-----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, BtFJvrv3XBbAjuo2d6Yr4VyB0k45olYFru2frwy8+ADEIq18AWnpBDrn3R4U28WK vLiVzgEj6weOO1wpcQ3pcg== 0001095811-01-502241.txt : 20010516 0001095811-01-502241.hdr.sgml : 20010516 ACCESSION NUMBER: 0001095811-01-502241 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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: SEC FILE NUMBER: 000-20815 FILM NUMBER: 1634858 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 f71770e10-q.txt FORM 10-Q FOR QUARTER ENDED 3/31/01 1 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 March 31, 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 incorporation or (I.R.S. Employer Identification No.) organization)
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 30,602,814 shares ---------------------------- ---------------------------- (Class) (Outstanding at May 8, 2001) 2 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 March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 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 13 PART II. OTHER INFORMATION 14 ITEM 1. LEGAL PROCEEDINGS 14 ITEM 2. CHANGES IN SECURITIES 14 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14 ITEM 5. OTHER INFORMATION 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15 SIGNATURES 16 EXHIBIT INDEX 17
2 3 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)
MARCH 31, DECEMBER 31, 2001 2000 --------- --------- (UNAUDITED) (NOTE 1) ASSETS Current Assets: Cash and cash equivalents ................................................ $ 343,591 $ 64,662 Short-term investments ................................................... 126,762 67,651 Accounts receivable ...................................................... 6,553 23,288 Inventory ................................................................ 5,492 4,264 Prepaid expenses and other current assets ................................ 4,249 2,691 --------- --------- Total current assets ................................................... 486,647 162,556 Long-term investments ...................................................... 53,163 4,506 Property and equipment, net ................................................ 30,569 27,707 Intangible assets, net ..................................................... 47,698 48,046 Deposits and other assets .................................................. 11,493 5,924 --------- --------- TOTAL ASSETS ............................................................... $ 629,570 $ 248,739 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ......................................................... $ 2,850 $ 5,106 Accrued compensation ..................................................... 3,079 4,978 Accrued clinical trial costs ............................................. 1,648 1,974 Accrued interest ......................................................... 1,896 695 Accrued expenses and other liabilities ................................... 5,750 7,654 Current portion of capital lease obligations ............................. 4 9 Current portion of long-term obligations ................................. 6,627 5,945 Deferred revenue ......................................................... 10,000 -- --------- --------- Total current liabilities .............................................. 31,854 26,361 Deferred rent .............................................................. 1,628 2,095 Deferred revenue ........................................................... 9,000 9,750 Long-term obligations, less current portion ................................ 257,426 89,947 Commitments and contingencies Stockholders' Equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized, issuable in series; none outstanding at March 31, 2001 and December 31, 2000 .................................................. -- -- Common stock, $0.001 par value; 100,000,000 shares authorized; 30,574,137 and 25,181,051 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively .................. 31 25 Additional paid-in capital ............................................... 630,169 394,012 Notes receivable from stockholders ....................................... (50) (50) Accumulated deficit ...................................................... (300,488) (273,401) --------- --------- Total stockholders' equity ................................................. 329,662 120,586 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 629,570 $ 248,739 ========= =========
See accompanying notes. 3 4 AVIRON CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ----------------------- 2001 2000 -------- -------- REVENUES: Contract revenues and grants .................... $ 3,215 $ 3,407 -------- -------- OPERATING EXPENSES: Research and development ......................... 28,094 17,594 Acquisition of in-process research and development .............................. -- 10,904 General, administrative and marketing ............ 4,473 2,568 -------- -------- TOTAL OPERATING EXPENSE ............................ 32,567 31,066 -------- -------- LOSS FROM OPERATIONS ............................... (29,352) (27,659) -------- -------- OTHER INCOME (EXPENSE): Interest income .................................. 5,247 722 Interest expense ................................. (4,393) (2,088) -------- -------- Net interest income (expense) ................ 854 (1,366) Gain on investment ............................... 1,032 -- -------- -------- TOTAL OTHER INCOME (EXPENSE), net .................. 1,886 (1,366) -------- -------- NET LOSS, before cumulative effect of change in accounting principle .............................. (27,466) (29,025) Cumulative effect of change in accounting principle .......................................... -- (12,750) -------- -------- NET LOSS, after cumulative effect of change in accounting principle .............................. $(27,466) $(41,775) ======== ======== BASIC AND DILUTED NET LOSS PER SHARE Net loss, before cumulative effect of change in accounting principle ......................... $ (0.96) $ (1.70) Cumulative effect of change in accounting principle ....................................... -- (0.74) -------- -------- Net loss, after cumulative effect of change in accounting principle ......................... $ (0.96) $ (2.44) ======== ======== Shares used in computing basic and diluted net loss per share ....................... 28,504 17,095 ======== ========
