-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BV1Qb3vnOnhnLWLgcGLNLbNTQE+8dX1AC4j5Z7tRIXdug4lOxydwyOJTFBI5lBFg PW01Y2YWC8GhPbKD8y2/jA== 0001047469-98-031156.txt : 19980814 0001047469-98-031156.hdr.sgml : 19980814 ACCESSION NUMBER: 0001047469-98-031156 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMUNE RESPONSE CORP CENTRAL INDEX KEY: 0000817785 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 330255679 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18006 FILM NUMBER: 98686577 BUSINESS ADDRESS: STREET 1: 5935 DARWIN COURT CITY: CARLSBAD STATE: CA ZIP: 92008 BUSINESS PHONE: 6194317080 MAIL ADDRESS: STREET 1: 5935 DARWIN COURT CITY: CARLSBAD STATE: CA ZIP: 92008 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) / X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ---- EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ---- EXCHANGE ACT OF 1934. For the transition period from ________________ to ______________ Commission file number 0-18006 THE IMMUNE RESPONSE CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 33-0255679 (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 5935 Darwin Court, Carlsbad, CA 92008 (Address of Principal Executive Offices) (Zip Code) Telephone (760) 431-7080 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date. As of August 7, 1998, 23,197,810 shares of common stock were outstanding. THE IMMUNE RESPONSE CORPORATION FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS
Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets .......................... 3 Condensed Consolidated Statements of Operations ................ 4 Condensed Consolidated Statements of Cash Flows ................ 5 Notes to Condensed Consolidated Financial Statements ........... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................... 8 PART II. OTHER INFORMATION Item 2. Changes in Securities .............................................. 17 Item 4. Submission of Matters to a Vote of Security Holders ................ 17 Item 6. Exhibits and Reports on Form 8-K ................................... 18 Signature ..................................................................... 19
2 Part I. Financial Information Item 1. Financial Statements THE IMMUNE RESPONSE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
June 30, 1998 December 31, Assets (unaudited) 1997 --------- --------- Current Assets: Cash and cash equivalents .................................... $ 2,664 $ 4,872 Marketable securities-available-for-sale ..................... 34,374 25,567 Other current assets ......................................... 388 773 --------- --------- Total current assets ................................. 37,426 31,212 Property and equipment, net ...................................... 5,747 5,810 Deposits and other assets ........................................ 955 353 --------- --------- $ 44,128 $ 37,375 --------- --------- Liabilities and stockholders' equity Current liabilities: Accounts payable ............................................. $ 2,801 $ 1,356 Other accrued expenses ....................................... 1,467 917 Total current liabilities ............................ 4,268 2,273 Convertible Preferred Stock ...................................... 9,207 -- Stockholders' equity: Preferred stock, 5,000,000 shares authorized; none issued .... -- -- Common stock, $.0025 par value, 40,000,000 shares authorized, 23,160,255 and 22,815,054 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively ........ 58 57 Warrants ..................................................... 2,144 2,144 Additional paid-in capital ................................... 188,387 186,374 Cumulative comprehensive income .............................. (23) 27 Accumulated deficit .......................................... (159,913) (153,500) --------- --------- Total stockholders' equity ........................... 30,653 35,102 --------- --------- $ 44,128 $ 37,375 --------- --------- --------- ---------
See accompanying notes. 3 THE IMMUNE RESPONSE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited)
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Contract research revenue ................... $ -- $ -- $ 1,000 $ 1,000 Licensed research revenue ................... 10,667 -- 10,667 -- -------- -------- -------- -------- 10,667 0 11,667 1,000 Expenses: Research and development ................ 8,429 9,549 16,689 18,148 General and administrative .............. 1,105 1,053 2,104 2,046 -------- -------- -------- -------- 9,534 10,602 18,793 20,194 Other revenue: Investment income ....................... 402 669 713 1,278 -------- -------- -------- -------- Net loss .................................... $ 1,535 $ (9,933) $ (6,413) $(17,916) -------- -------- -------- -------- -------- -------- -------- -------- Earnings (loss) per share - basic and diluted $ 0.06 $ (0.45) $ (0.28) $ (0.85) -------- -------- -------- -------- -------- -------- -------- --------
See accompanying notes. 4 THE IMMUNE RESPONSE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six months ended June 30, 1998 1997 -------- -------- Operating activities: Net loss ......................................................... $ (6,413) $(17,916) Adjustments to reconcile net loss to net cash provided from (used by) operating activities: Depreciation and amortization ............................. 744 490 Deferred rent expense ..................................... (44) (29) Changes in operating assets and liabilities: Other current assets .................................. 384 128 Accounts payable ...................................... 1,445 129 Accrued expenses ...................................... 594 36 ------- -------- Net cash used by operating activities ............ (3,290) (17,162) Investing activities: Purchase/sale of marketable securities, net ...................... (8,857) 20,450 Purchase of property and equipment ............................... (680) (2,018) Deposits and other assets ........................................ (602) (222) -------- -------- Net cash provided from investing activities ...... (10,139) 18,210 Financing activities: Net proceeds from sale of common stock and warrants (Note 3) ........................................ 1,333 15,640 Notes receivable from related parties (Note 3) ................... -- (11,874) Net proceeds from the sale of convertible preferred stock ........ 9,160 -- Net proceeds from exercise of stock options ...................... 728 378 ------- -------- Net cash provided from financing activities ...... 11,221 4,144 ------- -------- Net increase in cash and cash equivalents ............................ (2,208) 5,192 Cash and cash equivalents at beginning of period ..................... 4,872 3,785 -------- -------- Cash and cash equivalents at end of period ........................... $ 2,664 $ 8,977 -------- -------- -------- -------- Supplemental disclosure of noncash investing and financing activities: Accretion of preferred stock ..................................... $ 47 $ -- -------- -------- -------- --------
See accompanying notes. 5 THE IMMUNE RESPONSE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 1. Basis of Presentation The condensed consolidated financial statements of The Immune Response Corporation ("Immune Response" or the "Company") for the three and six month periods ended June 30, 1998 and 1997 are unaudited. These financial statements reflect all adjustments, consisting of only normal recurring adjustments which, in the opinion of management, are necessary to fairly present the consolidated financial position as of June 30, 1998, and the consolidated results of operations for the three and six month periods ended June 30, 1998 and 1997. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the year ended December 31, 1998. For more complete financial information, these financial statements, and the notes thereto, should be read in conjunction with the consolidated audited financial statements for the year ended December 31, 1997 included in the Company's Form 10-K filed with the Securities and Exchange Commission. 2. Earnings Per Share For the three months ended June 30, 1997 and the six months ended June 30, 1998 and 1997, net loss per share is computed using the weighted average number of common shares outstanding during those periods. Outstanding stock options and warrants, and the effect of conversion of the Series F Convertible Preferred Stock are not included in the calculation of net loss per share because their effect would be antidilutive. Therefore, there is no difference between basic and diluted net loss per share for those periods. Weighted average number of shares outstanding for the three months ended June 30, 1997, and the six months ended June 30, 1998 and 1997 were 21,990,637, 22,871,460 and 21,130,018, respectively. The following table sets forth the computation of basic and diluted earnings per share for the three months ended June 30, 1998: Numerator: Net income ................................................ $ 1,535,364 Preferred stock dividends ................................. (139,726) ------------ Numerator for basic earnings per share - income available to common stockholders .................................. 1,395,638 Effect of dilutive securities: ............................ -- ------------ Numerator for diluted earnings per share - income available to common stockholders after assumed conversions ........ $ 1,395,638 ------------ ------------ Denominator: Denominator for basic earnings per share - weighted average shares .......................................... 22,918,007 Effective of dilutive securities: Stock option plans ...................................... 2,439,648 ------------ Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions ......... 25,357,655 ------------ ------------ Basic earnings per share ....................................... $ 0.06 ------------ ------------ Diluted earnings per share ..................................... $ 0.06 ------------ ------------
Options and warrants to purchase 2,244,811 shares of common stock, and Preferred Stock convertible into 710,732 shares of common stock were outstanding at June 30, 1998, but were 6 not included in the computation of diluted earnings per share because the options' and warrant's exercise price, along with the Preferred Stock's conversion price, were greater than the average market price of the common shares for the three months ended June 30,1998, and, therefore, the effect would be antidilutive. 3. Comprehensive Income In January 1998, the Company adopted Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting Comprehensive Income." The components of comprehensive income are as follows:
Three Months Ended June 30 Six Months Ended June 30 ----------------------- ----------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Net income (loss) ......... $ 1,535 $ (9,933) $ (6,413) $(17,916) Net unrealized gain (loss) on marketable securities (60) (70) (50) (214) -------- -------- -------- -------- Comprehensive income (loss) $ 1,475 $(10,003) $ (6,463) $(18,130) -------- -------- -------- -------- -------- -------- -------- --------
All prior periods have been restated to reflect the adoption of this statement. 4. Equity Transaction During the second quarter of 1998, the Company sold 200 shares of its Series F Convertible Preferred Stock ("Series F Stock") in return for gross proceeds of $10 million. The Series F Stock is convertible into common stock initially at a conversion price of $14.07 per share of common stock. If the Company's common stock does not trade at prices higher than $14.07 per share over a period of time, the conversion price will be adjusted downward on April 24, 1999 (or sooner if the Company issues common stock at less than $14.07 per share) and quarterly thereafter. The Series F Stock bears a dividend of 7.5% per annum. In general, the dividend is payable in shares of common stock. The Company has filed a registration statement with the Securities and Exchange Commission covering the resale of the common stock issuable upon conversion of the Series F Stock. Further, the Company has the option for one year to sell up to $10 million more of the Series F Stock if certain conditions are met. Also during the second quarter of 1998, the Company and Agouron Pharmaceuticals, Inc. ("Agouron") entered into a binding agreement under which Immune Response agreed to exclusively license REMUNE-TM-, its immune-based therapy under development for the treatment of HIV infection, to Agouron. Under terms of the agreement, Immune Response will manufacture commercial supplies of REMUNE and Agouron will have exclusive rights to market REMUNE in North America, Europe and certain other countries. Immune Response initially received a $10 million license fee and Agouron purchased 118,256 shares of newly issued Immune Response common stock, priced at a premium to market, for $2 million. The two companies will share profits on a 50/50 basis if REMUNE is successfully developed and commercialized. 5. Subsequent Event In July 1998, the Company entered into a research collaboration and option agreement with Schering-Plough Corporation to develop gene therapy products for the treatment of hepatitis B and C, and other diseases. Under terms of the initial preclinical research agreement, the Company could receive approximately $5 million in initial fees, reimbursement of expenses and technical milestone payments related to the delivery of the interferon alpha-2b gene for the treatment of hepatitis B and C. As part of the agreement, Schering-Plough has the option to license Immune Response's gene delivery system for additional proprietary Schering-Plough genes. The agreement also provides for Schering-Plough to pay royalties on future product sales. 7 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Overview The Immune Response Corporation (the "Company") is a biopharmaceutical company developing immune-based therapies to induce specific T cell responses for the treatment of HIV, autoimmune diseases and cancer. The Company is conducting clinical trials for its immune-based therapies for HIV, rheumatoid arthritis, psoriasis, multiple sclerosis, colon cancer and brain cancer and preclinical studies for prostate cancer. In addition, the Company is developing a targeted delivery technology for gene therapy which is designed to enable the intravenous injection of genes for delivery directly to the liver. The Company's gene therapy program is currently focused on diseases of the liver and is in preclinical studies for the treatment of hemophilia and hepatitis. This discussion contains forward-looking statements concerning the Company's operating results and timing of anticipated expenditures. Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. For a further description of potential risks and uncertainties involved related to the Company, this document should be read in conjunction with the Company's 1997 Form 10-K filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. During the second quarter of 1998, the Company sold 200 shares of its Series F Convertible Preferred Stock ("Series F Stock") in return for gross proceeds of $10 million. The Series F Stock is convertible into common stock initially at a conversion price of $14.07 per share of common stock. If the Company's common stock does not trade at prices higher than $14.07 per share over a period of time, the conversion price will be adjusted downward on April 24, 1999 (or sooner if the Company issues common stock at less than $14.07 per share) and quarterly thereafter. The Series F Stock bears a dividend of 7.5% per annum. In general, the dividend is payable in shares of common stock. The Company has filed a registration statement with the Securities and Exchange Commission covering the resale of the common stock issuable upon conversion of the Series F Stock. Further, the Company has the option for one year to sell up to $10 million more of the Series F Stock if certain conditions are met. Also during the second quarter of 1998, the Company and Agouron Pharmaceuticals, Inc. ("Agouron") entered into a binding agreement under which Immune Response agreed to exclusively license REMUNE-TM-, its immune-based therapy under development for the treatment of HIV infection, to Agouron. Under terms of the agreement, Immune Response will manufacture commercial supplies of REMUNE, and Agouron will have exclusive rights to market REMUNE in North America, Europe and certain other countries. Immune Response initially received a $10 million license fee and Agouron purchased 118,256 shares of newly issued Immune Response common stock, priced at a premium to market, for $2 million. Additionally, as part of the collaboration, the Company may receive future contributions from Agouron for the purchase of additional common stock, for the reimbursement of research and development costs and for successfully achieving future milestones. The two companies will share profits on a 50/50 basis if REMUNE is successfully developed and commercialized. In July 1998, the Company entered into a research collaboration and option agreement with Schering-Plough Corporation ("Schering-Plough") to develop gene therapy products for the treatment of hepatitis B and C, and other diseases. Under terms of the initial preclinical research agreement, the Company could receive approximately $5 million in initial fees, reimbursement expenses and technical milestone payments related to the delivery of the interferon alpha-2b gene for the treatment of hepatitis B and C. As part of the agreement, Schering-Plough has the option to license Immune Response's gene delivery system for additional proprietary Schering-Plough genes. The agreement also provides for Schering-Plough to pay royalties on future product sales. The Company has not been profitable since inception and had an accumulated deficit of $159.9 million as of June 30, 1998. To date, the Company has not recorded any revenues from the sale of products. Revenues recorded through June 30, 1998 were earned in connection with contract research and investment income. The Company expects its operating losses to continue to increase over the next 8 several years, as well as to have quarter-to-quarter fluctuations, some of which could be significant, due to expanded research, development and clinical trial activities. There can be no assurance that the Company will be able to generate sufficient product revenue to become profitable at all or on a sustained basis. Results of Operations The contract research revenue received in 1998 was received from Bayer Corporation related to a research collaboration for a potential therapy for hemophilia which began in July 1996. The licensed research revenue received in June 1998 was received from Agouron. The Company expects to receive additional contract research payments from Agouron over the next two years. The Company has not received any revenue from the commercial sale of products and does not expect to derive revenue from the sale of products for the foreseeable future. Investment income decreased to $402,000 for the quarter ended June 30, 1998, from $669,000 during the same period in 1997. During the six months ended June 30, 1998 and 1997, investment income was $713,000 and $1.3 million, respectively. Research and development expenditures decreased to $8.4 million during the second quarter of 1998 compared to such expenditures during the same period in 1997 of $9.5 million. Research and development expenditures for the six months ended June 30, 1998 were $16.7 million compared to $18.1 million for the same period in 1997. The decrease in research and development costs from 1997 was due primarily to the initial costs incurred in the first half of 1997 to enroll the final clinical trial sites related to the Phase III clinical endpoint trial for HIV infection using REMUNE-TM-. Also,following the full recruitment of the Phase III clinical trial in May 1997, each participating clinical site was converted to a semi-annual payment schedule rather than payments based upon patient enrollment. As a result, payments which would otherwise have been made during the third quarter of 1997 were paid late in the second quarter of 1997. The Company expects research and development expenditures to rise as it continues its Phase IIb rheumatoid arthritis clinical trial, expected to be completed by year-end 1998, and its Phase II psoriasis clinical trial, expected to be completed during the third quarter of 1998. Research and development expenditures should also continue to rise in the forseeable future due to expanding preclinical and clinical testing of the Company's proposed gene therapy and cancer treatments. Research and development expenses related to advancing REMUNE are also expected to increase due to the continuance of the Company's ongoing Phase III clinical endpoint trial with REMUNE and to increased expenditures related to scaling up of the manufacturing process for REMUNE as the Company approaches possible commercialization of REMUNE. There can be no assurance that REMUNE will be successfully developed or commercialized. General and administrative expenses for the second quarters of both 1998 and 1997 were $1.1 million. General and administrative expenses for the six months ended June 30, 1998 were $2.1 million as compared to $2.0 million for the same period in 1997. General and administrative expenses for the remainder of 1998 necessary to support the Company's expanded research and development activities are expected to remain consistent with expenditures in the first half of 1998. For the quarter ended June 30, 1998, the Company's net income was $1.5 million, or $.06 per share, as compared to a net loss of $9.9 million, or $.45 per share, for the same period in 1997. For the six months ended June 30, 1998, the Company's net loss was $6.4 million, or $.28 per share, as compared to a net loss of $17.9 million, or $.85 per share for the same period in 1997. The primary factor causing the change from 1998 from 1997 was the licensed research payments received from Agouron in June 1998. Liquidity and Capital Resources As of June 30, 1998, the Company had working capital of $33.2 million, including $37.0 million of cash, cash equivalents and marketable securities. This compares with working capital as of December 31, 1997 of $28.9 million, including $30.4 million of cash, cash equivalents, marketable securities and short-term investments. The increase in working capital was primarily due to the $10 million private placement of Series F Convertible Preferred Stock and the $12 million payment received from Agouron, both of which occurred in the second quarter of 1998. 9 The Company will need to raise additional funds to conduct research and development, preclinical studies and clinical trials necessary to bring its potential products to market and establish manufacturing and marketing capabilities. The Company anticipates that in 1998 and 1999, the REMUNE clinical trials will continue to represent a significant portion of the Company's overall expenditures. The Company also anticipates that costs related to the development of REMUNE will continue to increase as the Company approaches possible commercialization. In particular, the Company anticipates additional capital improvements of approximately $4 million to be made over the next twelve months related to increasing the current capacity of its manufacturing facility. Other anticipated costs with respect to REMUNE will depend on many factors, including the results of interim analyses of the data from the Phase III clinical endpoint trial, the potential for accelerated approval, the continuation of the Company's collaboration with Agouron and certain other factors which will influence the Company's determination of the appropriate continued investment of the Company's financial resources in this program. The Company's future capital requirements will depend on many factors, including continued scientific progress in its research and development programs, the scope and results of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and market developments, the cost of manufacturing scale-up, effective commercialization activities and arrangements and other factors not within the Company's control. The Company intends to seek additional funding through public or private financings, arrangements with corporate collaborators or other sources. If funds are acquired through additional collaborations, the Company will likely be required to relinquish some or all rights to products that the Company may have otherwise developed itself. Adequate funds may not be available when needed or on terms acceptable to the Company. Insufficient funds may require the Company to scale back or eliminate some or all of its research and development programs or license to third parties products or technologies that the Company would otherwise seek to develop itself. The Company believes that its existing resources, including the funds received from the sale of Series F Convertible Preferred Stock and the funds received from Agouron, including interest thereon, will enable the Company to maintain its current and planned operations through the first half of 1999. Year 2000 The Company is conducting a comprehensive review of its computer systems to identify the systems that could be affected by the "Year 2000" issue and has created a plan to resolve the issue. The Year 2000 problem is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Company presently believes that the Year 2000 problem will not pose significant operational problems for the Company's computer systems. CERTAIN RISK FACTORS (For a discussion of additional Risk Factors applicable to the Company, see the Company's Annual Report on Form 10-K for the year ended December 31, 1997.) Uncertainty of Product Development and Clinical Testing. The Company has not completed the development of any products and there can be no assurance any products will be successfully developed. The Company has been in existence since 1986, and to date only six of its product candidates have entered clinical trials. The Company's potential immune-based therapies for HIV, autoimmune disease, cancer and gene therapy products currently under development will require significant additional research and development efforts and regulatory approvals prior to potential commercialization. To achieve profitable operations, the Company must successfully develop, manufacture, introduce and market products. The Company's potential products may not prove to be safe and effective in clinical trials, United States Food and Drug Administration ("FDA") or other regulatory approvals may not be obtained and such products may not achieve market acceptance. The Company's potential HIV immune-based therapy, REMUNE, is in a Phase III clinical endpoint trial designed to provide evidence of efficacy based on clinical endpoints. The results of such clinical trial may not demonstrate that REMUNE is safe and efficacious and, even if the results of the clinical trial are considered successful by the Company, the FDA may require the Company to conduct additional large scale clinical 10 trials with REMUNE before the FDA will consider approving REMUNE for commercial sale. Failure to successfully complete the Phase III clinical endpoint trial in a timely fashion and a failure to obtain FDA approval of REMUNE will materially and adversely affect the Company. The results of the Phase III trial may not be consistent with Phase II results. Even if the results of the Phase III trial are consistent with the results of the Phase II trial, the FDA may not approve REMUNE for marketing. In addition, REMUNE is being tested in a Phase II clinical trial in Thailand, in a pediatric Phase I clinical trial in the United States and in combination trials with approved HIV therapies in the United States, Spain, Switzerland and the United Kingdom. Failure of these trials to demonstrate the safety and effectiveness of REMUNE could have a material adverse effect on the regulatory approval process for this potential product. The Company's other potential immune-based therapies and gene therapy technologies are at a much earlier stage of development than REMUNE. The Company's gene therapy technology and certain of its technologies for the treatment of cancer have not yet been tested in humans and human testing of potential products based on such technologies may not be permitted by regulatory authorities and, even if human testing is permitted, products based on such technologies may not be developed and shown to be safe or efficacious. Potential immune-based therapies based on certain of the Company's autoimmune technologies, which are in various stages of clinical testing, and certain of its cancer technologies, which are at an early stage of clinical testing, may not be shown to be safe, efficacious or receive regulatory approval. The results of the Company's preclinical studies and clinical trials may not be indicative of future clinical trial results. A commitment of substantial resources to conduct time-consuming research, preclinical studies and clinical trials, including the REMUNE Phase III clinical endpoint trial will be required if the Company is to develop any products. Delays in planned patient enrollment in the Company's current clinical trials or future clinical trials may result in increased costs, program delays or both. None of the Company's potential products may prove to be safe and effective in clinical trials, FDA or other regulatory approvals may not be obtained or such products may not achieve market acceptance. Any products resulting from these programs are not expected to be successfully developed or commercially available for a number of years, if at all. Unacceptable toxicities or side effects may occur at any time in the course of human clinical trials and, if any products are successfully developed and approved for marketing, during commercial use of the Company's products. The appearance of any such unacceptable toxicities or side effects could interrupt, limit, delay or abort the development of any of the Company's products or, if previously approved, necessitate their withdrawal from the market. Furthermore, disease resistance may limit the efficacy of the Company's potential products. Additional Financing Requirements and Access to Capital. The Company will need to raise additional funds to conduct research and development, preclinical studies and clinical trials necessary to bring its potential products to market and establish manufacturing and marketing capabilities. The Company anticipates that in 1998 and 1999, the REMUNE clinical trials will continue to represent a significant portion of the Company's overall expenditures. The Company also anticipates that costs related to the development of REMUNE will continue to increase as the Company approaches possible commercialization. The anticipated costs with respect to REMUNE will depend on many factors, including the results of interim analyses of the data from the Phase III clinical endpoint trial, the potential for accelerated approval, the continuation of the Company's collaboration with Agouron and certain other factors which will influence the Company's determination of the appropriate continued investment of the Company's financial resources in this program. The Company's future capital requirements will depend on many factors, including continued scientific progress in its research and development programs, the scope and results of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and market developments, the cost of manufacturing scale-up, effective commercialization activities and arrangements and other factors not within the Company's control. The Company intends to seek additional funding through public or private financings, arrangements with corporate collaborators or other sources. If funds are acquired through additional collaborations, the Company will likely be required to relinquish some or all rights to products that the 11 Company may have otherwise developed itself. Adequate funds may not be available when needed or on