-----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, PU73tFuyOyRXseJdk5c8rttV7Y8iu8Df8gRh/4LjoE3PKGLXsTNzA+ndmucgeFiB C89ppIrbq7a3lWG2nMXxTw== 0000891618-99-001306.txt : 19990402 0000891618-99-001306.hdr.sgml : 19990402 ACCESSION NUMBER: 0000891618-99-001306 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIRON CENTRAL INDEX KEY: 0000949173 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 770309686 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-20815 FILM NUMBER: 99581790 BUSINESS ADDRESS: STREET 1: 297 N BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4159196500 MAIL ADDRESS: STREET 1: 297 NORTH BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-K405 1 FORM 10-K FOR FISCAL YEAR ENDED 12/31/98 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD __________ TO __________ . COMMISSION FILE NUMBER: 0-20815 AVIRON (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 77-0309686 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
297 NORTH BERNARDO AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE) (650) 919-6500 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT COMMON STOCK, $.001 PAR VALUE 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Based on the closing sale price of $20.4375 on March 17, 1999, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $256,162,196. On March 17, 1999, there were outstanding 15,763,300 shares of the Registrant's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE (TO THE EXTENT INDICATED HEREIN) Part III -- Portions of the Registrant's definitive proxy Statement for the Registrant's Annual meeting of Stockholders to be held June 3, 1999, which will be filed with the Securities and Exchange Commission, are incorporated by reference to the extent stated here. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I.................................................................. 1 Item 1. Business.................................................... 1 Item 2. Properties.................................................. 35 Item 3. Legal Proceedings........................................... 35 Item 4. Submission of Matters to a Vote of Security Holders......... 36 PART II................................................................. 37 Item 5. Market for the Registrant's Common Stock and Related Stock Matters..................................................... 37 Item 6. Selected Financial Data..................................... 38 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 43 Item 8. Financial Statements and Supplementary Data................. 44 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 44 PART III................................................................ 45 Item 10. Directors and Executive Officers of the Registrant.......... 45 Item 11. Executive Compensation...................................... 45 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 45 Item 13. Certain Relationships and Related Transactions.............. 45 PART IV................................................................. 46 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 46 INDEX TO FINANCIAL STATEMENTS........................................... 46 SIGNATURES.............................................................. 49 POWER OF ATTORNEY....................................................... 49
i 3 PART I. ITEM 1. BUSINESS The following section contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Business Risks" and elsewhere in this Form 10-K. OVERVIEW Aviron is a biopharmaceutical company whose focus is the prevention of disease through innovative vaccine technology. The Company's goal is to become a leader in the discovery, development, manufacture and marketing of vaccines which are sufficiently cost effective to justify their use in immunization programs targeting the general population. Aviron's vaccine programs are based on both classical live virus vaccine attenuation techniques and the Company's proprietary genetic engineering technologies. Live virus vaccines, such as those for smallpox, polio, measles, mumps, rubella and chicken pox, have had a long record of success in preventing, and in some cases eliminating, disease. FLUMIST(TM), the Company's lead product candidate, is an investigational cold adapted influenza vaccine delivered as an intranasal spray which has been tested in over 11,000 children and adults. It has been shown to provide a high protection rate against influenza with minimal adverse effects in a pivotal Phase 3 clinical trial in children. Aviron is developing this live virus vaccine for widespread annual use in children, healthy adults and high-risk adults and expects to submit a marketing application to the U.S. Food and Drug Administration ("FDA") in 1999. The Company has completed Phase 2 clinical trials for a live intranasal vaccine for Parainfluenza Virus Type 3 ("PIV-3") to protect against croup and intends to continue preparation for further clinical trials for PIV-3 in 1999. The Company also is developing a subunit vaccine for Epstein-Barr Virus ("EBV") to protect against infectious mononucleosis in collaboration with SmithKline Beecham Biologicals, S.A. ("SmithKline Beecham"). A Phase 1 clinical trial of this vaccine is being completed. In addition, Aviron expects to begin clinical trials in 1999 for a vaccine candidate for Cytomegalovirus ("CMV") with the National Institute of Allergy and Infectious Diseases ("NIAID") of the National Institute of Health ("NIH"). Aviron is also using its proprietary Rational Vaccine Design technologies to discover new live virus vaccines. Rational Vaccine Design involves the addition of antigenic information to enhance the virus' stimulation of the immune system, the deletion or modification of virulence proteins, or the alteration of the virus' genetic control signals to slow down its replication. The Company is applying these technologies to develop vaccine candidates for diseases caused by Herpes Simplex Virus Type 2 ("HSV-2") and Respiratory Syncytial Virus ("RSV"). BACKGROUND Prevention Technology in the Era of Managed Care and Cost Containment Market-based changes already underway in the United States health care system are dramatically altering prospects for technologies which can be used to manage disease or lower the cost of health care for patients in managed health plans. Medical cost-containment efforts and the reorganization of United States health care delivery into managed care systems are changing the basis of competition for producers of health care products. Health maintenance organization ("HMO") enrollment was approximately 67 million in the United States in 1997 and is growing rapidly. Decision-makers in the United States, such as HMO medical directors, clinical practice committees, and government health authorities, are increasingly evaluating whether preventive technologies are more cost effective than treating disease once it is present. For example, vaccinations are widely used by managed care organizations and in government programs. In determining whether to use a vaccine approved by the FDA, decision makers consider whether it has been recommended by the Advisory Committee on Immunization Practices ("ACIP") and by medical specialty societies and whether it is cost effective. 1 4 Health care cost containment efforts are also evident in many of the developed economies outside the United States. These efforts include physician budgets in Germany and general practice schemes in the United Kingdom, where doctors are given responsibility for the cost of their patients' overall care. The Immune System and Vaccines Infections occur when a pathogenic microorganism, such as a virus or bacterium, invades body tissues and begins to replicate. The human immune system responds with a battery of resources to contain and eliminate this threat. The process begins when specialized cells recognize that molecules on the surface of invading pathogens are foreign (antigens). Immune responses to contain and eliminate the threat include: - Antibodies: Antigens stimulate the immune system to produce specific molecules (antibodies) which bind to and neutralize the virus or bacterium. - Cell-mediated response: An effective immune response typically also leads to the multiplication of specific types of white blood cells (a cell-mediated response) which have the ability to inactivate the pathogen or to destroy infected cells, thereby limiting replication of the virus or bacterium. - Mucosal immunity: In addition to circulating antibodies and the cell-mediated response, antibodies are produced in the mucous membranes, such as those which line the nose and throat. Mucosal immunity is important in protecting against pathogens which cause disease in the respiratory, gastrointestinal and genitourinary systems, or which enter the body through these portals. Vaccines are designed to stimulate a person's immune system through one or more of the above mechanisms to induce memory of specific antigens prior to the invasion of a pathogen. This memory primes the immune system so that it can inactivate the specific pathogen if encountered again. This memory may be achieved through one of several techniques, including introduction of a live attenuated (weakened) virus or bacterium, administration of an antigen fragment (a subunit), or administration of an inactivated (killed) virus or bacterium. History of Vaccines The first successful vaccine against an infectious disease was created by Edward Jenner who, in 1796, demonstrated that introduction of infected material from a diseased cow could be used to protect humans from the deadly smallpox virus. Smallpox vaccination programs based on this live virus vaccine were gradually adopted by industrialized countries, and a concerted global effort by public health authorities in this century succeeded in eradicating smallpox from the human population in the 1970s. Vaccines against two life-threatening bacterial diseases, diphtheria and tetanus, came into use early in this century. These vaccines consist of bacterial toxins which have been chemically inactivated. These are often administered in combination with an inactivated pertussis bacterium vaccine to prevent whooping cough. This combination is known as the "DTP" vaccine. Just prior to World War II, a live attenuated virus vaccine was developed against yellow fever, used primarily in protecting military personnel and those traveling to areas where this disease is endemic. In the years after the war following several widespread polio epidemics, Jonas Salk created the first successful polio vaccine by growing the wild-type virus and inactivating it before injection. Salk's vaccine was introduced into widespread use in the early 1950s, but was supplanted in the United States and many other countries by the orally administered live attenuated polio virus vaccine developed by Albert Sabin and first introduced in 1961. In the 1960s and 1970s, live attenuated virus vaccines against measles, mumps and rubella (German measles) were successfully developed and these vaccines are now recommended by the ACIP to be included in childhood immunization programs. After a period of almost two decades during which no new vaccines came into widespread use, genetically-engineered subunit vaccines for hepatitis B were introduced in the mid-1980s and are now part of the ACIP-recommended childhood immunization program. In 1990, a vaccine for bacterial meningitis was also added to this program. Two inactivated vaccines against the hepatitis A virus were approved in the United States in 1995 and 1996. In 1995, the ACIP also recommended that children be vaccinated against chicken pox, a virus belonging to the herpes virus family, using an FDA-approved live virus vaccine. 2 5 Current challenges for vaccine innovation include providing effective protection against the major infectious diseases for which no vaccines are currently available and improving on current vaccines to achieve higher efficacy or greater ease of administration. TYPES OF VACCINES Live Virus Vaccines Live virus vaccines expose the immune system to an attenuated form of the virus which is sufficiently infectious to stimulate a lasting immune response to the wild-type virus. All of the live virus vaccines in use today are strains derived from natural infections of humans. Attenuation of live viruses, including polio, yellow fever, measles, mumps and rubella, and chicken pox vaccines was accomplished by "passaging," or propagating, these viruses repeatedly in non-human cells. As a result of this process, these viruses may acquire mutations that decrease the ability of the virus to cause disease in humans. After an arbitrary number of passages, the mutated strain is tested for attenuation in animal models, if available, or directly in human subjects. Following assessment of safety and immunogenicity (stimulation of an immune response) in a limited number of human subjects, larger-scale trials are used to demonstrate efficacy in preventing naturally acquired infections. The principal advantage of live virus vaccines is their ability to mimic the natural disease-causing infection and therefore activate the same protective mechanisms of the human immune system as the disease itself. This process results in a balanced immune response activating all parts of the immune system, including systemic and local antibodies as well as cell-mediated immunity. As a result, live viruses are often considered to be more effective than other types of vaccines in providing immunity to natural variations in the wild-type viruses which cause disease. For example, the live polio vaccine is believed to be more effective in eliminating wild-type polio virus than inactivated polio vaccines. The basis of these advantages is that live vaccines typically present all of the surface and internal antigens associated with the natural pathogen. Live virus vaccines may also be easier to administer through their natural route of infection, intranasally or orally, as in the case of the oral polio vaccine. However, an attenuated live vaccine could cause disease resembling natural infection, as might occur in people with an immune system impaired by a congenital disease, HIV infection or drug treatment for cancer or organ transplantation. To date, the live virus vaccines in widespread use rarely have been associated with significant adverse events. For example, the 19 million doses of live attenuated polio vaccine administered annually in the United States are thought to be responsible for only eight to 10 cases of clinical polio per year. To further reduce the number of these cases, the ACIP is recommending a return to using the inactivated polio vaccine now that wild-type polio has been virtually eradicated in the United States. Live virus strains can change as they replicate in human hosts, and it is possible that a vaccine virus could revert to the wild-type characteristics. This reversion potential is a small but recognized problem for some of the current live vaccines, including polio. Finally, there are two theoretical concerns regarding live attenuated viruses. First, an attenuated vaccine virus may exchange genetic information with wild-type strains after immunization, with the resulting strain being more dangerous than either alone. Second, the DNA of a live virus vaccine could integrate into the genome of the host and cause cancer or other problems in the future. Inactivated and Subunit Virus Vaccines Inactivated virus vaccines are produced by killing a virus using chemicals. Some vaccines, such as the hepatitis A vaccine, are based on the whole, inactivated virus. Other vaccines are the result of various degrees of purification to concentrate certain surface glycoproteins (subunits) most responsible for producing immunity. A different approach is used to make the current hepatitis B vaccine, the first successful recombinant subunit vaccine. For this vaccine, the tools of molecular biology were applied to clone and express the dominant hepatitis surface glycoprotein in a yeast production system. Inactivated and subunit vaccines offer the advantage of little or no risk of infection from the vaccine itself, assuming the virus has been 3 6 adequately inactivated. Good manufacturing techniques also minimize the possibility of contamination with other viruses or fragments of DNA which could integrate into the recipient's genes. The principal disadvantage of inactivated and subunit vaccines for many viruses has been a lack of success in creating protective immunity. A successful subunit vaccine requires knowledge of which specific antigens are responsible for providing protection. Subunit and inactivated vaccines may produce reasonable levels of circulating antibodies, but are less able to stimulate antibodies in the mucosal sites of viral entry, such as the lining of the respiratory, gastrointestinal or genitourinary tracts. To improve stimulation of the cellular components of the immune system, adjuvants (non-specific immune stimulants) are typically added to inactivated or subunit vaccines. Only alum (an aluminum salt preparation) is approved for use as an adjuvant in the United States. Several new adjuvants are in clinical testing and show promise for boosting the immune response to subunit antigens. The mechanism by which adjuvants work is still poorly understood, so each vaccine-adjuvant combination must be evaluated in a trial and error process in animal models and clinical trials. Finally, certain inactivated vaccines in clinical trials left recipients more vulnerable to disease after vaccination, due to an unbalanced immune response. For example, in trials of experimental inactivated vaccines against RSV and measles, some children were shown to experience more severe, atypical disease when they acquired the natural viral infection following vaccination. Emerging Vaccine Technologies Several companies and academic scientists have reported that direct injection of DNA encoding viral antigens can be used to stimulate an immune response. Although at an early stage, this approach shows promise. However, it is not clear whether the sustained expression of viral antigens obtainable by this approach is advantageous in eliciting a better immune response. In addition, it is possible that the administered DNA may integrate into the genes of the recipient and cause potential unwanted effects. Another new technology for vaccination is based on genetic engineering to modify one virus so that it carries antigens which may stimulate an immune response to protect against other pathogens. For example, pox virus vector strains, related to the virus used successfully to eradicate smallpox, have shown usefulness in protecting dogs and cats against rabies. Other pox virus vectors are being evaluated in experimental models of human malaria and, in a hybrid regimen combining doses of a modified live virus, with a subunit HIV vaccine to protect high-risk individuals. BUSINESS STRATEGY Aviron's objective is to become a leader in the discovery, development, manufacture and marketing of vaccines which are sufficiently cost effective to justify their use in immunization programs targeting the general population. The Company's strategy is to: Develop Vaccines to Prevent Diseases That Merit Widespread Immunization. The concept of universal immunization is well established for certain infectious diseases where safe and effective vaccines are already available, including immunization against pathogens such as polio, measles, mumps, rubella and hepatitis B. For each of its potential products, the Company's objective is to produce vaccine strains which are sufficiently safe and cost effective to obtain official recommendations for universal use in childhood vaccine regimens or, in the case of influenza, annual use in the general population. Apply Rational Vaccine Design Technologies to a Range of Viral Targets. Aviron believes that its proprietary genetic engineering technologies may be used to create live attenuated vaccines for a wide range of viral targets, such as respiratory viruses related to influenza and chronic virus infections related to herpes simplex virus, and potentially to the creation of vectors used in gene therapy and the treatment of cancer. One potential advantage of Rational Vaccine Design technology is that the design of engineered viruses makes them less likely to revert to naturally occurring ("wild-type") characteristics than classically derived vaccines. Acquire Promising Products and Technologies. Aviron evaluates opportunities to in-license or otherwise acquire rights to promising products and technologies and intends to add programs that complement the Company's core technologies and capabilities. For example, the Company obtained exclusive rights to the cold 4 7 adapted influenza vaccine technology from the University of Michigan and the NIH, and to the PIV-3 vaccine from the NIH. Select Programs and Market Vaccines Based on Pharmacoeconomic Data. Public health agencies and managed care systems are increasingly concerned with the economic impact of potential new mandates for vaccines. In setting its internal product development priorities, the Company considers the costs of implementing widespread vaccine programs based on its products in relation to potential cost savings to governments and managed health care systems and intends to collect data on effectiveness endpoints which allows rigorous cost-effectiveness analyses on its products. Establish Collaborative Arrangements to Enhance Product Development Efforts. Aviron intends to continue to enter into collaborative arrangements to gain access to specific technologies and skills which may accelerate product development and provide additional financial resources to support its research and development and commercialization efforts, particularly outside of the United States. The Company has entered into a worldwide collaboration for the marketing of FLUMIST(TM) with Wyeth Lederle Vaccines, a business unit of Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products Corporation ("Wyeth Lederle"). The collaboration excludes Australia, New Zealand and certain South Pacific countries, where FLUMIST(TM) is licensed to CSL Limited of Victoria, Australia ("CSL Limited'), and Korea, where it is licensed to Sang-A Pharm. Co. Ltd. ("Sang-A"). Aviron also has an agreement with SmithKline Beecham for development of an EBV vaccine. See "Collaborative Agreements." Establish Commercialization Capabilities. The Company has established worldwide marketing collaborations for FLUMIST(TM) and will co-promote the vaccine in the United States with its own dedicated sales force. Additionally, the Company has retained the right to co-market a monovalent formulation of EBV vaccine in the United States in its collaboration with SmithKline Beecham. See "Collaborative Agreements." AVIRON'S TECHNOLOGY Aviron's vaccine programs are based on both classical live virus vaccine attenuation techniques and the Company's proprietary genetic engineering technologies. Cold Adapted Influenza Technology The Company is applying its expertise in the molecular biology of influenza to develop a live virus vaccine discovered using classical cold-adaptation techniques. This cold adapted influenza vaccine technology was first developed by Dr. H. F. Maassab at the University of Michigan in 1967. Dr. Maassab created weakened influenza strains by propagating the virus in progressively colder conditions until these strains had lost the ability to grow well at human body temperature. The Company has obtained worldwide exclusive rights to this cold adapted influenza vaccine technology. The cold adapted influenza vaccine technology includes the master donor strains for influenza A and B, as well as techniques useful for updating the vaccine each year according to recommendations of the United States Centers for Disease Control and Prevention ("CDC") and the FDA. Updated strains are made by mating the master donor strains with recent strains to obtain viruses with the attenuated properties of the cold adapted master donor strain and the antigenic properties of the current wild-type strain. This process is called reassortment. After cultured cells are infected with two different strains of virus, the eight RNA genes of influenza mix at random in the cells and it is possible to select the two genes for the antigens of the expected epidemic strain and the six remaining genes from the cold adapted master donor strain. The Company has received the technology for updating the cold adapted master strains from the University of Michigan and has extended this approach by the introduction of Aviron's proprietary techniques. One such technique is reverse genetics, which allows the direct introduction of genes from the expected epidemic strain into the cold adapted master donor strains. 5 8 Rational Vaccine Design Since the Company's founding, its core vaccine discovery strategy has been to apply genetic engineering techniques to create live attenuated virus vaccine candidates for targets where traditional discovery techniques have been inadequate. The Company believes that this Rational Vaccine Design approach is more flexible and systematic than traditional methods of live vaccine discovery and is a platform that can be applied to many viral targets and, potentially, to the creation of vectors used in gene therapy and the treatment of cancer. Furthermore, Aviron believes that a particular advantage of Rational Vaccine Design is that engineered viruses can be designed so that they are less likely to revert to wild-type characteristics than classically derived vaccines. Three ways of implementing this approach are: - Adding antigenic information displayed by the vaccine virus. An example of this strategy is the Company's approach to the creation of a live attenuated CMV vaccine, which begins with a vaccine candidate thought to be over-attenuated and thus insufficiently immunogenic. Aviron discovered genes for certain antigen structures present in wild-type CMV viruses. These genes are being engineered into an over-attenuated vaccine candidate to create a potentially more immunogenic vaccine. The Company has identified several vaccine candidates using this approach. The Company believes this technique of adding antigen structures may enable the Company to create combination vaccines expressing antigens of more than one virus in a single vaccine strain. The Company plans to file an Investigational New Drug application ("IND") for the testing of its vaccine candidates. - Deleting or modifying specific viral genes which encode virulence proteins. Virulence proteins are viral components thought to be particularly important in the mechanism of disease, but which are not required for the virus to replicate and stimulate a strong immune response. An example of this strategy is the Company's program to create a live attenuated vaccine against the HSV-2 virus which causes genital herpes. One of the Company's founders, Dr. Bernard Roizman, discovered a particular protein important in the ability of HSV-2 to grow in nerve cells. Since nerve ganglia are the reservoir from which HSV-2 reseeds itself to cause painful skin lesions, deletion of the gene encoding this protein is the basis of the Company's Rational Vaccine Design program for development of a vaccine for this target. - Altering the genetic information used by the virus in controlling its replication. An example of this strategy is work by Company scientists to create live attenuated vaccine candidates for RSV, and a second-generation vaccine for influenza in the elderly. Until recently, it was impossible to genetically engineer vaccine strains of influenza because influenza genes are composed of negative strand RNA rather than DNA or positive strand RNA. Dr. Peter Palese, one of the Company's founders, discovered how to create recombinant negative strand RNA viruses using reverse genetics. Company scientists have employed this reverse genetics technology to engineer mutations into a gene used by the influenza virus to make copies of itself. The resulting strains are attenuated in animal models and at least one strain has been identified as a potential candidate for clinical trials. 6 9 VACCINE PRODUCTS UNDER DEVELOPMENT The following table summarizes Aviron's most advanced potential products under research and development. This table is qualified in its entirety by reference to the more detailed descriptions appearing elsewhere in this Form 10-K.
- ------------------------------------------------------------------------------------------------------ PROGRAM VACCINE TYPE STATUS(1) COMMERCIAL RIGHTS - ------------------------------------------------------------------------------------------------------ Influenza - ------------------------------------------------------------------------------------------------------ Children Cold adapted live virus Pivotal Phase 3 clinical Wyeth Lederle/Aviron(2) trial completed, BLA planned - ------------------------------------------------------------------------------------------------------ Adults Cold adapted live virus Challenge efficacy study Wyeth Lederle/Aviron(2) completed Phase 3 safety and effectiveness trial completed, BLA planned - ------------------------------------------------------------------------------------------------------ Elderly and High-risk Cold adapted live virus Clinical trials in Wyeth Lederle/Aviron(2) Adults (co-administered with progress inactivated vaccine) - ------------------------------------------------------------------------------------------------------ Parainfluenza Virus Bovine live virus Phase 2 clinical trial Aviron Type 3 in progress - ------------------------------------------------------------------------------------------------------ Epstein-Barr Virus Recombinant subunit Phase 1 clinical trial SmithKline Beecham(3) Glycoprotein in progress - ------------------------------------------------------------------------------------------------------ Cytomegalovirus Genetically engineered Clinical trials planned Aviron live virus - ------------------------------------------------------------------------------------------------------ Herpes Simplex Virus Genetically engineered Preclinical Aviron Type 2 live virus - ------------------------------------------------------------------------------------------------------ Respiratory Syncytial Genetically engineered Preclinical Aviron Virus live virus - ------------------------------------------------------------------------------------------------------
- --------------- (1) "Pivotal Phase 3 clinical trial completed, BLA planned" means Aviron has completed a multi-center, double-blind, placebo-controlled clinical trial for safety and efficacy. The Company's goal is to submit a Biologic License Application ("BLA") in the summer or fall of 1999. "Challenge efficacy study completed" means Aviron completed vaccination of patients in a multi-center, double-blind, placebo-controlled clinical trial for safety, immunogenicity and efficacy. "Phase 3 safety and effectiveness trial completed, BLA Planned" means Aviron has completed a multi-center, double-blind, placebo-controlled clinical trial in healthy working adults for effectiveness endpoints such as days of respiratory illness, absence from work and medication use. "Clinical trials in progress" indicates that clinical trials are currently being conducted. "Phase 2 clinical trial in progress" means that Aviron is analyzing data from a double-blind placebo-controlled clinical trial for safety and efficacy in infants. "Phase 1 clinical trial in progress" indicates that a Phase 1 clinical trial in healthy adults is being completed by SmithKline Beecham. "Clinical trials planned" indicates that the Company has or is preparing final regulatory filings prior to initiation of clinical trials. "Preclinical" includes assessment of specific vaccine candidates for growth properties in cell culture and for attenuation or immunogenicity in animal models. (2) Global commercial rights are licensed to Wyeth Lederle except for rights in Australia, New Zealand and certain South Pacific countries, which are licensed to CSL Limited, and rights in Korea, which are 7 10 licensed to Sang-A. Aviron retains certain United States co-promotion rights. See "-- Collaborative Agreements." (3) Worldwide rights (except Korea) are licensed to SmithKline Beecham; Aviron retains certain United States co-promotion rights. See "-- Collaborative Agreements." Influenza Every year in mid- to late-winter, influenza spreads across the globe, infecting an average of approximately 10 percent to 20 percent of the United States population. In the United States, 35 to 50 million cases of influenza occur annually. Influenza cases are associated with symptoms lasting for at least three to five days, an average of approximately three days of lost work or missed school, and approximately 20,000 deaths each year. Field studies indicate the attack rate ranges from a low of 10 percent in persons over age 65 to a high of 36 percent in children aged one to 18. Children are also a major factor in spreading influenza to other population segments, including those at high risk of developing serious complications from the disease. At the peak of a typical epidemic, reportedly 9 percent to 22 percent of all physician office visits are for flu-like symptoms. Over 90 percent of influenza-related deaths occur in people over age 65, but children under age five and women in the third trimester of pregnancy are also at higher risk for serious complications. Several times during this century, influenza has appeared as a much more serious pandemic. These major pandemics occur when the influenza virus undergoes "antigenic shift" in which one influenza subtype is replaced by a different strain for which the population has not developed antibodies and, therefore, for which it is extremely susceptible to infection. The appearance of an avian influenza strain in Hong Kong during the 1997-1998 flu season represents such a potential threat. The variability of certain components of the influenza virus requires that the influenza vaccine be modified annually. The CDC and the World Health Organization ("WHO") maintain a global network which generates data required to select strains for the coming influenza season's vaccine and monitor the occurrence of especially severe epidemics. Based on these data, the FDA and the CDC discuss circulating influenza strains which are candidates for inclusion in the following season's influenza vaccine in the United States. A similar process is undertaken in Europe by the WHO and various national authorities. Currently available inactivated influenza vaccines contain three strains of influenza virus (two strains of influenza A and one strain of influenza B) and are therefore called trivalent vaccines. Typically one or sometimes two of the strains in these trivalent vaccines are recommended for updating annually. Current vaccines have been variously reported to be 60 percent to 90 percent effective in preventing illness, pneumonia, hospitalization and death due to complications from influenza. The ACIP has identified the principal target groups for the current influenza vaccine as those at increased risk for influenza-related complications, including persons age 65 or older, residents of chronic-care facilities, adults and children with chronic disorders of the pulmonary or cardiovascular system, adults and children who have required regular medical follow-up or hospitalization during the preceding year because of chronic metabolic diseases or immunosuppression, children and teenagers receiving long-term aspirin therapy and therefore at risk of developing Reye's syndrome, and pregnant women. The next level of priority for vaccination identified by the ACIP includes certain groups, such as health care personnel and household members (including children), that may transmit influenza to high-risk persons. Furthermore, the ACIP recommends that physicians administer influenza vaccine to any person who wishes to reduce the chance of becoming ill with influenza. The FDA estimates that approximately 80 million influenza vaccine doses were manufactured for use in the United States in 1997. According to the CDC, 65 percent of the 34 million Americans over age 65 received the annual influenza vaccine during the 1997 calendar year, up from less than approximately 25 percent a few years earlier. The Company believes that a lower percentage of high-risk individuals under age 65 are vaccinated annually, and that the majority of influenza doses used in the United States are being administered to healthy adults under age 65, many of whom participate in voluntary work place immunization programs. Experts suggest that very few of the 70 million children in the United States under age 18 receive the annual influenza vaccine. 8 11 In addition to the currently available vaccines, two oral drugs are currently approved for use in the prevention and treatment of influenza A: amantadine, which has been on the market for many years, and rimantidine, a closely related compound which produces fewer side effects. Both drugs have been shown to be effective in reducing the severity of influenza A disease and the number of days of disability, but are not effective against influenza B. Both drugs are also recommended for daily use during the influenza season by certain high-risk persons for whom the influenza vaccine is contra-indicated. However, there is a concern that widespread prophylactic use could lead to emergence of drug-resistant strains. Aviron's Cold Adapted Influenza Vaccine. The Company's most advanced program is based on the live cold adapted influenza vaccine technology discovered by Dr. H. F. Maassab, licensed from the University of Michigan and subject to a Cooperative Research and Development Agreement ("CRADA") with the NIH. This cold adapted influenza vaccine, FLUMIST(TM), has undergone and is currently undergoing extensive clinical trials by Aviron, many of which are coordinated with NIH-sponsored investigators. Prior to Company-initiated trials, at least 90 clinical trials of the cold adapted influenza vaccine technology were performed since 1977, involving more than 15,000 volunteers, of whom over 7,000 received the cold adapted influenza vaccine. See "-- Influenza Clinical Trials." The Company is developing FLUMIST(TM) for widespread annual use in children and adults and for co-administration with the inactivated vaccine for improved protection in high-risk adults, including the elderly. The quality of the immune response induced by cold adapted influenza vaccine differs from that induced by inactivated influenza vaccines. FLUMIST(TM) elicits an immune response to multiple viral proteins mimicking the natural immunobiology of influenza, whereas the response to the classical inactivated vaccine is directed primarily to two components of the virus. Because FLUMIST(TM) is delivered as a nasal spray, rather than an injection, the Company believes it would provide a more attractive way to immunize children on an annual basis. Children are an important target because, while the elderly experience the greatest mortality from the annual influenza epidemic, much of the illness occurs in young children. Children are also thought to be an important factor in the spread of influenza in the population. Aviron expects that initially FLUMIST(TM) will be delivered in physicians' offices and other locations where the current injectable influenza vaccine is given. Aviron is also targeting healthy adults, many of whom are being offered influenza prophylaxis by their employer and who may prefer Aviron's intranasal administration to injection. The Company believes that many adults who regularly receive the inactivated influenza vaccine will select the intranasal vaccine if given the choice, and that people who have avoided "flu shots" in the past may receive a vaccination if the intranasal alternative is available. The Company believes that immunization programs based on its intranasal cold adapted influenza vaccine may also decrease the health professional's time per vaccination compared to the current influenza injection and therefore allow improved flexibility and efficiency in the operation of workplace programs. In addition, the Company is developing its vaccine for co-administration by nasal spray with the inactivated influenza vaccine injection for high-risk adults, including the elderly. While efficacy in the elderly has not been conclusively demonstrated, nursing home studies suggest that simultaneous administration of the intranasal cold adapted influenza vaccine with an injection of the inactivated vaccine offers added protection compared to administration of the inactivated vaccine alone. Aviron intends to seek recommendations from the ACIP and the American Association of Pediatrics ("AAP") and other medical advisory bodies for use of the cold adapted influenza vaccine in the appropriate population. Parainfluenza Virus Type 3 PIV-3 is a common respiratory virus of childhood which causes croup, cough, fever and pneumonia. Every year, primarily during the spring and summer months, PIV-3 infects infants, children and adults. In the United States, at least 60 percent of children are infected by the time they reach two years of age, and 80 percent by four years of age. These cases are associated with symptoms lasting from three to eight days and result in approximately 17,000 hospitalizations per year. Children are also a major factor in introducing PIV-3 infection into the family setting. PIV-3 frequently reoccurs and children typically experience two to three infections of decreasing severity. Unlike influenza, PIV-3 undergoes only a very minor degree of variation in the surface proteins from year to year; therefore, a PIV-3 vaccine will not require annual updates. 9 12 Both serum and nasal antibodies directed to PIV-3 surface proteins play a role in protection against PIV-3 disease. It is thought that protection of the lower respiratory tract from PIV-3 replication and disease requires high serum antibody levels, whereas resistance to infection and protection against disease in the upper respiratory tract requires mucosal antibodies in the nose. There is currently no available vaccine to protect against PIV-3 infection, and no drug for treatment of PIV-3 disease. Aviron's Live Parainfluenza Virus Type 3 Vaccine. The Company's live intranasal vaccine program for PIV-3 utilizes bovine PIV-3 ("bPIV-3") vaccine technology licensed from the NIH. Use of bPIV-3 as a vaccine to protect humans against human PIV-3 strains is based on the successful strategy first used by Jenner for smallpox vaccination, in which an animal virus is used to protect humans from the analogous human virus. It is thought that the attenuation of bPIV-3 seen in primates is due to mutations sustained throughout its genome during its long evolutionary adaptation to the bovine host. Prior to the Company's in-licensing of the bPIV-3 vaccine, it had been tested in Phase 1 clinical trials in almost 100 adults, children and infants. In all age groups, the bPIV-3 vaccine appeared satisfactorily attenuated, safe and genetically stable. Eighty-five percent of seronegative infants and children (six to 60 months of age) were infected by the tested dose, and 61 percent of bPIV-3 recipients developed a rise in antibody to the human PIV-3 virus. The vaccine strain infected 92 percent of infants younger than six months of age, even in the presence of maternal PIV-3 antibodies. Infection with the bPIV-3 vaccine stimulated an immune response to human PIV-3 in 42 percent of these young infants. A preliminary review of a Phase 2 clinical trial announced in December 1998 found that after three doses, 79 percent of the vaccine recipients showed evidence of immunization compared to seven percent of placebo recipients. The trial met Aviron's pre-determined objectives for safety and immunogenicity. Aviron intends to move forward with additional clinical development. Epstein-Barr Virus Epstein-Barr virus, a herpes virus that causes infectious mononucleosis, infects most people at some point in their lifetime. Infection at a young age may cause mild symptoms, but the debilitating syndrome of infectious mononucleosis is most common when infection first occurs in adolescence or young adulthood via exchange of saliva. Sore throat and swollen neck glands are followed by a period of fatigue and lethargy which can last for weeks or even months. Approximately 10 percent of high school and college students become infected with EBV each year in the United States, of which half or more may develop infectious mononucleosis. The disease usually runs its course without significant medical intervention; however, the long duration of infectious mononucleosis can be a serious problem for high school and college students and workers. Enlargement of the liver and spleen are also common, so doctors typically prohibit participation in athletic activities to prevent serious injuries. EBV is one of the viruses implicated as a contributing cause of cancer in humans, including Hodgkin's disease, post-transplant and other lymphomas, nasopharyngeal carcinoma (the most common head and neck cancer in large regions of Asia) and Burkitt's lymphoma (a significant disease in Africa). The Company is developing a subunit vaccine for EBV based on the single surface antigen responsible for most of the neutralizing antibodies stimulated by EBV infection. Quantities of this antigen have been expressed, purified and evaluated in a rabbit model, where preliminary results indicate that the antigen is immunogenic when combined with an adjuvant. In 1995, the Company entered into a worldwide collaboration with SmithKline Beecham, excluding Korea, whereby SmithKline Beecham will fund the development of Aviron's EBV vaccine in exchange for certain marketing rights. SmithKline Beecham is completing a Phase 1 clinical trial in Europe of the subunit vaccine in healthy adults to evaluate safety and immunogenicity. There can be no assurance that this trial will not need to be repeated in the United States or that FDA approval will be obtained for any future clinical trial or vaccine candidate. See "-- Collaborative Agreements." 10 13 Cytomegalovirus Most people become infected with CMV, another member of the herpes virus family, at some time in their life, and in the United States 40 percent to 60 percent of infections occur in childhood. These infections are typically asymptomatic or result in mild illness with sore throat, headache, fatigue and swollen glands. CMV also can cause an infectious mononucleosis syndrome clinically indistinguishable from that associated with EBV infection. More serious CMV disease is also often associated with a weakened immune system, as is often found in AIDS, cancer and transplant patients, which may be due to reactivation of CMV acquired early in life or a primary infection. In addition, if a woman is first exposed to this virus early in pregnancy, the resulting infection can cause serious fetal abnormalities. Approximately 40,000 infants in the United States are infected each year, resulting in varying levels of brain damage or deafness in over 10 percent of these infants. Congenital CMV syndrome results in significant expenditures for neonatal intensive care and potentially lifelong custodial care. No vaccine currently is available for CMV. Antibodies from persons with high levels of immunity are available in the form of hyperimmune globulins for certain high-risk patients, but use of these products can be costly and of limited efficacy. The Company believes that widespread vaccination of children with a safe and effective CMV vaccine is justified for the same reason that children in the United States are vaccinated against rubella: to protect unborn children from birth defects by reducing the risk that mothers are exposed to infected children. A live attenuated CMV vaccine candidate, known as the Towne strain, has been tested by third parties in several hundred people. This strain was reported to be well tolerated, but did not provide sufficient protection in mothers of children in day care who were at risk for congenital CMV, or in transplant recipients at risk of acquiring CMV from the donor organs. Aviron scientists have discovered differences between the genome of the Towne strain and that of wild-type CMV. Based on this knowledge, the Company has used its Rational Vaccine Design approach to create new recombinant CMV vaccine candidates in an attempt to strike the appropriate balance between attenuation and protection. The NIAID filed an IND for a Phase 1 clinical trial of several of Aviron's CMV vaccine candidates in December 1998. The proposed trial under this IND has been placed on clinical hold by the FDA, and the Company and the NIAID believe that the questions raised by the FDA can be resolved in order to begin a Phase 1 clinical trial in 1999. The Company expects to enter clinical trials in 1999 for a CMV vaccine in conjunction with NIAID. However, no assurance can be given that clinical trials will be commenced or, if commenced, will be successful, or that the Company will develop successfully and receive FDA approval of its CMV vaccine candidate. Herpes Simplex Virus Type 2 It is estimated that HSV-2, the cause of genital herpes, infects one out of five persons in the United States. Only one-third of those infected experience symptoms, but a significant portion of new infections are caused by transmission from asymptomatic individuals. Genital herpes is a non-lethal but incurable disease that invades the body once and settles in for a lifetime, often manifesting its presence several times a year with painful sores in the genital area. It is estimated that there are over 700,000 new cases of genital herpes per year in the United States, and that the disease is responsible for over 500,000 physician visits per year. Genital herpes also can be acquired by newborn babies as they pass through the birth canal of infected mothers. Neonatal herpes simplex infection can result in serious damage to the brain and many other organs. Even with therapy, over 20 percent of the 1,500 infants infected each year in the United States die, and many of the survivors are seriously impaired. In addition, efforts to prevent neonatal herpes contribute significantly to the cost of the disease. Thousands of women in the United States with a history of genital herpes are advised to undergo a Cesarean section when prenatal cultures or examinations suggest a recurrence near the time of delivery. HSV-2 infection can also lead to serious and fatal complications in adults with impaired immune systems due to AIDS or drug therapy for organ transplants. The most widely used drug therapy for HSV-2 disease is acyclovir, which has been shown to reduce the severity and duration of herpetic lesions, although most patients treated still experience symptoms for several days. When taken several times a day as a prophylaxis for HSV-2, acyclovir also has been shown to reduce the 11 14 frequency of recurrences. Several additional therapeutics are available or are in the late stages of clinical trials, and several prophylactic vaccines are in clinical trials; however, no vaccine currently is available to prevent genital herpes. One company recently reported a lack of efficacy in Phase 3 clinical trials of a subunit vaccine. A second company is conducting a Phase 3 clinical trial of a different subunit vaccine, and a third company has announced completion of a Phase 1 clinical trial of a disabled virus which can undergo only a single cycle of replication after injection. Aviron has used its Rational Vaccine Design approach to create injectable live attenuated vaccine candidates intended to prevent HSV-2 disease in uninfected children and young adults. Two of the Company's founders, Dr. Bernard Roizman and Dr. Richard Whitley, in collaboration with Pasteur Merieux Serums et Vaccins, developed a prototype live herpes vaccine based on an oral herpes virus (HSV-1) backbone. After extensive preclinical testing, the virus was tested in humans; however, the immune response following vaccination was deemed insufficient. This insufficiency was attributed to the use of the HSV-1 backbone from which too many important genes had been deleted, thus rendering the virus over-attenuated. Aviron has licensed this technology, along with patents covering strategies for more specific deletions, from ARCH Development Corporation. Aviron has used this technology to create proprietary live vaccine candidates using an HSV-2 backbone, which it has evaluated in preclinical models. Several candidates have shown attenuation in various rodent models, as well as efficacy in protecting guinea pigs and primates from challenge with a lethal dose of wild-type HSV-2. The Company is developing additional vaccine candidates and intends to use the results of further animal studies to select one or more candidates for evaluation in clinical trials. There can be no assurance, however, that the Company will commence or successfully complete clinical trials on a timely basis, if at all. In July 1996, Aviron licensed certain of its patent rights covering or related to the use of HSV-2 for treatment of cancer and for gene therapy, but excluding use for vaccines, to NeuroVir Research, Inc., a private Canadian corporation ("NeuroVir"). In exchange, Aviron received shares of capital stock and warrants to purchase shares of capital stock, representing a minority interest in the outstanding equity securities of NeuroVir on a fully diluted basis. Aviron is under no obligation to fund development of this technology by NeuroVir. Respiratory Syncytial Virus RSV is the major cause of lower respiratory tract illness in the very young, responsible for over 90,000 hospitalizations and more than 4,000 deaths a year in the United States. Infection is manifested as cough and fever and, in some cases, pneumonia. While RSV infection can occur at any time of year, epidemics generally occur in the winter. Most cases are in children under age four, with the peak of severe illness under six months of age, particularly in infants with pre-existing heart and lung disease. The only prevention for RSV currently available is passive administration of antibodies, although one company is testing a cold adapted live attenuated RSV vaccine in infants. Available drug therapy is reserved for the most serious cases as it has significant side effects. Aviron is developing a genetically engineered live attenuated virus vaccine for RSV using its proprietary reverse genetics technology. Aviron's objective is to use this technology to create a number of live virus vaccine candidates that can be tested in animal models before selecting a candidate for testing in humans. However, no assurance can be given that the Company will be successful in identifying a vaccine candidate. INFLUENZA CLINICAL TRIALS The Company has conducted and continues to conduct clinical trials to evaluate safety and efficacy of its live cold adapted influenza vaccine, FLUMIST(TM), a trivalent vaccine. To date, the Company has tested FLUMIST(TM) in over 11,000 children and adults. While the Company believes that it can use previous trial data from others, including NIH and Wyeth-Ayerst Laboratories, a division of American Home Products ("Wyeth"), to support its regulatory filings, the Company's use of the previous data to establish safety and efficacy of its proposed vaccine is limited because very few of the clinical trials involved a trivalent vaccine delivered through a nasal spray device. The Company's clinical trials relate to the safety and efficacy of the trivalent formulation as well as the safety of its intranasal spray delivery method. The Company enrolled a 12 15 total of 647 patients in Phase 1/2 clinical trials, 92 patients in a challenge efficacy study in adults, in collaboration with the NIH, and 1,602 children in year 1 of the Phase 3 pediatric protective efficacy trial, approximately 85 percent of whom have returned for year 2 of the trial, and 5,758 adults and children in five additional safety and in the healthy working adult effectiveness trial. The Company has received limited data on the efficacy of FLUMIST(TM) against culture-confirmed influenza from clinical trials in healthy adults. There can be no assurance that data from such trials, in addition to prior trials, will be sufficient to support the FDA approval in healthy adults. The Company's clinical trials are being designed to support a planned Biologic License Application ("BLA") submission in the summer or fall of 1999 seeking approval of FLUMIST(TM) in several target populations. The estimated timing of submission of this BLA and potential commercialization of FLUMIST(TM) are forward-looking statements subject to risks and uncertainties, and there can be no assurance that such filing or such approval will not be delayed materially or that such commercialization will occur as a result of certain factors, including those set forth in "Business Risks -- Uncertainties Related to Clinical Trials," "-- Uncertainties Related to Early Stage of Development; Technological Uncertainty." Phase 1 and 2 Clinical Trials and Challenge Efficacy Trial Aviron conducted a safety and immunogenicity study in 1996 involving 239 healthy adults at three university research centers. Patients were randomly assigned to receive either FLUMIST(TM) by nasal spray or nose drops, or placebo by nasal spray or nose drops. No serious adverse events attributable to FLUMIST(TM) were seen in any subjects, and there were no statistically significant differences in the occurrence of fever, sore throat, runny nose, cough, headache or any other potential reaction assessed in the study between the vaccine or placebo or between the different types of administration. Statistically significant serum antibody responses to all three strains in the vaccine were observed in the subjects receiving FLUMIST(TM) compared to placebo. The magnitude of these antibody responses was within the range of responses seen in previous trials by others of the live cold adapted influenza vaccine, which are lower than the serum responses typically observed following immunizations with the inactivated influenza vaccine. In 1996, 238 children between the ages of 18 months and five years were enrolled at four Vaccine Treatment Evaluation Units ("VTEUs") and 118 children were enrolled at the Center for Vaccine Development in Santiago, Chile, in a Phase 1/2 double-blind, placebo-controlled safety, immunogenicity and dose-escalation study. The study design and endpoints were similar to the adult study, except that the initial phases used a dose lower than that given to adults. No serious adverse events were seen in any subjects in any of the three phases of the dose escalation, and there were no statistically significant differences in the occurrences of fever, sore throat, runny nose, cough, wheezing, or irritability assessed in the study between the vaccine or placebo or between the different types of administration. Statistically significant serum antibody responses to all of the three strains were observed in the subjects receiving the higher dose of FLUMIST(TM) compared to placebo. The magnitude of these antibody responses was within the range of responses seen in previous trials by others of the trivalent cold adapted influenza vaccine, which are lower than the serum responses typically observed following immunizations with the inactivated influenza vaccine. FLUMIST(TM) has also been tested in a double-blind, placebo-controlled challenge efficacy study at two VTEUs involving 92 healthy young adults. Subjects were randomized to receive either FLUMIST(TM), the inactivated injectable vaccine or placebo. There were no serious adverse events attributable to FLUMIST(TM) seen in any subjects, and there were no statistically significant differences in the occurrence of any potential reactions assessed in the study between either vaccine or placebo. Following vaccination and subsequent intranasal administration of the wild-type challenge virus, the incidence of laboratory-documented influenza, a prospectively defined primary endpoint of the trial, was 7 percent in subjects vaccinated with FLUMIST(TM), 13 percent in subjects vaccinated with the inactivated injectable influenza vaccine and 45 percent in subjects who received placebo. The reduction in laboratory-documented influenza compared to placebo was statistically significant for FLUMIST(TM) and the inactivated vaccine. The other prospectively defined primary endpoint of the study was the proportion of subjects shedding the challenge virus after its administration. No significant differences were seen between the two vaccines and placebo in viral shedding. Of the recipients of FLUMIST(TM), 10 percent experienced moderate or severe respiratory symptoms following administration of the wild-type influenza challenge virus, a statistically significant reduction 13 16 compared to 39 percent of placebo recipients. The rate of moderate or severe respiratory symptoms observed following challenge virus in the inactivated injectable vaccine was 22 percent which was not statistically significant compared to placebo. While the rate of respiratory illness seen in the placebo group was consistent with previous influenza challenge efficacy trials by others, the rate of febrile or systemic illness following challenge was lower than in previous trials. These data have not been peer reviewed, however, no assurance can be given that the conclusions drawn from this analysis will not change as a result of further study by the Company or during the peer review process. Phase 3 Clinical Trials in Children Based on trials by others which showed that a modest immune response in young children to one or two of the strains after a single dose could be boosted significantly by a second dose approximately two months later, the Company initiated a two-year pivotal Phase 3 clinical trial to evaluate one-and two-dose regimens in children. The Company's clinical trial data suggest that a repeat or booster dose may be required in young children without previous exposure to influenza or influenza vaccines. Two doses of the inactivated injectable influenza vaccine are recommended annually for young children receiving influenza prophylaxis for the first time. The Company enrolled 1,602 children at 10 clinical sites in the pivotal Phase 3 clinical trial, of which 1,314 were vaccinated with a second dose 46 to 74 days after initial vaccination. The primary endpoint of the first stage of the study was defined as protection of children from culture-confirmed influenza during naturally occurring epidemics of influenza. The data were unblinded in July 1997 following a single year of patient accrual due to the adequate incidence of influenza in the study population. The Company and NIAID announced that, based on an initial analysis of the first stage of the Phase 3 trial, FLUMIST(TM) demonstrated a 93 percent protection rate against culture confirmed influenza in those children receiving two doses, the primary endpoint of the study. Only 1 percent of children receiving two doses experienced culture-confirmed influenza, compared to 18 percent of those receiving the placebo. These results were statistically significant. No serious adverse events attributable to FLUMIST(TM) were seen in any subjects to whom FLUMIST(TM) was administered. There were no statistically significant differences in other side effects between FLUMIST(TM) and placebo recipients, except for a somewhat increased incidence of transient runny nose, mild fever and decreased activity following immunization in children receiving FLUMIST(TM). The investigators described these transient side effects as comparable to or milder than those observed following many other childhood immunizations. The clinical investigators presented the initial findings of this trial at a scientific conference in the fall of 1997 and, in May 1998, data from the first year of a Phase 3 clinical trial of FLUMIST(TM) were published in The New England Journal of Medicine. In the randomized, placebo-controlled study, results show that only 14 of the 1,070 children vaccinated with FLUMIST(TM) experienced culture-confirmed influenza, while 95 of the 532 placebo recipients experienced culture-confirmed influenza. Of the children who received FLUMIST(TM), only one child developed influenza-associated ear infection, while 20 of the placebo recipients developed influenza-associated ear infections. Throughout the entire cough, cold and flu season, 1,070 children vaccinated with FLUMIST(TM) experienced 30 percent fewer ear infections with fever than children who received placebo, and a 35 percent reduction in related antibiotic use for ear infections with fever. The children who participated in the first year of this study were invited back to participate for a second flu season in the 1997-98 follow-on trial and they were either vaccinated with a single dose of FLUMIST(TM), or a placebo spray. In September 1998, the results of year 2 of the Phase 3 efficacy trial of FLUMIST(TM) in children, conducted in collaboration with NIAID, were presented at the Interscience Conference on Antimicrobial Agents and Chemotherapy (ICAAC). The study showed that FLUMIST(TM) provided 100 percent protection against culture-confirmed influenza strains included in the 1997 - 98 flu vaccine, and 86 percent protection against A/Sydney, an unexpected variant which was the predominant strain of influenza circulating during the 1997-98 flu season. Overall, FLUMIST(TM) provided 87 percent protection against all culture-confirmed influenza. In the 1,358 participants, there were five cases of influenza due to influenza strains included in the vaccine and 66 cases caused by A/Sydney. Only two percent of children vaccinated with FLUMIST(TM) (15 out of 917) experienced culture-confirmed influenza, all of which was attributable to the A/Sydney strain, while 14 17 13 percent of the placebo recipients (56 out of 441) experienced culture-confirmed influenza. The difference between these two influenza attack rates is used to calculate the overall protection rate of 87 percent. The incidence of pneumonia and other lower respiratory diseases was also reduced in those children vaccinated with FLUMIST(TM), compared to placebo. Eight children in the placebo group developed influenza-related wheezing, bronchitis or pneumonia, all of which were due to the A/Sydney strain. No children who received FLUMIST(TM) experienced lower respiratory complications. In the 15 of the 917 children in the FLUMIST(TM) group who did contract influenza, the illness appeared to be milder than in the control group, based on frequency of complications and duration of fever. The Company began a large scale clinical trial in August 1998 to access the impact of community-wide influenza immunization. The three-year trial, taking place in Temple, Texas, is expected to enroll up to 15,000 children and is funded by a $3 million grant from the NIAID awarded to the Baylor College of Medicine. The trial will evaluate the impact of vaccinating pre-school and school-age children with FLUMIST(TM) on the incidence of doctor visits for flu-related illness. On December 10, 1998, the Company reported on a meeting with the U.S. Food and Drug Administration Center for Biologics Evaluation and Research (CBER) regarding plans for submission of the Company's license applications for FLUMIST(TM). Requirements for completion of the submission include data on manufacturing, validation and stability. In addition, The Company is conducting a bridging study in children designed to evaluate clinical comparability of vaccine blended and filled at the Company's new Pennsylvania facility as compared to vaccine used in earlier clinical trials. This 225-person trial is fully enrolled and underway in Australia in collaboration with CSL Limited, the Company's Australian marketing partner for FLUMIST(TM). The Company will include safety and immunogenicity data from this clinical study in its licensing applications for FLUMIST(TM). The Company's goal is to submit its application in the summer or fall of 1999. Clinical Trials in Healthy Adults On December 5, 1998, preliminary results reported from a Phase 3 trial in 4,561 healthy working adults showed that those receiving FLUMIST(TM) experienced reductions in illness-associated missed work days and health care provider visits, as well as prescription and over-the-counter medication use associated with illness. The study was conducted to assess the impact of immunization on the frequency of influenza-like illness, utilization of health care services, and absenteeism from work. These data are intended to support models of the cost-effectiveness of immunization programs based on FLUMIST(TM). Data from this trial were presented at the International Symposium on Influenza and Other Respiratory Viruses. Those receiving FLUMIST(TM) missed 28.8 percent fewer days of work due to febrile upper respiratory illness and had 40.9 percent fewer days of health care provider visits. Participants also experienced a 45.5 percent reduction in days of prescription antibiotic use, a 17.0 percent reduction in days of non-antibiotic prescription drug use and 28 percent fewer days of OTC medicine use. Study results show FLUMIST(TM) recipients had reductions in the occurrence of illness by multiple definitions measured in the study including severe influenza-like illness (18 percent less) and febrile upper respiratory tract illness (23 percent less). The number of days of illness was also reduced in FLUMIST(TM) recipients by 23 to 28 percent, depending on the specific illness definitions. The prospectively determined primary endpoint was occurrence of illness using the broadest definition, which was reduced in FLUMIST(TM) recipients by 9.8 percent, a trend which did not reach statistical significance. The trial was a double-blind, placebo-controlled study conducted in 13 clinical sites nationwide during the 1997 - 98 flu season. Most study subjects self-administered FLUMIST(TM) under the supervision of investigators at their worksite or nearby clinic. Study participants reported their symptoms and health events monthly. Because laboratory tests were not performed to diagnose influenza, several pre-specified illness definitions were used to identify health events that could have been due to influenza virus infection. These included a very broad definition of influenza-like illness, which did not necessarily include respiratory tract symptoms, as well as more severe influenza-like illness and febrile upper respiratory tract illness (upper respiratory illness with fever). 15 18 Clinical Trials in High-risk Adults The Company has completed a clinical trial for safety in 200 elderly high-risk adults for the use of FLUMIST(TM) for co-administration with the currently available injectable vaccine. Many of the participants in this trial self-administered FLUMIST(TM). The Company intends to use this data to support a label claim for safety for such co-administration in high-risk adults, including the elderly. As this trial is not designed to generate efficacy data on use of FLUMIST(TM) in high-risk adults, there can be no assurance that data from this trial, combined with data from the Company's other clinical trials and prior trials, will be sufficient to support FDA approval of an indication for use of FLUMIST(TM) in high-risk adults even if the FDA were satisfied with the safety data submitted. Early in the fourth quarter of 1998, the Cooperative Studies program of the Department of Veterans Affairs Office of Research and Development began a one-year trial to evaluate the potential additional benefit of co-administration of FLUMIST(TM) with the flu shot, compared to the flu shot alone, in high-risk patients with chronic lung disease, or chronic obstructive pulmonary disease and emphysema. This study involves over 2,000 volunteers at 20 participating VA Medical Centers in the United States. Clinical Trials for Manufacturing Consistency and Process In February 1998, the Company reported positive results from a manufacturing consistency lot trial of bulk vaccine manufactured, blended, and filled into sprayers at Medeva Pharma Limited ("Medeva Pharma"), formerly Evans Medical Limited, a subsidiary of Medeva PLC. The Company conducted a randomized, double-blind, placebo-controlled trial in 500 children, designed to evaluate the safety and immunogenicity of three new manufacturing lots of FLUMIST(TM). The children were vaccinated between April and September 1997. Analysis of patient diary cards and antibody responses following two doses of FLUMIST(TM) showed consistent safety and immunogenicity for the different lots according to the pre-defined endpoints. Evidence that different lots of vaccine can be manufactured at a consistent quality level is generally required by the FDA prior to approval of such products for commercial sale. On June 30, 1998, the Company submitted a Product License Application/Establishment License Application (PLA/ELA) for FLUMIST(TM) to the FDA. On August 31, 1998, Aviron reported that it had received notice that its license applications were not accepted for filing. Requirements for resubmission include additional data in the areas of manufacturing, validation and stability. The Company is conducting a bridging study designed to evaluate clinical equivalence of vaccine blended and filled at the Company's facility at Packaging Coordinators, Inc., a division of Cardinal Health, Inc. ("PCI") compared to vaccine used in earlier clinical trials. This 225-person trial has been initiated in Australia in collaboration with CSL Limited, the Company's Australian marketing partner for FLUMIST(TM). The Company will include safety and immunogenicity data from this clinical study in its licensing applications for FLUMIST(TM). The Company intends to resubmit its application in the summer or fall of 1999. The resubmission will be in the form of a BLA, rather than a PLA/ELA, in keeping with current FDA requirements. There can be no assurance that the FDA will find these data sufficient to demonstrate consistency of manufacture. ADDITIONAL RESEARCH PROGRAM -- LIVE VIRUSES AS VECTORS Aviron believes that its virus engineering technology may be used to create strains which carry "foreign" genes and are able to deliver genetic or antigenic information to specific tissues in the host. For example, it is possible to engineer antigens from other viruses into influenza, as has already been demonstrated for small antigenic regions from agents such as HIV and malaria. RSV and PIV-3 are two other important causes of childhood infections which may be targeted by using the influenza virus as a vector to deliver antigens. PRODUCTION AND MANUFACTURING Cold Adapted Influenza Vaccine Production of the cold adapted influenza vaccine requires the following steps: Master Virus Seed Production. After the FDA and the CDC select the influenza strains to be included in the vaccine, Aviron creates the respective master virus seeds for use in large-scale production. These 16 19 contain the hemagglutinin (HA) and neuraminidase (NA) genes of the expected epidemic strain and six genes conferring the cold adapted, attenuated properties of the master donor strain. Two processes are available for Aviron to make the master virus seeds: classical reassortment and reverse genetics. In the classical reassortment process, laboratory virus cells are simultaneously infected with the expected epidemic strain and the cold adapted master donor strain, which results in random genetic reassortments between the two strains. The specific reassortment desired is isolated using monoclonal antibodies. This process takes approximately four to six weeks and has been used by scientists at the University of Michigan and Aviron to create over 20 different vaccine strains that have been tested in human clinical trials. In the reverse genetics approach, HA and NA genes are isolated from the expected epidemic strain and introduced into the cold adapted master donor strain using Aviron's proprietary reverse genetics technology. Potential advantages of this process are that it may be somewhat faster and may offer lower risk of contamination than classical reassortment. Aviron has conducted a clinical trial to evaluate safety of the reverse genetics process compared to the classical reassortment process. There can be no assurance that the FDA will find this data sufficient to demonstrate the acceptability of a particular approach to master virus seed production. Bulk Monovalent Formulation Production. Under the Company's current arrangement with Medeva Pharma, the master virus seeds for each vaccine strain are transferred to Medeva Pharma in the United Kingdom for large scale production of the bulk monovalent formulations of the three vaccine strains, which involves infection, incubation and harvesting from hen's eggs. The eggs used in this process are supplied by a third party that maintains flocks certified to be free of specific pathogenic agents. Trivalent Formulation Production. The bulk formulation is frozen and transferred to PCI in Pennsylvania where the monovalent vaccine material is blended into the trivalent formulation for filling into nasal spray devices, packaged and labeled. In 1998, the Company opened a 34,000-square-foot manufacturing suite in PCI's site. If regulatory approval is received, the PCI facility will be used for blending, filling, packaging, labeling and storage of FLUMIST(TM). The Company currently does not have licensed facilities to manufacture FLUMIST(TM) and has no direct experience with large scale manufacture of this potential product. All of the cold adapted vaccine material used in the Company's early stage clinical trials has been supplied solely by Medeva Pharma pursuant to an agreement between the Company and Medeva Pharma entered into in November 1995 (the "Medeva Pharma Clinical Agreement"). Pursuant to this agreement, the Company has received timely and sufficient supplies for its clinical trials of FLUMIST(TM) through four influenza seasons. Medeva Pharma is one of four companies licensed by the FDA to produce influenza vaccine for sale in the United States and produces its own injectable inactivated influenza vaccine. Under the Medeva Pharma Clinical Agreement, Medeva Pharma is producing and supplying the Company with sufficient quantities of FLUMIST(TM) to conduct its current clinical trials, subject to certain limitations. Under the Medeva Pharma Clinical Agreement, Medeva Pharma has been performing work for Aviron intended to result in a liquid formulation of FLUMIST(TM) requiring only refrigeration rather than frozen storage. The Company believes that a liquid formulation will be required to address markets outside the United States and Canada. The Company is also conducting development work on the liquid formulation at its facilities in California. The Company initially plans to obtain commercial quantities of bulk vaccine of FLUMIST(TM) from Medeva Pharma. Under an agreement between the Company and Medeva Pharma entered into in April 1997 (the "Medeva Pharma Commercial Agreement"), Medeva Pharma has agreed to manufacture FLUMIST(TM) in bulk until December 31, 2001, so as to meet the Company's needs for bulk product through the 2001 - 2002 influenza season. In October 1997, the Company entered into a nonexclusive arrangement with PCI for the blending, filling, packaging, and labeling of FLUMIST(TM) for commercial sale in the United States until October 2004 (the "PCI Agreement"). In the event of a better than expected market acceptance, the Company may be capacity constrained on its supply of vaccine through at least the 2000 - 2001 influenza season. In order to secure future production capacity, the Company may extend and expand its existing arrangements, collaborate with other third parties, or establish its own manufacturing facilities. Using an alternative supplier or building a proprietary facility would require a substantial amount of funds and additional clinical trials and testing. There can be no assurance that an alternative source of supply will be established on a timely basis, or that the Company will have or be able to obtain funds sufficient for building or equipping a new facility. In early 1999, the Company entered into a lease 17 20 agreement for approximately 69,000 square feet of office, laboratory and manufacturing space in Santa Clara, California. The Company has leased this facility through January 2019, with an option to renew for seven years. The Santa Clara facility, as well as the subsequent establishment of alternative or proprietary sources for supply or manufacturing, would require FDA approval for each such facility. The production of FLUMIST(TM) is subject to the availability of a large number of specific pathogen-free hen eggs, for which there are currently a limited number of suppliers. The Company has been purchasing its egg requirements from a single supplier on a purchase order basis, rather than pursuant to any long term contractual arrangement. Contamination or disruption of this source of supply would adversely affect the ability to manufacture FLUMIST(TM). The production FLUMIST(TM) is also subject to the availability of the device for delivery of the vaccine intranasally. In August 1998, the Company and Becton Dickinson and Company ("Becton Dickinson") entered into a worldwide exclusive supply agreement under which Becton Dickinson will supply the Company with its AccuSpray(TM) non-invasive nasal spray delivery system for the administration of FLUMIST(TM) through the 2001 - 2002 flu season. There can be no assurance that these suppliers will provide timely and adequate supply of these product components and raw materials. In addition, the Company depends on the submission by the delivery device manufacturer of a Device Master File application ("DMF") for separate review by regulatory authorities; the Company will reference the DMF as part of the BLA submission for FLUMIST(TM). The Company's current frozen formulation of FLUMIST(TM) is being designed to meet an acceptable level of stability for the U.S. market initially targeted by the Company. There can be no assurances that the Company will succeed in achieving adequate product stability for FLUMIST(TM). In addition to its current frozen formulation, the Company is exploring alternative formulations and presentations for FLUMIST(TM) which may enable improved distribution and longer shelf life. There can be no assurance that the Company will succeed in achieving adequate product stability for the current frozen formulation of FLUMIST(TM), that the Company's efforts to produce such alternative formulations will be successful, or that such alternative formulations will actually enable improved distribution and longer shelf life. The production and marketing of influenza vaccine is highly seasonal. Because most cases of influenza occur in winter, the majority of influenza vaccinations in the Northern Hemisphere occur between September and December of a given year. Influenza viruses have a high mutation rate and the surface antigens of influenza viruses that induce protective immunity are variable from year to year. Each spring, the FDA and the CDC determine circulating influenza strains that will be included in the season's influenza vaccines. As a result, manufacturers of vaccines must modify their influenza vaccines each year to include the selected strains in a form that meets FDA guidelines, within an approximately six-month period, in order to make it available before the influenza season. As such, the Company must establish a dependable process by which FLUMIST(TM) may be modified and manufactured on a timely basis to include different strains each year. If the Company were unable to develop an influenza vaccine for a particular year that meets FDA and CDC guidelines, the Company would receive no revenues from an influenza vaccine for that influenza season, which would materially adversely affect the Company's business, financial condition and results of operation, given the relatively fixed nature of its operating expenses over the short term. Failure of one of the Company's suppliers to deliver timely and sufficient supplies to the Company, if it caused the Company to be unable to deliver vaccines during the peak demand period for the influenza season, would have a disproportionately adverse effect on the Company's financial results. Other Products In 1996, the Company completed construction of a pilot manufacturing facility for its potential vaccine products other than FLUMIST(TM). The Company currently does not have facilities to manufacture any of its other potential products in commercial quantities and has no experience with commercial manufacture of vaccine products. To manufacture its other potential products for large-scale clinical trials or on a commercial scale, the Company may be required to build a large-scale manufacturing facility, which would require a significant amount of funds. The scale-up of manufacturing for commercial production would require the Company to develop advanced manufacturing techniques and rigorous process controls. No assurance can be given as to the ability of the Company to produce commercial quantities of its potential products in compliance with applicable regulations or at an acceptable cost, or at all. 18 21 The Company is alternatively considering the use of contract manufacturers for the commercial production of its other potential products. The Company is aware of only a limited number of manufacturers which it believes have the ability and capacity to manufacture its other potential products in a timely manner. There can be no assurance that the Company would be able to contract with any of these companies for the manufacture of its products on acceptable terms, if at all. If the Company enters into an agreement with a third-party manufacturer, it may be required to relinquish control of the manufacturing process, which could adversely affect the Company's results of operations. Furthermore, a third-party manufacturer also would be required to manufacture the Company's products in compliance with state and federal regulations. Failure of any such third-party manufacturer to comply with state and federal regulations and to deliver the required quantities on a timely basis and at commercially reasonable prices would materially adversely affect the Company's business, financial condition and results of operations. No assurance can be given that the Company, alone or with a third party, will be able to make the transition to commercial production of its potential products successfully, if at all, or that if successful, the Company will be able to maintain such production. MARKETING AND SALES The current purchasers of vaccines are principally physicians, large HMOs and state and federal government agencies. However, the United States health care system is undergoing significant changes and the relative proportion of purchasers that each group will represent in the future will depend on factors such as legislative changes and the economy. The Company intends to participate in the selling of its products to HMOs, large employers and state and federal health care agencies, either directly or through a collaboration with another company. Outside the United States, the Company plans to sell its products through collaborative agreements with strategic partners. Aviron intends to use rigorous cost-effectiveness analysis as a guide for its pricing strategy and in support of its marketing plans. Clinical trials of FLUMIST(TM) have been conducted to provide information regarding its use in three market segments: children, healthy adults, and adults at high-risk of influenza complications due to age or to the presence of chronic medical conditions such as heart or lung disease or diabetes. Use of influenza vaccines in these three segments is subject to somewhat different market forces, and customers are accessed by different channels of distribution. Children The current injectable influenza vaccine is often used in children at high-risk of influenza complications due to conditions such as asthma and congenital heart disease, but public health authorities are concerned that coverage rates are below optimal. There are approximately 70 million children under age 18 in the United States. The current injectable vaccine is rarely used in healthy children, although children have the highest attack rate of influenza and play a major role in the spread of the influenza epidemic. The Company's objective is to develop a new market for influenza prophylaxis in healthy and high-risk children by offering an alternative to the injectable vaccine. Because FLUMIST(TM) is delivered as a nasal spray, rather than an injection, the Company believes it would provide a more attractive way to immunize children on an annual basis. Healthy Adults Aviron believes that a large proportion of the current injectable influenza vaccine used in the United States is being administered to healthy adults, either via workplace-sponsored immunization programs or in programs offered through clinics, pharmacies or other retail outlets. The Company estimates that there are approximately 120 million adults in the United States who are not at high-risk for influenza complications. Aviron's objective is to expand the current market for influenza prophylaxis by offering an alternative for individuals who are deterred by the injectable route of delivery of the current product. The Company believes that immunization programs using FLUMIST(TM) may also decrease the health professional time per vaccination compared to the current influenza injection and therefore allow improved flexibility and efficiency in the operation of such programs. A majority of the participants in the Company's clinical trials for adults self-administered FLUMIST(TM). 19 22 High-risk Adults The Company is currently conducting a clinical trial in elderly high-risk adults to evaluate the effectiveness of FLUMIST(TM) when co-administered with the injectable influenza vaccine, compared to the injectable influenza vaccine alone. See "Influenza Clinical Trials" section. If this trial is successful, and regulatory approval is received, the Company intends to market FLUMIST(TM) to be used in conjunction with the injectable influenza vaccine for adults over age 65 (approximately 34 million Americans) and for adults under age 65 with conditions which put them at higher risk of influenza complications (approximately 20 million Americans). COLLABORATIVE AGREEMENTS The Company's strategy for the development, clinical trials, manufacturing and commercialization of certain of its products includes maintaining and entering into various collaborations with corporate partners, licensors, licensees and others. There can be no assurance that the Company will be able to maintain existing collaborative agreements, negotiate collaborative arrangements in the future on acceptable terms, if at all, or that any such collaborative arrangements will be successful. To date the Company has entered into the following collaborative agreements. Wyeth Lederle Vaccines On January 12, 1999, Wyeth Lederle Vaccines, a business unit of Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products Corporation ("Wyeth Lederle"), and Aviron announced a worldwide collaboration for the marketing of FLUMIST(TM). This agreement became effective in March 1999 following the termination of Hart-Scott-Rodino review. Under this agreement, the Company granted Wyeth Lederle exclusive worldwide rights to market FLUMIST(TM), excluding Korea, Australia, New Zealand and certain South Pacific countries. Aviron and Wyeth Lederle will co-promote FLUMIST(TM) in the United States, while Wyeth Lederle will have the exclusive right to market the product outside the United States. In each case, Wyeth Lederle will hold the marketing rights for up to 11 years. Aviron and Wyeth Lederle will also collaborate on the regulatory, clinical, and marketing programs for FLUMIST(TM). The Company received a cash payment of $15 million upon execution of the collaboration, and will receive $15 million upon acceptance by the FDA of a BLA filing and $20 million upon FDA marketing approval for FLUMIST(TM). Compensation for achieving additional development and regulatory milestones is included in the agreement terms. The granting of certain other rights under the license would trigger additional payments by Wyeth Lederle in excess of $140 million to Aviron. Wyeth Lederle is committed to provide up to $40 million in future financing to Aviron, a portion of which is contingent upon FDA approval of FLUMIST(TM), with the remaining amount to come from participation in future Aviron securities offerings. The total potential value for the license fees, milestones and financing support that Aviron could receive exceeds $400 million. No assurance can be given, however, that the Company will receive any future payments from Wyeth Lederle. Sales of FLUMIST(TM) and future payments to the Company are dependent on the successful development, manufacturing, supply, sale and distribution of FLUMIST(TM) by the Company, its third party suppliers and Wyeth Lederle. Wyeth Lederle will distribute FLUMIST(TM) and record all revenues. In addition to the payments mentioned above, Aviron anticipates that it will receive in the range of 40 percent of FLUMIST(TM) revenues from Wyeth Lederle, in the form of product transfer payments and royalties, which increase at higher sales levels. Aviron will incur expenses to supply and co-promote FLUMIST(TM). CSL Limited On June 22, 1998, the Company and CSL Limited of Victoria, Australia ("CSL Limited"), announced that they will collaborate on the development, sale and distribution of FLUMIST(TM), in Australia, New Zealand and certain countries in the South Pacific (the "Territory"). CSL Limited and the Company will jointly carry 20 23 out additional clinical trials in Australia for FLUMIST(TM). Under the agreement, CSL Limited will sponsor the marketing application with the Therapeutic Goods Administration, Australia's equivalent to the FDA. CSL Limited will have exclusive rights to sell and distribute FLUMIST(TM) in the Territory. Aviron and CSL Limited will share profits of FLUMIST(TM) in the Territory. The Company will also benefit from expansion of CSL Limited's current flu vaccine in pediatric and healthy adult market segments following the approval to market FLUMIST(TM) in the Territory. In addition, CSL Limited has agreed, under an option agreement, to grant warrants to the Company to purchase CSL Limited common stock upon CSL Limited's attainment of certain milestones. National Institute of Allergy and Infectious Diseases -- Parainfluenza Virus Type 3 In May 1996, the Company obtained exclusive rights from the NIAID of the NIH to certain biological materials and clinical trial data for its PIV-3 program. The NIH granted to the Company exclusive rights in specific strains of bovine parainfluenza virus (the "Licensed Materials") to develop, test, manufacture, use and sell products for vaccination against human parainfluenza virus and other human and animal diseases ("Licensed Products"). In addition, the Company obtained from the NIAID the right to reference an existing IND and certain data relating to the Licensed Materials. The NIH retained certain rights to the Licensed Materials on behalf of the United States Government to conduct research and to grant research licenses to third parties under certain circumstances. In return for the rights granted by NIH, the Company will make payments to NIH on the achievement of specified milestones and will make certain royalty payments to NIH. Unless otherwise terminated, the Agreement will terminate on cessation of commercial sales of Licensed Products by the Company or its sublicensee. The Company has the unilateral right to terminate the Agreement in any country upon providing 60 days notice to NIH. SmithKline Beecham Biologicals S.A. In October 1995, the Company signed an agreement with SmithKline Beecham Biologicals, S.A. ("SmithKline Beecham") defining a collaboration on the Company's EBV vaccine technology (the "SB Agreement"). Under the terms of the SB Agreement, the Company granted SmithKline Beecham an exclusive license to produce, use and sell non-live EBV vaccines incorporating the Company's technology for prophylactic and therapeutic uses on a worldwide basis, except in Korea. In addition, SmithKline Beecham obtained a right of first refusal to an exclusive, worldwide (except Korea) license under any intellectual property rights relating to any live EBV vaccine technology developed or controlled by the Company during the term of the SB Agreement. The Company has retained the right to co-market a monovalent formulation of the EBV vaccine in the United States and to have SmithKline Beecham supply such vaccine. SmithKline Beecham agreed to fund research and development at the Company related to the EBV vaccine, in specified minimum amounts, during the first two years of the SB Agreement. SmithKline Beecham made an initial up-front payment to the Company and agreed to make additional payments upon the achievement of certain product development milestones; the first such milestone payment was made in 1997. The Company is entitled to royalties from SmithKline Beecham based on net sales of the vaccine. Unless otherwise terminated, the SmithKline Beecham Agreement will expire on a country-by-country basis upon the expiration or invalidation of the last remaining patent covered by the SB Agreement or 10 years from the date of first commercial sale of the vaccine, whichever is later. The SB Agreement may be terminated by SmithKline Beecham with respect to any country at any time. Sang-A Pharm. Co., Ltd. In May 1995, the Company entered into a Development and License Agreement with Sang-A Pharm. Co., Ltd. ("Sang-A"). The Company granted to Sang-A exclusive clinical development, manufacturing and marketing rights in Korea for specified products developed by Aviron, including vaccines for influenza (cold adapted and recombinant), EBV, CMV, HSV-2 and RSV. However, the Company is under no obligation to develop any product. Sang-A also will make payments to the Company upon Sang-A's meeting certain regulatory milestones for each product in Korea and will pay a royalty to the Company on net sales of such products in South and North Korea ("Korea"). 