sv1

Amount of

Title of Each Class of

Proposed Maximum

Registration

Securities to be Registered

Aggregate Offering Price(1)

Fee(2)

Common Stock par value $0.0001 per share

$45,000,000

As filed with the Securities and Exchange Commission on June 20, 2006.

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

BioVex Group, Inc.

(Exact name of registrant as specified in its charter)


Delaware	2836	20-5003741
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

245 First Street, Suite 1800, Cambridge, MA 02142

(617) 444-8445

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Philip Astley-Sparke

BioVex Group, Inc.

245 First Street, Suite 1800, Cambridge, MA 02142

(617) 444-8445

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

Copies to:


Trisha Johnson, Esq. WilmerHale 10 Noble Street London EC2V 7QJ England +44-20-7645-2400		Joanne R. Soslow, Esq. Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA 19103 (215) 963-5000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this form are offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”) check the following box. o

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

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE


(1)		Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2)		Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)

Dated June 20, 2006

Shares

Common Stock

BioVex Group, Inc. is offering shares of common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price to be between $ and $ per share.

We have applied to have our common stock approved for quotation on the NASDAQ National Market under the symbol “BVEX”.

Investing in the common stock involves risks. See “Risk Factors” beginning on page 6.


	Per Share	Total

Public offering price
Underwriting discounts and commissions
Proceeds to BioVex Group, Inc.

We have granted the underwriters the right to purchase up to an additional shares of common stock to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on , 2006.

Janney Montgomery Scott llc

Stifel Nicolaus

, 2006

TABLE OF CONTENTS


Prospectus Summary			1
Risk Factors			6
Forward-Looking Information			25
Use of Proceeds			26
Dividend Policy			26
Capitalization			27
Dilution			28
Selected Consolidated Financial Data			29
Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Business			39
Management			62
Relationships and Transactions with Related Parties			71
Principal Stockholders			73
Description of Capital Stock			76
Shares Eligible For Future Sale			78
Underwriting			80
Legal Matters			83
Experts			83
Where You Can Find More Information			83
Index to Financial Statements			F-1
EX-3.1 Certificate of Incorporation of the Registrant
EX-3.3 Bylaws of the Registrant
EX-4.3 Stockholders' Agreement dated August 30, 2005
EX-4.4 Share Contribution and Exchange Agreement dated August 30, 2005
EX-10.1.2 2005 Stock Incentive Plan
EX-10.1.3 Form of EMI Stock Option Agreement
EX-10.1.4 Philip Astley-Sparke Agreement
EX-10.1.5 Stephen Gorgol Agreement
EX-10.1.6 2003 Enterprise Management Incentive Scheme
EX-10.1.7 Form of Replacement EMI Option Agreement
EX-10.3.1 License Agreement dated April 1, 2005
EX-10.3.2.1 License Agreement dated May 31, 2001
EX-10.3.2.2 First Amendment to License Agreement dated May 31, 2001
EX-10.3.3 License Agreement dated May 31, 2001
EX-10.3.4 License Agreement dated March 11, 2002
EX-10.4 Lease Agreement dated December 2, 2005
EX-21.1 Subsidiaries of BioVex Group, Inc.
EX-23.1 Consent of PricewaterhouseCoopers LLP

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common stock. In this prospectus, unless otherwise stated or the context otherwise requires, references to “BioVex,” “we,” “us,” “our” and similar references refer to BioVex Group, Inc. and its wholly owned subsidiaries, BioVex Limited, a limited company incorporated under the laws of England and Wales, and BioVex, Inc., a Delaware corporation.

Until , 2006 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Investors outside the United States are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

This prospectus and the offering are only addressed to and directed at persons in member states of the European Economic Area who are “qualified investors” within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC). In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, qualified investors who are persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or who are high net worth entities falling within Article 49 of the Order, and other persons to whom it may otherwise lawfully be communicated (all such persons together referred to as relevant persons). Any investment or investment activity to which this prospectus relates is available only to relevant

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before buying shares of our common stock. You should read the entire prospectus carefully, especially the “Risk Factors” and our consolidated financial statements and related notes, before deciding to invest in shares of our common stock.

BioVex Group, Inc.

We are a clinical-stage biotechnology company focused on the development and future commercialization of targeted treatments for cancer and the prevention of infectious disease. Our pipeline of cancer product candidates is built on what we believe to be a first-in-class oncolytic virus technology that replicates and spreads within solid tumors, causing the death of cancer cells while leaving surrounding healthy cells unharmed. We believe that this technology, which we refer to as OncoVEX, is more effective than earlier-generation clinical-stage oncolytic viruses and has the potential to establish a new standard of care in the treatment of solid tumors by improving overall survival rates while minimizing side effects. In particular, we believe that OncoVEX has the potential to:


	•	eliminate or shrink a broad range of tumors;

	•	prevent or slow the further growth of tumors;

	•	increase the proportion of tumors that can be surgically removed;

	•	limit the spread, or metastasis, of tumors from their initial site;

	•	increase the proportion of tumors that respond to other therapies, including chemotherapy and radiation; and

	•	reduce the incidence of relapse.

In a completed Phase I clinical trial conducted in the United Kingdom in 30 patients with breast, melanoma, head and neck, or gastrointestinal tumors, our lead product candidate OncoVEX^GM-CSF destroyed tumors while leaving normal tissue undamaged, and without the serious side effects associated with chemotherapy or radiation. OncoVEX^GM-CSF is currently in a 14-patient Phase I/II clinical trial in the United Kingdom for the treatment of head and neck cancer, which we intend to expand with 14 additional patients in the highest dose group. In addition, OncoVEX^GM-CSF is in a 50-patient Phase II trial in the United States for the treatment of melanoma. Preliminary data from the initial patients enrolled in both studies indicate shrinkage of treated tumors consistent with that observed in our Phase I clinical trial. Assuming that the results of our clinical trial in head and neck cancer continue to be positive, we intend to meet with the U.S. Food and Drug Administration, or FDA, in the second half of 2007 to seek agreement on the design of a pivotal Phase III clinical trial to be governed by a Special Protocol Assessment.

We expect to begin additional clinical trials in the United States with OncoVEX^GM-CSF in pancreatic cancer in the third quarter of 2006 and in metastatic colorectal cancer affecting the liver by the end of the year. We intend to analyze the data from our pancreatic, colorectal liver metastases and melanoma clinical trials in late 2007 and early 2008 to determine whether to pursue pivotal Phase III clinical trials in these indications. Our research also suggests that our technology may have applications in other cancers, including primary liver and lung cancers and glioma, a form of brain cancer. In preclinical studies, OncoVEX^GM-CSF caused tumor destruction in all of the more than 25 cell lines from 8 different types of cancer we have tested.

The initial target indications for OncoVEX^GM-CSF include cancers where adequate local tumor control represents a significant unmet medical need. Failure to adequately control a tumor can permit it not only to grow, but also to spread from the initial location, requiring systemic treatment with chemotherapy — often with limited results and severe side effects. The current standard treatment for most inoperable solid tumors involves radiation and chemotherapy to reduce the tumor mass, often followed by surgery. However, even with chemotherapy and radiation, a significant proportion of solid tumors cannot be completely surgically removed due to their size or location, and relapse rates remain high. For example, only 50% of patients with recurrent

head and neck cancer survive one year, even when treated with aggressive multi-drug chemotherapy, according to research published in the Journal of Clinical Oncology in 2005. In addition, approximately 75% of pancreatic cancer tumors are inoperable at the time of diagnosis and, even following chemotherapy and radiation, one-year survival rates are less than 50% and five-year survival rates are less than 5%, according to research also published in the Journal of Clinical Oncology in 2005.

In addition to directly killing tumor cells, in preclinical studies OncoVEX^GM-CSF also improved the effectiveness of chemotherapy and radiation, even at very low doses. As a result, we are developing additional product candidates designed to maximize the potential of chemotherapy and radiation, while minimizing their side effects. These include OncoVEX^GALV/CD for administration with chemotherapy and OncoVEX^TNF for administration with radiation.

Our lead infectious disease product candidate is ImmunoVEX^HSV2, a vaccine for genital herpes. According to research published by the Centers for Disease Control and Prevention in 2004, at least 45 million people over the age of 11 in the United States have been infected with HSV-2, the cause of genital herpes. However, even though a number of HSV-2 vaccine candidates have previously been developed, none has proved to be broadly effective. ImmunoVEX^HSV2 is a novel live-attenuated vaccine candidate that expresses approximately 80 HSV-2 proteins intended to stimulate a broad and powerful immune response. In preclinical studies, ImmunoVEX^HSV2 completely prevented disease and invoked a powerful immune response, indicating that ImmunoVEX^HSV2 is more potent than other HSV-2 vaccines for which published data are available. We intend to initiate a Phase I clinical trial for this product candidate in the first half of 2007 and to report initial data later that year.

Our Strategy

Our goal is to build a world-class biotechnology company that discovers, develops and ultimately commercializes biologics for the targeted treatment of cancer and discovers and partners vaccines for the prevention and treatment of infectious disease. Key elements of our strategy are to:


	•	Obtain regulatory approval for our lead product candidate, OncoVEX^GM-CSF, by targeting indications in which we believe we can demonstrate efficacy quickly. We are focusing initially on cancers that progress rapidly and in which efficacy data can be obtained through relatively short clinical trials — potentially allowing a faster route to regulatory approval.

	•	Progress the development of OncoVEX^GM-CSF in additional indications and seek to bring follow-on products into the clinic. If we complete successful pivotal clinical trials and obtain marketing approval in head and neck cancer or other indications in which we have clinical trials currently underway or planned, we would then seek to conduct additional clinical trials to expand the labeling of OncoVEX^GM-CSF into other tumor types. We also intend to advance our OncoVEX^GALV/CD and OncoVEX^TNF^α product candidates in indications for which they may enhance the efficacy of chemotherapy or radiation.

	•	Retain marketing rights for our oncology product candidates in North America and seek out-licensing and partnership arrangements elsewhere. We intend ultimately to develop a limited oncology-focused sales and marketing organization to cover the sale of our products in the North American market. We also intend to enter into marketing and development agreements with pharmaceutical and biotechnology partners in other parts of the world.

	•	Partner our genital herpes vaccine candidate. We intend to maximize the value of our ImmunoVEX HSV-2 product candidate by seeking a partner for further development after the expected completion of a Phase I clinical trial in 2007.

We began operations in 1999 through BioVex Limited (originally called NeuroVex Limited), a limited company incorporated under the laws of England and Wales. BioVex Group, Inc. was incorporated under the laws of Delaware in July 2005. In August 2005, we effected a corporate reorganization pursuant to which BioVex Group, Inc. became our ultimate parent company and BioVex Limited became its wholly owned subsidiary. In connection with this reorganization, all of the outstanding securities of BioVex Limited were

The Offering


Common stock offered by BioVex		Shares

Common stock to be outstanding after this offering (assuming no exercise of the over-allotment option)		Shares

Over-allotment option offered by BioVex		Shares

Use of proceeds		We estimate that our net proceeds from this offering will be $ million at an assumed initial public offering price of $ per share (the midpoint of the estimated price range shown on front cover of this prospectus), after deducting estimated underwriting discounts and commissions and offering expenses payable by us. We intend to use these net proceeds to fund:

		• the development of OncoVEX^GM-CSF ;

		• our preclinical and research programs for other OncoVEX products;

		• the development of ImmunoVEX^HSV2 through the completion of Phase I; and

		• general corporate purposes, including the build-out of our manufacturing facility in Woburn, Massachusetts and working capital needs. See “Use of Proceeds.”

Risk factors		See “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in shares of our common stock.

Proposed NASDAQ National Market symbol		BVEX

The number of shares of our common stock to be outstanding after this offering is based on 2,242,204 shares outstanding as of March 31, 2006. The number of shares to be outstanding after this offering does not take into account:


	•	4,739,700 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2006 at an exercise price per share equal to the par value of $0.0001 per share;

	•	shares of common stock reserved for issuance under our stock incentive plans; or

	•	shares of common stock issuable upon the exercise of the underwriters’ over-allotment option.

The information in this prospectus, unless otherwise noted:


	•	reflects the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 40,470,339 shares of common stock immediately prior to the completion of this offering, and

	•	gives effect to the issuance immediately prior to the closing of this offering of an additional shares of common stock to the holders of our preferred stock as a stock dividend.

All share and per share numbers contained in this prospectus give effect to a -for-1 reverse stock split effected on , 2006.

Summary Financial Information

The following is a summary of our financial information. You should read this information together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.


	Year Ended March 31,
	2002			2003			2004			2005			2006
	(Unaudited)

Statement of operations data:
Revenues	$	22,846		$	38,828		$	39,868		$	40,929		$	21,969
Operating expenses:
Research and development		3,166,952			4,543,281			6,545,665			10,154,271			10,925,762
Administrative		1,855,597			2,601,418			2,782,651			3,653,479			5,487,762

Total operating expenses		5,022,549			7,144,699			9,328,316			13,807,750			16,413,524

Loss from operations		(4,999,703	)		(7,105,871	)		(9,288,448	)		(13,766,821	)		(16,391,555	)
Interest expense		(101,425	)		(32,059	)		(19,536	)		(9,313	)		(3,699	)
Interest income		152,637			148,756			269,530			622,485			745,664

Loss before income tax benefit		4,948,491			(6,989,174	)		(9,038,454	)		(13,153,649	)		(15,649,590	)
Income tax benefit		829,375			791,428			1,244,429			1,434,560			1,393,737

Net loss		(4,119,116	)		(6,197,746	)		(7,794,025	)		(11,719,089	)		(14,255,853	)

Basic and diluted net loss per common share	$	(3.36	)	$	(5.06	)	$	(6.16	)	$	(8.97	)	$	(10.91	)

Weighted average shares used in computing basic and diluted loss per common share		1,225,000			1,225,000			1,265,539			1,307,204			1,307,204

Unaudited pro forma net loss per common share (basic and diluted)													$	(0.34	)

Weighted average shares used to compute unaudited pro forma net loss per common share														41,395,766


	As of March 31,
	2002			2003			2004			2005			2006
	(Unaudited)

Balance sheet data:
Cash and cash equivalents	$	2,974,537		$	2,882,346		$	6,352,185		$	20,251,905		$	11,317,177
Working capital		3,186,865			3,137,420			11,218,385			20,965,176			10,955,118
Total assets		5,673,124			5,636,189			15,003,253			23,944,277			14,508,758
Total liabilities		1,094,478			944,050			2,292,022			1,774,796			2,725,513
Accumulated deficit		(8,661,106	)		(14,858,852	)		(22,652,877	)		(34,371,966	)		(48,627,819	)
Redeemable convertible preferred stock		13,483,691			19,347,174			33,545,206			53,885,416			59,238,873
Total stockholders’ deficit		(8,905,045	)		(14,704,319	)		(20,833,802	)		(31,715,935	)		(47,455,628	)

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information included in this prospectus, including the financial statements and related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks materializes, our business, prospects, financial condition and operating results could be materially harmed, the market price of our common stock could decline and you could lose part or all of your investment.

Risks Related to Our Financial Position and Need for Additional Financing

We have incurred losses since inception and anticipate that we will continue to do so for the foreseeable future. We might never achieve or maintain profitability.

We have a limited operating history and have not yet commercialized any products or generated any product revenues. As of March 31, 2006, we had an accumulated deficit of $48.6 million. We have incurred losses in each year since we began operations, with net losses of $7.8 million in fiscal year 2004, $11.7 million in 2005 and $14.3 million in 2006. We expect to continue to incur significant and increasing operating losses for at least the next several years as we continue our research activities concerning oncolytic viruses and other biologics, conduct development of, and seek regulatory approvals for, OncoVEX^GM-CSF or our other product candidates, and potentially commercialize any approved products.

We have not completed development of any products. Because of the numerous risks and uncertainties associated with developing biologics for the treatment of cancers and the prevention of infectious diseases, we are unable to predict the extent of any future losses, whether or when any of OncoVEX^GM-CSF, ImmunoVEX^HSV2 or our other product candidates will become commercially available, or when we will become profitable, if at all. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are unable to achieve and then maintain profitability, the market value of our common stock will decline and you could lose all or a part of your investment.

Our independent accountants have expressed substantial doubt about our ability to continue as a going concern.

We have received an audit report from our independent accountants containing an explanatory paragraph stating that our historical recurring losses from operations and limited funds raise substantial doubt about our ability to continue as a going concern. We believe that the successful completion of this offering will enable us to continue as a going concern. If we are unable to successfully complete this offering, we will need to obtain alternative financing and modify our operational plans in order to continue as a going concern.

We will need additional funding and may be unable to raise capital when needed, which would harm our business, financial condition and operating results.

We expect our development expenses to increase, particularly as we conduct additional and later-stage clinical trials for our product candidates. For example, we expect to bring our lead product candidate, OncoVEX^GM-CSF, into one or more Phase III clinical trials in 2008. In addition, we expect to incur significant commercialization expenses if any of our product candidates receives marketing approval in the future. We also intend to make substantial capital expenditures in connection with the build-out of our Woburn, Massachusetts facility. We may be unable to raise capital when needed or on attractive terms, which would force us to delay, reduce or eliminate our development programs or commercialization efforts.

We have financed our operations and internal growth principally through private placements of preferred stock. As of March 31, 2006, we had $11.3 million in cash and cash equivalents. We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements for at least the next 18 months.

We expect to finance our future cash needs for at least the next several years principally through public or private equity offerings and through debt financings. We may also pursue corporate collaboration and

licensing arrangements as and when appropriate scientific, technical or commercial opportunities arise, particularly outside the North American market and in respect of our ImmunoVEX technology. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, that are not favorable to us or our other stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product candidates or grant licenses on terms that may not be favorable to us.

Risks Related to Product Development

Our products are in development stage, are not approved for commercial sale and might not ever receive regulatory approval or become commercially viable.

All of our product candidates are in research or development. We have not generated any revenues from the sale of products and do not expect to do so for at least the next several years. Our lead product candidate, OncoVEX^GM-CSF, and our additional product candidates will require extensive preclinical and clinical testing and regulatory approval prior to commercial use. Our research and development efforts may not be successful. Even if developed, our products may not receive regulatory approval or be successfully introduced and marketed at prices that would permit us to operate profitably.

If we are unable to commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

Our business model is particularly dependent on the successful development and commercialization of our OncoVEX^GM-CSF product candidate. The commercial success of this and our other product candidates will depend on many factors, including:


	•	enrollment in our clinical trials, which may be slower than we currently anticipate, potentially resulting in significant delays;

	•	positive results in preclinical studies and clinical trials;

	•	receipt of marketing approvals from the FDA and similar foreign regulatory authorities;

	•	manufacturing clinical trial supplies and establishing commercial manufacturing processes or arrangements;

	•	launching commercial sales of the product, whether alone or in collaboration with others; and

	•	acceptance of the product by physicians, patients, healthcare payors and others in the medical community.

Failure in any of these areas could prevent or delay the commercialization of any product candidates, and therefore materially harm our results of operations.

We will not be able to commercialize our product candidates if our preclinical studies do not produce successful results and our clinical trials do not demonstrate safety and efficacy.

In order to obtain regulatory approval for the sale of our product candidates, we must conduct extensive preclinical and clinical tests. Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. For example, our lead product candidate, OncoVEX^GM-CSF, has been studied in a limited number of patients to date. Even though tumor necrosis has been observed in our Phase I clinical trial with OncoVEX^GM-CSF, we have not yet conducted any large-scale pivotal trials to establish its clinical efficacy. The biological activity observed in early studies may not result in increased survival or other

clinical benefit. Also, although OncoVEX^GM-CSF has been well tolerated in the limited number of patients who have been treated with it, there is no guarantee that serious and unexpected side effects or other risks will not occur with the exposure of a larger number of patients, which could delay or prevent regulatory approval of OncoVEX^GM-CSF or limit its use.

If the results of our preclinical and clinical testing do not demonstrate that our products are safe and effective and otherwise meet the appropriate standards required for approval for a particular indication, we will not be able to obtain regulatory approval, which will prevent us from commercializing our products and materially harm our business.

If our clinical trials are prolonged, delayed or prevented, or if we have to conduct additional clinical trials or other testing beyond our current plans, we may be unable to commercialize our product candidates on a timely basis, or at all, which would require us to incur additional costs and delay our receipt of any revenues from potential product sales.

We have limited experience in managing the clinical trials necessary to obtain regulatory approvals. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates. Among other things:


	•	we may experience delays in obtaining, or be unable to obtain or maintain, required approvals from the reviewing entities at clinical trial sites selected for participation in our clinical trials, including Institutional Review Boards (IRBs) and Institutional Biosafety Committees (IBCs);

	•	regulators may deny or delay any required authorization to commence a clinical trial;

	•	we may abandon projects that we expect to be promising, if our preclinical tests or clinical trials produce negative or inconclusive results or our product candidates demonstrate undesirable side effects;

	•	we might have to suspend or terminate our clinical trials if the participating patients are being exposed to unacceptable health risks;

	•	regulators, IRBs or similar reviewing entities may require that we suspend or terminate ongoing clinical trials or regulators may require that we conduct additional preclinical or clinical tests;

	•	we may encounter difficulties in enrolling subjects in our clinical trials or experience high drop-out rates of subjects in our clinical trials;

	•	the cost of our clinical trials may be greater than we currently anticipate; and

	•	our third-party contractors or our investigators may fail to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently plan, are unable to successfully complete or expand our clinical trials or other testing, or the results of these trials or tests are not positive or only modestly positive, we may:


	•	be delayed in obtaining marketing approval for our product candidates;

	•	be unable to obtain marketing approval; or

	•	obtain approval with limitations or restrictions, such as limitations on the indications for use.

Our product development costs will also increase if we experience delays in testing or approvals. Significant clinical trial or regulatory delays could also allow our competitors to bring products to market before we do, which would impair our ability to commercialize our products or product candidates and materially harm our business.

We may be unable to manage multiple later-stage clinical trials, which could prevent or delay us from commercializing our product candidates.

We may need to manage multiple later-stage clinical trials simultaneously in order to continue developing our current product candidates. The management of later-stage clinical trials is more complex and time-consuming than that of early-stage trials. Later-stage trials typically involve much larger numbers of patients at numerous clinical sites, may require sites in several countries, produce more extensive data for analysis, and require larger numbers of skilled personnel. If we are unable to manage these larger trials and to properly process and analyze the data they produce, we may be unable to obtain regulatory approval in a timely fashion or at all, even if the results of the trials are promising.

Risks Related to Regulatory Approvals

If we are not able to obtain required regulatory approvals, we will be unable to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

Our product candidates and the activities associated with their development and commercialization, including their testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain regulatory approval for a product candidate, or to obtain approval of adequate scope for our commercial plans, will prevent us from commercializing the product candidate or limit our market success. We have only limited experience in preparing and submitting the applications necessary to gain regulatory approvals and expect to rely on consultants or third-party contract research organizations to assist us in this process.

The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. Although a number of gene therapy products, including oncolytic viruses, are being developed by other companies or research institutions, the FDA has not yet approved any gene therapy products, including oncolytic viruses, for sale. Because oncolytic viruses do not have a well-established regulatory history, our product candidates may be subject to greater scrutiny.

To obtain approval from the FDA to market our product candidates, we will be required to submit to the FDA a Biologics License Application, or BLA. Ordinarily, the FDA requires a sponsor to support a BLA with substantial evidence of the product’s safety and effectiveness in treating the targeted indication based on data derived from preclinical studies and adequate and well-controlled clinical trials, including Phase III effectiveness trials conducted in patients with the disease being targeted. Our product candidates may fail to receive regulatory approval for many reasons, including:


	•	our failure to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for a particular indication;

	•	failure of the results of clinical trials to meet the level of statistical significance required by the FDA or other regulatory authorities for approval;

	•	our inability to demonstrate that a product candidate’s benefits outweigh its risks;

	•	our inability to demonstrate that a product candidate presents an advantage over existing therapies;

	•	if applicable, an unfavorable recommendation from an FDA Advisory Committee review, should the FDA decide to adopt such recommendation;

	•	the FDA’s or comparable foreign regulatory authorities’ disagreement with the manner in which we interpret the data from preclinical studies or clinical trials; and

	•	the FDA’s or comparable foreign regulatory authorities’ failure to approve our manufacturing processes or facilities or those of any third party manufacturers with which we contract for clinical and commercial supplies.

In addition, changes in the applicable laws, rules or approval policies during the development period may cause delays or denial of approval. The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient and require additional preclinical, clinical or other studies. We may not receive regulatory approval for any of our target indications, or may receive approval for only one indication. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the product not commercially viable.

Our business model involves aggressive product development strategies and clinical and regulatory timelines, which may not be achieved.

Our product development strategies and proposed clinical and regulatory timelines are aggressive and might not be achieved. All of our projected product development strategies, including planned clinical trials and regulatory filings, are predicated on results from preclinical data and data from ongoing clinical studies. Achieving the projected milestones in our aggressive timelines will depend largely on continued positive results and FDA agreement on our strategies.

We may be unable to secure fast track designation from FDA, or be permitted to use other mechanisms intended to expedite regulatory review and marketing approval, even though our product candidates are intended to meet unmet medical needs. Additionally, only a few sponsors of similar products have been permitted by FDA to base a pivotal Phase III trial on only one Phase I/Phase II study. It is not possible to predict the FDA’s or a foreign regulatory agency’s willingness to accept our limited Phase I/II data to support pivotal Phase III studies or know with any certainty whether the FDA will agree to fast track designation or other expedited review procedures for our product candidates.

Based on the results of our expanded head and neck cancer clinical trial that is currently being conducted in the United Kingdom, we plan to submit the data from this trial to the FDA and meet with the FDA to discuss a design for a pivotal Phase III clinical trial in this indication. Although we believe that the FDA will accept these data for such purpose, we can provide no assurance that it will do so. In particular, the FDA may require us to conduct additional clinical trials before advancing into a Phase III clinical trial. In addition, although we believe that one successful Phase III clinical trial will be adequate for regulatory approval in this indication, the FDA may require more than one successful Phase III clinical trial for regulatory approval. Also, we currently intend to submit to the authorities in the United Kingdom a proposed amendment to the current protocol for our head and neck cancer trial, and to submit to the FDA a proposed amendment to our current protocol for our pancreatic cancer trial, in each case to add additional patients. We can provide no assurance that either amendment will be accepted by the applicable authorities.

Failure to meet additional obligations relating to our gene therapy research may prevent or delay our clinical development.

In the United States and in other countries, gene therapy research may be subject to additional oversight and requirements. For example, in the United Kingdom, in addition to all applicable regulatory authorizations, gene therapy research must also be approved by the Gene Therapy Advisory Committee, or GTAC.

In the United States, in addition to oversight by the FDA and the IRB at each clinical trial site, gene therapy research is also subject to oversight by the National Institutes of Health, or the NIH, and other entities, if the research is conducted at or sponsored by an institution that receives any support for recombinant DNA research from the NIH. As a condition of receiving such support, institutions must ensure that research conducted at or sponsored by the institution, irrespective of the source of funding, complies with the NIH guidelines on recombinant DNA research. Thus, even though we are funding our clinical trials in the United States, because our clinical trials are or will be conducted at institutions that receive support for recombinant DNA research from the NIH, our clinical trials are subject to the NIH guidelines.

Under the NIH guidelines on recombinant DNA research, clinical trials may not begin until they have been reviewed by the Recombinant DNA Advisory Committee, or RAC, and approved by the IBC at each site. Additionally, major protocol changes and annual reports must be submitted to the NIH’s Office of Biotechnology Activities, or OBA. Safety reports must be submitted to both the OBA and IBC. If a new clinical trial

site is added after the RAC review process, a copy of the required approvals, including IRB and IBC approval, and other information must be submitted to the OBA before subjects may be enrolled at the new site. These additional obligations relating to our gene therapy research may prevent or cause delays in our clinical trials and may increase our product development costs.

In addition, because numerous governmental and institutional entities are involved in the evaluation and approval of our clinical trials, differing views or requirements among them may cause delays in, or prevent the start of, our clinical trials.

Even if we obtain marketing approval, our products could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, distribution, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory bodies. These requirements include submissions of safety and other post-marketing information and reports, registration requirements, current good manufacturing practices (cGMP) relating to quality control and quality assurance and corresponding recordkeeping requirements. We will also be subject to current good clinical practices (cGCP) requirements for any clinical trials that we conduct post-approval. In addition, any advertisements and promotion of our products will be limited to the FDA-approved indication. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of “off-label” uses, or uses beyond the approved indication.

Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Because the FDA has not approved any gene therapy products, including oncolytic viruses, and the long term effects of this new type of therapy are unknown, even if FDA approves our OncoVEX^GM-CSF product the agency may require us to conduct post-marketing studies, risk management programs or surveillance to determine if there are any delayed adverse events or long-term risks.

In addition, as clinical experience with a product expands after approval, side effects and other problems may be observed that were not seen or anticipated during pre-approval trials or other studies. Later discovery of previously unknown problems with our products or manufacturing processes, or failure to comply with regulatory requirements, may result in:


	•	restrictions on the marketing or manufacturing of a product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

	•	fines, warning letters or holds on clinical trials;

	•	refusal to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;

	•	product seizure or detention, or refusal to permit the import or export of products; and

	•	injunctions or the imposition of civil or criminal penalties.

Also, if we are slow to adapt, or unable to adapt, to changes in existing requirements or the adoption of new requirements or policies, we may lose any marketing approval that we may have obtained, resulting in decreased revenue from product sales or royalties.

We may not be able to obtain orphan product designation or exclusivity for our products.

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs and biologics for relatively small patient populations as “orphan” products. In the United States, a drug or biological product may receive orphan designation if the product is intended to treat a rare disease or condition that affects fewer than 200,000 people in the United States, or more than 200,000 people and there is no

reasonable expectation that the cost of development will be recovered from sales in the United States. In Europe, a product may be designated as an orphan medicinal product if it is intended for a life-threatening or chronically debilitating condition affecting not more than 5 in 10,000 persons in the European Union when the application is made, or where without incentives it is unlikely that the market would generate sufficient return to justify the necessary investment. We intend to seek orphan designation for our product candidates that meet the criteria in the relevant jurisdiction, but there is no guarantee that we will obtain such designation for any product.

Generally, if a product with an orphan designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a seven-year period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug or biologic for the same indication for that time period. Orphan product exclusivity in Europe lasts for ten years, but can be reduced to six years in some circumstances. If a competitor obtains orphan exclusivity before we do, and the competitor’s product is the same as our product candidate and has the same indication, we would be excluded from the market. Even if we obtain orphan product exclusivity for one of our product candidates, we may not be able to maintain it. For example, if a competitive product that is the same as our product is shown to be clinically superior to our product, any orphan exclusivity we have obtained will not block the approval of that competitive product.

Failure to obtain regulatory approval in jurisdictions outside the United States would prevent us from marketing our products abroad.

