-----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, ND02P/p9+vls0zWgFXF2NmvdyxREkEbNn2fKT0P7m9T6OJVYSY9U5ILPL5wMgOZq LpAyLqLaq+Fo8TN8NEna4Q== 0000891618-01-502169.txt : 20020410 0000891618-01-502169.hdr.sgml : 20020410 ACCESSION NUMBER: 0000891618-01-502169 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20815 FILM NUMBER: 1784968 BUSINESS ADDRESS: STREET 1: 297 N BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 6509196500 MAIL ADDRESS: STREET 1: 297 NORTH BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 f76739e10-q.txt FORM 10-Q PERIOD ENDED 9/30/01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 0-20815 AVIRON (Exact name of registrant as specified in its charter) DELAWARE 77-0309686 (State or other jurisdiction of (I.R.S. Employer 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) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock $.001 par value 31,160,390 shares ---------------------------- ----------------- (Class) (Outstanding at November 6, 2001) AVIRON TABLE OF CONTENTS
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION 3 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES (UNAUDITED) 3 Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14 PART II. OTHER INFORMATION 15 ITEM 1. LEGAL PROCEEDINGS 15 ITEM 2. CHANGES IN SECURITIES 15 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15 ITEM 5. OTHER INFORMATION 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16 SIGNATURES 17 EXHIBIT INDEX 18
2 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES (UNAUDITED) AVIRON CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ (UNAUDITED) (NOTE 1) ASSETS Current Assets: Cash and cash equivalents ......................................... $ 156,596 $ 64,662 Short-term investments ............................................ 252,737 67,651 Accounts receivable ............................................... 5,115 23,288 Inventory ......................................................... 5,971 4,264 Prepaid expenses and other current assets ......................... 5,277 2,691 --------- --------- Total current assets ............................................ 425,696 162,556 Long-term investments ............................................... 37,843 4,506 Property and equipment, net ......................................... 38,205 27,707 Intangible assets, net .............................................. 43,284 48,046 Deposits and other assets ........................................... 10,561 5,924 --------- --------- TOTAL ASSETS ........................................................ $ 555,589 $ 248,739 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable .................................................. $ 6,794 $ 5,106 Accrued compensation .............................................. 4,602 4,978 Accrued clinical trial costs ...................................... 414 1,974 Accrued interest .................................................. 1,750 695 Accrued expenses and other liabilities ............................ 4,900 7,654 Current portion of long-term obligations .......................... 3,792 5,954 Deferred revenue .................................................. 10,000 -- --------- --------- Total current liabilities ....................................... 32,252 26,361 Deferred rent ....................................................... 1,831 2,095 Deferred revenue .................................................... 7,500 9,750 Long-term obligations, less current portion ......................... 227,681 89,947 Commitments and contingencies Stockholders' Equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized, issuable in series; none outstanding at September 30, 2001 and December 31, 2000 ............................................... -- -- Common stock, $0.001 par value; 100,000,000 shares authorized; 31,141,107 and 25,181,051 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively .......... 31 25 Additional paid-in capital ........................................ 647,346 394,012 Notes receivable from stockholders ................................ (50) (50) Unrealized gain (loss) on investments ............................. 1,534 (34) Accumulated deficit ............................................... (362,536) (273,367) --------- --------- Total stockholders' equity ...................................... 286,325 120,586 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 555,589 $ 248,739 ========= =========
See accompanying Notes. 3 AVIRON CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- ---------------------- 2001 2000 2001 2000 -------- -------- --------- -------- REVENUES: Contract revenues and grants .............. $ 3,736 $ 3,619 $ 11,665 $ 10,154 -------- -------- --------- -------- OPERATING EXPENSES: Research and development .................... 31,452 18,966 91,470 54,036 Acquisition of in-process research and development ........................... -- -- -- 10,904 General, administrative and marketing ....... 4,895 3,387 14,227 9,324 -------- -------- --------- -------- TOTAL OPERATING EXPENSE ....................... 36,347 22,353 105,697 74,264 -------- -------- --------- -------- LOSS FROM OPERATIONS .......................... (32,611) (18,734) (94,032) (64,110) -------- -------- --------- -------- OTHER INCOME (EXPENSE): Interest income ............................. 4,870 1,981 16,123 4,351 Interest expense ............................ (3,359) (2,033) (12,346) (6,177) -------- -------- --------- -------- Net interest income (expense) ............. 1,511 (52) 3,777 (1,826) Gain on investment .......................... -- -- 1,086 -- -------- -------- --------- -------- TOTAL OTHER INCOME (EXPENSE), net ............. 1,511 (52) 4,863 (1,826) -------- -------- --------- -------- LOSS, before cumulative effect of change in accounting principle ........................ (31,100) (18,786) (89,169) (65,936) Cumulative effect of change in accounting principle ................................... -- -- -- (12,750) -------- -------- --------- -------- NET LOSS ...................................... $(31,100) $(18,786) $ (89,169) $(78,686) ======== ======== ========= ======== BASIC AND DILUTED NET LOSS PER SHARE: Loss, before cumulative effect of change in accounting principle ...................... $ (1.00) $ (0.87) $ (2.97) $ (3.31) Cumulative effect of change in accounting principle ................................. -- -- -- (0.64) -------- -------- --------- -------- Net loss .................................... $ (1.00) $ (0.87) $ (2.97) $ (3.95) ======== ======== ========= ======== Shares used in computing basic and diluted net loss per share .......................... 31,050 21,625 30,054 19,920 ======== ======== ========= ========
See accompanying Notes. 4 AVIRON CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .......................................................... $ (89,169) $ (78,686) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization of property and equipment ....... 5,233 4,335 Amortization of intangible assets ............................. 6,597 -- Other amortization ............................................ 961 494 Accretion of interest on long-term obligation ................. 969 -- Issuance of warrant for acquisition of in-process research and development ............................................. -- 10,904 Cumulative effect of change in accounting principle ........... -- 12,750 Charge on exchange of convertible debt into common stock ..... 1,599 -- Gain on investment ............................................ (1,086) -- Other ......................................................... 95 -- Changes in assets and liabilities: Accounts receivable ........................................... 18,202 (737) Inventory ..................................................... (1,707) (1,227) Prepaid expenses and other current assets ..................... (2,586) 19 Deposits and other assets ..................................... 130 73 Accounts payable .............................................. 1,688 (753) Accrued expenses and other liabilities ........................ (2,799) 3,563 Deferred revenue .............................................. 7,750 (2,250) Deferred rent ................................................. (264) (202) --------- --------- Net cash used in operating activities ............................. (54,387) (51,717) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments ...................................... (400,965) (408,853) Maturities of investments ..................................... 185,197 370,089 Loans to officers ............................................. (50) (500) Expenditures for property and equipment ....................... (15,731) (3,371) --------- --------- Net cash used in investing activities ............................. (231,549) (42,635) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term obligations ..................... (19,271) (2,069) Proceeds from issuance of: Common stock, net ............................................. 201,645 127,350 Convertible debt, net ......................................... 193,283 -- Notes payable ................................................. 2,213 -- --------- --------- Net cash provided by financing activities ......................... 377,870 125,281 --------- --------- Net increase in cash and cash equivalents ......................... 91,934 30,929 CASH AND CASH EQUIVALENTS, at beginning of period ................. 64,662 28,081 --------- --------- CASH AND CASH EQUIVALENTS, at end of period ....................... $ 156,596 $ 59,010 ========= ========= Supplement schedule of non-cash financing and investing activities: Warrants issued in connection with intangible assets .......... $ 1,836 -- Warrant issued for legal settlement ........................... -- $ 313 Exchanges of convertible notes due 2005 for common stock ...... $ 49,765 --
