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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: January 9, 2001
Date of earliest event reported: January 8, 2001
AVIRON
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
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<S> <C>
0-20815 77-0309686
(Commission File No.) (IRS Employer Identification No.)
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297 N. BERNARDO AVENUE
MOUNTAIN VIEW CALIFORNIA 94043
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (650) 919-6500
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ITEM 5. OTHER EVENTS.
On January 8, 2001, we announced that American Home Products Corporation,
or AHP, agreed to make a $10.0 million payment to us to support commercial
manufacturing and inventory build-up of FluMist(TM) for a potential product
launch during the 2001-2002 influenza season. The payment is an advance against
future amounts AHP will owe us under our global collaboration agreement for
FluMist(TM). Also on January 8, 2001, we announced that C. Boyd Clarke, our
president and chief executive officer, was elected chairman of the board of
directors. He succeeds J. Leighton Read, M.D., our founder, who will remain on
our board of directors.
In order to comply with Regulation FD in connection with our planned
disclosure and discussion at the J.P. Morgan H&Q 19th Annual Healthcare
Conference in San Francisco, California on January 9, 2001, we are disclosing
the following information.
RECENT DEVELOPMENTS
On October 12, 2000, we sold 450,000 shares of common stock in a private
transaction to Biotech Invest, S.A., an affiliate of Biotech Target, S.A., at a
price of $48.00 per share for proceeds of $21.6 million. Since September 30,
2000, we have sold a total of 612,307 shares of our common stock under our
agreement with Acqua Wellington North America Equity Funds Ltd., or Acqua
Wellington, at an average price per share of $52.26 for total proceed of $32.0
million in four separate transactions. On January 5, 2001, we exercised our
final option to sell shares of common stock to Acqua Wellington under our
agreement with them for proceeds of $8 million. The number of shares will be
determined on January 23, 2001 based upon the closing price of our common stock
over an eleven trading day period ending that day.
Since September 30, 2000, we have exchanged approximately $51.7 million
aggregate principal amount of our 5 3/4% Convertible Subordinated Notes due 2005
for 1,722,673 shares of our common stock in a number of privately negotiated
transactions. Additional non-cash expense related to the exchanges was
approximately $2.7 million. The $1.2 million of unamortized debt issue costs
related to the 5 3/4% convertible notes exchanged have been charged to
additional paid-in capital. As of December 31, 2000, approximately $48.3 million
aggregate principal amount of our 5 3/4% convertible notes remain outstanding.
On December 28, 2000, the FDA accepted our BLA for filing, which triggered
a $15.5 million payment from Wyeth Lederle Vaccines, or Wyeth. We received the
payment from Wyeth on January 2, 2001, and it will appear as revenue in our
fourth quarter 2000 financial statements.
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OVERVIEW OF SOME ISSUES RELATED TO
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since our inception in April 1992, we have devoted substantially all of our
resources to our research and development programs. To date, we have not
generated any revenues from the sale of products and do not expect to generate
any revenues from the sale of products until the third quarter of 2001 at the
earliest. We have incurred cumulative net losses of approximately $251.4 million
as of September 30, 2000. We expect to incur substantial operating losses
through this year and may incur losses after 2001.
We expect our research and development expenditures, which include
pre-marketing manufacturing expenses, to increase substantially over the next
several years as we expand our research and development efforts, preclinical
testing and clinical trials with respect to some of our programs, and initiation
of sustained commercial scale manufacturing of FluMist. In addition, we expect
general, administrative and marketing expenses to continue to increase as we
expand our operations and prepare for the potential commercial launch of
FluMist. Capital expenditures may also increase, and we will incur substantial
cash and non-cash charges resulting from a restructuring of our U.K.
manufacturing activities.
In February 2000, we amended our agreement with the University of Michigan
to accelerate the issuance of a warrant to the university. As a result of this
amendment, we granted the university a fully-vested non-forfeitable warrant to
purchase 340,000 shares of our common stock at an exercise price of $10.00 per
share. Also, as a result of this amendment, we recorded a one-time charge of
approximately $10.9 million in the first quarter of 2000 representing the fair
value of the warrant. Upon the date of the first commercial sale of FluMist, if
we have more than 27.2 million shares outstanding, we will issue an additional
warrant allowing the university to purchase 1.25 percent of the excess shares on
the same terms. If we issue such a warrant, its value will be capitalized and
amortized to expense over the expected life of FluMist.
To motivate our employees and align their interests with our stockholders,
on February 9, 2000, we granted options for the purchase of a total of 1,264,900
shares of our common stock at an exercise price of $24.00, the closing price of
our stock on February 8, 2000. Approximately 27 percent of the options became
exercisable upon the acceptance by the FDA for filing of our BLA submission on
December 28, 2000. Another 40 percent become exercisable upon the earlier to
occur of (1) the date on which the FDA approves FluMist for marketing in the
United States and (2) February 2005. The final 33 percent of these options will
become exercisable when the FDA approves FluMist for marketing in the United
States, but only if this event occurs in 2001. If FDA marketing approval for
FluMist is not obtained by December 31, 2001, these options will be cancelled.
