<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Commission file number: 0-27406
CONNETICS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3173928
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3400 WEST BAYSHORE ROAD
PALO ALTO, CALIFORNIA 94303
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 843-2800
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 at least the past 90 days. Yes X No
--- ---
As of July 31, 1998, 17,197,896 shares of the Registrant's common stock were
outstanding, at $0.001 par value.
<PAGE> 2
CONNETICS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets at June 30, 1998 and December 31, 1997....................... 3
Condensed Statements of Operations for the three and six months ended June 30, 1998
and 1997.............................................................................. 4
Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997.... 5
Notes to Condensed Financial Statements .............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risks........................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 15
Item 2. Changes in Securities and Use of Proceeds............................................. 15
Item 3. Defaults Upon Senior Securities....................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................................... 15
Item 5. Other Information..................................................................... 16
Item 6. Exhibits and Reports on Form 8-K...................................................... 17
Exhibits......................................................................... 17
Reports on Form 8-K.............................................................. 17
SIGNATURE ...................................................................................... 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONNETICS CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,387 $ 8,452
Short-term investments 4,199 5,894
Accounts and other receivables 318 1,527
Other current assets 255 158
---------- ----------
Total current assets 18,159 16,031
Property and equipment, net 1,327 1,663
Notes receivable from related parties 364 333
Deposits and other assets 110 160
License agreements and product rights 9,520 12,881
---------- ----------
$ 29,480 $ 31,068
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 971 $ 1,492
Accrued and other current liabilities 1,105 1,100
Accrued process development expenses 989 586
Accrued payroll and related expenses 683 536
Current portion of notes payable and other liabilities 6,457 2,884
Current portion of capital lease obligations, capital loans and long-term debt 1,618 2,746
---------- ----------
Total current liabilities 11,823 9,344
Noncurrent portion of capital lease obligations, capital loans and long-term debt 474 649
Other long-term liabilities 5,749 9,666
Redeemable convertible preferred stock, Series A - 600
Stockholders' equity:
Common stock and additional paid-in capital 92,182 77,566
Notes receivable from stockholders (65) (75)
Deferred compensation, net (499) (763)
Accumulated deficit (80,138) (65,873)
Treasury stock, at cost (46) (46)
---------- ----------
Total stockholders' equity 11,434 10,809
---------- ----------
$ 29,480 $ 31,068
========== ==========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 4
CONNETICS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ----------------------------
1998 1997 1998 1997
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenues:
Product $ 1,652 $ 1,594 $ 3,171 $ 3,047
License 1,648 -- 1,648 --
----------- --------- ----------- ----------
Total revenues 3,300 1,594 4,819 3,047
Operating cost and expenses:
Cost of product sales 312 257 607 483
License amortization 1,680 1,781 3,360 3,562
Research and development 3,105 5,732 5,283 10,897
Selling, general and administrative 3,043 2,419 5,505 4,040
Charge for acquired in-process technology 4,000 - 4,000 -
----------- --------- ----------- ----------
Total operating costs and expenses 12,140 10,189 18,755 18,982
Interest income 234 234 411 469
Interest expense (345) (443) (739) (895)
----------- --------- ----------- ----------
Net loss $ (8,951) $ (8,804) $ (14,264) $ (16,361)
=========== ========= ========== =========
Basic and diluted net loss per share $ (0.54) $ (0.88) $ (0.95) $ (1.72)
=========== ========= ========== =========
Shares used to calculate net loss per share 16,672 10,009 15,081 9,543
=========== ========== ========== =========
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 5
CONNETICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(14,264) $(16,361)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 3,817 3,919
Technology acquired in exchange for common stock 4,010 --
Amortization of deferred compensation 335 258
Accrued interest on notes payable 259 553
Changes in assets and liabilities:
Current and other assets 1,092 (1,187)
Current and other liabilities 34 (1,696)
Other long-term liabilities 397 249
-------- --------
Net cash used in operating activities (4,320) (14,265)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (3,971) (10,147)
Sales and maturities of short-term investments, net 5,666 9,423
Capital expenditures (73) (586)
Licensed assets and product rights (308) -
-------- --------
Net cash provided by (used in) investing activities 1,314 (1,310)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of notes payable (1,000) --
Proceeds from capital loans and long-term debt 2 333
Payments of obligations under capital leases and capital loans (1,304) (1,003)
Proceeds from issuance of common stock, net of issuance costs 10,243 10,931
-------- --------
Net cash provided by financing activities 7,941 10,261
-------- --------
Net change in cash and cash equivalents 4,935 (5,314)
Cash and cash equivalents at beginning of period 8,452 14,555
-------- --------
Cash and cash equivalents at end of period $13,387 $ 9,241
======== ========
SUPPLEMENTARY INFORMATION:
Interest paid $ 360 $ 342
</TABLE>
See notes to condensed financial statements.
5
<PAGE> 6
CONNETICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Connetics
Corporation (the "Company" or "Connetics") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, such financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accrual adjustments, considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
These financial statements and notes should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1997 included in the Company's Form 10-K Report.
2. NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128), which requires the Company to simplify the calculation of earnings per
share ("EPS") and achieve comparability with the recently issued International
Accounting Standard No. 33, "Earnings Per Share." Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Earnings per share amounts for all
periods presented have been restated, where appropriate, to conform to the
Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
(In thousands except per share amounts) 1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $(8,952) $(8,804) $(14,264) $(16,361)
Preferred stock dividends - (35) (1) (81)
-------------- -------------- -------------- -------------
Numerator for basic and diluted earnings per share (8,952) (8,839) (14,265) (16,442)
loss attributable to common stockholders
Denominator:
Denominator for basic and diluted earnings per share
weighted-average shares 16,672 10,009 15,081 9,543
Basic and diluted net loss per share $(0.54) $(0.88) $(0.95) $(1.72)
============== ============== ============== =============
</TABLE>
Options to purchase 1,964,921 shares of common stock at exercise prices ranging
from $0.4448 to $11.00, warrants to purchase 1,289,193 shares of common stock at
exercise prices ranging from $4.89 to
6
<PAGE> 7
$11.00 were outstanding at June 30, 1998 but were not included in the
computation of diluted earnings per share as their effect would be antidilutive.
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement No. 130, "Reporting
Comprehensive Income" (SFAS 130). Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net income or
shareholders' equity. Statement 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of Statement
130.
During the three and six months ended June 30, 1998, total comprehensive income
(loss) amounted to $(9.0) million and $(14.3) million, respectively, compared to
$(8.8) million and $(16.4) million for the same periods in 1997, respectively.
The components of comprehensive income, net of related tax, for the three and
six month periods ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ -------------------------------
(In thousands) 1998 1997 1998 1997
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Net loss $(8,951) $(8,804) $(14,264) $(16,361)
Unrealized gains (loss) on securities 1 4 (1) 3
Foreign currency translation adjustment -- -- -- --
==============================================================
Comprehensive income (loss) $(8,950) $(8,800) $(14,265) $(16,358)
==============================================================
</TABLE>
The components of accumulated other comprehensive income, net of related tax, at
June 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
------------------------------------------
<S> <C> <C>
Unrealized gains (loss) on securities $ 1 $ 2
Foreign currency translation adjustments -- --
------------------------------------------
Accumulated comprehensive income (loss) $ 1 $ 2
==========================================
</TABLE>
4. LICENSED ASSETS AND PRODUCT RIGHTS
Pursuant to its equity and asset purchase agreements with SmithKline Beecham
Properties, Inc. ("SBP"), the Company guaranteed a total value of the common
shares issued to SBP of $8,000,000 on April 1, 1998. As of April 1, 1998, the
aggregate fair market value of the shares previously issued under the agreement
was less than $8,000,000 and, as a result, the Company was required to issue
additional shares. On April 10, 1998, the Company issued 1,037,779 shares of its
Common Stock to SBP in fulfillment of such obligation. The issuance completed
the Company's obligation to issue equity to SBP under its Stock Issuance
Agreement with SBP. The Company also paid SBP approximately $308,000 in cash on
May 4, 1998 in conjunction with the transaction to fulfill its obligation to SBP
related to the equity agreement. (See Note 5 of Notes to Financial Statements
for the year ended December 31, 1997 in the Company's Annual Report on Form
10-K).
7
<PAGE> 8
On April 28, 1998, the Company entered into a Second Omnibus Amendment with
SmithKline Beecham Corporation, SBP and related entities (collectively
"SmithKline"). Under this Amendment, the Company restructured its payment
obligations under a promissory note issued to SmithKline in connection with the
Ridaura acquisition. This amendment adjusts the December 18, 1997 amended note
repayments for the remaining principal payments of $10.0 million to SmithKline
as follows:
<TABLE>
<CAPTION>
Payment Due Date Amount Due
---------------- ----------
<S> <C>
July 1, 1998 $1,100,000
October 1, 1998 $1,100,000
January 4, 1999 $2,500,000
April 1, 1999 $ 800,000
July 1, 1999 $ 800,000
October 1, 1999 $ 700,000
January 3, 2000 $1,500,000
April 1, 2000 $1,500,000
</TABLE>
The Company is required to pay interest on the principal amount outstanding of
$4.7 million from April 8, 1998 through January 4, 1999 at prime rate plus 2%
per annum, and on the principal amount outstanding of $5.3 million from January
5, 1999 through April 1, 2000 at prime rate plus 3% per annum.
5. LIQUIDITY AND FINANCIAL VIABILITY
In the course of its development activities, the Company has sustained
continuing operating losses and expects such losses to continue over at least
the next few years. The Company plans to continue to finance its operating
activities with a combination of stock sales, such as the initial public
offering, self-managed private financings, payments from corporate partnering
arrangements, acquisition of revenue generating products such as Ridaura and/or
debt financing. Ultimately, the Company's ability to continue as a going concern
in the future is dependent upon obtaining substantial additional financings.
6. OTHER MATTERS
In April 1998, the Company entered into an agreement with Alta BioPharma
Partners, L.P. ("Alta") and certain funds affiliated with Alta (collectively the
"Investors"), to sell an aggregate of 2,162,163 shares of the Company's Common
Stock at a price of $4.625 per share, for an aggregate purchase price of
approximately $10 million. The financing closed on April 10, 1998 and the
Company filed a registration statement on Form S-3 covering the resale of the
shares of Common Stock purchased by the Investors in June, 1998.
On April 27, 1998, the Company entered into a development, commercialization and
supply agreement with Suntory Pharmaceuticals, a division of Suntory Limited, of
Osaka, Japan for ConXn for the treatment of scleroderma. Under the terms of the
agreement, Suntory will pay approximately $14 million in license fees and
milestone payments to the Company, be responsible for all development and
commercialization expenses in Japan, and pay royalties on sales in Japan for the
treatment of scleroderma. The Company has retained rights to all other
indications in Japan for ConXn. Suntory will purchase relaxin materials from the
Company and make milestone payments based upon development progress in the
United States and Japan. On April 30, 1998, Suntory paid an up-front license fee
of $1.5 million (net of international withholding tax) to the Company.
8
<PAGE> 9
On May 5, 1998, the Company entered into a license agreement with Genentech,
Inc. ("Genentech") under which the Company received an exclusive license under
certain patent rights and know-how to Actimmune(R) (gamma interferon) for the
treatment of chronic granulomatous disease ("CGD") and several additional
indications (non-cancer dermatological diseases, infectious diseases,
osteopetrosis, pulmonary fibrosis and asthma) in the United States. Under the
terms of the agreement, the Company issued Genentech 340,048 shares of its
common stock valued at $2.0 million at the time of closing with a guaranteed
value of $4.0 million at December 28, 1998. In the event that the initial
issuance of shares is less than $4.0 million on December 28, 1998, the Company
will either issue additional shares or pay cash to Genentech. The Company will
also be required to pay certain development and commercialization milestones and
royalties on sales. The parties also entered into a Supply Agreement under which
Genentech will manufacture and supply gamma interferon, in bulk product or
finished product, with a termination date on the earlier of May 5, 2001 or the
date on which a third party manufacturer, approved by the parties, enters into a
supply agreement with the Company. The Company expects to form a new subsidiary
corporation to further develop and market gamma interferon, and in addition,
recorded a $4.0 million noncash one-time license fee charge for the quarter
ended June 30, 1998. Because the viability of the license is largely dependent
on additional research and development of gamma interferon, the Company has
expensed the full purchase amount in the current period.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SPECIAL NOTE: EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED THEREIN, THE
FOLLOWING DISCUSSION CONSISTS OF FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS OR EVENTS TO DIFFER
MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS. POTENTIAL RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, UNCERTAINTY OF PRODUCT DEVELOPMENT
AND MARKET ACCEPTANCE; UNCERTAINTY OF FUTURE RIDAURA(R) REVENUES AND COSTS;
UNCERTAINTY OF CLINICAL TRIALS; UNCERTAINTY OF FUTURE PROFITABILITY; FUTURE
CAPITAL REQUIREMENTS AND UNCERTAINTY OF FUTURE FUNDING; AND RISKS ASSOCIATED
WITH POSSIBLE FUTURE PRODUCT ACQUISITIONS. ADDITIONAL INFORMATION CONCERNING
THESE AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE IN THE FORWARD LOOKING STATEMENTS IS CONTAINED UNDER THE HEADING
"ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS" COMMENCING ON PAGE 20 OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1997.
The following discussion should be read in conjunction with the unaudited
condensed financial statements and notes thereto included in Part I, Item 1 of
this Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
OVERVIEW
Connetics Corporation (the "Company") acquires, develops and markets products in
the areas of rheumatology and dermatology. The Company acquired the U.S. and
Canadian rights to Ridaura(R) (auranofin), a treatment foR rheumatoid arthritis,
from SmithKline Beecham Corporation and related entities ("SmithKline") in
December 1996, and in December 1997 the Company sold off its Canadian rights to
Ridaura. The Company's products under development include LUXIQ(TM)
(betamethsone valerate ViaFoam) for the treatment of scalp psoriasis and othEr
dermatoses; clobetasol ViaFoam for the treatment of severe dermatoses; ConXn(R)
(relaxin) for the treatment oF scleroderma, infertility and other fibrotic
disorders; T-cell receptor (TCR) peptide vaccines for the treatment of multiple
sclerosis and rheumatoid arthritis; and gamma interferon for the treatment of
chronic granulomatous disease, keloids, non-cancer dermatological diseases,
infectious diseases, osteopetrosis, pulmonary fibrosis and asthma.
In April 1998, the Company entered into an agreement with Alta BioPharma
Partners, L.P. ("Alta") and certain funds affiliated with Alta (collectively the
"Investors"), to sell an aggregate of 2,162,163 shares of the Company's Common
Stock at a price of $4.625 per share, for an aggregate purchase price of
approximately $10 million. The financing closed on April 10, 1998 and the
Company filed a registration statement on Form S-3 covering the resale of the
shares of Common Stock purchased by the Investors in June, 1998.
On April 27, 1998, the Company entered into a development, commercialization and
supply agreement with Suntory Pharmaceuticals, a division of Suntory Limited, of
Osaka, Japan for ConXn for the treatment of scleroderma. Under the terms of the
agreement, Suntory will pay approximately $14 million in license fees and
milestone payments to the Company, be responsible for all development and
commercialization expenses in Japan, and pay royalties on sales in Japan for the
treatment of scleroderma. The Company has retained rights to all other
indications in Japan for ConXn. Suntory will purchase relaxin materials from the
Company and make milestone payments based upon development progress in the
United States and Japan. On April 30, 1998, Suntory paid an up-front license fee
of $1.5 million (net of international withholding tax) to the Company.
On May 5, 1998, the Company entered into a license agreement with Genentech,
Inc. ("Genentech") under which the Company received an exclusive license under
certain patent rights and know-how to Actimmune(R) (gamma interferon) for the
treatment of chronic granulomatous disease ("CGD") and several additional
indications (non-cancer dermatological diseases, infectious diseases,
osteopetrosis,
10
<PAGE> 11
pulmonary fibrosis and asthma) in the United States. Under the terms of the
agreement, the Company issued Genentech 340,048 shares of its common stock
valued at $2.0 million at the time of closing with a guaranteed value of $4.0
million at December 28, 1998. In the event that the initial issuance of shares
is less than $4.0 million on December 28, 1998, the Company will either issue
additional shares or pay cash to Genentech. The Company will also be required to
pay certain development and commercialization milestones and royalties on sales.
The parties also entered into a Supply Agreement under which Genentech will
manufacture and supply gamma interferon, in bulk product or finished product,
with a termination date on the earlier of May 5, 2001 or the date on which a
third party manufacturer, approved by the parties, enters into a supply
agreement with the Company. The Company expects to form a new subsidiary
corporation to further develop and market gamma interferon.
There can be no assurance that any of the Company's potential products will be
successfully developed, receive the necessary regulatory approvals or be
successfully commercialized.
RESULTS OF OPERATIONS
The Company's product revenues are derived from the sales of Ridaura and were
$1.7 million and $3.2 million for the three and six months ended June 30, 1998,
respectively, compared to $1.6 million and $3.0 million for the same periods in
1997, respectively. In December 1997, the Company sold the Canadian rights to
Ridaura to Pharmascience, Inc., a Canadian corporation. Revenue on an adjusted
basis to reflect the disposition of Riduara rights in Canada for the three and
six months ended June 30, 1997 were $1.5 million and $2.9 million, respectively.
In connection with an agreement with Suntory Pharmaceuticals, the Company also
recorded $1.6 million licensing revenue for the three months ended June 30,
1998. The Company believes the increase in product revenue for the three and six
months ended June 30, 1998 as compared to the same periods in 1997 resulted in
part from the promotion efforts of the Company's sales organization.
Under Transitional Services and Supply agreements between SmithKline and the
Company, SmithKline will manufacture and supply Ridaura in final package form
through December 2001 and managed distribution of the product, with no
additional consideration, through December 1997. Under a distribution
arrangement with CORD Logistics, Inc. ("CORD"), in December 1997 CORD began
managing customer orders and distribution of Ridaura and any other future
products of the Company. As a result, the Company began incurring distribution
costs of approximately 3% of net revenue.
The Company's cost of product sales includes the cost of Ridaura purchased from
SmithKline, a percentage royalty cost based on product sales, and distribution
costs from CORD. For the three and six months ended June 30, 1998, the Company
recorded $0.3 million and $0.6 million, respectively, in cost of product sales
compared to $0.3 million and $0.5 million for the same periods in 1997.
Amortization expense associated with the acquisition of product rights to
Ridaura were $1.7 million and $3.4 million compared to $1.8 million and $3.6
million for the same periods in 1998 and 1997, respectively.
Research and development expenses were $3.1 million and $5.3 million for the
three and six months ended June 30, 1998, compared to $5.7 and $10.9 million for
the same periods in 1997. The decrease in research and development expenses of
$2.6 million and $5.6 million, respectively was primarily due to lower clinical
trial expenses. In the first six months of 1998, the Company's clinical trial
activities consisted of a 13 patient open label clinical trial of ConXn for the
treatment of scleroderma and a 41 patient Phase II clinical of gamma interferon
for the treatment of keloids compared with two Phase III, two Phase II and one
Phase I/II clinical trials during the same period in 1997. Research and
development expenses are expected to increase over the next two quarters due to
the initiation of a Phase III clinical trial of clobetasol mousse in July 1998
for the treatment of severe psoriasis and skin dermatoses, manufacturing costs
associated with LUXIQ, an expected pivotal trial of ConXn for the treatment of
scleroderma, and possible acquisition of new technologies and products.
11
<PAGE> 12
Selling, general and administrative expenses increased to $3.0 million and $5.5
million for the three and six months ended June 30, 1998, respectively, compared
to $2.4 million and $4.0 million for the same periods in 1997, respectively. The
increase in expenses were primarily due to the activities of an established
sales and marketing organization, costs associated with the promotion and
marketing of Ridaura and increases in personnel in the general and
administrative functions. Selling, general and administrative expenses are
expected to increase primarily due to increased staffing of the sales
organization, costs associated with marketing Ridaura and possible launching of
new approved or acquired products.
Pursuant to the gamma interferon license agreement with Genentech in May 1998,
the Company recorded a $4.0 million noncash one-time license fee charge for the
quarter ended June 30, 1998. The Company has determined that the viability of
the license is largely dependent on additional research and development of gamma
interferon, and as a result, has expensed the full purchase amount in the
current period.
Interest income was $234,000 and $411,000 in the three and six months ended June
30, 1998, compared with $234,000 and $469,000 for the corresponding periods in
1997, respectively. The decrease in interest income during the first six months
of 1998 was due to a lower average cash and investment balance during the first
quarter offset by the Company's self-managed private place in April 1998, which
raised $10.0 million. Interest earned in the future will depend on Company
funding cycles and prevailing interest rates. Interest expense decreased to
$345,000 and $739,000 for the three and six months ended June 30, 1998, compared
with $443,000 and $895,000 for the corresponding periods in 1997. The decrease
in interest expense during the first six months of 1998 was due to lower imputed
interest expense, $259,000 in 1998 compared to $553,000 in 1997, attributable to
the non-interest bearing $11.0 million promissory note payable to SmithKline as
partial consideration for the acquisition of U.S. and Canadian rights to
Ridaura, and lower interest expense associated with lower balances outstanding
for obligations under capital leases and loans, and notes payable. The decrease
was offset in part by $291,000 in accrued interest payable pursuant to the
amended repayment terms of the SmithKline note by which the Company is required
to pay interest on the principal amount outstanding at prime rate plus 2% per
annum.
Net losses for the three and six months ended June 30, 1998 were $9.0 million
and $14.3, respectively, compared to $8.8 million and $16.4 million for the
corresponding periods in 1997, respectively. The Company recorded a $4 million
one-time charge for the license of gamma interferon from Genentech in April
1998. Other than the one-time licensing charge, the decrease of $2.1 million in
net losses for the six months ended June 30, 1998 from the same period in 1997
was primarily due to a decrease of approximately $5.6 million in development
activities, lower amortization costs due to the sale of Canadian rights to
Ridaura and an additional $1.6 million in licensing revenue in connection with
the agreement with Suntory Pharmaceuticals for ConXn. The decrease in net loss
was offset in part by higher selling, general and administrative expenses. The
Company expects to incur additional losses over the next few years and losses
are expected to fluctuate from period to period based on timing of product
revenues, clinical material purchases, possible acquisitions of new products and
technologies, scale-up activities and clinical activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through private sales
of equity securities, proceeds from its initial public offering in February 1996
and five self-managed financings, two in 1996, two in 1997 and one in 1998. At
June 30, 1998, cash, cash equivalents and short-term investments totaled $17.6
million, an increase of $3.3 million from $14.3 million at December 31, 1997.
Cash infusion of $11.5 million for the second quarter ending June 30, 1998 was
through sales of the Company's common stock ($10.0 million) and an up-front
license fee payment from Suntory Limited ($1.5 million).
12
<PAGE> 13
Cash used in operations for the six months ended June 30, 1998 was $4.3 million
compared with $14.3 million for the same period in 1997. Net loss for the first
six months of 1998 was affected by a number of charges that did not use cash,
including a $4.0 million technology licensed in exchange for common stock, and
$3.4 million of amortization expense and $259,000 imputed interest expense
associated with the acquisition of Ridaura. Cash outflow for the quarter was
primarily for operating activities. Receivables at June 30, 1998 were $0.3
million compared with $1.5 million for the same period in 1997 due to a shorter
collection cycle as product sales in 1998 are direct to wholesalers with payment
terms of 2% discount, net 30 days. In 1997, the Company's sole customer was
SmithKline who in turn distributed Ridaura under a Transitional Services
Agreement with the Company. Payment terms under this arrangement were on a
quarterly basis, thirty days after the end of each quarter.
Investing activities, other than the changes in the Company's short-term
investments, consumed $0.4 million in cash during the six month period ended
June 30, 1998, of which $73,000 was for equipment expenditures required for
operations and $308,000 was for fulfillment of obligation under the equity and
asset purchase agreements with SmithKline (see Note 4 of Notes to Condensed
Financial Statements).
Cash provided by financing activities was $7.9 million for the six months ended
June 30, 1998 compared with $10.3 million for the same period in 1997. The
Company raised $10.0 million in April 1998 through private sales of its common
stock which was offset in part by $1.3 million in payments on obligations under
capital leases and loans, and $1.0 million in principal payment to SmithKline
for obligations under a promissory note in connection with the Ridaura
acquisition.
Working capital decreased by $0.4 million to $6.3 million at June 30, 1998 from
$6.7 million at December 31, 1997. The decrease in working capital resulted from
the reclassification to current the note payable due to SmithKline in 1999 for
rights to Ridaura, offset in part by higher cash balance. On April 28, 1998, the
Company entered into a second omnibus amendment with SmithKline and restructured
its payment obligations under the promissory note such that $5.3 million of
payments previously due within one year are now due after January 1999 (see Note
4 of Notes to Condensed Financial Statements).
At June 30, 1998, the Company had an aggregate of $14.3 million in future
obligations of principal payments under capital leases, loans, long-term debt
and other obligations, of which $8.5 million is to be paid within the next year
The Company has a Structured Equity Line Flexible Financing Agreement (the
"Equity Line Agreement") with Kepler Capital LLC ("Kepler") that allows the
Company to access capital through sales of its Common Stock. The equity line is
potentially available for a three-year period beginning December 1, 1997. If,
during the next three years, the Stock meets certain volume restrictions and
trades above $10.00, then up to $500,000 would be drawn down approximately every
three months during the three year term of the equity line. The Company's
trading price is currently below the $10.00 price requirement. While the Equity
Line Agreement has the potential to provide the Company with additional future
financing, the sale of shares thereunder will have a dilutive impact on other
stockholders of the Company.
The Company believes that its existing cash, cash equivalents and short-term
investments along with cash generated from sales of Ridaura, will be sufficient
to fund the Company's operating expenses, debt obligations and capital
requirements through early 1999. The Company's future capital uses and
requirements depend on numerous factors, including the progress of its research
and development programs, the progress of clinical and advanced-stage clinical
testing, the time and costs involved in obtaining regulatory approvals, the cost
of filing, prosecuting, and enforcing patent claims and other intellectual
property rights, competing technological and market developments, the ability of
the Company to establish collaborative arrangements, the level of product
revenues, the possible acquisition of new products and technologies, and the
development of commercialization activities, and therefore
13
<PAGE> 14
such capital uses and requirements may increase in future periods. As a result,
the Company will require substantial additional funds prior to reaching
profitability and may attempt to raise additional funds through equity or debt
financings, collaborative arrangements with corporate partners or from other
sources. There can be no assurance that additional funding will be available for
the Company to finance its ongoing operations on acceptable terms, if at all.
IMPACT OF YEAR 2000
The "Year 2000 Issue" is the result of certain computer programs being written
using two digits rather than four to define the applicable year. Some of the
Company's older computer programs were written using two digits rather than four
to define the applicable year and as a result, those computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could cause a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Based on a recent assessment, the Company presently believes that with
modifications and upgrades to existing software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and upgrades are not made, or are not completed timely, the Year
2000 Issue could have an impact on the operations of the Company. The total Year
2000 project cost is estimated at less than $50,000.
The Company has begun initiating formal communications with its significant
service providers and suppliers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issues. However, there can be no guarantee that the systems
of other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 10, 1998, the Company sold an aggregate of 2,162,163 shares of the
Company's Common Stock to Alta BioPharma Partners, L.P. and certain affiliated
funds ("Alta"), at a price of $4.625 per share, for an aggregate purchase price
of $10,000,003.88. The financing closed on April 10, 1998. No underwriter was
involved in this private placement. The shares were sold under an exemption from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
The Company relied on such exemption due to factors such as Alta's status as a
sophisticated investor and the fact that no general solicitation or
advertisement was made in connection with the sale.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 22, 1998, the Company held its annual meeting of stockholders. At
the meeting, the stockholders approved the following matters by the following
votes:
1) Election of the following directors:
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
G. Kirk Raab 11,128,640 51,265
Thomas G. Wiggans 11,128,640 51,265
Eugene A. Bauer, M.D. 11,128,640 51,265
Alexander E. Barkas, Ph.D. 11,128,640 51,265
Brian H. Dovey 11,128,640 51,265
John C. Kane 11,128,640 51,265
Thomas D. Kiley, Esq. 11,128,640 51,265
Kenneth B. Plumlee 11,128,640 51,265
Joseph J. Ruvane, Jr. 11,128,640 51,265
</TABLE>
2) Approval of amendments to the Company's 1994 Stock Plan to increase
the number of shares issuable thereunder to an aggregate of 2,600,000
shares.
FOR AGAINST ABSTAIN
7,235,025 809,643 20,187
15
<PAGE> 16
3) Approval of amendments to the Company's 1995 Directors' Stock Plan to
increase the number of shares issuable thereunder to an aggregate of
250,000.
FOR AGAINST ABSTAIN
7,862,379 185,576 16,900
4) Approval of amendments to the Company's 1995 Employee Stock Purchase
Plan to increase the number of shares issuable thereunder to an
aggregate of 500,000.
FOR AGAINST ABSTAIN
7,948,218 100,837 15,800
5) Ratification of the appointment of Ernst & Young LLP to serve as the
Company's independent auditors for the fiscal year ending December
31, 1998.
FOR AGAINST ABSTAIN
11,156,435 12,920 10,550
ITEM 5. OTHER INFORMATION
None
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits.