See accompanying notes. 4 5 AVIRON CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------------- 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ............................................................... $ (27,466) $ (41,775) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization of property and equipment ................................................. 1,614 1,352 Amortization of intangible assets ............................... 2,184 -- Other amortization .............................................. 296 141 Accretion of interest on long-term obligation ................... 323 -- 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 -- Stock compensation for options granted to consultants ........... 36 -- Gain on investment .............................................. (1,032) -- Changes in assets and liabilities: Accounts receivable ............................................. 16,864 2,040 Inventory ....................................................... (1,228) -- Prepaid expenses and other current assets ....................... (1,558) (651) Deposits and other assets ....................................... 71 272 Accounts payable ................................................ (2,256) (1,769) Accrued expenses and other liabilities .......................... (2,339) 45 Deferred revenue ................................................ 9,250 (750) Deferred rent ................................................... (467) (449) --------- --------- Net cash used in operating activities .................................. (4,109) (17,890) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments ........................................ (144,268) (27,306) Maturities of investments ....................................... 37,912 31,869 Loan to officer ................................................. (150) (500) Expenditures for property and equipment ......................... (4,475) (512) --------- --------- Net cash provided by (used in) investing activities .................... (110,981) 3,551 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term obligations ........................ (826) (680) Proceeds from issuance of: Notes payable ................................................... 2,213 -- Convertible debt, net ........................................... 193,283 -- Common stock, net ............................................... 199,349 20,228 --------- --------- Net cash provided by financing activities .............................. 394,019 19,548 --------- --------- Net increase in cash and cash equivalents .............................. 278,929 5,209 CASH AND CASH EQUIVALENTS, at beginning of period ...................... 64,662 28,081 --------- --------- CASH AND CASH EQUIVALENTS, at end of period ............................ $ 343,591 $ 33,290 ========= ========= Supplement schedule of non-cash financing and investing activities: Warrant issued in connection with intangible assets ................... $ 1,836 $ -- Exchange of convertible notes due 2005 into common stock .............. $ 35,742 $ --
See accompanying notes. 5 6 AVIRON NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 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 subsidiary, Aviron UK Limited. All significant inter-company accounts and transactions have been eliminated. The financial information as of March 31, 2001 and for the three-month periods ended March 31, 2001 and 2000 is 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. 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 periods ended March 31, 2001 and 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 the results of operations or the financial position of Aviron. 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 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). In accordance with SAB 101, this $15.0 million up-front license fee has been deferred and 6 7 is now being recognized as revenue over the five-year estimated development period of FluMist. FluMist is Aviron's investigational intranasal influenza vaccine. The results for the first quarter of 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 first quarter. 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. Changes in Long-term Obligations During the Quarter Ended March 31, 2001 Convertible Debt During the first quarter of 2001, we exchanged approximately $33.5 million aggregate principal amount of our 5 3/4% convertible subordinated notes due in 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 have been charged to additional paid-in capital. As of March 31, 2001, approximately $14.8 million aggregate principal amount of our 2005 Notes remains outstanding. In February 2001, we completed a public offering of $200.0 million aggregate principal amount of 5 1/4% convertible subordinated notes due in 2008, or the 2008 Notes. Net proceeds to us were approximately $193.3 million, after deducting estimated 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. Credit Facilities During the first quarter of 2001, we obtained additional loans in the amount of approximately $2.2 million against our available credit facility. As of February 28, 2001, no further amounts are available under that agreement. 