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BIJS'II+7ESS' DESCRIPTION HEM RESEARCH, INC. SUMMARY HEM:R'esearch, Inc. intends to commerciially develop a number of its huma n andl ag,ricultural' pharmaceutical products as it moves to establish iltself as the next major pharmaceutical' company. The C'ompany ha~s already completed a number of, steps which.position it for the fast growth necessary to achieve this goal. These steps include the establishment of the Company as the leader iin AIDS therapeutic research and'the deveopmen.t of a collaborationiwith a major pharmaceutical concern. This business diescriptio~n has been developed in order to assist the Company in raising the vast financial resources necesisary for it to compete in the pharmaceutical research/'biotechnology industry. This description is being provided for informatilonal purposes only, dioes not purport to bie co.mpliete, and, in no way, represents an offering, of the C'ompany's securities to any individual or organization, publicly or privately. Additional informati'on coincerniing thie Company or issues raised' ini this description may be obtained by contactin!g Mr. Roy Urdanoff at (301) 770-5700. TABLE OF CONTENTS PAGE The Company . . . . .. . . . . . . .. .. . . . .. . . .. 1 II. Use of Proceeds . I I I . Industry . . . . . . . . . . . . . . . . . . . . . 4 IV. Product.s and'Technology . . . . . . . . . . . . . . 9 V. Opera tions . . . . . . . . . . . . . . . . . . . 18 VI. History . . . . . . . . . . . . . . . . . . . . . . 24 VII. Ma nageme nt . . . . . . . . . . . . . . . . . . . . 26 VIII. Financial Statements . . .. . . . . . . . . . . . . 2'9

I. THE COMPANY HEM Research, Znc. ("HEMR'esearch" or the "'Company" ), intends to develop, manufacture, market and/or license human and aaricultural therapeutic and' diagnostic pharmaceutical products based onithe use of its proprietary technologies. The Company''s development efforts primarily focus around a class of biologi!cals known as mismaitched double-stranded ribonucleic acids ('"dsRNA''s" )1. These compounds work by stimuliating the body's natural defense system, . including the induction of various lymiphoki~nes, such as interferon and interleuken, as well as through t'he completion of' certain biological pathways critical to immune function. The Compainy holds all patent and license rights to this class of products through its~dievelopment of a broad patent portfolio. HEM Research has pioneered an, approach of "systems management"' to the development of pharmaceutical products. This approach enables the Company to develop its. products by utiliz~inig various relationships it has with subcontractors, corporate partners, academic institutions and governmental agencies. These relationships allow the Company to: (i) maintali!n the rights to all its products by building a large patent portfolio in thee relevant areas7 ('ii) promptly evaluate and take advantage of its clinical opportunities; (iii) reduce costs and increase operational efficiencies; and (iv)' insure thie integrity andl quality of the Company and its development efforts. The Company's first dsR'MA product, given the trademark name Ampligien, has been under development since 198'01. The NIH have contributed or committedi more than $20 million to this prograim. Ampligen has been used in human clinical trials since 198!4. It is currently being tested on acquired immune deficiency syndrome ('"AIDS") patients, AIDS!-related complex ("ARC") patients and', cancer patients. The Company expects to complete a series of double-blind, placebo studies on approximately 200 ARC patients this year and on a similar number of AIDS patients 'soon after. The Company intends to enter into a collaboration with E. I. du Pont de Nemours and Co., Inc. ("Du Pont") to further the develop- ment of dsRNA's. U'nder the proposed terms of this agreement, Du Pont will contribute cash andllaboratory testing, manufacturingg process diesign, and'other "in-kind" services for al nominal equity position in the Company as well as.a rig;ht of'first refusal to acquire th~e commercial development, manufacturing, and' marketing rights to all existing and future products and technology in the fiel'd of use of dsRNA's. The Company has also aggressively filed for patents in areas outside of the use of dsRNA's as therapies for human disease. These areas include (ii) diagnostic testi!ng of immune deficiency and dysfunction; (ii) combinational therapies of various lymphokines and'dsRNA's; (iii) interferon and interferon-indtrcers to eliminate the toxilcities of tobacco; (i~v) plant protection from pathogens; (v) stabilizationiand purification of interferon; and (vij a method' of producing plasminogen activator (blood' thinner).