If the final 33 percent of these options become exercisable, we anticipate
incurring compensation expense in the period in which they become exercisable in
an amount equal to the difference between the exercise price of the options and
the then current fair market value of our common stock. Through September 30,
2000, we granted options with similar vesting provisions for the purchase of an
additional 214,350 shares of our common stock at exercise prices ranging from
$24.25 to $40.56.
During October 2000, we restructured our manufacturing agreement with Evans
in order to gain direct control over FluMist manufacturing operations. We
obtained responsibility for bulk manufacture of FluMist in Evans' Speke, U.K.
facility, hired approximately 100 Evans employees who had been working on
FluMist, and entered into sub-leases through June 2006 for the FluMist
manufacturing areas on the existing site. In connection with the restructuring
of our manufacturing agreement, we made an initial payment of $15.0 million and
will make additional annual payments of $3.9 million over each of the next five
years. As further consideration for the amendment to the contract manufacturing
agreement, we agreed to make payments
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totaling $19.0 million, which will be paid over the term of the agreement based
on net sales of FluMist. We also gave Evans warrants to purchase 63,162 shares
of our common stock at an exercise price of $47.50 per share, which we valued at
$1.2 million. We have valued the aggregate consideration, including the net
present value of the annual payments, at approximately $50.2 million, which we
recorded as an asset and will amortize over the remaining term of the Evans
agreement, which extends through June 2006. We have also recorded $34.0 million
of obligations to Evans consisting of the net present value of the annual
payments of $3.9 million and the $19 million obligation. The $19 million
obligation has not been discounted because the timing of the related payment is
not fixed, but rather is based on net sales of FluMist. In addition, we agreed
to make payments during the term of the agreement of $225,000 per year for the
use of the Aviron unit in the Evans manufacturing plant, payments up to an
aggregate of $3.0 million for attaining specific milestones, and payments for
other support services based on the costs of these services incurred. We will
expense rent and other support services as the costs are incurred and expense
milestones as they become due.
BUSINESS OUTLOOK
We anticipate an increase in operating expense in 2001 due primarily to an
increase in the size of our operations in the U.K. and expenses we expect to
incur as we make preparations for a potential commercial launch of FluMist in
the U.S. for the 2001 - 2002 influenza season. Assuming that we continue these
preparations, we expect to record operating expenses (including cash and
non-cash) of between $130 and $145 million in 2001, although the actual amount
may be higher depending on the amount of finished product ultimately
manufactured for the 2001-2002 influenza season. This amount includes
amortization expense associated with the restructuring of our contract
manufacturing agreement with Evans. The portion of 2001 operating expenses that
is depreciation and amortization is expected to be approximately $17 million,
compared to $4.3 million for the first nine months of 2000.
Our outlook for operating expenses in 2001 also does not include a one-time
non-cash charge associated with the vesting of employee stock options in the
event of a 2001 approval by the FDA for marketing of FluMist.
As part of preparing for a potential FluMist commercial launch for the
2001 - 2002 influenza season, we have begun the initial stages of commercial
scale manufacturing of FluMist. To support inventory buildup for 2001, Wyeth
has agreed to pay us $10 million as an advance against future amounts that Wyeth
will owe us under our agreement with them. We intend to record as research and
development expense, rather than capitalize into inventory, the majority of our
manufacturing spending until such time that FluMist is approved for marketing by
the FDA. Thus, a significant portion of anticipated 2001 operating expense will
include manufacturing activities. If we receive marketing approval for FluMist,
initial reported cost of goods sold may be lower than in future periods when
manufacturing expenses will be charged to cost of goods sold.
We expect capital expenditures to substantially increase as we commence
building of additional manufacturing facilities and commercialization systems
and facilities.
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision in our common stock. Our business, financial condition or
results of operations could be materially adversely affected by any of these
risks. The risks described below are not the only ones facing our company.
Additional risks not presently known to us or that we currently deem immaterial
may also impair our business operations.
RISKS RELATED TO FLUMIST
The most significant risks we currently face are those related to the
development and commercialization of FluMist. All of our potential near-term
revenues are dependent on the commercialization of FluMist. Because of the
seasonality of influenza, FluMist must be available in the third or fourth
quarter of the year for us to achieve revenues for that season. Delay in
availability of FluMist in the initial year of commercialization or in
subsequent years could cause us to lose revenues for an entire influenza season
and require us to raise additional capital to cover the costs of additional
research and development, manufacturing and ongoing fixed costs. In addition, we
may incur significant losses as a result of our decision to begin manufacturing
FluMist at commercial scale for use in the 2001 - 2002 influenza season before
receipt of marketing approval from the FDA.