We intend to have our products marketed both inside and outside the United States. To market our products in the European Union, Asia and many other foreign jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. With respect to some of our product candidates, we expect that a future collaborator will have the responsibility to obtain regulatory approvals outside the United States, and we will depend on our collaborators to obtain these approvals. The approval procedure varies among countries and can involve the requirement of additional testing. The time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approval on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA. We and our collaborators may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.

Risks Related to Commercialization

Failure to gain acceptance of any approved products by physicians, patients, healthcare payors and others in the medical community would substantially impair our ability to generate revenue.

Any cancer product that we successfully develop and commercialize is likely to compete with the current traditional therapeutic approaches to solid tumors, including surgery, chemotherapy and radiation. In many cases, the current treatments are well known and have achieved widespread acceptance among physicians and patients. Because we offer a new method of treating solid tumors, we must invest a substantial amount of time and resources to educate our potential customers regarding the benefits of our technology. Potential customers may be reluctant to utilize our oncolytic virus products because they are familiar with existing treatments, have relationships with other treatment providers or are averse to change. These potential customers may also have significant capital investments in legacy treatments, which may also decrease the likelihood that they will accept OncoVEX^GM-CSF or our other product candidates. The degree of market acceptance of any product will depend on a number of factors, including:


	•	the prevalence and severity of any side effects;


	•	the efficacy and potential advantages over alternative treatments, including standard and accepted treatments such as chemotherapy and radiation;

	•	the ability to offer our product candidates for sale at competitive prices;

	•	relative convenience and ease of administration;

	•	the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

	•	the strength of marketing and distribution support; and

	•	sufficient third-party coverage and reimbursement.

Even if we receive marketing approval, if a product does not achieve an adequate level of acceptance we may not generate material product revenues from it.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate product revenues.

We do not have a sales organization and have no experience in the sale, marketing or distribution of our product candidates. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. Currently, we plan to build a focused oncology sales and marketing infrastructure to market or co-promote some of our product candidates in the United States if and when they are approved. There are risks involved with establishing our own sales and marketing capabilities, as well as in entering into arrangements with third parties to perform these services. We may not be able to attract, hire, train and retain qualified sales and marketing personnel to build a significant or effective marketing and sales force for sales of our product candidates. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed as a result of FDA requirements or other reasons, we would incur related expenses too early relative to the product launch. This may be costly, and our investment would be lost if we cannot retain our sales and marketing personnel.

We face substantial competition, and others may develop or commercialize products before or more successfully than we do.

The biotechnology and pharmaceutical industries are rapidly evolving businesses in which scientific and technological developments are expected to continue at a rapid pace. We face competition from major pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research institutions that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization in these therapeutic areas. Our competitors may:


	•	develop technologies and products that are safer, more effective, have fewer side effects, are more convenient or are less costly than any products that we may develop;

	•	obtain FDA or other regulatory approval for their products more rapidly than we obtain approval for ours; or

	•	obtain patent protection or other intellectual property rights that would block our ability to develop competitive products.

We are aware of other companies that are seeking to develop competitive products that use oncolytic viruses for the treatment of solid tumors. If these parties are successful in developing a viable alternative to OncoVEX^GM-CSF or our other product candidates, they could compete with us to sell these biologics and could capture a portion or all of our potential product sales.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and

marketing approved products than we do. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring products, product candidates and technologies complementary to, or necessary for, our programs or advantageous to our business.

Our product candidates may have application in a variety of indications, and we may fail to focus on the most profitable of them.

Our cancer product candidates may have applications in a variety of cancers. We have limited financial and managerial resources, however, and may therefore be required to focus the research, development, marketing and sales of our products in selected areas and to forego other opportunities. Our decisions about which markets to pursue may not produce viable commercial products and may divert our resources from potentially more profitable market opportunities.

Product liability lawsuits could cause us to incur substantial liabilities and require us to limit commercialization of any products that we may develop.

We face an inherent risk of product liability exposure related to the testing of our product candidates in clinical trials and the potential sale of any products that we successfully develop. We also face certain risks that are distinctive to viral gene therapy, including the risk of infection of a healthcare worker or bystander, the risk of an OncoVEX-treated person infecting another, and the possibility that OncoVEX could trigger an autoimmune response (a harmful immune response to the body’s tissues) in a patient. Although there have been no instances of such infections or responses to date, and although we believe that the effect of any such infection would likely not be severe, any such events in the future could result in a claim against us.

If we cannot successfully defend ourselves against potential claims that our products or product candidates caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, however, potential liability claims may result in:


	•	decreased demand for any product candidates or products that we may develop;

	•	injury to our reputation;

	•	withdrawal of clinical trial participants;

	•	costs to defend the related litigation;

	•	substantial monetary awards to trial participants or patients; and

	•	the inability to commercialize any products that we may develop.

We currently have product liability insurance for coverage up to an annual aggregate limit of approximately $8.7 million. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise. We do not believe that the amount of insurance we currently have in respect of OncoVEX^GM-CSF is sufficient to manage the risk associated with the potential commercialization of that product candidate, and we will have to purchase additional product liability insurance if our product reaches the marketplace.

If we are unable to obtain adequate coverage and reimbursement from third-party payors for any products that we may develop, or to obtain acceptable prices for those products, our revenues will suffer.

Our revenues and profits from any products that we successfully develop will depend heavily upon the availability of adequate coverage and reimbursement for the use of such products from third-party payors, both in the United States and in other markets. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:


	•	a covered benefit under its health plan;


	•	safe, effective and medically necessary;

	•	appropriate for the specific patient;

	•	cost-effective; and

	•	neither experimental nor investigational.

Obtaining a determination that a product is covered is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to each payor. Even when a payor determines that a product is covered, the payor may impose limitations that preclude payment for some uses that are approved by the FDA or comparable authorities but are determined by the payor to not be medically reasonable and necessary. Moreover, eligibility for coverage does not imply that any product will be covered in all cases or that reimbursement will be available at a rate that permits the health care provider to cover its costs of using the product.

Foreign governments tend to impose strict price controls, which may adversely affect our revenues.

In some foreign countries, particularly the countries of the European Union and Japan, the pricing of prescription pharmaceuticals and biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate with other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

Legislation has been introduced in Congress that, if enacted, would permit more widespread re-importation of drugs from foreign countries into the United States, which may include re-importation from foreign countries where the drugs are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could decrease the price we receive for any approved products, which, in turn, could adversely affect our operating results and our overall financial condition.

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop or commercialize our product candidates.

Our success depends on our continued ability to attract, retain and motivate highly qualified managerial and key scientific personnel. In particular, we consider retaining Dr. Gareth Beynon, our Chief Executive Officer, Philip Astley-Sparke, our President, Dr. Robert Coffin, our Chief Scientific Officer, and Dr. Colin Love, our Senior Vice President, Product Development, to be key to our efforts to develop and commercialize our product candidates. Our employment arrangements with Drs. Beynon, Coffin, and Love and Mr. Astley-Sparke, as well as those with each of our other senior executive officers, are terminable by them on 12 months’ notice.

In addition, our growth will require us to hire a significant number of qualified scientific and commercial personnel, including clinical development, regulatory, marketing and sales executives and field sales personnel, as well as additional administrative personnel. There is intense competition from other companies and research and academic institutions for qualified personnel in these areas. If we cannot continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development of our business, we may not be able to sustain our operations or grow.

We may seek to grow through acquisitions of other companies, products or technologies, any of which may fail to produce the financial and strategic benefits we anticipate.

Acquisitions involve a number of risks that could have a material adverse effect on our business, results of operations and financial condition or cash flows, particularly in the case of a larger acquisition or multiple acquisitions in a short period of time. From time to time, we may enter into negotiations for acquisitions that

are not ultimately consummated, which could result in significant diversion of management time, as well as out-of-pocket costs.

We could be required to use a substantial portion of our available cash to consummate any acquisition. To the extent we issue shares of stock or other rights to purchase stock, including options, existing stockholders may be diluted and earnings per share, if any, may decrease. In addition, acquisitions may result in the incurrence of debt, large one-time expenses, such as acquired in-process research and development costs, and restructuring charges. They may also result in goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges.

Risks Related to Manufacturing and Manufacturing Facilities

We intend to begin to manufacture clinical trial supplies of our product candidates ourselves. Delays in completing and receiving regulatory approvals for our manufacturing facility could delay our development plans and thereby limit our revenues and growth.

We are expending significant amounts for the build-out of a newly leased 30,000 square foot facility in Woburn, Massachusetts to house an analytical laboratory for clinical trials, a small-scale cGMP manufacturing facility and administration offices. This project may result in unanticipated delays and cost more than expected due to a number of factors, including regulatory requirements. If construction or regulatory approval of our new facility is delayed, we may not be able to manufacture sufficient quantities of OncoVEX^GM-CSF, which would limit our development activities and our opportunities for growth. Cost overruns associated with constructing our facility could require us to raise additional funds from external sources.

Our manufacturing facility will be subject to ongoing, periodic inspection by the FDA and other regulatory bodies to ensure compliance with cGMP. Our failure to follow and document our adherence to such cGMP regulations or other regulatory requirements may lead to significant delays in the availability of products for commercial use or clinical study, may result in the termination of or a hold on a clinical study, or may delay or prevent filing or approval of marketing applications for our products. We also may encounter problems with the following:


	•	achieving adequate or clinical-grade materials that meet FDA standards or specifications with consistent and acceptable production yield and costs;

	•	shortages of qualified personnel, raw materials or key contractors; and

	•	ongoing compliance with cGMP regulations and other requirements of the FDA and other regulatory bodies.

Failure to comply with applicable regulations could also result in sanctions being imposed on us, including fines, injunctions, civil penalties, a requirement to suspend or put on hold one or more of our clinical trials, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could harm our business.

Developing advanced manufacturing techniques and process controls is required to fully utilize our facility. Advances in manufacturing techniques may render our facility and equipment inadequate or obsolete.

In order to produce our products in the quantities that we believe will be required to meet anticipated market demand, we will need to increase, or “scale up,” the production process by a significant factor over the initial level of production. If we are unable to do so, are delayed, or if the cost of this scale up is not economically feasible for us or we cannot find a third-party supplier, we may not be able to produce our products in a sufficient quantity to meet future demand.

OncoVEX^GM-CSF and our other product candidates are complex and difficult to manufacture on a large-scale commercial basis, which could cause us to delay product launches or experience shortages of products.

OncoVEX^GM-CSF and all of our other product candidates are live viral products, which are complex to manufacture and test. Unlike chemical pharmaceuticals, the physical and chemical properties of a biologic product generally cannot be adequately characterized prior to manufacturing the final product. As a result, an assay of the finished product is not sufficient to ensure that the product will perform in the intended manner. Accordingly, it is essential to be able to validate and control the manufacturing process to assure that the process works and the product is made strictly and consistently in compliance with the process. Additionally, the FDA and other regulatory bodies may require manufacturers to submit samples of any lot of any licensed product together with the protocols showing the results of applicable tests at any time. Under certain circumstances, the FDA may require that manufacturers not distribute a lot until the agency authorizes its release. Slight deviations anywhere in the manufacturing process, including stability, quality control, labeling and packaging, may result in unacceptable changes in the products that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or experience shortages of products, which could be costly to us and otherwise harm our business. In addition, if we were to alter our manufacturing process during development, the FDA may require additional testing and clinical studies to ensure the safety and efficacy of the product candidates. This could result in substantial delays in bringing our product candidates to market. For example, after the completion of our initial Phase I clinical trial, we changed how our OncoVEX^GM-CSF product candidate is produced. Although we have conducted comparability studies between the two versions and a preclinical toxicology and biodistribution study to support clinical trials using the new version, the FDA may require us to conduct additional testing with the new version.

Our use of hazardous materials, chemicals, bacteria and viruses requires us to comply with regulatory requirements and exposes us to significant potential liabilities.

Our development and manufacturing processes involve the use of hazardous materials, chemicals, bacteria and viruses and produce waste products. Accordingly, we are subject to federal, state and local laws and regulations, and comparable regulations in the United Kingdom, governing the use, manufacture, distribution, storage, handling and disposal of these materials. In addition to ensuring the safe handling of these select agents and toxins, applicable requirements require increased safeguards and security measures for these agents, including controlled access and the screening of entities and personnel, and establish a comprehensive national database of registered entities. In the event of an accident or failure to comply with environmental and export control laws, we could be held liable for damages that result, and any such liability could exceed our assets and resources.

Risks Related to Our Dependence on Third Parties

If third parties on whom we rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our product candidates, and our business may suffer.

We do not have the ability to independently conduct the clinical trials required to obtain regulatory approval for our product candidates. We depend on independent clinical investigators, contract research organizations and other third-party service providers to conduct the clinical trials of our product candidates and expect to continue to do so for at least the next several years.

We rely heavily on these third parties for the successful execution of our clinical trials, but do not control many aspects of their activities. The FDA requires us to comply with certain requirements and standards, commonly referred to as Good Clinical Practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, welfare and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule, or

may not conduct our clinical trials in accordance with regulatory requirements or our stated protocols, which could delay or prevent the development, approval and commercialization of our product candidates.

If third parties do not manufacture our product candidates in sufficient quantities or at acceptable quality and cost, development and commercialization of our product candidates could be delayed, prevented or impaired.

We currently rely on contract manufacturers and other third parties to manufacture the supplies of our product candidates that we require for preclinical testing and clinical development. We expect that until our manufacturing facility in Massachusetts is available, we will continue to do so. Our current and anticipated future dependence upon a limited number of available manufacturers of our product candidates may adversely affect our ability to develop product candidates and commercialize any products that receive regulatory approval on a timely and competitive basis.

Our current contract manufacturers are subject to ongoing, periodic, unannounced inspection by regulatory authorities in the United Kingdom and the United States, and our new suppliers in the United States will be subject to similar inspection. We cannot be certain that our present or future manufacturers will be able to comply with cGMP regulations and other FDA regulatory requirements or similar regulatory requirements outside the United States. In addition, if regulatory authorities fail to approve the use of our already manufactured product candidates, our currently planned trials would be delayed. We do not control compliance by our contract manufacturers with these regulations and standards. If we or our third-party manufacturers fail to comply with applicable regulations, sanctions could be imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, product detention or refusal to permit the import or export of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of OncoVEX^GM-CSF and our other product candidates and harm our business.

We may not be successful in establishing collaborations, which could adversely affect our ability to develop and, particularly in international markets, commercialize our product candidates.

For each of our product candidates, we plan to evaluate the merits of retaining commercialization rights for ourselves or entering into collaboration arrangements with leading pharmaceutical or biotechnology companies. We face, and will continue to face, significant competition in seeking appropriate collaborators. The terms of any collaborations, partnerships or other arrangements that we establish may not be favorable to us. If we are unable to reach agreements with suitable collaborators, we may fail to meet our business objectives for the affected product or program.

Moreover, any collaboration that we enter into may be unsuccessful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. It is likely that our collaborators will have significant discretion in determining the efforts and resources that they will apply to these collaborations. The risks that we anticipate being subject to in future collaborations include the following:


	•	our collaborators may have the first right to maintain or defend our intellectual property rights and, although we would have the right to assume the maintenance and defense of our intellectual property rights if our collaborators do not, our ability to do so may be compromised by our collaborators’ acts or omissions;

	•	our collaborators may utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability; and

	•	our collaborators may breach regulations for safety and use, or fail to report safety data.

Risks Related to Our Intellectual Property

If we are not able to obtain and enforce patent protection for our technologies, our ability to successfully commercialize our current and future product candidates will be harmed and we may not be able to operate our business profitably.

Our success will depend in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technology and products. The patent situation in the field of biologics and other pharmaceuticals generally is highly uncertain and involves complex legal and scientific questions. We may not be able to obtain additional issued patents relating to our technology or products. Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for our products. The standards that the United States Patent and Trademark Office and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims allowed in any patents issued to us or to others. The allowance of broader claims may increase the incidence and cost of patent interference and opposition proceedings, and the risk of infringement litigation. On the other hand, the allowance of narrower claims may limit the value of our proprietary rights.

Our patents also may not afford us protection against competitors with similar technology. Because publications of discoveries in the scientific literature often lag behind actual discoveries, and because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, we cannot be certain that we were the first to make the inventions claimed in issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in these patent applications.

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We are a party to license agreements with third parties that give us access to technology necessary for our business, including in particular our licenses with the Gene eXpression Technologies licensing program of Research Corporation Technologies, the University of Iowa and Wyeth. We expect to enter into additional licenses in the future. Our existing licenses impose, and we expect future licenses will impose, various upfront and royalty payments and other obligations on us. If we breach these obligations, the agreements could be terminated or, in some cases, the exclusive rights granted to us could be converted to non-exclusive rights. If this happened with regard to a material license, we could be required to develop replacement technology and we may not have the capabilities or the intellectual property assets required to develop such technology independently. Furthermore, acceptable alternative technology may not exist, may not be something we are able to develop and may not be available to us on reasonable terms or at all. This could result in lengthy delays, significant interruption of commercial supplies of our products and substantial additional costs, and this would substantially harm our business.

We may have to obtain rights to use additional third-party intellectual property in order to pursue the commercialization of some of our product candidates, and if we are unable to obtain such access on acceptable terms, our growth prospects could be limited.

If we seek to progress our current research product candidates, we may need to obtain third-party rights relating to inserted genes. We can provide no assurance that we will be able to obtain such rights on commercially reasonable terms or at all. We may also need access to other third-party intellectual property for

other current or future product candidates. A failure to acquire such rights upon commercially reasonable terms could materially impair our growth.

We are aware of certain U.S. and corresponding foreign patents that one of our competitors, MediGene AG, has licensed from third parties that contain subject matter related to oncolytic HSV. Where warranted, we have obtained opinions from outside U.S. counsel regarding the U.S. patents. We do not believe we infringe any of these U.S. patents due to key differences between our technology and that covered by these patents. In addition, the U.S. Patent & Trademark Office determined that the applicants were not entitled to any of the claims in two of these U.S. patents (U.S. 6172047 and U.S. 6340673) as a result of interference proceedings decided in February 2004, thereby rendering these two patents unenforceable.

In Europe, we have opposed the European counterpart of one of these U.S. patents licensed to MediGene (US 6340673), including claims relating to the use of specific viruses in the treatment of tumorigenic disease. We believe that we will be successful in obtaining the restriction of the claims or a revocation of the patent. However, if we ultimately do not prevail, we may need to obtain a license under this European patent in order to progress our OncoVEX technology in European countries in which the patent is in force.

We have also opposed an additional European patent, expiring in 2011 and licensed to MediGene, which has recently been successfully limited on appeal in an opposition proceeding to specific method claims for producing a HSV-1 vaccine, which we do not believe we use. However, a final written decision has not yet been issued and there is currently uncertainty as to the precise scope of these claims. Depending on the final scope of the ruling and subsequent interpretations of the claims, as well as the launch date of any products that might be covered by these claims, it is possible that we may need to obtain a license under this European patent.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how. We seek to protect this information in part by confidentiality agreements with our employees, consultants and third parties. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop products that compete with our products, which could adversely impact our business.

If we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business.

Our development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be alleged to infringe patents to which we do not hold licenses or other rights in the United States and abroad. The third-party holders could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay development, manufacturing or sales of the product or product candidate that is the subject of the suit.

As a result of patent infringement claims, or to avoid potential claims, we or our collaborators may choose or be required to seek a license under third-party patents or patent applications and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. This could harm our business significantly.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the biologics field and in the pharmaceutical industry generally. We may become a party to patent litigation and other proceedings, including interference proceedings declared by the United States Patent and Trademark Office and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products and technology. For example, we are currently involved in two opposition proceedings in the European Union. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

Risks Related to the Offering

If you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent outstanding options are exercised, you will incur further dilution. Based on an assumed initial public offering price of $ per share (the midpoint of the estimated price range shown on front cover of this prospectus), you will experience immediate dilution of $ per share, representing the difference between our net tangible book value per share after giving effect to this offering and the initial public offering price. In addition, purchasers of common stock in this offering will have contributed approximately % of the aggregate price paid by all purchasers of our stock but will own only approximately % of our common stock outstanding after this offering.

An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the underwriters. Although we have applied to have our common stock quoted on the NASDAQ National Market, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult to sell shares you purchase in this offering without depressing the market price for the shares, or at all.

If our stock price is volatile, purchasers of our common stock could incur substantial losses.

Our stock price is likely to be volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:


	•	the success of competitive products or technologies;

	•	results of clinical trials of our product candidates or those of our competitors;

	•	regulatory developments in the United States and foreign countries;

	•	developments or disputes concerning patents or other proprietary rights;

	•	the recruitment or departure of key personnel;

	•	variations in our financial results or those of companies that are perceived to be similar to us; and


	•	market conditions generally and in the pharmaceutical and biotechnology sectors, and issuance of new or changed securities analysts’ reports or recommendations.

We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest our net proceeds from this offering in a manner that does not produce income or that loses value.

We do not anticipate paying any cash dividends in the foreseeable future.

We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

Our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.

We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules of the Securities and Exchange Commission and NASDAQ have imposed various new requirements on public companies, including changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage as we currently have.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls over financial reporting and effective disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to retain the services of additional accounting and financial staff or consultants with appropriate public company experience and technical accounting knowledge to satisfy the ongoing requirements of Section 404.

Our lack of sufficient experienced accounting staff has been identified as a material weakness in our internal controls, and our ability to report our future financial results on a timely and accurate basis may be adversely affected if we are unable to retain the services of additional accountants and consultants with required accounting experience and expertise.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

In connection with the preparation of our consolidated financial statements for the fiscal year ended March 31, 2006, our independent registered public accounting firm identified our failure to maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training in the application of generally accepted accounting principles commensurate with our financial reporting requirements as a control deficiency, which represents a material weakness in our internal control over financial reporting. Our independent registered public accounting firm concluded that we lacked sufficient finance and accounting staff or expert consultants with adequate depth and skill in the application of generally accepted accounting principles with respect to external financial reporting — specifically, the completeness and accuracy of footnote disclosures related to stock-based compensation and income taxes. This control deficiency resulted in audit adjustments to our 2006 consolidated financial statement disclosures related to stock-based compensation and income taxes. In addition, until remediated, this control deficiency could result in a material misstatement in our annual or interim consolidated financial statements that would not be prevented or detected.

We have experienced significant growth over the past several years and we have developed a plan to address this material weakness that includes assessment of our financial accounting and reporting staff requirements, which we expect will result in the engagement of expert consultants as appropriate.

Upon completion of this offering, we will have had only limited operating experience with the remedial measures we have made to date, and we have significant additional remedial measures that we must make. We cannot provide assurance that the measures we have taken to date or any future measures will adequately remediate the material weakness reported by our independent registered public accounting firm. In addition, we cannot be certain that additional material weaknesses in our internal control over financial reporting will not be discovered in the future. Any failure to implement the required new or improved controls in order to remediate the material weaknesses reported by our independent registered public accounting firm, or any difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of the periodic management evaluations that will be required when the SEC’s rules under Section 404 of the Sarbanes-Oxley Act of 2002 become applicable to us. Our failure to maintain effective internal control over financial reporting could also cause investors to lose confidence in our reported financial information.

If there are substantial sales of our common stock in the market or transfers by our existing stockholders, our stock price could decline.

If our existing stockholders sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell shares of common stock, the market price of our common stock could decline significantly. After this offering, we will have outstanding shares of common stock (based on the number of shares outstanding as of , 2006). This includes the shares that we are selling in this offering, which may be immediately resold in the public market without restriction, unless those shares are purchased by our affiliates. Any shares held by our affiliates may only be sold in compliance with the volume limitations of Rule 144. These volume limitations restrict the number of shares that may be sold by an affiliate in any three-month period to the greater of 1% of the number of shares then outstanding, which will equal approximately shares immediately after this offering based on the number of shares outstanding as of , 2006, or the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

The remaining shares, or % of our outstanding shares after this offering, are currently restricted as a result of securities laws or lock-up agreements but will be able to be sold in the near future as set forth below:


Date		Number of Shares

On the date of this prospectus:
At various times between the date of this prospectus and 90 days after the date of this prospectus:
At various times between the 90 days and 180 days* from the date of this prospectus:
At various times after 180 days* from the date of this prospectus (subject, in some cases, to volume limitations):


*		180 days corresponds to the end of the lock-up period described in the section of this prospectus entitled “Underwriting”. This lock-up period may be extended or shortened under certain circumstances as described in that section. However, Janney Montgomery Scott LLC, as representative of the underwriters, may in its sole discretion, at any time without prior notice, release all or any portion of the shares from the restrictions in any of these agreements. In considering any request to release shares from a lock-up agreement, the representative of the underwriters will consider the facts and circumstances relating to a request at the time of the request.

Subject to certain conditions, after the six-month anniversary of the closing of this offering, holders of an aggregate of approximately shares of common stock will have rights with respect to the registration of these shares of common stock with the Securities and Exchange Commission. If we register their shares of common stock, they can sell those shares in the public market.

FORWARD-LOOKING INFORMATION

This prospectus contains forward-looking statements that involve risks and uncertainties. Words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” “may” or other words that convey judgments about future events or outcomes indicate such forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements, and prospective investors should not place undue reliance on them. There can be no assurance that the actual results of our research and development activities and our results of operations will not differ materially from our expectations. Factors that could cause actual results to differ from expectations include, among others:


	•	our ability to develop safe and efficacious products;

	•	our ability to achieve positive results in clinical trials;

	•	our ability to obtain marketing approval and market acceptance for our product candidates;

	•	our ability to enter into future collaboration and licensing agreements;

	•	the impact of competition and technological change;

	•	existing and future regulations affecting our business;

	•	changes in governmental oversight of biological product development;

	•	the future scope of our patent coverage or that of third parties;

	•	the effects of any future litigation;

	•	general economic and business conditions, both internationally and within our industry; and

	•	our ability to secure additional financing to meet needs in the future.

There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those that we discuss in this prospectus under the caption “Risk Factors.” You should read these factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option in full. This estimate is based upon an assumed initial public offering price of $ per share (the midpoint of the estimated price range shown on the front cover of this prospectus), less estimated underwriting discount and commissions and offering expenses payable by us.

We currently intend to use these net proceeds as follows:


	•	approximately 75% to fund the development of OncoVEX^GM-CSF;

	•	approximately 5% to fund our preclinical and research programs with other OncoVEX products;

	•	approximately 10% to fund the development of ImmunoVEX^HSV2 through the completion of Phase I clinical trials; and

	•	the remainder for general corporate purposes, including the build-out of our manufacturing facility in Woburn, Massachusetts and working capital needs.

We may also use a portion of the proceeds for acquisitions, which may include the acquisition or licensing of rights to potential new product candidates or technologies. Although we periodically evaluate acquisition and licensing opportunities, we currently have no commitments or agreements with respect to any specific acquisition or license.

The amount and timing of our actual expenditures depend on a number of factors, including the progress of our research and development efforts and the amount of cash used by our operations. Accordingly, we will retain broad discretion in the allocation of the net proceeds from this offering. Pending the uses described above, we intend to invest the net proceeds of this offering in short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

We have never declared or paid cash dividends on either our common stock or preferred stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends to our stockholders in the foreseeable future.

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2006:


	•	on an actual basis;

	•	on a pro forma basis to give effect to the automatic conversion of all outstanding shares of convertible preferred stock into an aggregate of 40,470,339 shares of common stock and the issuance of an additional shares of common stock to the holders of our preferred stock as a stock dividend, each to be effected immediately prior to the closing of this offering; and

	•	on a pro forma as adjusted basis to adjust the pro forma information to give further effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of the estimated price range shown on front cover of this prospectus), after deducting estimated underwriting discounts and commissions and offering expenses payable by us.


	As of March 31, 2006
							Pro Forma
	Actual			Pro Forma			As Adjusted
	(In thousands, except share data)

Cash and cash equivalents	$	11,317,177		$			$

Redeemable convertible preferred stock, par value $0.0001 per share — 43,170,337 shares authorized and 40,470,339 shares issued and outstanding, actual; no shares authorized or issued and outstanding, pro forma and pro forma as adjusted		59,238,873			—
Stockholders’ deficit:
Common stock, par value $0.0001 per share — 50,860,902 shares authorized and 2,242,204 shares issued and outstanding, actual; shares authorized and shares issued and outstanding, pro forma; shares authorized and shares issued and outstanding, pro forma as adjusted		224
Additional paid-in capital		759,400			759,400
Deficit accumulated during development stage		(48,627,819	)		(48,627,819	)
Deferred compensation		(651,508	)		(651,508	)
Accumulated other comprehensive income		1,064,075			1,064,075

Total stockholders’ deficit		(44,260,828	)

Total capitalization	$	11,783,245		$			$

The above share data exclude:


	•	4,739,700 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2006 at an exercise price per share equal to the par value of $0.0001 per share;

	•	shares of common stock reserved for issuance under our stock incentive plans; and

	•	shares of common stock issuable upon the exercise of the underwriters’ over-allotment option.

You should read this table together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.

DILUTION

Our net tangible book value as of March 31, 2006 was approximately $11.8 million, or approximately $5.26 per common share (or approximately $ per common share on a pro forma basis to give effect to the conversion of all outstanding shares of our convertible preferred stock into common stock upon the closing of this offering and the issuance of an additional shares of common stock to the holders of our preferred stock as a stock dividend, each to be effected immediately prior to the closing of this offering). Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the pro forma number of shares of common stock outstanding before giving effect to the sale of the shares of our common stock in this offering.

After giving effect to the sale of shares of common stock in this offering, at an assumed initial public offering price of $ per share (the midpoint of the estimated price range shown on front cover of this prospectus), less the estimated underwriting discounts and commissions and offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2006 would have been $ per share. This represents an immediate increase in net tangible book value per share of $ to existing stockholders and immediate dilution in net tangible book value of $ per share to new investors purchasing our common stock in the offering at the assumed initial public offering price. The following table illustrates the per share dilution (without giving effect to the over-allotment option granted to the underwriters):


Assumed initial public offering price per share		$

Pro forma net tangible book value per share at March 31, 2006	$
Increase per share attributable to new investors
Pro forma as adjusted net tangible book value per share after the offering
Dilution per share to new investors		$

Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by a new investor. If any shares are issued in connection with outstanding options or the underwriters’ over-allotment option, you will experience further dilution.

If the underwriters’ over-allotment option is exercised in full, the following will occur:


	•	the percentage of shares of common stock held by existing stockholders will decrease to approximately % of the total number of shares of our common stock outstanding after this offering; and

	•	the number of shares held by new investors will be increased to , or approximately % of the total number of shares of our common stock outstanding after this offering.

The following table sets forth, on a pro forma basis, as of March 31, 2006, the number of shares of common stock purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by the new investors, at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and offering expenses payable by us:


	Shares Purchased				Total Consideration				Average Price
	Number	Percentage			Amount	Percentage			per Share

Existing Stockholders				%	$			%	$
New Investors				%	$			%	$

Total			100.00	%	$		100.00	%	$

SELECTED CONSOLIDATED FINANCIAL INFORMATION

You should read the following selected consolidated financial data in conjunction with our consolidated financial statements and the related notes appearing in this prospectus, as well as the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.

