trials to
evaluate safety and efficacy of FluMist(TM). To date, the Company has tested
FLUMIST(TM) in over 11,000 children and adults in completed clinical trials.
The Company's clinical trials relate to the safety, efficacy, and
effectiveness of the trivalent formulation of its intranasal spray delivery
method. The Company enrolled a total of 647 patients in Phase 1/Phase 2
clinical trials; 92 patients in a challenge efficacy study in healthy adults, in
collaboration with the NIH; 1,602 children in Year 1 of the Phase 3 pediatric
protective efficacy trial, 1,358 of whom returned for Year 2, 948 of whom
returned for Year 3, and 508 of whom have returned for Year 4 of the trial; and
10,379 adults and children in six additional studies and in a healthy working
adult effectiveness trial. The Company has received limited data on the efficacy
of FLUMIST(TM) against culture-confirmed influenza from clinical trials in
healthy adults. There can be no assurance that data from such trials, in
addition to prior trials, will be sufficient to support the FDA approval in
healthy children or adults. The Company's clinical trials are being designed to
support the planned BLA submission seeking approval of FLUMIST(TM) in several
target populations.
Phase 3 Clinical Trials in Children
The Company has completed a two-year pivotal Phase 3 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
without 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 3 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.
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In May 1998, data from the first year of this trial of FLUMIST(TM) were
published in The New England Journal of Medicine. In the randomized,
placebo-controlled study, results show that only 14 of the 1,070 children
vaccinated with FLUMIST(TM) experienced culture-confirmed influenza, while 95 of
the 532 placebo recipients experienced culture-confirmed influenza. Of the
children who received FLUMIST(TM), only one child developed influenza-associated
otitis media (ear infection), while 20 of the placebo recipients developed
influenza-associated ear infections. Throughout the entire cough, cold and flu
season, 1,070 children vaccinated with FLUMIST(TM) experienced 30 percent fewer
ear infections with fever than children who received placebo and a 35 percent
reduction in related antibiotic use.
The children who participated in the first year of this study were invited
back to participate for a second year of the trial during the 1997-98 flu
season, and they were vaccinated with either a single dose of FLUMIST(TM) or a
placebo spray. In September 1998, the results of Year 2 of the Phase 3 efficacy
trial of FLUMIST(TM) in children, conducted in collaboration with NIAID, were
presented at the Interscience Conference on Antimicrobial Agents and
Chemotherapy (ICAAC). The study showed that FLUMIST(TM) provided 87 percent
protection against culture-confirmed influenza overall, 86 percent protection
against A/Sydney, an unexpected variant which was the predominant strain of
influenza circulating during the 1997-98 flu season, and 100 percent protection
against the influenza strains included in the 1997-98 vaccine. Among the 1,358
participants, there were five cases of influenza due to influenza strains
included in the vaccine and 66 cases caused by A/Sydney. Two percent of children
vaccinated with FLUMIST(TM) (15 out of 917) experienced culture-confirmed
influenza, all of which was attributable to the A/Sydney strain, while 13
percent of the placebo recipients (56 out of 441) experienced culture-confirmed
influenza. The difference between these two influenza attack rates is used to
calculate the overall protection rate of 87 percent.
The incidence of pneumonia and other lower respiratory diseases was also
reduced in those children vaccinated with FLUMIST(TM), compared to placebo in
Year 2 of the study. Eight children in the placebo group developed
influenza-related wheezing, bronchitis or pneumonia, all of which were due to
the A/Sydney strain. No children who received FLUMIST(TM) experienced such lower
respiratory complications. Among the 15 of the 917 children in the FLUMIST(TM)
group who did contract influenza, the illness appeared to be milder than in the
control group, based on frequency of complications and duration of fever.
The Company began a large scale clinical trial in August 1998 to assess the
impact of community-wide influenza immunization. The three-year trial, taking
place in Temple, Texas, is expected to enroll up to 15,000 children and is
funded by a $3 million grant from the NIAID awarded to the Baylor College of
Medicine. More than 4,000 children were vaccinated in the first year of the
trial. As of November 9, 1999, more than 3,000 children have been vaccinated in
the second year of the trial that commenced in September 1999. The trial will
evaluate the impact of vaccinating pre-school and school-age children with
FLUMIST(TM) on the incidence of doctor visits for flu-related illness.
Clinical Trials in Healthy Adults
FLUMIST(TM) has been tested in a double-blind, placebo-controlled challenge
efficacy study at two Vaccine Treatment Evaluation Units (VTEUs) involving 92
healthy young adults. Subjects were randomized to receive either FLUMIST(TM),
the inactivated injectable vaccine, or placebo. There were no serious adverse
events attributable to FLUMIST(TM) seen in any subjects, 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 seven percent in
subjects vaccinated with FLUMIST(TM), 13 percent in subjects vaccinated with the
inactivated injectable influenza vaccine and 45 percent in subjects who received
placebo. The reduction in laboratory-documented influenza compared to placebo
was statistically significant for FLUMIST(TM) and the inactivated vaccine. These
data have not been peer reviewed. 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.
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The Company conducted a Phase 3 trial in 4,561 healthy working adults to
assess the impact of immunization on the frequency of influenza-like illness,
utilization of health care services, and absenteeism from work. Results of this
study were published in the July 14, 1999 issue of the Journal of the American
Medical Association. The double-blind, placebo-controlled study was conducted at
13 clinical sites nationwide during the 1997-98 flu season. The participants,
aged 18 to 65, each received one dose of vaccine. FLUMIST(TM) recipients had
reduced illness by multiple definitions including days of febrile illness (22.9
percent less), days of severe febrile illness (27.3 percent less) and days of
febrile upper respiratory tract illness (24.8 percent less).
Reductions in illness-associated absenteeism and health resource use were
observed across several illness definitions. For example, those receiving
FLUMIST(TM) missed 28.4 percent fewer work days due to febrile upper respiratory
illness and had a 40.9 percent reduction in health care provider visits. In
addition, FLUMIST(TM) recipients experienced a 45.2 percent reduction in days of
prescription antibiotic use and 28.0 percent fewer days of OTC medication due to
febrile upper respiratory illness. Data from this study are expected to be part
of the Company's BLA submission to the FDA.
Clinical Trials in High-Risk Adults
The Company has completed a clinical trial for safety in 200 elderly
high-risk adults for the use of FLUMIST(TM) for co-administration with the
inactivated injectable influenza vaccine. As this trial was not designed to
generate efficacy data on use of FLUMIST(TM) in high-risk adults, there can be
no assurance that data from this trial, combined with data from the Company's
other clinical trials and prior trials, will be sufficient to support FDA
approval for use of FLUMIST(TM) in high-risk adults even if the FDA were
satisfied with the safety data submitted. Early in the fourth quarter of 1998,
the Cooperative Studies program of the Department of Veterans Affairs Office of
Research and Development began a one-year trial to evaluate the potential
additional benefit of co-administration of FLUMIST(TM) with the flu shot,
compared to the flu shot alone, in high-risk patients with chronic obstructive
pulmonary disease. This study involved over 2,000 volunteers at 20 participating
VA Medical Centers in the United States. Results from this trial are being
prepared for analysis by the VA.
Clinical Trials for Manufacturing Consistency and Process
In February 1998, the Company reported positive results from a manufacturing
consistency lot trial of bulk vaccine manufactured, blended, and filled into
sprayers at Medeva Pharma. The Company conducted a randomized, double-blind,
placebo-controlled trial in 500 children, designed to evaluate the safety and
immunogenicity of three new manufacturing lots of FLUMIST(TM). The children were
vaccinated between April and September 1997. Analysis of patient diary cards and
antibody responses following two doses of FLUMIST(TM) showed consistent safety
and immunogenicity for the different lots according to the pre-defined
endpoints.
On June 9, 1999, the Company announced completion of a bridging study on
FLUMIST(TM) designed to compare FLUMIST(TM) blended and filled at Aviron's
facility at Packaging Coordinators, Inc. (PCI) in Philadelphia, Pennsylvania, to
vaccine manufactured with the process used in earlier clinical trials, blended
and filled by Medeva Pharma.