terms acceptable to the Company. Insufficient funds may require the Company to scale back or eliminate some or all of its research and development programs or license to third parties products or technologies that the Company would otherwise seek to develop itself. The Company believes that its existing resources, including the funds received from the sale of Series F Convertible Preferred Stock and the funds received from Agouron, including interest thereon, will enable the Company to maintain its current and planned operations through the first half of 1999. Patents and Proprietary Technology. The Company has filed, or participated as licensee, in the filing of a number of patent applications in the United States and many international countries. The Company files applications as appropriate for patents covering its products and processes. The Company has been issued patents, or has licensed patents, covering certain aspects of its proposed immune-based therapies for HIV, autoimmune disease, cancer and gene therapy technologies. The Company's success may depend in part on its ability to obtain patent protection for its products and processes. The Company is aware that a group working with Connetics Corporation has received a United States patent related to autoimmune disease research that covers technology similar to that used by the Company. The Company may not be able to negotiate any necessary cross licenses, and failure to do so could have a negative impact on the Company. The Company's patent applications may not issue as patents and its issued patents, or any patent that may be issued in the future, may not provide the Company with adequate protection for the covered products, processes or technology. The patent positions of biotechnology and pharmaceutical companies can be highly uncertain, and involve complex legal and factual questions. Therefore, the breadth of claims allowed in biotechnology and pharmaceutical patents cannot be predicted. The Company also relies upon unpatented trade secrets and know how, and others may independently develop substantially equivalent trade secrets or know how. In addition, whether or not the Company's patents are issued, or issued with limited coverage, others may receive patents which contain claims applicable to the Company's product. Any of the Company's patents, or any patents issued to the Company in the future, may not afford meaningful protection against competitors. Defending any such patent could be costly to the Company, and the patent may not be held valid by a court of competent jurisdiction. The Company also relies on protecting its proprietary technology in part through confidentiality agreements with its corporate collaborators, employees, consultants and certain contractors. These agreements may be breached, the Company may not have adequate remedies for any breach and the Company's trade secrets may otherwise become known or independently discovered by its competitors. It is possible that the Company's products or processes will infringe, or will be found to infringe, patents not owned or controlled by the Company, such as the patent owned by Connetics Corporation. If any relevant claims of third-party patents are upheld as valid and enforceable, the Company could be prevented from practicing the subject matter claimed in such patents, or would be required to obtain licenses or redesign its products or processes to avoid infringement. Such licenses may not be available at all or on terms commercially reasonable to the Company and the Company may not be able to redesign its products or processes to avoid infringement. Litigation may be necessary to defend against claims of infringement, to enforce patents issued to the Company or to protect trade secrets. Such litigation could result in substantial costs and diversion of management efforts regardless of the results of such litigation and an adverse result could subject the Company to significant liabilities to third parties, require disputed rights to be licensed or require the Company to cease using such technology. History of Operating Losses. As of June 30, 1998, the Company had an accumulated deficit of $159.9 million. The Company has not generated revenues from the commercialization of any products and expects to incur substantial net operating losses over the next several years. The Company may not be able to generate sufficient product revenue to become profitable at all or on a sustained basis. The Company expects to have quarter-to-quarter fluctuations in expenses, some of which could be significant, due to expanded research, development and clinical trial activities. 12 Lengthy Approval Process and Uncertainty of Government Regulatory Requirements. Clinical testing, manufacture, promotion and sale of the Company's drug products are subject to extensive regulation by numerous governmental authorities in the United States, principally the FDA, and corresponding state and foreign regulatory agencies. The Company believes that REMUNE and most of its other potential immune-based therapies will be regulated by the FDA as biological drug products under current regulations of the FDA. Biological products must be shown to be safe, pure and potent (i.e., effective) and are subject to the same regulatory requirements as nonbiological products under the FDC Act, as amended by the FDA Modernization Act, except that a biological product licensed under the Public Health Services Act ("PHS Act") is not required to have an approved NDA under the Federal Food, Drug and Cosmetic Act ("FDC Act"). The FDA Modernization Act directed the FDA to take measures to minimize the differences in the review and approval of marketing applications for biological and nonbiological products. The FDA Modernization Act also made significant revisions to the statutory requirements with regard to the approval of new biological and nonbiological products. Among other things, the FDA Modernization Act established a new statutory program for the approval of fast track drugs, streamlined clinical research, and revised the content of product approval applications and the FDA review process. The FDA is required to issue regulations and guidelines in order to implement certain of these new requirements. Until the FDA implements these regulations and guidelines, it is impossible to predict the impact of the FDA Modernization Act on the review and approval of any marketing applications that the Company may submit to the FDA. The FDC Act, the PHS Act and other federal and state statutes and regulations govern or influence the testing, manufacture, safety, effectiveness, labeling, storage, recordkeeping, approval, advertising, distribution and promotion of biological prescription drug products. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, seizure of products, total or partial suspension of product marketing, failure of the government to grant premarket approval, withdrawal of marketing approvals and criminal prosecution. The regulatory process for new therapeutic drug products, including the required preclinical studies and clinical testing, is lengthy and expensive and there can be no assurance that necessary FDA clearances will be obtained in a timely manner, if at all. The length of the clinical trial period and the number of patients the FDA will require to be enrolled in the clinical trials in order to establish the safety and efficacy of the Company's products are uncertain. The Company may encounter significant delays or excessive costs in its efforts to secure necessary approvals, and regulatory requirements are evolving and uncertain. Future United States or foreign legislative or administrative acts could also prevent or delay regulatory approval of the Company's products. The Company may not be able to obtain the necessary approvals for clinical trials, manufacturing or marketing of any of its products under development. Even if commercial regulatory approvals are obtained, they may include significant limitations on the indicated uses for which a product may be marketed. In addition, a marketed product is subject to continual FDA review. Later discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market, as well as possible civil or criminal sanctions. The steps required before a biological drug product may be marketed in the United States generally include preclinical studies and the filing of an IND application with the FDA. Reports of results of preclinical studies and clinical trials for biological drug products are submitted to the FDA in the form of a Biologics Licensing Application ("BLA") for approval for marketing and commercial shipment. Submission of a BLA does not assure FDA approval for marketing. The BLA review process may take a number of years to complete, although reviews of applications for treatments of AIDS, cancer and other life-threatening diseases may be accelerated or expedited. Failure of the Company to receive FDA marketing approval for REMUNE or any of its other products under development on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. In addition to obtaining approval for each biological drug product, an Establishment LIcense Application usually must be filed and approved by the FDA. Among the other requirements for BLA approval is the requirement that prospective manufacturers conform to the FDA's Good Manufacturing Practices ("GMP") requirements specifically for biological drugs, as well as for other drugs. In complying with the FDA's GMP requirements, manufacturers must continue to expend time, money and effort in production, recordkeeping and quality control to assure that the product meets applicable specifications and other requirements. Failure to comply with the FDA's drug GMP 13 requirements subjects the manufacturer to possible FDA regulatory action. The Company or its contract manufacturers, if any, may not be able to maintain compliance with the FDA's drug GMP requirements on a continuing basis. Failure to maintain such compliance could have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes its proprietary GeneDrug and cancer treatment therapies will likely be regulated as biological products. As with the Company's other potential products, the gene therapy and cancer products will be subject to extensive FDA regulation throughout the product development process, and any of these products may not be approved for marketing by the FDA on a timely basis, if at all. The FDA Modernization Act also amended the FDC Act to permit expanded access to individuals and larger groups to unapproved new therapeutic and diagnostic products. Although the new law largely codifies existing FDA regulations in this area, it expands access to all investigational therapies under certain conditions. Although the FDA has granted expanded access to REMUNE for those patients who are ineligible to enroll in the Phase III clinical endpoint trial, the FDA has to date not designated expanded access protocols for REMUNE as "treatment" protocols. Either expanded access or a treatment protocol designation might permit third party reimbursement of some of the costs associated with making REMUNE available to patients in such an expanded access context. The FDA may not determine that REMUNE meets all of the FDA's criteria for use of an investigational drug for treatment use and, even if the product is allowed for treatment use, third party payers may not provide reimbursement for the costs of treatment with REMUNE. The FDA also has issued regulations to accelerate the approval of or to expedite the review of new biological drug products for serious or life-threatening illnesses that provide meaningful therapeutic benefit to patients over existing treatments. Under the accelerated approval program, the FDA may grant marketing approval for a biological or nonbiological drug product earlier than would normally be the case. In addition to the accelerated approval process, the FDA has established procedures designed to expedite the development, evaluation and marketing of new therapies intended to treat persons with life-threatening and severely debilitating illnesses, especially when no satisfactory alternative therapy exists. In addition, the FDA Modernization Act established a new statutory program for the approval of fast track drugs, including biological products. The FDA may not consider REMUNE or any other of the Company's products under development to be an appropriate candidate for accelerated approval, expedited review or fast track designation. To market any drug products outside of the United States, the Company is also subject to numerous and varying foreign regulatory requirements, implemented by foreign health authorities, governing the design and conduct of human clinical trials and marketing approval. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process includes all of the risks associated with obtaining FDA approval set forth above, and approval by the FDA does not ensure approval by the health authorities of any other country. Technological Change and Competition. The biotechnology industry continues to undergo rapid change and competition is intense in the fields of HIV, autoimmune disease, cancer and gene therapy, and such competition is expected to increase. The Company will compete with fully integrated pharmaceutical companies, small biotechnology companies, universities and research organizations. Competitors may succeed in developing technologies and products that are more effective than any which have been or are being developed by the Company or which would render the Company's technology and products obsolete and noncompetitive. Many of the Company's competitors have substantially greater experience, financial and technical resources and production, marketing and development capabilities than the Company. Accordingly, certain of the Company's competitors may succeed in obtaining regulatory approval for products more rapidly or effectively than the Company. If the Company commences commercial sales of its products, it will also be competing with respect to manufacturing efficiency and sales and marketing capabilities, areas in which it currently has no experience. Competitors may develop and commercialize more effective or affordable products. Dependence on Third Parties. The Company's strategy for the research, development and commercialization of its products requires entering into various arrangements with corporate collaborators, licensors, licensees 14 and others, and the Company's commercial success is dependent upon these outside parties performing their respective contractual responsibilities, including the analysis of the data generated in the Company's clinical trials. The amount and timing of resources such third parties will devote to these activities may not be within the control of the Company. There can be no assurance that such parties will perform their obligations as expected and the failure of third parties to perform their obligations would have a material adverse effect on the Company. Although the Company has collaborative agreements with several universities and research institutions, the Company's agreement with Bayer and its binding Letter of Intent with Agouron Pharmaceuticals, Inc. are the only collaborative agreements that provide the Company with contract revenue. These collaborations may not result in the development of any commercial products. Immune Response intends to seek additional collaborative arrangements to develop and commercialize certain of its products. The Company may not be able to negotiate collaborative arrangements on favorable terms, or at all, in the future and its current or future collaborative arrangements may not be successful. Lack of Commercial Manufacturing and Marketing Experience. The Company has a manufacturing facility for REMUNE located in King of Prussia, Pennsylvania, and a pilot manufacturing facility in Carlsbad, California for its other products. The Company has not yet manufactured its product candidates in commercial quantities. The Company may not be able to make the transition from