3. Equity Financing Transactions During the Quarter Ended March 31, 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 has completed their 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 estimated expenses and underwriters' discounts and commissions. 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. 7 8 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 present stage of the development of FluMist, has been recorded as an intangible asset and will be amortized over the estimated useful life of the FluMist product. 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 the estimated useful life of the FluMist product. 5. Lease Obligation In October 2000, we agreed to acquire a 25-year lease from Celltech Group Plc., or Celltech, on approximately eight acres of land in Speke, U.K. In March 2001, we completed this transfer. 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 minimum annual payments are 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, 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 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 9 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, the risk that the United States Food and Drug Administration, or FDA, will determine that our manufacturing facilities are not adequate, potential difficulties we may have with our manufacturing process, the risk that we are unable to perform the complex annual update of the FLUMIST(TM) formulation for new influenza strains in a timely manner, our dependence on our partner, Wyeth, 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 devastating 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. 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. 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 Lederle Vaccines, or Wyeth, a business unit of the pharmaceutical division of American Home Products Corporation, or AHP. We submitted a Biologics License Application, or BLA, for FluMist to the FDA and it is currently under review by the FDA. We are seeking U.S. licensure of FluMist to prevent influenza in healthy children and healthy adults, aged 1 to 64 years. FLUMIST(TM)--Liquid Formulation The current formulation of FluMist requires freezer storage throughout distribution. 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. 9 10 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 completed some 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. Personnel Announcements On January 8, 2001, we announced the election of C. Boyd Clarke, Aviron president and chief executive officer, as chairman of the board of directors, and on January 24, 2001, we announced the promotion of Rayasam S. Prasad to senior vice president, technical affairs. 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 2001 at the earliest. We have incurred cumulative net losses of approximately $300.5 million as of March 31, 2001. We expect to incur substantial operating losses through 2001 and may incur losses after 2001. Business Outlook We anticipate our operating expenditures will be between $130 and $145 million in 2001. This increase from 2000 operating expenses is due primarily to an increase in the size of our operations in the U.K. and expenses that we expect to incur as we make preparations for a potential commercial launch of FluMist in the U.S. for the 2001-2002 influenza season. This increase includes amortization expense associated with the restructuring of our manufacturing agreements in the U.K. 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. As part of preparing for a potential FluMist commercial launch for the 2001-2002 influenza season, we have begun the initial stages of commercial-scale manufacturing of FluMist. To support commercial manufacturing and inventory buildup for a potential FluMist product launch during the 2001-2002 influenza season, Wyeth paid us $10.0 million in January 2001 as an advance against future amounts that Wyeth will owe us under our agreement. Our outlook for operating expenses in 2001 does not include a one-time non-cash charge associated with the vesting of employee stock options in the event of a 2001 approval by the FDA for marketing of FluMist. We intend to record the majority of our manufacturing spending as research and development expense, rather than capitalize into inventory, until FluMist is approved for marketing by the FDA. Thus, a significant portion of anticipated 2001 operating expense will include manufacturing activities. If we receive marketing approval for FluMist, initial reported cost of goods sold may be lower than in future periods when manufacturing expenses will be charged to cost of goods sold. 10 11 We expect capital expenditures to increase substantially as we commence building additional manufacturing facilities and commercialization systems and facilities. During 2001, we forecast that capital expenditures will be between $30 and $40 million. Business Risks The most significant 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 regulatory approval, such as the risk that regulatory agencies will determine that our license applications for FluMist are 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 and require us to raise additional capital to cover the costs of additional research and development, manufacturing and ongoing fixed costs. In addition, we may incur significant losses as a result of our decision to begin manufacturing FluMist at commercial scale for use in the 2001-2002 influenza season before receipt of marketing approval from the FDA. For other important risks that we face, see also 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. RESULTS OF OPERATIONS Three Months Ended March 31, 2001 and 2000 The results for the first quarter of 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 in the 2001 first quarter totaled $3.2 million, compared to $3.4 million for the first quarter of 2000. Revenues during the first quarters of 2000 and 2001 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 in the 2001 first quarter totaled $32.6 million, compared to $31.1 million for the first quarter of 2000. Research and development costs increased to $28.1 million in the 2001 first quarter from $17.6 million in the first quarter 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. 