The study's primary endpoint was to show that FLUMIST(TM) blended and filled
at Aviron's PCI facility had similar immunogenicity for all three 1997-98
influenza strains to the vaccine blended and filled at Medeva Pharma. The
secondary endpoint was to show that the two lots of vaccine had similar safety
and tolerability profiles.
The 225-person trial was conducted in Australia from December 1998 through
March 1999. Participants were children aged 12 to 42 months, randomized to
receive vaccine blended and filled at one of the two manufacturing sites. The
study was conducted in collaboration with CSL Limited, Aviron's Australian
marketing partner for FLUMIST(TM). The Company's preliminary analysis indicates
that the results appear to meet all of the Company's objectives. Aviron will
include data from this clinical study in its licensing application for the
vaccine.
12
<PAGE> 13
Partnering Agreements
The Company has entered into several development and marketing agreements
with respect to its products.
In January 1999, the Company announced a worldwide collaboration for the
marketing of FLUMIST(TM) with Wyeth Lederle Vaccines, a business unit of
Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products
Corporation (Wyeth), under which Wyeth and the Company will co-promote
FLUMIST(TM) in the United States, while Wyeth will have the exclusive right to
market the product outside the United States, except for Korea, Australia, New
Zealand and certain countries in the South Pacific region. Wyeth and the Company
will collaborate on the regulatory, clinical and marketing programs for
FLUMIST(TM). In June 1998, the Company announced the signing of an agreement
with CSL Limited to develop, sell and distribute FLUMIST(TM) in Australia, New
Zealand and certain countries in the South Pacific region. Under the agreement,
CSL Limited and Aviron will jointly carry out additional trials in Australia for
FLUMIST(TM). Expenses associated with these agreements are expected to increase
as the Company continues preclinical testing and clinical trials and prepares
for the potential commercial launch of FLUMIST(TM). No assurance can be given,
however, that the Company will receive any future payments from CSL Limited or
Wyeth.
In October 1995, the Company signed an agreement with SmithKline Beecham
defining a collaboration on the Company's EBV vaccine technology. Under the
terms of this agreement, the Company granted SmithKline Beecham an exclusive
license to produce, use and sell non-live EBV vaccines incorporating the
Company's technology for prophylactic and therapeutic uses on a worldwide basis,
except in Korea. The Company retained U.S. co-marketing rights to a monovalent
EBV vaccine formulation which will be supplied by SmithKline Beecham. The
Company is entitled to royalties from SmithKline Beecham based on net sales of
the non-live EBV vaccine. No assurance can be given, however, that the Company
will receive any future payments from SmithKline Beecham or that SmithKline
Beecham will not terminate this agreement.
In May 1995, the Company entered into a Development and License Agreement
with Sang-A Pharm. Co., Ltd. (Sang-A). The Company granted to Sang-A certain
exclusive clinical development and marketing rights in Korea for specified
products developed by the Company, including vaccines for influenza
(cold-adapted and recombinant), PIV, EBV, CMV, HSV-2 and RSV on meeting certain
conditions. However, the Company is under no obligation to develop any product.
Sang-A also will make payments to the Company upon Sang-A'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 South and North Korea. No assurance can
be given, however, that the Company will receive any future payments from Sang-A
or that Sang-A will not terminate its agreement with the Company. In January
1997, Sang-A declared bankruptcy. The Company is unable to predict what, if any,
long-term effect the bankruptcy will have on Sang-A and on the Company's
agreement with Sang-A.
Manufacturing Facilities
In April 1997, the Company entered into an agreement with Medeva Pharma for
the commercial manufacture of FLUMIST(TM) through December 2001. In July 1999,
the agreement with Medeva Pharma was revised and extended through December 2005.
In October 1997, the Company entered into an agreement with PCI for the
blending, filling, labeling and packaging of FLUMIST(TM) in the United States
until October 2004. In 1998, Aviron and PCI opened a 34,000-square-foot
manufacturing suite in Philadelphia, Pennsylvania at PCI's site, in which PCI
blended, filled and packaged doses of FLUMIST(TM) for use in 1998-99 clinical
trials. In April 1999, the employees performing the blending and filling
activities were transferred to the Company's payroll. All activities at this
site will henceforth be referred to collectively as Aviron PA. If regulatory
approval is received, this Aviron PA facility is expected to be used to blend,
fill, label, package and store FLUMIST(TM).
The agreements with Medeva Pharma and PCI have required the Company to fund
the construction of facilities, improvements, and equipment and will continue to
require the Company to incur expenses for the duration of the agreements for
facility space, utilities and insurance.
13
<PAGE> 14
In February 1999, the Company leased a 69,000 square-foot building in Santa
Clara, California. The facility will provide additional laboratory, pilot plant,
manufacturing and office space to accommodate growth. This additional space will
require the commitment of significant additional funds during 1999, 2000, and
2001 for renovation, equipment and furnishings.
The Company may be capacity constrained in its supply of FLUMIST(TM). In
order to secure future production capacity, the Company may extend and expand
its existing arrangements, collaborate with other third parties, or expand its
own manufacturing facilities. Using an alternative supplier or expanding its
proprietary facility would require a substantial amount of funds and additional
clinical trials and testing. There can be no assurance that an alternative
source of supply will be established on a timely basis, or that the Company will
have or be able to obtain funds sufficient for building or equipping such
additional facilities.
The Company is currently evaluating the costs and benefits of developing
internal manufacturing capabilities or contracting for expanded or alternative
sources of supply from third-party manufacturers for products other than
FLUMIST(TM).
Research Grants
During 1998, the Company received notice from the NIAID of a Small Business
Innovation Research (SBIR) grant to support development of its live attenuated
vaccine for the prevention of disease caused by CMV in amounts totaling
approximately $950,000. In September 1999, the Company received notification of
an additional award from the NIAID for CMV in the amount of $600,000. A portion
of the award has been used to produce recombinant CMV vaccine candidates for
human testing. The remainder of the award will be used to determine the safety
and immunogenicity of these vaccine candidates in a Phase 1 clinical trial in
collaboration with the NIAID Vaccine Treatment and Evaluation Unit network. No
assurance can be given, however, that the Company will receive any future grants
to support its research or that such research will result in commercially viable
products. This trial will be conducted under an Investigational New Drug (IND)
which has been filed by the NIH.
As of September 1999, approximately $925,000 of these awards has been
utilized.
Business Risks
The Company's business is subject to significant risks, including but not
limited to manufacturing uncertainties; the risks inherent in its research and
development efforts, including preclinical testing and clinical trials;
uncertainties associated both with obtaining and enforcing its patents and with
the patent rights of others; the lengthy, expensive and uncertain process of
seeking regulatory approvals; uncertainties regarding government reforms and
product pricing and reimbursement levels; technological change and competition
and dependence on third parties. Even if the Company's product candidates appear
promising at an early stage of development, they may not reach the market for
numerous reasons. Such reasons include the possibilities that the products will
be found unsafe or ineffective during clinical trials, will fail to receive
necessary regulatory approvals, will be difficult to manufacture on a commercial
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. See also the section
entitled "Risk Factors" in the Company's Registration Statement on Form S-3 (No.
333-87185), filed in September 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues
The Company earned $1.4 million in revenues for the three months ended
September 30, 1999, compared to $107,000 for the three months ended September
30, 1998.
14
<PAGE> 15
The 1999 revenues were comprised principally of expense reimbursement from
Wyeth under the FLUMIST(TM) collaboration agreement, combined with research
grants and revenues from other contracts. The 1998 revenues came from contract
services rendered to other biotechnology companies.
Operating Expenses
Research and development expenses increased to $19.6 million in the three
months ended September 30, 1999 from $12.5 million for the three months ended
September 30, 1998. The increase was due primarily to an increase in development
activities, depreciation, documentation, validation, and other expenses
associated with the commercial scale-up of the manufacturing facilities
associated with FLUMIST(TM). The Company expects these expenses to continue to
increase during the remainder of 1999 as development and manufacturing
activities expand in preparation for potential commercialization of FLUMIST(TM).
These expenses are expected to increase in the future in continued support of
these activities.
General, administrative and marketing expenses increased to $3.6 million in
the three months ended September 30, 1999 from $2.7 million for the three months
ended September 30, 1998. This increase was due to additional staffing, legal
and other infrastructure costs necessary to support the development of
FLUMIST(TM) and other products. These expenses are also expected to increase in
the future in continued support of these activities.