See accompanying Notes. 5 AVIRON NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (UNAUDITED) 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The condensed consolidated financial statements include the accounts of Aviron and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. The financial information as of September 30, 2001 and for the three-month and nine-month periods ended September 30, 2001 and 2000 are unaudited, but includes all adjustments (consisting only of normal recurring adjustments) which Aviron considers necessary for a fair presentation of the financial position at such date and the operating results and cash flows for those periods. The balance sheet data at December 31, 2000 is derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2000. The results of our operations for any interim period are not necessarily indicative of the results of our operations for a full fiscal year. Inventory Inventory is comprised principally of sprayer components that will be used in the manufacture of commercial batches of FluMist for sale. Inventory is stated at the lower of cost (FIFO) or market value. Comprehensive Income (Loss) Comprehensive income (loss) is not presented separately as it approximates the net loss presented in the statement of operations for the three-month and nine-month periods ended September 30, 2001 and 2000. The principal item of other comprehensive income is the change in unrealized gain (loss) on investments, which approximated $973,000 and $1.6 million, respectively, for the three-month and nine-month periods ended September 30, 2001, as compared with approximately $40,000 and $99,000 for the respective periods ended September 30, 2000. Net Loss Per Share We calculate net loss per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share, or 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. Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share has not been presented separately as, given our net loss position, the result would be anti-dilutive. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, or SFAS 133, which was required to be adopted as of January 1, 2001. The adoption of SFAS 133 did not have a significant effect on our results of operations or financial position. Change in Accounting Principle Effective January 1, 2000, we changed our method of accounting for non-refundable up-front license fees to recognize such fees over the research and development period of the agreements. We believe the change in accounting principle is preferable based on guidance provided by the Securities and Exchange Commission in Staff 6 Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or SAB 101. Previously, in the first quarter of 1999, we had recognized as revenue the $15.0 million up-front payment we received from Wyeth Lederle Vaccines, or Wyeth, a business unit of American Home Products Corporation, or AHP, under our collaboration agreement for FLUMIST(TM). FluMist is Aviron's investigational intranasal influenza vaccine. In accordance with SAB 101, this $15.0 million up-front license fee has been deferred and is now being recognized as revenue over the five-year estimated development period of FluMist. The results for the nine-month period ended September 30, 2000 reflect a charge for the $12.8 million cumulative effect of the change in accounting principle, calculated as of January 1, 2000, and an adjustment to previously reported contract revenues to reflect revenue recognition of $750,000 for the third quarter and $2.3 million for the nine-month period ended September 30, 2000. The cumulative effect was initially recorded as deferred revenue and is being recognized as revenue over the five-year estimated development period of FluMist. 2. Debt Transactions During the Nine Months Ended September 30, 2001 Convertible Debt In February 2001, we completed a public offering of $200.0 million in aggregate principal amount of 5 1/4 percent convertible subordinated notes due 2008, or the 2008 Notes. Net proceeds to us were approximately $193.3 million, after deducting expenses and underwriters' discounts and commissions. The 2008 Notes are convertible into common stock at any time after the original issuance through maturity, unless previously redeemed or repurchased, at a conversion price of $62.50 per share. Interest on the 2008 Notes is paid semi-annually in arrears in February and August. We can redeem the 2008 Notes on or after February 5, 2004. During the first quarter of 2001, we exchanged approximately $33.5 million in aggregate principal amount of our 5 3/4 percent convertible subordinated notes due 2005, or the 2005 Notes, for approximately 1.1 million shares of our common stock in a number of privately negotiated transactions. Additional non-cash interest expense related to these exchanges was approximately $1.6 million. Approximately $801,000 of unamortized debt issue costs related to the 2005 Notes exchanged was charged to additional paid-in capital during that quarter. On June 18, 2001, we issued a notice to call for redemption on July 18, 2001 the remaining $14.7 million in aggregate principal amount of our outstanding 2005 Notes. Bondholders chose to convert the entire amount of the outstanding notes into shares of our common stock prior to the date set for the redemption, with the majority of the notes being converted in July 2001. These notes converted into approximately 478,000 shares of our common stock, with no cash being paid on the conversion. Approximately $208,000 of unamortized debt issue costs related to the 2005 Notes converted was charged to additional paid-in capital in July 2001. Asset Backed Loans During June 2001, we initiated activities for the early payoff of all of our asset backed loans, with interest rates ranging from 11.63 percent to 13.76 percent. In June, we prepaid loan balances totaling approximately $7.2 million and in July we prepaid additional loan balances totaling $6.5 million. These early payoffs resulted in the recognition, in June 2001, of additional expense of approximately $640,000 related to the fees and costs of termination of these loans. 3. Equity Financing Transactions During the Nine Months Ended September 30, 2001 On January 25, 2001, we sold 161,060 shares to Acqua Wellington North America Equity Funds Ltd., or Acqua Wellington, for total proceeds of $8.0 million, resulting in an average price per share of $49.67. This price was based on the volume-weighted average market price for the 18-day trading period ending on January 23, 2001. With this purchase, Acqua Wellington completed its financing commitment. In February 2001, we completed a public offering of 4,000,000 shares of our common stock at $50.00 per share concurrent with our debt offering of the 2008 Notes. Aggregate net proceeds from this public equity offering were approximately $189.2 million, after deducting expenses and underwriters' discounts and commissions. 7 4. Warrants We have licensed certain technology related to our FluMist product from the University of Michigan in exchange for consideration including warrants to the University to purchase our common stock. In February 2000, we amended our stock transfer agreement with the University of Michigan to accelerate the issuance of a warrant to the University. As a result of this amendment, we granted the University a warrant to purchase 340,000 shares of Aviron common stock at an exercise price of $10.00 per share. The warrant was valued using the Black-Scholes option valuation model and, as the related FluMist technology was under development, we recorded a one-time non-cash charge of approximately $10.9 million in the first quarter of 2000. In March 2001, we further amended our stock transfer agreement with the University of Michigan to accelerate the issuance of a warrant to the University. As a result of this second amendment, we granted to the University a warrant to purchase 50,000 shares of our common stock at an exercise price of $10.00 per share. This warrant was valued at approximately $1.8 million using the Black-Scholes option valuation model and, given the stage of the development of FluMist, was recorded as an intangible asset and is being amortized over 20 years, which represents the initial term of the Michigan Agreement. Upon the date of the first commercial sale of FluMist, if we have more than 31.2 million shares of common stock then outstanding, we will issue additional warrants allowing the University of Michigan to purchase 1.25 percent of the excess shares on the same terms. Should we be required to issue additional warrants upon the date of the first commercial sale of FluMist, the warrants would be valued at that time using the Black-Scholes option valuation model, capitalized as a developed technology asset and amortized to expense over 20 years. 5. Lease Obligation In March 2001, we completed the transfer of a 25-year lease from Celltech Group Plc., or Celltech, of approximately eight acres of land in Speke, U.K., which includes an existing 45,000 square foot structure. Under the terms of the agreement, we paid Celltech 1.5 million British Pounds Sterling and assumed the obligations for the remaining 24 years of the 25-year land lease. The annual lease obligation is expected to be 333,000 British Pounds Sterling during the term of the lease. 6. NeuroVir/MediGene In July 1996, we licensed a portion of our patent rights covering or related to the use of HSV-2 to NeuroVir Therapeutics Inc., or NeuroVir, formerly NeuroVir Research, Inc. In exchange, we 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. Since NeuroVir was a private company and, at the date of the exchange, realization of the investment in NeuroVir was uncertain we had not reflected a value to our ownership position in our financial statements. During the fourth quarter of 2000, NeuroVir agreed to be acquired by MediGene, a German public company. In connection with this merger, we agreed to the exercise of our warrant and the exchange of our ownership interest in NeuroVir for shares of MediGene. As a result of NeuroVir's merger with a public company, which became effective during the first quarter of 2001, we recorded a gain on our investment in the amount of approximately $1.0 million, based on the approximate market value of the shares of MediGene that were obtained when the merger was completed. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Some of the statements in the following Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-Q, constitute forward-looking statements. These statements, which reflect management's current beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Factors that could cause actual results to differ include, without limitation, risks relating to the outcome and timing of the regulatory process, such as the risk that the United States Food and Drug Administration, or FDA, will determine that we need to conduct additional clinical trials and/or provide additional data in order to obtain licensure or otherwise determine that our license application for FLUMIST(TM) is incomplete or inadequate to approve the product for marketing to one or more target populations or that our manufacturing facilities are not adequate. See the discussion of regulatory matters in the sections entitled "Regulatory Activities" and "Business Outlook" below. Additional risks include potential difficulties that we may have with our manufacturing process, the risk that we are unable to perform the complex annual update of the FluMist formulation for new influenza strains in a timely manner, our dependence on our partner, Wyeth Lederle Vaccines, or Wyeth, a business unit of American Home Products Corporation, or AHP, for marketing, promotion, sales and distribution activities, the risk that medical advisory bodies, doctors and other health care providers do not recommend FluMist, the risk that the market does not accept FluMist, and the other business risks identified in the "Business Risks" section below and in our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2000. OVERVIEW We are a biopharmaceutical company