We have derived the statement of operations data for the fiscal years ended March 31, 2004, 2005 and 2006 and the balance sheet data as of March 31, 2005 and 2006 from our audited financial statements, which are included in this prospectus, as audited by PricewaterhouseCoopers LLP, independent registered public accountants. The report of PricewaterhouseCoopers LLP, which also is included in this prospectus, contains an explanatory paragraph relating to our ability to continue as a going concern, as described in Note 1 to our consolidated financial statements. We have derived the balance sheet data as of March 31, 2004 from our audited financial statements, which are not included in this prospectus. We have derived the statement of operations data for the years ended March 31, 2002 and 2003 and the balance sheet data as of March 31, 2002 and 2003 from our unaudited financial statements, which are not included in this prospectus.

The pro forma net loss per share attributable to common stockholders data is computed using the weighted average number of common shares outstanding, after giving pro forma effect to the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock effective upon the completion of this offering, as if the conversion had occurred at the beginning of the year or the date of the original issuance, if later.


	Year Ended March 31,
	2002			2003			2004			2005			2006
	(Unaudited)

Statement of operations data:
Revenues	$	22,846		$	38,828		$	39,868		$	40,929		$	21,969
Operating expenses:
Research and development		3,166,952			4,543,281			6,545,665			10,154,271			10,925,762
Administrative		1,855,597			2,601,418			2,782,651			3,653,479			5,487,762

Total operating expenses		5,022,549			7,144,699			9,328,316			13,807,750			16,413,524

Loss from operations		(4,999,703	)		(7,105,871	)		(9,288,448	)		(13,766,821	)		(16,391,555	)
Interest expense		(101,425	)		(32,059	)		(19,536	)		(9,313	)		(3,699	)
Interest income		152,637			148,756			269,530			622,485			745,664

Loss before income tax benefit		(4,948,491	)		(6,989,174	)		(9,038,454	)		(13,153,649	)		(15,649,590	)
Income tax benefit		829,375			791,428			1,244,429			1,434,560			1,393,737

Net loss		(4,119,116	)		(6,197,746	)		(7,794,025	)		(11,719,089	)		(14,255,853	)

Basic and diluted net loss per common share	$	(3.36	)	$	(5.06	)	$	(6.16	)	$	(8.97	)	$	(10.91	)

Weighted average shares used in computing basic and diluted loss per common share		1,225,000			1,225,000			1,265,539			1,307,204			1,307,204

Unaudited pro forma net loss per common share (basic and diluted)													$	(0.34	)

Weighted average shares used to compute unaudited pro forma net loss per common share														41,395,766

Balance sheet data:
Cash and cash equivalents	$	2,974,537		$	2,882,346		$	6,352,185		$	20,251,905		$	11,317,177
Working capital		3,186,865			3,137,420			11,218,385			20,965,176			10,955,118
Total assets		5,673,124			5,636,189			15,003,253			23,944,277			14,508,758
Total liabilities		1,094,478			944,050			2,292,022			1,774,796			2,725,513
Accumulated deficit		(8,661,106	)		(14,858,852	)		(22,652,877	)		(34,371,966	)		(48,627,819	)
Redeemable convertible preferred stock		13,483,691			19,347,174			33,545,206			53,885,416			59,238,873
Total stockholders’ deficit		(8,905,045	)		(14,704,319	)		(20,833,802	)		(31,715,935	)		(47,455,628	)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview


	•	OncoVEX^GM-CSF, which is currently in a Phase I/II clinical trial for the treatment of head and neck cancer and a Phase II trial for the treatment of melanoma. Assuming that the results of our clinical trial in head and neck cancer continue to be positive, we intend to meet with the FDA in the second half of 2007 to seek agreement on the design of a pivotal Phase III clinical trial to be governed by a Special Protocol Assessment. We also expect to begin additional clinical trials of OncoVEX^GM-CSF in pancreatic cancer in the third quarter of 2006 and in metastatic colorectal cancer affecting the liver by the end of the year. Depending on the results of these clinical trials, we will determine in which other indications we will seek to pursue Phase III clinical trials following discussion with the FDA.

	•	OncoVEX^GALV/CD, which is designed to enhance the effect of chemotherapy, and which is currently in preclinical studies.

	•	OncoVEX^TNF^α, which is designed to enhance the effect of radiation, and which is currently in preclinical studies.

	•	Immuno VEX^HSV2, which is a vaccine for genital herpes. We intend to initiate a Phase I clinical trial for this product candidate in the first half of 2007 and to report initial data in the second half of 2007.

Since we began operations in 1999, we have devoted substantially all of our resources to the discovery and development of our product candidates. We are currently conducting clinical trials with our lead product candidate in two indications, and we plan to commence clinical trials in two additional indications by the end of the year. We have not received approval to market any product and, to date, have received no product revenues.

Since our inception, we have incurred substantial losses and, as of March 31, 2006, we had an accumulated deficit of $48.6 million. These losses and accumulated deficit have resulted from the significant costs incurred in the research and development of our biologics and technologies and administrative costs. We expect that our operating losses will continue and likely increase substantially for at least the next several years as we continue to expand our research, development and clinical trial activities and infrastructure.

When and if we achieve product revenues or enter into collaborative development arrangements that provide for milestone-based payments, any revenues we may achieve are likely to vary substantially from quarter to quarter and year to year. Revenue to date consists of fees paid by potential collaborative partners to enable them to evaluate our gene target validation platform as a research tool. Revenue is recognized when evidence of an arrangement exists, terms are fixed or determinable, all contractual obligations under the

agreements have been satisfied and collection is reasonably assured. Our operating expenses are also likely to vary substantially from quarter to quarter and year to year based on the timing of clinical trial patient enrollment and our research activities. In particular, as we advance OncoVEX^GM-CSF, we expect that our research and development expenses will increase. We believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied on as indicative of our future performance.

The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing and estimated expenses of the efforts necessary to complete the remainder of the development of, or the period in which material net cash inflows will commence from, OncoVEX^GM-CSF or any of our other product candidates due to the numerous risks and uncertainties associated with developing biologics, including the uncertainty of:


	•	the scope, rate of progress and expense of our clinical trials and other research and development activities;

	•	future clinical trial results;

	•	the expense of clinical trials for additional indications;

	•	the terms and timing of any collaborative, licensing and other arrangements that we may establish;

	•	the expense and timing of obtaining regulatory approvals;

	•	the expense of establishing clinical and commercial supplies of our product candidates and any products that we may develop, including securing manufacturing facilities that are compliant with cGMP;

	•	the effect of competing technological and market developments; and

	•	the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

We do not expect to generate product revenue in any event earlier than 2011, if at all. If any of our programs experience delays or do not result in a commercial product, we would not generate revenue from that program in a timely manner or at all.

Critical Accounting Policies and Estimates

This discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those described below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following accounting policies, in particular, reflect the exercise of significant judgment and the use of estimates by our management.

Accrual of Research and Development and Other Expenses

We expense research and development costs as incurred. Research and development expenses include salaries and benefits, facilities costs, clinical trial and related supply costs, contract services, related depreciation and amortization and other related costs, as described under “— Financial Operations Overview — Research and Development Expenses” below.

As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service where we have not yet been invoiced or

otherwise notified of actual cost. We make these estimates as of each balance sheet date in our financial statements. Examples of estimated accrued expenses include:


	•	fees payable to contract research organizations in conjunction with clinical trials;

	•	fees payable to contract manufacturers in conjunction with the production of clinical trial materials; and

	•	professional service fees.

In accruing service fees, we estimate the time period over which services will be provided and the level of effort in each period. If the actual timing of the provision of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. The majority of our service providers invoice us monthly in arrears for services performed. In the event that we do not identify costs that have begun to be incurred or we underestimate or overestimate the level of services performed or the costs of such services, our actual expenses could differ from such estimates. The date on which some services commence, the level of services performed through a given date and the cost of such services are often subjective determinations. We make judgments based upon the facts and circumstances known to us.

Stock-Based Compensation

We apply the principles of Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and related interpretations in accounting for our employee stock option compensation plans. Under APB 25, compensation expense is measured as the difference, if any, between the option exercise price and the fair value of our common stock at the date of grant. We have historically granted options to employees and directors at exercise prices equal to the fair value of our common stock. Accordingly, no compensation expense has been recognized for our employee stock-based compensation plans.

The stock options and restricted stock we have granted to date do not begin to vest until the closing of an initial public offering or change in control of our company, and the majority vest in full upon such event. A measurement date for accounting purposes does not occur until an initial public offering or change in control occurs. Accordingly, we have not to date recorded any stock compensation expense. We will amortize employee stock compensation on an accelerated basis in accordance with FIN28, an interpretation of APB25, over the applicable vesting period. For options and restricted stock vesting upon an initial public offering or a change in control, this will result in an immediate charge to the consolidated statement of operations in the period in which the initial public offering or change in control occurs. We expect to record a material charge to the consolidated statement of operations upon the closing of this offering. Based on an assumed initial public offering price of $ per share (the midpoint of the estimated price range shown on the front cover of this prospectus), we expect that this charge will be approximately $ million.

We adopted SFAS No. 123-R, “Share-Based Payment,” or SFAS 123-R, on April 1, 2006. SFAS 123-R requires the recognition of the fair value of stock-based compensation in net earnings. We are utilizing the modified prospective transition method for adopting SFAS 123-R. Under this method, the provisions of SFAS 123-R apply to all awards granted or modified after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined under the original provisions of SFAS 123, are recognized in net income (loss) in the periods after the date of adoption. The issuance of SFAS 123-R will significantly change the way we account for grants of stock options. This new pronouncement and its potential impact are discussed further in the section below, entitled “Recent Accounting Pronouncements”.

Based on an assumed initial public offering price of $ per share (the midpoint of the estimated price range shown on front cover of this prospectus), the intrinsic value of the options and restricted stock outstanding at March 31, 2006 was $ million. None of such options and restricted stock will have vested prior to the closing of this offering.

We record income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. Our consolidated financial statements contain certain deferred tax assets, which have arisen primarily as a result of operating losses, as well as other temporary differences between financial and tax accounting. SFAS No. 109 “Accounting for Income Taxes,” requires us to establish a valuation allowance if the likelihood of realization of the deferred tax assets is reduced based on an evaluation of objective verifiable evidence. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets. We evaluate the weight of all available evidence to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized.

third-party support for preclinical study support, clinical supplies and clinical trials associated with our principal programs, as well as our aggregate internal research and development expenses:


Research and	Year Ended March 31,						Inception
Development Program	2004		2005		2006		to Date

OncoVEX ^GM-CSF	$	1,017,230	$	2,493,365	$	2,430,702	$	7,791,967
ImmunoVEX ^HSV-2		—		—		197,068		197,068
Other programs (including terminated programs)		802,638		1,715,375		1,981,910		6,910,961

Total external research and development expense		1,819,868		4,208,740		4,609,680		14,899,996

Internal research and development expenses		4,725,797		5,945,531		6,316,082		23,278,354
Total	$	6,545,665	$	10,154,271	$	10,925,762	$	38,178,350

The principal expenses in respect of research programs that we have terminated relate to our ImmunoVEX^tri-melan product candidate. We terminated our development of this product candidate in 2006 in order to focus resources on our lead OncoVEX platform.

We expect that a substantial percentage of our research and development expenses in the future will be incurred in support of our current and future preclinical and clinical development programs. These expenditures are subject to numerous uncertainties as to timing and cost to completion. In order to advance our biologic development programs toward eventual commercialization of a biologic product, we test compounds in numerous preclinical studies for safety, toxicology and efficacy. We then conduct clinical trials for each biologic candidate. Throughout the development process, we make submissions to, and engage in discussions with, regulatory authorities, with the ultimate goal of submitting to these authorities and having approved applications for marketing approval. As we obtain results from trials, we may elect to discontinue or delay clinical trials for some product candidates in order to focus our resources on more promising product candidates. Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a biologic candidate. The cost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including:


	•	the trial indication;

	•	the number of patients who participate in the trials;

	•	the number of sites included in the trials;

	•	the length of time required to enroll trial participants;

	•	the duration of patient follow-up; and

	•	the efficacy and safety profile of the product candidate.

None of our product candidates has received FDA or foreign regulatory marketing approval. In order to achieve marketing approval, the FDA or foreign regulatory agencies must conclude that our clinical data establish the safety and efficacy of our product candidates. Furthermore, our strategy includes entering into collaborations with third parties to participate in the development and commercialization of some of our products. In situations in which third parties have control over the preclinical development, clinical trial process or regulatory filing process for a product candidate, the estimated completion date will largely be under control of that third party rather than under our control. We cannot forecast with any degree of certainty which of our product candidates will be subject to future collaborations or how such arrangements will affect our development plan or capital requirements.

As a result of the uncertainties discussed above, we are unable to determine the precise duration and completion costs of our research and development projects or when or to what extent we will receive cash inflows from the commercialization and sale of a product. In any event, we do not expect to generate product revenue earlier than 2011.

Administrative Expenses

Administrative expenses consist primarily of salaries and other related costs for personnel serving finance, accounting, information technology, human resource and administrative functions. Other costs include facility costs not included in research and development expense, insurance, and professional fees for legal, accounting and public relations services and costs of prosecuting and maintaining our intellectual property rights. We expect that administrative expenditures will increase during the remainder of 2006 and subsequent years due to increasing payroll, public company expenses, our initial commercialization expenses if we receive marketing approvals, business development costs and expanded operational infrastructure.

Interest Expense and Interest Income

Interest expense consists of interest incurred on equipment debt financing. Interest income consists of interest earned on our cash and cash equivalents.

Results of Operations

Comparison of Years Ended March 31, 2006, 2005 and 2004

Revenues

Revenues were $21,969 in fiscal year 2006, $40,929 in 2005 and $39,868 in 2004. Revenues in each period consisted of fees paid by potential collaborative partners to enable them to evaluate our gene target validation platform as a research tool.

Research and Development Expenses

Research and development expenses increased by 7.6%, to $10.9 million, in fiscal year 2006, from $10.2 million in fiscal year 2005, and by 55.1%, from $6.5 million in fiscal year 2004. The increases in each period reflected the costs associated with preparing our product candidates for, and the commencement of, multiple clinical trials.

Administrative Expenses

Administrative expenses increased by 50.2%, to $5.5 million, in fiscal year 2006, from $3.7 million in fiscal year 2005, and by 31.3%, from $2.8 million, in fiscal year 2004. The increase in 2006 over 2005 reflects principally an increase of $683,000 in legal and accounting fees directly related to the formation of BioVex Group, Inc. as our ultimate parent company as well as $200,000 in connection with an increase in finance personnel. The increase in 2005 over 2004 reflects an increase in legal fees.

Interest Expense and Interest Income

Interest expense was $3,699 in fiscal year 2006, $9,313 in 2005 and $19,536 in 2004.

Interest income increased to $745,664 in fiscal year 2006, from $622,485 in fiscal year 2005 and $269,530 in fiscal year 2004. The increase in each period was primarily due to higher average invested balances.

Liquidity and Capital Resources

We have financed our operations since inception principally through private placements of equity securities and interest income. From inception through March 31, 2006, we have raised net proceeds of $59.4 million from private equity financings. From inception through March 31, 2006, we have also received $164,440 in license fees and research and development funding and $2.3 million in interest income. To date, inflation has not had a material effect on our business.

Cash Flows

As of March 31, 2006, our cash and cash equivalents were $11.3 million, compared with $20.3 million at March 31, 2005 and $6.4 million at March 31, 2004. Our cash and cash equivalents are highly liquid

investments with original maturity dates of three months or less and consist of time deposits, investments in money market funds with commercial banks and financial institutions, and United States and United Kingdom government obligations.

Net cash used in operating activities was $12.6 million for the year ended March 31, 2006. This reflects a net loss of approximately $14.3 million, a $1.2 million increase in accounts payable and accrued expenses and an increase of approximately $577,000 in prepaid expenses and other assets. These amounts were partially offset by $515,000 of non-cash expenses related to depreciation and amortization of property and equipment and a decrease in income tax receivable of approximately $519,000.

Net cash used in investing activities in the year ended March 31, 2006 was $234,000 and was related to purchases of property and equipment.

Net cash provided by financing activities during the year ended March 31, 2006 was $5.3 million, and consisted primarily of $5.4 million received from the issuance of redeemable convertible preferred stock, partially offset by $63,000 in repayments of capital lease obligations.

Net cash used in operating activities was $12.5 million for the year ended March 31, 2005. This reflects a net loss of approximately $11.7 million, an increase of approximately $88,000 in prepaid expenses and other assets and an increase of approximately $792,000 in income tax receivable. These amounts were partially offset by a decrease in accounts payable, deferred revenue and accrued expenses of approximately $476,000, reflecting full payment of substantially higher vendor balances, a decrease in accounts receivable of approximately $34,000, and $551,000 of non-cash expenses related to depreciation and amortization of property and equipment.

Net cash provided by investing activities during the year ended March 31, 2005 was $5.4 million, and consisted of approximately $5.5 million in maturities of short-term investments offset by approximately $164,000 related to purchases of property and equipment.

Net cash provided by financing activities during the year ended March 31, 2005 was $20.3 million, and consisted primarily of $20.3 million in proceeds from the issuance of redeemable convertible preferred stock, partially offset by $85,000 in repayments of capital lease obligations.

Net cash used in operating activities was $6.4 million for the year ended March 31, 2004. This reflects a net loss of approximately $7.8 million, an increase in accounts payable, deferred revenue and accrued expenses of approximately $1.2 million, due to accrual of substantially higher year-end development program costs, and an increase of approximately $272,000 in income tax receivable. These amounts were partially offset by a decrease in prepaid expenses and other assets of approximately $44,000, an increase in accounts receivable of approximately $34,000, and $507,000 of non-cash expenses related to depreciation and amortization of property and equipment.

Net cash used in investing activities for the year ended March 31, 2004 was $5.7 million, and consisted of approximately $5.5 million in purchases of short-term investments offset by approximately $186,000 related to purchases of property and equipment.

Net cash provided by financing activities during the year ended March 31, 2004 was $14.2 million and consisted primarily of $14.3 million in proceeds from the issuance of redeemable convertible preferred stock and common stock, partially offset by $140,000 in the repayment of capital lease obligations.

Contractual Obligations

Our long-term commitments consist of operating leases for laboratory and office space. These leases expire over the period from 2007 to 2013. The following table summarizes as of March 31, 2006 these contractual obligations, and should be read in conjunction with the notes accompanying our financial statements included elsewhere in this prospectus.


											2011
	Payments Due by Period										and
	Total		2007		2008		2009		2010		Thereafter

Operating leases	$	4,897,713	$	885,014	$	653,094	$	784,305	$	810,899	$	1,764,401

In addition, upon commencement of a Phase III clinical trial for OncoVEX^GM-CSF, we will be required to make a payment of $300,000 to one of our third party patent licensors. A subsequent payment of $500,000 will become payable upon marketing approval.

Funding Requirements

We expect to incur losses from operations for at least the next several years. In particular, as described above, we expect to incur increasing research and development expenses and administrative expenses as we expand our operations and move our product candidates into later-stage development and, potentially, commercialization.

We believe our existing cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to enable us to fund our operating expenses, obligations under our equipment debt financing and capital expenditure requirements for at least the next 18 months. We have received an audit report from our independent accountants containing an explanatory paragraph stating that our historical recurring losses and limited funds raise substantial doubt about our ability to continue as a going concern. We believe that the successful completion of this offering will enable us to continue as a going concern. If we are unable to successfully complete this offering, we will need to obtain alternative financing and modify our operational plan in order to continue as a going concern.

Our future capital requirements will depend on many factors, including:


	•	the scope and results of our research, preclinical and clinical development activities;

	•	the timing of, and the costs involved in, obtaining regulatory approvals for our lead product candidate, OncoVEX^GM-CSF, in a lead indication and for any additional indications or product candidates;

	•	the cost of commercialization activities, including product marketing, sales and distribution;

	•	the cost of constructing or acquiring manufacturing facilities that are compliant with cGMP, or contracting with third-parties for the use of such facilitites;

	•	the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs, including litigation costs and the results of such litigation;

	•	the extent to which we acquire or invest in businesses, products and technologies; and

	•	our ability to establish and maintain collaborations for commercialization and, potentially, later-stage development activities.

We do not anticipate that we will generate product revenues for at least the next several years. We expect our continuing operating losses to result in increases in our cash used in operations over the next several quarters and years. To the extent our capital resources are insufficient to meet future capital requirements, we will need to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. We do not currently have any commitments for future external funding.

Additional equity or debt financing, or corporate collaboration and licensing arrangements, may not be available on acceptable terms, if at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our planned commercialization efforts, or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently. Additionally, any future equity funding may dilute the ownership of our equity investors.

Off Balance Sheet Arrangements

As more fully explained in note 5 to the audited financial statements included elsewhere in this prospectus, our preferred stock have conversion or other rights which meet the definition of a derivative; these meet the scope exception within SFAS 133, Accounting for Derivative Instruments and Hedging Activities. Otherwise, we currently have no other off-balance sheet arrangements.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123-R”), which replaces SFAS No. 123, “Accounting for Stock-

Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123-R requires all share-based payments to employees, including grants of employee stock options and share-based payments granted to non-employee members of a company’s board of directors, to be recognized in the income statement based on their fair values using an option-pricing model, such as the Black-Scholes model, at the date of grant. The pro forma footnote disclosure alternative is no longer allowable under SFAS No. 123-R. On March 29, 2005, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 107 to express the SEC staff’s views regarding the interaction between SFAS No. 123-R and certain SEC rules and regulations and provide the staff’s views regarding the valuation of share-based payment arrangements.

We are required to adopt SFAS 123-R in the first quarter of fiscal 2007, beginning April 1, 2006. Under SFAS 123-R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. We expect to elect to use the modified prospective method for adoption, which requires compensation expense to be recorded for all unvested stock options and restricted shares beginning in the first quarter after adoption. For all unvested options outstanding as of April 1, 2006, compensation expense previously measured under APB 25, but unrecognized, will be recognized using the straight-line method over the remaining vesting period which in the case of awards vesting upon an IPO or change in control, will result in an immediate charge to the consolidated statement of operations. For share-based payments granted subsequent to April 1, 2006, compensation expense, based on the fair value on the date of grant, as defined by SFAS 123-R, will be recognized using the straight-line method from the date of grant over the service period of the employee receiving the award.

On June 1, 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
(“SFAS 154”), which will require entities that voluntary make a change in accounting principle to apply that change retrospectively to prior periods’ financial statements, unless this would be impracticable. SFAS 154 supersedes Accounting Principles Board Opinion No. 20, “Accounting Changes” (APB 20), which previously required that most voluntary changes in accounting principle be recognized by including in the current period’s net income the cumulative effect of changing to the new accounting principle. SFAS 154 also makes a distinction between “retrospective application” of an accounting principle and the “restatement” of financial statements to reflect the correction of an error. SFAS 154 applies to accounting changes and error corrections that are made in fiscal years beginning after December 15, 2005. We do not expect the adoption of this statement to have a material impact on our financial condition or results of operations.

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is currently confined to our cash and cash equivalents that have maturities of less than one year. We currently do not hedge interest rate exposure. We have not used derivative financial instruments for speculation or trading purposes. Because of the short-term maturities of our cash and cash equivalents, we do not believe that an increase in market rates would have any significant impact on the realized value of our investments.

The functional currency of BioVex Limited, our wholly owned subsidiary in the United Kingdom, is the British pound sterling. We anticipate that most of our expenses will continue to be denominated in sterling for at least the next year, although we expect that an increasing proportion of expenses will be denominated in dollars as we expand our operations in Massachusetts. As a result, in periods when the U.S. dollar declines in value compared with the British pound sterling, our British pound sterling-based expenses increase when translated into U.S. dollars. Although it is possible to do so, we have not to date entered into any hedging instruments with regard to foreign currency because the exposure has not been material to our historical operating results. However, we may enter into hedging instruments with regard to foreign currency following the receipt of the dollar-denominated net proceeds of this offering.

A 10% appreciation in the average value of the British pound sterling against the U.S. dollar during the fiscal year ended March 31, 2006 would have resulted in an increase of $1,426,000, or 8.7%, in our reported total operating expenses for that period.

BUSINESS

Overview

We are a clinical-stage biotechnology company focused on the development and future commercialization of targeted treatments for cancer and the prevention of infectious disease. Our pipeline of cancer product candidates is built on what we believe to be a first-in-class oncolytic virus technology that replicates and spreads within solid tumors, causing the death of cancer cells while leaving surrounding healthy cells unharmed. This technology is based on our proprietary, engineered form of the herpes simplex virus, or HSV. We believe that this technology is more effective than earlier-generation clinical-stage oncolytic viruses and has the potential to establish a new standard of care in the treatment of solid tumors by improving overall survival rates while minimizing side effects. In particular, we believe that OncoVEX has the potential to:


	•	eliminate or shrink a broad range of tumors;

	•	prevent or slow the further growth of tumors;

	•	increase the proportion of tumors that can be surgically removed;

	•	limit the spread, or metastasis, of tumors from their initial site;

	•	increase the proportion of tumors that respond to other therapies, including chemotherapy and radiation; and

	•	reduce the incidence of relapse.

In our completed Phase I clinical trial conducted in the United Kingdom in 30 patients with breast, melanoma, head and neck, and gastrointestinal tumors, OncoVEX ^GM-CSF destroyed tumors while sparing normal cells, without the serious side effects associated with chemotherapy or radiation. OncoVEX^GM-CSF is currently in a 14-patient Phase I/II clinical trial in the United Kingdom for the first-line treatment of head and neck cancer, intended to be expanded with 14 additional patients in the highest dose group, and a Phase II clinical trial in the United States for the treatment of melanoma. Preliminary data from the initial patients enrolled in both of these studies indicate shrinkage of treated tumors consistent with that observed in our Phase I clinical trial. Assuming positive results in our clinical trial in head and neck cancer, we intend to meet with the FDA in the second half of 2007 to seek agreement on the design of a pivotal Phase III clinical trial in this indication to be governed by a Special Protocol Assessment.

In preclinical studies, OncoVEX^GM-CSF improved the effectiveness of chemotherapy and radiation, even at very low doses. As a result, we are developing additional product candidates designed to maximize the potential of chemotherapy and radiation, while minimizing their side effects. These include OncoVEX^GALV/CD for administration with chemotherapy and OncoVEX^TNF^α for administration with radiation.

Our lead infectious disease product candidate is ImmunoVEX^HSV2, a vaccine for genital herpes. We intend to initiate a Phase I clinical trial for this product candidate in the first half of 2007 and to report initial data later that year.

Our Strategy


	•	Obtain regulatory approval for our lead product candidate, OncoVEX^GM-CSF, by targeting indications in which we believe we can demonstrate efficacy quickly. We are devoting the majority of our efforts to completing the clinical development of, and obtaining regulatory approval for, OncoVEX^GM-CSF for the treatment of various solid tumors. We are initially focusing on cancers that progress rapidly and in which efficacy data can be obtained through relatively short clinical trails, potentially allowing a quicker route to regulatory approval. We are also targeting indications that will potentially enable us to qualify for FDA “fast track” status and expedited regulatory review. Assuming successful completion of

our current clinical trial in head and neck cancer, we intend to meet with the FDA in the second half of 2007 to discuss the design of a pivotal Phase III clinical trial in that indication and to seek a Special Protocol Assessment. We also intend to analyze the data from our other ongoing and planned clinical trials to determine whether and when to pursue additional pivotal trials in those indications.


	•	Progress the development of OncoVEX^GM-CSF in additional indications and seek to bring follow-on products into the clinic. We believe OncoVEX^GM-CSF may have applications in additional cancers, including primary liver and lung cancers and glioma, a form of brain cancer. If we complete successful pivotal clinical trials and obtain marketing approval in head and neck cancer or another lead indication, we would then seek to conduct additional clinical trials to expand the labeling of the product into additional indications. We also intend to advance our OncoVEX^GALV/CD and OncoVEX^TNF^α product candidates into clinical trials in indications in which they may enhance the efficacy of chemotherapy or radiation.

	•	Retain marketing rights for our oncology product candidates in North America and seek out-licensing and partnership arrangements elsewhere. In order to maximize the potential financial return from marketed products, we intend to retain marketing rights in the North American market. We also intend ultimately to develop a limited oncology-focused sales and marketing organization to cover the sale of our products in this market. At the same time, we intend to enter into marketing and development agreements with pharmaceutical and biotechnology partners in other parts of the world.

	•	Partner our genital herpes vaccine candidate. Prior to the commencement of Phase II clinical trials, we intend to seek a partner to further develop our ImmunoVEX^HSV2 product candidate for the prevention and treatment of genital herpes. Because of the likely size and cost of the clinical trials that will be required to advance this product candidate through regulatory approval, we believe that the most efficient and cost-effective approach will be to work with a partner with the substantial resources needed to conduct these trials. We anticipate that we will pursue a similar approach with our ImmunoVEX^HSV2/HPV product candidate for the prevention and treatment of genital herpes and HPV.

Market Opportunity

Treatment and Control of Solid Tumors and Metastatic Cancer

Many types of solid tumors present significant challenges that limit surgery as an effective treatment option. These include those tumors that occur in relatively inaccessible areas or that lie within close proximity to major blood vessels or in critical organs. In addition, later-stage patients often have tumors that are too large to surgically remove, or resect. The standard therapeutic approach to the treatment of most inoperable solid tumors is to administer chemotherapy, radiation or both to reduce the tumor mass, followed by surgery, where possible, to remove the remaining tumor. Even if successful in shrinking the tumor enough to make surgery possible, chemotherapy and radiation suffer from well-known and serious side effects, usually including fatigue, skin problems and localized hair loss, and in some cases bone marrow suppression and gastrointestinal and other localized disorders. As a consequence, prolonged or repeated courses of treatment may not be possible. In addition, even following these treatments, relapse rates are often high.

Failure to control a solid tumor locally can also permit the cancer to spread, or metastasize, from the site of the original tumor to other parts of the body. Traditional approaches to the treatment and control of metastatic cancer focus on attacking the disease systemically, primarily through chemotherapy. Recently, new drug and biological therapies, including small molecules, antibodies targeting particular surface receptors, and other pharmaceutical and biological products, have also emerged as additional tools in combating cancer. Like chemotherapy and radiation, however, these new drugs and biologics can also induce serious side effects.

A considerable unmet medical need exists, therefore, for new therapies that can provide safe and effective local tumor control, enable previously inoperable tumors to become eligible for surgery, improve the response rates of current therapies, and reduce the overall side effects of current cancer treatments.