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 $4.5 million in the 2001 first quarter from $2.6 million in the 2000 first quarter. The increase was due to significant growth in infrastructure and other costs to support preparations for a potential commercial launch of FluMist in 2001. Net Interest Income (Expense) Net interest increased to net interest income of approximately $854,000 for the three-month period ended March 31, 2001, as compared to net interest expense of $1.4 million for the three-month period ended March 31, 2000. 11 12 Interest income increased to $5.2 million for the three-month period ended March 31, 2001, as compared to approximately $722,000 for the three-month period ended March 31, 2000, as a result of the increase in the average balances of cash, cash equivalents and investments due to the receipt of funds from financings during 2000 and early 2001, which was partially offset by the usage of funds for operating and capital purposes. Interest expense for the three-month period ended March 31, 2001 was $4.4 million, as compared to $2.1 million for the three-month period ended March 31, 2000. The increase in interest expense reflects $1.5 million of interest costs associated with the $200.0 million of convertible debt issued in February 2001, a one-time non-cash interest charge of approximately $1.6 million related to exchanges during the quarter of approximately $33.5 million aggregate principal amount of our 5 3/4% convertible subordinated notes, approximately $323,000 of interest accretion associated with our obligation to Evans Vaccines Ltd., and a decrease in interest expense of $1.1 million on the 2005 Notes due to the exchanges into common stock in late 2000 and early 2001. 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. LIQUIDITY AND CAPITAL RESOURCES We had cash, cash equivalents and short-and long-term investments at March 31, 2001 of approximately $523.5 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. On February 7, 2001, we completed a public offering of 4,000,000 shares of our common stock at $50.00 per share and a concurrent public offering of $200.0 million of 5 1/4% convertible subordinated notes due 2008, or the 2008 Notes. 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. The sale of the securities under the concurrent common stock and debt offerings resulted in net proceeds to the company of approximately $382.5 million, after deducting estimated expenses and underwriters' discounts and commissions. During the quarter ended March 31, 2001, we also generated $8.0 million through the sale of common stock in a private transaction and received proceeds of approximately $2.2 million from loans under existing credit facilities. During the first quarter of 2001, $4.1 million of cash was used in operations, as compared to $17.9 million during the first quarter of 2000. The decrease in cash used in operating activities was primarily due to 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 inventory buildup for 2001. 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 $4.5 million during the first quarter of 2001, as compared to approximately $512,000 during the first quarter of 2000. Capital expenditures increased in 2001 primarily due to the completion of our acquisition of a lease in Speke, U.K. and expenditures for equipment for our Pennsylvania facility. Principal payments under capital lease arrangements and long-term debt were approximately $826,000 during the first quarter of 2001, as compared to approximately $680,000 for the first quarter of 2000. The increase is due to additional loan financing undertaken in 2000 and early 2001. As indicated in "Business Outlook" above, we expect our capital expenditures during 2001 to range between $30 and $40 million. During the first quarter of 2001, we exchanged approximately $33.5 million aggregate principal amount of our 5 3/4% convertible subordinated notes due in 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 have been charged to additional paid-in capital. As of March 31, 2001, approximately $14.8 million aggregate principal amount of our 2005 Notes remains outstanding. 12 13 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 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. 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. At March 31, 2001, we had cash and cash equivalents of $343.6 million, with a weighted average interest rate of 5.39 percent per year and short-term investments with a basis of $126.2 million and a fair market value of $126.8 million, with a weighted average interest rate of 5.40 percent per year. We also had long-term investments with a basis of $53.0 million and a fair market value of $53.2 million with a weighted average interest rate of 5.40 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. 