II. USE OF PROCEEDS Th~e net proceeds from an offeriing of the Company's securities willl be addedl to the Company's general corporate funds. The Company intends to use these proceeds for further research and~ development activilties a:nd general corporate purposes~, as given below:. 1. Development of improved formulation and delivery method for Ampligen admi!nistration . . . . . . . $ 10,0100,000 2. Maufacturing process development - large-scale dsRNA production . . . . . . . . . . . . . . . . 15,000,000 3. Additional cllini'cal studiies~ for Amipligen as a stand-a1lone therapy or as part of a combinational therapy for AIDS/AR'C: (ai)' 200 patient double-blind placebo phase III study of AIDS (United States) . . . . . . . (b)i 200 patient double-blind placebo phase III study of asymiptomatic I3IV-iinfection (United States) ... . . . . . . .. . . . . . . . . . Phase I/II and II/III studies~on combina- tional Ampli'igen/AZT therapy for advanced AIDS patients (United States) . . . . . . . (d) Overseas phase I/II/III studies - Western Europe and Japani(assist'ance from collabor- ating organizati~ons) . . . . . . . . . . . 5',000,000 10,000,000, 10,000,0'00 20,000~,000 4. Other clini~cal studies: (a) Phase III double-blind'placebo study for Am!pligen as standi-alone therapy for renal cancer (United~ S'tates), . . . . . . . . . . 5',0i00,0100 (b), Phase II/III double-blind pliaceboistudy forr combinational Ampligen-interferon therapy for chronic myelogenic leukemia (United' S'tates) . . . . . . . . . . . . . . . . . . 5,00'0,000 Phase I/II studlies of Amplig,en as therapy for (i)' multiple sclerosis; (ii) inflammatory arthriti'des; (iii), Alzh!eimer"s disease; (!iv) lung cancer; ('v) breast cancer; (viij mellanoma (Unitedi S'tates) . . . . . . . . . . . . . . 10,000,000. 5. 0'ther research andi development: (a) P'reclinical program in tobacco detoxificationi, i~ncludingi animal testing and dsRNA inclusion in tobacco . .. . . . . . . . . . . . . . .. 1.000,000 (b) Expansi=of plant protection research programs . . . . . .. . . . . . . . . . . . 1,0'001,000 (c), Preclilnicaill studies onpZasminogen~ activator, including toxicology work, animal studies and manufacturing development .. . . . . . . . . 3,000,00'0 6. Additional' working capital requirements 20,000,000 Total capital required . . . . . . . . . . . . . $115,000,000

The Company iintendis to use approximately $10,000,000 to initiate and complete a research program to enable an improved techniquee for introducing Ampli.gen into the body. Current testing programs use the parenteral' method. The. development of an alternative delivery technique, such as a nasal spray, or evenian intra- muscular injection, will enable th~e Company to eliminate the cost and inconvenience of a hospital' IV procedure to patients using, its dsRN'A products. C'oncurrently, the Company' plans to s'tart' a$15,0010,000 devel'opment program to further reduce production costs and to increase processing capacities. See "V. Operations - Nianufacturing." As discussed in "V. Operati!ons", th~e C'ompany plans to launch a major R&D effort desig,ned to determine and capitalize on its current product opportunities. It plans to spend approximately $65,000,000 in different areas. The Company's AIDS/ARC clinicall initiative will require $45,000,000, so that the Company, in addition to the ARC program it has underway, may commence with the fol'lowing, studies: ('i) a 200 patient double-blindi placebo study for pati'ents withl advanced' AIDS at the same three treatment centers; (ii) a; similar 200 patient double-blind placebo study forr patients~~ with asymiptomaitic HIV-infection; (iii ) a study similar to (i) except that it examines a combinational therapy of AZ'T' and Ampliigen on advanced AIDS' pati'e,nts; and' (iv) various international clinical programs necessary for world-wide commercialization of dsRNA as a treatment for AIDS, ARC and asymptomatic HIV infection. Approximately $20,000,000 will also be needed to continue the Company's extensive work in cancer therapy. The Company plains a phase III double-bLindl study on approximately 100 renal cancer patients using Ampligen as a stand-alone therapy and a 20'0 patient phase II/III study of chronic myelogenic leukemia using a combination!al protocol of interferon and' Am!pligen. Additionally, the Company irnten~d's to begini phase I studies using Amplilgen and other dsRNA products as treatments for lung cancer, breast cancer, melanoma, multipl'e