Net Interest Income (Expense)
Net interest income decreased to a net expense of $786,000 in the three
months ended September 30, 1999, as compared to net interest income of $62,000
for the three months ended September 30, 1998. The decrease in net interest is
primarily due to the reduced cash, cash equivalents, and investment balances as
funds have been used to meet operating expenses and capital requirements.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues
The Company earned $19.8 million in revenues for the nine months ended
September 30, 1999, compared to $494,000 for the nine months ended September 30,
1998. The 1999 revenues are comprised primarily of amounts earned from Wyeth
under the FLUMIST(TM) collaboration agreement, which included a non-refundable
initial payment in the amount of $15.0 million, $3.7 million in expense
reimbursement from Wyeth, and revenues from other contracts and research grants.
The 1998 revenues were from a grant payment from the NIH for research on the
Company's CMV vaccine and from payments received for services rendered to other
biotechnology companies.
Operating Expenses
Research and development expenses increased to $48.0 million in the nine
months ended September 30, 1999, from $33.1 million for the nine months ended
September 30, 1998. The increase was due primarily to an increase in development
activities, depreciation, documentation, validation, and other expenses
associated with the commercial scale-up of the manufacturing facilities
associated with FLUMIST(TM). The Company expects these expenses to increase
during the remainder of 1999 as development and manufacturing activities expand
in preparation for potential commercialization of FLUMIST(TM). These expenses
are expected to increase in the future in continued support of these activities.
General, administrative and marketing expenses increased to $9.4 million in
the nine months ended September 30, 1999, from $7.3 million for the nine months
ended September 30, 1998. This increase was due to additional staffing, legal
and other infrastructure costs necessary to support the development of
FLUMIST(TM) and other products. These expenses are expected to increase in the
future in continued support of these activities.
15
<PAGE> 16
Net Interest Income (Expense)
Net interest decreased to a net expense of $1.7 million for the nine months
ended September 30, 1999, as compared to net interest income of $1.2 million for
the nine months ended September 30, 1998. The decrease in net interest is due to
a combination of increased interest expense associated with the issuance of the
Company's convertible debt on March 30, 1998 and decreased interest income
associated with a reduction in the average balances of cash, cash equivalents,
and investments as funds have been used to meet operating expenses and capital
requirements.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and marketable securities at
September 30, 1999 of approximately $48.9 million. In order to preserve
principal and maintain liquidity, the Company's funds are invested in United
States Treasury and agency obligations, highly rated corporate obligations and
other liquid investments.
The Company has financed its operations since inception primarily through
private placements of Preferred Stock from 1992 to 1995, an initial public
offering of Common Stock in November 1996, a private sale of Common Stock in
March 1997, a second public offering of Common Stock in August 1997, and a
private placement of convertible subordinated notes in March 1998. Through
September 30, 1999, the Company had raised approximately $236.3 million from
such activities net of offering expenses. During 1999, the Company entered into
two new credit facilities that could provide a total of up to $27 million of
additional financing during 1999 and 2000. (See Note 5 to the financial
statements.) Cash used in operations was $35.9 million and $34.9 million for the
first nine months of 1999 and 1998, respectively. The increase in cash used in
operating activities was primarily due to increases in operating expenses, which
was partially offset by the receipt of the $15.0 million payment from Wyeth. The
Company expects expenditures for research and development, clinical trials and
general, administrative and marketing expenses to continue to increase during
the remainder of 1999 and beyond as the Company develops its products, expands
its clinical trials and prepares for the potential commercial launch of
FLUMIST(TM). Cash expended for capital additions and to repay lease financing
arrangements amounted to approximately $10.9 million and $11.9 million for the
nine months ended September 30 of 1999 and 1998, respectively. Capital
expenditures decreased in 1999 primarily due to a decrease in the level of
expenditures for facilities and equipment at PCI and Medeva, which is partially
offset by increases in expenditures for the Santa Clara and Mountain View
facilities. Capital expenditures are expected to increase during the last
quarter of 1999 and beyond, primarily in connection with the Santa Clara
facility.
The Company anticipates that its existing cash, cash equivalents and
short-term investments, revenues and other advances available under existing
collaborations, and borrowings under its existing credit facilities will enable
it to maintain its current and planned operations into 2000. The Company's
future cash requirements beyond 1999 will depend on numerous factors, including
the time and costs involved in obtaining regulatory approvals; the ability to
successfully launch FLUMIST(TM) in the United States; 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; the timing of receipt of
milestone payments and loans, if any, under such collaborative agreements;
progress with preclinical testing and clinical trials; the cost involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims; the
cost of constructing or expanding any or all of its manufacturing facilities,
and product commercialization activities.
The Company anticipates raising outside funding through additional debt or
equity financings in 2000. There can be no assurance that such funds will be
available on favorable terms, if at all. If adequate funds are not available,
the Company may be required to delay, reduce the scope of, or eliminate one or
more of its research or development programs or to obtain funds through
collaborative agreements with others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would otherwise seek to develop or commercialize itself, which could
materially adversely affect the Company's business, financial condition and
results of operations.
16
<PAGE> 17
IMPACT OF "YEAR 2000"
Many older computer software programs refer to years in terms of their final
two digits only. Such programs may interpret the year 2000 to mean the year 1900
instead, the so-called "Year 2000" problem (Y2K). If not corrected, those
programs could cause date-related failures.
The Company has completed its assessment of Y2K related problems. Four
potential areas of exposure -- (a) internal information systems (b) scientific
equipment (c) facility support systems (d) the readiness of significant third
parties with whom the company has material business relationships -- have been
evaluated. The results of the assessment and the status of remedial action and
testing are as indicated below.
1. Internal Information Systems
The Company uses a number of computers and software programs throughout its
entire operations. An inventory has been performed of computer equipment and
programs, to determine if Y2K problems exist which may affect the Company's
internal information processes.
- - The Company has completed the process of upgrading its older financial and
accounting programs to Y2K compliant systems. These systems were tested and
have been verified to be Y2K compliant.
- - During 1998, the Company also completed the installation of internal systems
for the accumulation and statistical evaluation of clinical trial data.
These systems were tested and have been verified to be Y2K compliant.
- - To date, no other significant internal information systems have been
identified as non-Y2K compliant.
- - Procedures have been enacted to verify the Y2K compliance of new systems.
2. Scientific Equipment
All major pieces of scientific equipment have been inventoried. As part of
its assessment, the Company made inquiries of its internal staff and third-party
vendors, including its suppliers of scientific equipment, to determine if Y2K
problems exist which may affect the Company's research and development
operations.
- - Only one piece of laboratory equipment was found to require remediation in
the form of an inexpensive software upgrade.
- - To date, no other significant pieces of scientific equipment have been
identified as non-Y2K compliant.
- - Procedures have been enacted to verify the Y2K compliance of new scientific
equipment.
3. Facility Support Systems
The Company has made inquiries of its internal staff and third-party vendors
of utilities, communication and other facility support systems at the Mountain
View and Santa Clara facilities, to determine if Y2K problems exist which may
affect communications, administrative or support functions.
- - Remediation was determined to be necessary for certain of the communication
and process systems and for certain of the building control, access and
alarm systems. With the exception of one environmental monitoring system and
certain access control systems, remediation efforts in this area have been
completed. Certain hardware replacements and software upgrades were
completed as of the end of the third quarter of 1999 at a cost of less than
$20,000. These systems will be tested to verify Y2K compliance.
- - Remediation efforts on one environmental monitoring system will be completed
during the fourth quarter of 1999 at an estimated cost of less than $10,000.
This system will then be tested to verify Y2K compliance.
- - Manual controls are being identified to address access control issues and
will be in place prior to the end of 1999.
17
<PAGE> 18
4. Third Parties with Major Business Relationships
The Company currently has no products available for commercial sale. In
preparation for the potential commercial launch of FLUMIST(TM), the Company has
contacted its third party manufacturers and its marketing and distribution
partners to determine their level of Y2K readiness. All of these parties have
advised us that they have a Y2K plan in place and that remediation steps, if
any, will be completed prior to December 1999. It is not possible for the
Company to undertake an independent verification and testing of the readiness of
these parties for all potential Y2K issues. The failure of any of these parties
to successfully identify and remedy the impact of Y2K upon their businesses
could have a material adverse effect on the Company's business, including
delaying or adversely affecting the potential commercial launch of FLUMIST(TM).