IF THE FDA FINDS THAT OUR BLA FOR FLUMIST DOES NOT SUPPORT APPROVAL FOR
MARKETING, COMMERCIALIZATION OF FLUMIST MAY BE DELAYED BY ONE OR MORE INFLUENZA
SEASONS.
On December 28, 2000, the FDA accepted our BLA for FluMist for filing. If
the FDA finds that the validation, clinical or other required data in our BLA is
insufficient, the FDA could require corrective action or additional data, which
could delay or prevent approval. In November 1999, we announced that we would
not submit a BLA for FluMist in 1999 due to inconsistent test results observed
during the manufacturing process validation exercises. We concluded after
investigation that the inconsistencies were only associated with certain assays,
or tests, and not associated with FluMist or the manufacturing process. Although
we believe we have addressed these issues to ensure consistent assay performance
at commercial scale the FDA may find our BLA for FluMist does not support
approval for marketing for other reasons.
We are initially seeking FDA approval for use of FluMist in healthy
children and healthy adults. The FDA may not find our clinical data adequate to
support use in any particular group and may exclude any segment of the
population. The FDA may request additional clinical data to support the safety
or efficacy of FluMist in some or all of those population segments. We may be
required to commence and complete additional clinical trials to generate
additional data to support product approval for one or more of our target
populations, which may lead to substantial delay in FluMist approval or prevent
it from being approved for any of those population segments. Moreover, although
FluMist has been generally well tolerated in clinical trials to date, we are
continuing to conduct clinical trials and cannot exclude the possibility that
serious adverse events related to use of the vaccine might occur in the future.
IF THE FDA DETERMINES THAT OUR MANUFACTURING FACILITIES ARE NOT ADEQUATE, EITHER
BEFORE OR AFTER RECEIPT OF FDA MARKETING APPROVAL, WE MAY LOSE THE ABILITY TO
MANUFACTURE AND SELL FLUMIST FOR ONE OR MORE INFLUENZA SEASONS.
As part of the BLA approval process and on an ongoing basis thereafter, the
FDA is likely to inspect each of the facilities involved in manufacturing
FluMist. FDA inspectors may find deficiencies in the facilities or processes
that may delay or prevent FluMist marketing approval. Even if the FDA approves
FluMist for marketing, FDA inspectors could find deficiencies during future
inspections and we may lose the ability to manufacture and sell FluMist for one
or more influenza seasons.
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Several key stages of the FluMist manufacturing process take place in a
facility located in the U.K. This facility was formerly owned by Celltech
Medeva, or Medeva, the international marketing arm of Celltech Group Plc, but
has since been acquired by Evans. In October 2000, we leased from Evans the
section of the facility where the manufacture of FluMist takes place so that we
can have direct control over the FluMist manufacturing operations. In November
1999, Medeva notified us that it received a warning letter from the FDA
regarding the entire facility. Some of the comments in the letter referred to
the general utility systems in the facility, such as water and clean steam,
which are shared by us and are used to prepare supplies used in the manufacture
of FluMist. We have been assured by Evans that it has taken or is taking the
necessary steps to bring its systems and facility into compliance, and it is
working with the FDA to fulfill that objective. We believe that Evans has taken
the necessary steps to bring the relevant general utility systems into
compliance. However, we have also begun to implement plans to minimize our
dependence on these utilities. Those plans, some of which will require FDA
approval, involve the use of supplies, which will reduce our reliance on the
shared utility systems at Evans.
IF WE ARE UNABLE TO PERFORM THE COMPLEX ANNUAL UPDATE OF THE FLUMIST FORMULATION
FOR NEW INFLUENZA STRAINS IN A TIMELY MANNER, OUR SALES FOR THAT YEAR WILL BE
LIMITED OR WE MAY HAVE NO SALES AT ALL.
Early each year, the FDA determines which influenza strains will be
included in the upcoming season's vaccines. After the FDA selects the strains,
we will have approximately six months to include the selected strains and
manufacture FluMist for use in the upcoming influenza season. Major factors that
may delay availability of FluMist each year are:
- The FDA may delay its selection of strains for a given influenza season.
- We may experience difficulty or delay in the technically demanding
process we follow each year to update the formulation of FluMist.
- The FDA could require as a release test a brief clinical trial designed
to confirm the safety and/or activity (immune response) of the vaccine
including the new strains selected for that particular year.
- As with other vaccine manufacturers, the FDA will conduct tests on each
lot of vaccine to enter the market. If for some reason these tests are
delayed, it could have a material adverse effect on supplies of FluMist
to the market.
IF WE HAVE DIFFICULTIES WITH OUR MANUFACTURING PROCESS, WE MAY NOT HAVE
SUFFICIENT QUANTITIES OF VACCINE TO ASSURE AVAILABILITY.