focused on developing and commercializing innovative vaccine technologies to prevent infectious disease and improve quality of life in the general population. We currently are focusing our efforts on our lead product candidate, FluMist, an investigational live attenuated vaccine delivered as a nasal mist for the prevention of influenza. Our goal is to become a leader in the discovery, development, manufacture and marketing of innovative vaccines that are safe, effective and suitable for widespread use. Our vaccine development programs are based on proprietary genetic engineering technologies and novel, convenient delivery systems. FLUMIST(TM) Influenza is a widespread and potentially very serious disease. Influenza symptoms usually last for approximately one week, resulting in an average of approximately three days of lost work or missed school. The Health Care Financing Administration estimates that the cost of influenza in the United States was $12.0 billion in 1992. The Centers for Disease Control and Prevention, or CDC, estimates that each year approximately 10 to 20 percent of the U.S. population develops influenza, more than 114,000 persons are hospitalized from influenza-related complications and approximately 20,000 people die from the disease. According to the CDC, more than 90 percent of influenza-related deaths occur in people over the age of 64. However, all age groups share the burden of medically attended illness due to influenza. Children are a major factor in spreading influenza to others, including those at high risk of developing serious complications from the disease. Children under age five are also at higher risk for serious complications and hospitalization. FluMist, our lead product candidate, has shown a high protection rate against influenza in Phase 3 clinical trials in healthy children and healthy adults and generally has been well tolerated in clinical trials. FluMist recipients were more likely than placebo recipients to report side effects such as sore throat, runny nose and low-grade fever, but the side effects were generally mild and transitory in nature. We are developing and intend to commercialize FluMist primarily in collaboration with our partner, Wyeth. Regulatory Activities We have submitted a Biologics License Application, or BLA, for FluMist to the FDA. We are seeking U.S. licensure of FluMist to prevent influenza in healthy children and healthy adults. The Vaccines and Related Biological Products Advisory Committee, or VRBPAC, of the FDA evaluated FluMist at its meeting on July 26-27, 2001. On July 27, VRBPAC recommended that there were adequate data to support the efficacy of FluMist for the prevention of influenza in healthy children (ages 1-17 years) and healthy adults (ages 18 to 64 years). The committee also recommended that the data analysis completed to date was not sufficient to support 9 the safety of the vaccine at that time. The BLA for FluMist is currently under review by the FDA, which will ultimately decide whether to approve the license application. On August 31, 2001, we received a complete response letter from the FDA relating to our FluMist BLA. In the complete response letter, the FDA requested additional information and clarification regarding clinical and manufacturing data from us in support of licensure of the product. We plan to respond to the FDA letter by providing a complete response to the FDA by December 31, 2001. FLUMIST(TM)--Liquid Formulation The current formulation of FluMist is frozen. Because many international markets do not have distribution channels well-suited to the sale of frozen vaccines, we are developing a second generation refrigerator-stable, or liquid, formulation of FluMist, in conjunction with Wyeth. The liquid formulation is currently in Phase 3 development. Agreements On July 16, 2001, we amended our cooperative research and development agreement for the development of FluMist with the National Institute of Allergy and Infectious Diseases of the National Institutes of Health. This amendment extends the term of the agreement to December 31, 2003 and provides for a fourth year of vaccination in the AV012 Field Community Intervention study. On September 28, 2001, we executed an agreement with the St. Jude Children's Research Hospital of Memphis, Tennessee, providing us with license rights to biological materials and intellectual property related to a technology for rescuing influenza virus from a plasmid system. This technology may be used for further development of FluMist. Other Products in Development We also have a number of other vaccines in various stages of development: - - A vaccine against Epstein-Barr virus, or EBV, a leading cause of infectious mononucleosis. In November 2000, SmithKline Beecham Biologicals, a division of GlaxoSmithKline, completed enrollment in Europe of a Phase 2 clinical trial of this subunit vaccine to evaluate its safety and immunogenicity in healthy adults. - - A vaccine to prevent cytomegalovirus, or CMV, the leading infectious cause of birth defects in the United States. A clinical trial for this vaccine was begun during the second quarter of 2000. - - A parainfluenza virus type 3, or PIV-3, vaccine to prevent a common cause of croup, a respiratory infection in children. We have performed initial clinical development work on PIV-3 and further clinical plans are under development. - - We also are using our proprietary technologies to develop new vaccine candidates, including vaccines for herpes simplex virus type 2, or HSV, the virus responsible for genital herpes, and respiratory syncytial virus, or RSV, a virus that causes severe lower respiratory infection in infants and young children. Senior Management During September 2001, Ed Arcuri, Ph.D. was appointed senior vice president and chief operating officer, Carol Olson was appointed senior vice president and chief commercial officer, Luc Hermans was named vice president and UK site director and Michael Cowan was promoted to vice president, compliance. In November 2001, Mike Makris was named vice president, controller. 10 Cumulative Losses Since our inception in April 1992, we have devoted substantially all of our resources to our research and development programs and the preparation for the potential commercialization of FluMist. To date, we have not generated any revenues from the sale of products and do not expect to generate any revenues from the sale of products until the third quarter of 2002 at the earliest. We have incurred cumulative net losses of approximately $362.5 million as of September 30, 2001. Business Outlook We anticipate our operating expenditures will be between $140 and $145 million in 2001. This increase from 2000 operating expenses is due primarily to an increase in the size of our operations and expenses that we expect to incur as we build infrastructure in support of potential commercialization of FluMist in the U.S. This increase includes amortization expense associated with our manufacturing activities in the United Kingdom. The portion of 2001 operating expenses that is depreciation and amortization is expected to be approximately $17.0 million, compared to $8.1 million for 2000. Net other income for the fourth quarter of 2001 is expected to be near zero due primarily to declines in interest rates. Our goal is to launch FluMist in 2002 and participate in the 2002-2003 influenza season to the greatest extent possible. We already have begun manufacturing to support a potential commercial launch in 2002. The outcome and timing of the regulatory process will strongly influence product revenues during our first commercial season, therefore, we have not made revenue projections for 2002, nor do we expect to generate sufficient revenue to Aviron from FluMist sales to achieve profitability in 2002. Any and all revenues will depend upon the outcome and timing of the regulatory process, the labeled indications, the scope of any expanded recommendations for influenza vaccination by important medical organizations, the number of doses manufactured, the number of doses released and sold and the price of FluMist. We expect capital expenditures to increase substantially as we commence building additional manufacturing facilities and commercialization systems. For the year ending December 31, 2001, we forecast that capital expenditures will be between $20 and $30 million. Business Risks The most significant business risks we currently face are those related to the development and commercialization of FluMist, including without limitation, risks associated with the outcome and timing of the regulatory process, such as the risk that the FDA will determine that we need to conduct additional clinical trials and/or provide additional data in order to obtain licensure, determine that our manufacturing facilities are not adequate or otherwise determine that our license application for FluMist is incomplete or inadequate to approve the product for marketing to one or more target populations. All of our potential near-term revenues are dependent on the commercialization of FluMist. Because of the seasonality of influenza, FluMist must be available for sale in the third or fourth quarter of each year for us to achieve revenues for that season. Delay in availability of FluMist in the initial year of commercialization, or in subsequent years, could cause us to lose revenues for an entire influenza season. Moreover, we may incur significant losses as a result of our decision to begin manufacturing FluMist at commercial scale before receipt of marketing approval from the FDA. Any of these risks may require us to raise additional capital to cover the costs of additional research and development, manufacturing and ongoing fixed costs. For more information, including the VRBPAC's July 2001 recommendation that the data analysis for FluMist completed to date is not sufficient to support the safety of the vaccine at the time, and the August 31, 2001 receipt of a complete response letter from the FDA, see the discussion under the sections entitled "Regulatory Activities" and "Business Outlook" above. For other important risks that we face, see also the section entitled "Business Risks" in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2000. This Form 10-Q 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. Our actual results could differ materially from the results discussed in these forward-looking statements. 