21 24 Sang-A also is obligated to establish a manufacturing facility with at least enough capacity to meet demand for all Korean product requirements for each product that reaches commercialization, if any. In the event that Sang-A's manufacturing capabilities satisfy certain objective criteria and, subject to an obligation to cooperate with the Company's future corporate partners for any given products, Sang-A has a right of first refusal to manufacture a portion of the total requirements of the Company, its affiliates and sublicensees for the specified products, with the exception of the EBV vaccine, in specified countries, including the United States, provided that it can do so at a competitive price, quality and timeline. Sang-A's right of first refusal has expired with respect to FLUMIST(TM) and PIV. The term of this agreement extends, on a product-by-product basis, until 10 years from the date of first commercial sale of each product in Korea. At the conclusion of the term, Sang-A has an option to extend the agreement on a product-by-product basis, for the longer of an additional 10 years or the expiration of the patents covering such product. During any such extension, Sang-A will have either no royalty obligation to the Company or a reduced royalty obligation, depending on the product. In return for the rights granted to Sang-A, Sang-A made an equity investment in the Company in May 1995 of approximately $4.0 million. Sang-A subsequently made additional equity investments of approximately $1.6 million in the Company's private placement of Series C Preferred Stock and $1.9 million in connection with the Company's initial public offering of Common Stock. In January 1997, Sang-A declared bankruptcy. In March 1998, the Company entered into a Stock Repurchase Agreement with Sang-A under which the Company repurchased 530,831 shares from Sang-A at a price of $25.13 per share. The Company is unable to predict what, if any, long-term effect the bankruptcy will have on Sang-A and on the Company's agreement with Sang-A. National Institute of Allergy and Infectious Diseases -- Cold Adapted Influenza Vaccine Following a competitive application process, the Company entered into a CRADA in March 1995 with the NIAID of the NIH to conduct clinical trials of the Company's cold adapted influenza vaccine. Wyeth-Ayerst licensed certain rights to the vaccine from the NIH in 1991 and was developing it for sale in collaboration with the NIH until relinquishing its rights in 1993. Aviron has obtained from the NIH and the University of Michigan exclusive rights to trial results and data from the work at the VTEUs and Wyeth-Ayerst. The NIH has agreed to support the trials by enrolling subjects in its network of VTEUs. In addition, the Company acquired exclusive commercial rights to data generated from all previous clinical trials conducted by the NIH and Wyeth-Ayerst using the vaccine. The term of the CRADA will not exceed five years without a written amendment by the parties. The Company and NIAID are discussing a possible extension of the CRADA. Either party may terminate the CRADA for material breach. University of Michigan In February 1995, the Company entered into a materials transfer and intellectual property agreement (the "Michigan Agreement") with the University of Michigan. Pursuant to the Michigan Agreement, the University of Michigan granted the Company exclusive worldwide rights to certain intellectual property and technology relating to the cold adapted influenza vaccine and proprietary master donor strains of influenza viruses useful in the production of products for vaccination against influenza and potentially for gene therapy and other uses. Specifically, the Company obtained the exclusive right to develop, manufacture, use, market and sell products incorporating any such intellectual property or utilizing the master strains worldwide. In consideration for the rights granted to the Company, the Company: (i) made an initial cash payment to the University of Michigan; (ii) agreed to pay a royalty to the University of Michigan on net sales of products subject to the license; (iii) entered into a sponsored research agreement with the University of Michigan for a period of at least two years; and (iv) issued to the University of Michigan 1,323,734 shares of Series B Preferred Stock, which automatically converted into 264,746 shares of the Company's Common Stock at the time of the Company's initial public offering. In addition, in the event that Aviron receives approval to commercially market a product based on the University of Michigan technology, the Company has agreed to issue a warrant to the University of Michigan to purchase shares of the Company's Common Stock at a price 22 25 of $10.00 per share, for a number of shares to be based on 1.25 percent of the Common Stock outstanding on the date of the first commercial sale of the product incorporating the University of Michigan technology. Pursuant to the Michigan Agreement, the Company is required to grant to the University of Michigan an irrevocable, royalty-free license for research purposes, or for transfer to a subsequent licensee should the Michigan Agreement be terminated, to (i) all improvements developed by the Company, its affiliates or sublicensees, whether or not patentable; relating to delivery mechanisms and processes for administration and manufacturing of products, as well as packaging, storage and preservation processes for the master strains, and (ii) all new technical information acquired by the Company, its affiliates or sublicensees relating to the Master Strains and products. The term of the Michigan Agreement is until the later of the last to expire of the University of Michigan patents licensed to the Company or 20 years from the date of first commercial sale of a product incorporating the Michigan technology. The Company has the further right to terminate for any reason upon 12 months notice to the University of Michigan. The Mount Sinai School of Medicine In February 1993, the Company entered into a technology transfer agreement with The Mount Sinai School of Medicine ("Mount Sinai"). Under this agreement, Mount Sinai assigned to the Company all of its rights, title and interest in and to certain patents and patent applications, as well as all associated know-how and other technical information relating to recombinant negative strand RNA virus expression systems and vaccines, attenuated influenza viruses and certain other technology. Mount Sinai also granted the Company (i) an option to acquire any improvements to the inventions disclosed in the assigned patents and patent applications thereafter developed by Mount Sinai and (ii) a right of first negotiation for a license or assignment to certain additional related technology. In consideration for the rights granted to the Company, the Company issued to Mount Sinai 35,000 shares of the Company's Common Stock. The Company also issued to Mount Sinai four warrants to purchase up to a total of 45,000 shares of the Company's Common Stock, each exercisable for a term of five years commencing upon the occurrence of certain milestone events. As of December 31, 1998, warrants to purchase 6,224 shares were exercisable at a per share exercise price of $4.50. Warrants to purchase 29,750 shares became exercisable at the effective date of the Company's initial public offering at a per share exercise price of $10.00. Warrants to purchase the remaining 6,250 shares were terminated on the effective date of the Company's initial public offering according to their terms. In 1996, warrants to purchase 3,124 shares were distributed by Mount Sinai to certain inventors of the relevant technology, of which 1,874 were exercised in 1997 and 902 were exercised in 1998. ARCH Development Corporation In July 1992, the Company entered into a license agreement with ARCH Development Corporation ("ARCH"), pursuant to which the Company obtained an exclusive, worldwide commercialization license, with the right to sublicense, to certain patent rights and related intellectual property and materials pertaining to the herpes simplex viruses, EBV and various recombinant methods and materials. In return for the rights granted to the Company under this agreement, the Company will make payments to ARCH upon the achievement of certain milestones in the development of products covered by the license and will pay royalties to ARCH on net sales of such products. ARCH also granted the Company certain rights to improvements and additional related technology. The term of this agreement extends until the expiration of the last-to-expire patent rights covered under the license. In connection with this agreement, ARCH purchased 40,000 shares of the Company's Common Stock. Subsequent to this agreement, affiliates of ARCH made equity investments in Aviron, purchasing shares of the Company's Series A, B and C Preferred Stock, which automatically converted into a total of 222,799 shares of the Company's Common Stock upon the closing of the Company's initial public offering. ARCH has asserted an interpretation of the financial terms of this agreement with the Company, relating to the license by Aviron of its EBV technology to SmithKline Beecham, which would require the Company to pay ARCH one-half of any future or past payments (including sub-license fees and milestone payments) received by Aviron under the SB Agreement. The Company disputes ARCH's interpretation of the financial terms of the agreement. No assurance can be given, however, that the 23 26 Company's interpretation will prevail. Failure of the Company to prevail could have a material adverse effect on the Company's business, financial condition and results of operations. BUSINESS RISKS This Form 10-K contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. When used herein, the words "expects," "anticipates," "estimates," "intends," "plans" and similar expressions are intended to identify such forward-looking statements. The Company's actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Form 10-K. UNCERTAINTIES RELATED TO CLINICAL TRIALS In order to commercialize any of its products under development, the Company must demonstrate with substantial evidence through clinical trials and to the FDA's satisfaction that the product is safe and effective for use in the indications for which approval is requested. The results from preclinical testing and early clinical trials may not be predictive of results obtained in large clinical trials. Companies in the pharmaceutical, biopharmaceutical and biotechnology industries have suffered significant setbacks in various stages of clinical trials, even in advanced clinical trials after promising results had been obtained in earlier trials. The Company's vaccines are intended for use primarily in healthy individuals. To obtain regulatory approval, the Company must demonstrate safety and efficacy in healthy people, which likely will require a lengthier process and involve a larger number of trials and people than would be customary for clinical trials of therapeutics for disease management. There can be no assurance that the Company's clinical trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or will result in marketable products. If FLUMIST(TM) is not shown to be safe and effective in Aviron's future clinical trials, the resulting delays in obtaining regulatory approvals for FLUMIST(TM), as well as the need for additional financing, would have a material adverse effect on the Company's business, financial condition and results of operations. A material incidence of adverse side effects during Aviron's clinical trials could have a negative impact on the marketing of the product. FLUMIST(TM) is a trivalent vaccine delivered as a nasal spray that is based on technology licensed from the NIH and the University of Michigan. Wyeth-Ayerst licensed certain rights to the vaccine in 1991 and was developing it for sale in collaboration with the NIH until relinquishing its rights in 1993. Formulations of the vaccine have been the subject of a number of clinical trials performed by the NIAID and others. The Company has reviewed the data from these trials and believes that it can submit such data in partial support of its application for regulatory approval of FLUMIST(TM) from the FDA. The Company did not participate in these trials and cannot be confident in the accuracy of the data collected. Very few of the trials involved a trivalent vaccine delivered as a nasal spray, but instead typically used formulations of monovalent or bivalent vaccine delivered as nasal drops. The Company has performed and is in the process of performing additional trials of FLUMIST(TM) to support its application to the FDA. There can be no assurance that the data from these third-party trials are accurate, that the Company will be able to obtain favorable results from its own trials, or that the Company can complete these trials on a timely basis, or at all. In the case of FLUMIST(TM), the Company is seeking FDA approval for indications in children, healthy adults, and for co-administration with the inactivated injectable vaccine in high-risk adults, including the elderly. As a result, the Company's clinical trials will need to demonstrate to the FDA's satisfaction safety and efficacy of the vaccine in each of these target populations. In addition, the Company currently plans to submit safety data to support labeling claims for use of the vaccine in healthy adults; however, the Company plans to submit efficacy data on only a limited number of people for these populations in its BLA filing. There can be no assurance that the FDA will consider this data to be sufficient to support indications for use of the vaccine in healthy or high-risk adults. To the extent that the FDA does not find such data submitted by the Company sufficient to support product approval for one or more indications, the Company's commercialization of the vaccine may be substantially delayed for one or more of its target populations. In this connection, the 24 27 Company could be required to commence and complete additional clinical trials to generate additional safety and efficacy data to support product approval for one or more of its target populations. See "Business -- Influenza Clinical Trials." The completion of the Company's clinical trials may be delayed by many factors. For example, delays may be encountered in enrolling a sufficient number of people fitting the appropriate trial profile, preparing the modified vaccine strain for certain influenza seasons, or manufacturing clinical trial materials. The Company's late-stage clinical trials FLUMIST(TM) must be conducted during the influenza season and must be commenced early enough in the approximately five-month season so that subjects may be vaccinated well in advance of a challenge by the wild-type virus. Were the influenza season to commence earlier than anticipated, the number of subjects that could participate in a particular study might be reduced in that season due to the subjects' possible exposure to wild-type influenza virus. Additionally, there is a risk that there will not be enough natural influenza in the community in a given influenza season to achieve statistically significant results from clinical trials. There can be no assurance that delays in, or termination of, clinical trials will not occur. Any delays in, or termination of, the Company's clinical trial efforts could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company's development efforts will be successful, that required regulatory approvals, including those with respect to IND or BLA applications, will be obtained or that any products, if introduced, will be successfully marketed. See "Business -- Vaccine Products Under Development." NEED FOR ANNUAL REASSORTMENT; LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS Influenza viruses have a high mutation rate and the surface antigens of influenza viruses that induce protective immunity are variable from year to year. Each spring, the FDA and CDC determine circulating influenza strains that will be included in the following season's influenza vaccines. As a result, manufacturers of vaccines, including Aviron, must modify their influenza vaccines each year to include the selected strains in a form that meets FDA guidelines, within an approximately six-month period, in order to make them available before the influenza season. If the Company were unable to develop an influenza vaccine for a particular year that meets FDA and CDC guidelines and establish a manufacturing process for the vaccine, its business, financial condition and results of operations would be materially adversely affected. No assurance can be given that delays in preparing vaccines for use in clinical trials for commercial sales will not be encountered. The Company currently does not have licensed facilities to manufacture FLUMIST(TM) and has no direct experience with large scale manufacture of this potential product. All of the cold adapted vaccine material used in the Company's early stage clinical trials has been supplied solely by Medeva Pharma pursuant to the Medeva Pharma Clinical Agreement. Medeva Pharma is one of four companies licensed by the FDA to produce influenza vaccine for sale in the United States, and produces its own injectable inactivated influenza vaccine that could compete with FLUMIST(TM). Under the Medeva Pharma Clinical Agreement, Medeva Pharma has been performing work for Aviron intended to result in a liquid formulation of FLUMIST(TM) requiring only refrigeration rather than frozen storage. The Company believes that a liquid formulation will be required to address markets outside the United States and Canada. The Company is also conducting development work on the liquid formulation at its facilities in California. The Company initially plans to obtain any commercial quantities of bulk vaccine of FLUMIST(TM) from Medeva Pharma. Pursuant to the Medeva Pharma Commercial Agreement, Medeva has agreed to manufacture the Company's needs for bulk product through the 2001 - 2002 influenza season. The Company and Medeva Pharma are discussing a potential agreement that would provide for commercial supplies of bulk vaccine beyond 2001; however, there can be no assurance that such an agreement will be reached. In October 1997, the Company entered into a nonexclusive arrangement with PCI for blending, filling, packaging and labeling of FLUMIST(TM) in the United States until October 2004. In the event of better than expected market acceptance, the Company may be capacity-constrained on its supply of vaccine through at least the 2001 - 2002 influenza season. In order to secure future production capacity, Aviron may extend and expand its existing arrangements, collaborate with other third parties, or establish its own manufacturing facilities. Using 25 28 an alternative supplier or building a proprietary facility would require a substantial amount of funds and additional clinical trials and testing. There can be no assurance that an alternative source of supply will be established on a timely basis, or that the Company will have or be able to obtain funds sufficient for building or equipping a new facility. In early 1999, the Company entered into a lease agreement for approximately 69,000 square feet of office, laboratory and manufacturing space in Santa Clara, California. The Company has leased this facility through January 2019, with an option to renew for seven years. In addition, as part of the regulatory approval process, before commercial launch of FLUMIST(TM), the Company will need to obtain FDA approval of its own facility, the PCI facility, and Medeva Pharma. Subsequent establishment of alternative sources of supply or manufacturing would require FDA approval for each such facility. The production of FLUMIST(TM) is subject to the availability of a large number of specific pathogen-free hen eggs, for which there are currently a limited number of suppliers. The Company has been purchasing its egg requirement from a single supplier. Contamination or disruption of this source of supply would adversely affect the ability to manufacture FLUMIST(TM). The production of FLUMIST(TM) is also subject to the availability of the device for delivery of the vaccine intranasally. In August 1998, the Company and Becton Dickinson entered into a worldwide exclusive supply agreement under which Becton Dickinson will supply the Company with its AccuSpray(TM) non-invasive nasal spray delivery system for the administration of FLUMIST(TM) through the 2001 - 2002 flu season. There can be no assurance that these suppliers will provide timely and adequate supplies of these product components and raw materials. In addition, the Company depends on the submission by the delivery device manufacturer of a DMF for separate review by regulatory authorities. The Company will reference the DMF as part of the BLA submission for FLUMIST(TM). The production and marketing of influenza vaccine is highly seasonal. Because most cases of influenza occur in winter, the majority of influenza vaccinations in the Northern Hemisphere occur between September and December of a given year. If the Company were unable to develop an influenza vaccine for a particular year that meets FDA and CDC guidelines, the Company would receive no revenues from an influenza vaccine for that influenza season, which would materially adversely affect the Company's business, financial condition and results of operation, given the relatively fixed nature of its operating expenses over the short term. Failure of one of the Company's suppliers to deliver timely and sufficient supplies to the Company, if it caused the Company to be unable to deliver vaccines during the peak demand period for the influenza season, would have a disproportionately adverse effect on the Company's financial results. The Company currently does not have facilities to manufacture any of its other potential products in commercial quantities and has no experience with large-scale commercial manufacture of vaccine products. To manufacture its other potential products for large-scale clinical trials or on a commercial scale, the Company may be required to build a large-scale manufacturing facility, which would require a significant amount of funds. The scale-up of manufacturing for commercial production would require the Company to develop advanced manufacturing techniques and rigorous process controls. However, no assurance can be given as to the ability of the Company to produce commercial quantities of its potential products in compliance with applicable regulations or at an acceptable cost, or at all. The Company is alternatively considering the use of contract manufacturers for the commercial production of its other potential products. The Company is aware of only a limited number of manufacturers which it believes have the ability and capacity to manufacture its other potential products in a timely manner. There can be no assurance that the Company would be able to contract with any of these companies for the manufacture of its products on acceptable terms, if at all. If the Company enters into an agreement with a third-party manufacturer, it may be required to relinquish control of the manufacturing process, which could adversely affect the Company's results of operations. Furthermore, a third-party manufacturer also will be required to manufacture the Company's products in compliance with state and federal regulations. Failure of any such third-party manufacturer to comply with state and federal regulations and to deliver the required quantities on a timely basis and at commercially reasonable prices would materially adversely affect the Company's business, financial condition and results of operations. No assurance can be given that the Company, alone or with a third party, will be able to make the transition to commercial production of its potential products successfully, if at all, or that if successful, the Company will be able to maintain such production. See "Business -- Production and Manufacturing." 26 29 STABILITY OF FLUMIST(TM) The Company's current frozen formulation of FLUMIST(TM) is being designed to meet an acceptable level of stability for the U.S. market initially targeted by the Company. In addition to its current frozen formulation, the Company is exploring alternative formulations and presentations for the vaccine which may enable improved distribution and longer shelf life. There can be no assurance that the Company will succeed in achieving adequate product stability for the current frozen formulation FLUMIST(TM), that the Company's efforts to produce such alternative formulations will be successful, or that such alternative formulations will actually enable improved distribution and longer shelf life. UNCERTAINTY OF MARKET ACCEPTANCE Even if the requisite regulatory approvals are obtained for the Company's potential products, uncertainty exists as to whether such products will be accepted in United States or foreign markets. The Company believes, for example, that widespread use of the Company's proposed vaccines in the United States is unlikely without positive recommendations from the ACIP, the AAP or the American College of Physicians. There can be no assurance that such authorities will recommend the use of the Company's proposed products. The lack of such recommendations would have a material adverse effect on the Company's business, financial condition and results of operations. A number of additional factors may affect the rate and overall market acceptance of FLUMIST(TM) and any other products which may be developed by the Company, including the safety and efficacy results in the Company's clinical trials, the rate of adoption of Aviron's vaccines by health care practitioners, the rate of vaccine acceptance by the target population, the success of the CDC in selecting proper strains to be included in each season's vaccine and the perceived effectiveness of influenza vaccines generally, the timing of market entry relative to competitive products, the availability of alternative technologies, the price of the Company's products relative to alternative technologies, the means and frequency of administration of such products, the availability of third-party reimbursement and the extent of marketing and sales efforts by the Company, collaborative partners and third-party distributors or agents retained by the Company. Side effects, such as the runny nose, sore throat or fever seen in a minority of clinical trial participants, or unfavorable publicity concerning Aviron's products or any product incorporating live virus vaccines could have an adverse effect on the Company's ability to obtain physician, patient or third-party payor acceptance and efforts to sell the Company's products. The Company's current formulation of FLUMIST(TM) requires frozen storage, which may adversely affect market acceptance in certain foreign countries where adequate freezer capacity is not commonly available. There can be no assurance that physicians, patients or third-party payors will accept new live virus vaccine products or any of the Company's products as readily as other types of vaccines, or at all. See "Business -- Vaccine Products Under Development." LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES Primary care physicians, including pediatricians, family practitioners, general practitioners, and internists, are expected to play a major role in influencing decisions by individuals to obtain influenza prophylaxis for themselves or their children and the choice of type of immunization. For FLUMIST(TM) to be widely adopted, it will likely be necessary to engage the efforts of an experienced pharmaceutical sales force, in addition to obtaining recommendations for FLUMIST(TM)'s use from advisory bodies such as the ACIP and AAP. Aviron currently has no direct sales or distribution capability nor does it intend to build a large pharmaceutical sales force itself. Rather, the Company intends to obtain these services through collaboration with major pharmaceutical companies in the United States and elsewhere and currently has such agreements covering FLUMIST(TM) with Wyeth Lederle and CSL Limited. See "Business Collaborations." The successful commercialization of the Company's products is dependent in part upon the ability of the Company to maintain existing and enter into additional collaborative agreements with corporate partners for the development, testing and marketing of certain of its vaccines and upon the ability of these third parties to perform their responsibilities. The amount and timing of resources devoted to these activities is not within the control of the Company. There can be no assurance that any such agreements or arrangements will be 27 30 available on terms acceptable to the Company, if at all, that such third parties would perform their obligations as expected, or that any revenue would be derived from such arrangements. If Aviron is not able to enter into such agreements or arrangements, it could encounter delays in introducing its products into the market or be forced to limit the scope of its commercialization activities. If the Company were to market products directly, significantly additional expenditures, management resources and time would be required to develop a sales and marketing staff within the Company. In addition, the Company would also be competing with other companies that currently have experienced and well funded marketing and sales operations. There can be no assurance that the Company will be able to establish its own sales and marketing force or that any such force, if established, would be successful in gaining market acceptance for any products that may be developed by the Company. See "Business -- Marketing and Sales" and "-- Collaborative Agreements." NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL The Company's operations to date have consumed substantial and increasing amounts of cash. The negative cash flow from operations is expected to continue and to accelerate in the foreseeable future. The development of the Company's technology and proposed products will require a commitment of substantial funds to conduct the costly and time-consuming research, preclinical testing and clinical trials necessary to develop and optimize such technology and proposed products, to establish manufacturing, marketing and sales capabilities and to bring any such products to market. The Company's future capital requirements will depend upon many factors, including continued scientific progress in the research and development of the Company's technology and vaccine programs, the size and complexity of these programs, the ability of the Company to establish and maintain collaborative arrangements, progress with preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims or trade secrets and product commercialization activities. The Company anticipates that revenues from existing collaborations and current balances of cash, cash equivalents and marketable securities, will enable it to maintain its current and planned operations into 2000. The estimate of the time period in which these capital resources will be sufficient to meet the Company's capital requirements is a forward-looking statement that is subject to risks and uncertainties and the amounts and timing of the expenditures by the Company may vary materially depending on numerous factors, such as the status of the Company's research and development efforts, the regulatory approval process, technological advances, determinations as to commercial potential, the terms of collaborative agreements entered into by the Company, the status of competitive products and the possibility of the Company's construction of a commercial manufacturing facility for its potential products.. If additional funds are raised by issuing equity securities, further dilution to stockholders may result. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs or to obtain funds through collaborative arrangements with others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would otherwise seek to develop or commercialize itself, which could materially adversely affect the Company's business, financial condition and results of operations. UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY Aviron commenced its operations in April 1992 and is in an early stage of development. Three Company products are in clinical trials. To date, the Company has had no revenue from product sales and all of its resources have been dedicated to the development of vaccines. There can be no assurance that product revenues will be realized on a timely basis, if ever. The development of safe and effective live vaccines for the prevention of viral diseases such as influenza, parainfluenza and other target diseases is highly uncertain and subject to numerous risks. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. Potential products may be found ineffective or cause harmful side effects during preclinical testing or clinical trials, fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale, be uneconomical, fail to achieve market acceptance or be precluded from commercialization by proprietary rights of third parties. Aviron has not yet requested or received the regulatory approvals that are required to market 28 31 its products. The Company's estimate of the potential timing of commercialization of its proposed products is a forward-looking statement that is subject to risks and uncertainties and actual results may vary materially as a result of a number of factors. Such factors include those described under "-- Uncertainties Related to Clinical Trials," "-- Lack of Manufacturing Experience; Reliance on Contract Manufacturers," and "-- Stability of FLUMIST(TM)." To achieve profitability, the Company, alone or with others, must successfully identify, develop, test, manufacture and market its products. There can be no assurance that Aviron will succeed in the development and marketing of any product. Any potential product requires significant additional investment, development, preclinical testing and clinical trials prior to potential regulatory approval and commercialization. UNCERTAINTY OF FUTURE PROFITABILITY; ACCUMULATED DEFICIT The Company has experienced significant and increasing operating losses since its inception in April 1992. As of December 31, 1998, the Company had an accumulated deficit of approximately $121.3 million. Aviron has not received any product revenue to date and does not expect to generate revenues from the sale of products until 2000 at the earliest, if at all. The Company expects to incur significant and increasing operating losses over at least the next several years as the Company's research and development efforts, preclinical testing and clinical trial activities expand. The Company's ability to achieve profitability, or to refinance its obligations with respect to its indebtedness, depends in part upon its ability, alone or with others, to complete development of its proposed products, to obtain required regulatory approvals and to successfully manufacture and market such products. To the extent that the Company is unable to obtain third-party funding for expenses, the Company expects that its increased expenses will result in increased losses from operations. There can be no assurance that Aviron will obtain required regulatory approvals or successfully identify, develop, test, manufacture and market any product candidates, or that the Company will ever achieve product revenues or profitability. There can be no assurance that the Company's revenues, operating results, cash flow and capital resources if and once generated will be sufficient for payment of its indebtedness in the future. In the absence of such revenues, operating results, cash flow and capital resources or in the event of any such delays or other problems, the Company could face substantial liquidity problems and might be required to dispose of material assets or operations to meet its debt service and other obligations, and there can be no assurance as to the timing of such sales or the proceeds that the Company could realize therefrom. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS; DEPENDENCE ON TRADE SECRETS The Company's success will depend in part on its ability to maintain its technology licenses, maintain trade secrets, obtain patents and operate without infringing the proprietary rights of others, both in the United States and in other countries. Since patent applications in the United States are maintained in secrecy until patents issue and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, the Company cannot be certain that it was the first to make the inventions covered by each of its pending patent applications or that it was the first to file patent applications for such inventions. The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions, and therefore the breadth of claims allowed in biotechnology and pharmaceutical patents, or their enforceability, cannot be predicted. There can be no assurance that any of the Company's or its licensors' patents or patent applications will issue or, if issued, will not be reexamined, reissued, opposed, challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company. In May 1996, American Cyanamid Company filed an opposition to the grant of the Company's European patent with claims directed to chimeric negative strand RNA viruses and to methods of engineering these viruses to express foreign proteins and antigens. American Cyanamid Company primarily challenges the breadth of the claims that the Company was granted. Although the Company is responding to the opposition, no assurance can be given as to the scope of the claims, if any, which the European Patent Office ultimately 29 32 will find patentable. Failure of the Company to prevail in the opposition would impede the Company's ability to prevent competitors from using this technology in Europe. The commercial success of Aviron additionally will depend, in part, upon the Company not infringing patents issued to others. A number of pharmaceutical companies, biotechnology companies, universities and research institutions have filed patent applications or received patents in the areas of the Company's programs. Some of these patent applications or patents may limit the scope of claims issuing from the Company's patent applications, prevent certain claims from being issued, or conflict in certain respects with claims made under the Company's applications. The Company is aware of patent applications that have been filed by others that may pertain to certain aspects of the Company's programs or to its patents or patent applications, including the patents related to the Company's RSV vaccine under development. The Company is aware of a claim by a third party, regarding inventorship of subject matter claimed in a United States patent which, along with its related foreign counterpart patents and applications, is licensed to the Company and which is directed to certain aspects of technology relating to herpes viruses. This claim may also relate to a pending United States patent application which is a continuation of the licensed patent. It is presently unclear whether this claim of inventorship is valid, and, if valid, it could affect ownership of the subject United States patent and patent application as well as their foreign counterparts. If patents have been or are issued to others containing preclusive or conflicting claims and such claims are ultimately determined to be valid, the Company may be required to obtain licenses to these patents or to develop or obtain alternative technology. No assurance can be given that patents have not been issued, or will not be issued, to third parties that contain preclusive or conflicting claims with respect to the cold adapted influenza vaccine or any of the Company's other programs. The Company's breach of an existing license or failure to obtain a license to technology required to commercialize its products may have a material adverse effect on the Company's business, financial condition and results of operations. Litigation, which could result in substantial costs to the Company, may also be necessary to enforce any patents issued to the Company or to determine the scope and validity of third-party proprietary rights. If competitors of the Company prepare and file patent applications in the United States that claim technology also claimed by the Company, the Company may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial cost to the Company, even if the eventual outcome is favorable to the Company. An adverse outcome could subject the Company to significant liabilities to third parties and require the Company to license disputed rights from third parties or to cease using such technology. The patent laws of European and certain other foreign countries generally do not allow for the issuance of patents for methods of treatment of the human body. To the extent the Company's patent portfolio includes claims for methods of treating humans, these methods may not be protectable in Europe and certain other foreign countries. The Company also relies on trade secrets to protect its technology, especially where patent protection is not believed to be appropriate or obtainable. Certain of the Company's licensors also rely on trade secrets to protect technology which has been licensed to Aviron, and as a result, the Company is dependent on the efforts of such licensors to protect such trade secrets. For example, the University of Michigan relies, in part, on trade secrets to protect the master strains of the cold adapted influenza virus used by the Company and the NIH relies in part on trade secrets to protect the master strains of the bPIV-3 virus. Aviron protects its proprietary technology and processes, in part, by confidentiality agreements or material transfer agreements with its employees, consultants, collaborators and certain contractors. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets or those of its licensors will not otherwise become known or be independently discovered by competitors. To the extent that Aviron or its consultants or research collaborators use intellectual property owned by others in their work for the Company, disputes may also arise as to the rights in related or resulting know-how and inventions. See "-- Lack of Patent Protection of Cold Adapted Influenza Master Donor Strains." 30 33 LACK OF PATENT PROTECTION OF COLD ADAPTED INFLUENZA MASTER DONOR STRAINS The Company has no issued patents covering the cold adapted influenza master donor strains. The Company's rights to the master donor strains are substantially based on an exclusive worldwide license of materials and know-how from the University of Michigan, which owns the master donor strains from which the Company's vaccine is derived, and on an exclusive license of know-how and clinical trial data from the NIH. Neither the University of Michigan nor the NIH has been issued any patents covering the cold adapted influenza vaccine. There can be no assurance that a third party will not gain access by some means to University of Michigan master donor strains, reproduce the Company's cold adapted influenza vaccine or develop another live virus influenza vaccine which might be comparable to Aviron's in terms of safety and effectiveness. See "-- Uncertainty of Protection of Patents and Proprietary Rights; Dependence on Trade Secrets." GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS The production and marketing of the Company's products and its ongoing research and development activities are subject to extensive regulation by numerous government authorities in the United States and other countries. Prior to marketing in the United States, any product developed by the Company must undergo rigorous preclinical testing and clinical trials and an extensive regulatory approval process implemented by the FDA under the Food, Drug and Cosmetic Act. Satisfaction of such regulatory requirements, which includes demonstrating that the product is both safe and effective, typically takes several years or more depending upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. This process may be more demanding for vaccines intended for use in healthy people compared to therapeutics used for treatment of people with diseases. Preclinical studies must be conducted in compliance with the FDA's Good Laboratory Practice regulations. Clinical testing must meet requirements for Institutional Review Board oversight and informed consent, as well as FDA prior review, oversight and Good Clinical Practice regulations. The Company has limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval. Furthermore, the Company or the FDA may suspend clinical trials at any time if either believes that the subjects participating in such trials are being exposed to unacceptable health risks. The Company understands that its vaccine products will be classified by the FDA as "biologic products," as opposed to "drug products." The steps ordinarily required before a biologic product may be marketed in the United States include (a) preclinical testing and clinical trials; (b) the submission to the FDA of an IND, which must become effective before clinical trials may commence; (c) adequate and well-controlled clinical trials to establish the safety and efficacy of the drug; (d) the submission to the FDA of a BLA; and (e) FDA approval of the applications, including approval of all product labeling. Preclinical testing includes laboratory evaluation of product chemistry, formulation and stability, as well as animal studies to assess the potential safety and efficacy of each product. The results of the preclinical tests are submitted to the FDA as part of an IND and are reviewed by the FDA before the commencement of clinical trials. Unless the FDA objects to an IND, the IND will become effective 30 days following its receipt by the FDA. There can be no assurance that submission of an IND will result in FDA authorization to commence clinical trials or that the lack of an objection means that the FDA will ultimately approve an application for marketing approval. Before receiving FDA approval to market a product in accordance with the above procedures, the Company will have to demonstrate that the product is safe and effective. Data obtained from preclinical testing and clinical trials are susceptible to varying interpretations which could delay, limit or prevent regulatory approvals. In addition, delays or rejections may be encountered based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. Similar delays may also be encountered in foreign countries. There can be no assurance that even after such time and expenditures, regulatory approval will be obtained for any products developed by the Company. If regulatory approval of a product is granted, such approval and related labeling claims will be limited to those specific segments of the population for which 31 34 the product is safe and effective, as demonstrated through clinical trials. Furthermore, approval may entail ongoing requirements for post-marketing studies. Even if such regulatory approval is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections. The regulatory standards for manufacturing are currently being applied stringently by the FDA. Discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on such product or manufacturer, including costly recalls or even withdrawal of the product from the market. There can be no assurance that any product developed by the Company alone or in conjunction with others will prove to be safe and efficacious in clinical trials and will meet all of the applicable regulatory requirements needed to receive or maintain marketing approval. The Company believes that the approval process for vaccines may be longer than for therapeutic products, since vaccines are administered to healthy individuals. In addition, regulatory scrutiny may be particularly intense for products, such as FLUMIST(TM), which are designed to be given to healthy children. Outside the United States, the Company's ability to market a product is contingent upon receiving marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within the European Union (the "EU"), procedures are available to companies wishing to market a product in more than one EU member state. If the regulatory authorities are satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization will be granted. This foreign regulatory approval process includes all of the risks associated with FDA approval set forth above. COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE The Company operates in a rapidly evolving field. Any product developed by the Company would compete with existing and new drugs and vaccines being created by pharmaceutical, biopharmaceutical and biotechnology companies. If the Company were able to successfully develop its vaccines, it would be competing with larger companies that have already introduced vaccines and have significantly greater marketing, sales, manufacturing, financial and managerial resources. For example, with respect to FLUMIST(TM), the Company will be competing against larger companies which sell the injectable inactivated influenza vaccine in the United States, have significantly greater financial and market resources than Aviron and have established marketing and distribution channels for such products. In addition, the Company is aware of efforts to develop improved inactivated injectable influenza vaccines. Further, the Company is aware of several large pharmaceutical companies that alone or with partners are developing new drug therapies designed to relieve the symptoms of influenza. The Company is also aware of several companies that are marketing or are in late-stage development of products to prevent CMV or HSV disease. New developments are expected to continue in the pharmaceutical, biopharmaceutical and biotechnology industries and in academia, government agencies and other research organizations. Other companies may succeed in developing products that are safer, more effective or less costly than any that may be developed by the Company. Such companies may also be more effective than the Company in the production and marketing of their products. Furthermore, rapid technological development by competitors may result in the Company's products becoming obsolete before the Company is able to recover its research, development or commercialization expenses incurred in connection with any such product. Many potential competitors have substantially greater financial, technical, marketing and sales resources than the Company. Some of these companies also have considerable experience in preclinical testing, clinical trials and other regulatory approval procedures. Moreover, certain academic institutions, government agencies and other research organizations are conducting research in areas in which the Company is working. These institutions are becoming increasingly aware of the commercial value of their findings and are becoming more active in seeking patent protection and licensing arrangements to collect royalties for the use of technology that they have developed. These institutions may also market competitive commercial products on their own or through joint ventures. Aviron believes that competition in the markets it is addressing will continue to be intense. The vaccine industry is characterized by intense price competition, and the Company anticipates that it will face this and 32 35 other forms of competition. There can be no assurance that pharmaceutical, biopharmaceutical and biotechnology companies will not develop more effective products than those of the Company or will not market and sell their products more effectively than the Company, which would have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON COLLABORATIVE AGREEMENTS The Company's strategy for the development, clinical trials, manufacturing and commercialization of certain of its products includes maintaining and entering into various collaborations with corporate partners, licensors, licensees and others. The Company in-licensed its cold adapted influenza vaccine from the NIAID and the University of Michigan. It has obtained rights to certain recombinant negative strand RNA technology from Mount Sinai, and rights to the herpes simplex viruses, EBV and various recombinant methods and materials from ARCH. The Company has entered into agreements with Wyeth Lederle and CSL Limited for FLUMIST(TM), and SmithKline Beecham for the development of its EBV vaccine, with Sang-A for clinical development, manufacturing and development rights for certain products in Korea and certain Asian countries (not including Japan), and has licensed from the NIAID rights covering its PIV-3 vaccine. There can be no assurance that the Company will be able to maintain existing collaborative agreements, negotiate collaborative arrangements in the future on acceptable terms, if at all, or that any such collaborative arrangements will be successful. To the extent that the Company is not able to maintain or establish such arrangements, the Company would be required to undertake product development and commercialization activities at its own expense, which would increase the Company's capital requirements or require the Company to limit the scope of its development and commercialization activities. In addition, the Company may encounter significant delays in introducing its products into certain markets or find that the development, manufacture or sale of its products in such markets is adversely affected by the absence of such collaborative agreements. ARCH has recently asserted an interpretation of the financial terms of this agreement with the Company, relating to the license by Aviron of its EBV technology to SmithKline Beecham, which would require the Company to pay ARCH one-half of any future or past payments (including sub-license fees and milestone payments) received by Aviron under the SB Agreement. The Company disputes ARCH's interpretation of the financial terms of the agreement. No assurance can be given, however, that the Company's interpretation will prevail. Failure of the Company to prevail in this matter could have a material adverse effect on the Company's business, financial condition and results of operations. The Company cannot control the amount and timing of resources that its collaborative partners devote to the Company's programs or potential products, which may vary, because of factors unrelated to the potential products. If any of the Company's collaborative partners breach or terminate their agreements with the Company or otherwise fail to conduct their collaborative activities in a timely manner, the preclinical or clinical development or commercialization of product candidates or research programs will be delayed and the Company would be required to devote additional resources to product development and commercialization, or terminate certain development programs. These relationships generally may be terminated at the discretion of the Company's collaborative partners, in some cases with only limited notice to the Company. The termination of collaborative arrangements could have a material adverse effect on the Company's business, financial condition and results of operations. There also can be no assurance that disputes will not arise in the future with respect to the ownership of rights to any technology developed with third parties. These and other possible disagreements between collaborators and the Company could lead to delays in the collaborative research, development or commercialization of certain product candidates, or could result in litigation or arbitration, which would be time consuming and expensive, and would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, Aviron's collaborative partners may develop, either alone or with others, products that compete with the development and marketing of the Company's products. Competing products of the Company's collaborative partners may result in their withdrawal of support with respect to all or a portion of the Company's technology, which would have a material adverse effect on the Company's business, financial condition and results of operations. 33 36 EXECUTIVE OFFICERS, SENIOR MANAGEMENT AND CONSULTANTS The executive officers and senior management of the Company are set forth below:
AGE POSITION --- -------- EXECUTIVE OFFICERS J. Leighton Read, M.D. .......... 48 Chairman and Chief Executive Officer Fred Kurland..................... 49 Senior Vice President and Chief Financial Officer Carol A. Olson................... 41 Senior Vice President, Commercial Development SENIOR MANAGEMENT Victor Jegede, Ph.D. ............ 54 Vice President, Technical Affairs Paul M. Mendelman, M.D. ......... 51 Vice President, Clinical Research Louis F. Mocca................... 48 Vice President, Regulatory Affairs Eric J. Patzer, Ph.D. ........... 49 Vice President, Development Kurt Vorheis..................... 48 Vice President, Operations CONSULTANTS Ann M. Arvin, M.D. .............. 52 Principal Research Consultant
J. Leighton Read, M.D., a founder of the Company, has been Chairman and Chief Executive Officer of the Company since 1992 and was Chief Financial Officer of the Company from 1992 until 1996. In 1989, he co-founded Affymax N.V. with Dr. Alejandro Zaffaroni, serving initially as its Executive Vice President and Chief Operating Officer and later, from 1990 to 1991, as President of the Pharma Division and as a Managing Director of the parent company. From 1991 to 1993, Dr. Read was a principal with Interhealth Limited, an investment partnership. He has served on the boards of a number of private biotechnology companies and is currently on the board of CV Therapeutics, Inc. and AxyS Pharmaceuticals, Inc., both of which are biotechnology companies, and is a member of the Biotechnology Industry Organization (BIO) Board of Directors and Emerging Companies Section Governing Body. Dr. Read holds a B.S. in Biology and Psychology from Rice University and an M.D. from the University of Texas Health Science Center at San Antonio. Fred Kurland has been Senior Vice President and Chief Financial Officer of the Company since 1998. Prior to joining the Company, Mr. Kurland was Vice President and Chief Financial Officer of Protein Design Labs, Inc., a biotechnology company, from 1996 to 1998. From 1995 to 1996, Mr. Kurland was Vice President and Chief Financial Officer at Applied Immune Sciences, a biotechnology company, and from 1981 to 1995, he held a number of positions at Syntex Corporation, a pharmaceutical company, most recently as Vice President and Controller. Mr. Kurland, a Certified Public Accountant, holds a B.S. in Business and Economics from Lehigh University, and an M.B.A. and a J.D. from the University of Chicago. Carol A. Olson has been Senior Vice President, Commercial Development of the Company since 1998. Prior to joining the Company, Ms. Olson served as managing director of the Churchill Madison Group, a management-consulting group she founded to develop and expand new businesses in medical and high technology industries. From 1984 to 1993, Ms. Olson was with Hewlett-Packard Company's Commercial Systems Division. Ms. Olson holds a B.A. in Economics from Yale University and an M.B.A. from Stanford University. Victor Jegede, Ph.D., has been Vice President, Technical Affairs of the Company since 1995. From 1992 to 1994, Dr. Jegede was Vice President, Regulatory Affairs and Quality for Creative BioMolecules, Inc., a biopharmaceuticals company, and from 1989 to 1992, he was Director, Regulatory Affairs and Quality for WelGen Manufacturing Partnership (BW Manufacturing, Inc.), a division of Burroughs Wellcome Manufacturing, Inc., a pharmaceutical manufacturer. Dr. Jegede holds a B.S. and an M.S. in Biology and a Ph.D. in Bacteriology from Boston College. Paul M. Mendelman, M.D., has been Vice President, Clinical Research of the Company since 1996. Dr. Mendelman also is currently consulting professor in the Department of Pediatrics at the Stanford University School of Medicine. Prior to joining the Company, Dr. Mendelman was Director, Clinical 34 37 Research, Infectious Diseases for Merck Research Laboratories, a pharmaceutical company, since 1991. From 1983 to 1991, Dr. Mendelman was Clinical Instructor, Assistant Professor and then Associate Professor of Pediatrics at the University of Washington. Dr. Mendelman holds a B.S. and an M.D. from Ohio State University and is a fellow of the American Academy of Pediatrics. Louis F. Mocca has been Vice President, Regulatory Affairs of the Company since March 1999. Mr. Mocca joined the Company from North American Vaccine, Inc., where he served as Senior Director, Regulatory Affairs since March 1998. From 1996 to 1998, Mr. Mocca was Director, Worldwide Regulatory Affairs at Bristol-Myers Squibb. Prior to joining Bristol-Myers Squibb, he served for twenty years as a researcher and reviewer at the FDA Center for Biologics Evaluation and Research. Mr. Mocca holds a B.S. in Epidemiology and Environmental Health and an M.S. in Medical Mycology (microbiology), both from George Washington University. Eric J. Patzer, Ph.D., has been Vice President, Development of the Company since 1996. Prior to joining the Company, Dr. Patzer held various positions with Genentech, Inc, a pharmaceutical company, since 1981, most recently as Vice President, Development. Dr. Patzer holds a B.S. in Mechanical Engineering from The Pennsylvania State University and a Ph.D. in Microbiology from the University of Virginia. Kurt Vorheis has been Vice President, Operations of the Company since 1998. Mr. Vorheis joined the Company from Chiron Corporation, a biotechnology company, where he served as Senior Director, global manufacturing -- information and planning since 1996. He also served as Senior Director of Chiron Biocine with responsibility for worldwide vaccine production planning and logistics. Mr. Vorheis joined Chiron Corporation in 1992 as Director of Corporate Engineering. Mr. Vorheis attended the University of California, Berkeley and Purdue University, and has a lifetime California Community College teaching credential. Ann M. Arvin, Ph.D., is a member of Aviron's Scientific Advisory Board. Dr. Arvin is leading the Company's early-stage research programs as Principal Research Consultant during 1999 while on sabbatical from Stanford University School of Medicine, where Dr. Arvin is the Lucile Salter Packard Professor of Pediatrics, Microbiology and Immunology. Dr. Arvin joined the faculty in 1978 as Assistant Professor of Pediatrics, Infectious Diseases, and was appointed to her current position in 1989. Dr. Arvin served her residency at the University of California-San Francisco ("UCSF") and performed postdoctoral work in pediatric infectious diseases at UCSF and Stanford University. ITEM 2. PROPERTIES The Company leases approximately 52,800 square feet of office and laboratory space in Mountain View, California. The Company has leased this facility through October 2005 and has two options to extend the lease for successive five-year periods. In addition, the Company is leasing space pursuant to the PCI Agreement. In February 1999, the Company entered into a lease agreement for approximately 69,000 square feet of office, laboratory and manufacturing space in Santa Clara, California. The Company has leased this facility through January 2019, with an option to renew for seven years. The Company also has a right of first notice to lease an additional 80,000 square feet of space in buildings adjacent to its current Mountain View facility beginning in 1999. The Company expects that, assuming it is able to lease all or a significant portion of this space, it will be able to meet its facility needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS In May 1996, American Cyanamid Company filed an opposition to the grant of the Company's European patent with claims directed to chimeric negative strand RNA viruses and to methods of engineering these viruses to express foreign proteins and antigens. American Cyanamid Company primarily challenges the breadth of the claims which the Company was granted. Although the Company is responding to the opposition, no assurance can be given as to the scope of the claims, if any, which the European Patent Office ultimately will find patentable. Failure of the Company to prevail in the opposition would impede the Company's ability to prevent competitors from using this technology in Europe. 35 38 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to vote of the Company's security holders during the fourth quarter of the fiscal year ended December 31, 1998. 36 39 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK MATTERS The Company's Common Stock is traded on the Nasdaq National Market under the symbol "AVIR." Public trading of the Common Stock commenced on November 5, 1996. Prior to that, there was no public market for the Common Stock. The following table set forth for the periods indicated the high and low price per share of the common stock on the Nasdaq National Market. These prices represent quotations among dealers without adjustments for retail mark-ups, mark-downs or commission, and may not represent actual transactions.
HIGH LOW ------ ------ 1997 First Quarter ended March 31, 1997....................... $12.75 $ 6.75 Second Quarter ended June 30, 1997....................... 15.25 8.00 Third Quarter ended September 30, 1997................... 32.75 11.00 Fourth Quarter ended December 31, 1997................... 28.50 18.75 1998 First Quarter ended March 31, 1998....................... 28.00 22.88 Second Quarter ended June 30, 1998....................... 33.00 22.00 Third Quarter ended September 30, 1998................... 33.00 11.50 Fourth Quarter ended December 31, 1998................... 26.63 11.50
On March 17, 1999, there were 439 holders of record of the Company's common stock. The Company has never paid cash dividends on its common stock. The Company presently intends to retain earnings for use in the operation and expansion of its business and therefore does not anticipate paying any cash dividends in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES None. 37 40 ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation" and the Financial Statements and Notes thereto included elsewhere in this Form 10-K.
1994 1995 1996 1997 1998 ------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total revenues........................... $ -- $ 1,707 $ 1,625 $ 1,477 $ 745 Operating Expenses: Research and development............... 4,216 10,220 14,997 24,254 46,583 General, administrative and marketing........................... 2,493 3,252 4,595 5,978 10,085 ------- -------- -------- -------- -------- Total operating expenses....... 6,709 13,472 19,592 30,232 56,668 ------- -------- -------- -------- -------- Loss from operations..................... (6,709) (11,765) (17,967) (28,755) (55,923) ------- -------- -------- -------- -------- Interest income, net of interest expense................................ 207 362 466 2,253 1,121 ------- -------- -------- -------- -------- Net loss................................. $(6,502) $(11,403) (17,501) $(26,502) $(54,802) ======= ======== ======== ======== ======== Basic and diluted net loss per share..... $ (20.79) $ (7.27) $ (1.94) $ (3.49) ======== ======== ======== ======== Shares used in computing basic and diluted net loss per share............. 546 2,406 13,684 15,724 ======== ======== ======== ========
DECEMBER 31, --------------------------------------------------- 1994 1995 1996 1997 1998 ------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and investments... $ 6,449 $ 17,819 $ 17,872 $ 75,111 $ 94,858 Working capital.......................... 5,877 16,775 16,411 54,580 79,369 Total assets............................. 7,789 19,878 21,592 85,325 120,985 Capital lease obligations, non-current... 750 618 871 521 113 Convertible debt......................... -- -- -- -- 100,000 Deferred compensation.................... -- 180 1,099 588 237 Accumulated deficit...................... (11,060) (22,444) (39,935) (66,411) (121,254) Total stockholders' equity............... 6,362 17,537 17,947 75,742 8,966
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Business -- Business Risks" elsewhere in this Form 10-K. OVERVIEW Since its inception in April 1992, Aviron has devoted substantially all of its resources to its research and development programs. To date, Aviron has not generated any revenues from the sale of products and does not expect to generate any such revenues until 2000 at the earliest. Aviron has incurred cumulative net losses of approximately $121.3 million as of December 31, 1998, and it expects to incur substantial operating losses over at least the next several years. Aviron has financed its operations through proceeds from private placements of preferred stock, two public offerings and a private placement of Common Stock, a private placement of convertible subordinated notes ("Notes"), revenue from its collaborative agreements, equipment lease financings and investment income earned on cash, cash equivalent balances and marketable securities. On June 30, 1998 Aviron submitted its first PLA/ELA to the FDA for FLUMIST(TM). On August 31, 1998 Aviron announced that it had received notice from the FDA that its submission was not accepted for filing due 38 41 to lack of data on manufacturing, validation and stability. Aviron intends to resubmit applications for U.S. licensure for FLUMIST(TM) to prevent influenza and its complications in children and adults in the summer or fall of 1999. The Company expects its research and development expenditures to increase substantially over the next several years as the Company expands its research and development efforts, preclinical testing and clinical trials with respect to certain of its programs, and early-stage manufacturing activities principally in regard to FLUMIST(TM). In addition, general, administrative and marketing expenses are expected to continue to increase as the Company expands its operations and prepares for the potential commercial launch of FLUMIST(TM). Partnering Agreements The Company has entered into several development and marketing agreements with respect to its products. In June 1998, the Company announced the signing of an agreement with CSL Limited to develop, sell and distribute FLUMIST(TM) in Australia, New Zealand and certain countries in the south Pacific region. Under the agreement, CSL Limited and Aviron will jointly carry out additional trials in Australia for FLUMIST(TM). In January 1999, the Company announced a worldwide collaboration for the marketing of FLUMIST(TM) with Wyeth Lederle, under which Wyeth Lederle and the Company will co-promote FLUMIST(TM) in the United States, while Wyeth Lederle will have the exclusive right to market the product outside the United States, except for Korea, Australia, New Zealand and certain countries in the South Pacific region. Wyeth Lederle and the Company will collaborate on the regulatory, clinical and marketing programs for FLUMIST(TM). Expenses associated with these agreements are expected to increase as the Company continues preclinical testing and clinical trials and prepares for the potential commercial launch of FLUMIST(TM). No assurance can be given, however, that the Company will receive any future payments from CSL Limited or Wyeth Lederle. In October 1995, the Company signed an agreement with SmithKline Beecham defining a collaboration on the Company's EBV vaccine technology. Under the terms of this agreement, the Company granted SmithKline Beecham an exclusive license to produce, use and sell non-live EBV vaccines incorporating the Company's technology for prophylactic and therapeutic uses on a worldwide basis, except in Korea. The Company retained the right to co-market a monovalent formulation of the EBV vaccine in the United States and to have SmithKline Beecham supply such vaccine. SmithKline Beecham agreed to fund research and development at the Company related to the EBV vaccine, in specified minimum amounts, during the first two years of the agreement. SmithKline Beecham made an initial upfront payment to the Company and agreed to make additional payments upon the achievement of certain product development milestones; the first such milestone payment was made in 1997. The Company is entitled to royalties from SmithKline Beecham based on net sales of the vaccine. No assurance can be given, however, that the Company will receive any future payments from SmithKline Beecham or that SmithKline Beecham will not terminate this agreement. In May 1995, the Company entered into a Development and License Agreement with Sang-A. The Company granted to Sang-A exclusive clinical development, manufacturing and marketing rights in Korea for specified products developed by Aviron, including vaccines for influenza (cold adapted and recombinant), EBV, CMV, HSV-2 and RSV. However, the Company is under no obligation to develop any product. Sang-A also will make payments to the Company upon Sang-A's meeting certain regulatory milestones for each product in Korea and will pay a royalty to the Company on net sales of such products in South and North Korea. No assurance can be given, however, that the Company will receive any future payments from Sang-A or that Sang-A will not terminate its agreement with the Company. In January 1997, Sang-A declared bankruptcy. The Company is unable to predict what, if any, long-term effect the bankruptcy will have on Sang-A and on the Company's agreement with Sang-A. In March 1998, the Company entered into a Stock Repurchase Agreement with Sang-A under which the Company repurchased 530,831 shares of its Common Stock from Sang-A at a price of $25.13 per share. Manufacturing Facilities In April 1997, the Company entered into an agreement with Medeva Pharma for the commercial manufacture of FLUMIST(TM) through December 2001. The Company and Medeva Pharma are discussing a 39 42 potential agreement that would provide for commercial supplies of bulk vaccine beyond 2001; however, there can be no assurance that such an agreement will be reached. In October 1997, the Company entered into an agreement with PCI for the blending, filling, packaging and labeling of FLUMIST(TM) in the United States until October 2004. In 1998, Aviron and PCI opened a 34,000-square-foot manufacturing suite in Philadelphia, Pennsylvania at PCI's site, in which PCI has blended, filled and packaged doses of FLUMIST(TM) for use in 1998 - 99 clinical trials. If regulatory approval is received, the PCI facility is expected to be used for blending, filling, packaging, labeling and storage of FLUMIST(TM). The agreements with Medeva Pharma and PCI have required the Company to fund the construction of facilities, improvements, and equipment and will continue to require the Company to incur expenses for the duration of the agreements for facility space, utilities and insurance. In the event of a better than expected market acceptance, the Company may be capacity constrained in its supply of vaccine through at least the 2000 - 2001 influenza season. In order to secure future production capacity, the Company may extend and expand its existing arrangements, collaborate with other third parties, or establish its own manufacturing facilities. Using an alternative supplier or building a proprietary facility would require a substantial amount of funds and additional clinical trials and testing. There can be no assurance that an alternative source of supply will be established on a timely basis, or that the Company will have or be able to obtain funds sufficient for building or equipping a new facility. In addition, in February 1999, the Company announced that it has leased a 69,000 square-foot building in Santa Clara, California. The facility will provide additional manufacturing, laboratory, pilot plant and office space to accommodate growth. This additional space will require the commitment of significant additional funds during 1999 and 2000 for renovation, equipment and furnishings. The Company is currently evaluating the costs and benefits of developing internal manufacturing capabilities or contracting for expanded or alternative sources of supply from third-party manufacturers for products other than FLUMIST(TM). Research Grants In July 1998, the Company received notice from the NIAID of a Small Business Innovation Research ("SBIR") grant to support development of its live attenuated vaccine for the prevention of disease caused by CMV. The $750,000 grant is the second that Aviron has received for research on CMV. In September 1998, the total grant amount was increased by an additional $200,000 to $950,000. A portion of the award has been used to produce recombinant CMV vaccine candidates for human testing. The remainder of the award will be used to determine the safety and immunogenicity of these vaccine candidates in a Phase 1 clinical trial in collaboration with the NIAID Vaccine Treatment and Evaluation Unit network. No assurance can be given, however, that the Company will receive any future grants to support its research or that such research will result in commercially viable products. In July 1998, the Company received notice from the NIAID of an SBIR grant in the amount of $99,700 for the rational design of a live, attenuated vaccine for the prevention of disease caused by HSV-2. Business Risks The Company's business is subject to significant risks, including but not limited to the risks inherent in its research and development efforts, including preclinical testing and clinical trials; uncertainties associated both with obtaining and enforcing its patents and with the patent rights of others; the lengthy, expensive and uncertain process of seeking regulatory approvals; uncertainties regarding government reforms and product pricing and reimbursement levels; technological change and competition; manufacturing uncertainties and dependence on third parties. Even if the Company's product candidates appear promising at an early stage of development, they may not reach the market for numerous reasons. Such reasons include the possibilities that the products will be found unsafe or ineffective during clinical trials, will fail to receive necessary regulatory approvals, will be difficult to manufacture on a large scale, will be uneconomical to market or will be precluded from commercialization by proprietary rights of third parties. See "Business Risks" in Part I of this Form 10-K. 40 43 RESULTS OF OPERATIONS Years Ended December 31, 1998 and 1997 Revenues. Total revenues for the year ended December 31, 1998 were $0.7 million, compared to $1.5 million for the year ended December 31, 1997. Revenues for 1998 comprised of payments under governmental research grants and contract revenue for services provided for others by the Company's animal research facility. Revenues for 1997 were principally payments for research support and milestones due to the Company under its license and development agreement with SmithKline Beecham for Aviron's Epstein-Barr virus vaccine. Operating Expenses. Research and development costs rose to $46.6 million in 1998 from $24.3 million in 1997. These increases were primarily due to increases in research and development activities and clinical trials of FLUMIST(TM) and the Company's Parainfluenza Virus Type 3 (PIV-3) vaccine, preclinical testing associated with other programs, and depreciation and other expenses associated with the documentation, validation, and test production at manufacturing facilities. The Company expects these expenses to increase in 1999 as clinical trials continue, and as development and pre-manufacturing activities expand in preparation for potential commercialization. General, administrative and marketing costs rose to $10.1 million in 1998 from $6.0 million in 1997. This increase was due to increase in staffing and infrastructure costs and market research activities principally associated with the proposed commercial launch of FLUMIST(TM). The Company expects these expenses to increase in 1999 due to pre-marketing and other pre-commercialization activities and growth of the Company's administrative infrastructure. Net Interest Income. The Company's net interest income decreased to $1.1 million in the year ended December 31, 1998, from $2.3 million in the year ended December 31, 1997. Net interest income is the result of increased interest income on the Company's increase in average cash, cash equivalent and investment balances, due to the Company's public offering of Common Stock in August 1997 and the private offering of Notes in March 1998, offset by the increase in interest expense related to the Notes. Years Ended December 31, 1997 and 1996 Revenues. Total revenues for the year ended December 31, 1997 were $1.5 million, compared to $1.6 million for the year ended December 31, 1996. Revenues resulted from reimbursement for contract research from SmithKline Beecham in 1996 and 1997, and a milestone payment of $1.0 million from SmithKline Beecham in 1997 for commencement of clinical trials for the EBV vaccine. Operating Expenses. Research and development expenses increased to $24.3 million in the year ended December 31, 1997 from $15.0 million for the year ended December 31, 1996. This increase was primarily due to increases in research and development staffing, expenses associated with clinical trials of FLUMIST(TM) and the Company's PIV-3 vaccines and preclinical testing associated with other programs. General, administrative and marketing expenses increased to $6.0 million in the year ended December 31, 1997 from $4.6 million for the year ended December 31, 1996. These increases were incurred to support the Company's expanded research and development functions, patent and legal expenses, activities associated with becoming a public company and corporate development activities. Net Interest Income. The Company's net interest income increased to $2.3 million in the year ended December 31, 1997, from $0.5 million in the year ended December 31, 1996. Net interest income is the result of increased interest income on the Company's increase in average cash, cash equivalent and investment balances, due to the Company's public offering of Common Stock in August 1997. LIQUIDITY AND CAPITAL RESOURCES Aviron had cash, cash equivalents and marketable securities at December 31, 1998 of approximately $94.9 million. In order to preserve principal and maintain liquidity, the Company's funds are invested 41 44 primarily in United States Treasury obligations, highly rated corporate obligations and other liquid investments. The Company has financed its operations since inception primarily through private placements of Preferred Stock from 1992 to 1995, an initial public offering of its Common Stock in November 1996, a private sale of Common Stock in March 1997, a second public offering of Common Stock in August 1997, and a private placement of convertible subordinated notes in March 1998. Through December 31, 1998, the Company had raised approximately $236.3 million from such sales, net of offering expenses. Cash used in operations was $49.5 million and $19.8 million for 1998 and 1997, respectively. Net cash used in operating activities increased primarily due to increased research and development expenditures. The Company expects expenditures for research and development, clinical trials and marketing, general and administrative expenses to continue to increase in 1999 as the Company develops its products, expands its clinical trials and prepares for the potential commercial launch of FLUMIST(TM). Cash expended for capital additions and to repay lease financing arrangements amounted to approximately $14.4 million and $6.4 million for 1998 and 1997, respectively. Capital expenditures increased in 1998 primarily due to expenditures for facilities and equipment at the Medeva Pharma and PCI manufacturing plants. The Company anticipates that its existing cash, cash equivalents and short-term investments, and revenues from existing collaborations will enable it to maintain its current and planned operations into 2000. The Company's future cash requirements will depend on numerous factors, including continued scientific progress in the research and development of the Company's technology and vaccine programs; the size and complexity of these programs; the ability of the Company to establish and maintain collaborative arrangements; progress with preclinical testing and clinical trials; the time and costs involved in obtaining regulatory approvals; the cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; the cost of constructing manufacturing facilities, should they be deemed necessary; and product commercialization activities. In particular, if the Company were to construct and equip such a manufacturing facility during this period, the Company anticipates that it would likely begin to make substantial additional capital expenditures in 1999 and beyond, which may require the Company to seek additional funding. In addition, there can be no assurance that, should the Company require outside funding through additional debt or equity financings, such funds will be available on favorable terms, if at all. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs or to obtain funds through collaborative agreements with others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would otherwise seek to develop or commercialize itself, which could materially adversely affect the Company's business, financial condition and results of operations. INCOME TAXES At December 31, 1998, the Company had a federal net operating loss carryforward of approximately $118.9 million and research tax credits of approximately $3.3 million that will expire at various dates between 2007 and 2018 if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the "ownership change" provisions of the Internal Revenue Code of 1986. See Note 10 of Notes to Financial Statements. IMPACT OF "YEAR 2000" Many older computer software programs refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900 instead, the so-called "Year 2000" problem ("Y2K"). If not corrected, those programs could cause date-related transaction failures. The Company has begun a process of assessing exposure for Y2K related problems focusing on four potentials areas of exposure -- internal information systems, facility support systems, scientific equipment, and the readiness of significant third parties with whom we have material business relationships. 42 45 INTERNAL INFORMATION SYSTEMS The Company is using a number of computers and computer programs across its entire operations. An inventory has been performed of computer equipment and computer programs. During 1998, the Company began the process of upgrading its older financial and accounting programs to Y2K compliant systems and to improve functionality. To date, no other significant internal information systems have been identified as non-Y2K compliant and procedures have been enacted to assure that all purchases of new systems are believed to be Y2K compliant. SCIENTIFIC EQUIPMENT An inventory has been taken of the major pieces of scientific equipment. The Company is currently making inquiries of its internal staff and third-party vendors, including its suppliers of scientific equipment, to determine if Y2K problems exist which may affect the Company's research and development operations FACILITY SUPPORT SYSTEMS The Company is currently making inquiries of its internal staff and third-party vendors of utilities, communication and other facility support systems, to determine if Y2K problems exist which may affect communications, administrative or support functions. THIRD PARTIES WITH MAJOR BUSINESS RELATIONSHIPS The Company currently has no products available for commercial sale, and does not anticipate FDA clearance for its lead product, FLUMIST(TM), until mid-2000 at the earliest. In preparation for the potential commercial launch of FLUMIST(TM), the Company has contacted its third party manufacturers and its marketing and distribution partners to determine their level of Y2K readiness. These parties are in the process of conducting their own evaluations of the potential impact of Y2K issues on their businesses. The failure of any of these parties to successfully identify and remedy the impact of Y2K upon their businesses could have a material adverse effect on the Company's business, including delaying or adversely affecting the potential commercial launch of FLUMIST(TM). The Company's assessment of Y2K exposure areas is expected to be completed during the second quarter of 1999. External and internal costs specifically associated with modifying internal use software for Y2K compliance are expensed as incurred. To this point, these costs have not been material, and the Company does not expect such costs to be material in the future. There can be no assurance, however, that our assessment of Y2K's potential impact on the Company will not change as we complete our assessment, or that Y2K will not ultimately cause a material disruption in the business of the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk, including changes to interest rates and foreign currency exchange rates. INTEREST RATES -- The Company's investment and interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Company's cash equivalents and investments. To mitigate the impact of fluctuations in U.S. interest rates, the Company places its investments that meet high credit standards, as specified in the Company's investment policy guidelines; the policy also limits the amount of credit exposure to any one issue, issuer, or type of investment and does not permit derivative financial instruments in its investment portfolio. As a result, the Company does not expect any material loss with respect to its investment portfolio. FOREIGN CURRENCY EXCHANGE RATES -- The Company pays for the costs of manufacturing and development activities, equipment, and facilities modifications at Medeva Pharma, which is located in the United Kingdom (U.K.) in British Pounds Sterling. As a result, the Company's financial results could be affected by 43 46 factors such as changes in foreign currency exchange rates or weak economic conditions in the U.K. The Company is exposed to changes in exchange rates in the United Kingdom. When the U.S. dollar strengthens against the British Pounds Sterling, the U.S. dollar value of British Pounds Sterling-based expenses decreases; when the U.S. dollar weakens, the U.S. dollar value of British Pounds Sterling-based expenses increases. Accordingly, changes in exchange rates, and in particular a weakening of the U.S. dollar, may adversely affect the Company's financial position as expressed in U.S. dollars. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. For investment securities, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates.
FAIR VALUE AT 1999 2000 2001 2002 2003 THEREAFTER TOTAL DECEMBER 31, 1998 ----- ----- ---- ---- ---- ---------- ----- ----------------- (IN MILLIONS) ASSETS Cash and Cash Equivalent...... $28.2 -- -- -- -- -- $28.2 $28.2 Weighted average interest rate........................ 5.35% -- -- -- -- -- Investments................... $60.9 $ 6.0 -- -- -- -- $66.9 $66.7 Weighted average interest rate........................ 5.65% 5.70% -- -- -- --
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements and notes thereto appear on pages 50 through 66 in this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 44 47 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item will be contained in the Company's definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders, to be held on June 3, 1999, under the captions "Election of Directions -- Nominees," and "Security Ownership of Certain Beneficial Owners and Management -- Compliance with the Reporting Requirement of Section 16(a)," and is hereby incorporated by reference herein. The information relating to executive officers of the Company is contained in Part I, Item 1 of this report. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be contained in the Company's definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders, to be held June 3, 1999, under the caption "Executive Compensation," and is hereby incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item will be contained in the Company's definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders, to be held June 3, 1999, under the captain "Security Ownership of Certain Beneficial Owners and Management," and is hereby incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item will be contained in the Company's definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders, to be held June 3, 1999, under the caption "Certain Transactions," and is hereby incorporated by reference herein. 45 48 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (1) INDEX TO FINANCIAL STATEMENTS The Financial Statements required by this item are submitted in a separate section beginning on page 50 of this report.
PAGE ---- Report of Ernst & Young LLP, Independent Auditors........... 50 Balance Sheets at December 31, 1997 and 1998................ 51 Statements of Operations for each of the three years in the period ended December 31, 1998............................ 52 Statement of Stockholders' Equity for the three years in the period ended December 31, 1998............................ 53 Statements of Cash Flows for each of the three years in the period ended December 31, 1998............................ 54 Notes to Financial Statements............................... 55
(2) INDEX TO FINANCIAL STATEMENTS SCHEDULES All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or in the notes thereto. (3) EXHIBITS
ITEM DESCRIPTION ------- ----------- 3.1 Bylaws of the Registrant(2). 3.2 Restated Certificate of Incorporation of the Registrant.(2) 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2 Specimen Stock Certificate(1). 4.3 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York(1). 4.4 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York(1). 4.5 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York(1). 4.6 Warrant or Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York(1). 4.7 Warrant for Series C Preferred Stock, issued to Raymond, James & Associates(1). 4.8 Investors Rights Agreement, dated July 18, 1995, among the Registrant and the investors named therein(1). 4.9 Common Stock Purchase Agreement between the Registrant and Biotech Target, S.A., dated as of March 27, 1997(3). 4.10 Rights Agreement between the Registrant and BankBoston, N.A., dated as of October 8, 1997(5). +10.1 License Agreement between the Registrant and ARCH Development Corporation, dated July 1, 1992(1). +10.2 Technology Transfer Agreement between the Registrant and The Mount Sinai School of Medicine of the City University of New York, dated February 9, 1993(1).
46 49
ITEM DESCRIPTION ------- ----------- +10.3 Materials Transfer and Intellectual Property Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995(1). 10.4 Stock Transfer Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995(1). +10.5 Development and License Agreement between the Registrant and Sang-A Pharm. Co., Ltd., dated May 3, 1995(1). +10.6 Cooperative Research and Development Agreement between the Registrant and the National Institutes of Health, dated May 30, 1995(1). +10.7 Heads of Agreement between the Registrant and SmithKline Beecham Biologicals S.A., dated October 8, 1995(1). +10.8 Manufacturing and Development Agreement between the Registrant and Evans Medical Limited, dated November 7, 1995(1). *10.9 1996 Equity Incentive Plan(1). *10.10 1996 Non-Employee Directors' Stock Option Plan(1). *10.11 1996 Employee Stock Purchase Plan(1). 10.12 Industrial lease between the Registrant and the Vanni Business Park General Partnership, dated August 29, 1995(1). +10.13 First Amendment to License Agreement between the Registrant and ARCH Development Corporation dated March 15, 1996(1). +10.14 Biological Materials License Agreement between the Registrant and the National Institutes of Health, dated May 31, 1996(1). +10.15 Contract Manufacture Agreement between the Registrant and Evans Medical Limited, dated as of April 16, 1997(4). +10.16 Production Agreement between the Registrant and Packaging Coordinators, Inc., dated as of October 31, 1997(6). 10.17 Facility Reservation Agreement between the Registrant and Packaging Coordinators, Inc., dated as of October 31, 1997(6). +10.18 Influenza Vaccine Collaboration and License Distributor Agreement between the Registrant and CSL Limited, dated June 19, 1998(7). +10.19 Supply Agreement between the Registrant and Becton Dickinson and the Company dated July 1, 1998(8). ++10.20 United States License and Co-Promotion Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999. ++10.21 International FLUMIST(TM) License Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999. ++10.22 FLUMIST(TM) Supply Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999. ++10.23 Credit Agreement between the Registrant and American Home Products Corporation dated January 11, 1999. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney. See Signature Page. 27.1 Financial Data Schedule.
- --------------- + Confidential treatment has been granted for portions of this exhibit. ++ Confidential treatment has been requested for portions of this exhibit. 47 50 * Compensatory Plan or Agreement (1) Incorporated by reference to the correspondingly numbered exhibit to the Company's Registration Statement on Form S-1, File No. 333-05209, filed June 5, 1996, as amended. (2) Incorporated by reference to the correspondingly numbered exhibit to the Company's Quarterly Report on Form 10-Q, File No. 0-20815, for the quarter ended September 30, 1996, filed December 20, 1996. (3) Incorporated by reference to the correspondingly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 0-20815, filed May 15, 1997. (4) Incorporated by reference to the correspondingly numbered exhibit to the Company's Current Report on Form 8-K, File No. 0-20815, dated April 16, 1997 and filed July 21, 1997. (5) Incorporated by reference to the correspondingly numbered exhibit to the Company's Current Report on Form 8-K, File No. 0-20815, dated October 8, 1997 and filed October 10, 1997. (6) Incorporated by reference to the correspondingly numbered exhibit to the Company's Registration Statement on Form S-3, File No. 333-41649, filed December 10, 1997. (7) Incorporated by reference to the correspondingly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-20815, filed August 14, 1998. (8) Incorporated by reference to the correspondingly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20815, filed November 16, 1998. (b) REPORTS ON FORM 8-K The Company filed no reports on Form 8-K during the quarter ended December 31, 1998. 48 51 SIGNATURES In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to its Form 10-K to be signed on its behalf by the undersigned, thereunto duly organized, on the 31st day March 1999. AVIRON By /s/ J. LEIGHTON READ, M.D. ------------------------------------ J. Leighton Read, M.D. Chairman and Chief Executive Officer (Principal Executive Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints J. Leighton Read, M.D. and Fred Kurland, or either of them, his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connections therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates stated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ J. LEIGHTON READ, M.D. Chairman and Chief Executive March 31, 1999 - ----------------------------------------------------- Officer (Principal Executive J. Leighton Read, M.D. Officer) /s/ FRED KURLAND Senior Vice President and Chief March 31, 1999 - ----------------------------------------------------- Financial Officer (Principal Fred Kurland Financial and Accounting Officer) /s/ REID W. DENNIS Director March 31, 1999 - ----------------------------------------------------- Reid W. Dennis /s/ PAUL H. KLINGENSTEIN Director March 31, 1999 - ----------------------------------------------------- Paul H. Klingenstein /s/ BERNARD ROIZMAN, SC.D. Director March 31, 1999 - ----------------------------------------------------- Bernard Roizman, Sc.D /s/ JANE E. SHAW, PH.D. Director March 31, 1999 - ----------------------------------------------------- Jane E. Shaw, Ph.D.