We may not have sufficient quantities of vaccine in time to assure
availability for the season due to problems with updated strains or performance
of suppliers. Following inoculation with our updated influenza strains, bulk
vaccine is harvested from special hens' eggs. We are currently dependent on a
single supplier for an adequate and timely supply of eggs.
We may have difficulty with the blending, filling and packaging of FluMist.
The bulk vaccine for three strains of influenza must be diluted and blended
together prior to filling the nasal spray device. We depend upon a single
supplier for our nasal spray device. We also depend upon our packaging
contractor for packaging of the vaccine.
The FluMist manufacturing process is labor intensive and must be conducted
under strict controls and tight timelines. The vaccine is subject to strict
quality control testing during all phases of production and prior to release.
Any quality control testing failures could lead to a reduction in the available
supply of FluMist.
WE DO NOT HAVE EXPERIENCE IN MANUFACTURING FLUMIST AT A SUSTAINED COMMERCIAL
SCALE AND MAY ENCOUNTER UNANTICIPATED DIFFICULTIES IN ITS MANUFACTURE.
As anticipated with any business' scaling up, our costs associated with the
manufacture of FluMist at a sustained commercial scale initially will be high.
We may not be able to manufacture FluMist as planned and benefit as anticipated
from economies of scale. Prior to our October 2000 lease of the U.K. facility,
we had
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arrangements with an experienced vaccine manufacturer to produce FluMist on a
contract basis. Although we leased the U.K. manufacturing facility in order to
have direct control over the FluMist manufacturing and regulatory approval
process, and although we hired the approximately 100 Evans employees who have
been responsible for FluMist manufacturing, we have not manufactured FluMist at
a sustained commercial scale.
IT IS TIME-CONSUMING AND EXPENSIVE TO INCREASE MANUFACTURING CAPACITY, WHICH MAY
LEAD TO UNEVEN REVENUE GROWTH.
We initially may be capacity constrained in our supply of vaccine. It is
time-consuming and expensive to increase manufacturing capacity. In order to
secure future production capacity, we may extend and expand existing
arrangements, collaborate with other third parties, or establish additional
manufacturing facilities. Using an alternative supplier or building a new
facility would require a substantial amount of funds and additional clinical
trials and testing. We cannot be sure that an additional source of supply will
be established on a timely basis, or that we will have or be able to obtain
funds sufficient for building or equipping a new facility. If we are unable to
increase our manufacturing capacity, any annual revenue growth may be uneven.
THE SUCCESS OF FLUMIST IS HIGHLY DEPENDENT ON OUR PARTNER, WYETH LEDERLE
VACCINES, OR WYETH, FOR MARKETING, PROMOTION, SALES AND DISTRIBUTION ACTIVITIES.
We have entered into an exclusive agreement with Wyeth to co-promote, sell,
and distribute FluMist in the United States. We believe that for FluMist to be
widely adopted, the efforts of an experienced pharmaceutical sales force are
needed. If Wyeth fails to devote appropriate resources to promote, sell, and
distribute FluMist, sales of FluMist could be reduced. Distribution of FluMist
will be challenging for several reasons. First, influenza vaccine is a seasonal
product with a shipping period between August and January. Second, FluMist is a
frozen product and must remain frozen under recommended storage conditions prior
to use. Although Wyeth has a distribution system that supports frozen vaccines,
if it does not manage these distribution challenges our revenues could be
reduced. Furthermore, if we do not achieve timely licensure for the sale of
frozen FluMist in the United States, then Wyeth has the option to terminate our
agreement.
Wyeth currently participates in the development of a liquid formula of
FluMist, which will be important if FluMist is to be accepted outside of the
United States. Wyeth will also participate in the manufacturing, promotion,
sales and distribution of the liquid formulation. If Wyeth does not devote
sufficient resources to the development and commercialization of this
formulation, its commercial availability will be delayed.
The aggregate amount of license fees, milestone payments and financing
support due from Wyeth to us under this agreement could exceed $400 million, of
which we have received $50.5 million to date. If Wyeth breaches or terminates
its agreement with us or otherwise fails to conduct its FluMist related
activities in a timely manner or if there is a dispute about its obligations, we
may lose some or all of the above remaining payments and may need to seek
another partner. Additionally, the manufacturing and sale of FluMist could be
delayed, reduced or become substantially more expensive for us to achieve.
IF MEDICAL ADVISORY BODIES, DOCTORS, AND OTHER HEALTH CARE PROVIDERS DO NOT
RECOMMEND FLUMIST ITS MARKET OPPORTUNITY WILL BE LIMITED.