manufacturing clinical trial quantities to commercial production quantities successfully or be able to arrange for contract manufacturing. The Company believes it will be able to manufacture REMUNE for initial commercialization, if the product obtains FDA approval, but it has not yet demonstrated the capability to manufacture REMUNE in commercial quantities, or its autoimmune disease, cancer and gene therapy treatments in large-scale clinical or commercial quantities. The Company has no experience in the sales, marketing and distribution of pharmaceutical products. The Company may not be able to establish sales, marketing and distribution capabilities or make arrangements with its collaborators, licensees or others to perform such activities and such efforts may not be successful. The Company's products may not be successfully commercialized even, if they are developed and approved for commercialization. The manufacture of the Company's products involves a number of steps and requires compliance with stringent quality control specifications imposed by the Company itself and by the FDA. Moreover, the Company's products can only be manufactured in a facility that has undergone a satisfactory inspection by the FDA. For these reasons, the Company would not be able quickly to replace its manufacturing capacity if it were unable to use its manufacturing facilities as a result of a fire, natural disaster (including an earthquake), equipment failure or other difficulty, or if such facilities are deemed not in compliance with the FDA's drug GMP requirements and the non-compliance could not be rapidly rectified. The Company's inability or reduced capacity to manufacture its products would have a material adverse effect on the Company's business and results of operations. The Company may enter into arrangements with contract manufacturing companies to expand its own production capacity in order to meet requirements for its products, or to attempt to improve manufacturing efficiency. If the Company chooses to contract for manufacturing services and encounters delays or difficulties in establishing relationships with manufacturers to produce, package and distribute its finished products, clinical trials, market introduction and subsequent sales of such products would be adversely affected. Further, contract manufacturers must also operate in compliance with the FDA's drug GMP requirements; failure to do so could result in, among other things, the disruption of product supplies. Until recently, biologic product licenses could not be held by any company unless it performed significant manufacturing operations. The FDA recently amended its regulations in this regard, and the Company believes that under these new regulations it can now hold licenses for its biological products without performing significant manufacturing steps. Nonetheless, the Company's potential dependence upon third parties for the manufacture of its products may adversely affect the Company's profit margins and its ability to develop and deliver such products on a timely and competitive basis. Uncertainty of Product Pricing, Reimbursement and Related Matters. The Company's ability to earn sufficient returns on its products will depend in part on the extent to which reimbursement for the costs of such products and related treatments will be available from government health administration authorities, private health coverage insurers, managed care organizations and other organizations. Third party payors are increasingly challenging the price of medical products and services. If purchasers or users of the Company's products are not able to obtain adequate reimbursement for the cost of using such products, 15 they may forego or reduce such use. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and adequate third party coverage may not be available. Failure to obtain appropriate reimbursement would have a material adverse effect on the Company. Subordination of Common Stock to Preferred Stock. The Company's Common Stock is expressly subordinate to the Company's Series F Convertible Preferred Stock in the event of the liquidation, dissolution or winding up of the Company. If the Company were to cease operations and liquidate its assets, there may not be any remaining value available for distribution to the holders of Common Stock after providing for the Series F Convertible Preferred Stock liquidation preference. Volatility of Stock Price and Absence of Dividends. The market price of Immune Response's common stock, like that of the common stock of many other biopharmaceutical companies, has been and is likely to be highly volatile. Factors such as the results of preclinical studies and clinical trials by the Company, its collaborators or its competitors, other evidence of the safety or efficacy of products of the Company or its competitors, announcements of technological innovations or new products by the Company or its competitors, governmental regulatory actions, changes or announcements in reimbursement policies, developments with the Company's collaborators, developments concerning patent or other proprietary rights of the Company or its competitors (including litigation), concern as to the safety of the Company's products, period-to-period fluctuations in the Company's operating results, changes in estimates of the Company's performance by securities analysts, market conditions for biopharmaceutical stocks in general and other factors not within the control of the Company could have a significant adverse impact on the market price of the common stock. The Company has never paid cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. 16 PART II. OTHER INFORMATION Item 2. -- Changes in Securities During the second quarter of 1998, the Company sold 200 shares of its Series F Convertible Preferred Stock ("Series F Stock") in return for gross proceeds of $10 million. The Series F Stock is convertible into common stock initially at a conversion price of $14.07 per share of common stock. If the Company's common stock does not trade at prices higher than $14.07 per share over a period of time, the conversion price will be adjusted downward on April 24, 1999 (or sooner if the Company issues common stock at less than $14.07 per share) and quarterly thereafter. The Series F Stock bears a dividend of 7.5% per annum. In general, the dividend is payable in shares of common stock. The Company has filed a registration statement with the Securities and Exchange Commission covering the resale of the common stock issuable upon conversion of the Series F Stock. Further, the Company has the option for one year to sell up to $10 million more of the Series F Stock if certain conditions are met. The Series F Stock was sold under the exemption provided by Regulation D promulgated under the Securties Act of 1933, as amended. Also during the second quarter of 1998, the Company and Agouron Pharmaceuticals, Inc. ("Agouron") entered into a binding Letter of Intent under which Immune Response agreed to exclusively license REMUNE, its immune-based therapy under development for the treatment of HIV infection, to Agouron. Under terms of the agreement, Immune Response will manufacture commercial supplies of REMUNE, and Agouron will have exclusive rights to market REMUNE in North America, Europe and certain other countries. Immune Response initially received a $10 million license fee and Agouron purchased 118,256 shares of newly issued Immune Response common stock, priced at a premium to market, for $2 million. The two companies will share all profits from the commercialization of REMUNE on a 50/50 basis. The common stock was sold under the exemption provided by Section 4(2) of the Securities Act of 1993, as amended. Item 4. -- Submission of Matters to a Vote of Security Holders On June 11, 1998, the Company held its Annual Meeting of Stockholders. The following actions were taken at the annual meeting. As of April 15, 1998, the record date, 20,833,815 shares were entitled to vote at the Annual Meeting. Of these 20,833,815 shares, 11,330 shares were not voted. 1. The following Class II Directors were elected: a. Dennis J. Carlo. 20,445,658 shares voted in favor of the nominee, 39,487 shares withheld their vote; b. Kevin B. Kimberlin. 20,435,758 shares voted in favor of the nominee, 49,387 shares withheld their vote; e. The following directors continue in office for their existing terms: James B. Glavin Melvin Perelman John Simon William M. Sullivan Philip M. Young 2. The selection of Arthur Andersen LLP as the Company's independent auditor was ratified. 20,397,760 shares were voted in favor of the proposal, 57,561 shares were voted against the proposal and 29,824 shares abstained. 17 Item 6. -- Exhibits and Reports on Form 8-K a) Exhibits 3(i)* Restated Certificate of Incorporation of the Company, as amended by Certificate of Designations, Preferences and Rights of Series F Convertible Preferred Stock. 10.1* Securities Purchase Agreement dated as of April 24, 1998 by and among the Company and Investors. 10.2* Registration Rights Agreement dated as of April 24, 1998 by and among the Company and the Investors. 10.65# Letter of Intent dated June 11, 1998 between The Immune Response Corporation and Agouron Pharmaceuticals, Inc. 10.66# Common Stock Purchase Agreement dated June 11, 1998 between The Immune Response Corporation and Agouron Pharmaceuticals, Inc. 27 Financial Data Schedule * Incorporated by reference to exhibits of the same number filed with the Company's Form 8-K dated April 24, 1998 (File No. 0-18006). # Confidential treatment has been requested for certain portions of this exhibit. b) Reports on Form 8-K A report on Form 8-K dated April 24, 1998, was filed by The Immune Response Corporation reporting under Item 5 that the Company had sold 200 shares of its Series F Convertible Preferred Stock in return for gross proceeds of $10 million. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE IMMUNE RESPONSE CORPORATION Date: August 12, 1998 /s/ Charles J. Cashion ------------------ ----------------------------------------------- Charles J. Cashion Senior Vice President, Finance & Administration Secretary and Treasurer 19 EX-10.65 2 EXHIBIT 10.65 LETTER OF INTENT THIS LETTER OF INTENT is made on the 11th day of June 1998, by and between Agouron Pharmaceuticals, Inc., a corporation duly organized and existing under the laws of the state of California, having a principal place of business at 10350 North Torrey Pines Road, La Jolla, California 92037 (hereinafter called "Agouron"), and The Immune Response Corporation, a corporation duly organized and existing under the laws of the state of Delaware, having a principal place of business at 5935 Darwin Court, Carlsbad, California 92008 (hereinafter called "Immune Response"). Agouron and Immune Response are sometimes hereinafter referred to as a party (collectively "parties") to this Agreement. BACKGROUND In accordance with the terms of this Letter of Intent, Immune Response has agreed to license to Agouron the exclusive rights necessary or useful for the registration and/or commercialization of the product known as REMUNE, a non-infectious intact Human Immunodeficiency Virus ("HIV") devoid of outer envelope proteins. This Letter of Intent, which shall be binding on the parties, sets forth the basic license terms upon which the parties have agreed. The full terms of the license will be set forth in a definitive agreement to be prepared as described below. NOW, THEREFORE, the parties agree as follows: 1. Terms. The parties hereby enter into this Letter of Intent to confirm their entering into a license agreement on terms substantially in accordance with those contained in Exhibit A hereto. The parties acknowledge that Exhibit A states the basic terms of the understanding between the parties and anticipate the further negotiation and preparation of an agreement containing the full terms of the license between the parties ("Definitive Agreement"). Each party agrees to act in good faith in an effort to negotiate, execute and deliver the Definitive Agreement on or before September 1, 1998. If the Definitive Agreement is not executed by September 1, 1998, the provisions of this Letter of Intent shall continue in effect until the Definitive Agreement is executed, and the parties will continue to negotiate in good faith in an effort to execute and deliver the Definitive Agreement as soon as possible. 2. Disclosure. The parties shall jointly prepare and release a statement about the existence of this Letter of Intent and of the license between Agouron and Immune Response. Except as agreed to by the parties, neither Agouron nor Immune Response shall release any further information to any third party who is not under an obligation of confidentiality with respect thereto about any of the terms of this Letter of Intent, or of the license, or of results of clinical trials of REMUNE, without the prior written consent of the other, which consent shall not unreasonably be withheld. This prohibition includes, but is not limited to, press releases, educational and scientific conferences, promotional materials and discussions with the media. If a party determines that it is required by law to release information to any third party regarding such matters, it shall notify the other party of this *** - Confidential treatment requested. Sections of text which have been omitted and for which confidential treatment is requested are noted with "***". An unredacted version of this document has been filed separately with the Securities and Exchange Commission. fact prior to releasing the information. The notice to the other party shall include the text of the information proposed for release. The other party shall have the right to confer with the notifying party regarding the necessity for the disclosure and the text of the information proposed for release. 