sclerosis, inflammatory arthritides, and Alzheimer's disease. The other products includ'ed' in the Compamy's~patent portfolio, tobacco~ dietoxification, plant protection from pathog,ens, and a new human. blood th°inner, will require approximately $5,000,000 to begin development. The balance of th~e proceeds of this offering, will be used'o to finance anticipated operating losses and to increase cash balances available for generaL corporate purposes, such as financing, marketing, manufacturing andilicensing, activities as well as other research and developme,nt efforts~not presently envisioned by the Company. The Company anticipates creating, positive cash flow within the first twelve months following this offering through the successful complietiom, of its AIDS c1!inicall initiative. After that time the Company plans to use any cash generated from operation, in addition to capital! raised i!n future offerings of iits securities, to continue its research, and development activities.

III. INDUSTFt'I'' BA1CF+.GFt'[.)UND The functi'on of the immune system is to protect the body against infectious agents, iincluding viruses, bacteria, parasites and malignant (cancer) ce1'ls. An iind,ivi:dual"s ability to respond to infectious agents and other substances recognized'as foreign by the body's immune system (antigens) is critilcal to heal!th and survival. When the immune response ils adequate, infection is usually combatted effectively and recovery follows. Severe infection can occur when the immune response is inadequate. Such immune deficiency occurs congenitally, but more frequently is associaited with intense siickness or treatment withc chemothera- peuitic drugs or radiationi. In recent years, infection by an unusual virus (HIV) has been known to cause a serious andiofteni fatal disease cail!led acquired immune deficiency syndrome (AIDS). There are also a variety of'medical conditions i.n which.excessive or iinappropriate immune function apparently plays~ a rol'e or causes~ adverse reactionsagainst body tissues.. These include rheumatoid arthritus andi Type I diabetes miellitus. It has been known for many years that the immune system is responsible for defending the body against, disea~ses throughi the generation of antibodies produced by natural i~nfection or immunization with vaccines. But it is nowknown that antibody production is only one.aspect of the immune system. There is a second type of immune mechanism which is orchestrated through the action of certain specialized! white bloodl cel!ls, foundi i~n the blood, spleen, lymph nodes and certain other organs. Two classes of white blood cells, macrophages and'1!ymphlocytes, are primaril!y responsibl'e for this second type of immunity, which is,referredi to as ce1Z-medicated'i immunity. Under normal circumstances, the cell-mediated immune system serves severale important functions. First, the cell-mediated immune system~ is responsible for the ability of on~e individual to recognize another individual's tissues as foreign, and is: thus the principal barrier to, tissue or organ transplantion. Second, in response to infection or neoplaistic disease, specialized cells become activated to e.ither directly kill foreign organisms or to lyse infected ce1'ls or cancer ceLls. For certain diseases, such as tuberculosis and leprosy, this represents the principal mechanism by whichithe body resists infection. Finally, the cell- mediated immune system al!so serves~ an important hellper function in allowingi for the production of specific antibodies against bacteria, viruses and other foreign agents. Un~der certain, other, aibnormal circumstances, however, the cell- mediated immune system, fails to function properly, actually contributing to the development of disease. This, includes instances where the immune system actually reacts inappropriately against the body''s own tissues (treating, them as though they were antig,ens), a phenomenon knownias autoimmunity, which is observed in rheumatoid arthritus, systemic lupus erythematosus, and Type I diabetes mellitus. Additionally, patients with.advancedicancer or