We believe recommendations from advisory bodies such as the Advisory
Committee on Immunization Practices of the Centers for Disease Control and
Prevention, or CDC, and the American Academy of Pediatrics will be important to
encourage doctors and other healthcare providers to recommend FluMist. If these
bodies do not recommend FluMist, the product's market opportunity will be
limited. We will also need to educate doctors and other healthcare advisors of
the safety and clinical efficacy of FluMist and its potential advantages over
other influenza vaccines.
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WHETHER OR NOT DOCTORS, OTHER HEALTH CARE PROVIDERS AND MEDICAL ADVISORY BODIES
RECOMMEND FLUMIST, IF THE MARKET DOES NOT ACCEPT FLUMIST, OUR SALES WILL BE
REDUCED.
FluMist acceptance may be limited by a number of factors, including:
- perceived clinical benefit of competing influenza vaccines, including the
flu shot, and other influenza related products;
- unfavorable publicity concerning other vaccines;
- pricing of FluMist;
- difficulties in consumer access to FluMist;
- reimbursement polices of government and third-party payors;
- side effects, such as the runny nose, sore throat or fever seen in some
clinical trial participants; and
- the requirement of frozen storage capacity by those distributing and
administering the vaccine.
WE FACE COMPETITION FROM COMPANIES WITH SUBSTANTIAL FINANCIAL, TECHNICAL AND
MARKETING RESOURCES, WHICH COULD SERIOUSLY LIMIT OUR FUTURE REVENUES FROM
FLUMIST.
FluMist will be competing against the flu shot, which is sold by
established pharmaceutical companies, including Wyeth, Evans and
Aventis-Pasteur, Inc.
We also operate in a rapidly evolving field. Other companies are working to
improve the clinical profile of flu shots. In addition, we are aware of efforts
to develop non-injectable influenza vaccines that would be more directly
competitive with FluMist. For example:
- a nasally administered inactivated vaccine is being developed by
Biovector Therapeutics, S.A. and Biochem Pharma, Inc. which has been
licensed to SmithKline Beecham Biologicals, S.A., or SmithKline Beecham;
- a nasally administered inactivated vaccine has been developed by Swiss
Serum Berna which has been licensed for sale in Switzerland; and
- a nasally administered live influenza vaccine has been developed and used
in Russia.
In 1999, the FDA approved two new products for the treatment of influenza:
zanamivir and oseltamivir. Zanamivir is marketed as Relenza and is sold by Glaxo
Wellcome Plc, and oseltamivir is marketed as Tamiflu and is sold by Roche
Holdings AG, or Roche. These products inhibit the ability of the influenza virus
to replicate. Both zanamivir, delivered via an inhaled powder, and oseltamivir,
a pill, were approved for influenza treatment. When administered within two days
of contracting influenza, zanamivir and oseltamivir may reduce the duration of
influenza by approximately one day. Clinical data also has shown that taking
zanamivir or oseltamivir daily for a period of time during the influenza season
can have a preventative effect. Recently, Roche received approval to market and
sell oseltamivir for the prevention of influenza in individuals over the age of
thirteen.
THE FLUMIST MASTER DONOR STRAINS ARE NOT PROTECTED BY PATENTS AND IF THE STRAINS
ARE DUPLICATED, THIRD PARTIES MAY BE ABLE TO DEVELOP, MARKET AND SELL A
COMPETING VACCINE.
We have no issued patents covering the FluMist master donor strains. Our
rights to the master donor strains are substantially based on (1) an exclusive
worldwide license of materials and know-how from the University of Michigan,
which owns the master donor strains from which our vaccine is derived; and (2)
an exclusive license of know-how and clinical trial data from the National
Institutes of Health, or NIH. Neither the University of Michigan nor the NIH has
been issued any patents covering the master donor strains. A third party may
gain access by some means to the University of Michigan master donor strains and
attempt to reproduce FluMist or develop another live virus influenza vaccine
that might be comparable to FluMist in terms of safety and effectiveness.
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WE MAY INCUR SIGNIFICANT LOSSES AS THE RESULT OF OUR DECISION TO MANUFACTURE
FLUMIST FOR COMMERCIAL USE BEFORE RECEIVING LICENSURE.
The manufacturing of FluMist is a complex process, containing multiple
steps over a period of many months. Therefore, in anticipation of licensure in
time to participate in the 2001 - 2002 influenza season, we already have begun
manufacturing FluMist for commercial use. The costs associated with our decision
to manufacture will increase at an increasing rate as the year progresses.
However, there is no guaranty that FluMist will be licensed for sale during any
portion of the 2001 - 2002 influenza season, if at all. If the product is not
approved for marketing in time to allow a launch during the 2001 - 2002
influenza season, we will not receive any revenue from FluMist sales during the
same influenza season. Furthermore, because one or more viral strains used in
all influenza vaccines may change annually, we may not be able to utilize,
during a subsequent influenza season, any components of FluMist that we are
currently manufacturing.