<S> <C> <C>
10.1(1) Agreement dated as of April 23, 1998 between the Company and
Suntory Limited.
10.2(1) License Agreement dated as of May 5, 1998 between the Company
and Genentech, Inc.
10.3(1) Supply Agreement dated as of May 5, 1998 between the Company
and Genentech, Inc.
10.4(2) Common Stock Purchase Agreement dated April 10, 1998 by and
among the Company and certain investors.
10.5(2) Registration Rights Agreement dated April 10, 1998 by and
among the Company and certain investors.
10.6(2) Second Omnibus Agreement with SmithKline Beecham Corporation
and related entities dated April 28, 1998.
27.1 Financial Data Schedule (EDGAR - filed version only)
</TABLE>
(1) Certain confidential portions of such exhibit have been omitted and
filed separately with the Securities and Exchange Commission.
(2) Incorporated by reference from an exhibit filed with the Company's
Current Report on Form 8-K (File No. 0-27406) filed on May 6, 1998.
(b) Reports on Form 8-K.
On May 6, 1998, the Company filed a Current Report on Form 8-K, listing
several items under Item 5 (Other Events). Specifically, the Company disclosed
(i) the sale of 2,162,163 shares of Common Stock to certain investors for an
aggregate purchase price of approximately $10 million, (ii) the issuance of
1,037,779 shares of Common Stock to SmithKline Beecham Properties, Inc., and
(iii) the restructuring of a promissory note owed to SmithKline Beecham
Corporation. No financial statements were filed with this report.
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONNETICS CORPORATION
By: /s/ JOHN L. HIGGINS
---------------------------
John L. Higgins
Vice President, Finance and Administration
and Chief Financial Officer
Date: August 13, 1998
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.1(1) Agreement dated as of April 23, 1998 between the Company and Suntory
Limited.
10.2(1) License Agreement dated as of May 5, 1998 between the Company and
Genentech, Inc.
10.3(1) Supply Agreement dated as of May 5, 1998 between the Company and
Genentech, Inc.
10.4(2) Common Stock Purchase Agreement dated April 10, 1998 by and among
the Company and certain investors.
10.5(2) Registration Rights Agreement dated April 10, 1998 by and among the
Company and certain investors.
10.6(2) Second Omnibus Agreement with SmithKine Beecham Corporation and
related entities dated April 28, 1998.
27.1 Financial Data Schedule (EDGAR-filed version only)
</TABLE>
(1) Certain confidential portions of such exhibit have been omitted and filed
separately with the Securities and Exchange Commission.
(2) Incorporated by reference from an exhibit filed with the Company's Current
Report on Form 8-K (File No. 0-27406) filed on May 6, 1998.
<PAGE> 1
EXHIBIT 10.1
NOTE: CERTAIN CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
RELAXIN
DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT
This DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT
("Agreement"), effective as of April 23, 1998 ("Effective Date") is made by and
between Suntory Limited, a corporation of Japan having its principal place of
business at 1-40, Dojimahama 2-chome, Kita-ku, Osaka 530, Japan ("Suntory") and
Connetics Corporation (formerly known as Connective Therapeutics, Inc.), a
corporation of the State of Delaware, U.S.A., having its principal place of
business at 3400 West Bayshore Road, Palo Alto, California, U.S.A. ("Connetics")
(each, respectively, a "Party" and collectively, the "Parties").
BACKGROUND
A. Connetics possesses certain technology and intellectual property
rights pertaining to Relaxin as defined below.
B. Connetics and Suntory desire to collaborate to develop and
commercialize Relaxin Products as defined herein for use in treatment of
scleroderma in the Japanese market.
THEREFORE, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Additional Relaxin Patents" means any and all patents which
Connetics and/or its Affiliates acquires ownership of and the right to license
to Suntory during the Term (as defined in Section 8.1), including but not
limited to any substitutions, extensions, reissues, renewals, divisions,
continuations, or continuations-in-part of the Relaxin Patents relating to the
Relaxin Materials and/or the Product, provided that such patents would be
infringed by the unlicensed manufacture, use or sale of the Product in the Field
in the Territory; Connetics shall promptly notify Suntory of the details of such
Additional Relaxin Patents.
1.2 "Affiliate" means an entity that controls, is controlled by or is
under common control with a Party. For purposes of this definition, "control"
shall mean the possession directly or indirectly, of a majority of the voting
power of such entity (whether through ownership of securities or partnership or
other ownership interests, by contract or otherwise); provided that such entity
shall be deemed an Affiliate only so long as such control continues.
1
<PAGE> 2
1.3 "Best Efforts" mean the good faith deployment by Suntory or
Connetics, in light of prevailing circumstances and taking into account Third
Party obligations and commitments, of sufficient of its resources, capital
equipment, material and labor as might reasonably be expected to achieve in the
shortest practical time, the benefits which are anticipated to accrue to Suntory
and Connetics from the commercial exploitation of the Product, and if the Best
Efforts are to be directed to a specific goal, then that goal.
1.4 "Core Relaxin Patents" means patents and patent applications that
are (i) the certain Relaxin Patents specified in Exhibit B-2 and (ii) such
Additional Relaxin Patents and/or intellectual property rights arising after the
Effective Date under the Third Party Licenses as may be designated by Suntory
within thirty (30) days of Connetics notice to Suntory of the details of such
patents and patent applications, which notice shall be promptly given to Suntory
upon application or registration in the Territory during the Term of this
Agreement.
1.5 "Dollars" or "$" means the lawful currency of the United States.
1.6 "Field" means the treatment of scleroderma.
1.7 "Gross Sales" means all amounts invoiced and/or received by Suntory
and/or an Affiliate or assignee of Suntory or a distributor appointed by Suntory
("Seller") for sales of Product in the Territory to a Third Party.
1.8 "IND" means an Investigational New Drug application filed with the
U.S. Food and Drug Administration ("FDA") and such comparable application in
Japan.
1.9 "Licensed IP" means the Core Relaxin Patents, Relaxin Information
and Third Party Licenses.
1.10 "Net Sales" means Gross Sales less: (i) price reductions or
discounts, including cash discounts, or rebates, actually granted, (ii) credits
or allowances actually granted upon claims, rejections or returns of Product,
including recalls, regardless of the Party requesting such, (iii) the actual
cost of packaging, freight and insurance that has been included in the Gross
Sales amounts invoiced, and (iv) any tax imposed or other governmental charge
(other than an income or withholding tax) charged or levied on the sale,
transportation, or delivery of a Product and borne by Suntory on such sales in
the Territory. [It is estimated that Net Sales will be approximately [1] percent
([1]%) of the NHI Price.]
1.11 "NDA" means any one of: a New Drug Application, or (as long as
equivalent under the U.S. Food, Drugs and Cosmetics Act to a New Drug
Application for purposes of securing regulatory approval for commercial sale of
the Product in the United States) a Biologics License Application or a Product
License Application filed with the FDA or any such comparable application in
Japan.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
2
<PAGE> 3
1.12 "NHI" means the National Health Insurance in Japan.
1.13 "NHI Price" means the price approved for NHI reimbursement for the
Product in the Territory.
1.14 "Product" means a commercial pharmaceutical product containing
Relaxin for use in the Field in a finished form that is supplied to Suntory by
Connetics pursuant to this Agreement for sale in the Territory.
1.15 "Relaxin" means recombinant human relaxin (H2), also known by
Connetics' proprietary trade name ConXn(R), having the structure and
Specifications as identified in Exhibit A hereto.
1.16 "Relaxin Information" means the trade secrets and know-how
relating to Relaxin, Relaxin Materials and the Product in the Field, including
but not limited to pre-clinical, clinical and regulatory information as may be
required by Suntory for the purposes of this Agreement that: (i) is owned by
Connetics and/or its Affiliates as of the Effective Date or comes into the
ownership of Connetics and/or its Affiliates during the Term, or (ii) to the
extent existing as of the Effective Date of this Agreement and owned by a Third
Party, which Connetics and/or its Affiliates has a right under the Third Party
Licenses in effect as of the Effective Date to license to Suntory and its
Affiliates hereunder.
1.17 "Relaxin Materials" means bulk Relaxin or formulated Relaxin
required by Suntory for use in performing pre-clinical studies, clinical trials
and/or procuring regulatory approval in the Field in the Territory.
1.18 "Relaxin Patents" mean the patents and patent applications owned
by Connetics and/or its Affiliates or included in the Third Party Licenses
which: (i) are in existence as of the Effective Date; (ii) would be infringed by
the unlicensed manufacture, use or sale of the Product in the Field in the
Territory; and (iii) with respect to the Third Party Licenses Connetics and/or
its Affiliates has a right to license to Suntory and its Affiliates hereunder. A
list of such Relaxin Patents is attached hereto as Exhibit B-1.
1.19 "Specifications" means the specifications for the Relaxin
Materials and the Product as set forth in Exhibit A hereto, or such changes as
may subsequently be agreed to in writing signed by the Parties.
1.20 "Suntory Improvements" means any inventions, discoveries,
improvements or enhancements relating to the Licensed IP, including but not
limited to pre-clinical and clinical data and information relating to Relaxin,
whether patentable or not, made by Suntory during the Term and any and all
intellectual property rights therein and thereto; Suntory shall promptly notify
Connetics of the details of such Suntory Improvements.
1.21 "Territory" means Japan.
3
<PAGE> 4
1.22 "Third Party Licenses" means any and all licenses to Third Party
intellectual property rights covering Relaxin, Relaxin Materials and Product,
including but not limited to patents, patent applications, trade secrets,
know-how and/or technology, which (i) have been granted to Connetics and/or its
Affiliates as of the Effective Date or thereafter during the Term (to the extent
included in the Core Relaxin Patents and/or accepted by Suntory as Licensed IP
pursuant to Section 2.3); (ii) would be infringed by the unlicensed manufacture,
use or sale of the Product in the Field in the Territory; and (iii) to which
Connetics and/or its Affiliates has a right to sublicense to Suntory and its
Affiliates hereunder. A list of the Third Party Licenses as of the Effective
Date is attached hereto as Exhibit C. If Connetics and/or its Affiliates acquire
any licenses to Third Party intellectual property rights covering Relaxin,
Relaxin Materials and Product in the Field in the Territory (including but not
limited to patents, patent applications, trade secrets, know-how and/or
technical information) during the Term with the right to sublicense to Suntory
and its Affiliates hereunder, Connetics shall promptly offer Suntory a
sublicense thereunder.
1.23 "Third Party(ies)" means any person or entity other than Suntory
or Connetics, or an Affiliate of Suntory or Connetics.
1.24 "Yen" or "(Y)" means the lawful currency of Japan.
ARTICLE II
LICENSE
2.1 License. Subject to the terms and conditions of this Agreement,
during the Term, Connetics grants to Suntory and its Affiliates an exclusive,
non-transferable license, without the right to sublicense, under the Licensed
IP, solely within the Territory and in the Field, to: (i) use Relaxin Materials
for the purpose of conducting pre-clinical studies and clinical trials and
procuring regulatory approval for commercial sale of the Product; and (ii) use,
distribute, offer for sale and sell the Product; provided that Suntory may
appoint a Third Party as its distributor for marketing and sale of the Product
in the Territory subject to Connetics' approval which shall not be unreasonably
withheld nor delayed.
2.2 License to Suntory Improvements. Subject to the terms and
conditions of this Agreement, Suntory grants to Connetics and its Affiliates an
exclusive, non-transferable (except in accordance with Section 9.8),
royalty-free license, without the right to sublicense (except as provided
herein), to any Suntory Improvements in the Field in all territories of the
world excluding the Territory. Connetics may sublicense such license to Suntory
Improvements to any Third Party subject to payment to Suntory of royalties
agreed by the Parties in advance.
2.3 Third Party Technology. Suntory acknowledges that the licenses
granted to Suntory herein include Third Party Licenses. While Connetics shall be
responsible for all payments attributable to this Agreement for Third Party
Licenses, Suntory agrees to abide by the terms and conditions of such Third
Party Licenses pertinent to Suntory as Connetics' sublicensee (e.g., not
including certain financial conditions) and disclosed to Suntory as of the
Effective Date. No future Third Party License nor any future amendment(s) to the
Third Party Licenses disclosed as of the Effective Date shall affect Suntory's
rights under this Agreement unless Suntory is
4
<PAGE> 5
notified thereof and agrees in writing to abide thereby. Suntory shall have no
rights under any Third Party intellectual property arising after the Effective
Date from a Third Party License in effect as of the Effective Date or entered
thereafter, until Suntory agrees to include such rights as Core Relaxin Patents
(or otherwise as Licensed IP) under this Agreement, including the payment by
Suntory of such additional royalties therefor as may be agreed between the
Parties; provided that no increased royalty payment by Suntory shall be required
for intellectual property arising after the Effective Date from a Third Party
License in effect as of the Effective Date. Connetics also shall abide by the
terms and conditions of all provisions of such Third Party Licenses as are
pertinent for the maintenance of the Third Party Licenses for Suntory as
Connetics' sublicensee.
2.4 Reservation of Rights. The licenses granted to Suntory under
Section 2.1 do not grant to Suntory, expressly or by implication, the right to
make or have made Relaxin Materials or Product, except as specifically provided
under Section 4.12 of this Agreement. Notwithstanding the foregoing, no right,
title, or interest is granted, whether expressly or by implication to any
technology or intellectual property rights owned by either Party, except for the
rights and licenses expressly granted hereunder, and each Party hereby reserves
all rights not expressly granted hereunder, nor shall anything in this Agreement
be deemed to restrict either Party from exploiting any of its rights not
expressly granted to the other Party hereunder.
2.5 Enforcement. As between the Parties, Connetics shall initially have
the primary right and discretion regarding enforcement of the Licensed IP
against Third Parties who may be infringing or misappropriating such
intellectual property rights in the Territory; provided, however, Connetics
shall use Best Efforts, at its sole expense, to protect the exclusive license
granted to Suntory pursuant to this Agreement, taking into account the costs and
benefits of such action, including, without limitation, the costs to be incurred
in any such action and the amount and likelihood of the damages that may be
awarded in any such action. If Connetics (i) decides not to enforce the Licensed
IP, or (ii) does not bring such action within ninety (90) days after notice of
Suntory's request to enforce the Licensed IP, then Suntory may do so at its own
expense. The Party enforcing shall be entitled to recover all of its costs,
expenses and fees incurred in such action from the damages awarded, and any
remaining amount shall be equitably divided between the Parties (and any Third
Party licensee of Connetics) in relative proportion to their damage by the acts
giving rise to such action. The Party not enforcing agrees to cooperate with the
Party enforcing the Licensed IP to the extent reasonably requested by and at the
expense of the enforcing Party, including, without limitation, being named as a
party in such proceeding. The Party not enforcing may choose to be represented
in any such action by counsel of its own choice and at its own expense. Upon
notice by Suntory to Connetics of any pharmaceutical products (other than the
Suntory Product) containing Relaxin in the Field in the Territory during the
Term of this Agreement by any Third Party, if (i) Connetics elects not to
enforce the Licensed IP or does not bring a lawsuit against such Third party
within ninety (90) days, or if the Licensed IP is held invalid or not infringed
by a final decision of a court of competent jurisdiction from which no further
appeal is or can be taken and (ii) total market share of all pharmaceutical
products containing Relaxin sold in the Field in the Territory (other than the
Suntory Product) reach twenty percent (20%) or more of the overall market, then
the Royalties payable by Suntory pursuant to Section 4.4.2 shall thereafter be
reduced by fifty percent (50%) during any such continuing period of
non-exclusivity.
5
<PAGE> 6
2.6 Third Party Patent Rights.
2.6.1 If a notice of infringement is threatened or received or
a suit is initiated against either Suntory, its Affiliates, its assignee and/or
its distributor, or Connetics and/or its Affiliates with respect to the Relaxin
Materials and/or the Product, the Parties will discuss with each other the best
way to respond.
2.6.2 To the extent that such suit is initiated against
Suntory, its Affiliates, its assignee and/or its distributor, and not against
Connetics or Connetics' licensor(s) or other licensees, it is agreed that
Connetics will give due consideration (including in Connetics discussions with
the licensors of the Third Party Licenses as to the best way to respond ) to
have Suntory defend against such suit or threatened suit, subject to the advice
and consent of Connetics. Connetics shall, upon request of Suntory, give all
reasonable assistance to Suntory with respect to the defense of such suit or
threatened suit.
2.6.3 Provided that such suit or threatened suit is related to
the use of the Product in the Field in the Territory (but not due to any
combinations of or modifications to the Product, its method of use,
administration and/or manufacture or other like acts or any omissions of
Suntory, its Affiliates, its assignee and/or its distributor) Suntory may offset
any amounts actually paid by Suntory, its Affiliates, its assignee and/or its
distributor for any actual claims, losses, damages, liabilities or expenses
(including reasonable attorneys fees) caused by or incurred in connection with
such suit or threatened suit, in that Suntory may withhold such amounts actually
paid from up to fifty percent (50%) of any Royalties payable to Connetics under
this Agreement after assumption of such defense or beginning of settlement
negotiations by Suntory. Suntory, its Affiliates, its assignee and/or its
distributor shall have no authority to settle any suit or threatened suit
without the express prior written consent of Connetics, which consent shall not
be unreasonably withheld..
ARTICLE III
PRODUCT DEVELOPMENT AND REGULATORY APPROVAL
3.1 Connetics' Responsibilities.
3.1.1 Connetics is undertaking Relaxin development activities
and shall keep Suntory reasonably informed of its progress. Within fourteen (14)
days following the Effective Date Connetics shall provide Suntory with a list
identifying all of Connetics' pre-clinical data, clinical data and regulatory
information, and thereafter promptly upon Suntory's reasonable request,
Connetics shall provide or have any of Connetics' Affiliates or through a Third
Party provide such data and information to the extent included in Relaxin
Information as may be required by Suntory for the accomplishment of Suntory's
responsibilities under this Agreement at such time. At the conclusion by
Connetics of its pivotal clinical trial in the U.S. for Relaxin ("Pivotal
Clinical Trial"), Connetics shall use its Best Efforts to promptly provide
Suntory with a draft report of the data from such Pivotal Clinical Trial, and
promptly provide Suntory with the final report of such Pivotal Clinical Trial
("Pivotal Clinical Trial Report"). Connetics shall use its Best Efforts to
promptly determine, in its sole discretion, whether to go forward with the
filing
6
<PAGE> 7
of an NDA in the U.S., and Connetics shall notify Suntory in writing within
seven (7) days of making such decision (the "Go Forward Notice").
3.1.2 Connetics shall use its Best Efforts to file an NDA and
to obtain regulatory approval for commercialization of the Product in the U.S.
If Connetics fails to use its Best Efforts to file an NDA or fails to use its
Best Efforts to obtain regulatory approval for commercialization of the Product
in the U.S. and ceases Relaxin development, Suntory may elect to proceed with
procuring regulatory approval for and commercialization of the Product in the
Field in the Territory in accordance with the terms of this Agreement, in which
event:
(i) Suntory shall be entitled to withhold, from any future
payments or Royalties due Connetics under this Agreement, [1] percent
([1]%) of all amounts previously paid by Suntory to Connetics under
Sections 3.2 and 3.3 hereof; and
(ii) Suntory shall assume all responsibility for manufacturing
in accordance with Section 4.12, except that Connetics shall not be
entitled to resume manufacture of Relaxin Materials and/or Product for
Suntory nor shall Connetics be liable for any of Suntory's investment
expenses, or losses attributable thereto in excess of [1] percent
([1]%) of the Royalties due Connetics in any given period hereunder,
taking such expenses or losses cumulatively with any other credits or
withholding permitted under this Agreement.
3.2 Suntory's Responsibilities.
3.2.1 No later than thirty (30) days following the Go Forward
Notice, or within sixty (60) days following Suntory's receipt of the Pivotal
Clinical Trial Report, whichever is later, Suntory shall notify Connetics in
writing as to whether Suntory elects to proceed with regulatory approval for and
commercialization of the Product in the Field in the Territory in accordance
with the terms of this Agreement. If Suntory elects not to proceed, this
Agreement shall terminate (consistent with the provisions of Section 8.4) upon
receipt of Suntory's notice, and in lieu of any and all additional remedies
available to Connetics against Suntory under law and equity:
(i) Connetics shall be entitled to retain all amounts
previously paid or then owed by Suntory to Connetics pursuant to this
Agreement, and
(ii) if Connetics has decided to go forward with the filing of
an NDA in the U.S., and if the Pivotal Clinical Trial Report contains
statistically significant data showing efficacy in the primary endpoint
(modified Rodnan skin score) and a therapeutic ratio (vs any
side-effects) that is acceptable under reasonable standards
then-prevailing in the biotechnology industry giving consideration to
the Product, the Field and the Territory, Suntory shall immediately pay
to Connetics [1] Yen.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
7
<PAGE> 8
3.2.2 On the date of Suntory's notice, if Suntory elects to
proceed pursuant to Section 3.2.1 (the "Suntory Decision Date") and thereafter
during the Term of this Agreement, Suntory shall use its Best Efforts to secure
regulatory approval for commercialization of the Product in the Territory,
including but not limited to achieving each of following regulatory milestones
(each a "Regulatory Milestone") by its corresponding due date ("Due Date") as
set forth in the schedule below:
<TABLE>
<CAPTION>
Regulatory Milestone Due Date
-------------------- --------
<S> <C>
[1] No later than [1] months after the Suntory Decision Date
[1] No later than [1] months after the Suntory Decision Date
[1] No later than [1] months after the Suntory Decision Date
[1] No later than [1] months after the Suntory Decision Date
</TABLE>
3.2.3 In case of any substantial delay in Suntory's
achievement of a Regulatory Milestone, the Parties shall discuss the reason
therefor (e.g., the necessity of conducting significant additional reproductive
toxicology or nine-month chronic toxicity pre-clinical testing prior to IND
filing under the applicable rules and regulations in the Territory) and any
mutually acceptable remedial steps (e.g., a re-scheduling of such due dates). If
such delay is attributable to any cause within Suntory's reasonable control the
Parties shall discuss in good faith such remedial steps as may be mutually
agreeable; if the Parties cannot so-agree, the dispute shall be submitted for
resolution in accordance with Section 9.4 pursuant to which the remedies
available shall include termination of the Agreement or conversion of the
license granted to Suntory hereunder into a non-exclusive license.
3.3 Payments. Subject to Section 9.2, Suntory shall pay to Connetics a
total of [1] Yen in accordance with the following schedule, payable within
thirty (30) days of the applicable Payment Date, except the Up-front payment,
which shall be due within ten (10) days of execution of this Agreement (Stage 2
Payment Dates shall not become due prior to the Suntory Decision Date):
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
8
<PAGE> 9
Stage 1
<TABLE>
<CAPTION>
Amount in Millions of Yen Payment Due
------------------------- -----------
<S> <C>
[1] Up-front payment upon execution of this Agreement
[1] Development costs advance upon Suntory's receipt of
Connetics' notice that it has initiated the Pivotal
Clinical Trial in the U.S.
[1] On Suntory Decision Date if Suntory elects to proceed
under Section 3.2.1, payable: [1]% as a success-based
milestone, and [1]% as a technology transfer fee
whereupon Suntory may proceed to use Connetics' Pivotal
Clinical Trial Report
Total: [1]
</TABLE>
Stage 2
<TABLE>
<CAPTION>
Amount in Millions of Yen Payment Due
------------------------- -----------
<S> <C>
[1] [1]
[1] [1]
[1] [1]
[1] [1]
[1] [1]
Total: [1]
</TABLE>
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
9
<PAGE> 10
Stage 3
<TABLE>
<CAPTION>
Amount in Millions of Yen Payment Due
------------------------- -----------
<S> <C>
[1] After the [1] year when annual Net Sales exceed [1]Yen,
payable with Suntory's Sales Report for the last
calendar quarter of such year
[1] After the [1] year when annual Net Sales exceed [1]Yen,
payable with Suntory's Sales Report for the last
calendar quarter of such year
Total: [1]
</TABLE>
ARTICLE IV
COMMERCIALIZATION AND SUPPLY
4.1 Commercialization. After obtaining regulatory approval for the
Product in the Field in the Territory, Suntory shall use its Best Efforts to
market and sell Product successfully in the Field in the Territory.
4.2 Product Markings. Product shall be marketed and sold by Suntory in
the Territory as Suntory's products under trademarks selected and solely owned
by Suntory; provided, however, that each Product marketed and sold by Suntory
hereunder shall be marked with: (i) a notice that such Product is manufactured
by and sold under license from Connetics Corporation; and (ii) all patent and
other intellectual property notices relating to the Licensed IP as directed by
Connetics. Other than expressly permitted herein, no right or license is granted
to Suntory to use Connetics' name or any trademarks or tradenames of Connetics
in advertising, publicity or other promotional activities without the express
written approval of Connetics.
4.3 Supply of Product. Subject to the terms and conditions of this
Agreement, commencing from the Go Forward Notice until Suntory receives approval
to market the Product in the Territory, Connetics shall use its Best Efforts to
manufacture for and supply to Suntory all Suntory's requirements for Relaxin
Materials at the transfer price set forth in Section 4.4.1; provided that
Suntory shall not transfer the Relaxin Materials to any Third Party at any time
except to the extent transfer is required for pre-clinical studies, clinical
trials or regulatory approval or filing related to the Product in the Field and
Territory. Subject to the terms and conditions of this Agreement, commencing
upon Suntory's receipt of approval to market the Product in the Territory until
the termination or expiration of this Agreement, Connetics shall use its Best
Efforts to manufacture for and supply to Suntory all Suntory's requirements for
Product at the transfer price set forth in Section 4.4.2. In the event that
Connetics decides that change or modification of the production procedure of the
Product is necessary during the Term for any
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
10
<PAGE> 11
reason, Connetics shall promptly notify Suntory of the need for such change or
modification. Connetics may implement such change or modification to the actual
production procedure only upon Suntory's prior written consent, which shall not
be unreasonably withheld and shall be deemed given unless Connetics is otherwise
notified in writing by Suntory within 60 days of Connetics' corresponding
notice. Connetics shall have the right to subcontract with a Third Party the
manufacture of Relaxin Materials and Product for supply to Suntory. Subject to
the terms and conditions of this Agreement, during the Term, Suntory shall
purchase all its requirements for Relaxin Materials and Product from Connetics.
Upon Suntory's request, during the one (1) year period preceding the expiration
of the Term, the Parties agree to negotiate in good faith for an extension of
supply by Connetics and purchase of the Product by Suntory.
4.4 Price and Royalties.
4.4.1 Relaxin Materials. Connetics shall supply [1] Suntory's
reasonable requirements of Relaxin Materials for Suntory's pre-clinical and
clinical obligations under this Agreement. Suntory shall pay to Connetics a
Manufacturing Scale-up Reimbursement in the amount of [1]mg (formulated and
filled) and [1]mg (bulk).
4.4.2 Product. Connetics shall provide Product to Suntory in
exchange for Suntory's payment of a Transfer Price for the Product provided and
a Royalty on Net Sales of the Product in the Field in the Territory, calculated
at the rates set forth in the following table, as determined by the NHI Price
for the Product in the Field, provided that Suntory shall enjoy a credit of [1]
Yen against the first royalties owed Connetics hereunder unless Connetics has
first paid such amount to Suntory at Connetics' sole election.
<TABLE>
<CAPTION>
NHI PRICE (Y)/MG PRODUCT TRANSFER PRICE ROYALTY
---------------- ---------------------- -------
<S> <C> <C>
[1] [1] [1]
[1] [1] [1]
[1] [1] [1]
[1] [1] [1]
[1] [1] [1]
</TABLE>
If the NHI price for the Product in the Field is less than [1] the Parties shall
meet and discuss in good faith such adjustments to the Transfer Price and
Royalty as may be commercially warranted under the circumstances at such time.
If the Parties cannot agree to any adjustment, then Suntory may elect to proceed
at the rates set forth for [1] or to terminate this Agreement pursuant to
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
11
<PAGE> 12
Section 8.2.3(i). If the amounts payable by Connetics upon Net Sales to a Third
Party under any Third Party Licenses are reduced or terminated for any reason
during the Term, the Parties shall meet and discuss in good faith any
corresponding adjustments to the Royalty as may be warranted taking into account
the amount of any such reduction and any change in the value of the
then-existing Licensed IP as well as the financial situation of Suntory's
business involving the Product. If Connetics' production costs for the Product
change during the Term, the Parties shall meet and discuss in good faith any
corresponding adjustments to the Transfer Price.
4.5 Forecasting.
4.5.1 Relaxin Materials. No later than the Suntory Decision
Date, Suntory shall deliver to Connetics an initial purchase forecast, by
quarter, setting forth the quantity and delivery dates of Relaxin Materials
required by Suntory for the twelve (12) month period following the delivery of
such initial forecast. Thereafter, until Suntory receives approval to market the
Product in the Territory, Suntory shall deliver to Connetics, on a semi-annual
basis, twelve (12) month forecasts setting forth Suntory's required quantities
and delivery dates for Relaxin Materials no later than six (6) months prior to
the commencement of the period covered by such forecast.