Incidence of Target Cancers

Solid tumor cancers represent significant causes of morbidity and mortality:


	•	Head and neck cancer has an incidence of approximately 38,000 cases annually in the United States, according to the American Cancer Society, or ACS, with 11,000 deaths attributable to the disease in 2005, representing approximately 2% of all cancer deaths in the United States. Surgery is often not possible for cancers that are too large to resect or have invaded the carotid artery, skull, spinal column or esophagus. In these cases, combined chemotherapy and radiation is used, intended to shrink the tumor sufficiently to allow surgery to be performed. Relapse rates, however, remain high, and only 50% of patients with recurrent head and neck cancer survive one year, even when treated with aggressive multi-drug chemotherapy, according to research published in the Journal of Clinical Oncology in 2005.

	•	Pancreatic cancer has an incidence of approximately 32,000 cases annually in the United States, according to the American Cancer Society with more than 31,000 deaths estimated to be attributable to the disease in 2005. At the time of diagnosis, approximately 75% of cases are inoperable. Of these, approximately one third remain localized in the pancreas, while the remainder have metastasized. Upon diagnosis, survival times are often less than one year, with a five-year survival rate of less than 5%, according to research published in the Journal of Clinical Oncology in 2005. Standard treatment, aimed at shrinking tumors sufficiently to allow surgery to be performed, involves a combination of the chemotherapy agent 5-fluorouracil, or 5-FU, and radiation.

	•	Colorectal cancer has an incidence of approximately 145,000 cases annually in the United States, according to the ACS, and is estimated to have resulted in more than 56,000 deaths in 2005. Although the original tumors can often be removed from the bowel, the ultimate outcome generally depends upon the extent to which the tumor has metastasized to other parts of the body. In approximately 25% of colon cancer patients with metastases, these are confined to the liver, according to research published in the Journal of Clinical Oncology in 2000. These liver tumors generally cannot be surgically removed, and treatment with other therapy (normally chemotherapy) generally has a limited impact on survival. Improved control of these liver metastases would therefore be expected to directly impact survival rates.

	•	Melanoma has an incidence of approximately 60,000 cases annually in the United States, according to the ACS, with over 7,700 deaths estimated to be attributable to the disease in 2005. Melanoma is one of the fastest growing cancers in the western world, with the incidence in the United States increasing by more than 115% between 1973 and 1995, according to the ACS. For late-stage patients who are inoperable, existing treatment options are extremely limited and have not conclusively been shown to increase survival. The five-year survival rate for patients with Stage IV melanoma is approximately 7-9%, according to The Melanoma Research Foundation.

Incidence, Treatment and Prevention of Genital Herpes (HSV-2) and Human Papillomavirus (HPV) Infections

At least 45 million people over the age of 11 in the United States have been infected with HSV-2, the cause of genital herpes, the rate of infection having increased approximately 30% between the late 1970s and the early 1990s, according to the Centers for Disease Control and Prevention. In newborns, the disease is often fatal and thus HSV-2 infection in the mother is a frequent cause for cesarean section, according to data published in the journal Sexually Transmitted Diseases. According to research reported in Biomed Central’s journal BMC Infectious Diseases, the economic burden of genital HSV infection and resulting complications has been estimated to be greater than $1 billion annually in the United States alone. HSV-2 is therefore an important target for vaccine development.

There have been many, largely unsuccessful, attempts to produce an effective prophylactic or therapeutic vaccine against HSV-2. Several different types of vaccine candidates have been developed, including live-attenuated vaccines, peptide vaccines, DNA vaccines, and subunit vaccines. Recent vaccine candidates have been based on one or two of the proteins that constitute HSV-2 in combination with immune system

stimulators, known as adjuvants, to boost vaccine effectiveness. The effectiveness of candidate HSV-2 vaccines when tested in clinical trials, however, has been limited.

HPV causes the majority of cases of cervical cancer, a disease that kills more than 200,000 women around the world each year, according to the National Cancer Institute. Although early, noninvasive cervical cancer can be cured by surgery, in later stages of the disease this is not possible or has limited effectiveness. In addition, there is currently no medical cure to eliminate HPV itself, although many of the symptoms can be treated, often through cryosurgery (freezing that destroys tissue), conventional surgery or topical treatments. In addition, the FDA approved a new prophylactic vaccine from Merck in June 2006, and we understand that another such vaccine is under development by GlaxoSmithKline. Although either or both of these vaccines for HPV may reach the market soon, we believe that a combined vaccine for both HSV-2 and HPV would be commercially attractive.

Our OncoVEX Technology

An improved oncolytic virus backbone

Our OncoVEX oncolytic technology is based on a proprietary, engineered form of HSV. HSV is a potent virus that infects and destroys cells through the process of lysis, in which the virus replicates inside a cell and ultimately ruptures the cell membrane, killing the cell. Our OncoVEX technology is built on a version of HSV from which the gene that encodes a particular protein, known as ICP34.5, has been deleted.

The ICP34.5 protein is required for the growth of HSV in normal cells but not for growth in tumor cells. The deletion of this gene, therefore, gives the virus the property of “tumor selectivity” — in other words, the virus replicates in tumor cells but not the surrounding healthy tissue. However, HSV from which ICP34.5 has been deleted exhibits lower levels of replication in tumor cells than the unmodified, or wild type, virus. We have, therefore, further modified our version of oncolytic HSV by increasing the expression levels of the HSV US11 gene, which increases replication in tumors to a level close to that of the wild type virus. This replication-enhancing technology is covered by a patent we license from Wyeth. We believe that our “second-generation” HSV-based technology has a substantially greater ability than earlier investigational oncolytic virus technology to replicate in tumor cells. We also believe our oncolytic HSV is more potent than earlier technology due to the fact that it is based on a proprietary new strain of HSV selected for its improved ability to infect and kill human tumor cells compared with the laboratory isolates of the virus that had previously been used.

We have also developed our OncoVEX backbone to induce improved anti-tumor immune responses through the deletion of the HSV gene encoding the ICP47 protein. This protein usually blocks antigen presentation in HSV-infected cells, and thus the deletion of this gene is intended to enable the immune system to recognize OncoVEX-treated tumor cells more effectively.

OncoVEX can infect and kill a broad range of human tumor cells, including all of the more than 25 cell lines from 8 different types of cancer that we have tested in preclinical or clinical studies, while sparing healthy tissue. In addition, as described below, in our completed Phase I clinical trial with OncoVEX^GM-CSF this virus was able to move through the tumor into which it is initially injected and into adjacent tumors, continuing the process of replication and eventual tumor destruction.

Oncolytic Virus Replication
in Tumor Cells

Based on our clinical and preclinical data, we believe that our OncoVEX product candidates have a greater level of activity in killing tumor cells than oncolytic virus product candidates that have previously entered clinical development, including those based on the adenovirus, a virus responsible for mild respiratory infections, and first-generation oncolytic HSV. For example, in our preclinical tests, OncoVEX caused greater tumor shrinkage than has been demonstrated with either of these earlier approaches. Pioneering adenovirus-based approaches, which have so far been the subject of more extensive clinical development than first-generation HSV approaches, generally only cause a delay in tumor growth rather than actual tumor shrinkage or destruction, and first-generation HSV approaches cause less tumor shrinkage than our OncoVEX technology.

In addition, based on the dose at which our product candidates are clinically active, we estimate they will be at least 1,000 times more potent than the pioneering adenovirus-based approaches. As a result, we believe our OncoVEX product candidates will require administration only once every two to three weeks during a treatment course, which we determined to be optimal in our Phase I study. This dosing schedule also fits well with the standard treatment schedules for the administration of chemotherapy and radiation. This compares with dosing up to twice a day for adenovirus-based approaches, which is less convenient for the patient. Moreover, we believe that on each dosing occasion we will be able to administer a considerably lower dose of our OnvoVEX product candidate than is required for adenovirus-based approaches. We therefore believe that these factors should provide advantages to our OncoVEX technology in terms of efficacy, convenience of administration and lower production costs per patient.

Gene insertions to further enhance anti-tumor effects

In addition to the improvements to previous oncolytic virus backbones described above, our OncoVEX product candidates also contain inserted genes to further enhance the anti-tumor effects of virus replication. Our lead product, OncoVEX^GM-CSF, contains the gene encoding human granulocyte macrophage-colony stimulating factor, or GM-CSF. GM-CSF is a potent stimulator of immune system cells such as dendritic cells that has shown promise in a number of clinical trials involving third-party product candidates in cancer, and which is used in current clinical practice, providing a proven safety profile for its use. In preclinical tests, OncoVEX^GM-CSF caused destruction or shrinkage of both injected and un-injected tumors, which were improved through the expression of GM-CSF. In the clinical setting we believe that expression of GM-CSF

may enhance the level of any anti-tumor immune response generated, which may aid the treatment of injected tumors, slow disease progression elsewhere and may also inhibit the extent to which new metastases become established. As a consequence, in addition to applications in the local control of tumors, we are also exploring the potential to use OncoVEX^GM-CSF in metastatic cancer, and are currently conducting a Phase II clinical trial in melanoma.

In addition, we have developed our OncoVEX^GALV/CD and OncoVEX^TNF^α product candidates by inserting into our OncoVEX virus backbone other genes that encode proteins to specifically improve the effects of chemotherapy and radiation, respectively. In preclinical models, these product candidates have demonstrated the potential to enhance the effectiveness of chemotherapy and radiation, which we believe may allow these standard therapies to be given with greater effectiveness, at lower doses or for a longer period of time. In addition, it is possible that previously chemotherapy- or radiation-resistant tumors may become susceptible to radiation or chemotherapy treatment regimens following OncoVEX treatment.

Our Product Candidate Pipeline

The following table summarizes our current pipeline:


Product Candidate	Target Indication/Use	Stage of Development

OncoVEX^GM-CSF	Head and neck cancer	Phase I/II clinical trial currently underway in the United Kingdom
		Depending on the results of this clinical trial, discussions with the FDA regarding the design of a pivotal Phase III clinical trial are expected to commence in the second half of 2007

	Pancreatic cancer	Phase I clinical trial scheduled to commence in the third quarter of 2006 in the United States

	Metastatic colorectal cancer affecting the liver	Phase II clinical trial scheduled to commence by year-end 2006 in the United States

	Melanoma	Phase II clinical trial currently underway in the United States

OncoVEX^GALV/CD	Enhance effect of chemotherapy	Preclinical

OncoVEX^TNF^α	Enhance effect of radiation	Preclinical

ImmunoVEX^HSV2	Genital herpes (vaccine)	Phase I clinical trial expected to commence in the first half of 2007 in the United Kingdom

ImmunoVEX^HSV2/HPV	Genital herpes and HPV (combined vaccine)	Research

Clinical Strategy

We seek to target indications and to design Phase II and Phase III clinical trials that allow us to optimize dosing and to obtain efficacy data relatively rapidly following the initiation of clinical trials in a particular tumor type. We therefore focus on tumor types in which disease progression is usually rapid and where current treatment options are limited. In the indications on which we are currently focusing we believe that it is possible to obtain data from relatively small clinical trials in carefully targeted patient populations that can adequately demonstrate safety and efficacy for purposes of regulatory approval.

In line with this strategy, and assuming that the results from our current clinical trial in head and neck cancer continue to be positive, we believe that the data generated in that clinical trial will be sufficient for us to request a meeting with the FDA in the second half of 2007 to discuss a design for a Phase III pivotal clinical trial in this indication. We also intend to analyze the data from our other clinical trials to determine whether and when to pursue further pivotal Phase III clinical trials in those additional indications.

Clinical Trials of OncoVEX^GM-CSF

We have completed a Phase I clinical trial in a variety of tumor types and have brought this product candidate into Phase II, initially in melanoma. We are currently also conducting a Phase I/II trial in head and neck cancer in combination with first-line chemotherapy and radiation, and intend to begin two additional clinical trials, in primary pancreatic cancer and colorectal cancer liver metastases, later in 2006. Our current Phase II trial in melanoma is focused on both the overall response to treatment and our product candidate’s effect on injected tumors.

Phase I Clinical Trial in Various Tumor Types

We have completed a 30-patient Phase I clinical trial of OncoVEX^GM-CSF in a number of tumor types. The trial was conducted in the United Kingdom at the Hammersmith Hospital, London. We enrolled patients with skin deposits of breast, melanoma, head and neck, or gastrointestinal tumors. All enrolled patients had advanced disease, had failed prior therapy and were generally estimated to have between three and six months to live. In the first, rising-dose phase of the clinical trial, 13 patients were enrolled and single injections into a tumor at three escalating doses were given to groups of four or five patients at each dose. In the second part of the clinical trial, 17 patients were enrolled and injections into a single tumor on three different occasions in a number of different dosing regimens were given to 15 of these patients. Following injection, swabs of the tumor, biopsies, blood samples, urine samples, vital signs and a photographic record were taken at scheduled intervals.

The primary endpoint of the clinical trial was to determine safety. In addition, biological activity as an indicator of efficacy was determined through the assessment of virus replication, the expression of GM-CSF, histological examination of tumor biopsies for evidence of tumor cell death, the presence of HSV and immune cell infiltration, and gross observation of tumors for signs of tumor destruction.

OncoVEX^GM-CSF was shown to be well tolerated and to lack the serious side effects commonly associated with chemotherapy and radiation. The main side effects were a mild fever for two-to-five days (which was expected based on previous clinical studies with oncolytic viruses) and injection-site reactions. Inflammation and erythema, or redness, were observed around the site of injection in nearly all cases and inflammation at other uninjected tumor sites was observed in some cases.

Replication in injected tumors was assessed by swabbing the tumor on a daily basis and testing for the presence of live virus. The virus was detected for up to two weeks in each of three patients. The cycle of virus replication in one of these patients is illustrated in the graph below, which shows the quantity of virus detected on the surface of an injected tumor each day following injection. Based on these findings, and the timing of the injected tumor reactions, we have incorporated a bi-weekly dosing regimen in the protocol for our current and planned clinical trials.

An Example of OncoVEX^GM-CSFReplication in an Injected Tumor

Among the single-dose patients in the first part of the trial, GM-CSF expression was assessed in biopsies taken from the tumor 48 hours following virus injection and was found to be dose-related in the low- and mid-dose groups.

Biopsies were taken two to three weeks following virus injection in the single dose patients and two to three weeks after the third injection in the multi-dose patients, and were assessed to determine if immune system cells, including T-cells, B-cells and macrophages, had infiltrated the tumor. Although pre-injection biopsies could not be taken from the patients specifically for purposes of this study, in four cases such biopsies had been taken for other reasons and were therefore available for comparison. In these cases, increased levels of immune cells were detected following the injection of OncoVEX^GM-CSF.

Tumor inflammation was assessed visually. Inflammation of the injected tumor was observed in most cases, even after a single dose. In addition, erythema in the skin surrounding the tumor was evident in a number of patients, indicative of an inflammatory response. The most significant finding was the observation of tumor cell death (in most cases, tumor necrosis) visually and in biopsies taken approximately three weeks following injection. These showed tumor cell death in the majority of cases where residual tumor was also present in the biopsy (14 of the 19 tumor biopsies taken). As tumor cell death was observed in all tumor types enrolled, we believe that OncoVEX^GM-CSF may be effective in each of these tumor types. Histological sections from the biopsies were also stained for the presence of HSV and, wherever tumor necrosis was seen, strong staining for HSV was also detected. HSV was only rarely detected in non-necrotic or non-tumor tissue. Non-tumor tissue also showed no evidence of cell death, with or without associated staining for HSV. We believe that the degree of cell death and virus spread observed in the tumor, as well as to some adjacent tumors, has not previously been observed following oncolytic virus treatment, particularly where the virus has been used alone (not in combination with chemotherapy or radiation).

Current and Planned Clinical Trials

Head and Neck Cancer

We are currently conducting a Phase I/II clinical trial of OncoVEX^GM-CSF in combination with radiation and cisplatin, a commonly used chemotherapy agent, in the first-line treatment of locally advanced head and neck cancer. The clinical trial comprises a single-arm, open-label, dose-escalation study of up to three dose levels of OncoVEX^GM-CSF, initially in at least 14 evaluable patients with locally advanced head and neck cancer with one or more metastases in the neck. We intend to seek to amend the current protocol to add an additional cohort of 14 patients at the dose intended for a Phase III clinical trial. The trial is assessing safety

and biological activity as an indicator of efficacy of OncoVEX^GM-CSF in combination with chemotherapy and radiation in patients prior to radical neck dissection. The endpoints are the tolerability of OncoVEX^GM-CSF when combined with chemotherapy and radiation, and biological activity as an indicator of efficacy. Biological activity is being assessed both by computer tomography, or CT, scanning and by histology performed on biopsies and tissue removed at surgery. The principal investigator is Dr. Kevin Harrington at the Royal Marsden Hospital in London.

We expect that preliminary data from this clinical trial will be available during the first half of 2007. Assuming that the results are positive, we anticipate that we will request a meeting with the FDA in the second half of 2007 to discuss the design for a Phase III pivotal clinical trial in this indication. We anticipate that we will seek fast track designation from the FDA, which is a status intended to facilitate the development and review of new drugs and biologics that are intended to treat serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs. We would also seek a Special Protocol Assessment, or SPA, with the FDA. An SPA is an agreement that the Phase III trial design, clinical endpoints, and statistical analysis are acceptable to support a new drug application or biologics license application. An SPA is binding on the FDA and the trial sponsor unless a substantial scientific issue essential to determining safety or efficacy is identified after the testing has begun.

Primary Pancreatic Cancer

We intend to commence an open label, 18-patient Phase I clinical trial in the third quarter of 2006 to evaluate the safety and efficacy of four dose levels of OncoVEX^GM-CSF in patients with inoperable pancreatic cancer. OncoVEX^GM-CSF will be given by direct injection into the tumor using endoscopic ultrasound-guided fine needle injection, a procedure routinely used for the collection of biopsies. Injections at each dose level will be given on three occasions. Patients will be monitored for three months and followed up thereafter at three-month intervals. If safety is established and there are indications of efficacy, we intend to submit an amendment to our current protocol to the FDA for purposes of adding additional patients to the trial to expand it into a Phase II trial in 2007.

The endpoints will be safety and tolerability as assessed by adverse events and clinical laboratory safety parameters, and response to treatment as assessed by CT scanning and tumor biopsy, pain assessment and survival time. The principal investigator is Dr. Neil Senzer of the Mary Crowley Medical Research Center in Dallas. We expect that preliminary data from this clinical trial will be available in late 2007.

Colorectal Cancer Liver Metastases

We intend to initiate a Phase II clinical trial for OncoVEX^GM-CSF in colorectal cancer metastases to the liver by the end of 2006. The protocol to be submitted to the FDA will provide for OncoVEX^GM-CSF to be given by direct infusion into the hepatic artery, with subsequent dissemination throughout the liver, a procedure also used to focus the effects of chemotherapy to liver tumors. We plan to recruit patients with liver metastases derived from colorectal cancer that is recurrent or has failed first-line chemotherapy. Safety will be assessed as well as efficacy in terms of tumor response as measured by PET (positron emission tomography) and CT scanning and other parameters. If patients’ tumors progress on OncoVEX^GM-CSF alone, they will then be offered second-line chemotherapy together with OncoVEX^GM-CSF. The clinical trial design thus allows the safety and potential efficacy of OncoVEX^GM-CSF to be assessed both alone and in conjunction with second-line chemotherapy. Because the response rate to second-line chemotherapy is very low, we believe that it should be possible to identify any significant improvement to such therapy when used in conjunction with OncoVEX^GM-CSF. The principal investigator will be Dr. Tony Reid at the University of California at San Diego. We expect that preliminary data from this clinical trial will be available in early 2008.

Local Tumor Control and Treatment of Metastases in Melanoma

We are currently conducting a Phase II clinical trial in up to 50 evaluable patients with Stage IIIc or Stage IV malignant melanoma. This study evaluates the ability of OncoVEX^GM-CSF to destroy melanoma tumors into which it is directly injected and to initiate an anti-tumor immune response. The primary endpoint

is tumor response rate, which is assessed by evaluating both injected and non-injected tumors in order to determine the overall disease response. Secondary efficacy endpoints include time to disease progression, median survival time and immunological responses to tumor antigens. Up to ten cutaneous or subcutaneous lesions are being injected in each patient and monitored and the response of these lesions to treatment is assessed by CT scanning and clinical measurement using the standard Response Evaluation Criteria In Solid Tumors, or RECIST, criteria. Responses in uninjected tumors are also being assessed in the same manner separately.

Initially, the treatment schedule allows for up to eight injections given over a 15-week period. If indications of biological activity are observed, treatment can continue for up to a maximum of 24 injections. Tumor response rate will be evaluated using a two-stage design. In the first stage, we will evaluate 24 patients (without halting recruitment) who have received at least eight injections of OncoVEX^GM-CSF, and if at least one patient has overall disease response, we will continue the trial. However, if no patient has overall disease response, we will terminate the trial. If we terminate the trial for this reason, but data from the trial suggest that OncoVEX^GM-CSF elicits a response in tumors into which it is directly injected, we may use these data to design further clinical studies focusing on local tumor control in melanoma patients. The principal investigator is Dr. John Nemunaitis at the Mary Crowley Medical Research Center in Dallas. We expect that preliminary data from this clinical trial will be available in early 2008.

Other OncoVEX Product Candidates

We have developed the following additional OncoVEX-based product candidates specifically to enhance the anti-tumor effects of chemotherapy or radiation, while also aiming to minimize side effects:

OncoVEX^GALV/CD

We are developing OncoVEX^GALV/CD to enhance the anti-tumor effects and improve the safety profile of chemotherapy, specifically 5-FU, a commonly used and highly toxic chemotherapy drug. OncoVEX^GALV/CD expresses a potent version of the cytosine deaminase gene, which converts an inactive precursor drug (5-FC) to the active drug, 5-FU. Because OncoVEX^GALV/CD replicates within the injected tumor, conversion of 5-FC to 5-FU will occur predominately in the tumor. We therefore believe that OncoVEX^GALV/CD could reduce the toxic side effects normally associated with 5-FU, which is usually administered systemically, and may increase efficacy as higher local concentrations of 5-FU should be generated in the tumor. OncoVEX^GALV/CD also expresses the GALV protein that kills cancer cells by initiating cell death through cell fusion. Cell fusion, in addition to its direct anti-tumor effect, is intended to enable 5-FU to spread further through the tumor than would otherwise be the case, potentially enhancing the effectiveness of the treatment approach. OncoVEX^GALV/CD completely destroyed tumors in preclinical tests, as indicated in the chart below, which shows tumor shrinkage in rats following injections commencing at day 17.

Effect of GALV in Rat Tumors

OncoVEX^TNF^α

We are developing OncoVEX^TNF^α to enhance the tumor killing effects of radiation. Although many cytokines and related proteins have been tested for their use in cancer therapies, we believe that TNFα has clinical promise due to its potent ability to sensitize tumors to the effects of radiation. Although when used systemically it is highly toxic, TNFα has been tested in clinical trials by others by infusion close to tumors to reduce these toxic side effects, and to enhance the effects of radiation when delivered by a non-replicating adenovirus. Using these methods of administration, tumor regressions have been observed. We are currently conducting tests of OncoVEX^TNF^α in preclinical models, including in combination with radiation where we expect the combination of oncolytic tumor cell death with TNFα- enhanced radio-sensitization to be more effective than current approaches.

Our ImmunoVEX Technology

Our ImmunoVEX technology is based on our proprietary, engineered forms of either HSV-1 or HSV-2 from which genes that collectively interfere with the functions of immune system cells known as antigen presenting cells have been deleted. The deleted genes are those encoding the virion host shutoff protein, ICP47, ICP34.5 and UL43. These genes enable wild-type HSV to evade the body’s immune system. By deleting only these genes but keeping the remainder of the virus intact, we believe that we have created potent vaccine candidates for use in the prevention or treatment of HSV infection, and potentially for the delivery of antigens associated with other diseases in a combined vaccine approach.

ImmunoVEX^HSV2

Our lead vaccine product candidate is for the prevention and potentially the treatment of HSV-2, the primary cause of recurrent genital herpes. ImmunoVEX^HSV2 expresses all but four of the approximately 80 HSV-2 proteins, maximizing the breadth of the anti-HSV immune response generated, but without the four deleted immune-inhibiting proteins. ImmunoVEX^HSV2 has been evaluated in the industry-standard preclinical model of genital herpes, in which it completely prevented disease and invoked a powerful immune response, indicating that ImmunoVEX^HSV2 is more potent than other HSV-2 vaccines for which published data are available. In our preclinical studies, ImmunoVEX^HSV2 was evaluated at three different dose levels. The graph below demonstrates that all members of the control group challenged with wild type HSV-2 developed genital lesions, with differing degrees of severity. However, pre-vaccination with ImmunoVEX^HSV2 at the mid- and highest-dose levels completely protected against challenge with the wild-type virus.

ImmunoVEX^HSV2 Disease Prevention
in Preclinical Testing

We intend to commence a Phase I clinical trial with ImmunoVEX^HSV2 in the United Kingdom in early 2007. If this clinical trial demonstrates safety and initial efficacy in terms of the level of immune response generated, we intend to partner the product for future clinical development.

ImmunoVEX^HSV2/HPV

We are also using the ImmunoVEX backbone to develop a combined vaccine for HSV-2 and HPV. HPV, which causes the majority of cases of cervical cancer, and HSV-2, the causative agent of genital herpes, have very similar risk profiles for infection. We believe a combined vaccine therefore represents a significant product opportunity. Three HPV antigens (L1, L2 and E2) are being inserted into the ImmunoVEX^HSV2 backbone, and we believe that this will generate significant anti-HPV as well as anti-HSV-2 immune responses. We intend to partner this product for future clinical development.

Intellectual Property

Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology and know how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing United States and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position.

We have generated a strong intellectual property portfolio. Our proprietary technology in oncolytic viruses, HSV-based vaccines, and HSV-based technology generally is protected by more than 15 families of patent applications. Patents and patent applications protect our technology in the following areas:


	•	Oncolytic viruses with enhanced potency compared with previous technology (OncoVEX);

	•	HSV with immune evasion/dendritic cell inactivation functions deleted (ImmunoVEX); and

	•	General herpes vector technology, including producer cell lines.

In each area of the areas outlined above, the core patent has been granted, or is pending, in various territories including the United States and Europe.

We have five patent families protecting our OncoVEX technology. Our two key OncoVEX patents have been granted in Europe and in other territories. The patents in Europe are set to expire in 2021, excluding any patent term extension. One of these European patents is the subject of opposition proceedings before the European Patent Office, which we will vigorously defend. We also have a key patent application allowed in the United States and expect that the patent will be granted imminently. U.S. patents generally have a term of 20 years from the date of filing. The key U.S. patent with respect to OncoVEX would also be expected to expire in 2021. The most recently filed patent applications relating to OncoVEX^GALV/CD and OncoVEX^TNF^α are currently in their early stages but, if granted, we expect that they will result in patents expiring in 2024 and 2026, respectively.

Four of our patent families protect our ImmunoVEX technology. Two of these families include patents granted in the United States and Europe as well as in other territories. The term of the U.S. patent in one of these families will expire in 2019 and the term of the U.S. and European patents in the other family will expire in 2021, although it may be possible to obtain patent term extension both in the United States and in Europe.

The remaining patent families relate to general herpes vector technology. The earliest granted patents in these families have a 20-year term expiring in 2018. For these patent families, and for the patent families protecting the OncoVEX and ImmunoVEX technologies, there will be the possibility of obtaining patent term extension in the United States, Europe and other territories.

We also have exclusive or non-exclusive licenses to third-party patents, including licenses through the Gene eXpression Technologies licensing program of Research Corporation Technologies, the University of Iowa and Wyeth. These licenses cover the use of certain gene inserts such as CMV promoters, GM-CSF, antigen genes, and a modification to oncolytic HSV to increase tumor-selective replication.

Competition

We are developing product candidates in the highly competitive markets addressing cancer and certain infectious diseases, and compete with pharmaceutical, biopharmaceutical and biotechnology companies, as well as universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing and drug development resources than we do. Large biopharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory approvals for drugs and biologics. These companies also have significantly greater research capabilities than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies or universities and research institutions.

Our commercial opportunity may be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects, are easier to administer or are less expensive than any products that we may develop, especially if these reach the market sooner than our products. These third parties also compete with us in recruiting and retaining qualified personnel, establishing clinical trial sites and patient recruitment for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or potentially advantageous to our business. We believe that our ability to successfully compete in these areas will depend, among other things, on our ability to:


	•	advance the development of our product candidates;

	•	design, enroll patients in and successfully complete appropriate clinical trials in a timely fashion;

	•	gain regulatory approval for our product candidates in their first indications as well as further indications;

	•	establish collaborations and partnerships for the marketing and development of our product candidates;

	•	commercialize our product candidates successfully, including convincing physicians, insurers and third-party payors of the safety and efficacy of our product candidates over, or in combination with, currently approved therapies;


	•	secure and protect intellectual property rights based on our innovations; and

	•	manufacture or otherwise obtain and sell commercial quantities of our future products to the market.

OncoVEX

Our oncolytic product candidates, if and when marketed, will compete to a certain extent with a number of drugs that are currently marketed or in development that also target cancer cells but that utilize a different mechanism of action. To compete effectively, our product candidates will need to demonstrate advantages that lead to improved clinical efficacy and safety compared with, or in combination with, these agents. At the same time, however, we believe that our oncolytic product candidates, if and when they are ultimately marketed, could also be used in combination with existing cancer therapies, including surgery, chemotherapy, radiation therapy and other biological therapies such as antibodies targeting particular surface receptors. We therefore believe that our product candidates, if and when marketed, would largely complement rather than compete directly with these existing treatment options.

We do, however, expect to face direct competition from a number of companies that are also seeking to develop cancer therapies based on oncolytic viruses. The pioneer in the oncolytic virus field was Onyx Pharmaceutics, Inc., which worked with an engineered version of the adenovirus, a respiratory virus which we believe to be of low lytic potential and therefore to be a less potent oncolytic agent then those based on the herpes simplex virus. The original Onyx product candidate, named Onyx 015, was partnered with Warner Lambert, which later merged with Pfizer. Pfizer and Onyx abandoned the program in 2001. In 2005, the Onyx 015 program was sold to Shanghai Sunway Biotech Co., a Chinese company. Sunway has also obtained product approval to market a similar adenovirus-based oncolytic product for use in head and neck cancer in China — the first oncolytic virus approved anywhere in the world. Cell Genesys, Inc. has also developed a number of oncolytic adenovirus product candidates, mainly targeted at prostate cancer. We understand that Cell Genesys has ceased development of the prostate cancer product candidates, but that it has an adenovirus-based product potentially with activity in a broader range of tumor types in a Phase I clinical trial in superficial bladder cancer. In July 2003, Cell Genesys announced that it had entered into an agreement with Novartis for the development and commercialization of oncolytic adenovirus therapies, pursuant to which it obtained exclusive worldwide rights to certain oncolytic adenovirus therapy products and related intellectual property of Novartis, including rights to the virus currently being tested in superficial bladder cancer described above.