3. Miscellaneous. This Letter of Intent contains the entire agreement between the parties as of the date hereinabove written on the matters set forth herein and shall be governed by and construed in accordance with the laws of the State of California. Exhibit A describes the parties' understanding with respect to the registration and commercialization of the "Product" as defined therein. This Letter of Intent, including Exhibit A, shall not be amended, supplemented or otherwise modified, except by an instrument in writing signed by duly authorized officers of both parties. Each party shall bear all of the expenses incurred by it in connection with the negotiation and preparation of this Letter of Intent and the Definitive Agreement. Each party represents and warrants that it is not presently bound by any agreement with any third party which limits its performance of any of the obligations or activities provided for under this Letter of Intent or contemplated by the Definitive Agreement. Immune Response represents and warrants that it is not aware of any patents, patent applications and/or know-how that it does not have the right to license to Agouron which is necessary or useful for commercialization of Product by Agouron. Immune Response further represents and warrants that it will not enter into any agreements which limit Immune Response's performance of any of the obligations or activities provided for under this Letter of Intent or contemplated by the Definitive Agreement. Immune Response, at its expense, shall obtain any government approval(s) not related to drug product registration, which are required to enable this Agreement to become effective. At any time after October 15, 1998, Agouron may elect to immediately terminate, in their entirety, all of its rights and obligations under this Letter of Intent and the Definitive Agreement, except that Agouron may exercise this right to terminate only on the basis of its concerns related to the safety, efficacy, competitiveness, or commercial feasibility of Product. IN WITNESS WHEREOF, the parties hereto have executed this Letter of Intent by their respective officers thereunto duly authorized, as of the date hereinabove written. This Letter of Intent may be executed in counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. THE IMMUNE RESPONSE CORPORATION AGOURON PHARMACEUTICALS, INC. By: s/Dennis J. Carlo By: s/Peter Johnson ------------------------------- ---------------------------- Name: Dennis J. Carlo Name: Peter Johnson ------------------------------- ---------------------------- Title: President Title: President ------------------------------- ---------------------------- By: s/Charles J. Cashion By: s/Gary Friedman ------------------------------- ---------------------------- Name: Charles J. Cashion Name: Gary Friedman ------------------------------- ---------------------------- Title: Senior VP Title: Secretary ------------------------------- ---------------------------- 2 EXHIBIT A Immune Response, under the terms and conditions specified below, hereby grants Agouron the exclusive right to use, offer for sale, sell and/or import, in or into the Licensed Territory, the Product under applicable Immune Response Patent Rights (including claims therein relating to compositions and methods of use) and using applicable Immune Response Know-How. 1. Definitions: Except as otherwise set forth herein, items containing an initial capitalized letter shall have the meaning stated below or in the Letter of Intent to which this Exhibit A is an attachment ("LOI"). (a) "Product" means a pharmaceutical product comprising a non-infectious intact HIV devoid of outer envelope proteins whose manufacture, use or sale infringes (in the absence of the license rights granted under this Exhibit A) a valid claim (which has not been abandoned, disclaimed or declared invalid in a non-appealable order) included in an issued patent within the Immune Response Patent Rights. (b) "Licensed Territory" means all countries of the world except the countries listed in Schedule 1. (c) "Affiliate" means any person, organization or entity which is, directly or indirectly, controlling, controlled by, or under common control with Agouron or Immune Response, as the case may be. The term "control" (including, with correlative meaning, the terms "controlled by" and "under common control with"), as used with respect to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, organization or entity, whether through the ownership of voting securities, or by contract, or court order, or otherwise. The ownership of voting securities of a person, organization or entity shall not, in and of itself, constitute "control" for purposes of this definition, unless said ownership is of a majority of the outstanding securities entitled to vote of such person, organization or entity. Affiliate shall also mean a limited partnership in which a subsidiary of Agouron and/or Immune Response is a general partner. (d) "Immune Response Patent Rights" means (i) the patents and the patent applications referred to in Schedule 2 of this Exhibit A; (ii) all patents arising from said applications, and all patents and patent applications based on, claiming the priority date(s) of, or corresponding to any of the foregoing; or (iii) any reissues, extensions (or other governmental actions that provide exclusive rights to the patent holder in the patented subject matter beyond the original patent expiration date), substitutions, confirmations, registrations, revalidations, re-examinations, additions, continuations, continuations-in-part, or divisions of or to any of the foregoing. *** - Confidential treatment requested. Sections of text which have been omitted and for which confidential treatment is requested are noted with "***". An unredacted version of this document has been filed separately with the Securities and Exchange Commission. A-1 (e) "Immune Response Know-How" means any know-how, trade secret, experimental data, formula, expert opinion, experimental procedure, and other confidential and/or proprietary information specifically concerning the Product that is Controlled by Immune Response and that is necessary or useful for either: (i) the formulation, manufacture, use and/or application of the Product; or (ii) obtaining registration of the Product. (f) "Control" and "Controlled" mean possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement with, or arrangement with, any third party. (g) The terms "Net Sales," "Pre-Tax Profits," "Allowable Expenses" and "Manufacturing Transfer Markup" shall be fully defined in the Definitive Agreement. The terms "Net Sales and "Allowable Expenses" shall be determined in accordance with generally accepted accounting principles and the usual and customary practices of the parties. 2. As provided below, Immune Response and Agouron shall collaborate to complete the current program of clinical trials of the Product, including those aimed at achieving registration of the Product in the Licensed Territory, in an expeditious manner. Immune Response and Agouron agree to the following basic approaches to the registration of Product in the Licensed Territory and the conduct of a committee to be formed to coordinate the parties' registration of Product in the Licensed Territory: (a) Immune Response and Agouron shall use reasonable diligence in the registration of the Product. (b) A committee, co-chaired by representatives of Immune Response and Agouron and comprised of representatives from Immune Response and Agouron, shall be formed to coordinate the registration of the Product in the Licensed Territory and such other matters that the parties mutually agree to assign to it. Decisions of the committee shall be made by a unanimous vote of the committee, with each party having one (1) vote, regardless of the number of representatives attending a meeting. The committee shall meet regularly, at least four times per year, and shall assign study or other registration activities between the parties as described in this Paragraph 2. (c) The committee shall review and discuss the registration plans for any countries involved, as well as a coordinated general strategy and priorities for preclinical and clinical registration of Product in the Licensed Territory. Each party's members of the committee will reasonably consider the adoption of the other party's suggestions and will accept as many of such suggestions as are reasonable, based upon medical rationale, drug supply, and the need to conduct the studies in an expeditious and cost-efficient manner. *** - Confidential treatment requested A-2 (d) The parties will share responsibility and authority to obtain regulatory approvals for the Product in the Licensed Territory. If there is a disagreement among the parties concerning an issue related to the registration of the Product in the Licensed Territory, the issue shall be resolved in accordance with the provisions of Paragraph 17. (e) Agouron, at its expense (except for the cost of clinical supplies of Product to be provided to Agouron pursuant to the provisions of Paragraph 9), shall, using reasonable efforts, initiate and conduct a 200-plus patient viral load study to support registration of the Product. (f) In partial consideration for the rights granted to Agouron, Agouron will make up to six (6) quarterly payments of three million dollars ($3,000,000) each to support clinical and manufacturing development and scale-up of the Product beginning on October 15, 1998, and every ninety (90) days thereafter, until the earlier of: (i) January 15, 2000; or (ii) the approval of a Product License Application ("PLA") for the Product in the United States. The above quarterly payments of three million dollars ($3,000,000) each to support clinical and manufacturing development and scale-up of the Product shall only be due and payable by Agouron if Agouron has not elected to terminate, in its entirety, all of its rights and obligations under the LOI and the Definitive Agreement before the last permitted payment date for the applicable quarterly payment. (g) Immune Response will complete, at its expense, the current worldwide program of clinical trials of the Product, including the studies listed in Schedule 3, and will promptly and fully disclose to Agouron the results of the interim and final analyses of data from these clinical trials. (h) Agouron will provide, at its expense, regulatory staff support for preparation of registration documents as such support is reasonably requested by Immune Response. (i) Agouron, notwithstanding the preceding, will be responsible for negotiating labeling, pricing and reimbursement for Product with the applicable regulatory authorities in the Licensed Territory, and after registration of the Product will have the primary responsibility for the ongoing correspondence and interaction with the applicable regulatory authorities. Immune Response will provide reasonable assistance to Agouron in such interactions, if necessary. (j) Except as provided above, the committee, in assigning the responsibility for performing specific tasks or activities related to a study or registration activity among the parties, shall make such assignments principally based on: (i) the available resources each of the parties can commit to the task or activity; (ii) the expertise of each of the parties in conducting or monitoring *** - Confidential treatment requested A-3 the task or activity; (iii) which party can perform the task or activity in the most expeditious manner; and (iv) which party can perform the task or activity in the most cost- efficient manner. A party not responsible for the performance of a task or activity may provide advisory and support services to the other party. The committee may establish interdisciplinary project teams comprised of representatives of both parties having the specialized skills necessary to oversee the conduct of specific day-to-day registration activities. The committee shall establish procedures concerning the scope and conduct of activities (including decision-making procedures) assigned to such project teams. (k) Each party shall keep the other party informed of its progress in the registration of Product, including making oral presentations of progress at the committee meetings and/or the preparing of such written progress reports as are agreed to by the parties summarizing such party's activities during each reporting period and its planned activities for the succeeding period. Each of the parties will assign a representative to facilitate communications between the parties; each representative shall report to his/her management on the matters discussed at each of the meetings of the parties. (l) Immune Response will disclose to Agouron all relevant Immune Response Know-How, including, but not limited to, data and information which it possesses from the pre-clinical and clinical studies of Product (including toxicology, pharmacokinetics and formulation studies) in a format which will facilitate the preparation for any regulatory filings or other correspondence to be filed or made by Agouron. (m) Immune Response will provide assistance to Agouron in accessing clinical investigators, clinical sites and testing laboratories for the purposes of data interpretation and/or evaluation and conduct of registration activities assigned to Agouron. (n) Immune Response shall use its reasonable efforts to coordinate its registration activities in any country(s) located outside the Licensed Territory with the registration activities of the parties in the Licensed Territory. (o) If a licensee of Immune Response wishes to use the results of studies conducted by Agouron in such licensee's registration and commercialization activities in a country(s) located outside of the Licensed Territory, the parties shall enter into good-faith discussions about the sharing of the costs of such studies and/or the granting to Agouron of equivalent rights to use the results of any studies conducted by such licensee. (p) If development of the Product is discontinued in a country located in the Licensed Territory due to safety, efficacy or regulatory issues or by mutual agreement of the parties and Agouron is interested in developing a *** - Confidential treatment requested A-4 substitute drug product whose manufacture, use or sale would infringe (in the absence of the license rights granted under this Exhibit A) a valid claim (which has not been abandoned, disclaimed or declared invalid in a non-appealable order) included in an issued patent within the Immune Response Patent Rights, then Immune Response and Agouron shall enter into good faith negotiations regarding the terms of a license between Immune Response and Agouron for such substitute drug product. During the period that Agouron is participating in the development and/or commercialization of the Product and/or another drug product whose manufacture, use or sale infringes (in the absence of the license rights granted under this Exhibit A) a valid claim (which has not been abandoned, disclaimed or declared invalid in a non-appealable order) included in an issued patent within the Immune Response Patent Rights, Immune Response agrees not to commercialize in the Licensed Territory other drug products whose manufacture, use or sale is covered by a valid claim (which has not been abandoned, disclaimed or declared invalid in a non-appealable order) in an issued patent within the Immune Response Patent Rights, on its own or with a third party, other than Agouron, its Affiliates or sublicensees. 3. In partial consideration for the rights granted to Agouron, Agouron will make the following license-fee milestone payments to Immune Response:
Milestones Payment (US Dollars) ---------- -------------------- Within 30 days of execution of the LOI $10,000,000 *** $ *** *** $ *** *** $ *** *** $ *** ------------------ Total Milestone Payments $45,000,000 ------------------ ------------------