4.5.2 Product. No later than one (1) year before Suntory
expects in good faith to receive regulatory approval to market the Product in
the Territory, Suntory shall deliver to Connetics an initial forecast setting
forth the quantity and delivery dates of Product required by Suntory for Product
launch and the twelve (12) month period following the receipt of regulatory
approval in the Territory. Suntory shall review the initial Product purchase
forecast no later than six (6) months before Suntory expects in good faith to
receive the NHI Price for the Product in the Field in the Territory. Thereafter,
commencing upon Suntory's receipt of the NHI Price for the Product in the Field
in the Territory and until the termination or expiration of this Agreement,
Suntory shall deliver to Connetics, on a semi-annual basis, twelve (12) month
forecasts setting forth Suntory's required quantities and delivery dates for
Product no later than six (6) months prior to the commencement of the period
covered by such forecast; the first six (6) months of such forecasts shall
constitute Suntory's "Fixed Forecast."
4.6 Order and Acceptance. During the first two (2) years after Product
launch, Suntory shall be required to submit purchase orders on a quarterly basis
for Product in quantities no less than [1] percent ([1]%) of the quantities set
forth in the Fixed Forecasts submitted by Suntory in accordance with Section 4.5
and Connetics shall be required to supply quantities of Product no more than [1]
percent ([1]%) of the quantities in such Fixed Forecast. Thereafter, Suntory
shall be required to submit purchase orders on a quarterly basis for Product in
quantities no less than [1] percent ([1]%) of the quantities set forth in the
Fixed Forecasts submitted by Suntory in accordance with Section 4.5 and
Connetics shall be required to supply quantities of Product no more than [1]
percent ([1]%) of the quantities in such Fixed Forecasts. No purchase order
shall be binding upon Connetics until accepted by Connetics in writing. Once
accepted by Connetics, Suntory may cancel or reschedule purchase orders only
with prior written approval by Connetics.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
12
<PAGE> 13
4.7 Minimums.
4.7.1 Sales Forecasts. Suntory's Preliminary Five Year Sales
Forecast is attached as Exhibit D. No later than six (6) months before Suntory
expects in good faith to receive the NHI Price for the Product in the Field in
the Territory, Suntory shall review and revise the Preliminary Five Year Sales
Forecast, the first one (1) year as revised constituting Suntory's "Fixed Sales
Forecast." Thereafter, such Five Year Sales Forecast shall be reviewed and
revised annually by Suntory, no later than six (6) months prior to commencement
of each subsequent year, the first one (1) year constituting Suntory's next
Fixed Sales Forecast; provided that, in the event of a substantial unforeseeable
change of circumstance, such Fixed Sales Forecast may be revised by Suntory.
4.7.2 Commencing upon the receipt by Suntory of regulatory approval to
market the Product in the Territory, Suntory shall be obligated to meet and
maintain annual minimum sales equal to at least [1] percent ([1]%) of Suntory's
Fixed Sales Forecast for the first [1] years after Product launch in the Field
in the Territory (the "Minimums"). If Suntory fails to meet the Minimums for a
calendar year, Connetics may, upon thirty (30) days written notice to Suntory,
change the license granted to Suntory hereunder into a non-exclusive license,
unless prior to the end of such thirty (30) day period, Suntory pays to
Connetics an amount equal to the royalty calculated on the Minimums for such
year less any actual royalty amount already paid by Suntory to Connetics for
such year (the "Royalty Shortfall Payment"). If Suntory fails to meet the
Minimums for [1] consecutive calendar years, but Suntory has made the respective
Royalty Shortfall Payments to Connetics, then Connetics may change the exclusive
license granted to Suntory hereunder into a non-exclusive license upon thirty
(30) days written notice to Suntory. If Suntory elects not to make a Royalty
Shortfall Payment to Connetics, then Connetics may terminate this Agreement upon
thirty (30) days written notice to Suntory.
4.8 Invoice and Sales Report.
4.8.1 For each shipment of Relaxin Materials or Product
ordered by Suntory, Connetics shall submit an invoice, packing list and airway
bill to Suntory, a certificate of analysis for each batch thereof confirming its
compliance with the Specifications. Invoices shall state:
(i) the quantity of Relaxin Material in such
shipment and the Manufacturing Scale-up
Reimbursement therefor in accordance with
Section 4.4.1; and/or
(ii) the quantity of Product in such shipment and
the Transfer Price therefor in accordance
with Section 4.4.2.
All invoices and other shipping documents shall be sent via first class mail or
by fax to Suntory's address for notices hereunder.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
13
<PAGE> 14
4.8.2 Suntory shall within [1] days after the last day of each
calendar quarter provide Connetics with a written report ("Sales Report")
setting forth:
(i) the Gross Sales and corresponding Net Sales
received therefor in Yen;
(ii) a calculation of the aggregate Gross Sales
and corresponding Net Sales for the calendar
year in which the sales were made;
(iii) a calculation of the Royalties payable to
Connetics with respect to such sales
including the applicable Conversion Rate in
accordance with Section 9.2.
4.9 Delivery. Connetics shall ship Relaxin Materials and/or Product to
the address specified in the applicable purchase order for delivery on the
scheduled delivery date specified in the applicable purchase order; provided,
however, that such scheduled delivery date shall not be less than [1] days from
the date of receipt by Connetics of such purchase order. All shipments shall be
F.O.B. Connetics' manufacturing facilities, and Suntory shall bear the risk of
loss and cost of transportation of the Relaxin Materials and/or Product upon
delivery by Connetics to Suntory's carrier for shipping to Suntory. Connetics
shall suitably pack the Relaxin Materials and/or Product for shipment to Suntory
in such manner as agreed by the Parties prior to the first shipment thereof. All
freight and insurance shall be paid by Suntory. Relaxin Materials and Product
supplied to Suntory shall be labeled and packaged in accordance with Suntory's
instructions; all such labeling and inner packaging materials shall be supplied
by Suntory to Connetics at Suntory's expense.
4.10 Payment and Audit. Suntory shall pay Connetics for all invoiced
amounts within thirty (30) days of receipt of Connetics' invoice. Suntory shall
pay the Royalties due Connetics for each quarter on the same day as the Sales
Report for such quarter is delivered. Upon reasonable notice to Suntory,
Connetics shall have the right to have an independent certified public
accountant, selected by Connetics and reasonably acceptable to Suntory, audit
Suntory's records during normal business hours to verify all records pertaining
to the calculation of Suntory's Net Sales and calculation of the transfer price
and/or Royalties due Connetics; provided, however, that such audit shall not
take place more frequently than [1] and shall not cover records for more than
the preceding [1] years. Each Party shall promptly pay or refund to the other
Party the amount of any overpayment or underpayment determined in such audit.
Any such audit shall be at the expense of the Party requesting the audit unless
such audit indicates greater than five percent (5%) error in payment based on
the records and/or calculations of the audited Party, in which case such audit
shall be at the expense of the audited Party and such payment or refund shall
bear interest from the date due at five percent (5%) plus the prime rate
established by the U.S. Federal Reserve Bank, or the maximum interest permitted
by applicable law, if lesser. Each Party shall preserve and maintain all such
records and accounts required for audit for a period of [1] years after the
calendar quarter for which the record applies. All
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
14
<PAGE> 15
information resulting from such audits conducted pursuant to this Section 4.10
shall be kept confidential pursuant to Section 7.2. The results of any such
audit shall be disclosed to the auditing Party, provided that the certified
public accountants shall not disclose to the auditing Party the business details
of the audited Party's records, but shall report only as to whether the amounts
charged or royalties paid were correct, or if not, the amount by which the
certified public accountant's calculation varies from the audited Party's
calculation.
4.11 Inspection.
4.11.1 Suntory shall complete inspection and analysis of
analytically representative samples from each shipment of Relaxin Materials
and/or Product within thirty (30) days after receipt by Suntory in a bonded
warehouse in Japan. If the result of such inspection and analysis indicates that
the Relaxin Materials or Product fails to meet Connetics' warranty pursuant to
Section 6.1, Suntory shall immediately give Connetics written notice of such
failure including the detailed reasons therefor accompanied by a representative
sample from the Relaxin Material or Product believed to be defective. Suntory
shall be entitled to withhold payment for such shipment pending resolution of
the alleged defect. Connetics shall inspect and analyze such sample for the
alleged defect within thirty (30) days of receipt of Suntory's notice and
sample, and promptly report the results to Suntory. At its option, Connetics may
perform the inspection and analysis itself, through Connetics' supplier or
through an independent testing laboratory.
(i) If the result of Connetics' inspection and analysis
confirms that such sample fails to meet Connetics' warranty, Suntory
shall be entitled to such remedy as is provided under Section 6.3 of
this Agreement.
(ii) If the result of Connetics' inspection and analysis
confirms that such sample meets Connetics' warranty pursuant to Section
6.1, the Parties shall use their Best Efforts to discover the reason
for reaching inconsistent results, and to resolve the matter. If the
Parties are unable to resolve the matter within fifteen (15) days of
Connetics' report to Suntory, the sample (or additional samples) of the
Relaxin Materials or Product shall be submitted to an independent
laboratory mutually agreeable to the Parties, to repeat the inspection
and analysis. The determination of the independent laboratory shall be
binding on the Parties.
4.11.2 Suntory, upon its own discretion and at its own cost
and expense, is entitled during ordinary business hours and at dates acceptable
to Connetics to inspect or to have inspected (including by representatives of
the competent authorities in the Territory) Connetics' or Connetics' Third Party
manufacturer's plant and procedures used for manufacture and storage of the
Relaxin Materials and/or Product. Connetics undertakes to use its Best Efforts
to follow, or have the Third Party Manufacturer follow, any guidelines and
official orders resulting from such inspections.
15
<PAGE> 16
4.12 Inability to Supply.
4.12.1 In the event Connetics fails for any reason, including
without limitation, a force majeure event described in Section 9.7, to deliver
Relaxin Materials and/or Product to Suntory, Connetics shall immediately inform
Suntory of such inability in order to arrive at a mutually acceptable resolution
of such inability. In such case, Suntory may provide its assistance, including
but not limited to financial or technical support to Connetics, its Affiliates
and/or its sub-contractors in order to overcome the cause of such inability. In
the event that such inability exceeds a period of one hundred twenty (120) days,
then Suntory shall have the right to make or have made all of its requirements
of Relaxin Materials and/or Product until Connetics provides Suntory with
appropriate evidence that Connetics is capable of manufacturing Suntory's
requirements for Relaxin Materials and/or Product pursuant to the terms hereof.
4.12.2 If Suntory assumes manufacture of the Relaxin Materials
and/or Products pursuant to Section 4.12.1, then:
(i) at Suntory's request, Connetics shall provide [1] such
technology transfer as is reasonably necessary to facilitate the
assumption of manufacturing by or for Suntory, including granting to
Suntory a non-exclusive, license solely for such purpose, under such of
the Licensed IP as would be infringed by the unlicensed manufacture of
Relaxin Materials and/or Product under Connetics' then-current
manufacturing process by or for Suntory; and
(ii) Connetics shall cooperate with Suntory to attempt to make
available such portions of its existing manufacturing capabilities
(e.g., fill, finish, labeling and packaging) as are not effected by
such inability, and
(iii) Suntory shall cooperate with Connetics with regard to
supplying, on mutually acceptable conditions [1] such of Connetics'
requirements for Relaxin and/or Product as can be reasonably provided
during such period.
4.12.3 If Connetics provides Suntory with appropriate evidence
of Connetics' capability of manufacturing Suntory's requirements for Relaxin
Materials and/or Product, Connetics shall resume manufacture of all of Suntory's
requirements of Relaxin Materials and/or Product.
4.12.4 For Net Sales of Product manufactured by or for Suntory
pursuant to Section 4.12.2, Suntory shall pay Connetics the royalty as provided
in Section 4.4.2, against which Suntory shall be entitled to a credit equal to
the sum of:
(i) [1],
(ii) [1], and
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
16
<PAGE> 17
(iii) [1].
Suntory's credit shall apply against royalties owed Connetics under this
Agreement commencing upon Suntory's assumption of manufacture, and creditable
against up to [1] percent ([1]%) of the Royalties payable for any subsequent
quarterly period while Relaxin Materials and/or Product is manufactured by or
for Suntory pursuant to Section 4.12.2. Upon Connetics resumption of manufacture
pursuant to Section 4.12.3, any remaining credit shall be divided by the number
of quarterly periods while Relaxin Materials and/or Product was manufactured by
or for Suntory pursuant to Section 4.12.2 and credited equally over the
Royalties payable for an equal number of subsequent quarterly periods, after
which any remaining credit shall be paid to Suntory within [1] days.
ARTICLE V
MEETINGS AND REPORTS
5.1 Meetings. Unless otherwise mutually agreed upon by the Parties, the
Parties shall meet at least once per year. The venue shall alternate between
Palo Alto, California, U.S.A. and Tokyo, Japan, or shall be at such other
mutually acceptable place, with the first meeting to take place within [1] days
of the signing of this Agreement at Palo Alto. The meetings will provide the
forum where the Parties discuss and exchange information on development and
commercialization of the Product in their respective territories, including the
development and commercial plans for the Product in the Territory; provided that
Suntory shall have sole discretion in and responsibility for development and
commercialization of the Product in the Field in the Territory. Suntory and
Connetics shall discuss in good faith the acceptability of Suntory's Product
Purchase and Fixed Forecasts from a standpoint of Connetics' manufacturing
capacity and consistency/suitability of the Fixed Sales Forecasts as provided
under Section 4.7 of this Agreement
5.2 Reports. Beginning on the [1] anniversary of the Effective Date,
and every [1] months thereafter until the launch of the Product in the Field in
the Territory, Suntory shall submit to Connetics a progress report covering
Suntory's activities related to the development and commercial plans for the
Product.
5.3 Adverse Experience Information. During the Term of this Agreement,
each Party shall provide the other Party with any and all data, reports and
other information about the safety of the Relaxin Materials and/or the Product
(in the case of Suntory originating from the Field in the Territory, and in the
case of Connetics originating except from the Field in the Territory), including
but not limited to: clinical case records, reports, non-clinical data, abnormal
findings suggesting serious adverse drug reactions or serious drug-drug
interactions and, in particular, any unusual finding or evidence of serious
adverse drug reactions or serious drug-drug interactions, as well as remedial
actions therefor. Such information shall be promptly communicated between the
Parties in such manner as may be separately agreed upon between the Parties in
order to enable the informed Party to timely and completely report to the
appropriate regulatory authorities in its territory.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
17
<PAGE> 18
ARTICLE VI
WARRANTIES AND INDEMNITIES
6.1 Warranty. Connetics represents and warrants that Relaxin Materials
and/or Product supplied by it to Suntory under this Agreement shall conform to
the Specifications, and shall be free from defects in material, manufacturing
and workmanship for the shelf life of the Relaxin Materials and/or Product as
set forth in the Specifications ("Warranty Period").
6.2 Limitations on Warranty. The warranty furnished in Section 6.1
shall not apply to defects caused by accident or willful damage, abuse, misuse,
neglect, improper testing, handling, storage or use after delivery as set forth
in Section 4.9 by Connetics of the Relaxin Materials and/or Product in question
to Suntory.
6.3 Effect of Warranty. If, during the Warranty Period, any Relaxin
Materials and/or Product fails to conform to the warranty provided in Section
6.1, then Connetics will, at Suntory's option, either replace such Relaxin
Materials and/or Product within forty-five (45) days (or as soon as possible
employing Connetics' Best Efforts) after Connetic's confirmation that such
Relaxin Materials and/or Product are defective or credit Suntory for such
Relaxin Materials and/or Product if already paid for by Suntory, provided, that:
(i) Connetics is notified promptly in writing (including a
reasonable detailed description of the alleged defect) upon discovery
of any defect in the Relaxin Materials and/or Product,
(ii) such allegedly defective Relaxin Materials and/or Product
is returned to Connetics F.O.B. Connetics' manufacturing facilities,
and
(iii) the Relaxin Materials and/or Product is determined to be
defective in accordance with Section 4.1 and such defect(s) are due to
causes other than the causes excluded from warranty in Section 6.2;
in which case Connetics shall also reimburse Suntory's transportation costs for
return of the defective Relaxin Materials and/or Product and bear all
transportation costs for delivery of any replacement as reasonably directed by
Suntory (if Suntory opts to receive a credit, such credit shall include
Suntory's transportation costs for shipment and return of the defective Relaxin
Materials and/or Product and other costs for labeling and inner packaging borne
by Suntory pursuant to Section 4.9). The remedy set forth in this Section 6.3
shall be Suntory's exclusive remedy and Connetics' sole liability for breach of
the warranty set forth in Section 6.1.
6.4 Representations and Warranties of Connetics. Connetics hereby
represents and warrants to Suntory as follows:
(i) Connetics has the corporate power and authority to execute
and deliver this Agreement and to perform its obligations thereunder,
and the execution, delivery and performance of this Agreement have been
validly authorized by Connetics.
18
<PAGE> 19
(ii) Connetics has the right to grant to Suntory the rights
and licenses under the Licensed IP herein granted.
(iii) To the best of Connetics' knowledge, all Relaxin
Information disclosed to Suntory shall be free from any substantial
errors, omissions or misleading information.
(iv) Connetics shall use its Best Efforts to maintain the
Licensed IP in the Territory, to the extent Connetics is permitted
under the Third Party Licenses.
(v) To the best of Connetics' knowledge, there are no pending
or threatened legal claims relating to the Relaxin Patents, Relaxin
Information and Third Party Licenses hereunder as of the Effective
Date, and there is no infringement or threatened infringement of a
Third Party's patent rights with respect to any use or sale of Relaxin
Materials and/or Product in the Field in the Territory.
(vi) The Relaxin Materials and Product supplied to Suntory
shall be manufactured according to the applicable current Good
Manufacturing Practices ("cGMP").
(vii) [1].
6.5 Representation and Warranty of Suntory. Suntory hereby represents
and warrants to Connetics as follows:
(i) Suntory has the corporate power and authority to execute
and deliver this Agreement and to perform its obligations thereunder,
and the execution, delivery and performance of the Agreement have been
validly authorized by Suntory.
(ii) On or after the Suntory Decision Date, Suntory shall use
its Best Efforts to develop and commercialize the Product in the Field
in the Territory.
(iii) Without in any way diminishing Suntory's right to
independently decide whether to proceed under Section 3.2.1, as of the
date on which Suntory executes this Agreement, Suntory has the bona
fide intent to proceed with the development and commercialization of
the Product in the Field in the Territory upon receipt of the Go
Forward Notice if Connetics has decided to proceed with the filing of
its NDA for Relaxin and the Pivotal Clinical Trial Report meets the
criteria set forth in Section 3.2.1(ii).
6.6 Disclaimer of Warranties. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT,
CONNETICS MAKES NO WARRANTY WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES,
RIGHTS, OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ALL
WARRANTIES, CONDITIONS OR
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
19
<PAGE> 20
REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
IMPLIED WARRANTIES OF PERFORMANCE, MERCHANTABILITY, SATISFACTORY QUALITY,
FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THIRD PARTY INTELLECTUAL
PROPERTY RIGHTS. SOME JURISDICTIONS DO NOT ALLOW LIMITATIONS OR EXCLUSIONS OF
CERTAIN IMPLIED WARRANTIES OR CONDITIONS, SO THE ABOVE LIMITATION MAY NOT APPLY
TO THE EXTENT SO PROHIBITED.
6.7 Product Liability Indemnity.
6.7.1 Subject to Section 6.8, Connetics shall defend,
indemnify and hold harmless Suntory, its Affiliates, its assignee and/or its
distributor from any claim, suit or proceeding brought against Suntory by a
Third Party arising from any alleged manufacturing defect or nonconformity with
the Specifications of any Relaxin Materials and/or Product supplied by Connetics
to Suntory, or arising from Connetics' breach of any representation, warranty or
obligation hereunder ("Third Party Suit"); provided that Suntory:
(i) provides Connetics with prompt notification of any such
claim, suit or proceeding;
(ii) allows Connetics to control the defense or settlement of
such claim, suit or proceeding, provided that Connetics shall not
settle any such claim, suit or proceeding which does not provide for a
general release of Suntory without the prior written consent of
Suntory; and
(iii) complies with any good faith request made by Connetics
for assistance in such defense, provided that Connetics will reimburse
Suntory for any such assistance.
Connetics agrees to pay the costs, expenses and damages arising from any such
Third Party Suit and any final judgment entered by a court of law against
Suntory, its Affiliates, its assignee and/or its distributor, provided that
Connetics shall not be liable for any costs or expenses incurred without its
written authorization. Suntory, its Affiliates, its assignee and/or its
distributor shall have no authority to settle any claim on behalf of Connetics.
6.7.2 So long as reasonably available, Connetics agrees to
carry sufficient liability insurance to cover its indemnification obligations
under this Agreement. As soon as practicable upon execution of this Agreement,
Connetics will provide Suntory with certificate(s) of insurance evidencing this
coverage.
6.8 Qualification to Indemnity. Connetics assumes no liability under
Section 6.7 for: (i) use of the Relaxin Materials and/or Products in an
application other than the applications as indicated in the Specifications or
product label claims; (ii) modifications to the Relaxin Materials and/or
Products unless such modifications were made by Connetics, where liability would
not have occurred but for such modifications; or (iii) any liability arising out
of or relating to any (a) act or negligence or (b) representation or statement
regarding the Relaxin Materials and/or Products which is inconsistent with the
Specifications or product label claims by Suntory or an Affiliate, assignee,
distributor or representative of Suntory, or (c) Suntory's breach of any
20
<PAGE> 21
representation, warranty or obligation hereunder, against which Suntory shall
defend, indemnify and hold harmless Connetics to the same extent and in the same
manner as the indemnification by Connetics under Section 6.7.
6.9 Limitation of Liability. EXCEPT AS PROVIDED FOR PRODUCT LIABILITY
INDEMNITY PURSUANT TO SECTION 6.7, IN NO EVENT SHALL CONNETICS' LIABILITY
ARISING UNDER THIS AGREEMENT EXCEED THE AMOUNTS PAID TO CONNETICS BY SUNTORY
UNDER THIS AGREEMENT. EXCEPT FOR (A) ANY LOSS, LIABILITY, DAMAGE OR OBLIGATION
ARISING OUT OF OR RELATING TO THE DISCLOSURE OF CONFIDENTIAL INFORMATION
PURSUANT TO ARTICLE VII OR (B) THE PRODUCT LIABILITY INDEMNITY OBLIGATIONS OF
CONNETICS SET FORTH IN SECTION 6.7, OR AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE OTHER PARTY
OR ANY OTHER THIRD PARTY FOR ANY LOST OPPORTUNITY OR PROFITS, COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES ARISING OUT OF THIS AGREEMENT, UNDER
ANY CAUSE OF ACTION OR THEORY OF LIABILITY (INCLUDING NEGLIGENCE), AND WHETHER
OR NOT SUCH PARTY TO THIS AGREEMENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED REMEDY. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF CERTAIN LIABILITIES, SO THE ABOVE LIMITATIONS OR EXCLUSIONS MAY
NOT APPLY TO YOU TO THE EXTENT SUCH LIMITATION IS SO PROHIBITED.
ARTICLE VII
CONFIDENTIALITY AND PUBLICITY
7.1 Public Relations And Announcements. The Parties shall agree upon
and issue a press release upon the signing of this Agreement. The Parties shall
endeavor to provide courtesy copies of any public announcements concerning the
relationship created by this Agreement in advance of its publication thereof. No
representations shall be made by either Party concerning the other without the
prior consent from the other Party.
7.2 Confidentiality. The Parties acknowledge that by reason of their
relationship to each other hereunder, each will have access to certain
information and materials concerning the other's business, plans, customers
(including, but not limited to, customer lists of both Parties), technology,
and/or products that is confidential and of substantial value to that Party,
which value would be impaired if such information were disclosed to Third
Parties ("Confidential Information"). For the purposes of this Agreement,
information shall be deemed Confidential Information if such information, by its
nature or due to the context within which it is disclosed, is obviously intended
by the disclosing Party to be kept confidential even if not identified as such
in writing or with legends or other markings, provided that Relaxin Information
shall automatically be treated as Confidential Information. Upon request by
either Party, the other Party will advise whether or not it considers any
particular information or materials to be Confidential Information. Each Party
agrees that it will not use in any way other than expressly authorized or
21
<PAGE> 22
contemplated under this Agreement, nor disclose to any Third Party, any such
Confidential Information revealed to it by the other Party (except that
Confidential Information may be disclosed, as required for the purposes of this
Agreement, to an Affiliate, assignee, distributor, consultant or Third Party
contractor or R&D organization under similar written obligations of
non-disclosure and non-use), and will take every reasonable precaution to
protect the confidentiality of such information and with no less restrictive
precautions than it takes to protect its own confidential information. If
Confidential Information is required to be disclosed in response to a valid
order by a court, regulatory authority or other government body of competent
jurisdiction, or if otherwise required to be disclosed by law, or if necessary
to establish the rights of either Party under this Agreement, the receiving
Party shall use commercially reasonable efforts to provide the disclosing Party
with advance notice of such required disclosure to give the disclosing Party
sufficient time to seek a protective order or other protective measures, if any
are available, for such Confidential Information. Confidential Information does
not include information, technical data or know-how which: (i) is rightfully in
the possession of the receiving Party at the time of disclosure as shown by the
receiving Party's files and records immediately prior to the time of disclosure;
(ii) prior or after the time of disclosure becomes part of the public knowledge
or literature, not as a result of any inaction or action of the receiving Party;
(iii) is independently developed by a Party without the use of any Confidential
Information of the other Party; (iv) is obtained from any Third Party who is
authorized to disclose such data and information without obligation of
confidentiality to the disclosing party, or (v) is approved for release by the
disclosing Party.
7.3 Remedy. If either Party breaches any of its obligations with
respect to this Article VII, or if such a breach is likely to occur, the other
Party shall be entitled to seek equitable relief, including specific performance
or an injunction, in addition to any other rights or remedies, including money
damages, provided by law.
7.4 Agreement Terms. Subject to Section 7.1 and the exclusions set
forth in Section 7.2 (i) to (v), the Parties shall treat the terms and
conditions of this Agreement as Confidential Information; provided, however,
after written notification to the other Party, each Party may disclose the
existence of this Agreement and the material terms and conditions hereof under
circumstances that reasonably ensure the confidentiality thereof to: (i) any
government or regulatory authorities, including without limitation the United
States Security and Exchange Commission pursuant to applicable law (excluding,
to the extent legally permitted, disclosure of financial terms in any publicly
available versions of information so-disclosed), (ii) its legal representatives
and advisors (and prospective investors upon approval by the other Party, which
approval shall not be unreasonably withheld), and (iii) to Connetics' licensors
(excluding financial terms) to the extent required for compliance with
Connetics' obligations under the Third Party Licenses.
22
<PAGE> 23
ARTICLE VIII
TERM AND TERMINATION
8.1 Term.
8.1.1 The term of this Agreement shall commence on the
Effective Date and continue in full force and effect until the later of: [1]; or
(ii) [1] ("Term"), unless earlier terminated by either Party in accordance with
the terms of this Agreement.
8.1.2 [1].
8.1.3 If Connetics notifies Suntory of Additional Relaxin
Patents, new Relaxin Information or new Third Party License rights ("Additional
Rights") and Suntory elects not to include such rights as Licensed IP and for
any Additional Relaxin Patents as Core Relaxin Patents, and the inclusion of
such Additional Rights would extend the Term as provided in Section 8.1.1, the
Parties shall discuss in good faith Suntory's reasons therefor.
8.2 Termination.
8.2.1 In addition to and notwithstanding the termination
rights stated elsewhere in this Agreement, failure by either Party to comply
with any of the material obligations contained in this Agreement shall entitle
the other Party to give the Party in default notice specifying the nature of
such default and stating its intent to terminate this Agreement if such default
is not cured. This Agreement shall terminate if such default is not cured by the
defaulting Party within forty-five (45) days after the receipt of such notice.
8.2.2 [1].
8.2.3 Voluntary Termination. At any time after the Suntory
Decision Date, Suntory shall have the right to terminate this Agreement without
compensation by giving thirty (30) days prior written notice to Connetics:
(i) if Suntory determines, consistent with
biotechnology industry standards in the Territory reasonably applied
under similar circumstances, that the Product cannot be reasonably
developed or marketed for reasons of safety or clinical efficacy, or
that the development or marketing of the Product is not economically
viable (e.g., if the NHI Price is less than [1] and the Parties cannot
in good faith agree upon a restructuring of the Agreement's payment and
Royalty terms as provided in Section 4.4.2);
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
23
<PAGE> 24
(ii) if the Product cannot be commercially marketed
in the Field in the Territory due to a final written order of an
official government agency of competent authority and jurisdiction,
after Suntory has used its Best Efforts to secure approval and/or
appeal such order; or
(iii) if the Relaxin Materials and/or Product are
found to infringe the patent rights of a Third Party and an injunction
or similar order prohibiting commercial marketing of the Product in the
Field in the Territory is entered by a court of competent jurisdiction
from which no further appeal is or can be taken, except in the case
that Connetics secures and pays for a license, or in the case that
Suntory secures and pays for a license thereto as provided under
Section 2.6.3 under which Suntory's development and marketing of
Products would be, in Suntory's sole discretion, economically viable.
8.3 Termination for Insolvency. Either Party may terminate this
Agreement immediately upon delivery of written notice to the other Party (i)
upon the institution by or against the other Party of insolvency, receivership
or bankruptcy proceedings or any other proceedings for the settlement of the
other Party's debts, provided, with respect to involuntary proceedings, that
such proceedings are not dismissed within [1] days, (ii) upon the other Party's
making an assignment for the benefit of creditors, or (iii) upon the other
Party's dissolution or ceasing to do business.