13 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 intend to appeal the decision insofar as it relates to the denied claims; the appeal will request 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. For information regarding Joany Chou v. The University of Chicago, ARCH Development Corp., Bernard Roizman and Aviron, filed on July 8, 1999 in the U.S. District Court for the Northern District of Illinois, see our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2000. ITEM 2. CHANGES IN SECURITIES On March 29, 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 to the agreement, 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. Prior to the first commercial sale of any of our products, we are obligated to apply for the registration of the shares issuable upon exercise of the warrant within 180 days of the exercise date, if the University is not able to sell the shares pursuant to Rule 144 of the Securities Act of 1933, as amended. No underwriter or placement agent was involved in the transaction. The issuance of the warrant was made in reliance on Section 4(2) of the Securities Act of 1933, as amended. The second amendment to the stock transfer agreement is attached as Exhibit 10.52 . The warrant is attached as Exhibit 4.25 . ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None 14 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS
ITEM DESCRIPTION ---- ----------- 4.22 Indenture entered into between Aviron and HSBC Bank USA as Trustee, dated February 7, 2001(1) 4.23 Officer's Certificate pursuant to Section 2.01 of the Subordinated Indenture, dated February 7, 2001(1) 4.25 Warrant for Common Stock, issued to University of Michigan. 10.49 FluMist(TM) Supply Agreement Amendment between the Registrant and American Home Products, dated January 1, 2001(1) 10.52 Amendment No. 2 to Stock Transfer Agreement by and between the Registrant and The Regents of the University of Michigan, dated March 29, 2001
---------- (1) Incorporated by reference to the correspondingly numbered exhibit to our Annual Report on Form 10-K for the year ended December 31, 2000, File No. 0-20815, filed March 27, 2001. (b) REPORTS ON FORM 8-K During the three months ended March 31, 2001, we filed the following reports on Form 8-K: (i) Current Report on Form 8-K, dated January 4, 2001, disclosing the FDA's acceptance for filing of Aviron's Biologics License Application for FluMist. (ii) Current Report on Form 8-K, dated January 9, 2001, disclosing American Home Products Corporation's agreement to make an advance payment to Aviron of $10.0 million, the election of C. Boyd Clarke as Chairman of Aviron's Board of Directors and planned disclosure in connection with the J.P. Morgan/H&Q 19th Annual Healthcare Conference. (iii) Current Report on Form 8-K, dated February 1, 2001, disclosing results for the fourth quarter 2000 and the completion of a number of private exchanges of outstanding 5 3/4% convertible notes due 2005, and including a Statement of Eligibility of Trustee on Form T-1 under Aviron's subordinated debt securities indenture. (iv) Current Report on Form 8-K, dated February 2, 2001, including a form of Common stock Underwriting Agreement, Debt Underwriting Agreement and Officer's Certificate pursuant to Section 2.01 of the Subordinated Indenture in connection with Aviron's common stock and debt offerings which closed on February 7, 2001. 15 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: May 14, 2001 By: /s/ C. Boyd Clarke ----------------------- ------------------------------- C. Boyd Clarke Chairman, President and Chief Executive Officer Date: May 14, 2001 By: /s/ Fred Kurland ---------------------- ------------------------------- Fred Kurland Senior Vice President and Chief Financial Officer 16 17 EXHIBIT INDEX
ITEM DESCRIPTION ---- ----------- 4.22 Indenture entered into between Aviron and HSBC Bank USA as Trustee, dated February 7, 2001(1) 4.23 Officer's Certificate pursuant to Section 2.01 of the Subordinated Indenture, dated February 7, 2001(1) 4.25 Warrant for Common Stock, issued to University of Michigan. 10.49 FluMist Supply Agreement Amendment between the Registrant and American Home Products, dated January 1, 2001(1) 10.52 Amendment No. 2 to Stock Transfer Agreement by and between the Registrant and The Regents of the University of Michigan, dated March 29, 2001
---------- (1) Incorporated by reference to the correspondingly numbered exhibit to our Annual Report on Form 10-K for the year ended December 31, 2000, File No. 0-20815, filed March 27, 2001. 17 EX-4.25 2 f71770ex4-25.txt EXHIBIT 4.25 1 Exhibit 4.25 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE SHARES OF AVIRON COMPANY: AVIRON, a Delaware corporation (the "Company"), and any corporation that shall succeed to the obligations of the Company under this Warrant. NUMBER OF SHARES: 50,000 CLASS OF STOCK: Common Stock INITIAL EXERCISE PRICE: $10.00 DATE OF GRANT: March 29, 2001
THIS CERTIFIES THAT, for value received, The Regents of the University Michigan ("Michigan") or any permitted transferee of its rights hereunder is entitled to purchase the above number (as adjusted pursuant to Section 5 hereof) of fully paid and nonassessable shares of the above Class of Stock of the Company at the Initial Exercise Price above (as adjusted pursuant to Section 5 hereof), subject to the provisions and upon the terms and conditions set forth herein. THE EXPIRATION DATE OF THIS WARRANT SHALL BE SEVEN (7) YEARS FROM THE DATE OF GRANT. 