External and internal costs specifically associated with modifying internal
use software for Y2K compliance are expensed as incurred. To this point, these
costs have not been material, and the Company does not expect such costs to be
material in the future. There can be no assurance, however, that the Company's
assessment of Y2K's potential impact will not change as we complete our
remediation steps and continue to monitor the issue, or that Y2K will not
ultimately cause a material disruption in the business of the Company.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes to interest rates
and foreign currency exchange rates. The Company's exposure to such market risk
has not changed substantially since December 31, 1998 and reference is made to
the more detailed disclosures of market risk included in the Company's Annual
Report on Form 10K for such period.
Interest Rates -- The Company's investments and interest income are
sensitive to changes in the general level of interest rates, primarily U.S.
interest rates. In this regard, changes in U.S. interest rates primarily affect
the market value of the Company's cash equivalents and investments. To mitigate
market risk, the Company places its cash in investments that meet high credit
standards, as specified in the Company's investment policy guidelines, and
staggers the maturity of the investments to meet expected cash demands. The
policy also limits the amount of credit exposure to any one issue, issuer, or
type of investment and does not permit derivative financial instruments in its
investment portfolio. As a result, the Company does not expect any material loss
with respect to its investment portfolio.
Foreign Currency Exchange Rates -- The Company pays for the costs of
manufacturing and development activities, equipment, and facilities
modifications at Medeva Pharma, which is located in the United Kingdom (U.K.) in
British Pounds Sterling. As a result, the Company's financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the U.K. The Company is exposed to changes in exchange
rates in the United Kingdom. When the U.S. dollar strengthens against the
British Pounds Sterling, the U.S. dollar value of British Pounds Sterling-based
expenses decreases; when the U.S. dollar weakens, the U.S. dollar value of
British Pounds Sterling-based expenses increases. Accordingly, changes in
exchange rates, and in particular a weakening of the U.S. dollar, may adversely
affect the Company's financial position as expressed in U.S. dollars.
19
<PAGE> 20
AVIRON
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 30, 1999 the European Patent Office held oral
proceedings in an Opposition filed by American Cyanamid against
Aviron's granted European Patent No. 0490972 relating to methods
and compositions of recombinant negative-strand RNA viruses. At the
oral proceedings, the Opposition Division of the European Patent
Office informed the Company of its intent to issue a written
opinion which upholds claims limited to influenza and denies claims
directed to non-segmented negative-strand RNA viruses. This
decision will not affect Aviron's FLUMIST(TM) cold-adapted
influenza product. Aviron intends to appeal the decision insofar as
it relates to the denied claims; the appeal will request the
Technical Board of Appeals to reverse the decision with respect to
the denial of the claims directed to non-segmented RNA viruses.
There can be no assurance that Aviron will be successful in
obtaining claims directed to non-segmented RNA viruses as a result
of the appeal. If Aviron does not succeed in the appeal of the
claims directed to non-segmented RNA viruses it could negatively
impact Aviron's ability to exclude others from commercializing an
RSV vaccine based on genetically engineered candidates in Europe.
On July 8, 1999 a lawsuit entitled Joany Chou v. The University
of Chicago, ARCH Development Corp., Bernard Roizman and Aviron
Company, was filed in the U.S. District Court for the Northern
District of Illinois, Eastern Division by an individual formerly
associated with the University of Chicago. On September 30, 1999,
this individual filed an amended complaint against the same
defendants. This amended complaint appears to purport to assert
claims of inventorship relating to United States Patent Nos.
5,328,688; 5,795,713; 5,922,328; their foreign counterparts; and
potentially other patents and applications, unjust enrichment,
fraud, conversion, breach of fiduciary duty, breach of contract and
breach of implied contract. The amended complaint seeks, among
other things, money damages, an order correcting the inventorship
and ownership of the patents referenced above, disgorgement, a
constructive trust, possible injunctive and equitable relief,
punitive damages, attorneys' fees, costs, and interest. All of the
claims appear to relate to patents and patent applications for HSV,
and none appear to relate to Aviron's FLUMIST(TM) cold-adapted
influenza product or technology or any other pipeline products in
research or development. Dr. Roizman is a founder and director of
Aviron and a member of its Scientific Advisory Board. Aviron
believes the allegations of the lawsuit are unfounded and intends
to vigorously defend itself in the matter. There can be no
assurance that the Company will prevail in the defense of this
lawsuit.
20
<PAGE> 21
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
ITEM DESCRIPTION
---- -----------
<S> <C>
10.28 Master Loan and Security Agreement by and
between the Registrant and FINOVA Capital
Corporation dated July 23, 1999
27.1 Financial Data Schedule.
</TABLE>
----------
(b) REPORTS ON FORM 8-K
None
21
<PAGE> 22
AVIRON
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
AVIRON
Date: November 15, 1999 By: /s/ J. Leighton Read, M.D.
--------------------------- -----------------------------------
J. Leighton Read, M.D.
Chairman and
Chief Executive Officer
Date: November 15, 1999 By: /s/ Fred Kurland
--------------------------- -----------------------------------
Fred Kurland
Senior Vice President and
Chief Financial Officer
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.28 Master Loan and Security Agreement by and between the
Registrant and FINOVA Capital Corporation dated July
23, 1999
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
FINOVA
FINANCIAL INNOVATORS
FINOVA Capital Corporation
10 Waterside Drive
Farmington, CT 06032-3065
(860) 676-1818
MASTER LOAN AND SECURITY AGREEMENT
Master Loan and Security Agreement No. S7250 Dated July 23, 1999
FINOVA Capital Corporation ("we," "us" or "FINOVA"), having its principal place
of business at 1850 North Central Avenue, Phoenix, Arizona 85004 is willing to
make a loan (the "Loan") to Aviron, Inc. ("you" or "Borrower"), having its
principal place of business at 297 N. Bernardo Avenue, Mountain View, California
94043 in one or more advances made from time to time (individually, an "Advance"
and collectively, the "Advances"), in the aggregate principal amount of up to
Seventeen Million Dollars ($17,000,000), under the terms and conditions
contained in this Master Loan and Security Agreement (this "Master Agreement").
The entire Loan will be "cross collateralized" and secured by the collateral
(the "Collateral") described in each schedule (individually, a "Schedule" and
collectively, "Schedules") which will be executed in connection with each
Advance and the related Note (as hereinafter defined). The Collateral includes
the FF&E hereinafter described and any and all replacement parts, additions,
accessories and accessions that you may add to the FF&E, as well as all
replacements and substitutions of the FF&E and all proceeds of the FF&E,
including, without limitation, insurance proceeds. We may treat any Schedule as
a separate loan and security agreement containing all of the provisions of this
Master Agreement.
1. THE CREDIT
(a) ADVANCES. Each Advance shall be evidenced by and the specific terms
applicable thereto set forth in a Note and related Schedule. All of
the Notes and Schedules, taken together, will evidence the entire
Loan. We will only make the Loan to you if all the conditions in this
Master Agreement have been met to our satisfaction. We will rely on
your representations and warranties contained in this Master
Agreement, in making the Loan. The terms of this Master Agreement will
each apply to the entire Loan.
(b) USE OF PROCEEDS. The proceeds of the Advances will be used solely to
reimburse you for your payment of the acquisition, construction and
installation of the machinery, equipment, fixtures, leasehold
improvements and other assets acquired, constructed and/or financed
with the proceeds of any Advance and the Loan, all of which shall be
satisfactory to us and which is described in the applicable Schedule
("FF&E"). If you have not yet paid for the FF&E (but the same is
otherwise satisfactory to us), the proceeds of the Advance will be
paid by us directly to the supplier or contractor (which you have
chosen) to pay the purchase price or cost of the FF&E.
(c) NOTES. Your obligation to repay the Advance and to pay interest
thereon will
<PAGE> 2
be evidenced by separate secured promissory notes (individually, a
"Note" and collectively, the "Notes"). Each Note will be dated the
date of the Schedule to which the Advance evidenced by the Note is
related. The related Schedule will be deemed to be part of the Note.