The above license fee milestone payments shall be payable by Agouron one time only and shall only be due if Agouron has not elected to terminate, in its entirety, all of its rights and obligations under the LOI and the Definitive Agreement before the last permitted payment date for the applicable milestone payment. 4. Prior to approval of the Product in the United States, Agouron will, "***." 5. The right of Agouron to market Product in the Licensed Territory shall be subject to commercially reasonable marketing efforts by Agouron, on a country-by-country basis. For purposes of this paragraph, commercialization efforts undertaken by Agouron's Affiliates and sublicensees shall be attributed to Agouron. Agouron shall begin commercial sales of the in a country no later than "***" after the first *** - Confidential treatment requested A-5 registration of Product in such country; provided, however, that such period shall be extended for as long as commercially reasonable marketing efforts to begin commercial sales continue. Following commencement of commercial sales in a country, Agouron shall keep Product reasonably available to the public; provided, however, that Agouron shall be released from this obligation if supply of Product is not available for such country and Agouron is not responsible for arranging for the commercial production and supply of Product for such country. 6. The term of the license rights granted hereunder will extend on a country-by-country basis from the effective date of the signing of the LOI until the last-to-expire of any patents within the Immune Response Patent Rights covering the Product in such country (as extended by any governmental actions which provide exclusive rights to the patent holder in the patented subject matter beyond the original patent expiration date). 7. Agouron shall have the right to sublicense its rights in the Product in one or more countries of the Licensed Territory. In the event that Immune Response or its Affiliates shall in the future obtain Control of one or more additional patent rights and/or know-how necessary or useful for the commercialization of the Product in the Licensed Territory, then Immune Response shall grant to Agouron an exclusive license consistent with the terms of this Exhibit A which adds such patent rights and know-how to the scope of the applicable Immune Response Patent Rights and Immune Response Know-How, without any additional obligations due from Agouron to Immune Response. To the extent that Immune Response grants rights in the Product to a third party and such third party invents or discovers inventions and/or know-how necessary or useful for the commercialization of the Product in the Licensed Territory, then Immune Response shall use its reasonable efforts to secure rights for Agouron to use such inventions and know-how. 8. Immune Response hereby grants to Agouron, its Affiliates and sublicensees a perpetual paid-up, royalty-free, worldwide, exclusive right to use Immune Response's trademark REMUNETM in the marketing of the Product in the Licensed Territory. 9. Immune Response shall supply Agouron, and Agouron shall purchase from Immune Response, sufficient commercial supplies of Product to support and sustain the launch and subsequent patient demand for Product in the Licensed Territory. Immune Response hereby agrees to use its commercially reasonable efforts to have sufficient manufacturing capacity at its facilities to supply Agouron with commercial quantities of Product which are necessary for the launch of such Product in the Licensed Territory and agrees to have at least a monthly manufacturing capacity for the Licensed Territory of "***" unit doses/month of such Product at the time of launch of such Product. Immune Response agrees, at its expense, to maintain commercially reasonable inventory and safety stock of Product for the Licensed Territory. Immune Response further agrees to discuss with Agouron, in good faith, Immune Response's acquisition of additional manufacturing capacity required to meet the projected patient demand for the *** - Confidential treatment requested A-6 Product for the Licensed Territory. Immune Response shall use diligence in its manufacturing activities and shall provide Agouron such technical support for the Product as it may reasonably requested. Commercial supplies of Product shall be supplied to Agouron at Immune Response's "***." 10. Immune Response agrees not to enter into any contractual arrangement with its licensees outside the Licensed Territory which would limit Immune Response's ability to fully fulfill Agouron's product requirements for the Licensed Territory, or which would require Immune Response to allocate its manufacturing capacity among such licensees and Agouron. If supply shortages of Product are expected to occur during a calendar quarterly period, and Immune Response's available supply of drug product is required to be allocated among Immune Response's licensees, Immune Response shall allocate the available supply of drug product among Immune Response's licensees during such calendar quarterly period on a pro-rata basis, based upon: (i) the relative utilization of such Product in each licensee's respective territories during the twelve (12) month period ending on the first day of such calendar quarterly period (based on historical sales data during such twelve (12) month, to the extent such data is available); and (ii) the projected sales of such Product in each licensee's respective territories during the twelve (12) month period commencing with the first day of such calendar quarterly period. 11. If Immune Response is unable to provide Agouron with its requirements of Product in a timely and cost-efficient manner, Immune Response agrees to assist Agouron in the identification of alternative low-cost manufacturing sources for the Product, including but not limited to, access to current suppliers of starting materials, intermediates, bulk material and/or finished Product. Immune Response in such circumstances will grant Agouron the non-exclusive worldwide right to make and have made Product under applicable Immune Response Patent Rights and Immune Response Know-How relating to processes, intermediates and materials for manufacturing Product, and will provide to Agouron without charge, to the extent available, technical and manufacturing assistance and use of its technology and proprietary information for the Product, including information on its analytical methods, validation reports and manufacturing processes. 12. Pre-Tax Profits generated from aggregate Net Sales and royalties from Products in the Licensed Territory on a country-by-country basis shall be shared equally by Immune Response and Agouron on a fifty-fifty basis. "***." 13. At any time after October 15, 1998, Agouron may elect to immediately terminate its development obligations in the Licensed Territory for Product under the LOI and the Definitive Agreement, except that Agouron may exercise this right to terminate only on the basis of its concerns related to the safety, efficacy, competitiveness, or commercial feasibility of Product. In the event that Agouron elects to terminate its development obligations for Product under the LOI and the Definitive Agreement, Immune Response, its Affiliates and sublicensees shall be free, without any further action by Immune Response or Agouron, to develop and/or commercialize Product in the Licensed Territory, on their own, or with any third party, and to retain, use *** - Confidential treatment requested A-7 and disclose to any such third party information and materials that have been developed by Agouron in its development activities for Product; provided, that Immune Response shall not disclose to such third party the confidential and proprietary information of Agouron (other than clinical, regulatory and manufacturing information and materials specifically relating to Product). In the event of the termination of Agouron's development obligations in the Licensed Territory for Product under the LOI and the Definitive Agreement, the licenses granted to Agouron to use, offer for sale, sell and/or import, in or into the Licensed Territory, the Product under applicable Immune Response Patent Rights and using applicable Immune Response Know-How, shall be terminated. Agouron shall transfer ownership of any dossiers for Product in the Licensed Territory to Immune Response, and shall cooperate with Immune Response to effect an orderly transition of Agouron's development responsibilities in the Licensed Territory to Immune Response. 14. At any time after October 15, 1998, Agouron may elect to immediately terminate, on a country-by-country basis, its marketing rights for Product in the Licensed Territory under the LOI and the Definitive Agreement, except that Agouron may exercise this right to terminate only on the basis of its concerns related to the safety, efficacy, competitiveness, or commercial feasibility of Product. In the event that Agouron elects to terminate its marketing rights for Product in a country: (i) the licenses granted to Agouron to use, offer for sale, sell and/or import, in or into such country, the Product under applicable Immune Response Patent Rights and using applicable Immune Response Know-How, shall be terminated, and Immune Response and its Affiliates and sublicensees shall be free to market such Product in such country, on its own, or with any third party; (ii) Agouron shall transfer ownership to Immune Response of any dossiers for Product in such country; and (iii) Agouron shall cooperate with to Immune Response to effect an orderly transition of Agouron's marketing responsibilities in such country to Immune Response. 15. Immune Response, in accordance with the reasonable directions of Agouron, shall prepare, file, prosecute, maintain and extend: (i) patent applications and patents included in the Immune Response Patent Rights; and (ii) applicable Immune Response trademarks. Immune Response shall own any Immune Response Patent Rights and Immune Response trademarks and shall be responsible for all preparation, filing, prosecution, maintenance, extension and enforcement expenses for such Immune Response Patent Rights and Immune Response trademarks. Within fourteen (14) days after the execution of the LOI, Immune Response shall provide Agouron with copies of the material patent prosecution file histories for the Immune Response Patent Rights. Immune Response shall be solely responsible for any royalties or other payments due to Rhone-Poulenc Rorer Inc. (including payments due because of license fees or commercial sales of the Product) because of their previously contractual arrangement (or the termination thereof) involving the Product. "***." *** - Confidential treatment requested A-8 16. This Agreement shall be assignable by a party with the prior written consent of the other party. Any assignment (other than to an Affiliate) without the prior written consent of the other party shall be void. If this Agreement is assigned to an Affiliate of a party, the assigning party shall still be responsible for all of its obligations specified in this Agreement. Notwithstanding the preceding, the LOI shall be assignable to the transferee or successor company in the event of: (i) a sale or transfer of all or substantially all of a party's assets; or (ii) the merger or consolidation of the party with another company. 17. If the representatives of the parties are unable to reach agreement on a decision required under the terms of the LOI, the issue shall be submitted for consideration, in the case of Immune Response, to a designee of its Chief Executive Officer, and, in the case of Agouron, to a designee of its Chief Executive Officer. If they are unable to agree, then the Chief Executive Officers of the parties shall agree upon the appropriate decision. If the Chief Executive Officers of the parties are unable to reach agreement on a decision required of them, then the issue shall be settled by arbitration in San Diego, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. The decision of the arbitrator(s) shall be final and binding on all parties. The cost of such arbitration shall be borne by the non-prevailing party, unless otherwise decided by the arbitrator(s). 18. "***." 19. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached the LOI for the failure or delay in fulfilling or performing any term of the LOI to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including but not limited to fire, floods, embargoes, war, acts of war (whether war is declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God, or acts, omissions or delays in acting by any governmental authority or the other party. 20. In partial consideration for the rights granted to Agouron, Agouron will purchase from Immune Response two million dollars ($2,000,000) of unregistered Immune Response Common Stock on each of the purchase dates listed below at the premiums to Fair Market Value ("FMV") set forth opposite the applicable purchase date:
Purchase Date *** ----------------- ----- Execution Date of LOI *** 10/15/98 *** 1/15/99 *** 4/15/99 *** 7/15/99 *** 10/15/99 *** 1/17/00 ***
*** - Confidential treatment requested A-9 FMV shall mean the average closing price of Immune Response Common Stock for the five trading days immediately preceding the above purchase dates; provided, however, that if the FMV of Immune Response Common Stock is "***" on the applicable purchase date, the premium to FMV shall be "***." Agouron's obligation to purchase Immune Response Common Stock shall terminate with respect to any purchase obligations whose applicable purchase dates occur after Agouron has elected to terminate, in its entirety, all of its rights and obligations under the LOI and the Definitive Agreement. *** - Confidential treatment requested A-10 SCHEDULE 1 COUNTRIES NOT INCLUDED IN THE LICENSED TERRITORY The following countries, subject to the provisions of Paragraph 18 of Exhibit A, are excluded from the Licensed Territory "***:" *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** The following countries, subject to the provisions of Paragraph 18 of Exhibit A, are excluded from the Licensed Territory "***." *** *** *** *** *** *** *** *** *** *** *** - Confidential treatment requested S-1 SCHEDULE 2 IMMUNE RESPONSE PATENT RIGHTS U.S. Patent No. 5,256,767, issued October 26, 1993, from U.S. Patent Application Serial No. 07/975,899, filed November 10, 1992. "***." "***." *** - Confidential treatment requested S-2 SCHEDULE 3 SUMMARY OF CLINICAL TRIALS OF PRODUCT BEING CONDUCTED BY IMMUNE RESPONSE 1. Trial 806 is a multi-center, double-blind, Phase III clinical end point study. Patients are HIV positive with CD4 counts between 300 and 549 cells/ul. 2. Trial 816 is a multi-center, double-blind, Phase II study intended to evaluate the combination of REMUNE(TM) and triple antiviral drug therapy (AZT, 3TC and Crixivan) on the induction of an HIV-1 specific immune response. Patients are HIV positive with CD4 counters > 350 cells/ul. 3. Trial 2102 is a multi-center, double-blind, adjuvant-controlled, Phase II study of REMUNE plus AZT and ddI versus AZT and ddI alone in HIV-infected subjects. The trial is being conducted in Spain and patients have CD4 counts between 300 and 700 cells/ul. 4. Trial 808 is a Phase I study to evaluate the safety and immunogenicity of REMUNE in children with HIV-infection. 5. The Switzerland trial is a single center, randomized, open label, Phase II study combining antiviral therapy (1592U89) plus Nelfinavir plus Saquinavir or 141W94) alone or antiviral therapy plus immune-based therapy (subcutaneous interleukin-2 or REMUNE) in antiviral naive HIV-1 infected subjects with CD-4 + counts > 250 cells/ul. 6. The England trial is a single center, randomized, open labeled Phase I study of antiviral therapy (two nucleoside analogues and at least one protease inhibitor) versus antiviral therapy plus IL-2; antiviral therapy plus IL-2 plus REMUNE; antiviral therapy plus REMUNE. Patients are HIV positive with CD4 counts > 300 cells/ul. 7. Trial 818 is a Phase II study intended to evaluate the combination of interferon-alpha (IFN) and REMUNE on HIV-1 specific immunogenicity in HIV-1 infected subjects with CD-4 counts > 300 cells/ul. 8. Trial 2101B is a Phase II, double-blind, randomized, adjuvant controlled study of REMUNE. 9. Trial 822 is a randomized, double-blind, adjuvant controlled, research study to evaluate the combination of REMUNE and HAART on the induction of HIV-1 specific immune responses. S-3 EX-10.66 3 EXHIBIT 10.66 COMMON STOCK PURCHASE AGREEMENT This Common Stock Purchase Agreement ("Agreement") is made and entered into as of June 11, 1998 by and between THE IMMUNE RESPONSE CORPORATION., a Delaware corporation (hereinafter referred to as the Company) and AGOURON PHARMACEUTICALS, INC., a California corporation ("Agouron"), which parties hereby agree as follows: 1. AUTHORIZATION; COMMITMENT; CLOSING 1.01 AUTHORIZATION. The Company proposes to authorize, issue and sell to Agouron on or before January 15, 2000, certain amounts of its common stock, $.0025 par value ("Common Stock"), as described and determined below. 1.02 COMMITMENT. Subject to Paragraph 5.06 and the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, the Company agrees to issue and sell to Agouron, and Agouron agree to purchase from the Company as of the dates and for the consideration set forth below, the number of shares of the Company's Common Stock as determined below. The Common Stock which Agouron is acquiring pursuant to the terms of this Agreement is hereinafter referred to as "Restricted Common Stock". Agouron is hereinafter sometimes referred to as the "Purchaser." The purchases of the Common Stock shall occur on the seven purchase dates set forth below. On each purchase date, Agouron shall be entitled to acquire such number of shares of Restricted Common Stock (rounded up to the nearest whole share) as may be purchased for $2,000,000, at a purchase price equal to the stated premium set forth opposite the applicable purchase date, over the then fair market value ("FMV") of the Common Stock on The NASDAQ Stock Market. FMV shall be defined as the average closing price of the Common Stock on The NASDAQ Stock Market for the five (5) trading days immediately preceding the referenced purchase date. In the event the FMV is "***" on any purchase date, the premium applicable to such purchase date shall be adjusted to "***."