1. DEFINITIONS. In addition to the terms defined above, the following capitalized terms shall have the following meanings, unless the context otherwise requires: (a) "Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations thereunder, as shall be in effect at the time. (b) "Common Stock" shall mean shares of the authorized common stock of the Company and any stock into which such common stock may hereafter be exchanged. (c) "Warrantholder" shall mean any person who shall at the time be the holder of this Warrant. (d) "Shares" shall mean the shares of the Class of Stock that the Warrantholder is entitled to purchase upon exercise of this Warrant, as adjusted pursuant to Section 5 hereof. (e) "Warrant Price" shall mean the Initial Exercise Price at which this Warrant may be exercised, as adjusted pursuant to Section 5 hereof. 2 2. TERM. The purchase right and Conversion Right (as defined in Section 7.1), represented by this Warrant is exercisable, in whole or in part, at any time on or before the Expiration Date. 3. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the Warrantholder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Appendix A duly executed) at the principal office of the Company and by the payment to the Company, by check made payable to the Company drawn on a United States bank and for United States funds of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased. In the event of any exercise of the purchase right represented by this Section 3, certificates for the Shares so purchased shall be delivered to the Warrantholder with thirty (30) days of receipt of such payment and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Warrantholder within such thirty (30) day period. 4. EXERCISE PRICE. The Warrant Price at which this Warrant may be exercised shall be the Initial Exercise Price, as adjusted from time to time pursuant to Section 5 hereof. 5. ADJUSTMENT OF NUMBER AND KIND OF SHARES AND ADJUSTMENT OF WARRANT PRICE. 5.1 CERTAIN DEFINITIONS. As used in this Section 5 the following terms shall have the following respective meanings: (a) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either shares of Common Stock or Convertible Securities; (b) "Convertible Securities" shall mean any evidences or indebtedness, shares of stock or other securities directly or indirectly convertible into or exchangeable for Common Stock. 5.2 ADJUSTMENTS. The number and kind of securities purchasable upon the exercise of this Warrant and Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Reclassification, Reorganization, Consolidation or Merger. In the case of any reclassification of the Class of Stock that the Warrantholder is entitled to purchase upon exercise of this Warrant, or any reorganization, consolidation or merger of the Company with or into another corporation (other than a merger or reorganization with respect to which the Company is the surviving corporation and which does not result in any reclassification of such Class of Stock), the Company, or such successor corporation, as the case may be, shall execute a new warrant, providing that the Warrantholder shall have the right to exercise such new warrant and upon such exercise to receive, in lieu of each share of the Class of Stock theretofore issuable upon exercise of this Warrant, the kind of securities receivable upon such reclassification, 2 3 reorganization, consolidation or merger by a holder of shares of the same Class of Stock of the Company. The Warrant Price and the number of shares of such new securities to be received by the Warrantholder upon exercise of the Warrant shall be adjusted so that the Warrantholder shall receive upon exercise of the Warrant and payment of the same aggregate consideration the number of shares of new securities which the Warrantholder would have owned immediately following such reclassification, reorganization, consolidation or merger if the Warrantholder had exercised the Warrant immediately prior to such reclassifications, reorganization, consolidation or merger. The provisions of this subsection (a) shall similarly apply to successive reclassification, reorganizations, consolidations or mergers. (b) Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine the Class of Stock for which this Warrant is then exercisable, the Warrant Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. Any adjustment under this subsection (b) shall become effective when the split, subdivision or combination becomes effective. (c) Stock Dividends. If the Company at any time while this Warrant remains outstanding and unexpired shall pay a dividend with respect to the Class of Stock for which this Warrant is then exercisable, payable in shares of that Class of Stock, Options or Convertible Securities, the Warrant Price shall be adjusted, from and after the date of determination by a fraction (i) the numerator of which shall be the total number of shares of that Class of Stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of the same Class of Stock outstanding immediately after such dividend or distribution (including shares of that Class of Stock issuable upon exercise, conversion or exchange of any Options or Convertible Securities issued as such dividend or distribution). If the Options or Convertible Securities issued as such dividend or distribution by their terms provide, with the passage of time or otherwise, for any decrease in the consideration payable to the Company, or any increase in the number of shares issuable upon exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Price shall, upon any such decrease or increase becoming effective, be reduced to reflect such decrease or increase as if such decrease or increase became effective immediately prior to the issuance of the Options or Convertible Securities as the dividend or distribution. Any adjustment under this subsection (c) shall become effective on the record date set for such dividend or distribution. (d) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price pursuant to Section 5(b) or 5(c) above, the number of Shares issuable upon exercise of this Warrant shall be adjusted to the product obtained by multiplying the number of Shares issuable immediately prior to such adjustment in the Warrant Price by a fraction (i) the numerator of which shall be the Warrant Price immediately prior to such adjustment, and (ii) the denominator of which shall be the Warrant Price immediately after such adjustment. 