(d) TERM. The term ("Term") of each Schedule (and the related Advance)
begins upon the date that we make payment for the Collateral covered
under the Schedule (the "Closing Date"). The Term continues until you
fully perform all of your obligations under this Master Agreement,
each related Schedule and the related Note(s).
(e) LOAN ACCOUNT. We will keep a loan account on our books and records for
the Loan. We will record all payments of principal and interest in the
loan account. Unless the entries in the loan account are clearly in
error, the loan account will definitively indicate the outstanding
principal balance and accrued interest on the Loan.
(f) PAYMENTS. The scheduled payments of principal and interest (the
"Payments") are indicated on and due and payable in accordance with
the terms of the applicable Note and Schedule. The Payments are
payable in advance and otherwise on the dates and in the amounts set
forth on the applicable Schedule.
(g) FIRST PAYMENT AND SUBSEQUENT PAYMENTS. The first Payment under a Note
and Advance ("First Payment") is due at the beginning of its Term and
shall, at our option, either be deducted from the proceeds of the
Advance or paid directly to us by you. Subsequent Payments are due on
the thirtieth (30th) day of each successive month as set forth on the
Schedule until you pay to us in full all of the Payments and any other
fees, costs, charges and expenses that you owe us.
(h) INTEREST. Prior to Maturity of an Advance, you will pay us interest on
the Advance at the interest rate indicated in the applicable Schedule
(the "Interest Rate"). "Maturity" means the scheduled maturity or any
earlier date on which we accelerate the Loan. The Payment amount
indicated in the Schedule includes interest at the applicable Interest
Rate. Interest is calculated in advance using a year of 360 days with
twelve months of 30 days.
(i) INTERIM INTEREST PAYMENT. If an Advance is made on a day other than
the thirtieth (30th) or thirty-first (31st) day of a month, you will
also pay to us, together with the First Payment, interest on the
Advance at the applicable interest rate for the period from the date
the Advance is made until the twenty-ninth (29th) day of the month in
which the Advance is made. If an Advance is made on the thirty-first
(31st) day of a month, you will also pay to us, together with the
First Payment, interest on the Advance at the applicable interest rate
for the period from the date the Advance is made until the
twenty-ninth (29th) day of the following month. If an Advance is made
on the thirtieth (30th) day of a month, no interim interest will be
due.
(j) DEFAULT INTEREST RATE. After Maturity of the Loan or any Advance, you
will pay us interest thereon at a rate of four (4%) percent per year
above the applicable Interest Rate. This is referred to as the
"Default Rate."
(k) USURY. You and we intend to obey the law. If the Interest Rate charged
would exceed the maximum legal rate, you will only have to pay the
maximum legal rate. You do not have to pay any excess interest over
and above the maximum legal rate of interest. However, if it later
becomes legal for you to pay all or part of any excess interest, you
will then pay it to us upon our request.
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(l) PAYMENT DETAILS. You will make all Payments due under this Master
Agreement by 2:00 P.M., Connecticut time, on the day they are due. You
will make all Payments in US Dollars (US$) in immediately available
funds. We do not have to make or give "presentment, demand, protest or
notice" to get paid. You waive "presentment, demand, protest and
notice."
(m) APPLICATION OF PAYMENTS. Each Payment under this Master Agreement is
to be applied in the following order: first, to any fees, costs,
expenses and charges you may owe us; second, to any interest due; and
third to the principal balance.
(n) PREPAYMENT. You may not prepay the Loan or any Advance, in whole or in
part, unless this is specifically permitted by Exhibit B to the
applicable Schedule.
(o) NO SETOFFS. Your obligation to pay us all Payments is absolute and
unconditional. You are not excused from making the Payments, in full,
for any reason. You agree that you have no defense for failure to make
the Payments and you will not make any counterclaims or setoffs to
avoid making the Payments.
2. SECURITY INTEREST
(a) You grant us a first and only lien (subject only to Permitted Liens,
as hereinafter defined) on and security interest in the Collateral.
The Collateral secures the full and timely payment and performance of
all of your now existing or hereafter arising indebtedness,
liabilities and obligations to us, whether under this Master
Agreement, the Schedules, the Notes and any other agreement, loan or
lease that you may at any time or times have with us or otherwise
(collectively, the "Obligations"). You also grant us a security
interest in any additional collateral identified in any Schedule. Any
additional collateral is considered to be "Collateral" and it secures
all of the Obligations.
(b) If we request, you will put labels supplied by us stating "PROPERTY
SUBJECT TO A SECURITY INTEREST HELD BY FINOVA CAPITAL CORPORATION" on
the Collateral where they are clearly visible.
(c) You give us permission to add to this Master Agreement or any Schedule
the serial numbers and other information about the Collateral.
(d) You give us permission to file this Master Agreement or Uniform
Commercial Code financing statements, at your expense, in order to
perfect our security interest in the Collateral. You also give us
permission to sign your name on the Uniform Commercial Code financing
statements where this is permitted by law.
(e) You will pay our reasonable fees and costs for documentation, closing,
administration and termination of this Master Agreement, the Notes and
Schedules. Notwithstanding the foregoing, you will pay such fees and
expenses incurred in connection with the transaction, including the
fees and expenses of counsel to prepare, review and negotiate the
documentation and close the transaction, up to a maximum of $7,000.
Any fees and expenses in excess of $7,000 will be shared equally by
FINOVA and you. These fees include such items as reasonable attorneys
fees and expenses incurred in preparing this Master Agreement and all
agreements, instruments and documents executed in connection herewith,
and all amendments, supplements and waivers hereto and thereto, as
well as due diligence searches and fees for preparing and filing UCC
terminations and releases. You will also pay any filing, recording or
stamp fees or taxes resulting from filing this Master
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Agreement or a Uniform Commercial Code financing statements.
(f) At your expense, you will defend our first priority security interest
in the Collateral against, and keep the Collateral free of, any legal
process, liens, other security interests, attachments, levies and
executions, other than Permitted Liens. You will give us immediate
written notice of any legal process, liens, attachments, levies or
executions, and you will indemnify us against any loss that results to
us from these causes.
(g) You will notify us at least 15 days before you change the address of
your principal executive office or principal place of business. Your
principal executive office and principal place of business are set
forth at the beginning of this Master Agreement.
(h) You will promptly sign and return additional documents that we may
reasonably request in order to protect our first priority security
interest in the Collateral.
(i) Except as set forth in a Schedule, the Collateral is personal property
and will remain personal property. Except as set forth in a Schedule,
you will not incorporate it into real estate and will not do anything
that will cause the Collateral to become part of real estate or a
fixture.
3. CONDITIONS OF LENDING
(a) See our Commitment Letter to you dated May 6, 1999 (the "Commitment
Letter"), which you and we consider to be a part of this Master
Agreement. The terms and conditions of the Commitment Letter continue
following the making of the first Advance, including, without
limitation, conditions to the Loan. However, if there is a conflict
between the terms and conditions of this Master Agreement, any
Schedule or any Note and the terms and conditions of the Commitment
Letter, then you and we agree that the terms and conditions of this
Master Agreement, the Schedules and the Notes control over the
Commitment Letter terms and conditions.
(b) Before we disburse any proceeds of any Advance, we also require the
following:
(i) That no payment is past due to us under any other agreement,
loan or lease that you have with us.
(ii) That you are complying with all terms of this Master Agreement,
the Schedules and the Notes and there are no defaults hereunder
or thereunder.
(iii) That we have received all the documents we requested, including
the signed Schedule and Note.
(iv) That there has been no material adverse change in your financial
condition, business or operations, from the financial condition
that you have disclosed to us.
(v) All conditions contained in the Commitment Letter have been
satisfied.
4. REPRESENTATIONS AND WARRANTIES
You represent and warrant to us as follows:
(a) You are duly organized, existing and in good standing wherever you or
it are required by law to be so qualified. You have full power and
authority to execute, deliver and carry out the provisions of this
Master Agreement, the Schedules and the Notes and to borrow hereunder
and thereunder. This Master Agreement, the Schedules and the Notes are
validly executed and delivered by you and are the legal, valid and
binding obligations of
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you, each enforceable in accordance with its terms.