11 RESULTS OF OPERATIONS Three-Month and Nine-Month Periods Ended September 30, 2001 and 2000 The results for the three-month and nine-month periods ended September 30, 2000 reflect the implementation of Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or SAB 101, as of January 1, 2000. Revenues Revenues totaled $3.7 million and $11.7 million for the three and nine months ended September 30, 2001, respectively, compared to $3.6 million and $10.2 million for the respective periods of 2000. Revenues during the first nine months of 2001 and 2000 were comprised principally of revenue from Wyeth related to the clinical development and commercialization of FluMist, under the terms of our agreement. Operating Expenses Operating expenses for the three and nine months ended September 30, 2001 totaled $36.3 million and $105.7 million, respectively, compared to $22.4 million and $74.3 million for the respective periods of 2000. Research and development costs increased to $31.5 million and $91.5 million for the three and nine months ended September 30, 2001, respectively, from $19.0 million and $54.0 million for the respective periods of 2000. The increase in research and development costs was due primarily to increases in development activities, clinical trials and commercial scale-up expenses associated with FluMist. These commercial scale-up activities include increases in facilities, staffing and support systems at all company locations to accommodate the manufacture of FluMist at commercial scale volumes, the preparation for and response to the FDA's review of the BLA and pre-license inspections of the manufacturing facilities and clinical sites, and the manufacture of FluMist at-risk in anticipation of a potential product launch. The first quarter of 2000 also included a one-time non-cash charge for the acquisition of in-process research and development in the amount of $10.9 million due to the February 2000 amendment of our stock transfer agreement with the University of Michigan to accelerate the issuance of a warrant to the University. General, administrative and marketing costs increased to $4.9 million and $14.2 million in the three and nine months ended September 30, 2001, respectively, from $3.4 million and $9.3 million in respective periods of 2000. The increase was due to growth in infrastructure, marketing-related expenses and other costs to support preparations for a potential commercial launch of FluMist. See the discussion in "Business Outlook" above regarding the estimated level of operating expenses for the full year of 2001. Other Income (Expense) Net interest increased to net interest income of approximately $1.5 million and $3.8 million, respectively, for the three and nine months ended September 30, 2001, as compared to net interest expense of $52,000 and $1.8 million for the respective periods of 2000. The increase in net interest is primarily the result of an increase in funds available for investment as a result of the sale of equity and convertible debt in February 2001 and savings of interest costs on debt that has been converted into common stock. These costs were partially offset by increased interest costs associated with the debt issued in February 2001 and the interest costs associated with the obligations to Evans Vaccines Limited, or Evans, undertaken in October 2000. In addition, during the first quarter of 2001, we recorded a gain on our investment in NeuroVir Therapeutics Inc., or NeuroVir, in the amount of approximately $1.0 million, due to the merger of NeuroVir with MediGene, a German public company. 12 LIQUIDITY AND CAPITAL RESOURCES We had cash, cash equivalents and short- and long-term investments at September 30, 2001 of approximately $447.2 million. In order to preserve principal and maintain liquidity, our funds are invested primarily in United States Treasury and agency obligations, highly rated corporate obligations and other liquid investments. During the nine months ended September 30, 2001, we generated net proceeds of approximately $390.5 million from the sale of convertible debt and equity securities, after deducting expenses and underwriters' discounts and commissions. During the first nine months of 2001, $54.4 million of cash was used in operations, as compared to $51.7 million during the first nine months of 2000. The increase in cash used in operating activities was primarily due to increased expenditures for operating expenses, which are partially offset by the receipt in January 2001 of a $15.5 million milestone in connection with the acceptance of our BLA for review by the FDA and a $10.0 million advance from Wyeth to support manufacturing activities. As indicated in "Business Outlook" above, we anticipate that the amount of cash used in operating activities will increase in 2001 over that used in 2000 due to the scale-up of our operating expenditures in connection with the preparations for the potential commercialization of FluMist. Cash expended for capital additions was approximately $15.7 million for the first nine months of 2001, as compared to approximately $3.4 million during the first nine months of 2000. Capital expenditures increased in 2001 primarily due to the completion of our acquisition of a lease in Speke, U.K., an expansion of manufacturing support facilities in Pennsylvania, the relocation of development laboratories and office space in California, increased expenditures for equipment for all facilities, and the initiation of projects to implement systems to support commercialization. As indicated in "Business Outlook" above, we expect our capital expenditures during 2001 to range between $20 and $30 million. Principal payments under capital lease arrangements and long-term obligations were approximately $19.3 million during the first nine months of 2001, as compared to approximately $2.1 million for the first nine months of 2000. The increase is due principally to the early payoff of asset-backed loan balances in the aggregate principal amount of $13.7 million and a payment of $3.8 million under our long-term obligation to Evans. During the first quarter of 2001, we exchanged approximately $33.5 million aggregate principal amount of our 5 3/4 percent convertible subordinated notes due 2005, or the 2005 Notes, for shares of our common stock in a number of privately negotiated transactions. Additional non-cash interest expense related to these exchanges was approximately $1.6 million. On June 18, 2001, we issued a notice to call for redemption on July 18, 2001 the remaining $14.7 million of our outstanding 2005 Notes. Bondholders chose to convert the entire amount of the outstanding notes into shares of our common stock prior to the date set for redemption, with the majority of the notes being converted in July 2001. No cash was required to complete this conversion. We anticipate that our existing cash, cash equivalents and short-term investments, and proceeds from existing collaborations and recent financings will enable us to maintain our current and planned operations through at least 2002. We anticipate using our cash resources for commercialization activities related to FluMist and capital expenditures related to FluMist manufacturing. However, our future cash requirements will depend on numerous factors, including the factors set forth under the caption "Business Risks -- Risks Related to FluMist," which is included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2000. Additionally, due to its seasonal nature, if FluMist is approved for marketing, cash will not be generated from product sales until later in each calendar year or early in the following calendar year. A significant amount of working capital will be required each year to provide for the payment of expenditures associated with the manufacturing of inventory and other operating and capital needs in advance of any product sales. There can be no assurance that, should we require outside funding through additional debt or equity financing, such funds would be available on favorable terms, if at all. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or obtain funds through collaborative agreements with others that may require us to relinquish rights to our technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves. 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk, including changes to interest rates and foreign currency exchange rates. Interest Rates. Our 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 our cash equivalents and investments. To mitigate the impact of fluctuations in U.S. interest rates, we place our funds in investments that meet high credit standards, as specified in our 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. In addition, the average maturity of our portfolio is less than one year. As a result, we do not expect any material loss with respect to our investment portfolio. As of September 30, 2001, we had cash and cash equivalents of $156.6 million, with a weighted-average interest rate of 3.64 percent per year and short-term investments with a basis of $251.3 million and a fair market value of $252.7 million, with a weighted-average interest rate of 4.33 percent per year. We also had long-term investments with a basis of $37.2 million and a fair market value of $37.8 million with a weighted-average interest rate of 4.88 percent per year. Foreign Currency Exchange Rates. We pay for the costs of manufacturing and development activities, equipment and facilities modifications at our facility located in the U.K. in British Pounds Sterling. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the U.K. We are exposed to changes in exchange rates in the U.K. When the U.S. dollar strengthens against the British Pound Sterling, the U.S. dollar value of British Pound Sterling-based expenses decreases; when the U.S. dollar weakens, the U.S. dollar value of British Pound Sterling-based expenses increases. Accordingly, changes in exchange rates, and in particular a weakening of the U.S. dollar, may adversely affect our financial position as expressed in U.S. dollars. We currently do not hedge our obligations in British Pounds Sterling. 14 AVIRON PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On June 30, 1999, the European Patent Office held oral proceedings in an Opposition filed by American Cyanamid against our granted European Patent No. 0490972 relating to methods and compositions of recombinant negative-strand RNA viruses. In April 2001, the European Patent Office issued a written opinion that upholds claims limited to recombinant influenza and denies claims generically encompassing negative-strand RNA viruses. This decision will not affect our cold-adapted influenza product. We have appealed the decision insofar as it relates to the denied claims; the appeal requested the Technical Board of Appeals to reverse the decision with respect to the denial of the claims encompassing recombinant negative-strand RNA viruses. There can be no assurance that we will be successful in obtaining claims as originally granted as a result of the appeal. If we do not succeed in the appeal of the claims which encompass negative-strand RNA viruses, in particular non-segmented RNA viruses, it could negatively impact our ability to exclude others from commercializing an RSV or PIV-3 vaccine based on genetically engineered candidates in Europe. On July 3, 2001, the United States Court of Appeals for the Federal Circuit, or Court of Appeals, entered a judgment in the case of Joany Chou v. The University of Chicago, ARCH Development Corp., Bernard Roizman and Aviron, originally filed on July 8, 1999 in the U.S. District Court for the Northern District of Illinois, or District Court. The Court of Appeals affirmed the District Court's dismissal of all claims for monetary damages against Aviron. The Court of Appeals also held that the plaintiff does have standing to sue for correction of inventorship, and reversed and remanded this issue for adjudication against all defendants, including Aviron. For background information on this lawsuit, see our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2000. On October 20, 2000 we terminated all rights and licenses to Sang-A Pharmaceutical Co., Ltd., or Sang-A, a Korean company, relating to FluMist. On August 21, 2001, Sang-A filed a lawsuit against Aviron in the United States District Court for the Northern District of California challenging the termination. The Complaint includes causes of action for breach of contract, breach of the covenant of good faith and fair dealing, unfair and deceptive business practices, injunctive relief, declaratory judgment, specific performance and promissory estoppel. On September 21, 2001 we filed an Answer and Counterclaim, in which we denied the allegations in Sang-A's Complaint. We also asserted several causes of action against Sang-A, including breach of contract, rescission, breach of the covenant of good faith and fair dealing and declaratory judgment. While we believe that Sang-A's claims are without merit, there can be no assurance that we will prevail in this litigation. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS
ITEM DESCRIPTION ---- ----------- * 10.35 1999 Non-Officer Equity Incentive Plan, as amended as of September 24, 2001(1) ++ 10.54 Amendment Number Three (3) to Cooperative Research and Development Agreement AI-0062, by and between NIAID and Aviron, dated as of July 16, 2001 ++ 10.55 License Agreement by and between St. Jude's Children's Research Hospital, Inc. and Aviron, dated September 28, 2001
---------- * Compensatory Plan or Agreement ++ Confidential treatment has been requested for portions of this exhibit. (1) Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Commission File No. 333-72120) filed with the SEC on October 23, 2001. (b) REPORTS ON FORM 8-K During the three months ended September 30, 2001, we filed the following reports on Form 8-K: (i) Current report on Form 8-K, dated July 30, 2001, disclosing the FDA's Vaccines and Related Biological Products Advisory Committee recommendations for FluMist. (ii) Current report on Form 8-K, dated September 4, 2001, disclosing receipt of a complete response letter on August 31, 2001 from the FDA relating to our Biologics License Application for FluMist. 16 AVIRON SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. AVIRON Date: November 13, 2001 By: /s/ C. Boyd Clarke ----------------------- ----------------------------------- C. Boyd Clarke Chairman, President and Chief Executive Officer Date: November 13, 2001 By: /s/ Fred Kurland ---------------------- ----------------------------------- Fred Kurland Senior Vice President and Chief Financial Officer 17 EXHIBIT INDEX
ITEM DESCRIPTION ---- ----------- * 10.35 1999 Non-Officer Equity Incentive Plan, as amended as of September 24, 2001 (1) ++ 10.54 Amendment Number Three (3) to Cooperative Research and Development Agreement AI-0062, by and between NIAID and Aviron, dated as of July 16, 2001 ++ 10.55 License Agreement by and between St. Jude's Children's Research Hospital, Inc. and Aviron, dated September 28, 2001
- ---------- * Compensatory Plan or Agreement ++ Confidential treatment has been requested for portions of this exhibit. (1) Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Commission File No. 333-72120) filed with the SEC on October 23, 2001. 18 EX-10.54 3 f76739ex10-54.txt EXHIBIT 10.54 EXHIBIT 10.54 AMENDMENT NUMBER THREE (3) TO COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT AI-0062 This Amendment Number Three (3) to Cooperative Research and Development Agreement ("CRADA") AI-0062 between Aviron ("Collaborator") and the National Institute of Allergy and Infectious Diseases (`NIAID"), will be effective as of the date of the last duly authorized signature below. The CRADA, which is entitled "Development of a Live, Attenuated Cold-Adapted Influenza Vaccine," was executed on June 12, 1995 for a term of five (5) years and was amended twice--once on August 3, 1999 (CRADA Amendment Number One (1)) and again on June 12, 2000 (CRADA Amendment Number Two (2)), respectively. The CRADA, as currently amended, will expire on June 12, 2003. The purposes of this third Amendment are to allow for a change in Principal Investigator (PI) for both Parties, to modify the Research Plan, to provide for funding by Collaborator of an additional vaccination year in the clinical trial being conducted by Dr. Glezen at Baylor College of Medicine, and to extend the term of the CRADA for approximately an additional six and one-half (6.5) months to allow completion of the clinical studies in the modified Research Plan. This Amendment is being executed in duplicate. Collaborator shall retain one original, and one original will be retained by NIAID. Except as herein amended, all of the other terms and conditions of the CRADA shall remain in full force and effect. Pursuant to Article 14.6 of the CRADA, both Parties do hereby amend the CRADA as follows: I. EXTENSION OF CRADA TERM In order to continue the clinical research program described in Appendix B (Research Plan) of the CRADA as modified in CRADA Amendment Number Two (2) and below in this CRADA Amendment Number Three (3), the term of the CRADA is extended by approximately six and one-half (6.5) months. The new expiration date for the CRADA will be December 31, 2003. II. MODIFICATIONS TO APPENDIX B (RESEARCH PLAN) On the title page of Appendix B "Pamela McInnes, Ph.D." is deleted and replaced by "Ann Ginsberg, M.D., Ph.D.", as the NIH Principal Investigator, and "J. Leighton Read, M.D." is deleted and replaced by "Paul Mendelman, M.D." as the Collaborator Principal Investigator. As Collaborator has requested that the clinical trial being conducted by Dr. Glezen at Baylor College of Medicine be extended to include an additional vaccination year (vaccination year 4; grant year 5) and has agreed to provide funding to DMID through this CRADA for this purpose, the description of [***] is deleted in its entirety and replaced with the following: 1. [***] [***] ------------------------------------------------------------------------------------ [***] [***] ------------------------------------------------------------------------------------ [***] [***] [***] [***] [***] [***] [***] [***] ------------------------------------------------------------------------------------ [***] [***] [***] [***] [***] [***] [***] [***] ------------------------------------------------------------------------------------
1 ------------------------------------------------------------------------------------ [***] [***] [***] [***] [***] [***] [***] [***] ------------------------------------------------------------------------------------ [***] [***] [***] [***] [***] [***] [***] [***] ------------------------------------------------------------------------------------ [***] [***] [***] [***] [***] [***] [***] [***] ------------------------------------------------------------------------------------ [***] [***] [***] [***] [***] [***] [***] [***] ------------------------------------------------------------------------------------ [***] [***] [***] [***] ------------------------------------------------------------------------------------
The description of [***], which appears on Page 3 of Amendment Number Two (2), is deleted in its entirety and replaced with the following: 2. [***] [***] III. MODIFICATIONS TO APPENDIX C (FINANCIAL AND STAFFING CONTRIBUTIONS OF THE PARTIES) A new Section I.E. is added to Appendix C: "E. With respect to the clinical trial being conducted at Baylor School of Medicine by Dr. Glezen, the DMID, NIAID will fund [***] as part of its original commitment to the study." A new Section IIA. is added to Appendix C: "IIA. Funds to be provided to NIH (DMID, NIAID) by the Collaborator during CRADA Year 7 only: The Collaborator will provide [***] to NIAID by August 1, 2001 for purposes of [***] of the clinical trial being conducted by Dr. Glezen at Baylor College of Medicine. [***] The Collaborator shall provide this payment in accordance with the CRADA payment instructions appearing on Page 7 of CRADA Amendment Number Two (2) or, if mutually acceptable, via wire transfer." 2 AMENDMENT NUMBER THREE (3) TO CRADA AI-0062 SIGNATURE PAGE FOR NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES: s/ John R. La Montagne 7/16/2001 - -------------------------------------------- ---------------- John R. La Montagne, Ph.D. Date Deputy Director Mailing Address for Notices: Office of Technology Development National Institute of Allergy and Infectious Diseases National Institutes of Health Building 31, Room 3B62 31 Center Drive, MSC 2137 Bethesda, MD 20892-2137 (301) 496-2644/tel. (301) 402-7123/fax Attn: Director FOR AVIRON: s/Boyd Clarke 7/12/2001 - -------------------------------------------- ---------------- C. Boyd Clarke Date Chairman and CEO Mailing Address for Notices: Aviron 297 North Bernardo Avenue Mountain View, CA 94043 (650) 919-6500/tel. (650) 919-6610/fax 3 EX-10.55 4 f76739ex10-55.txt EXHIBIT 10.55 EXHIBIT 10.55 LICENSE AGREEMENT THIS AGREEMENT, effective as of September 28, 2001 ("Effective Date"), by and between St. Jude Children's Research Hospital, Inc. ("SJCRH"), a Tennessee not-for-profit corporation located at 332 North Lauderdale, Memphis, Tennessee 38105 and Aviron ("Company"), a Delaware corporation having a principal place of business at 297 North Bernardo Avenue, Mountain View, CA 94043. RECITALS WHEREAS, SJCRH is the owner by assignment from Dr. Erich Hoffmann of his entire right, title and interest in Patent Rights (as later defined herein) and in the inventions described and claimed therein; and WHEREAS, SJCRH wishes to have the Patent Rights further developed and marketed at the earliest possible time in order that products resulting therefrom may be available for public use and benefit; and WHEREAS, Company wishes to enter into an agreement with SJCRH to obtain a license to the Patent Rights in order to practice the inventions claimed therein and to make, use and sell in the commercial market the products made in accordance therewith; and WHEREAS, SJCRH is willing to grant such a license to Company under the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable considerations, the parties do hereby agree as follows: 1. DEFINITIONS 1.1. "BLA" shall mean a Biologics License Application made according to regulations of the United States Food and Drug Administration ("FDA") or an equivalent application submitted to a corresponding foreign or international regulatory agency. 