49 52 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Aviron We have audited the accompanying balance sheets of Aviron as of December 31, 1997 and 1998, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aviron at December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Palo Alto, California February 17, 1999 50 53 AVIRON BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
DECEMBER 31, --------------------- 1997 1998 -------- --------- CURRENT ASSETS: Cash and cash equivalents................................. $ 15,239 $ 28,164 Short-term investments.................................... 47,285 60,692 Accounts receivable....................................... 29 -- Prepaid expenses and other current assets................. 1,001 1,303 -------- --------- Total current assets.............................. 63,554 90,159 Long-term investments..................................... 12,587 6,002 Property and equipment, net............................... 7,582 18,521 Deposits and other assets................................. 1,602 6,303 -------- --------- TOTAL ASSETS................................................ $ 85,325 $ 120,985 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 3,636 $ 2,792 Accrued compensation...................................... 756 804 Accrued clinical trial costs.............................. 3,592 757 Accrued expenses and other liabilities.................... 513 6,029 Current portion of capital lease obligations.............. 477 408 -------- --------- Total current liabilities......................... 8,974 10,790 Deferred rent............................................. 88 1,116 Capital lease obligations, noncurrent..................... 521 113 Convertible debt.......................................... -- 100,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $0.001 par value; 5,000,000 shares authorized; issuable in series; none outstanding at December 31, 1997 and 1998............................. -- -- Common stock, $0.001 par value; 30,000,000 shares authorized; 16,082,476 and 15,723,343 shares issued and outstanding at December 31, 1997 and 1998, respectively........................................... 16 16 Additional paid-in capital................................ 142,840 130,524 Notes receivable from stockholders........................ (115) (83) Deferred compensation..................................... (588) (237) Accumulated deficit....................................... (66,411) (121,254) -------- --------- TOTAL STOCKHOLDERS' EQUITY.................................. 75,742 8,966 -------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $ 85,325 $ 120,985 ======== =========
See accompanying notes. 51 54 AVIRON STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1997 1998 -------- -------- -------- REVENUES: Contract revenue and grants.............................. $ 1,625 $ 1,477 $ 745 -------- -------- -------- OPERATING EXPENSES: Research and development................................. 14,997 24,254 46,583 General, administrative and marketing.................... 4,595 5,978 10,085 -------- -------- -------- TOTAL OPERATING EXPENSES................................... 19,592 30,232 56,668 -------- -------- -------- LOSS FROM OPERATIONS....................................... (17,967) (28,755) (55,923) OTHER INCOME/EXPENSE: Interest income.......................................... 658 2,433 6,003 Interest expense......................................... (192) (180) (4,882) -------- -------- -------- TOTAL OTHER INCOME, NET.................................... 466 2,253 1,121 -------- -------- -------- NET LOSS................................................... $(17,501) $(26,502) $(54,802) ======== ======== ======== BASIC AND DILUTED NET LOSS PER SHARE....................... $ (7.27) $ (1.94) $ (3.49) ======== ======== ======== Shares used in computing basic and diluted net loss per share.................................................... 2,406 13,684 15,724 ======== ======== ========
See accompanying notes. 52 55 AVIRON STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL TOTAL PREFERRED COMMON PAID-IN NOTES DEFERRED ACCUMULATED STOCKHOLDERS' STOCK STOCK CAPITAL RECEIVABLE COMPENSATION DEFICIT EQUITY --------- ------ ---------- ---------- ------------ ----------- ------------- BALANCE AT DECEMBER 31, 1995.......... $ 39,844 $ 317 -- -- (180) $ (22,444) $ 17,537 -------- ----- -------- ----- ------- --------- -------- Issuance of 136,326 Series C convertible preferred stock at $1.35 per share........................... 184 -- -- -- -- -- 184 Conversion of 39,168,297 shares of preferred stock to 7,833,633 shares of common stock in conjunction with Initial Public Offering and reincorporation in Delaware......... (40,028) (309) 40,337 -- -- -- -- Issuance of 2,152,800 shares of common stock in initial public offering net of offering costs of $2,319......... -- 2 14,902 -- -- -- 14,904 Issuance of 239,200 shares of common stock in private placement.......... -- -- 1,914 -- -- -- 1,914 Issuance of 468,094 shares of common stock upon exercise of stock options and warrants, net of cancellations....................... -- 1 335 (262) 48 -- 122 Forgiveness of notes receivable from stockholders........................ -- -- -- 105 -- -- 105 Deferred compensation related to the grant of certain stock options...... -- -- 1,639 -- (1,639) -- -- Amortization of deferred compensation........................ -- -- -- -- 672 -- 672 Change in net unrealized loss on available-for-sale investments...... -- -- -- -- -- 10 10 Net loss.............................. -- -- -- -- -- (17,501) (17,501) -------- ----- -------- ----- ------- --------- -------- BALANCE AT DECEMBER 31, 1996.......... -- $ 11 $ 59,127 $(157) $(1,099) $ (39,935) $ 17,947 -------- ----- -------- ----- ------- --------- -------- Issuance of 1,714,286 shares of common stock in private placement, net of offering costs of $59............... -- 2 14,939 -- -- -- 14,941 Issuance of 2,690,000 shares of common stock in secondary public offering net of offering costs of $4,766..... -- 3 67,979 -- -- -- 67,982 Issuance of 226,157 shares of common stock upon exercise of stock options, warrants and purchase of shares through employee stock purchase plan, net of repurchases... -- -- 477 -- -- -- 477 Deferred compensation recorded relating to grant of certain stock options............................. -- -- 218 -- (218) -- -- Issuance of warrants in lieu of a cash payment for services rendered....... -- -- 100 -- -- -- 100 Amortization of deferred compensation........................ -- -- -- -- 729 -- 729 Change in net unrealized loss on available-for-sale investments...... -- -- -- -- -- 26 26 Payment of notes receivable........... -- -- -- 42 -- -- 42 Net loss.............................. -- -- -- -- -- (26,502) (26,502) -------- ----- -------- ----- ------- --------- -------- BALANCE AT DECEMBER 31, 1997.......... $ -- $ 16 $142,840 $(115) $ (588) $ (66,411) $ 75,742 -------- ----- -------- ----- ------- --------- -------- Issuance of 181,578 shares of common stock upon exercise of stock options, warrants and purchase of shares through employee stock purchase plan, net of repurchase.... -- -- 1,019 -- -- -- 1,019 Deferred compensation recorded relating to grant of certain stock options............................. -- -- 14 -- (14) -- -- Amortization of deferred compensation........................ -- -- -- -- 365 -- 365 Repurchase of 540,711 shares of common stock............................... -- -- (13,349) -- -- -- (13,349) Change in net unrealized loss on available-for-sale investments...... -- -- -- -- -- (41) (41) Payment of notes receivable........... -- -- -- 32 -- -- 32 Net loss.............................. -- -- -- -- -- (54,802) (54,802) -------- ----- -------- ----- ------- --------- -------- BALANCE AT DECEMBER 31, 1998.......... $ -- $ 16 $130,524 $ (83) $ (237) $(121,254) $ 8,966 ======== ===== ======== ===== ======= ========= ========
See accompanying notes 53 56 AVIRON STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 -------- -------- --------- Cash flows from operating activities: Net loss.................................................. $(17,501) $(26,502) $ (54,802) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 541 657 3,019 Amortization of convertible debt offering costs......... -- -- 423 Amortization of deferred compensation................... 672 729 365 Changes in assets and liabilities: Accounts receivable.................................. (500) 471 29 Prepaid expenses and other current assets............ (134) (188) (302) Deposits and other assets............................ 17 (1,514) (1,179) Accounts payable..................................... 383 2,963 (844) Accrued expenses and other liabilities............... 724 3,542 3,757 Deferred revenue..................................... (208) -- -- -------- -------- --------- Net cash used in operating activities..................... (16,006) (19,842) (49,534) Cash flows from investing activities: Purchases of investments................................ (10,342) (74,028) (105,990) Maturities of investments............................... 10,933 19,888 99,127 Expenditures for property and equipment................. (651) (5,767) (13,958) Net cash used in investing activities..................... (60) (59,907) (20,821) Cash flow from financing activities: Principal payments on capital lease obligation and other................................................ (528) (578) (445) Proceeds from issuance of: Convertible debt..................................... -- -- 96,055 Series C convertible preferred stock................. 184 -- -- Common stock......................................... 17,044 83,400 1,019 Repurchase of common stock.............................. -- -- (13,349) -------- -------- --------- Net cash provided by financing activities................. 16,700 82,822 83,280 Net increase in cash and cash equivalents................. 634 3,073 12,925 Cash and cash equivalents at beginning of year............ 11,532 12,166 15,239 -------- -------- --------- Cash and cash equivalents at end of year.................. $ 12,166 $ 15,239 $ 28,164 ======== ======== ========= Supplemental schedule of non-cash financing and investing activities: Equipment acquired under lease line of credit........ 933 153 -- Deferred compensation related to grant of certain stock options, less cancellations.................. 1,591 218 14 Common stock issued in exchange for notes receivable, less cancellations................................. 262 -- -- Warrant issued in lieu of payment of legal fees...... -- 100 -- Supplemental disclosures of cash flow information: Cash paid for interest............................... 192 179 2,999
See accompanying notes. 54 57 AVIRON NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business Aviron (the "Company") was incorporated in the State of California in April 1992 and was reincorporated in the State of Delaware in November 1996. The Company was organized to develop and commercialize cost-effective forms of disease prevention and treatment based on live virus vaccines. The Company anticipates working on a number of long-term development projects which involve experimental and unproven technology. The projects may require many years and substantial expenditures to complete, and may ultimately be unsuccessful. Therefore, the Company will need to obtain additional funds from outside sources to continue its research and development activities, fund operating expenses, pursue regulatory approvals and build production, sales and marketing capabilities, as necessary. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Concentration of Credit Risk Cash, cash equivalents and investments are financial instruments that potentially subject the Company to concentrations of credit risk. The Company primarily invests in U.S. government obligations, notes of U.S. corporations, certificates of deposit, commercial paper and foreign government securities. By policy, the Company limits the amount of credit exposure to any one entity or financial institution and to any one type of investment other than securities issued by the U.S. government. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Cash equivalents include approximately $4,642,000 and $4,295,000 in money market funds at December 31, 1997 and 1998, respectively. Investments The Company's entire investment portfolio is currently classified as available-for-sale and is carried at fair value based on quoted market prices with the unrealized gains and losses included in stockholders' equity. The amortized cost of debt securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains or losses and declines in value judged to be other-than-temporary, if any, are included in other income. The cost of securities sold is based on the specific identification method. The Company has not experienced any significant realized gains or losses on its investments. Property and Equipment Property and equipment is stated at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets which range from three to seven years. Property and equipment at December 31, 1998 includes approximately $1,334,000 of construction in progress. No depreciation has been charged for these assets during 1998 because such assets have not been placed in service. Leasehold improvements are amortized on a straight-line basis over the shorter of their useful lives or the term of the lease. 55 58 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 Revenue Recognition Collaborative research revenue and grant revenue are earned based on research expenses incurred. Amounts received in advance of services to be performed are recorded as deferred revenue until the related expenses are incurred. Milestone payments are recognized as revenue in the period earned. Contract revenue for services provided by the Company's animal research facility is earned when services are provided per the contract. Stock Compensation The Company accounts for stock options granted to employees using the intrinsic-value method and thus recognizes no compensation expense for options granted with exercise prices equal to the fair value of the Company's common stock on the date of the grant. Net Loss per Share Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share, if more dilutive, for all periods presented. In accordance with SFAS 128, basic net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share has not been presented separately as, given the Company's net loss position, the result would be anti-dilutive. Had the convertible preferred stock that automatically converted upon completion of the Company's initial public offering (using the as-if converted method) been included in the calculation of net loss per share from the original date of issuance, net loss per share in 1996 would have been ($1.94). A reconciliation of shares used in the calculation of basic and pro forma basic net loss per share follows:
YEARS ENDED DECEMBER 31, -------------------------------------- 1996 1997 1998 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net loss................................... $(17,501) $(26,502) $(54,802) ======== ======== ======== Basic Weighted average shares of common stock outstanding.............................. 2,406 13,684 15,724 -------- -------- -------- Basic net loss per share................... $ (7.27) $ (1.94) $ (3.49) ======== ======== ======== Pro Forma Basic Weighted average shares of common stock outstanding.............................. 2,406 Adjusted to reflect the effect of the conversion of Preferred Stock............ 6,637 -------- Shares used in computing pro forma basic net loss per share....................... 9,043 -------- Pro forma basic net loss per share......... $ (1.94) ========
Had the Company been in a net income position, diluted earnings per share would have been presented and would have included, the shares used in the computation of basic net loss per share, as well as the effect of an additional 503,986, 427,613 and 3,159,451 shares for the years ended December 31, 1996, 1997 and 1998, respectively, related to the exercise of outstanding options and warrants and the conversion of the Notes into 56 59 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 common stock, which shares are not included above. The number of additional shares has been determined using the treasury stock method. Reporting Comprehensive Income (Loss) As of January 1, 1998, the Company adopted Statement of Financial Accounting Standard No. 130, ("SFAS 130"). SFAS 130 establishes rules for reporting and display of comprehensive income (loss) and its components. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities, which prior to adoption were reported in the stockholders' equity, to be included in the comprehensive income (loss). As such items have not been material, separate presentation has not been included in the Statement of Stockholders' Equity. However, the amounts of the change in net unrealized loss in available-for-sale investments for the years ended December 31, 1996, 1997 and 1998 approximate $10,000, $26,000, and ($41,000), respectively. There was no impact from the adoption on the Company's financial position or results of operations. Segment Reporting As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. As the Company has only one segment and operates solely within the United States, the adoption of SFAS 131 had no impact on the Company. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which is required to be adopted for the year ending December 31, 2000. Management does not anticipate that the adoption of SFAS 133 will have a significant effect on the results of operations or the financial position of the Company. 2. LICENSE AGREEMENTS ARCH Development Corporation In July 1992, the Company entered into an exclusive license agreement with ARCH Development Corporation ("ARCH") to acquire the rights to use or sublicense certain technology and make, use or sell certain licensed products. The agreement calls for the Company to make certain payments to ARCH totaling as much as $2.6 million as certain milestones are met. No benchmark payments were made or were due through 1998. If commercialization is achieved, the Company will be required to pay ARCH royalties based on net sales of the licensed products. Further, if the Company were to sublicense the technology, it would be required to pay ARCH royalties on net sales of the sublicensee and, under certain circumstances, up to 50% of the license fee paid by the sublicensee. During 1997, ARCH asserted an interpretation of the financial terms of the agreement with the Company relating to the license for Epstein-Barr virus technology. The assertion would require the Company to pay ARCH one-half of any future or past payments (including sublicense fees and milestone payments) received by the Company under its agreement with SmithKline Beecham (see Note 3). As of December 31, 1998, the Company had received $3,352,000 from SmithKline Beecham. The Company disputes ARCH's interpretation of the financial terms of the agreement. No assurance can be given, however, that the Company's interpretation will prevail. Failure of the Company to prevail could have a material adverse effect on the Company's business, financial condition or results of operations. 57 60 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 The Mount Sinai School of Medicine In 1993, the Company entered into a technology transfer agreement with The Mount Sinai School of Medicine of the City University of New York ("Mount Sinai") to acquire certain patent rights and technical information. Pursuant to the agreement, the Company issued to Mount Sinai 35,000 shares of common stock which resulted in a charge to research and development expense of approximately $8,750, and warrants to purchase, in the aggregate, 225,000 shares of Series A preferred stock. Upon the closing of the Company's initial public offering, warrants previously exercisable for 45,000 shares of Series A preferred stock became exercisable for 9,000 shares of common stock at $4.50 per share; warrants covering an additional 148,750 shares of Series A preferred stock became exercisable for 29,750 shares of common stock at $10.00 per share; and the remaining warrants were canceled. Warrants expire in 1999, 2000 and 2001, respectively. As of December 31, 1998 warrants covering 2,776 shares at $4.50 a share had been exercised. The Company is also required to reimburse Mount Sinai for costs incurred in connection with the maintenance and protection of certain patents. University of Michigan In February 1995, the Company signed a license agreement with the University of Michigan which gives the Company a worldwide license to the University of Michigan's inventions and discoveries related to a cold adapted influenza vaccine, including the ability to develop, use, sublicense, manufacture and sell products and processes claimed in the patent rights. Under the arrangement, the Company paid the University of Michigan and expensed a $100,000 fee and issued shares of Series B preferred stock (which converted into 264,746 shares of common stock upon the closing of the Company's initial public offering), resulting in a charge to research and development expense of approximately $1,588,000. Upon commercialization of the vaccine product, the license agreement provides that the Company will pay royalties based on net revenues and will issue a warrant to purchase 1.25% of the Company's then total outstanding common stock at an exercise price equal to $10.00 per share. The warrant will be exercisable for five years after its issuance date. As of December 31, 1998, the Company had funded $779,000 of research at the University of Michigan related to this agreement and has no further obligations to fund research. NeuroVir Research, Inc. In July 1996, the Company licensed certain of its patent rights covering or relating to the use of HSV-2 for treatment of cancer and for gene therapy, but excluding use in vaccines, to NeuroVir Research Inc. ("NeuroVir"), a private Canadian corporation. In exchange, the Company received 458,334 shares of common stock, 3,208,332 shares of preferred stock and a warrant to purchase 1,000,000 shares of common stock. At December 31, 1998, the Company owned approximately 15% of NeuroVir's outstanding capital stock. The Company's investment has a carrying value of zero and Aviron is under no obligation to provide any funding to NeuroVir. As no market exists for NeuroVir's capital stock, it is not practicable to determine the fair value of shares held by the Company. 3. DEVELOPMENT AGREEMENTS SmithKline Beecham Biologicals S.A. In October 1995, the Company signed an agreement with SmithKline Beecham Biologicals S.A. ("SmithKline Beecham") which grants SmithKline Beecham exclusive worldwide (excluding Korea) rights to produce and market any prophylactic and therapeutic Epstein-Barr Virus ("EBV") vaccines under the Company's patents. Under the Agreement, SmithKline Beecham paid the Company a $1,500,000 nonrefundable licensing fee and is required to make additional benchmark payments as certain milestones are met. Upon 58 61 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 commercialization, SmithKline Beecham will pay the Company a royalty based on net sales (by country). In conjunction with the licensing rights, SmithKline Beecham funded the Company's development of the EBV vaccine through the third quarter of 1997. For the years ended December 31, 1996 and 1997, the Company recognized approximately $1,625,000 and $1,477,000 respectively of development revenue pursuant to the agreement. No additional expense was incurred for the year ended December 31, 1998. The revenue received and recognized in 1997 includes a $1,000,000 milestone payment related to the initiation of clinical trials by SmithKline Beecham. Development costs incurred in 1996 and 1997 under this arrangement approximated development revenue recognized. Sang-A Pharm. Co., Ltd. In May 1995, the Company signed a development and licensing agreement with Sang-A Pharm. Co., Ltd. ("Sang-A"), a Korean pharmaceutical company. The agreement covers a wide range of vaccine products and grants Sang-A the exclusive rights and licenses to such products in South and North Korea ("Korea"). Under the terms of the agreement, Sang-A will conduct all clinical development work necessary for approval in Korea at its expense, and is required to make payments based on certain milestones and, upon commercialization of each product, to pay royalties based on net revenues. The agreement also gives Sang-A the first right of refusal to supply a percentage of Aviron's products in selected countries. In January 1997, Sang-A declared bankruptcy. In March 1998, the Company repurchased 530,831 shares of common stock from Sang-A for $13,337,000. The Company is unable to predict what, if any, long-term effect the bankruptcy will have on Sang-A and on the Company's agreement with Sang-A. 4. INVESTMENTS Investments consist of the following (in thousands):
GROSS GROSS UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------- ---------- ---------- ------- As of December 31, 1997: Certificates of deposit................. $ 8,129 $ 1 $ (1) $ 8,129 Corporate commercial paper.............. 11,586 -- (5) 11,581 U.S. Corporate obligations.............. 42,471 38 (10) 42,499 U.S. government agency obligations...... 2,050 -- -- 2,050 Municipal bonds......................... 2,018 2 -- 2,020 Foreign government securities........... 4,190 1 (1) 4,190 ------- ---- ----- ------- $70,444 $ 42 $ (17) $70,469 ======= ==== ===== ======= As of December 31, 1998: Certificates of deposit................. $ 5,663 $ 30 $ -- $ 5,693 Corporate commercial paper.............. 28,415 -- (12) 28,403 U.S. Corporate obligations.............. 36,688 125 (175) 36,638 U.S. government agency obligations...... 11,960 21 (8) 11,973 Municipal bonds......................... 2,153 1 -- 2,154 Foreign government securities........... 5,702 4 (4) 5,702 ------- ---- ----- ------- $90,581 $181 $(199) $90,563 ======= ==== ===== =======
Included in the above table as of December 31, 1998 are U.S. corporate obligations, commercial paper and U.S. government agency obligations with fair values of $10,597,000 and $23,869,000 at December 31, 1997 and 1998, respectively, which have been classified as cash equivalents in the accompanying balance 59 62 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 sheet. All securities had maturities of one year or less except for $12,587,000 and $6,002,000 in 1997 and 1998, respectively, which had maturities no greater than two years. 5. PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands):
DECEMBER 31, ------------------ 1997 1998 ------- ------- Manufacturing equipment..................................... $ 91 $ 4,288 Laboratory equipment........................................ 2,315 2,790 Computer equipment.......................................... 631 1,488 Office equipment............................................ 330 776 Leasehold improvements...................................... 1,085 12,773 Construction in progress.................................... 5,039 1,334 ------- ------- 9,491 23,449 Less accumulated depreciation and amortization.............. (1,909) (4,928) ------- ------- $ 7,582 $18,521 ======= =======
Included in property and equipment at December 31, 1997 and 1998, are assets with costs of $2,874,000 and accumulated depreciation of approximately $1,679,000 and $2,253,800, respectively, which have been financed pursuant to the lease line of credit 6. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consisted of the following (in thousands):
DECEMBER 31, -------------- 1997 1998 ---- ------ Accrued interest............................................ $ -- $1,445 Accrued manufacturing....................................... 309 3,219 Accrued legal expenses...................................... 94 477 Accrued testing services.................................... -- 433 Accrued expense other....................................... 110 455 ---- ------ Total............................................. $513 $6,029 ==== ======
7. LEASE ARRANGEMENTS The Company has a lease line of credit that bears interest based on an average of the three-year and five-year indices of U.S. Treasury notes (13.9 % at December 31, 1998). Outstanding balances under the line are secured by the related equipment purchased. The Company has entered into an operating lease agreement for office and research facilities which expires in 2005 and includes an option allowing the Company to extend the lease for two additional five-year terms. The agreement requires the Company to pay operating costs, including property taxes, utilities, insurance and maintenance. Rent expense for the years ended December 31, 1996, 1997 and 1998 was $728,000, $904,000 and $919,000 respectively. The Company entered into an operating lease agreement for a portion of facilities owned by the Company's contract manufacturer for cold adapted influenza vaccine. The agreement expires upon the earlier 60 63 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 of December 31, 2001 or three years following initial product commercial sales. Net expense for the years ended December 31, 1997 and 1998 was $830,000 and $1,248,000 respectively. In October 1997, the Company entered into a 7 year operating lease agreement for a facility to be used in the manufacturing, packaging and storage of its products. The facility is owned by a contract manufacturer who will provide services to the Company. The lease includes an option allowing the Company to extend the lease beyond the initial term. The agreement requires the Company to pay certain operating costs including a portion of utilities and insurance. The agreement provides for the deferral of 40% of the base monthly rental for a 2-year period. The Company is required to deposit and maintain the deferred amount in an escrow account. The agreement also requires the lessor to provide a $1,000,000 improvement allowance for construction and improvements to the facility. The Company will repay $500,000 of the improvement allowance to the lessor through an additional charge per unit of production. The $500,000 is presently deposited in an escrow account. Rent expense for the years ended December 31, 1997 and 1998, was $220,000 and $1,160,000 respectively. Included in the rent expense at December 31, 1997 and 1998 are deferred rents in the amount of $88,000 and $528,000 respectively. At December 31, 1998, the Company's aggregate commitments under such arrangements are as follows (in thousands):
CAPITAL LEASE OPERATING OBLIGATIONS LEASE ------------- --------- Years ending December 31, 1999............................................... $ 456 $ 2,929 2000............................................... 111 2,987 2001............................................... 9 4,054 2002............................................... -- 2,334 2003............................................... -- 2,339 Thereafter......................................... -- 3,017 ----- ------- 576 $17,660 ======= Less amounts representing interest................... (55) ----- 521 Less current portion................................. (408) ----- $ 113 =====
8. CONVERTIBLE DEBT On March 30, 1998, the Company sold unsecured convertible subordinated notes in the aggregate principal amount of $100,000,000 at an interest rate of 5 3/4% due 2005 (the "Notes"). Net proceeds to the Company, after deducting legal and other expenses, were approximately $96,055,000. The Notes are convertible into common stock at any time after 90 days following the original issuance through maturity, unless previously redeemed at a conversion price of $30.904 per share (equivalent to a conversion rate of approximately 32.3583 shares per $1,000 principal amount of Notes), which is subject to adjustment in certain events. Interest on the notes is paid semi-annually on April 1 and October 1. The fair market value of the Notes as of December 31, 1998 approximated $100,250,000, based on quoted market prices. 61 64 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 9. STOCKHOLDERS' EQUITY Common Stock Certain shares of common stock issued to members of management in 1996 through exercises of stock options are subject to repurchase by the Company at $0.50 - $2.50 per share. The above shares vest over periods specified by the Board of Directors. At December 31, 1997 and 1998, 92,100 and 37,920 shares remain subject to the Company's right of repurchase, respectively. Warrants Outstanding warrants to purchase common stock are as follows at December 31, 1998:
NUMBER OF SHARES EXERCISE PRICE EXPIRATION - ---------------- -------------- ---------- 16,666..... $ 2.00 January 2000 3,458...... $ 4.50 June 1999 2,766...... $ 4.50 May 2000 29,750..... $10.00 November 2001
Employee Stock Purchase Plan The Company has adopted an Employee Stock Purchase Plan under which employees can purchase shares of the Company's common stock based on a percentage of their compensation but not greater than 15 percent of their earnings. The purchase price per share must be equal to the lower of 85% of the market value at the beginning or end of the applicable offering period. A total of 350,000 shares of common stock are reserved for issuance under the plan. As of December 31, 1998, 71,513 shares had been issued under the Plan. Stock Options On September 15, 1992, the Board of Directors adopted the 1992 Stock Option Plan (the "1992 Plan"). In March 1996, the Company amended and restated the 1992 Plan as the 1996 Equity Incentive Plan (the "1996 Plan"). Total shares of common stock reserved for future issuance under the 1996 Plan were increased to 3,250,000. The 1996 Plan provides for the grant of incentive and nonstatutory stock options to employees and consultants of the Company and became effective in November 1996 upon the closing of the initial public offering. In March 1996, the Company adopted the 1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan") under which 200,000 shares of common stock are reserved for issuance pursuant to nonstatutory stock options. The Directors' Plan became effective upon the closing of the initial public offering. The Company's Plans had 1,248,793 shares available to grant options to employees and directors at December 31, 1998. Most of the options granted have 10 year terms and vest ratably over 50 months of continued employment. In addition, the Company has issued non-qualified stock options outside of the 1992 Plan. 62 65 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 A summary of the Company's stock option activity, and related information for the years ended December 31 follows:
1996 1997 1998 -------------------- -------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE --------- -------- --------- -------- ---------- -------- Outstanding -- beginning of year............................ 613,038 $0.50 611,936 $ 1.60 885,819 $ 8.87 Granted........................... 640,080 $2.73 441,780 $16.08 1,068,717 $24.69 Exercised......................... (452,781) $1.13 (141,032) $ 0.70 (155,553) $ 2.80 Forfeited......................... (188,401) $2.97 (26,865) $ 2.70 (84,448) $13.25 --------- --------- ---------- Outstanding -- end of year........ 611,936 $1.60 885,819 $ 8.86 1,714,535 $19.08 ========= ========= ========== Weighted-average fair value of options granted during year..... $ 1.38 $ 11.07 $ 19.23
During 1995, officers of the Company exercised options granted outside the Plan for 168,000 shares by signing promissory notes amounting to $310,000 which bear interest at 5.73% subject to the Company's right of repurchase which lapses over fifty months. As of December 31, 1998, $82,500 of the promissory notes were still outstanding and 37,920 shares were subject to repurchase. In August 1996, as a result of uncertainty about the Company's ability to complete its initial public offering as anticipated, the Board of Directors agreed to cancel all outstanding options which had been granted previously with exercise prices of $2.50 per share, and issue new options to these option holders with exercise prices of $1.25 per share in exchange for a three month delay in the vesting of such options. As a result of this transaction, the Company recognized an additional $311,000 of deferred compensation for financial reporting purposes. For those employees who had early exercised their options at $2.50 per share in exchange for notes receivable, the Board of Directors agreed to forgive one-half of the notes receivable amount such that the effective exercise prices for these options was $1.25 per share, and to reimburse such employees for any tax resulting from such forgiveness. The Company has recognized deferred compensation for certain options granted in 1996, 1997 and 1998. Total deferred compensation of approximately $2,094,000 recorded through December 31, 1998 is being amortized over the vesting period of such options on an accelerated basis. A portion of these options vested immediately upon grant. The options outstanding at December 31, 1998 have been segregated for additional disclosure as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------- -------------------------- WEIGHTED- OPTIONS WEIGHTED- OPTIONS AVERAGE WEIGHTED- CURRENTLY AVERAGE OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT EXERCISE RANGE OF EXERCISE PRICES DEC. 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE DEC. 31, 1998 PRICE ------------------------ -------------- ---------------- -------------- -------------- --------- $ 0.25 - $1.00................... 70,478 6.0 $ 0.51 65,996 $ 0.50 $ 1.01 - $5.00................... 177,006 7.5 $ 1.25 100,638 $ 1.25 $ 5.01 - $10.00.................. 178,905 8.0 $ 8.84 92,945 $ 8.58 $ 8.01 - $20.00.................. 224,229 9.4 $14.87 25,034 $11.44 $20.01 - $30.38.................. 1,063,917 9.1 $25.84 139,159 $24.65
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") requires use of option valuation 63 66 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 models that were not developed for use in valuing employee stock options. Under APB 25, if the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net loss and net loss per share is required by SFAS 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair market value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996, 1997 and 1998: risk free interest rate of 5.94%, 6.80% and 4.85% respectively; volatility factors of the expected market price of the Company's common stock of 0.73 for 1996, 0.80 for 1997 and 0.80 for 1998; no expected dividends; and a weighted-average expected life of the option of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options and employee stock purchase plans have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair market value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and shares issued pursuant to the employee stock purchase plan. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands except for net loss per share information):
1996 1997 1998 -------- -------- -------- Pro forma net loss................. $(17,595) $(27,733) $(64,883) Pro forma net loss per share (basic).......................... $ (1.95) $ (2.03) $ (4.13)
Since SFAS 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 1999. Share Purchase Rights In October 1997, the Company's Board of Directors adopted a Share Purchase Rights Plan. The Share Purchase Rights Plan provides for the distribution of certain rights to acquire shares of the Company's Series A Junior Participating Preferred Stock, par value $0.001 (the "Rights") as a dividend for each share of Common Stock held of record as of October 23, 1997. The Rights are triggered and become exercisable upon the occurrence of either the (i) date of a public announcement of the acquisition of 20% or more beneficial ownership of the Company's Common Stock by a person or group (an "Acquiring Person"), or (ii) ten business days (or such later time as may be set by the Board of Directors) after a public announcement of a tender or exchange offer for 20% or more beneficial ownership of the Company's Common Stock by an Acquiring Person. If the Rights are triggered, each Right effectively provides its holder, the right to purchase shares of Common Stock at a 50% discount from the market price at that time, upon payment of an exercise price of $150 per Right. 64 67 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 Reserved Shares As of December 31, 1998, the Company has reserved shares of common stock for future issuance as follows: Options: Outstanding............................................. 1,714,535 Available for grant..................................... 1,248,793 Employee Stock Purchase Plan.............................. 278,487 Warrants.................................................. 52,640 --------- 3,294,455 =========
10. INCOME TAXES As of December 31, 1998, the Company had a federal net operating loss carryforward of approximately $118,900,000. The Company also had federal research and development tax credit carryforwards of approximately $3,300,000. The net operating loss and credit carryforwards will expire at various dates beginning in 2007 through 2018, if not utilized. Utilization of net operating losses and credits may be subject to a substantial annual limitation due to "ownership change" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. Significant components of the Company's deferred tax assets as of December 31 are as follows (in thousands):
1997 1998 -------- -------- Net operating loss carryforwards....................... $ 23,000 $ 41,200 Capitalized research and development expenses.......... 2,700 3,300 Research tax credits (expire 2007-2018)................ 2,000 5,500 Other -- Net........................................... 500 600 -------- -------- Net deferred tax assets................................ 28,200 50,600 Valuation allowance.................................... (28,200) (50,600) -------- -------- $ -- $ -- ======== ========
Because of the Company's lack of earnings history, the net deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately $7,050,000, $12,300,000 and $22,400,000 in 1996, 1997 and 1998 respectively. Approximately $1,300,000 of the valuation allowance for deferred tax assets relates to benefits of stock option deductions which, when recognized, will be allocated directly to contributed capital. 11. COMMITMENTS In August 1998, the Company announced the signing of a worldwide multiyear supply agreement with Becton Dickinson and Company ("Becton Dickinson"), in which Becton Dickinson will supply its AccuSpray(TM) non-invasive nasal spray delivery system for administration of FLUMIST(TM). The agreement requires the Company to advance a total of $2,000,000 to Becton Dickinson for facility expansion of plant capacity. As of December 31, 1998, $550,000 of this amount remained to be paid. 65 68 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 12. RELATED PARTY TRANSACTIONS In 1995, the Company made unsecured loans to members of senior management totaling $100,000 which bear interest at 7.75% and are due in April 2000. In 1997, the Company made two additional unsecured loans to members of senior management totaling $200,000, which bear interest at 7.75% and are due in February and July 2001, respectively. As of December 31, 1998, the unpaid balance was $141,000. A former officer of the Company is a shareholder in an investment advisory business which was paid a commission by the Company of approximately $115,000 and $11,000 during 1996 and 1997, respectively, all in connection with the Sang-A transaction. The former officer received no direct compensation from the transaction. 13. SUBSEQUENT EVENTS On January 12, 1999, the Company announced a worldwide collaboration for the marketing of FLUMIST(TM) with Wyeth Lederle Vaccines, a business unit of Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products Corporation ("Wyeth Lederle"). On March 15, 1999, the Federal Trade Commission granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1996 regarding this collaboration. Under the agreement, Aviron is granting Wyeth Lederle exclusive worldwide rights to market FLUMIST(TM). Wyeth Lederle and Aviron will co-promote FLUMIST(TM) in the United States, while Wyeth Lederle will have the exclusive right to market the product outside the United States. In each case, Wyeth Lederle will hold the marketing rights for up to eleven years. The collaboration excludes Korea, Australia, New Zealand and certain South Pacific countries. The companies will collaborate on the regulatory, clinical, and marketing programs for the product. As consideration under the agreement, the Company received a cash payment of $15 million for the initial license, and will receive $15 million upon acceptance for filing with the U.S. Food and Drug Administration (FDA), and $20 million upon FDA marketing approval for FLUMIST(TM). Compensation for achieving additional development and regulatory milestones is included in the agreement terms. The granting of certain rights under the license would trigger additional payments in excess of $40 million to the Company. Consideration for the license also includes a commitment to provide up to $40 million in future financing to the Company from Wyeth-Ayerst Laboratories, a portion of which is contingent upon regulatory approval of the product, with the remaining amount to come from participation in the Company's future securities offerings. The potential value for the license fees, milestones and financing support that the Company could receive under the collaboration exceeds $400 million. In addition to the payments mentioned above, the Company anticipates that it will earn product revenues from Wyeth Lederle, in the form of product transfer payments and royalties, which increase at higher sales levels. The Company will incur expenses to supply and co-promote the product. On February 5, 1999, the Company leased a 69,000 square foot building in Santa Clara, California. The lease will terminate in the year 2019. Monthly rent is approximately $161,800. The facility will provide additional manufacturing, laboratory, pilot plant and office space. 66 69 EXHIBIT INDEX
ITEM DESCRIPTION - ------- ----------- 3.1 Bylaws of the Registrant(2). 3.2 Restated Certificate of Incorporation of the Registrant.(2) 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2 Specimen Stock Certificate(1). 4.3 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York(1). 4.4 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York(1). 4.5 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York(1). 4.6 Warrant or Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York(1). 4.7 Warrant for Series C Preferred Stock, issued to Raymond, James & Associates(1). 4.8 Investors Rights Agreement, dated July 18, 1995, among the Registrant and the investors named therein(1). 4.9 Common Stock Purchase Agreement between the Registrant and Biotech Target, S.A., dated as of March 27, 1997(3). 4.10 Rights Agreement between the Registrant and BankBoston, N.A., dated as of October 8, 1997(5). +10.1 License Agreement between the Registrant and ARCH Development Corporation, dated July 1, 1992(1). +10.2 Technology Transfer Agreement between the Registrant and The Mount Sinai School of Medicine of the City University of New York, dated February 9, 1993(1). +10.3 Materials Transfer and Intellectual Property Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995(1). 10.4 Stock Transfer Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995(1). +10.5 Development and License Agreement between the Registrant and Sang-A Pharm. Co., Ltd., dated May 3, 1995(1). +10.6 Cooperative Research and Development Agreement between the Registrant and the National Institutes of Health, dated May 30, 1995(1). +10.7 Heads of Agreement between the Registrant and SmithKline Beecham Biologicals S.A., dated October 8, 1995(1). +10.8 Manufacturing and Development Agreement between the Registrant and Evans Medical Limited, dated November 7, 1995(1). *10.9 1996 Equity Incentive Plan(1). *10.10 1996 Non-Employee Directors' Stock Option Plan(1). *10.11 1996 Employee Stock Purchase Plan(1). 10.12 Industrial lease between the Registrant and the Vanni Business Park General Partnership, dated August 29, 1995(1). +10.13 First Amendment to License Agreement between the Registrant and ARCH Development Corporation dated March 15, 1996(1).
67 70
ITEM DESCRIPTION - ------- ----------- +10.14 Biological Materials License Agreement between the Registrant and the National Institutes of Health, dated May 31, 1996(1). +10.15 Contract Manufacture Agreement between the Registrant and Evans Medical Limited, dated as of April 16, 1997(4). +10.16 Production Agreement between the Registrant and Packaging Coordinators, Inc., dated as of October 31, 1997(6). 10.17 Facility Reservation Agreement between the Registrant and Packaging Coordinators, Inc., dated as of October 31, 1997(6). +10.18 Influenza Vaccine Collaboration and License Distributor Agreement between the Registrant and CSL Limited, dated June 19, 1998(7). +10.19 Supply Agreement between the Registrant and Becton Dickinson and Company dated July 1, 1998(8). ++10.20 United States License and Co-Promotion Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999. ++10.21 International FLUMIST(TM) License Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999. ++10.22 FLUMIST(TM) Supply Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999. ++10.23 Credit Agreement between the Registrant and American Home Products Corporation dated January 11, 1999. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney. See Signature Page. 27.1 Financial Data Schedule.
- --------------- + Confidential treatment has been granted for portions of this exhibit. ++ Confidential treatment has been requested for portions of this exhibit. * Compensatory Plan or Agreement (1) Incorporated by reference to the correspondingly numbered exhibit to the Company's Registration Statement on Form S-1, File No. 333-05209, filed June 5, 1996, as amended. (2) Incorporated by reference to the correspondingly numbered exhibit to the Company's Quarterly Report on Form 10-Q, File No. 0-20815, for the quarter ended September 30, 1996, filed December 20, 1996. (3) Incorporated by reference to the correspondingly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 0-20815, filed May 15, 1997. (4) Incorporated by reference to the correspondingly numbered exhibit to the Company's Current Report on Form 8-K, File No. 0-20815, dated April 16, 1997 and filed July 21, 1997. (5) Incorporated by reference to the correspondingly numbered exhibit to the Company's Current Report on Form 8-K, File No. 0-20815, dated October 8, 1997 and filed October 10, 1997. (6) Incorporated by reference to the correspondingly numbered exhibit to the Company's Registration Statement on Form S-3, File No. 333-41649, filed December 10, 1997. (7) Incorporated by reference to the correspondingly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-20815, filed August 14, 1998. (8) Incorporated by reference to the correspondingly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20815, filed November 16, 1998. 68 EX-10.20 2 U.S. LICENSE AND CO-PROMOTION AGREEMENT 1 EXHIBIT 10.20 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. UNITED STATES LICENSE AND CO-PROMOTION AGREEMENT AVIRON AND AMERICAN HOME PRODUCTS CORPORATION ACTING THROUGH ITS WYETH-AYERST LABORATORIES DIVISION JANUARY 11, 1999 2 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. UNITED STATES LICENSE AND CO-PROMOTION AGREEMENT THIS UNITED STATES LICENSE AND CO-PROMOTION AGREEMENT (the "Agreement"), signed on January 11, 1999 (the "Signing Date"), is by and between AVIRON, a Delaware corporation with its principal place of business at 297 North Bernardo Avenue, Mountain View, California 94043 ("Aviron"), and AMERICAN HOME PRODUCTS CORPORATION ("AHPC"), acting through its WYETH-AYERST LABORATORIES DIVISION, a Delaware corporation with its principal place of business at 555 Lancaster Avenue, St. Davids, Pennsylvania, 19087 ("Wyeth-Ayerst"). Aviron and Wyeth-Ayerst are sometimes referred to herein individually as a "Party" and collectively as the "Parties." WITNESSETH: WHEREAS, Aviron has been licensed exclusive rights to, and has developed substantial additional proprietary rights regarding, an intranasally delivered cold adapted vaccine formulation against influenza and influenza-associated illnesses, [***], known as FluMist(TM); WHEREAS, Aviron is engaged in the development, and when developed, the manufacture or contract manufacture, marketing and sale, of FluMist, in [***]; WHEREAS, Wyeth-Ayerst is not currently engaged in the development of any intranasally delivered influenza vaccine product; WHEREAS, the Parties intend to establish a collaboration for the development and commercialization of FluMist in the United States and its territories and possessions, with the purpose of obtaining the rapid and competitive release of FluMist, and under which Wyeth-Ayerst and Aviron will collaborate in the marketing and promotion of the FluMist vaccine; WHEREAS, in connection with establishing the collaboration described herein, Aviron desires to grant to Wyeth-Ayerst, and Wyeth-Ayerst desires to obtain, certain license rights to FluMist on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the parties hereby agree as follows: ARTICLE 1 DEFINITIONS The following terms, when capitalized, shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined) as used in this Agreement: 1.1 "AFFILIATE" means, with respect to a Party, any Person that, directly or indirectly, is controlled by, controls or is under common control with such Party, but only for so long as such relationship exists. "Control," as used in this Section 1.1, means having the power to direct, - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 1. 3 or cause the direction of, the management and policies of any entity, whether through ownership of voting securities, by contract, or otherwise. For purposes of this Agreement the term "Affiliate" shall not, however, include subsidiaries in which a Person owns a majority of the ordinary voting power to elect a majority of the board of directors, but is restricted from electing such majority by contract or otherwise, until such time as such restrictions are no longer in effect. 1.2 "ANNUAL NET SALES" means the Net Sales per Flu Season. 1.3 "AVIRON KNOW-HOW" means any Information owned or Controlled by Aviron either (a) as of the Effective Date, or (b) during the term of this Agreement, that is useful or necessary in the clinical development, Regulatory Approval, commercialization, marketing or manufacture of the Product for use in the Field in the Territory. "Aviron Know-How" shall not include any Information in the Joint Technology. 1.4 "AVIRON PATENTS" means (a) those Patents owned or Controlled by Aviron which cover the manufacture, use, sale, offer for sale or importation of the Product in the Field and in the Territory (which as of the Signing Date consist of those listed on Schedule 1.4 hereto, as may be amended from time to time); and (b) any Patents claiming any Invention owned solely by Aviron pursuant to Section 15.1(b) that covers the manufacture, use, sale, offer for sale or importation of the Product. "Aviron Patents" shall not include any Joint Patents. 1.5 "AVIRON PRODUCT MATERIALS" means any [***] or any [***] or any other biological materials transferred to Wyeth-Ayerst by Aviron under this Agreement; and [***] to the extent that [***] other than [***] as permitted pursuant to Section [***]. 1.6 "AVIRON RESULTS" shall have the meaning ascribed in Section 15.1. 1.7 "CALENDAR YEAR" means the period of time commencing on January 1 of a given year, and ending on December 31 of such year. 1.8 "COLLABORATION" means the collaborative activities undertaken by the Parties in accordance with this Agreement to develop and commercialize the Product in the Field in the Territory. 1.9 "COMMERCIALIZATION EXPENSES" means those costs, excluding [***] but including [***] incurred by a Party or for its account which are specifically identifiable to the advertising, promotion and marketing (including market preparation and other pre-launch activities) of the Product and related professional promotion and education (to the extent not performed by sales representatives), including, without limitation, television and electronic advertisements, advertorials and infomercials, print advertisements, direct mail, exhibitions at seminars and conferences, samples packages, promotional literature and market research. 1.10 "COMMERCIALIZATION PLAN" shall have the meaning set forth in Section 7.2. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 2 4 1.11 "COMMERCIALLY REASONABLE EFFORTS" means efforts and resources normally used by a Party for a vaccine owned by it or to which it has rights, which is of similar market potential at a similar stage in its product life, taking into account the competitiveness of the marketplace, the proprietary position of the vaccine, the regulatory structure involved, the potential or actual profitability of the vaccine, and other relevant commercial factors. A Party shall not be determined to have failed to use Commercially Reasonable Efforts to the extent any failure or delay in such Party's efforts is attributable to the action or failure to act of the other Party, or material breach by the other Party of any provision of this Agreement. 1.12 [***]means a [***] other than [***] as of the Effective Date or as [***] pursuant to Section [***] the [***] or any [***] described in Schedule 1.12, which is either [***] for the [***] including [***] in the Territory. 1.13 "CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 14.1. 1.14 "CONTROL" OR "CONTROLLED" means the right to grant a license or sublicense to intangible property rights (including patent rights, know-how and/or trade secret information), and the right to provide access to or cross-reference to regulatory filings, in each case to the extent not in violation of the terms of any agreement or other arrangement with any Third Party in existence as of the Effective Date. 1.15 "CO-PROMOTE" OR "CO-PROMOTION" means to Promote the Product jointly under the Primary Brand Trademark in the Territory, through Aviron, Wyeth-Ayerst, and their respective sales forces. "Promote" or "Promotion" means, with respect to the Product, those activities and obligations undertaken by a Party to encourage sales of the Product, including without limitation detailing, journal advertising, direct mail programs, direct-to-consumer advertising, and other forms of advertising and promotion specified in the Commercialization Plan. 1.16 "CO-PROMOTION TERM" means the period commencing on the Launch Date, extending through the Flu Season in which such Launch Date occurred ("Launch Date Flu Season"), and terminating upon the earlier of (a) May 1 of the sixth Flu Season following the Launch Date Flu Season or as extended pursuant to Section 19.8, or (b) termination of this Agreement pursuant to Section 19.2, 19.3, 19.4 or 19.5, or as otherwise agreed by the Parties in writing. 1.17 "DEVELOPMENT PLAN" means the plan for development of the Product in the Field in the Territory created by the JDC to be carried out by the Parties, including the budget of R&D Expenses associated with such development, as further described in Section 6.3. 1.18 "EFFECTIVE DATE" shall have the meaning set forth in Section 21.16 hereof. 1.19 "FDA" means the United States Food and Drug Administration, or any successor agency. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 3 5 1.20 "FD&C ACT" means the United States Federal Food, Drug and Cosmetics Act, as amended from time to time. 1.21 "FIELD" means the use of the Product pursuant to [***]] (a) to prevent influenza and influenza-associated illnesses, [***] in a Target Population, or other population, for which the Product is approved by the FDA; or (b) for any [***] which are [***] the Collaboration pursuant to Section [***] The "Field" specifically excludes use or sale of the Product in [***]. 1.22 "FINISHED PRODUCT" means the Product in finished, packaged form. 1.23 "FLU SEASON" means the influenza vaccine selling season, which shall be deemed to begin upon the date of the first commercial sale of trivalent Finished Product comprising the set of influenza strains designated by the relevant governmental organization for inclusion in influenza vaccines in the Territory for that influenza season, and to end upon the first commercial sale of Finished Product comprising the subsequent set of influenza strains designated by such organization for the subsequent influenza season; provided that a "Flu Season" shall not in any event extend for more than twelve (12) months from the first commercial sale of a given Finished Product. 1.24 [***] means a [***] of the Product which, during the dating period established by the FDA, [***] and may [***] but does not [***] or at [***] as further described in the PLA. 1.25 "GOOD CLINICAL PRACTICE" OR "GCP" shall mean the then current standards for clinical trials for biologicals, as set forth in the FD&C Act and applicable regulations and guidances promulgated thereunder. 1.26 "GOOD LABORATORY PRACTICE" OR "GLP" shall mean the then current standards for laboratory activities for biologicals, as set forth in the FD&C Act and applicable regulations and guidances promulgated thereunder. 1.27 "GOOD MANUFACTURING PRACTICE" OR "GMP" shall mean the current standards for the manufacture of biologicals, as set forth in the FD&C Act and applicable regulations and guidances promulgated hereunder. 1.28 "INFORMATION" means techniques and data relating to the Product and including (but not limited to) practices, methods, knowledge, know-how, skill, experience, test data including pharmacological, toxicological, preclinical and clinical test data, analytical and quality control data, marketing, pricing, distribution, cost, sales and manufacturing data or descriptions. Information shall include any Invention for which a patent application has not been filed, or if filed, has not been published. 1.29 "INJECTABLE PRODUCT" means Wyeth-Ayerst's injectable, inactivated influenza vaccine product, based on the commercial technology used by Wyeth-Ayerst as of the Signing Date. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 4 6 1.30 "INTERNATIONAL AGREEMENT" means that certain International FluMist(TM) License Agreement entered into by and between the Parties as of the Signing Date. 1.31 "INVENTION" means any patentable invention or discovery. 1.32 "JCC FORECAST" shall have the meaning ascribed in Section 3.1 of the Supply Agreement. 1.33 "JOINT COMMERCIALIZATION COMMITTEE" OR "JCC" means the committee formed by the Parties to develop commercial strategies, marketing plans and budgets for the Product and to co-ordinate the Product marketing and sales activities, as further described in Article 3. 1.34 "JOINT DEVELOPMENT COMMITTEE" OR "JDC" means the committee formed by the Parties to oversee the clinical development, regulatory strategy and manufacture of the Product as further described in Article 4. 1.35 "JOINT PATENT" means a Patent claiming an Invention in the Joint Technology. 1.36 "JOINT TECHNOLOGY" means all Information and Inventions discovered or developed jointly by one or more employees or consultants of one Party and by one or more employees or consultants of the other Party during the term of and pursuant to the Agreement, as determined under the United States laws of inventorship. 1.37 "LAUNCH" OR "LAUNCH DATE" means the date of the first commercial sale of the Product in the Territory for use in the Field following Regulatory Approval. 1.38 [***] means a [***] of the Product which, during the dating period established by the FDA, [***] and does not [***] provided that if the [***] the Product which exists as of the Effective Date is determined to [***] during the dating period, then such [***] shall be included in [***]. 1.39 [***] means the influenza strains [***] and designated [***] and any structural equivalents thereto, including any and all progeny, derivatives, replications, variants, recombinants, and reassortants thereof, whether generated by viral replication or by recombinant genetic engineering methods. "Structural equivalents" include any influenza virus: (a) that comprises [***] genome segments having a cumulative nucleotide sequence identity of at least [***] to the corresponding genome segments of [***] or (b) that comprises at least one characteristic nucleotide sequence feature or encoded amino acid sequence feature of any gene segment selected from the list of such features shown in Schedule 1.39; or (c) for which Wyeth-Ayerst cannot provide reasonable evidence to a mutually agreed upon independent Third Party laboratory, under an agreement that restricts such Third Party from disclosing Wyeth-Ayerst's confidential information to Aviron, that the virus is not derived from [***]. 1.40 "MICHIGAN" means the Regents of the University of Michigan, a constitutional corporation of the State of Michigan with offices located at Wolverine Tower, Room 2071, 3003 South State Street, Ann Arbor, Michigan, 48109-1280, USA. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 5 7 1.41 "MICHIGAN AGREEMENT" means the Materials Transfer and Intellectual Property Agreement between Aviron and Michigan dated February 24, 1995, as amended and attached hereto as Schedule 1.41. 1.42 "NET SALES" means the sum of all amounts actually received and all other consideration actually received (or, when in a form other than cash or its equivalent, the fair market value thereof when received) by Wyeth-Ayerst and its Affiliates from persons or entities due to or by reason of the sale, distribution or use of Finished Product in the Territory, less the following deductions and offsets, but only to the extent such sums are otherwise included in the computation of Net Sales, or are paid or credited by Wyeth-Ayerst and its Affiliates and not otherwise reimbursed: (a) [***] in such amounts as [***]; (b) any tax, excise, or other governmental charges upon or measured by the production, sales, transportation, delivery or use of said Finished Product contained therein; (c) [***] other than those described above; (d) [***] (to the extent that the foregoing [***] do not exceed [***] of the sum of all amounts actually received and all other consideration actually received for the Product (or, when in a form other than cash or its equivalent, the fair market value thereof when received)); (e) amounts [***] and (f) taxes paid by Wyeth-Ayerst or its Affiliates to the United States Government or an instrumentality thereof under 42 U.S.C. 300 aa-1 et seq. or other similar legislation, or to a State of the United States, insuring against liability arising out of the manufacture, use or sale of Finished Product by Wyeth-Ayerst or its Affiliates. Sales of Finished Product intended for resale to Third Parties, and made internally amongst Wyeth-Ayerst and its Affiliates or sublicensees shall not be deemed sales for purposes of calculating "Net Sales" (however the resale by the recipient shall be included in the calculation of "Net Sales" and subject to royalties). 1.43 [***] means the sale or distribution of [***] in the Territory for use in [***] other than pursuant to a [***]. 1.44 [***] means either (a) a [***] (which may include, e.g., a [***]), (b) a [***] or (c) any other [***] determined by Aviron to be useful in [***]. 1.45 [***] means [***] other than the [***] for which Aviron intends to [***] in the Territory and to [***] during the Co-Promotion Term, e.g., [***]. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 6 8 1.46 "PATENT" means patents, applications for patent, provisional applications for patent, and any patents issuing therefrom (including any divisions, continuations, continued prosecution applications and continuations-in-part thereof), and reexamination certificates, reissue patents, patent extensions and patent term restorations. 1.47 "PERSON" means an individual, corporation, partnership trust or unincorporated organization. 1.48 "PLA" means the Product Licensing Application/Establishment Licensing Application or Biologics License Application for the Product in the Field, and any supplements thereto. 1.49 "PRIMARY BRAND TRADEMARK" means FluMist(TM) and FluEnz(TM), as well as any brand names combining FluMist or FluEnz with other words, e.g. "Pediatric FluMist." 1.50 "PRODUCT" means Aviron's live, attenuated, intranasally delivered, cold adapted influenza vaccine [***] including, but not limited to, the [***] provided, however, that "Product" specifically excludes any [***] unless and until [***] pursuant to Section [***] "Product" also specifically excludes: (a) any influenza vaccine Controlled by Aviron which is solely based upon or derived from [***] or other technologies of Aviron; (b) any product comprising Aviron's live, attenuated, intranasally delivered, cold adapted influenza vaccine [***] in combination with any other vaccine or vaccines; and (c) any product in which a viral vector [***] is used to deliver a vaccine or other heterologous gene sequence for use in the prevention, mitigation or cure of influenza. 1.51 "PRODUCT LABELING" means (a) the FDA full prescribing information for the Product, including any required patient information, and (b) all labels and other written, printed or graphic matter upon any container, wrapper or any package insert or outsert utilized with or for the Product. 1.52 "PRODUCT PROMOTIONAL MATERIALS" means all sales representative training materials and all written, printed, graphic, electronic, audio or video matter, including but not limited to journal advertisements, sales visual aids, leave items, formulary binders, reprints, direct mail, direct-to-consumer advertising, internet postings, broadcast advertisements, and sales reminder aids (for example, scratch pads, pens and other such items) intended for use or used by a Party in connection with any Promotion of the Product, but excluding Product Labeling. 1.53 "R&D EXPENSES" means the fully-loaded costs, but excluding general corporate overhead, incurred by a Party or for its account, [***] by either Party during the term of the Agreement [***], and ongoing Product support [***] which are consistent with the Development Plan and budget and are specifically attributable to the Product in the Field. "R&D Expenses" shall include the out-of-pocket payments to Third Parties incurred by a Party in carrying out the functions described in the previous sentence. 1.54 "REGULATORY APPROVALS" means any approvals (including, but not limited to, PLA approval, labeling, pricing and reimbursement approvals), product, biologic and/or - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 7 9 establishment licenses, registrations or authorizations of any federal, state or local regulatory agency, department, bureau or other governmental entity, necessary for the commercial manufacture, use, storage, importation, export, transport or sale of the Product in the Field in the Territory. 1.55 "SALES AND MARKETING EXPENSES" means the costs incurred by a Party in the market development and/or Promotion of the Product consistent with its activities under the Commercialization Plan. Sales and Marketing Expenses shall consist of (a) the following costs of the field sales force and marketing personnel: salaries, bonus, benefits, sales force automation, and basic overhead and personnel expenses (telephone, supplies, postage, meetings, travel, and voice mail), including all information technology; (b) the costs of establishing and maintaining an electronic commerce infrastructure to Promote and or sell the Product under this Agreement; and (c) out-of-pocket payments to Third Parties incurred by such Party and specifically attributable to such Party's performance under the Commercialization Plan. 1.56 "SIGNING DATE" shall be the date first set forth on page 1 of this Agreement. 1.57 "SUPPLY AGREEMENT" means that certain FluMist Supply Agreement entered into between the Parties as of the Signing Date. 1.58 "TARGET POPULATION" means the target populations for which the Parties anticipate that the Product may receive Regulatory Approval, consisting of (a) the healthy pediatric population (children aged 1-17 or any subset thereof), (b) the at-risk pediatric population (children aged 1-17 or any subset thereof), (c) the healthy adult population (persons from 18-64 years of age), (d) any at-risk adult population (persons from 18-64 years of age), and (e) the elderly population (all persons from 65 years of age and up). 1.59 "TERRITORY" means the United States and its territories and possessions, and the Commonwealth of Puerto Rico. 1.60 "THIRD PARTY" means any entity other than Aviron or Wyeth-Ayerst and their respective Affiliates. 1.61 "TRADEMARKS" means those trademarks and trade names, whether or not registered in the Territory (including the Primary Brand Trademark), trade dress and packaging which (a) are owned by either Party, and which (other than trade dress and packaging), and (b) are applied to or used in connection with the Product or any Product Promotional Materials. 1.62 "WYETH-AYERST KNOW-HOW" means any Information owned or Controlled by Wyeth-Ayerst either (a) as of the Effective Date, or (b) during the term of this Agreement, that is useful or necessary in the clinical development, Regulatory Approval, commercialization, marketing or manufacture of the Product for use in the Field in the Territory. "Wyeth-Ayerst Know-How" shall not include any Information in the Joint Technology. 1.63 "WYETH-AYERST PATENTS" means (a) those Patents owned or Controlled, as of the Effective Date or thereafter, by Wyeth-Ayerst or its Affiliates that cover the manufacture, making of, use, sale, offer for sale or importation of the Product in the Field and in the Territory (which as of the Signing Date consist of those Patents listed on Schedule 1.63 hereto, as may be 8 10 amended from time to time); and (b) any Patents claiming any Invention owned solely by Wyeth-Ayerst pursuant to Section 15.1(b) that cover the manufacture, making of, use, sale, offer for sale or importation of the Product. "Wyeth-Ayerst Patents" shall not include any Joint Patents. 1.64 "WYETH-AYERST RESULTS" shall have the meaning ascribed in Section 15.1. ARTICLE 2 SCOPE; MANAGEMENT 2.1 SCOPE. The purpose of this Collaboration is to establish a vehicle through which the Parties shall collaboratively market and Co-Promote the Product in the Field during the Co-Promotion Term, so as to maximize sales of the Product in the Territory through Wyeth-Ayerst's existing sales force and through a sales and marketing organization to be developed at Aviron. Furthermore, the Parties shall collaborate on manufacturing and regulatory strategies and procedures in order to maximize supply and obtain requisite Regulatory Approval for the Product in an expeditious manner. The Parties will also collaborate with respect to the clinical trials necessary or useful to increase the populations to which the Product may be administered, and to expand the label claims of the Product, in the Field. 2.2 MANAGEMENT OF THE COLLABORATION. The Parties intend to manage the Collaboration primarily through two committees: The Joint Commercialization Committee (the "JCC"), which will generally oversee the Collaboration and will specifically oversee the promotional, marketing and sales activities of the Parties in the Territory pursuant to the Commercialization Plan (as further described in Article 3), and the Joint Development Committee (the "JDC"), which will oversee the management of the clinical development, regulatory strategy and manufacture of Product in the Territory, pursuant to the Development Plan (as further described in Article 4) (collectively, the "Committees"). It is the intent of the Parties, in working together to develop and commercialize the Product, to assign responsibilities for the various operational aspects of the Collaboration to those portions of their respective organizations which have the appropriate resources, expertise and responsibility for such functions. The Parties will use Commercially Reasonable Efforts and cooperate with one another in carrying out their respective obligations hereunder and as set forth further in the Development Plan and the Commercialization Plan. 2.3 COMPOSITION AND CONDUCT OF THE COMMITTEES. The Parties shall designate their representatives to the Committees within ten (10) days after the Effective Date. Each Party shall designate three (3) representatives to the JCC, and two (2) representatives to the JDC. Each member of each Committee shall have one vote. Wyeth-Ayerst shall also appoint an employee of AHPC's Whitehall-Robins Healthcare Division as a non-voting representative to the JCC. The Parties will endeavor to designate representatives with the appropriate skills necessary to deal with the issues before them. The membership of the JCC and the JDC may overlap. An alternate such member designated by a Party may serve temporarily in the absence of a permanent member designated by such Party. Each Party shall designate one of its representatives to each Committee as a Co-Chair of such Committee. Each Co-Chair of a 9 11 Committee will be responsible for the agenda and the minutes of alternating meetings of such Committee. Each Party shall bear its own costs of participation in each Committee. 2.4 MEETINGS OF THE COMMITTEES. Each Committee: (a) shall hold meetings at such times and places as shall be determined by a majority of the entire membership of such Committee (it being expected that meetings will alternate between the Mountain View, CA office of Aviron and the Radnor/St. Davids, PA office of Wyeth-Ayerst) but in no event shall such meetings be held in person less frequently than once every three (3) months; (b) may conduct meetings in person or by telephone or video conference or other means, provided that: (i) except by mutual consent of the Co-Chairs, meetings by telephone conference shall not reduce the number of meetings in person specified in paragraph (a) above; and (ii) any decision made during a telephone conference meeting is evidenced in writing signed by one of the members of such Committee from each of the Parties; (c) by mutual consent of the representatives of each Party, such consent not to be unreasonably withheld, either Party may invite other personnel of their organization to attend appropriate meetings of the Committee; (d) shall keep minutes reflecting actions taken at meetings; (e) may act without a meeting if prior to such action the Committee members agree regarding such action and a written consent thereto is signed by the Co-Chairs of the Committee; and (f) may amend or expand upon the foregoing procedures for its internal operation by unanimous written consent. 2.5 LIMITATIONS OF COMMITTEE POWERS. Neither Committee shall have any power to amend this Agreement and shall have only such powers as are specifically delegated to them hereunder. 2.6 AUTHORITY TO CALL MEETINGS. Notwithstanding the regular meeting schedule of the respective Committees, a meeting of either Committee may be called by either Party on ten (10) days written notice to the other, unless such notice is waived by the other Party. In the event of any meeting called pursuant to a notice under this Section 2.6, the Party calling the meeting shall provide an agenda for the meeting together with the information that such Party believes is relevant for the items to be discussed. Neither Party shall call more than four (4) additional meetings per Calendar Year for each Committee under this Section 2.6 without the other Party's consent. The Party not calling the meeting under this Section 2.6 shall select the location for the meeting. 10 12 ARTICLE 3 JOINT COMMERCIALIZATION COMMITTEE 3.1 FUNCTIONS AND POWERS OF THE JOINT COMMERCIALIZATION COMMITTEE. The Joint Commercialization Committee shall perform the following functions: (a) determine the overall commercialization strategy for the Product in the Territory; (b) coordinate the Parties' activities hereunder; (c) communicate at least twice per each Calendar Year with the International Commercialization Committee (as defined in the International Agreement) in order to coordinate the Parties' activities under this Agreement and under the International Agreement so as to optimize sales of the Product globally. (d) approve plans and budgets for the Collaboration, all based on the principles of prompt and diligent development of the Product consistent with good biological practices and the maximization sales of the Product in the Field and in the Territory. (e) prepare, and update and amend as necessary, the Commercialization Plan, as described in Section 7.2; (f) review the financial performance of the Product in the Territory; (g) review and approve material agreements with Third Parties to be made by either or both Parties that cover the marketing or sales of the Product in the Field and in the Territory; (h) review and comment on the Development Plan, as modified from time to time; (i) at its discretion, form and subsequently disband subcommittees with appropriate representation from each Party; and (j) perform such other functions as appropriate to further the purposes of this Agreement as mutually determined by the Parties. Any subcommittee established by the JCC shall have appropriate representation of each Party and may include representatives of a Party who are not members of the JCC. Any such subcommittee shall be subject to the provisions of paragraphs (b) through (e) of Section 2.4 and shall report its actions promptly to the JCC. At the request of either Party at any time, any such subcommittee shall be dissolved and its powers and functions returned to the JCC. 3.2 JOINT COMMERCIALIZATION COMMITTEE ACTIONS. No business shall be transacted at any meeting of the JCC unless a quorum of members is present at the time when the meeting proceeds to business. A quorum shall be at least four (4) members present in person or by their 11 13 alternate, two (2) of whom must be representatives appointed by Wyeth-Ayerst and two (2) representatives appointed by Aviron. Actions by the JCC pursuant to this Agreement shall be taken only with [***] of the representatives of both Parties on such committee. If the JCC fails to reach agreement on any matter before it for decision within ten (10) days, the matter shall be referred for resolution in accordance with Article 20 hereof. ARTICLE 4 JOINT DEVELOPMENT COMMITTEE 4.1 FUNCTIONS AND POWERS OF THE JOINT DEVELOPMENT COMMITTEE. The Joint Development Committee shall perform the following functions: (a) Oversee and coordinate the clinical development of the Product in the Territory (including without limitation, review of proposals to commence or stop a clinical trial) pursuant to the Development Plan; (b) Prepare the Development Plan (as described in Section 6.3), and any necessary amendments thereto, for the JCC's review and approval; and (c) Oversee and provide input to Aviron's efforts in the regulatory affairs regarding and the manufacture and supply of Product for sale in the Territory. 4.2 JOINT DEVELOPMENT COMMITTEE ACTIONS. No business shall be transacted at any meeting of the JDC unless all members are present at the time when the meeting proceeds to business. Actions by the JDC pursuant to this Agreement shall be taken only with the [***] of the representatives of both Parties on such committee. If the JDC fails to reach agreement on a matter before it for decision within ten (10) days, the matter shall be referred for resolution to the JCC, subject to Section 3.2. ARTICLE 5 LICENSES 5.1 LICENSE GRANT WITHIN THE TERRITORY. Subject to the conditions and limitations set forth in this Agreement, Aviron hereby grants to Wyeth-Ayerst (a) the exclusive license, under the Aviron Patents, the Aviron Know-How and Aviron's interest in any Joint Technology; and (b) the exclusive sublicense, under Aviron's rights under the Michigan Agreement, in each case solely to manufacture, to the extent set forth in the Supply Agreement, develop, distribute, use, import, offer for sale and sell the Product in the Territory for use in the Field during the Co-Promotion Term. Aviron shall retain all rights under the Aviron Patents, the Aviron Know-How and Aviron's interest in any Joint Technology, and under the Michigan Agreement, that are necessary or useful to Aviron's performance of its rights and obligations under this Agreement and the Supply Agreement, or that relate to the manufacture of the Product within the Territory - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 12 14 that is to be used or sold in territories for which Wyeth-Ayerst or its Affiliates do not have a license to use or sell the Product. 5.2 LICENSE GRANT TO AVIRON. Subject to the conditions and limitations set forth in this Agreement, Wyeth-Ayerst hereby grants to Aviron the exclusive, paid-up license, under the Wyeth-Ayerst Know-How, the Wyeth-Ayerst Patents, and Wyeth-Ayerst's interest in any Joint Technology, solely to manufacture, to the extent set forth in the Supply Agreement, develop, distribute, make, have made, use, offer for sale and sell the Product in the Territory for use in the Field during the Co-Promotion Term. Wyeth-Ayerst shall retain all rights under the Wyeth-Ayerst Patents, the Wyeth-Ayerst Know-How and Wyeth-Ayerst's interest in any Joint Technology that are necessary or useful to Wyeth-Ayerst's performance of its rights and obligations under this Agreement and the Supply Agreement. 5.3 DISTRIBUTION THROUGH OTHERS. Aviron grants Wyeth-Ayerst the right to distribute Product through its Affiliates or Third Party distributors in the Territory (but in any event only through distributors performing usual and customary distribution activities for Wyeth-Ayerst) to the extent that Wyeth-Ayerst itself otherwise has the right to so distribute such Product in the Territory for use in the Field during the Co-Promotion Term, provided that Wyeth-Ayerst may not grant any such distributor a sublicense hereunder to offer for sale or sell, or repackage, re-import or export the Product. 5.4 JOINT TECHNOLOGY. Wyeth-Ayerst hereby grants to Aviron the exclusive license, during the Co-Promotion Term, under Wyeth-Ayerst's interest in the Joint Technology to use, make, have made, import, offer for sale and sell the Product (i) within and outside of the Field, but outside of the Territory, and (ii) outside of the Field but within the Territory, with the right to sublicense. Such license shall be [***] in the event that Aviron [***] the Parties shall [***] to be [***] of the Product under such [***] as the Parties may agree upon, [***] of the [***] of such [***] to the manufacture, use or sale of the Product. 5.5 MICHIGAN RETAINED RIGHTS. Wyeth-Ayerst acknowledges and agrees that the license granted under Section 5.1 is subject at all times to the Michigan Agreement, as further set forth in Article 10. Pursuant to the Michigan Agreement, Wyeth-Ayerst hereby grants to Michigan an irrevocable, royalty-free license to utilize any "Improvements" (as defined in Section 2.3 of the Michigan Agreement) to the Product generated by Wyeth-Ayerst in the manufacture, use, marketing or sale of Products, as set forth in Section 9.4 of the Michigan Agreement, and subject to the restrictions placed upon Michigan under Section 3.4 of the Michigan Agreement. 5.6 WYETH-AYERST [***] (a) In order to induce Aviron to grant the exclusive rights granted under Section 5.1 above, Wyeth-Ayerst hereby agrees that during the Co-Promotion Term, it shall [***] in the Territory, subject to subsection (b) below. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 13 15 (b) If Wyeth-Ayerst [***] pursuant to [***] and sales of such [***] do not comprise more than [***] of the overall [***] of such [***] for the most recent Calendar Year, subsection 5.6 (a) shall not apply to such [***] provided that Wyeth-Ayerst shall give Aviron written notice that it is [***] such [***] in the Territory as promptly as possible following such [***]. (c) In the event Wyeth-Ayerst does promote, market and/or sell [***] as permitted in subsection (b) above, all [***] in the Territory during the Co-Promotion Term shall be [***] of the Product under this Agreement in [***] on the [***] the Product under, and as further described in, Section [***] As used in this subsection (c), [***] of such [***] shall have an equivalent definition to [***] as defined in Section [***] hereof. 5.7 AVIRON [***]. Aviron shall have the right during the Co-Promotion Term to undertake the development of and market and sell any [***] subject to the terms of this Section 5.7. In the event that Aviron does undertake such development, Aviron shall be solely responsible for the development of such [***] unless otherwise agreed to in writing by the Parties. (a) Prior to the first commercial sale of such [***] in the Territory, Aviron will notify Wyeth-Ayerst in writing. Upon receipt of such notice, Wyeth-Ayerst shall have a period of thirty (30) days to notify Aviron in writing whether it desires that such [***] If Wyeth-Ayerst so notifies Aviron that it does desire that such [***] then: (i) Such [***] will thereafter be [***] including without limitation, by [***]; (ii) The Parties shall agree in good faith upon appropriate [***] to be [***] it for its [***] with respect to such [***] the [***] under Section [***] and [***] of such [***] in the Territory shall be [***] Product in [***] under Section [***] and (iii) Aviron shall retain the exclusive right to [***] such [***] provided that, if at such time [***] of the [***] (i.e., the [***] as it [***] prior to the [***] pursuant to subsection (ii) above), and the JDC confirms that the [***] of such [***] essentially the [***] as, or a [***] to, that used for the [***] of the [***] of the [***] then [***] of such [***] under the conditions set forth in [***]. (c) If Wyeth-Ayerst notifies Aviron that it does not desire that such [***] then Aviron will have no further obligation thereafter to Wyeth-Ayerst with respect to the [***] which was the subject of the Aviron's notice to Wyeth-Ayerst, and shall have the right to market and sell the same outside of the Collaboration, either alone, or with or through a Third Party. 5.8 [***] In the event that, prior to the expiration of the Co-Promotion Term, Aviron determines that it wishes to grant a Third Party the right to [***] within the Territory, regardless of whether Aviron intends to solicit such Third Party or has been solicited by such Third Party, Aviron shall so notify Wyeth-Ayerst in writing. Upon receipt of such notice, Wyeth-Ayerst shall have a period of [***] days to deliver to Aviron a written notice of its interest. For [***] days - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 14 16 following receipt of Wyeth-Ayerst's notice, the Parties shall engage in exclusive, good-faith negotiations for the reasonable commercial terms upon which the [***] would be [***]. The Parties anticipate that such commercially reasonable terms would include [***] in the [***] relevant [***] regarding [***] for such [***] and the duration of such collaboration in the [***]. If Wyeth-Ayerst does not exercise the option granted in this Section 5.8, or if the Parties have failed to reach agreement on such terms by the end of such [***]. period, then Aviron shall thereafter be free to grant a Third Party such rights to [***] within the Territory, on terms and conditions which, taken as a whole, are no less favorable to Aviron than Wyeth-Ayerst's last written offer to Aviron for such rights. Notwithstanding any other provision of this Section 5.8, Aviron shall not, nor shall Aviron grant any Third Party the right to, [***] in the Territory during the Co-Promotion Term, as it may be extended hereunder. 5.9 DEVELOPMENT OF [***] BY AVIRON. (a) Aviron shall have the right, but not the obligation, to undertake development of (i) any [***] (ii) any [***] other than [***] or (iii) any [***] and Aviron shall be solely responsible for the development of such [***] unless otherwise agreed to in writing by the Parties. (b) Prior to the [***] in the Territory of [***] any such [***] or [***] or [***] Aviron will notify Wyeth-Ayerst in writing. Upon receipt of such notice, Wyeth-Ayerst shall have a period of [***] days to notify Aviron in writing whether it desires that such [***] be included under the Collaboration. If Wyeth-Ayerst so notifies Aviron that it does desire that such [***] be included under the Collaboration hereunder, then: (i) Such [***] will thereafter be included under this Agreement, including without limitation, by [***] (for an [***]) or [***] (for an [***]); (ii) The [***] set forth in Section [***] shall apply to such new [***] provided that Wyeth-Ayerst shall not [***] Aviron for the [***] of any particular [***] (as defined in Section [***]), regardless of the number of times such [***] the [***] shall apply to such [***] as applied to the [***] and [***] of such [***] in the Territory shall be [***] with those of any [***] in calculating [***] under Section [***] and (iii) Aviron shall retain the exclusive right to [***] such [***] provided that, if at such time [***] of the [***] (i.e., the [***] as it [***] prior to the [***] of such [***] pursuant to subsection (ii) above), and the JDC confirms that the [***] of such [***] essentially the [***] as or [***] to that used for the [***] of the [***] of the [***] then [***] of such [***] under the conditions set forth in [***]. (iv) In the event that [***] at such time, in the [***] of the [***] the Parties shall in good faith amend [***] with respect to an amended [***] for such [***] so as to reflect the [***] of the Parties in the [***] provided that the amended [***] shall in no event be [***] set forth in the unamended [***]. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 15 17 (c) If Wyeth-Ayerst notifies Aviron that it does not desire that such [***] be included in the Collaboration hereunder, then Aviron will have no further obligation thereafter to Wyeth-Ayerst with respect to the [***] which was the subject of the Aviron's notice to Wyeth-Ayerst, and shall have the right to pursue the same outside of the Collaboration, either alone or with a Third Party. 5.10 RESERVATION OF RIGHTS. Aviron hereby reserves all rights under the Aviron Patents and the Aviron Know-How, and all rights to the Product including without limitation all intellectual property and trademark rights relating thereto, not specifically granted to Wyeth-Ayerst hereunder, including without limitation all rights to the Product outside of the Field and outside of the Territory, subject to Sections 5.8 and 5.9, and the right to manufacture, or have manufactured, the Product in the Territory for use in the Territory outside of the Field and outside of the Territory inside or outside the Field, subject to the International Agreement. 5.11 WYETH-AYERST PRIOR AGREEMENT WITH MICHIGAN. (a) PRIOR AGREEMENT. The Parties acknowledge (i) that Wyeth-Ayerst, prior to the Signing Date, had obtained certain rights to [***] pursuant to that certain [***] Agreement with Michigan (the "Prior Agreement"), (ii) that on November 18, 1993, Wyeth-Ayerst terminated the Prior Agreement, and (iii) that Wyeth-Ayerst retains no rights to [***] except as expressly granted herein, other than as may be granted to Wyeth-Ayerst by Michigan following termination of the Michigan Agreement. (b) WYETH-AYERST REPRESENTATIONS AND WARRANTIES. Wyeth-Ayerst hereby represents and warrants to Aviron that: (i) Wyeth-Ayerst [***]; and (ii) Wyeth-Ayerst is otherwise in compliance with all obligations arising under the Prior Agreement with respect to Wyeth-Ayerst's termination thereof, including without limitation those arising under Article 14 of the Prior Agreement. 