(b) Except as disclosed in a Schedule, you are not a defendant under any
material litigation and there are no judgments outstanding against
you.
(c) All of the FF&E has been delivered to you and installed at the
location set forth on the Schedule and you have accepted all of the
FF&E for all purposes of this Master Agreement.
(d) You have good title to all of your assets, including, without
limitation, the Collateral, and in the case of the Collateral, free
and clear of all security interests, liens and other encumbrances,
except for Permitted Liens. Upon filing of UCC-1 financing statements
in all applicable filing offices, we will be granted a first and only
(except for Permitted Liens) perfected lien on and security interest
in all of the Collateral. There are no other security interests, liens
or encumbrances covering the Collateral, except for Permitted Liens.
For purposes of this Master Agreement, "Permitted Liens" means (i)
liens for taxes, assessments and other governmental charges or levies
or the claims or demands of landlords, carriers, warehousemen,
mechanics, laborers, materialmen and other like persons arising by
operation of law in the ordinary course of business for sums which are
not yet due and payable; (ii) liens to secure the payment of sums
which are not yet due and payable incurred in the ordinary course of
business with respect to workers' compensation, unemployment insurance
or other social security benefits or obligations, public or statutory
obligations; (iii) liens in favor of FINOVA; and (iv) liens in favor
of customs and revenue authorities arising as a matter of law to
secure payments of customs duties in connection with the importation
of goods, which liens are limited to the extent that such assets are
in the possession of customs authorities..
(e) You have supplied us with information about the Collateral. You
promise to us that the amount of our Advance as to each item of FF&E
is no more than the fair and usual price for this kind of FF&E, taking
into account any discounts, rebates and allowances that you or any
affiliate of yours may have been given for the FF&E.
(f) The Collateral is located at the premises set forth on the Schedule.
(g) All financial information and other information that you have given us
is true and complete. You have not failed to tell us anything that
would make the financial information not misleading. There has been no
material adverse change in your financial condition, business or
operations, from the financial condition, business or operations that
you disclosed to us.
(h) You have complied with all "environmental laws" and will continue to
comply with all "environmental laws," except where noncompliance could
not reasonably be expected to have a material adverse effect on the
business, property or assets, condition (financial or otherwise) or
operations of you and your subsidiaries. No "hazardous substances" are
used, generated, treated, stored or disposed of by you or at your
properties except in compliance with all environmental laws.
"Environmental laws" mean all federal, state or local environmental
laws and regulations, including the following laws: CERCLA, RCRA,
Hazardous Materials Transport Act and The Federal Water Pollution
Control Act. "Hazardous substances" means all hazardous or toxic
wastes, materials or substances, as defined in the environmental laws,
as well as oil, flammable substances, asbestos that is or
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could become friable, urea formaldehyde insulation, polychlorinated
biphenyls and radon gas.
5. COVENANTS
You agree to do the following things (or not to do the following things if so
stated) until full payment of all amounts due to us under this Master Agreement,
the Schedules and the Notes:
(a) CARE, USE, LOCATION, TRANSFER, ENCUMBRANCE AND ALTERATION OF THE
COLLATERAL.
(i) You will make sure that the Collateral is maintained in good
operating condition (ordinary wear and tear excepted), and that
it is serviced, repaired and overhauled when this is necessary
to keep the Collateral in good operating condition. All
maintenance must be done according to the Supplier's or
Manufacturer's requirements or recommendations. All maintenance
must also comply with any legal or regulatory requirements.
(ii) You will maintain service logs for the Collateral, if
applicable, and permit us or our agents to inspect the
Collateral, the service logs and service reports. You give us
and our agents permission to make copies of the service logs and
service reports.
(iii) We will give you prior notice if we, or our agents, want to
inspect the Collateral or the service logs or service reports.
We may inspect it during regular business hours. If we find
during an inspection that you are not complying with this Master
Agreement or if you are otherwise in default under this Master
Agreement, you (and not we) will pay our travel, meals and
lodging costs, our salary costs, and our costs and fees and
those of our agents for reinspection. You will promptly cure any
problems with the Collateral that are discovered during our
inspections.
(iv) You will use the Collateral only for business purposes. You will
obey all legal and regulatory requirements in your use of the
Collateral, except where noncompliance could not reasonably be
expected to have a material adverse effect on the business,
property or assets, condition (financial or otherwise) or
operations of you and your subsidiaries.
(v) You will make all additions, modifications and improvements to
the Collateral that are required by law or government
regulation. Otherwise, you will not alter the Collateral without
our written permission. You will replace all worn, lost, stolen
or destroyed parts of the Collateral with replacement parts that
are as good or better than the original parts. The new parts
will become subject to our security interest upon replacement.
(vi) You will not remove the Collateral from the location indicated
in the Schedule, provided, however, that you may move the
Collateral presently located at such location to another
location located in the continental United States, but if and
only if (a) you shall have given us not less than thirty (30)
days prior written notice of the
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actual move and a list of all Collateral being so moved, (b) there is
then no default hereunder, (c) if the new location is leased, prior to
such move, we shall have received a Landlord Waiver executed by the
landlord of the new location, said Landlord Waiver to be in form and
substance satisfactory to us, (d) we shall have been granted a first
perfected lien and security interest on such moved Collateral and
there shall be no other liens covering such Collateral (other than
Permitted Liens), (e) you shall have executed and delivered to us all
such agreements, instruments and documents reasonably requested by us
in connection therewith, and (f) we shall have received satisfactory
results of all due diligence searches (including, without limitation,
environmental audits).
(vii) You have and will have good and merchantable title to all of
the Collateral.
(viii) You will not convey, assign, sell, mortgage, transfer,
encumber, pledge, hypothecate, grant a security interest in,
grant options with respect to, lease or otherwise dispose of
all or any part of any interest whatsoever in or to any or all
of the Collateral, or any interest therein.
(b) YEAR 2000 COMPLIANT.
You represent, warrant and agree to take all action necessary,
including, but not limited to, due inquiry and due diligence with
critical business partners to assure that there will be no material
adverse change to your business by reason of the advent of the year
2000, including, without limitation, that all computer-based systems,
embedded microchips and other processing capabilities effectively
recognize and process all dates before and after December 31, 1999
("Y2K Compliant"). At our request, you shall provide to us assurance
reasonably acceptable to us that your computer-based systems, embedded
microchips and other processing capabilities are Y2K Compliant.
(c) RISK OF LOSS.
(i) You have the complete risk of loss or damage to the Collateral.
Loss or damage to the Collateral will not relieve you of your
obligation to make the Payments.
(ii) If any Collateral is lost or damaged, you have two choices
although if you are in default under this Master Agreement, we
and not you will have the two options). The choices are:
(A) Repair or replace the damaged or lost Collateral so that,
once again, the Collateral is in good operating condition
and we have a perfected first priority security interest in
it.
(B) Pay us the present value (as of the date of payment) of the
remaining Payments. We will calculate the present value
using a discount rate of five (5%) percent per year. Once
you have paid us this amount and any other amount that you
may owe us, we will release our security interest in the
damaged or lost Collateral and you (or your insurer)
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may keep the Collateral for salvage purposes, on an "AS IS,
WHERE IS" basis and without any representation or warranty
whatsoever.
(d) INSURANCE.
(i) Until you have made all Payments to us under this Master
Agreement, the Schedules and the Notes and all Obligations have
been satisfied in full, you will keep the Collateral insured.
The amount of insurance, the coverage, and the insurance company
must be acceptable to us.
(ii) If you do not provide us with written evidence of insurance that
is acceptable to us, we may buy the insurance ourselves, at your
expense. You will promptly pay us the cost of this insurance. We
have no obligation to purchase any insurance. Any insurance that
we purchase will be our insurance, and not yours, and we may
insure the Collateral beyond the date of satisfaction of the
Obligations.
(iii) Insurance proceeds may be used to repair or replace damaged or
lost Collateral or to pay us the present value of the Payments,
as provided above.
(iv) You appoint us as your "attorney-in-fact" to make claims under
the insurance policies, to receive payments under the insurance
policies, and to endorse your name on all documents, checks or
drafts relating to insurance claims for Collateral.
(e) TAXES.