FAILURE TO RAISE ADDITIONAL CAPITAL COULD DELAY FLUMIST COMMERCIALIZATION AND
DELAY THE DEVELOPMENT OF A LIQUID FORMULATION OF FLUMIST AND OF OUR OTHER
POTENTIAL PRODUCTS.
Our operations to date have consumed substantial and increasing amounts of
cash. As of September 30, 2000, we have an accumulated deficit of approximately
$251.4 million. The negative cash flow from operations is expected to continue
and to accelerate in the foreseeable future. The commercialization of FluMist
requires substantial funds for manufacturing, continued clinical trial efforts
and other commercialization activities. For the nine months ended September 30,
2000, our research and development expenses and our general, administrative and
marketing expenses amounted to $54.0 million and $9.3 million, respectively. We
expect to continue to incur significant operating expenses. We also expect to
spend a substantial amount to develop a liquid formulation of FluMist. In
addition, we expect to continue funding the research, preclinical testing and
clinical trials necessary to develop our early-stage products.
As of September 30, 2000, we have raised $390.3 million since inception
through financing activities, such as sales of equity, convertible debt
securities, and other debt financing, which includes $127.3 million raised from
equity financing during the nine month period ended September 30, 2000.
Additionally, our current revenues are comprised primarily of amounts earned as
milestone payments and expense reimbursements under our FluMist collaboration
agreement with Wyeth, and other revenues from other contracts and research
grants. For the nine-month period ended September 30, 2000, our revenues
amounted to $7.9 million, which primarily consisted of expense reimbursements
under our agreement with Wyeth.
Our future revenues will depend largely on the success of these
collaboration arrangements, contracts and research grants. With respect to our
collaboration agreement with Wyeth, our rights to receive milestone payments are
all "event-driven." These payments are earned only upon our successful
completion of specific activities. We cannot be certain whether these milestone
payments will be realized. Under our agreement with Wyeth, we received a
milestone payment in the amount of $15.5 million, which became due upon the
acceptance by the FDA for filing of our BLA on December 28, 2000. Another
milestone payment of $20.0 million is due upon obtaining FDA marketing approval
for FluMist. The timing of receipt of this payment will depend on the progress
of the regulatory review of the BLA. Additional milestone payments related to
the application submission and approval of FluMist for marketing in
international markets, for expansions in labeling claims, for policy
recommendations, and for the liquid formulation are dependent upon future
governmental approvals or recommendations by medical advisory bodies and we will
not receive these payments until these activities are successfully completed at
some time after 2001.
Additionally, due to the seasonal nature of FluMist, cash will not be
generated from product sales until late each year or early in the following
year. Accordingly, a significant amount of working capital will be required each
year to provide for the payment of expenditures associated with the
manufacturing of inventory and other operating and capital needs in advance of
any product sales.
Currently, we expect our existing cash, cash equivalents, short term
investments, and proceeds generated from our collaborative arrangements and
financing commitments
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will enable us to maintain our current and planned operations through 2001. Our
future capital requirements will depend upon many factors, including:
- the ability to successfully complete activities necessary to earn
milestones under our collaborative agreements and the timing of receipt
of these milestones;
- the time and costs involved in obtaining regulatory approvals;
- the ability to successfully launch FluMist in the United States;
- continued scientific progress in the research and development of our
technology and vaccine programs;
- the size and complexity of these programs;
- our ability to establish and maintain collaborative arrangements;
- progress with preclinical testing and clinical trials; the cost involved
in preparing, filing, prosecuting, maintaining and enforcing patent
claims;
- the cost of constructing additional manufacturing facilities; and
- product commercialization activities, which may require us to seek
additional funding.
If adequate funds are not available, whether through our financing
commitments, additional funding or our current capital sources, such as our
collaboration arrangements, the commercialization of FluMist and the development
of a liquid formulation of FluMist may be delayed, and we may be required to
delay, reduce the scope of, or eliminate one or more of our research or
development programs for our other products. We may also be required to obtain
funds through collaborative agreements with others that may require us to
relinquish rights to certain of our technologies, product candidates or products
we would otherwise seek to develop or commercialize ourselves. If additional
funds are raised by issuing equity or convertible securities, the percentage
ownership in Aviron held by existing stockholders will be reduced.
IF WE ARE UNABLE TO ATTRACT, RETAIN AND MAINTAIN GOOD RELATIONS WITH QUALIFIED
PERSONNEL IN EACH OF OUR THREE LOCATIONS, OUR ABILITY TO COMMERCIALIZE FLUMIST
AND DEVELOP A LIQUID FORMULATION OF FLUMIST MAY BE DELAYED.
Attracting and retaining significant additional qualified personnel will be
critical to our success. To pursue the development and commercialization of
FluMist, we will be required to hire additional qualified personnel at
appropriate locations, especially those with expertise in development,
commercial-scale manufacturing and quality functions. Expansion in these areas
is also expected to require the addition of management personnel and the
development of additional expertise by existing management personnel. We face
competition for qualified individuals from numerous pharmaceutical,
biopharmaceutical and biotechnology companies.