5.12 WYETH-AYERST COVENANT. During the term of this Agreement, Wyeth-Ayerst shall not promote, manufacture for commercial sale or use, sell, resell, or otherwise commercialize, nor shall Wyeth-Ayerst assist any Third Party or engage any Third Party to promote, manufacture for commercial sale or use, sell, resell, or otherwise commercialize, any live, cold-adapted influenza vaccine, other than the Product, [***] in any country within or outside of the Territory; provided that [***] shall have the burden of (a) [***] and (b) providing [***]. Aviron shall [***] under this provision only to the extent that such [***] prior to [***] of the [***] described in [***]. ARTICLE 6 PRODUCT DEVELOPMENT 6.1 CURRENT STATUS. Prior to the Effective Date, Aviron has (a) independently developed the Product for use in the Field, including conducting Phase III trials and data review; and (b) intends to file the PLA for use of the Product for immunization against influenza and its - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 16 18 associated complications in individuals 12 months to 64 years of age, [***], and for the prevention of [***] febrile illness associated with influenza. 6.2 PRODUCT DEVELOPMENT. Commencing as of the Effective Date, and during the Co-Promotion Term of this Agreement, the Parties shall collaborate with respect to the clinical, commercial, regulatory and manufacturing development the Product in the Field and in the Territory in accordance with the Development Plan, and as directed by the JDC. Aviron (or its agents or contractors approved in advance by the JDC) shall be responsible for undertaking and implementing all clinical development activities with respect to the Product. Wyeth-Ayerst (or its agents or contractors approved in advance by the JDC) shall be responsible for undertaking and implementing all development activities assigned to it pursuant to the Development Plan. Each Party shall comply with all GLP, GCP and GMP in the development of the Product hereunder. Aviron shall have the right to undertake any development activities it deems necessary to develop the Product outside of the Field, at its own expense. 6.3 DEVELOPMENT PLAN. The clinical development of the Product in the Territory shall be governed by a comprehensive development plan and budget ("the Development Plan"). The Development Plan shall contain a detailed and specific plan and budget for all clinical development proposed for the Product in the Territory during the Co-Promotion Term. Promptly after the Effective Date, the JDC shall complete the initial Development Plan, and submit it to the JCC for its review and approval. During the term of the Agreement, the JDC shall periodically update the Development Plan as necessary, including any necessary updates to the budget, subject to the approval of the JCC. In preparing and, if necessary, revising the budget, the JDC shall be responsive to the regulatory requirements to achieve approval of, or to support any approved, label claims. 6.4 SHARING OF R&D EXPENSES. A preliminary budget of the projected R&D Expenses for the development activities to be conducted under the Development Plan following the Effective Date is set forth in Schedule 6.4 hereto. The Parties shall [***] all R&D Expenses expended in accordance with the Development Plan and budget, as follows: Following the first calendar quarter of 1999, and following each calendar quarter thereafter during the Co-Promotion Term, [***] R&D Expenses for such calendar quarter. Such invoices shall be paid within thirty (30) days of receipt. 6.5 REGULATORY APPLICATIONS. (a) Aviron and its contractors will be responsible for preparing and filing and shall own all applications for Regulatory Approval of the Product in the Territory, including the PLA. Aviron or its contractor will file all such applications in its own name and shall be responsible for prosecuting such applications. (b) Aviron shall have the right to use all data and reports generated in the conduct of the Development Plan for the filing of applications for regulatory approval of the Product outside the Field and/or the Territory, without payment to Wyeth-Ayerst, and with the right to allow a Third Party licensee the right to so use such data and reports. However, where - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 17 19 Aviron wishes to allow a Third Party such right of use, the Parties shall in good faith agree upon a [***] to allow it to [***]. 6.6 SUPPLEMENTS. Prior to supplementing the Regulatory Approvals or filing additional and supplemental applications for Regulatory Approvals, Aviron shall provide such proposed supplemental application to the JDC [***]. The JDC shall notify Aviron within [***] days of its receipt of such application [***] such application. If the JDC [***] Aviron shall then be free to file such application. If the JDC [***] and if it [***] such supplemental application within [***] days of its receipt of such application, Aviron shall thereafter be free to file the originally proposed supplemental application. 6.7 NOTIFICATION OF WYETH-AYERST AS DISTRIBUTOR. Aviron shall comply with all applicable FDA regulations and guidelines that require the identification of Wyeth-Ayerst as the distributor of the Product in the Territory, and shall take those actions that are necessary to update the Regulatory Approvals to reflect such fact. 6.8 REGULATORY MEETINGS AND CORRESPONDENCE. (a) At least one (1) representative of each Party shall be given the opportunity to participate in any meetings or substantive discussions with the FDA or any other regulatory authority which relate to the Product in the Territory, including, but not limited to, any discussions regarding Product Promotional Materials. To the extent Aviron receives any communications from the FDA or such other regulatory authority relating to the Product in the Field in the Territory, Aviron shall notify Wyeth-Ayerst in a timely manner. (b) Subject to Sections 6.8(a) and (c) hereof, each Party shall promptly notify the other Party of, and provide such other Party with, a copy of any correspondence or other reports or complaints submitted to or received by the first Party from the FDA, any other regulatory authority, or other Third Party claiming that any Product Promotional Materials are inconsistent with the Product Labeling or are otherwise in violation of the FD&C Act or the PHS Act. (c) Notwithstanding anything herein to the contrary, Aviron or its agent shall have exclusive responsibility for correspondence and for any official communications with the FDA or any other regulatory authority regarding the Product in the Field in the Territory. (d) Aviron shall provide Wyeth-Ayerst with a copy of any documents or reports filed with the FDA or any other regulatory authority during the Co-Promotion Term under this Section 6.8 with respect to the Product in the Field in the Territory. 6.9 RECORDS. Each Party shall keep complete, accurate and authentic accounts, notes, data and records, in good scientific manner, of all activities performed by it under the Development Plan. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 18 20 ARTICLE 7 CO-PROMOTION AND MARKETING 7.1 PRINCIPLES OF CO-PROMOTION. Wyeth-Ayerst shall have the exclusive right to commercialize the Product in the Field in the Territory during the Co-Promotion Term, subject to Aviron's right to Co-Promote the Product with Wyeth-Ayerst in the Territory during the Co-Promotion Term, as further detailed in the Commercialization Plan. Aviron and Wyeth-Ayerst shall each use Commercially Reasonable Efforts to Co-Promote and commercialize the Product in the Territory at all times during the Co-Promotion Term. As appropriate, [***] for the Product in various [***] and be [***] with respect to [***] for the Product, provided that [***] of the Product in the Territory. 7.2 COMMERCIALIZATION PLAN. (a) The JCC shall develop and approve a rolling multi-year plan and budget for commercializing the Product (the "Commercialization Plan"). The Commercialization Plan shall include a comprehensive market development, marketing, sales, supply and distribution strategy, including an overall budget for anticipated marketing, promotion and sales efforts in the calendar year. The Commercialization Plan will specify which Target Populations and distribution channels each Party shall devote its Co-Promotion efforts towards, the personnel and other resources to be devoted by each Party to such efforts, the number and positioning of details to be performed by each Party, as well as market and sales forecasts and related operating expenses, for the Product in the Territory, and budgets for projected Commercialization Expenses and Sales and Marketing Expenses. In preparing the Commercialization Plan, the JCC will take into consideration factors such as market conditions, regulatory issues and competition. The Commercialization Plan will include the general strategy and operating guidelines for the commercialization of the Product. (b) It is the intention of the Parties that Aviron's sales and marketing organization shall concentrate on a specific market segment or segments, to be agreed upon by the JCC, and that Aviron's marketing efforts shall include the development of an electronic-based selling infrastructure to support sales of the Product. It is also the intention of the Parties that, assuming regulatory approval therefor, Wyeth-Ayerst shall focus its initial sales and marketing efforts of the Product to the healthy pediatric Target Population, giving the Product first detail position for the Flu Season in which occurs the Launch Date. Further, the Parties intend that, if the Product is approved in the Field in the Territory for the adult Target Population, then Wyeth-Ayerst shall provide (including hiring, if necessary) sufficient personnel in its sales and marketing organization to market and sell the Product to such adult Target Population. (c) The first Commercialization Plan shall be prepared and approved as promptly as possible after the Effective Date and shall thereafter be immediately in effect. Annually thereafter, the JCC shall update and amend the Commercialization Plan with such process as the JCC shall determine. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 19 21 7.3 SALES AND DISTRIBUTION; RECALLS. During the Co-Promotion Term, Wyeth-Ayerst shall be responsible for: (a) Booking sales and distribution of all of the Product hereunder and performance of related services. If Aviron receives any orders for the Product in the Territory during the Co-Promotion Term, it shall promptly refer such orders to Wyeth-Ayerst. (b) Handling and implementing all voluntary recalls and market withdrawals of the Product. Aviron will make available to Wyeth-Ayerst, upon request, all of Aviron's pertinent records which Wyeth-Ayerst may reasonably request to assist it in effecting any recall or market withdrawals. Any and all costs and expenses incurred by Wyeth-Ayerst in the conduct of any such recall or market withdrawal of the Product shall be [***] except that if such recall or market withdrawal: (i) was the result of the failure of [***] to comply with (1) its obligations under this Agreement, or (2) its obligations under the Supply Agreement, to the extent such obligations apply to [***] under this Agreement; or (ii) was [***] and [***] to be [***] then [***] of such recall or market withdrawal. (c) Handling all aspects of order processing, invoicing and collection, inventory and receivables; provided, however, that Aviron shall have the right to a copy (in electronic form), of all such ordering and invoicing information. (d) Providing customer support, including handling medical queries, and performing other functions consistent with consumer practice for vaccines and consistent with the Commercialization Plan. 7.4 COMMERCIALIZATION EXPENSES. [***] shall be responsible for all Commercialization Expenses in such amounts as are set forth in the Commercialization Plan. [***] for any Commercialization Expenses incurred by [***] or its agents and Affiliates hereunder, as [***] within thirty (30) days of receiving such invoice commencing as early as the first quarter of 1999. The Parties anticipate that the Commercialization Expenses for 1999 shall be approximately [***] or more. 7.5 COMMERCIALIZATION EXPENSE COMMITMENT. The Parties anticipate that [***] shall expend between [***] in Commercialization Expenses with respect to pre-Launch activities and post-Launch activities through the third anniversary of the Launch Date, except as otherwise determined by the JCC in light of market conditions at such time, taking into account such factors as market awareness and Finished Product supply levels. Such amounts may be [***] 7.6 SALES AND MARKETING EXPENSES. (a) [***] shall be responsible for all of its own Sales and Marketing Expenses incurred hereunder in such amounts as are set forth in the Commercialization Plan. (b) [***] for its reasonable Sales and Marketing Expenses incurred hereunder as follows: [***] following the end of each calendar quarter for [***] during such calendar - ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 20 22 quarter. At the time [***] due for each quarter, as set forth in Section [***] amount equal to [***] during such quarter, provided that [***] shall not be obligated [***] for more than [***] per Calendar Year under this subsection (b). All [***] under this subsection (b) shall be used exclusively for the establishment, maintenance and expansion of [***] marketing and sales infrastructure for the Co-Promotion of Product. 7.7 [***] In the event that [***] (as defined [***] of the [***] shall have the right to [***] under Section [***] and its own [***] under the Commercialization Plan with the agreement of the JCC. 7.8 PROMOTIONAL AND ADVERTISING MATERIALS. (a) Consistent with applicable law, the JCC shall have the right to approve any and all Product Promotional Materials, pursuant to mutually agreed upon procedures and timelines, which, to the extent practicable, shall be coordinated with both Wyeth-Ayerst's clearance procedures (i.e., Wyeth-Ayerst's Copy Clearance Committee) and Aviron's clearance procedures. The Parties shall establish a tracking system or utilize Wyeth-Ayerst's tracking system (if appropriate and mutually agreed), for Product Promotional Materials to ensure that all such Product Promotional Materials are accurately tracked and submitted to the FDA. (b) Aviron will file all Product Promotional Materials with the FDA. (c) All Product Promotional Materials used by either Party in the Co-Promotion of the Product in the Territory shall contain (i) the Primary Brand Trademark, and the Aviron corporate name and logo, and (ii) the Wyeth-Ayerst Trademarks, corporate name and logo, in positions of equivalent prominence and frequency, subject to Section 7.8(d) below, subject to applicable law. (d) Aviron shall own all right, title and interest in and to the Product Promotional Materials, including all copyrights appurtenant thereto, except for any Trademarks owned by Wyeth-Ayerst that are used by Wyeth-Ayerst prior to or during the Co-Promotion Term in connection with products other than the Product, which shall remain the property of Wyeth-Ayerst. Aviron hereby grants to Wyeth-Ayerst the right, during the Co-Promotion Term, to use all Product Promotional Materials in connection with its Co-Promotion of the Product. 7.9 VOLUNTARY PRODUCT RECALLS. If either Party believes that a voluntary recall or market withdrawal of the Product is necessary, such Party shall notify the other Party within forty-eight (48) hours of its determination and both Parties shall cooperate to allow such recall or market withdrawal to occur under the direction of Wyeth-Ayerst (as set forth in Section 7.3(b)). In the event of a dispute about whether to recall a Product, Wyeth-Ayerst shall, after consultation with Aviron, have the final authority with respect to such matters, which authority shall be exercised reasonably and in good faith and subject to Section 7.3(b). 7.10 REGULATORY OBLIGATIONS. Aviron shall be solely responsible for all activities in connection with the Regulatory Approvals for the Product in the Territory, including without limitation communicating and preparing and filing all reports (including without limitation - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 21 23 adverse drug experience reports) with the FDA. Wyeth-Ayerst agrees to cooperate with Aviron as requested in preparing and filing all such reports. Each Party agrees to comply with the provisions of Section 17.3 hereof. [***] with obtaining and maintaining the Regulatory Approvals including, without limitation, any [***] which must be [***] used in the [***] Product by or on behalf of [***] provided that [***] shall be solely responsible for, and shall [***] obtaining and maintaining any [***] used in the [***] Product by or on behalf of [***] 7.11 CO-PROMOTION RESPONSIBILITIES. During the Co-Promotion Term, each Party shall, as part of its duties hereunder, have responsibility for performing the following activities: (a) Aviron and Wyeth-Ayerst shall each supervise, train and maintain such competent and qualified sales representatives as may be required to Promote and detail the Product as provided in the Commercialization Plan, such training to include a reasonable proficiency examination for all sales representatives who will be engaged in detailing. (b) Each Party shall in all material respects conform its practices and procedures relating to the marketing, detailing and Co-Promotion of the Product in the Territory to all applicable laws, regulations and guidelines, including the FD&C Act, the Prescription Drug Marketing Act, the Federal Health Care Programs Anti-Kickback Law, 42 U.S.C. 1320a-7b(b), the Pharmaceutical Research and Manufacturers of America ("PhRMA") Code of Pharmaceutical Marketing Practices (the "PhRMA Code") and the American Medical Association ("AMA") Guidelines on Gifts to Physicians from Industry (the "AMA Guidelines"), as the same may be amended from time to time, and shall promptly notify the other Party of and provide the other Party with a copy of any correspondence or other reports with respect to the marketing, detailing and Co-Promotion of the Product submitted to or received from the U.S. Department of Health and Human Services or its components (including the FDA and the Office of the Inspector General), PhRMA or the AMA relating to such laws, regulations and guidelines. (c) Each Party shall in all material respects conform its practices and procedures relating to educating the medical community in the United States with respect to the Product to the Accreditation Council for Continuing Medical Education ("ACCME") Standards for Commercial Support of Continuing Medical Education (the "ACCME Standards") and any applicable FDA regulations or guidelines, as the same may be amended from time to time, and promptly notify the other Party of and provide the other Party with a copy of any correspondence or other reports submitted to or received from the ACCME with respect to the Product relating to the ACCME Standards or such FDA regulations. (d) On or before the forty-fifth (45th) day of each calendar quarter, commencing with the second calendar quarter after the Launch Date, each Party shall furnish to the other Party a summary of information coming to such Party's attention in the Territory concerning introductions and promotional activities of products competitive with the Product, and of any serious complaints regarding the Product (other than those described in Section 17.2), it being understood that there is no obligation on either Party to solicit such information. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 22 24 (e) Each Party shall provide the other Party with copies of any communications, including communications sent electronically or by voice mail, disseminated by such Party generally to its sales representatives Co-Promoting the Product in the Territory relating to marketing strategy for the Product or the terms or subject matter of this Agreement. (f) In connection with the Co-Promotion and detailing of the Product hereunder, Wyeth-Ayerst and Aviron shall each make no statement, representation or warranty, oral or written, to Third Parties, concerning the Product for any approved indication for the Product inconsistent with, or contrary to, the Product Labeling or Product Promotional Materials. (g) If applicable, and if product sampling is approved by the JCC, Wyeth-Ayerst and Aviron each shall in all material respects conform its practices and procedures relating to sampling in the Territory to sampling practices and procedures in compliance with the Prescription Drug Marketing Act of 1987, as the same may be amended from time to time. (h) Each Party shall give prompt written notice to the other Party of the date on which its sales representatives commence Co-Promoting the Product in the Territory. (i) The target and minimum number of details to be conducted by Wyeth-Ayerst hereunder, and set forth in the Commercialization Plan, are subject to a downward adjustment as agreed from time to time by the JCC to reflect (1) any allocation of details by the JCC to an Aviron sales force, or (2) the impact of FDA imposed suspension of details, withdrawal of Product Promotional Materials, or similar FDA action. ARTICLE 8 MANUFACTURE AND SUPPLY 8.1 SUPPLY OF [***] During the Co-Promotion Term, Aviron shall manufacture and supply, or have manufactured and supplied, Finished Product [***] to Wyeth-Ayerst for sale in the Field in the Territory hereunder. The terms of such manufacture and supply shall be governed by the Supply Agreement. 8.2 SUPPLY OF [***] During the Co-Promotion Term, [***] to manufacture and supply [***] as set forth in the Supply Agreement. Aviron shall (a) manufacture and supply, or have manufactured, or supplied, [***] for the [***], (b) manufacture and supply, or have manufactured and supplied [***] and (c) [***] Finished Product [***] all as set forth in the Supply Agreement. 8.3 SUPPLY GOAL PAYMENTS. Wyeth-Ayerst shall pay the following amounts to Aviron within fifteen (15) days of receiving written notice that Aviron has supplied the indicated quantity of Finished Product [***] to Wyeth-Ayerst during the Flu Season specified below: - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 23 25
YEAR QUANTITY SUPPLIED AMOUNT - ---------------------------------- ---------------- ------- 2nd Flu Season of Co-Promotion Term Lesser of [***] [***] 3rd Flu Season Lesser of [***] [***]
ARTICLE 9 TRADEMARK MATTERS 9.1 LICENSES. (a) In order to enable each Party to perform its obligations hereunder, each Party hereby grants to the other Party a non-assignable, non-sublicenseable, non-exclusive, royalty-free right and license to use Aviron's Trademarks and Wyeth-Ayerst's Trademarks, as applicable, in the Territory solely in connection with the Product Promotional Materials and Product Labeling during the Co-Promotion Term. Such license shall expire immediately upon the earlier of (i) termination or cancellation of this Agreement, or (ii) expiration of Co-Promotion Term; provided, however, that each Party to the extent applicable hereunder shall thereafter have a reasonable period, not to exceed [***] months following such termination or cancellation, within which to use the existing inventory of Product Promotional Materials and Product Labeling containing any Trademarks of the other Party, consistent with Section 19.6(b) in the case of Wyeth-Ayerst; and provided further, that upon such termination or cancellation, Aviron shall thereafter be relieved of its obligations to display the Wyeth-Ayerst Trademarks on Product Promotional Materials and Product Labeling printed following such termination or cancellation. 9.2 VALIDITY OF TRADEMARKS. Each Party acknowledges the validity of the other Party's right, title and interest in and to its Trademarks and shall not have, assert or acquire any right, title or interest in or to any of such other Party's Trademarks, except as otherwise explicitly provided in this Agreement. 9.3 FORM OF USE. Each Party shall use those Trademarks owned by the other Party only in the forms approved in writing by the other Party, and shall include where appropriate the designations (R) or (TM) and a statement that the Trademark is the trademark of the other Party, and other proprietary notices as are reasonably required by the other Party from time to time. The JCC shall approve all Product Promotional Materials and Product Labeling, including without limitation the use of each Party's Trademarks therein. Each Party shall permit one (1) or more authorized representatives of the other Party, on reasonable prior notice, at reasonable intervals, during normal business hours and subject to normal safety and security procedures, to inspect and examine from time to time, Product Promotional Materials and Product Labeling and the records of such Party that are related to use of the other Party's Trademarks, or to use of Product Promotional Materials or Product Labeling. 9.4 NO CONTEST. Wyeth-Ayerst agrees that it will not contest, oppose or challenge Aviron's ownership of the Primary Brand Trademark. In particular, Wyeth-Ayerst will not register or attempt to register, or maintain registration of, the Primary Brand Trademark in any - ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 24 26 jurisdiction nor oppose Aviron's registration of the Primary Brand Trademark, alone or with other words or designs, in any jurisdiction. If Wyeth-Ayerst uses, registers, applies to register, or maintains registration of, a licensed mark that violates its obligations under this Section 9.4, Wyeth-Ayerst agrees, at Aviron's request, to abandon the use of any such mark and any application or registration for such mark. 9.5 CONFUSINGLY SIMILAR AND/OR COMBINATION MARKS. Each Party agrees not to adopt or use any other trademarks, words, symbols, letters, designs or marks (a) in combination with the other Party's Trademarks in a manner which would create combination marks, or (b) that would be confusingly similar to the Primary Brand Trademark, provided that Wyeth-Ayerst may use the Primary Brand Trademark with other marks or names if such other marks or names are sufficiently distinctive to avoid the consumer impression that such other marks or their owners are associated with Aviron. 9.6 REGISTRATION COSTS. Aviron shall be responsible for the payment of any and all costs relating to registration of the Primary Brand Trademark in the Territory. 9.7 INFRINGEMENT. (a) Each Party shall give the other Party notice of any infringement or threatened infringement of any of such other Party's Trademarks used in connection with the Product. Each Party shall determine in its sole discretion what action, if any, to take in response to the infringement or threatened infringement of that Party's Trademark, other than the Primary Brand Trademark, which shall be subject to subsection (b) below. In the event that one Party chooses to take enforcement action in response to the infringement or threatened infringement of its Trademark, the other Party shall reasonably cooperate in such enforcement; provided, however, the enforcing Party shall reimburse the other Party for reasonable expenses incurred by the other Party that are related to such enforcement. (b) As to the Primary Brand Trademark only, Aviron shall have the initial right to institute legal proceedings against such Third Party, which proceedings shall be at [***] Wyeth-Ayerst shall reasonably coordinate with Aviron in the prosecution of such proceedings. Should Aviron elect not to institute proceedings against such Third Party within [***] following a notice thereof in response to the infringement or threatened infringement of the Primary Brand Trademark, Wyeth-Ayerst shall then be entitled to institute proceedings in its own name [***]. Aviron shall reasonably cooperate with Wyeth-Ayerst in the prosecution of such proceedings. (c) The Parties shall cooperate in good faith with respect to all Trademark enforcement actions hereunder, and each Party shall notify the other Party promptly of all substantive developments with respect to such Trademark enforcement actions, including, but not limited to, all material filings, court papers and other related documents. Each Party shall consider the timely given, reasonable comments and advice of the other Party with respect to the strategy employed and submissions made relative to any Trademark enforcement actions. [***] any damages or other monetary relief obtained in connection therewith. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 25 27 9.8 TRADE DRESS, LOGOS, AND THE LIKE. The JCC shall approve all trade dress, logos, slogans, designs and copyrights used on and in connection with the Product in the Territory. Aviron shall be the sole owner of all trade dress, logos, slogans, designs and copyrights specifically developed for or used on or in connection with the Product. ARTICLE 10 MICHIGAN AGREEMENT 10.1 SUBLICENSE LIMITATION. Wyeth-Ayerst acknowledges the existence of Aviron's license under the Michigan Agreement, and acknowledges and agrees that Aviron may only grant to Wyeth-Ayerst such rights as Aviron is permitted to grant pursuant to the Michigan Agreement. 10.2 WYETH-AYERST OBLIGATIONS. Wyeth-Ayerst accepts that the following provisions of the Michigan Agreement are hereby incorporated by reference and shall be binding upon Wyeth-Ayerst as a "sublicensee" under the Michigan Agreement (as defined in Section 2.6 of the Michigan Agreement), unless otherwise agreed by Michigan in writing: (a) Section 3.5 (U.S. government "march-in" rights); (b) [***] (obligations and restrictions relating to [***] (as defined in Section [***] of the Michigan Agreement), products and their ownership and use); (c) Section 6.2 (duties of use of a nomenclature system); (d) Section 6.3 (duties to keep records and rights of inspection); (e) Section 8.5 (preference for U.S. manufacturers); (f) Article 9 (obligations regarding the periodic reporting, disclosure and grant of rights to certain intellectual property); (g) Section 13.4 (duties to avoid improper representations or responsibilities); (h) Article 14 (obligations to defend, hold harmless and indemnify Michigan); (i) Section 14.3 (obligations to retain insurance), as further specified in Section 10.7 of this Agreement; (j) Section 15.2 (survival of certain obligations); (k) Section 15.5 (obligations relating to the return and non-use of [***] and certain intellectual property and prohibition on the manufacture of products after termination of the Michigan Agreement); - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 26 28 (l) Section 15.6 (duties to provide rights to Michigan to certain intellectual property upon termination of the Michigan Agreement); (m) Articles 16 and 17 (duties relating to confidential information and to pre-publication disclosure); (n) Article 20 (duties to control export); and (o) Article 22 (duty to restrict use of Michigan's name). 10.3 USE OF AVIRON PRODUCT MATERIALS. Wyeth-Ayerst acknowledges and agrees that the Aviron Product Materials are proprietary and confidential materials of Aviron and Michigan, and that access to the Aviron Product Materials shall be limited to those of its employees reasonably requiring such access for the purposes set forth in this Agreement, who further will be required, in writing, to treat the Aviron Product Materials as confidential. In addition, Wyeth-Ayerst agrees that in the event that [***] other than the Aviron Product Materials come into its possession, it shall promptly notify Aviron in writing; provided, however, that although it is not the Parties' intent as of the Signing Date that [***] under this Agreement, in the event that [***] Wyeth-Ayerst agrees [***] and shall not [***] upon expiration or termination of this Agreement, except to the extent [***] pursuant to Section [***] 10.4 WARRANTY DISCLAIMER. Wyeth-Ayerst acknowledges Michigan's warranty disclaimer and limitation of liability contained in the Michigan Agreement, and will make no statements, representations or warranties inconsistent with such warranty disclaimer or limitation of liability. 10.5 SUBLICENSE TERMINATION. The sublicense granted to Wyeth-Ayerst by Aviron under the Michigan Agreement pursuant to Section 5.1(b) (the "Michigan Sublicense") shall terminate upon the earlier of (i) termination of the Michigan Agreement, unless [***] in writing by [***] or (ii) termination or expiration of the Co-Promotion Term. In the event that the Michigan Sublicense is [***] is required to [***] and the [***] under this Agreement, [***] shall not [***] under this Agreement, [***] prior to such [***] the Michigan Sublicense. 10.6 INSURANCE. Prior to any distribution of Aviron Product by Wyeth-Ayerst in the Territory, Wyeth-Ayerst shall obtain and maintain in effect a product liability insurance policy providing reasonable coverage for all claims with respect to such distribution, or, if permitted by Michigan, a program of self-insurance. Wyeth-Ayerst shall furnish Aviron with a certificate of currency of such insurance upon request, or, if Wyeth-Ayerst is permitted to self-insure, Wyeth-Ayerst shall furnish Aviron with appropriate documentation of such self-insurance as mutually agreed upon by the Parties. 10.7 COOPERATION. The Parties agree to cooperate reasonably with each other in assisting each Party to comply with its obligations under the Michigan Agreement as it pertains to such Party's performance of its rights and obligations under this Agreement. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 27 29 10.8 SUBLICENSES. If Wyeth-Ayerst grants any sublicenses to the extent permitted hereunder, this Article 10 shall be incorporated mutatis mutandis into such sublicense agreement. ARTICLE 11 PAYMENTS 11.1 LICENSE FEE. In consideration for the rights granted under this Agreement, Wyeth-Ayerst shall pay to Aviron a license fee of five million dollars ($5,000,000), which shall be due and payable upon the Effective Date. Such payment shall be noncreditable and nonrefundable, and shall be borne solely by Wyeth-Ayerst. 11.2 OTHER PAYMENTS. (a) Wyeth-Ayerst shall pay Aviron the following payments within fifteen (15) business days after Aviron provides written notice, with supporting documentation, to Wyeth-Ayerst of the achievement of the relevant development and/or commercialization event for the Product in the Territory (each, an "Event"), subject to subsection (b) below:
EVENT PAYMENT ------------------------------------------------------------ ------- (i) FDA's acceptance for filing of the PLA pursuant to Section $10,000,000 351 of the Public Service Act and Part 601 of Title 21, Code of Federal Regulations (ii) FDA approval of Product for use in the Field for the first $15,000,000 Target Population (iii) Determination by the American Academy of Pediatrics/ [***] Redbook Committee allowing for use of the Product in any pediatric Target Population (iv) FDA approval of Product for use in the Field for the second [***] Target Population (v) Determination by the Advisory Committee on Immunization [***] Practices allowing for use of the Product in the adult or elderly Target Populations (vi) American College of Physicians or American Academy of [***] Family Physicians recommendation for use of the Product in the Field in any Target Population (vii) FDA approval of Product for use in the Field in third [***] Target Population
- ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 28 30
EVENT PAYMENT ------------------------------------------------------------ ------- (viii) FDA approval of labeling claims supporting the use of the [***] Product for the reduction or prevention of influenza-related otitis media infection (ix) FDA approval of PLA for the [***] [***]
All payments made pursuant to this Section 11.2 shall be noncreditable and nonrefundable, and shall be borne solely by Wyeth-Ayerst. (b) The total sum paid for both Event (iv) and Event (vii) hereunder shall in no case exceed [***]. No payment shall be due for the occurrence of Event (iv) prior to the second anniversary of the occurrence of Event (ii), whereupon the payment for Event (iv) shall be made as follows: (i) If, as of the second anniversary of the occurrence of Event (ii), both Event (iv) and Event (vii) have occurred, then no payment shall be due thereafter for the occurrence of Event (iv). (ii) If, as of the second anniversary of the occurrence of Event (ii), Event (iv) has occurred and Event (vii) has not occurred, then the payment for the occurrence of Event (iv) shall be due in full within fifteen (15) days of the second anniversary of the occurrence of Event (ii), and payment for the occurrence of Event (vii), if and when it occurs, shall be in the amount of [***] payable within fifteen (15) days of notification of such occurrence by Aviron as set forth in subsection (a). (iii) If, as of the second anniversary of the occurrence of Event (ii), neither Event (iv) nor Event (vii) has occurred, then the amount set forth in subsection (a)(iv) above for the occurrence of Event (iv), if and when it occurs, shall be due and payable in full within fifteen (15) days of notification by Aviron of such occurrence by Aviron as set forth in subsection (a). Payment for the occurrence of Event (vii), if and when it occurs shall be in the amount of [***] payable in full within fifteen (15) days of notification by Aviron of such occurrence as set forth in subsection (a) above. (c) With respect to Event (vi), Aviron shall use Commercially Reasonable Efforts to obtain a recommendation from both the American College of Physicians and the American Academy of Family Physicians. - ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 29 31 ARTICLE 12 ROYALTIES 12.1 ROYALTY RATES DURING CO-PROMOTION TERM. (a) SALES PRIOR TO END OF 2000-2001 FLU SEASON. Wyeth-Ayerst shall pay to Aviron a royalty of [***] of all Net Sales of the Product in the Territory occurring prior to the end of the 2000-2001 Flu Season. (b) SALES DURING 2001-2002 FLU SEASON AND THEREAFTER. With respect to Net Sales occurring during the 2001-2002 Flu Season and thereafter, Wyeth-Ayerst shall pay royalties to Aviron on Annual Net Sales of all aggregated Products in the Territory at the following marginal rates:
For Annual Net Sales up to [***] [***] For the portion of Annual Net Sales [***] in excess of [***] and not exceeding [***] For the portion of Annual Net Sales [***] in excess of [***] and not exceeding [***] For the portion of Annual [***] Net Sales in excess of [***]
If any [***] in the Territory pursuant to Section [***] during the Co-Promotion Term, then the marginal royalty rate(s) to be paid upon Annual Net Sales of the Product shall be calculated as though the Annual Net Sales comprised [***] the actual Annual Net Sales of the Product [***] in the Territory, provided that no royalty shall be paid pursuant to this Section 12.1 on any [***]. Solely for purposes of example, if for a given Calendar Year the Annual Net Sales of the Product are [***] then the royalties due to Aviron hereunder for such Calendar Year shall be [***]. (c) DURATION OF ROYALTY PAYMENTS. All royalties shall accrue from the Launch Date until the end of the Co-Promotion Term, unless this Agreement is terminated earlier pursuant to Article 19. (d) THIRD PARTY ROYALTIES. (i) [***] any royalty owed to any Third Party based on Net Sales of Product, as "Product" is defined as of the Effective Date (the "Base Product") in the Territory during the Co-Promotion Term, subject to subsection (ii) below. - ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 30 32 (ii) If (1[***] under Section [***] or (2) the JDC determines that a change should be made to the Base Product [***] in order to improve its formulation, performance, delivery or any other aspect of such Base Product (an "Improvement"), and in either case a royalty is owed thereafter to any Third Party based on Net Sales of the Product in the Territory which would not be owed on Net Sales of the Base Product before [***] such Improvement to the Base Product, as applicable, then [***] of such Third Party royalty [***] within thirty (30) days of invoice. 12.2 ROYALTY REPORTS AND PAYMENTS. Within thirty (30) days after the first day of January, April, July and October of each year during the Co-Promotion Term, Wyeth-Ayerst shall deliver to Aviron a true and accurate report of Net Sales of Product sold by Wyeth-Ayerst, it Affiliates, and sublicensees in the Territory during the preceding three (3) month period in the Territory, accompanied by all royalties due under Section 12.1 and all payments due to Aviron under Section 7.6 for the period covered by such report. Such report shall also include the information necessary for Aviron to calculate "Net Sales." 12.3 PAYMENTS. Any payments due under this Agreement shall be made in U. S. dollars by wire transfer to a bank account designated by Aviron. 12.4 [***]. (a) For the Calendar Year following the end of the Calendar Year in which the [***] pursuant to Section [***] and for the subsequent [***] Calendar Years, [***] based upon [***] accruing during the [***] at the following rates: [***] [***] [***] [***] [***] [***]
(b) Such [***] shall be made in quarterly installments during each relevant Calendar Year, each quarterly installment to be paid on January 31, March 31, June 30 or September 30 of such Calendar Year, as applicable. Solely for purposes of example, if the [***] an amount equal to [***] in quarterly installments beginning on [***] an amount equal to [***] in quarterly installments beginning on [***] and an amount equal to [***] in quarterly installments beginning on [***]. (c) Notwithstanding the foregoing, in the event that [***] breaches the provisions of Section [***] hereof, as demonstrated by [***] as set forth in Section [***] shall not be obligated to [***] under this Section 12.4, in addition to any other remedy available to [***] at law or equity. - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 31 33 ARTICLE 13 LINE OF CREDIT 13.1 CREDIT FACILITY. Wyeth-Ayerst shall extend a committed line of credit to Aviron, pursuant to the terms and subject to the conditions of that certain credit agreement executed by and between the Parties as of the Signing Date (the "Credit Agreement"). 13.2 SECURITY INTEREST. Obligations under the Credit Facility shall be secured by a [***] security interest [***] in Aviron's personal property assets, except for (i) leasehold improvements to Aviron's manufacturing facility and proceeds thereof which are contemplated to secure the financing for such manufacturing facility and (ii) Aviron's intellectual property assets. Subject to the [***] the obligations of Aviron under the Credit Facility shall be [***] up to a maximum aggregate amount of [***] ARTICLE 14 CONFIDENTIALITY 14.1 CONFIDENTIAL INFORMATION. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the Parties agree that the receiving Party shall keep confidential, and shall not publish or otherwise disclose or use for any purpose other than as provided for in this Agreement, any Information and other information and materials (including without limitation the Aviron Product Materials) furnished to it by the other Party pursuant to this Agreement or any Information developed during the course of the collaboration hereunder, or any provisions of this Agreement that are the subject of an effective order of the Securities Exchange Commission (the "SEC") granting confidential treatment pursuant to the Securities Act of 1934, as amended (collectively, "Confidential Information"), except to the extent that it can be established by the receiving Party that such Confidential Information: (a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure to the receiving Party, and other than through any act or omission of the receiving Party in breach of this Agreement; (d) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information to others; or (e) was independently developed by employees of the receiving Party who had no knowledge of or access to the Confidential Information of the other Party. - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 32 34 For Confidential Information other than the Aviron Product Materials and information relating to the Aviron Product Materials or the manufacture of the Product, the non-disclosure obligations under this Section 14.1 shall terminate upon the later of: (i) [***] years following the expiration or termination of this Agreement, or (ii) [***] years from the Effective Date. 14.2 AUTHORIZED DISCLOSURE. (a) Each Party may disclose Confidential Information hereunder to the extent such disclosure is allowed under Section 6.5, or is reasonably necessary in sublicensing its rights, to the extent permitted under this Agreement, or in prosecuting or defending litigation, or in complying with applicable governmental regulations, provided, however, that if a Party is required by law or regulation to make any such disclosures of the other Party's Confidential Information it will, except where impracticable for necessary disclosures (for example in the event of medical emergency) give reasonable advance notice to the other Party of such disclosure requirement (e.g., filings with the SEC and stock markets) and, will use its reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed, unless in the judgement of such disclosing Party's legal counsel such Confidential Information is legally required to be fully disclosed. (b) In addition, and with prior notice to the other Party of each Third Party with whom a confidential disclosure agreement is being entered into, each Party shall be entitled to disclose, under a binder of confidentiality containing provisions at least as protective as those of this Article 14, Confidential Information to any Third Party for the purpose of carrying out the purposes of this Agreement. Nothing in this Article 14 shall restrict any Party from using for any purpose in accordance with this Agreement any Confidential Information independently developed by it during the course of the Collaboration hereunder, or from using Confidential Information that is specifically derived from pre-clinical or clinical trials to carry out marketing, sales or professional services support functions as is customary in the pharmaceutical industry. 14.3 PUBLICITY. The Parties agree that the public announcement of the execution of this Agreement shall be substantially in the form of the press release to be mutually agreed to by the Parties. Any other publication, news release or other public announcement relating to this Agreement or to the performance hereunder, shall first be reviewed and approved by both Parties, which approval shall not be unreasonably withheld; provided, however, that any disclosure which is required by law as advised by the disclosing Party's counsel may be made without the prior consent of the other Party, although the other Party shall be given prompt notice of any such legally required disclosure and to the extent practicable shall provide the other Party an opportunity to comment on the proposed disclosure. In this regard, the Parties recognize that Aviron is a publicly-held biotechnology company, that the Product is Aviron's first potential product and that Aviron will need to provide information regarding the status of the Product to the investment community from time to time, subject to the procedures set forth in the preceding sentence. The Parties acknowledge that Aviron will be obligated to file a copy of this Agreement with the U.S. Securities and Exchange Commission. Aviron will submit a copy of its proposed filing to Wyeth-Ayerst for its input and comment and will redact, if permissible - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 33 35 by law or regulation, or will otherwise make reasonable efforts to obtain confidential treatment of, Wyeth-Ayerst's Confidential Information contained therein. ARTICLE 15 OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS 15.1 OWNERSHIP. (a) PARTY'S INTELLECTUAL PROPERTY. Aviron shall solely own all right, title and interest in the Aviron Know-How and Aviron Patents. Wyeth-Ayerst shall solely own all right, title and interest in the Wyeth-Ayerst Know-How and the Wyeth-Ayerst Patents. (b) INVENTIONS AND INFORMATION ARISING DURING AGREEMENT. Aviron shall own all Inventions and Information discovered, generated, conceived or reduced to practice solely by one or more employees or consultants of Aviron during the term of and pursuant to the Agreement (the "Aviron Results"); and Wyeth-Ayerst shall own all Inventions discovered, generated, conceived, or reduced to practice solely by one or more employees or consultants of Wyeth-Ayerst during the term of and pursuant to the Agreement (the "Wyeth-Ayerst Results"). All Joint Technology shall be owned jointly by Aviron and Wyeth-Ayerst. Except as otherwise expressly provided in the Agreement, Aviron shall own all intellectual property, including Patents, covering the Aviron Results; Wyeth-Ayerst shall own all intellectual property, including Patents, covering the Wyeth-Ayerst Results; and the Parties shall jointly own all intellectual property covering the Joint Technology. All Joint Technology shall be subject to the licenses set forth in Section 5.1 and 5.2 during the term of this Agreement. (c) CONSULTANTS. Each Party shall take reasonable steps to ensure that its consultants are obligated to assign their rights in any Inventions or Information relating to the Product to the appropriate Party, or jointly to the Parties in accordance with subsection (b) above. 15.2 PATENT PROSECUTION. (a) PARTY'S PATENTS. Aviron shall have the sole right, but not the obligation, to file applications for, prosecute and maintain the Aviron Patents. Wyeth-Ayerst shall have the sole right, but not the obligation, to file applications for, prosecute and maintain the Wyeth-Ayerst Patents. Neither Party shall be obligated to disclose to the other Party any prosecution information relating to the Aviron Patents, in the case of Aviron, and the Wyeth-Ayerst Patents in the case of Wyeth-Ayerst. (b) JOINT PATENTS. Aviron shall have the right to file applications for, and to determine which countries in which to file, prosecute and maintain any Joint Patents, worldwide, in the name of Aviron and Wyeth-Ayerst. Aviron will provide Wyeth-Ayerst with the opportunity to review and comment upon any material document pertaining to a Joint Patent that is to be filed with the patent office(s) in each filing jurisdiction reasonably in advance of the filing date of such document. The Parties shall equally share all expenses related to the filing, prosecution and maintenance of the Joint Patents, and Wyeth-Ayerst shall pay all invoices for such amounts within thirty (30) days of receipt of such invoice. At any time, Wyeth-Ayerst may 34 36 give Aviron written notice that it will no longer share expenses related to any particular Joint Patents, whereupon Wyeth-Ayerst shall promptly assign its ownership interest in such Joint Patent to Aviron and Aviron's obligations under this Section 15.2(b) shall terminate. In the event of a disagreement between Aviron and Wyeth-Ayerst with respect to whether or in which countries to file a Joint Patent application, or the manner in which such application is prosecuted, or whether to abandon such application, Aviron shall consider in good faith all comments and issues raised by Wyeth-Ayerst, but shall have the final authority to make any such decisions. In the event Aviron determines not to file a specific Joint Patent application in a given jurisdiction, or to abandon such an application or any Joint Patent, it will notify Wyeth-Ayerst in writing, whereupon Wyeth-Ayerst shall have the right to pursue such application or maintain such Joint Patent, at its own expense, and Aviron shall promptly assign its ownership interest therein to Wyeth-Ayerst. (c) [***]. Wyeth-Ayerst agrees that, within sixty (60) days following the Effective Date, it shall [***] provided that such [***] shall only be [***] with respect to [***] all rights to [***] and nothing in this subsection (c) shall [***]. Other than with respect to [***] Wyeth-Ayerst reserves all rights to [***] and nothing in this subsection (c) shall [***]. 15.3 ENFORCEMENT RIGHTS. (a) NOTIFICATION OF INFRINGEMENT. If either Party learns of any misappropriation of any Aviron Product Materials or Information (the "Product Rights"), or any infringement or threatened infringement by a Third Party of the Aviron Patents or Joint Patents, in each case, in the Field and in the Territory, such Party shall promptly notify the other Party and shall provide such other Party with all available evidence of such misappropriation or infringement. (b) ENFORCEMENT OF PATENTS AND PRODUCT RIGHTS IN THE TERRITORY. Aviron shall have the right, but not the obligation, to institute, prosecute and control at its own expense any action or proceeding with respect to infringement of any Aviron Patents or Joint Patents or any misappropriation of the Product Rights in the Field and in the Territory, by counsel of its own choice. Wyeth-Ayerst shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. Subject to the rights of Michigan, if Aviron fails to bring an action or proceeding or otherwise take appropriate action in Aviron's discretion to abate such infringement or misappropriation in the Field and in the Territory within a period of ninety (90) days of notice by Wyeth-Ayerst to Aviron requesting such action, Wyeth-Ayerst will have the right, but not the obligation, to bring and control any such infringement or misappropriation action or proceeding relating to the Aviron Patents or the Products Rights by counsel of its own choice. Aviron will cooperate with Wyeth-Ayerst in any such action or proceeding brought by Wyeth-Ayerst against a Third Party, and shall have the right to consult with Wyeth-Ayerst and to participate in and be represented by independent counsel in such litigation at its own expense. If one Party brings any such action or proceeding under this Section 15.3(b), the other Party agrees to be joined as a party plaintiff to the extent necessary to prosecute the action or proceeding and to give the first Party reasonable assistance and authority to file and prosecute the suit. Any amounts recovered by either Party pursuant to this subsection (b) shall first be used to reimburse - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 35 37 the Parties for any legal expenses incurred pursuant to such enforcement, and any remaining amounts shall be paid [***] to the enforcing Party and [***] to the non-enforcing Party. (c) SETTLEMENT WITH A THIRD PARTY. The Party that controls the prosecution of a given action under this Section 15.3 shall also have the right to control settlement of such action; provided, however, that no settlement shall be entered into with respect to a Joint Patent without the written consent of the other Party, such consent not to be unreasonably withheld. 15.4 DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. (a) DEFENSE. (i) If a Third Party asserts that a patent, trade secret, or other intangible right owned by it is infringed or misappropriated by the manufacture, use, sale, or offer for sale of the Product in the Territory, the JCC shall establish a plan for a common defense and select the Party responsible for managing such common defense plan, subject to subsection (ii) below. The costs of any such defense to such action incurred by one or both of the Parties at the direction of the JCC (including the costs of any judgment, award, decree or settlement) will be [***] subject to the provisions of Section [***] (ii) If such Third Party asserts that a patent, trade secret, or other intangible right owned by it is infringed or misappropriated by the manufacture, use, sale, or offer for sale of the Base Product (as defined in Section 12.1(d)) or the Product [***] in the Territory, then Aviron shall have the right to control the defense to such action. Wyeth-Ayerst shall have the right to participate in such defense with its own counsel at its own cost and expense. (b) SETTLEMENT WITH A THIRD PARTY. The entity that controls the defense of a given claim under Subsection (a) with respect to the Product shall also have the right to control settlement of such claim; provided, however, that no settlement shall be entered into without the written consent of the other Party. If there is no agreement between the Parties as to any proposed settlement, then the dispute shall be decided by the JCC, and, if the JCC is unable to decide the dispute, the matter will be resolved pursuant to Article 20. 15.5 ASSIGNMENT OF JOINT PATENTS. Neither Party may assign its rights under any Joint Patent to a Third Party except with the prior written consent of the other Party; provided, however, that either Party may assign such rights without consent to an Affiliate or other permitted assignee under this Agreement in connection with a merger, acquisition or similar reorganization or the sale of all or substantially all of its assets, or in the case of Wyeth-Ayerst, the sale or transfer of substantially the entire vaccine business of Wyeth-Ayerst, as provided for in Section 21.1. - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 36 38 ARTICLE 16 REPRESENTATIONS AND WARRANTIES 16.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each of the Parties hereby represents and warrants to the other Party as follows: (a) such Party (i) is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated, (ii) has the corporate power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted, and (iii) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material adverse effect on the properties, business, financial or other condition of such Party and would not materially adversely affect such Party's ability to perform its obligations under this Agreement; (b) this Agreement is a legal and valid obligation binding upon such Party and enforceable in accordance with its terms, and the execution, delivery and performance of the Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it is bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. Each Party expressly represents and warrants that it has the full power and authority to enter into this Agreement and to carry out the obligations contemplated hereby; (c) such Party has not, and during the term of the Agreement will not, grant any right to any Third Party relating to its respective Patents and Know-How in the Field in the Territory which would conflict with the rights granted to the other Party hereunder; and (d) it has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement. Each Party expressly represents and warrants that it owns (in whole or in part) or Controls all Patents that are the subject of the licenses granted to the other Party herein. 16.2 AVIRON REPRESENTATIONS AND WARRANTIES. Aviron represents and warrants to Wyeth-Ayerst as follows: (a) that to the best of its knowledge as of the Signing Date, the manufacture, use, importation, offer for sale or sale of the Product [***] as contemplated hereunder does not infringe any Third Party intellectual property right in the Territory; (b) that to the best of its knowledge as of the Signing Date, all and only the true inventors of the subject matter claimed are named in the Aviron Patents and all such inventors have irrevocably assigned all their rights and interests therein to Aviron; - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 37 39 (c) that as of the Signing Date, it is not aware of any information material to the examination of the Aviron Patents listed in Schedule 1.4, within the meaning of 37 C.F.R. 1.56, that was not disclosed in writing to the United States Patent and Trademark Office; (d) that with respect to all regulatory filings to obtain Regulatory Approvals, the data and information in Aviron's submissions are and shall, to the best of Aviron's knowledge, be free from fraud or material falsity, that the Regulatory Approvals have not been and will not be obtained either through bribery or the payment of illegal gratuities, that the data and information in Aviron's submissions are and shall be accurate and reliable for purposes of supporting approval of the submissions, and that the Regulatory Approvals shall be obtained without illegal or unethical behavior of any kind; (e) that as of the Signing Date, Aviron is not in material breach, and has no knowledge of any material breach by the other party thereto, under the Michigan Agreement; that certain [***] Agreement by and between [***] and Aviron, dated [***] that certain [***] Agreement by and between [***] and Aviron dated [***] that certain [***] Agreement by and between Aviron and [***] dated [***] and that certain [***] Agreement by and between Aviron and [***] dated [***]. (f) that no federal funding was or is involved in the performance of work resulting in [***] the Aviron Patents or the Aviron Know-How, except as set forth in the disclosure schedule attached as Schedule 16.2(f) hereto. 16.3 PERFORMANCE BY AFFILIATES. The Parties recognize that each Party may perform some or all of its obligations under this Agreement through Affiliates, provided, however, that each Party shall remain responsible for the performance by its Affiliates and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance. Each Party hereby expressly waives any requirement that the other Party exhaust any right, power or remedy, or proceed against an Affiliate, for any obligation or performance hereunder prior to proceeding directly against such Party. ARTICLE 17 INFORMATION AND REPORTS 17.1 INFORMATION AND REPORTS DURING CO-PROMOTION TERM. (a) Each Party agrees to keep complete and accurate records of its Co-Promotion efforts and other activities carried out pursuant to this Agreement. Wyeth-Ayerst and Aviron will disclose and make available to each other upon written request and without charge (other than reasonable duplicating, postage and related out-of-pocket costs) all such records and all commercial, marketing, promotion, and pricing information known by Wyeth-Ayerst or Aviron directly concerning Product in the Field and in Territory at any time during the Co-Promotion Term. Each Party will use Commercially Reasonable Efforts to disclose to the other Party all significant information promptly after it is learned or its significance is appreciated. - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 38 40 (b) As promptly as possible following the end of each month or calendar quarter in which Product is sold in the Territory hereunder, Wyeth-Ayerst shall provide Aviron with a preliminary report of its sales figures for the Product in the Territory during such month or quarter, as applicable. Wyeth-Ayerst shall use Commercially Reasonable Efforts to deliver such preliminary report within thirty (30) days following the end of such month or calendar quarter, or more frequently as determined by the JCC. Aviron acknowledges that such report may be unaudited, is only for Aviron's internal planning use, and may be further revised prior to Wyeth-Ayerst's submission of the royalty report described in Section 12.2 for such calendar quarter. 17.2 COMPLAINTS. Each Party shall maintain a record of all complaints it receives with respect to the Product. Each Party shall notify the other Party of any complaint with regulatory implications received by it in sufficient detail and within two (2) business days after the event, and in any event in sufficient time to allow the responsible Party to comply with any and all regulatory requirements imposed upon it; provided, however, that notice of any complaint involving a field alert report shall be transmitted within one (1) business day. 17.3 ADVERSE DRUG EXPERIENCES. In order for the Parties to comply with their respective responsibilities under this Article 17 and otherwise relating to the reporting of adverse drug experiences, to the extent either Party receives any information regarding adverse drug experiences related to the use of the Product, whether such use is within or outside of the Territory, such Party shall promptly provide the other Party with such information in accordance with the Adverse Event Reporting Procedures set forth in Schedule 17.3 (as may be amended from time to time upon mutual agreement of the Parties). 17.4 RECORDS OF REVENUES AND EXPENSES. (a) Each Party will maintain complete and accurate records which are relevant to revenues, costs, expenses and payments under this Agreement, and such records shall be open during reasonable business hours for a period of [***] years from the creation of individual records for examination at the other Party's expense, and not more often than [***] by an independent certified public accountant selected by the other Party and reasonably acceptable to the audited Party for the sole purpose of verifying for the inspecting Party the correctness of calculations and classifications of such revenues, costs, expenses or payments made under this Agreement. In the absence of material shortfalls (in excess of [***] of the royalties or other amounts payable under this Agreement) in any request for reimbursement resulting from such audit, the accounting expense shall be paid by the Party requesting the audit. If material shortfalls do result, the audited Party shall bear the accounting expense. In any case, the audited Party shall pay the shortfall. Any records or accounting information received from the other Party shall be Confidential Information for purposes of Article 14. Results of any such audit shall be provided to both Parties, subject to Article 14. (b) If there is a dispute between the Parties following any audit performed pursuant to Section 17.4(a), either Party may refer the issue (an "Audit Disagreement") to an independent certified public accountant for resolution. In the event an Audit Disagreement is submitted for resolution by either Party, the Parties shall comply with the following procedures: - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 39 41 (i) The Party submitting the Audit Disagreement for resolution shall provide written notice to the other Party that it is invoking the procedures of this Section 17.4(b). (ii) Within thirty (30) business days of the giving of such notice, the Parties shall jointly select a recognized international accounting firm to act as an independent expert to resolve such Audit Disagreement. (iii) The Audit Disagreement submitted for resolution shall be described by the Parties to the independent expert in writing within ten (10) business days of the selection of such independent expert. (iv) The independent expert shall render a decision on the matter as soon as practicable. (v) The decision of the independent expert shall be final and binding and shall not be subject to Article 20, unless such Audit Disagreement involves alleged fraud, breach of this Agreement or construction or interpretation of any of the terms and conditions hereof. (vi) All fees and expenses of the independent expert, including any Third Party support staff or other costs incurred with respect to carrying out the procedures specified at the direction of the independent expert in connection with such Audit Disagreement, shall be borne by the losing Party. ARTICLE 18 INDEMNIFICATION 18.1 INDEMNIFICATION BY AVIRON. Except as set forth in Section 18.2 hereof, and except to the extent caused by Wyeth-Ayerst's, or its Affiliates' or sublicensees', negligent, reckless or willful acts or omissions, Aviron shall indemnify, defend and hold Wyeth-Ayerst and its directors, officers, employees, agents and Affiliates harmless from and against any liabilities, damages, costs or expenses, including reasonable attorneys' fees (collectively, "Liabilities"), (a) which arise out of, relate to or result from the breach by Aviron of any of its representations or warranties contained within this Agreement; (b) which arise from any claim, lawsuit or other action by a Third Party caused by the manufacture, use or sale of the Product in the Territory during the Co-Promotion Term due to a defect caused by Aviron's manufacture of the Product, or due to a defect in the [***], including, but not limited to, a claim, lawsuit, or other action related to the death of or injury to a Third Party, but only to the extent that such claim, lawsuit or other action does not arise out of [***]; (c) are attributable to statements or representations by Aviron, its employees, or its agents, that are inconsistent with, or contrary to, the Product Labeling or Product Promotional Materials; or (d) in the case of any trademark infringement claim, lawsuit or other action, result solely from Wyeth-Ayerst's proper use of Aviron Trademarks in accordance with the terms of this Agreement. - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 40 42 18.2 INDEMNIFICATION BY WYETH-AYERST. Except as set forth in Section 18.1 hereof, and except to the extent caused by Aviron's, or its Affiliates' or sublicensees', negligent, reckless or willful acts or omissions, Wyeth-Ayerst shall indemnify, defend and hold Aviron and its directors, officers, employees, agents and Affiliates harmless from and against any Liabilities which arise from any claim, lawsuit or other action to the extent such Liabilities (a) arise out of, relate to or result from the breach by Wyeth-Ayerst of any of its representations or warranties contained within this Agreement; (b) arise from any claim, lawsuit or other action by a Third Party due to a [***] of the Product, including, but not limited to, a claim, lawsuit or other action related to the death of or injury to a Third Party, but only to the extent that such claim, lawsuit or other action does not arise out of Aviron's manufacture of the Product; (c) are attributable to statements or representations by Wyeth-Ayerst, its employees, or its agents, that are inconsistent with, or contrary to, the Product Labeling or Product Promotional Materials; or (d) in the case of any trademark infringement claim, lawsuit or other action, result solely from Aviron's proper use of Wyeth-Ayerst's Trademarks in connection with the Product in accordance with the terms of this Agreement. 18.3 INDEMNIFICATION PROCEDURES. A Party which intends to claim indemnification under Section 18.1 or 18.2 hereof (the "Indemnitee") shall promptly notify the other Party (the "Indemnitor") in writing of any claim, lawsuit or other action in respect of which the Indemnitee or any of its directors, officers, employees, agents and Affiliates intend to claim such indemnification. The Indemnitee shall permit, and shall cause its directors, officers, employees, agents and Affiliates to permit, the Indemnitor, at its discretion, to settle any such claim, lawsuit or other action and agrees to the complete control of such defense or settlement by the Indemnitor; provided, however, that such settlement does not adversely affect the Indemnitee's rights hereunder or impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights. No such claim, lawsuit or other action shall be settled without the prior written consent of the Indemnitor, and the Indemnitor shall not be responsible for any legal fees or other costs incurred other than as provided herein. The Indemnitee, its directors, officers, employees, agents and Affiliates shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any claim, lawsuit or other action covered by the provisions of this Article 18. The Indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and expense. 18.4 INSURANCE. Each Party shall maintain comprehensive general liability insurance coverage, including products liability, with a minimum limit of not less than [***] and shall provide the other Party with a certificate of such insurance as requested. 18.5 PAYMENT OF DAMAGES. (a) Any Liability for which an Indemnitor is or may become liable under Section 18.1 or 18.2 shall be paid first from any funds available through vaccine injury protection compensation trust established pursuant to 42 U.S.C. 300 aa-1 et seq. or other similar legislation, or by a State of the United States, if applicable. - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 41 43 (b) Any Liabilities not subject to subsection (a) above shall be the responsibility of the Indemnitor. ARTICLE 19 TERM AND TERMINATION; AVIRON CHANGE OF CONTROL 19.1 TERM. This Agreement shall commence as of the Effective Date and, unless sooner terminated as provided herein, shall continue in effect until the end of the Co-Promotion Term. 19.2 TERMINATION FOR MATERIAL BREACH. (a) Subject to the provisions of this Section 19.2, if either Party (the "Breaching Party") shall have committed a material breach of this Agreement and such material breach shall remain uncured and shall be continuing for a period of [***] days following receipt of notice thereof by the other Party (the "Non-Breaching Party"), or if such breach is incapable of cure during the applicable notice period, the Breaching Party fails to make good faith efforts to cure such breach, then the Non-Breaching Party shall have the right to terminate this Agreement by written notice to the Breaching Party. Any such notice of alleged material breach shall include a reasonably detailed description of all relevant facts and circumstances demonstrating, supporting and/or relating to each such alleged material breach by the other party. (b) If [***] terminate this Agreement as provided in subsection (a) above if such material breach is of Sections [***]. (c) If [***] is entitled to terminate this Agreement as provided in subsection (a) above, [***] may elect not to terminate this Agreement as so provided, and may instead [***] in accordance with Section [***]. Any [***] pursuant to such [***] hereunder. The [***] in such [***] in connection with such [***], which, if [***] against any [***] hereunder. If, upon expiration of the Co-Promotion Term or earlier termination of this Agreement, any [***] and there are no [***] hereunder, then [***] of such [***]. 19.3 TERMINATION BY [***] may terminate this Agreement in whole or in part: (a) on [***] days written notice, in the event that [***]; (b) on [***] days written notice, in the event [***] which result in [***] sufficient to cause [***]; or (c) upon at least [***] prior written notice to [***] at any time after [***]. 19.4 TERMINATION [***]. This Agreement may be terminated by [***] after the [***] upon at least [***] prior written notice to [***] after the occurrence of both of the following events ("Termination Period"): (i) a [***] that the [***]; and (ii) within the [***] period after the [***] cooperates in good faith with [***] in its good faith efforts to [***] and such [***] - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 42 44 during such [***] period. Commencing [***] days following [***] receipt of [***] proper notice of termination under this Section 19.4, [***] for all [***] from such [***] which are [***] of the Termination Period. Notwithstanding the foregoing, this Section 19.4 shall not apply where [***] the Product [***] by the Parties. 19.5 BANKRUPTCY. This Agreement may be terminated by either Party upon at least [***] prior written notice thereof if the other Party becomes insolvent, makes an assignment for the benefit of creditors, is the subject of proceedings in voluntary or involuntary bankruptcy instituted on behalf of or against such Party, or has a receiver or trustee appointed for all or substantially all of its property, provided that in the case of an involuntary bankruptcy proceeding such right to terminate shall only become effective if the Party consents to the involuntary bankruptcy or such proceeding is not dismissed within [***] days after the filing thereof. 19.6 EFFECT OF TERMINATION. (a) GENERAL. Upon termination or expiration of the Agreement, (i) the license granted by Aviron to Wyeth-Ayerst under Section 5.1 will terminate; (ii) all rights in the Product shall revert to Aviron; (iii) any and all claims and payment obligations that accrued prior to the date of such termination or expiration shall survive such termination; (iv) each Party shall, within sixty (60) days of such termination, return all of the other Party's Confidential Information; and (v) Wyeth-Ayerst will return to Aviron all Aviron Product Materials, including without limitation [***] in its control. (b) PRODUCT RE-PURCHASE. (i) Upon termination or expiration of this Agreement, Wyeth-Ayerst shall provide Aviron with full particulars of all unsold Finished Product (including quantities of Finished Product, and the dates on which the Finished Product was manufactured) in its possession. Aviron shall be entitled, at its discretion, to purchase from Wyeth-Ayerst any unsold Finished Product, at a price equal to the average Transfer Price per dose of the immediately preceding Flu Season. If so requested by Aviron, Wyeth-Ayerst shall arrange for delivery of the Finished Product purchased by Aviron pursuant to this subsection (i) to such destination or destinations as may be designated by Aviron. All delivery arrangements shall be subject to the prior approval of Aviron. Freight and insurance of such delivery shall be at the cost of Aviron. (ii) Any Finished Product in respect of which Aviron has notified Wyeth-Ayerst in writing that it does not wish to repurchase pursuant to subsection (i) above may be sold by Wyeth-Ayerst within [***] after termination or expiration of this Agreement, in which case the terms of this Agreement or such of them as are relevant shall continue to operate until the remaining Finished Product has been sold or the [***] period expires, whichever first occurs. (c) JOINT TECHNOLOGY. Upon termination (other than by Wyeth-Ayerst pursuant to Section [***]) or upon expiration of the Agreement, Wyeth-Ayerst shall be deemed - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 43 45 to have granted to Aviron the exclusive, world-wide, perpetual, sublicenseable license in the Territory under Wyeth-Ayerst's interest in the Joint Technology to use, make, have made, import, offer for sale and sell the Product in the Field. Such license shall be [***] in the event that Aviron wishes to [***] the Parties shall agree upon [***] and as agreed by the Parties [***] of the [***] in such [***] in the manufacture, use or sale of the Product. (d) WYETH-AYERST KNOW-HOW AND WYETH-AYERST PATENTS. Upon termination (other than by Wyeth-Ayerst pursuant to Section [***]) or upon expiration of the Agreement, Wyeth-Ayerst shall be deemed to have granted to Aviron a non-exclusive, perpetual, fully paid-up, royalty-free, sublicenseable license in the Territory to utilize the Wyeth-Ayerst Know-How and to practice the Wyeth-Ayerst Patents to use, make, have made, import, offer for sale and sell the Product in the Field. Such license shall be [***]; in the event that Aviron [***] the Parties shall agree upon [***] and as agreed by the Parties [***] of the [***] of the [***] and the [***] the manufacture, use or sale of the Product. 19.7 WYETH-AYERST COVENANT. For [***] following any expiration or termination of this Agreement, Wyeth-Ayerst shall not promote, manufacture for commercial sale or use, sell, resell, or otherwise commercialize, nor shall Wyeth-Ayerst assist any Third Party or engage any Third Party to promote, manufacture for commercial sale or use, sell, resell, or otherwise commercialize, any [***] in any country within or outside of the Territory; provided that [***] shall have the burden of (a) [***], and (b) providing [***]. Aviron shall [***] under this provision only to the extent that such [***] prior to [***] described in [***]. 19.8 OPTION TO EXTEND CO-PROMOTION TERM. (a) GENERAL. Subject to the provisions of this Section 19.8, Aviron hereby grants to Wyeth-Ayerst the option to extend the Co-Promotion Term in one (1) year increments, but in no event by more than a total of four (4) years, provided that Wyeth-Ayerst may not exercise such option if it is in material breach of any provision of this Agreement, the International Agreement or the Supply Agreement. The Co-Promotion Term shall not by extended by more than one (1) year during any given twelve (12) month period. Wyeth-Ayerst shall provide Aviron written notice that it is exercising such option no later than [***] prior to the date of expiration of the then current Co-Promotion Term (the "Extension Expiration Date"). If Wyeth-Ayerst does not provide such notice by the Extension Expiration Date, such option shall lapse and Aviron shall thereafter have no further obligation to Wyeth-Ayerst to allow it to extend the Co-Promotion Term. If Wyeth-Ayerst does provide such notice to Aviron by the Extension Expiration Date, then: (i) Wyeth-Ayerst shall pay Aviron as set forth in subsection (b) below; (ii) The Co-Promotion Term shall be automatically extended for one 1) year; and - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 44 46 (iii) Aviron shall have the right, but not the obligation, to require that up to [***] to be [***] under the [***] (as defined in [***]) shall be [***] (as defined in [***]). Upon the expiration or termination of the Co-Promotion Term as extended under this Section 19.8, Wyeth-Ayerst's rights to sell the Product shall apply as set forth in Section 19.6(b). (b) OPTION PRICE. If Wyeth-Ayerst exercises its option to extend the Co-Promotion Term, then Wyeth-Ayerst shall pay Aviron the "Option Price" (as defined in the following sentence) for each one year extension of the Co-Promotion Term as permitted in subsection (a) above. The "Option Price" shall be the greater of [***] or the Designated Percentage (as defined in subsection (c) below) of Annual Net Sales for the Flu Season [***] one year extension of the Co-Promotion Term (the "Term Extension"). In no event shall Wyeth-Ayerst be obligated to pay Aviron more than [***] in combined Option Price payments under this Section 19.8(b) and Section 18.8(b) of the International Agreement for any single Calendar Year. (i) OPTION PRICE PAYMENT. Wyeth-Ayerst shall make an advance payment to Aviron of [***] at the time that it provides Aviron with the written notice that it is exercising its option for each twelve month extension of the Co-Promotion Term, as set forth in subsection (a) above. (ii) RECONCILIATION. During each Term Extension, and in addition to any royalties and any other payments that are due to Aviron hereunder, Wyeth-Ayerst shall pay to Aviron the applicable Designated Percentage of Net Sales [***] such payment to be made with each royalty report delivered under Section 12.2 that relates to Net Sales [***] provided that the [***] paid by Wyeth-Ayerst pursuant to subsection (i) above for such Term Extension shall be credited against any payments due from Wyeth-Ayerst under this subsection (ii) for such Term Extension, but may not be credited against any other amounts due hereunder, or under the International Agreement or the Supply Agreement, including without limitation any amounts due for any Term Extension other than the Term Extension to which the [***] payment relates. (c) DESIGNATED PERCENTAGE. The "Designated Percentage" shall be as follows: (i) For the [***] of the Co-Promotion Term, the "Designated Percentage" shall be deemed to be [***]; (ii) For the [***] of the Co-Promotion Term, the "Designated Percentage" shall be deemed to be [***]; (iii) For the [***] of the Co-Promotion Term, the "Designated Percentage" shall be deemed to be [***]; and (iv) For the [***] of the Co-Promotion Term, the "Designated Percentage" shall be deemed to be [***]. - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 45 47 19.9 [***] (a) If, as of or following May 1 of the Calendar Year preceding the Calendar Year in which the Co-Promotion Term will terminate, but in no event after the end of the Co-Promotion Term, Aviron determines in its sole discretion that it [***] in the [***] in the [***] following the [***] then Aviron shall provide Wyeth-Ayerst with written notice that Aviron shall be [***]. Within [***] days of its receipt of such notice, Wyeth-Ayerst shall notify Aviron in writing whether Wyeth-Ayerst desires to [***]. If Wyeth-Ayerst either notifies Aviron that Wyeth-Ayerst does not desire to [***], or if Wyeth-Ayerst fails to notify Aviron in writing within such [***] day period, then Aviron shall have no further obligation to Wyeth-Ayerst under this Section 19.9. (b) If Wyeth-Ayerst notifies Aviron, pursuant to subsection (a) that it wishes to [***] the Parties shall then [***] as to the [***] which the Parties shall [***] provided that such [***] shall not extend for more than [***] days from the date that Aviron received Wyeth-Ayerst's written notification, or as otherwise agreed in writing by the Parties (the "Negotiation Period"). If at the end of the Negotiation Period, the Parties have [***], Aviron shall have no further obligation to Wyeth-Ayerst under this Section 19.9. Notwithstanding anything else in this Section 19.9, Aviron shall have no obligation to [***] nor, in Aviron's sole discretion, to [***]. Following expiration of the Negotiation Period, Aviron may, in its sole discretion, [***] regarding the [***] of the [***] in the [***] following [***] as may be acceptable to Aviron, in its sole discretion, provided that Aviron shall [***] for such [***] with such [***] as a [***] as those [***] for such [***]. 19.10 SURVIVING RIGHTS. The following provisions will survive expiration or termination of this Agreement: Sections 5.4, 5.5, 6.5, 10.2, 12.4, 15.1, 15.2, 15.5, 17.3, 17.4, 19.6 and 19.7, and Articles 14, 18 and 21. ARTICLE 20 DISPUTE RESOLUTION 20.1 DISPUTES. (a) The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement that relate to either Party's rights and/or obligations hereunder or thereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 20 if and when a dispute arises under this Agreement. (b) Unless otherwise specifically recited in this Agreement, disputes between the Parties shall be first referred to the JCC by either Party as soon as reasonably possible after such dispute has arisen. If the JCC is unable to resolve such a dispute within ten (10) days of - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 46 48 being requested by a Party to resolve such dispute, either Party may, by written notice to the other, have such dispute referred to their respective executive officers designated below or their designees, for attempted resolution by negotiations within fifteen (15) days after such notice is received. The designated officers are as follows: For Wyeth-Ayerst: President of Wyeth-Ayerst Global Pharmaceuticals For Aviron: Aviron Chief Executive Officer In the event such designated officers are unable to resolve such dispute, the Parties shall then be permitted to pursue all available remedies at law or in equity; provided, however, that no lawsuit may be commenced by one Party unless it gives the other Party fifteen (15) days notice of its intent to initiate an action. ARTICLE 21 MISCELLANEOUS 21.1 ASSIGNMENT. (a) Neither Party may assign its rights or obligations under this Agreement without the prior written consent of the other Party, except in connection with a merger, acquisition nor similar reorganization or the sale of all or substantially all of its assets, or, in the case of Wyeth-Ayerst, the sale or transfer of substantially all of the vaccine business of Wyeth-Ayerst. Subject to [***], this Agreement shall survive any such merger or reorganization of either Party with or into, or such sale of assets to, another party and no consent for such merger, reorganization or sale shall be needed; provided, that in the event of such merger, reorganization or sale, no intellectual property rights of the acquiring corporation shall be included in the technology licensed hereunder. (b) This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void. 21.2 CONSENTS NOT UNREASONABLY WITHHELD OR DELAYED. Whenever provision is made in this Agreement for either Party to secure the consent or approval of the other, that consent or approval shall not unreasonably be withheld or delayed, unless specifically otherwise provided. 21.3 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or any other similar cause beyond the control of the defaulting Party, provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure and has given the other Party prompt notice describing such event, - ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 47 49 the effect thereof and the actions being taken to avoid or remedy such force majeure; provided, however, that in no event shall a Party be required to settle any labor dispute or disturbance. 21.4 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 21.5 NOTICES. All notices hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), telexed, mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by express courier service, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof). If to Aviron: Aviron 297 North Bernardo Avenue Mountain View, California 94043 Attention: Chief Executive Officer Telephone: (650) 919-6500 Facsimile: (650) 919-6612 With copies to: Cooley Godward LLP 5 Palo Alto Square 3000 El Camino Real Palo Alto, California Attention: Barbara A. Kosacz Telephone: (650) 843-5000 Facsimile: (650) 857-0663 If to Wyeth-Ayerst: Wyeth-Ayerst Laboratories 555 Lancaster Avenue St. Davids, Pennsylvania, 19087 Attention: Sr. Vice President, Global Business Development Telephone: (610) 688-5809 Facsimile: (610) 688-9498 With copies to: American Home Products Corporation Five Giralda Drive Madison, New Jersey 07940 Attention: Sr. Vice President and General Counsel Telephone: (973) 660-6040 Facsimile: (973) 660-7155 21.6 WAIVER. Except as specifically provided for herein, the waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or any other of such Party's rights or remedies provided in this Agreement. 48 50 21.7 SEVERABILITY. If any term, covenant or condition of this Agreement or the application thereof to any Party or circumstances shall, to any extent, be held to be invalid or unenforceable, then (i) the remainder of this Agreement, or the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and (ii) the Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated. 21.8 AMBIGUITIES. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. 21.9 GOVERNING LAW. This Agreement shall be governed by and interpreted under the laws of the [***] without regard to conflicts of laws, except for questions regarding patents, which shall be resolved in the United States courts having jurisdiction over the matter. 21.10 HEADINGS. The Sections and paragraph headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of the Sections or paragraphs to which they apply. 21.11 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 21.12 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Supply Agreement, the International Agreement and the Credit Agreement (as defined in Section 13.1 of this Agreement) (collectively, the "Agreements"), including all Exhibits and Schedules attached thereto, set forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter thereof, and supersede and terminate all prior agreements and understandings between the Parties with respect to such subject matter, except as provided in 11.3(e) of the International Agreement. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties with respect to the subject matter thereof other than as set forth therein. No subsequent alteration, amendment, change or addition to the Agreements shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties. The Agreements, including without limitation the Exhibits, Schedules and attachments thereto, are intended to define the full extent of the legally enforceable undertakings of the Parties thereto with respect to the subject matter thereof, and no promise or representation, written or oral, which is not set forth explicitly is intended by either Party to be legally binding. Both Parties acknowledge that in deciding to enter into the Agreements and to consummate the transaction contemplated thereby neither Party - ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 49 51 has relied upon any statement or representations, written or oral, other than those explicitly set forth therein. 21.13 INDEPENDENT CONTRACTORS. The status of the Parties under this Agreement shall be that of independent contractors. Neither Party shall have the right to enter into any agreements on behalf of the other Party, nor shall it represent to any person that it has any such right or authority. Nothing in this Agreement shall be construed as establishing a partnership or joint venture relationship between the Parties. 21.14 CURRENCY. The references in this Agreement to amounts expressed in dollars ($) shall mean United States dollars. 21.15 BANKRUPTCY. All rights and licenses granted under or pursuant to this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11, U.S.C. (the "Bankruptcy Code"), licenses and rights to "intellectual Property" as defined under Section 101(60) of the Bankruptcy Code. The Parties agree that the other Party, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. Each Party agrees during the term of this Agreement to create and maintain current copies of or, if not amenable to copying, detailed descriptions or other appropriate embodiments, of all such intellectual property. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against one Party under the Bankruptcy Code, the other Party shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, [***], and same, if not already in its possession, shall be promptly delivered to the other Party (i) upon any such commencement of a bankruptcy proceeding upon written request therefor by the other Party, unless such Party elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of such Party upon written request therefor by the other Party. Any delivery of descriptions or embodiments of intellectual property pursuant to this Section 21.15 shall not be deemed to effect a transfer of title or other change in ownership or license rights, or to reduce in any respect the payment obligations of the receiving Party under this Agreement. 21.16 CLOSING CONDITIONS. The "Effective Date" shall be deemed to be the later of (a) the date that the waiting period provided by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (16 C.F.R. 801.1 et. Seq.) (the "Act") terminates or has expired, as further described in subsection (i) below, or (b) the date that [***], as further described in subsection (ii) below, unless otherwise agreed by the Parties in writing. In the event that the Effective Date has not occurred within three (3) months after the Signing Date, the Parties shall revert to their status prior to signing this Agreement; provided that Aviron may extend such three month period in one (1) month increments upon written notice to Wyeth-Ayerst, such extended period not to exceed three (3) months. This Section 21.16 shall bind Aviron and Wyeth-Ayerst upon the Signing Date, but the other provisions of the Agreement shall not become effective until the Effective Date. - ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 50 52 (i) HART-SCOTT-RODINO. The Parties will, at their own expense (other than any required filing fees which shall be paid by Wyeth-Ayerst), prepare and make appropriate filings under the Act as soon as reasonably practicable after the Signing Date. Each Party shall use its best efforts (not including divestiture or out-license of any assets) in the antitrust clearance process and the resolution of all issues or comments raised, and agrees to furnish promptly to the Federal Trade Commission and the Antitrust Division of the Department of Justice any additional information reasonably requested by them in connection with such filings and the transaction contemplated by this Agreement; provided, however, that such "best efforts" shall not require any divestiture by either Party of any products or other assets. In addition, each Party agrees to give the other Party prompt notice of any communication to or from the Federal Trade Commission or the Department of Justice regarding this transaction. Each Party will consult and cooperate with the other Party and will consider in good faith the view of the other Party in connection with any analysis, appearance, presentation, memorandum, brief, opinion or proposal made or submitted in connection with any action, request, or investigation under or relating to the Act or any other federal antitrust, competition or fair trade law. (ii) [***] of which shall be [***] which shall [***] the following: (1) [***] under this Agreement and the [***] made in accordance with [***]; (2) [***] this Agreement and the [***] to those of the [***]; (3) The [***] under the [***] as applies to [***] to the [***] set forth in Section [***] hereof; (4) [***] and maintain [***] will be deemed [***] to be reasonably demonstrated to [***] upon its request; (5) In the event that [***] under the [***] under the [***] in Section [***] have been the [***] of this Agreement, and under the [***] of the [***] have been the [***] if within [***] days of the date of [***] of such [***]: (a) That it will be able to meet its obligations under [***] provided that [***] such requirement to [***] under this subsection (a) if [***] agrees to [***] for the [***] of such [***] to the [***] under the [***] which [***] of the [***] and the [***] to be [***] but only to the extent that such [***] has not [***]; and (b) That [***] is not in [***] of this Agreement, the [***] by the end of such [***] day period. During such [***] the right to [***]. - ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 51 53 IN WITNESS WHEREOF, Aviron and Wyeth-Ayerst have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. AMERICAN HOME PRODUCTS CORPORATION AVIRON By: /s/ GERARD A. JIBILIAN By: /s/ CAROL A. OLSON --------------------------------- ----------------------------- Name: Name: -------------------------------- --------------------------- Title: Title: ------------------------------- --------------------------- 52 54 SCHEDULE 1.4 AVIRON PATENTS [***] - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 55 SCHEDULE 1.12 [***] [***] [***] - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 56 SCHEDULE 1.39 SEQUENCE FEATURES [***] [***] - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 57 SCHEDULE 1.41 MICHIGAN AGREEMENT 58 SCHEDULE 1.63 WYETH-AYERST PATENTS NONE AS OF THE EFFECTIVE DATE. 59 SCHEDULE 6.4 PRELIMINARY DEVELOPMENT BUDGET