Other companies are, like us, seeking to develop oncolytic viruses based on the herpes simplex virus. These companies include Crusade Laboratories Ltd. in the United Kingdom, whose efforts are focused on glioma, a type of brain tumor, and which is planning a pivotal trial in Europe, and MediGene AG, which has recently concluded a Phase I trial in colorectal liver metastases and has a further clinical trial in this indication underway. Medigene also has a Phase I investigator-sponsored study underway in glioma.

Our OncoVEX technology uses a more potent strain of HSV than has been used previously for construction of an oncolytic HSV virus, and we have modified HSV to further improve the ability of our product candidates to destroy tumor tissue. We believe that no other such “second-generation” or similarly potent HSV-based oncolytics have yet entered clinical development.

Additional types of viruses are also in development as oncolytic agents by other competitors:


	•	Jennerex Biotherapeutics, Inc. is seeking to develop an oncolytic product candidate based on the vaccinia virus, which is used in smallpox immunizations. We believe that Jennerex is seeking to progress two such viruses into clinical development in the United States in the near future.

	•	The Mayo Clinic is working with the vaccine strain of the measles virus as an oncolytic virus. Phase I studies are underway or soon to commence in glioma and ovarian cancer.

	•	Neotropix, Inc. is seeking to develop the Seneca Valley virus as an oncolytic agent. This remains in preclinical development.


	•	Oncolytics Biotech Inc. is seeking to develop the reovirus, an RNA virus, as an oncolytic agent. We understand that Oncolytics Biotech has conducted Phase I and Phase I/II studies in glioma, pancreatic cancer, prostate cancer and several metastatic cancers by direct injection or intravenous infusion. A Phase I clinical trial in combination with radiation in head and neck cancer is also underway for palliative care. Oncolytics Biotech is also collaborating with the National Cancer Institute on related Phase II studies.

	•	Wellstat Biologics Corporation is seeking to develop the Newcastle disease virus, a poultry virus, as an oncolytic agent. Wellstat has conducted Phase I/II studies in solid tumors by intravenous administration.

In addition, GenVec Inc. is currently conducting a clinical trial to assess the safety and efficacy of its biologic product candidate TNFerade when administered concurrently with 5-FU and radiation therapy as first-line treatment of unresectable locally advanced pancreatic cancer. TNFerade is a non-replicative adenovirus vector expressing TNFα under the control of a radiation inducible promoter, which we believe to be a less potent but similar approach to that provided by our OncoVEX^TNF^α technology. We understand that GenVec has obtained FDA fast track status for this product candidate. Introgen Therapeutics, Inc. is currently conducting clinical trials of ADVEXIN for the treatment of inoperable head and neck cancers, among other cancers. ADVEXIN is a non-replicative adenovirus vector expressing p53, for which Introgen has obtained FDA fast track status and orphan designation in the treatment of head and neck cancer. A similar product, developed by Shenzhen SiBiono GeneTech Co. Ltd. and called Gendicine, has been approved for use in head and neck cancer in China.

ImmunoVEX

We are aware of a number of companies that are seeking to develop vaccines for genital herpes, including Antigenics, AuRX, Celtic Pharma, GlaxoSmithKline and PowderMed. GlaxoSmithKline’s vaccine (Simplirix) was only found to be effective in HSV-1 seronegative women in a Phase II trial. The product is currently in a Phase III trial, only in women. We are not aware that any other such products are currently in Phase III development.

A prophylactic HPV vaccine from Merck was approved by the FDA in June 2006, and we understand that another such vaccine is under development by GlaxoSmithKline.

Manufacturing

To date, we have out-sourced our manufacturing to third-party contract manufacturers. We rely on these contract manufacturers to manufacture our product candidates in accordance with current good manufacturing practices, or cGMP, for use in clinical trials. To date, we have used contract manufacturers in the United Kingdom, but we are in the process of seeking a supplier in the United States.

We also intend to construct our own manufacturing plant within our recently leased facility in Woburn, Massachusetts to provide material for clinical trials. We are establishing this manufacturing facility to minimize or eliminate our reliance on contract manufacturing companies, which often have limited capacity. Access to a dedicated manufacturing facility will allow us to develop both a commercial process and a suitable workforce capable of supporting market launch.

OncoVEX^GM-CSF and all of other product candidates are biologics. Manufacturing biologics, especially in large quantities, is complex and technically challenging. OncoVEX^GM-CSF is grown in a standard mammalian cell line also used for the production of vaccines for human use. The resulting virus is purified by a number of methods including ion exchange chromatography and size exclusion chromatography, then stored frozen in vials in a pharmaceutically acceptable formulation buffer for future use. We believe that the cell and virus seed stocks used in this process comply with applicable United States and European guidelines.

Sales and Marketing

None of our product candidates has been approved for sale. If and when our oncolytic product candidates receive marketing approval, we intend to seek to maximize our potential financial return by retaining

marketing rights in North America and developing a limited oncology-focused sales and marketing organization in this market. We also intend to enter into marketing and development agreements with pharmaceutical and biotechnology partners in other parts of the world. In particular, we intend to out-license the commercial rights to our product candidates in significant territories outside North America.

Clinical and Scientific Advisors

We have relationships with the following clinical and scientific advisors who are leading experts in the fields of solid-tumor oncology, preclinical studies or clinical trials. We consult with these advisors consult regularly on matters relating to:


	•	our research and development programs;

	•	the design and implementation of our clinical trials; and

	•	scientific and technical issues relevant to our business.

Clinical Advisory and Data Safety Monitoring Board


	•	Thomas Fleming, Ph.D. Dr. Fleming is Professor and former Chair in the Department of Biostatistics at the University of Washington School of Public Health and Community Medicine, and is Director of the Statistical Center for HIV/AIDS Research and Prevention for the HIV Prevention Trials Network sponsored by NIH. In 1987 he was elected a fellow of the American Statistical Association, in 1988 he was the recipient of the Spiegelman Award from the American Public Health Association in recognition of outstanding contributions to public health research, and in 2002 he received the FDA Commissioner’s Special Citation Award for Extraordinary Contributions to the Agency.

	•	Stephen B. Howell, M.D. Dr. Howell is Professor of Medicine, University of California, San Diego, and director of the Cancer Pharmacology Program at the UCSD Cancer Center in San Diego, California. He has received numerous awards, including the Milken Family Medical Foundation Award for Outstanding Work in the Field of Cancer Research and a Presidential Citation from the American Head and Neck Society. He is the author of more than 280 publications in the field of cancer chemotherapy.

	•	Karol Sikora, MD, Ph.D. Dr. Sikora is a consultant in cancer medicine and Medical Director of CancerPartnersUK, an organization providing independent-sector cancer services to Britain’s National Health Service. He is Visiting Professor of Cancer Medicine and honorary Consultant Oncologist at Imperial College School of Medicine, Hammersmith Hospital, London. Dr. Sikora has published over 300 papers and written or edited 17 books including Treatment of Cancer — the standard British postgraduate textbook.

	•	Hilary Thomas, M.D., Ph.D. Professor Thomas is Professor of Oncology at the Postgraduate Medical School, University of Surrey, and Medical Director of the Royal Surrey County Hospital. Her main clinical interest is gynaecological cancer, and her research interests include the study of novel therapies for cancer.

Scientific Advisory Board


	•	David S. Latchman, D.Sc., Ph.D. Professor Latchman is one of our founders and serves as the Chairman of our Scientific Advisory Board. He is Master of Birkbeck College, University of London, and Professor of Genetics at Birkbeck and the Institute of Child Health, University College London. He has published extensively in the field of genetics and molecular biology.

	•	Vincenzo Cerundolo, M.D., Ph.D. Dr. Cerundolo is Professor of Immunology, University of Oxford, Director of the MRC Human Immunology Unit at the Weatherall Institute of Molecular Medicine and Fellow of the Academy of Medical Sciences. He has published over 100 articles in the field of immunology, and his current research interests focus on the development of novel vaccination strategies in cancer patients and on the analysis of antigen-specific T-cell responses in health and disease.


	•	Robin A. Weiss, Ph.D. Dr. Weiss is Professor of Viral Oncology in the Division of Infection & Immunity at University College London. He is President-elect of the Society for General Microbiology, and he has received awards including election as a Fellow of the Royal Society and an Honorary Fellowship of the Royal College of Physicians in 1999.

In addition, before initiating new clinical programs we consult with key opinion leaders in the particular clinical areas to augment our internal capabilities and the specific knowledge of our advisory board members.

Facilities

In December 2005, we signed a lease for 30,000 square feet of manufacturing, laboratory and office space in Woburn, Massachusetts. The initial lease term is six years, with an option to renew for an additional four years. We may terminate the lease at any time after three years.

Our main research and development operations are currently located in Oxfordshire, United Kingdom, where we have 12,000 square feet of laboratory and office space under two lease agreements. The first of these expires in 2007 and the second in 2008. We also lease a small amount of space at University College London to facilitate some of our preclinical studies.

We believe that these facilities are adequate for our current purposes.

Employees

As of March 31, 2006, we had 51 employees, including 23 holding Ph.D. or M.D. degrees, all of whom were full-time employees. We had 45 employees engaged in research and development; the remaining employees were management or administrative staff. None of our employees is subject to a collective bargaining agreement. We believe that we have good relations with our employees.

Legal Proceedings

Other than the patent opposition proceedings described above under the heading “— Intellectual Property”, we are not currently a party to any material legal proceedings.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate the research, development, testing, manufacture, packaging, storage, record keeping, labeling, advertising, promotion, distribution, marketing, import and export of biological products such as those we are developing. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.

United States Government Regulation

In the United States, our product candidates are regulated by the Food and Drug Administration, or FDA, as biological products. Biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or the FDCA, the Public Health Service Act, or the PHSA, and related regulations, and other federal, state, and local statutes and regulations. Failure to comply with the applicable United States regulatory requirements at any time during the product development process or the approval process or after approval, may subject an applicant to administrative or judicial sanctions. Any agency or judicial enforcement action could have a material adverse effect on us.

The process required by the FDA before a biological product may be marketed in the United States generally involves the following:


	•	completion of preclinical laboratory and animal tests according to good laboratory practice regulations, or GLP;


	•	submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical trials may begin;

	•	performance of adequate and well-controlled human clinical trials according to good clinical practices, or GCP, to establish the safety and efficacy of the proposed biological product for its intended use;

	•	submission to the FDA of a biologic license application, or BLA;

	•	satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product is manufactured, processed, packaged or held to assess compliance with current good manufacturing practices, or cGMP; and

	•	FDA review and approval of the BLA.

Preclinical studies include laboratory evaluation of the product candidate, its formulation and stability, as well as animal studies to assess its potential safety and efficacy. An IND sponsor must submit the results of the preclinical studies, together with manufacturing information for the clinical supply, analytical data and any available clinical data or literature to the FDA as part of an IND. The IND will also include the protocol for the initial clinical trial(s), and the IND must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA unless, before that time, the FDA raises concerns or questions about issues such as the conduct of the trials. In such a case, the sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.

All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP. These GCP regulations include the requirement that all research subjects provide informed consent. Further, an Institutional Review Board, or IRB, at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Each new clinical protocol must be submitted to the FDA as part of the IND. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur.

Human clinical trials are typically conducted in three sequential phases that may overlap:


	•	In Phase I trials, the biological product is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion.

	•	In Phase II trials, the product is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

	•	In Phase III trials, the product is administered to an expanded patient population generally at geographically dispersed clinical trial sites to further evaluate dosage, clinical efficacy and safety, and establish the overall risk-benefit ratio of the product and an adequate basis for product labeling.

Phase I, Phase II and Phase III clinical trials may not be completed successfully within any specified time period, if at all. Further, the FDA, IRB or the sponsor may prevent clinical trials from beginning or suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.

Assuming successful completion of the required clinical trials, the results of product development, preclinical studies and clinical trials, descriptions of the manufacturing process and other relevant information concerning the safety and effectiveness of the product are submitted to the FDA in the form of a BLA. In most cases, the BLA must be accompanied by a substantial user fee. The FDA reviews a BLA to determine, among other things, whether the product is safe, has an acceptable purity profile and is adequately potent, as well as whether the facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued safety, purity and potency.

Under the Pediatric Research Equity Act of 2003, BLAs for a new active ingredient, indication, dosage form, dosage regimen or route of administration must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. FDA may, on its own initiative or at the request of the applicant, defer submission of some or all pediatric data until after approval of the product for use in adults, or grant a full or partial waiver from the pediatric data requirements. The pediatric data requirements do not apply to products with orphan designation.

The FDA may request that an Advisory Committee review the BLA and make a recommendation as to whether FDA should approve or not approve the application. The Advisory Committee is an independent panel of experts who provide advice and recommendations when requested by the FDA on matters of importance that come before the agency. Committee recommendations are not binding on the FDA but the agency considers them carefully when making decisions.

Before approving an application, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements. If our manufacturing facilities and processes fail to pass the FDA inspection, we will not receive marketing approval.

The testing and approval process requires substantial time, effort and financial resources, and may take many years to complete. The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to develop our products and secure the necessary approvals, which could delay or prevent us from marketing our products. Even if the FDA approves a product, it may limit the approved therapeutic uses for the product, require that contraindications, warnings or precautions be included in the product labeling, require that additional studies be conducted following and as a condition of approval, or require surveillance programs to monitor the product after commercialization. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims or restrictions, are subject to further FDA review and approval.

Any biological products manufactured or distributed pursuant to FDA approval are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, product sampling and distribution, advertising and promotion, reporting of adverse experiences, providing the FDA with updated safety and efficacy information and periodic reports.

Manufacturers of biological products are required to comply with cGMP requirements, which are extensive and require considerable time, resources, and ongoing investment to ensure compliance. The requirements apply to all stages of the manufacturing process, including the synthesis, processing, sterilization, packaging, labeling, storage and shipment of the biological product. Manufacturers must establish validated systems to ensure that products meet high standards of sterility, safety, purity, potency and identity. Manufacturers must also test each lot prior to the release of the product to ensure conformity with all applicable standards.

Manufacturers must report to the FDA any deviations from cGMP that may affect the safety, purity, or potency of a distributed biological product; or any unexpected or unforeseeable event that may affect the safety, purity, or potency of a distributed biological product. The regulations also require investigation and correction of any deviations from cGMP and impose documentation requirements. Manufacturing establishments are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP. Future FDA and state inspections may identify compliance issues at our manufacturing facilities or the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.

The FDA may withdraw or revoke the product approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Further, the failure to maintain compliance with regulatory requirements may result in administrative or judicial action, such as fines,

warning letters, holds on clinical trials, product recalls or seizures, product detention or refusal to permit the import or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions, civil or criminal penalties, or criminal prosecution. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. Also, new governmental requirements may be established, including those resulting from new legislation, or FDA’s policies may change, which could significantly affect our business, including preventing or delaying regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of any adverse governmental legislation, regulation or other administrative action, or what the impact of such changes, if any, may be.

Gene Therapy Research

In the United States and in other countries, gene therapy research may be subject to additional oversight and requirements. In the United States, in addition to oversight by the FDA and the IRB at each clinical trial site, gene therapy research is also subject to oversight by the NIH and other entities, if the research is conducted at or sponsored by an institution that receives any support for recombinant DNA research from the NIH, or the research involves clinical testing of materials containing recombinant DNA developed with NIH funds if the institution that developed those materials sponsors or participates in the research. Gene therapy research that is subject to NIH oversight must be conducted in accordance with the NIH guidelines on recombinant DNA research. Under these guidelines, no subjects may be enrolled in a gene therapy clinical trial until the RAC review process has been completed, Institutional Biosafety Committee, or IBC, approval has been obtained from the clinical trial site, and all applicable regulatory authorizations have been obtained. A copy of the required approvals and other information must be submitted to the NIH’s Office of Biotechnology Activities, or OBA, within 20 days after the first subject is enrolled. Additionally, major protocol changes and annual reports must be submitted to the OBA. Safety reports must be submitted to both the OBA and IBC. If a new clinical trial site is added after the RAC review process, a copy of the required approvals, including IRB and IBC approval, and other information must be submitted to the OBA before subjects may be enrolled at the new site.

In the United Kingdom, the Gene Therapy Advisory Committee, or GTAC, is the national research ethics committee for gene therapy clinical trial research. The primary concern of the GTAC is whether each research proposal meets accepted ethical criteria for research on human subjects. GTAC approval must be obtained before gene therapy or gene transfer research is conducted on human subjects.

Expedited Review and Approval

The FDA has various programs, including fast track designation, priority review and accelerated approval, that are intended to expedite or facilitate the process for reviewing biological products. Biological products are eligible for fast track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. A fast track product may be eligible for priority review, but a fast track designation is not required to receive priority review. The FDA will attempt to expedite the review of an application for a biological product designated for priority review if the product provides a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious or life-threatening disease. A fast track product may also be eligible for accelerated approval. Products that qualify for accelerated approval may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a biological product receiving accelerated approval perform post-marketing clinical trials. The FDA may also consider for review on a rolling basis portions of the BLA for a fast track product before the complete application is submitted, if the sponsor provides a schedule for the submission of the portions of the BLA,

FDA agrees to accept portions of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first portion of the BLA.

We intend to request fast track designation for our OncoVEX^GM-CSF product candidate in the treatment of head and neck cancer in combination with chemotherapy and radiation, but there is no assurance that the FDA will grant fast track designation. Even if the FDA grants fast track designation, the FDA may later decide that OncoVEX^GM-CSF no longer meets the conditions for qualification. In addition, obtaining fast track designation may not provide us with a material commercial advantage.

Orphan Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition that affects fewer than 200,000 people in the United States, or more than 200,000 people in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biological product for this type of disease or condition will be recovered from sales in the United States for the product. Orphan designation can be requested at any time before submitting an application for marketing approval. Orphan product designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. If a product which has orphan designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan product exclusivity, which means the FDA may not approve any other application to market the same biological product for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors may receive approval of different biological products for the indications for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity could also block the approval of one of our product candidates for seven years if a competitor obtains approval before us of the same biological product for the same indication or disease. We intend to seek orphan designation for our product candidates that meet the criteria in the relevant jurisdiction.

The European Union operates a similar system to encourage the development and marketing of medicinal products for rare diseases. A product can be designated as an orphan medicinal product if it is intended for either a life-threatening or chronically debilitating condition affecting not more than 5 in 10,000 persons in the European Union when the application is made or a life-threatening, seriously debilitating or serious and chronic condition in the European Union for which, without incentives, it is unlikely that the marketing of the product in the European Union would generate sufficient return to justify the necessary investment. In either case, the applicant must also demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the European Union or, if such method exists, that the medicinal product will be of significant benefit to those affected by that condition. If marketing authorization is granted in the European Union for an orphan product, no similar product may be approved for a period of ten years. At the end of the fifth year, however, any member state can initiate proceedings to restrict that period to six years if it believes the criteria for orphan designation no longer apply. In addition, a competitor’s marketing authorization for a similar product with the same indication may be granted during the marketing exclusivity period if there is an insufficient supply of the product, or if the applicant can establish that its product is safer, more effective or otherwise clinically superior.

Foreign Regulation

In addition to regulations in the United States, we are subject to a variety of foreign regulations governing clinical trials and will be subject to regulations regarding commercial sales and distribution of biological products. Whether or not we obtain FDA approval for a product, we must obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The requirements governing the conduct of clinical trials and the approval processes vary from country to country and the time may be longer or shorter than that required for FDA approval.

In the European Union, our product candidates are subject to extensive regulatory requirements. Directive 2001/83/EC and Regulation (EC) No. 726/2004 contain the main requirements governing the control and authorization of medicinal products in the European Union and provide that no medicinal product may be placed on the market of a European Union member state unless a marketing authorization has been issued by the European Medicines Agency or a national competent authority.

Marketing authorization applications may be submitted under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all member states. The centralized procedure is generally mandatory for biological products, including products containing a new active substance for the treatment of certain diseases, including cancer. Additionally, orphan medicinal products are required to use the centralized procedure. Accordingly, we assume that the centralized procedure will apply to our product candidates that are intended for the treatment of cancer, or for which we intend to seek orphan designation. Applications under the centralized procedure are submitted directly to the European Medicines Agency and are reviewed by members of the Committee for Medicinal Products for Human Use. The European Medicines Agency, based upon the review of that committee, will provide an opinion to the European Commission on the safety, quality and efficacy of the product candidate. The decision to grant or refuse an authorization ultimately lies with the European Commission.

Detailed preclinical and clinical data must accompany all marketing authorization applications that are submitted in the European Union. Additionally, in order to obtain a marketing authorization for products classified as advanced therapy medicinal products, including gene therapy medicinal products, further specific data must be provided. Accordingly, for such products, additional research may need to be carried out, which may extend the time needed to prepare an application.

As with FDA approval, we may not be able to secure regulatory approvals in Europe in a timely manner, if at all. Additionally, as in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution, would apply to any product that is approved in Europe. Failure to comply with such obligations could have a material adverse effect on our ability to successfully commercialize any product.

In November 2005, the European Commission released a proposal for a new regulation on advanced therapy medicinal products which, if approved and implemented in the European Union, will introduce additional European approval standards for advanced therapy products. Consequently, approval of our product candidates in Europe may require additional data that we may not be able to satisfy. Accordingly, there is uncertainty in seeking marketing authorizations for our products in Europe. Furthermore, despite efforts to harmonize the registration process in the European Union, the different member states continue to have different national health care policies and different pricing and reimbursement systems. The diversity of these systems may prevent a simultaneous pan-European launch, even if centralized marketing authorization has been obtained.

In addition to regulatory clearance, the conduct of clinical trials in the European Union is governed by the European Clinical Trials Directive (2001/20/EC), which was implemented in May 2004. This directive governs how regulatory bodies in member states may control clinical trials. No clinical trial may be started without authorization by the national competent authority and favorable ethics approval.

European Union member states require a favorable ethics committee opinion prior to the commencement of a clinical trial, whatever its phase. As noted above, GTAC is the United Kingdom’s national research ethics committee for gene therapy clinical research. It is the only ethics committee empowered to approve clinical trials of gene therapy products. Under the regulations, all U.K. gene therapy clinical research must be submitted to GTAC. No clinical gene therapy research should begin in the absence of GTAC’s written approval. GTAC is required to provide an ethics opinion on applications for the use of products falling within the definition of a gene therapy product within 90 days of receipt of a valid application. Applicants to GTAC for the conduct of clinical trials involving gene therapy may also be required to seek a favorable site-specific assessment from the local National Health Service Research Ethics Committee for each site where the research will take place.

Reimbursement and Pricing Controls

Sales of biopharmaceutical products depend in significant part on the availability of reimbursement from third party payors, including government health authorities, managed care providers, private health insurers and other organizations. We anticipate that third party payors will provide reimbursement for any products for which we obtain regulatory approval. It will be time consuming and expensive for us to seek reimbursement from third party payors. Reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.

Different pricing and reimbursement schemes exist in other countries. In some foreign countries, including countries in Asia and in the European Economic Area, proposed pricing must be approved before a drug or biological product may be lawfully marketed. In these countries, pricing negotiations with governmental authorities can take considerable time and delay the placing of a product on the market.

Hazardous Materials

Our development and manufacturing processes involve the use of hazardous materials, chemicals, bacteria and viruses and produce waste products. Accordingly, we are subject to federal, state, local and foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these materials. In addition to compliance with occupational health and safety regulations, we must comply with special regulations relating to biosafety administered by the Centers for Disease Control and Prevention and the Department of Health and Human Services in the United States, and similar agencies in other countries.

MANAGEMENT

Our executive officers and directors and their respective ages and positions as of June 15, 2006 are as follows:


Name	Age		Position

Gareth Beynon, M.D., Ph.D.		55	Chief Executive Officer and Director
Philip Astley-Sparke		34	President, Chief Financial Officer and Director
Robert Coffin, Ph.D.		41	Chief Scientific Officer and Founder
Stephen Gorgol		47	Vice President, Finance and Administration, Treasurer and Secretary
Colin Love, Ph.D.		47	Senior Vice President, Product Development
Tony Mills, Ph.D.		53	Vice President, Business Development
Paul Nicholson, M.D.(1)(3)		68	Chairman of the Board of Directors
John Gordon, Ph.D.(2)(3)		61	Director
Inès Holzbaur, Ph.D.(1)(2)		35	Director
Steven Prelack(1)(3)		49	Director
Timothy Rink, M.D., Sc.D.(2)		59	Director


(1)		Member of the Audit Committee

(2)		Member of the Compensation Committee

(3)		Member of the Nominations and Corporate Governance Committee to be established prior to the closing of this offering

Gareth Beynon, M.D., Ph.D., has served as our Chief Executive Officer and a director since 1999. Prior to joining us, Dr. Beynon was Vice-President, Europe for Amylin Pharmaceuticals from 1992 to 1999. From 1984 to 1992, Dr. Beynon was at GD Searle where he served in various capacities, including as Director of Marketing, France, and European Director of Clinical Development. He received his Ph.D. in 1975 and his M.D. in 1978, both from Cambridge University.

Philip Astley-Sparke has served as our President since July 2005 and as our Chief Financial Officer and a director since 2000. Prior to joining us, Mr. Astley-Sparke was an investment banker at Chase H&Q (Robert Fleming) from 1996 to 2000, where he advised on numerous high profile fundraisings and mergers and acquisitions in the biotech sector. He received his B.S. in Cellular & Molecular Pathology from Bristol University and qualified as a Chartered Accountant with Arthur Andersen.

Robert Coffin, Ph.D., is one of our founders and has served as our Chief Scientific Officer since 1999. He is an expert on the application of virus-based technology to the development of therapeutic products, has authored more than 50 scientific papers and is a named inventor on all of the patents filed in our name. Dr. Coffin received his Ph.D. in 1991 from Imperial College, London.

Stephen Gorgol has served as our Vice President, Finance and Administration, since May 2005. Prior to joining us, Mr. Gorgol was at Vista Medical Technologies, Inc., a NASDAQ traded medical device manufacturer, from 1997 to 2004 where he served as CFO. He received his B.S. in Accounting from Plymouth State University, New Hampshire.

Colin Love, Ph.D., has served as our Senior Vice President, Product Development since 2000. Dr. Love was Director of Manufacturing Development at the Celltech Group, a global biopharmaceutical company, where he worked from 1992 to 2000. Dr. Love received a B.Sc. in biochemistry and a Ph.D. from Glasgow University.

Tony Mills, Ph.D., has served as our Vice President, Business Development since 2002. Dr. Mills joined us from BTG International Ltd., a technology investment and development company operating in the life and physical sciences sectors, where he served in various capacities including as Senior Executive and Head of the

Vaccines Business Unit and Vice President from 1989 to 2001. Dr Mills received a B.S. in microbiology and a Ph.D. in virology from Liverpool University.

Paul Nicholson, M.D., as served as our Chairman since 2000. Dr. Nicholson served as Senior Vice President Worldwide Development at SmithKline Beecham (now part of GlaxoSmithKline), a pharmaceutical company, from 1990 to 1999. He is a member of the Scientific Advisory Board of Novartis and was Chairman of Cambridge Antibody Technology plc before its acquisition by AstraZeneca in 2006. Dr Nicholson qualified as Bachelor of Medicine and Bachelor of Surgery at the Medical School of the University of Durham.

John Gordon, Ph.D., has served as a director since 1999. Dr. Gordon is the Chairman of Quercus Management, a biotechnology consulting company. Dr. Gordon served as Director of Research at British Biotech and later as Chief Executive Officer of its subsidiary, Neures, from 1987 to 1996. He earned his Ph.D. in 1971 and his Sc.D. in 1988, both from Cambridge University.

Inès Holzbaur, Ph.D., has served as a director since 2001. She joined GeneChem Management Inc., a firm specializing in biotechnology venture capital investments, in 1999. She currently holds the position of Vice-President. Dr Holzbaur has served on the boards of directors of several Canadian, American and European companies. Prior to 1999, she worked at McGill University in infrared spectroscopy bacterial diagnostics research. She obtained her B.Sc. in chemistry from Concordia University and her Ph.D. in chemistry from Cambridge University.

Steven Prelack became a director in June 2006. Since 2001, Mr. Prelack has served as Senior Vice President, Chief Financial Officer and Treasurer of VelQuest Corporation, a provider of automated compliance management solutions for the pharmaceutical industry. Since 2003, Mr. Prelack has served as a board member, audit committee chair and audit committee financial expert for Pro-Pharmaceuticals, Inc., an American Stock Exchange listed company and a developer of novel nanotechnology carbohydrate therapeutics. Mr. Prelack is a certified public accountant and a member of the National Association of Corporate Directors, and received a dual B.B.A. from the University of Massachusetts, Amherst in Finance and Accounting.

Timothy Rink, M.D., Sc.D., has served as a director since 2000. Dr. Rink was founding Chairman and Chief Executive of Aurora Biosciences Inc. from 1996 to 1999, and was President and Chief Technical Officer of Amylin Pharmaceuticals from 1990 to 1995. Dr. Rink is Chair of the Technology Transfer Strategy Panel at the Wellcome Trust, a member of the Scientific Advisory Boards of Serono SA and Amylin Pharmaceuticals, and a Director of Sepracor Inc. Dr Rink received postgraduate and medical degrees from Cambridge University.

BioVex Group, Inc. was incorporated in July 2005 and became our ultimate parent company in August 2005. Prior to that time, each of the officers and directors then serving held his or her position with BioVex Limited, which is now a wholly owned subsidiary of BioVex Group, Inc.

Board Composition and Election of Directors

Our board of directors has seven members. Five of our current directors, Dr. Nicholson, Dr. Gordon, Dr. Holzbaur, Dr. Rink and Mr. Prelack, are independent directors, as defined by the applicable rules of the NASDAQ National Market. We refer to these directors as our “independent directors.” There are no family relationships among any of our directors or executive officers.

Board Committees

Our board of directors has established an audit committee and a compensation committee, and intends to establish a nominations and corporate governance committee prior to the closing of this offering. Each committee operates or will operate under a charter approved by our board.

Audit Committee

Dr. Holzbaur, Dr. Nicholson and Mr. Prelack are the members of our audit committee. Mr. Prelack chairs the committee and is our audit committee financial expert (as is currently defined in Item 401(h) of Regulation S-K). Our audit committee assists our board of directors in its oversight of the integrity of our

financial statements, our independent registered public accounting firm’s qualifications and independence and the performance of our independent registered public accounting firm.

Our audit committee’s responsibilities include:


	•	appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm;

	•	overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of certain reports from our independent registered public accounting firm;

	•	reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures;

	•	monitoring our control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;

	•	discussing our risk management policies;

	•	establishing policies and procedures for the receipt and retention of accounting related complaints and concerns;

	•	meeting independently with our independent registered public accounting firm and management; and

	•	preparing the audit committee report required by Securities and Exchange Commission rules.