3 4 6. NOTICE OF ADJUSTMENTS. So long as the Warrant remains outstanding and unexpired, whenever the Warrant Price shall be adjusted pursuant to Section 5 hereof, the Company shall issue a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Warrant Price after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the Warrantholder. 7. RIGHT TO CONVERT WARRANT INTO STOCK. 7.1 RIGHT TO CONVERT. In addition to the rights granted under Section 3 of this Warrant, the Warrantholder shall have the right to require the Company to convert this Warrant, in whole or in part, (the "Conversion Right"), into shares of the Class of Stock for which the Warrant is then exercisable, as provided in this Section 7. Upon exercise of the Conversion Right, the Company shall deliver to the Warrantholder (without payment by the Warrantholder of any Warrant Price) that number of shares of stock equal to the quotient obtained by dividing (x) the value of the portion of the Warrant specified for conversion at the time the Conversion Right is exercised (determined by subtracting the aggregate Warrant Price, immediately prior to the exercise of the Conversion Right, of the number of shares to be converted from the aggregate fair market value [as determined pursuant to Section 7.3 below], immediately prior to the exercise of the Conversion Right, of those Shares) by (y) the fair market value (as determined pursuant to Section 7.3 below) of one share of that Class of Stock immediately prior to the exercise of the Conversion Right. 7.2 METHOD OF EXERCISE. So long as the Warrant remains outstanding and unexpired, the Conversion Right may be exercised at any time by the Warrantholder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Warrantholder thereby intends to exercise the Conversion Right, and specifying the number of shares to be converted. Certificates of the shares of stock issuable upon exercise of the Conversion Right shall be delivered to the Warrantholder within thirty (30) days following the Company's receipt of this Warrant together with the aforesaid written statement, and unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Warrantholder within such thirty (30) day period. 7.3 VALUATION OF STOCK. For purposes of this Section 7, the fair market value of one share of the Class of Stock issuable upon exercise of this Warrant shall mean: (a) The product of (i) the average of the closing price or, if no closing price is reported, the closing bid and asked prices of the Common Stock, quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten (10) trading days prior to the date of determination of fair market value, and (ii) the number of shares of Common Stock into which each share of the Class of Stock is then convertible, if applicable; 4 5 \ (b) If the Common Stock is not traded Over-The-Counter or on an exchange, the fair market value of the Class of Stock per share shall be as determined in good faith by the Company's Board of Directors; provided, however, that if the Warrantholder disputes in writing the fair market value determined by the Board of Directors within thirty (30) days of being informed of such fair market value, the fair market value shall be determined by an independent appraiser, appointed in good faith by the Company's Board of Directors. 8. COMPLIANCE WITH ACT; TRANSFERABILITY OF WARRANT; DISPOSITION OF SHARES. 8.1 LEGENDS. This Warrant and the Shares issued upon exercise thereof shall be imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 8.2 TRANSFERABILITY OF WARRANT AND SHARES. This Warrant and the Shares issued upon exercise thereof shall not be sold, transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if reasonably requested by the Company). Subject to the provisions of this Section 8.2, title to this Warrant may be transferred in the same manner as a negotiable instrument transferable by endorsement and delivery. 9. RIGHTS OF THE HOLDER. The Warrantholder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Warrantholder are limited to those expressed in this Warrant. Nothing contained in this Warrant shall be construed as conferring upon the Warrantholder hereof the right to vote or to consent or to receive notice as a shareholder of the Company on any matters or with respect to any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Shares purchasable hereunder until, and only to the extent that this Warrant shall have been exercised in accordance with its terms. 10. MISCELLANEOUS. No fractional shares shall be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the Warrantholder and their respective successors and assigns. This Warrant shall be governed by and construed under the laws of the State of California as applied to contracts entered into between residents of the State of California to be wholly performed in the State of California. The titles of the sections and subsections of this 5 6 Warrant are for convenience only and are not to be considered in construing this Warrant. All pronouns used in the Warrant shall be deemed to include masculine, feminine and neuter forms. AVIRON By: /s/ C. Boyd Clarke ------------------------------------- C. Boyd Clarke President and Chief Executive Officer 6 7 APPENDIX A NOTICE OF EXERCISE TO: AVIRON 1. The undersigned hereby elects to purchase shares of the stock of Aviron, a Delaware corporation, pursuant to terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of the stock in the name of the undersigned or in such other name as specified below. 