chronic infections, the aged, and indi'viduals with AIDS display a general reduction in the efficiency of' the cell-mediated immune system which renders them susceptible to infection by agents whiich do not normally affect younger ind'ividual's. The interpliay among, the white blood cellis that constitute the cell-mediated immune system determines, to a large part, the strength and breadth of the body's response to infection. It is generally believed that the activities of these immune celils are controlled to a, large extent by a specific group of hormones caillled lymphokines. Lymphokines regulate the many and'd varied aspects of the immune response by controlling th~e growth and maturation of blood cel'ls., including B-cells and T-cell's, and of other lymphoki'nes. They are produced predominantly by a subset of human lymphocytes known as helper or T4 cel'ls. Patients suffering from HI'V'infection show a significantly reduced level of T4 cells present in their bl.oodstream.. The mai!n approach to date to developing immunological therapies has been to produce single kinds of lymphokines and to assess their laboratory and clinical activity. Substantial quantities of certain lymphokines may be produced by recombinant DNA and cell- fusion technolog,ies (genetic engineering, techn~iques), which allows a, cost-effective strategy for the prodluctioniof large amounts of lymphokine proteins. C1!inical studies designed to eval'uiate the efficacy of administering doses of'puri'f'ied single lymphokines to patients suffering from a variety of diseases have beemundertaken for certain single lymphokines and others are now being planned. Among the lymphiokines tested thus far are the interferons, interleuken-1 and' interleuken-2. Many organizations have beguni th~e development of lymphiokines, and one single lymphokine, alpha interferon, has been approved for commercial sale to patients. A second approach developed to assist the immune systemii'n fightingi viral inf'ectio~n is to identify antiiviral agents with specific activity against a selectedivirus. This technique has been particularly common in the search for treatments for HIV- infected patients. This search has produced several low molecular weight compounds which,, in preclinical "in vitro" models predicted significant activilty against the HIV virus. Clinical studies of such compounds are in progress, and the search for other anti- virals is continuing. Recently, one compound, Azidothymidine, was approved for a commercial license by the FDA. GOVERNMENT RECL'JLATION The activities of the pharmaceutical industry i'nvolve a field i~n. which regulation by federal and other governmental authorities is a significant factor. This regulation applies to the research!and development and to the manufacturing an~d marketing of any products developed for sale as a pharmaceutical prod'uct. Present research activities are subjiect to regulation by certain federal and state administrative bodies. The Company ii s complying with the regulations of these bodiles.. The manufacturiing and marketing of pharmaceutical products

requires the approval of the FDA and comparable agencies in foreigni countries. The FDA has established mandatory procedures and safety standards which apply to the cl'.inical testing;,manufacture and marketing of pharmaceutiical products. The process of obtalining, FDA approval for a new therapeutic compound may take several years and often involves the expenditure of substantiall resources. The steps required'before a human pharmaceutical can be produced and marketed include precli'nicali studies, the filing of an Investigiational New Drug ("IND," ) appl'ication, human clinicall trials and the approval of an application for a License.dl Biological or a New Drug Application ("NDA").. Preclinical studies are conducted in the laboratory and in animal model' systems to gain preliminary information on the drug's efficacy and to identify major safety problems. The resul'.ts of these stu!dies are submitted'o to the FDA as part of the IND appli- cation before approval can be obtained for the commencement of testing in! humans. The human clinical testing program required for a new pharma- ceutical product involves three phases. Phase I'studies are conducted on volunteers or, iin the case of antitumor or antiviral agents, onipatients with terminal disease at anialdvanced stage of the di'sease, to determine the maximum tolerated.dose and any sidee effects of the substance. Phase II stuldiies are conducted on patients having a; specific disease in order to determine the substance's efficacy and the most effective dbses andl schedules of administration:. Phase III involves wide-scale studies on patients with the same disease in, order to provide comparison with currently available drugs or biologics. Data from Phase I, II and III trials are submitted in an NDA