8.4 Effect of Termination. Expiration or termination of this Agreement
pursuant to the terms and conditions set forth in this Agreement shall not
relieve the Parties of any right or obligation, including but not limited to any
payment obligations, accruing prior to or upon such expiration or termination.
Upon expiration or termination of this Agreement for any reason, each Party
shall immediately return to the other Party or destroy any Confidential
Information (except those included in the Licensed IP and Suntory Improvements
in case of expiration of the Term of this Agreement) disclosed by the other
Party. In the event of termination pursuant to Section 3.2.1 or if Connetics
terminates this Agreement under Section 8.2.1, then Suntory shall assign and
deliver to Connetics all data and information (including registration dossier)
obtained in pursuing regulatory approvals, and assign all regulatory approvals
(e.g., to Connetics' designee in the Territory as permitted under the applicable
law) for the Product in the Territory received by Suntory, its Affiliates, its
assignee and/or its distributor as of such termination date. In the event,
pursuant to a provision of this Agreement, that Connetics changes the exclusive
license granted to Suntory hereunder into a non-exclusive license, or upon any
expiration of this Agreement following Suntory's election not to include
Additional Rights as Licensed IP, the inclusion of which would have extended the
Term of this Agreement pursuant to Section 8.1.1(ii), then Suntory shall deliver
to Connetics copies of all data and information (including registration dossier)
obtained in pursuing regulatory approvals, and provide to Connetics (or
Connetics' designee in the Territory as permitted under the applicable law) a
right of cross-reference or such equivalent grant as permits commercialization
under all regulatory approvals for the Product in the Territory received by
Suntory, its Affiliates, its assignee and/or its distributor as of such date.
Except for the provisions of Sections 4.10, 6.1, 6.2, 6.3, 6.6, 6.7, 6.8, 6.9,
8.1 and 8.4 and
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
24
<PAGE> 25
Articles I, VII and IX which shall survive such expiration or termination, all
other rights and obligations of the Parties shall cease upon expiration or
termination of this Agreement. Notwithstanding the foregoing, upon early
termination of this Agreement, Suntory shall have the right to sell all
remaining Product in its inventory within [1] months after the date of
termination, subject to the payment to Connetics of the amounts specified in
Section 4.4; provided that upon Connetics' request all Relaxin Materials and
Product in Suntory's possession at the time of such termination shall be sold to
Connetics at Connetics' Direct Cost.
ARTICLE IX
MISCELLANEOUS
9.1 Taxes, Tariffs, Fees. All Purchase Prices for the Relaxin Materials
and/or the Product shall be exclusive of, and Suntory shall bear any export,
import, sales, use or excise taxes, VAT, duties, tariffs, federal, state or
local tax, or any other taxes levied on the sale, shipment or purchase of the
Relaxin Materials and/or the Product pursuant to this Agreement, except any
taxes based on Connetics' net income. Connetics shall be entitled to receive
from Suntory, in cash, the exact amount specified in Sections 3.3 and 4.4 of
this Agreement notwithstanding the effect of any and all withholding or other
payments made by Suntory as a result of applicable tax laws of Japan and the
U.S. Notwithstanding the foregoing, Suntory has the right to deduct from the
payments set forth in Sections 3.3 and Royalties set forth herein any tax
applicable to Connetics' income which Suntory is obliged to pay by Japanese tax
law and according to the Tax Treaty between Japan and the United states;
provided that Suntory shall provide Connetics with an appropriate tax receipt
for the deducted amount which Connetics can present to its tax authority and
sufficient for Connetics to receive the corresponding credit to which it is
entitled.
9.2 Currency of Payments. All amounts payable to Connetics by Suntory
pursuant to this Agreement shall be made to Connetics in Dollars and by wire
transfer to the U.S. bank account(s) specified by Connetics from time to time.
The "Conversion Rate" from Yen to Dollars for amounts payable under this
Agreement shall be the average of the conversion rates in effect as reported in
the Wall Street Journal (Western Edition) on the last [1] business days of the
quarterly period for which such payment is due. The amounts payable to Connetics
for Stage 1 pursuant to Section 3.3 shall be converted as follows:
(i) first payment (i.e., [1] at the Conversion Rate prevailing
on the date the payment is due, and [1] at said Conversion Rate but in
no event greater than [1],
(ii) second payment (i.e., [1] at the Conversion Rate
prevailing on the date the payment is due, and [1] at said Conversion
Rate but in no event greater than [1], and
(iii) third payment (i.e., [1]) at a conversion rate of [1].
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
25
<PAGE> 26
Failure by Suntory to timely render payments to Connetics of any amounts due
hereunder shall be deemed a material breach of this Agreement.
9.3 Compliance With Laws. In performing this Agreement, each Party
shall comply with all applicable laws and government regulations at all times,
including but not limited to any applicable laws and regulations of Japan and
the U.S. regarding the export or re-export or release of technology and
technical data.
9.4 Dispute Resolution, Governing Law and Jurisdiction.
9.4.1 All disputes and conflicts arising from or relating to
the subject matter of this Agreement shall be resolved pursuant to the
procedures set forth in this Section 9.4. The Parties shall endeavor to resolve
in good faith any disputes or conflicts arising from or relating to the subject
matter of this Agreement, failing which either Party shall submit such conflict
for resolution to the Chief Executive Officers (or the Executive Manager of the
Pharmaceutical Divisions, or equivalent) of Suntory and Connetics. In the event
the Chief Executive Officers of Suntory and Connetics are unable to resolve such
conflict within thirty (30) days after having such conflict submitted to them
for resolution, such conflict shall be submitted for mediation if mutually
acceptable, or if not, then to arbitration in [1] administered by the American
Arbitration Association ("AAA") in accordance with the then-current Commercial
Arbitration Rules of the AAA by a panel of three (3) impartial arbitrators, one
(1) appointed by each Party and the third appointed by the other two (2)
arbitrators (collectively, the "Arbitrators"). The Arbitrators shall apply the
governing law. The judgment of the Arbitrators shall be final and binding on the
Parties and enterable as a judgment by a court of competent jurisdiction.
9.4.2 This Agreement shall be governed, controlled,
interpreted and defined by and under the laws of the State of New York and the
United States without regard to that body of law known as conflicts of law;
provided that issues relating to the validity and enforceability of Japanese
patents shall be governed by the laws of Japan. The Parties specifically
disclaim application of the Convention on Contracts for the International Sale
of Goods to this Agreement.
9.5 Section Headings; Controlling Language Version. The section
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. The
controlling language version of this Agreement shall be the English language
version of this Agreement.
9.6 Notices. Any notice required or permitted by this Agreement shall
be in writing and in English and shall be sent by prepaid registered or
certified mall, return receipt requested, internationally recognized courier or
personal delivery, addressed to the other Party at the address below or at such
other address for which such Party gives notice hereunder.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
26
<PAGE> 27
Connetics Corporation
Attn: President and Chief Executive Officer
3400 West Bayshore Road
Palo Alto, CA 94303 U.S.A.
Suntory Limited
Attn: Executive Manager, Pharmaceutical Division
Garden Court, 8th Floor
4-1 Kioicho, Chiyoda-ku
Tokyo 102-0094 Japan
Such notice shall be deemed to have been given when delivered or, if delivery is
not accomplished by some fault of the addressee, when tendered.
9.7 Force Majeure. Neither Party shall be considered in default of
performance of its obligations under this Agreement, except any obligation
hereunder to make payments when due, to the extent that performance of such
obligations is delayed by force majeure or contingencies or causes beyond the
reasonable control of such Party or its suppliers, including but not limited to
strike, fire, flood, earthquake, windstorm, governmental acts or orders or
restrictions, failure of suppliers, or any other reason to the extent that the
failure to perform is beyond the reasonable control and not caused by the
negligence or willful misconduct of the nonperforming Party.
9.8 Nonassignability and Binding Effect. Each Party agrees that its
rights and obligations under this Agreement may not be transferred or assigned
directly or indirectly without the prior written consent of the other Party,
which consent shall not be unreasonably withheld, except in connection with the
sale of all or substantially all of the assigning Party's related business.
Subject to the foregoing sentence, this Agreement shall be binding upon and
inure to, the benefit of the Parties hereto, their successors and assigns;
except that upon any attempted assignment contrary to the provisions of this
Section 9.8, either Party may terminate this Agreement immediately upon notice
to the other Party.
9.9 Partial Invalidity. If any provision of this Agreement is held to
be invalid by a court of competent jurisdiction, then the remaining provisions
shall remain, nevertheless, in full force and effect. The Parties agree to
renegotiate in good faith any term held invalid and to be bound by the mutually
agreed substitute provision in order to give the most approximate effect
intended by the Parties.
9.10 No Waiver. No waiver of any term or condition of this Agreement
shall be valid or binding on either Party unless agreed in writing by the Party
to be charged. The failure of either Party to enforce at any time any of the
provisions of this Agreement, or the failure to require at any time performance
by the other Party of any of the provisions of this Agreement, shall in no way
be construed to be a present or future waiver of such provisions, nor in any way
affect the validity of either Party to enforce each and every such provision
thereafter.
27
<PAGE> 28
9.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
9.12 Entire Agreement. This Agreement, including the Exhibits attached
hereto, constitutes the entire agreement of the Parties with respect to the
subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, between Connetics and
Suntory with respect to such subject matter. No amendment or modification hereof
shall be valid or binding upon the Parties unless made in writing and signed by
the duly authorized representatives of both Parties.
9.13 Independent Contractors. The Parties to this Agreement are
independent contractors. There is no relationship of agency, partnership, joint
venture, employment or franchise between the Parties and neither Party shall
have any authority to bind the other Party or incur any obligation on the other
Party's behalf.
The undersigned have executed this Agreement on behalf of Suntory and
Connetics, as applicable, effective as of the Effective Date.
CONNETICS CORPORATION SUNTORY LIMITED
("Connetics") ("Suntory")
By:/s/ Thomas G. Wiggans By:/s/ Terumi Nakajima
----------------------------- ---------------------------------
Name: Thomas G. Wiggans Name: Terumi Nakajima
----------------------------- -------------------------------
Title: President and CEO Title: Executive Manager
----------------------------- ------------------------------
28
<PAGE> 29
EXHIBIT A
RELAXIN SPECIFICATION [1]
CONFIDENTIAL
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
<PAGE> 30
EXHIBIT A
RELAXIN SPECIFICATION (CONTINUED) [1]
CONFIDENTIAL
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
<PAGE> 31
\
EXHIBIT B-1
RELAXIN PATENTS [1]
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
<PAGE> 32
EXHIBIT B-2
CORE RELAXIN PATENTS [1]
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
<PAGE> 33
EXHIBIT C
THIRD PARTY LICENSES
1. Grant by the Howard Florey Institute of Experimental Physiology and
Medicine ("HFI") to Genentech, Inc. ("GNE") of an exclusive, worldwide
license to certain patents and know-how owned by HFI pertaining to the
hormone(s) known as Relaxin pursuant to the License Agreement made on
December 31, 1982 and re-executed as amended and varied as of June 30,
1987 (the "HFI/GNE Agreement").
2. Grant by Genentech, Inc. to Connetics ("CNCT") of an exclusive,
worldwide license to certain patents and know-how owned by Genentech
pertaining to the hormone(s) known as Relaxin and an exclusive
sublicense under its license from HFI pursuant to the License
Agreement, effective September 27, 1993, as amended July 14, 1994 (the
"GNE/CNCT Agreement").
3. Grant by Genentech, Inc. to Connetics of an exclusive license to make,
use and sell Relaxin in the territory of Japan, the Republic of Korea
and the Republic of China (the "Asia Territory") relinquished and
returned to Genentech by Mitsubishi Chemical Corporation (formerly
Mitsubishi Kasei Corporation; "MCC"), pursuant to an agreement dated
April 1, 1996 (the "MCC/GNE/CNCT Agreement").
4. Agreement between the Howard Florey Institute of Experimental
Physiology and Medicine and Connetics with regard to payment terms and
obligations pursuant to Section 4.1.1 (as amended by Paragraph 26) of
the GNE/CNCT Agreement and Clauses 5.1 and 5.2 of the HFI/GNE Agreement
(the "HFI/CNCT Agreement").
5. Side Agreement between the Howard Florey Institute of Experimental
Physiology and Medicine, Suntory and Connetics providing for survival
of sublicense in event of reversion (the "HFI/SUNTORY/CNCT Agreement").
6. Side Agreement between Genentech, Inc., Suntory and Connetics providing
for survival of sublicense in event of reversion (the "GNE/SUNTORY/CNCT
Agreement").
<PAGE> 34
EXHIBIT D
SUNTORY'S PRELIMINARY FIVE YEAR SALES FORECAST [1]
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such material has been filed separately with the SEC.
<PAGE> 1
EXHIBIT 10.2
NOTE: CERTAIN CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
LICENSE AGREEMENT FOR
INTERFERON GAMMA
This Agreement is entered into effective as of May 5, 1998, ("Effective
Date") by and between Connetics Corporation, a Delaware corporation with its
principal office at 3400 West Bayshore Road, Palo Alto, California 94303
("Connetics"), and Genentech, Inc., a Delaware corporation with its principal
office at 1 DNA Way, South San Francisco, California 94080 ("Genentech").
WHEREAS, Connetics wishes to obtain a non-exclusive license to
manufacture and an exclusive license to use, sell, offer for sale and import
Interferon Gamma (as defined herein) in the United States for the treatment of
certain medical disorders;
WHEREAS, in consideration for the foregoing, Connetics will issue to
Genentech shares of Connetics Common Stock on the terms and conditions set forth
in that certain stock purchase agreement between Genentech and Connetics of even
date herewith (the "Stock Agreement");
WHEREAS, Genentech will manufacture and supply Connetics with
Interferon Gamma-1B (as defined herein) under the terms and conditions set forth
in that certain supply agreement between Genentech and Connetics of even date
herewith (the "Supply Agreement");
WHEREAS, Connetics and Genentech are parties to that certain Agreement
on Interferon Gamma-1B dated December 8, 1995 (the "Prior Agreement") and desire
to terminate the Prior
1
<PAGE> 2
Agreement effective as of the date hereof and to accept the rights and
obligations created pursuant hereto in lieu of the rights and obligations under
the Prior Agreement; and
WHEREAS, Genentech and Connetics therefore agree to undertake the
foregoing, all under the terms and conditions set forth in this Agreement and
for the consideration set forth herein and in the Stock Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Parties agree as follows:
1.0 DEFINITIONS
1.1 "Best Efforts" shall mean every necessary and prudent effort of a
Party applied in a prompt, commercially reasonable manner, to the maximum extent
reasonably allowed by such Party's available financial resources, taking into
account all of such Party's business commitments for such financial resources.
1.2 "[1]License" shall mean that certain license agreement between
Genentech and [1]dated January 5, 1990, as amended on November 23, 1992.
1.3 "[1] License Rights" shall mean all sublicenseable rights granted
to Genentech by
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
2
<PAGE> 3
[1] under the [1] License.
1.4 "BLA" shall mean Biologics License Application.
1.5 "Bulk Product" shall mean Interferon Gamma-1B provided as bulk
protein manufactured in compliance with Good Manufacturing Practices, pursuant
to applicable FDA regulatory approvals and supplied to Connetics in such a form
and in such containers as shall be mutually determined by Genentech and
Connetics and as described in the Supply Agreement.
1.6 "C.F.R." shall mean Code of Federal Regulations.
1.7 "CGD" shall mean chronic granulomatous disease.
1.8 "Connetics Knowhow" shall mean all proprietary information,
methods, processes, techniques and data that have not been publicly disclosed,
that relate to Interferon Gamma and that arise out of Connetics' and its
sublicensees' efforts in the development of Interferon Gamma (including
Interferon Gamma as part of a Licensed Product) hereunder and that on the
Effective Date and hereafter during the term of this Agreement are owned or
controlled by Connetics or its sublicensees or under which Connetics or its
sublicensees otherwise has the right to grant licenses or sublicenses.
1.9 "Connetics Patent Rights" shall mean all patents, patent
applications and any patents issuing therefrom, together with any substitutions,
extensions, reexaminations, reissues, renewals, divisions, continuations and
continuations-in-part thereof, that (a) claim inventions constituting Interferon
Gamma or its manufacture or use that arise out of Connetics' or its
sublicensee's efforts in the development of Interferon Gamma (including
Interferon Gamma as
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
3
<PAGE> 4
part of a Licensed Product) hereunder during the term of this Agreement, and (b)
are owned by Connetics or its sublicensees or under which Connetics or its
sublicensees otherwise has the right to grant licenses or sublicenses as
provided herein.
1.10 "ELA" shall mean Establishment License Application.
1.11 "FDA" shall mean the United States Food and Drug Administration.
1.12 "Field of Use" shall mean the administration to humans of Licensed
Product for the treatment or prevention of: (a) any dermatological disease or
condition including, without limitation, atopic dermatitis, keloids/hypertrophic
scars, pustular psoriasis and scleroderma, but excluding any cancer disease or
condition, (b) any infectious disease or condition including, without
limitation, fungal, viral and bacterial infections, (c) osteopetrosis, (d)
chronic granulomatous disease, (e) pulmonary fibrosis, and (f) asthma.
Notwithstanding the foregoing, the Field of Use shall not include the
administration to humans of Licensed Product for the treatment or prevention of
any type of arthritis or cardiac or cardiovascular disease or condition, or use
of Licensed Product for any indication or use in the field of oncology or
endocrinology. Each of Subsections 1.12 (a) through (f) inclusive shall
hereinafter each be referred to individually as an "Area of the Field of Use"
and together as the "Areas of the Field of Use."
1.13 "Finished Product" shall mean Interferon Gamma-1B supplied in
vialed form as 100 micrograms of Interferon Gamma-1B protein in a 0.5 ml fill
volume and as described in the Supply Agreement, manufactured in compliance with
Good Manufacturing Practices and intended for commercial sale to treat CGD and
osteopetrosis and for clinical studies.
1.14 "Fully Burdened Non-human Interferon Gamma Manufacturing Cost"
shall mean
4
<PAGE> 5
the cost of Genentech's production and testing of Non-human Interferon Gamma,
which shall be comprised of the sum of: [1]
1.15 "Gene Therapy" shall mean the therapeutic or prophylactic
treatment of a human being with: (a) one or more oligonucleotides or nucleotide
sequences, in native form or chemically modified, which are introduced into the
body in free form, bound to a carrier molecule, contained in any molecular
vesicle (e.g. a liposome), incorporated into or attached to a vector of any
type, contained in any cellular construct and/or contained in any mechanical
device or (b) cells which have been manipulated ex vivo using one or more
oligonucleotides or nucleotide sequences.
1.16 "Genentech Knowhow" shall mean all proprietary information,
methods, processes, techniques and data that are in the possession or control of
Genentech on the Effective Date or thereafter during the term of this Agreement,
that Genentech is free to license or sublicense, that have not been publicly
disclosed, and that are specific and reasonably necessary for the use, sale,
offer for sale or importation of Interferon Gamma in the Field of Use in the
Territory, but shall not include information regarding the manufacture of
Interferon Gamma.
1.17 "Genentech Manufacturing Knowhow" shall mean all proprietary
information, methods, processes, techniques and data that are in the possession
of Genentech at such time as Genentech determines or is required pursuant to the
terms of the Supply Agreement to make a manufacturing technology transfer to
Connetics, that are not generally known, and that are specific and reasonably
necessary for the manufacture of Interferon Gamma in the Field of Use in
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
5
<PAGE> 6
the Territory.
1.18 "Genentech Patent Rights" shall mean all patents and patent
applications and any patents issuing therefrom, together with any extensions,
reissues, reexaminations, substitutions, renewals, divisions, continuations and
continuations-in-part thereof (a) that are owned or controlled by Genentech
presently or hereafter, during the term of this Agreement, and under which
Genentech is free to license or sublicense, and (b) to the extent they claim or
directly relate to Interferon Gamma or its manufacture or use in the Field of
Use, including, without limitation, the patent rights granted under that certain
license agreement between Genentech and [1], dated July 16, 1990 (the "[1]
License"), but specifically excluding any rights granted to Genentech under the
[1] License. Genentech Patent Rights shall include, without limitation, the
patents and patent applications listed in Exhibit A attached hereto.
Notwithstanding the foregoing, Genentech Patent Rights shall exclude any rights
Genentech acquires after the Effective Date of this Agreement under third-party
license agreements, with the exception of those acquired under the [1] License,
unless and until the Parties mutually agree on terms and conditions for the
sublicense of such rights from Genentech to Connetics.
1.19 "IND" shall mean Investigational New Drug Application.
1.20 "Interferon Gamma" shall mean a polypeptide having the 126 amino
acid sequence set forth on Exhibit B or a variant of such sequence having at
least 70% homology
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
6
<PAGE> 7
thereto, or such polypeptide with one or more additional amino acid residue(s)
extending from the N-terminus thereof and/or one or more additional amino acid
residue(s) extending from the C-terminus thereof, such polypeptides including,
without limitation, Interferon Gamma-1B.
1.21 "Interferon Gamma-1B" shall mean a single chain polypeptide
containing the 140 amino acid sequence set forth on Exhibit C hereto, i.e., the
active ingredient in the ACTIMMUNE? (Interferon Gamma-1B) Injection product.
1.22 "Licensed Product" shall mean any pharmaceutical formulation
containing Interferon Gamma whether alone or together with or incorporated into
any other substance or product or material or device, whether active or not, and
which (i) but for the licenses granted hereunder, the manufacture, use, sale,
offer for sale or importation of which in the Territory would infringe or
contribute to the infringement of Genentech Patent Rights in the Territory, or
(ii) is based upon or incorporates or utilizes Genentech Knowhow. For purposes
of clarification, it is understood that this definition shall not include any
pharmaceutical formulation which induces the presence or activity of Interferon
Gamma in vivo, or the DNA encoding Interferon Gamma for Gene Therapy, or other
biological techniques aimed at establishing or modulating endogenous Interferon
Gamma in vivo.
1.23 "NDA" shall mean New Drug Application.
1.24 "NDC" shall mean National Drug Code.
1.25 "Net Sales" shall mean, as to each calendar quarter, the gross
invoiced sales prices charged for all Licensed Products sold by Connetics and
its sublicensees in arm's length transactions to independent third parties
during such quarter, after deduction of the following items paid by Connetics
and its sublicensees during such calendar quarter with respect to sales of
7
<PAGE> 8
Licensed Products regardless of the calendar quarter in which such sales were
made, provided and to the extent that such items are incurred or allowed and do
not exceed reasonable and customary amounts in the market in which such sales
occurred:
[1]
Notwithstanding the foregoing, no deduction shall be made for bad debt
expense.
1.26 "Party" shall mean Genentech or Connetics, and, when used in the
plural, shall mean both of
them.
1.27 "PLA" shall mean Product License Application.
1.28 "Territory" shall mean the United States of America and its
territories and possessions.
1.29 "Transfer Date" shall mean, unless otherwise mutually agreed to by
the Parties, the last day of the second full calendar month following the first
delivery by Connetics to Genentech of Connetics' labeling and packaging
materials for Genentech's use in labeling and packaging Finished Product,
pursuant to a purchase order submitted by Connetics and accepted by Genentech,
to be sold commercially by Connetics for treatment of CGD, provided that the
activities set forth on Exhibit H have been completed.
2.0 LICENSE GRANT
2.1 Patent and Knowhow License Grant
(a) Genentech grants to Connetics an exclusive license, even
as to Genentech,
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
8
<PAGE> 9
under Genentech Patent Rights and under Genentech Knowhow to use, sell, offer
for sale and import (but not to make or have made) Licensed Products in the
Field of Use in the Territory, (excluding, with respect to the fields of (i)
scleroderma and (ii) infectious disease or condition caused by human
papillomavirus, Licensed Products containing any form of Interferon Gamma other
than Genentech Gamma Interferon (greek delta)3, as that term is defined in the
[1] License). Notwithstanding the foregoing, Genentech reserves the right to use
(but not to import, offer for sale or sell) Licensed Products within the Field
of Use for research purposes.
(b) Genentech grants to Connetics a non-exclusive license
under Genentech Patent Rights and under Genentech Knowhow to use, sell, offer
for sale and import (but not to make or have made) Licensed Products containing
any form of Interferon Gamma other than Genentech Gamma Interferon (greek
delta)3 (as that term is defined in the [1] License) in the Territory in the
fields of: (i) scleroderma and (ii) infectious disease or condition caused by
human papillomavirus.
(c) Genentech grants to Connetics a non-exclusive sublicense
under the [1] License Rights to use, sell, offer for sale and import Licensed
Products (excluding Licensed Products containing [1] Gamma Interferon (greek
delta)0 as that term is defined in the [1]License) in the Territory in the
fields of scleroderma and infectious disease or condition caused by human
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
9
<PAGE> 10
papillomavirus.
(d) Genentech grants to Connetics a non-exclusive license
under Genentech Patent Rights to make or have made Licensed Products in the
Field of Use for use and sale in the Territory.
(e) Genentech grants to Connetics a non-exclusive license
under Genentech Patent Rights and Genentech Knowhow to use non-human animal
species derived homologues of Interferon Gamma (Non-human Interferon Gamma) for
non-commercial research purposes to support the Field of Use in the Territory.
Except as expressly granted herein, there are no implied
licenses under the Genentech Patent Rights or any other intellectual property
rights owned or controlled by Genentech.
2.2 Trademark License Grant
(a) Genentech hereby grants to Connetics a non-exclusive,
royalty-free license to use the trademark, ACTIMMUNE, for the advertising,
promotion, marketing, distribution and sale of Licensed Products in the
Territory. Connetics shall have the right to grant sublicenses to such
non-exclusive license, subject, however, to the prior written consent of
Genentech, which consent shall not be unreasonably withheld. Genentech agrees
not to grant any other licenses to use the ACTIMMUNE trademark without the
consent of Connetics, which consent shall not be unreasonably withheld.
(b) Use of the Mark. In using the ACTIMMUNE mark, Connetics
shall display said mark in upper case letters or otherwise display it in a style
or size of print
10
<PAGE> 11
distinguishing the mark from any accompanying wording or text. Where feasible,
Connetics shall display the registration symbol (R) to the right of and slightly
above or below the last letter of the word, ACTIMMUNE. Prior to any new use by
Connetics of the ACTIMMUNE mark on product packaging or package inserts for the
Licensed Products, Connetics shall notify and provide Genentech with an example
of the proposed use for approval by Genentech, which approval shall not be
unreasonably withheld or delayed. Such additional use, with respect to the
ACTIMMUNE mark, shall automatically become a part of the license grant under
Section 2.2(a) above.
(c) Quality Control. If Connetics uses the ACTIMMUNE mark for
Licensed Products, such products shall be of at least the quality described in
the Specifications therefor as defined in the Supply Agreement.
(d) Ownership. Connetics hereby acknowledges Genentech's
exclusive right, title and interest in and to the ACTIMMUNE mark and agrees that
it will not at any time do, or cause to be done, any act or thing contesting or
in any way impairing or intending to impair the validity of and/or Genentech's
exclusive right, title and interest in and to the ACTIMMUNE mark. Connetics will
not in any manner represent that it owns the ACTIMMUNE mark and hereby
acknowledges that its use of the ACTIMMUNE mark as set forth in Section 2.2(b)
above shall not create any rights, title or interest in or to the ACTIMMUNE mark
in its favor, but that all use of the ACTIMMUNE mark by Connetics shall inure to
the benefit of Genentech.
2.3 Sublicenses.
(a) Connetics may grant sublicenses under the rights granted
in Section 2.1(d)
11
<PAGE> 12
on thirty (30) days prior written notice to Genentech, subject to Genentech's
prior written approval, which approval shall be at Genentech's sole discretion.
Genentech agrees that [1] is acceptable to Genentech as a Connetics'
sublicensee under the rights granted in Section 2.1(d) for the purpose of
manufacturing and supplying Bulk Product and/or Finished Product to Connetics,
and/or to its sublicensees under Sections 2.1(a), (b) and (c). In the event that
Genentech approves the grant of a sublicense under Section 2.1(d), Genentech may
in its sole discretion, or as agreed by the Parties in the Supply Agreement,
agree to grant to Connetics and such approved sublicensee a non-exclusive
license under Genentech Manufacturing Knowhow solely to make or have made
Licensed Products for use and sale by Connetics and its sublicensees in the
Field of Use in the Territory, and Genentech shall thereafter disclose to
Connetics and such sublicensee such Genentech Manufacturing Knowhow as soon as
reasonably possible.
(b) Connetics may grant one or more sublicenses under the
rights granted in Sections 2.1(a), (b), (c) and (e) in any applicable Area of
the Field of Use, on thirty (30) days prior written notice to Genentech, subject
to Genentech's prior written approval, which approval shall not be unreasonably
withheld.
(c) Notwithstanding the above, Connetics may grant one
sublicense to InterMune (as defined in Section 3.1) under any or all of the
rights granted in Sections 2.1 and 2.2(a) above without Genentech's prior
written approval. InterMune (but no other sublicensee of Connetics) may grant
further sublicenses under Sections 2.1 and 2.2(a) to the extent that Connetics
has the right to do so pursuant to the provisions of this Section 2.3 and
Section 2.2(a).