All audit services to be provided to us and all non-audit services to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee.

Compensation Committee

Dr. Gordon, Dr. Holzbaur and Dr. Rink are the members of our compensation committee. Dr. Gordon chairs the committee. Our compensation committee assists our board of directors in the discharge of its responsibilities relating to the compensation of our executive officers.

Our compensation committee’s responsibilities include:


	•	reviewing and approving, or making recommendations to the board of directors with respect to, the compensation of our chief executive officer and our other executive officers;

	•	administering our equity incentive plans;

	•	reviewing and making recommendations to our board of directors with respect to director compensation; and

	•	preparing the compensation committee report required by Securities and Exchange Commission rules.

Nominations and Corporate Governance Committee

Dr. Gordon, Dr. Nicholson and Mr. Prelack will become members of our nominations and corporate governance committee upon the consummation of this offering. Dr. Nicholson will chair the committee.

Upon consummation of this offering, our nominations and corporate governance committee’s responsibilities will include:


	•	identifying individuals qualified to become members of our board of directors;

	•	recommending to our board of directors the persons to be nominated for election as directors and to each of the board of director’s committees;

	•	reviewing and making recommendations to our board of directors with respect to management succession planning;


	•	developing and recommending to our board of directors corporate governance principles; and

	•	overseeing a periodic evaluation of our board of directors.

Director Compensation

Upon consummation of this offering, each member of our board of directors who is not employed by us will be entitled to receive a combination of cash and stock-based compensation for board services. These outside directors will receive a basic annual retainer of $15,000. In addition, they will receive $1,100 for each in-person meeting and $800 for each telephonic meeting of the Board or any committee thereof. In addition to these basic fees, the Chairman of the Board will receive $23,500, the Chairman of the Audit Committee will receive $8,000, the Chairman of the Compensation Committee will receive $5,000, and the Chairman of the Nominations and Corporate Governance Committee will receive $4,700.

Equity awards are made annually to each outside director with a market value on the date of grant of $20,000 each, and $25,000 in the case of the Chairman of the Board.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our compensation committee. None of the members of our compensation committee has ever been our employee.

Codes of Conduct and Ethics

Prior to the closing of this offering, we intend to adopt a code of ethics that will apply to all our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and an additional code of ethics that applies to senior financial officers. These codes of ethics will be designated as the “Code of Conduct” and the “Code of Ethics for Senior Financial Officers,” respectively. We intend to disclose any amendment to, or waiver from, any applicable provision of the Code of Conduct or Code of Ethics for Senior Financial Offices (if such amendment or waiver relates to elements listed under Item 406(b) of Regulation S-K and applies to our directors, principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) by posting such information on our corporate and investor website at www.biovex.com.

Executive Compensation

The following table sets forth the compensation paid or accrued during the year ended March 31, 2006 to our chief executive officer and to our four next most highly paid executive officers. We refer to these officers collectively as our named executive officers.

Summary Compensation Table


					Other Annual			All Other
Name and Principal Position	Salary		Bonus		Compensation			Compensation(1)

Gareth Beynon, M.D., Ph.D.	$	322,000	$	16,100	$	—		$	41,000
Chief Executive Officer
Philip Astley-Sparke	$	245,500	$	36,825	$	33,800	(2)	$	19,000
President and Chief Financial Officer
Robert Coffin, Ph.D.	$	200,000	$	20,000	$	—		$	20,000
Chief Scientific Officer
Colin Love, Ph.D.	$	209,000	$	15,675	$	—		$	21,000
Senior Vice President, Product Development
Tony Mills, Ph.D.	$	174,000	$	34,800	$	—		$	40,264
Vice President, Business Development


(1)		Represents contributions made pursuant to our Stakeholder Pension Plan in the U.K or our 401(k) plan in the U.S.

(3)		Represents stipend paid to Mr. Astley-Sparke in connection with his relocation from London, England to Massachusetts.

Option Grants In Last Fiscal Year

We made no option grants to our named executive officers during the year ended March 31, 2006.

Fiscal Year-End Option Values

The following table provides information about the number and value of options held by our named executive officers as of March 31, 2006. There was no public trading market for our common stock as of March 31, 2006. Accordingly, as permitted by the rules of the Securities and Exchange Commission, we have calculated the value of unexercised in-the-money options at fiscal year-end assuming that the fair market value of our common stock as of March 31, 2006 was equal to the assumed initial public offering price of $ per share (the midpoint of the estimated price range shown on front cover of this prospectus), less the aggregate exercise price. There were no options exercised by our named executive officers during the year ended March 31, 2006.

Number of Securities

Underlying

Value of Unexercised

Unexercised Options at

In-the-Money Options at

Fiscal Year End (#)

Fiscal Year End ($)

Name

Exercisable

Unexercisable

Exercisable

Unexercisable

Gareth Beynon, M.D., Ph.D.

—

1,200,000

Philip Astley-Sparke

—

Robert Coffin, Ph.D.

—

1,200,000

Colin Love, Ph.D.

—

800,000

Tony Mills, Ph.D.

—

200,000

Employment Agreements

Dr. Gareth Beynon, M.D., Ph.D.

Prior to the closing of this offering we intend to enter into a new employment agreement with Dr. Beynon, our Chief Executive Officer. We anticipate that the material terms of Dr. Beynon’s employment agreement will include an annual base salary of $331,660, with a potential annual bonus payment of a maximum of 30% of his salary, plus a contribution to Dr. Beynon’s pension in amount equal to 10% of the lesser of Dr. Beynon’s salary and the maximum permitted under applicable U.K. law. In addition, we expect that this agreement will contain a notice provision whereby Dr. Beynon may not be terminated without either 12 months’ notice from us or payment of his salary plus bonus in lieu of the notice period. Dr. Beynon will also continue to be bound by our standard non-disclosure, inventions, non-competition and non-solicitation restrictions, each of which will extend through his employment with us and for a period of 12 months thereafter.

Mr. Philip Astley-Sparke

Prior to the closing of this offering we intend to enter into a new employment agreement with Mr. Astley-Sparke, our President. We anticipate that the material terms of Mr. Astley-Sparke’s employment agreement will include an annual base salary of $252,865, with a potential annual bonus payment of a maximum of 30% of his salary, plus eligibility to participate in our 401(k) plan, pursuant to which we make contributions of up to 3% of Mr. Astley-Sparke’s annual salary. In addition, this agreement will contain a notice provision whereby Mr. Astley-Sparke may not be terminated without either 12-months’ notice from us or payment of his salary plus bonus in lieu of the notice period. Mr. Astley-Sparke will also continue to be

bound by our standard non-disclosure, inventions, non-competition and non-solicitation restrictions, each of which will extend through his employment with us and for a period of 12 months thereafter.

Dr. Robert Coffin, Ph.D.

Prior to the closing of this offering we intend to enter into a new employment agreement with Dr. Coffin, our Chief Scientific Officer. We anticipate that the material terms of Dr. Coffin’s employment agreement will include an annual base salary of $206,000, with a potential annual bonus payment of a maximum of 30% of his salary, plus a contribution to Dr. Coffin’s pension in an amount equal to 10% of the lesser of Dr. Coffin’s salary and the maximum permitted under applicable U.K. law. In addition, we expect that this agreement will contain a notice provision whereby Dr. Coffin may not be terminated without either 12-months’ notice from us or payment of his salary plus bonus in lieu of the notice period. Dr. Coffin will also continue to be bound by our standard non-disclosure, inventions, non-competition and non-solicitation restrictions, each of which will extend through his employment with us and for a period of 12 months thereafter. Dr. Coffin is also entitled to serve as a board observer, with the right to attend and participate, other than as to voting, in all meetings of our board of directors.

Stephen Gorgol

On May 19, 2005, we entered into a letter agreement with Mr. Gorgol, our Vice President, Finance and Administration, Treasurer and Secretary, describing the terms of his at-will employment with us. Mr. Gorgol’s annual salary is $160,000, and he is eligible to participate in all bonus and benefits programs offered by us. Mr. Gorgol is also eligible for three weeks of vacation per calendar year, and he is eligible to participate in our restricted stock plan. In connection with Mr. Gorgol’s employment, he is bound by our standard non-disclosure, inventions, non-competition and non-solicitation agreement.

Dr. Colin Love, Ph.D.

Prior to the closing of this offering we intend to enter into a new employment agreement with Dr. Love, our Senior Vice President, Product Development. We anticipate that the material terms of Dr. Love’s employment agreement will include an annual base salary of $215,270, with a potential annual bonus payment of a maximum of 30% of his salary, plus a contribution to Dr. Love’s pension in amount equal to 10% of the lesser of Dr. Love’s salary and the maximum permitted under applicable U.K. law. In addition, this agreement will contain a notice provision whereby Dr. Love may not be terminated without either 12-months’ notice from us or payment of his salary plus bonus in lieu of the notice period. Dr. Love will also continue to be bound by our standard non-disclosure, inventions, non-competition and non-solicitation restrictions, each of which will extend through his employment with us and for a period of 12 months thereafter.

Tony Mills

On February 2, 2002, we entered into a letter agreement with Mr. Mills, our Vice President, Business Development outlining the terms of his employment with us. Mr. Mills’s current annual salary is $174,000, with a potential annual bonus payment of a maximum of 20% of his salary, plus a contribution to Mr. Mills’s pension in amount equal to 10% of the lesser of Mr. Mills’s salary and the maximum permitted under applicable U.K. law. Pursuant to the letter agreement, Mr. Mills may not be terminated without either 12 months’ notice from us or payment of his salary plus bonus in lieu of the notice period. Mr. Mills is eligible to participate in all benefits programs offered by us. In connection with Mr. Mills’s employment, he is bound by our standard non-disclosure, inventions, non-competition and non-solicitation agreement.

Stock Option and Other Compensation Plans

2006 Stock Incentive Plan

Prior to the closing of this offering, we anticipate that our board of directors will adopt and our stockholders will approve a new 2006 Stock Incentive Plan. We expect that employees, officers, directors, consultants and advisors of our company and its subsidiaries will be eligible to be granted awards under the

2006 plan, and that up to shares of our common stock will be reserved for issuance under the plan. We expect that the material terms of the 2006 plan will be substantially as follows:

Types of Awards

The 2006 plan will provide for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, or the Tax Code, non-statutory stock options, restricted stock and other stock-based awards as described below.

Incentive Stock Options and Non-statutory Stock Options. Optionees will receive the right to purchase a specified number of shares of common stock at a specified option price and subject to other terms and conditions specified in connection with the grant. Options may be granted at an exercise price equal to or greater than the fair market value of the common stock on the date of grant. Under current law, incentive stock options and options intended to qualify as performance-based compensation under Section 162(m) of the Tax Code may not be granted at an exercise price less than 100% of the fair market value of the common stock on the date of grant (or less than 110% of the fair market value in the case of incentive stock options granted to optionees holding more than 10% of the voting power of our company).

Restricted Stock Awards. Restricted stock awards entitle recipients to acquire shares of our common stock, subject to our right to repurchase all or part of such shares from the recipient in the event that the conditions specified in the applicable award are not satisfied prior to the end of the applicable restriction period established for such award.

Administration

Subject to any applicable limitations contained in the 2006 plan, our board of directors or its compensation committee will select the recipients of awards and determine (i) the number of shares of common stock covered by options and the dates upon which such options become exercisable, (ii) the exercise price of options, (iii) the duration of options, and (iv) the number of shares of common stock subject to any restricted stock award and the terms and conditions of such awards, including conditions for repurchase, issue price and repurchase price.

If any award expires or is terminated, surrendered, canceled or forfeited, the unused shares of common stock covered by such award will again be available for grant under the 2006 plan, subject, however, in the case of incentive stock options, to any limitations under the Tax Code.

Provisions for Foreign Participants

The board of directors or the compensation committee will be able modify awards granted to participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the 2006 plan to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.

2005 Stock Incentive Plan

The 2005 stock incentive plan was adopted by our board of directors in July 2005 and by our stockholders in October 2005. Following adoption of the 2006 plan, no further grants will be made under the 2005 plan.

The 2005 plan provides for the grant of incentive stock options, non-statutory stock options, enterprise management incentive stock options (for employees located in the United Kingdom), restricted stock awards and other stock-based awards to our employees, officers, directors, consultants and advisors. A maximum of 1,653,661 shares of common stock are authorized for issuance under our 2005 plan. Our 2005 plan is administered by our board of directors. Pursuant to the terms of our 2005 plan and to the extent permitted by law, our board of directors may delegate authority under the plan to one or more committees or subcommittees of the board.

Under the 2005 plan, if a consolidation, merger, or other change of control event, as defined in the plan, occurs, the board, in its discretion, may upon written notice to participants provide that all then unexercised options will automatically become exercisable in full and will terminate immediately prior to the closing of such change of control event (except to the extent exercised by the option holders before the consummation of such a change of control event). The board may, in its discretion and in the manner provided in the plan, provide for the assumption of some or all outstanding options or for the grant of new options as substitutes by the acquiring company or an affiliate of the acquiring company, in such cases where there is an acquiring company in the change of control event. In the event of a change of control under the terms of which holders of common stock will receive a cash payment for each share of common stock held, the board may, in its discretion and in the manner provided in the plan, provide that each outstanding option shall terminate upon the closing of a change of control event, and that each participant in the plan shall receive a cash payment.

Under the 2005 plan, if a consolidation, merger, or other change of control event, as defined in the plan, occurs, the board, in its discretion, may provide that our repurchase and other rights under each restricted stock award will apply to the cash or other property that the common stock is converted into pursuant to the change of control, in such cases where there is an acquiring company in the change of control event. Upon written notice to participants, the board may, in its discretion and in the manner provided in the plan, provide that our repurchase or other rights under each restricted stock award will terminate as of a specified time prior to the change of control. The board will specify the effect of a consolidation, merger, or other change of control event on any other stock-based award at the time of such award.

Under the 2005 plan, the board may amend, modify or terminate any outstanding award made under the plan at any time, including substituting therefor another award of the same or a different type, changing the date of exercise or realization, and converting and incentive stock option to a non-statutory stock option, provided that the participant’s consent to such action will be required unless the board determines that the action would, taking into account any related action, not materially and adversely affect the participant. Under the plan, the board may from time to time establish one or more sub-plans for the purpose of satisfying applicable blue-sky, securities or tax laws of various jurisdictions. Under the plan, the board may at any time provide that any award will become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise become realizable in full or in part.

As of March 31, 2006, options to purchase 152,000 shares of our common stock were outstanding under our 2005 plan, at an exercise price per share equal to the par value of $0.0001 per share, and restricted stock, awards of 935,000 shares of common stock had been granted.

2003 Enterprise Management Incentive Scheme

Our 2003 Enterprise Management Incentive Scheme, or EMI plan, was originally adopted by the board of directors of our wholly owned subsidiary, BioVex Limited, in 2002, and it was amended and restated in 2003. In connection with the formation of BioVex Group, Inc. and our corporate reorganization in August 2005, BioVex Group, Inc. assumed this plan and all outstanding options were exchanged for replacement options to purchase shares of BioVex Group, Inc. The plan is designed to achieve advantageous tax treatment for employees subject to taxation in the United Kingdom. The EMI plan is administered by our board of directors.

As of March 31, 2006, options to purchase 4,587,700 shares of our common stock at an exercise price per share equal to the par value of $0.0001 per share were outstanding under our EMI plan and no options under this plan have been exercised. All outstanding options will vest and become exercisable upon the closing of this offering. Participants who cease to be employed by us or one of our group companies by reason of injury, disability, redundancy or death may exercise their options under the EMI plan for a period of six months following the cessation of such employment. If a participant’s employment ceases for any other reason, his or her options under the EMI plan normally terminate immediately. We will grant no further awards under the EMI plan.

Limitation of Liability and Indemnification of Officers and Directors

Our certificate of incorporation that will be in effect upon the closing of this offering limits the personal liability of directors for breach of fiduciary duty to the maximum extent permitted by the Delaware General Corporation Law. Our certificate of incorporation provides that no director will have personal liability to us or to our stockholders for monetary damages for breach of fiduciary duty or other duty as a director. However, these provisions do not eliminate or limit the liability of any of our directors:


	•	for any breach of their duty of loyalty to us or our stockholders;

	•	for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

	•	for voting or assenting to unlawful payments of dividends or other distributions; or

	•	for any transaction from which the director derived an improper personal benefit.

Any amendment to or repeal of these provisions will not eliminate or reduce the effect of these provisions in respect of any act or failure to act, or any cause of action, suit or claim that would accrue or arise prior to any amendment or repeal or adoption of an inconsistent provision. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.

In addition, our certificate of incorporation provides that we must indemnify our directors and officers and we must advance expenses, including attorneys’ fees, to our directors and officers in connection with legal proceedings, subject to very limited exceptions.

In addition to the indemnification provided for in our certificate of incorporation, we expect to enter into separate indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements may require us, among other things, to indemnify our directors and executive officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of his service as one of our directors or executive officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

There is no pending litigation or proceeding involving any of our directors or executive officers in connection with which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

We maintain a general liability insurance policy that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers.

Rule 10b5-1 Sales Plans

Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from them. The director or officer may amend or terminate the plan in some circumstances. Our directors and executive officers may also buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.

RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES

During the three-year period ended March 31, 2006, we engaged in the following transactions with our directors and executive officers and holders of more than 5% of our voting securities and their respective affiliates:

Stock Issuances

Corporate Reorganization

Pursuant to a Share Contribution and Exchange Agreement dated as of August 30, 2005 by and among us, BioVex Limited and the shareholders of BioVex Limited, all of the issued and outstanding securities of BioVex Limited were contributed by the holders thereof to us in consideration of the issuance of shares of our capital stock of various classes and series, each with substantially identical rights, preferences and limitations as those of the corresponding class or series of shares of BioVex Limited. In this transaction, we issued:


	•	1,307,204 shares of Common Stock;

	•	9,521,832 shares of Series A Preferred Stock;

	•	18,931,043 shares of Series B Preferred Stock;

	•	2,529,366 shares of Series C Preferred Stock;

	•	7,588,098 shares of Series D Preferred Stock; and

	•	1,900,000 shares of Series M Preferred Stock.

Earlier Financing Transactions

Prior to the corporate reorganization described above, BioVex Limited was the ultimate parent company of our business and all previous financing transactions were effected through that company, including the financing transactions concluded during the three most recent fiscal years, as described below:

In October 2003, BioVex Limited issued 82,204 ordinary shares at approximately £0.79 per share, 9,835,447 B ordinary shares at approximately £0.79 per share, 1,264,684 C ordinary shares at £0.01 per share and 980,000 non-voting deferred shares at £1.00 per share, for total gross proceeds of £8,842,001. In October 2004, BioVex Limited issued an additional 9,095,596 B ordinary shares, 1,264,682 C ordinary shares and 980,000 non-voting deferred shares, at the same prices per class of share as in October 2003, for total gross proceeds of £8,191,999. In connection with these transactions, BioVex Limited cancelled all outstanding convertible preference shares and issued 986,064 A ordinary shares and 97,995,307,538 non-voting deferred shares to the holders of convertible preference shares and 3,800,768 A ordinary shares by way of an anti-dilution adjustment in respect of the existing A ordinary shares.

In December 2004, BioVex Limited issued 3,613,381 D ordinary shares at approximately £0.83 per share for total gross proceeds of £3,000,000. The terms of the subscription agreement governing this financing stipulated that a bonus issue of 180,669 D ordinary shares would accrue to the subscribers of these shares in the event that no additional new investment had taken place by March 2005. The award was subsequently made in May 2005, as a consequence of which the average per share price for the D ordinary shares was approximately £0.79 per share. In addition, BioVex Limited issued 1,897,024 D ordinary shares in May 2005 and a further 1,897,024 D ordinary shares in July 2005, for gross proceeds of £3,000,000.

The following table summarizes, on a common stock equivalents basis, the participation by our 5% stockholders in the private placements described above. See the section of this prospectus headed “Principal Stockholders” for more detail on shares held by these purchasers.

Aggregate

Total Common

Consideration

Securities

Purchaser

Stock Equivalents

Paid

Purchased

Funds affiliated with Merlin Biosciences

3,161,708

£2,500,000

B ordinary shares

Funds affiliated with Innoven

5,691,074

£4,500,000

D ordinary shares

Funds affiliated with Credit Agricole

4,426,390

£3,500,000

B ordinary shares;

Private Equity

D ordinary shares

Funds affiliated with Lloyds Development Capital

2,276,429

£1,800,000

C ordinary shares

West KB — Westdeutsche Kapitalbeteiligungsgesellschaft mbH

1,897,025

£1,500,000

B ordinary shares

Genechem Therapeutics Venture Fund L.P.

1,897,025

£1,500,000

B ordinary shares

Funds affiliated with Scottish Equity
Partners Ltd.

3,161,708

£2,500,000

B ordinary shares

ABN AMRO Participaties B.V

2,655,835

£2,100,000

B ordinary shares

V-Sciences Investments Pte. Ltd.

1,264,683

£1,000,000

B ordinary shares

Relationships and Transactions

Oxford Therapeutics Consulting Limited, a company controlled by a member of Dr. Beynon’s household, provides consulting services to us in connection with the design of clinical trials and related matters. Oxford Therapeutics charged us fees of $272,634, $238,218 and $134,474 in the years ended March 31, 2006, 2005 and 2004, respectively.

Professor David Latchman, one of our founders and a member of our Scientific Advisory Board, as well as a former member of our board of directors, provides consulting services to us with respect to scientific matters. He charged us fees of $22,320, $23,090 and $20,992 in the years ended March 31, 2006, 2005 and 2004, respectively.

Director Compensation

Please see “Management — Director Compensation” for a discussion of options granted and other compensation to our non-employee directors.

Executive Compensation and Employment Agreements

Please see “Management — Executive Compensation” and “Management — Stock Options” for additional information on compensation of our executive officers. Information regarding employment agreements with our executive officers is set forth under “Management — Employment Agreements.”

PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the beneficial ownership of our common stock as of June 15, 2006, by:


	•	each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock;

	•	each of our directors;

	•	each of our named executive officers; and

	•	all of our directors and executive officers as a group.

The column entitled “Percentage of Shares Beneficially Owned — Before Offering” is based on 42,712,543 shares of common stock outstanding as of June 15, 2006, assuming conversion of all outstanding shares of convertible preferred stock and the issuance immediately prior to the closing of this offering of an additional shares of common stock to the holders of our preferred stock as a stock dividend, but assuming no exercise of outstanding options. The column entitled “Percentage of Shares Beneficially Owned — After Offering” is based on shares of common stock to be outstanding after this offering, including the shares that we are selling in this offering, but not including any shares issuable upon exercise of options or upon exercise of the over-allotment option.

For purposes of the table below, we deem shares of common stock subject to options or warrants that are currently exercisable or exercisable upon the closing of this offering to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person. The substantial majority of all options currently outstanding will become exercisable upon the closing of this offering.

Except as otherwise noted, the persons or entities in this table have sole voting and investing power with respect to all of the shares of common stock beneficially owned by them, subject to community property laws, where applicable. Except as otherwise set forth below, the street address of the beneficial owner is c/o BioVex Group, Inc., 245 First Street, Suite 1800, Cambridge, Massachusetts 02142.

Percentage of Shares

Number of Shares

Beneficially Owned(1)

Name and Address of Beneficial Owner

Beneficially Owned

Before Offering

After Offering

5% Stockholders:

Funds affiliated with Merlin Biosciences(2)

8,690,704

20.35

33 King Street
St. James’s
London, SW1Y 6RJ
United Kingdom

Funds affiliated with Innoven(3)

5,691,074

13.32

10 rue de la Paix
75002 Paris
France

Funds affiliated with Credit Agricole Private Equity(4)

4,426,390

10.36

100 Boulevard du Montpainasse
75682 Paris Cedex 14
France

Funds affiliated with Lloyds Development Capital(5)

4,023,181

9.42

Standbrook House
2-5 Old Bond Street
London, W1S 4PD
United Kingdom

Percentage of Shares

Number of Shares

Beneficially Owned(1)

Name and Address of Beneficial Owner

Beneficially Owned

Before Offering

After Offering

West KB — Westdeutsche Kapitalbeteiligungsgesellschaft mbH

3,325,300

7.79

Herzogstrasse 15
D-40217 Dusseldof
Germany

Genechem Therapeutics Venture Fund L.P.

3,325,300

7.79

1001 de Maisonneuve West, Suite 920
Montreal, QC
H3A 3C8
Canada

Funds affiliated with Scottish Equity Partners Ltd.(6)

3,161,708

7.40

17 Blythswood Square
Glasgow G2 4AD
United Kingdom

ABN AMRO Participaties B.V

2,655,835

6.22

Gustav Mahlerlaan 10
1082 PP
Amsterdam

V-Sciences Investments Pte. Ltd.

2,216,866

5.19

8 Shenton Way
#38-03 Temasek Tower
Singapore 068811

Directors and Named Executive Officers:

Gareth Beynon, M.D., Ph.D.(7)

1,200,000

2.73

Philip Astley-Sparke(8)

800,000

1.87

Robert Coffin, Ph.D.(9)

1,437,500

3.27

Colin Love, Ph.D.

Tony Mills, Ph.D.

Paul Nicholson, M.D.

John Gordon, Ph.D.

Inès Holzbaur, Ph.D.(10)

3,325,300

7.79

Steven Prelack

—

Timothy Rink, M.D., Sc.D

All directors and executive officers as a group
(11 persons) (11)

8,040,000

18.61


*		Less than one percent.

(1)		Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 42,712,543 shares outstanding on May 31, 2006, adjusted as required by rules promulgated by the Securities and Exchange Commission. All shares of common stock subject to options currently exercisable or exercisable within 60 days after May 31, 2006 (including those that become exercisable upon the closing of this offering) are deemed to be beneficially owned and outstanding for the purpose of computing the percentage of ownership of the person holding such options, but are not deemed to be outstanding for computing the percentage of ownership of any other person.

(2)		Consists of 330,380 shares held by Merlin General Partner II Ltd. (as General Partner of the Merlin Biosciences Fund G.b.R.), 5,497,441 shares held by Merlin General Partner II Ltd. (as General Partner of


		the Merlin Biosciences Fund L.P.), 2,852,183 shares held by Merlin General Partner Limited and 10,700 shares held by Merlin Ventures Limited.

(3)		Consists of 575,819 shares held by FCPI Poste Innovation, 1,198,303 shares held by FCPI Poste Innovation 2, 1,715,619 shares held by FCPI Poste Innovation 3, 1,451,278 shares held by FCPI Poste Innovation 5, 434,756 shares held by FCPI Poste Innovation 6, 180,123 shares held by Innoven 2001 FCPI No 5, 67,387 shares held by Innoven 2002 FCPI No 6 and 67,789 shares held by Innoven 2003 FCPI No 7.

(4)		Consists of 1,475,198 shares held by Credit Lyonnais Innovation 3 Fonds Commun de Placement dans L’Innovation CLI3, 1,703,378 shares held by Credit Lyonnais Innovation 4 Fonds Commun de Placement dan L’Innovation CLI4, 756,082 shares held by Credit Lyonnais Innovation 5 Fonds Commun de Placement dan L’Innovation CLI5, 344,213 shares held by Credit Lyonnais Venture 1 Fonds Commun de Placement Risques CLV1 and 147,519 shares held by Lion Capital Investissement Fonds Commun de Placement Risques LCI FCPR.

(5)		Consists of 3,817,907 shares held by Lloyds TSB Development Capital Limited, 102,637 shares held by Lloyds TSB Ventures Nominees Limited (A/C LDC Co-investment Plan 2001 ‘A’) and 102,637 shares held by Lloyds TSB Ventures Nominees Limited (A/C LDC Co-investment Plan 2001 ‘B’).

(6)		Consists of 3,017,994 shares held by SEP II and 143,714 shares held by SEP II B.

(7)		Consists of options to purchase 1,200,000 shares held by Dr. Beynon that are unvested and that will become vested upon the closing of the offering.

(8)		Consists of 800,000 shares held by Mr. Astley-Sparke that are unvested and subject to our right of repurchase, and that will become vested upon the closing of this offering.

(9)		Includes options to purchase 1,200,000 shares held by Dr. Coffin that are unvested, and that will become vested upon the closing of the offering.

(10)		Consists of shares held by Genechem Therapeutics Venture Fund L.P. Ms. Holzbaur is a Vice President of Genechem Management, Inc., the management company of such fund. Ms. Holzbaur disclaims beneficial ownership of such shares, except to the extent of her pecuniary interest therein.

(11)		Includes 4,477,200 shares that are unvested and subject to our right of repurchase, or shares that are subject to unvested options, and that will become vested upon the closing of this offering.

DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock and provisions of our certificate of incorporation and bylaws are summaries and are qualified by reference to the certificate of incorporation and the bylaws that will be in effect upon completion of this offering. Copies of these documents will be filed with the Securities and Exchange Commission as exhibits to our registration statement, of which this prospectus forms a part. The descriptions of the common stock and preferred stock reflect changes to our capital structure that will occur upon the closing of this offering.

Upon the completion of this offering, our authorized capital stock will consist of shares of common stock, par value $0.0001 per share, and shares of preferred stock, par value $0.0001 per share, all of which preferred stock will be undesignated.

As of March 31, 2006, we had issued and outstanding:


	•	2,242,204 shares of common stock;

	•	9,521,832 shares of series A preferred stock;

	•	18,931,043 shares of series B preferred stock,

	•	2,529,366 shares of series C preferred stock;

	•	7,588,098 shares of series D preferred stock; and

	•	1,900,000 shares of series M preferred stock.

Upon the closing of this offering, all of the outstanding shares of our preferred stock will automatically convert into a total of 40,470,339 shares of our common stock. In addition, immediately prior to the closing of this offering, we will issue an additional shares of common stock to the holders of our preferred stock as a stock dividend.

Common Stock

Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are entitled to receive proportionately any dividends that may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.

In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to receive proportionately our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future.

Preferred Stock

Under the terms of our certificate of incorporation, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could

discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Upon completion of this offering, there will be no shares of preferred stock outstanding and we have no present plans to issue any shares of preferred stock.

Options

As of March 31, 2006, there were outstanding options to purchase 4,739,700 shares of common stock at an exercise price per share equal to the par value of $0.0001 per share.

Registration Rights

Upon the completion of this offering, holders of an aggregate of shares of our common stock will have the right to require us to register these shares under the Securities Act under specific circumstances.

Demand Registration Rights. After the lock-up period described under the heading “Underwriting”, subject to specified limitations, holders of shares of common stock, including shares of common stock underlying outstanding options, may require that we register all or part of these securities for sale under the Securities Act. Until we are entitled to register our shares on Form S-3, a short form registration statement, these holders may only make three demands for registration of their securities. Once we are entitled to use Form S-3, holders of shares may make demands for registrations on Form S-3 on up to two occasions during any 12-month period.