(i) You will pay all sales, use, excise, stamp, documentary and ad
valorum taxes, license, recording and registration fees,
assessments, fines, penalties and similar charges imposed on the
ownership, possession, use, lease or rental of the Collateral or
on the Loan.
(ii) You will pay all taxes (other than our federal or state net
income taxes) imposed on you or on us regarding the Payments.
(iii) You will reimburse us for any of these taxes that we pay or
advance.
(iv) You will file and pay for any personal property taxes on the
Collateral.
(f) INFORMATION SUPPLIED BY YOU.
(i) During the Term you will promptly provide us with copies of any
current, quarterly and annual reports and all proxy (or
information) statements you file with the Securities and
Exchange Commission ("SEC").
(ii) You will also provide us with the following financial
statements:
(A) Quarterly balance sheet and statements of earnings and cash
flow - within 45 days after the end of your first three
fiscal quarters in each fiscal year. These will be
certified by the chief financial officer.
(B) Annual balance sheet and statements of
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earnings and cash flow - within 90 days after the end of
each fiscal year. These will be audited by independent
auditors acceptable to us. Their audit report must be
unqualified.
All financial statements will be prepared according to generally
accepted accounting principles, consistently applied. The consolidated
balance sheets of the Borrower and its subsidiaries as of the date
thereof, and the statements of income and cash flows fairly present
the results of the operations of the Borrower and its subsidiaries and
their cash flows for the periods indicated. The SEC filings that you
provide us will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements contained therein not misleading.
(iii) At the same time you deliver the financial statements described
in paragraph 5(f)(ii)(A), you will also provide us with a
certificate of your chief financial officer stating that no
default exists, or, if he cannot certify this because a default
does exist, he must specify in reasonable detail the nature of
the default.
(iv) The audited financial statements described in paragraph
5(f)(ii)(B), must be accompanied by a certificate of such
independent auditor stating that no default exists, or, if it
cannot certify this because a default does exist, it must
specify in reasonable detail the nature of the default.
(g) MINIMUM CASH COVENANT.
You shall at all times maintain a cash balance (cash and marketable
securities) of not less than $20,000,000. You shall deliver to us,
monthly, on the 10th day of each month, a copy of your bank and/or
securities statements or other documents satisfactory to us evidencing
such cash balance, which evidence shall be certified by your Chief
Financial Officer as being complete, true and accurate. If the cash
balance for any one month is less than $20,000,000, you shall cause to
have issued and delivered to us an irrevocable standby letter of
credit (in form and substance satisfactory to us and issued by a bank
satisfactory to us) in our favor as beneficiary, in an amount equal to
the then outstanding principal balance of the Loan and all accrued
interest thereon. Thereafter, it shall be an additional condition to
the making of each further Advance, that you shall have caused to be
issued and delivered to us an additional irrevocable standby letter of
credit (each in form and substance satisfactory to us and issued by a
bank satisfactory to us) in our favor as beneficiary, each in an
amount equal to the requested Advance. Each letter of credit shall
provide for automatic renewal annually for the entire Term of the Loan
and shall permit us to draw in full if any such letter of credit is
not so renewed or if a new letter of credit (satisfactory to us issued
by a bank satisfactory to us) is not substituted at least sixty (60)
days prior to the expiration of any such letter of credit. The failure
to provide any such letter of credit or if any such letter of credit
shall at any time cease to be in full force and effect, shall be a
default under this Master Agreement.
6. DEFAULTS
(a) DEFAULTS. You are in default if any of the
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following happens:
(i) You do not pay us, within five (5) business days of the date
when it is due, any Payment or other amount that you owe us
under this Master Agreement, any Schedule or any Note or that
you owe us under any other agreement, loan, lease or other
financial arrangement that you have with us.
(ii) Any of the financial information that you give us is not true
and complete, or you fail to tell us anything that would make
the financial information not misleading.
(iii) You do something you are not permitted to do, or you fail to
do, within fifteen (15) days of the date required for
performance, anything that is required of you, under this
Master Agreement, any Schedule or any other lease, loan or
other financial arrangement that you have with us.
(iv) An event of default occurs for any other lease, loan or
obligation of yours that exceeds $100,000 in the aggregate.
(v) You file bankruptcy, or involuntary bankruptcy is filed against
you and such involuntary bankruptcy is not dismissed within
sixty (60) days.
(vi) You are subject to any other insolvency proceeding other than
bankruptcy (for example, a receivership action or an assignment
for the benefit of creditors) and such proceeding that is
involuntary is not dismissed within sixty (60) days.
(vii) Without our permission, you sell all or a substantial part of
your assets, merge or consolidate, or a majority of your voting
stock or interests is transferred.
(viii) There is a material adverse change in your financial condition,
business or operations.
(b) REMEDIES, DEFAULT INTEREST, LATE FEES. If you are in default we may
exercise one or more of our "remedies." Each of our remedies is
independent. We may exercise any of our remedies, all of our remedies
or none of our remedies. We may exercise them in any order we choose.
Our exercise of any remedy will not prevent us from exercising any
other remedy or be an "election of remedies." If we do not exercise a
remedy, or if we delay in exercising a remedy, this does not mean that
we are forgiving your default or that we are giving up our right to
exercise the remedy. Our remedies allow us to do one or more of the
following:
(i) "Accelerate" the Loan balance under any or all Notes. This
means that we may require you to immediately pay us the entire
outstanding principal balance of the entire Loan.
(ii) Require you to immediately pay us all amounts that you are
required to pay us for the entire Term of any other agreements,
loans, leases or financial arrangements that you have with us.
(iii) Sue you for the entire outstanding principal balance of the
Loan and all other amounts you owe us (including, without
limitation, all accrued and unpaid interest, including interest
at the Default Rate), outstanding fees,
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costs, expenses and charges, plus all prepayment premiums.
(iv) Require you at your expense to assemble the Collateral at a
location we request in the United States of America.
(v) Remove and repossess the Collateral from where it is located,
without demand or notice, or make the Collateral inoperable. We
have your permission to remove any physical obstructions to
removal of the Collateral. We may also disconnect and separate
all Collateral from other property. No court order, court
hearing or "legal process" will be required for us to repossess
the Collateral. You will not be entitled to any damages
resulting from removal or repossession of the Collateral. We
may use, ship, store, repair or lease any Collateral that we
repossess. We may sell any repossessed Collateral at private or
public sale. You give us permission to show the Collateral to
buyers at your location free of charge during normal business
hours. If we do this, we do not have to remove the Collateral
from your location. If we repossess the Collateral and sell it,
we will give you credit for the net sale price, after
subtracting our costs of repossessing and selling the
Collateral. If we rent the Collateral to somebody else, we will
give you credit for the net rent received, after subtracting
our costs of repossessing and renting the Collateral, but the
credit will be discounted to present value using a discount
rate equal to the Default Rate. The credit will be applied
against what you owe us under this Master Agreement, the
Schedules, the Notes and any other agreements, loans, leases
and other financial arrangements that you have with us. If the
credit exceeds the amount you owe under this Master Agreement,
the Schedule, the Notes and any other agreements, loans, leases
or financial arrangements that you have with us, we will refund
the amount of the excess to you.
(vi) We will have all of our rights and remedies under this Master
Agreement, the Notes, the Schedules and all agreements,
instruments and documents executed in connection herewith and
therewith and all of our rights and remedies under applicable
law, whether as a secured party or otherwise.
(vii) Return conditions:
(A) Following a default, at our request you will return the
Collateral, freight and insurance prepaid by you, to us at
a location we request in the United States of America. It
will be returned in good operating condition, as required
by Section 5 above. The Collateral will not be subject to
any liens when it is returned.
(B) You will pack or crate the Collateral for shipping in the
original containers, or comparable ones. You will do this
carefully and follow all recommendations of the Supplier
and the Manufacturer as to packing or crating.
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(C) You will also return to us the plans, specifications,
operating manuals, software, documentation, discs,
warranties and other documents furnished by the
Manufacturer or Supplier. You will also return to us all
service logs and service reports, as well as all written
materials that you may have concerning the maintenance and
operation of the Collateral.
(D) At our request, you will provide us with up to 60 days
free storage of the Collateral at your location, and will
let us (or our agent) have access to the Collateral in
order to inspect it, display it to others for purchase and
sell it.