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
12
<PAGE> 13
Connetics and InterMune shall give Genentech a copy of any sublicense agreement
entered into by either of them with a third party pursuant to this Agreement as
soon as reasonably possible after execution, provided that Connetics and
InterMune may each redact from such copies text of information or provisions
that are not relevant to this Agreement and the rights and obligations of the
Parties hereunder. Genentech agrees to permit InterMune to perform Connetics'
rights and obligations under Section 2.2(b), (c) and (d), Section 2.5, Sections
3.1 through 3.8 and Article 4.0 of this Agreement (excluding matters related to
any alleged breach of the Agreement, or dispute between the Parties concerning
the performance of this Agreement, under such enumerated Sections and Article),
to the extent such rights and obligations are sublicensed to InterMune by
Connetics, and Genentech agrees to deal with InterMune in lieu of Connetics as
if it were Connetics hereunder for purposes of performance under such enumerated
Sections and Article, provided that Connetics shall remain liable and
responsible for performance of all of the obligations of Connetics and InterMune
under this Agreement. In the event that Connetics sublicenses all of its rights
under Section 2.1 and 2.2(a) to InterMune pursuant to a written sublicense which
provides that InterMune (and not Connetics) shall make, have made, use, sell,
offer for sale, import and develop Licensed Products in all Areas of the Field
of Use in the Territory, then Genentech agrees to permit InterMune to also
perform Connetics' rights and obligations under Articles 5.0 and 6.0 and
Sections 8.2 through 8.8 of this Agreement (excluding matters related to any
alleged breach of the Agreement, or dispute between the Parties concerning the
performance of this Agreement, under such enumerated Sections and Articles), and
Genentech also agrees to deal with InterMune in lieu of Connetics as if it were
Connetics
13
<PAGE> 14
hereunder for purposes of performance under such enumerated Sections and
Articles, provided that Connetics shall remain liable and responsible for
performance of all of the obligations of Connetics and InterMune under this
Agreement. In the event that InterMune sublicenses any of its rights to a third
party pursuant to this Agreement, such sublicensee shall not have the right to
perform the rights and obligations of Connetics or InterMune under the Sections
and Articles enumerated above, and Genentech shall not have any obligation to
deal directly with such sublicensee. Notwithstanding the above provisions of
this Section 2.3(c), with respect to any dispute concerning InterMune's
performance, or alleged breach by InterMune, of any applicable term of this
Agreement, Genentech shall have the right to deal directly with Connetics, and
to proceed either against InterMune or directly against Connetics, in
Genentech's sole discretion, to enforce this Agreement.
(d) In the event of the grant of any sublicense by Connetics
(including such grant to InterMune) or by InterMune, the sublicensee shall be
subject to all of the applicable obligations of Connetics hereunder. Connetics
guarantees to Genentech the performance of Connetics' applicable obligations
hereunder by Connetics' sublicensees and by InterMune's sublicensees.
2.4 Grant Back License. Connetics hereby grants to Genentech under any
Connetics Patent Rights and Connetics Knowhow, a nonexclusive, sublicenseable
license in the Territory to make, have made, use, sell, offer for sale and
import Interferon Gamma for any use outside of the Field of Use, with a royalty
rate of [1] payable to Connetics on net sales of Interferon Gamma by Genentech,
its affiliates and its sublicensees covered by such Connetics Patent Rights or
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
14
<PAGE> 15
incorporating such Connetics Knowhow. Genentech shall have the right to grant
sublicenses under such license, subject to the prior written approval of
Connetics, which approval shall not be unreasonably withheld. The license
granted to Genentech under this Section 2.4 shall expire on the later of: (a)
the expiration of the last to expire of any Connetics Patent Rights or (b) if
Connetics Knowhow was used, twenty (20) years from the first commercial sale of
Interferon Gamma outside the Field of Use by Genentech, its affiliates or its
sublicensees hereunder. As used herein, "net sales" shall have the equivalent
definition given to Net Sales in Section 1.25 above.
2.5 Data Transfer and Cooperation
(a) Genentech shall provide Connetics with reasonable access
to all such relevant information and materials in its possession (subject to
Genentech's own internal reasonable needs for the information and materials)
that Connetics reasonably needs to develop and commercialize Licensed Products
in the Field of Use under the license granted to Connetics under Section 2.1
above. Connetics shall submit requests for such information to Genentech's
Clinical Collaborations Operations Department - Medical Affairs at the address
set forth at the beginning of this Agreement. Access to such information and
materials shall be made in a timely and orderly fashion and in a manner such
that the value of the accessed information is preserved in all material
respects.
(b) Connetics shall provide Genentech with reasonable access
to such relevant information and materials in its possession as is reasonably
necessary for Genentech to exercise the license rights granted by Connetics
under Section 2.4 and Genentech shall submit requests for
15
<PAGE> 16
such information to Connetics' Vice President - Intellectual Property at the
address set forth at the beginning of this Agreement. Access to such information
and materials shall be made in a timely and orderly fashion and in a manner such
that the value of the accessed information is preserved in all material
respects.
(c) Commencing on May 1, 1998 Connetics or its sublicensees
shall be responsible for any costs associated with maintaining the Genentech
breeding colony of interferon gamma gene knock-out mice at Charles River Labs
(the "Knock-Out Mice"). In consideration for Connetics paying these costs,
Genentech hereby transfers all ownership of such particular Knock-Out Mice to
Connetics, subject to Genentech's right to use such Knock-Out Mice and the
progeny thereof for Genentech's own research purposes to the extent such
Knock-Out Mice are not being used (or planned to be used) by Connetics or its
sublicensees. If Connetics and its sublicensees wish to discontinue the
maintenance of such Knock-Out Mice colony, Connetics shall give Genentech sixty
(60) days prior notice and the right to take over such maintenance, at
Genentech's sole discretion, before Connetics discontinues such maintenance.
Connetics acknowledges that Genentech has, prior to the Effective Date hereof,
transferred interferon gamma gene knock-out mice to other third parties.
(d) Connetics shall use its Best Efforts to obtain a license
from the FDA, which shall include obtaining a U.S. license number and an NDC
number, to enable the effective transfer from Genentech to Connetics of the PLA
for CGD on file with the FDA (the "CGD PLA"). Genentech shall use its Best
Efforts to assist such transfer, to the extent reasonably requested by
Connetics. Genentech also shall, before the Transfer Date, reasonably assist
16
<PAGE> 17
Connetics in initiating Connetics' sales of Licensed Product in the Area of the
Field of Use of CGD by transferring to Connetics information reasonably
requested by Connetics that relates to such sales efforts for CGD. Connetics
shall reimburse Genentech for all reasonable costs associated with Genentech's
providing of such information within ninety (90) days of Connetics' receipt of
an invoice of such cost from Genentech.
(e) Genentech shall transfer the CGD PLA, IND and copies of
all material correspondence with the FDA regarding such PLA and IND to Connetics
as soon as reasonably possible after the Effective Date of this Agreement and
Connetics shall be responsible for all activities, at its own cost, necessary to
maintain the CGD PLA and IND and keep them active with the FDA after such date.
Connetics shall reimburse Genentech for 50% of all reasonable costs associated
with Genentech's transfer of the CGD PLA, IND and such FDA correspondence within
ninety (90) days of Connetics' receipt of an invoice of such cost from
Genentech.
(f) Connetics shall not commence marketing and sales of
Finished Product prior to the Transfer Date. On the Transfer Date, Genentech
shall transfer to Connetics the responsibility for all marketing and sales of
Finished Product in the Field of Use in the Territory, provided that all the
activities listed on Exhibit H attached hereto are completed. The Parties shall
use Best Efforts to complete the tasks set forth on Exhibit H as expeditiously
as possible.
(g) Genentech shall provide Connetics with reasonable access
to relevant data and regulatory information in its possession in the form
existing as of the Effective Date, whether written or electronic, including all
clinical safety data and clinical efficacy data that are related to the
manufacture, use and sale of Interferon Gamma within the Field of Use and the
right to cross-
17
<PAGE> 18
reference Genentech's IND, ELA, and PLA information for Interferon Gamma in any
Genentech regulatory filings related to Interferon Gamma within the Field of
Use. Other than as expressly set forth herein, Genentech shall have no further
obligation with respect to Connetics' efforts to obtain the FDA license referred
to in Section 2.5(d) above. At Genentech's sole discretion, Genentech may
participate in regulatory filings in the Field of Use in the Territory if the
Parties agree that Genentech's participation in such regulatory filings would
expedite the approval and commercialization of a Licensed Product. Connetics
shall reimburse Genentech for all reasonable costs associated with Genentech's
providing of data and regulatory information and referencing within ninety (90)
days of Connetics' receipt of an invoice of such cost from Genentech. Connetics
shall submit requests for such information to Genentech's Clinical
Collaborations Operations Dept. - Medical Affairs at the address set forth in
the beginning of this Agreement. Such requests shall not be submitted more than
two (2) times in any twelve (12) month period, unless such requests concern
information that is critical to product registration activities. Access to such
information shall be made in a timely and orderly fashion and in a manner such
that the value of the accessed information is preserved in all material
respects.
(h) To the extent reasonably requested by Genentech, Connetics
shall provide Genentech with access to all data and regulatory information in
its possession, whether written or electronic, in the form existing as of the
date of Genentech's request, including all clinical safety data and clinical
efficacy data, that directly relates to the use of Interferon Gamma outside the
Field of Use and shall give Genentech the right to cross-reference Connetics'
IND, ELA, BLA and PLA information, if applicable, in any Genentech regulatory
filings that are related to the use or sale of Interferon Gamma outside the
Field of Use. Genentech shall reimburse Connetics for
18
<PAGE> 19
all reasonable actual costs associated with Connetics' providing of data and
regulatory information and referencing within ninety (90) days of the receipt of
an invoice of such cost by Genentech from Connetics. Such requests shall not be
submitted more than two (2) times in any twelve (12) month period, unless such
requests concern information that is critical to product registration
activities. Access to such information shall be made in a timely and orderly
fashion and in a manner such that the value of the accessed information is
preserved in all material respects.
(i) Commencing from Genentech's first delivery to Connetics or
Intermune of Finished Product for clinical studies in accordance with the Supply
Agreement, Connetics shall thereafter be responsible for supplying ACTIMUNE free
of charge to, and funding (if any) of, the third party sponsors of the clinical
studies listed in Exhibit D attached hereto and incorporated herein. Connetics
shall enter into clinical research agreements with such third party sponsors
governing such studies that commence after the Effective Date hereof. With
respect to clinical research agreements between Genentech and such sponsors in
effect prior to the Effective Date, Connetics shall replace Genentech, pursuant
to an assignment, as a party. ACTIMMUNE (and funding, if any) for all such
studies shall be supplied by Connetics to such sponsors as described in such
clinical research agreements.
(j) As of the Transfer Date, Connetics shall conduct an
indigent patient program for Licensed Products sold for use in the field of CGD.
As soon as reasonably possible after Genentech transfers information regarding
patients who have participated in Genentech's indigent patient program,
Connetics will inform Genentech whether or not such patients will be eligible
and participating in Connetics' indigent patient program.
19
<PAGE> 20
3.0 PRODUCT DEVELOPMENT AND MILESTONES
3.1 Commercialization Milestones.
(a) Connetics shall use its Best Efforts to develop, seek FDA
clearance for marketing of, commercialize and sell Licensed Products in the
Territory in all Areas of the Field of Use. The Parties acknowledge that a new
company, named InterMune Pharmaceuticals, Inc. ("InterMune"), has been
incorporated to conduct development and commercialization of Licensed Products
in the Field of Use pursuant to an appropriate sublicense from Connetics to
Intermune. Connetics agrees to perform the following Commercialization
Milestones no later than the date set forth below opposite the appropriate
Commercialization Milestone description:
<TABLE>
<CAPTION>
Commercialization Milestone Date of Completion
--------------------------- ------------------
<S> <C>
(a) Completion of the formation of InterMune May 1, 1998
(b) Execution of a sublicense agreement granting to InterMune rights,
as permitted in this Agreement, necessary to perform
development of Licensed Products in the Field June 1, 1998
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
(c) Closing of at least [1] in equity financing of InterMune by third
parties and/or Connetics July 15, 1998
(d) Closing of at least another additional [1] in equity financing of
InterMune by third
parties and/or Connetics September 1, 1998
(e) Enrollment and active participation of the first patient in the
first new clinical trial
for a Licensed Product in the Field
of Use in the Territory October 1, 1998
</TABLE>
(b) If Connetics fails to perform any of the Commercialization
Milestones described in 3.1 (a) through (e) inclusive by the applicable Date of
Completion for any reason within Connetics' control, then, notwithstanding the
termination provisions in Section 11.2 below, Genentech shall have the right to
terminate this Agreement and the licenses granted to Connetics hereunder, upon
written notice to Connetics, which termination shall become effective thirty
(30) days after Genentech's sending written notice of such termination, unless
such
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
21
<PAGE> 22
Commercialization Milestone has been completed prior to the expiration of such
thirty day period. If Connetics fails to perform any of the Commercialization
Milestones for causes beyond Connetics' control, Genentech shall not have the
termination rights above, provided that Connetics has mitigated such causes to
the extent it can reasonably do so. If Connetics fails to reasonably mitigate
such causes, Genentech will have the termination rights described above. In
addition, if Genentech exercises such termination rights above, Genentech shall
be automatically granted a co-exclusive (with Connetics and Connetics'
sublicensees), sublicenseable, royalty-free, worldwide license: (i) to the
result of efforts made by Connetics and its sublicensees in the development of
Licensed Products hereunder, (ii) to use all regulatory submissions made by
Connetics and its sublicensees hereunder, and (iii) under all Connetics Patent
Rights and Connetics Knowhow, arising from the efforts made by Connetics and its
sublicensees hereunder in the research and development of Licensed Products, to
make, have made, use, sell, offer for sale or import Licensed Products. Upon
Genentech's exercise of such termination right described above, Connetics shall
promptly provide Genentech with copies of all related documentation, whether
written or electronic, and materials, including biological materials, in the
form existing as of the effective date of such termination, reasonably necessary
for Genentech to exercise its license rights under this Section 3.1(b). Such
transfer shall be made in an orderly fashion and in a manner such that the value
in what is being transferred is preserved in all material respects. The
foregoing shall constitute Genentech's exclusive remedies for Connetics failure
to complete one or more of the Commercialization Milestones above, provided,
however, that Genentech's rights and remedies for breach of other provisions of
this Agreement, and under
22
<PAGE> 23
the Supply Agreement and the Stock Agreement, shall remain in full force and
effect.
3.2 Diligence
(a) Attached hereto as Exhibit E are Connetics' Clinical
Development Milestones (the "Clinical Development Milestones") for Licensed
Products in the Field of Use and the Dates of Completion for each such
milestone. Connetics shall use its Best Efforts to adhere to the Dates of
Completion as set forth in Exhibit E. Connetics shall notify Genentech in
writing when it achieves a Clinical Development Milestone.
(b) From time to time, Connetics may suggest modifications to
the Clinical Development Milestones based on new information. Such modifications
shall be effective only as mutually agreed upon, in writing, by the Parties.
Genentech shall consider such requested modifications in good faith and shall
agree to any modifications that are reasonably necessary to achieve the overall
objectives of the development of Licensed Product hereunder.
(c) In the event that Connetics determines that it will be
unable to meet any Date of Completion for a Clinical Development Milestone due
to an event within Genentech's control, including without limitation, delay in
the performance by Genentech of any of its obligations hereunder (e.g. the
transfer of technology or materials, including the supply of Interferon
Gamma-1B), Connetics shall give prompt notice to Genentech of such inability and
shall specify the amount of delay Connetics believes resulted from such event
within Genentech's control. Unless Genentech disagrees in writing on reasonable
grounds with the amount of such delay specified by Connetics, such Date of
Completion will automatically be extended by the length of time of the delay. In
the event Genentech disagrees in writing on reasonable grounds
23
<PAGE> 24
with the amount of delay specified by Connetics, the Parties shall negotiate a
new Date of Completion in good faith.
(d) In the event that Connetics determines that it will be
unable to meet any Date of Completion for a Clinical Development Milestone due
to an event which would be considered a force majeure (as described in Section
12.9), Connetics shall give prompt written notice to Genentech of such inability
and the length of the delay Connetics believes resulted from such force majeure.
Unless Genentech disagrees in writing on reasonable grounds with the length of
such delay specified by Connetics, such Date of Completion will be automatically
extended by such specified length of time of the delay. In the event Genentech
disagrees in writing on reasonable grounds with the length of delay specified by
Connetics, the Parties shall negotiate a new Date of Completion in good faith.
(e) In the event that Connetics determines that it will be
unable to meet any Date of Completion for a Clinical Development Milestone for
reasons other than (i) force majeure and/or (ii) an event within Genentech's
control, Connetics shall notify Genentech of such inability, identifying the
nature of the inability with reasonable specificity and may ask Genentech for a
reasonable extension of time in which to complete such Clinical Development
Milestone. In Genentech's sole discretion, Genentech may grant Connetics such an
extension to complete such Clinical Development Milestone.
(f) Except as set forth in Sections 3.2(c) or 3.2(d) or in the
event that Genentech shall have agreed to an extension of the time to complete a
Clinical Development Milestone as set forth in Section 3.2(e), if Connetics
fails to complete a Clinical Development Milestone by the corresponding Date of
Completion with respect to one or more of the Areas of
24
<PAGE> 25
the Field of Use (other than in the dermatological Area of the Field of Use as
described in Section 1.12(a) above) Genentech shall have the right to terminate
this Agreement with respect to such Area(s) of the Field of Use, by providing
Connetics written notice thereof, and the termination of the Agreement with
respect to such Area(s) of the Field of Use shall be effective thirty (30) days
after Connetics' receipt of such notice unless such Clinical Development
Milestone shall have been met prior to the expiration of such thirty (30) day
period, and such termination shall be Genentech's exclusive remedy for such
failure of Connetics to complete such Clinical Development Milestone. Upon such
termination of the Agreement with respect to such Area(s) of the Field of Use:
(i) Genentech shall automatically have all the rights set forth in Sections
11.3(a) and (b) solely with respect to such Area(s) of the Field of Use; and
(ii) any sublicense(s) granted by Connetics with respect to such Area(s) of the
Field of Use shall not automatically terminate, but instead, Genentech shall
have the option to either terminate or continue this Agreement with respect to
such Area(s) of the Field of Use with such sublicensee(s).
3.3 Review of Clinical Development Plan and Marketing Programs. On or
about each August 1 during the term of this Agreement, Connetics shall supply
Genentech with a report on Connetics' development and marketing programs for
Licensed Products in the Field of Use in the Territory. The report shall include
the following: (i) a description of Connetics' progress in such programs during
the twelve (12) months prior to the date of each such report, (ii) a description
of Connetics' planned development and marketing programs for the twelve (12)
months after the date of each such report, (iii) a copy of the most recent
version of the Clinical Development Milestones (if not previously provided to
Genentech), (iv) a copy of all previous versions of
25
<PAGE> 26
the Clinical Development Milestones (if not previously provided to Genentech),
(v) an explanation of any discrepancies between Connetics' progress during the
prior twelve (12) months and the Clinical Development Milestones and (vi) a
proposal to address such discrepancies, as contemplated under Section 3.2.
Genentech shall have the right to comment on the Clinical Development Milestones
and the development and marketing programs, and at Genentech's discretion, the
Parties shall meet to discuss and agree upon changes to the Clinical Development
Milestones.
3.4 New Delivery Forms. Connetics shall have the right to develop and
obtain regulatory approval for the marketing of new delivery forms of Interferon
Gamma for use in Licensed Products in the Field of Use in the Territory.
3.5 Costs of Development. Connetics shall be responsible for all
aspects and costs of development, regulatory approval and registration of
Licensed Products.
3.6 Joint Development and Marketing Activities. Upon written notice to
Genentech, Connetics and InterMune shall be permitted to discuss and enter into
agreements and participate in joint development and marketing activities for
Licensed Products in the Field of Use outside the Territory with other Genentech
Interferon Gamma licensees.
3.7 Compliance with Law and Safety and Adverse Event Reporting.
(a) Connetics shall conduct clinical trials hereunder, and
shall make, use, sell and distribute Licensed Products in accordance with all
applicable laws and regulations. Genentech and Connetics shall make available to
each other during the term of this Agreement all safety data obtained which
relates to the use of Licensed Products in the Field of Use. Connetics will
provide to Genentech's Medical Information and Drug Experience department at
26
<PAGE> 27
the time of filing a copy of each adverse event report or any report, including
summary reports, it is required to file under Title 21 or any other applicable
provision of the C.F.R. regarding Interferon Gamma. Genentech will provide
Connetics at the time of filing with a copy of each adverse event report or any
report, including summary reports, it is required to file regarding Interferon
Gamma under Title 21 or any other applicable provision of the C.F.R..
(b) Connetics shall maintain a safety database for all
Licensed Products and clinical trials conducted hereunder and shall submit to
regulatory agencies all adverse event and safety reports required to be filed
pursuant to Title 21 or any other applicable provision of the C.F.R. Connetics
shall also be responsible for providing product, medical and clinical
information regarding Licensed Product to its customers.
3.8 Clinical Development Reports. During the course of clinical
development of Licensed Products and clinical studies conducted by Connetics
hereunder, Connetics shall submit to Genentech the reports listed on Exhibit F
attached hereto and incorporated herein. Connetics shall submit such reports to
Genentech as promptly as reasonably practicable after such reports are completed
or such applicable information is available.
3.9 Technology Outside the Field of Use
(a) Upon mutual written amendment to this Agreement, the
Parties may expand the Field of Use, subject to the terms and conditions for
supply of Interferon Gamma 1-B set forth in the Supply Agreement, the payments
set forth in Sections 8.2 through 8.8 below inclusive and all other applicable
obligations of Connetics under this Agreement.
(b) Connetics may request an expansion of the Field of Use in
the Territory, by providing Genentech with a written letter of intent which
incorporates the terms and
27
<PAGE> 28
conditions specified in the Supply Agreement and Sections 8.2 through 8.8 of
this Agreement and sets forth a detailed clinical development plan and
reasonable proposed timeline (through FDA clearance) for developing the
additional medical indication(s) sought. Such letter of intent shall be deemed
Confidential Information of Connetics. Upon receipt of such letter of intent,
unless Genentech is conducting research in, or developing, Interferon Gamma for
such specified use, is already engaged in negotiations with a third party for
such specified use, or is prevented by prior written agreements to grant rights
to such additional indications to Connetics, Genentech shall negotiate
exclusively in good faith with Connetics, for a period of sixty (60) days on a
one time basis only for each such new indication outside the Field of Use, to
expand the Field of Use as proposed in the letter of intent on terms
substantially similar to those contained in this Agreement. If the Parties do
not reach mutual written agreement with respect to such proposed expansion of
the Field of Use within sixty (60) days, Genentech shall continue to have the
right to license its rights to such proposed additional indications for
Interferon Gamma outside the Field of Use to third parties other than Connetics,
provided that, for a period of six (6) months after the 60 day exclusive
negotiation period with Connetics, the milestone fee and royalty terms offered
by Genentech to third parties for such indications are not more favorable to
such third parties than those in the final offer made by Connetics.
(c) Prior to offering any third party an opportunity to obtain
any right or license under Genentech Patent Rights, Genentech Knowhow, or [1]
License Rights to use, sell, offer for sale or import Licensed Products for any
indication outside the Field of Use in the Territory, Genentech shall first
offer to Connetics to expand the Field of Use to include such
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
28
<PAGE> 29
indication, in accordance with Section 3.8(d) below. Such obligation to first
offer to Connetics such indication outside the Field of Use shall apply only to
the first time Genentech wishes to offer rights to another party to such
indication outside the Field of Use.
(d) Genentech may offer to expand the Field of Use by written
notice to Connetics ("Offer Notice"). Upon receipt of such Offer Notice,
Connetics shall have thirty (30) days to provide Genentech with a written letter
of intent which incorporates the terms and conditions specified in the Supply
Agreement and Sections 8.2 through 8.8 of this Agreement. Upon receipt of such
letter of intent, Genentech shall negotiate exclusively in good faith with
Connetics, for a period of thirty (30) days on a one time basis only for each
such new indication outside the Field of Use, to expand the Field of Use as
proposed in the letter of intent on terms substantially similar to those
contained in this Agreement. If the Parties do not reach mutual written
agreement with respect to such proposed expansion of the Field of Use within 30
days, Genentech shall continue to have the right to license its rights to such
proposed additional indications for Interferon Gamma outside the Field of Use to
third parties other than Connetics. To remain under consideration as a potential
licensee for such rights to Interferon Gamma outside the Field of Use, within
ninety (90) days of receipt of Genentech's Offer Notice, Connetics shall provide
Genentech with a detailed written clinical development plan and reasonable
proposed timeline for developing (through FDA clearance) the additional medical
indication(s) sought, which development plan shall be deemed the Confidential
Information of Connetics.
29
<PAGE> 30
4.0 Supply of Interferon Gamma-1B
4.1 Bulk Product and Finished Product. Genentech shall supply Connetics
with, and Connetics shall purchase, Bulk Product for clinical studies and for
sales of Licensed Product and Finished Product for commercial sale of Licensed
Product to treat CGD and osteopetrosis and for clinical studies, pursuant to the
terms and conditions of the Supply Agreement.
4.2 Supply of Non-human Interferon Gamma. Upon Connetics' reasonable
request and in Genentech's sole discretion, Genentech may choose to sell to
Connetics Non-human Interferon Gamma at a price equal to [1]. Notwithstanding
the foregoing, Genentech shall have no obligation to (a) provide any minimum
amount of Non-human Interferon Gamma to Connetics or (b) produce additional
amounts of Non-human Gamma Interferon in the event its current inventory is
depleted.
5.0 Intellectual Property Rights
5.1 Ownership. Genentech shall retain title to Genentech Patent Rights,
Genentech Knowhow, Genentech Manufacturing Knowhow, the ACTIMMUNE mark, and to
any patent rights and knowhow related to Interferon Gamma or Licensed Products
developed solely by Genentech. Connetics shall retain title to Connetics Patent
Rights and Connetics Knowhow and to any patent rights and knowhow related to
Interferon Gamma and Licensed Products developed solely by Connetics. Except as
expressly provided herein, each Party shall own and shall have the exclusive
right to exploit all intellectual property rights owned or acquired by such
Party.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
30
<PAGE> 31
5.2 Patent Prosecution and License Fees
(a) With the exception of Genentech Patent Rights under the
[1] License, Genentech shall be responsible for the prosecution and maintenance
of the Genentech Patent Rights in the Territory at Genentech's expense, in
consultation with Connetics. Genentech shall be responsible for the prosecution
and maintenance and outside counsel fees associated therewith of the Genentech
Patent Rights under the [1] License in the Field of Use in the Territory at
Connetics' expense, upon prior consultation with and approval from Connetics,
which approval shall not be unreasonably withheld or delayed. Genentech shall
keep Connetics promptly informed of the status of prosecution of Genentech
Patent Rights in the Territory, including providing copies of all material
correspondence with the U.S. Patent and Trademark Office. Connetics shall have
the right to comment upon such prosecution and Genentech agrees to take such
comments into consideration reasonably in advance of any action taken by
Genentech in such prosecution.
(b) Connetics shall assist Genentech in prosecuting and
maintaining the Genentech Patent Rights as contemplated by Section 5.2(a) above.
(c) At least thirty (30) days prior to the time each benchmark
payment of [1] under the [1] License becomes due during the term of this
Agreement, Genentech shall notify Connetics of such payment due and Connetics
shall have the option of paying such benchmark
- ------------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
31
<PAGE> 32
payment, on Genentech's behalf, when due to [1]. In the event that Connetics
chooses not to pay the benchmark payment when due, Connetics shall so notify
Genentech and Genentech shall have the option of paying such benchmark payment.
If Genentech pays such benchmark payment, Connetics shall reimburse Genentech
for such payment within thirty (30) days of receipt of Genentech's request for
reimbursement.
5.3 Patent Infringement
(a) If either Party learns that a third party is infringing
Genentech Patent Rights or Connetics Patent Rights, it shall promptly notify the
other in writing. The Parties shall use reasonable efforts in cooperation with
each other to stop such patent infringement without litigation.
(b) Genentech and Connetics each shall have the first
opportunity to take the appropriate steps to remove the infringement of its own
Patent Rights which claim Interferon Gamma and/or its manufacture or use in the
Field of Use including, without limitation, initiating suit. In either case, if
such Party decides not to take such steps with respect to its own Patent Rights
within one hundred twenty (120) days of discovering or being notified of the
infringement, the other Party may do so. Each of the Parties agrees to provide
reasonable assistance to the other in taking such steps. Any legal action taken
under this section will be at the expense of the Party by whom suit is filed and
will be controlled by the Party bringing suit. The Party not bringing suit may
choose to be represented in any such action by counsel of its own choice at its
own expense. The Party bringing suit shall be reimbursed for its costs
associated with bringing suit with the proceeds of any damages or costs
recovered. Any monies remaining
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
32
<PAGE> 33
shall be split between the Parties on an equitable basis proportional to their
respective damage from the infringement. If both Parties bring suit, equitable
apportionment of the costs and damages to be recovered shall be agreed upon
before the filing of the suit.