or application for a Licensed Biological. Preparation of an NIDA involves considerable data: collection, verificatilon and analysis, as well as the preparationi of summaries of the manufacturing and testingi pxocesses, pre- clinical studiles, and clinical tri'als. T'he FDA must appro e the NDA before the applicant may market a, human therapeutic product. The FDA may also elect to give the product a cond'itional' approval for commercial' sale. In such an instance, studies must be contin- ued on patients after the commercial approval is. given. At the end of the extend~ed trial period, termed a Phase IV test, the drug, is reevaluated and a final decision regarding approval for commercial sale is made. The commercial manufacture and, marketing of agriculturall and' aini mal health products generally requires approval by the United States Department of'Agriculture ("'USDA") and, comparable agencies in foreign countries:. Typically, the USDA requires such products to be tested on animals. These tests must employ specific procedures, be produced in USDA-licensed facilities and' exhibit appropriate level's of efficacy, safety anldl purity. USDA approvalll procedures, however, are substantially less time-consuming and less expensive than FDA approval procedures. The manufacturing, and marketing, of diagnostic products requires compliance with; regulations which, g,eneral'ly, are less dif'ficul't

to comply wi'th than are those coveringi pharmaceuticals. In, add'ition to: approval for the commercial salle of ai pharma- ceutical product, aporoval must also be obtained'iin order to manufacture a pharmaceutical or biological. This process invol'ves determining the aibili ty of a: specific manufacturer to;produce quantities within defined product specifications across a, number of production lots over a period of time. Once th~e FDA is able to establish that the compound is reprodbicable, a manufacturing license may be granted. B'ecause of the 1'arge amount of research and development studies, cl'inical data, and regulatory approvaLs required, it is now estimated thalt the successful development of a pharmaceutical product may cost up to $100' million andl take several years too ach~ieve. COMPETITION This segment of the pharmaceutical industry is a rapidly expanding area of biotechnology iin which research and development of immuno- logical therapeutic and diaginostic products is. being conducted by public and private foundations, governmental institutions, major pharmaceuticaL companies and biotechnology compani'es in the Unitedi States and certain foreign countries~.. Competition in the industry is based on, pace of research and clinical' testing, acquiring patents , and, developing manufacturing technology. A number of large, well-established pharmaceutical' compainies are currently working on a variety of therapeutic and diagnostic products that are in: various stages of development and clinicall, testing. In addition, several biotechnology companies with a focus on immuno- logy have been formediin recent years. Many of these companies have entered into licensing and other collaboraitive arraingements with commercial companies or governmental or non-profit institu- tions to fund researchi&nd development and manufacture and market resulting products. There are three predominant classes of products being develioped for the treatment of' cancer and'viral diseases. The first class, referred to as diagnostics, consists of monoclonal antibodies usedl to fight diseased cells and are used initreatingicancer. Another group, called therapeuti~cs, employs recombinant DNA technology, includes interferons and initerleukens, ands is beiing studied in both antiviral and cancer appLicati'ons. A third class of products beingactiveLy investigated are low molecular weight chemical compounds which theoretically have significant antiviral activity. Monoclonal Antibodies are used in diagnosing cancers and certai'n viral diseases, and have been very effective in producing accurate disease and/or dysfunction determinations~. Recently, these drugs have ailso been tested as treatments for a, number of the diseases they are used to diagnose. By affixing poisons to these antibodies, it is hoped that the antibodi'es will' attach themselves to diseased ce1ls andi administer the affixed poison to destroy the diseased cell. The danger in this form of treatment ils that the antibodies will instead~ attach themsle"ves to healthy, critical-to-