YEAR AMOUNT ---- ------ [***] [***]
- ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 60 SCHEDULE 16.2(F) GOVERNMENT FUNDING DISCLOSURE SCHEDULE 1. [***] 2. AVIRON PATENTS Aviron was assigned Patent No. [***] (the "[***] Patent") by the [***] pursuant to that certain [***] Agreement dated [***] (the [***] Agreement"). Section [***] of the [***] Agreement states that such [***] Patent may have been developed under a funding agreement with the Government of the United States of America (the "Government"), and, if so, that the Government "may have certain rights related thereto, including, but not limited to those arising under 35 U.S.C. Sections 200-212 and the regulations promulgated thereunder." - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. 61 SCHEDULE 17.3 ADVERSE EVENT REPORTING PROCEDURES The Parties hereby agree that the following terms will govern disclosures of each Party to the other with respect to adverse event reporting relating to the Product as clinically tested or marketed by or on behalf of either Party. 1. Definitions. 1.1 An "Adverse Drug Experience" or "ADE" is defined as: a) any experience which is adverse, including what are commonly described as adverse or undesirable experiences, adverse events, adverse reactions, side effects, or death due to any cause associated with, or observed in conjunction with the use of the Product in humans, whether or not considered related to the use of the Product: (i) occurring in the course of the use of the Product, (ii) associated with, or observed in conjunction with an overdose of the Product, whether accidental or intentional, (iii) associated with, or observed in conjunction with abuse of the product, and/or (iv) associated with, or observed in conjunction with withdrawal from the product. b) Any significant failure of expected pharmacological or biologic therapeutic action (with the exception of clinical trial use). 1.2 a) A "Serious ADE" is defined as any Adverse Drug Experience occurring at any dose that results in any of the following outcomes: death, a Life-Threatening Adverse Drug Experience, inpatient hospitalization or prolongation of existing hospitalization, a persistent or significant Disability/incapacity, or a congenital anomaly/birth defect. Other important medical events that may not result in death, be life-threatening, or require hospitalization may be considered a Serious Adverse Drug Experience when, based upon appropriate medical judgment, they may jeopardize the patient or subject and may require medical or surgical intervention to prevent one of the outcomes listed in this definition. Examples of such medical events include allergic bronchospasm requiring intensive treatment in an emergency room or at home, blood dyscrasias or convulsions that do not result in inpatient hospitalization, or the development of drug dependency or drug abuse. b) A Non-Serious ADE is defined as any ADE which does not meet the criteria in subsection (a) above for a Serious ADE. 1. 62 1.3 "Life-threatening Adverse Drug Experience" is defined as any Adverse Drug Experience that places the patient, in the view of the initial reporter, at immediate risk of death from the Adverse Drug Experience as it occurred, i.e., it does not include an Adverse Drug Experience that, had it occurred in a more severe form, might have caused death. 1.4 "Disability" is defined as a substantial disruption of a person's ability to conduct normal life functions. 1.5 "Unexpected ADE" is defined as any ADE that is not listed in the current labeling for the Product. This includes events that may be symptomatically and pathophysiologically related to an event listed in the labeling, but differ from the event because of greater severity or specificity. 1.6 "Associated with or related to the use of the Product" is defined as: A reasonable possibility exists that the ADE was caused by the Product. 1.7 "NDA Holder" is defined as: An "Applicant" as defined in 21 CFR Part 314.3(b), for regulatory approval of the Product in any regulatory jurisdiction, including a holder of a foreign equivalent thereto. 1.8 "IND Holder" is defined as: A "Sponsor" as defined in 21 CFR Part 313.1(b) of an investigational new drug in any regulatory jurisdiction, including a holder of a foreign equivalent thereto. 1.9 Capitalized terms not defined in this Schedule shall have the meaning assigned thereto in the Agreement. 2. With respect to the Product, the Parties agree as follows: a. All initial reports and any follow-up information (oral or written) for any and all Serious ADEs (other than with respect to animal studies), which become known to either Party (other than from disclosure by or on behalf of the other Party) must be communicated by telephone, telefax or electronically directly to the other Party and/or the NDA Holder and IND Holder (individually and collectively referred to as "Holders") within forty-eight (48) hours of receipt of the information. Written confirmation of the Serious ADE received by such Party should be sent to the other Party and/or the Holders as soon as it becomes available, but in any event within forty-eight (48) hours of initial report of the Serious ADE by such Party. b. Both Parties shall exchange Medwatch and/or CIOMs forms and other health authority reports within forty-eight (48) hours of submission to any Regulatory Authority. c. All initial reports and follow-up information received for all Non-Serious ADEs for the Product which become known to a Party (other than from disclosure by or on behalf of the other Party) must be communicated in writing, by telefax or electronically to the other Party within ten (10) days, on Medwatch or CIOMs forms (where possible). d. Each Party shall coordinate and cooperate with the other whenever practicable to prepare a single written report regarding all Serious ADEs and/or Non-Serious ADEs, provided, 2 63 however, that neither Party shall be obligated to delay reporting of any ADE in violation of applicable law or regulations regarding the reporting of ADEs. 3. The Parties further agree that: a. A written report be forwarded to the other Party within forty-eight (48) hours of receipt by the Party making the report, for adverse drug experiences for animal studies which suggest a potential significant risk for humans ("Animal ADEs"); b. Each Party will give the other Party a report via a print-out or computer disk of all ADEs and Animal ADEs reported to it and its Affiliates relating to the Product or Substance within the last year, within thirty (30) days of receipt of a written request from the other Party, but not more often than four (4) times a year; c. If either Party wishes access to ADE reports of the other Party relating to the Product, upon request of that Party, the other Party shall make available its ADE records relating to the Product (including computer disks) for viewing and copying by the other Party. The Parties may discuss the transfer of ADE reports by computer disk. d. Disclosure of information hereunder by a Party to the other Party shall continue as long as either Party and/or its Affiliates or designees continue to clinically test or market the Product. 4. Each Party shall diligently undertake the following further obligations where both Parties are or will be commercializing Product pursuant to the Agreement and/or performing clinical trials with respect to Product: a. Upon the Effective Date, each Party shall identify the individuals who shall be responsible for identifying all ADE reporting requirements in the Territory as set forth in the Agreement, and any amendments thereto; b. To immediately consult with the other Party, with respect to the investigation and handling of any Serious ADE disclosed to it by the other Party or by a Third Party and to allow the other Party to review the Serious ADE and to participate in the follow-up investigation; c. To immediately advise the other Party of any communication received from a health authority regarding the safety of the Product and consult with the other Party with respect to any Product warning, labeling change or change to an investigators' brochure involving safety issues proposed by the other Party, including, but not limited to the safety issues agreed to by the Parties; d. To diligently handle in a timely manner the follow-up investigation and resolution of each ADE reported to it; e. To provide the other Party access to its ADE reporting system and documentation as set forth in Section 3 of this Schedule, upon prior written notice, during normal business hours, at 3 64 the expense of the auditing Party and under the confidentiality obligations set forth in the Agreement; f. To meet in a timely fashion from time to time as may be reasonably required to implement the ADE reporting and consultation procedures described in this Schedule 17.3, including identification of those individuals in each Party's drug safety group who will be responsible for reporting to and receiving ADE information from the other Party, and the development of a written standard operating procedure with respect to ADE reporting responsibilities, including reporting responsibilities to investigators; g. Where possible and practical, to transmit all data electronically; h. to report to each other any addenda, revisions or changes to the Agreement (e.g., change in territories, local regulations, addition of new licensors/licensees to the Agreement, etc.) which might alter the ADE reporting responsibilities hereunder; i. to utilize English as the language of communication and data exchange between the Parties; j. to develop a system of exchange of documents and information in the event that the Agreement involves more than two Parties; k. to work together to develop a secure electronic system to transmit ADE data. 5. The Parties may meet after the Effective Date of the Agreement to establish a separate agreement for ADE information exchange which will supersede this Schedule 17.3. 4 65 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS................................................................1 1.1 "Affiliate"...................................................................1 1.2 "Annual Net Sales"............................................................2 1.3 "Aviron Know-How".............................................................2 1.4 "Aviron Patents"..............................................................2 1.5 "Aviron Product Materials"....................................................2 1.6 "Aviron Results"..............................................................2 1.7 "Calendar Year"...............................................................2 1.8 "Collaboration"...............................................................2 1.9 "Commercialization Expenses"..................................................2 1.10 "Commercialization Plan"......................................................2 1.11 "Commercially Reasonable Efforts".............................................3 1.12 [***].........................................................................3 1.13 "Confidential Information"....................................................3 1.14 "Control" or "Controlled".....................................................3 1.15 "Co-Promote" or "Co-Promotion"................................................3 1.16 "Co-Promotion Term"...........................................................3 1.17 "Development Plan"............................................................3 1.18 "Effective Date"..............................................................3 1.19 "FDA".........................................................................3 1.20 "FD&C Act"....................................................................4 1.21 "Field".......................................................................4 1.22 "Finished Product"............................................................4 1.23 "Flu Season"..................................................................4 1.24 [***].........................................................................4 1.25 "Good Clinical Practice" or "GCP".............................................4 1.26 "Good Laboratory Practice" or "GLP"...........................................4 1.27 "Good Manufacturing Practice" or "GMP"........................................4 1.28 "Information".................................................................4
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PAGE 1.29 "Injectable Product"..........................................................4 1.30 "International Agreement".....................................................5 1.31 "Invention"...................................................................5 1.32 "JCC Forecast"................................................................5 1.33 "Joint Commercialization Committee" or "JCC"..................................5 1.34 "Joint Development Committee" or "JDC"........................................5 1.35 "Joint Patent"................................................................5 1.36 "Joint Technology"............................................................5 1.37 "Launch" or "Launch Date".....................................................5 1.38 [***].........................................................................5 1.39 [***].........................................................................5 1.40 "Michigan"....................................................................5 1.41 "Michigan Agreement"..........................................................6 1.42 "Net Sales"...................................................................6 1.43 [***].........................................................................6 1.44 [***].........................................................................6 1.45 [***].........................................................................6 1.46 "Patent"......................................................................7 1.47 "Person"......................................................................7 1.48 "PLA".........................................................................7 1.49 "Primary Brand Trademark".....................................................7 1.50 "Product".....................................................................7 1.51 "Product Labeling"............................................................7 1.52 "Product Promotional Materials"...............................................7 1.53 "R&D Expenses"................................................................7 1.54 "Regulatory Approvals"........................................................7 1.55 "Sales and Marketing Expenses"................................................8 1.56 "Signing Date"................................................................8 1.57 "Supply Agreement"............................................................8
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PAGE 1.58 "Target Population"...........................................................8 1.59 "Territory"...................................................................8 1.60 "Third Party".................................................................8 1.61 "Trademarks"..................................................................8 1.62 "Wyeth-Ayerst Know-How".......................................................8 1.63 "Wyeth-Ayerst Patents"........................................................8 1.64 "Wyeth-Ayerst Results"........................................................9 ARTICLE 2 SCOPE; MANAGEMENT..........................................................9 2.1 Scope.........................................................................9 2.2 Management of the Collaboration...............................................9 2.3 Composition and Conduct of the Committees.....................................9 2.4 Meetings of the Committees...................................................10 2.5 Limitations of Committee Powers..............................................10 2.6 Authority to Call Meetings...................................................10 ARTICLE 3 JOINT COMMERCIALIZATION COMMITTEE.........................................11 3.1 Functions and Powers of the Joint Commercialization Committee................11 3.2 Joint Commercialization Committee Actions....................................11 ARTICLE 4 JOINT DEVELOPMENT COMMITTEE...............................................12 4.1 Functions and Powers of the Joint Development Committee......................12 4.2 Joint Development Committee Actions..........................................12 ARTICLE 5 LICENSES..................................................................12 5.1 License Grant within the Territory...........................................12 5.2 License Grant to Aviron......................................................13 5.3 Distribution through Others..................................................13 5.4 Joint Technology.............................................................13 5.5 Michigan Retained Rights.....................................................13 5.6 Wyeth-Ayerst [***]...........................................................13 5.7 Aviron [***].................................................................14 5.8 [***]........................................................................14
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PAGE 5.9 Development of [***] by Aviron...............................................15 5.10 Reservation of Rights........................................................16 5.11 Wyeth-Ayerst Prior Agreement with Michigan...................................16 5.12 Wyeth-Ayerst Covenant........................................................16 ARTICLE 6 PRODUCT DEVELOPMENT.......................................................16 6.1 Current Status...............................................................16 6.2 Product Development..........................................................17 6.3 Development Plan.............................................................17 6.4 Sharing of R&D Expenses......................................................17 6.5 Regulatory Applications......................................................17 6.6 Supplements..................................................................18 6.7 Notification of Wyeth-Ayerst as Distributor..................................18 6.8 Regulatory Meetings and Correspondence.......................................18 6.9 Records......................................................................18 ARTICLE 7 CO-PROMOTION AND MARKETING................................................19 7.1 Principles of Co-Promotion...................................................19 7.2 Commercialization Plan.......................................................19 7.3 Sales and Distribution; Recalls..............................................20 7.4 Commercialization Expenses...................................................20 7.5 Commercialization Expense Commitment.........................................20 7.6 Sales and Marketing Expenses.................................................20 7.7 [***]........................................................................21 7.8 Promotional and Advertising Materials........................................21 7.9 Voluntary Product Recalls....................................................21 7.10 Regulatory Obligations.......................................................21 7.11 Co-Promotion Responsibilities................................................22 ARTICLE 8 MANUFACTURE AND SUPPLY....................................................23 8.1 Supply of [***]..............................................................23 8.2 Supply of [***]..............................................................23
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PAGE 8.3 Supply Goal Payments.........................................................23 ARTICLE 9 TRADEMARK MATTERS.........................................................24 9.1 Licenses.....................................................................24 9.2 Validity of Trademarks.......................................................24 9.3 Form of Use..................................................................24 9.4 No Contest...................................................................24 9.5 Confusingly Similar and/or Combination Marks.................................25 9.6 Registration Costs...........................................................25 9.7 Infringement.................................................................25 9.8 Trade Dress, Logos, and the Like.............................................25 ARTICLE 10 MICHIGAN AGREEMENT........................................................26 10.1 Sublicense Limitation........................................................26 10.2 Wyeth-Ayerst Obligations.....................................................26 10.3 Use of Aviron Product Materials..............................................27 10.4 Warranty Disclaimer..........................................................27 10.5 Sublicense Termination.......................................................27 10.6 Insurance....................................................................27 10.7 Cooperation..................................................................27 10.8 Sublicenses..................................................................27 ARTICLE 11 PAYMENTS..................................................................28 11.1 License Fee..................................................................28 11.2 Other Payments...............................................................28 ARTICLE 12 ROYALTIES.................................................................30 12.1 Royalty Rates during Co-Promotion Term.......................................30 12.2 Royalty Reports and Payments.................................................31 12.3 Payments.....................................................................31 12.4 [***]........................................................................31 ARTICLE 13 LINE OF CREDIT............................................................32 13.1 Credit Facility..............................................................32
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PAGE 13.2 Security Interest............................................................32 ARTICLE 14 CONFIDENTIALITY...........................................................32 14.1 Confidential Information.....................................................32 14.2 Authorized Disclosure........................................................33 14.3 Publicity....................................................................33 ARTICLE 15 OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS......................34 15.1 Ownership....................................................................34 15.2 Patent Prosecution...........................................................34 15.3 Enforcement Rights...........................................................35 15.4 Defense and Settlement of Third Party Claims.................................36 15.5 Assignment of Joint Patents..................................................36 ARTICLE 16 REPRESENTATIONS AND WARRANTIES............................................37 16.1 Mutual Representations and Warranties........................................37 16.2 Aviron Representations and Warranties........................................37 16.3 Performance by Affiliates....................................................38 ARTICLE 17 INFORMATION AND REPORTS...................................................38 17.1 Information and Reports During Co-Promotion Term.............................38 17.2 Complaints...................................................................39 17.3 Adverse Drug Experiences.....................................................39 17.4 Records of Revenues and Expenses.............................................39 ARTICLE 18 INDEMNIFICATION...........................................................40 18.1 Indemnification by Aviron....................................................40 18.2 Indemnification by Wyeth-Ayerst..............................................41 18.3 Indemnification Procedures...................................................41 18.4 Insurance....................................................................41 18.5 Payment of Damages...........................................................41 ARTICLE 19 TERM AND TERMINATION; AVIRON CHANGE OF CONTROL............................42 19.1 Term.........................................................................42 19.2 Termination for Material Breach..............................................42
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PAGE 19.3 Termination by [***].........................................................42 19.4 Termination [***]............................................................42 19.5 Bankruptcy...................................................................43 19.6 Effect of Termination........................................................43 19.7 Wyeth-Ayerst Covenant........................................................44 19.8 Option to Extend Co-Promotion Term...........................................44 19.9 [***]........................................................................46 19.10 Surviving Rights.............................................................46 ARTICLE 20 DISPUTE RESOLUTION........................................................46 20.1 Disputes.....................................................................46 ARTICLE 21 MISCELLANEOUS.............................................................47 21.1 Assignment...................................................................47 21.2 Consents Not Unreasonably Withheld or Delayed................................47 21.3 Force Majeure................................................................47 21.4 Further Actions..............................................................48 21.5 Notices......................................................................48 21.6 Waiver.......................................................................48 21.7 Severability.................................................................49 21.8 Ambiguities..................................................................49 21.9 Governing Law................................................................49 21.10 Headings.....................................................................49 21.11 Counterparts.................................................................49 21.12 Entire Agreement; Amendments.................................................49 21.13 Independent Contractors......................................................50 21.14 Currency.....................................................................50 21.15 Bankruptcy...................................................................50 21.16 Closing Conditions...........................................................50
- ------------- [***]=CONFIDENTIAL TREATMENT REQUESTED. vii 72 TABLE OF CONTENTS SCHEDULES: SCHEDULE 1.4 AVIRON PATENTS SCHEDULE 1.12 [***] SCHEDULE 1.39 SEQUENCE FEATURES [***] SCHEDULE 1.41 MICHIGAN AGREEMENT SCHEDULE 1.63 WYETH-AYERST PATENTS SCHEDULE 6.4 PRELIMINARY DEVELOPMENT BUDGET SCHEDULE 16.2(F) GOVERNMENT FUNDING DISCLOSURE SCHEDULE SCHEDULE 17.3 ADVERSE EVENT REPORTING PROCEDURES - ------------- [***] = CONFIDENTIAL TREATMENT REQUESTED. i EX-10.21 3 INTERNATIONAL FLUMIST LICENSE AGREEMENT 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.21 INTERNATIONAL FLUMIST(TM) LICENSE AGREEMENT AVIRON AND AMERICAN HOME PRODUCTS CORPORATION ACTING THROUGH ITS WYETH-AYERST LABORATORIES DIVISION JANUARY 11, 1999 2 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. INTERNATIONAL FLUMIST(TM) LICENSE AGREEMENT THIS INTERNATIONAL FLUMIST(TM) LICENSE AGREEMENT (the "Agreement"), signed on January 11, 1999 (the "Signing Date"), is by and between AVIRON, a Delaware corporation with its principal place of business at 297 North Bernardo Avenue, Mountain View, California 94043 ("Aviron"), and AMERICAN HOME PRODUCTS CORPORATION ("AHPC"), acting through its WYETH-AYERST LABORATORIES DIVISION, a Delaware corporation with its principal place of business at 555 Lancaster Avenue, St. Davids, Pennsylvania, 19087 ("Wyeth-Ayerst"). Aviron and Wyeth-Ayerst are sometimes referred to herein individually as a "Party" and collectively as the "Parties." WITNESSETH: WHEREAS, Aviron has been licensed exclusive rights to, and has developed substantial additional proprietary rights regarding, an intranasally delivered cold adapted vaccine formulation against influenza and influenza-associated illnesses, [***] known as FluMist(TM) or FluEnz(TM) (collectively, "FluMist"); WHEREAS, Aviron is engaged in the development, and when developed, the manufacture or contract manufacture, marketing and sale, of FluMist, in [***]; WHEREAS, Wyeth-Ayerst is not currently engaged in the development of any intranasally delivered influenza vaccine product; WHEREAS, the Parties have entered that certain U.S. License and Collaboration Agreement of even date herewith; WHEREAS, the Parties intend to establish a collaboration for the development and commercialization of FluMist in certain territories outside of the United States and its territories and possessions, with the purpose of obtaining the rapid and competitive release of FluMist, and under which Wyeth-Ayerst will market and promote the FluMist vaccine [***]; WHEREAS, in connection with establishing the collaboration described herein, Aviron desires to grant to Wyeth-Ayerst, and Wyeth-Ayerst desires to obtain, certain license rights to FluMist on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the Parties hereby agree as follows: ARTICLE 1 DEFINITIONS Any capitalized terms used but not defined herein shall have the meaning given them in the U.S. Agreement to the extent defined therein. The following terms, when capitalized, shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined) as used in this Agreement: - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 3 1.1 "AFFILIATE" means, with respect to a Party or to AHPC, any Person that, directly or indirectly, is controlled by, controls or is under common control with such Party, but only for so long as such relationship exists. "Control," as used in this Section 1.1, means having the power to direct, or cause the direction of, the management and policies of any entity, whether through ownership of voting securities, by contract, or otherwise. For purposes of this Agreement the term "Affiliate" shall not, however, include subsidiaries in which a Person owns a majority of the ordinary voting power to elect a majority of the board of directors, but is restricted from electing such majority by contract or otherwise, until such time as such restrictions are no longer in effect. 1.2 "AGENCY" means any national, supranational, regional, state, provincial or local regulatory agency, department, bureau, commission, council or other governmental entity that has authority, responsibility, or jurisdiction as to any Regulatory Approval for a regulatory jurisdiction within the Territory. 1.3 "ANNUAL NET SALES" means Net Sales per Calendar Year. 1.4 "AVIRON KNOW-HOW" means any Information owned or Controlled by Aviron either (a) as of the Effective Date, or (b) during the term of this Agreement, that is useful or necessary in the clinical development, Regulatory Approval, commercialization, marketing or manufacture of the Product for use in the Field in the Territory. "Aviron Know-How" shall not include any Information in the Joint Technology nor any Aviron Patents. 1.5 "AVIRON PATENTS" means (a) those Patents owned or Controlled by Aviron which cover the manufacture, use, sale, offer for sale or importation of the Product in the Field and in the Territory (which as of the Signing Date consist of those listed on Schedule 1.5 hereto, as may be amended from time to time); and (b) any Patents claiming any Invention owned solely by Aviron pursuant to Section 14.1(b) that cover the manufacture, use, sale, offer for sale or importation of the Product. "Aviron Patents" shall not include any Joint Patents. 1.6 "AVIRON PRODUCT MATERIALS" means any [***] or any [***] or any other biological materials transferred to Wyeth-Ayerst by Aviron under this Agreement; and [***] to the extent that [***] other than [***] as permitted pursuant to Section [***]. 1.7 "AVIRON RESULTS" shall have the meaning ascribed in Section 14.1. 1.8 "CALENDAR YEAR" means the period of time commencing on January 1 of a given year, and ending on December 31 of such year. 1.9 "COLLABORATION" means the collaborative activities undertaken by the Parties in accordance with this Agreement to develop and commercialize the Product in the Field in the Territory. 1.10 "COMMERCIALIZATION EXPENSES" means those costs, excluding [***] but including [***] incurred by Wyeth-Ayerst or for its account which are specifically identifiable to the advertising, promotion and marketing (including market preparation and other pre-launch activities) of the Product and related professional promotion and education (to the extent not - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 2. 4 performed by sales representatives), including, without limitation, television and electronic advertisements, advertorials and infomercials, print advertisements, direct mail, exhibitions at seminars and conferences, samples packages, promotional literature and market research. 1.11 "COMMERCIALLY REASONABLE EFFORTS" means efforts and resources normally used by a Party for a vaccine owned by it or to which it has rights, which is of similar market potential at a similar stage in its product life, taking into account the competitiveness of the marketplace, the proprietary position of the vaccine, the regulatory structure involved, the potential or actual profitability of the vaccine, and other relevant commercial factors. A Party shall not be determined to have failed to use Commercially Reasonable Efforts to the extent any failure or delay in such Party's efforts is attributable to the action or failure to act of the other Party, or material breach by the other Party of any provision of this Agreement. 1.12 "[***]" means a [***] other than [***] as of the Effective Date or as [***] pursuant to Section [***] the [***] or any [***] described in Schedule 1.12, which is either [***] for the [***] including [***] in a [***] within a Region in the Territory. 1.13 "CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 13.1. 1.14 "CONTROL" OR "CONTROLLED" means the right to grant a license or sublicense to intangible property rights (including patent rights, know-how and/or trade secret information), and the right to provide access to or cross-reference to regulatory filings, in each case to the extent not in violation of the terms of any agreement or other arrangement with any Third Party in existence as of the Effective Date. 1.15 "EFFECTIVE DATE" shall have the meaning set forth in Section 21.16 of the U.S. Agreement. 1.16 "EMEA" means the European Medical Evaluation Agency, or any successor agency. 1.17 "FDA" means the United States Food and Drug Administration, or any successor agency. 1.18 "FIELD" means the use of the Product [***] (a) to prevent influenza and influenza-associated illnesses, [***] in a Target Population, or other population, for which the Product, as to a regulatory jurisdiction, has been granted Regulatory Approval by the Relevant Agency; or (b) for any [***] which are [***] under the Collaboration pursuant to Section [***]. The "Field" specifically excludes use or sale of the Product [***]. 1.19 "FINISHED PRODUCT" means the Product in finished, packaged form. 1.20 "FLU SEASON" means, as to each Region, nation or territory within the Territory, the influenza vaccine selling season, which shall be deemed to begin upon the date of the first commercial sale of trivalent Finished Product comprising the set of influenza strains designated by the governmental agency having statutory or regulatory authority or responsibility for designating influenza strains against which influenza vaccines should be targeted, and to end - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 3. 5 upon the first commercial sale of Finished Product comprising the next set of influenza strains designated by such governmental agency; provided that a "Flu Season" shall not in any event extend for more than twelve (12) months from the first commercial sale of a given Finished Product in such Region, nation or territory. In the case of a Region, nation or territory that has no such governmental agency, a given "Flu Season" shall be deemed to begin on the same date as the "Flu Season" in the U.S. Agreement if such Region, nation or territory is located in whole or in part in the northern hemisphere, and a given "Flu Season" shall be deemed to begin on the same date as the first lot release by Aviron or its contractor for supply to Australia for the upcoming influenza vaccine selling season if such Region, nation or territory is located entirely within the southern hemisphere. 1.21 "GOOD CLINICAL PRACTICE" OR "GCP" shall mean the then current standards for clinical trials for biologicals, as set forth in the United States Federal Food, Drug and Cosmetics Act ("FD&C Act") and applicable regulations and guidances promulgated thereunder, as amended from time to time, and such standards of good clinical practice as are required by the European Union and other governmental organizations and agencies of nations or territories within the Territory in which the Product is intended to be sold, to the extent such standards do not contravene the United States GCP. 1.22 "GOOD LABORATORY PRACTICE" OR "GLP" shall mean the then current standards for laboratory activities for biologicals, as set forth in the FD&C Act and applicable regulations promulgated and guidances thereunder, as amended from time to time, and such standards of good laboratory practice as are required by the European Union and other governmental organizations and agencies of nations or territories within the Territory in which the Product is intended to be sold, to the extent such standards do not contravene the United States GLP. 1.23 "GOOD MANUFACTURING PRACTICE" OR "GMP" shall mean the current standards for the manufacture of biologicals, as set forth in the FD&C Act and applicable regulations and guidances promulgated hereunder, as amended from time to time, and such standards of good manufacturing practice as are required by the European Union and other governmental organizations and agencies of nations or territories within the Territory in which the Product is intended to be sold, to the extent such standards do not contravene the United States GMP. 1.24 "INFORMATION" means techniques and data relating to the Product and including (but not limited to) practices, methods, knowledge, know-how, skill, experience, test data including pharmacological, toxicological, preclinical and clinical test data, analytical and quality control data, marketing, pricing, distribution, cost, sales and manufacturing data or descriptions. Information shall include any Invention for which a patent application has not been filed, or if filed, has not been published. 1.25 "INJECTABLE PRODUCT" means Wyeth-Ayerst's injectable, inactivated influenza vaccine product, based on the commercial technology used by Wyeth-Ayerst as of the Signing Date in the Territory. 1.26 "INTERNATIONAL COMMERCIALIZATION COMMITTEE" OR "ICC" means the committee formed by the Parties to develop commercial strategies, marketing plans and budgets for the Product in the Territory and co-ordinate the Product marketing and sales activities, as further described in Article 3. 4. 6 1.27 "INTERNATIONAL COMMERCIALIZATION PLAN" shall have the meaning set forth in Section 7.2. 1.28 "INTERNATIONAL DEVELOPMENT COMMITTEE" OR "IDC" means the committee formed by the Parties to oversee the clinical development, regulatory strategy and manufacture of the Product as further described in Article 4. 1.29 "INTERNATIONAL DEVELOPMENT PLAN" means the plan for development of the Product in the Field in the Territory created by the IDC to be carried out by the Parties as further described in Section 6.3. 1.30 "INVENTION" means any patentable invention or discovery. 1.31 "JCC" means the Joint Commercialization Committee, as defined in the U.S. Agreement. 1.32 "JDC" means the Joint Development Committee, as defined in the U.S. Agreement. 1.33 "JOINT PATENT" means a Patent claiming an Invention in the Joint Technology. 1.34 "JOINT TECHNOLOGY" means all Information and Inventions discovered or developed jointly by one or more employees or consultants of one Party and by one or more employees or consultants of the other Party during the term of and pursuant to the Agreement, as determined under the United States laws of inventorship. 1.35 "LAUNCH" OR "LAUNCH DATE" means the date of the first commercial sale of the Product in the Territory for use in the Field following Regulatory Approval. 1.36 "[***]" means a [***] of the Product which, during the dating period established by the FDA or other applicable Regulatory Agency, [***] and does not [***] provided that if the [***] of the Product which exists as of the Effective Date is determined to [***] during the dating period, then such [***] shall be included in "[***]". 1.37 "MAA" means the Marketing Approval Application submitted to the EMEA for the Product in the Field, or any equivalent marketing approval application submitted to an Agency for a Regulatory Approval to commercially market and sell the Product. 1.38 "[***]" means the influenza strains [***] and designated [***] and any structural equivalents thereto, including any and all progeny, derivatives, replications, variants, recombinants, and reassortants thereof, whether generated by viral replication or by recombinant genetic engineering methods. "Structural equivalents" include any influenza virus: (a) that comprises [***] genome segments having a cumulative nucleotide sequence identity of at least [***] to the corresponding genome segments of [***] or (b) that comprises at least one characteristic nucleotide sequence feature or encoded amino acid sequence feature of any gene segment selected from the list of such features shown in Schedule 1.38; or (c) for which Wyeth-Ayerst cannot provide reasonable evidence to a mutually agreed upon independent Third Party - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 5. 7 laboratory, under an agreement that restricts such Third Party from disclosing Wyeth-Ayerst's confidential information to Aviron, that the virus is not derived from [***] 1.39 "MICHIGAN" means the Regents of the University of Michigan, a constitutional corporation of the State of Michigan with offices located at Wolverine Tower, Room 2071, 3003 South State Street, Ann Arbor, Michigan, 48109-1280, USA. 1.40 "MICHIGAN AGREEMENT" means the Materials Transfer and Intellectual Property Agreement between Aviron and Michigan dated February 24, 1995, as amended and attached hereto as Schedule 1.40. 1.41 "NET SALES" means the sum of all amounts actually received and all other consideration actually received (or, when in a form other than cash or its equivalent, the fair market value thereof when received) by Wyeth-Ayerst, its Affiliates and its sublicensees from persons or entities due to or by reason of the sale, distribution or use of Finished Product in the Territory, less the following deductions and offsets, but only to the extent such sums are otherwise included in the computation of Net Sales, or are paid or credited by Wyeth-Ayerst, its Affiliates and its sublicensees and not otherwise reimbursed: (a) [***] in such amounts as [***]; (b) any tax, excise, or other governmental charges upon or measured by the production, sales, transportation, delivery or use of said Finished Product contained therein; (c) [***] other than those described above; (d) [***] (to the extent that the foregoing [***] do not exceed [***]) of the sum of all amounts actually received and all other consideration actually received for the Product (or, when in a form other than cash or its equivalent, the fair market value thereof when received)); (e) amounts [***]; and (f) taxes paid by Wyeth-Ayerst or its Affiliates to government or an instrumentality thereof under a tax regulatory scheme equivalent to 42 U.S.C. 300 aa-1 et seq. or other similar legislation, insuring against liability arising out of the manufacture, use or sale of Finished Product by Wyeth-Ayerst or its Affiliates. Sales of Finished Product intended for resale to Third Parties, and made internally amongst Wyeth-Ayerst and its Affiliates or sublicensees shall not be deemed sales for purposes of calculating "Net Sales" (however the resale by the recipient shall be included in the calculation of "Net Sales" and subject to royalties). 1.42 "[***]" means the sale or distribution of [***] in the Territory for use in [***] other than pursuant to a [***]. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 6. 8 1.43 "[***]" means either (a) a [***] (which may include, e.g., a [***] (b) a [***] or (c) any other [***] determined by Aviron to be useful in [***] 1.44 "[***]" means [***] other than the [***] for which Aviron intends to [***] in the Territory and to [***] during the term of the Agreement, e.g., [***] 1.45 "PATENT" means patents, applications for patent, provisional applications for patent, and any patents issuing therefrom (including any divisions, continuations, continued prosecution applications and continuations-in-part thereof), and reexamination certificates, reissue patents, patent extensions and patent term restorations. 1.46 "PERSON" means an individual, corporation, partnership trust or unincorporated organization. 1.47 "PLA" means the Product Licensing Application/Establishment Licensing Application or Biologics License Application for the Product in the Field for submission to the FDA, and any supplements thereto. 1.48 "PRIMARY BRAND TRADEMARKS" means FluMist(TM) and FluEnz(TM), as well as any brand names combining FluMist or FluEnz with other words, e.g. "Pediatric FluMist." 1.49 "PRODUCT" means Aviron's live, attenuated, intranasally delivered, cold adapted influenza vaccine [***] including, but not limited to, the [***] provided, however, that "Product" specifically excludes any [***] unless and until [***] pursuant to Section [***] "Product" also specifically excludes: (a) any influenza vaccine Controlled by Aviron which is solely based upon or derived from [***] or other technologies of Aviron; (b) any product comprising Aviron's live, attenuated, intranasally delivered, cold adapted influenza vaccine [***] in combination with any other vaccine or vaccines; and (c) any product in which a vector [***] is used to deliver a vaccine or other heterologous gene sequence for use in the prevention, mitigation or cure of influenza. 1.50 "PRODUCT LABELING" means (a) the full prescribing information for the Product required by an Agency or by applicable law, rule or regulation in a regulatory jurisdiction within the Territory, including any required patient information, and (b) all labels and other written, printed or graphic matter upon any container, wrapper or any package insert or outsert utilized with or for the Product. 1.51 "PRODUCT PROMOTIONAL MATERIALS" means all sales representative training materials and all written, printed, graphic, electronic, audio or video matter, including but not limited to journal advertisements, sales visual aids, leave items, formulary binders, reprints, direct mail, direct-to-consumer advertising, internet postings, broadcast advertisements, and sales reminder aids (for example, scratch pads, pens and other such items) intended for use or used by Wyeth-Ayerst in connection with any Promotion of the Product, but excluding Product Labeling. 1.52 "PROMOTE" OR "PROMOTION" means, with respect to the Product, those activities undertaken by Wyeth-Ayerst to encourage sales of the Product, including without limitation - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED. 7. 9 detailing, journal advertising, direct mail programs, direct-to-consumer advertising, and other forms of advertising and promotion specified in the International Commercialization Plan. 1.53 "REGION" means any or all of the following regions, which include the countries set forth in Schedule 1.53, as may be updated from time to time, and as the context requires: (a) The "Asia/Pacific Region;" (b) The "Africa/Middle East Region;" (c) The "European Region;" (d) The "Latin America Region;" and (e) The "North America Region." 1.54 "REGULATORY APPROVALS" means any approvals (including, but not limited to, PLA approval, labeling, pricing and reimbursement approvals), product, biologic and/or establishment licenses, registrations or authorizations of any supranational, national, regional, state, provincial or local regulatory agency, department, bureau, commission, council or other governmental entity, necessary for the commercial manufacture, use, storage, importation, export, transport or sale of the Product in the Field in a regulatory jurisdiction within the Territory. 1.55 "SIGNING DATE" means the date first set forth on page 1 of this Agreement. 1.56 "SUPPLY AGREEMENT" means that certain FluMist Supply Agreement entered into by and between the Parties as of the Signing Date. 1.57 "TARGET POPULATION" means the target populations for which the Parties anticipate that the Product may receive Regulatory Approval, consisting of (a) the healthy pediatric population (children aged 1-17 or any subset thereof), (b) the at-risk pediatric population (children aged 1-17 or any subset thereof), (c) the healthy adult population (persons from 18-64 years of age), (d) any at-risk adult population (persons from 18-64 years of age), and (e) the elderly population (all persons from 65 years of age and up). 1.58 "TERRITORY" means all of the countries of the world, except the United States and its territories and possessions, the Commonwealth of Puerto Rico, South Korea, North Korea, Australia, New Zealand, Fiji, Papua New Guinea, Vanuatu, Tonga, the Solomon Islands and the Cook Islands. 1.59 "THIRD PARTY" means any entity other than Aviron or Wyeth-Ayerst and their respective Affiliates. 1.60 "TRADEMARKS" means those trademarks and trade names, whether or not registered in the Territory (including the Primary Brand Trademark), trade dress and packaging which (a) are owned by either Party, and (b) are applied to or used in connection with the Product or any Product Promotional Materials. 8. 10 1.61 "U.S. AGREEMENT" means that certain United States License and Co-Promotion Agreement entered into by and between the Parties as of the Signing Date. 1.62 "U.S. TERRITORY" means the United States and its territories and possessions, and the Commonwealth of Puerto Rico. 1.63 "WYETH-AYERST KNOW-HOW" means any Information owned or Controlled by Wyeth-Ayerst either (a) as of the Effective Date, or (b) during the term of this Agreement, that is useful or necessary in the clinical development, Regulatory Approval, commercialization, marketing or manufacture of the Product for use in the Field in the Territory. "Wyeth-Ayerst Know-How" shall not include any Information in the Joint Technology nor any Wyeth-Ayerst Patents. 1.64 "WYETH-AYERST PATENTS" means (a) those Patents owned or Controlled, as of the Effective Date or thereafter, by Wyeth-Ayerst or its Affiliates that cover the manufacture, making of, use, sale, offer for sale or importation of the Product in the Field and in the Territory (which as of the Signing Date consist of those Patents listed on Schedule 1.63 hereto, as may be amended from time to time); and (b) any Patents claiming any Invention owned solely by Wyeth-Ayerst pursuant to Section 14.1(b) that cover the manufacture, making of, use, sale, offer for sale or importation of the Product. "Wyeth-Ayerst Patents" shall not include any Joint Patents. 1.65 "WYETH-AYERST RESULTS" shall have the meaning ascribed in Section 14.1. ARTICLE 2 SCOPE; MANAGEMENT 2.1 SCOPE. The purpose of this Collaboration is to establish a vehicle through which Wyeth-Ayerst shall market, Promote and sell the Product in the Field during the term of the Agreement, so as to maximize sales of the Product in the Territory, in coordination with the activities of the Parties under the U.S. Agreement. Furthermore, the Parties shall collaborate on manufacturing and regulatory strategies and procedures in order to maximize supply and obtain requisite Regulatory Approval for the Product in an expeditious manner. The Parties will also collaborate with respect to the clinical trials necessary or useful to increase the populations to which the Product may be administered, and to expand the label claims of the Product, in the Field and in the Territory. 2.2 MANAGEMENT OF THE COLLABORATION. The Parties intend to manage the Collaboration primarily through two committees: The International Commercialization Committee (the "ICC"), which will generally oversee the Collaboration, and the International Development Committee (the "IDC"), which will oversee the management of the clinical development, regulatory strategy and manufacture of Product in and/or for the Territory, pursuant to the International Development Plan (as further described in Article 4) (collectively, the "Committees"). It is the intent of the Parties to monitor and approve Wyeth-Ayerst's activities in commercializing the Product in the Territory in order to coordinate them with the Parties' activities under the U.S. Agreement. It is the also the Parties' intent to assign responsibilities for the various development aspects of the Collaboration to those portions of the 9. 11 Parties' respective organizations which have the appropriate resources, expertise and responsibility for such functions. The Parties will use Commercially Reasonable Efforts and cooperate with one another in carrying out their respective obligations hereunder and as set forth further in the International Development Plan and the International Commercialization Plan. 2.3 COMPOSITION AND CONDUCT OF THE COMMITTEES. The Parties shall designate their representatives to the Committees within ten (10) days after the Effective Date. Each Party shall designate three (3) representatives to the ICC, and two (2) representatives to the IDC. Each member of each Committee shall have one vote. Wyeth-Ayerst shall also appoint an employee of AHPC's Whitehall-Robins Healthcare Division as a non-voting representative to the ICC. The Parties will endeavor to designate representatives with the appropriate skills necessary to deal with the issues before them. The membership of the ICC and the IDC may overlap. An alternate such member designated by a Party may serve temporarily in the absence of a permanent member designated by such Party. Each Party shall designate one of its representatives to each Committee as a Co-Chair of such Committee. Each Co-Chair of a Committee will be responsible for the agenda and the minutes of alternating meetings of such Committee. Each Party shall bear its own costs of participation in each Committee. 2.4 MEETINGS OF THE COMMITTEES. Each Committee: (a) shall hold meetings at such times and places as shall be determined by a majority of the entire membership of such Committee (it being expected that meetings will alternate between the Mountain View, CA office of Aviron and the Radnor/St. Davids, PA office of Wyeth-Ayerst) but in no event shall such meetings be held in person less frequently than once every six (6) months; (b) may conduct meetings in person or by telephone or video conference or other means, provided that: (i) except by mutual consent of the Co-Chairs, meetings by telephone conference shall not reduce the number of meetings in person specified in paragraph (a) above; and (ii) any decision made during a telephone conference meeting is evidenced in writing signed by one of the members of such Committee from each of the Parties; (c) by mutual consent of the representatives of each Party, such consent not to be unreasonably withheld, either Party may invite other personnel of their organization to attend appropriate meetings of the Committee; (d) shall keep minutes reflecting actions taken at meetings; (e) may act without a meeting if prior to such action the Committee members agree regarding such action and a written consent thereto is signed by the Co-Chairs of the Committee; and (f) may amend or expand upon the foregoing procedures for its internal operation by unanimous written consent. 2.5 LIMITATIONS OF COMMITTEE POWERS. Neither Committee shall have any power to amend this Agreement and shall have only such powers as are specifically delegated to them hereunder. 10. 12 2.6 AUTHORITY TO CALL MEETINGS. Notwithstanding the regular meeting schedule of the respective Committees, a meeting of either Committee may be called by either Party on ten (10) days written notice to the other, unless such notice is waived by the other Party. In the event of any meeting called pursuant to a notice under this Section 2.6, the Party calling the meeting shall provide an agenda for the meeting together with the information that such Party believes is relevant for the items to be discussed. Neither Party shall call more than four (4) additional meetings per Calendar Year for each Committee under this Section 2.6 without the other Party's consent. The Party not calling the meeting under this Section 2.6 shall select the location for the meeting. ARTICLE 3 INTERNATIONAL COMMERCIALIZATION COMMITTEE 3.1 FUNCTIONS AND POWERS OF THE INTERNATIONAL COMMERCIALIZATION COMMITTEE. The International Commercialization Committee shall perform the following functions: (a) approve the overall commercialization strategy for the Product in the Territory as proposed by Wyeth-Ayerst; (b) communicate at least twice per Calendar Year with the JCC in order to coordinate the Parties' activities hereunder with their activities under the U.S. Agreement; (c) review plans and budgets for the Collaboration, all based on the principles of prompt and diligent development of the Product consistent with good biological practices and the maximization of sales of the Product in the Field and in the Territory. (d) approve the International Commercialization Plan, and any updates or amendments thereto, as described in Section 7.2; (e) review the financial performance of the Product in the Territory; (f) review and approve material agreements with Third Parties to be made by Wyeth-Ayerst that cover the marketing or sales of the Product and any sublicenses and distributorships granted hereunder in the Field and in the Territory; (g) review and comment on the International Development Plan, as modified from time to time; (h) at its discretion, form and subsequently disband subcommittees with appropriate representation from each Party; and (i) perform such other functions as appropriate to further the purposes of this Agreement as mutually determined by the Parties. 3.2 INTERNATIONAL COMMERCIALIZATION COMMITTEE ACTIONS. No business shall be transacted at any meeting of the ICC unless a quorum of members is present at the time when the meeting proceeds to business. A quorum shall be at least four (4) members present in person or by their alternate, two (2) of whom must be representatives appointed by Wyeth-Ayerst and two 11. 13 (2) representatives appointed by Aviron. Actions by the ICC pursuant to this Agreement shall be taken only with the [***] of the representatives of both Parties on such committee. If the ICC fails to reach agreement on any matter before it for decision within ten (10) days, the matter shall be referred for resolution in accordance with Article 20 hereof. ARTICLE 4 INTERNATIONAL DEVELOPMENT COMMITTEE 4.1 FUNCTIONS AND POWERS OF THE INTERNATIONAL DEVELOPMENT COMMITTEE. The International Development Committee shall perform the following functions: (a) Oversee and coordinate the clinical development of the Product in the Territory with the United States and its territories (including without limitation, review of proposals to commence or stop a clinical trial) pursuant to the International Development Plan; (b) Prepare the International Development Plan (as described in Section 6.3), and any necessary amendments thereto, for the ICC's review and approval; and (c) Oversee and provide input to Wyeth-Ayerst's efforts in regulatory affairs regarding the Product and the Parties' manufacture and supply of Product for sale in the Territory. ARTICLE 5 LICENSES 5.1 LICENSE GRANT WITHIN THE TERRITORY. Subject to the conditions and limitations set forth in this Agreement, Aviron hereby grants to Wyeth-Ayerst (a) the exclusive license, under the Aviron Patents, the Aviron Know-How and Aviron's interest in any Joint Technology; and (b) the exclusive sublicense under Aviron's rights under the Michigan Agreement, in each case solely to manufacture, to the extent set forth in the Supply Agreement, develop, distribute, use, import, offer for sale and sell the Product in the Territory for use in the Field during the term of the Agreement. Aviron shall retain all rights under the Aviron Patents, the Aviron Know-How and Aviron's interest in any Joint Technology, and under the Michigan Agreement, that are necessary or useful to Aviron's performance of its rights and obligations under this Agreement and the Supply Agreement, or that relate to the manufacture of the Product within the Territory that is to be used or sold in territories for which Wyeth-Ayerst or its Affiliates do not have a license to use or sell the Product. 5.2 LICENSE GRANT TO AVIRON. Subject to the conditions and limitations set forth in this Agreement, Wyeth-Ayerst hereby grants to Aviron the exclusive, paid-up license, under the Wyeth-Ayerst Know-How, the Wyeth-Ayerst Patents, and Wyeth-Ayerst's interest in any Joint Technology, to manufacture, solely to the extent set forth in the Supply Agreement, develop, distribute, make, have made, use, offer for sale and sell the Product in the Territory for use in the Field during the term of the Agreement. Wyeth-Ayerst shall retain all rights under the Wyeth-Ayerst Patents, the Wyeth-Ayerst Know-How and Wyeth-Ayerst's interest in any Joint - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 12. 14 Technology that are necessary or useful to Wyeth-Ayerst's performance of its rights and obligations under this Agreement and the Supply Agreement. 5.3 SUBLICENSES/DISTRIBUTORSHIPS. (a) GENERAL. Wyeth-Ayerst may grant one or more Third Parties the right to distribute, promote and/or sell the Product in the Territory for use in the Field, provided that: (i) Wyeth-Ayerst obtains Aviron's prior written consent, such consent not to be unreasonably withheld; (ii) The parties to and economic terms of any such agreement shall be fully disclosed to Aviron, and the terms of such agreement shall be consistent with all of the relevant terms and provisions of this Agreement; (iii) Wyeth-Ayerst shall in no event grant such Third Party the right to manufacture, or have manufactured, the Product; (iv) To the extent that any such Third Party is to perform any obligation of Wyeth-Ayerst's under this Agreement, Wyeth-Ayerst shall remain liable for such performance; (v) Wyeth-Ayerst shall pay Aviron its [***] royalty on all Net Sales of Product by such Third Party, as set forth in Article 12; and (vi) Wyeth-Ayerst shall pay Aviron [***] of any [***] consideration received from such sublicensee for such sublicense, including [***] but excluding [***]. Such payment under this subsection (f) shall be made to Aviron within fifteen (15) days of Wyeth-Ayerst's receipt of such consideration. (b) [***] Aviron hereby grants Wyeth-Ayerst the right to grant a sublicense, under its exclusive license granted pursuant to Section 5.1, to [***] to use, market, sell, and distribute the Product for use in the Field, solely in the [***]. Wyeth-Ayerst hereby agrees that following the Effective Date and upon [***], Wyeth-Ayerst shall [***] regarding an [***] the Product in the [***], on terms and conditions which are agreed upon and reasonably acceptable to both Wyeth-Ayerst and Aviron, and subject to Sections 5.3(a)(ii), (a)(iv), (a)(v) and (a)(vi). The [***] may be predicated upon [***] achieving certain performance events, and shall include mutually acceptable economic terms, which may include certain [***]. In the event that Wyeth-Ayerst does not [***], Wyeth-Ayerst may not [***] to distribute, promote or sell the Product in [***] without Aviron's prior written consent. 5.4 JOINT TECHNOLOGY. Wyeth-Ayerst hereby grants to Aviron the exclusive, worldwide license during the term of the Agreement under Wyeth-Ayerst's interest in the Joint Technology to use, make, have made, import, offer for sale and sell the Product outside of the Field in the Territory. Such license shall be [***]; in the event that Aviron [***], the Parties shall [***] to be [***] of the Product under such [***] as the Parties may agree upon, [***] of the [***] of [***] manufacture, use or sale of the Product. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 13. 15 5.5 MICHIGAN RETAINED RIGHTS. Wyeth-Ayerst acknowledges and agrees that the license granted under Section 5.1 is subject at all times to the Michigan Agreement, as further set forth in Article 10. Pursuant to the Michigan Agreement, Wyeth-Ayerst hereby grants to Michigan an irrevocable, royalty-free license to utilize any "Improvements" (as defined in Section 2.3 of the Michigan Agreement) to the Product generated by Wyeth-Ayerst in the manufacture, use, marketing or sale of Products, as set forth in Section 9.4 of the Michigan Agreement, and subject to the restrictions placed upon Michigan under Section 3.4 of the Michigan Agreement. 5.6 WYETH-AYERST [***]. (a) In order to induce Aviron to grant the exclusive rights granted under Section 5.1 above, Wyeth-Ayerst hereby agrees that during the term of the Agreement, it shall [***] in the Territory, subject to subsection (b) below. (b) If Wyeth-Ayerst [***] pursuant to [***] and sales of such [***] do not comprise more than [***] of the overall [***] of such [***] for the most recent Calendar Year, subsection 5.6(a) shall not apply to such [***], provided that Wyeth-Ayerst shall give Aviron written notice that it is [***] in the Territory as promptly as possible following such [***]. (c) In the event Wyeth-Ayerst does promote, market and/or sell [***] pursuant to Subsection 5.6(b), then Wyeth-Ayerst shall provide Aviron with all information necessary to assess [***], in accordance with and subject to Section 16.4. If Aviron determines that the [***] and its Affiliates and sublicensees in a particular Region are [***] in such Region, then the Parties shall proceed as follows: (i) For thirty (30) days following the date of such determination, or such other period of time as mutually agreed by the Parties in writing, the Parties shall enter into good faith discussions regarding whether: (1) additional provisions shall be added to this Agreement to [***] for any [***] in such Region caused by [***] its Affiliates or its sublicensees; or (2) such [***] shall be [***] in the [***] and if so, the [***] it for [***] with respect to such [***] the appropriate [***] to be [***] and any additional [***]. (ii) In the event that the Parties are unable to agree on either of the options set forth in subsections (i)(1) or (i)(2) above during such thirty day or other agreed upon period, then during the subsequent thirty (30) day period, or such other period as mutually agreed by the Parties in writing, the Parties shall agree that either: (1) [***] and its Affiliates shall [***] during the term of this Agreement, provided that [***] shall have right to [***]; or (2) [***] shall have the right to [***] with respect to such [***] provided that [***] for its [***] in such Region; or - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 14. 16 (3) [***] rights to such [***] in such Region by [***] provided that prior to the [***] the Parties shall in good faith agree upon [***] to be [***] for any [***] in such Region [***] of such [***], its Affiliates or its sublicensees. If, at the end of such thirty day or other agreed upon period, the Parties have not agreed on any of the options set forth in subsection (1), (2) or (3) above, then either Party may initiate dispute resolution proceedings as set forth in Article 19. 5.7 AVIRON [***]. Aviron shall have the right during the term of the Agreement to develop, market and sell any [***] in the Territory, subject to the terms of this Section 5.7. In the event that Aviron does undertake such development, Aviron shall be solely responsible for the development of such [***] unless otherwise agreed to in writing by the Parties. (a) Prior to the first commercial sale of such [***] in the Territory, Aviron will notify Wyeth-Ayerst in writing. Upon receipt of such notice, Wyeth-Ayerst shall have a period of thirty (30) days to notify Aviron in writing whether it desires that such [***]. If Wyeth-Ayerst so notifies Aviron that it does desire that such [***] then: (i) Such [***] will thereafter be [***] including without limitation, [***]; (ii) The Parties shall agree in good faith upon appropriate [***] to be [***] for its [***] with respect to such [***] at a minimum, the [***] under Section [***]; and the Parties will discuss any [***]; and (iii) Aviron shall retain the exclusive right to [***] such [***] provided that, if at such time [***] of the [***] (i.e., the [***] as it [***] prior to the [***] pursuant to subsection (ii) above), and the IDC confirms that the [***] of such [***] essentially the [***] as or a [***] to that used for the [***] of the [***] then [***] of such [***] under the conditions set forth in [***]. (b) If Wyeth-Ayerst notifies Aviron that it does not desire that such Competing Product be included in the Collaboration hereunder, then Aviron will have no further obligation thereafter to Wyeth-Ayerst with respect to the Competing Product which was the subject of the Aviron's notice to Wyeth-Ayerst, and shall have the right to market and sell the same outside of the Collaboration, either alone or with or through a Third Party. 5.8 [***] In the event that, prior to the expiration of the term of the Agreement, Aviron determines that it wishes to grant a Third Party the right to [***] within the Territory, regardless of whether Aviron intends to solicit such Third Party or has been solicited by such Third Party, Aviron shall so notify Wyeth-Ayerst in writing. Upon receipt of such notice, Wyeth-Ayerst shall have a period of [***] days to deliver to Aviron a written notice of its interest. For [***] days following receipt of Wyeth-Ayerst's notice, the Parties shall engage in exclusive, good-faith negotiations for the reasonable commercial terms upon which the [***] would be [***]. The Parties anticipate that such commercially reasonable terms would include [***] relevant [***] regarding [***] for such [***], and the duration of such collaboration in the [***]. If Wyeth-Ayerst does not exercise the option granted in this Section 5.8, or if the Parties - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 15. 17 have failed to reach agreement on such terms by the end of such [***] period, then Aviron shall thereafter be free to grant a Third Party such rights to [***] within the Territory, on terms and conditions which, taken as a whole, are no less favorable to Aviron than Wyeth-Ayerst's last written offer to Aviron for such rights. Notwithstanding any other provision of this Section 5.8, Aviron shall not, nor shall Aviron grant any Third Party the right to, [***] in the Territory during the term of the Agreement, as it may be extended hereunder. 5.9 OTHER DEVELOPMENT ACTIVITIES BY AVIRON. (a) Aviron shall have the right, but not the obligation, to undertake development, in and for the Territory, of (i) any [***], (ii) any [***] other than [***], or (iii) any [***], and Aviron shall be solely responsible for the development of such [***], unless otherwise agreed to in writing by the Parties. (b) Prior to the [***] in the Territory of [***] any such [***], Aviron will notify Wyeth-Ayerst in writing. Upon receipt of such notice, Wyeth-Ayerst shall have a period of [***] days to notify Aviron in writing whether it desires that such [***] be included under the Collaboration. If Wyeth-Ayerst so notifies Aviron that it does desire that such [***] be included under the Collaboration hereunder, then: (i) Such [***] will thereafter be included under this Agreement, including without limitation, by [***] (for an [***]) or "[***]" (for an [***]); (ii) Within [***] days of such notification, Wyeth-Ayerst shall [***] if the period from the date of notification to the expiration of the Agreement is [***] if such period is at least [***] if such period is at least [***] (as defined in Section [***]). Wyeth-Ayerst shall not be obligated to [***] under this subsection (b)(ii) during the term of this Agreement. (iii) Notwithstanding the last sentence of subsection (b)(ii) above, if the [***] pursuant to Section [***] and such [***] if it had existed at the time Wyeth-Ayerst provided notification under this subsection (b) to Aviron, would have resulted in [***] under subsection (b)(ii) than the [***] to Aviron, then Wyeth-Ayerst shall [***] to Aviron and the [***] under the [***]. (iv) The [***] set forth in Section [***] shall apply to such [***] provided that Wyeth-Ayerst shall not [***] for the [***] of any [***] (as defined in Section [***]), regardless of the [***] the [***] shall apply to such [***] to the [***] and [***] of such [***] in the Territory shall be [***] with those of any [***] under Section [***]; and (v) Aviron shall retain the exclusive right to [***] such [***] provided that, if at such time [***] of the [***] (i.e., the [***] as it [***] prior to the [***] of such [***] pursuant to subsection (ii) above), and the IDC confirms that the [***] of such [***] essentially the [***] as or a [***] to that used for the [***] of the [***] of the [***] then [***] of such [***] under the conditions set forth in [***]. (vi) In the event that [***] at such time, in the [***] of the [***] the Parties shall in good faith amend [***] with respect to an amended [***] of such [***] so as to - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 16. 18 reflect the [***] of the Parties in the [***] of [***] provided that the amended [***] shall in no event be [***] set forth in the unamended [***]. (c) If Wyeth-Ayerst notifies Aviron that it does not desire that such [***] be included in the Collaboration hereunder, then Aviron will have no further obligation thereafter to Wyeth-Ayerst with respect to the specific [***] which was the subject of the Aviron's notice to Wyeth-Ayerst, and shall have the right to market and sell the same in the Territory outside of the Collaboration, either alone or with or through a Third Party. 5.10 RESERVATION OF RIGHTS. Aviron hereby reserves all rights under the Aviron Patents and the Aviron Know-How, and all rights to the Product including without limitation all intellectual property and trademark rights relating thereto, not specifically granted to Wyeth-Ayerst hereunder or under the U.S. Agreement, including without limitation all rights to the Product outside of the Field subject to Sections 5.8 and 5.9, and the right to manufacture, or have manufactured, the Product in the Territory for use in the Territory outside of the Field and outside of the Territory within or outside of the Field, subject to the U.S. Agreement. 5.11 WYETH-AYERST COVENANT. During the term of this Agreement, Wyeth-Ayerst shall not promote, manufacture for commercial sale or use, sell, resell, or otherwise commercialize, nor shall Wyeth-Ayerst assist any Third Party or engage any Third Party to promote, manufacture for commercial sale or use, sell, resell, or otherwise commercialize, any live, cold-adapted influenza vaccine, other than the Product, [***] in any country within or outside of the Territory; provided that [***] shall have the burden of (a) [***], and (b) providing [***]. Aviron shall [***] under this provision only to the extent that such [***] prior to [***] of the [***] described in [***]. 5.12 [***]. Wyeth-Ayerst may at any time during the term of this Agreement, request and authorize Aviron to [***] wheresoever located in the Territory [***] in any [***] and a [***] under the [***] in each case solely to [***] in the Territory for [***] during the term of the Agreement. Wyeth-Ayerst shall give written notice of such request and authorization to Aviron, [***]. Upon receipt of such notice, Aviron shall [***] with each of the [***] in such notice (the [***]). All such [***] shall be consistent with the [***] except for such [***] as may be required by the laws and regulations of the country or other subdivision of the Territory in which the [***] will be [***]. No such [***] shall alter, nor shall it have the effect of altering, [***] (including without limitation [***]), unless Wyeth-Ayerst [***] in a manner acceptable to Aviron. In those countries where [***] requires prior governmental approval or registration, such [***] shall not be [***] until such approval or registration has been granted. [***] of the obligations of [***]. ARTICLE 6 PRODUCT DEVELOPMENT 6.1 CURRENT STATUS. Prior to the Effective Date, Aviron has (i) independently developed the Product for use in the Field, including conducting Phase III trials and data review; and (ii) intends to file the PLA with the FDA for use of the Product for immunization against - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 17. 19 influenza and its associated complications in individuals 12 months to 64 years of age, [***][, and for the prevention of [***] febrile illness associated with influenza. 6.2 PRODUCT DEVELOPMENT. Wyeth-Ayerst shall be responsible for carrying out all activities relating to the clinical, commercial, regulatory and manufacturing development of the Product in the Field in the Territory, that have not been assigned pursuant to the U.S. Agreement, in accordance with the International Development Plan. Wyeth-Ayerst shall comply with all relevant laws, rules and regulations in the development of the Product hereunder. Aviron shall have the right to undertake any development activities it deems necessary to develop the Product outside of the Field, at its own expense. 6.3 INTERNATIONAL DEVELOPMENT PLAN. The clinical development of the Product in the Territory shall be governed by a comprehensive development plan ("the International Development Plan"). The International Development Plan shall contain a detailed and specific plan for all clinical development proposed for the Product in the Territory during the term of the Agreement. Promptly after the Effective Date, the IDC shall complete the initial International Development Plan, and submit it to the ICC for its review and approval. During the term of the Agreement, the IDC shall periodically update the International Development Plan as necessary, subject to the approval of the ICC and coordination with the JCC. 6.4 REGULATORY APPLICATIONS. (a) Wyeth-Ayerst will be responsible for preparing and filing all applications for Regulatory Approval of the Product in the Territory in accordance with the International Development Plan. Wyeth-Ayerst will file all such applications jointly in Wyeth-Ayerst's and Aviron's name, provided that if the IDC determines that such joint filing is not necessary for a particular application, Wyeth-Ayerst shall file such application solely in Wyeth-Ayerst's name. Wyeth-Ayerst shall be responsible for prosecuting all such applications. Wyeth-Ayerst shall have the right to use all data and reports generated in the conduct of the International Development Plan for the filing of applications for Regulatory Approval in the Field and in the Territory. (b) Effectively only upon the expiration or termination of the Agreement, Wyeth-Ayerst hereby assigns its entire right, title and interest in and to all Regulatory Approvals and applications therefor filed by Wyeth-Ayerst pursuant to subsection (a) above to Aviron, and shall promptly execute all instruments, and take all other actions, necessary or useful to effect such assignment and to transfer such Regulatory Approvals and applications to Aviron, including without limitation complying with Commission Regulation (EC) 2141/96 of 7 November 1996, as may be amended from time to time, where applicable, and any other procedures set forth in any applicable regulation, rule or guideline governing the transfer of such Regulatory Approvals and applications in the relevant jurisdiction. [***] in the event that [***] pursuant to Section [***] hereof. (i) At least six (6) months prior to the expiration of this Agreement, or such other period of time as mutually agreed to by the Parties in writing, Wyeth-Ayerst shall - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 18. 20 commence preparation of all necessary documentation, instruments and other material required by the relevant Agency in order to effect the transfer of all such Regulatory Approvals and applications to Aviron. At least three (3) months prior to the expiration of this Agreement, or such other period of time as mutually agreed to by the Parties in writing, Wyeth-Ayerst shall submit all such documentation, instruments and other material to the relevant Agency. (ii) In the event that Aviron terminates this Agreement pursuant to Section 18.2(b) or 7.12, Wyeth-Ayerst shall use its Commercially Reasonable Efforts prepare and transmit all necessary documentation, instruments and other material required by the relevant Agency in order to effect the transfer of all such Regulatory Approvals and applications to Aviron as promptly as possible. If Aviron terminates this Agreement pursuant to Section 7.12, this Section 6.4(b) shall apply only to those Regions with respect to which the Agreement was terminated. (iii) Wyeth-Ayerst shall use its Commercially Reasonable Efforts to ensure that all correspondence, submissions, filings and other communications with any Agency made by Wyeth-Ayerst pursuant to this Section 6.4(b) shall (A) conform to such Agency's requirements, and (B) be prepared and submitted in such a manner so as to facilitate and expedite the transfer of the Regulatory Approvals and applications to Aviron to the extent that it is within Wyeth-Ayerst's control to do so. Aviron shall cooperate reasonably with Wyeth-Ayerst in its activities under this Section 6.4(b) as requested. Wyeth-Ayerst shall provide Aviron with copies of all correspondence, submissions, filings and other material communications to such Agency pursuant to such transfer as promptly as possible. At least one (1) Aviron representative shall be given the opportunity to participate in any meetings or substantive discussions with such Agency which relate to the transfer of a Regulatory Approval or application. To the extent Aviron receives any communications from such Agency relating to such transfer, Aviron shall notify Wyeth-Ayerst in a timely manner. (iv) In the event that an Agency rejects Wyeth-Ayerst's application to transfer a particular Regulatory Approval or application to Aviron, Aviron shall have the right to appeal such rejection, and to cure or mitigate the cause of such rejection. Wyeth-Ayerst agrees to cooperate with Aviron in such appeal, cure and/or mitigation and Aviron shall reimburse Wyeth-Ayerst for its reasonable out-of-pocket costs of such cooperation. (v) In the event that, as of the date of expiration or termination of this Agreement, there remains Regulatory Approvals and/or applications that have not yet been effectively transferred from Wyeth-Ayerst to Aviron pursuant to this Section 6.4(b), the Parties shall meet and agree in good faith upon a fair and commercially reasonable arrangement to allow Aviron to obtain the economic benefits of such Regulatory Approvals and/or applications as contemplated hereunder for the period extending from the date of expiration or termination of the Agreement until the date that such Regulatory Approval and/or applications are effectively transferred to Aviron. (c) Aviron shall have the right to use all data and reports generated in the conduct of the International Development Plan for the filing of applications for regulatory approval of the Product outside the Field within the Territory, and within or outside of the Field outside of the Territory, without payment to Wyeth-Ayerst, and with the right to allow a Third Party licensee the right to so use such data and reports. However, where Aviron wishes to allow 19. 21 a Third Party (other than a sublicensee pursuant to Section 5.3) such right of use, the Parties shall in good faith agree upon [***] to allow it to [***]. 6.5 SUPPLEMENTS. Prior to supplementing the Regulatory Approvals or filing additional and supplemental applications for Regulatory Approvals, Wyeth-Ayerst shall provide such proposed supplemental application to the IDC for approval. The IDC shall notify Wyeth-Ayerst within ten (10) days of its receipt of such application whether it approves or disapproves such application. If the IDC approves such application, Wyeth-Ayerst shall then be free to file such application. If the IDC disapproves such application, and if it does not provide Wyeth-Ayerst with detailed comments and/or revisions to such supplemental application within thirty (30) days of its receipt of such application, Wyeth-Ayerst shall thereafter be free to file the originally proposed supplemental application. 6.6 REGULATORY MEETINGS AND CORRESPONDENCE. (a) At least one (1) representative of Aviron shall be given the opportunity to participate in any meetings or substantive discussions with an Agency which relate to the Product in the Territory, including, but not limited to, any discussions regarding Product Promotional Materials. To the extent a Party receives any communications from an Agency relating to the Product in the Field in the Territory, it shall notify the other Party in a timely manner. (b) Subject to Sections 6.7(a) and (c) hereof, each Party shall promptly notify the other Party of, and provide such other Party with, a copy of any correspondence or other reports or complaints submitted to or received by the first Party from an Agency, or other Third Party claiming that any Product Promotional Materials are inconsistent with the Product Labeling or are otherwise in violation of applicable law within the Territory. (c) Notwithstanding anything herein to the contrary, Wyeth-Ayerst or its agent shall have exclusive responsibility for correspondence and for any official communications with any Agency regarding the Product in the Field in the Territory. (d) Wyeth-Ayerst shall provide Aviron with a copy of any documents or reports filed with any Agency during the term of the Agreement under this Article 6 with respect to the Product in the Field in the Territory. 6.7 RECORDS. Each Party shall keep complete, accurate and authentic accounts, notes, data and records, in good scientific manner, of all activities performed by it under the International Development Plan. ARTICLE 7 MARKETING 7.1 PRINCIPLES OF PROMOTION. Wyeth-Ayerst shall have the exclusive right to commercialize the Product in the Field in the Territory during the term of the Agreement, as further detailed in the International Commercialization Plan. Wyeth-Ayerst shall use - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 20. 22 Commercially Reasonable Efforts to Promote and commercialize the Product in the Territory at all times during the term of the Agreement. 7.2 INTERNATIONAL COMMERCIALIZATION PLAN. (a) The ICC shall have the power to approve a rolling multi-year plan and budget for commercializing the Product in the Territory (the "International Commercialization Plan"). Wyeth-Ayerst shall prepare a proposal for the International Commercialization Plan, which shall include a comprehensive market development, marketing, sales, pricing, supply and distribution strategy, including an overall budget for anticipated marketing, promotion and sales efforts in the calendar year. The International Commercialization Plan will specify which markets Wyeth-Ayerst shall devote its Promotion efforts towards, the personnel and other resources to be devoted to such efforts, the number and positioning of details to be performed by Wyeth-Ayerst, as well as market and sales forecasts and pricing analysis and related operating expenses, for the Product in the Territory, and budgets for projected Commercialization Expenses and sales and marketing expenses. Wyeth-Ayerst, in its preparation of the International Commercialization Plan, and the ICC, in its decision to approve or disapprove the International Commercialization Plan, will take into consideration factors such as market conditions, regulatory issues, competition and the commitments of the Parties under the Commercialization Plan. If the ICC disapproves Wyeth-Ayerst's proposed International Commercialization Plan, the Parties shall then resolve such dispute in accordance with Article 20 hereof. (b) The first International Commercialization Plan shall be prepared and approved as soon as is practicable after the Effective Date and shall thereafter be immediately in effect. The Parties anticipate that the first International Commercialization Plan shall become effective during the [***] Following approval of the first International Commercialization Plan, Wyeth-Ayerst shall prepare annually an updated and amended proposed International Commercialization Plan for submission to the ICC. 7.3 SALES AND DISTRIBUTION; RECALLS. During the term of the Agreement, Wyeth-Ayerst shall be responsible for all sales, distribution and customer support and for conducting all recalls of the Product in the Territory. 7.4 PROMOTION, COMMERCIALIZATION AND SALES AND MARKETING EXPENSES. Wyeth-Ayerst shall be responsible for all expenses for all costs and expenses for Promoting, marketing, selling and commercializing the Product in the Territory. 7.5 COMMERCIALIZATION EXPENSE COMMITMENT. The Parties anticipate that Wyeth-Ayerst shall expend approximately [***] in Commercialization Expenses during the [***] of the term of the Agreement for the purposes of market and brand development, marketing and promotion of the Product in the Field in the Territory, except as otherwise determined by the ICC in coordination with the JCC in light of market conditions at such time, taking into account such factors as market awareness and Finished Product supply levels. In the event that [***] (as defined [***] shall have the right to [***] under this Section 7.5, and its [***] under the [***] with the agreement of the ICC. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 21. 23 7.6 PROMOTIONAL AND ADVERTISING MATERIALS. (a) Consistent with applicable law, the ICC shall have the right to approve any and all Product Promotional Materials, pursuant to mutually agreed upon procedures and timelines, which, to the extent practicable, shall be coordinated with both Wyeth-Ayerst's clearance procedures (i.e., Wyeth-Ayerst's Copy Clearance Committee) and Aviron's clearance procedures. The Parties shall establish a tracking system or utilize Wyeth-Ayerst's tracking system (if appropriate and mutually agreed), for Product Promotional Materials to ensure that all such Product Promotional Materials are accurately tracked and submitted to each Agency as required by applicable law. (b) Wyeth-Ayerst will file all Product Promotional Materials with each Agency as required by applicable law. (c) All Product Promotional Materials used by Wyeth-Ayerst in the Promotion of the Product in the Territory shall contain (i) the Primary Brand Trademark, and the Aviron corporate name and logo, and (ii) the Wyeth-Ayerst Trademarks, corporate name and logo, in positions of equivalent prominence and frequency, subject to Section 7.6(d) below, and subject to applicable law. (d) During the term of the Agreement, Wyeth-Ayerst shall own all right, title and interest in and to the Product Promotional Materials, including all copyrights appurtenant thereto. Effective only upon the termination or expiration of this Agreement, Wyeth-Ayerst hereby assigns all of its right, title and interest in and to such Product Promotional Materials, including all copyrights appurtenant thereto, to Aviron, but excluding any Trademarks owned by Wyeth-Ayerst that are used by Wyeth-Ayerst prior to or during the term of this Agreement in connection with products other than the Product, which shall remain the property of Wyeth-Ayerst. Wyeth-Ayerst shall promptly execute all instruments necessary or useful to effect such assignment. Notwithstanding the foregoing, Wyeth-Ayerst shall have no obligation to assign any Product Promotional Materials to Aviron in the event that Wyeth-Ayerst terminates this Agreement pursuant to Section 18.2 or 18.5. 