5.4 Third Party Rights. If a notice of infringement is received by, or
a suit is initiated against, either of Connetics or Genentech with respect to
Licensed Products or the ACTIMMUNE mark, the Parties will in good faith discuss
the best way to respond.
5.5 Trademark Infringement
(a) If either Party learns that a third party is infringing
the ACTIMMUNE mark, it shall promptly notify the other in writing. The Parties
shall use reasonable efforts in cooperation with each other to stop such
trademark infringement without litigation.
(b) Genentech shall have the first opportunity to take the
appropriate steps to remove the infringement of the ACTIMMUNE mark, including,
without limitation, initiating suit. If Genentech decides not to take such steps
within one hundred twenty (120) days of discovering or being notified of the
infringement, Connetics may do so. Each of the Parties agrees to provide
reasonable assistance to the other in taking such steps. Any legal action taken
under this section will be at the expense of the Party by whom suit is filed and
will be controlled by the Party bringing suit. The Party not bringing suit may
choose to be represented in any such action by counsel of its own choice at its
own expense. The Party bringing suit shall be reimbursed for its costs
associated with bringing suit with the proceeds of any damages or costs
recovered. Any monies remaining shall be split between the Parties on an
equitable basis proportional to their respective damage from the infringement.
If both Parties bring suit,
33
<PAGE> 34
equitable apportionment of the costs and damages to be recovered shall be agreed
upon before the filing of the suit.
5.6 [1] License. If Genentech receives notice that it has acquired any
Genentech Patent Rights under the [1] License after the Effective Date of this
Agreement, Genentech shall notify Connetics in writing of such additional rights
as soon as reasonable after Genentech receives such notice.
6.0 Product Promotion
6.1 Promotion. Genentech agrees, and shall require its sublicensees, if
any, to agree, not to promote Interferon Gamma or a Licensed Product in the
Field of Use in the Territory. Connetics agrees, and shall require its
sublicensees to agree, not to promote Interferon Gamma or a Licensed Product
outside the Field of Use or outside the Territory.
6.2 Encroachment. In the event that either Party becomes aware of
spillover sales of Interferon Gamma by Genentech that is used within the Field
of Use or of Licensed Product by Connetics that is used outside the Field of
Use, the Parties shall meet and agree in good faith on reasonably appropriate
steps (a) to abate such encroachment and (b) to compensate the Party which has
suffered encroachment in its field of use by such spillover sales.
7.0 Confidentiality
In the course of performance of this Agreement, one Party may disclose
to the other or
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
34
<PAGE> 35
receive information from the other relating to the subject matter of this
Agreement which information shall be considered to be the disclosing Party's
confidential information, if in the case of a written disclosure, it is
designated as confidential at the time of disclosure, or if in the case of oral
disclosure, the specific nature of the oral disclosure and its confidentiality
is confirmed in writing to the other Party within thirty (30) days of the oral
disclosure (the "Confidential Information"). Each Party shall protect and keep
confidential and shall not use, publish or otherwise disclose to any third
party, except as permitted by this Agreement or with the other Party's written
consent, the other Party's Confidential Information for a period of five (5)
years from the date of termination of this Agreement if it is terminated at any
time within five (5) years after the Effective Date of this Agreement, otherwise
for a period of three (3) years from date of termination or expiration of this
Agreement. A Party may disclose the other Party's Confidential Information to
its sublicensees hereunder, provided that such sublicensees are subject to
obligations of confidentiality at least equivalent to those set forth in this
Article 7. The Parties shall consult prior to the submission of any manuscript
for publication to determine if the publication will contain any Confidential
Information of the other Party. Such consultation shall include providing a copy
of the proposed manuscript to the other Party at least forty-five (45) days
prior to the proposed date of submission to a publisher, incorporating
appropriate changes proposed by the other Party into the manuscript submission
and deleting all of the other Party's Confidential Information which such Party
does not agree to the publication thereof. The foregoing notwithstanding,
Confidential Information may be disclosed: (a) during any official proceeding
before a court or governmental agency if reasonably related to that proceeding;
(b) as
35
<PAGE> 36
a part of a patent application filed on inventions made under this Agreement,
provided that the Party whose Confidential Information is included in such
application shall have the opportunity to review such disclosure at least
fifteen (15) business days prior to the date of such filing and such Party does
not object to such disclosure; and (c) as may be reasonably required to comply
with applicable governmental laws or regulations. For the purposes of this
Agreement, Confidential Information shall not include such information that:
(i) was known to the receiving Party at the time of
disclosure;
(ii) was generally available to the public or was
otherwise part of the public domain at the time of
disclosure or became generally available to the
public or otherwise part of the public domain after
disclosure other than through any act or omission of
the receiving Party in breach of this Agreement;
(iii) became known to the receiving Party after disclosure
from a source that had a lawful right to disclose
such information to others; or
(iv) was independently developed by the receiving Party
without the use of Confidential Information of the
other Party, as evidenced by written records.
If Connetics sublicenses any of its rights hereunder to InterMune pursuant to
this Agreement, Genentech and InterMune shall enter into a mutual
confidentiality agreement, substantially in the form of this Article 7.0, to
protect confidential information that may be disclosed by InterMune to
Genentech.
36
<PAGE> 37
8.0 Up-front Payment, Milestone Payments and Royalties
In consideration for the licenses granted to Connetics by Genentech
pursuant to Section 2.0 above, Connetics shall make the following payments to
Genentech:
8.1 Up-front Payment. Connetics shall issue to Genentech upon the
Original Closing Date (as defined in the Stock Agreement) shares of Connetics
Common Stock ("Original Issuance Shares" as defined in the Stock Agreement) with
a fair market value equal to two million dollars ($2,000,000), on the terms and
conditions set forth in the Stock Agreement. If, on the Second Closing Date (as
defined in the Stock Agreement), the aggregate market value of the Original
Issuance Shares (based on the Second Issuance Price (as defined in the Stock
Agreement)) is less than four million dollars ($4,000,000), Connetics shall
issue to Genentech upon the Second Closing Date the number of additional shares
of Connetics Common Stock (the ?Second Issuance Shares," as defined in the Stock
Agreement) equal to the lesser of: (i) the number of shares necessary to
increase the aggregate market value of the Original Issuance Shares (based on
the Second Issuance Price) plus the Second Issuance Shares (based on the Second
Issuance Price) to four million dollars ($4,000,000) or (ii) the number of
shares necessary to increase the aggregate number of the Company's shares of
Common Stock held by Genentech (exclusive of any shares that Genentech has
purchased from parties other than the Company) to 9.9% of the Company's total
outstanding shares of Common Stock as of the close of business on the third
trading day before the Second Closing Date, on the terms and conditions set
forth in the Stock Agreement. In lieu of all or any portion of the Second
Issuance Shares that the Company is obligated to issue to Genentech on the
Second Closing Date, the Company may elect to pay Genentech the cash value of
such Second Issuance Shares (based on the Second Issuance Price).
37
<PAGE> 38
The Original Closing and the Second Closing of the stock issuances shall take
place as described in the Stock Agreement. In the event that Connetics does not
issue to Genentech all of the Second Issuance Shares or the cash value of the
Second Issuance Shares, Genentech may, in addition to other remedies available
to it by law or in equity, immediately terminate this Agreement and the licenses
granted to Connetics hereunder. Such termination by Genentech of the Agreement
and the licenses hereunder does not discharge Connetics' obligation to issue all
of the Second Issuance Shares or to pay to Genentech the cash value of the
Second Issuance Shares. The up-front payment shall not be creditable against any
royalty payments owed by Connetics under Sections 8.3 and 8.4 below.
8.2 Milestone Payments for Licensed Products. Connetics shall make the
following cash milestone payments to Genentech:
(a) [1] within thirty (30) days following the dates on which
each of the first three (3) NDA's or BLA's for a Licensed Product is filed with
the FDA by Connetics for a new indication in the Field of Use; provided however,
that such milestone payments shall not be paid upon the filing of a NDA or BLA
for an osteopetrosis or atypical mycobacterial infection indication.
(b) [1] within thirty (30) days following the date Connetics
receives FDA clearance of each new indication for a Licensed Product for
commercial sale in the United States; provided however, that such milestone
payment shall not be paid upon receipt of FDA clearance for an osteopetrosis or
atypical mycobacterial infection indication.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
38
<PAGE> 39
(c) [1] within thirty (30) days following the first date
Connetics' aggregate Net Sales of all Licensed Products in the Territory exceed
[1] in any calendar year.
(d) [1] within thirty (30) days following the first date
Connetics' aggregate Net Sales of all Licensed Products in the Territory exceed
[1] in any calendar year.
Notwithstanding the foregoing, upon the expiration or revocation of the
last remaining issued patent within the Genentech Patent Rights during the term
of this Agreement, each of the milestones payments set forth in (a)-(d) above
thereafter shall be reduced by fifty percent (50%). Milestone payments shall not
be creditable against any royalty payments owed under Sections 8.3 and 8.4
below.
8.3 Royalties. Connetics shall pay Genentech the following royalties on
Net Sales of Licensed Products by Connetics and its sublicensees:
(a) For annual aggregate Net Sales of all Licensed Products in
the Territory of up to three million seven hundred thousand dollars
($3,700,000), a royalty rate equal to [1] of such Net Sales.
(b) In addition to the payment of the royalty rate specified
in (a) above, for annual aggregate Net Sales of all Licensed Products in the
Territory exceeding three million seven hundred thousand dollars ($3,700,000), a
royalty rate equal to [1] of such Net Sales
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
39
<PAGE> 40
exceeding $3,700,000.
(c) The above royalties shall be payable until the later of:
(i) the expiration or revocation of the last remaining issued patent within the
Genentech Patent Rights or (ii) twenty (20) years from the Effective Date of
this Agreement. Notwithstanding the foregoing, upon the expiration of the last
to expire issued patent within the Genentech Patent Rights during the term of
this Agreement, thereafter each of the royalty rates set forth in (a) and (b)
above shall be reduced by fifty percent (50%).
8.4 Third-Party Royalties. If Genentech or Connetics is required to pay
any third party a royalty due to the manufacture, use, sale, offer for sale or
importation of a Licensed Product in the Territory for or by Connetics or its
sublicensees, Connetics shall be responsible for the payment of [1] of such
third-party royalty, provided however, that Connetics may deduct from the
royalties payable to Genentech under Section 8.3 above [1] of such third party
royalties incurred only due to use patents in the Field of Use in the Territory,
up to a maximum total deduction of [1] percentage points from the royalties
payable by Connetics to Genentech under Section 8.3. For purposes of
clarification, such deductions shall not apply to any benchmark payment under
the [1] License made by Connetics pursuant to Section 5.2(c) above. Attached
hereto as Exhibit G is a list of all such royalty obligations to third parties
known to Genentech as of the Effective Date without diligent search. No later
than thirty (30) days from the Effective Date, Genentech shall complete a
reasonable internal investigation of its records and update Exhibit G, as
necessary, to accurately reflect all such royalty obligations to third parties
to the
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
40
<PAGE> 41
best of Genentech's knowledge; provided however, Connetics acknowledges that
Genentech has no obligation to conduct due diligence or any investigation with
respect to third party patent rights related to Licensed Products. Genentech
shall notify Connetics in writing during the term of this Agreement if it
becomes aware of any additional Genentech third party royalty obligations.
8.5 Royalty Payments. Royalty payments shall be made to Genentech
quarterly within ninety (90) days following the end of each calendar quarter for
which royalties are due. Each royalty payment shall be accompanied by a report
summarizing the total Net Sales during the relevant three-month period, and the
calculation of royalties, if any, due thereon pursuant to Section 8.3.
8.6 Taxes. Genentech shall pay any and all taxes levied on account of,
or measured by, any payment, including, without limitation, royalties, it
receives under this Agreement.
8.7 Termination. If the license granted to Connetics herein is
terminated by the Parties, Connetics shall have no obligation to make any
milestone or royalty payments to Genentech that has not accrued prior to the
effective date of such termination, but shall remain liable for all such
payments accruing prior to termination.
8.8 Records and Reporting
(a) Records. Connetics and any sublicensee of Connetics shall
keep full, true and accurate books of account containing all particulars which
may be necessary for the purpose of showing Net Sales. Said books of account
shall be kept at the principal place of business of Connetics or its
sublicensee, as the case may be. Said books and the supporting data shall be
41
<PAGE> 42
open at all reasonable times, for three (3) years following the end of the
calendar year to which they pertain (and access shall not be denied thereafter,
if reasonably available), to the inspection of an independent public accountant
retained by Genentech and reasonably acceptable to Connetics (or its
sublicensee) for the purpose of verifying Net Sales under this Agreement;
subject to the provisions of Section 8.8(c) below
(b) Reports. Connetics shall within ninety (90) days after the
end of each calendar quarter beginning with the quarter of the first commercial
sale of Licensed Product in the Field of Use in the Territory by Connetics or
its sublicensee, deliver to Genentech a true and accurate report, setting forth
such particulars of the business conducted by Connetics and its sublicensees
during the preceding quarter as are pertinent to an accounting for Net Sales and
deductible expenses under this Agreement. Such reports shall include at least
the following: (i) the total gross sales of Licensed Products occurring during
that calendar quarter, (ii) the allowable deductions therefrom, (iii) the total
Net Sales of Licensed Products occurring during that calendar quarter and (iv)
the calculation of royalties, if any, due thereon pursuant to the above Section
8.3.
(c) Auditing. At Genentech's request and expense, Connetics
shall permit a certified public accountant selected by Genentech and acceptable
to Connetics to examine, not more than once in any four consecutive calendar
quarters during the term of this Agreement, but including one (1)
post-termination audit, Connetics' books of account and records of all sales of
Licensed Products by Connetics for the sole purpose of determining the
correctness of the reports provided by Connetics under the above Section 8.8(b).
If such accountant reasonably
42
<PAGE> 43
determines that the royalties owed by Connetics to Genentech under the above
Section 8.3 have been, for any calendar year in total, understated by Connetics,
Connetics shall immediately pay all understated royalties, together with
interest on such royalties from the date accrued at a rate of [1] and shall pay
the reasonable costs of the examination if Connetics has understated such
royalties by more than [1].
9.0 Representations and Warranties
9.1 Disclaimer. Except as expressly provided herein, the Parties
disclaim all other representations and warranties, express or implied, including
without limitation, WARRANTIES OF COMMERCIAL UTILITY, MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, VALIDITY OR SCOPE OF GENENTECH PATENT RIGHTS or
NON-INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
9.2 Representations and Warranties.
(a) Each party represents and warrants to the other that: (a)
it is free to enter into this Agreement; (b) in so doing it will not violate any
other agreement to which it is a party; (c) it is currently capable of making
the grant of rights described in Sections 2.1(a), (b), (c), (d), 2.2 and 2.4;
and (d) it will not enter into any agreement in the future which conflicts with
or violates any term or provision of this Agreement. Genentech makes no
representation or warranty that all intellectual property rights necessary for
Connetics to make, have made, use, sell, offer for sale and import Licensed
Products in the Field of Use in the Territory have been granted to Connetics
under Section 2.0 of this Agreement.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
43
<PAGE> 44
(b) Connetics further represents and warrants that, prior to
the Effective Date of this Agreement, Connetics' officers (acting under
delegated authority of its Board of Directors) have determined that the fair
market value of the exclusive license granted to Connetics hereunder is less
than $15,000,000 and therefore that the execution and delivery of this exclusive
license Agreement, or the performance of the obligations by Genentech or
Connetics hereunder, do not require that filings be made under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or under the
rules or regulations promulgated thereunder, by Connetics, Genentech, or their
respective affiliates or ultimate parent entities, if any.
(c) Genentech represents and warrants to Connetics that as of
the Effective Date: (i) to Genentech's knowledge, it has not received any notice
of a claim by a third party for infringement of such third party's intellectual
property relating to the use and practice of the Genentech Knowhow, the
Genentech Manufacturing Knowhow, the Genentech Patent Rights or the [1] License
Rights; and (ii) to the knowledge of Genentech's patent counsel, there is no
issued patent that would be infringed by the practice of the Genentech Knowhow,
the Genentech Manufacturing Knowhow or the Genentech Patent Rights as permitted
under the license rights granted under Section 2.1; and (iii) it has no
knowledge of any actual infringement by any third party in the Field of Use in
the Territory of the Genentech Patent Rights.
10.0 Liability
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
44
<PAGE> 45
10.1 Limitation of Liability. Neither Party shall be liable to the
other for indirect, incidental, special or consequential damages arising out of
any of the terms or conditions of this Agreement or with respect to their
performance or lack thereof.
10.2 Connetics Indemnification. Connetics shall indemnify, defend and
hold harmless Genentech and its affiliates from and against all third party
costs, claims, suits, expenses (including reasonable attorneys' fees) and
damages arising out of or resulting from: (a) any willful or negligent act or
omission by Connetics relating to the subject matter of this Agreement or (b)
the use by or administration to any person of a Licensed Product, Bulk Product
or Finished Product that was sold, distributed or otherwise provided to a third
party by Connetics or its sublicensees under this Agreement; except where such
costs, claims, suits, expenses or damages arose or resulted from any negligent
act or omission by Genentech or any defect in the manufacture of Bulk Product or
Finished Product by Genentech that was not discovered by Connetics, provided
that Genentech gives reasonable notice to Connetics of any such claim or action,
tenders the defense of such claim or action to Connetics and assists Connetics
at Connetics' expense in defending such claim or action and does not compromise
or settle such claim or action without Connetics' prior written consent.
10.3 Genentech Indemnification. Genentech shall indemnify, defend and
hold harmless Connetics, its affiliates and sublicensees from and against all
third party costs, claims, suits, expenses (including reasonable attorney's
fees) and damages arising out of or resulting from: (a) any willful or negligent
act or omission by Genentech relating to the subject matter of this Agreement;
(b) any defect in the manufacture of Bulk Product or Finished Product by
Genentech that was not discovered by Connetics; or (c) the use by or
administration to any
45
<PAGE> 46
person of a product containing Interferon Gamma sold, distributed or otherwise
provided to a third party by Genentech or its sublicensees; except where the
foregoing costs, claims, suits, expenses or damages arose or resulted from (i)
any negligent act or omission by Connetics or (ii) the use by or administration
to any person of a Licensed Product sold, distributed or otherwise provided by
Connetics or its sublicensees other than resulting from a defect in the
manufacture of such Licensed Product by Genentech, provided that Connetics gives
reasonable notice to Genentech of any such claims or action, tenders the defense
of such claim or action to Genentech and assists Genentech at Genentech's
expense in defending such claim or action and does not compromise or settle such
claim or action without Genentech's prior written consent.
11.0 Term and Termination
11.1 Term. This Agreement shall commence on the Effective Date of this
Agreement and, unless terminated earlier, shall expire at the later to occur of
(a) the expiration of the last to expire of any Genentech Patent Rights or (b)
twenty (20) years from the Effective Date of this Agreement; provided, however,
that in the event that either the [1] License or the [1] License is
terminated, the licenses granted by Genentech to Connetics under the [1]License
or the [1]License shall also terminate. Genentech shall use its Best Efforts to
keep the [1]License and the
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
46
<PAGE> 47
[1]License in effect during the term of this Agreement, provided, however, that
if Connetics declines to pay a [1] benchmark payment as outlined in Section
5.2(c) or pay any royalty owed to [1] under the [1] License for the sales of
Licensed Products, then Genentech shall not be obligated to make such payment
and Genentech shall have the option, in its sole discretion, to terminate the
[1] License. One year before the expiration of this Agreement under this
Section 11.1, the Parties agree to meet and to discuss in good faith extending
the term of this Agreement on terms mutually agreeable to the Parties.
11.2 Termination for Default. If either Party shall default in a
material manner with respect to any material provision of this Agreement and the
other Party shall have given the defaulting Party written notice of such
default, the defaulting Party shall have thirty (30) days to cure such default.
If such default is not cured within such thirty (30) day period, the
non-defaulting Party shall have the right, upon notice to the defaulting Party
and without prejudice to any other rights the non-defaulting Party may have, to
terminate this Agreement unless the defaulting Party is in the process of
attempting in good faith to remedy such default, in which case, the thirty (30)
day cure period shall be extended by an additional thirty (30) days. If
Genentech terminates this Agreement pursuant to this Section 11.2, Genentech
shall automatically have all of the rights set forth in Sections 11.3(a) and (b)
of this Agreement. Upon
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
47
<PAGE> 48
such termination, any sublicenses granted under this Agreement shall not
automatically terminate, but instead, Genentech shall have the option to either
terminate or continue this Agreement with each sublicensee. If Connetics
terminates this agreement pursuant to this Section 11.2, Connetics shall
automatically have all of the rights set forth in Section 11.4 of this
Agreement. Connetics shall have no right to terminate this Agreement pursuant to
this Section 11.2 in the event of Genentech's failure to supply Bulk Product or
Finished Product. In the event of Genentech's failure to supply Bulk Product or
Finished Product, Connetics shall have the rights set forth in the Supply
Agreement.
11.3 Genentech's Rights on Termination
(a) If Genentech terminates this Agreement pursuant to Section
11.2 above, Genentech shall be automatically granted a nonexclusive,
sublicenseable, license in the Territory under Connetics Patent Rights and
Connetics Knowhow arising from the efforts made by Connetics and its
sublicensees hereunder in the research and development of Licensed Products, to
make, have made, use, sell, offer for sale or import Licensed Products and shall
be automatically granted a right to use all of Connetics' regulatory submissions
made by or on behalf of Connetics for Interferon Gamma and Licensed Products. If
Genentech sells a commercial product under the license granted in this Section
11.3 that would, but for the license granted herein, infringe a claim of such
Connetics Patent Rights or that is based upon, incorporates or utilizes such
Connetics Knowhow, Genentech shall pay Connetics a royalty, under terms and
conditions to be mutually agreed upon by the Parties, such royalty to be
commensurate with the value contributed by such Connetics Patent Rights and
Connetics Knowhow to such commercial product, but in no event shall such royalty
exceed two percent (2%) of Genentech's net sales of
48
<PAGE> 49
such commercial product. As used herein, "net sales" shall have the equivalent
definition given to Net Sales in Section 1.25 above.
(b) Upon the effective date of termination by Genentech
pursuant to Section 11.2 above, Connetics shall promptly provide Genentech with
copies of all related documentation regarding Connetics Patent Rights and
Connetics Knowhow arising from the efforts made by Connetics and its
sublicensees hereunder in the research, development and manufacture of Licensed
Products, whether written or electronic, and materials, including biological
materials, in the form existing as of the effective date of such termination,
reasonably necessary for Genentech to exercise its license rights under Section
11.3(a) above. Such transfer shall be made in a timely and orderly fashion and
in a manner such that the value of what is being transferred is preserved in all
material respects. Connetics shall promptly take all appropriate and necessary
actions, including action before the involved regulatory agency, to effect
transfer to Genentech of, and shall also permit Genentech to reference, any FDA
submissions, including, without limitation, any PLA or BLA filed with the FDA
with respect to Licensed Products. Within ninety (90) days of such assignment
and completion of all such appropriate and necessary actions, Genentech will
reimburse Connetics for its actual expenses incurred in preparing documentation
for filing or referencing the submission and in taking such appropriate and
necessary action related to such transfer or referencing.
11.4 Connetics' Rights on Termination. Should Connetics terminate this
Agreement pursuant to Section 11.2 above, Genentech shall grant to Connetics (a)
an exclusive, sublicenseable, royalty-bearing license, according to royalty
terms described in Sections 8.3 and 8.4 within the Field of Use in the
Territory, under terms and conditions agreed upon by the
49
<PAGE> 50
Parties, under the Genentech Patent Rights and Genentech Knowhow in order to
permit Connetics to continue using, selling, offering for sale and importing
Licensed Products in the Field of Use in the Territory (excluding, with respect
to the fields of scleroderma and infectious disease or condition caused by human
papillomavirus, Licensed Products containing any form of Interferon Gamma other
than Genentech Gamma Interferon (greek delta)3, as that term is defined in the
[1] License), (b) a non-exclusive, sublicenseable, royalty-bearing license,
(conforming to the license grant in Section 2.1 (b) above) according to royalty
terms described in Sections 8.3 and 8.4 in the Territory , under terms and
conditions agreed upon by the Parties, under the Genentech Patent Rights and
Genentech Knowhow in order to permit Connetics to continue using, selling,
offering for sale and importing Licensed Products containing any form of
Interferon Gamma other than Genentech Gamma Interferon (greek delta)3 (as that
term is defined in the [1] License) in the Territory in the fields of
scleroderma and infectious disease or condition caused by human papillomavirus,
(c) a non-exclusive, sublicenseable license (the royalty for which is already
included in clause (a) above) in the Territory in the fields of scleroderma and
infectious disease or condition caused by human papillomavirus, under terms and
conditions agreed upon by the Parties, under the [1] License Rights in order to
permit Connetics to continue using, selling, offering for sale and importing
Licensed Products (except those Licensed Products containing [1] Gamma
Interferon (greek delta)0) in the field of scleroderma and infectious disease or
condition caused by human
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
50
<PAGE> 51
papillomavirus in the Territory and (d) a non-exclusive sublicenseable license
(the royalty for which is already included in clause (a) above) under Genentech
Patent Rights and Genentech Manufacturing Knowhow in order to permit Connetics
to continue making and having made Licensed Products in the Field of Use in the
Territory.
11.5 Bankruptcy. Either Party may, in addition to any other remedies
available to it by law or in equity, terminate this Agreement, in whole or in
part as the terminating Party may determine, by written notice to the other
Party in the event the other Party shall have become bankrupt, or shall have
made an assignment for the benefit of its creditors or there shall have been
appointed a trustee or receiver of the other Party or for all or a substantial
part of its property or any case or proceeding shall have been commenced or
other action taken by or against the other Party in bankruptcy or seeking
reorganization, liquidation, dissolution, winding-up, arrangement, composition
or readjustment of its debts or any other relief under any bankruptcy,
insolvency, reorganization or other similar act or law of any jurisdiction now
or hereafter in effect and any such event shall have continued for sixty (60)
days undismissed, unbonded and undischarged. All rights and licenses granted
under to this Agreement by one Party to the other Party are, and shall otherwise
be deemed to be, for purposes of Section 365 (n) of the Bankruptcy Code,
licenses of rights to "intellectual property" as defined under Section 101 (56)
of the Bankruptcy Code. The Parties agree that the licensing Party under this
Agreement shall retain and may fully exercise all of its rights and elections
under the Bankruptcy Code in the event of a bankruptcy by the other Party. The
Parties further agree that in the event of the commencement of a bankruptcy
proceeding by or against one Party under the Bankruptcy Code, the other Party
shall be entitled to complete access to any such intellectual property
pertaining to
51
<PAGE> 52
the rights granted in the licenses hereunder of the Party by or against whom a
bankruptcy proceeding has been commenced and all embodiments of such
intellectual property.
11.6 Unilateral Termination. In addition to any other right of
termination provided herein, Connetics shall have the right to terminate this
Agreement for any reason, with or without cause upon six (6) months' prior
written notice to Genentech. If Connetics terminates this Agreement pursuant to
this Section 11.6, Connetics agrees that for the following three (3) years it
will not use, sell or acquire from any third party (whether by license or
otherwise) any Licensed Product in the Field of Use. If Connetics terminates
this Agreement pursuant to this Section 11.6, the licenses granted hereunder
shall terminate and Genentech shall automatically have all of the rights set
forth in Sections 11.3(a) and (b) of this Agreement.
11.7 Survival of Certain Provisions. Termination of this Agreement for
any reason shall not release either Party from any obligation arising prior to
the date of termination. The provisions of Sections 1.0, 2.4 (except in the
event of termination of this Agreement by Connetics pursuant to Section 11.2),
11.3(a) and (b) (except in the event of termination of this Agreement by
Connetics pursuant to Section 11.2), 11.4 (except in the event of termination of
this Agreement by Genentech pursuant to Section 11.2), and Articles 5.0, 7.0,
9.0, 10.0, 11.0 (except as provided in this paragraph) and 12.0 shall survive
any termination of this Agreement.
12.0 General Provisions
12.1 Notices. All notices which may be required pursuant to this
Agreement: (i) shall be in writing, (ii) shall be addressed, in the case of
Genentech (except as otherwise specified herein), to the Corporate Secretary at
the address set forth at the beginning of this Agreement,
52
<PAGE> 53
and in the case of Connetics, to the Vice President - Intellectual Property at
the address set forth at the beginning of this Agreement, (or to such other
person or address as either Party may so designate from time to time), (iii)
shall be mailed, postage-prepaid, by registered mail or certified mail, return
receipt requested, or transmitted by courier for hand delivery or transmitted by
facsimile and (iv) shall be deemed to have been given on the date of receipt if
sent by mail or on the date of delivery if transmitted by courier or facsimile.
Notices by facsimile may be sent to the following numbers: for Connetics, to
(650) 843-2899; for Genentech, to (650) 952-9881.
12.2 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of California (other than its choice of
law principles).
12.3 Entire Agreement. This Agreement is the entire agreement between
the Parties, and there are no prior written or oral promises or representations
not incorporated herein or therein, except that certain Confidentiality
Agreement between the Parties dated January 9, 1997 which shall remain in full
force and effect. This Agreement shall supersede and replace the Prior Agreement
in its entirety, and the Prior Agreement shall be terminated automatically as of
the Effective Date. No amendment or modification of the terms of this Agreement
shall be binding on either Party unless reduced to writing and signed by an
authorized officer of the Party to be bound.