Also, some Aviron employees are members of labor unions. Labor actions by
these unions and/or these employees could require us to cease or curtail
operations at affected locations.
SOME OF OUR CRITICAL MANUFACTURING FACILITIES FOR FLUMIST ARE LOCATED NEAR KNOWN
EARTHQUAKE FAULT ZONES AND THE OCCURRENCE OF AN EARTHQUAKE, OR OTHER
CATASTROPHIC DISASTER, COULD CAUSE DAMAGE TO OUR FACILITIES AND EQUIPMENT, WHICH
COULD REQUIRE US TO CEASE OR CURTAIL OPERATIONS.
The first of three steps in the FluMist manufacturing process takes place
at our facility in Mountain View, California. This manufacturing facility is
located in a known earthquake fault zone. Should an earthquake or other type of
disaster, including fire, flood, power loss, communication failure, or similar
events, disable these facilities, there are no readily available alternative
facilities which meet the current good manufacturing practice standards required
by the FDA. Therefore, should these facilities be disabled, the ability to
manufacture and sell FluMist could be lost for one or more influenza seasons.
The second step in the FluMist manufacturing process takes place at our
facilities in the U.K., and the third step in the process takes place in
Philadelphia, Pennsylvania. Should an earthquake or other type of disaster,
including fire, flood, power loss, communication failure, or similar events,
disable these facilities, there are no readily available alternative facilities
which meet the current good manufacturing practice
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standards required by the FDA. Therefore, should either or both of these
facilities be disabled for any reason, the ability to manufacture and sell
FluMist could be lost for one or more influenza seasons.
FAILURE TO INTEGRATE EFFECTIVELY THE ACTIVITIES OF OUR NEW U.K. OPERATIONS WITH
OUR EXISTING OPERATIONS IN PENNSYLVANIA AND CALIFORNIA COULD SIGNIFICANTLY
HINDER OUR ABILITY TO EFFECTIVELY DEVELOP, MANUFACTURE AND COMMERCIALIZE FLUMIST
AND ULTIMATELY GENERATE REVENUE.
In October 2000, we restructured the contract manufacturing agreement
previously in place with Evans for bulk manufacture of FluMist in the Speke,
U.K. facility. The new agreement, which runs through June 2006, transferred
responsibility for bulk manufacture of FluMist and transferred approximately 100
Evans employees to Aviron UK Ltd., our wholly-owned U.K. subsidiary. The
coordination of operations at our three sites is critical to manufacturing
FluMist. Our management must expend significant effort in order to integrate the
people, processes, technology and activities of this new site into our existing
operations. However, our management, as a team, has limited experience in
coordinating the operations of a substantial foreign subsidiary with domestic
operations. If our California, Pennsylvania and U.K. locations do not integrate
effectively, the development, manufacture and commercialization of FluMist could
be negatively impacted.
OTHER RISKS RELATED TO OUR COMPANY
SAFETY OF VACCINES CAN ONLY BE DETERMINED AFTER WIDESPREAD USE IN THE
POPULATION.
A vaccine could be licensed by the FDA and still be associated with adverse
events which reduce or eliminate revenue. For example, in 1998 the FDA approved
the use of a vaccine to prevent infant diarrhea, but the product was
subsequently withdrawn from the market due to a possible link between a serious
bowel disorder and the vaccine. This adverse event occurred at a frequency that
was not detectable in a typical clinical development program. In addition, there
are a number of theoretical risks related to live virus vaccines, including
changing back to the naturally occurring, or wild type, and re-combining to form
a new strain which may cause disease. Also, because of the way it works, a
weakened live virus could make an individual more susceptible to secondary
infection. In addition, a weakened live virus could cause disease resembling a
wild-type virus infection in people with an immune system that is not working
properly because of a pre-existing disease, HIV infection or drug treatment for
cancer or organ transplantation. The potential for serious adverse events after
introduction to the market is an issue for all vaccines, including FluMist.
OTHER THAN FLUMIST, OUR PRODUCT CANDIDATES ARE AT EARLY STAGES OF DEVELOPMENT,
AND IF WE ARE UNABLE TO DEVELOP AND COMMERCIALIZE PRODUCTS SUCCESSFULLY, WE WILL
NOT GENERATE REVENUES FROM THESE PRODUCTS.
To date, none of our product candidates has been commercialized. Other than
FluMist, all of our product candidates are in early stages of development. We
face the risk of failure normally found in developing biotechnology products
based on new technologies. Successfully developing, manufacturing, introducing
and marketing our early-stage product candidates will require several years and
substantial additional capital. Currently, we do not have facilities to
manufacture these vaccine product candidates for use in late-stage clinical
trials. Moreover, we must demonstrate safety and efficacy and gain regulatory
approval for these products. In addition, several companies are developing
products that would compete with our early-stage products.