7.7 PRODUCT PRICING. The International Commercialization Plan will include the general strategy and operating guidelines for the pricing and discounting of the Product. As appropriate, [***] and be [***] with respect to the [***] provided that [***] the pricing of the Product in the Territory. 7.8 VOLUNTARY PRODUCT RECALLS. If either Party believes that a voluntary recall or market withdrawal of the Product is necessary, such Party shall notify the other Party within forty-eight (48) hours of its determination and both Parties shall cooperate to allow such recall or market withdrawal to occur under the direction of Wyeth-Ayerst (as set forth in Section 7.3). In the event of a dispute about whether to recall a Product, Wyeth-Ayerst shall, after consultation with Aviron, have the final authority with respect to such matters, which authority shall be exercised reasonably and in good faith and subject to Section 7.3. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 22. 24 7.9 REGULATORY OBLIGATIONS. Wyeth-Ayerst shall be solely responsible for all activities in connection with the Regulatory Approvals for the Product in the Territory, including without limitation communicating and preparing and filing all reports (including without limitation adverse drug experience reports, including pharmacovigilance) with all applicable Agencies. Aviron agrees to cooperate with Wyeth-Ayerst as requested in preparing and filing all such reports. Each Party agrees to comply with the provisions of Section 16.3 hereof. Wyeth-Ayerst shall pay all fees associated with obtaining and maintaining the Regulatory Approvals including, without limitation, any establishment license fees of Wyeth-Ayerst, Aviron or Third Parties which must be paid with respect to facilities used in the manufacture of Finished Product by or on behalf of Wyeth-Ayerst. 7.10 PROMOTION RESPONSIBILITIES. During the term of the Agreement, Wyeth-Ayerst shall, as part of its duties hereunder, have responsibility for performing the following activities or for ensuring that its Affiliates or permitted Third Party sublicensees or distributors perform such activities: (a) Wyeth-Ayerst shall supervise, train and maintain such competent and qualified sales representatives as may be required to Promote and detail the Product as provided in the International Commercialization Plan, such training to include a reasonable proficiency examination for all sales representatives who will be engaged in detailing. (b) On or before the forty-fifth (45th) day of each calendar quarter, commencing with the second calendar quarter after the Launch Date, Wyeth-Ayerst shall furnish to Aviron a summary of information coming to Wyeth-Ayerst's attention in the Territory concerning introductions and promotional activities of products competitive with the Product, and of any serious complaints regarding the Product (other than those described in Section 16.2), it being understood that there is no obligation on Wyeth-Ayerst to solicit such information. (c) In connection with the Promotion and detailing of the Product hereunder, Wyeth-Ayerst shall each make no statement, representation or warranty, oral or written, to Third Parties, concerning the Product for any approved indication for the Product inconsistent with, or contrary to, the Product Labeling or Product Promotional Materials. (d) Wyeth-Ayerst shall give prompt written notice to Aviron of the date on which its sales representatives commence Promoting the Product in each nation or territory in the Territory. 7.11 COMPLIANCE WITH APPLICABLE LAW. Wyeth-Ayerst, and its Affiliates and permitted sublicensees, shall conduct all promotion, commercialization, marketing, sales and recalls of the Product hereunder in compliance with all applicable laws, rules and regulations. 7.12 FAILURE TO COMMERCIALIZE. If, within [***] of the Launch Date, or, if there has not been a commercial sale of the Product in the Territory within [***] of the Effective Date, then within [***] from the Effective Date, Wyeth-Ayerst, its permitted sublicensees, or permitted distributors (a) have not made a commercial sale of the Product in a particular Region (except due to circumstances beyond Wyeth-Ayerst's control), (b) have not obtained Regulatory - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 23. 25 Approval as to such Region (except due to circumstances beyond Wyeth-Ayerst's control), or (c) have not otherwise used Commercially Reasonable Efforts to promote and commercialize the Product in such Region as a whole, then [***]. Furthermore, as to such Region, the [***] prescribed in clauses (i), (ii) and (iii) of Subsection [***] and the [***] shall be in effect. ARTICLE 8 MANUFACTURE AND SUPPLY 8.1 SUPPLY OF [***] PRODUCT. During the term of the Agreement, [***] shall have the right to manufacture and supply the [***] Product [***], as set forth in the Supply Agreement. [***] shall manufacture and supply, or have manufactured, or supplied, [***] Finished Product [***] Product [***] all as set forth in the Supply Agreement. ARTICLE 9 TRADEMARK MATTERS 9.1 LICENSES. Subject to the terms and conditions of this Agreement, Aviron hereby grants to Wyeth-Ayerst a non-assignable, sublicenseable, exclusive, royalty-free right and license to use Aviron's Trademarks, as applicable, in the Territory solely in connection with the Product Promotional Materials and Product Labeling during the term of the Agreement. 9.2 VALIDITY OF TRADEMARKS. Wyeth-Ayerst acknowledges the validity of Aviron's right, title and interest in and to its Trademarks and shall not have, assert or acquire any right, title or interest in or to any of Aviron's Trademarks, except as otherwise explicitly provided in this Agreement. 9.3 FORM OF USE. Wyeth-Ayerst shall use those Trademarks owned by Aviron only in the forms approved in writing by Aviron, and shall include where appropriate the designations necessary or useful to maintain trademark rights in a nation or territory (e.g.(R) or (TM)) and a statement that the Trademark is the trademark of Aviron, and other proprietary notices as are reasonably required by Aviron from time to time. Wyeth-Ayerst shall permit one (1) or more authorized representatives of Aviron, on reasonable prior notice, at reasonable intervals, during normal business hours and subject to normal safety and security procedures, to inspect and examine from time to time, Product Promotional Materials and Product Labeling and the records of Wyeth-Ayerst that are related to use of Aviron's Trademarks, or to use of Product Promotional Materials or Product Labeling. Any sublicenses or distribution agreements entered into by Wyeth-Ayerst for commercialization of the Product in the Field in the Territory as permitted hereunder shall contain provisions allowing Aviron to conduct such inspections and examinations as to the sublicensee or distributor. 9.4 NO CONTEST. Wyeth-Ayerst agrees that it will not contest, oppose or challenge Aviron's ownership of the Primary Brand Trademark. In particular, Wyeth-Ayerst will not register or attempt to register, or maintain registration of, the Primary Brand Trademark in any jurisdiction nor oppose Aviron's registration of the Primary Brand Trademark, alone or with - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 24. 26 other words or designs, in any jurisdiction. If Wyeth-Ayerst uses, registers, applies to register, or maintains registration of, a licensed mark that violates its obligations under this Section 9.4, Wyeth-Ayerst agrees, at Aviron's request, to abandon the use of any such mark and any application or registration for such mark. 9.5 CONFUSINGLY SIMILAR AND/OR COMBINATION MARKS. Wyeth-Ayerst agrees not to adopt or use any other trademarks, words, symbols, letters, designs or marks (a) in combination with Aviron's Trademarks in a manner which would create combination marks, or (b) that would be confusingly similar to the Primary Brand Trademark, provided that Wyeth-Ayerst may use the Primary Brand Trademark with other marks or names if such other marks or names are sufficiently distinctive to avoid the consumer impression that such other marks or their owners are associated with Aviron. 9.6 REGISTRATION COSTS. Aviron shall be responsible for the payment of any and all costs relating to registration of the Primary Brand Trademark in the Territory. Wyeth-Ayerst shall be responsible for the payment of any and all costs relating to the registration of all other Trademarks in the Territory. 9.7 INFRINGEMENT. (a) As to the Primary Brand Trademark only, Aviron shall have the initial right to institute legal proceedings against such Third Party, which proceedings shall be at [***] Wyeth-Ayerst shall reasonably coordinate with Aviron in the prosecution of such proceedings. Should Aviron elect not to institute proceedings against such Third Party within [***] following a notice thereof in response to the infringement or threatened infringement of the Primary Brand Trademark, Wyeth-Ayerst shall then be entitled to institute proceedings in its own name [***]. Aviron shall reasonably cooperate with Wyeth-Ayerst in the prosecution of such proceedings. (b) The Parties shall cooperate in good faith with respect to all Trademark enforcement actions hereunder, and each Party shall notify the other Party promptly of all substantive developments with respect to such Trademark enforcement actions, including, but not limited to, all material filings, court papers and other related documents. Each Party shall consider the timely given, reasonable comments and advice of the other Party with respect to the strategy employed and submissions made relative to any Trademark enforcement actions. [***] any damages or other monetary relief obtained in connection therewith. 9.8 TRADE DRESS, LOGOS, AND THE LIKE. (a) Wyeth-Ayerst shall be responsible for developing, at its own expense, all Trademarks, trade dress, logos, slogans, designs and copyrights used on and in connection with the Product in the Territory that are not developed for use in or used in the United States of America. Wyeth-Ayerst shall be responsible, at its own expense, for obtaining registrations and permits for all Trademarks developed pursuant to the foregoing. The ICC shall approve all Trademarks, trade dress, logos, slogans, designs and copyrights used on or in connection with the Product in the Territory. During the term of this Agreement, Wyeth-Ayerst shall be the sole owner of all Trademarks, trade dress, logos, slogans, designs and copyrights specifically - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 25. 27 developed for or used on or in connection with the Product in the Territory but not in the United States of America. (b) Upon the termination or expiration of this Agreement, all Trademarks, trade dress, logos, slogans, designs and copyrights developed for or used on or in connection with the Product in the Territory but not in the United States of America, except those Trademarks used by Wyeth-Ayerst, prior to or during the term of the Agreement, in connection with products other than the Product, shall be deemed assigned by Wyeth-Ayerst to Aviron, and Wyeth-Ayerst shall promptly execute all instruments useful or necessary to effect such assignment. [***] in the event that [***] pursuant to Section [***]. ARTICLE 10 MICHIGAN AGREEMENT 10.1 SUBLICENSE LIMITATION. Wyeth-Ayerst acknowledges the existence of Aviron's license under the Michigan Agreement, and acknowledges and agrees that Aviron may only grant to Wyeth-Ayerst such rights as Aviron is permitted to grant pursuant to the Michigan Agreement. 10.2 WYETH-AYERST OBLIGATIONS. Wyeth-Ayerst accepts that the following provisions of the Michigan Agreement are hereby incorporated by reference and shall be binding upon Wyeth-Ayerst as a "sublicensee" under the Michigan Agreement (as defined in Section 2.6 of the Michigan Agreement), except as otherwise agreed in writing by Michigan: (a) Section 3.5 (U.S. government "march-in" rights); (b) Article [***] (obligations and restrictions relating to [***] (as defined in Section [***] of the Michigan Agreement), products and their ownership and use); (c) Section 6.2 (duties of use of a nomenclature system); (d) Section 6.3 (duties to keep records and rights of inspection); (e) Section 8.5 (preference for U.S. manufacturers); (f) Article 9 (obligations regarding the periodic reporting, disclosure and grant of rights to certain intellectual property); (g) Section 13.4 (duties to avoid improper representations or responsibilities); (h) Article 14 (obligations to defend, hold harmless and indemnify Michigan); (i) Section 14.3 (obligations to retain insurance), as further specified in Section 10.7 of this Agreement; (j) Section 15.2 (survival of certain obligations); - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED 26. 28 (k) Section 15.5 (obligations relating to the return and non-use of [***] and certain intellectual property and prohibition on the manufacture of products after termination of the Michigan Agreement); (l) Section 15.6 (duties to provide rights to Michigan to certain intellectual property upon termination of the Michigan Agreement); (m) Articles 16 and 17 (duties relating to confidential information and to pre-publication disclosure); (n) Article 20 (duties to control export); and (o) Article 22 (duty to restrict use of Michigan's name). 10.3 USE OF AVIRON PRODUCT MATERIALS. Wyeth-Ayerst acknowledges and agrees that the Aviron Product Materials are the proprietary and confidential materials of Aviron and Michigan and that access to the Aviron Product Materials shall be limited to those of its employees reasonably requiring such access for the purposes set forth in this Agreement, who further will be required, in writing, to treat the Aviron Product Materials as confidential. In addition, Wyeth-Ayerst agrees that in the event that [***] other than the Aviron Product Materials come into its possession, it shall promptly notify Aviron in writing; provided, however, that although it is not the Parties' intent as of the Signing Date that any [***] in the event that [***] Wyeth-Ayerst agrees, [***] and shall not [***], upon expiration or termination of this Agreement, or as otherwise [***] pursuant to Section [***]. 10.4 WARRANTY DISCLAIMER. Wyeth-Ayerst acknowledges Michigan's warranty disclaimer and limitation of liability contained in the Michigan Agreement, and will make no statements, representations or warranties inconsistent with such warranty disclaimer or limitation of liability. 10.5 SUBLICENSE TERMINATION. The sublicense granted to Wyeth-Ayerst by Aviron under the Michigan Agreement pursuant to Section 5.1(b) (the "Michigan Sublicense") shall terminate upon the earlier of (i) termination of the Michigan Agreement, unless [***] in writing by [***] or (ii) termination or expiration of the this Agreement. In the event that the Michigan Sublicense is [***] is required to [***] and the [***] under this Agreement, [***] shall not [***] under this Agreement, [***] prior to such [***] the Michigan Sublicense. 10.6 INSURANCE. Prior to any distribution of Aviron Product by Wyeth-Ayerst in the Territory, Wyeth-Ayerst shall obtain and maintain in effect a product liability insurance policy providing reasonable coverage for all claims with respect to such distribution, or, to the extent permitted by Michigan, a program of self-insurance. Wyeth-Ayerst shall furnish Aviron with a certificate of currency of such insurance upon request, or, if Wyeth-Ayerst is permitted to self-insure, Wyeth-Ayerst shall furnish Aviron with appropriate documentation of such self-insurance, such documentation to be as mutually agreed upon by the Parties in writing. - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED 27. 29 10.7 COOPERATION. The Parties agree to cooperate reasonably with each other in assisting each Party to comply with its obligations under the Michigan Agreement as it pertains to such Party's performance of its rights and obligations under this Agreement. 10.8 SUBLICENSES. If Wyeth-Ayerst grants any sublicenses to the extent permitted hereunder, this Article 10 shall be incorporated mutatis mutandis into such sublicense agreement. ARTICLE 11 PAYMENTS 11.1 LICENSE FEE. In consideration for the rights granted under this Agreement, Wyeth-Ayerst shall pay to Aviron a license fee of ten million dollars ($10,000,000), which shall be due and payable upon the Effective Date. Such payment shall be noncreditable and nonrefundable, and shall be borne solely by Wyeth-Ayerst. 11.2 OTHER PAYMENTS. (a) Wyeth-Ayerst shall pay Aviron the following payments within fifteen (15) business days after either Aviron provides written notice, with supporting documentation, to Wyeth-Ayerst of the achievement of the relevant development and/or commercialization event for the Product in the Territory (each, an "Event") or Wyeth-Ayerst receives notice of such Event from an Agency:
EVENT PAYMENT ------------------------------------------------------------- ------------ FDA's acceptance for filing of PLA for the Product, $5,500,000 $5,500,000 pursuant to Section 351 of the Public Service Act and Part 601 of Title 21, Code of Federal Regulations FDA approval of Product for use in the Field for the first $5,000,000 Target Population Filing of MAA with EMEA [***] EMEA approval of Product for use in the Field for the first [***] Target Population EMEA approval of Product for use in the Field in second [***] Target Population First receipt of Regulatory Approval of the Product for use [***] in the Field in the Territory in a Region other than Europe
- -------- [***] = CONFIDENTIAL TREATMENT REQUESTED 28. 30
EVENT PAYMENT ------------------------------------------------------------- ------------ Second receipt of Regulatory Approval of the Product for [***] use in the Field in the Territory in a Region other than Europe and other than the Region for which payment is made under (vi) Third receipt of Regulatory Approval of the Product for use [***] in the Field in the Territory in a Region other than Europe and other than the Regions for which payment is made under (vi) and (vii)
All payments made pursuant to this Section 11.2 shall be noncreditable and nonrefundable, and shall be borne solely by Wyeth-Ayerst. The payment in (ii) above may be due contemporaneously with the payment for (iv) or (vi). 11.3 WYETH-AYERST FINANCING. (a) PARTICIPATION IN AVIRON OFFERINGS. Subject to Section 11.3(d), in the event that, following the Effective Date of this Agreement and prior to receipt of Regulatory Approval from the FDA of the Product for use in the Field, Aviron consummates one or more sales of common stock or other security convertible into common stock to Third Parties, including pursuant to subsection (b) below, (other than a sale of Aviron common stock or other security in connection with or pursuant to any licensing or other collaboration), Wyeth-Ayerst agrees to purchase, upon Aviron's request, simultaneously with the closing thereof and at the same price and terms, an amount of up to [***] of the total amount issued (inclusive of Wyeth-Ayerst's purchase). Wyeth-Ayerst's obligation shall be subject to a maximum aggregate limit on Wyeth-Ayerst's purchase of [***] regardless of the number of such offerings made by Aviron or the cumulative amount of such offerings made. In addition, Wyeth-Ayerst shall not be obligated to make purchases under this Section 11.3(a) to the extent that doing so would cause Wyeth-Ayerst and its Affiliates to own, in the aggregate, securities representing or convertible into or exchangeable for more than [***] of Aviron's outstanding voting common stock. Purchases by Wyeth-Ayerst under this Section 11.3(a) shall be made as part of the same offering as the sale by Aviron to Third Parties; provided, however, that if the sale to Third Parties is pursuant to a registered public offering, the sale to Wyeth-Ayerst shall be consummated as a private transaction which shall close simultaneously with the closing of such public offering. In the event the proviso in the preceding sentence applies such that securities convertible into common stock are issued to Wyeth-Ayerst in a private transaction simultaneous with a public offering, then: (i) notwithstanding the first sentence of this Section 11.3(a), the price per share to be paid by Wyeth-Ayerst shall be equal to the price per share received by Aviron in the public offering net of any underwriting discounts and commissions; and (ii) Aviron agrees that it will file, within [***] days of the closing of such sale, a registration statement for the non-underwritten resale of Aviron common stock held (or issuable upon conversion of securities held) by Wyeth-Ayerst. Aviron agrees that it will use commercially reasonable efforts to cause such registration - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED 29. 31 statement to become effective as soon as practicable and will keep such registration statement effective until the [***] of the closing of such sale. (b) INCENTIVES TO CONVERTIBLE DEBT HOLDERS. If a transfer contemplated by subsection (a) above involves an offer by Aviron to its then existing convertible debt holders to reduce the price of their conversion option as an incentive for such convertible debt holders to purchase additional equity in Aviron, and such debt holders participate in such offer and purchase additional equity of Aviron, then Wyeth-Ayerst shall not be obligated to purchase more than [***] of such class or series of such additional equity in Aviron (inclusive of Wyeth-Ayerst's purchase) at the same price and terms, up to a limit on Wyeth-Ayerst's purchase of [***]; provided that, in connection with this participation by Wyeth-Ayerst, [***] provides to [***] reasonable judgment) to the [***] (c) [***] CREDIT FACILITY. The Credit Facility provided to Aviron by Wyeth-Ayerst pursuant to the Credit Agreement (as defined in Section 13.1 of the U.S. Agreement) shall be [***] Wyeth-Ayerst under either Section 11.3(a) or Section 11.3(b) above. (d) HSR FILINGS. If required by applicable law, as concluded in good faith by Wyeth-Ayerst, prior to the consummation of any purchases of securities pursuant to Section 11.3(a) or (b) above, the Parties will, at their own expense (other than any required filing fees which shall be paid by Wyeth-Ayerst), prepare and make appropriate filings under Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (16 C.F.R. Sections 801.1 et Seq.) (the "Act"). Each Party shall use its reasonable good faith efforts (not including divestiture or out-license of any assets) in the antitrust clearance process and the resolution of all issues or comments raised, and agrees to furnish to the Federal Trade Commission and the Antitrust Division of the Department of Justice any additional information reasonably requested by them in connection with such filings and the transaction contemplated by this Agreement; provided, however, that such efforts shall not require any divestiture by either Party of any products or other assets. In addition, each Party agrees to give the other Party prompt notice of any communication to or from the Federal Trade Commission or the Department of Justice regarding this transaction. Each Party will consult and cooperate with the other Party and will consider in good faith the view of the other party in connection with any analysis, appearance, presentation, memorandum, brief, opinion or proposal made or submitted in connection with any action, request, or investigation under or relating to the Act or any other federal antitrust, competition or fair trade law. (e) STANDSTILL. (i) The Parties agree that [***] shall be extended and shall remain in full effect until receipt of Regulatory Approval from the FDA of the Product for use in the Field. (ii) Notwithstanding anything in this Agreement to the contrary, AHPC agrees that it will not, nor will it permit any of its Affiliates to, purchase or otherwise acquire, directly or indirectly from any Third Party, any equity securities of Aviron (or rights or options to purchase such securities) which in the aggregate, together with securities then held by - -------- [***] = CONFIDENTIAL TREATMENT REQUESTED 30. 32 AHPC and its Affiliates, represent or would if exercised or converted represent more than [***] of the outstanding voting common stock of Aviron. (1) The preceding sentence shall not prevent AHPC from acquiring another entity (even if at the time of acquisition, such entity owns securities of Aviron), so long as the fair market value of the Aviron securities owned by such entity represent less than [***] of the assets of such entity as of the date of the most recent available financial statements of the entity at the time of such acquisition, and AHPC agrees that within [***] of such acquisition, it will reduce the aggregate holdings of Aviron equity securities by such entity and AHPC and its other Affiliates to the extent necessary to cause such aggregate holdings to be less than [***] of the outstanding voting common stock of Aviron. (2) This Section 11.3(e) will terminate and be of no further force or effect on the later of the date of expiration or termination of this Agreement or the date of expiration or termination of the U.S. Agreement; provided, however, that this Section 11.3(e) will automatically terminate earlier upon the occurrence of any of the following events: (A) the filing with the SEC of a Schedule 13D by any person or entity indicating that a person or entity has acquired at least five percent (5%) of Aviron's voting equity securities which Schedule 13D expresses the filing party's intention to seek majority control of Aviron, whether by tender offer, merger, proxy contest or otherwise; (B) the commencement of a tender offer by any person or entity, other than AHPC or its Affiliates, to acquire fifty percent (50%) or more of Aviron's voting equity securities; (C) the solicitation of proxies by any party other than Aviron or AHPC or its Affiliates which is intended to effect a change in the majority of members of Aviron's Board of Directors; or (D) public announcement of a definitive acquisition agreement pursuant to which a Third Party would acquire more than fifty percent (50%) of Aviron's voting equity securities. ARTICLE 12 ROYALTIES 12.1 ROYALTY RATES DURING TERM OF THE AGREEMENT. Wyeth-Ayerst shall pay to Aviron a royalty of [***] of Annual Net Sales of the Product in the Territory for sales made during the term of this Agreement. (a) DURATION OF ROYALTY PAYMENTS. All royalties shall accrue from the Launch Date until the termination or expiration of the Agreement. (b) THIRD PARTY ROYALTIES. (i) [***] any royalty owed to any Third Party based on Net Sales of Product, as "Product" is defined as of the Effective Date (the "Base Product") in the Territory during the term of the Agreement, subject to subsection (ii) below. (ii) If (1) [***] under Section [***], or (2) the IDC determines that a change should be made to the Base Product [***] in order to improve its formulation, performance, delivery or any other aspect of such Base Product (an "Improvement"), and in - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 31. 33 either case a royalty is owed thereafter to any Third Party based on Net Sales of the Product in the Territory which would not be owed on Net Sales of the Base Product before [***] or such Improvement to the Base Product, as applicable, then [***] of such Third Party royalty [***] within thirty (30) days of invoice. 12.2 ROYALTY REPORTS AND PAYMENTS. Within thirty (30) days after the first day of January, April, July and October of each year during the term of the Agreement, Wyeth-Ayerst shall deliver to Aviron a true and accurate report of Net Sales of Product sold by Wyeth-Ayerst, it Affiliates, and sublicensees in the Territory during the preceding three (3) month period in the Territory, on a country by country basis, accompanied by all royalties due under Section 12.1 for the period covered by such report. Such report shall also include the information necessary for Aviron to calculate "Net Sales" for each country. 12.3 PAYMENTS. Any payments due under this Agreement shall be made in U.S. dollars by wire transfer to a bank account designated by Aviron. 12.4 EXCHANGE RATE. The rate of exchange to be used in computing Net Sales and the amount of currency equivalent in United States dollars due to Aviron shall be made at the rate of exchange, calculated as the average of the sales and the purchase exchange rate, quoted for the close of business on the last day of business of the applicable royalty period in The Wall Street Journal. 12.5 WITHHOLDING. All taxes, assessments and fees of any nature levied or incurred on account of any payments accruing under this Agreement, by national, state or local governments, will be assumed and paid by Wyeth-Ayerst, except taxes levied thereon as income taxes to Aviron, and if such taxes are required to be withheld by Wyeth-Ayerst by the applicable national, state or local governmental entity, then Wyeth-Ayerst shall deduct such income taxes from such payments due to Aviron and shall pay such taxes on the account of Aviron, and shall secure and provide to Aviron a receipt of such payment, together with copies of all pertinent communications from or with such governmental entities with respect thereto. Wyeth-Ayerst agrees to reasonably cooperate with Aviron in any effort by Aviron in claiming any exemption from such deductions or withholdings under any double taxation or similar agreement or treaty from time to time in force and in minimizing the amount required to be so withheld or deducted, such cooperation to consist of providing receipts of payment of such withheld tax or other documents reasonably available to Wyeth-Ayerst. ARTICLE 13 CONFIDENTIALITY 13.1 CONFIDENTIAL INFORMATION. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the Parties agree that the receiving Party shall keep confidential, and shall not publish or otherwise disclose or use for any purpose other than as provided for in this Agreement, any Information and other information and materials (including without limitation the Aviron Product Materials) furnished to it by the other Party pursuant to this Agreement or any Information developed during the course of the collaboration hereunder, - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 32. 34 or any provisions of this Agreement that are the subject of an effective order of the Securities Exchange Commission (the "SEC") granting confidential treatment pursuant to the Securities Act of 1934, as amended (collectively, "Confidential Information"), except to the extent that it can be established by the receiving Party that such Confidential Information: (a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure to the receiving Party, and other than through any act or omission of the receiving Party in breach of this Agreement; (d) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information to others; or (e) was independently developed by employees of the receiving Party who had no knowledge of or access to the Confidential Information of the other Party. For Confidential Information other than the Aviron Product Materials and information relating to the Aviron Product Materials or the manufacture of the Product, the non-disclosure obligations under this Section 13.1 shall terminate upon the later of: (i) [***] years following the expiration or termination of this Agreement, or (ii) [***] years from the Effective Date. 13.2 AUTHORIZED DISCLOSURE. (a) Each Party may disclose Confidential Information hereunder to the extent such disclosure is reasonably necessary in prosecuting or defending litigation, complying with applicable governmental regulations, provided, however, that if a Party is required by law or regulation to make any such disclosures of the other Party's Confidential Information it will, except where impracticable for necessary disclosures (for example in the event of medical emergency) give reasonable advance notice to the other Party of such disclosure requirement (e.g., filings with the SEC and stock markets) and, will use its reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed, unless in the judgement of such disclosing Party's legal counsel such Confidential Information is legally required to be fully disclosed. (b) In addition, and with prior notice to the other Party of each Third Party with whom a confidential disclosure agreement is being entered into, each Party shall be entitled to disclose, under a binder of confidentiality containing provisions at least as protective as those of this Article 13, Confidential Information to any Third Party for the purpose of carrying out the purposes of this Agreement. Nothing in this Article 13 shall restrict any Party from using for any purpose in accordance with this Agreement any Confidential Information independently developed by it during the course of the Collaboration hereunder, or from using Confidential - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 33. 35 Information that is specifically derived from pre-clinical or clinical trials to carry out marketing, sales or professional services support functions as is customary in the pharmaceutical industry. 13.3 PUBLICITY. The Parties agree that the public announcement of the execution of this Agreement shall be substantially in the form of a press release to be mutually agreed to by the Parties. Any other publication, news release or other public announcement relating to this Agreement or to the performance hereunder, shall first be reviewed and approved by both Parties, which approval shall not be unreasonably withheld or delayed; provided, however, that any disclosure which is required by law as advised by the disclosing Party's counsel may be made without the prior consent of the other Party, although the other Party shall be given prompt notice of any such legally required disclosure and to the extent practicable shall provide the other Party an opportunity to comment on the proposed disclosure. In this regard, the Parties recognize that Aviron is a publicly-held biotechnology company, that the Product is Aviron's first potential product and that Aviron will need to provide information regarding the status of the Product to the investment community from time to time, subject to the procedures set forth in the preceding sentence. The Parties acknowledge that Aviron will be obligated to file a copy of this Agreement with the U.S. Securities and Exchange Commission. Aviron will submit a copy of its proposed filing to Wyeth-Ayerst for its input and comment and will redact, if permissible by law or regulation, or will otherwise make reasonable efforts to obtain confidential treatment of, Wyeth-Ayerst's Confidential Information contained therein. ARTICLE 14 OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS 14.1 OWNERSHIP. (a) PARTY'S INTELLECTUAL PROPERTY. Aviron shall solely own all right, title and interest in the Aviron Know-How and Aviron Patents. Wyeth-Ayerst shall solely own all right, title and interest in the Wyeth-Ayerst Know-How and the Wyeth-Ayerst Patents. (b) INVENTIONS AND INFORMATION ARISING DURING AGREEMENT. Aviron shall own all Inventions and Information discovered, generated, conceived or reduced to practice solely by one or more employees or consultants of Aviron during the term of and pursuant to the Agreement (the "Aviron Results"); and Wyeth-Ayerst shall own all Inventions discovered, generated, conceived, or reduced to practice solely by one or more employees or consultants of Wyeth-Ayerst during the term of and pursuant to the Agreement (the "Wyeth-Ayerst Results"). All Joint Technology shall be owned jointly by Aviron and Wyeth-Ayerst. Except as otherwise expressly provided in the Agreement, Aviron shall own all intellectual property, including Patents, covering the Aviron Results; Wyeth-Ayerst shall own all intellectual property, including Patents, covering the Wyeth-Ayerst Results; and the Parties shall jointly own all intellectual property covering the Joint Technology. All Joint Technology shall be subject to the licenses set forth in Section 5.1 and 5.2 during the term of this Agreement. (c) CONSULTANTS. Each Party shall take reasonable steps to ensure that its consultants are obligated to assign their rights in any Inventions or Information relating to the Product to the appropriate Party, or jointly to the Parties in accordance with subsection (b) above. 34. 36 14.2 PATENT PROSECUTION. (a) PARTY'S PATENTS. Aviron shall have the sole right, but not the obligation, to file applications for, prosecute and maintain the Aviron Patents. Wyeth-Ayerst shall have the sole right, but not the obligation, to file applications for, prosecute and maintain the Wyeth-Ayerst Patents. Neither Party shall be obligated to disclose to the other Party any prosecution information relating to the Aviron Patents, in the case of Aviron, and the Wyeth-Ayerst Patents in the case of Wyeth-Ayerst. (b) JOINT PATENTS. Aviron shall have the right to file applications for, and to determine which countries in which to file, prosecute and maintain any Joint Patents, worldwide, in the name of Aviron and Wyeth-Ayerst. Aviron will provide Wyeth-Ayerst with the opportunity to review and comment upon any material document pertaining to a Joint Patent that is to be filed with the patent office(s) in each filing jurisdiction reasonably in advance of the filing date of such document. The Parties shall equally share all expenses related to the filing, prosecution and maintenance of the Joint Patents, and Wyeth-Ayerst shall pay all invoices for such amounts within thirty (30) days of receipt of such invoice. At any time, Wyeth-Ayerst may give Aviron written notice that it will no longer share expenses related to any particular Joint Patents, whereupon Wyeth-Ayerst shall promptly assign its ownership interest in such Joint Patent to Aviron and Aviron's obligations under this Section 14.2(b) shall terminate. In the event of a disagreement between Aviron and Wyeth-Ayerst with respect to whether or in which countries to file a Joint Patent application, or the manner in which such application is prosecuted, or whether to abandon such application, Aviron shall consider in good faith all comments and issues raised by Wyeth-Ayerst, but shall have the final authority to make any such decisions. In the event Aviron determines not to file a specific Joint Patent application in a given jurisdiction, or to abandon such an application or any Joint Patent, it will notify Wyeth-Ayerst in writing, whereupon Wyeth-Ayerst shall have the right to pursue such application or maintain such Joint Patent, at its own expense, and Aviron shall promptly assign its ownership interest therein to Wyeth-Ayerst. (c) [***] Wyeth-Ayerst agrees that, within sixty (60) days following the Effective Date, it shall [***] provided that such [***] shall only be [***] with respect to [***]. Aviron reserves all rights to [***], and nothing in this subsection (c) shall [***]. Other than with respect to [***] Wyeth-Ayerst reserves all rights to [***] and nothing in this subsection (c) shall [***]. 14.3 ENFORCEMENT RIGHTS. (a) NOTIFICATION OF INFRINGEMENT. If either Party learns of any misappropriation of any Aviron Product Materials or Information (the "Product Rights"), or any infringement or threatened infringement by a Third Party of the Aviron Patents or Joint Patents, in each case, in the Field and in the Territory, such Party shall promptly notify the other Party and shall provide such other Party with all available evidence of such misappropriation or infringement. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 35. 37 (b) ENFORCEMENT OF PATENTS AND PRODUCT RIGHTS IN THE TERRITORY. Aviron shall have the right, but not the obligation, to institute, prosecute and control at its own expense any action or proceeding with respect to infringement of any Aviron Patents or Joint Patents or any misappropriation of the Product Rights in the Field and in the Territory, by counsel of its own choice. Wyeth-Ayerst shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. Subject to the rights of Michigan, if Aviron fails to bring an action or proceeding or otherwise take appropriate action in Aviron's discretion to abate such infringement or misappropriation in the Field and in the Territory within a period of ninety (90) days of notice by Wyeth-Ayerst to Aviron requesting such action, Wyeth-Ayerst will have the right, but not the obligation, to bring and control any such infringement or misappropriation action or proceeding relating to the Aviron Patents or the Products Rights by counsel of its own choice. Aviron will cooperate with Wyeth-Ayerst in any such action or proceeding brought by Wyeth-Ayerst against a Third Party, and shall have the right to consult with Wyeth-Ayerst and to participate in and be represented by independent counsel in such litigation at its own expense. If one Party brings any such action or proceeding under this Section 14.3(b), the other Party agrees to be joined as a party plaintiff to the extent necessary to prosecute the action or proceeding and to give the first Party reasonable assistance and authority to file and prosecute the suit. Any amounts recovered by either Party pursuant to this subsection (b) shall first be used to reimburse the Parties for any legal expenses incurred pursuant to such enforcement, and any remaining amounts shall be paid [***] to the enforcing Party and [***] to the non-enforcing Party. (c) SETTLEMENT WITH A THIRD PARTY. The Party that controls the prosecution of a given action under this Section 14.3 shall also have the right to control settlement of such action; provided, however, that no settlement shall be entered into with respect to a Joint Patent without the written consent of the other Party, such consent not to be unreasonably withheld or delayed. 14.4 DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. (a) DEFENSE. (i) If a Third Party asserts that a patent, trade secret, or other intangible right owned by it is infringed or misappropriated by the manufacture, use, sale, or offer for sale of the Product in the Territory, the JCC shall establish a plan for a common defense and select the Party responsible for managing such common defense plan, subject to subsection (ii) below. The costs of any such defense to such action incurred by one or both of the Parties at the direction of the JCC (including the costs of any judgment, award, decree or settlement) will be [***], subject to the provisions of Section [***]. (ii) If such Third Party asserts that a patent, trade secret, or other intangible right owned by it is infringed or misappropriated by the manufacture, use, sale, or offer for sale of the Base Product (as defined in Section 12.1(b)) in the Territory, then Aviron shall have the right to control the defense to such action. Wyeth-Ayerst shall have the right to participate in such defense with its own counsel at its own cost and expense. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 36. 38 (b) SETTLEMENT WITH A THIRD PARTY. The entity that controls the defense of a given claim under Subsection (a) with respect to the Product shall also have the right to control settlement of such claim; provided, however, that no settlement shall be entered into without the written consent of the other Party. If there is no agreement between the Parties as to any proposed settlement, then the dispute shall be decided by the ICC, and, if the ICC is unable to decide the dispute, the matter will be resolved pursuant to Article 19. 14.5 ASSIGNMENT OF JOINT PATENTS. Neither Party may assign its rights under any Joint Patent to a Third Party except with the prior written consent of the other Party; provided, however, that either Party may assign such rights without consent to an Affiliate or other permitted assignee under this Agreement in connection with a merger, acquisition or similar reorganization or the sale of all or substantially all of its assets, or in the case of Wyeth-Ayerst, the sale or transfer of substantially the entire vaccine business of Wyeth-Ayerst, as provided for in Section 20.1. ARTICLE 15 REPRESENTATIONS AND WARRANTIES 15.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each of the Parties hereby represents and warrants to the other Party as follows: (a) such Party (i) is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated, (ii) has the corporate power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted, and (iii) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material adverse effect on the properties, business, financial or other condition of such Party and would not materially adversely affect such Party's ability to perform its obligations under this Agreement; (b) this Agreement is a legal and valid obligation binding upon such Party and enforceable in accordance with its terms, and the execution, delivery and performance of the Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it is bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. Each Party expressly represents and warrants that it has the full power and authority to enter into this Agreement and to carry out the obligations contemplated hereby; (c) such Party has not, and during the term of the Agreement will not, grant any right to any Third Party relating to its respective Patents and Know-How in the Field in the Territory which would conflict with the rights granted to the other Party hereunder; (d) it has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement. Each Party expressly represents and warrants that it owns (in whole or in part) or Controls all Patents and that are the subject of the licenses granted to the other Party herein; and 37. 39 (e) that with respect to all regulatory filings to obtain Regulatory Approvals, the data and information in each Party's submissions shall, to the best of each Party's knowledge, be free from fraud or material falsity, that the Regulatory Approvals will not be obtained either through bribery or the payment of illegal gratuities, that the data and information in each Party's submissions are and shall be accurate and reliable for purposes of supporting approval of the submissions, and that the Regulatory Approvals shall be obtained without illegal or unethical behavior of any kind; 15.2 AVIRON REPRESENTATIONS AND WARRANTIES. Aviron represents and warrants to Wyeth-Ayerst as follows: (a) that to the best of its knowledge as of the Signing Date, the manufacture, use, importation, offer for sale or sale of the Product [***] as contemplated hereunder does not infringe any Third Party intellectual property right in the Territory; (b) that to the best of its knowledge as of the Signing Date, all and only the true inventors of the subject matter claimed are named in the Aviron Patents and all such inventors have irrevocably assigned all their rights and interests therein to Aviron; (c) that as of the Signing Date, it is not aware of any information material to the examination of the Aviron Patents listed in Schedule 1.6, within the meaning of 37 C.F.R. 1.56, that was not disclosed in writing to the United States Patent and Trademark Office; (d) that as of the Signing Date, Aviron is not in material breach, and has no knowledge of any material breach by the other party thereto, under the Michigan Agreement; that certain [***] Agreement by and between [***] and Aviron, dated [***]; that certain [***] Agreement by and between [***] and Aviron dated [***]; that certain [***] Agreement by and between Aviron and [***] dated [***]; and that certain [***] Agreement by and between Aviron and [***] dated [***]. (e) that no federal funding was or is involved in the performance of work resulting in [***] the Aviron Patents or the Aviron Know-How, except as set forth in the disclosure schedule attached as Schedule 15.2(e) hereto. 15.3 PERFORMANCE BY AFFILIATES AND SUBLICENSEES. The Parties recognize that each Party may perform some or all of its obligations under this Agreement through Affiliates and/or sublicensees, as permitted hereunder, provided, however, that each Party shall remain responsible for the performance by its Affiliates and sublicensees hereunder and shall cause its Affiliates and sublicensees to comply with the provisions of this Agreement in connection with such performance. Each Party hereby expressly waives any requirement that the other Party exhaust any right, power or remedy or proceed against an Affiliate or sublicensee for any obligation or performance hereunder prior to proceeding directly against such Party. ARTICLE 16 INFORMATION AND REPORTS - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 38. 40 16.1 INFORMATION AND REPORTS DURING TERM OF THE AGREEMENT. (a) Each Party agrees to keep complete and accurate records of its activities carried out pursuant to this Agreement. Wyeth-Ayerst and Aviron will disclose and make available to each other upon written request and without charge (other than reasonable duplicating, postage and related out-of-pocket costs) all such records and all commercial, marketing, promotion, and pricing information known by Wyeth-Ayerst or Aviron directly concerning Product in the Field and in Territory at any time during the term of the Agreement. Each Party will use Commercially Reasonable Efforts to disclose to the other Party all significant information promptly after it is learned or its significance is appreciated. (b) Wyeth-Ayerst shall use commercially reasonable, good faith efforts to provide Aviron with a preliminary report of its sales figures for the Product in the Territory during each month or quarter that it sells Product hereunder, within thirty (30) days following the end of such month or calendar quarter. Aviron acknowledges that such report may be unaudited, is only for Aviron's internal planning use, and may be further revised prior to Wyeth-Ayerst's submission of the royalty report described in Section 12.2 for such calendar quarter. 16.2 COMPLAINTS. Each Party shall maintain a record of all complaints it receives with respect to the Product. Each Party shall notify the other Party of any complaint with regulatory implications received by it in sufficient detail and within two (2) business days after the event, and in any event in sufficient time to allow the responsible Party to comply with any and all regulatory requirements imposed upon it; provided, however, that notice of any complaint involving a field alert report shall be transmitted within one (1) business day. 16.3 ADVERSE DRUG EXPERIENCES. In order for the Parties to comply with their respective responsibilities under this Article 16 and otherwise relating to the reporting of adverse drug experiences, to the extent either Party receives any information regarding adverse drug experiences related to the use of the Product, whether such use is within or outside of the Territory, such Party shall promptly provide the other Party with such information in accordance with the Adverse Event Reporting Procedures set forth in Schedule 16.3 (as may be amended from time to time upon mutual agreement of the Parties). 16.4 RECORDS OF REVENUES AND EXPENSES. (a) Each Party will maintain complete and accurate records which are relevant to revenues, costs, expenses and payments under this Agreement and such records shall be open during reasonable business hours for a period of [***] from the creation of individual records for examination at the other Party's expense, and not more often than [***] by an independent certified public accountant selected by the other Party and reasonably acceptable to the audited Party for the sole purpose of verifying for the inspecting Party the correctness of calculations and classifications of such revenues, costs, expenses or payments made under this Agreement. In the absence of material shortfalls (in excess of [***] of the royalties or other amounts payable under this Agreement) in any request for reimbursement resulting from such audit, the accounting expense shall be paid by the Party requesting the audit. If material shortfalls do result, the audited Party shall bear the accounting expense. In any case, the audited Party shall pay the - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 39. 41 shortfall. Any records or accounting information received from the other Party shall be Confidential Information for purposes of Article 13. Results of any such audit shall be provided to both Parties, subject to Article 13. (b) If there is a dispute between the Parties following any audit performed pursuant to Subsection 16.4(a), either Party may refer the issue (an "Audit Disagreement") to an independent certified public accountant for resolution. In the event an Audit Disagreement is submitted for resolution by either Party, the Parties shall comply with the following procedures: (i) The Party submitting the Audit Disagreement for resolution shall provide written notice to the other Party that it is invoking the procedures of this Subsection 16.4(b). (ii) Within thirty (30) business days of the giving of such notice, the Parties shall jointly select a recognized international accounting firm to act as an independent expert to resolve such Audit Disagreement. (iii) The Audit Disagreement submitted for resolution shall be described by the Parties to the independent expert in writing within ten (10) business days of the selection of such independent expert. (iv) The independent expert shall render a decision on the matter as soon as practicable. (v) The decision of the independent expert shall be final and binding and shall not be subject to Article 19, unless such Audit Disagreement involves alleged fraud, breach of this Agreement or construction or interpretation of any of the terms and conditions hereof. (vi) All fees and expenses of the independent expert, including any Third Party support staff or other costs incurred with respect to carrying out the procedures specified at the direction of the independent expert in connection with such Audit Disagreement, shall be borne by the losing Party. ARTICLE 17 INDEMNIFICATION 17.1 INDEMNIFICATION BY AVIRON. Except as set forth in Section 17.2 hereof, and except to the extent caused by Wyeth-Ayerst's negligent, reckless or willful acts or omissions, Aviron shall indemnify, defend and hold Wyeth-Ayerst and its directors, officers, employees, agents and Affiliates harmless from and against any liabilities, damages, costs or expenses, including reasonable attorneys' fees (collectively, "Liabilities"), (a) which arise out of, relate to or result from the breach by Aviron of any of its representations or warranties contained within this Agreement; (b) which arise from any claim, lawsuit or other action by a Third Party caused by the manufacture, use or sale of the Product in the Territory during the term of this Agreement due to a defect caused by Aviron's manufacture of the Product or due to a [***] including, but - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 40. 42 not limited to, a claim, lawsuit, or other action related to the death of or injury to a Third Party, but only to the extent that such claim, lawsuit or other action does not arise out of [***], (c) are attributable to statements or representations by Aviron, its employees, or its agents, that are inconsistent with, or contrary to, the Product Labeling or Product Promotional Materials; or (d) in the case of any trademark infringement claim, lawsuit or other action, result solely from Wyeth-Ayerst's proper use of Aviron Trademarks in accordance with the terms of this Agreement. 17.2 INDEMNIFICATION BY WYETH-AYERST. Except as set forth in Section 17.1 hereof, and except to the extent caused by Aviron's negligent, reckless or willful acts or omissions, Wyeth-Ayerst shall indemnify, defend and hold Aviron and its directors, officers, employees, agents and Affiliates harmless from and against any Liabilities which arise from any claim, lawsuit or other action to the extent such Liabilities (a) arise out of, relate to or result from the breach by Wyeth-Ayerst of any of its representations or warranties contained within this Agreement; (b) arise from any claim, lawsuit or other action by a Third Party due to a [***], including, but not limited to, a claim, lawsuit or other action related to the death of or injury to a Third Party, but only to the extent that such claim, lawsuit or other action does not arise out of Aviron's manufacture of the Product; (c) are attributable to statements or representations by Wyeth-Ayerst, its employees, or its agents, that are inconsistent with, or contrary to, the Product Labeling or Product Promotional Materials; or (d) in the case of any trademark infringement claim, lawsuit or other action, result solely from Aviron's proper use of Wyeth-Ayerst's Trademarks in connection with the Product in accordance with the terms of this Agreement. 17.3 INDEMNIFICATION PROCEDURES. A Party which intends to claim indemnification under Section 17.1 or 17.2 hereof (the "Indemnitee") shall promptly notify the other Party (the "Indemnitor") in writing of any claim, lawsuit or other action in respect of which the Indemnitee or any of its directors, officers, employees, agents and Affiliates intend to claim such indemnification. The Indemnitee shall permit, and shall cause its directors, officers, employees, agents and Affiliates to permit, the Indemnitor, at its discretion, to settle any such claim, lawsuit or other action and agrees to the complete control of such defense or settlement by the Indemnitor; provided, however, that such settlement does not adversely affect the Indemnitee's rights hereunder or impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights. No such claim, lawsuit or other action shall be settled without the prior written consent of the Indemnitor, and the Indemnitor shall not be responsible for any legal fees or other costs incurred other than as provided herein. The Indemnitee, its directors, officers, employees, agents and Affiliates shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any claim, lawsuit or other action covered by the provisions of this Article 17. The Indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and expense. 17.4 INSURANCE. Each Party shall maintain comprehensive general liability insurance coverage, including products liability, with a minimum limit of not less than [***] and shall provide the other Party with a certificate of such insurance as requested. 17.5 PAYMENT OF DAMAGES. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 41. 43 (a) Any Liability for which [***] becomes liable under the Section 17.1 or 17.2 due to a [***] shall be paid first from any funds available through a vaccine injury protection compensation trust established pursuant to legislation similar to 42 U.S.C. 300 aa-1 et seq., social insurance fund, vaccine injury compensation fund, sick fund or similar arrangement that may be employable in the Territory, if applicable. (b) Any Liabilities not subject to subsection (a) above shall be the responsibility of the Indemnitor. ARTICLE 18 TERM AND TERMINATION; AVIRON CHANGE OF CONTROL 18.1 TERM. (a) This Agreement shall commence as of the Effective Date and, unless sooner terminated as provided herein, shall continue in effect until the eighth anniversary of the date of first commercial sale of the Product in the Territory, but shall in no event extend past December 31, 2012, except as set forth in Section 18.8 [***]. (b) If, as of [***] prior to the expiration of the Agreement pursuant to Subsection 18.1(a), the Agreement has not terminated and [***] has determined that [***] of the Agreement, then [***] shall promptly notify [***], whereupon [***] shall [***]. Upon such notice, [***] shall have [***] days to [***]. If [***] timely [***], the Parties shall negotiate in good faith for a period of not more than [***] days to reach an agreement [***] in such [***] for a [***] on such terms as the Parties shall agree. If, despite such good faith negotiations, the Parties have not executed a definitive agreement for such an [***] within such [***] day period, [***][shall be free to negotiate and enter into a [***] with a Third Party, provided that prior to the expiration of the term of this Agreement, [***] shall not enter into such a [***] with a Third Party on terms and conditions that, taken as a whole, are less favorable to [***] than the terms last offered in writing by [***] for the [***]. 18.2 TERMINATION FOR MATERIAL BREACH. (a) Subject to the provisions of this Section 18.2, if either Party (the "Breaching Party") shall have committed a material breach of this Agreement and such material breach shall remain uncured and shall be continuing for a period of [***] days following receipt of notice thereof by the other Party (the "Non-Breaching Party"), or if such breach is incapable of cure during the applicable notice period, the Breaching Party fails to make good faith efforts to cure such breach, then the Non-Breaching Party shall have the right to terminate this Agreement by written notice to the Breaching Party. Any such notice of alleged material breach shall include a reasonably detailed description of all relevant facts and circumstances demonstrating, supporting and/or relating to each such alleged material breach by the other party. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 42. 44 (b) If [***] terminate this Agreement as provided in subsection (a) above if such material breach is of Sections [***]. (c) If [***] is entitled to terminate this Agreement as provided in subsection (a) above, [***] may elect not to terminate this Agreement as so provided, and may instead [***] in accordance with Section [***]. Any [***] pursuant to such [***] hereunder. The [***] in such [***] in connection with such [***]. If [***] shall be [***] hereunder. If, upon expiration of the term of the Agreement or earlier termination of this Agreement, [***] and there are [***] hereunder, then [***]. 18.3 TERMINATION BY [***] may terminate this Agreement in whole or in part: (a) on [***] days written notice, in the event [***] which result in [***] sufficient to cause [***]; or (b) upon at least [***] prior written notice to [***] at any time after [***]. 18.4 TERMINATION [***]. This Agreement may be terminated by [***] as to any nation within the Territory after the Launch Date upon at least [***] prior written notice to [***] after the occurrence of both of the following events ("Termination Period"): (i) a [***] that the [***] and (ii) within the [***] period after the [***] cooperates in good faith with [***] in its good faith efforts to [***] and such [***] during such [***] period. Commencing [***] days following [***] receipt of [***] proper notice of termination under this Section 18.4, [***] for all [***] from such [***] which are [***] of the Termination Period. Notwithstanding the foregoing, this Section 18.4 shall not apply where [***] by the Parties. 18.5 BANKRUPTCY. This Agreement may be terminated by either Party upon at least [***] prior written notice thereof if the other Party becomes insolvent, makes an assignment for the benefit of creditors, is the subject of proceedings in voluntary or involuntary bankruptcy instituted on behalf of or against such Party, or has a receiver or trustee appointed for all or substantially all of its property, provided that in the case of an involuntary bankruptcy proceeding such right to terminate shall only become effective if the Party consents to the involuntary bankruptcy or such proceeding is not dismissed within [***] after the filing thereof. 18.6 EFFECT OF TERMINATION. (a) GENERAL. Upon termination or expiration of the Agreement, (i) the licenses granted by Aviron to Wyeth-Ayerst under Sections 5.1 and 9.1 will terminate immediately; (ii) all rights in the Product shall revert immediately to Aviron; (iii) any and all claims and payment obligations that accrued prior to the date of such termination or expiration shall survive such termination; (iv) each Party shall, within sixty (60) days of such termination, return all of the other Party's Confidential Information; and (v) Wyeth-Ayerst will return to Aviron all Aviron Product Materials, including without limitation [***] in its control; provided, however, that Wyeth-Ayerst, to the extent of the licenses granted under Section 5.1 and 9.1 and as otherwise permitted by this Agreement, shall thereafter have a reasonable period, not to exceed six (6) months following such termination or expiration, within which to sell existing inventory of Product and to use existing inventory of Product promotional Materials and Product - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 43. 45 Labeling containing any Trademarks of Aviron, in all cases according to the terms of this Agreement. (b) PRODUCT RE-PURCHASE. (i) Upon termination or expiration of the Agreement, Wyeth-Ayerst shall provide Aviron with full particulars of all unsold Finished Product (including quantities of Finished Product, and the dates on which the Finished Product was manufactured) in its possession. Aviron shall be entitled, at its discretion, to purchase from Wyeth-Ayerst any unsold Finished Product, at a price equal to the average transfer price per dose of the immediately preceding Flu Season. If so requested by Aviron, Wyeth-Ayerst shall arrange for delivery of the Finished Product purchased by Aviron pursuant to this subsection (i) to such destination or destinations as may be designated by Aviron. All delivery arrangements shall be subject to the prior approval of Aviron. Freight and insurance of such delivery shall be at the cost of Aviron. (ii) Any Finished Product in respect of which Aviron has notified Wyeth-Ayerst in writing that it does not wish to repurchase pursuant to subsection (i) may be sold by Wyeth-Ayerst within [***] months after termination or expiration of this Agreement, in which case the terms of this Agreement or such of them as is or are relevant shall continue to operate until the remaining Finished Product has been sold or the [***] month period expires, whichever first occurs. (c) JOINT TECHNOLOGY. Upon termination (other than by Wyeth-Ayerst pursuant to Section [***]) or upon expiration of the Agreement, Wyeth-Ayerst shall be deemed to have granted to Aviron the non-exclusive, world-wide, perpetual, royalty-free, sublicenseable license in the Territory under Wyeth-Ayerst's interest in the Joint Technology to use, make, have made, import, offer for sale and sell the Product in the Field. Such license shall be [***]; in the event that Aviron wishes to [***], the Parties shall agree upon [***] and as agreed by the Parties [***] of the [***] manufacture, use or sale of the Product. (d) WYETH-AYERST KNOW-HOW AND PATENTS. Upon termination (other than by Wyeth-Ayerst pursuant to Section [***]) or upon expiration of the Agreement, Wyeth-Ayerst shall be deemed to have granted to Aviron a non-exclusive, perpetual, royalty-free, sublicenseable license in the Territory to utilize the Wyeth-Ayerst Know-How and to practice the Wyeth-Ayerst Patents to use, make, have made, import, offer for sale and sell the Product in the Field. Such license shall be [***], in the event that Aviron wishes to [***], the Parties shall agree upon [***] and as agreed by the Parties [***] of the [***]. 18.7 WYETH-AYERST COVENANT. For period of [***] following the expiration or termination of this Agreement, Wyeth-Ayerst shall not promote, manufacture for commercial sale or use, sell, resell, or otherwise commercialize, nor shall Wyeth-Ayerst assist any Third Party or engage any Third Party to promote, manufacture for commercial sale or use, sell, resell, or otherwise commercialize, any [***], in any country within or outside of the Territory; provided that [***] shall have the burden of (a) [***], and (b) providing [***]. Aviron shall [***] under this provision only to the extent that such [***] prior to [***] described in [***]. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 44. 46 18.8 OPTION TO EXTEND TERM OF THE AGREEMENT. (a) GENERAL. Subject to the provisions of this Section 18.8, Aviron hereby grants to Wyeth-Ayerst the option to extend the term of this Agreement in one (1) year increments, but in no event by more than a total of [***] provided that Wyeth-Ayerst may not exercise such option if it is in material breach of any provision of this Agreement, the U.S. Agreement or the Supply Agreement. The term of the Agreement shall not by extended by more than one (1) year during any given twelve (12) month period. Wyeth-Ayerst shall provide Aviron written notice that it is exercising its option to extend the term of the Agreement no later than [***] months prior to the date of expiration of the then current term of the Agreement (the "Extension Expiration Date"). If Wyeth-Ayerst does not provide such notice by the Extension Expiration Date, such option shall lapse and Aviron shall thereafter have no further obligation to Wyeth-Ayerst to allow it to extend the term of the Agreement. If Wyeth-Ayerst does provide such notice to Aviron by the Extension Expiration Date, then: (i) Wyeth-Ayerst shall pay Aviron as set forth in subsection (b) below; (ii) The term of the Agreement shall be automatically extended for one (1) year; and (iii) Aviron shall have the right, but not the obligation, to require that [***] (as defined in [***]) of the [***] under the [***] (as defined in [***]) shall be [***] (as defined in [***]). Upon the expiration or termination of the term of this Agreement as extended under this Section 18.8, Wyeth-Ayerst's rights to sell the Product shall apply as set forth in Section 18.6(b). (b) OPTION PRICE. If Wyeth-Ayerst exercises its option to extend the term of the Agreement, then Wyeth-Ayerst shall pay Aviron the "Option Price" (as defined in the following sentence) for each one year extension of the term of the Agreement as permitted in subsection (a) above. The "Option Price" shall be the greater of [***] or the Designated Percentage (as defined in subsection (c) below) of Net Sales for the final year of the term of the Agreement, [***] most recent one year extension hereunder (the "Term Extension"). In no event shall Wyeth-Ayerst be obligated to pay Aviron more than [***] in combined Option Price payments under this Section 18.8(b) and Section 19.8(b) of the U.S. Agreement for any single Calendar Year. (i) OPTION PRICE PAYMENT. Wyeth-Ayerst shall make an advance payment to Aviron of [***] at the time that it provides Aviron with the written notice that it is exercising its option for each one year extension of the term of the Agreement, as set forth in subsection (a) above. (ii) RECONCILIATION. During each Term Extension, and in addition to any royalties and any other payments that are due to Aviron hereunder, Wyeth-Ayerst shall pay to Aviron the applicable Designated Percentage of Net Sales [***], such payment to be made with each royalty report delivered under Section 12.2 that relates to Net Sales [***], provided - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 45. 47 that the [***] paid by Wyeth-Ayerst pursuant to subsection (i) above for such Term Extension shall be credited against any payments due from Wyeth-Ayerst under this subsection (ii) for such Term Extension, but may not be credited against any other amounts due hereunder, or under the U.S. Agreement or the Supply Agreement, including without limitation any amounts due for any Term Extension other than the Term Extension to which the [***] payment relates. (c) DESIGNATED PERCENTAGE. The "Designated Percentage" shall be as follows: (i) For the [***] of the term of the Agreement, the "Designated Percentage" shall be deemed to be [***]; (ii) For the [***] of the term of the Agreement, the "Designated Percentage" shall be deemed to be [***]; and (iii) For the [***] of the term of the Agreement, the "Designated Percentage" shall be deemed to be [***]. (d) [***] shall be as follows: (i) For the [***] of the term of the Agreement, the [***] shall be deemed to be [***]; (ii) For the [***] of the term of the Agreement, the [***] shall be deemed to be [***]; and (iii) For the [***] of the term of the Agreement, the [***] shall be deemed to be [***]. 18.9 SURVIVING RIGHTS. The following provisions will survive expiration or termination of this Agreement: Sections 5.4, 5.5, 6.4, 7.6(d), 9.8(b), 10.2(j), 14.1, 14.2, 14.5, 16.3, 16.4, 18.6(b) and 18.7, and Articles 13, 17 and 20. ARTICLE 19 DISPUTE RESOLUTION 19.1 DISPUTES. (a) The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement that relate to either Party's rights and/or obligations hereunder or thereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 19 if and when a dispute arises under this Agreement. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 46. 48 (b) Unless otherwise specifically recited in this Agreement, disputes between the Parties shall be first referred to the ICC by either Party as soon as reasonably possible after such dispute has arisen. If the ICC is unable to resolve such a dispute within ten (10) days of being requested by a Party to resolve such dispute, either Party may, by written notice to the other, have such dispute referred to their respective executive officers designated below or their designees, for attempted resolution by negotiations within fifteen (15) days after such notice is received. The designated officers are as follows: For Wyeth-Ayerst: President of Wyeth-Ayerst Global Pharmaceuticals For Aviron: Aviron Chief Executive Officer In the event such designated officers are unable to resolve such dispute, the parties shall then be forced to pursue all available remedies at law or in equity; provided, however, that no lawsuit may be commenced by one Party unless it gives the other Party fifteen (15) days notice of its intent to initiate an action. ARTICLE 20 MISCELLANEOUS 20.1 ASSIGNMENT. (a) Neither Party may assign its rights or obligations under this Agreement without the prior written consent of the other Party, except in connection with a merger, acquisition nor similar reorganization or the sale of all or substantially all of its assets, or, in the case of Wyeth-Ayerst, the sale or transfer of substantially all of the vaccine business of Wyeth-Ayerst. [***], this Agreement shall survive any such merger or reorganization of either Party with or into, or such sale of assets to, another party and no consent for such merger, reorganization or sale shall be needed; provided, that in the event of such merger, reorganization or sale, no intellectual property rights of the acquiring corporation shall be included in the technology licensed hereunder. (b) This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void. 20.2 CONSENTS NOT UNREASONABLY WITHHELD OR DELAYED. Whenever provision is made in this Agreement for either Party to secure the consent or approval of the other, that consent or approval shall not unreasonably be withheld or delayed, unless specifically otherwise provided. 20.3 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or any other similar cause beyond the control of the defaulting Party, provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 47. 49 remedy such force majeure and has given the other Party prompt notice describing such event, the effect thereof and the actions being taken to avoid or remedy such force majeure; provided, however, that in no event shall a Party be required to settle any labor dispute or disturbance. 20.4 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 20.5 NOTICES. All notices hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), telexed, mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by express courier service, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof). If to Aviron: Aviron 297 North Bernardo Avenue Mountain View, California 94043 Attention: Chief Executive Officer Telephone: (650) 919-6500 Facsimile: (650) 919-6612 With copies to: Cooley Godward LLP 5 Palo Alto Square 3000 El Camino Real Palo Alto, California Attention: Barbara A. Kosacz Telephone: (650) 843-5000 Facsimile: (650) 857-0663 If to Wyeth-Ayerst: Wyeth-Ayerst Laboratories 555 Lancaster Avenue St. Davids, Pennsylvania, 19087 Attention: Sr. Vice President, Global Business Development Telephone: (610) 688-5809 Facsimile: (610) 688-9498 With copies to: American Home Products Corporation Five Giralda Drive Madison, New Jersey 07940 Attention: Sr. Vice President and General Counsel Telephone: (973) 660-6040 Facsimile: (973) 660-7155 48. 50 20.6 WAIVER. Except as specifically provided for herein, the waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or any other of such Party's rights or remedies provided in this Agreement. 20.7 SEVERABILITY. If any term, covenant or condition of this Agreement or the application thereof to any Party or circumstances shall, to any extent, be held to be invalid or unenforceable, then (i) the remainder of this Agreement, or the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and (ii) the Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated. 20.8 AMBIGUITIES. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. 20.9 GOVERNING LAW. This Agreement shall be governed by and interpreted under the laws of the [***] without regard to conflicts of laws, except for questions regarding patents, which shall be resolved in the United States courts having jurisdiction over the matter. 20.10 HEADINGS. The Sections and paragraph headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of the Sections or paragraphs to which they apply. 20.11 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 20.12 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Supply Agreement, the U.S. Agreement and the Credit Agreement (as defined in Section 13.1 of the U.S. Agreement) (collectively, the "Agreements"), including all Exhibits and Schedules attached thereto, set forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter thereof, and supersede and terminate all prior agreements and understandings between the Parties with respect to such subject matter, except as provided in Section 11.3(e) of this Agreement. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties with respect to the subject matter thereof other than as set forth therein. No subsequent alteration, amendment, change or addition to the Agreements shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties. The Agreements, including without limitation the Exhibits, Schedules and attachments thereto, are intended to define the full extent of the legally enforceable undertakings of the Parties thereto with respect to the subject matter - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 49. 51 thereof, and no promise or representation, written or oral, which is not set forth explicitly is intended by either Party to be legally binding. Both Parties acknowledge that in deciding to enter into the Agreements and to consummate the transaction contemplated thereby neither Party has relied upon any statement or representations, written or oral, other than those explicitly set forth therein. 20.13 INDEPENDENT CONTRACTORS. The status of the Parties under this Agreement shall be that of independent contractors. Neither Party shall have the right to enter into any agreements on behalf of the other Party, nor shall it represent to any person that it has any such right or authority. Nothing in this Agreement shall be construed as establishing a partnership or joint venture relationship between the Parties. 20.14 CURRENCY. The references in this Agreement to amounts expressed in dollars ($) shall mean United States dollars. 20.15 BANKRUPTCY. All rights and licenses granted under or pursuant to this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11, U.S.C. (the "Bankruptcy Code"), licenses and rights to "intellectual Property" as defined under Section 101(60) of the Bankruptcy Code. The Parties agree that the other Party, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. Each Party agrees during the term of this Agreement to create and maintain current copies of or, if not amenable to copying, detailed descriptions or other appropriate embodiments, of all such intellectual property. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against one Party under the Bankruptcy Code, the other Party shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, [***], and same, if not already in its possession, shall be promptly delivered to the other Party (i) upon any such commencement of a bankruptcy proceeding upon written request therefor by the other Party, unless such Party elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of such Party upon written request therefor by the other Party. Any delivery of descriptions or embodiments of intellectual property pursuant to this Section 20.15 shall not be deemed to effect a transfer of title or other change in ownership or license rights, or to reduce in any respect the payment obligations of the receiving Party under this Agreement. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 50. 52 20.16 EFFECTIVE DATE. (a) In the event that the Effective Date has not occurred within three (3) months after the Signing Date, the Parties shall revert to their status prior to signing this Agreement; provided that Aviron may extend such three month period in one (1) month increments upon written notice to Wyeth-Ayerst, such extended period not to exceed three (3) months. This Section 20.16 shall bind Aviron and Wyeth-Ayerst upon the Signing Date, but the other provisions of the Agreement shall not become effective until the Effective Date. (b) As a condition precedent to this Agreement becoming effective, [***] which shall be [***] which shall [***] the following: (1) [***] under this Agreement and [***] made in accordance with [***]; (2) [***] this Agreement and [***] to those of the [***]; (3) The [***] under the [***] as applies to [***] to the [***] set forth in Section [***] hereof; (4) [***] and maintain [***] will be deemed [***], to be reasonably demonstrated to [***] upon its request; (5) In the event that [***] under the [***] under the [***] in Section [***] for [***] have been the [***] of this Agreement, and under the [***] of the [***] have been [***], if within [***] of the date of [***] of such [***]: (a) That it will be able to meet its obligations under [***], provided that [***] such requirement to [***] under this subsection (a) if [***] for the [***] of such [***] to the [***] under the [***] of the [***] and the [***] but only to the extent that [***] has not [***]; and (b) That [***] is not [***] of this Agreement, [***] (as defined in [***]) by the end of such [***] day period. During such [***] period, [***] the right to [***]. - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED 51. 53 IN WITNESS WHEREOF, Aviron and Wyeth-Ayerst have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. AMERICAN HOME PRODUCTS CORPORATION AVIRON By: /s/ Gerad A. Jibilian By: /s/ Carol A. Olson ------------------------------- ------------------------------- Name: Name: ------------------------------ ------------------------------ Title: Title: ----------------------------- ----------------------------- 52. 54 SCHEDULE 1.5 AVIRON PATENTS NON-U.S. PATENTS OR APPLICATIONS ORIGINALLY FILED AS: [***] NON-U.S. APPLICATIONS THAT CLAIM PRIORITY TO: [***] - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED I. 55 SCHEDULE 1.12 [***] - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED II. 56 SCHEDULE 1.38 SEQUENCE FEATURES [***] [***] - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED III. 57 SCHEDULE 1.40 MICHIGAN AGREEMENT IV. 58 SCHEDULE 1.53 LATIN AMERICAN REGION EUROPEAN REGION Argentina Austria Bolivia Belgium Brazil Bulgaria Central America/CAR CIS Chile Croatia Colombia Czech Ecuador Denmark Mexico Estonia Paraguay Egypt Peru Finland Uruguay France Venezuela Germany Greece Hungary NORTH AMERICAN REGION Iceland Canada Ireland Carribean Italy Latvia Luxembourg ASIA/PACIFIC REGION Middle East Hong Kong Netherlands India Norway Japan Poland Indonesia Portugal Malaysia Romania Pakistan Serbia PRC South Africa Philippines Slovakia Singapore Slovenia Taiwan Spain Thailand Sweden Switzerland Turkey Ukraine UK V. 59 SCHEDULE 1.63 WYETH-AYERST PATENTS AS OF THE EFFECTIVE DATE, THERE ARE NO WYETH-AYERST PATENTS. II. 60 SCHEDULE 16.2(F) GOVERNMENT FUNDING DISCLOSURE SCHEDULE 1. [***] 2. AVIRON PATENTS Aviron was assigned Patent No. [***] (the "[***] Patent") by the [***] pursuant to that certain [***] Agreement dated [***] (the [***] Agreement"). Section [***] of the [***] Agreement states that such [***] Patent may have been developed under a funding agreement with the Government of the United States of America (the "Government"), and, if so, that the Government "may have certain rights related thereto, including, but not limited to those arising under 35 U.S.C. Sections 200-212 and the regulations promulgated thereunder." - -------- [***]=CONFIDENTIAL TREATMENT REQUESTED III. 61 SCHEDULE 16.3 ADVERSE EVENT REPORTING PROCEDURES The Parties hereby agree that the following terms will govern disclosures of each Party to the other with respect to adverse event reporting relating to the Product as clinically tested or marketed by or on behalf of either Party. 1. Definitions. 1.1 An "Adverse Drug Experience" or "ADE" is defined as: a) any experience which is adverse, including what are commonly described as adverse or undesirable experiences, adverse events, adverse reactions, side effects, or death due to any cause associated with, or observed in conjunction with the use of the Product in humans, whether or not considered related to the use of the Product: (i) occurring in the course of the use of the Product, (ii) associated with, or observed in conjunction with an overdose of the Product, whether accidental or intentional, (iii) associated with, or observed in conjunction with abuse of the product, and/or (iv) associated with, or observed in conjunction with withdrawal from the product. b) Any significant failure of expected pharmacological or biologic therapeutical action (with the exception of clinical trial use). 1.2 a) A "Serious ADE" is defined as any Adverse Drug Experience occurring at any dose that results in any of the following outcomes: death, a Life-Threatening Adverse Drug Experience, inpatient hospitalization or prolongation of existing hospitalization, a persistent or significant Disability/incapacity, or a congenital anomaly/birth defect. Other important medical events that may not result in death, be life-threatening, or require hospitalization may be considered a Serious Adverse Drug Experience when, based upon appropriate medical judgment, they may jeopardize the patient or subject and may require medical or surgical intervention to prevent one of the outcomes listed in this definition. Examples of such medical events include allergic bronchospasm requiring intensive treatment in an emergency room or at home, blood dyscrasias or convulsions that do not result in inpatient hospitalization, or the development of drug dependency or drug abuse. b) A Non-Serious ADE is defined as any ADE which does not meet the criteria in subsection (a) above for a Serious ADE. IV. 62 1.3 "Life-threatening Adverse Drug Experience" is defined as any Adverse Drug Experience that places the patient, in the view of the initial reporter, at immediate risk of death from the Adverse Drug Experience as it occurred, i.e., it does not include an Adverse Drug Experience that, had it occurred in a more severe form, might have caused death. 1.4 "Disability" is defined as a substantial disruption of a person's ability to conduct normal life functions. 1.5 "Unexpected ADE" is defined as any ADE that is not listed in the current labeling for the Product. This includes events that may be symptomatically and pathophysiologically related to an event listed in the labeling, but differ from the event because of greater severity or specificity. 1.6 "Associated with or related to the use of the Product" is defined as: A reasonable possibility exists that the ADE was caused by the Product. 1.7 "NDA Holder" is defined as: An "Applicant" as defined in 21 CFR Part 314.3(b), for regulatory approval of the Product in any regulatory jurisdiction, including a holder of a foreign equivalent thereto. 1.8 "IND Holder" is defined as: A "Sponsor" as defined in 21 CFR Part 313.1(b) of an investigational new drug in any regulatory jurisdiction, including a holder of a foreign equivalent thereto. 1.9 Capitalized terms not defined in this Schedule shall have the meaning assigned thereto in the Agreement. 2. With respect to the Product, the Parties agree as follows: a. All initial reports and any follow-up information (oral or written) for any and all Serious ADEs (other than with respect to animal studies), which become known to either Party (other than from disclosure by or on behalf of the other Party) must be communicated by telephone, telefax or electronically directly to the other Party and/or the NDA Holder and IND Holder (individually and collectively referred to as "Holders") within forty-eight (48) hours of receipt of the information. Written confirmation of the Serious ADE received by such Party should be sent to the other Party and/or the Holders as soon as it becomes available, but in any event within forty-eight (48) hours of initial report of the Serious ADE by such Party. b. Both Parties shall exchange Medwatch and/or CIOMs forms and other health authority reports within forty-eight (48) hours of submission to any Regulatory Authority. c. All initial reports and follow-up information received for all Non-Serious ADEs for the Product which become known to a Party (other than from disclosure by or on behalf of the other Party) must be communicated in writing, by telefax or electronically to the other Party within ten (10) days, on Medwatch or CIOMs forms (where possible). d. Each Party shall coordinate and cooperate with the other whenever practicable to prepare a single written report regarding all Serious ADEs and/or Non-Serious ADEs, provided, V. 63 however, that neither Party shall be obligated to delay reporting of any ADE in violation of applicable law or regulations regarding the reporting of ADEs. 3. The Parties further agree that: a. A written report be forwarded to the other Party within forty-eight (48) hours of receipt by the Party making the report, for adverse drug experiences for animal studies which suggest a potential significant risk for humans ("Animal ADEs"); b. Each Party will give the other Party a report via a print-out or computer disk of all ADEs and Animal ADEs reported to it and its Affiliates relating to the Product or Substance within the last year, within thirty (30) days of receipt of a written request from the other Party, but not more often than four (4) times a year; c. If either Party wishes access to ADE reports of the other Party relating to the Product, upon request of that Party, the other Party shall make available its ADE records relating to the Product (including computer disks) for viewing and copying by the other Party. The Parties may discuss the transfer of ADE reports by computer disk. d. Disclosure of information hereunder by a Party to the other Party shall continue as long as either Party and/or its Affiliates or designees continue to clinically test or market the Product. 4. Each Party shall diligently undertake the following further obligations where both Parties are or will be commercializing Product pursuant to the Agreement and/or performing clinical trials with respect to Product: a. Upon the Effective Date, each Party shall identify the individuals who shall be responsible for identifying all ADE reporting requirements in every country in the Territory as set forth in the Agreement, and any amendments thereto; b. To immediately consult with the other Party, with respect to the investigation and handling of any Serious ADE disclosed to it by the other Party or by a Third Party and to allow the other Party to review the Serious ADE and to participate in the follow-up investigation; c. To immediately advise the other Party of any communication received from a health authority regarding the safety of the Product and consult with the other Party with respect to any Product warning, labeling change or change to an investigators' brochure involving safety issues proposed by the other Party, including, but not limited to the safety issues agreed to by the Parties; d. To diligently handle in a timely manner the follow-up investigation and resolution of each ADE reported to it; e. To provide the other Party access to its ADE reporting system and documentation as set forth in Section 3 of this Schedule, upon prior written notice, during normal business hours, at the expense of the auditing Party and under the confidentiality obligations set forth in the Agreement; VI. 64 f. To meet in a timely fashion from time to time as may be reasonably required to implement the ADE reporting and consultation procedures described in this Schedule 17.3, including identification of those individuals in each Party's drug safety group who will be responsible for reporting to and receiving ADE information from the other Party, and the development of a written standard operating procedure with respect to ADE reporting responsibilities, including reporting responsibilities to investigators; g. Where possible and practical, to transmit all data electronically; h. to report to each other any addenda, revisions or changes to the Agreement (e.g., change in territories, local regulations, addition of new licensors/licensees to the Agreement, etc.) which might alter the ADE reporting responsibilities hereunder; i. to utilize English as the language of communication and data exchange between the Parties; j. to develop a system of exchange of documents and information in the event that the Agreement involves more than two Parties; k. to work together to develop a secure electronic system to transmit ADE data. 5. The Parties may meet after the Effective Date of the Agreement to establish a separate agreement for ADE information exchange which will supersede this Schedule 16.3. VII. 65