1.2. "Confidential Information" shall mean any confidential or proprietary information furnished by one party (the "Disclosing Party") to the other party (the "Receiving Party") in connection with this Agreement. 1.3. "Development Use" shall mean practice of the Patent Rights: (i) for all internal noncommercial and non-clinical uses, including the characterization of a gene, virus or viral fragment and other non-clinical analyses of products and the submission of data generated from such characterization to the FDA or a corresponding foreign equivalent agency; (ii) for the design, development and manufacture of products to be used as study materials in clinical testing; and (iii) for the creation of [***] (whether or not included in [***]) made by [***], provided that the resulting [***] does not comprise any [***] to any of the [***], other than as may [***]. 1 1.4. "Design Use" shall mean practice of the Patent Rights in the [***]; notably the [***] made through practice of the Patent Rights. 1.5. "Feasibility Objectives" shall mean [***] that use of Patent Rights (i) will [***], (ii) will provide [***], and (iii) is [***]. 1.6. "Exclusive Field" shall mean for [***] diagnosis, prevention and/or treatment in humans. 1.7. "Hospital Materials" shall mean the materials transferred to Company under the Option Agreement between SJCRH and Company having an effective date of March 16, 2001, as amended September 7, 2001. 1.8. "Licensed Product" shall mean any vaccine, drug or other product whose manufacture, use, import or sale in a country would but for this Agreement comprise an infringement of a valid patent claim ("valid" meaning [***]) under the Patent Rights: (a) "Licensed [***] Product" shall mean a Licensed Product whose [***]; and (b) "Licensed [***] Product" shall mean a Licensed Product whose [***]. 1.9. "Non-Exclusive Field" shall mean for any use other than [***] diagnosis, prevention and/or treatment in humans. 1.10. "Net Sales" shall mean 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 Company and its Sublicensees from persons or entities due to or by reason of the sale, distribution or use of Licensed [***] Product, less the following deductions and offsets, to the extent such sums are otherwise included in the computation of Net Sales, or are paid and credited by Company and its Sublicensees and not otherwise reimbursed: (i) [***]; (ii) any tax, excise, or other governmental charges upon or measured by the production, sales, transportation, delivery or use of said Licensed [***] Product contained therein; (iii) [***] other than those described above; (iv) [***]; (v) [***]; (vi) taxes paid by Company or Sublicensees to a government or an instrumentality thereof under a tax regulatory scheme equivalent to USC Title 42, Chapter 6A, Subchapter XIX, Part 2, Subpart a, Section 300 aa-11 et seq., or other similar legislation. Sales of Licensed [***] Product intended for resale to third parties, and made internally amongst Company and its Sublicensees shall not be deemed sales for purposes of calculating "Net Sales" (however, sales to a third party other than a Sublicensee shall be included in the calculation of "Net Sales" and subject to royalties). 1.11. "Patent Rights" shall mean the patent applications listed on Appendix A, the inventions described and claimed therein, and any divisional, continuation, or continuation-in-part of such patent applications, or other applications to the extent comprising the inventions described in the applications listed in Appendix A, all to the extent that the claims are directed to subject matter disclosed therein, as 2 well as any patent issued thereon and any reissue or extension of such patent, and any foreign counterparts to such patents and patent applications. 1.12. "Phase I" shall mean that portion of the FDA or equivalent foreign submission on which approval will be based which provides for the initial trials assessing the first introduction into humans of Licensed [***] Product with the purpose of determining human toxicity, metabolism, absorption, elimination and other pharmacological action as more fully defined in 21 C.F.R. Section 312.21(a) regardless whether these trials were conducted in or outside the United States. 1.13. "Phase II" shall mean that portion of the FDA or equivalent foreign submission on which approval of a New Drug Application ("NDA") will be based which provide for the adequate initial trials of Licensed [***] Product on a limited number of patients and/or healthy volunteers for the purposes of determining dose and evaluating safety and efficacy in the proposed therapeutic indication as more fully defined in 21 C.F.R. Section 312.21 (b). 1.14. "Phase III" shall mean that portion of the FDA or equivalent foreign submission on which approval of an NDA will be based which provides for the well-controlled clinical trials of Licensed [***] Product on sufficient numbers of patients and/or healthy volunteers to generate safety, efficacy and pharmacoeconomic data to support regulatory approval in the proposed therapeutic indication as more fully defined as 21 C.F.R. Section 312.21(c) including any study referred to or denominated as a Phase II/III study in the United States or the equivalent elsewhere. 1.15. "Royalty Reporting Period" shall mean the partial calendar half year commencing on the date on which the first Licensed [***] Product is sold or used and every complete or partial calendar half year thereafter during which either (i) this Agreement remains in effect or (ii) Company has the right to complete and sell work-in-progress and inventory of Licensed Product pursuant to Section 8.5. 1.16. "Sublicensee" shall mean any sublicensee of the rights granted Company under this Agreement, as further described in Section 2.1. 2. GRANT 2.1. License Grant. (i) SJCRH hereby grants to Company and Company accepts, subject to the terms and conditions herein, a worldwide exclusive license in the Exclusive Field and a non-exclusive worldwide license in the Non-Exclusive Field to practice the Development Use and the [***] and to develop, have developed, make and have made, to use and have used, to sell and have sold, distribute and have distributed and to import and have imported Licensed Product, for the term of this Agreement. Such license shall [***]. Company shall also [***]. (ii) The license granted pursuant to Section 2.1.(i) is subject to the rights, conditions and limitations imposed by U.S. law on inventions and discoveries conceived or first actually reduced to practice during the course of research funded by a U.S. federal agency. The words "exclusive license" as used herein shall mean exclusive except for the royalty-free non-exclusive license granted to the U.S. government by SJCRH pursuant to 35 USC Section 202 (c) (4) for any Patent Rights claiming any invention subject to such license as defined under 35 USC Section 201 and any other federal laws and applicable regulations. 3 (iii) Title to Patent Rights and Hospital Materials shall remain with SJCRH. SJCRH shall retain the right to make and to use, for research and educational purposes, the subject matter described and claimed in Patent Rights and the Hospital Materials, and to transfer Hospital Materials to other academic institutions for internal research purposes only, under written agreements prohibiting the transfer of Hospital Materials or their use other than for internal research purposes. SJCRH shall retain the right to license Patent Rights and Hospital Materials to other entities outside the Exclusive Field; such transfers of Hospital Materials shall be under written agreements which (a) prevent the transfer of Hospital Materials to third parties other than the licensed entity and its sublicensees, and (b) prohibit the use of Hospital Materials in the Exclusive Field. Hospital Materials shall be treated as SJCRH Confidential Information pursuant to Section 7, and shall not be transferred by Company to any third party other than Sublicensees. 3. COMPANY OBLIGATIONS RELATING TO COMMERCIALIZATION 3.1. Diligence Requirements. Company shall use [***] efforts, or shall cause its Sublicensees to use [***] efforts, to [***]; thereafter, Company or its Sublicensees shall use [***] efforts to [***]. Company agrees to the following: Within [***] after [***], Company shall [***], including but not limited to [***]. In addition, for the [***] period from the Effective Date Company shall [***]. If the [***] have not been completed at the end of this [***] period, Company shall thereafter include [***]. In the event that SJCRH believes that Company, through its own activities or those of its Sublicensees, has not fulfilled its obligations under this Section 3.1, SJCRH shall so notify Company in writing, including a description of the activities that SJCRH feels should be undertaken by Company to comply with its diligence obligations. Within [***] after receipt of such notice, Company shall respond to such notice by either (i) [***], or (ii) [***]. Failure of Company to respond to such notice shall [***]. If Company shall fail to [***], and shall fail either to (i) [***], or (ii) [***], then SJCRH shall [***]. 3.2. Indemnifications. (i) Indemnity. Company shall indemnify, defend and hold harmless SJCRH and corporate affiliates of SJCRH and their respective Boards of Governors, officers, faculty, students, employees and agents and their respective successors, heirs and assigns (the "Indemnitees"), against any liability, damage, loss, or exposure (including reasonable attorney's fees and expenses of litigation) incurred by or imposed upon any of the Indemnitees in connection with any claims, suits, actions, demands or judgments arising out of any theory of liability (including without limitation actions in the form of tort, warranty, or strict liability and regardless of whether such action has any factual basis) concerning any product, process, or service that is made, used, or sold pursuant to any right or license granted under this Agreement; provided, however, that such indemnification shall not apply to any liability, damage, loss, or expense to the extent directly attributed to (a) the [***] activities or [***] of the Indemnitees or (b) the settlement of a claim, suit, action, or demand by Indemnitees without the prior written approval of Company. (ii) Procedures. The Indemnitees agree to provide Company with prompt written notice of any claim, suit, action, demand, or judgment for which indemnification is sought under this Agreement. Company agrees, at its own expense, to provide attorneys reasonably acceptable to SJCRH to defend against any such claim. The Indemnitees shall cooperate fully with Company in such defense and will permit Company to conduct and control such defense and the disposition of such claim, suit, or 4 action (including all decisions relative to litigation, appeal, and settlement). Company agrees to keep SJCRH informed of the progress in the defense and disposition of such claim and to [***]. (iii) Insurance. Company shall maintain insurance or self-insurance [***]. Company shall provide SJCRH, upon request, with written evidence of such insurance or self-insurance. Company shall continue to maintain such insurance or self-insurance after the expiration or termination of this Agreement during any period in which Company or Sublicensee continues to make, use, or sell a Licensed Product developed under this Agreement. SJCRH shall be named as an additional insured and shall be furnished a certificate of insurance evidencing such coverage, and specifically requiring written notification to SJCRH at least sixty (60) days' prior to the lapse, cancellation or modification of coverage or liability limits. 