Incidental Registration Rights. If we register any of our common stock, either for our own account or for the account of other security holders, the holders of an aggregate of shares of common stock, including shares of common stock underlying outstanding options, are entitled to notice of the registration and to include their shares of common stock in the registration.

Limitations and Expenses. With specified exceptions, a holder’s right to include shares in a registration is subject to the right of the underwriters to limit the number of shares included in the offering. All fees, costs and expenses of any registration will generally be paid by us, and all selling expenses will be paid by the holders of the securities being registered.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is .

NASDAQ National Market

We have applied for the quotation of our common stock on the NASDAQ National Market under the symbol “BVEX.”

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have outstanding shares of common stock. Prior to this offering, there has been no market for our common stock, and we cannot assure you that a liquid trading market for our common stock will develop or be sustained after this offering. Future sales of substantial amounts of common stock, including shares issued upon exercise of outstanding options, in the public market after this offering, or the anticipation of those sales, could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through sales of our equity securities.

Of the shares to be outstanding after completion of this offering, the shares sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock are “restricted securities” under Rule 144. We expect that substantially all of these restricted securities will be subject to the lock-up period described below.

After the lock-up period described below, these restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 701 under the Securities Act, which rules are summarized below.

Rule 144

In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:


	•	1% of the number of shares of the common stock then outstanding, which will equal approximately shares immediately after this offering, and

	•	the average weekly trading volume in our common stock on the NASDAQ National Market during the four calendar weeks preceding the filing of a Form 144 with respect to the sale.

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Upon completion of the lock-up period described below, substantially all of our outstanding restricted securities will be eligible for sale under Rule 144.

Rule 144(k)

Subject to the lock-up agreements described below, shares of our common stock eligible for sale under Rule 144(k) may be sold immediately upon the completion of this offering. In general, under Rule 144(k), a person may sell shares of common stock acquired from us immediately upon completion of this offering, without regard to manner of sale, the availability of public information about us or volume, if:


	•	the person is not our affiliate and has not been our affiliate at any time during the three months preceding such a sale; and

	•	the person has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate.

Upon expiration of the lock-up period described below, unless held by our affiliates, approximately shares of common stock will be eligible for sale under Rule 144(k).

Rule 701

In general, under Rule 701 of the Securities Act, any of our employees, consultants or advisors who purchased shares from us in connection with a qualified compensatory stock plan or other written agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with various restrictions, including the holding period, contained in Rule 144. Subject to the 180-day lock-up period described below, approximately shares of our common stock will be eligible for sale in accordance with Rule 701.

Lock-up Agreements

In connection with this offering, we and all of our officers and directors and holders of substantially all of our outstanding stock will agree that, without the prior written consent of the representative, on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:


	•	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock; or

	•	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock; whether any such transaction is to be settled by delivery of our common stock or such other securities, in cash or otherwise.

The representative of the underwriters does not have any pre-established conditions to waiving the terms of these lock-up restrictions. Any determination to release any shares subject to the lock-up restrictions would be based on a number of factors at the time of determination, including but not necessarily limited to the market price of the common stock, the liquidity of the trading market for the common stock, general market conditions, the number of shares proposed to be sold and the timing, purpose and terms of the proposed sale by us or any of our officers, directors or stockholders. The 180-day restricted period may be extended under specified circumstances. The lock-up restrictions, certain exceptions and the circumstances under which the 180-day restricted period may be extended are described in more detail under “Underwriting.”

Registration Rights

Upon the completion of this offering, the holders of an aggregate of shares of our common stock, including shares of common stock underlying outstanding options, will have the right to require us to register these shares under the Securities Act under certain circumstances. After registration pursuant to these rights, these shares will become freely tradable without restriction under the Securities Act. Please see “Description of Capital Stock — Registration Rights” for additional information regarding these registration rights.

Stock Options

As of March 31, 2006, we had outstanding options to purchase 4,739,700 shares of common stock, all of which will vest upon the closing of this offering. Following the expiration of the lockup period in connection with this offering, we intend to file registration statements on Form S-8 under the Securities Act to register all of the shares of common stock subject to outstanding options and options and other awards issuable pursuant to our 2006 stock incentive plan.

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting agreement, the underwriters named below, for whom Janney Montgomery Scott LLC is acting as representative, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:


Name		Number of Shares

Janney Montgomery Scott LLC
Stifel, Nicolaus & Company, Incorporated

Total:

The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of specified legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ a share below the public offering price. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representative of the underwriters.

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of the additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table. If the underwriters’ option is exercised in full, the total price to the public would be $ , the total underwriters’ discounts and commissions would be $ and the total proceeds to us would be $ .

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them.

We and all of our directors and officers and holders of substantially all of our outstanding stock will agree that, without the prior written consent of the representative on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:


	•	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock; or

	•	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock, whether any transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise.

The 180-day restricted period described in the preceding paragraph will be extended if:


	•	during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to our company occurs; or


	•	prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period,

in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless the representative of the underwriters waives, in writing, such extension.

We and all of our directors and officers and holders of substantially all of our outstanding stock will agree that, without the prior written confirmation from us or the representative of the underwriters that the lock-up restrictions have expired, we will not engage in any transaction that may be restricted by the lock-up restrictions during the 34-day period beginning on the last day of the 180-day restricted period.

These restrictions do not apply to:


	•	the sale of shares to the underwriters;

	•	the issuance by us of shares of our common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing;

	•	transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of this offering;

	•	transfers by any person other than us of shares of common stock or other securities as a bona fide gift; or

	•	distributions other than by us of shares of common stock or other securities to limited partners or stockholders;

provided that in the case of each of the last three transactions, no filing under Section 16(a) of the Exchange Act is required or is voluntarily made in connection with the transaction, and in the case of each of the last two transactions, each donee or distributee agrees to be subject to the restrictions on transfer described above.

The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of our common stock.


	No Exercise	Full Exercise

Per Share	$	$
Total	$	$

In addition, we estimate that the expenses of this offering payable by us, other than underwriting discounts and commissions, will be approximately $ .

In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. In addition, to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in this offering, if the syndicate repurchases

previously distributed common stock in transactions to cover syndicate short positions or to stabilize the price of the common stock. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

We have applied for quotation of our common stock on the NASDAQ National Market under the symbol “BVEX.”

We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

Pricing of the Offering

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representative of the underwriters. Among the factors to be considered in determining the initial public offering price will be our future prospects and those of our industry in general, our sales, earnings and other financial operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and financial and operating information of companies engaged in activities similar to ours. The estimated initial public offering price range set forth on the cover page of this prospectus is subject to change as a result of market conditions and other factors.

LEGAL MATTERS

The validity of the common stock we are offering and other legal matters will be passed upon by Wilmer Cutler Pickering Hale and Dorr LLP, London, England. Legal matters in connection with this offering will be passed upon for the underwriters by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.

EXPERTS

The financial statements as of March 31, 2005 and 2006 and for each of the three years in the period ended March 31, 2006 included in this prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to our ability to continue as a going concern as described in Note 1 to the financial statements) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on their authority as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock we are offering to sell. This prospectus, which constitutes part of the registration statement, does not include all of the information contained in the registration statement and the exhibits to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and to the exhibits to the registration statement. Statements contained in this prospectus about the contents of any contract or any other document are not necessarily complete, and, and in each instance, we refer you to the copy of the contract or other documents filed as an exhibits to the registration statement. Each of these statements is qualified in all respects by this reference.

You may read and copy the registration statement of which this prospectus is a part at the Securities and Exchange Commission’s public reference room, which is located at 100 F Street, N.E., Washington, DC 20549. You can request copies of the registration statement by writing to the Securities and Exchange Commission and paying a fee for the copying cost. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for more information about the operation of the Securities and Exchange Commission’s public reference room. In addition, the Securities and Exchange Commission maintains an Internet website, which is located at http://www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Securities and Exchange Commission. You may access the registration statement of which this prospectus is a part at the Securities and Exchange Commission’s Internet website. Upon completion of this offering, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, and we will file reports proxy statements and other information with the Securities and Exchange Commission.

We maintain an Internet website at www.biovex.com. We have not incorporated by reference into this prospectus the information on our website, and you should not consider it to be a part of this prospectus.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

BioVex Group, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of redeemable convertible preferred stock, stockholders’ deficit and comprehensive loss, and of cash flows present fairly, in all material respects, the financial position of BioVex Group, Inc. and its subsidiaries (a development stage company) at March 31, 2006 and 2005, and the results of their operations and their cash flows for the years then ended and, cumulatively, for the period from December 15, 1997 (date of inception) to March 31, 2006, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and will require additional cash to fund operations for the year ending March 31, 2007. These matters raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

PricewaterhouseCoopers LLP

Boston, Massachusetts

June 19, 2006

The accompanying notes are an integral part of these consolidated financial statements

F-2

BioVex Group, Inc. (a development stage company)

Consolidated Statements of Operations


										Period from
										December 15, 1997
										(Date of Inception)
	Years Ended March 31,									to March 31,
	2004			2005			2006			2006

Revenues	$	39,868		$	40,929		$	21,969		$	164,440
Operating expenses:
Research and development		6,545,665			10,154,271			10,925,762			38,178,350
Administrative		2,782,651			3,653,479			5,487,762			18,434,537

Total operating expenses		9,328,316			13,807,750			16,413,524			56,612,887

Loss from operations		(9,288,448	)		(13,766,821	)		(16,391,555	)		(56,448,447	)
Interest expense		(19,536	)		(9,313	)		(3,699	)		(169,808	)
Interest income		269,530			622,485			745,664			2,293,180

Loss before income tax	$	(9,038,454	)	$	(13,153,649	)	$	(15,649,590	)	$	(54,325,075	)
Income tax benefit		1,244,429			1,434,560			1,393,737			5,697,256

Net loss	$	(7,794,025	)	$	(11,719,089	)	$	(14,255,853	)	$	(48,627,819	)

Basic and diluted net loss per common share	$	(6.16	)	$	(8.97	)	$	(10.91	)
Weighted average shares used in computing basic and diluted loss per common share		1,265,539			1,307,204			1,307,204

Unaudited proforma net loss per common share (basic and diluted)							$	(0.34	)

Weighted average shares used to compute unaudited proforma net loss per common share								41,395,766

The accompanying notes are an integral part of these consolidated financial statements

F-3

BioVex Group, Inc. (a development stage company)

Consolidated Balance Sheets


							Pro Forma
							Stockholders
							Equity at
	March 31,						March 31, 2006
	2005			2006			(Note 2)
							(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	20,251,905		$	11,317,177
Income tax receivable		2,059,094			1,390,718
Prepaid expenses and other assets		428,973			972,736

Total current assets		22,739,972			13,680,631
Property and equipment, net		1,204,305			828,127

TOTAL ASSETS	$	23,944,277		$	14,508,758


LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Capital lease obligations, current portion	$	66,506		$	—
Accounts payable		821,806			980,006
Accrued payroll		115,096			134,420
Accrued expenses		586,496			1,440,854
Deferred revenue		184,892			170,233

Total current liabilities		1,774,796			2,725,513
Commitments and Contingencies (Note 7)
Redeemable convertible preferred stock, $.0001 par value:
Authorized shares — 43,170,337
Issued and outstanding shares — 36,495,622 at March 31, 2005 and 40,470,339 at March 31, 2006 (Liquidation preferences of $62,036,584 at March 31, 2006)		53,885,416			59,238,873
Stockholders’ deficit:
Common stock, $.0001 par value:
Authorized shares — 50,860,902
Issued and outstanding shares — 1,307,204 at March 31, 2005 2,242,204 at March 31, 2006 and 42,712,543 pro forma (unaudited) at March 31, 2006		131			224			4,271
Additional paid-in capital		107,892			759,400			59,994,226
Accumulated other comprehensive income		2,548,008			1,064,075			1,064,075
Deferred compensation		—			(651,508	)		(651,508	)
Accumulated deficit		(34,371,966	)		(48,627,819	)		(48,627,819	)

Total stockholders’ deficit		(31,715,935	)		(47,455,628	)		11,783,245

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT	$	23,944,277		$	14,508,758

The accompanying notes are an integral part of these consolidated financial statements

F-4

BioVex Group, Inc. (a development stage company)

Consolidated Statements of Redeemable Convertible Preferred Stock, Stockholders’ Deficit and Comprehensive Loss

Period from December 15, 1997 (date of inception) to March 31, 2006


	Redeemable										Accumulated
	Convertible										Other												Total
	Preferred Shares				Common Shares				Additional		Comprehensive			Deferred			Accumulated			Comprehensive			Stockholders’
	Shares		Amount		Shares		Amount		Paid-In Capital		Income(Loss)			Compensation			Deficit			Income(Loss)			Deficit
Inception to March 31, 2003 (See Note 5)		11,421,832	$	19,347,174		1,225,000	$	123		—	$	154,410			—		$	(14,858,852	)					(14,704,319	)
Issuance of Common Shares						82,204		8		107,892														107,900
Issuance of Series B Preferred Shares net of $371,246 Issuance Costs		9,835,447		12,538,030
Issuance of Series C Preferred Shares		1,264,684		1,660,002
Currency Translation Adjustment												1,556,642									1,556,642			1,556,642
Net Loss																		(7,794,025	)		(7,794,025	)		(7,794,025	)

Total comprehensive loss																					(6,237,383	)

Balance at March 31, 2004		22,521,963	$	33,545,206		1,307,204	$	131	$	107,892	$	1,711,052		$	—		$	(22,652,877	)				$	(20,833,802	)

Issuance of Series B Preferred Shares		9,095,596		12,801,585
Issuance of Series C Preferred Shares		1,264,682		1,780,000
Issuance of Series D Preferred Shares net of $31,375 Issuance Costs		3,613,381		5,758,625
Currency Translation Adjustment												836,956									836,956			836,956
Net Loss																		(11,719,089	)		(11,719,089	)		(11,719,089	)

Total comprehensive loss																					(10,882,133	)

Balance at March 31, 2005		36,495,622	$	53,885,416		1,307,204	$	131	$	107,892	$	2,548,008		$	—		$	(34,371,966	)				$	(31,715,935	)

Issuance of Series D Preferred Shares net of $13,089 Issuance Costs		3,974,717		5,353,457
Exercise of Restricted Stock						935,000		93																93
Deferred compensation										651,508					(651,508	)
Currency Translation Adjustment												(1,483,933	)								(1,483,933	)		(1,483,933	)
Net Loss																		(14,255,853	)		(14,158,393	)		(14,255,853	)

Total comprehensive loss																					(15,642,326	)

Balance at March 31, 2006		40,470,339	$	59,238,873		2,242,204	$	224	$	759,400	$	1,064,075		$	(651,508	)	$	(48,627,819	)				$	(47,455,628	)

The accompanying notes are an integral part of these consolidated financial statements

F-5

BioVex Group, Inc. (a development stage company)

Consolidated Statements of Cash Flows


										Period from
										December 15, 1997
										(Date of Inception)
	Years Ended March 31,									to March 31,
	2004			2005			2006			2006

OPERATING ACTIVITIES
Net Loss	$	(7,794,025	)	$	(11,719,089	)	$	(14,255,853	)	$	(48,627,819	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		507,537			551,359			515,514			2,479,173
Changes in operating assets and liabilities:
Accounts receivable		(33,884	)		33,884			—			—
Income tax receivable		(272,227	)		(792,193	)		518,640			(1,250,827	)
Prepaid expenses and other current assets		44,373			(88,491	)		(577,169	)		(938,896	)
Accounts payable		777,568			(492,319	)		229,318			890,058
Deferred revenue		199,656			(36,916	)		—			162,740
Accrued liabilities		210,220			53,200			957,205			1,558,535

Net cash flows used in operating activities		(6,360,782	)		(12,490,565	)		(12,612,345	)		(45,727,036	)
INVESTING ACTIVITIES
Purchases of short-term investments		(5,513,700	)		—			—			(5,513,700	)
Maturities of short-term investments		—			5,513,700			—			5,513,700
Purchases of property and equipment		(186,286	)		(163,521	)		(233,916	)		(2,655,194	)

Net cash (used in) provided by investing activities		(5,699,986	)		5,350,179			(233,916	)		(2,655,194	)
FINANCING ACTIVITIES
Proceeds from bridge loan		—			—			—			1,220,712
Repayment of capital lease obligations		(140,056	)		(84,610	)		(62,871	)		(403,532	)
Proceeds from issuance of convertible preferred shares, net of issuance costs		14,198,032			20,340,210			5,353,457			58,017,565
Proceeds from issuance of common shares, net		107,900			—			93			107,993

Net cash flows provided by financing activities		14,165,876			20,255,600			5,290,679			58,942,738
Effect of foreign exchange on cash and cash equivalents		1,364,731			784,506			(1,379,146	)		756,669
Net increase (decrease) in cash and cash equivalents		3,469,839			13,899,720			(8,934,728	)		11,317,177

Cash and cash equivalents at beginning of year		2,882,346			6,352,185			20,251,905			—
Cash and cash equivalents at end of year	$	6,352,185		$	20,251,905		$	11,317,177		$	11,317,177

Supplementary cash flow information:
Interest paid	$	19,536		$	9,313		$	3,699		$	169,808
Conversion of convertible loan into preferred shares	$	—		$	—		$	—		$	1,220,712
Property and equipment acquired under capital leases	$	—		$	—		$	—		$	347,163

The accompanying notes are an integral part of these consolidated financial statements

F-6

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements


1	Business Description

The consolidated financial statements of BioVex Group, Inc., a Delaware corporation (“BioVex” or the “Company”) include the accounts of its directly wholly owned subsidiary, BioVex Limited, a limited company incorporated under the laws of England and Wales, and its indirectly wholly owned subsidiary, BioVex, Inc., a Delaware corporation. BioVex is a clinical-stage biotechnology company focused on the development and future commercialization of targeted treatments for cancer and the prevention of infectious disease. BioVex Limited was incorporated in the United Kingdom in 1997 and began operations in 1999. All of the Company’s operations for periods through March 31, 2005 have been carried out in the United Kingdom. The Company relocated its headquarters to the United States during the fiscal year ended March 31, 2006.

BioVex Group, Inc. was incorporated in Delaware in July 2005. In August 2005, the shareholders of all classes of outstanding shares of BioVex Limited contributed 100% of their equity interests in BioVex Limited to BioVex Group, Inc., in exchange for equity interests in BioVex Group, Inc. As BioVex Group, Inc. and BioVex Limited are entities organized under the common control of the same group of shareholders, the historical consolidated financial statements of BioVex Limited, the predecessor company, became the historical consolidated financial statements of BioVex Group, Inc. No goodwill or other intangible assets arose from this transaction.

The Company has had limited operations to date and its activities have consisted primarily of raising capital, conducting research and development and recruiting personnel. Accordingly, the Company is considered to be in the development stage at March 31, 2006, as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by Development Stage Enterprises.” The Company’s fiscal year ends on March 31. The Company operates as one reportable segment.

The Company has a limited operating history and it has incurred losses from operations since its inception. The Company has an accumulated deficit of $48,627,819 at March 31, 2006. The accompanying consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern. The Company’s recurring losses from operations and limited funds raise substantial doubt about its ability to continue as a going concern. Management’s plans with regard to these matters include seeking additional financing arrangements, continued research and development and seeking collaboration arrangements with corporate sources. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amount or classification of liabilities, or any adjustments that might be necessary should the Company be unable to continue as a going concern.

The Company expects to incur substantial expenditures in the foreseeable future for the research, development and commercialization of its product candidates. The Company will need additional financing to obtain regulatory approvals, fund operating losses, and, if deemed appropriate, establish manufacturing, sales and marketing capabilities, which it will seek to raise through public or private equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate additional funding may not be available to the Company on acceptable terms or at all. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the Company, the Company may be required to delay, reduce or eliminate research and development programs, reduce or eliminate commercialization efforts, obtain funds through arrangements with collaborators or others on terms unfavorable to the Company or pursue merger or acquisition strategies.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate patent protection for the Company’s technology will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. In addition, the Company operates in an environment of rapid change in technology and substantial

F-7

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

competition from pharmaceutical and biotechnology companies, and is dependent upon the services of its employees and its consultants.


2	Unaudited Pro forma Presentation

The Company’s historical capital structure is not indicative of its capital structure after the proposed initial public offering (IPO) due to the anticipated conversion of all shares of convertible preferred stock into shares of common stock concurrent with the closing of the Company’s proposed IPO. Accordingly, unaudited pro forma stockholders’ equity at March 31, 2006 and net loss per common share for the year ended March 31, 2006 are presented. Unaudited pro forma basic and diluted net loss per common share is computed by dividing the net loss attributable to common stockholders by the pro forma number of common shares outstanding, assuming the conversion of the convertible preferred stock into shares of the Company’s common stock which will occur upon the closing of the Company’s proposed IPO, as if such conversion occurred at the date of the original issuance of the shares of convertible preferred stock.

Unaudited pro forma net loss does not include charges for stock dividends payable to preferred stockholders in an IPO or charges upon vesting of stock options and restricted stock upon an IPO as they are directly attributable to the offering and not expected to have a continuing impact. We expect these charges to be material.


3	Summary of Significant Accounting Policies

Basis of Presentation and consolidation

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions are eliminated.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include accruals and income taxes. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents.

Foreign currencies translation

The functional currency of BioVex Limited is the local currency (UK £), and accordingly, all assets and liabilities are translated using the exchange rate at the balance sheet date. Revenues, expenses and cash flows are translated at average rates during the period. Adjustments resulting from the translation of the financial statements of BioVex Limited into US Dollars are excluded from the determination of net loss and are accumulated in other comprehensive income (loss) within stockholders’ deficit. Foreign currency transaction gains and losses are reported in the accompanying consolidated statements of operations.

F-8

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

Fair value of financial instruments

The Company’s financial instruments consist of cash and cash equivalents, investments in short-term debt securities, accounts receivable, accounts payable and accrued expenses. The carrying amounts reported in the balance sheets approximate their fair value at March 31, 2006 and 2005.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade receivables and short-term cash investments in treasury bills, certificates of deposit and commercial paper. The Company restricts its investments to repurchase agreements with major banks, U.S. and UK government and corporate securities, and mutual funds that invest in U.S. and UK government securities, which are subject to minimal credit and market risk. The Company’s customers are concentrated in the pharmaceutical industry, and relatively few customers account for a significant portion of the Company’s revenues. The Company regularly monitors the creditworthiness of its customers and believes its exposure to potential credit losses is not material.

Revenue recognition

Revenue to date consists of fees paid by potential collaborative partners to allow them to evaluate the Company’s gene target validation platform as a research tool. Revenue is recognized when evidence of an arrangement exists, terms are fixed or determinable, all contractual obligations under the agreements have been satisfied and collection is reasonably assured.

Accounts receivable and allowance for doubtful accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the allowance based on historical write-off experience by industry. The Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance when the Company feels it is probable the receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to customers.

Property and equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the following estimated useful lives at March 31, 2006:


Plant and equipment	—	3 to 5 years
Leasehold improvements	—	Lease term

Equipment held under capital leases is recorded at the fair value of the equipment at the inception of the lease. Leasehold improvements and equipment held under capital leases are amortized over the shorter of their estimated useful lives or the term of the respective leases. Repair and maintenance costs are expensed as incurred.

The Company periodically evaluates the recoverability of long-lived assets whenever events and changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. This periodic review may result in an adjustment of estimated depreciable lives or an asset impairment. When indicators of impairment are present, the carrying value of the asset or asset grouping are evaluated in relation to their operating performance and future undiscounted cash flows of the asset. If the future undiscounted cash flows are less than their book value, an impairment exists. The impairment is measured as the difference between the book value and the fair value of the underlying asset. Fair values are based on estimates of market prices

F-9

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

When an asset is retired, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the determination of operating profit (loss).

Research and development

Research and development expenditure is charged to the statement of operations account as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries and benefits, facilities costs, clinical trial and related supply costs, contract services, depreciation and amortization expense and other related costs.

Income taxes

The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company’s consolidated financial statements contain certain deferred tax assets, which have arisen primarily as a result of operating losses, as well as other temporary differences between financial and tax accounting. SFAS No. 109 “Accounting for Income Taxes,” requires the Company to establish a valuation allowance if the likelihood of realization of the deferred tax assets is reduced based on an evaluation of objective verifiable evidence. Significant management judgement is required in determining the Company’s provision for income taxes, the Company’s deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets. The Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized.

Pension costs

The Company operates a defined contribution pension plan for its UK employees. The Company contributes to this plan based upon fixed percentages of employee compensation and such contributions are expensed as incurred. The amount of contributions expensed by the Company for the years ended March 31, 2004, 2005 and 2006 and inception to date were $171,878, $248,738, $256,598 and $989,984, respectively.

Accounting for stock based compensation

The Company applies the principles of Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock option compensation plans. Under APB 25, compensation expense is measured as the difference, if any, between the option exercise price and the fair value of the Company’s common stock at the date of grant. The Company’s stock options do not begin to vest until an IPO or change in control occurs, and the majority vest in full at this time. A measurement date for accounting purposes does not occur until an IPO or a change in control occurs. Accordingly, the Company has to date not recorded any stock compensation expense.

The Company will amortize employee stock compensation on an accelerated basis in accordance with FIN 28, an interpretation of APB25, over the applicable vesting period. For options vesting upon an IPO or a change in control, this will result in an immediate charge to the consolidated statement of operations in the period in which an IPO or change in control occurs.

Had the Company applied SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, as amended from FASB

F-10

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

Statement No. 123”, for fixed stock-based awards to employees, the net loss for all periods presented would not have been different from the net loss reported in the consolidated statements of operations, as no measurement date for accounting purposes has occurred.

The Company adopted SFAS No. 123(R), “Share Based Payments”, on April 1, 2006. The Company expects to record a material charge to the consolidated statement of operations in the event the Company completes an IPO of its common stock (Note 5).

Comprehensive income/(loss)

Comprehensive income/ (loss) is comprised of net loss and other comprehensive income/ (loss). Other comprehensive income/ (loss) to date has comprised of currency translation adjustments.

Net loss per share

The Company computes net loss per share attributable to common stockholders in accordance with SFAS No. 128, “Earnings Per Share” (“SFAS 128”). Under the provisions of SFAS 128, basic net loss per share attributable to common stockholders (“Basic EPS”) is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders (“Diluted EPS”) is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the incremental common shares issuable upon the conversion of preferred stock, shares issuable upon the exercise of stock options and shares issuable upon the vesting of restricted stock units. Common stock equivalents have been excluded from the calculation of weighted average number of diluted common shares, as their effect would be antidilutive for all periods presented.

The following potentially dilutive common share equivalents were excluded from the calculation of diluted net loss per common share because their effect was antidilutive for each of the periods presented:


	Years Ended March 31,
	2004		2005		2006

Options		5,549,700		5,571,700		4,739,700
Restricted Stock		—		—		935,000
Redeemable Convertible Preferred Stock		16,895,869		28,609,402		39,541,433

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options and share-based payments granted to non-employee members of a company’s board of directors, to be recognized in the income statement based on their fair values using an option-pricing model, such as the Black-Scholes model, at the date of grant. The pro forma footnote disclosure alternative is no longer allowable under SFAS No. 123(R). On March 29, 2005, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 107 to express the SEC staff’s views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provide the staff’s views regarding the valuation of share-based payment arrangements.

The Company is required to adopt SFAS 123(R) in the first quarter of fiscal 2007, beginning April 1, 2006. Under SFAS 123(R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be

F-11

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

used at date of adoption. The Company expects to elect to use the modified prospective method for adoption, which requires compensation expense to be recorded for all unvested stock options and restricted shares beginning in the first quarter after adoption. For all unvested options outstanding as of April 1, 2006, compensation expense previously measured under APB 25, but unrecognized, will be recognized using the straight-line method over the remaining vesting period, which in the case of awards vesting upon an IPO or change in control, will result in an immediate charge to the consolidated statement of operations. For share-based payments granted subsequent to April 1, 2006, compensation expense, based on the fair value on the date of grant, as defined by SFAS 123(R), will be recognized using the straight-line method from the date of grant over the service period of the employee receiving the award.

On June 1, 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which will require entities that voluntary make a change in accounting principle to apply that change retrospectively to prior periods’ financial statements, unless this would be impracticable. SFAS 154 supersedes Accounting Principles Board Opinion No. 20, “Accounting Changes” (APB 20), which previously required that most voluntary changes in accounting principle be recognized by including in the current period’s net income the cumulative effect of changing to the new accounting principle. SFAS 154 also makes a distinction between “retrospective application” of an accounting principle and the “restatement” of financial statements to reflect the correction of an error. SFAS 154 applies to accounting changes and error corrections that are made in fiscal years beginning after December 15, 2005. We do not expect the adoption of this statement to have a material impact on our financial condition or results of operations.


4	Property and Equipment


	March 31,
	2005			2006

Leasehold improvements	$	1,164,743		$	1,152,047
Plant and equipment		2,020,266			2,008,294

		3,185,009			3,160,341
Less: accumulated depreciation		(1,980,704	)		(2,332,214	)

Property and equipment, net	$	1,204,305		$	828,127

Depreciation charged to the consolidated statements of operations for the years ended March 31, 2005 and 2006 was $551,359 and $515,514 respectively, which included depreciation expense of leased assets of $109,465, and $91,116, respectively. Depreciation charged to the consolidated statements of operations from December 15, 1997 (date of inception) to March 31, 2006 was $2,479,173.


5	Common Stock and Redeemable Preferred Stock

On August 30, 2005 all outstanding classes of shares of BioVex Limited, a limited company organized under the laws of England and Wales, were exchanged for shares in the capital stock of the Company pursuant to a Share Contribution and Exchange Agreement (the “exchange”) (Note 1).

BioVex Limited had issued 1,250,000 ordinary shares to its founders at par value and on February 12, 1999, BioVex Limited issued 1,875,000 ordinary shares at £1.60 per share for total gross proceeds of £3,000,000.

On July 30, 2001, BioVex Limited issued 2,966,834 A ordinary shares at £0.04 per share, which included 409,934 shares for the conversion of a bridge loan and 6,140,438 convertible preference shares at £1.0 per share, which included 848,438 shares from a loan. The convertible preference shares were convertible into 986,064 A ordinary shares, subject to certain adjustments. On July 30, 2002, BioVex Limited issued an

F-12

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

additional 1,768,166 A ordinary shares at £0.04 per share, and 3,659,562 convertible preference shares at £1.00 per share. Total gross proceeds of £10,000,000 were received.