12.4 Binding Effect and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their respective
permitted successors and assigns. This Agreement shall not be assignable by
either Party without the other's prior written consent, provided however, that
either Party may assign this Agreement, without the other Party's written
consent but after providing thirty (30) days prior written notice to the other
Party, to any
53
<PAGE> 54
successor pursuant to a consolidation or merger of such Party with or into any
other corporation or corporations that results in a change of greater than 50%
of the voting control of such Party, or a sale, conveyance or disposition of all
or substantially all of the assets of such Party or the effectuation by such
Party of a transaction or series of related transactions in which more than 50%
of the voting power of such Party is disposed of.
12.5 Waiver. The waiver by a Party hereto of any breach of or default
under any of the provisions of this Agreement or the failure of a Party to
enforce any of the provisions of this Agreement or to exercise any right
thereunder shall not be construed as a waiver of any other breach or default or
as a waiver of any such rights or provisions hereunder.
12.6 Severability. If any part of this Agreement shall be invalid or
unenforceable under applicable law, such part shall be ineffective only to the
extent of such invalidity or unenforceability, without in any way affecting the
remaining parts of this Agreement. In addition, the part that is ineffective
shall be reformed in a mutually agreeable manner so as to as nearly approximate
the intent of the Parties as possible.
12.7 Publicity. Connetics and Genentech agree that, except as may
otherwise be required by applicable laws, regulations, rules, or orders,
including the disclosure requirements of the Securities and Exchange Commission
("SEC"), no information concerning this Agreement and the transactions
contemplated herein (except information which is already in the public domain)
shall be made public by either Party without the prior written consent of the
other Party. Notwithstanding the foregoing, with respect to complying with the
disclosure requirements of the SEC, in connection with any required SEC filing
of this Agreement by Connetics, Connetics shall seek confidential treatment of
portions of this Agreement from the SEC and Genentech
54
<PAGE> 55
shall have the right to review and comment on such an application for
confidential treatment prior to its being filed with the SEC. Genentech shall
provide its comments, if any, on such application as soon as practicable and in
no event later than seven (7) days after such application is provided to
Genentech. To assist Connetics in its compliance with SEC disclosure
obligations, Genentech shall provide to Connetics, within fourteen (14) days of
the Effective Date, electronic copies of this Agreement (and all exhibits
hereto) and the Supply Agreement. In addition, notwithstanding the foregoing,
Connetics shall have the right to disclose information concerning this Agreement
and the transactions contemplated herein to its legal representatives, advisors,
prospective investors, investors, third party auditors, sublicensees and
prospective sublicensees hereunder to the extent reasonably necessary and under
obligations of confidentiality no less stringent than those provided for in
Article 7.0.
12.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original for all purposes, but
all of which together shall constitute one and the same instrument.
12.9 Force Majeure. Neither Party shall be liable to the other for its
delay or failure to perform under this Agreement or shall have any right to
terminate this Agreement for any such delay or failure in performance
attributable to any act of God, flood, fire, explosion, strike, lockout, labor
dispute, casualty or accident, war, revolution, civil commotion, act of public
enemies, blockage or embargo, injunction, law, order, proclamation, regulation,
ordinance, demand or requirement of any government or subdivision, authority or
representative of any such government, or any other cause beyond the reasonable
control of such Party, if the Party affected shall give prompt notice of any
such cause to the other Party. The Party giving such notice shall
55
<PAGE> 56
thereupon be excused from such of its obligations, hereunder for the period of
time that it is so disabled.
12.10 Headings. Headings are for the convenience of reference only and
shall not control the construction or interpretation of any of the provisions of
this Agreement.
12.11 No Partnership. Nothing in this Agreement is intended or shall be
deemed to constitute a partnership, agency, employer-employee, or joint venture
relationship between the Parties.
[SIGNATURE PAGE TO FOLLOW]
56
<PAGE> 57
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed by its duly authorized representatives as of the date set forth above.
GENENTECH, INC. CONNETICS CORPORATION
By: /s/ Nick Simon By: /s/ Thomas G. Wiggans
Name: Nick Simon Name: Thomas G. Wiggans
Title: V.P., Business and Title: President and CEO
Corporate Development
57
<PAGE> 58
EXHIBIT A
PATENT APPLICATIONS AND PATENTS INCLUDED IN GENENTECH PATENT RIGHTS
<TABLE>
<CAPTION>
U.S. SERIAL NUMBER U.S. PATENT NUMBER
------------------ ------------------
<S> <C>
08/460,524 pending
08/460,539 pending
5,690,925
5,582,824
5,151,265
5,200,177
5,112,605
5,196,191
5,096,705
5,574,137
5,248,499
</TABLE>
55
<PAGE> 59
EXHIBIT B
[1]
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
56
<PAGE> 60
EXHIBIT C
[1]
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
57
<PAGE> 61
EXHIBIT D
THIRD PARTY SPONSORED STUDIES
[1]
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
58
<PAGE> 62
EXHIBIT E
CLINICAL DEVELOPMENT MILESTONES
[1]
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
59
<PAGE> 63
EXHIBIT F
CLINICAL REPORTS
The following information/reports will be provided to Genentech in a timely
manner:
o FDA Meeting Minutes
o IND(s)
- - Initial
- - Updates (if applicable)
o Annual Report(s)
o Investigator Brochure(s)
o Clinical Studies:
- - Protocol(s)
- - Prior to FDA submission
- - First Patient-In (FPI)
- - First Patient-Out (FPO)
- - Last Patient-In (LPI)
- - Last Patient-Out (LPO)
o Serious Adverse Event (SAE) Summary
o Clinical Study Interim Analysis and Update(s)
(if applicable)
o Go/No-Go Decision Minutes
o Clinical Study Final Report(s)
- - Draft
- - Final Copy
<PAGE> 64
EXHIBIT G
THIRD PARTY ROYALTIES
Royalties are payable under the [1] License, as follows (capitalized terms
shall have the meanings defined in the [1] License): a [1] royalty is payable
on Net Sales of gamma interferon in Approved Countries in the Territory for the
prophylaxis or treatment of atopic dermatitis and/or steroid-dependent asthma,
where there is substantial protection from an issued Licensed Patent for the
approved indication and where the Licensee has enjoyed Market Exclusivity. The
royalty rate is [1] on Net Sales in the Licensed Field in Approved Countries
where the Licensee enjoyed Market Exclusivity but where there is no substantial
patent protection, or while the Licensed Patent applications covering the
indication are still pending, provided that such applications have been
diligently prepared, filed and maintained. The royalty rates described above are
reduced by [1] for Approved Countries where the Licensee has not enjoyed Market
Exclusivity.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
<PAGE> 65
EXHIBIT H
TRANSFER DATE ACTIVITIES FOR COMMERCIAL
SALES OF ACTIMMUNE FOR CGD
Prior to the Transfer Date, as defined in Section 1.29 of this
Agreement, the following activities must be completed by the appropriate Party
as described below:
I. Regulatory Requirements
1. FDA License - Connetics must obtain all licenses,
including license numbers, required for the sale of
Actimmune for CGD by Connetics. Connetics shall also
obtain a NDC number.
2. PLA/IND Transfer - Genentech shall transfer to
Connetics the PLA and IND for CGD on file with the
FDA.
3. Connetics must obtain FDA review and approval, as
required by law or regulation, for Connetics' labels,
product insert and packaging for sale of Actimmune
for CGD.
4. Genentech shall transfer its safety information to
Connetics for Actimmune, as provided in Section
2.5(g) of this Agreement. Connetics shall establish a
safety database system for Actimmune, such that as of
the Transfer Date, Connetics shall be responsible for
all safety-related requirements under FDA
regulations, including the reporting of adverse
events.
5. Prior to the Transfer Date, Connetics shall establish
all procedures, controls and other methods and
capabilities needed in order to comply with all
requirements, laws and regulations applicable to the
use, distribution and sale of Actimmune for CGD.
II. Quality Control, Product Testing
1. To the extent that Connetics is required by law or
regulation to conduct any quality control, quality
assurance and/or stability testing of Actimmune sold
for CGD, in addition to any such testing to be
conducted by Genentech pursuant to the Supply
Agreement, Connetics shall establish procedures and
obtain regulatory approval to do so prior to the
Transfer Date.
III. Uninsured Patient Program
Connetics shall have established an uninsured patient program,
including procedures for determining patient eligibility.
Genentech shall transfer to Connetics its existing information
regarding such patients prior to the Transfer Date, to the
extent it has received consent from such patients to do so.
Connetics shall notify Gennetech prior to the Transfer Date
which of the patients participating in Genentech's uninsured
patient program, and for which Genentech
<PAGE> 66
has transferred information, shall receive drug under
Connetics' uninsured patient program.
IV. Product Distribution and Sale
1. Connetics shall establish product distribution and
inventory systems for Actimmune. Genentech will
provide to Connetics the name of its current
distributor.
2. Connetics shall establish systems and personnel
required to address customer inquiries, medical
information requests and product returns.
<PAGE> 1
EXHIBIT 10.3
NOTE: CERTAIN CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Supply Agreement
This Supply Agreement ("Agreement") is entered into as of May 5, 1998
(the "Effective Date") between Genentech, Inc., a Delaware corporation, with its
principal offices at 1 DNA Way, South San Francisco, California 94080
("Genentech") and Connetics Corporation, a Delaware corporation, with a
principal office at 3400 West Bayshore Road, Palo Alto, California 94303
("Connetics").
Genentech and Connetics are parties to that certain License Agreement
for Interferon Gamma of even date herewith (the "License Agreement"). Pursuant
to the terms and conditions of the License Agreement, Genentech has agreed to
supply Connetics with Interferon Gamma-1B, and Connetics has agreed to purchase
Interferon Gamma-1B from Genentech for clinical studies of and commercial sales
of Licensed Products containing Interferon Gamma-1B in the Field of Use in the
Territory. This Supply Agreement, which is referred to in Section 4.0 of the
License Agreement, describes the specific terms and conditions under which
Genentech will supply Interferon Gamma-1B to Connetics for such clinical use and
commercial sale.
Genentech and Connetics agree as follows:
1.0 Definitions
Unless specified otherwise below, the terms with initial capitalization
in this Agreement shall have the same meanings as those given to them in the
License Agreement. In addition, for the purposes of this Supply Agreement, the
following terms shall have the following meanings:
1.1 "Benchmark Costs" shall have the meaning defined in Section 2.6(e)
below.
1.2 "Bulk Product" shall mean Interferon Gamma-1B provided hereunder as
bulk
1
<PAGE> 2
protein manufactured in compliance with Good Manufacturing Practices, pursuant
to FDA regulatory approvals as applicable during the term of this Agreement, and
supplied to Connetics in such a form and in such containers as shall be mutually
determined by Genentech and Connetics and as described in the Specifications.
1.3 "Certificate of Analysis" shall mean a summary of the quality
control testing, as described in the Specifications, performed by Genentech for
Bulk Product and Finished Product supplied hereunder.
1.4 "Finished Product" shall mean Interferon Gamma-1B supplied in an
unlabeled vialed form as 100 micrograms of Interferon Gamma-1B protein in a 0.5
ml fill volume, manufactured in compliance with Good Manufacturing Practices,
pursuant to FDA regulatory approvals as applicable during the term of this
Agreement, and intended for commercial sale to treat CGD and osteopetrosis and
for clinical studies.
1.5 "Fully Burdened Manufacturing Cost" shall mean the cost of
Genentech's production, testing and (if applicable) labeling and packaging, of
Bulk Product and Finished Product, which shall be comprised of the sum of: [1].
1.6 "Fully Burdened Supply Cost" shall mean the cost to Genentech of
obtaining from a third party contract manufacturer Bulk Product or Finished
Product, or portion thereof, as the case may be, which Genentech supplies to
Connetics, which shall be comprised of [1].
1.7 "Specifications" shall mean those specifications set forth in
Exhibit A attached hereto and which is incorporated herein.
1.8 "Third Party Manufacturing Royalties" shall mean all royalties paid
or incurred by Genentech to third parties under licenses taken by Genentech with
respect to patents or patent
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
2
<PAGE> 3
applications that, but for such license(s), would be infringed by the
manufacture, use, sale, offer for sale or importation of Bulk Product or
Finished Product, which royalties are based on the manufacture and sale of Bulk
Product or Finished Product by Genentech (or its contract manufacturer) on
behalf of Connetics or its sublicensees, or by Connetics or its sublicensees (or
a contract manufacturer on their behalf). Attached hereto as Exhibit B is a list
of all such royalty obligations to third parties known to Genentech as of the
Effective Date without diligent search. No later than thirty (30) days from the
Effective Date, Genentech shall complete a reasonable internal investigation of
its records and update Exhibit B, as necessary, to accurately reflect all such
royalty obligations to third parties to best of Genentech's knowledge. Genentech
shall notify Connetics in writing during the term of this Agreement if it
becomes aware of any additional Third Party Manufacturing Royalties.
2.0 Supply of Products
2.1 Purchase and Sale of Bulk Product and Finished Product
During the term of this Agreement, and subject to the terms
and conditions of this Agreement, Genentech agrees to supply to Connetics, and
Connetics agrees to purchase from Genentech, quantities of Bulk Product for
clinical studies and commercial sales of Licensed Product, and Finished Product
for commercial sales of Licensed Product to treat CGD and osteopetrosis and for
clinical studies, pursuant to the License Agreement.
2.2 Product Requirement Forecasts and Production
3
<PAGE> 4
(a) By thirty (30) days after the date of execution of this
Agreement, Connetics shall provide Genentech with an eighteen (18) month advance
forecast of the expected quantity requirements, and timing of those
requirements, of Connetics and InterMune for Bulk Product and Finished Product.
Thereafter, Connetics shall provide rolling eighteen (18) month advance
forecasts at the end of each calendar quarter. Connetics agrees to use its Best
Efforts in preparing all forecasts. Forecasts shall include the amounts of Bulk
Product and Finished Product to be supplied by Genentech and the expected timing
for the delivery of each shipment during the forecast period. The Parties shall
discuss each of the forecasts and shall mutually agree in good faith on the
appropriateness of each forecast versus anticipated demand for Bulk Product and
Finished Product. Genentech shall have the right to review and approve all
forecasts submitted by Connetics and to make reasonable requests of Connetics to
modify such forecasts based on Genentech's anticipated production capabilities.
(b) Genentech will produce Bulk Product and Finished Product
to meet the mutually agreed upon forecasts, subject to the provisions of Section
2.3 below. Genentech will notify Connetics of all scheduled production activity
for Bulk Product or Finished Product. The timing of such production and final
vial fills will be dependent upon Genentech's requirements to utilize its
manufacturing facilities for its own uses and for other purposes, subject to
Genentech's obligation under Section 2.4(d) to use its Best Efforts to meet
delivery dates in accepted purchase orders.
2.3 Quantity Obligation Limit
(a) Genentech's obligation to supply Bulk Product and Finished
Product to Connetics shall be limited to a total maximum amount of [1] grams per
year of Interferon Gamma-1B supplied in the form of Bulk Product and Finished
Product. Of this total amount, Genentech shall be obligated to provide no more
than [1] grams per year of Interferon Gamma-1B
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
4
<PAGE> 5
as Finished Product unless otherwise agreed to by Genentech.
(b) Genentech's obligation to supply Bulk Product and Finished
Product to Connetics shall terminate pursuant to the provisions of Article 4.0
below.
2.4 Purchase Orders
(a) No later than thirty (30) days after the Effective Date,
Connetics shall place firm purchase orders for Finished Product and Bulk Product
required by Connetics for clinical studies through December 31, 1998 and firm
purchase orders for Finished Product and Bulk Product required by Connetics for
commercial sale for treatment of CGD through December 31, 1998. Each such
purchase order shall specify the precise quantity of Finished Product and Bulk
Product required. Genentech shall respond in writing as to its acceptance of
each firm purchase order within thirty (30) days of receipt of such order,
provided that Genentech may not withhold acceptance of any quantity of Finished
Product for commercial sale specified in the purchase order therefor that is not
more than [1] of the pro-rata quantity of Finished Product manufactured by
Genentech for commercial sale in the twelve months prior to the Effective Date,
and any portion of the order that is in excess thereof shall be accepted at
Genentech's discretion. The Parties agree that purchase orders for Finished
Product for clinical studies and Bulk Product for any use submitted pursuant to
this Section 2.4(a) shall be accepted by Genentech and scheduled for delivery as
soon as reasonably possible if Genentech has sufficient quantities of Finished
Product and Bulk Product in its inventory, or if no sufficient quantities of
Finished Product and Bulk Product exist in Genentech's inventory, at the
earliest time at which Genentech can reasonably supply such quantities of
Finished Product and Bulk Product specified in the purchase order taking into
account Genentech's available plant capacity and timing of its production of
Bulk Product and/or Finished Product. The Parties agree that Finished Product
for commercial sale ordered pursuant to this Section 2.4(a) shall be scheduled
for delivery at the earliest time at which Genentech can reasonably supply such
quantities of Finished Product specified in the purchase order taking into
account Genentech's available plant capacity and timing of its production, but
in no event later than the Transfer Date.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
5
<PAGE> 6
(b) For Bulk Product and Finished Product that Connetics
wishes to receive after December 31, 1998, Connetics shall place firm purchase
orders for Bulk Product and Finished Product with Genentech by August 1 of the
calendar year prior to the calendar year in which Bulk Product or Finished
Product will be produced. The firm purchase order shall specify the precise
quantity and form of Bulk Product or Finished Product required and the delivery
dates for deliveries of the specified quantities. Genentech shall promptly
acknowledge its receipt of purchase orders and shall use its Best Efforts to
meet the terms of a purchase order that it accepts, taking into account mutually
agreed upon forecasts under Section 2.2(a), available plant capacity and timing
of its production. Genentech shall respond in writing as to its acceptance of
each firm purchase order within thirty (30) days of receipt of such order
provided that Genentech may not withhold acceptance of a purchase order that is
within [1] of the quantity requirement listed in the most recent eighteen (18)
month forecast. Any portion of the order that is more than [1] greater or less
in quantity than the most recent corresponding eighteen (18) month forecast will
be accepted at Genentech's discretion. Notwithstanding the above, Connetics
shall have the right to submit one purchase order for Finished Product for
clinical studies only on or prior to December 31, 1998 for delivery by June 30,
1999, which shall be a replacement for the purchase order placed by Connetics on
or just prior to August 1, 1998 for Finished Product for clinical studies only.
Genentech shall accept such replacement purchase order provided that the
quantity of Finished Product for clinical studies specified in such purchase
order is within [1] of the quantity specified in the purchase order placed on or
just prior to August 1, 1998, and provided that sufficient Finished Product is
available in Genentech's inventory. If sufficient Finished Product is not
available in Genentech's inventory, Genentech shall accept such replacement
purchase order at its discretion, and subject to available plant capacity and
the timing of its production campaigns. If Genentech accepts such replacement
purchase order, Connetics shall pay for such Finished Product, and Bulk Product
if required to produce such Finished Product, at the prices provided in Section
2.6 below. After Genentech fills such replacement purchase order, it shall have
no further obligation to supply Finished Product to Connetics for clinical
studies. Once a
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
6
<PAGE> 7
specified quantity, form and delivery date terms have been agreed to by the
Parties in any purchase order placed pursuant to this Section 2.4(a), the
purchase order may not be canceled by either Party except as provided in this
Section 2.4 or in Section 3.3 below.
(c) The Parties acknowledge and agree that the yield of
product from each production lot run may vary. If Bulk Product is to be filled
as Finished Product pursuant to a purchase order, each lot of such Bulk Product
will be filled in multiple fill runs, and, due to shelf life, each lot of Bulk
Product must be completely filled within six (6) months of production.
(d) Genentech shall use Best Efforts to ship Bulk Product and
Finished Product to Connetics by the delivery date specified in the accepted
purchase order. If Genentech believes there will be a significant delay in
shipment of Bulk Product or Finished Product beyond the delivery dates specified
in any accepted purchase order, Genentech shall promptly inform Connetics of
such expected delay and shall use its Best Efforts to minimize the delay. In the
event that Genentech cannot deliver to Connetics the Bulk Product or Finished
Product conforming to the Specifications by the delivery dates in an accepted
purchase order, Connetics will have the following rights in lieu of the rights
provided in Section 4.2 below: (a) in the event that Genentech cannot deliver
the conforming Bulk Product or Finished Product to Connetics within ninety (90)
days after the delivery date specified in an accepted purchase order, Connetics
either may cancel such portion of the purchase order by written notice to
Genentech or may accept delivery at a later date specified by Genentech, but
subject to subsection (b) below; (b) if Genentech continues to fail to deliver
conforming Bulk Product or Finished Product within six (6) months of the
delivery date specified in an accepted purchase order, Connetics may terminate
this Agreement effective upon written notice given to Genentech, and after such
termination, Genentech will transfer Genentech Manufacturing Knowhow to
Connetics at Genentech's expense, and shall be deemed to have granted Connetics
a nonexclusive, sublicenseable license, under Genentech Manufacturing Knowhow to
make or have made Licensed Products in the Field of Use for use and sale by
Connetics and its sublicensees in the Territory.
2.5 Change Orders
7
<PAGE> 8
Except as set forth in Section 2.4(c) above, the time of
delivery and quantities specified in a purchase order accepted by Genentech
pursuant to Section 2.4(a) above shall be binding upon the Parties and may not
be changed or canceled, except as provided in Section 3.3 below.
2.6 Price
(a) Connetics shall pay for Bulk Product and Finished Product
supplied pursuant to this Agreement at the prices set forth below in Sections
2.6(b), 2.6(c) and 4.1, as applicable. All payments shall be made in the manner
set forth in Section 2.7 of this Agreement.
(b) Genentech shall sell Bulk Product to Connetics for
clinical studies at a price equal to [1]. Genentech shall sell Bulk Product to
Connetics for commercial sale of Licensed Products at a price equal to [1]. If
Genentech chooses to have a third party contract manufacturer produce or
contribute to the production of Bulk Product for clinical studies, Genentech
shall sell such Bulk Product to Connetics at a price equal to [1]. If Genentech
chooses to have a third party contract manufacturer produce or contribute to the
production of Bulk Product for commercial sale of Licensed Product, Genentech
shall sell such Bulk Product to Connetics at a price equal to [1].
(c) Genentech shall sell Finished Product to Connetics at a
price equal to [1]. If Genentech chooses to have a third party contract
manufacturer produce or contribute to the production of Finished Product,
Genentech shall sell such Finished Product to Connetics at a price equal to [1].
The size and form of the vials to be filled hereunder by Genentech shall be
those used by Genentech prior to the Effective Date for its ACTIMMUNE product.
All costs incurred by the Parties related to any change in such vials, or in
labels or packaging materials,
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
8
<PAGE> 9
shall be paid by Connetics.
(d) Genentech will label and package Finished Product vials,
pursuant to a firm purchase order accepted by Genentech as described in Section
2.4, provided, however, that Connetics shall supply all labels, inserts and
packaging materials to Genentech, at Connetics' sole cost. Genentech will label
and package such Finished Product vials at a price equal to [1]. If Genentech
chooses to have a third party contract manufacturer produce or contribute to the
labeling and packaging of Finished Product, Genentech shall sell such Finished
Product to Connetics at a price equal to [1].
(e) Genentech shall use its Best Efforts to maintain its Fully
Burdened Manufacturing Cost and its Fully Burdened Supply Cost for Bulk Product
and Finished Product that is manufactured and configured according to the
Specifications at or below the benchmark costs of [1] (the "Benchmark Costs").
The Parties agree that the Fully Burdened Manufacturing Cost, Fully Burdened
Supply Cost and Benchmark Costs are based upon Bulk Product and Finished Product
being produced in multiples of the following production lot size and fill
quantity, respectively: (i) a production lot size which has an expected yield of
[1] of Bulk Product (the actual yield of such lots may vary; the yield range,
observed to date, has been [1] of Bulk Product) and (ii) a filled vial quantity
of [1] for Finished Product. Adjustments to such Benchmark Costs of up to [1]
annually may be made for any increases in the Fully Burdened Manufacturing Cost
and Fully Burdened Supply Cost that are within Genentech's sole control. If
increases in the Fully Burdened Manufacturing Cost and Fully Burdened Supply
Cost, within Genentech's sole control, in any calendar year result in the Fully
Burdened Manufacturing Cost and/or Fully Burdened Supply Cost exceeding the
adjusted Benchmark Costs, Connetics shall pay to Genentech an amount equal to
[1] of the amount that exceeds the adjusted Benchmark Costs. Adjustments to
Benchmark Costs due to increases in the Fully Burdened Manufacturing Cost and
Fully Burdened Supply Cost that are not within the sole control of Genentech may
be
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
9
<PAGE> 10
made without regard to such [1] annual limit, including, without limitation,
any increases due to inflation, raw material costs, changes in the manufacturing
process required by the FDA, or changes in United States generally accepted
accounting principles.
(f) For any Third Party Manufacturing Royalties paid directly
by Connetics to Genentech hereunder, Genentech shall pay such amounts of Third
Party Manufacturing Royalties to the third party licensors to which such Third
Party Manufacturing Royalties are due and payable (provided Genentech has not
already made such payments prior to the time of such Connetics' payment).
2.7 Payment
Payment by Connetics shall be made within sixty (60) days after
Connetics' receipt of Genentech's invoice for the supply of Bulk Product or
Finished Product. Such invoice shall be submitted on or after delivery by
Genentech of Bulk Product or Finished Product to the carrier as provided in
Section 3.1. If within thirty (30) days after the delivery of Bulk Product or
Finished Product and the accompanying Certificate of Analysis to Connetics,
Connetics demonstrates non-conformance under Section 2.9 below and Genentech
agrees with such finding, which agreement shall not be unreasonably withheld,
Connetics shall not be obligated to pay for such non-conforming shipment of Bulk
Product or Finished Product. All payments to Genentech by Connetics under this
Agreement shall be made in United States dollars by wire transfer (or such other
reasonable means as Genentech may direct) to such United States bank account as
Genentech may designate from time to time. If a wire transfer is to be made,
Connetics shall provide notice at least five (5) days prior to the date of
transfer of the amount of payment and the date good funds will be received. Such
notice should be given to the Treasurer of Genentech at the address set forth at
the beginning of this Agreement or such other address as Genentech may
subsequently direct.
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
10
<PAGE> 11
2.8 Records; Audit Rights
(a) Genentech shall keep full, true and accurate books of
account containing all particulars which may be necessary for the purpose of
showing Fully Burdened Manufacturing Cost, Fully Burdened Supply Cost and Third
Party Manufacturing Royalties. Said books of account shall be kept at the
principal place of business of Genentech. Said books and the supporting data
shall be open at all reasonable times, for three (3) years following the end of
the calendar year to which they pertain (and access shall not be denied
thereafter, if reasonably available), to the inspection of an independent public
accountant retained by Connetics and reasonably acceptable to Genentech for the
purpose of verifying Fully Burdened Manufacturing Cost, Fully Burdened Supply
Cost and Third Party Manufacturing Royalties under this Agreement; provided,
however, that Connetics shall give Genentech reasonable prior notice of such
review by Connetics' independent public accountant and that such review shall
not take place more often than once a year. If such review reveals that
Connetics has overpaid Genentech for Bulk Product or Finished Product supplied
hereunder, Genentech shall refund to Connetics the amount of such overpayment,
plus interest thereon at the prime rate of interest as reported by Bank of
America in San Francisco, California at the time of such review. If such
overpayment is greater than [1] of the actual amount that should have been
charged to Connetics, then Genentech shall pay Connetics' actual costs of such
review.
(b) Connetics shall pay to Genentech [1] of Genentech's fully
burdened costs related to requests by Connetics to audit or inspect Genentech's,
or Genentech's third party contract manufacturer's, manufacturing facility, and
such audits or inspections may occur only for the purpose of compliance with
regulatory obligations. Connetics shall have the right to conduct such an audit,
or such an inspection, of Genentech's, or Genentech's third party contract
manufacturer's, manufacturing facility once every twenty-four (24) months from
the Effective Date hereof and no more frequently than in twenty-four (24) month
intervals, with at least ten
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
11
<PAGE> 12
(10) days prior written notice. Notwithstanding the above, for any audit or
inspection of Genentech's facilities for the purpose of complying with
regulatory obligations for the transfer to Connetics of the fill, labeling and
packaging of Bulk Product or Finished Product, Connetics shall pay [1] of
Genentech's fully burdened costs related to such audit or inspection. Connetics
may inspect or audit only those physical areas of Genentech's, or its contract
manufacturer's, facility that are directly involved in the manufacture of Bulk
Product or Finished Product, as applicable.
(c) Genentech shall pay to Connetics [1] of Connetics' fully
burdened costs related to requests by Genentech to audit or inspect Connetics',
or Connetics' sublicensees' or third party contract manufacturer's, quality
assurance and quality control records and facilities, and such audits or
inspections may occur only for the purpose of compliance with regulatory
obligations or of verifying the capability of Connetics to adequately test and
confirm conformity of Bulk Product and Finished Product with the Specifications.