WE MAY NOT RECEIVE PATENT PROTECTION FOR OUR POTENTIAL PRODUCTS AND
MANUFACTURING PROCESSES.
Our success depends to a significant degree upon our ability to develop
proprietary products. We seek to protect our technology and potential products,
when possible, with patents and trade secrets. Since patent applications in the
United States are maintained in secrecy until patents issue and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, we cannot be certain that we were the first to make
the inventions covered by each of our pending patent applications or that we
were the first to file patent applications for these inventions. The patent
positions of biotechnology and pharmaceutical companies can be highly uncertain
and involve complex legal and factual questions. Therefore, the breadth of
claims allowed in biotechnology and pharmaceutical patents, or their
enforceability, cannot be
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predicted. We cannot be sure that any of our owned or licensed patents or patent
applications will issue or, if issued, will not be invalidated or circumvented,
or that the rights granted by them will provide any protection or competitive
advantages to us.
We own or have exclusive licenses to various issued patents and pending
patent applications both in the United States Patent and Trademark Office and in
several foreign patent offices. We attempt, when possible, to obtain exclusive
patent protection covering each potential product we are developing. There can
be no assurance that each product we are developing will be protected by or
protectable by issued patents in any or all countries in which we intend to
market the product, if approved for sale by regulatory authorities. We have no
issued patents covering the FluMist master donor strains. Our rights to the
master donor strains are substantially based on (1) an exclusive worldwide
license of materials and know-how from the University of Michigan, which owns
the master donor strains from which our vaccine is derived, and (2) an exclusive
license of know-how and clinical trial data from the NIH. We have no issued
patents covering the bovine parainfluenza strain we are developing. Our rights
to the bovine parainfluenza strain are substantially based on an exclusive,
worldwide Biological Materials License of materials, clinical data and research
information from the United States Public Health Service. We do have issued
patents and/or pending patent applications in the United States and abroad which
we believe will provide patent protection for our cytomegalovirus, herpes
simplex virus, respiratory syncytial virus, or RSV, and recombinant
parainfluenza virus type-3, or PIV-3, program technologies.
The European Patent Office has informed us of its intention to deny claims
relating to methods and compositions of recombinant non-segmented
negative-strand RNA viruses contained in one of our granted European patents.
Although this decision will not affect our FluMist cold-adapted influenza
product, it may affect the European patent protection afforded our other vaccine
candidates, including recombinant RSV and recombinant PIV-3.
OUR PRODUCTS COULD INFRINGE ON INTELLECTUAL PROPERTY RIGHTS OF OTHERS, CAUSING
COSTLY LITIGATION AND THE LOSS OF SIGNIFICANT RIGHTS.
Our success will also depend upon us not infringing patents issued to
others. A number of pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents in the areas of our research and development programs. Some of
these patent applications or patents may limit the scope of claims issuing from
our patent applications, prevent certain claims from being issued, or conflict
in certain respects with claims made under our applications.
OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY CLAIMS AND THE DEFENSE OR LOSS OF
ANY SUCH CLAIM COULD BE COSTLY.
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of vaccines. We have
obtained clinical trial liability insurance for our clinical trials. We also
intend to seek product liability insurance in the future for products approved
for marketing. However, we cannot be sure that we will be able to acquire or
maintain insurance at a reasonable cost or in sufficient amounts to protect us
from liability risks. A successful product liability claim or a series of claims
brought against us could seriously harm our business. We intend to seek
inclusion of some of our products in the United States National Vaccine Injury
Compensation Program, a no-fault compensation program for claims against vaccine
manufacturers, which administers a trust funded by excise taxes on sales of a
number of recommended childhood vaccines. We cannot be sure that this government
program will continue or that our proposed vaccines will be included in the
program.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS AND AN ACCIDENT COULD BE COSTLY.
Our business activities involve the controlled use of hazardous materials,
chemicals, various radioactive substances and viruses. Although we believe that
our safety procedures for handling and disposing of these materials comply with
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of such an
accident, we could be held liable for any damages that result and any such
liability would seriously harm our business. In addition, we may incur
substantial costs to comply with environmental regulations if we develop
manufacturing capacity.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this current report constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's results, levels of activity
or achievements to be materially different from any future results, levels of
activity or achievements expressed or implied by such forward-looking
statements.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "intend," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue" or the negative of
such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events and
levels of activity, performance or achievements. Except as may be required by
law, we undertake no obligation to publicly update any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AVIRON
Dated: January 9, 2001 By: /s/ C. Boyd Clarke
-----------------------------
C. Boyd Clarke
President, Chief Executive Officer
and Chairman of the Board
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