life cells and destroy the patient rather than the disease. Consequently, this treatment may be highly toxic. Resu~lts to date have not indi~cated great success, and therefore the mer3ical' community is moving cautiously with this.approach. The therapeutic drvg,s are synthetic pror3uctions, usilng recombinant DNA technology, of the natural protei~ns manufactured by the immunee system and include bothiinterferons andi interleukens. Each drugi represents a single lymphokine. Many of the factors have not been, identifiedl and/or successful'ly synthesized! to, date. They also do not exhibit certain characteristics necessary to activate some immune factors or to complete other biological pathways necessary for proper i!mmune function. Therapeutics are disease-speci~fic and are thus elected for use iin th~e treatment of certain diseases. These compounds have shown a remarkable cure rate for certain rare forms of leukemia; however, they have not producedla satisfactory performance in treating most other cancers and viral diseases. Also, because treatment requires creating abnormally high concen- trations of the drug in the body, therapeutics can exhibit a high degree of toxici'ty. These drugs have enjoyed significant commer- cial support due to both their perceived'. potentia~l' and the lack of effective treatments for many cancers and vi'ral'' diseases. Low molecular weight compound's have received a great deal of'f attention, recently in the effort to combat the threat of AIDS. Preclinical artificial ini vitro models pred!icted' significant anti- HIV gictivity. Because, of this anticipated antiviral activity, products such as AZT (azi'dothymidine) and ribavariin were quickly tested in large double-blind trials. Ulnfortunately, clinical results of these trails have shown only limitedl eff'i~cacy for these compound's as treatments against the HIi/ virus. Other approaches being used to develop products for the treatment of' cancers and viru~ses incl'ude the use of "immunomodulatory" drugs. These drugs are suiggested to be capable of stimulating the production of a number of'lymphokines by the immune system. This methodl of' stimulating immune respornse is a more natural approxi- mation of the normal immune process and is expected to be more effective in correcti'ng, immune deficiencies and diysfunction.

IY. PRODUCTS ANIIDiT'EC'HNOD©GY Products and technologies patented and'currently under development bv HIHM R'eseairch, Inc. include: 1. Mismatched double stranded ribonucleic acids (dsRNA's) for the preventi on and treatment of AIDS/ARC, various caincers, chronic hepatitis, herpes, Alzheimer's disease,, multiple sclerosis, inflammatory arthritides and other indications. 2. Combinational therapies empLoying various silngle lympho- kinies and dsRNA's for the treatment. andprevention of various human diseases and infections. 3. Combinational therapies of reverse transcriptase inhi- bitors aind dsRNiA's inithe prevention and treatment of certain viral i!nfections.. 4. Diagnostic testing of individlual's and "ait-risJc" popula- tions with respect to the HIV virus. Non-toxic additives and treatment processes to detoxify tobacco. 6. Non-toxi!c additives to provide broad spectrum plant protection from pathogens. 7. Storage medium for thie stabilization and purification of interferons.. Process to produce plasminogen activator (blood thinner). Mismatched Double-Stranded Ribonucleic Acids The Company"s dsRNA prod!ucts may be classified as immunomodhlal- tory compounds. They are distinguished.from other therapeutic products in that they promote the use of the body's own defense system to fight infectious agents and disease. They are generally preventive treatments with potential as therapeutics. When introduiced into the body, a dsiRNA, as a large nuicleic acid, will initiate a two step process equivalent to an immune system repsonse. The comipound appears as a virus to: the human immune system and thus induces a normal immunie reaction, including the induction of various white blood cell! activiities and the produc- tio:n of the appropriate lympho]tines. The reaction approxilmates a natural immuneresponseinthaittheimmuinefactors~appearat theilr normal levels of concentration withi!n thie body. The second step of this process results from the dsRNA chemical structure. Certain biological pathways which are set in motion, during immune system reactions requidire the presence of a catalyst to complete the path!waly. dsRNA's serve that catalyst function.