(E) You will pay us what it costs us to repair the Collateral
if you do not return it in the required condition.
(viii) You will also pay us the following:
(A) All our expenses of enforcing our remedies. This includes
all our expenses to repossess, store, ship, repair and
sell the Collateral.
(B) Our reasonable attorney's fees and expenses.
(C) Default interest on everything you owe us from the date of
your default to the date on which we are paid in full at
the Default Rate.
(D) A premium in the amount of five percent (5%) of the
outstanding principal balance of the Loan.
(ix) You will pay us a late fee whenever you pay any amount that you
owe us more than ten (10) days after it is due. You will pay
the late fee within one month after the late Payment was
originally due. The late fee will be ten (10%) percent of the
late Payment. If this exceeds the highest legal amount we can
charge you, you will only be required to pay the highest legal
amount. The late fee is intended to reimburse us for our
collection costs that are caused by late Payment. It is charged
in addition to all other amounts you are required to pay us,
including Default Interest.
(x) You realize that the damages we could suffer as a result of
your default are very uncertain. This is why we have agreed
with you in advance on the Default Rate to be used in
calculating the payments you will owe us if you default. You
agree that, for these reasons, the payments you will owe us if
you default are "agreed" or "liquidated" damages. You
understand that these payments are not "penalties" or
"forfeitures."
7. PERFORMING YOUR OBLIGATIONS IF YOU DO NOT
If you do not perform one or more of your obligations under this Master
Agreement or a Schedule or Note, we may perform it for you. We will notify you
in writing at least ten (10) days
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before we do this. We do not have to perform any of your obligations for you. If
we do choose to perform them, you will pay us all of our expenses to perform the
obligations. You will also reimburse us for any money that we advance to perform
your obligations, together with interest at the Default Rate on that amount.
These will be additional "Payments" that you will owe us and you will pay them
at the same time that your next Payment is due.
8. INDEMNITY
(a) You will indemnify us, defend us and hold us harmless from and against
any and all claims, expenses and attorney's fees concerning or arising
from the Collateral, this Master Agreement, any Schedule or Note, or
your breach of any representation, warranty or covenant. It includes,
without limitation, any claims, losses or charges concerning, arising
out of or in connection with the manufacture, selection, delivery,
possession, use, operation or return of the Collateral and any claims,
losses or damages concerning, arising out of or in connection with
this Master Agreement, any Schedule or the Notes.
(b) This obligation of yours to indemnify us continues even after the Term
is over.
9. MISCELLANEOUS
(a) ASSIGNMENT.
WE MAY ASSIGN OR GRANT A SECURITY INTEREST IN THIS MASTER AGREEMENT,
ANY SCHEDULE, ANY NOTE OR ANY PAYMENTS WITHOUT YOUR PERMISSION. THE
PERSON TO WHOM WE ASSIGN IS CALLED THE "ASSIGNEE." THE ASSIGNEE WILL
NOT HAVE ANY OF OUR OBLIGATIONS UNDER THIS MASTER AGREEMENT. YOU WILL
NOT BE ABLE TO RAISE ANY DEFENSE, COUNTERCLAIM OR OFFSET AGAINST THE
ASSIGNEE. NOTWITHSTANDING ANY SUCH ASSIGNMENT OR GRANTING OF A
SECURITY INTEREST, WE WILL CONTINUE TO BE LIABLE FOR ALL OF OUR
OBLIGATIONS UNDER THIS MASTER AGREEMENT.
UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR
TRANSFER YOUR RIGHTS UNDER THIS MASTER AGREEMENT OR ANY SCHEDULE. YOU
ALSO ARE NOT ALLOWED TO LEASE OR RENT THE COLLATERAL OR LET ANYBODY
ELSE USE IT UNLESS WE GIVE YOU OUR WRITTEN PERMISSION.
(b) ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF
PROCESS, WAIVER OF JURY TRIAL.
THIS MASTER AGREEMENT WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN
WRITING.
THIS MASTER AGREEMENT IS GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE
OF ARIZONA (NOT INCLUDING THE "CHOICE OF LAW" DOCTRINE), THE STATE IN
WHICH OUR OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS OR
CONDITIONS OF THIS MASTER AGREEMENT OCCURRED AND FROM WHICH
DISBURSEMENT OF THE LOAN PROCEEDS WILL BE ORDERED. HOWEVER, IF THIS
MASTER AGREEMENT IS UNENFORCEABLE UNDER ARIZONA LAW, IT WILL INSTEAD
BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS
LOCATED.
YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN
MARICOPA COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL
THEORIES, INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT
TO THE
-13-
<PAGE> 14
PERSONAL JURISDICTION OF THESE ARIZONA COURTS. YOU WILL NOT CLAIM THAT
MARICOPA COUNTY, ARIZONA, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT
A PROPER "VENUE."
WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH
PROCESS IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR
ADDRESS INDICATED AFTER YOUR SIGNATURE BELOW.
YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.
(c) NOTICES. Your address for notices is your address set forth below your
name on the signature page of this Master Agreement. We may give you
written notice in person, by mail, by overnight delivery service, or
by fax. Mail notice will be effective three (3) days after we deposit
it with the U.S. Postal Service. Overnight delivery notice requires a
receipt and tracking number. Fax notice requires a receipt from the
sending machine showing that it has been sent to your fax number and
received.
Our address for notices is our address set forth below our name on the
signature page of this Master Agreement, with attention: Director,
Contract Administration. You will also give copies of all notices to
us at our principal place of business at the address set forth in the
opening paragraph of this Master Agreement, with attention to Vice
President, Law Department. You may give us notice the same way that we
may give you notice.
(d) GENERAL
This Master Agreement benefits our successors and assigns. This Master
Agreement benefits only those successors and assigns of yours that we
have approved in writing.
This Master Agreement binds your successors and assigns. This Master
Agreement binds only those successors and assigns of ours that clearly
assume our obligations in writing.
TIME IS OF THE ESSENCE OF THIS MASTER AGREEMENT
This Master Agreement, all of the Schedules and the Notes and the
Commitment Letter are together the entire agreement between you and us
concerning the Collateral.
Only an employee of FINOVA who is authorized by corporate resolution
or policy may modify or amend this Master Agreement or any Schedule or
Note on our behalf, and this must be in writing. Only he or she may
give up any of our rights, and this must be in writing. If more than
one person is the Borrower under this Master Agreement, then each of
you is jointly and severally liable for your obligations under this
Master Agreement and all Schedules and Notes.
This Master Agreement is only for your benefit and for our benefit, as
well as our successors and assigns. It is not intended to benefit any
other person.
If any provision in this Master Agreement is unenforceable, then that
provision must be deleted. Only unenforceable provisions are to be
deleted. The rest of this Master Agreement will remain as written.
We may make press releases and publish a tombstone announcing this
transaction and its total amount. You may publicize this transaction
with our prior written consent.
-14-
<PAGE> 15
LENDER: BORROWER:
FINOVA CAPITAL CORPORATION AVIRON, INC.
10 WATERSIDE DRIVE 297 N. BERNARDO AVENUE
FARMINGTON, CT 06032-3065 MOUNTAIN VIEW, CA 94043
BY: /s/ Linda A. Moschitto BY: /s/ Fred Kurland
----------------------------- ----------------------------
PRINTED NAME: Linda A. Moschitto PRINTED NAME: Fred Kurland
------------------- ------------------
TITLE: Director-Contract Administration TITLE: Senior Vice President and CFO
-------------------------- -------------------------
FAX NUMBER: (860) 676-1814 Taxpayer ID#77-0309686
-------------------
DATE ACCEPTED: July 23, 1999 FAX NUMBER: 650-919-6612
------------------ --------------------
DATED: June 22, 1999
-------------------------
-15-
<PAGE> 16
STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
I acknowledge that Fred Kurland, who stated that he is Senior Vice
President & CFO of the Borrower named above, signed this Master Loan and
Security Agreement in my presence today: June 22, 1999. He/She acknowledged to
me that his/her signature on this Master Loan and Security Agreement was
authorized by a valid resolution or other valid authorization from Borrower's
board of directors or other governing body.
/s/ Anne M. LeDoux
---------------------------
Notary Public
[SEAL]
-16-
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