2.3. Use of Names. (i) Company and its Sublicensees shall not use the name "St. Jude Children's Research Hospital" or any variation of that name, or any of SJCRH's trustees, officers, faculty, students, employees, or agents, or any adaptation of such names, or any term of this Agreement in any promotional material or other public announcement or disclosure or in connection with the marketing or sale of any Licensed Product without the prior written approval of SJCRH (which shall not be unreasonably refused when requested as part of the disclosure of affiliations in any scientific publication or research presentation); except: (a) in annual reports or as part of required regulatory or financial disclosures to the FDA, Securities Exchange Commission or other federal or foreign agencies; and (b) where otherwise required by law, provided that Company shall notify SJCRH in advance of any disclosure to be made under these exceptions. (ii) SJCRH shall not use the name "Aviron" or any variation of that name, or any term of this Agreement in any promotional material or other public announcement or disclosure without the prior written approval of Company (which shall not be unreasonably refused when requested as part of the disclosure of affiliations in any scientific publication or research presentation); except: (a) as part of required reports to state or federal government entities; and (b) where otherwise required by law, provided that SJCRH shall notify Company in advance of any disclosure to be made under these exceptions. 4. ROYALTIES AND PAYMENTS 4.1 License Fee. In partial consideration of the rights granted Company under this Agreement, Company shall pay to SJCRH a license fee of [***] within [***] of the full execution of this Agreement. Unless this Agreement is earlier terminated pursuant to Section 8, upon [***] or [***] from the Effective Date, whichever comes first, Company shall pay to SJCRH a license fee of [***]. Such license fee payments are [***] and are [***]. 4.2. Annual Fee. Company shall pay SJCRH an annual fee of [***] for [***], with the first payment prorated for the portion of the year from the Effective Date to December 31, 2001 and due within [***] of January 1, 2002 (and subsequent fees payable within [***] of each January 1 thereafter). This annual fee payment is [***] due to SJCRH during the [***]. 4.3. Milestone Payments. (i) [***] Milestone Payments. Company shall pay SJCRH the following milestone payments within [***] after the [***] occurrence of each listed event related to the [***] Licensed [***] Product to reach the designated milestone in the Exclusive Field: 5 Milestone Payment [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] The milestones for [***] and [***] shall be [***] thereafter due for [***], respectively. (ii) [***] Milestone Payments. Company shall pay SJCRH a milestone payment of [***] within [***] after the first commercial sale of the first commercial Licensed [***] Product resulting from a [***]. Should commercial sale of Licensed [***] Product, in any formulation, occur in any subsequent calendar year, then Company shall pay SJCRH a further milestone payment of [***] within [***] after the sale of Licensed [***] Product in each subsequent calendar year. Also, should any Licensed [***] Product be commercially sold which is [***], then Company shall pay SJCRH a further milestone payment of [***] within [***] of that commercial sale. No other fees, milestones, or earned royalties shall be payable upon Licensed [***] Products. "[***]". In the event Company is required to [***], the milestone payments due SJCRH may be [***]. However, in no event shall the milestone payments due to SJCRH be [***]. 4.4. Royalties. Company shall pay to SJCRH [***] royalty on Net Sales of Licensed [***] Product sold by Company or its Sublicensees in the Exclusive Field until expiration of the last patent under Patent Rights. Company shall pay to SJCRH [***] royalty on Net Sales of Licensed Product sold by Company in the Non-Exclusive Field until expiration of the last patent under Patent Rights. The expiration or abandonment or revocation of a patent application, and the holding of a patent to be invalid by a Court or in arbitration from which no appeal can be taken, shall be deemed to be "expiration" of the patent hereunder. "[***]". In the event Company is required to [***], royalties due SJCRH may be [***] of the royalties paid to such third parties. The royalties due SJCRH shall not be [***], except that royalties due SJCRH may be [***]. 4.5. Applicability of [***] Royalties and Milestones. [***], as described in Sections 4.3 and 4.4 above, shall not apply to any [***]. 5. ROYALTY REPORTS; PAYMENTS; RECORDS 5.1. First Sale. Company shall report to SJCRH the date of first commercial sale of any Licensed [***] Product, and any Licensed [***] Product on a country by country basis, within [***] of occurrence. 5.2. Reports and Payments. Within [***] after the conclusion of each Royalty Reporting Period, Company shall deliver to SJCRH a report of Net Sales of Company and its Sublicensees during the Royalty Reporting Period on a country by country basis. Such report shall include the: (i) Net Sales of Company and its Sublicensees during the Royalty Reporting Period; 6 (ii) The information necessary for SJCRH to calculate "Net Sales" for each country, (the Parties acknowledge that such information is expected to include gross sales and all deductions and reductions in each category identified in the definition of Net Sales taken to arrive at the Net Sales amount); and (iii) the total royalty payable on Net Sales in U.S. dollars, together with the exchange rates used for conversion. All such reports shall be considered Company Confidential Information. If no royalties are due to SJCRH for any Royalty Reporting Period, the report shall so state. Concurrent with the report, Company shall remit to SJCRH any payment due for the applicable Royalty Reporting Period. SJCRH shall instruct Company as to method of payment. 5.3. Records. Company shall maintain, and shall require its Sublicensees to maintain, complete and accurate records of all Net Sales under this Agreement and any amounts payable to SJCRH in relation to such Licensed Product, which records shall contain sufficient information to permit SJCRH to confirm the accuracy of any reports delivered to SJCRH under Section 5.2. The relevant party shall retain such records relating to a given Royalty Reporting Period for at least [***] after the conclusion of that Royalty Reporting Period, during which time SJCRH shall have the right, at its expense, to cause its internal accountants or an independent, certified public accountant to inspect such records during normal business hours for the sole purpose of verifying any reports and payments delivered under this Agreement one time annually. The parties shall reconcile any underpayment or overpayment within thirty (30) days after the accountant delivers the results of the audit. In the event that any audit performed under this Section reveals an underpayment in excess of [***] in any Royalty Reporting Period, Company shall bear the full cost of such audit. SJCRH may exercise its rights under this Section only once every year and only with reasonable prior notice to Company. 6. PATENT AND INFRINGEMENT 6.1 Responsibility for Patent Rights. [***] shall have primary responsibility for the drafting, filing, prosecution, and maintenance of all Patent Rights. [***] shall consult with [***] as to the drafting, filing, prosecution, and maintenance of all such Patent Rights [***] any deadline or action with the U.S. Patent and Trademark Office or any foreign patent office and shall furnish [***] with copies of all relevant documents reasonably in advance of such consultation. Consultation with respect to any proposed new foreign filings shall occur [***] prior to the filing to the extent reasonably possible. Wherever reasonably possible, all actions regarding prosecution and maintenance of the Patent Rights, including all actions related to the prosecution, handling, and settlement or disposition of interferences or other related actions, and all costs thereby incurred, shall [***]. 6.2. Payment of Patent Expenses. [***] for all out of pocket patent-related expenses incurred by [***] pursuant to Section 6.1 during the term of this Agreement within thirty (30) days after [***]. [***] may elect, upon sixty (60) days written notice to [***], to cease payment of the expenses associated with obtaining or maintaining patent protection for one or more Patent Rights in one or more countries. In such event, [***] with respect to such Patent Rights in such countries. In the event SJCRH grants one or more licenses under Patent Rights outside of the Exclusive Field or, subject to the terms of Section 2.1 (b), within the Exclusive Field, SJCRH and Company shall [***]. 6.3 Abandonment. In the event that [***] desires to abandon or discontinue (including any decision not to make any necessary payment or filing) any patent or patent application within the Patent Rights, [***] shall provide [***] with reasonable prior written notice of such intended abandonment and [***] shall have the right, [***], to prepare, file, prosecute, and maintain the relevant Patent Rights. 7 6.4. Infringement. (i) Notification of Infringement. Each party agrees to provide written notice to the other party after becoming aware of any infringement of the Patent Rights. (ii) Company Right to Prosecute. Company shall have the right, under its own control and at its own expense, to prosecute any third party infringement of the Patent Rights in or including the Exclusive Field. [***] Company shall not enter into any settlement, consent judgment, or other voluntary final disposition of any infringement action under this Subsection without the prior written consent of SJCRH, which consent shall not be unreasonably withheld or delayed. Any recovery obtained in an action under this Subsection shall be distributed as follows: (a) each party shall be reimbursed for any expenses incurred in the action; (b) as to ordinary damages, Company shall receive [***], and (c) as to special or punitive damages, [***]. (iii) SJCRH as Indispensable Party. SJCRH shall permit any action under this Section to be brought in its name if required by law, provided that Company shall hold SJCRH harmless from, and if necessary indemnify SJCRH against, any costs, expenses or liability that SJCRH may incur in connection with such action. (iv) SJCRH Right to Prosecute. In the event that Company fails to initiate an infringement action within a reasonable time after it first becomes aware of the basis for such action, or to answer a declaratory judgment action within a reasonable time after such action is filed, SJCRH shall have the right to prosecute such infringement or answer such declaratory judgment action, under its sole control and at its sole expense, and any recovery obtained shall be retained by SJCRH. (v) Cooperation. Each party agrees to cooperate fully in any action under this Section 6.4. which is controlled by the other party, provided that the controlling party reimburses the cooperating party promptly for any costs and expenses incurred by the cooperating party in connection with providing such assistance. 