Genentech shall have the right to conduct such an audit or inspection of
Connetics', or Connetics' sublicensees' or third party contract manufacturer's,
quality assurance and quality control facility and records once every
twenty-four (24) months from the Effective Date hereof and no more frequently
than in twenty-four (24) month intervals, with at least ten (10) days prior
written notice. Notwithstanding the above, for any audit or inspection of
Connetics' facilities for the purpose of complying with regulatory obligations
for the transfer to Connetics of the fill, labeling and packaging of Bulk
Product and Finished Product, Genentech shall pay [1] of Connetics' fully
burdened costs related to such audit or inspection. Genentech may inspect or
audit only those physical areas of Connetics', or of its sublicensees' or its
contract manufacturer's, facility that are directly involved in the quality
assurance and quality control of Bulk Product or Finished Product, as
applicable.
2.9 Non-Conforming Product
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
12
<PAGE> 13
(a) The Bulk Product and Finished Product supplied by
Genentech to Connetics hereunder shall be in conformance with the
Specifications. Non-conformance of Bulk Product and Finished Product shall be
proved by establishing non-conformity of the Bulk Product or Finished Product
delivered as compared to the Specifications. Any claim by Connetics of
non-conforming Bulk Product or Finished Product must be submitted to Genentech,
in writing, within thirty (30) days after the delivery of Bulk Product or
Finished Product and the accompanying Certificate of Analysis to Connetics,
accompanied by a report of Connetics' analysis (which analysis shall be
conducted in good faith) and a sample of the Bulk Product or Finished Product at
issue, explaining in reasonable detail the basis on which the allegedly
non-conforming Bulk Product or Finished Product does not meet the
Specifications. Only those tests listed in the Specifications may be used to
demonstrate non-conformance of Bulk Product or Finished Product.
(b) If after Genentech's own analysis of the sample (which
shall be conducted in good faith and completed within thirty (30) days after the
receipt by Genentech of the report and sample from Connetics, and the results of
which shall be provided to Connetics) Genentech agrees with the claim of
non-conformity, Connetics shall promptly inform Genentech if it wishes to have
Genentech replace the non-conforming Bulk Product or Finished Product with
conforming Bulk Product or Finished Product. If Connetics wishes to receive such
replacement Bulk Product or Finished Product, Genentech shall provide such
replacement as soon as reasonably practicable thereafter, in which case
Connetics shall be obligated to pay only for such replacement Bulk Product or
Finished Product. Connetics shall not be obligated to pay for the nonconforming
Bulk Product or Finished Product, and Genentech shall: (i) credit Connetics for
the amount paid by Connetics for the non-conforming Bulk Product or Finished
Product if Connetics has already paid for such non-conforming Bulk Product or
Finished Product or (ii) cancel its invoice to Connetics for such non-conforming
Bulk Product or Finished Product if Connetics has not yet paid for such
non-conforming Bulk Product or Finished Product, and
13
<PAGE> 14
Connetics shall not be obligated to pay such canceled invoiced amount. If, after
its own analysis, Genentech does not agree with the claim of non-conformity or
determines that Connetics is responsible for the non-conformity, the Parties
shall in good faith discuss and agree upon a settlement of the issue, and
Connetics shall not be obligated to pay for such alleged nonconforming Bulk
Product or Finished Product until such settlement is reached.
(c) If there are procedures by which Connetics, without
unreasonable effort, inconvenience or expense, can convert, or cause to be
converted, the non-conforming Bulk Product or Finished Product into conforming
Bulk Product or Finished Product, Connetics shall upon Genentech's request and,
if Genentech is responsible for the non-conformity, at Genentech's expense, do
so. If Connetics converts the non-conforming Bulk Product or Finished Product
into conforming Bulk Product or Finished Product, upon such conversion the Bulk
Product or Finished Product shall be deemed to be conforming Bulk Product or
Finished Product delivered hereunder on the date on which such conversion is
completed. If Genentech is responsible for the cost of such conversion pursuant
to this Section 2.9(c), unless the Parties shall have agreed on the cost of such
conversion in advance, Connetics shall provide to Genentech such evidence as
Genentech may reasonably need to substantiate such cost.
(d) After Genentech has agreed that Bulk Product or Finished
Product shipment is non-conforming, and if Parties have agreed that it cannot be
converted to conforming Bulk Product or Finished Product pursuant to Section
2.9(c) above and Genentech is responsible for the non-conformity, Connetics
shall return or destroy it at Genentech's request and cost in the most cost
effective and environmentally safe and appropriate manner available, consistent
with federal, state and local laws and regulations.
(e) If conforming Bulk Product or Finished Product supplied
under this Agreement becomes non-conforming or unsuitable for use in Licensed
Products at no fault of Genentech, Connetics will remain obligated to pay
Genentech for such Bulk Product or Finished Product at the prices set forth in
Section 2.6 or 4.1 as applicable. At Genentech's request, Connetics shall return
such unsuitable Bulk Product or Finished Product to Genentech.
14
<PAGE> 15
Otherwise, Connetics shall destroy it in the most environmentally safe and
appropriate manner available, consistent with federal, state and local laws and
regulations.
15
<PAGE> 16
3.0 Shipment of Bulk Product and Finished Product
3.1 Shipment
For each purchase order for Bulk Product or Finished Product
accepted by Genentech pursuant to Section 2.4, Genentech shall deliver Bulk
Product or Finished Product to Connetics to a single destination in the United
States chosen by Connetics. Such shipment will be by carrier identified by
Connetics. Title and risk of loss as to all Bulk Product and Finished Product
shall pass to Connetics at point of origin (FOB Genentech). Connetics shall be
responsible for all freight, freight brokerage, insurance and other costs
associated with shipping the Bulk Product or Finished Product hereunder.
3.2 Shipping Documents
As soon as reasonably possible after each shipment of Bulk
Product or Finished Product ordered and shipped pursuant to this Agreement,
Genentech shall forward to Connetics all customary documents concerning the
shipment, including Genentech's invoice relating to such shipment. A packing
list and, to the extent possible, a Certificate of Analysis will be included in
each shipment. Where it is not possible to include a Certificate of Analysis
with a shipment, Genentech shall use its Best Efforts to furnish the same to
Connetics as soon as reasonably possible.
3.3 Purchase Order Cancellation
Except as provided in Section 2.4(d) above, Connetics, on 60
days prior written notice to Genentech, may cancel any or all outstanding
purchase orders only in the event that:
(a) Connetics has first terminated this Supply Agreement
pursuant to Section 4.2 below; or
(b) a recall of the Bulk Product or Finished Product is
reasonably deemed
16
<PAGE> 17
necessary by Genentech, Connetics or the FDA.
(c) Connetics has entered into a written supply agreement with
a third party manufacturer, as described in Section 4.1 below.
For any cancellation of an outstanding purchase order, for any
reason, after the first step in production has begun, Genentech shall provide
Connetics with a written estimate of all expenses specifically incurred by
Genentech with regard to filling such purchase order as of the date of
cancellation. No later than ten (10) days after receipt of such estimate,
Connetics shall notify Genentech in writing as to whether it elects to: (i)
proceed with the order, at the prices set out in Section 2.6 or 4.1 as
applicable or (ii) compensate Genentech for all expenses specifically incurred
by Genentech with regard to filling such purchase order as of the date of
cancellation.
3.4 Governing Terms
All sales hereunder shall be subject to the provisions hereof
(including, without limitation, the Specifications) and shall not be subject to
the terms and conditions contained on any purchase order of Connetics or
confirmation of Genentech, except insofar as any such purchase order or
confirmation establishes:
(i) the quantity and form of any Bulk Product or Finished
Product ordered;
(ii) the shipment date;
(iii) the shipment routes and destinations; or
(iv) the carrier.
17
<PAGE> 18
3.5 Taxes
Connetics shall bear all applicable taxes such as sales, use,
value added or similar taxes. All payments from Connetics to Genentech under
this Agreement shall be made without setoff and without any deduction or
withholding for or on account of any taxes, duties, levies, imports, fees or
charges.
3.6 Compliance with Law
Connetics shall be responsible, at its expense, for complying
with all applicable regulatory requirements relating to its use, marketing or
sale of the Bulk Product or Finished Product supplied hereunder. Genentech shall
be responsible, at its expense, for complying with all applicable regulatory
requirements relating to the manufacture of the Bulk Product or Finished Product
supplied hereunder.
3.7 No Implied Representations, Warranties or Conditions
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN OR IN THE
LICENSE AGREEMENT, GENENTECH MAKES NO REPRESENTATIONS OR WARRANTIES AND THERE
ARE NO CONDITIONS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO
BULK PRODUCT OR FINISHED PRODUCT SUPPLIED HEREUNDER, INCLUDING, WITHOUT
LIMITATION, ANY REPRESENTATIONS, WARRANTIES OR CONDITIONS WITH RESPECT TO
NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF SUCH
BULK PRODUCT OR FINISHED PRODUCT.
3.8 Quality Control and Identity Test
(a) Each shipment of Bulk Product and Finished Product
hereunder shall have been manufactured in accordance with U.S. Good
Manufacturing Practices in a duly licensed
18
<PAGE> 19
facility and shall have been subject to a quality control inspection by
Genentech in accordance with the Specifications and with Genentech's then
current quality control standards and systems. Genentech shall number each Bulk
Product or Finished Product shipment with a vendor lot number that is traceable
to raw materials and/or components used to manufacture such Bulk Product and
Finished Product.
(b) Prior to any use or distribution by Connetics, Connetics
shall subject all Bulk Product and Finished Product to be so used or distributed
to Connetics' then current quality control review for Licensed Products which
shall be consistent with those quality control standards and systems in general
use in the pharmaceutical industry. Connetics shall identify Licensed Products
sold by it or its distributors with a vendor lot number and NDC number that is
traceable to the shipment of Bulk Product or Finished Product purchased from
Genentech. For each Bulk Product or Finished Product shipment, Connetics shall
maintain a complete record of the raw data associated with all material aspects
of the processing of Bulk Product or Finished Product performed by it or under
its direction until all Bulk Product or Finished Product from that shipment is
sold.
(c) All costs incurred by Genentech for the transfer to
Connetics of technical procedures, documents, assays and other materials and
information reasonably necessary for Connetics' quality
control procedures and other purposes hereunder shall be paid by Connetics.
(d) All costs incurred by the Parties' related to any changes
in the Specifications shall be paid by Connetics, including, without limitation,
changes in vial size, fill quantity, and development and validation of new
methodologies.
19
<PAGE> 20
4.0 Term; Termination
4.1 Term
The term of this Supply Agreement shall commence on the
Effective Date hereof and, unless terminated earlier pursuant to Section 2.4(d),
4.2 or 4.3 below, shall terminate as follows:
(a) Subject to Section 4.1(d) below, the provisions under this
Agreement governing the rights and obligations of the Parties with respect to
the supply and purchase of Bulk Product for clinical studies and for sales of
Licensed Product shall terminate on the earlier of: (i) three (3) years from the
Effective Date of this Agreement or (ii) the date on which that a third party
manufacturer, approved by the Parties, enters into a supply agreement with
Connetics to manufacture Bulk Product and, if for the supply of Licensed Product
for sale, has received a FDA license to manufacture Bulk Product. Genentech
agrees that [1] (or its successor entity) will be approved by Genentech if
proposed by Connetics as a third party manufacturer of Bulk Product for supply
to Connetics and its sublicensees. For the supply of Bulk Product for sales of
Licensed Product, Connetics shall replace Genentech with such third party as a
contract manufacturer on the PLA or any subsequent BLA filed with the FDA.
Connetics shall use Best Efforts to locate a third party manufacturer to produce
Bulk Product within three (3) years of the Effective Date of this Agreement. As
soon as reasonably possible after finding a third party manufacturer that is
approved by the Parties to manufacture Bulk Product, Connetics shall enter into
a supply agreement directly with such manufacturer. Genentech will then transfer
Genentech Manufacturing Knowhow to such third party manufacturer at Connetics'
expense, and shall be deemed to have granted Connetics and such third party
manufacturer a nonexclusive license, under Genentech Manufacturing Knowhow to
make or have made Licensed Products for supply to Connetics and its sublicensees
for use and sale by Connetics and its sublicensees in the Field
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
20
<PAGE> 21
of Use in the Territory. Connetics thereafter shall pay to Genentech [1] of
Third Party Manufacturing Royalties, if any, attributable to the manufacture of
Bulk Product by Connetics, its sublicensee or its third party manufacturer, and
Genentech shall timely pay all such Third Party Manufacturing Royalties as
required under license agreements with the applicable licensors.
(b) Subject to Section 4.1(e) below, the provisions under this
Agreement governing the rights and obligations of the Parties with respect to
the supply and purchase of Finished Product for clinical studies shall terminate
on the earlier of: (i) June 30, 1999 or (ii) the date on which a third party
manufacturer, approved by the Parties, enters into a supply agreement with
Connetics to fill and finish Bulk Product. Genentech agrees that [1] (or its
successor entity) will be approved by Genentech if proposed by Connetics as a
third party manufacturer of Finished Product for supply to Connetics and its
sublicensees. As soon as reasonably possible after finding a third party
manufacturer approved by the Parties to fill and finish Bulk Product, Connetics
shall enter into a supply agreement directly with such manufacturer. Genentech
will then transfer Genentech Manufacturing Knowhow to such third party
manufacturer at Connetics' expense, and shall be deemed to have granted
Connetics and such third party manufacturer a nonexclusive license, under
Genentech Manufacturing Knowhow to make or have made Licensed Products for
supply to Connetics and its sublicensees for use and sale by Connetics and its
sublicensees in the Field of Use in the Territory. Connetics thereafter shall
pay to Genentech [1] of Third Party Manufacturing Royalties attributable to the
production of Finished Product by Connetics, its sublicensee or its third party
manufacturer, and Genentech shall timely pay all such Third Party Manufacturing
Royalties as required under license agreements with the applicable licensors.
(c) Subject to Section 4.1(e) below, the provisions under this
Agreement governing the rights and obligations of the Parties with respect to
the supply and purchase of
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
21
<PAGE> 22
Finished Product for sales of Licensed Product to treat CGD and osteopetrosis
shall terminate on the earlier of: (i) three (3) years from the Effective Date
of this Agreement or (ii) the date on which a third party manufacturer, approved
by the Parties to fill and finish Bulk Product, receives a FDA license to
produce Finished Product and enters into a supply agreement with Connetics to
fill and finish Bulk Product. Genentech agrees that [1] (or its successor
entity) or [1] will be approved by Genentech if proposed by Connetics as its
third party manufacturer to fill and finish Bulk Product for supply to Connetics
and its sublicensees. At the time such third party receives a FDA license,
Connetics shall replace Genentech with such third party as a contract
manufacturer on the PLA or any subsequent BLA filed with the FDA. As soon as
reasonably possible after finding a third party manufacturer approved by the
Parties to fill and finish Bulk Product, Connetics shall enter into a supply
agreement directly with such manufacturer. Genentech will then transfer
Genentech Manufacturing Knowhow to such third party manufacturer at Connetics'
expense, and shall be deemed to have granted Connetics and such third party
manufacturer a nonexclusive license, under Genentech Manufacturing Knowhow to
make or have made Licensed Products for supply to Connetics and its sublicensees
for use and sale by Connetics and its sublicensees in the Field of Use in the
Territory. Connetics shall pay to Genentech [1] of Third Party Manufacturing
Royalties attributable to the production of Finished Product by Connetics, its
sublicensees or its third party manufacturer, and Genentech shall timely pay all
such Third Party Manufacturing Royalties as required under license agreements
with the applicable licensors.
(d) If no third party manufacturer has entered into an
agreement with Connetics to manufacture Bulk Product within three (3) years from
the Effective Date of this Agreement, the Parties shall continue to work
together in good faith to find an acceptable third party manufacturer. Until
such manufacturer is found, and provided that Connetics has used Best
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
22
<PAGE> 23
Efforts to find such acceptable third party manufacturer, the provisions of this
Agreement governing the rights and obligations of the Parties with respect to
the supply and purchase of Bulk Product shall remain in effect until the fifth
anniversary of the Effective Date of this Agreement, after which date the rights
and obligations of the Parties with respect to Bulk Product shall terminate and
Connetics solely shall be responsible for the supply of Bulk Product except as
otherwise provided below. After three years from the Effective Date of this
Agreement, Genentech's supply of Bulk Product for clinical studies shall be at a
price equal to [1]. After three years from the Effective Date of this
Agreement, Genentech's supply of Bulk Product for commercial sale of Licensed
Product shall be at a price equal to [1]. Notwithstanding the above, if during
the three (3) years after the Effective Date of this Agreement, Connetics has
used Best Efforts to locate a third party manufacturer for Bulk Product and has
requested that Genentech approve a reasonable, capable third party for the
manufacture of Bulk Product, and Genentech does not give such approval,
Genentech's obligation to supply Bulk Product to Connetics shall continue until
the fifth anniversary of the Effective Date at the prices described in Section
2.6(b) above. If , after the third anniversary of the Effective Date, Connetics
has used Best Efforts to locate a third party manufacturer for Bulk Product and
has requested that Genentech approve a reasonable, capable third party for the
manufacture of Bulk Product, and Genentech does not give such approval,
Genentech's obligation to supply Bulk Product to Connetics shall continue beyond
the fifth anniversary of the Effective Date, at the prices described in this
Section 4.1(d), until the Parties agree upon a third party manufacturer.
(e) If no third party manufacturer has entered into an
agreement with Connetics and received a FDA license to manufacture Finished
Product within three (3) years from the Effective Date of this Agreement, the
Parties shall continue to work together in good faith to find a third party
manufacturer. Until such manufacturer is found, the provisions of this Agreement
governing the rights and obligations of the Parties with respect to the supply
and purchase of Finished Product shall remain in effect with the prior written
consent of Genentech (which
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
23
<PAGE> 24
consent shall be in the sole discretion of Genentech), until the fifth
anniversary of the Effective Date of this Agreement, after which date the rights
and obligations of the Parties with respect to Finished Product shall terminate
and Connetics solely shall be responsible for the supply of Finished Product
except as otherwise provide below. After three years from the Effective Date of
the Supply Agreement, if Genentech consents to continue to supply Finished
Product, such supply shall be at a price equal to [1]. Notwithstanding the
above, if during the three (3) years after the Effective Date of this Agreement,
Connetics has used Best Efforts to locate a third party manufacturer and has
requested that Genentech approve a reasonable, capable third party for the
manufacture of Finished Product, and Genentech does not give such approval,
Genentech's obligation to supply Finished Product to Connetics shall continue
until the fifth anniversary of the Effective Date at the prices described in
Section 2.6(b) above. If, after the third anniversary of the Effective Date,
Connetics has used Best Efforts to locate a third party manufacturer for
Finished Product and has requested that Genentech approve a reasonable, capable
third party for the manufacture of Finished Product, and Genentech does not give
such approval, Genentech shall continue to supply Finished Product to Connetics
beyond the fifth anniversary of the Effective Date, at the prices described in
this Section 4.1(e), until the Parties agree upon a third party manufacturer.
(f) This Agreement and any licenses granted to Connetics
and/or its third party manufacturers hereunder shall terminate automatically,
without any action on the part of either of the Parties, on the effective date
of any termination of the License Agreement.
(g) Notwithstanding the termination of this Agreement as a
result of Connetics' entering into an agreement with a third party manufacturer
approved by Genentech for the supply of Bulk Product and Finished Product,
Genentech shall retain the right to approve each new third party manufacturer
selected by Connetics who has not previously been approved by Genentech for
supply of Bulk Product and/or Finished Product to Connetics and its sublicensees
prior to
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
24
<PAGE> 25
Connetics' entering into an agreement with such new third party manufacturer,
provided, however, if Genentech does not give such approval, Genentech shall be
obligated to supply Bulk Product and Finished Product to Connetics and its
sublicensees at the prices set forth in Section 4.1(d) until Connetics enters
into an agreement with a third party manufacturer approved by Genentech for the
manufacture and supply of Bulk Product and Finished Product for Connetics and
its sublicensees. This Section 4.1(g) shall survive the termination of this
Agreement.
4.2 Termination for Default
If either Party shall default in a material manner with
respect to any material provision of this Agreement and the other Party shall
have given the defaulting Party written notice of such default, the defaulting
Party shall have thirty (30) days to cure such default. If such default is not
cured within such thirty (30) day period, the nondefaulting Party shall have the
right, upon written notice to the defaulting Party and without prejudice to any
other rights the nondefaulting Party may have, to terminate this Agreement and
any licenses granted to Connetics and/or its third party manufacturers
hereunder, effective upon such notice, unless the defaulting Party is in the
process of attempting in good faith to remedy such default, in which case the
thirty (30) day cure period shall be extended by an additional thirty (30) days.
Connetics shall have no right to terminate this Supply Agreement under this
Section 4.2 in the event that Genentech fails to supply Bulk Product or Finished
Product pursuant to a firm purchase order or a fails to provide Bulk Product or
Finished Product conforming to the Specifications. In such event, Connetics will
have the rights set forth in Sections 2.4(c) and 2.9 above.
4.3 Bankruptcy
Either Party may, in addition to any other remedies available
to it by law or in equity, terminate this Agreement immediately by written
notice to the other Party in the event the other Party shall have made an
assignment for the benefit of its creditors, or there shall have been
25
<PAGE> 26
appointed a trustee or receiver of the other Party for all or a substantial part
of its property, or any case or proceeding shall have been voluntarily initiated
by or commenced against or other action taken by or against the other Party in
bankruptcy or seeking reorganization, liquidation, dissolution, winding-up,
arrangement, composition or readjustment of its debts or any other relief under
any bankruptcy, insolvency, reorganization or other similar act or law of any
jurisdiction now or hereafter in effect and, in the event of any such
involuntary proceeding, shall have continued for sixty (60) days undismissed,
unbonded and undischarged.
4.4 Termination by Connetics. Connetics may terminate this Agreement at
any time upon sixty (60) days prior written notice to Genentech, provided,
however, that Connetics:
(a) accept and pay Genentech for all deliveries of Bulk
Product and Finished Product ordered by Connetics
hereunder, under purchase orders, that conform to the
Specifications, or
(b) if Connetics so elects in writing, cancel any amounts of
products not yet delivered under unfulfilled, outstanding
purchase orders hereunder (or portions thereof) and pay
Genentech for all expenses incurred by Genentech with
regard to each unfulfilled, outstanding purchase orders
hereunder as of the date of termination.
4.5 Effect of Termination
The expiration or termination of this Supply Agreement shall
not relieve either of the Parties from any of its outstanding obligations to the
other Party as of the effective date of such expiration or termination,
including, without limitation, Genentech's obligation to deliver Bulk Product or
Finished Product ordered under purchase orders received and accepted by
Genentech prior to the effective date of such expiration or termination, unless
such termination is effected by Genentech pursuant to Section 4.2, and
Connetics' obligation to accept, and, upon delivery, pay for any such Bulk
Product or Finished Product, unless termination is effected by Connetics
pursuant to Section 4.2 and Connetics has canceled the purchase order(s) for
such
26
<PAGE> 27
Bulk Product or Finished Product in its written notice of termination provided
under Section 4.2. Notwithstanding the above, the Parties may mutually agree to
cancel any outstanding purchase order if this Agreement, or any portion thereof,
is terminated pursuant to Section 4.1 above.
27
<PAGE> 28
5.0 General Provisions
5.1 Notices
All notices which may be required pursuant to this Agreement:
(i) shall be in writing, (ii) shall be addressed, in the case of Genentech
(except as otherwise specified herein), to the Corporate Secretary at the
address set forth at the beginning of this Agreement, and in the case of
Connetics, to the Chief Executive Officer at the address set forth at the
beginning of this Agreement, (or to such other person or address as either Party
may so designate from time to time), (iii) shall be mailed, postage-prepaid, by
registered mail or certified mail, return receipt requested, or transmitted by
courier for hand delivery or transmitted by facsimile and (iv) shall be deemed
to have been given on the date of receipt if sent by mail or on the date of
delivery if transmitted by courier or facsimile. Notices by facsimile may be
sent to the following numbers: for Connetics, to (650) 843-2899; for Genentech,
to (650) 952-9881.
5.2 Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of California (other than its choice of
law principles).
5.3 Entire Agreement
This Agreement and the License Agreement and their respective
exhibits are the entire agreements between the Parties with respect to the
subject matter herein, and there are no prior written or oral promises or
representations not incorporated herein or therein. No amendment or modification
of the terms of this Agreement shall be binding on either Party unless reduced
to writing and signed by an authorized representative of the Party to be bound.
5.4 Binding Effect and Assignment
28
<PAGE> 29
This Agreement shall be binding upon and inure to the benefit
of the Parties hereto and their respective permitted successors and assigns.
This Agreement shall not be assignable by either Party without the other's prior
written consent, provided however, that either Party may assign this Agreement,
without the other Party's written consent, to any successor pursuant to a
consolidation or merger of such Party with or into any other corporation or
corporations that results in a change of greater than 50% of the voting control
of such Party, or a sale, conveyance or disposition of all or substantially all
of the assets of such Party, or the effectuation by such Party of a transaction
or series of related transactions in which more than 50% of the voting power of
such Party is disposed of. In addition, Connetics may assign this Agreement to
InterMune, described in Section 3.1 of the License Agreement, upon thirty (30)
days written notice to Genentech, without Genentech's prior written consent,
provided that Connetics has granted to InterMune a sublicense to use and/or sell
Licensed Product under the License Agreement and in accordance with the terms of
the License Agreement. In the event of such assignment to InterMune, Connetics
shall promptly notify Genentech in writing of such assignment. Connetics hereby
guarantees the performance by InterMune of all of Connetics' obligations under
this Agreement.
5.5 Waiver
The waiver by a Party hereto of any breach of or default under
any of the provisions of this Agreement or the failure of a Party to enforce any
of the provisions of this Agreement or to exercise any right hereunder shall not
be construed as a waiver of any other breach or default or as a waiver of any
such rights or provisions hereunder.
5.6 Severability
If any part of this Agreement shall be invalid or
unenforceable under applicable law, such part shall be ineffective only to the
extent of such invalidity or unenforceability, without in any way affecting the
remaining parts of this Agreement. In addition, the part that is
29
<PAGE> 30
ineffective shall be reformed in a mutually agreeable manner so as to as nearly
approximate the intent of the Parties as possible.
5.7 Publicity
Connetics and Genentech agree that, except as may otherwise be
required by applicable laws, regulations, rules, or orders, including, without
limitation, the disclosure requirements of the Securities and Exchange
Commission ("SEC"), no information concerning this Agreement and the
transactions contemplated herein (except information which is already in the
public domain) shall be made public by either Party without the prior written
consent of the other Party. Notwithstanding the foregoing, with respect to
complying with the disclosure requirements of the SEC, in connection with any
required SEC filing of this Agreement by Connetics, Connetics shall seek
confidential treatment of this Agreement from the SEC and Genentech shall have
the right to review and comment on such an application for confidential
treatment prior to its being filed with the SEC.
5.8 Counterparts
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original for all purposes, but all of which
together shall constitute one and the same instrument.
5.9 Confidentiality
The confidentiality provisions of the License Agreement shall
apply to the exchanged confidential information of the Parties under this
Agreement ("Confidential Information") in the same manner and respect as those
provisions apply to the exchange of such information under the License
Agreement.
5.10 Force Majeure
30
<PAGE> 31
Neither Party shall be liable to the other for its delay or
failure to perform under this Agreement or shall have any right to terminate
this Agreement for any such delay or failure in performance attributable to any
act of God, flood, fire, explosion, strike, lockout, labor dispute, casualty or
accident, war, revolution, civil commotion, act of public enemies, blockage or
embargo, injunction, law, order, proclamation, regulation, ordinance, demand or
requirement of any government or subdivision, authority or representative of any
such government, or any other cause beyond the reasonable control of such Party,
if the Party affected shall give prompt written notice of any such cause to the
other Party. The Party giving such notice shall thereupon be excused from such
of its obligations hereunder for the period of time that it is so disabled.
5.11 Headings
Headings are for the convenience of reference only and shall
not control the construction or interpretation of any of the provisions of this
Agreement.
31
<PAGE> 32
IN WITNESS WHEREOF, the Parties have caused this Supply Agreement to be
duly executed by their respective duly authorized officers effective on the
Effective Date first set forth above.
GENENTECH, INC. CONNETICS CORPORATION
By: /s/ Nick Simon By: /s/ Thomas G. Wiggans
Name: Nick Simon Name: Thomas G. Wiggans
Title: V.P., Business and Corporate Title: President and CEO
Development
32
<PAGE> 33
EXHIBIT A
[1]
- ----------
[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC.
<PAGE> 34
EXHIBIT B
THIRD PARTY MANUFACTURING ROYALTIES
None (as of the Effective Date)
iv
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,387
<SECURITIES> 4,199
<RECEIVABLES> 318
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,159
<PP&E> 3,450
<DEPRECIATION> 2,123
<TOTAL-ASSETS> 29,480
<CURRENT-LIABILITIES> 11,823
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 11,418
<TOTAL-LIABILITY-AND-EQUITY> 29,480
<SALES> 3,171
<TOTAL-REVENUES> 4,819
<CGS> 607
<TOTAL-COSTS> 607
<OTHER-EXPENSES> 18,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 739
<INCOME-PRETAX> (14,264)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,264)
<EPS-PRIMARY> (0.95)
<EPS-DILUTED> (0.95)
</TABLE>