On October 3, 2003, BioVex Limited issued 82,204 ordinary shares at £0.79 per share, 9,835,447 B ordinary shares at £0.79 per share, 1,264,684 C ordinary shares at £0.01 per share and 980,000 non-voting deferred shares at £1.00 per share, for total gross proceeds of £8,842,001. On October 3, 2004, BioVex Limited issued an additional 9,095,596 B ordinary shares, 1,264,682 C ordinary shares and 980,000 non-voting deferred shares, all at the same price per class of share as in October 2003, for total gross proceeds of £8,191,999. Although the convertible shareholders were not entitled under their existing anti-dilution rights, as a result of these new investments, the Company extinguished all outstanding convertible preference shares and issued 986,064 A ordinary shares and 97,995,307,538 non-voting deferred shares to the convertible preference holders and made an anti-dilution adjustment to the existing A ordinary shareholders. The 3,800,768 A ordinary shares issued as a result of this anti-dilution adjustment have been recorded as an A ordinary share split, and all periods presented have been adjusted to reflect this split. The non-voting deferred shares issued had no liquidation or preference rights until after £100,000,000,000 had been distributed to the ordinary holders. The Company determined that these shares had deminimus value and therefore no excess of fair value over carrying value was transferred to the convertible preference holders upon extinguishment.

On December 21, 2004, the Company issued 3,613,381 D ordinary shares at £0.83 per share for total gross proceeds of £3,000,000. The terms of the subscription agreement governing this financing stipulated that a bonus issue of 180,669 shares would accrue to the subscribers of these shares should additional new investment not have taken place by March 22, 2005. The award was subsequently made on May 26, 2005. On May 26, 2005, the Company issued 1,897,024 D ordinary shares for total gross proceeds of £1,500,000. On July 28, 2005, the Company issued 1,897,024 D ordinary shares for total proceeds of £1,500,000.

Under the exchange agreement, all outstanding classes of stock of BioVex Limited resulting from the above issuances were converted into Common and Preferred Stock of BioVex Group, Inc. as follows: 3,207,204 ordinary shares were converted into 1,307,204 shares of Common Stock and 1,900,000 shares of Series M Preferred Stock; 9,521,832 A Ordinary shares were converted into 9,521,832 shares of Series A Preferred Stock; 18,931,043 B Ordinary shares were converted into 18,931,043 shares of Series B Preferred Stock; 2,529,366 C Ordinary shares were converted into 2,529,366 shares of Series C Preferred Stock; and 7,588,098 D Ordinary shares were converted into 7,588,098 shares of Series D Preferred Stock. All non-voting deferred shares were cancelled in the exchange.

Accordingly, the Company’s consolidated statement of stockholders’ equity reflects the issuance of all classes of stock, previously issued by BioVex Limited in the United Kingdom, as if they were issued by BioVex Group, Inc., the entity incorporated in the United States of America, for all periods presented. The issuance of ordinary A shares and convertible preference shares, which were extinguished and converted into additional ordinary A and non-voting deferred shares, have been presented as the issuance of the Series A Preferred Stock they were exchanged for. The ordinary C shares and non-voting deferred shares have been presented as the issuance of the Series C Preferred Stock they were exchanged for. In addition, the issuance and subsequent cancellation of non-voting deferred shares and convertible preference shares have not been presented as these equity instruments were not in existence at the date of the exchange. All proceeds in British Pounds have been translated into US Dollars using the closing exchange rate on the day of receipt of proceeds.

The Company has recorded and presented the issuance of shares by BioVex Limited as follows:

The Company issued 1,250,000 shares of common stock to founders at par value from inception to November 14, 1998, and on February 12, 1999, the Company issued 1,875,000 shares of common stock at $2.61 per share for total gross proceeds of approximately $4,890,000.

F-13

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

On July 30, 2001, the Company issued 3,584,677 shares of Series A preferred stock at $2.98 per share, which included 409,934 shares for the conversion of a bridge loan. Total gross proceeds of $8,834,711 were received which included $1,220,712 related to a convertible loan. On July 30, 2002, the Company issued a further 2,136,387 shares of Series A preferred stock at $3.32 per share for total gross proceeds of $5,862,767.

On October 3, 2003, the Company issued 82,204 shares of common stock, 9,835,447 shares of Series B preferred stock and 1,264,684 shares of Series C preferred stock, for total gross proceeds of $14,569,278. On October 3, 2004, the Company issued 9,095,596 shares of Series B preferred stock and 1,264,682 shares of Series C preferred stock for total gross proceeds of $14,581,585.

On December 21, 2004, the Company issued 3,613,381 shares of Series D preferred stock for total gross proceeds of $5,790,000. The terms of the subscription agreement governing this financing stipulated that a bonus issue of 180,669 shares would accrue to the subscribers of these shares should additional new investment not have taken place by March 22, 2005. The award was subsequently made on May 26, 2005. On May 26, 2005, the Company issued 1,897,024 shares of Series D preferred stock for total gross proceeds of $2,748,298. On July 28, 2005, the Company issued 1,897,024 shares of Series D preferred stock for total proceeds of $2,618,248.

The Company is authorized to issue two classes of stock designated respectively Preferred Stock and Common Stock. The total number of shares of capital stock that the Company is authorized to issue is 94,031,239. The total number of shares of Common Stock the Company has authority to issue is 50,860,902, $0.0001 par value per share. The total number of shares of Preferred Stock the Company has authority to issue is 43,170,337, $0.0001 par value per share, of which:


	•	9,692,462 shares are designated “Series A Preferred Stock”;

	•	18,931,043 shares are designated “Series B Preferred Stock”;

	•	2,529,366 shares are designated “Series C Preferred Stock”;

	•	10,117,466 shares are designated “Series D Preferred Stock”; and

	•	1,900,000 shares are designated “Series M Preferred Stock”.

F-14

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

The shares issued and outstanding comprise:


	March 31,
	2005		2006

Common stock $0.0001 (2,242,204 at March 31, 2006 and 1,307,204 at March 31, 2005)	$	131	$	224

Series A preferred stock at $0.0001 (9,521,832 at March 31, 2006 and 9,521,832 at March 31, 2005)		14,490,574		14,490,574
Series B preferred stock at $0.0001 (18,931,043 at March 31, 2006 and 18,931,043 at March 31, 2005). Liquidation preferences of $40,429,136 at March 31, 2006		25,231,715		25,231,715
Series C preferred stock at $0.0001 (2,529,366 at March 31, 2006 and 2,529,366 at March 31, 2005). Liquidation preferences of $5,401,714 at March 31, 2006		3,440,002		3,440,002
Series D preferred stock at $0.0001 (7,588,098 at March 31, 2006 and 3,613,381 at March 31, 2005). Liquidation preferences of $10,803,934 at March 31, 2006		5,758,625		11,112,082
Series M preferred stock at $0.0001 (1,900,000 at March 31, 2006 and 1,900,000 at March 31, 2005). Liquidation preferences of $5,401,800 at March 31, 2006		4,964,500		4,964,500

Total redeemable convertible preferred stock		53,885,416		59,238,873

The rights of the different classes of stock of the Company are as follows:

Common Stock

General

The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock. Dividends are due when and if declared by the board of directors.

Voting

The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided that holders of Common Stock are not be entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of the Preferred Stock if the holders of such affected series are entitled to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law of the State of Delaware. There is no cumulative voting.

Redeemable Convertible Preferred Stock

Dividends

The Company may not declare, pay or set aside any dividends on shares of any class or series of capital stock of the Company (other than dividends on shares of Common Stock payable in shares of Common Stock) unless such dividends are distributed pro rata to the holders of the Common Stock and Preferred Stock (on an as-converted basis) then outstanding.

F-15

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

Liquidation Preferences

In the event of any dissolution or winding up of the Company, including a sale, lease assignment, license or other disposition of substantially all the assets, a merger or acquisition, the holders of shares of Preferred Stock then outstanding are entitled to be paid out of the assets available for distribution to its stockholders, before any payment shall be made to the holders of Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares): (i) in respect of the Series B and C Preferred Stock, $2.1356 per share, plus any dividends declared but unpaid; and (ii) in respect of the Series D Preferred Stock, $1.4238 per share, plus any dividends declared but unpaid.

If upon any such event, the assets available for distribution are insufficient to pay the holders of shares of Series B, C and D Preferred Stock the full preferential amounts to which they shall be entitled, the holders shall share ratably in any distribution of the assets available for distribution in proportion to the respective aggregate liquidation preference amounts.

After the payment of all preferential amounts required to be paid to the holders of Series B, C and D Preferred Stock, the holders of shares of Series M Preferred Stock then outstanding are entitled to be paid out of the assets available for distribution, before any payment shall be made to the holders of Common Stock, the lesser of (i) $2.8810 per share and (ii) the per share amount determined by dividing $5,401,800 by the number of shares of Series M Preferred Stock then outstanding, plus any dividends declared but unpaid.

After the payment of all preferential amounts required to be paid to the holders of Preferred Stock above, the remaining assets of the Company available for distribution will be distributed among the holders of the shares of Preferred Stock and Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Common Stock pursuant to the terms of the Certificate of Incorporation immediately prior to such dissolution, liquidation or winding up of the Company.

Voting

The holders of Preferred Stock are entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock are convertible. Holders of Preferred Stock vote together with the holders of Common Stock, and with the holders of any other series of Preferred Stock, as a single class.

Conversion

Each share of Preferred Stock is convertible, at the option of the holder, at any time, and without the payment of additional consideration, into such number of fully paid and non-assessable shares of Common Stock as is determined by converting at the applicable conversion rate in effect at the time of conversion. Each of the Preferred Series A, B, C, D and M Stock conversion rates is initially one share of Common Stock for each share of each such series of Preferred Stock. Such initial conversion rates shall be subject to adjustment as provided below.

Upon the earlier of (i) the closing of the sale of shares of Common Stock in a firm-commitment underwritten public offering or (ii) a date specified by vote or written consent of the holders of 60% of the then outstanding shares of Preferred Stock, all outstanding shares of Preferred Stock automatically convert into shares of Common Stock, at the then effective applicable conversion rate.

F-16

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

Stock Dividend upon Dilutive Issuance

In the event that the Company issues any new shares or any securities convertible, exercisable into or exchangeable for new shares, at a price less than $1.4238 per share, the Company will issue to each holder of Series B, C and D Preferred Stock, by way of a stock dividend, the number of shares of Series B, C and D Preferred Stock derived by multiplying the number of Series B, C and D Preferred Stock in issue by the difference between $1.4238 and the share price of the new issue and then dividing the product by the share price of the new issue.

Stock Dividend upon Initial Public Offering (“IPO”)

In addition to the conversion feature above, the following preferred shares will also receive a stock dividend upon IPO as described below.

Immediately prior to the closing of an IPO, the Company will issue to Series B and C preferred shareholders, by way of a stock dividend, the number of common shares equal to the number of respective Series B and C Preferred Shares multiplied by $2.1356, divided by the IPO price.

Immediately prior to the closing of an IPO, the Company will issue to Series D preferred shareholders, by way of a stock dividend, the number of common shares equal to the number of respective Series D Preferred Shares multiplied by $1.4238, divided by the IPO price.

Immediately prior to the closing of an IPO, the Company will issue to Series M preferred shareholders, by way of a stock dividend, the number of common shares equal to $5,401,800, divided by the IPO price.

The issuance of these stock dividends to preferred stockholders upon an IPO will be recorded as a deduction to net income available to common stockholders, and as a result reduce earnings per common share. We expect this deduction to be material in the event of an IPO.

No dividend will be issued upon an IPO to the holders of Common Stock or Series A Preferred Stock.


6	Stock Compensation Plans

In August 2005, the Company adopted the 2005 Stock Incentive Plan. The Company reserved 1,653,661 shares of common stock under the 2005 Stock Incentive Plan for issuance to eligible US and UK employees and non-employees and consultants. Awards granted under this plan do not begin to vest unless a change in control or an IPO occurs and expire 10 years from the date of grant. At March 31 2006, 935,000 shares of Restricted Stock and stock options for 152,000 shares were granted under the 2005 Stock Incentive Stock Plan. At March 31 2006, there were 566,661 shares available for grant under the 2005 Stock Incentive Plan.

In October 2003, BioVex Limited adopted the 2003 Enterprise Management Incentive (EMI) Scheme (this plan was assumed by the Company in connection with the exchange). 5,709,200 shares of common stock were reserved under the 2003 Enterprise Management Incentive (EMI) Scheme for issuance to eligible UK employees. Options granted under the EMI Scheme become fully exercisable immediately after a change in control or IPO occurs, and expire ten years from the grant date. Following the adoption of the 2005 Stock Incentive Plan, the 2003 Enterprise Management Incentives (EMI) Scheme has been closed and no additional options will be granted under the plan.

F-17

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

Information with respect to stock option activity is as follows:


				Weighted
				Average
	Number of			Exercise
	Shares			Price

Inception to March 31, 2003		1,042,700		$	1.0457
Granted		5,549,700		$	0.0001
Forfeited		(6,000	)	$	0.6200
Cancelled		(1,036,700	)	$	1.0481

Outstanding at March 31, 2004		5,549,700		$	0.0001
Granted		72,000		$	0.0001
Forfeited		(50,000	)	$	0.0001

Outstanding at March 31, 2005		5,571,700		$	0.0001
Cancelled		(800,000	)	$	0.0001
Granted		164,000		$	0.0001
Forfeited		(196,000	)	$	0.0001
Outstanding at March 31, 2006		4,739,700		$	0.0001

The following stock options were outstanding at March 31, 2006 and 2005:


			2005		2006
Exercise			Number of		Number of
Price		Period When Exercisable	Shares		Shares

$	0.0001	Immediately upon a change in control or Initial Public Offering		5,571,700		4,587,700
$	0.0001	25% after one year and 2% monthly thereafter, subject to an Initial Public Offering		—		152,000

				5,571,700		4,739,700

In August 2005, the Company issued 935,000 common shares of Restricted Stock from its 2005 Stock Incentive Plan, of which 800,000 shares vest immediately upon an IPO and 135,000 shares begin to vest upon an IPO and continue to vest over a maximum four year period, following the IPO. The Company has recorded deferred compensation of $651,508 with respect to the restricted stock awards based on an estimated fair value per common share of $0.69 at March 31, 2006. The fair value of these awards will be re-measured and the resulting compensation will be recorded as the awards vest.

For those options and restricted stock awards that vest upon an IPO or change in control, the Company will record an immediate charge to the consolidated statement of operations computed as the number of shares vested multiplied by the IPO price per share.


7	Commitments and contingencies

In December 2005, the Company entered into a six year lease for its new manufacturing facility in Woburn, MA. The Company leases other office and laboratory facilities and certain equipment under non-cancelable operating lease agreements, which expire at various dates through 2013.

F-18

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

Future minimum lease commitments at March 31, 2006, are as follows:


	Operating
Years Ending March 31	Leases

2007	$	1,051,766
2008		727,929
2009		726,173
2010		726,173
2011		726,173
Thereafter		730,722

Total minimum lease payments	$	4,688,936

Rental expense under operating leases totalled $463,606 and $538,685 for the years ended March 31, 2005 and 2006 respectively. Rental expense under operating leases from December 15, 1997 (date of inception) totalled $2,225,665.


8	Related Party Disclosures

Oxford Therapeutics Consulting Limited, which is controlled by a member of Dr. Beynon’s household, provided consulting services to the Company in connection with the design of clinical trials and related matters of $134,474, $238,218 and $272,634 in the years ended March 31, 2004, 2005 and 2006, respectively, of which $47,096, $22,144 and $30,142 remained payable on March 31, 2004, 2005 and 2006, respectively.

Professor D S Latchman, one of the Company’s founders and a member of the Company’s scientific advisory board and a non-executive director of the Company, provided consultancy services to the Company with respect to scientific matters of 20,992, $23,090 and $22,320 in the years ended March 31, 2004, 2005 and 2006, respectively, of which $1,913, $1,967 and $0 remained payable on March 31, 2004, 2005 and 2006, respectively.


9	Income taxes

The loss before income taxes is as follows at March 31:


										Inception to
	2004			2005			2006			Date

Domestic	$	—		$	—		$	(1,505,250	)	$	(1,505,250	)
Foreign		(9,038,454	)		(13,153,649	)		(14,144,340	)		(52,819,825	)

Total income before taxes	$	(9,038,454	)	$	(13,153,649	)	$	(15,649,590	)	$	(54,325,075	)

The income tax benefit consists of the following:


	Years Ended March 31,
	2004		2005		2006

Current:
Federal and state	$	—	$	—	$	—
Foreign		1,244,429		1,434,560		1,393,737

	$	1,244,429	$	1,434,560	$	1,393,737

F-19

BioVex Group, Inc. (a development stage company)

Notes to Consolidated Financial Statements — (Continued)

Qualified expenditures on research and development in the UK are credited by the UK tax authorities at a rate of 16%. All prior year tax credits were fully collected as of December 31, 2005.

A reconciliation of the tax benefit calculated using the U.S. federal statutory rate to the tax benefit recorded in the financial statements for the years ended March 31, 2004, 2005 and 2006 is as follows:


	2004			2005			2006

Worldwide pre-tax book income	$	(9,038,454	)	$	(13,153,649	)	$	(15,649,590	)
Statutory rate		34	%		34	%		34	%
Expected tax		(3,073,074	)		(4,472,241	)		(5,320,861	)
Increase/(Decrease) due to:
State taxes — net of federal benefit		—			—			(96,418	)
Permanent differences:
Nondeductible expenses		1,525,677			2,334,551			2,929,219
R&D credit generated		(1,244,429	)		(1,434,560	)		(1,397,752	)
Increase in valuation allowance		1,185,859			1,611,544			1,926,300
Foreign income taxed at different rates		361,538			526,146			565,774

Total income tax provision	$	(1,244,429	)	$	(1,434,560	)	$	(1,393,737	)

Deferred taxation

Significant components of the deferred tax assets are as follows:


	March 31,
	2005			2006

Deferred tax asset:
Net operating loss carryforwards — UK	$	4,927,703		$	6,586,675
Research & development credit carryforwards		—			6,053
Capitalized expenses		—			22,387
Accrued expenses		200			99,235

Total deferred tax asset		4,927,903			6,714,350
Depreciation		(196,741	)		(56,888	)
Valuation allowance		(4,731,162	)		(6,657,462	)

Net deferred tax asset	$	—		$	—

At March 31, 2006 and March 31, 2005, the Company had U.S. federal net operating loss carryforwards of approximately $1,204,000 and $0, respectively, which may be available to offset future U.S. federal tax liabilities and expire at various dates through 2025. At March 31, 2006 the Company also has federal and state research and development tax credit carryforwards of approximately $4,000 and $3,000, respectively, available to reduce future tax liabilities and expire at various dates between 2015 and 2020. At March 31, 2006 and 2005, the Company had U.K. net operating loss carryforwards of approximately $22,700,000 and $16,400,000 respectively, which may be carried forward indefinitely.

The Company has recorded a full valuation allowance against its net deferred tax assets because, based on the weight of available evidence, the Company believes it is more likely than not that the deferred tax assets will not be realized in the near future.

F-20

PART II


Item 13.	*Other Expenses of Issuance and Distribution*

The following table indicates the expenses to be incurred and paid by us in connection with the offering described in this Registration Statement. All amounts are estimates, other than the registration fee, the NASD fee and the NASDAQ listing fee.


Securities and Exchange Commission registration fee	$	4,815
National Association of Securities Dealers Inc. fee		5,000
NASDAQ Stock Market listing fee		100,000
Accountants’ fees and expenses		*
Legal fees and expenses		*
Blue Sky fees and expenses		*
Transfer Agent’s fees and expenses		*
Printing and engraving expenses		*
Miscellaneous		*

Total Expenses		*


*		To be filed by amendment


Item 14.	*Indemnification of Directors and Officers*

Section 145 of the General Corporation Law of the State of Delaware permits a corporation, under specified circumstances, to indemnify its directors, officers, employees or agents against expenses (including attorney’s fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties by reason of the fact that they were or are directors, officers, employees or agents of the corporation, if such directors, officers, employees or agents acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made only for expenses actually or reasonably incurred by directors, officers, employees or agents in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant directors, officers, employees or agents are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

Our certificate of incorporation states that our directors will not have personal liability for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, which makes directors liable for unlawful dividends or unlawful stock repurchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit.

Our certificate of incorporation also provides that we shall indemnify our directors, officers, employees and agents (and those serving at our request as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a trustee or administrator under an employee benefit plan) against expenses (including attorney’s fees), judgments, settlements, penalties and fines in any action, suit or proceeding arising out of his or her status as a director, officer, employee or agent or activities in any of those capacities. We shall pay expenses incurred by a director, officer, employee or agent in defending an action, suit or proceeding, or appearing as a witness at a time when he or she has not

II-1

been named as a defendant or a respondent, in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay the amount if it shall ultimately be determined that he or she is not entitled to be indemnified by us.


Item 15.	*Recent Sales of Unregistered Securities*

Set forth below is information regarding shares of common stock and preferred stock issued, and options and warrants granted, by us within the past three years. The common stock numbers below have not been restated to give effect to a -for-1 reverse stock split that will be effected immediately prior to the closing of this offering.

Also included below is the consideration, if any, received by us for such shares and options and information relating to the section of the Securities Act or rule of the Securities and Exchange Commission under which exemption from registration was claimed.

(a) Issuance of Securities

(1) In connection with our corporate reorganization and pursuant to a Share Contribution and Exchange Agreement dated as of August 30, 2005 by and among BioVex Group, Inc., BioVex Limited and the Shareholders of BioVex Limited, all of the issued and outstanding securities of BioVex Limited were contributed by the holders thereof to us in consideration of the issuance of shares of our capital stock. In this transaction, we issued:


	•	1,307,204 shares of Common Stock;

	•	9,521,832 shares of Series A Preferred Stock;

	•	18,931,043 shares of Series B Preferred Stock;

	•	2,529,366 shares of Series C Preferred Stock;

	•	7,788,098 shares of Series D Preferred Stock; and

	•	1,900,000 shares of Series M Preferred Stock.

(2) In connection with our corporate reorganization, as of August 30, 2005 we issued 800,000 shares of restricted common stock to Philip Astley-Sparke, our President and Chief Financial Officer, in exchange for the cancellation of outstanding options to purchase an equivalent number of shares of our wholly owned subsidiary that were originally granted on October 17, 2003. The purchase price of these shares was equal to the par value of our common stock, $0.0001 per share.

(3) Pursuant to a Restricted Stock Agreement dated as of August 30, 2005, we issued 135,000 shares of Common Stock to Stephen Gorgol, our Vice President, Finance and Administration, Treasurer and Secretary at a purchase price equal to the par value of our common stock, $0.0001 per share.

(4) Immediately prior to the closing of this offering, we will issue shares of common stock to the holders of our preferred stock as a stock dividend.

(b) Option Grants

(1) In connection with our corporate reorganization, we granted stock options on August 31, 2005 to employees and directors to purchase an aggregate of 4,741,700 shares of our common stock in exchange for the cancellation of options for an equivalent number of shares of our wholly owned subsidiary that were originally granted on October 17, 2003. These options have an exercise price equal to the par value of our common stock, $0.0001 per share.

(2) Pursuant to our 2005 Stock Incentive Plan, we granted stock options on September 25, 2005 to employees to purchase an aggregate of 164,000 shares of our common stock. These stock options have an exercise price equal to the par value of our common stock, $0.0001 per share.

II-2

(c) The shares of Common Stock and Preferred Stock described in paragraph (a)(1) of this Item 15 were issued pursuant to Regulation S or Regulation D of the Securities Act. Each acquiror of the securities described in paragraph (a) of this Item 15 represented to us in connection with its acquisition that it was (i) is an “accredited investor” within the meaning of Rule 501 of Regulation D of the U.S. Securities Act; or (ii) was not a “U.S. Person” as such term is defined in Regulation S under the Securities Act, and was not acquiring the securities for the account or benefit of any U.S. Person, and that it was obtaining the securities in an “offshore transaction”. Each acquiror also represented that it was acquiring the securities for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the same; and such acquiror then had no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for the disposition thereof.

The issuances of restricted stock and the grant of stock options (and the shares of common stock issuable upon the exercise of such options) described in paragraph (a)(2), (a)(3) and (b) of this Item 15 were issued pursuant to written compensatory plans or arrangements with our employees, directors and consultants, in reliance on the exemption provided by Section 3(b) of the Securities Act and Rule 701 promulgated thereunder, or Regulation S.

Appropriate legends are affixed to the stock certificates issued in the aforementioned transactions. All recipients either received adequate information about us or had access, through employment or other relationships, to such information.


Item 16.	*Exhibits*

The exhibits to the registration statement are listed in the Exhibit Index to this registration statement and are incorporated by reference herein.


Item 17.	*Undertakings*

(a) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective.

(ii) For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cambridge, Massachusetts on June 19, 2006.

BIOVEX GROUP, INC.


	By:	/s/ Gareth Beynon

Gareth Beynon, M.D., Ph.D.

Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gareth Beynon and Philip Astley-Sparke, and each of them, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any subsequent registration statements pursuant to Rule 462 of the Securities Act and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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


Signature	Title	Date

/s/ Gareth Beynon Dr. Gareth Beynon, M.D., Ph.D.	Director, Chief Executive Officer (Principal Executive Officer)	June 19, 2006

/s/ Philip Astley-Sparke Philip Astley-Sparke	Director, President and Chief Financial Officer (Principal Financial Officer)	June 19, 2006

/s/ Stephen Gorgol Stephen Gorgol	Vice President, Finance and Administration, Treasurer and Secretary (Principal Accounting Officer)	June 19, 2006

/s/ Paul Nicholson Paul Nicholson, M.D.	Director	June 19, 2006

/s/ John Gordon John Gordon, Ph.D.	Director	June 19, 2006

/s/ Inès Holzbaur Inès Holzbaur, Ph.D.	Director	June 19, 2006

II-4

EXHIBIT INDEX


Exhibit
Number			Description	Notes

	1	.1	Form of Underwriting Agreement	To be filed by amendment
	3	.1	Certificate of Incorporation of the Registrant as filed on August 30, 2005	Filed herewith
	3	.2	Form of Amended and Restated Certificate of Incorporation of the Registrant to be effective upon closing of the offering	To be filed by amendment
	3	.3	Bylaws of the Registrant as adopted as of July 19, 2005	Filed herewith
	3	.4	Form of Amended and Restated Bylaws of the Registrant, to be effective upon the closing of the offering	To be filed by amendment
	4	.1	See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of the Registrant defining rights of the holders of capital stock of the Registrant	—
	4	.2	Specimen Stock Certificate	To be filed by amendment
	4	.3	Stockholders’ Agreement, dated August 30, 2005, by and among the Registrant and certain of its Stockholders	Filed herewith
	4	.4	Share Contribution and Exchange Agreement dated as of August 30, 2005 by and among the Registrant, BioVex Limited and the Shareholders of BioVex Limited	Filed herewith
	5	.1	Opinion of Wilmer Cutler Pickering Hale and Dorr LLP as to the legality of the offered shares.	To be filed by amendment
	10	.1.1*	2006 Stock Incentive Plan	To be filed by amendment
	10	.1.2*	2005 Stock Incentive Plan	Filed herewith
	10	.1.3*	Form of EMI Stock Option Agreement under the 2005 Stock Incentive Plan	Filed herewith
	10	.1.4	Restricted Stock Agreement under the 2005 Stock Incentive Plan, dated as of August 30, 2005, between Philip Astley-Sparke and BioVex Group, Inc.	Filed herewith
	10	.1.5	Restricted Stock Agreement under the 2005 Stock Incentive Plan, dated as of August 30, 2005, between Stephen Gorgol and BioVex Group, Inc.	Filed herewith
	10	.1.6	2003 Enterprise Management Incentive Scheme	Filed herewith
	10	.1.7	Form of Replacement EMI Option Agreement	Filed herewith
	10	.2.1*	Amended and Restated Services Agreement between Gareth Beynon, M.D., Ph.D. and BioVex Limited dated as of , 2006	To be filed by amendment
	10	.2.2*	Employment Agreement between Philip Astley-Sparke and BioVex, Inc. dated as of , 2006	To be filed by amendment
	10	.2.3*	Amended and Restated Services Agreement between Robert Coffin, Ph.D. and BioVex Limited dated as of , 2006	To be filed by amendment
	10	.2.4*	Employment Agreement between Stephen Gorgol and BioVex, Inc. dated as of May 19, 2005	To be filed by amendment
	10	.2.5*	Amended and Restated Services Agreement between Colin Love, Ph.D. and BioVex Limited dated as of , 2006	To be filed by amendment
	10	.2.6*	Employment Agreement between Tony Mills, Ph.D. and BioVex Limited dated as of February 2, 2002	To be filed by amendment
	10	.3.1†	License Agreement dated as of April 1, 2005 by and between Wyeth Holdings Corporation and BioVex Limited	Filed herewith
	10	.3.2.1†	License Agreement dated as of May 31, 2001 by and between Research Corporation Technologies, Inc. and BioVex Limited (covering patents ’458, ’752, etc.)	Filed herewith


Exhibit
Number			Description	Notes

	10	.3.2.2†	License Agreement dated as of May 31, 2001 by and between Research Corporation Technologies, Inc. and BioVex Limited, as amended effective January 1, 2003 (covering patents ’007, ’014, etc.)	Filed herewith
	10	.3.3†	License Agreement dated as of May 31, 2001 by and between Research Corporation Technologies, Inc. and BioVex Limited (covering patent ’344)	Filed herewith
	10	.3.4†	License Agreement dated as of March 11, 2002 by and between University of Iowa Research Foundation and BioVex Limited	Filed herewith
	10	.4	Lease Agreement, dated December 2, 2005, between Cummings Properties, LLC. and BioVex, Inc. (in respect of Woburn, MA facility)	Filed herewith
	21	.1	Subsidiaries of BioVex Group, Inc.	Filed herewith
	23	.1	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.	Filed herewith
	23	.2	Consent of Wilmer Cutler Pickering Hale and Dorr LLP (included in Exhibit 5.1)	To be filed by amendment
	24	.1	Powers of Attorney (included on signature page)	—


*		Denotes management contract or compensatory plan contract, or arrangement

†		Confidential treatment requested. Confidential materials omitted and filed separately with the Securities and Exchange Commission


	•	salaries and related expenses for personnel;

	•	costs of facilities and equipment;

	•	fees paid to contract research organizations in conjunction with clinical trials;

	•	fees paid to contract manufacturers in conjunction with the production of clinical materials;

	•	fees paid to research organizations in conjunction with preclinical studies;

	•	costs of materials used in research and development;

	•	up-front license fees and milestone payments under in-licensing agreements;

	•	consulting fees paid to third parties; and

	•	depreciation of capital assets used to develop our products.


Report of Independent Registered Public Accounting Firm			F-2
Consolidated statements of operations for the years ended March, 31, 2006, 2005 and 2004 and period from inception			F-3
Consolidated balance sheets at March 31 2006 and 2005			F-4
Consolidated statements of redeemable convertible preferred stock, stockholders’ deficit and comprehensive loss for the years ended March 31, 2006, 2005 and 2004 and period from inception			F-5
Consolidated statements of cash flows for the years ended March, 31, 2006, 2005 and 2004 and period from inception			F-6
Notes to the consolidated financial statements			F-7