3. The undersigned represents it is acquiring the shares of stock solely for its own account for investment and not as a nominee for any other party and not with a view toward the resale or distribution thereof within the meaning of the Securities Act of 1933, as amended. ------------------------------------------------ (Name) ------------------------------------------------ (Address) ------------------------------------------------ (Taxpayer Identification Number) - ----------------------------------- (print name of Warrantholder) By: ------------------------------ Title: --------------------------- Date: ---------------------------- 7 EX-10.52 3 f71770ex10-52.txt EXHIBIT 10.52 1 Exhibit 10.52 AMENDMENT NO. 2 TO STOCK TRANSFER AGREEMENT THIS AMENDMENT NO. 2 TO STOCK TRANSFER AGREEMENT entered into as of the 29 day of March, 2001, by and among AVIRON, a Delaware corporation ("Company") and the REGENTS OF THE UNIVERSITY OF MICHIGAN ("University"). RECITALS WHEREAS, the Company and the University are parties to that certain Materials Transfer and Intellectual Property Agreement dated February 24, 1995 and that certain Stock Transfer Agreement dated February 24, 1995, as amended by Amendment No. 1 to Stock Transfer Agreement, dated February 16, 2000 (the "Transfer Agreement"). WHEREAS, pursuant to Section 5 of the Transfer Agreement, Aviron agreed to deliver to the University a warrant for the purchase of Aviron Common Stock equal to one and twenty-five one-hundredths percent (1.25%) of the total number of issued and outstanding shares of the Company's Common Stock on the Issue Date (as defined therein). WHEREAS, the parties amended the Transfer Agreement to allow for the issuance of a warrant as of February, 2000 and amended the calculation of the number of shares to be issued pursuant to the further warrant to be issued to the University on the Issue Date as defined therein. WHEREAS, the parties now desire to amend the Transfer Agreement for a second time, in order to issue a warrant as of the date hereof and further amend the calculation of the number of shares to be issued pursuant to the University on the Issue Date as set forth below. NOW, THEREFORE, in consideration of the promises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. ISSUANCE OF WARRANT. 1.1 Promptly upon execution of this Agreement, the Company will issue to University a warrant to purchase fifty thousand (50,000) shares of the Company Common Stock at an exercise price per share of Ten Dollars ($10.00) (the "Initial Exercise Price" and the "Second Warrant"). The Second Warrant shall be in substantially the form as the warrant issued to University in February 2000 pursuant to the Transfer Agreement. 1.2 The Company represents and warrants that the Initial Exercise Price is properly calculated according to Section 5.3 of the Transfer Agreement. 2 1.3 In the event that the calculation of the Warrant Shares (as defined in the Transfer Agreement and as amended below), is negative or zero, then University shall retain the Second Warrant and there shall be no adjustment of the number of shares exercisable under the Second Warrant. 1.4 If University exercises/converts the New Warrant and Second Warrant in full or portion prior to the date of the First Commercial Sale of any Product (as defined in the Transfer Agreement) and is not able to sell the Warrant Shares pursuant to Rule 144 under the Securities Act of 1933, as amended, then the Company agrees to apply for registration of the Warrant Shares (this agreement is for one such registration) for resale on a Form S-3 Registration Statement (if such form is available for use by the Company) with the Securities and Exchange Commission and both parties agree that such registration shall be on terms and conditions substantially similar to those registration rights granted to American Home Products Corporation pursuant to Section 5 of that certain Common Stock Purchase Agreement by and between American Home Products Corporation and the Company dated February 3, 2000. SECTION 2. AMENDMENT OF CALCULATION FOR FURTHER ISSUANCE OF WARRANT. 2.1 The first-paragraph of Section 5.2 of the Transfer Agreement is further amended in its entirety as follows: "Subject to the provisions of Section 5.4 below, the Warrant shall be exercisable for a number of shares of the Company Common Stock (the "Warrant Shares") equal to one and twenty-five one-hundredths percent (1.25%) of the total number of issued and outstanding shares of the Company Common Stock on the Issue Date (including, on an as-converted basis, outstanding shares of Preferred Stock of the Company) less three hundred ninety thousand (390,000) shares of the Company Common Stock (as adjusted for recapitalizations, stock splits, dividends and the like). If such number is negative or zero, then no Warrant shall be issued. For purposes of calculating this percentage, "issued and outstanding shares of the Company Common Stock" shall NOT include shares of the Company Common Stock, or securities convertible into the Company Common Stock:" In Witness Whereof, the parties hereto have executed this AMENDMENT NO. 2 TO STOCK TRANSFER AGREEMENT as of the date set forth in the first paragraph hereof. AVIRON THE REGENTS OF THE UNIVERSITY OF MICHIGAN By: /s/ Fred Kurland By: /s/ Norman G. Herbert -------------------------- -------------------------- Norman G. Herbert Associate Vice President & Treasurer By: /s/ L. Erik Lundberg -------------------------- L. Erik Lundberg, CFA Chief Investment Officer 2 -----END PRIVACY-ENHANCED MESSAGE-----