PURCHASE DATE PURCHASE PRICE *** - ---------------- -------------- --- June 11, 1998 $2,000,000 *** October 15, 1998 $2,000,000 *** January 15, 1999 $2,000,000 *** April 15, 1999 $2,000,000 *** July 15, 1999 $2,000,000 *** October 15, 1999 $2,000,000 *** January 15, 2000 $2,000,000 ***
1.03 CLOSING. Separate closings of the purchase and sale of the Restricted Common Stock ("Closings") shall occur on each of the purchase dates set forth above and shall take place at such time and place as the Company and Purchaser shall agree. At each Closing the Company shall deliver to Purchaser the number of shares of *** Confidential treatment requested. Sections of text which have been omitted and for which confidential treatment is requested are noted with "***". An unredacted version of this document has been filed separately with the Securities and Exchange Commission. June 11, 1998 Restricted Common Stock required by Paragraph 1.02, above, upon delivery to the Company by Purchaser of a certified check or wire transfer of funds in the amount of $2,000,000. The Restricted Common Stock to be delivered to Agouron hereunder at each Closing will be evidenced by a single certificate registered in Agouron's name or in the name of such nominee as Agouron may specify and, when issued in accordance with the terms of this Agreement for the consideration expressed herein, will be duly authorized, validly issued, fully paid, nonassessable and free and clear of any liens or encumbrances caused or created by the Company (except that such Restricted Common Stock of the Company will be subject to restrictions on transfer under federal and applicable state securities laws). 2. REPRESENTATIONS 2.01 REPRESENTATIONS OF THE COMPANY. The Company represents and warrants as follows: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority which are necessary to own and operate its business and properties and to carry on its business as it is being conducted. The Company is duly licensed and qualified and in good standing in the State of California and in such other jurisdictions in which the ownership or lease of property or the conduct of its business makes such licensing or qualification necessary. (b) There are no proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company in any court or before any governmental authority or agency or arbitration board or tribunal which involve the possibility of materially and adversely affecting the properties, business, prospects or condition (financial or otherwise) of the Company. (c) The issuance and sale of the Restricted Common Stock and compliance by the Company with all of the provisions of this Agreement are within the corporate powers of the Company and have been duly authorized by all proper corporate action on the part of the Company and will not (i) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the Articles of Incorporation of the Company or the Bylaws of the Company, (ii) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under or give any party the right to terminate or accelerate performance under any other agreement or instrument to which the Company is a party (iii) require consent under any other contract to which the Company is a party, (iv) result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any other contract to which the Company is a party or (v) conflict with any provision of any applicable 2 June 11, 1998 judgment, decree, order, statute, rule, or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company. (d) This Agreement is a valid and binding agreement of the Company and is enforceable against the Company in accordance with the terms hereof, except as such enforceability may be affected by applicable bankruptcy laws and equitable remedies. (e) The authorized capital stock of the Company consists of 5,000,000 shares of preferred stock (preferred stock) and 40,000,000 shares of common stock. As of the date hereof, 200 shares of its Series F Convertible Preferred Stock are outstanding. This preferred stock is convertible into common stock initially at a conversion price equivalent to $14.07 per share of common stock. If the Company's common stock does not trade at prices higher than $14.07 per share over a period of time, the conversion price will be adjusted downward on April 24, 1999 (or sooner if the Company issues common stock at less than $14.07 per share) and quarterly thereafter. As of June 9, 1998, 22,900,350 shares of voting common stock are outstanding. As of the date hereof, 4,497,749 stock options issued pursuant to the Company's stock option plans and two (2) warrants to purchase a total of 2,051,281 shares of voting stock are outstanding. Up to 6,180,000 shares of common stock may be issued under the Company's stock option plans. Except as set forth above, there are no other options, warrants, conversion privileges, preemptive rights, or rights of first refusal granted by the Company in favor of any other person presently outstanding or in existence to purchase or acquire any of the authorized but unissued Common Stock of the Company, other than any of such items granted pursuant to this Agreement. The Company has provided to Purchaser copies of its currently in effect Articles of Incorporation and Bylaws, its Form 10- K for the year ended December 31, 1997, its 1997 Annual Report, its Proxy statement dated April 27, 1998 and its Form 10-Q for the quarter ended March 31, 1998. The Company warrants that the information contained in such documents as updated and supplemented prior to the date of the Closing is true and correct and when taken as a whole does not omit a fact necessary to make the information contained therein in light of the circumstance under which the documents were made (taking into account, without limitation, the type of transaction contemplated by this Agreement and the sophistication and nature of the Purchaser), not misleading. The Company acknowledges that the Purchaser is relying on the written documentation provided by the Company to Purchaser as described above in making its decision to purchase the Restricted Common Stock. (f) Since March 31, 1998, except for the sale of 200 shares of Series F Convertible Preferred Stock for $10 million, there has not been any change in the assets, liabilities, financial condition or operations of the Company 3 June 11, 1998 other than changes in the ordinary course of business, none of which individually or in the aggregate have had a material adverse affect on such assets, liabilities, financial condition or operations of the Company. 2.02 REPRESENTATIONS OF THE PURCHASER. The Purchaser represents and warrants as follows: (a) It is the intent of the Purchaser that its purchase of the Restricted Common Stock contemplated by this Agreement shall constitute a transaction exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") and any applicable state securities laws. (b) Purchaser will not offer or sell any Restricted Common Stock except pursuant to an effective registration statement under the Securities Act or in transactions which do not require registration under the Securities Act. (c) Purchaser is a corporation duly organized and validly existing under the laws of the State of California is in good standing under such laws and has all requisite corporate powers and authority to enter into this Agreement. (d) On or prior to the date of the initial Closing, Purchaser will have taken all action necessary for the authorization, execution, delivery and performance of this Agreement. (e) Purchaser has (i) reviewed this Agreement, and the written statements, and documents, delivered to Purchaser as described in Section 2.01(e); and, (ii) received satisfactory response from the Company as to matters about which Purchaser has inquired relating to this Agreement, and other documents described in Section 2.01(e) and relating to the Company's business condition, prospects and plans as necessary to evaluate the merits and risks of acquiring the Restricted Common Stock. Purchaser has informed the Company that Purchaser is relying on all such information and documents in making its decision to purchase the Restricted Common Stock. (f) Purchaser (i) has had the risks involved in the investment represented by this Agreement explained; (ii) has knowledge and experience in financial and business matters to evaluate the merits and risks of the investment represented by this Agreement; (iii) is able to bear the economic risk of the investment represented by this Agreement (including a complete loss of this investment); and (iv) has determined that this investment is suitable for Purchaser in light of Purchaser's financial circumstances and available investment opportunities. (g) Purchaser is acquiring the Restricted Common Stock for its own account and with its general assets for the purpose of investment and not 4 June 11, 1998 with a view to the resale, transfer or distribution thereof, and has no present intention of selling, transferring, negotiating or otherwise disposing of any Restricted Common Stock. Notwithstanding anything in this Agreement to the contrary, it is agreed that the Purchaser shall have the right to assign or transfer the Restricted Common Stock to its Affiliates at any time without the consent of the Company. 3. NON-DISCLOSURE. Except as agreed to by the parties neither the Company nor the Purchaser shall release any information to any third party with respect to any of the terms of this Agreement without the prior written consent of the other, which consent shall not unreasonably be withheld. This prohibition includes, but is not limited to, press releases, promotional materials and discussions with the media. If the Company determines that it is required by law to release information to any third party regarding the terms of this Agreement, it shall notify the Purchaser of this fact prior to releasing the information. The notice to the Purchaser shall include the text of the information proposed for release. The Purchaser shall have the right to confer with the Company regarding the necessity for the disclosure and the text of the information proposed for release. 4. COMPLIANCE WITH SECURITIES ACT 4.01 CERTAIN DEFINITIONS. As used herein, the following terms shall have the following respective meanings: (a) COMMISSION. Shall mean the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act or the Trust Indenture Act, as the case may be. (b) SECURITIES ACT. Shall mean the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the relevant time. (c) EXCHANGE ACT. Shall mean the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the relevant time. (d) RESTRICTED COMMON STOCK. Shall mean the Common Stock of the Company issued and sold pursuant to this Agreement which by the terms hereof is required to bear the legend specified in Section 4.02 hereof. 4.02 RESTRICTION OF TRANSFERABILITY; LEGEND. Shares of Restricted Common Stock shall not be resold or transferred unless registered under the Securities Act or unless an exemption from registration is available for such sale or transfer. The conditions specified below are intended to ensure compliance with the provisions of the Securities Act in respect of any transfer of stock. Each certificate for shares of Restricted 5 June 11, 1998 Common Stock shall be stamped or otherwise imprinted with a legend in substantially the following form: The shares evidenced by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold or transferred in the absence of such registration or an exemption therefrom under said Securities Act and the transfer of such shares is subject to terms and conditions specified in the Common Stock Purchase Agreement dated as of June 11, 1998, between the Company and Agouron Pharmaceuticals, Inc. If shares of Restricted Common Stock evidenced by certificates bearing a legend required by this Section 4.02 are sold in accordance with a registration statement which has become effective under the Securities Act, or if the Company shall receive an opinion of its counsel to the effect that any legend required under this Section 4.02 is not, or is no longer, necessary or required with respect to such shares (including, without limitation, because of the availability of the exemption afforded by Rule 144 of the General Rules and Regulations of the Commission), the Company shall, or shall instruct its transfer agent and registrar to, remove such legend or issue new certificates without such legend in lieu thereof. 4.03 INFORMATION REQUIREMENTS. The Company agrees to: (a) Make and keep public information available, as such term is understood and defined in Commission Rule 144 and Rule 144A, under the Securities Act; (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) Furnish to any holder of Restricted Common Stock a copy of the most recent annual or quarterly report of the Company, and such other publicly available reports and documents of the Company, so that such holder may avail itself of any rule or regulation of the Commission allowing it to sell any such securities without registration. 