7. CONFIDENTIAL INFORMATION; PUBLICITY 7.1. Confidential Information. (i) Obligations. For a period of [***] after [***], the Receiving Party shall (i) maintain such Confidential Information in strict confidence, except that the Receiving Party may disclose or permit the disclosure of any Confidential Information to its Sublicensees (to the extent necessary to effect the relevant Sublicense) and its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purpose of this Agreement; (ii) use such Confidential Information solely for the purposes of this Agreement; and (iii) allow its Sublicensees, trustees or director, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary for the purposes of this Agreement, with all such reproductions being considered Confidential Information. (ii) Exceptions. The obligations of the Receiving party under Subsection 7.1.(i) above shall not apply to the extent that the Receiving Party can demonstrate that certain Confidential Information (a) was in the public domain prior to the time of its disclosure under this Agreement; (b) entered the public domain after the time of its disclosure under the Agreement 8 through means other than an unauthorized disclosure resulting from an act or omission by the Receiving Party; (c) was independently developed or discovered by the Receiving Party without use of the Confidential Information; (d) is or was disclosed to the Receiving Party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the Disclosing Party and having no obligation to confidentiality with respect to such Confidential Information; or (e) is required to be disclosed to comply with applicable laws or regulations, or with a court or administrative order, provided that the Disclosing Party receives reasonable prior written notice of such disclosure. 8. TERM AND TERMINATION 8.1. Term. This Agreement shall commence on the Effective Date and shall remain in effect until Company has fulfilled its last obligations of royalty payment to SJCRH, pursuant to Section 4.4. 8.2. Voluntary Termination by Company. Company shall have the right to terminate this Agreement, for any reason, upon ninety (90) days' prior written notice to SJCRH. Upon termination, a final report shall be submitted and any milestone payments, annual fees, royalty payments, and unreimbursed patent expenses due to SJCRH shall become immediately payable. Upon voluntary termination under this section or termination by SJCRH under Section 8.3 below, Company shall cease to utilize Patent Rights and Hospital Materials and shall so certify to SJCRH in writing that Patent Rights and Hospital Materials are not being used for any purpose by Company. Otherwise, upon termination, Company shall be deemed the assignee and owner of the Hospital Materials it has received. 8.3 Termination for Default. In the event that either party commits a material breach of its obligation under this Agreement and fails to cure that breach within sixty (60) days after receiving written notice thereof, the other party may terminate this Agreement immediately upon written notice to the party in breach. If the alleged breach involves non payment of any undisputed amounts due SJCRH under this Agreement, Company shall pay [***] until the undisputed amount is paid in full. 8.4. Force Majeure. Neither party will be responsible for delays resulting from causes beyond the reasonable control of such party, including without limitation fires, explosion, flood, war, strike, or riot, provided that the nonperforming party uses commercially reasonable efforts to avoid or remove such causes of nonperformance and continues performance under this Agreement with reasonable dispatch whenever such causes are removed. 8.5. Effect of Termination. The following provisions shall survive the expiration or termination of this Agreement: Sections 1 and 9; Sections 3.2, 3.3, 5.2 (obligation to provide final report and payment), 5.3, 7.1, 8.5, 10.6 and 10.7. Upon the early termination of this Agreement, Company and Sublicensees may complete and sell any work-in-progress and inventory of Licensed Product that exists as of the effective date of termination, provided that (i) Company is current in payment of all amounts due SJCRH under this Agreement, (ii) Company pays SJCRH the applicable royalty on such sales of Licensed Product in accordance with the terms and conditions of this Agreement, and (iii) Company and Sublicensees shall complete and sell all work-in-progress and inventory of Licensed Product within six (6) months after the effective date of termination. 9. Dispute Resolution. In the event of any controversy or claim arising out of or relating to any provision of this Agreement or the breach thereof, the parties shall try to settle such conflicts amicably between themselves. Subject to the limitation stated in the final sentence of this section, any such conflict 9 which the parties are unable to resolve shall be settled through arbitration conducted in accordance with the rules of the American Arbitration Association. The demand for arbitration shall be filed within a reasonable time after the controversy or claim has arisen, and in no event after the date upon which institution of legal proceedings based on such controversy or claim would be barred by the applicable statute of limitation. Such arbitration shall be held in [***]. The award through arbitration shall be final and binding. Either party may enter any such award in a court having jurisdiction or may make application to such court for judicial acceptance of the award and an order of enforcement, as the case may be. Notwithstanding the foregoing, either party may, without recourse to arbitration, assert against the other party a third-party claim or cross-claim in any action brought by a third-party, to which the subject matter of this Agreement may be relevant. 10. MISCELLANEOUS 10.1. Representation and Warranties. SJCRH represents and warrants that its employees (including without limit relevant current and former staff, fellows, faculty, stipended students and post-docs) have assigned to SJCRH their entire right, title, and interest in the Patent Rights and Hospital Materials and that it has authority to grant the rights and licenses set forth in this Agreement. SJCRH MAKES NO OTHER WARRANTIES CONCERNING THE PATENT RIGHTS, HOSPITAL MATERIALS AND RELATED TECHNOLOGY, INCLUDING WITHOUT LIMITATION ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Specifically, SJCRH makes no warranty or representation (i) regarding the validity or scope of the Patent Rights, (ii) that exploitation of the Patent Rights or any Licensed Product will not infringe any patents or other intellectual property rights of a third party, and (iii) that any third party is not currently infringing or will not infringe the Patent Rights. 10.2. Headings. All headings are for convenience only and shall not affect the meaning of any provision of this Agreement. 10.3. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns. 10.4 Assignment. This Agreement may not be assigned by Company without the prior written consent of SJCRH, except that Company may assign this Agreement to an affiliate or to a successor in connection with the merger, consolidation, or sale of all or substantially all of its assets or that portion of its business to which this Agreement relates, but shall notify SJCRH of such an assignment within sixty (60) days of its occurrence. Any assignment in violation of this provision shall be null and void. 10.5 Amendment and Waiver. This Agreement may be amended, supplemented, or otherwise modified only by means of a written instrument signed by both parties. Any waiver of any rights or failure to act in a specific instance shall relate only to such instance and shall not be construed as an agreement to waive any rights or fail to act in any other instance, whether or not similar. 10.6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of [***] irrespective of any conflicts of law principles. 10.7. Notice. Any notices required or permitted under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be sent by hand, recognized national overnight courier, confirmed facsimile transmission, or registered or certified mail, postage prepaid, return receipt requested, to the following address or facsimile numbers of the parties: 10 If to SJCRH: Office of Technology Licensing St. Jude Children's Research Hospital 332 North Lauderdale Memphis, Tennessee 38105 Attn: Shawn A. Hawkins If to Company: Aviron 297 North Bernardo Avenue Mountain View, CA 94043 Attn: General Counsel All notices under this Agreement shall be deemed effective upon receipt. A party may change its contact information immediately upon written notice to the other party in the manner provided in this Section. 10.8 Severability. In the event that any provision of this Agreement shall be held invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect any other provision of this Agreement, and the parties shall negotiate in good faith to modify the Agreement to preserve (to the extent possible) their original intent. If the parties fail to reach a modified agreement within sixty (60) days after the relevant provision is held invalid or unenforceable, then the dispute shall be resolved in accordance with the procedures set forth in Section 9. While the dispute is pending resolution, this Agreement shall be construed as if such provision were deleted by agreement of the parties. 10.9 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to its subject matter and supersedes all prior agreements or understandings between the parties relating to its subject matter. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. ST. JUDE CHILDREN'S AVIRON RESEARCH HOSPITAL, INC By: s/ J. Scott Elmer By: s/ Carol Olson ----------------- -------------- J. Scott Elmer Director, Technology Licensing Title: SVP, Commercial Development --------------------------- Date: 9/26/2001 Date: 9/24/2001 --------- ---------- 11 APPENDIX A PATENTS [***] [***] 12 APPENDIX B MASTER INFLUENZA STRAINS [***] 13 -----END PRIVACY-ENHANCED MESSAGE-----