TABLE OF CONTENTS PAGE ARTICLE 1 DEFINITIONS................................................................1 1.1 "Affiliate"...................................................................2 1.2 "Agency"......................................................................2 1.3 "Annual Net Sales"............................................................2 1.4 "Aviron Know-How".............................................................2 1.5 "Aviron Patents"..............................................................2 1.6 "Aviron Product Materials"....................................................2 1.7 "Aviron Results"..............................................................2 1.8 "Calendar Year"...............................................................2 1.9 "Collaboration"...............................................................2 1.10 "Commercialization Expenses"..................................................2 1.11 "Commercially Reasonable Efforts".............................................3 1.12 "[***]".......................................................................3 1.13 "Confidential Information"....................................................3 1.14 "Control" or "Controlled".....................................................3 1.15 "Effective Date"..............................................................3 1.16 "EMEA"........................................................................3 1.17 "FDA".........................................................................3 1.18 "Field".......................................................................3 1.19 "Finished Product"............................................................3 1.20 "Flu Season"..................................................................3 1.21 "Good Clinical Practice" or "GCP".............................................4 1.22 "Good Laboratory Practice" or "GLP"...........................................4 1.23 "Good Manufacturing Practice" or "GMP"........................................4 1.24 "Information".................................................................4 1.25 "Injectable Product"..........................................................4 1.26 "International Commercialization Committee" or "ICC"..........................4 1.27 "International Commercialization Plan"........................................5 1.28 "International Development Committee" or "IDC"................................5 1.29 "International Development Plan"..............................................5 1.30 "Invention"...................................................................5
- -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. i. 66
TABLE OF CONTENTS PAGE (CONTINUED) 1.31 "JCC".........................................................................5 1.32 "JDC".........................................................................5 1.33 "Joint Patent"................................................................5 1.34 "Joint Technology"............................................................5 1.35 "Launch" or "Launch Date".....................................................5 1.36 "[***]".......................................................................5 1.37 "MAA".........................................................................5 1.38 "[***]".......................................................................5 1.39 "Michigan"....................................................................6 1.40 "Michigan Agreement"..........................................................6 1.41 "Net Sales"...................................................................6 1.42 "[***]".......................................................................6 1.43 "[***]".......................................................................7 1.44 "[***]".......................................................................7 1.45 "Patent"......................................................................7 1.46 "Person"......................................................................7 1.47 "PLA".........................................................................7 1.48 "Primary Brand Trademarks"....................................................7 1.49 "Product".....................................................................7 1.50 "Product Labeling"............................................................7 1.51 "Product Promotional Materials"...............................................7 1.52 "Promote" or "Promotion"......................................................7 1.53 "Region"......................................................................8 1.54 "Regulatory Approvals"........................................................8 1.55 "Signing Date"................................................................8 1.56 "Supply Agreement"............................................................8 1.57 "Target Population"...........................................................8 1.58 "Territory"...................................................................8 1.59 "Third Party".................................................................8 1.60 "Trademarks"..................................................................8
- -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. ii. 67
TABLE OF CONTENTS PAGE (CONTINUED) 1.61 "U.S. Agreement"..............................................................9 1.62 "U.S. Territory"..............................................................9 1.63 "Wyeth-Ayerst Know-How".......................................................9 1.64 "Wyeth-Ayerst Patents"........................................................9 1.65 "Wyeth-Ayerst Results"........................................................9 ARTICLE 2 SCOPE; MANAGEMENT..........................................................9 2.1 Scope.........................................................................9 2.2 Management of the Collaboration...............................................9 2.3 Composition and Conduct of the Committees....................................10 2.4 Meetings of the Committees...................................................10 2.5 Limitations of Committee Powers..............................................10 2.6 Authority to Call Meetings...................................................11 ARTICLE 3 INTERNATIONAL COMMERCIALIZATION COMMITTEE.................................11 3.1 Functions and Powers of the International Commercialization Committee........11 3.2 International Commercialization Committee Actions............................11 ARTICLE 4 INTERNATIONAL DEVELOPMENT COMMITTEE.......................................12 4.1 Functions and Powers of the International Development Committee..............12 ARTICLE 5 LICENSES..................................................................12 5.1 License Grant Within the Territory...........................................12 5.2 License Grant to Aviron......................................................12 5.3 Sublicenses/Distributorships.................................................13 5.4 Joint Technology.............................................................13 5.5 Michigan Retained Rights.....................................................14 5.6 Wyeth-Ayerst [***]...........................................................14 5.7 Aviron [***].................................................................15 5.8 [***]........................................................................15 5.9 Other Development Activities by Aviron.......................................16 5.10 Reservation of Rights........................................................17 5.12 [***]........................................................................17 ARTICLE 6 PRODUCT DEVELOPMENT.......................................................17
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TABLE OF CONTENTS PAGE (CONTINUED) 6.1 Current Status...............................................................17 6.2 Product Development..........................................................18 6.3 International Development Plan...............................................18 6.4 Regulatory Applications......................................................18 6.5 Supplements..................................................................20 6.6 Regulatory Meetings and Correspondence.......................................20 6.7 Records......................................................................20 ARTICLE 7 MARKETING.................................................................20 7.1 Principles of Promotion......................................................20 7.2 International Commercialization Plan.........................................21 7.3 Sales and Distribution; Recalls..............................................21 7.4 Promotion, Commercialization and Sales and Marketing Expenses................21 7.5 Commercialization Expense Commitment.........................................21 7.6 Promotional and Advertising Materials........................................22 7.7 Product Pricing..............................................................22 7.8 Voluntary Product Recalls....................................................22 7.9 Regulatory Obligations.......................................................23 7.10 Promotion Responsibilities...................................................23 7.11 Compliance with Applicable Law...............................................23 7.12 Failure to Commercialize.....................................................23 ARTICLE 8 MANUFACTURE AND SUPPLY....................................................24 8.1 Supply of [***] Product......................................................24 ARTICLE 9 TRADEMARK MATTERS.........................................................24 9.1 Licenses.....................................................................24 9.2 Validity of Trademarks.......................................................24 9.3 Form of Use..................................................................24 9.4 No Contest...................................................................24 9.5 Confusingly Similar and/or Combination Marks.................................25 9.6 Registration Costs...........................................................25 9.7 Infringement.................................................................25
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TABLE OF CONTENTS PAGE (CONTINUED) 9.8 Trade Dress, Logos, and the Like.............................................25 ARTICLE 10 MICHIGAN AGREEMENT........................................................26 10.1 Sublicense Limitation........................................................26 10.2 Wyeth-Ayerst Obligations.....................................................26 10.3 Use of Aviron Product Materials..............................................27 10.4 Warranty Disclaimer..........................................................27 10.5 Sublicense Termination.......................................................27 10.6 Insurance....................................................................27 10.7 Cooperation..................................................................28 10.8 Sublicenses..................................................................28 ARTICLE 11 PAYMENTS..................................................................28 11.1 License Fee..................................................................28 11.2 Other Payments...............................................................28 11.3 Wyeth-Ayerst Financing.......................................................29 ARTICLE 12 ROYALTIES.................................................................31 12.1 Royalty Rates during term of the Agreement...................................31 12.2 Royalty Reports and Payments.................................................32 12.3 Payments.....................................................................32 12.4 Exchange Rate................................................................32 12.5 Withholding..................................................................32 ARTICLE 13 CONFIDENTIALITY...........................................................32 13.1 Confidential Information.....................................................32 13.2 Authorized Disclosure........................................................33 13.3 Publicity....................................................................34 ARTICLE 14 OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS......................34 14.1 Ownership....................................................................34 14.2 Patent Prosecution...........................................................35 14.3 Enforcement Rights...........................................................35 14.4 Defense and Settlement of Third Party Claims.................................36 14.5 Assignment of Joint Patents..................................................37 ARTICLE 15 REPRESENTATIONS AND WARRANTIES............................................37
v. 70
TABLE OF CONTENTS PAGE (CONTINUED) 15.1 Mutual Representations and Warranties........................................37 15.2 Aviron Representations and Warranties........................................38 15.3 Performance by Affiliates and Sublicensees...................................38 ARTICLE 16 INFORMATION AND REPORTS...................................................38 16.1 Information and Reports During term of the Agreement.........................39 16.2 Complaints...................................................................39 16.3 Adverse Drug Experiences.....................................................39 16.4 Records of Revenues and Expenses.............................................39 ARTICLE 17 INDEMNIFICATION...........................................................40 17.1 Indemnification by Aviron....................................................40 17.2 Indemnification by Wyeth-Ayerst..............................................41 17.3 Indemnification Procedures...................................................41 17.4 Insurance....................................................................41 17.5 Payment of Damages...........................................................41 ARTICLE 18 TERM AND TERMINATION; AVIRON CHANGE OF CONTROL............................42 18.1 Term.........................................................................42 18.2 Termination for Material Breach..............................................42 18.3 Termination by [***].........................................................43 18.4 Termination [***]............................................................43 18.5 Bankruptcy...................................................................43 18.6 Effect of Termination........................................................43 18.8 Option to Extend Term of the Agreement.......................................44 18.9 Surviving Rights.............................................................46 ARTICLE 19 DISPUTE RESOLUTION........................................................46 19.1 Disputes.....................................................................46 ARTICLE 20 MISCELLANEOUS.............................................................47 20.1 Assignment...................................................................47 20.2 Consents Not Unreasonably Withheld or Delayed................................47 20.3 Force Majeure................................................................47 20.4 Further Actions..............................................................48
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TABLE OF CONTENTS PAGE (CONTINUED) 20.5 Notices......................................................................48 20.6 Waiver.......................................................................49 20.7 Severability.................................................................49 20.8 Ambiguities..................................................................49 20.9 Governing Law................................................................49 20.10 Headings.....................................................................49 20.11 Counterparts.................................................................49 20.12 Entire Agreement; Amendments.................................................49 20.13 Independent Contractors......................................................50 20.14 Currency.....................................................................50 20.15 Bankruptcy...................................................................50 20.16 Effective Date...............................................................51 SCHEDULE 1.5 AVIRON PATENTS.................................................................I SCHEDULE 1.12 [***]........................................................................II SCHEDULE 1.38 Sequence Features [***].....................................................III SCHEDULE 1.40 MICHIGAN AGREEMENT...........................................................IV SCHEDULE 1.53 ..............................................................................V SCHEDULE 1.63 WYETH-AYERST PATENTS.........................................................II SCHEDULE 16.2(F) GOVERNMENT FUNDING DISCLOSURE SCHEDULE...................................III SCHEDULE 16.3 ADVERSE EVENT REPORTING PROCEDURES...........................................IV
- -------- [***] = CONFIDENTIAL TREATMENT REQUESTED. vii. EX-10.22 4 FLUMIST SUPPLY AGREEMENT 1 EXHIBIT 10.22 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FLUMIST(TM) SUPPLY AGREEMENT BY AND BETWEEN AVIRON AND AMERICAN HOME PRODUCTS CORPORATION ACTING THROUGH ITS WYETH-AYERST LABORATORIES DIVISION JANUARY 11, 1999 1. 2 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FLUMIST(TM) SUPPLY AGREEMENT THIS FLUMISTTM SUPPLY AGREEMENT (the "Agreement"), dated as of January 11, 1999 (the "Signing Date"), is by and between Aviron, a Delaware corporation with its principal place of business at 297 North Bernardo Avenue, Mountain View, California 94043 ("Aviron"), and AMERICAN HOME PRODUCTS CORPORATION ("AHPC"), acting through its WYETH-AYERST LABORATORIES DIVISION, a Delaware corporation with its principal place of business at 555 Lancaster Avenue, St. Davids, Pennsylvania, 19087 ("Wyeth-Ayerst"). Aviron and Wyeth-Ayerst are sometimes referred to herein individually as a "Party" and collectively as the "Parties." RECITALS: WHEREAS, Aviron and Wyeth-Ayerst have entered into that certain United States License and Co-Promotion Agreement of even date herewith regarding the marketing and co-promotion of Aviron's intranasally delivered cold adapted vaccine formulation for the prevention of influenza and influenza-associated illnesses, [***], known as FluMist(TM) or FluEnz(TM) (the "Product," as further described herein) in the United States and its territories and possessions (the "U.S. Agreement"); and WHEREAS, Aviron and Wyeth-Ayerst have entered into that certain International FluMist(TM) License Agreement of even date herewith, under which Aviron has granted to Wyeth-Ayerst exclusive marketing rights in certain territories outside of the United States and its territories and possessions (the "International Agreement"); and WHEREAS, Aviron and Wyeth-Ayerst desire to enter into an agreement pursuant to which Aviron shall (a) supply, or have supplied, Finished Product in the [***] for distribution and sale under the U.S. Agreement; (b) supply, or have supplied, Finished Product in the [***] to Wyeth-Ayerst for distribution and sale under the U.S. Agreement and the International Agreement; (c) supply, or have supplied, [***] from the [***] for the Product [***] in order that [***] Product in the [***] for distribution and sale under the U.S. Agreement and the International Agreement; and (d) blend, fill, finish and package [***] Product in the [***] for distribution and sale under the U.S. Agreement and the International Agreement; and [***] (a) manufacture and supply [***] Product in the [***] for the U.S. Territory and [***] the International Territory, and (b) blend, fill, finish and package [***] Product in the [***] for distribution and sale under the International Agreement [***]. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the parties hereby agree as follows: 1. DEFINITIONS Unless otherwise indicated, capitalized terms used herein shall have the same meaning as in the U.S. Agreement. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 1. 3 1.1 "[***] PRODUCT" means the Finished Product manufactured and supplied [***] by Aviron (or its contractor(s)) hereunder [***] the manufacturing process. 1.2 "[***] PRODUCT" means [***] Product for which [***]. 1.3 "CALENDAR YEAR" means the period of time commencing on January 1 of a given year, and ending on December 31 of such year. 1.4 "COMMERCIALIZATION COMMITTEE" means the JCC or the ICC, as applicable, which may be collectively referred to herein as the "Commercialization Committees." 1.5 "COMMERCIALLY REASONABLE EFFORTS" shall have the meaning set forth in Section 1.11 of the U.S. Agreement. 1.6 "DEVELOPMENT COMMITTEE" means the "Joint Development Committee" (as defined in the U.S. Agreement) or the "International Development Committee" (as defined in the International Agreement), as applicable, which may be collectively referred to herein as the "Development Committees." 1.7 "EFFECTIVE DATE" shall have the meaning set forth in Section 1.18 of the U.S. Agreement. 1.8 "[***] AGREEMENT" means that certain [***] Agreement by and between [***] and Aviron on [***]. 1.9 "FINISHED PRODUCT" shall mean the Product in the [***] in finished, packaged form. 1.10 "[***]" means [***] the Product which, during the dating period established by the FDA, maintains stability [***] and may maintain stability [***] but does not maintain stability [***] or [***]. 1.11 "FLU SEASON" means the "Flu Season" as defined in the U.S. Agreement or the International Agreement, as applicable. 1.12 "FORECAST" shall mean the U.S. [***] Forecast (as defined in Section 3.1 hereof), the U.S. [***] Forecast (as defined in Section 3.2 hereof), or the International Forecast (as defined in Section 4.1 hereof), as applicable. 1.13 "[***] PRODUCT" means the Finished Product [***]. 1.14 "[***] MONOVALENT" means Monovalent Bulk for the [***]. 1.15 "GLOBAL TERRITORY" means the U.S. Territory and the International Territory. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 2. 4 1.16 "GROSS SALES REVENUE" means the sum of all amounts actually received and all other consideration actually received (or, when in a form other than cash or its equivalent, the fair market value thereof when received) by Wyeth-Ayerst and its Affiliates and sublicensees from persons or entities due to or by reason of the sale, distribution or use of Finished Product. Sales of Finished Product intended for resale to Third Parties, and made internally amongst Wyeth-Ayerst and its Affiliates or sublicensees shall not be deemed sales for purposes of calculating "Gross Sales Revenues" (however the resale by the recipient shall be included in the calculation of "Gross Sales Revenues"). 1.17 "GOOD MANUFACTURING PRACTICE" OR "GMP" shall mean the standards and regulations for the manufacture of biologicals promulgated by any applicable Regulatory Agency. 1.18 "JCC" means the "Joint Commercialization Committee" as defined in the U.S. Agreement. 1.19 "[***] PRODUCT" means [***] Product for which [***] has supplied the [***] has manufactured the [***] and [***] has conducted [***]. 1.20 "ICC" means the "International Commercialization Committee" as defined in the International Agreement. 1.21 "[***]" means [***] to be [***] in order to [***] Product for sale and distribution by Wyeth-Ayerst [***]. 1.22 "INTERNATIONAL TERRITORY" means the "Territory" as defined in the International Agreement. 1.23 "[***]" means a [***] of the Product which, during the dating period established by the FDA, maintains stability [***] provided that if [***] the Product which exists as of the Effective Date is determined to [***] during the dating period, then such [***] shall be included in [***]. 1.24 "[***] MONOVALENT" means Monovalent Bulk for the [***]. 1.25 "[***] PRODUCT" means the Finished Product in the [***]. 1.26 "[***] PLANT" means [***] plant located at [***]. 1.27 "[***]" shall have the meaning set forth in Section [***] of the U.S. Agreement. 1.28 "MICHIGAN" means the Regents of the University of Michigan, a constitutional corporation of the State of Michigan with offices located at Wolverine Tower, Room 2071, 3003 South State Street, Ann Arbor, Michigan, 48109-1280, USA. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 3. 5 1.29 "MICHIGAN AGREEMENT" means the Materials Transfer and Intellectual Property Agreement between Aviron and Michigan dated February 24, 1995, as amended, and attached as Schedule 1.41 to the U.S. Agreement. 1.30 "MONOVALENT BULK" means the three influenza virus strains contained in the Product, each in monovalent bulk form. 1.31 "PLA" means the Product Licensing Application/Establishment Licensing Application or Biologics License Application for the Product in the Field. 1.32 "PRODUCT" means the "Product" as defined in the U.S. Agreement or the International Agreement, as applicable. 1.33 "[***]" means: (A) In the case of [***] manufactured [***] the [***] of (i) [***] the Product to be included in the [***] of Finished Product, or (ii) [***] (as defined in Section [***] hereof) per Flu Season ending with the Flu Season that commences in Calendar Year [***]; and the [***] of (x) [***] the Product to be included in the [***] of Finished Product, or (y) [***] of the [***] per Flu Season beginning with the Flu Season that commences in Calendar Year [***]; or as otherwise agreed in writing by the Parties; and (B) In the case of [***] Product supplied by Aviron to Wyeth-Ayerst for sale and distribution pursuant to the U.S. Agreement and the International Agreement, [***] Finished Product per each Flu Season (as defined in the U.S. Agreement), or as otherwise agreed in writing by the Parties. 1.34 "REGULATORY AGENCY" means any supranational, national, regional, state, provincial or local regulatory agency, department, bureau, commission, council or other governmental entity, responsible for the granting of any approvals, licenses, registrations or authorizations necessary for the commercial manufacture, use, storage, importation, export, transport or sale of the Product in a regulatory jurisdiction within the Global Territory. 1.35 "SECONDARY MANUFACTURE" OR "SECONDARY MANUFACTURING" means the blending of the monovalent Product, e.g. [***] Monovalent, to form trivalent Product, and the filling, finishing and packaging of such trivalent Product to create Finished Product. 1.36 "SPECIFICATIONS" means the applicable specifications pursuant to which [***] (in the case of [***]), or [***] (in the case of [***]), as established in the PLA approved by the FDA, or as otherwise approved by the applicable Development Committee. 1.37 "TERRITORY" means the U.S. Territory or the International Territory, as applicable. 1.38 "[***]" means [***] to be utilized in [***] in order to [***] for sale and distribution by Wyeth-Ayerst [***]. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 4. 6 1.39 "U.S. TERRITORY" shall mean the "Territory" as defined in the U.S. Agreement. 1.40 "WORKING SEEDS" means the manufacturer's working virus seeds [***] from which monovalent bulk Product is produced. 2. SCOPE 2.1 GENERAL OBLIGATIONS AND RIGHTS OF THE PARTIES. (a) MANUFACTURE AND SUPPLY FOR THE U.S. TERRITORY. (i) Aviron shall have the exclusive right and obligation, using Commercially Reasonable Efforts, to manufacture and supply [***] Product to Wyeth-Ayerst for distribution and sale by Wyeth-Ayerst pursuant to the U.S. Agreement. (ii) [***] shall manufacture and supply [***] as follows: (A) [***] shall have the right and obligation, using Commercially Reasonable Efforts, to manufacture and supply [***] to the extent that the JCC determines that the market demand for [***] Product in the U.S. Territory for a given Flu Season will [***] for [***] or the amount [***] for such Flu Season if less than such [***] and (B) [***] shall have the right, but not the obligation, to manufacture and supply [***] to the extent of the forecasted market demand for [***] Product up to [***] for [***]. (iii) Subject to the right of [***] to establish [***] as provided herein, [***] shall have the right and obligation, using Commercially Reasonable Efforts, to perform, or have performed, all [***] of all [***] including that [***] and shall exclusively supply all [***] Product [***] for distribution and sale by Wyeth-Ayerst pursuant to the U.S. Agreement, provided that [***] shall not be obligated, nor shall it have the right, to perform, or have performed, [***] of all [***] taken together) in excess of [***] Product. [***] shall have the right to perform all [***] to produce [***] Product in [***] of [***] Product. (iv) The provisions of this subsection (a) are subject to [***] under Section [***] of the U.S. Agreement. (b) MANUFACTURE AND SUPPLY FOR THE INTERNATIONAL TERRITORY. (i) [***] shall have the right and obligation, using Commercially Reasonable Efforts, to [***] subject to [***] as set forth in Section [***]. (ii) If the ICC determines that the market demand for [***] Product in the International Territory for a given Flu Season is [***] to [***] then [***] shall have the [***] right to [***] of such doses of [***] as are in excess of [***] for such Flu Season. Such manufacture and supply shall occur in a manner to be determined by the IDC. (iii) Subject to [***] as provided herein, Aviron shall have the right and obligation, using Commercially Reasonable Efforts, to perform, or have performed, all [***] of - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 5. 7 all [***] and shall exclusively supply all [***] for distribution and sale by Wyeth-Ayerst pursuant to the International Agreement, provided that [***] shall not be obligated, nor shall it have the right, to perform, or have performed, [***] of all [***] taken together) in [***] Product. [***] to perform all [***] to produce [***] Product in [***] Product. Such [***] shall occur in a manner to be determined by the appropriate Development Committee. (iv) The provisions of this subsection (b) are subject to [***] under Section [***] of the International Agreement. (c) FACILITIES. [***] to undertake the capital investment and staffing commitments and to take all other actions necessary to enable it to [***] obligations hereunder, including establishing a new facility, or remodeling an existing facility, and validating and licensing such facility for such manufacture and supply, as directed by the applicable Development Committees. (d) [***]. Aviron shall, using Commercially Reasonable Efforts, produce and supply [***] for all of [***] hereunder. (e) GENERAL PRINCIPLES. The Parties shall collaborate in their activities hereunder in order to: (i) minimize the time of the Product's production cycle, (ii) minimize the time required to bring the Product to market, (iii) maintain low production cost, and (iv) comply with GMP in their manufacturing efforts, all as coordinated by the applicable Development Committee and Commercialization Committee. The applicable Development Committee will decide the best way to meet the production goals for [***]. (f) AGREEMENT OF TECHNICAL RESPONSIBILITY. In order to achieve the goals set forth in subsection (d) above, the Parties shall, as soon as is practicable following the Effective Date, agree upon the [***] for the manufacturing activities contemplated hereunder (the "Agreement of Technical Responsibility"), which agreement shall be generally in the form of [***]. The Agreement of Technical Responsibility shall contain the criteria for [***] hereunder, as determined by the applicable Development Committee, and shall be reviewed and approved at the first meeting of each Development Committee following the Effective Date. The Agreement of Technical Responsibility shall be implemented within thirty (30) days of its execution. The applicable Development Committee shall have the right to amend the Agreement of Technical Responsibility from time to time. 2.2 MANAGEMENT BY COMMERCIALIZATION COMMITTEES. All supply constraints and coordination of the Parties' activities hereunder shall be managed jointly by the JCC and the ICC, with the overall objective of maximizing sales of the Product, subject to the terms of this Agreement. 2.3 THIRD PARTY SUPPLY. Aviron may, at its election in its sole discretion, arrange for one or more Third Party contractors to carry out any or all of its manufacturing and supply rights or obligations hereunder, subject to the prior written approval of the Commercialization Committee that oversees the territory as to which such manufacturing and supply rights or - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 6. 8 obligations apply. Such Commercialization Committee's prior written approval shall not be required for the contractors set forth on Schedule 2.3. 2.4 WYETH-AYERST ADVISORY ROLE. Wyeth-Ayerst, at its own expense, shall provide to Aviron reasonable manufacturing expertise, advice and know-how in its possession and control and consultation services with respect to the manufacture and supply of the Finished Product, as determined by the Development Committee, in order to optimize the supply of the Finished Product to Wyeth-Ayerst. 3. PRODUCT FORECASTS FOR U.S. TERRITORY 3.1 U.S. [***] FORECAST. The JCC shall prepare and present to Aviron and Wyeth-Ayerst a rolling [***]* forecast of the anticipated market demand for the [***] Product in the U.S. Territory for the applicable Flu Season, subject to Section 2.2., together with an estimate of Net Sales in the U.S. Territory for such Flu Season. Such forecast shall be updated regularly and shall be non-binding except as follows: The JCC shall update such forecast to Aviron and Wyeth-Ayerst in writing no later than [***] of the year immediately prior to the year in which the applicable Flu Season begins. The JCC shall thereafter update the forecast of [***] of the year immediately prior to the year in which the applicable Flu Season begins, provided that the [***] forecast may not vary by more than [***] from the [***] forecast. The [***] forecast shall thereafter be deemed the "U.S. [***] Forecast" for such Flu Season, provided that if Aviron reasonably believes that for such Flu Season it will be unable to meet the forecast set by the JCC, Aviron shall inform the JCC of the amount of [***] Product which it reasonably believes it will be in a position to supply to Wyeth-Ayerst for such Flu Season, and upon the JCC's confirmation of Aviron's estimate of its production capacity for [***] Product for such Flu Season, such amount shall then be deemed to be the U.S. [***] Forecast for such Flu Season. Notwithstanding the foregoing, the JCC's original forecast shall be deemed the "JCC Forecast" for purposes of awarding to Aviron the supply goal payments pursuant to Section 8.3 of the U.S. Agreement. Wyeth-Ayerst agrees to purchase all [***] Product supplied by Aviron in accordance with the U.S. [***] Forecast and accepted by Wyeth-Ayerst pursuant to Section 6.3(a). In the event that Aviron fails to meet the JCC Forecast for a given year, Wyeth-Ayerst's sole remedy shall be [***] as set forth in Section [***] of the U.S. Agreement, provided that Wyeth-Ayerst may not [***] nor any [***] under the U.S. Agreement or the International Agreement. 3.2 U.S. [***] FORECAST. The JCC shall prepare and present to Aviron and Wyeth-Ayerst a rolling [***] forecast of the anticipated market demand for the [***] Product in the U.S. Territory for the applicable Flu Season, subject to Section 2.2., together with an estimate of Net Sales and Gross Sales Revenue in the U.S. Territory for such Flu Season. Such forecast shall be updated regularly and shall be non-binding except as follows: The JCC shall update such forecast to Aviron in writing no later than [***] of the year immediately prior to the year in which the applicable Flu Season begins. The JCC shall thereafter update the forecast of [***] of the year immediately prior to the year in which the applicable Flu Season begins, provided that the [***] forecast may not vary by more than [***] from the [***] forecast. The [***] forecast shall thereafter be deemed the "U.S. [***] Forecast" for such Flu Season. Wyeth-Ayerst agrees to - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 7. 9 purchase all [***] Product supplied by Aviron in accordance with the U.S. [***] Forecast and accepted by Wyeth-Ayerst pursuant to Section 6.3(a). 3.3 [***]. During a given Flu Season and on a calendar quarter basis, the JCC may [***]* for such Flu Season, subject to Section 2.2 and further provided that: (a) The JCC may [***] without the [***] and [***] shall use Commercially Reasonable Efforts to [***] provided that [***] failure to [***] shall not be a breach of this Agreement; (b) In the event that the JCC decreases or cancels a Forecast for a given Flu Season, Aviron shall use Commercially Reasonable Efforts to wind down any Secondary Manufacturing then occurring or planned to produce doses of the applicable Finished Product in excess of the JCC's revised Forecast, and Wyeth-Ayerst shall reimburse Aviron for all non-cancelable costs actually incurred by Aviron in the manufacture and supply of the applicable Finished Product for such Flu Season in fulfilling its obligation to meet the Forecast first specified by the applicable JCC for such Flu Season, provided that Wyeth-Ayerst shall only be obligated to reimburse Aviron for those costs which are in excess of any payments made by Wyeth-Ayerst pursuant to Section 7.2 for such Flu Season; and (c) If the JCC increases the U.S. [***] Forecast for such Flu Season, the original JCC Forecast for such Flu Season, and not the increased figure, shall be the basis for determining whether Aviron has achieved the supply goals set forth in Section 8.3 of the U.S. Agreement. 4. [***] FORECASTS FOR INTERNATIONAL TERRITORY 4.1 FORECASTS. (a) The ICC shall prepare and present to the Parties, in coordination with the JCC pursuant to Section 3.1 of the International Agreement, a rolling [***] forecast of the market demand for [***] Product in the International Territory, in accordance herewith and with Section 2.2 (the "International Forecast"). Such Forecast shall include the Specifications for the [***] to be manufactured and supplied by Aviron to Wyeth-Ayerst [***], and the amount and Specifications for the [***], as well as a schedule for the foregoing activities, together with an estimate Gross Sales Revenue in the International Territory for such Flu Season. Such Forecast shall be updated regularly and shall be non-binding except as follows: (i) For Flu Seasons in the Northern Hemisphere, the ICC shall update such Forecast in writing to the Parties, in coordination with the JCC, no later than [***] of the year immediately prior to the year in which the applicable Flu Season begins, provided that the Forecast of [***] may not vary more than [***] from the Forecast of [***]. (ii) For Flu Seasons in the Southern Hemisphere, the ICC shall update such Forecast in writing to the Parties, in coordination with the JCC, no later than [***] of the year [***] the year in which the applicable Flu Season begins, and [***] of the year immediately - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 8. 10 prior to the year in which such Flu Season begins, provided that the Forecast of [***] may not vary more than [***] from the Forecast of [***]. (b) [***] to conduct the manufacture and supply activities anticipated hereunder in order to produce a sufficient quantity of [***] Product to meet such Forecast for each Flu Season. Wyeth-Ayerst agrees to purchase all [***] Product supplied by Aviron in accordance with the International Forecast and accepted by Wyeth-Ayerst as provided herein. 5. FAILURE TO [***]. 5.1 NOTICE OF [***]. In the event that a Party with an obligation to [***] hereunder (the "[***] Party") reasonably believes that it will fall short of its obligations to [***] under [***] for a given Flu Season by [***], it shall give prompt written notice of such belief to the applicable Development Committee and Commercialization Committee. The other Party (the "[***] Party") shall then have the right, but not the obligation, to [***] by providing written notice that it is exercising such right to the applicable Development Committee and Commercialization Committee. 5.2 [***] PRODUCT. If, for a given Flu Season, (a) the [***] Party fails to meet its obligations to [***] under [***], and (b) the [***] Party has not [***] pursuant to Section 5.1, and (c) there is no [***] in the applicable Territory, then the applicable Commercialization Committee shall determine whether the [***] Party has [***] to the [***] Party's [***] to manufacture [***] under such [***] and the [***] if any, on the [***] Party. If the [***] is so determined to have [***], it shall be [***] as follows: (i) If [***] is the [***] Party with a [***], then [***] shall elect, in its sole discretion, to [***] for such Flu Season under either subsection (1) or subsection (2) below: (1) The [***] as applicable, shall be [***]; or (2) [***] shall have the right to [***] for the subsequent Flu Season under [***] as applicable, by [***] of the [***] which would have been applicable in the Flu Season in which the [***] based on the [***] by the applicable Commercialization Committee. Such [***] shall apply only for such period of time until the [***] that would be [***] the originally applicable [***] for such period, and (B) the [***] under the [***] for such period, [***] as determined above by the applicable Commercialization Committee. Thereafter, the [***] shall apply. (ii) If [***] is the [***] Party with a [***], then [***] shall have the right to [***] for the subsequent Flu Season under [***], as applicable, by [***] of the [***] which would have been applicable in the Flu Season in which the [***] based on the [***] by the applicable Commercialization Committee. Such [***] shall apply only for such period of time until the [***] under the [***] for such period, and (B) the [***] that would be [***] under the originally applicable [***] for such period, [***] as determined above by the applicable Commercialization Committee. Thereafter, the [***] shall apply. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 9. 11 (iii) This Section 5.2 shall not apply to the extent that a Party's failure to meet its obligations to [***] is attributable to the other Party's failure to meet its obligations [***]. 5.3 [***]. In the event that [***] to meet its obligations to [***] under [***] results in [***] being unable to [***] for the Flu Season to which [***] relates, the provisions of Section 5.2 above shall not apply, and [***] shall be entitled to [***] (in the case of a [***]) or the [***] (in the case of [***]) by [***] upon written notice to [***]. [***] must provide such written notice to [***] within [***] days of the end of the Flu Season in which such [***] occurred, or its right to [***] as applicable, due to [***] for such Flu Season shall lapse. 5.4 SOLE REMEDY. The provisions of this Article 5 shall be the [***] Party's sole remedy for the [***] Party's failure to meet its obligations to [***] hereunder, subject to Section [***]. 6. SPECIFICATIONS, DELIVERY AND ACCEPTANCE OF [***] PRODUCT 6.1 SPECIFICATIONS. Aviron shall manufacture and supply (or cause to be manufactured and supplied) [***] Product to Wyeth-Ayerst in accordance with the applicable Specifications and GMP or other relevant governmental laws, rules and regulations for Wyeth-Ayerst's exclusive sale pursuant to the U.S. Agreement and the International Agreement. As of the Signing Date, it is Aviron's intent to manufacture Monovalent Bulk in the [***] Formulation through its contractor [***] pursuant to and for the term of the [***] which as of the Signing Date is in effect through [***]; provided that Aviron shall retain at all times the right to manufacture and supply to Wyeth-Ayerst [***] Product and [***] Product itself and/or through one or more other Third Party contractors, subject to Section 2.3. 6.2 DELIVERY AND SHIPMENT. Finished Product shall be shipped ex works Aviron's applicable Secondary Manufacturing site. Receipt shall be made by Wyeth-Ayerst's designated carrier. Each lot of Finished Product so received shall be accompanied by the FDA lot release letter (to the extent required by the FDA) or comparable documentation from the applicable Regulatory Agency (if available), and other lot release specifications to be agreed upon by the applicable Development Committee. 6.3 ACCEPTANCE AND REJECTION. (a) Any lot of Finished Product released to Wyeth-Ayerst hereunder shall be received by Wyeth-Ayerst or its designated carrier subject to inspection and testing by Wyeth-Ayerst or its designated agent, to ensure that such lot of Finished Product meets the applicable Specifications and otherwise complies with the warranties provided in this Agreement, in accordance with testing and release procedures for the Finished Product, as established in the PLA as approved by the FDA or as otherwise required by the applicable Regulatory Agency. Wyeth-Ayerst shall be allowed a maximum of [***] days from the date of release of any shipment, or such other time period agreed in writing by the applicable Development Committee, (the "Inspection Period") for inspection and provision of written notice to Aviron of rejection of - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 10. 12 any portion or all of that lot. If Wyeth-Ayerst does not deliver such written notice to Aviron within the Inspection Period, such lot of Finished Product shall be deemed to have met the applicable Specifications and to comply with all warranties hereunder, and Wyeth-Ayerst shall be deemed to have accepted the shipment. Aviron shall, as soon as is commercially feasible, but in no event later than [***] days after receipt of a rejection notice from Wyeth-Ayerst, replace the rejected quantity of Finished Product, subject to Sections 6.3(b) and (c). (b) Promptly following any rejection of a lot of Finished Product, Aviron shall determine whether the rejected lot conformed to the applicable Specifications and warranties. If Aviron does not agree with Wyeth-Ayerst, the applicable Development COMMITTEE shall select an independent laboratory mutually acceptable to both Parties to carry out tests on representative samples from the rejected portion of the lot. The results of these tests shall be binding on both Parties. (c) If it is determined, either by the Parties' mutual agreement or by such independent laboratory, that the rejected lot of Finished Product did not conform to the applicable Specifications and/or warranties, Aviron shall, as promptly as is commercially reasonable, replace such rejected lot with a conforming lot as provided in subsection (a) above. Such replacement shall be Aviron's sole responsibility to Wyeth-Ayerst for non-conforming Finished Product. Rejected lots shall be returned to Aviron or disposed of at Aviron's expense, in accordance with Aviron's instructions. In the event of any destruction of a non-conforming lot, Wyeth-Ayerst shall deliver to Aviron an appropriate certificate of destruction. (d) In the event that Wyeth-Ayerst has paid Aviron for Finished Product which the Third Party tester determines does not conform to the Specifications, Wyeth-Ayerst shall receive a credit to its account for such amounts actually paid to Aviron for such non-conforming Finished Product, provided that Wyeth-Ayerst shall remain liable for all payments owed to Aviron under Article 7 for replacement Finished Product accepted by Wyeth-Ayerst hereunder. Such credit may only be applied to costs incurred by Wyeth-Ayerst under this Agreement. Wyeth-Ayerst shall receive a refund of any such credit existing at the expiration or termination of this Agreement. 7. PRICING AND PAYMENT FOR [***] PRODUCT 7.1 TRANSFER PRICE. The transfer price for each dose of each [***] Product supplied by Aviron to Wyeth-Ayerst hereunder shall be [***] of the average Net Sales per dose for the relevant Flu Season (the "Transfer Price"). 7.2 TRANSFER PRICE PAYMENT. (a) [***] PRODUCT, FIRST FLU SEASON. (i) For the first Flu Season during which [***] Product is sold commercially in the U.S. Territory, Wyeth-Ayerst shall make an advance payment to Aviron of [***] per dose of [***] Product multiplied by the number of doses estimated to be sold during the applicable Flu Season according to the U.S. [***] Forecast (the "Transfer Price Payment"), - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 11. 13 in order to assist Aviron in defraying its initial manufacturing expenses. Except as set forth in subsection (ii) below, the Transfer Price Payment shall be paid in full on the January 1 of the Calendar Year in which such Flu Season begins. (ii) In the event that on or following the October 1 preceding the Calendar Year in which such Flu Season begins and prior to January 1 of such Calendar Year, Aviron determines that there is a reasonable likelihood that it will [***] Aviron shall so notify Wyeth-Ayerst in writing. Wyeth-Ayerst shall pay to Aviron up to [***] of the Transfer Price Payment as requested by Aviron as soon as reasonably practicable following Wyeth-Ayerst's receipt of such notice, or shall otherwise provide to Aviron such [***], but in no event shall Wyeth-Ayerst be required to pay more than [***] of the Transfer Price Payment to Aviron pursuant to such notice. Wyeth-Ayerst shall pay Aviron the balance of the Transfer Price Payment in three (3) equal installments on the January 1, April 1 and July 1 of the Calendar Year in which such Flu Season begins. (b) OTHER TRANSFER PRICE PAYMENTS. For all [***] Product that is [***] Product, and for all [***] Product to which subsection (a) above does not apply, the Transfer Price Payment shall be [***] of the projected Net Sales in the relevant Forecast for the relevant Flu Season. Wyeth-Ayerst shall pay Aviron such Transfer Price Payment upon Wyeth-Ayerst's acceptance of such [***] Product, calculated by multiplying the number of doses of Finished Product accepted by the average Net Sales price per dose based upon the applicable Forecast. 7.3 RECONCILIATION. (a) CALCULATION OF TRANSFER PRICE. Within thirty (30) days following the end of each Flu Season, Wyeth-Ayerst shall provide Aviron with a written calculation of the Transfer Price per dose for [***] Product for such Flu Season based upon Net Sales of [***] Product during such Flu Season. (b) TRANSFER PRICE PAYMENT EXCEEDS TRANSFER PRICE. If the Transfer Price Payment for [***] Product for a given Flu Season exceeds the Transfer Price for such [***] Product payable by Wyeth-Ayerst for such Flu Season, Aviron shall pay Wyeth-Ayerst the difference between such amounts. (c) TRANSFER PRICE EXCEEDS TRANSFER PRICE PAYMENT. If the Transfer Price for an [***] Product for a given Flu Season exceeds the Transfer Price Payment for such [***] Product paid by Wyeth-Ayerst for such Flu Season, Wyeth-Ayerst shall pay to Aviron the difference between such amounts. (d) TIMING. All payments due under this Section 7.3 shall be made within thirty (30) days of Aviron's receipt from Wyeth-Ayerst of the calculation report set forth in Section 7.3(a). (e) AUDITING. Aviron shall have the right to audit Wyeth-Ayerst's records in order to conform its calculation of the Transfer Price, in accordance with the procedures provided in Section 17.4 of the U.S. Agreement or Section 16.4 of the International Agreement, - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 12. 14 as applicable, provided that such audit shall be made within ninety (90) days of the end of the relevant Flu Season, but in no event more than once per each Calendar Year. 8. PROCEDURES AND PAYMENTS FOR [***] PRODUCT 8.1 SUPPLY OF [***]. (a) GENERAL. Aviron shall manufacture and supply to Wyeth-Ayerst the [***] hereunder, in accordance with the applicable Specifications and with GMP and all other relevant laws, rules and regulations promulgated by the applicable Regulatory Agency. (b) [***] TRANSFER PRICE AND PAYMENT. In the event that Aviron supplies [***] to Wyeth-Ayerst [***] for which [***] Wyeth-Ayerst shall pay Aviron for such [***] at a transfer price equal to [***] per each trivalent dose of Finished Product [***], as set forth in the applicable Forecast. Such transfer price shall be due and payable within [***] days of Wyeth-Ayerst's acceptance of such [***] pursuant to Section 8.1(d). (c) SHIPPING AND DELIVERY. Aviron shall deliver each lot of [***] to the [***] Aviron shall ship the [***] in a commercially reasonable manner using a validated shipping protocol approved by the applicable Development Committee. Risk of loss for each lot of [***] delivered hereunder shall transfer to Wyeth-Ayerst upon Wyeth-Ayerst's acceptance of such lot pursuant to Section 8.1(d). Each lot of [***] so delivered to Wyeth-Ayerst shall be accompanied by the appropriate analytical summaries for such lot as agreed upon in writing by the appropriate Development Committee. (d) ACCEPTANCE AND REJECTION. (i) Any lot of [***] released to Wyeth-Ayerst hereunder shall be received by Wyeth-Ayerst subject to inspection and testing by Wyeth-Ayerst or its designated agent, to ensure that such lot of [***] meets the applicable Specifications and otherwise complies with the warranties provided in this Agreement, in accordance with testing and release procedures for the [***] as established in the PLA as approved by the FDA or as otherwise required by the applicable Regulatory Agency. Wyeth-Ayerst shall be allowed a maximum of [***] days from the date of delivery of any shipment, or such other time period agreed in writing by the appropriate Development Committee, (the "Inspection Period") for inspection and provision of written notice to Aviron of rejection of any portion or all of that shipment. If Wyeth-Ayerst does not deliver such written notice to Aviron within the Inspection Period, such lot of [***] shall be deemed to have met the applicable Specifications and to comply with all warranties hereunder, and Wyeth-Ayerst shall be deemed to have accepted the shipment. Aviron shall, as soon as is commercially feasible, but in no event more than [***] days after receipt of a rejection notice from Wyeth-Ayerst, replace the rejected quantity of [***] subject to Sections 8.1(d)(ii) and (iii). (ii) Promptly following any rejection of a lot of [***] Aviron shall determine whether the rejected lot conformed to the applicable Specifications and warranties. If Aviron does not agree with Wyeth-Ayerst, the applicable Development Committee shall select - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 13. 15 an independent laboratory mutually acceptable to both Parties to carry out tests on representative samples from the rejected portion of the shipment. The results of these tests shall be binding on both Parties. (iii) If it is determined, either by the Parties' mutual agreement or by such independent laboratory, that the rejected lot of [***] did not conform to the applicable Specifications and/or warranties, Aviron shall, as promptly as is commercially reasonable, replace such rejected lot with a conforming lot as provided in subsection (i) above. Such replacement shall be the Aviron's sole responsibility to Wyeth-Ayerst for non-conforming [***] Aviron acknowledges and agrees that [***] performance of its obligations under Section [***]. Rejected lots shall be returned to Aviron or disposed of at Aviron's expense, in accordance with Aviron's instructions. In the event of any destruction of a non-conforming lot, Wyeth-Ayerst shall deliver to Aviron an appropriate certificate of destruction. Wyeth-Ayerst shall remain liable for all payments due to Aviron under subsection (b) above for all replacement [***] accepted by Wyeth-Ayerst pursuant to this subsection (d). 8.2 SUPPLY OF [***]. (a) MANUFACTURE, SHIPMENT AND DELIVERY. [***] shall deliver each lot of [***] facility, as directed by [***] expense. [***] shall ship the [***] in a commercially reasonable manner using a validated shipping protocol. Risk of loss for each lot of [***] delivered to [***] hereunder shall transfer to [***] upon [***] acceptance of such lot pursuant to Section 8.2(d). Such delivery shall be accompanied by the appropriate analytical summaries for such lot as agreed upon in writing by the appropriate Development Committee. (b) ACCEPTANCE AND REJECTION. (i) Any lot of [***] released to [***] hereunder shall be received by [***] subject to inspection and testing by [***] or its designated agent, to ensure that such lot of [***] meets the applicable Specifications and otherwise complies with the warranties provided in this Agreement, in accordance with testing and release procedures for the [***] established in the PLA as approved by the FDA or as otherwise required by the applicable Regulatory Agency. [***] shall be allowed a maximum of [***] days from the date of delivery of any shipment, or such other time period as agreed in writing by the appropriate Development Committee, (the "Inspection Period") for inspection and provision of written notice to [***] of rejection of any portion or all of that shipment. If [***] does not deliver such written notice to [***] within such Inspection Period, such lot of [***] shall be deemed to have met the applicable Specifications and to comply with all warranties hereunder, and [***] shall be deemed to have accepted the shipment. [***] shall, as soon as is commercially feasible, but in no event more than [***] days after receipt of a rejection notice from [***] replace the rejected quantity of [***] subjection to subsections (ii) and (iii) below. (ii) Promptly following any rejection of a lot of [***] Aviron and Wyeth-Ayerst agree to mutually determine whether the rejected lot conformed to the applicable Specifications and warranties. If the Parties cannot agree, the applicable Development - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 14. 16 Committee shall select an independent laboratory mutually agreeable to both Parties to carry out tests on representative samples from the rejected portion of the shipment. The results of these tests shall be binding on both Parties. (iii) If it is determined, either by the Parties' mutual agreement or by such independent laboratory, that the rejected lot of [***] did not conform to the applicable Specifications and/or warranties, [***] shall replace such rejected lot with a conforming lot. [***] acknowledges and agrees that [***] performance of its obligations under Section [***]. Rejected lots shall be returned to [***] or disposed of at [***] expense, in accordance with [***] instructions. In the event of any destruction of a non-conforming lot, [***] shall deliver to [***] an appropriate certificate of destruction. 8.3 [***] MANUFACTURE OF [***]. (a) DELIVERY AND SHIPMENT. [***] Product shall be shipped ex works Aviron's applicable [***] site. Receipt shall be made by Wyeth-Ayerst's designated carrier. Each lot of [***] Product so received shall be accompanied by the FDA lot release letter (to the extent required by the FDA) or comparable documentation from the applicable Regulatory Agency (if available), and other lot release specifications to be agreed upon by the applicable Development Committee. (b) ACCEPTANCE AND REJECTION. (i) Any lot of [***] Product released to Wyeth-Ayerst hereunder shall be received by Wyeth-Ayerst or its designated carrier subject to inspection and testing by Wyeth-Ayerst or its designated agent, to ensure that such lot of [***] Product meets the applicable Specifications and otherwise complies with the warranties provided in this Agreement, in accordance with testing and release procedures for the [***] Product, established in the PLA as approved by the FDA or other applicable Regulatory Agency. Wyeth-Ayerst shall be allowed a maximum of [***] days from the date of release of any shipment, or such other time period agreed in writing by the applicable Development Committee, (the "Inspection Period") for inspection and provision of written notice to Aviron of rejection of any portion or all of that lot. If Wyeth-Ayerst does not deliver such written notice to Aviron within the Inspection Period, such lot of [***] Product shall be deemed to have met the applicable Specifications and to comply with all warranties hereunder, and Wyeth-Ayerst shall be deemed to have accepted the shipment. Aviron shall, as soon as is commercially feasible, but in no event later than [***] days after receipt of a rejection notice from Wyeth-Ayerst, replace the rejected quantity of [***] Product, subject to Sections 8.3(c)(ii) and 8.3(c)(iii). (ii) Promptly following any rejection of a lot of [***] Product, Aviron shall determine whether the rejected lot conformed to the applicable Specifications and warranties. If Aviron does not agree with Wyeth-Ayerst, the applicable Development Committee shall select an independent laboratory mutually acceptable to both Parties to carry out tests on representative samples from the rejected portion of the lot. The results of these tests shall be binding on both Parties. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 15. 17 (iii) If it is determined, either by the Parties' mutual agreement or by such independent laboratory, that the rejected lot of [***]* Product did not conform to the applicable Specifications and/or warranties, Aviron shall, as promptly as is commercially reasonable, replace such rejected lot with a conforming lot as provided in subsection (i) above. Such replacement shall be Aviron's sole responsibility to Wyeth-Ayerst for non-conforming [***] Product. Rejected lots shall be returned to Aviron or disposed of at Aviron's expense, in accordance with Aviron's instructions. In the event of any destruction of a non-conforming lot, Wyeth-Ayerst shall deliver to Aviron an appropriate certificate of destruction. Wyeth-Ayerst shall remain liable for all payments owed to Aviron under subsection (c) below for all replacement [***] Product accepted by Wyeth-Ayerst pursuant to this subsection (b). (c) [***] PRODUCT TRANSFER PRICE. The combined transfer price for the [***] Product delivered by Aviron and accepted by Wyeth-Ayerst hereunder shall be the greater of [***] per trivalent dose of [***] Product, or [***] of the average Gross Sales Revenue per trivalent dose of Finished Product per Flu Season in the U.S. Territory or International Territory, as applicable. Wyeth-Ayerst shall pay Aviron such transfer price as follows: (i) [***]. For each lot of [***] accepted by Wyeth-Ayerst pursuant to Section 8.1(d), Wyeth-Ayerst shall pay Aviron an amount equal to [***] times the number of doses of [***] manufactured and supplied hereunder [***], based on the [***] (the "[***] Doses"). Such amount is due and payable to Aviron within [***] days of Wyeth-Ayerst's acceptance of the [***] pursuant to Section 8.1(d). (ii) [***] Wyeth-Ayerst shall pay Aviron an amount equal to [***] times the number of doses of [***] Product manufactured and supplied hereunder. Such payment is due and payable to Aviron within [***] days of Wyeth-Ayerst's acceptance of each lot thereof pursuant to Section [***]. (iii) RECONCILIATION. Within thirty (30) days following the end of each Flu Season in applicable Territory, Wyeth-Ayerst shall provide Aviron with a written calculation of (A) the average Gross Sales Revenue per dose of Finished Product sold in such Territory during such Flu Season, and (B) the number of doses of [***] Product delivered by Aviron and accepted by Wyeth-Ayerst pursuant to Section 8.3(b) in such Territory during such Flu Season (the "Doses Supplied"). The "Sales-Based Transfer Price" for [***] Product in such Territory during such Flu Season shall be deemed to be [***] of the product of (A) multiplied by (B). (1) If the Sales-Based Transfer Price for such Territory during such Flu Season exceeds the total amount paid by Wyeth-Ayerst to Aviron pursuant to subsections (i) and (ii) above for such [***] Product, then Wyeth-Ayerst shall pay Aviron the difference between such amount and the Sales-Based Transfer Price. All payments due under this subsection (iii) shall be made within thirty (30) days of Aviron's receipt from Wyeth-Ayerst of such calculation report. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 16. 18 (2) If Aviron [***] manufacture Finished Product under a U.S. [***] Forecast or an International Forecast, then Aviron shall [***] provided that Aviron shall not [***] to the extent that [***] arises from [***] hereunder in manufacturing the [***] from which the [***] Product was [***]. (d) AUDITS. Aviron shall have the right to audit Wyeth-Ayerst's records in order to confirm its calculation of the Sales-Based Transfer Price, in accordance with the procedures provided in Section 17.4 of the U.S. Agreement or Section 16.4 of the International Agreement, as applicable, provided that such audit shall be made within ninety (90) days of the end of the relevant Flu Season. 9. REGULATORY ISSUES 9.1 COMPLIANCE. (a) AVIRON. Aviron shall obtain and maintain, and shall require all of its contractors to obtain and maintain, all necessary permits, registrations and licenses required to manufacture and supply [***] Product under this Agreement. Aviron shall, and shall require all of its contractors to, manufacture and handle all [***] Product manufactured and supplied by Aviron hereunder in accordance with all laws, rules and regulations promulgated by the applicable Regulatory Agency, and in compliance with GMP. (b) WYETH-AYERST. Wyeth-Ayerst shall obtain and maintain all necessary permits, registrations and licenses required to manufacture and supply such [***] under this Agreement. Wyeth-Ayerst shall manufacture and handle all [***] manufactured and supplied by Wyeth-Ayerst hereunder in accordance with all applicable federal, state and local laws, government regulations, and in compliance with GMP. (c) COORDINATION OF EFFORTS. The applicable Development Committee will coordinate the Parties' efforts under this Section 9.1 in complying with all facilities and process regulatory requirements of the applicable Regulatory Agency. 9.2 AUDITS. (b) BY WYETH-AYERST. Wyeth-Ayerst shall have the right during normal business hours and upon reasonable notice to Aviron, but not more often than once during any Calendar Year, to inspect and audit in a reasonable manner Aviron's manufacturing and other facilities in order to ensure its compliance with its obligations under Section 9.1(a), including the inspection and audit of all batch records and lot release records for all lots of [***] supplied by Aviron hereunder. If any issue of product quality arises with respect to any of such [***], then Wyeth-Ayerst shall have the right to inspect the relevant manufacturing facilities, including all applicable documentation and records relating to the manufacture of the product in question, upon reasonable notice to Aviron. Aviron shall use Commercially Reasonable Efforts to obtain for Wyeth-Ayerst substantially similar audit rights from its contractors hereunder. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 17. 19 (b) BY AVIRON. Aviron shall have the right during normal business hours and upon reasonable notice to Wyeth-Ayerst, but not more often than once during any Calendar Year, to inspect and audit in a reasonable manner Wyeth-Ayerst's manufacturing and other facilities in order to ensure its compliance with its obligations under Section 9.1(b), including the inspection and audit of all batch records and lot release records for all lots of [***]* manufactured by Wyeth-Ayerst hereunder. If any issue of product quality arises with respect to any of such [***] then Aviron shall have the right to inspect the relevant manufacturing facilities, including all applicable documentation and records relating to the manufacture of the product in question, upon reasonable notice to Wyeth-Ayerst. 10. WARRANTIES, REPRESENTATIONS AND COVENANTS 10.1 BY AVIRON. Aviron hereby represents and warrants that all [***] manufactured by Aviron and supplied to Wyeth-Ayerst under this Agreement: (a) will conform to the applicable Specifications; (b) will not be adulterated or misbranded within the meaning of any applicable U.S. or other governmental law, rule, order or regulation; and (c) will comply with all U.S. laws, regulations, rules, standards, FDA approvals, registrations or permits, and all other regulatory permits, approvals and licenses applicable to the manufacture of such [***] In no event shall Aviron be liable under this Agreement for any failure of any [***] to meet the applicable Specifications due to improper use, storage or shipment by Wyeth-Ayerst. 10.2 BY WYETH-AYERST. Wyeth-Ayerst hereby represents and warrants that all [***] manufactured by Wyeth-Ayerst [***] under this Agreement, and all [***] manufactured by Wyeth-Ayerst under this Agreement and sold or distributed by Wyeth-Ayerst pursuant to the U.S. Agreement: (a) will conform to the applicable Specifications; (b) will not be adulterated or misbranded within the meaning of any applicable U.S. or other governmental law, rule, order or regulation; and (c) will comply with all U.S. laws, regulations, rules, standards, FDA approvals, registrations or permits, and all other regulatory permits, approvals and licenses applicable to the manufacture of such [***]. In no event shall Wyeth-Ayerst be liable under this Agreement for any failure of any [***] to meet the applicable Specifications due to improper use, storage or shipment by Aviron. 10.3 WARRANTY DISCLAIMERS AND LIMITATIONS. EXCEPT AS SPECIFICALLY SET FORTH IN SECTIONS 10.1 AND 10.2 ABOVE, NEITHER PARTY MAKES ANY WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO ANY [***] MANUFACTURED AND SUPPLIED HEREUNDER, AND SPECIFICALLY, WITHOUT LIMITATION, EACH PARTY HEREBY DISCLAIMS ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS SET FORTH ABOVE, NEITHER PARTY ASSUMES OR AUTHORIZES ANY PERSON TO ASSUME ANY LIABILITY OR WARRANTY IN CONNECTION WITH ANY [***] MANUFACTURED AND/OR SUPPLIED HEREUNDER. IN THE EVENT OF A BREACH BY AVIRON OF THE WARRANTY SET FORTH IN SECTION 10.1 ABOVE, OR A BREACH BY WYETH-AYERST OF THE WARRANTY SET FORTH IN SECTION 10.2 ABOVE, THE NON- - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 18. 20 BREACHING PARTY'S SOLE REMEDY WILL BE TO RETURN THE AFFECTED [***]* FOR REPLACEMENT OR CREDIT, IN ACCORDANCE WITH THE TERMS HEREOF. 10.4 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE, DATA OR USE, INCURRED BY THE OTHER PARTY, WHETHER IN CONTRACT OR TORT OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 11. TERM AND TERMINATION 11.1 TERM. The term of this Agreement will begin on the Effective Date and will expire on the later of (a) the date of expiration or termination of the U.S. Agreement (the "U.S. Termination Date"), or (b) the date of expiration or termination of the International Agreement (the "International Termination Date"), unless terminated earlier or extended by the mutual written agreement of the Parties. (a) In the event that the U.S. Termination Date occurs prior to the International Termination Date, all provisions of this Agreement specifically relating to the manufacture and supply of Product for the U.S. Territory shall terminate, except as set forth in Section 11.3 or otherwise explicitly stated herein, and all other provisions of this Agreement shall continue in full force and effect. (b) In the event that the International Termination Date occurs prior to the U.S. Termination Date, all provisions of this Agreement specifically relating to the manufacture and supply of Product for the International Territory shall terminate, except as set forth in Section 11.3 or otherwise explicitly stated herein, and all other provisions of this Agreement shall continue in full force and effect. 11.2 EFFECT OF TERMINATION. (a) CONFIDENTIAL INFORMATION. Each Party shall return all of the other Party's Confidential Information within sixty (60) days of termination or expiration of this Agreement. (b) WORK IN PROCESS. Upon termination or expiration of this Agreement, Wyeth-Ayerst shall provide Aviron with full particulars of all [***] (including quantities of [***], and the dates on which the [***] was manufactured) in its possession. Aviron shall be entitled, at its discretion, to purchase from Wyeth-Ayerst any such [***] at a fair and reasonable price to be agreed on in good faith by the Parties, but which in no event shall exceed [***] of the average Net Sales per dose based on the then-current Flu Season. If so requested by Aviron, Wyeth-Ayerst shall arrange for delivery of such [***] purchased by Aviron pursuant to this subsection (i) to such destination or destinations as may be designated by Aviron. All delivery arrangements shall be subject to the prior approval of Aviron. Freight and insurance of such delivery shall be at the cost of Aviron. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 19. 21 11.3 SURVIVAL. Sections 11.2 and 11.3, and Articles 10, 12, 13 and 14 of this Agreement shall survive any expiration or termination of this Agreement, or of any provisions thereof as provided in Section 11.1. Any and all claims and payment obligations that accrue prior to any termination or expiration of this Agreement, or of any provision hereof, shall survive such termination or expiration. 12. CONFIDENTIALITY 12.1 CONFIDENTIAL INFORMATION. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the Parties agree that the receiving Party shall keep confidential, and shall not publish or otherwise disclose or use for any purpose other than as provided for in this Agreement, any Information and other information and materials (including without limitation the Aviron Product Materials) furnished to it by the other Party pursuant to this Agreement or any Information developed during the course of the collaboration hereunder, or any provisions of this Agreement that are the subject of an effective order of the Securities Exchange Commission (the "SEC") granting confidential treatment pursuant to the Securities Act of 1934, as amended (collectively, "Confidential Information"), except to the extent that it can be established by the receiving Party that such Confidential Information: (a) was already known to the receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure to the receiving Party, and other than through any act or omission of the receiving Party in breach of this Agreement; (d) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information to others; or (e) was independently developed by employees of the receiving Party who had no knowledge of or access to the Confidential Information of the other Party. For Confidential Information other than the Aviron Product Materials and information relating to the Aviron Product Materials or the manufacture of the Product, the non-disclosure obligations under this Section 12.1 shall terminate upon the later of: (i) [***]* years following the expiration or termination of this Agreement, or (ii) [***] years from the Effective Date. 12.2 AUTHORIZED DISCLOSURE. (a) Each Party may disclose Confidential Information hereunder to the extent such disclosure is reasonably necessary in securing agreements with Third Party contractors, prosecuting or defending litigation or complying with applicable governmental regulations, - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 20. 22 provided, however, that if a Party is required by law or regulation to make any such disclosures of the other Party's Confidential Information it will, except where impracticable for necessary disclosures (for example in the event of medical emergency) give reasonable advance notice to the other Party of such disclosure requirement (e.g., filings with the SEC and stock markets) and, will use its reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed, unless in the judgement of such disclosing Party's legal counsel such Confidential Information is legally required to be fully disclosed. (b) In addition, and with prior notice to the other Party of each Third Party with whom a confidential disclosure agreement is being entered into, each Party shall be entitled to disclose, under a binder of confidentiality containing provisions at least as protective as those of this Article 12, Confidential Information to any Third Party for the purpose of carrying out the purposes of this Agreement. 13. MICHIGAN AGREEMENT 13.1 WYETH-AYERST OBLIGATIONS. Wyeth-Ayerst accepts that the following provisions of the Michigan Agreement are hereby incorporated by reference and shall be binding upon Wyeth-Ayerst as a "sublicensee" under the Michigan Agreement (as defined in Section 2.6 of the Michigan Agreement): (a) Section 3.5 (U.S. government "march-in" rights); (b) Article 4 (obligations and restrictions relating to [***] (as defined in Section [***] of the Michigan Agreement), products and their ownership and use); (c) Section 6.2 (duties of use of a nomenclature system); (d) Section 6.3 (duties to keep records and rights of inspection); (e) Section 8.5 (preference for U.S. manufacturers); (f) Article 9 (obligations regarding the periodic reporting, disclosure and grant of rights to certain intellectual property); (g) Section 13.4 (duties to avoid improper representations or responsibilities); (h) Article 14 (obligations to defend, hold harmless and indemnify Michigan); (i) Section 14.3 (obligations to retain insurance); (j) Section 15.2 (survival of certain obligations); (k) Section 15.5 (obligations relating to the return and non-use of [***] and certain intellectual property and prohibition on the manufacture of products after termination of the Michigan Agreement); - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 21. 23 (l) Section 15.6 (duties to provide rights to Michigan to certain intellectual property upon termination of the Michigan Agreement); (m) Articles 16 and 17 (duties relating to confidential information and to pre-publication disclosure); (n) Article 20 (duties to control export); and (o) Article 22 (duty to restrict use of Michigan's name). 13.2 USE OF AVIRON PRODUCT MATERIALS. Wyeth-Ayerst acknowledges and agrees that the Aviron Product Materials (as defined in the U.S. Agreement and the International Agreement) are confidential materials of Aviron and Michigan, and that access to the Aviron Product Materials shall be limited to those of its employees reasonably requiring such access for the purposes set forth in this Agreement, who further will be required, in writing, to treat the Aviron Product Materials as confidential. In addition, Wyeth-Ayerst agrees that in the event [***] other than the Aviron Product Materials come into its possession, it shall promptly notify Aviron in writing; provided, however, that although it is not the Parties' intent as of the Signing Date that [***] in the event that [***] Wyeth-Ayerst agrees [***] and shall not [***] upon expiration or termination of this Agreement, except to the extent [***] pursuant to [***]. 13.3 WARRANTY DISCLAIMER. Wyeth-Ayerst acknowledges Michigan's warranty disclaimer and limitation of liability contained in the Michigan Agreement, and will make no statements, representations or warranties inconsistent with such warranty disclaimer or limitation of liability. 13.4 COOPERATION. The Parties agree to cooperate reasonably with each other in assisting each Party to comply with its obligations under the Michigan Agreement as it pertains to such Party's performance of its rights and obligations under this Agreement. 14. INDEMNIFICATION 14.1 INDEMNIFICATION BY AVIRON. Except as set forth in Section 14.2 hereof, and except to the extent caused by Wyeth-Ayerst's or its Affiliates' or sublicensees' negligent, reckless or willful acts or omissions, Aviron shall indemnify, defend and hold Wyeth-Ayerst and its directors, officers, employees, agents and Affiliates harmless from and against any third party claims, damages, costs or expenses, including reasonable attorneys' fees (collectively, "Liabilities"), which Wyeth-Ayerst incurs by reason of any [***] supplied by Aviron to Wyeth-Ayerst hereunder that results in injury, death or illness of any person, to the extent that such claims arise out of, relate to or result from the breach by Aviron of any of its representations or warranties contained within this Agreement. 14.2 INDEMNIFICATION BY WYETH-AYERST. Except as set forth in Section 14.1 hereof, and except to the extent caused by Aviron's negligent, reckless or willful acts or omissions, Wyeth-Ayerst shall indemnify, defend and hold Aviron and its directors, officers, employees, agents and Affiliates harmless from and against any Liabilities which Aviron incurs by reason of - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 22. 24 any [***] manufactured by Wyeth-Ayerst hereunder that results in injury, death or illness of any person, to the extent such Liabilities arise out of, relate to or result from the breach by Wyeth-Ayerst of any of its representations or warranties contained within this Agreement. 14.3 INDEMNIFICATION PROCEDURES. A Party which intends to claim indemnification under Section 14.1 or 14.2 hereof (the "Indemnitee") shall promptly notify the other Party (the "Indemnitor") in writing of any third party claim, lawsuit or other action in respect of which the Indemnitee or any of its directors, officers, employees, agents and Affiliates intend to claim such indemnification. The Indemnitee shall permit, and shall cause its directors, officers, employees, agents and Affiliates to permit, the Indemnitor, at its discretion, to settle any such claim, lawsuit or other action and agrees to the complete control of such defense or settlement by the Indemnitor; provided that such settlement does not adversely affect the Indemnitee's rights hereunder or impose any obligations on the Indemnitee in addition to those set forth herein in order for it to exercise such rights. No such claim, lawsuit or other action shall be settled without the prior written consent of the Indemnitor, and the Indemnitor shall not be responsible for any legal fees or other costs incurred other than as provided herein. The Indemnitee, its directors, officers, employees, agents and Affiliates shall cooperate fully with the Indemnitor and its legal representatives in the investigation and defense of any claim, lawsuit or other action covered by the provisions of this Article 14. The Indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and expense. 14.4 INSURANCE. Each Party shall maintain comprehensive general liability insurance coverage, including products liability, with a minimum limit of not less than [***],* and shall provide the other Party with a certificate of such insurance as requested. 15. DISPUTE RESOLUTION 15.1 DISPUTES. (a) The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement that relate to either Party's rights and/or obligations hereunder or thereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 15 if and when a dispute arises under this Agreement. (b) Unless otherwise specifically recited in this Agreement, disputes between the Parties shall be first referred to the Commercialization Committee or Development Committee responsible for such issue by either Party as soon as reasonably possible after such dispute has arisen. If the relevant Commercialization Committee or Development Committee is unable to resolve such a dispute within ten (10) days of being requested by a Party to resolve such dispute, or if the preceding sentence is not applicable to such dispute, either Party may, by written notice to the other, have such dispute referred to their respective executive - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 23. 25 officers designated below or their designees, for attempted resolution by negotiations within fifteen (15) days after such notice is received. The designated officers are as follows: For Wyeth-Ayerst: President of Wyeth-Ayerst Global Pharmaceuticals For Aviron: Aviron Chief Executive Officer In the event such designated officers are unable to resolve such dispute, the Parties shall then be permitted to pursue all available remedies at law or in equity; provided, however, that no lawsuit may be commenced by one Party unless it gives the other Party fifteen (15) days notice of its intent to initiate an action. 16. MISCELLANEOUS 16.1 ASSIGNMENT. (a) Neither Party may assign its rights or obligations under this Agreement without the prior written consent of the other Party, except in connection with a merger, acquisition nor similar reorganization or the sale of all or substantially all of its assets, or, in the case of Wyeth-Ayerst, the sale or transfer of substantially all of the vaccine business of Wyeth-Ayerst. Subject to [***], this Agreement shall survive any such merger or reorganization of either Party with or into, or such sale of assets to, another party and no consent for such merger, reorganization or sale shall be needed; provided, that in the event of such merger, reorganization or sale, no intellectual property rights of the acquiring corporation shall be included in the technology licensed hereunder. (B) This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void. 16.2 CONSENTS NOT UNREASONABLY WITHHELD OR DELAYED. Whenever provision is made in this Agreement for either Party to secure the consent or approval of the other, that consent or approval shall not unreasonably be withheld or delayed, unless specifically otherwise provided. 16.3 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or any other similar cause beyond the control of the defaulting Party, provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure and has given the other Party prompt notice describing such event, the effect thereof and the actions being taken to avoid or remedy such force majeure; provided, however, that in no event shall a Party be required to settle any labor dispute or disturbance. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 24. 26 16.4 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 16.5 NOTICES. All notices hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), telexed, mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by express courier service, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof). If to Aviron: Aviron 297 North Bernardo Avenue Mountain View, California 94043 Attention: Chief Executive Officer Telephone: (650) 919-6600 Facsimile: (650) 919-6612 With copies to: Cooley Godward LLP 5 Palo Alto Square 3000 El Camino Real Palo Alto, California Attention: Barbara A. Kosacz Telephone: (650) 843-5000 Facsimile: (650) 857-0663 If to Wyeth-Ayerst: Wyeth-Ayerst Laboratories 555 Lancaster Avenue St. Davids, Pennsylvania, 19087 Attention: Sr. Vice President, Global Business Development Telephone: (610) 688-5809 Facsimile: (610) 688-9498 With copies to: American Home Products Corporation Five Giralda Drive Madison, New Jersey 07940 Attention: Sr. Vice President and General Counsel Telephone: (973) 660-6040 Facsimile: (973) 660-7155 16.6 WAIVER. Except as specifically provided for herein, the waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or any other of such Party's rights or remedies provided in this Agreement. 16.7 SEVERABILITY. If any term, covenant or condition of this Agreement or the application thereof to any Party or circumstances shall, to any extent, be held to be invalid or - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 25. 27 unenforceable, then (i) the remainder of this Agreement, or the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and (ii) the Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated. 16.8 AMBIGUITIES. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. 16.9 GOVERNING LAW. This Agreement shall be governed by and interpreted under the laws of the [***] as applied to contracts entered into and performed entirely in [***]* residents. 16.10 HEADINGS. The Sections and paragraph headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of the Sections or paragraphs to which they apply. 16.11 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16.12 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the U.S. Agreement, the International Agreement and the Credit Agreement (as defined in Section 13.1 of the U.S. Agreement) (collectively, the "Agreements"), including all Exhibits and Schedules attached thereto, set forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter thereof, and supersede and terminate all prior agreements and understandings between the Parties with respect to such subject matter, except as provided in Section 11.3(e) of the International Agreement. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties with respect to the subject matter thereof other than as set forth therein. No subsequent alteration, amendment, change or addition to the Agreements shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties. The Agreements, including without limitation the Exhibits, Schedules and attachments thereto, are intended to define the full extent of the legally enforceable undertakings of the Parties thereto with respect to the subject matter thereof, and no promise or representation, written or oral, which is not set forth explicitly is intended by either Party to be legally binding. Both Parties acknowledge that in deciding to enter into the Agreements and to consummate the transaction contemplated thereby neither Party has relied upon any statement or representations, written or oral, other than those explicitly set forth therein. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 26. 28 16.13 INDEPENDENT CONTRACTORS. The status of the Parties under this Agreement shall be that of independent contractors. Neither Party shall have the right to enter into any agreements on behalf of the other Party, nor shall it represent to any person that it has any such right or authority. Nothing in this Agreement shall be construed as establishing a partnership or joint venture relationship between the Parties. 16.14 CURRENCY. The references in this Agreement to amounts expressed in dollars ($) shall mean United States dollars. 16.15 EFFECTIVE DATE. The "Effective Date" of this Agreement shall be the same as the "Effective Date" as defined in the U.S. Agreement. In the event that the Effective Date has not occurred within three (3) months after the Signing Date, the Parties shall revert to their status prior to signing this Agreement; provided that Aviron may extend such three month period in one (1) month increments upon written notice to Wyeth-Ayerst, such extended period not to exceed three (3) months. This Section 16.15 shall bind Aviron and Wyeth-Ayerst upon execution of this Agreement, but the other provisions of the Agreement shall not become effective until the Effective Date. 27. 29 IN WITNESS WHEREOF, Aviron and Wyeth-Ayerst have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. AMERICAN HOME PRODUCTS CORPORATION AVIRON By: /s/ Gerad A. Jibilian By: /s/ Carol A. Olson ----------------------------- ------------------------------- Name: Name: ----------------------------- ------------------------------- Title: Title: ----------------------------- ------------------------------- 28. 30 TABLE OF CONTENTS
PAGE ---- 1. DEFINITIONS..........................................................................1 1.1 "[***] Product"...............................................................2 1.2 "[***] Product"...............................................................2 1.3 "Calendar Year"...............................................................2 1.4 "Commercialization Committee".................................................2 1.5 "Commercially Reasonable Efforts".............................................2 1.6 "Development Committee".......................................................2 1.7 "Effective Date"..............................................................2 1.8 "[***] Agreement".............................................................2 1.9 "Finished Product"............................................................2 1.10 "[***]".......................................................................2 1.11 "Flu Season"..................................................................2 1.12 "Forecast"....................................................................2 1.13 "[***] Product"...............................................................2 1.14 "[***] Monovalent"............................................................2 1.15 "Global Territory"............................................................2 1.16 "Gross Sales Revenue".........................................................3 1.17 "Good Manufacturing Practice" or "GMP"........................................3 1.18 "JCC".........................................................................3 1.19 "[***] Product"...............................................................3 1.20 "ICC".........................................................................3 1.21 "[***]".......................................................................3 1.22 "International Territory".....................................................3 1.23 "[***]".......................................................................3 1.24 "[***]".......................................................................3 1.25 "[***] Product"...............................................................3 1.26 "[***] Plant".................................................................3 1.27 "[***]".......................................................................3 1.28 "Michigan"....................................................................3
- ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. i. 31 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 1.29 "Michigan Agreement"..........................................................4 1.30 "Monovalent Bulk".............................................................4 1.31 "PLA".........................................................................4 1.32 "Product".....................................................................4 1.33 "[***]".......................................................................4 1.34 "Regulatory Agency"...........................................................4 1.35 "Secondary Manufacture" or "Secondary Manufacturing"..........................4 1.36 "Specifications"..............................................................4 1.37 "Territory"...................................................................4 1.38 "[***]".......................................................................4 1.39 "U.S. Territory"..............................................................5 1.40 "Working Seeds"...............................................................5 2. SCOPE................................................................................5 2.1 General Obligations and Rights of the Parties.................................5 2.2 Management by Commercialization Committees....................................6 2.3 Third Party Supply............................................................6 2.4 Wyeth-Ayerst Advisory Role....................................................7 3. PRODUCT FORECASTS FOR U.S. TERRITORY.................................................7 3.1 U.S. [***] Forecast...........................................................7 3.2 U.S. [***] Forecast...........................................................7 3.3 [***].........................................................................8 4. [***] FORECASTS FOR INTERNATIONAL TERRITORY..........................................8 4.1 Forecasts.....................................................................8 5. FAILURE TO [***].....................................................................9 5.1 Notice of [***]...............................................................9 5.2 [***] Product.................................................................9 5.3 [***]........................................................................10 5.4 Sole Remedy..................................................................10 6. SPECIFICATIONS, DELIVERY AND ACCEPTANCE OF [***] PRODUCT............................10
- ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. ii. 32 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 6.1 Specifications...............................................................10 6.2 Delivery and Shipment........................................................10 6.3 Acceptance and Rejection.....................................................10 7. PRICING AND PAYMENT FOR [***] PRODUCT...............................................11 7.1 Transfer Price...............................................................11 7.2 Transfer Price Payment.......................................................11 (a) [***] Product, First Flu Season.......................................11 (b) Other Transfer Price Payments.........................................12 7.3 Reconciliation...............................................................12 8. PROCEDURES AND PAYMENTS FOR [***] PRODUCT...........................................13 8.1 Supply of [***]..............................................................13 8.2 Supply of [***]..............................................................14 8.3 [***] Manufacture of [***]...................................................15 9. REGULATORY ISSUES...................................................................17 9.1 Compliance...................................................................17 9.2 Audits.......................................................................17 10. WARRANTIES, REPRESENTATIONS AND COVENANTS...........................................18 10.1 By Aviron....................................................................18 10.2 By Wyeth-Ayerst..............................................................18 10.3 Warranty Disclaimers and Limitations.........................................18 10.4 Limitation of Liability......................................................19 11. TERM AND TERMINATION................................................................19 11.1 Term.........................................................................19 11.2 Effect of Termination........................................................19 11.3 Survival.....................................................................20 12. CONFIDENTIALITY.....................................................................20 12.1 Confidential Information.....................................................20 12.2 Authorized Disclosure........................................................20 13. MICHIGAN AGREEMENT..................................................................21
- ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. iii. 33 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 13.1 Wyeth-Ayerst Obligations.....................................................21 13.2 Use of Aviron Product Materials..............................................22 13.3 Warranty Disclaimer..........................................................22 13.4 Cooperation..................................................................22 14. INDEMNIFICATION.....................................................................22 14.1 Indemnification by Aviron....................................................22 14.2 Indemnification by Wyeth-Ayerst..............................................22 14.3 Indemnification Procedures...................................................23 14.4 Insurance....................................................................23 15. DISPUTE RESOLUTION..................................................................23 15.1 Disputes.....................................................................23 16. MISCELLANEOUS.......................................................................24 16.1 Assignment...................................................................24 16.2 Consents Not Unreasonably Withheld or Delayed................................24 16.3 Force Majeure................................................................24 16.4 Further Actions..............................................................25 16.5 Notices......................................................................25 16.6 Waiver.......................................................................25 16.7 Severability.................................................................25 16.8 Ambiguities..................................................................26 16.9 Governing Law................................................................26 16.10 Headings.....................................................................26 16.11 Counterparts.................................................................26 16.12 Entire Agreement; Amendments.................................................26 16.13 Independent Contractors......................................................27 16.14 Currency.....................................................................27 16.15 Effective Date...............................................................27
iv. EX-10.23 5 CREDIT AGREEMENT 1 EXHIBIT 10.23 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of January 11, 1999 (the "Agreement") is between AVIRON, a Delaware corporation ("Aviron"), and AMERICAN HOME PRODUCTS CORPORATION, a Delaware corporation ("AHPC"). WITNESSETH WHEREAS, Aviron [***]* to continue the development of its intranasal influenza vaccine product and for general operational requirements and has requested that AHPC provide Aviron with loans (the "Loans") in the aggregate principal amount of up to [***]; and WHEREAS, AHPC is willing to so advance such funds necessary to cover such expenses of Aviron, on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements herein contained, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS Whenever used in this Agreement, unless otherwise clearly indicated by the context, the following terms shall have the meanings specified below: 1.01 "AFFILIATE" shall mean as to any Person, any other Person which, directly or indirectly, either controls, is controlled by or is under common control with such Person. "Control" as used in this Section 1.01 shall mean having the power to direct, or cause the direction of, the management and policies of an entity, whether through ownership of voting securities, by contract or otherwise. Notwithstanding the foregoing, for purposes of this Agreement, the term "Affiliate" shall not include subsidiaries in which a Person or its Affiliates own a majority of the ordinary voting power to elect a majority of the board of directors but is restricted from electing such majority by contract or otherwise, until such time as such restrictions are no longer in effect. 1.02 "AVAILABILITY TERMINATION DATE" shall mean the earlier of (i) the termination of both the U.S. Co-Promotion Agreement and the International License Agreement in accordance with their respective terms and (ii) the [***] Aviron of the [***] (as defined in the U.S. Co-Promotion Agreement). 1.03 "BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or legal holiday in the State of New York, on which banks are open for substantially all their banking business in New York City. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 1. 2 1.04 "CAPITAL STOCK" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of, such Person's capital stock, and any and all rights, warrants or options exchangeable for or convertible into such capital stock. 1.05 "COLLATERAL" shall mean all collateral and security as described in the Security Agreement. 1.06 "COMMISSION" shall have the meaning set forth in Section 3.06. 1.07 "COMMON STOCK" means the common stock, $.001 par value, of Aviron. 1.08 "CONSOLIDATED NET WORTH" means, with respect to any Person at any date of determination, the consolidated stockholders' equity represented by the shares of such Person's Capital Stock outstanding at such date, as determined on a consolidated basis in accordance with United States generally accepted accounting principles. 1.09 "U.S. CO-PROMOTION AGREEMENT" shall mean the United States License and Co-Promotion Agreement of even date herewith between Aviron and AHPC with respect to Aviron's intranasal influenza vaccine product. 1.10 "CREDIT EVENT" shall mean each borrowing hereunder. 1.11 "DOLLARS" or the symbol "$" shall mean dollars in lawful currency of the United States of America. 1.12 "DRAWDOWN DATE" shall mean the date Aviron borrows or draws down a Loan. 1.13 "EVENT OF DEFAULT" shall have the meaning assigned such term in Article IX hereof. 1.14 "EXCHANGE ACT" shall have the meaning set forth in Section 3.02. 1.15 "FDA" shall mean the federal Food and Drug Administration of the U.S. Department of Health and Human Services. 1.16 "FINANCIAL OFFICER" shall mean, with respect to any Person, its Chairman of the Board, President, or Chief Financial Officer. 1.17 "GUARANTEE" shall mean any obligation, contingent or otherwise, of any Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or obligation of any other Person in any manner, whether directly or indirectly. 1.18 "INDEBTEDNESS" shall mean, with respect to any Person, (a) all obligations of such Person for borrowed money, or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes, notes convertible into shares of Common Stock or other similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person for the deferred purchase - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 2. 3 price of property of services, except current accounts payable arising in the ordinary course of business and not overdue, (e) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, (f) all Indebtedness of any third party secured by property or assets of such Person, and (g) all Guarantees of such Person. 1.19 "INTERNATIONAL LICENSE AGREEMENT" shall mean the International FluMist(TM) License Agreement of even date herewith between Aviron and AHPC with respect to Aviron's intranasal influenza vaccine product. 1.20 "LIEN" shall mean, with respect to any asset, (i) any mortgage, lien, pledge, encumbrance, charge or security interest in or on such asset, (ii) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset, (iii) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities or (iv) any other right of or arrangement with any creditor to have his claim satisfied out of such assets, or the proceeds therefrom, prior to the general creditors of the owner thereof. 1.21 "LOANS" shall have the meaning set forth in the first WHEREAS clause of this Agreement. 1.22 "MATERIAL ADVERSE EFFECT" shall have the meaning set forth in Section 3.01 hereof. 1.23 "NOTE OR NOTES" shall have the meaning assigned to such term in Section 2.03(a) hereof. 1.24 "PERMITTED INDEBTEDNESS" means (i) Indebtedness of Aviron existing on the date hereof; (ii) all Indebtedness of Aviron or its Subsidiaries incurred from time to time in connection with the purchase of goods, materials or services in the ordinary course of business and owed to trade creditors; (iii) Indebtedness of Aviron under the Loans; (iv) other Indebtedness of Aviron or its Subsidiaries not to exceed [***]* in any fiscal year during the term hereof or [***] in the aggregate outstanding at any time; (v) Indebtedness of Aviron or its Subsidiaries owing to financial institutions not to exceed [***] in the aggregate; (vi) Indebtedness that by its terms is expressly subordinated in right of payment to the Loans; (vii) Indebtedness of Aviron or its Subsidiaries secured by a Lien described in subsection (iii) of the definition of "Permitted Liens" below; (viii) Guarantees and other credit support of the obligations of vendors and suppliers of Aviron or its Subsidiaries in respect of transactions entered into in the ordinary course of business; (ix) Indebtedness of Aviron or its Subsidiaries in respect of capital lease obligations; (x) prepaid royalties owing to, and deferred revenue of, Aviron or its Subsidiaries in the ordinary course of business; (xi) Indebtedness to the extent incurred specifically for, and limited to the financing of, Aviron's manufacturing facility and leasehold improvements thereto; and (xii) any deferrals, renewals, extensions, replacements, or refinancings of, or amendments, modifications or supplements to, Indebtedness described above. 1.25 "PERMITTED LIENS" means (i) any Liens existing on the date hereof; (ii) Liens to secure Permitted Indebtedness owing to financial institutions (ii) Liens for taxes, fees, - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 3. 4 assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; (iii) Liens (A) upon or in any property acquired or held by Aviron to secure the purchase price of such property or Indebtedness incurred solely for the purpose of financing the acquisition of such property, or (B) existing on such property at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such property; (iv) Liens on property leased by Aviron pursuant to operating or capital leases in the ordinary course of business (including proceeds thereof and accessions thereto) incurred solely for the purpose of financing the lease of such property; (v) leases or subleases and licenses and sublicenses granted to others in the ordinary course of Aviron's business not interfering in any material respect with the business of Aviron and its Subsidiaries taken as a whole, and any interest or title of a lessor, licensor or under any lease or license; (vi) Liens on assets (including the proceeds thereof and accessions thereto) that existed at the time such assets were acquired by Aviron (including any Liens on assets of any Person that existed at the time it became or becomes a Subsidiary); provided such Liens are not granted in contemplation of or in connection with the acquisition of such asset by Aviron; (vii) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under this Agreement; (viii) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances affecting real property not constituting a Material Adverse Effect; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of customs duties in connection with the importation of goods; (x) Liens which constitute rights of set-off of a customary nature or bankers' or securities intermediaries' Liens with respect to amounts on deposit or investment property, whether arising by operation of law or by contract, in connection with arrangements entered into with banks and securities intermediaries in the ordinary course of business; and (xi) Liens on Aviron's manufacturing facility, leasehold improvements thereto and proceeds thereof. 1.26 "PERSON" shall mean any natural person, corporation, business trust, association, limited liability company, company, joint venture, partnership or government or any agency or political subdivision thereof. 1.27 "PREFERRED STOCK" shall have the meaning set forth in Section 3.03. 1.28 "PRIME RATE" shall mean the rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank at its principal office in New York City as its prime rate (each change in the Prime Rate to be effective on the date such change in the prime rate is publicly announced). 1.29 "RESPONSIBLE OFFICER" shall mean, with respect to any Person, the Chairman, President, or any Vice President of such Person. 1.30 "SEC DOCUMENTS" shall have the meaning set forth in Section 3.05. 1.31 "SECURITIES ACT" shall have the meaning set forth in Section 4.01. 1.32 "SECURITY AGREEMENT" shall mean a Security Agreement dated as of the date of the initial draw down, between Aviron and AHPC, in conformity with the requirements set forth 4. 5 in the U.S. Co-Promotion Agreement and the International License Agreement and otherwise in form and substance satisfactory to AHPC. 1.33 "SUBSIDIARY" shall mean, with respect to any Person, any corporation, partnership or joint ventures of which securities or other ownership interests representing more than 50% of the ordinary voting power are, at the time as of which any determination is being made, owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. 1.34 "TRANSACTIONS" shall have the meaning set forth in Section 3.02. ARTICLE II THE LOANS 2.01 THE LOANS. (a) During the term hereof and subject to the terms and conditions and relying upon the representations and warranties herein set forth, AHPC agrees to make Loans to Aviron at any time and from time to time commencing with the date of regulatory approval by the FDA to market Aviron's intranasal influenza vaccine product for use in the Field through the Availability Termination Date, in an aggregate amount not to exceed [***]* subject to Sections 2.01 (b) and (c), below. Each Loan shall be in an amount not less than [***] per draw down; provided, however, that if the aggregate balance remaining for available Loans is less than [***] Aviron shall have the right to drawdown the balance of such remaining amount. (b) To the extent AHPC has purchased shares of Common Stock (or instruments convertible into shares of Common Stock) pursuant to Section 11.3 of the International License Agreement, the aggregate amount borrowable hereunder shall automatically be [***] of shares of Common Stock (or instruments convertible into shares of Common Stock pursuant to Section 11.3 of the International License Agreement) so purchased. (c) The initial Loans shall be made subject to satisfaction of the conditions set forth in Sections 6.01 and 6.02 against delivery of the Note. 2.02 NOTICE OF BORROWINGS. Aviron may draw down Loans on any Business Day, provided, however, that Aviron shall give AHPC written notice of each such borrowing in the form of Exhibit B not later than 12:00 noon, New York City time, three (3) Business Days before a proposed borrowing. 2.03 NOTES; REPAYMENT OF LOANS. (a) Each Loan shall be evidenced by a separate note (each, a "Note" and collectively with other Notes, the "Notes"), duly executed on behalf of Aviron, dated the Drawdown Date for each Loan, in substantially the form of Exhibit C hereto. - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 5. 6 (b) The outstanding principal balance of each Loan shall mature and be due and payable on the [***] anniversary of the making of such Loan, such principal amount being subject to reduction pursuant to Section 2.07 of this Agreement. Each Loan shall bear interest from its date on the outstanding principal balance thereof, as provided in Section 2.04. (c) AHPC shall, and is hereby authorized by Aviron, to endorse on the schedule attached to each Note an appropriate notation evidencing the date and amount of each payment and prepayment with respect thereto; provided, however, that the failure of AHPC to make such a notation on any Note shall not affect any obligations of Aviron hereunder or thereunder. 2.04 INTEREST ON LOANS. Subject to the provisions of Section 2.06, each Loan shall bear interest at a floating rate per annum equal to [***]. Interest shall be computed based on the number of days elapsed in a year of 365 days for the actual days elapsed. Interest shall accrue on the unpaid principal amount of each Loan from the date on which the Loan is made to or on account of Aviron under this Agreement and shall be payable by Aviron on the last Business Day of each calendar quarter. Aviron shall make such payments of interest until the principal amount for each such Loan shall be paid in full. 2.05 [***] . Except as otherwise provided herein, all payments to be made by Aviron on account of principal and interest shall be made [***] and shall be made to AHPC in Dollars in immediately available funds at its principal office (or as otherwise directed by AHPC) not later than 12:00 noon New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). 2.06 INTEREST ON OVERDUE AMOUNTS. If Aviron shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder (by acceleration or otherwise), Aviron shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount from the date of such non-payment up to the date of actual payment (after as well as before judgment) at a rate per annum equal to the rate then in effect for such Loan [***]. 2.07 PREPAYMENT OF LOANS. (a) Aviron may upon two (2) Business Days' irrevocable notice to AHPC (i) prepay any Loan, as applicable, at any time in whole or from time to time in part; provided, however, that each such optional partial prepayment of any such term Loan shall be in an integral multiple of [***] and (ii) terminate the commitments hereunder; provided, however, that any such termination shall be effective only upon the repayment by Aviron of all principal, accrued interest and other amounts then owing hereunder and under the Notes. (b) AHPC may, at its option, [***] pursuant to the [***] hereunder and [***]. (c) Aviron shall make a mandatory prepayment of all principal, accrued interest and other amounts owing hereunder and under the Notes upon the occurrence of any - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 6. 7 event or series of events pursuant to which any Person, or two or more Persons acting in concert, acquire beneficial ownership (within the meaning of Rule 13d-3 of the Commission), directly or indirectly, of securities of Aviron representing greater than fifty percent of the combined voting power of all securities of Aviron entitled to vote in the election of directors in a transaction (i) in which the acquiring Person or Persons includes [***] or (ii) in which the [***]. Any mandatory prepayment pursuant to this Section 2.07(c) shall be paid in immediately available funds to an account as directed in writing by AHPC. (d) Aviron may [***] amounts that have been prepaid. 2.08 WARRANTS. Upon each Drawdown Date, Aviron will grant AHPC warrants to purchase Aviron common stock, in substantially the form of Exhibit A hereto, according to the terms set forth in Schedule 2.08. In addition, Aviron agrees that as soon as reasonably practicable following each issuance of warrants hereunder it will file a registration statement for the non-underwritten resale of the Aviron common stock issuable upon exercise of such warrants. Aviron agrees that it will use commercially reasonable efforts to cause such registration to become effective as soon as practicable and will keep such registration effective until the earlier of (i) the sale by AHPC of all shares issued upon exercise of the warrant, or (ii) [***] years following the issuance of the warrant. ARTICLE III REPRESENTATIONS AND WARRANTIES OF AVIRON Aviron represents and warrants to AHPC that: 3.01 ORGANIZATION, CORPORATE. Aviron is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware, has the requisite power and authority to own its property and assets and to carry on its business as now conducted and is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not have a material adverse effect on the business, condition (financial or otherwise), assets, operations performance, properties or prospects of Aviron (each, a "Material Adverse Effect"). Aviron has the corporate power to borrow hereunder and to execute and deliver the Notes and has the corporate power to execute, deliver and perform its obligations under this Agreement and the Security Agreement. 3.02 AUTHORIZATION. The execution, delivery and performance by Aviron of this Agreement, the Security Agreement, the borrowings hereunder, the execution and delivery by Aviron of the Notes and the grant of security interests in the Collateral (collectively, the "Transactions") (a) have been duly authorized by all requisite corporate and, if required, stockholder action and (b) will not (i) violate (A) any provision of law (including, without limitation, the Securities Exchange Act of 1934, as amended (the "Exchange Act")) statute, rule or regulation or the certificate of incorporation or the by-laws of Aviron, (B) any order of any court, or any rule, regulation or order of any other agency of government binding upon or applicable to Aviron, or (C) any provisions of any indenture, agreement or other instrument to - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 7. 8 which Aviron or any of its properties or assets are or may be bound, (ii) result in the creation or imposition of any Lien, or any other type of preferential arrangement upon any property or assets of Aviron or (iii) violate or result in a breach or result in the acceleration or termination of, or the creation in any third party of the right to accelerate, terminate, modify or cancel, any material indenture, contract, lease, sublease, loan agreement, note or other material obligation or liability to which Aviron is a party or is bound. 3.03 CAPITALIZATION. As of the date of this Agreement, the authorized capital stock of Aviron is 35,000,000 shares, consisting of 5,000,000 shares of Preferred Stock, $.001 par value (the "Preferred Stock"), and 30,000,000 shares of Common Stock. As of the date hereof no shares of Preferred Stock are issued and outstanding, and as of November 4, 1998, 15,718,991 shares of Common Stock were issued and outstanding. Except as disclosed in the SEC Documents and except for the transactions contemplated hereby, since November 15, 1998, Aviron has not issued any shares of Preferred Stock or Common Stock, granted any option (except for stock options granted under the Aviron's employee, consultant and director stock option plans), warrants, rights (including conversion or preemptive rights, except for stock purchased under Aviron's stock purchase plans), or similar rights to any person or entity to purchase or acquire any rights with respect to any shares of capital stock of Aviron. The outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable; and none of the outstanding shares of Common Stock were issued in violation of the preemptive rights, if any, of any stockholder of Aviron. 3.04 INDEBTEDNESS. Schedule 3.04 sets forth a complete and correct list of all outstanding Indebtedness of Aviron as of the date hereof. Except as described in the SEC Documents, Aviron is not in default and no waiver of default is currently in effect, in the payment of any principal or interest on any indebtedness of Aviron and no event or condition exists with respect to any Indebtedness of Aviron that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. 3.05 FULL DISCLOSURE. Aviron has furnished to AHPC Aviron's annual report on Form 10-K for the fiscal year ended December 31, 1997, Aviron's Current Report on Form 8-K dated March 17, 1998, Aviron's quarterly reports on Form 10-Q for the quarterly periods ended March 31, 1998, June 30, 1998 and September 30, 1998 and all documents filed by Aviron pursuant to any of Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act (collectively, the "SEC Documents") since September 30, 1998. Aviron warrants that, as of their respective dates (or if amended, as of the date of such amendment), the SEC Documents complied as to form with the requirements of the Exchange Act, and the information contained in such documents did not contain any untrue statement of a material fact, and did not omit to state any material fact necessary to make any statement, in light of the circumstances under which such statement was made, not misleading. 3.06 SEC FILINGS. Aviron has timely filed with the Securities and Exchange Commission (the "Commission") all reports and other documents required to be so filed. 3.07 GOVERNMENTAL APPROVALS. No registration, notices or filing (other than the filings necessary to perfect the liens and security interests created by the Security Agreement) 8. 9 with or consent or approval of, or other action by, any federal, state or other governmental agency, authority or regulatory body is or will be required in connection with the Transactions. 3.08 BINDING EFFECT. This Agreement and the Security Agreement constitutes, and the Notes, when duly executed and delivered by Aviron, will constitute valid, legal and binding obligation of Aviron, enforceable in accordance with its terms, subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency and similar laws affecting the enforcement of creditors' rights generally and by general principles of equity. 3.09 MATERIAL ADVERSE CHANGE. Since September 30, 1998, except as provided in Schedule 3.09 hereto, there has been no change or effect which has had or would be reasonably likely to have a Material Adverse Effect. 3.10 LITIGATION; COMPLIANCE WITH LAWS; ETC. Except as described in the SEC Documents: (a) There are no actions, suits or proceedings at law or in equity or by or before any governmental instrumentality or other agency or regulatory authority now pending or, to the knowledge of any Responsible Officer of Aviron, threatened against or affecting Aviron or the business, assets or rights of Aviron (i) which involve any of the Transactions or (ii) which if adversely determined would, individually or in the aggregate, materially impair the ability of Aviron to conduct its business or materially and adversely affect the business, assets, operations or financial condition of Aviron or impair the validity or enforceability of or the ability of Aviron to perform its obligations under this Agreement or the Security Agreement. (b) There are no violations of any law, or any default with respect to any judgment, writ, injunction, decree, rule or regulation of any court or governmental agency or instrumentality, where such violation or default would have a Material Adverse Effect. 3.11 TAXES. Aviron has filed or caused to be filed all federal, state, local and foreign tax returns which are required to be filed by it, on or prior to the date hereof, other than tax returns in respect of taxes which in the aggregate are not material and would not, if unpaid, result in the imposition of any Lien on any property or assets of Aviron. Aviron has paid or caused to be paid all taxes shown to be due and payable on such filed returns or on any assessments received by it, other than (i) any taxes or assessments the validity of which it is contesting in good faith by appropriate proceedings, and with respect to which it shall, to the extent required by generally accepted accounting principles applied on a consistent basis, have set aside on its books adequate reserves and (ii) taxes that in the aggregate are not material and which would not, if unpaid, result in the imposition of any Lien on any property or assets. 3.12 INVESTMENT COMPANY ACT. Aviron is not an "investment company" as defined in, or is otherwise subject to regulation under, the Investment Company Act of 1940, as amended. 3.13 USE OF PROCEEDS. The proceeds of the Loans made hereunder shall be used to finance the development, manufacture and commercialization of Aviron's intranasal influenza 9. 10 vaccine product and for general operational requirements. Such proceeds shall in no event be used for any other business purpose or in any way in violation of Regulation U of the Board of Governors of the Federal Reserve System. 3.14 SECURITY INTEREST. The Security Agreement , when executed and delivered, will create and grant to AHPC a legal, valid and enforceable security interest in the Collateral which shall be perfected upon the filing of Uniform Commercial Code financing statements in appropriate offices. Such Collateral is not subject to any other lien or security interest whatsoever except Permitted Liens. 3.15 TITLE TO PROPERTIES; POSSESSION UNDER LEASES; TRADEMARKS. (a) Aviron has good and marketable title to, or valid leasehold interest in, all of its properties and assets except for Permitted Liens and minor defects in title that do not interfere with its ability to conduct its business as now conducted. (b) Aviron has complied with all material obligations under all leases to which it is a party and under which it is in occupancy. Aviron has a valid lease-hold interest in all such leases and all such leases are in full force and effect. Aviron enjoys peaceful and undisturbed possession under all such leases. (c) Aviron owns, possesses or controls all trademarks, trademark rights, trade names, trade name rights, copyrights, patents, patent rights and licenses which are necessary for the conduct of the business of Aviron. To the best knowledge of Aviron, Aviron is not infringing upon or otherwise acting adversely to any trademarks, trademark rights, trade names, trade name rights, copyrights, patent rights or licenses owned by any other Person or Persons. There is no claim or action by any such other Person pending, or to the knowledge of Aviron threatened against Aviron with respect to any of the rights or property referred to in this Section 3.15(c). 3.16 ABSENCE OF CERTAIN DEVELOPMENTS. Except as disclosed in or contemplated by the SEC Documents, since September 30, 1998, Aviron has not (a) incurred or become subject to any material liabilities (absolute or contingent) except current liabilities incurred, and liabilities under contracts entered into, in the ordinary course of business, consistent with past practices; (b) sold, assigned or transferred any of its assets or canceled any debts or obligations except in the ordinary course of business, consistent with past practices; (c) suffered any extraordinary losses, or waived any rights of substantial value; (d) sold, assigned or transferred to a third party that is not an affiliate (within the meaning set forth in Rule 405 under the Act) any material trademark, trademark rights, trade names, trade name rights, copyrights, patents, patent rights, licenses or other intangible assets for compensation less than the fair value of such assets; (e) declared, paid or otherwise made any dividend or distribution of any kind on its capital stock; or (f) entered into any material transaction other than in the ordinary course of business, consistent with past practices. 10. 11 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AHPC 4.01 INVESTMENT INTENT. AHPC is acquiring the Notes for investment for its own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. AHPC understands that the Notes have not been registered under the Securities Act or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of AHPC's investment intent as expressed herein. 4.02 NO LEGAL, TAX OR INVESTMENT ADVICE. AHPC understands that nothing in this Agreement or any other materials presented to AHPC in connection with the issuance of the Notes constitutes legal, tax or investment advice. 4.03 CORPORATE POWER; AUTHORITY. AHPC has all requisite legal and corporate power and has taken all requisite corporate action to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly authorized, executed and delivered on behalf of AHPC and constitutes the valid, legal and binding agreement of AHPC, enforceable in accordance with its terms, subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency and similar laws affecting the enforcement of creditors' rights generally and by general principles of equity. ARTICLE V RESTRICTIONS ON TRANSFER 5.01 RESTRICTIONS ON TRANSFERABILITY. The Notes shall not be transferable in the absence of a registration under the Securities Act or an exemption therefrom. ARTICLE VI CONDITIONS OF CREDIT EVENTS The obligation of AHPC to make Loans hereunder shall be subject to the following conditions precedent: 6.01 ALL CREDIT EVENTS. On each date on which a Credit Event is to occur: (a) AHPC shall have received a notice of borrowing as required by Section 2.02. (b) AHPC shall have received a Note dated the Drawdown Date, duly executed by Aviron in the amount of such borrowing. (c) The representations and warranties set forth in Article III hereof and in any documents delivered in connection herewith, including without limitation, the Security Agreement, shall be true and correct in all material respects with the same effect as though made 11. 12 on and as of such date (except insofar as such representations and warranties relate expressly to an earlier date). (d) At the time of and immediately after such borrowing no Event of Default or event which with notice or lapse of time or both would constitute an Event of Default shall have occurred and be continuing. 6.02 INITIAL DRAWDOWN DATE. The obligation of AHPC in respect of the initial Credit Event hereunder are subject to the satisfaction of the following conditions precedent: (a) AHPC shall have received the favorable written opinion of counsel for Aviron, dated the Drawdown Date in respect of the matters set forth in Sections 3.01-3.09, 3.10(a) and 3.12, and satisfactory in form and substance to AHPC. (b) AHPC shall have received (i) a copy of the certificate of incorporation of Aviron, certified as of a recent date by the Secretary of State of Delaware, and a certificate as to the good standing of Aviron from such Secretary of State, in each case dated as of a recent date; (ii) a certificate of the Secretary of Aviron, dated the Drawdown Date and certifying (A) that attached thereto is a true and complete copy of its By-laws as in effect on the date of such certificate and as in effect at all times since the date of the resolutions described in item (B) below, (B) that attached thereto is a true and complete copy of resolutions adopted by its Board of Directors authorizing the execution, delivery and performance of this Agreement, the Security Agreement, the Notes and the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that its certificate of incorporation has not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to (i) above, and (D) as to the incumbency and specimen signature of each of Aviron's Responsible Officers executing this Agreement, the Notes, or any other document delivered in connection herewith or therewith to which it is a party; (iii) a certificate of another of its officers as to incumbency and signature of its Secretary; and (iv) such other documents as AHPC may reasonably request. (c) AHPC shall have received a certificate, dated the Drawdown Date and signed by a Financial Officer of Aviron, confirming compliance with the conditions precedent set forth in this Section 6.02. (d) AHPC shall have received the Security Agreement duly executed by Aviron. (e) AHPC shall have received certified copies of requests for copies of information on Form UCC-11 or certificates satisfactory to AHPC of a UCC Reporter Service, listing all effective financing statements which name as debtor Aviron and which are filed in the appropriate offices in the state in which are located the chief executive offices of Aviron, together with copies of such financing statements. (f) Each document (including, without limitation, each Uniform Commercial Code financing statement), required by law or reasonably requested by AHPC to be filed, registered or recorded in order to create in favor of AHPC a perfected security interest in the Collateral shall be properly filed, registered or recorded in each jurisdiction in which the filing, 12. 13 registration or recordation thereof is so required or requested. AHPC shall have received an acknowledgment copy, or other evidence satisfactory to it, of each such filing, registration or recordation. (g) AHPC shall have received the results of a search of the Uniform Commercial Code filings made with respect to Aviron in the jurisdictions in which Uniform Commercial Code filings have been made against Aviron pursuant to paragraph (e) above. (h) AHPC shall have received such other documents as it shall reasonably deem necessary and all other legal matters in connection with the Transactions shall be satisfactory to AHPC and its counsel. (i) AHPC shall have entered into a subordination agreement as contemplated by Section 13.2 of the U.S. Co-Promotion Agreement. ARTICLE VII AFFIRMATIVE COVENANTS Aviron covenants and agrees that, so long as AHPC shall have any obligation to make any Loans under this Agreement, or the principal of or interest on any Note shall be unpaid, unless AHPC shall otherwise consent in writing, it will: 7.01 COMPLIANCE WITH LAWS. Comply in all material respects with all applicable laws, rules, regulations and orders applicable to the operation of its business whether now in effect or hereafter enacted. 7.02 CORPORATE EXISTENCE. Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, rights (charter and statutory) and franchises. 7.03 BUSINESS AND PROPERTIES. At all times do or cause to be done all things necessary to preserve, renew and keep in full force and effect the rights, licenses, permits, franchises, patents, copyrights, trademarks and trade names material to its business to the extent reasonably necessary to further the best economic interests of Aviron; take all action which may be required to obtain, preserve, renew and extend all material licenses, permits, franchises and other authorizations to the extent reasonably necessary to further the best economic interests of Aviron; and at all times maintain, preserve and protect all property material to its business and keep such property in good repair, working order and condition (ordinary wear and tear excepted) and from time to time make, or cause to be made, all necessary and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times. 7.04 INSURANCE. (a) Keep its insurable properties adequately insured at all times by financially sound and reputable insurers, (b) maintain such other insurance, to such extent and against such risks, including business interruption, fire and other risks insured against by extended coverage, as is customary with companies similarly situated and in the same or similar businesses, (c) maintain in full force and effect public liability insurance against claims for 13. 14 personal injury or death or property damage occurring upon, in about or in connection with the use of any properties owned, occupied or controlled by Aviron, in such amount as Aviron shall reasonably deem necessary, (d) maintain such other insurance as may be required by law or as may be reasonably requested by AHPC for purposes of assuring compliance with this Section 7.04 and (e) furnish to AHPC, upon written request, full information as to the insurance carried. 7.05 TAXES. Pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might give rise to liens or charges upon such properties or any part thereof unless, in each case, the validity or amount thereof is being contested in good faith by appropriate proceedings, adequate reserves have been established with respect thereto and no Liens have attached to its properties or any portion thereof. 7.06 FINANCIAL STATEMENTS, REPORTS. ETC. Furnish to AHPC: (a) Promptly as they are available and in any event: (i) within five (5) Business days of the filing of Aviron's Form 10-K with the Commission after the end of each fiscal year of Aviron, the financial statements of Aviron filed with such Form 10-K, together with consolidating financial statements with respect to Aviron and (ii) within five (5) Business Days of the filing of Aviron's Form 10-Q with the Commission after the end of each of the first three fiscal quarters of Aviron, the financial statements of Aviron filed with such Form 10-Q, together with consolidating financial statements with respect to Aviron. (b) Promptly after the same become publicly available, copies of any registration statements, annual, periodic, current and other reports, and such proxy statements and other information, if any, as shall be filed by Aviron with the Commission pursuant to the requirements of the Securities Act or the Exchange Act; (c) At the same time as each delivery of financial statements pursuant to Section 7.06 (a), a certificate of Aviron's Financial Officer or other senior officer stating that he or she has reviewed the provisions of this Agreement and that to the best of his or her knowledge, Aviron is not in default in the observance or performance of any of the provisions hereof, or if Aviron shall be so in default, specifying all such defaults and events of which he or she may have knowledge and setting forth the calculation of compliance or noncompliance. (d) Such other information as AHPC may reasonably request from time to time. 7.07 LITIGATION AND OTHER NOTICES. Give AHPC prompt written notice of the following: (a) the issuance by any court or governmental agency or authority of any injunction, order, decision or other restraint prohibiting, or having the effect of prohibiting, the making of any of the Loans, or invalidating, or having the effect of invalidating, any provision of this Agreement or the Security Agreement or the initiation of any material litigation or material similar proceeding seeking any such injunction, order, decision or other restraint; 14. 15 (b) the filing or commencement of any material action, suit, proceeding or investigation against Aviron whether at law or in equity or by or before any court or any federal, state, municipal or other governmental agency or authority; (c) the occurrence of any Event of Default or event or condition which, with the giving of notice or lapse of time or both, would constitute an Event of Default, specifying the nature and extent thereof and the action (if any) which is proposed to be taken with respect thereto; and (d) any development in the business or affairs of Aviron which has resulted in or which in the good faith judgment of Aviron is reasonably likely to result in a Material Adverse Effect. 7.08 MAINTAINING RECORDS, ACCESS TO PROPERTIES AND INSPECTIONS. Maintain books and records in accordance with accepted business practices and, upon reasonable notice (which may be telephonic), at all reasonable times and as often as AHPC may reasonably request, permit any authorized representative designated by AHPC to visit and inspect the properties and financial books and records of Aviron and to make extracts from such books and records, and permit any authorized representative designated by AHPC to discuss the operations, affairs, finances and condition of Aviron, with the chief financial officer and such other officers as such Person shall deem appropriate such Person's independent public accountants, as applicable. 7.09 USE OF PROCEEDS. Use the proceeds of the Loans only for the purposes set forth in Section 3.13. 7.10 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature and any additional costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such obligations, except when the amount or validity of such obligations and costs is currently being contested in good faith by appropriate proceedings and reserves in conformity with generally accepted accounting principles with respect thereto have been provided on the books of Aviron. 7.11 FURTHER ASSURANCES. Execute any and all further documents and take all further actions which may be required under applicable law, or which AHPC may reasonably request, to grant, preserve, protect and perfect the security interest in the Collateral created by the Security Agreement. ARTICLE VIII NEGATIVE COVENANTS Aviron covenants and agrees that, so long as AHPC shall have any obligation to make any Loans under this Agreement, or the principal of or interest on any Note shall be unpaid, Aviron will not, and will not permit any of its Subsidiaries, without the written consent of AHPC, to: 15. 16 8.01 DIVIDENDS AND DISTRIBUTIONS. Except as set forth in Schedule 8.01, declare or pay, directly and indirectly, (i) any dividends or make any other distributions (other than dividends or other distributions payable solely in stock of Aviron or its Subsidiaries or dividends or other distributions payable from Aviron's Subsidiaries to Aviron), whether in cash, property, securities or a combination thereof, with respect to (whether by reduction of capital or otherwise) any shares of its capital stock, or directly or indirectly redeem, purchase, retire or otherwise acquire for value any shares of any class of its capital stock or set aside any amount for any such purpose or (ii) any amounts in respect of Indebtedness at any time owing to any Affiliate of Aviron. 8.02 INDEBTEDNESS. Incur, create, assume or permit to exist any Lien or any Indebtedness other than Permitted Liens and Permitted Indebtedness, or grant a security interest in any of Aviron's or its Subsidiaries' intellectual property; provided, however, that, subject to the terms of the U.S. Co-Promotion Agreement and the International License Agreement, nothing herein shall limit Aviron's or its Subsidiaries' ability to license or assign (but not grant a security interest in) its intellectual property if such licensing or assignment is in the best interests of Aviron and its Subsidiaries in the good faith judgment of Aviron. 8.03 CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. (a) Sell, lease, convey, transfer or assign to any Person or otherwise dispose of (whether in one transaction or a series of transactions), other than for fair value, assets (whether now owned or hereafter acquired) having a fair market value exceeding [***], or, permit another Person to merge into it or acquire in excess of 50% of its capital stock, or acquire all or substantially all the capital stock or assets of any other Person, if an Event of Default has occurred and is continuing or would result therefrom. (b) Consolidate with or merge with or into any Person or group of affiliated Persons in a single transaction or through a series of transactions, unless, after giving effect thereto either (i) Aviron shall be the continuing Person or (ii) the resulting surviving or transferee Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of Aviron, to be determined as of the effective date of the transaction. 8.04 BUSINESS. Alter the nature of its business in any material respect from that of the research, development, manufacturing and marketing of medical products. ARTICLE IX EVENTS OF DEFAULT In the case of the happening of any of the following events (herein called "Events of Default"): (a) any representation or warranty made or deemed made in or in connection with this Agreement, the Security Agreement or any Note or the borrowings hereunder or in any report, certificate, financial statement or other instrument or agreement furnished in connection - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 16. 17 with this Agreement, the Security Agreement or the execution and delivery of any Note or the borrowings hereunder shall prove to have been false or misleading in any material respect when made or deemed to be made; (b) default shall be made in the payment of any principal or interest of any Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise and such default shall continue for five days after written notice thereof; (c) default shall be made in the due observance or performance of any covenant, condition or agreement contained herein or in the Security Agreement and such default shall continue for [***] days, or material default shall be made in the due observance or performance of any covenant, condition or agreement contained in the U.S. Co-Promotion Agreement or International License Agreement and such default shall continue for [***] days after written notice thereof; (d) Aviron shall fail to pay any principal of or premium or interest on any Indebtedness in an original aggregate amount of [***] or more (but excluding any Indebtedness evidenced by a Note hereunder) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; (e) Aviron shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency, liquidation or similar law, (ii) consent to the institution of, or fail to contravene in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such Person or for a substantial part of its property or assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally, to pay its debts as they become due or (vii) take corporate action for the purpose of effecting any of the foregoing; (f) an involuntary proceeding shall be commenced or an involuntary petition shall be tried in a court of competent jurisdiction seeking (i) relief in respect of Aviron or of a substantial part of its property or assets under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment [***] = CONFIDENTIAL TREATMENT REQUESTED. 17. 18 of a receiver, trustee, custodian, sequestrator or similar official for Aviron or for a substantial part of the property of Aviron, or (iii) the winding-up or liquidation of Aviron; and such proceeding or petition shall continue undismissed for [***] or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for [***]; (g) a judgment or judgments for the payment of money (not reimbursed by insurance policies) shall be rendered by a court or other tribunal against Aviron and (i) shall remain undischarged for a period of [***] days from the entry thereof during which the execution of such judgment shall not have been stayed effectively or (ii) any judgment creditor shall legally commence actions to collect on or enforce such judgment; (h) this Agreement, the Security Agreement or any Note shall for any reason cease to be, or be asserted by Aviron not to be, a legal, valid and binding obligation enforceable in accordance with its terms, or the security interest or lien purported to be created by the Security Agreement shall for any reason cease to be, or be asserted by Aviron not to be, a valid, perfected security interest in any Collateral except as otherwise permitted by this Agreement; or (i) a Material Adverse Effect shall have occurred; then, and in any such event (other than an event described in paragraph (e) or (f) above), and at any time thereafter during the continuance of such event, AHPC may, by written or telegraphic notice to Aviron, take any or all of the following actions at the same or different times: (i) terminate forthwith all or any portion of the obligation to make additional Loans hereunder and (ii) declare any Note to be forthwith due and payable whereupon the principal of a Note, together with accrued interest thereon and other liabilities of Aviron accrued hereunder, shall become due and payable both as to principal and interest, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Aviron, anything contained herein or in any Note to the contrary notwithstanding; provided, however, that with respect to a default described in paragraph (e) or (f) above, the obligation to make additional Loans hereunder shall automatically terminate and all Notes, and any other liabilities of Aviron accrued hereunder shall automatically become due and payable, both as to principal and interest, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by Aviron, anything contained herein or in the Notes to the contrary notwithstanding. ARTICLE X MISCELLANEOUS 10.01 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given if delivered personally, mailed by reputable overnight courier or certified mail (return receipt requested) or sent by telecopier (confirmed thereafter by such certified mail) to the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice: (a) if to Aviron: - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 18. 19 Aviron 297 North Bernardo Avenue Mountain View, California 94043 Attention: J. Leighton Read, M.D. Chairman and Chief Executive Officer Fax: (650) 919-6612 With a copy to: Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, California 94306-2155 Attention: Barbara A. Kosacz, Esq. Fax: (650) 857-0663 (b) if to AHPC: American Home Products Corporation Five Giralda Farms Madison, New Jersey 07940 Attention: Treasurer Fax:; and a copy to General Counsel Fax: (973) 660-7155 Notices so given shall (in the case of notice so given by mail) be deemed to be given and received on the third calendar day after mailing or the next Business Day if sent by a reputable overnight courier and (in the case of notice so given by telecopier or personal delivery) on the date of actual transmission (as the case may be) personal delivery. 10.02 SURVIVAL OF AGREEMENT. All covenants, agreements, representations and warranties made by Aviron herein and in the certificates or other instruments prepared or delivered in connection with this Agreement or the Security Agreement shall be considered to have been relied upon by AHPC and shall survive the making of the Loans and the execution and delivery of the Notes and shall continue in full force and effect as long as the principal of or any accrued interest on the Notes or any other amount payable under the Notes or this Agreement is outstanding and unpaid. 10.03 SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of Aviron or AHPC that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. Aviron may not assign or transfer any of its rights or obligations hereunder without the written consent of AHPC. AHPC may assign, to any one or more Persons, all or a portion of its interests, rights and obligations under this Agreement or the Security Agreement (including, 19. 20 without limitation, all or a portion of the Loans at the time owing to it and the same portion of the Note held by it); provided, however, except following the occurrence of an Event of Default, AHPC may not assign any such interests, rights, and obligations to a Person that is not an Affiliate of AHPC without the written consent of Aviron. 10.04 EXPENSES; INDEMNITY. (a) Aviron agrees to pay all out-of-pocket expenses incurred by AHPC in connection with the enforcement or protection (whether through negotiations, legal proceedings or otherwise) of its rights in connection with this Agreement, the Security Agreement, a Note and the other documents to be delivered hereunder or with the Loans made or a Note, or in connection with any pending or threatened action, proceeding, or investigation relating to the foregoing, including but not limited to the reasonable fees and disbursements of counsel. Aviron further agrees that it shall indemnify AHPC from and hold it harmless against any documentary taxes, assessments or charges payable or determined to be payable in connection with the execution and delivery of this Agreement, the Security Agreement, a Note and the other documents to be delivered hereunder. (b) Aviron agrees to indemnify AHPC and its directors, officers, employees and agents against, and to hold AHPC and each such Person harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against AHPC or any such Person arising out of, in any way connected with, or as a result of this Agreement or the other documents contemplated hereby or thereby, the performance by the parties hereto and thereto of their respective obligations hereunder and thereunder and consummation of the transactions contemplated hereby and thereby; or any claim, litigation, investigation or proceedings relating to any of the foregoing, whether or not AHPC or any such Person is a party thereto; provided that such indemnity shall not apply to any such losses, claims, damages, liabilities or related expenses to the extent that they result from the gross negligence or willful misconduct of AHPC. (c) The provisions of this Section 10.04 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or a Note, or any investigation made by or on behalf of AHPC. All amounts due under this Section 10.04 shall be payable on written demand therefore. 10.05 APPLICABLE LAW. This Agreement, the Security Agreement and the Note shall be governed by and interpreted under the laws of the State of [***] as applied to contracts entered into and performed entirely in [***] residents. 10.06 PAYMENTS ON BUSINESS DAYS. Should the principal of or interest on the Note or any fee or other amount payable hereunder become due and payable on other than a Business Day, payment in respect thereof may be made on the next succeeding Business Day, and such 20. 21 extension of time shall in such ease be included in computing interest, it any, in connection with such payment. 10.07 WAIVERS; AMENDMENTS. (a) No failure or delay of AHPC in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of AHPC hereunder are cumulative and not exclusive of any rights or remedies which they may otherwise have. No waiver of any provision of this Agreement or any Note nor consent to any departure by Aviron therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Aviron in any case shall entitle any such party to any other or further notice or demand in similar or other circumstances. Each holder of any Note shall be bound by any amendment, modification, waiver or consent authorized as provided herein, whether or not any Note shall have been marked to indicate such amendment, modification, waiver or consent. (b) Neither this Agreement, nor any provision hereof, may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by Aviron and AHPC. 10.08 SEVERABILITY. In the event any one or more of the provisions contained in this Agreement or in a Note should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 10.09 ENTIRE AGREEMENT; AMENDMENTS; ETC. This Agreement, the U. S. Co-Promotion Agreement, the International License Agreement and the FluMist(TM) Supply Agreement entered into by and between Aviron and AHPC as of even date herewith (collectively, the "Agreements"), including all Exhibits and Schedules attached thereto, set forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between Aviron and AHPC with respect to the subject matter thereof, and supersede and terminate all prior agreements and understandings between Aviron and AHPC with respect to such subject matter, except as provided in Section 11.3(e) of the International License Agreement. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between Aviron and AHPC with respect to the subject matter thereof other than as set forth therein. No subsequent alteration, amendment, change or addition to the Agreements shall be binding upon Aviron and AHPC hereto unless reduced to writing and signed by the respective authorized officers of each of Aviron and AHPC. The Agreements, including without limitation, the Exhibits, Schedules and attachments thereto, are intended to define the full extent of the legally enforceable undertakings of Aviron and AHPC thereto with respect to the subject matter thereof, and no promise or representation, written or oral, which is 21. 22 not set forth explicitly is intended by either Aviron and AHPC to be legally binding. Both Aviron and AHPC acknowledge that in deciding to enter into the Agreements and to consummate the transaction contemplated thereby neither Aviron and AHPC has relied upon any statement or representations, written or oral, other than those explicitly set forth therein. 10.10 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. 10.11 HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. 10.12 EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall become effective upon the Effective Date (as defined in the U.S. Co-Promotion Agreement), and shall terminate upon the later of (a) the Availability Termination Date and (b) the repayment in full of all principal, interest and other amounts by Aviron hereunder and under the Notes. 22. 23 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AMERICAN HOME PRODUCTS CORPORATION AVIRON By: /s/ Gerad A. Jibilian By: /s/ Carol A. Olson ------------------------------ --------------------------------- CAROL A. OLSON SENIOR VICE PRESIDENT, COMMERCIAL DEVELOPMENT 23. 24 SCHEDULE 2.08 TERMS OF WARRANTS TERMS OF WARRANTS FOR WYETH-AYERST TO PURCHASE COMMON STOCK IN AVIRON o Warrants will be issued on the date Aviron receives a loan from Wyeth-Ayerst under Section 2 of this agreement: the "Date of Issue." o Warrants issued will have a 3-year Term from the Date of Issue, or will expire earlier upon a merger or consolidation of Aviron. o The strike price of the Warrants will be the 30-day trailing average of the Fair Market Value of Aviron Common Stock on the Date of Issue. o The Number of Warrants issued for each Loan will be calculated by Aviron using the Black-Scholes Option Pricing Model on the Date of Issue, provided that such calculation is subject to AHPC's acceptance of such calculation. If the parties disagree on such calculation, the calculation shall be made by a mutually acceptable independent third party. All such calculations shall be made using the following assumptions: Po Value of option Amount of Loan Multiplied by 5% Multiplied by the Loan Term Divided by the Number of Warrants Granted For example: $10,000,000 X 5% X 5 Years=$2,500,000 Ps Current price of stock 30 day-trailing Fair Market Value of Aviron Common Stock on Date of Issue E Exercise price of option 30 day-trailing Fair Market Value of Aviron Common Stock on Date of Issue e Constant used in 2.718 Black-Scholes Option Pricing Model t Time remaining until 3 Years expiration r Risk Free Interest Rate To be calculated on Date of Issue v Volatility To be calculated based on the daily closing price of Aviron Common Stock in the previous 12 month period of time prior to the Date of Issue
24. 25 SCHEDULE 3.04 EXISTING INDEBTEDNESS 1. $100,000,000 aggregate principal amount of 5-3/4% convertible subordinated notes due 2005 issued by Aviron under an Indenture dated as of March 15, 1998, by and between Aviron and Marine Midland Bank, as trustee 2. Approximately $554,000 remaining aggregate principal amount under an Equipment Financing Agreement Number 10768 between Lease Management Services, Inc. and Aviron 25. 26 SCHEDULE 3.09 MATERIAL ADVERSE CHANGE None 26. 27 SCHEDULE 8.01 DIVIDENDS AND DISTRIBUTIONS None 27. 28 EXHIBIT A FORM OF WARRANT THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. AVIRON WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK No. CSW-__ _________ Shares FOR VALUE RECEIVED, AVIRON, a Delaware corporation (the "Company"), with its principal office at 297 North Bernardo Avenue, Mountain View, CA 94043, hereby certifies that American Home Products Corporation or its assigns (the "Holder") is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time prior to the Expiration Date (as defined in Section 11 below), _______ fully paid and nonassessable shares of Common Stock of the Company, at an exercise price per share equal to _____________ (the "Exercise Price"). The term "Common Stock" shall mean the aforementioned Common Stock of the Company, together with any other equity securities that may be issued by the Company in addition thereto or in substitution therefor as provided herein. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock are subject to adjustment from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares." SECTION 1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part on any business day prior to the Expiration Date by presentation and surrender to the Company at its principal office at the address set forth in the initial paragraph hereof (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the Exercise Price in lawful money of the United States of America in the form of a check, subject to collection, for the number of Warrant Shares specified in the Purchase Form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a 28. 29 new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with proper payment of the Exercise Price, at such office, the Holder shall be deemed to be the holder of record of the Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. SECTION 2. NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the Net Issue Exercise Form annexed hereto duly executed in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A - B) --------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the number of shares purchased under the Warrant being canceled (at the date of such calculation) A = the fair market value as determined by the closing sales price on the date of exercise of one share of the Company's Common Stock as quoted on NASDAQ B = Exercise Price (as adjusted to the date of such calculation) SECTION 3. ISSUANCE OF NEW WARRANT. In the event of any exercise of the rights represented by this Warrant, certificates for the Warrant Shares so purchased shall be delivered to the holder hereof as soon as practicable and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the portion of the Warrant Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within a reasonable time. Such exercise shall be deemed to have been made immediately prior to the close of business on the date of surrender of this Warrant. SECTION 4. RESERVATION OF SHARES. The Company hereby agrees that at all times while any shares may be purchased pursuant to this Warrant Agreement there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of capital stock of the Company from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable. 33. 30 SECTION 5. FRACTIONAL INTEREST. The Company will not issue a fractional share of Common Stock upon exercise of this Warrant. Instead, the Company will deliver its check for the current fair market value of the fractional share as determined in good faith by the Company. SECTION 6. ASSIGNMENT OR LOSS OF WARRANT. (a) Except as provided in Section 10, the Holder of this Warrant shall be entitled, without obtaining the consent of the Company, to assign its interest in this Warrant in whole or in part to any person or persons. Subject to the provisions of Section 10, upon surrender of this Warrant to the Company or at the office of its stock transfer agent or warrant agent, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such instrument of assignment and, if the Holders entire interest is not being assigned, in the name of the Holder, and this Warrant shall promptly be canceled. (b) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnification satisfactory to the Company (with such lost or stolen Warrant being duly canceled on the books and records of the Company), and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. SECTION 7. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company on any matters or with respect to any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Warrant Shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised in accordance with its terms. SECTION 8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number and kind of securities purchasable upon the exercise of the Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) RECLASSIFICATION OF OUTSTANDING SECURITIES. In case of any reclassification, change or conversion of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), the Company shall execute a new Warrant (in form and substance reasonably satisfactory to the Holder of this Warrant) providing that the Holder of this Warrant shall have the right to exercise such new Warrant and upon such exercise to receive, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification or change by a holder of one share of Common Stock. Such new Warrant shall provide for adjustments that shall be as nearly equivalent as may 34. 31 be practicable to the adjustments provided for in this Section 8. The provisions of this subsection (a) shall similarly apply to successive reclassification or changes. (b) SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the Exercise Price and the number of Warrant Shares issuable upon exercise hereof shall be proportionately adjusted. (c) STOCK DIVIDENDS. If the Company at any time while this Warrant is outstanding and unexpired shall pay a dividend payable in shares of Common Stock (except any distribution specifically provided for in the foregoing subsections (a) and (b)), then the Exercise Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (a) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (b) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution and the number of Warrant Shares subject to this Warrant shall be proportionately adjusted. (d) NOTICE OF RECORD DATE. In the event of any taking by the Company of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed merger or consolidation of the Company with or into any other corporation, or any proposed sale, lease or conveyance of all or substantially all of the assets of the Company, or any proposed liquidation, dissolution or winding up of the Company, the Company shall mail to the Holder of this Warrant, at least twenty days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (e) NO ADJUSTMENT UPON EXERCISE OF WARRANTS. No adjustments shall be made under any Section herein in connection with the issuance of Warrant Shares upon exercise of the Warrants. SECTION 9. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Section 8, the Company shall deliver an officer's certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officer's certificate shall be signed by the chairman, president or chief financial officer of the Company. SECTION 10. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant may not be exercised and neither this Warrant nor any of the Warrant Shares, nor any interest in either, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, in whole or in part, except in compliance with applicable United 35. 32 States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the same form as the legend set forth on the first page of this Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are acquired pursuant to a registration statement that has been declared effective under the Securities Act of 1933 (the "Act"), shall bear a legend substantially in the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after the acquisition of such Warrant Shares pursuant to a registration statement that has been declared effective under the Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 10 shall be binding upon all subsequent Holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. In addition, in connection with the issuance of this Warrant, the Holder specifically represents to the Company by acceptance of this Warrant as follows: (a) The Holder is an "accredited investor" as defined in Rule 501(a) under the Act. Investor has such business and financial experience as is required to give it the capacity to protect its own interests in connection with the purchase of the Warrants and the Warrant Shares. The Holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof in violation of the Act. (b) The Holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder's investment intent as expressed herein. (c) The Holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. 36. 33 SECTION 11. EXPIRATION DATE. This Warrant shall expire and shall be wholly void and have no effect after 5:00 p.m. (San Francisco time) on the date which is the earlier of (a) the third anniversary of the date hereof, or (b) the business day immediately preceding the closing date of a merger or consolidation of the Company with or into any other entity, including a reverse triangular merger involving the Company (other than a merger or consolidation in which the Holders of the voting power of the Company immediately prior to such consolidation or merger hold a majority of the surviving or resulting entity immediately following such consolidation or merger), provided that, if the last day on which this Warrant may be exercised, or on which it may be exercised at a particular Exercise Price, is a Sunday or a legal holiday or a day on which banking institutions doing business in the city of San Francisco are authorized by law to close, this Warrant may be exercised prior to 5:00 p.m. (San Francisco time) on the next succeeding full business day with the same force and effect and at the same Exercise Price as if exercised on such last day specified herein. SECTION 12. COMPETITION LAWS. At the time of exercise of this Warrant, it will be necessary for the Company to undertake a review of such exercise to determine if a filing with the U.S. Federal Trade Commission and the U.S. Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules promulgated thereunder (16 C.F.R. Sections 801.1 et seq.) is required, and if such filing is required, the Company and Investor (or its successor) shall promptly make any such required filings. SECTION 13. GOVERNING LAW. This Warrant is delivered in the State of California and shall be construed in accordance with and governed by the laws of that State. SECTION 14. MODIFICATION AND WAIVER. Neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by an instrument in writing signed by the Company and by the Holder hereof. SECTION 15. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the Holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such Holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant. SECTION 16. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. SECTION 17. ENTIRE AGREEMENT. This Warrant constitutes the entire agreement between the parties pertaining to the subject matter herein and supersedes all prior and contemporaneous agreements, representation and undertakings of the parties. 37. 34 IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed by its duly authorized officer and to be dated as of ________________. AVIRON By: ------------------------------------- J. Leighton Read, M.D. Chairman and Chief Executive Officer 38. 35 EXHIBIT B FORM OF BORROWING NOTICE American Home Products Corporation Five Giralda Farms Madison, New Jersey 07940 Gentlemen: Reference is made to the Credit Agreement, dated as of January 11, 1998 (the "Credit Agreement"), between Aviron ("Aviron") and American Home Products Corporation. Terms not defined herein shall have the meanings assigned to such terms in the Credit Agreement. Pursuant to Section 2.01 of the Credit Agreement, Aviron hereby requests that a Loan be made on _________ in the amount of $______________. NOTE: THE AMOUNT APPEARING ABOVE MUST BE IN A WHOLE MULTIPLE OF [***] SUBJECT TO AVIRON'S RIGHT TO DRAWDOWN THE BALANCE WHERE THE BALANCE IS LESS THAN [***] The representations and warranties contained in Article III of the Credit Agreement are true and correct on and as of the date hereof and will be true and correct on and as of the date of the Loan requested hereby as though made on and as of the date hereof and the date of the Loan requested hereby (except insofar as such representations and warranties relate expressly to an earlier date). No event has occurred and is continuing, or would result from the Loan requested hereby, or from the application of the proceeds thereof which constitutes an Event of Default under the Credit Agreement. Very truly yours, AVIRON By: ----------------------------------------- Name: Title: - ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 1. 36 EXHIBIT C FORM OF NOTE $__________ Mountain View, California FOR VALUE RECEIVED, the undersigned, AVIRON, a Delaware corporation (the "Maker"), hereby promises to pay to the order of AMERICAN HOME PRODUCTS CORPORATION, a Delaware corporation ("AHPC"), on ________ (or earlier as provided in the Credit Agreement dated as of January 11, 1999 between the Maker and AHPC (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement")), the aggregate unpaid principal amount of all Loans made by AHPC to the Maker pursuant to Sections 2.01 of the Credit Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount hereof from time to time outstanding, in like funds, at AHPC's office, at a rate or rates per annum and payable on such dates as determined pursuant to the terms of the Credit Agreement. Interest on the unpaid principal amount of this Note shall be paid from the date of this Note until such principal amount is paid in full and shall accrue at a floating rate per annum equal to [***]. All accrued and unpaid interest shall be payable on the last Business Day of each calendar quarter beginning on [end of first calendar quarter after a Loan is made]. The principal amount of this Note shall payable in full on [date that is [***] after date of the Note]. Notwithstanding the foregoing, interest shall continue to accrue on all principal amounts outstanding under the Loans until payment in full. The Maker hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All borrowings evidenced by this Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such a notation shall not in any manner affect the obligation of the Maker to make payments of principal and interest in accordance with the terms of this Note and the Credit Agreement. This Note is secured by personal property collateral pursuant to, and is entitled to the benefits of, the Security Agreement (as defined in the Credit Agreement). Reference is made to the Security Agreement for the terms and conditions governing the collateral security for the obligations of Aviron hereunder. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts unpaid on the Note shall become, or may be declared to be, immediately due and payable, all as provided therein. ________ [***] = CONFIDENTIAL TREATMENT REQUESTED. 1. 37 This Note is referred to in the Credit Agreement, which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain conditions therein specified. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO CHOICE OF LAW DOCTRINE. Terms not defined herein shall have the meaning assigned to such terms in the Credit Agreement. AVIRON By: ----------------------------------------- Name: Title: 2. 38 Loans and Payments
Unpaid Name of Principal Person Payments Balance Making Date Amount Principal Interest of Note Notation - ---- ------ ------------------ --------- --------
3. 39 SUBSCRIPTION FORM THE UNDERSIGNED, holder of this Warrant, (1) hereby irrevocably elects to exercise the right of purchase represented by this Warrant for, and to purchase thereunder, ________________ full shares of the Common Stock of Aviron provided for therein, (2) makes payment in full of the purchase price of such shares, (3) requests that certificates for such shares be issued in the name of ---------------------------------------------------------------- (Please print name and address) ---------------------------------------------------------------- (Please insert social security or other identifying number) and (4) if said number of shares shall not be all the shares purchasable thereunder, requests that a new Warrant for the unexercised portion of this Warrant be issued in the name of and delivered to: ---------------------------------------------------------------- ---------------------------------------------------------------- (Please print name and address) Dated: --------------------------------------------- Signature: --------------------------------------------- By: --------------------------------------------- 1. 40 ASSIGNMENT FORM Dated _________, 19__ FOR VALUE RECEIVED, ________________________________ hereby sells, assigns and transfers unto _________________________________________________ (the "Assignee"),________________________________________________ (please type or print in block letters) - -------------------------------------------------------------------------------- (insert address) its right to purchase up to ____ shares of Common Stock of AVIRON represented by this Warrant and does hereby irrevocably constitute and appoint ____________________________ Attorney, to transfer the same on the books of the Company, with full power of substitution in the premises. Signature -------------------------- 2. 41 NET ISSUE ELECTION NOTICE The undersigned, _______________________, hereby irrevocably elects under Section 2 of the within Warrant to surrender the right to purchase ________ shares of Common Stock pursuant to this Warrant. The certificate(s) for the shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below. Date: ________,_______ ----------------------------------------- [Signature] ----------------------------------------- [Name of Registration] ----------------------------------------- [Street Address] ----------------------------------------- [City and State] 42 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS.....................................................................................1 1.01 "Affiliate".....................................................................................1 1.02 "Availability Termination Date".................................................................1 1.03 "Business Day"..................................................................................1 1.04 "Capital Stock".................................................................................2 1.05 "Collateral"....................................................................................2 1.06 "Commission"....................................................................................2 1.07 "Common Stock"..................................................................................2 1.08 "Consolidated Net Worth"........................................................................2 1.09 "U.S. Co-Promotion Agreement"...................................................................2 1.10 "Credit Event"..................................................................................2 1.11 "Dollars".......................................................................................2 1.12 "Drawdown Date".................................................................................2 1.13 "Event of Default"..............................................................................2 1.14 "Exchange Act"..................................................................................2 1.15 "FDA"...........................................................................................2 1.16 "Financial Officer".............................................................................2 1.17 "Guarantee".....................................................................................2 1.18 "Indebtedness"..................................................................................2 1.19 "International License Agreement"...............................................................3 1.20 "Lien"..........................................................................................3 1.21 "Loans".........................................................................................3 1.22 "Material Adverse Effect".......................................................................3 1.23 "Note or Notes".................................................................................3 1.24 "Permitted Indebtedness"........................................................................3 1.25 "Permitted Liens"...............................................................................3 1.26 "Person"........................................................................................4 1.27 "Preferred Stock"...............................................................................4 1.28 "Prime Rate"....................................................................................4 1.29 "Responsible Officer"...........................................................................4
43 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 1.30 "SEC Documents".................................................................................4 1.31 "Securities Act"................................................................................4 1.32 "Security Agreement"............................................................................4 1.33 "Subsidiary"....................................................................................5 1.34 "Transactions"..................................................................................5 ARTICLE II THE LOANS.......................................................................................5 2.01 The Loans.......................................................................................5 2.02 Notice of Borrowings............................................................................5 2.03 Notes; Repayment of Loans.......................................................................5 2.04 Interest on Loans...............................................................................6 2.05 [***]...........................................................................................6 2.06 Interest on Overdue Amounts.....................................................................6 2.07 Prepayment of Loans.............................................................................6 2.08 Warrants........................................................................................7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF AVIRON........................................................7 3.01 Organization, Corporate.........................................................................7 3.02 Authorization...................................................................................7 3.03 Capitalization..................................................................................8 3.04 Indebtedness....................................................................................8 3.05 Full Disclosure.................................................................................8 3.06 SEC Filings.....................................................................................8 3.07 Governmental Approvals..........................................................................8 3.08 Binding Effect..................................................................................9 3.09 Material Adverse Change.........................................................................9 3.10 Litigation; Compliance with Laws; etc...........................................................9 3.11 Taxes...........................................................................................9 3.12 Investment Company Act..........................................................................9 3.13 Use of Proceeds.................................................................................9 3.14 Security Interest..............................................................................10
- ------------------ [***] = CONFIDENTIAL TREATMENT REQUESTED. 44 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 3.15 Title to Properties; Possession Under Leases; Trademarks.......................................10 3.16 Absence of Certain Developments................................................................10 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AHPC.........................................................11 4.01 Investment Intent..............................................................................11 4.02 No Legal, Tax or Investment Advice.............................................................11 4.03 Corporate Power; Authority.....................................................................11 ARTICLE V RESTRICTIONS ON TRANSFER.......................................................................11 5.01 Restrictions on Transferability................................................................11 ARTICLE VI CONDITIONS OF CREDIT EVENTS....................................................................11 6.01 All Credit Events..............................................................................11 6.02 Initial Drawdown Date..........................................................................12 ARTICLE VII AFFIRMATIVE COVENANTS..........................................................................13 7.01 Compliance With Laws...........................................................................13 7.02 Corporate Existence............................................................................13 7.03 Business and Properties........................................................................13 7.04 Insurance......................................................................................13 7.05 Taxes..........................................................................................14 7.06 Financial Statements, Reports. etc.............................................................14 7.07 Litigation and Other Notices...................................................................14 7.08 Maintaining Records, Access to Properties and Inspections......................................15 7.09 Use of Proceeds................................................................................15 7.10 Payment of Obligations.........................................................................15 7.11 Further Assurances.............................................................................15 ARTICLE VIII NEGATIVE COVENANTS.............................................................................15 8.01 Dividends and Distributions....................................................................16 8.02 Indebtedness...................................................................................16 8.03 Consolidations, Mergers and Sales of Assets....................................................16 8.04 Business.......................................................................................16 ARTICLE IX EVENTS OF DEFAULT..............................................................................16 ARTICLE X MISCELLANEOUS..................................................................................18 10.01 Notices........................................................................................18
45 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 10.02 Survival of Agreement..........................................................................19 10.03 Successors and Assigns.........................................................................19 10.04 Expenses; Indemnity............................................................................20 10.05 Applicable Law.................................................................................20 10.06 Payments on Business Days......................................................................20 10.07 Waivers; Amendments............................................................................21 10.08 Severability...................................................................................21 10.09 Entire Agreement; Amendments; etc..............................................................21 10.10 Counterparts...................................................................................22 10.11 Headings.......................................................................................22 10.12 Effectiveness of This Agreement................................................................22 SCHEDULE 2.08 TERMS OF WARRANTS.................................................................................24 SCHEDULE 3.04 EXISTING INDEBTEDNESS.............................................................................25 SCHEDULE 3.09 MATERIAL ADVERSE CHANGE...........................................................................26 SCHEDULE 8.01 DIVIDENDS AND DISTRIBUTIONS.......................................................................27 EXHIBIT A FORM OF WARRANT.......................................................................................28 EXHIBIT B FORM OF BORROWING NOTICE.............................................................................. EXHIBIT C FORM OF NOTE..........................................................................................
EX-23.1 6 CONSENT OF ERNST & YOUNG LLP 1 AVIRON FORM 1998 10K EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8, No. 333-17029 and 333-58955) pertaining to the 1996 Equity Incentive Plan, Employee Stock Purchase Plan, 1996 Non-Employee Directors' Stock Option Plan and the Non-Plan Option Grants and in the Registration Statements (Forms S-3, No. 333-41649 and 333-50505) of Aviron of our report dated February 17, 1999, with respect to the financial statements of Aviron included in this Annual Report (Form 10-K) for the year ended December 31, 1998. /s/ Ernst & Young LLP Palo Alto, California March 25, 1999 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 28,164 66,694 0 0 0 90,159 23,449 4,928 120,985 10,790 100,000 0 0 16 8,950 120,985 0 745 0 0 56,668 0 4,882 (55,923) 0 (55,923) 0 0 0 (54,802) (3.49) (3.49)
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