4.04 PIGGY-BACK REGISTRATION RIGHTS. If the Company before January 15, 2001 contemplates a public offering of shares of its Common Stock to be registered under the Securities Act, the Company shall so notify the Purchaser in writing of its intention to do so, at least twenty (20) days prior to the filing of a registration statement for such offering. If Purchaser gives written notice to the Company, within ten (10) days of receipt of the notice from the Company, of Purchaser's desire to have its Restricted Common Stock included in such 6 June 11, 1998 registration statement, Purchaser may, subject to the provisions of this Section 4.04, have its Restricted Common Stock included in such registration statement. The Company shall bear all expenses in connection with the registration and sale of any such Restricted Common Stock, other than the fees or disbursements of any special counsel which the Purchaser may retain in connection with the registration of its Restricted Common Stock or any portion of the underwriter's commission, discounts and expenses attributable to the Restricted Common Stock being offered and sold by the Purchaser. Notwithstanding the foregoing, if the managing underwriter of any such offering determines that the number of shares proposed to be sold by the Company, by other shareholders having piggy-back rights, and/or by the Purchaser is greater than the number of shares which the underwriter believes feasible to sell at the time, at the price and upon the terms approved by the Company, then the number of shares which the underwriter believes may be sold shall be allocated for inclusion in the registration statement in the following order of priority: (i) shares being offered by the Company; and (ii) pro rata among the other shareholders and the Purchaser, based on the number of shares of Common Stock each shareholder requested to be registered. The Company shall have the right to designate the managing underwriter in respect of a public offering pursuant to this Section 4.04. 4.05 ADDITIONAL COVENANTS CONCERNING SALE OF SHARES. (a) The Company will notify the Purchaser of the effectiveness of any registration statement in which Purchaser has exercised registration rights granted pursuant to the terms of Section 4.04, together with a list of the jurisdictions where the Company has qualified or is exempt from registration under applicable state securities laws. (b) The Company will prepare and file with the Commission such amendments and supplements to any registration statement filed pursuant to the terms of Section 4.04 (and any prospectus used in connection with such registration statement) as may be necessary to comply with the provisions of the Securities Act with respect to the sale of Restricted Common Stock by the Purchaser. (c) The Company will furnish to the Purchaser a reasonable number of copies of the prospectus used in connection with a registration statement filed pursuant to the terms of Section 4.04, including a preliminary prospectus, which prospectus conforms to the requirements of the Securities Act, and such other documents as the Purchaser may reasonably request, in order to facilitate the disposition of the Purchaser's Restricted Common Stock. (d) In connection with any registration statement referred to in Section 4.04 of this Agreement, Purchaser will furnish to the Company such information as the Company may reasonably require from Purchaser for inclusion in the registration statement (and the prospectus included therein). 7 June 11, 1998 (e) The Company's obligations under Section 4.04 shall be conditioned upon Purchaser executing and delivering to the Company its agreement, in a form satisfactory to counsel for the Company, that it will comply with all applicable provisions of the Securities Act, the Exchange Act, the securities acts of applicable states and any rules and regulations promulgated under such acts and will furnish to the Company information about sales made in such public offering. 4.06 INDEMNIFICATION In the event any of the Restricted Common Stock of Purchaser is included in a registration statement under Section 4.04 of this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless the Purchaser and its Affiliates and their respective officers, directors and employees, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (hereinafter sometimes collectively referred to as a "Violation(s)"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will reimburse each such indemnified party for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 4.06 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon, and in conformity with, written information furnished expressly for use in connection with such registration, by any such indemnified party. (b) To the extent permitted by law, the Purchaser will indemnify and hold harmless the Company and its Affiliates and their respective officers, directors and employees against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities 8 June 11, 1998 Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any Violations, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon, and in conformity with, written information furnished by the Purchaser and its Affiliates and their respective officers, directors and employees to the Company expressly for use in connection with such registration; and the Purchaser will reimburse each such indemnified party for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 4.06 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Purchaser, which consent shall not be unreasonably withheld or delayed. (c) Promptly after receipt by an indemnified party under this Section 4.06 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 4.06, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, to assume the defense thereof with counsel mutually satisfactory to the parties. 5. MISCELLANEOUS 5.01 EXPENSES; FINDERS FEES. Neither party shall pay expenses and finder fees for or to the other in connection with this transaction. Each party agrees to indemnify and hold the other party harmless from any liability for any commission or compensation in the nature of a finder's fee to any broker or other person (and the costs and expenses of defending against such liability or asserted liability) claiming to have been hired or engaged by the party. 5.02 REPLACEMENT OF CERTIFICATES FOR RESTRICTED COMMON STOCK. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any certificate evidencing any Restricted Common Stock, the Company will execute, register and deliver, in lieu thereof, a new certificate for an equal number of shares of Restricted Common Stock. In the case of loss, theft or destruction of a certificate, at the election of the Company, the Purchaser may be required to provide an indemnity reasonably satisfactory to the Company or to post a surety bond in an amount equal to the value of the shares represented by the new certificate. 5.03 NOTICE. Any notice required to be given under the terms of this Agreement shall be in writing, and shall be given in person, transmitted by telecopier, e-mail or similar electronic communication, delivered by a recognized overnight delivery service such as Federal Express or sent by mail (certified or registered or air mail for addresses 9 June 11, 1998 outside of the country of origin), return receipt requested, postage prepaid and addressed to the Company at 5935 Darwin Court, Carlsbad, California 92008, or such other address as the Company may designate to Purchaser in writing and to the Purchaser, at the address appearing at the beginning of this Agreement or such other address as Purchaser may designate to the Company in writing. Except as otherwise provided herein, any notice so given shall be deemed delivered upon the earlier of (i) actual receipt; (ii) receipt by sender of confirmation if telecopied or sent by e-mail or similar electronic communication; (iii) two business days after delivery to such overnight delivery service; or (iv) five business days after deposit in the mail. 5.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the parties and their respective successors and assigns. 5.05 SURVIVAL OF REPRESENTATIONS, ETC. All covenants, representations and warranties made by the parties herein shall survive the Closings and the delivery of this Agreement and the shares of Restricted Common Stock purchased hereunder. 5.06 TERMINATION. Purchaser's obligation to purchase Restricted Common Stock under this Agreement shall terminate with respect to any purchase obligations whose purchase dates under Paragraph 1.02 occur after Purchaser has elected to terminate, in its entirety, all of Purchaser's rights and obligations under the Letter of Intent ("LOI") dated June 11, 1998 and the Definitive Agreement (as defined in the LOI) between the parties. 5.07 SEVERABILITY. Should any part of this Agreement for any reason be declared invalid, such decision shall not affect the validity of any remaining portion, which remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid portion thereof eliminated and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part, parts, or portion which may, for any reason, be hereafter declared invalid. 5.08 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of California without regard to its conflict of law provisions. 5.09 CAPTIONS, FORM OF PRONOUNS. The descriptive headings of the various sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. All pronouns used in this Agreement shall be deemed to include masculine, feminine and neuter forms. 5.10 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the entire contract between the parties hereto related to the purchase and sale of Restricted Common Stock and no party shall be liable or bound to the other in any manner by any warranties, representations or covenants except as specifically set forth herein. 10 June 11, 1998 5.11 THIRD PARTIES. Nothing in this Agreement is intended to confer upon any party, other than the parties hereto, and their respective permitted successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein. 5.12 AMENDMENT AND WAIVER. Any provision of this Agreement may be amended and the observance of any term hereof may be waived (either prospectively or retroactively and either generally or in a particular instance) only with the written consent of the Company and the Purchaser. 5.13 AFFILIATES. References to Purchaser in this Agreement shall be deemed to include direct or indirect subsidiaries of Purchaser. The term "Affiliate" shall have the meaning defined in the LOI. 5.14 DISPUTE RESOLUTION. In the event of any controversy or claim arising out of or relating to any provision of this Agreement, the parties shall try to settle their differences amicably between themselves. Any unresolved disputes arising between the parties relating to, arising out of or in any way connected with this Agreement or any term or condition hereof, or the performance by either party of its obligations hereunder, whether before or after termination of this Agreement, shall be finally resolved by binding arbitration. Whenever a party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other party. The party giving such notice shall refrain from instituting the arbitration proceedings for a period of sixty (60) days following such notice The arbitration shall be held in San Diego, California according to the rules of the American Arbitration Association ("AAA") applicable to commercial securities matters of this nature. The arbitration shall be conducted by a panel of three arbitrators appointed in accordance with AAA rules; provided, however, that each party shall within thirty (30) days after the institution of the arbitration proceedings appoint one arbitrator with the third arbitrator being chosen by the other two arbitrators. If only one party appoints an arbitrator, then such arbitrator shall be entitled to act as the sole arbitrator to resolve the controversy. Any arbitration hereunder shall be conducted in the English language and the arbitrator(s) shall apply the law set forth in Section 5.08. All arbitrator(s) eligible to conduct the arbitration must agree to render their opinion(s) within thirty (30) days of the final arbitration hearing. The arbitrator(s) shall have the authority to grant injunctive relief and specific performance, and to allocate between the parties the costs of arbitration in such equitable manner as he determines; provided, however, that each party shall bear its own costs and attorney's and witness' fees. Notwithstanding the terms of this Section 5.14, a party shall also have the right to obtain prior to the arbitrator(s) rendering the arbitration decision, provisional remedies including injunctive relief or specific performance from a court having jurisdiction thereof. The arbitrator(s) will, upon the request of either party, issue a written opinion of the findings of fact and conclusions of law and shall deliver a copy to each of the parties. Decisions of the arbitrator(s) shall be final and binding on all of the parties. Judgment on the award so rendered may be entered in any court having jurisdiction thereof. 11 June 11, 1998 The execution hereof by Purchaser shall constitute a contract between us for the uses and purposes hereinabove set forth, and this Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. THE IMMUNE RESPONSE CORPORATION By S/DENNIS J. CARLO ----------------------------------------- By S/CHARLES J. CASHION ----------------------------------------- ACCEPTED AND AGREED TO AS OF THE DAY AND YEAR AFORESAID. PURCHASER: AGOURON PHARMACEUTICALS, INC By S/PETER JOHNSON ----------------------------------------- Peter Johnson President and Chief Executive Officer By S/GARY FRIEDMAN ----------------------------------------- Gary Friedman Secretary 12 EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM ITEM 1 OF 10-Q FOR THE PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 2,664 34,374 0 0 0 37,426 11,692 5,945 44,128 4,268 0 9,207 0 58 191 44,128 0 12,380 0 18,793 0 0 0 (6,413) 0 (6,413) 0 0 0 (6,413) (.28) (.28)
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