<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, 1999
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 30, 1999, 21,607,764 shares of the Registrant's common stock were
outstanding, at $0.001 par value.
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CONNETICS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1999 and
December 31, 1998 ............................................................... 3
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 1999 and 1998 ............................................. 4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 .................................................... 5
Notes to Condensed Consolidated Financial Statements ............................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risks ..................... 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............................. 15
Item 6. Exhibits and Reports on Form 8-K ................................................ 16
Exhibits ................................................................... 16
Reports on Form 8-K ........................................................ 16
SIGNATURE ......................................................................................... 17
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,030 $ 14,708
Short-term investments 5,941 8,312
Accounts and other receivables 3,373 485
Other current assets 956 118
---------- ----------
Total current assets 20,300 23,623
Property and equipment, net 1,638 1,128
Notes receivable from related parties 385 379
Deposits and other assets 121 104
License agreements and product rights 2,800 6,160
---------- ----------
$ 25,244 $ 31,394
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,484 $ 1,229
Accrued and other current liabilities 1,695 879
Accrued process development expenses 698 644
Accrued payroll and related expenses 1,136 1,003
Current portion of notes payable and other liabilities 6,358 6,822
Current portion of capital lease obligations, capital loans and long-term debt 1,354 582
---------- ----------
Total current liabilities 13,725 11,159
Noncurrent portion of capital lease obligations, capital loans and long-term debt 3,467 4,002
Other long-term liabilities -- 3,781
Stockholders' equity:
Common stock, treasury stock and additional paid-in capital 111,446 105,285
Notes receivable from stockholders (65) (65)
Deferred compensation, net (125) (302)
Accumulated deficit (103,183) (92,469)
Accumulated other comprehensive income(loss) (21) 3
---------- ----------
Total stockholders' equity 8,052 12,452
---------- ----------
$ 25,244 $ 31,394
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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CONNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product $ 4,722 $ 1,652 $ 6,883 $ 3,171
Contract 2,379 1,648 7,379 1,648
-------- -------- -------- --------
Total revenues 7,101 3,300 14,262 4,819
Operating cost and expenses:
Cost of product revenues 1,480 312 2,651 607
License amortization 1,680 1,680 3,360 3,360
Research and development 3,899 3,105 8,580 5,283
Selling, general and administrative 4,907 3,043 10,501 5,505
Charge for pre-FDA approved product rights -- 4,000 -- 4,000
-------- -------- -------- --------
Total operating cost and expenses 11,966 12,140 25,092 18,755
Interest and other income 306 234 640 411
Interest expense (232) (345) (524) (739)
-------- -------- -------- --------
Net loss $ (4,791) $ (8,951) $(10,714) $(14,264)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.22) $ (0.54) $ (0.50) $ (0.95)
======== ======== ======== ========
Shares used to calculate net loss per share 21,382 16,672 21,235 15,081
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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CONNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(10,714) $(14,264)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 3,781 3,817
Technology acquired in exchange for common stock -- 4,010
Amortization of deferred compensation and other stock related
compensation charges 1,002 335
Accrued interest on notes payable -- 259
Changes in assets and liabilities:
Accounts receivable (2,888) 1,209
Current and other long-term assets (469) (117)
Current and other liabilities 2,335 34
Other long-term liabilities (226) 397
-------- --------
Net cash used in operating activities (7,179) (4,320)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (1,901) (3,971)
Sales and maturities of short-term investments, net 4,248 5,666
Capital expenditures (931) (73)
Licensed assets and products rights -- (308)
-------- --------
Net cash provided by investing activities 1,416 1,314
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of notes payable (3,300) (1,000)
Payments of obligations under capital leases and capital loans (232) (1,302)
Proceeds from issuance of common stock, net of issuance costs 4,617 10,243
-------- --------
Net cash provided by financing activities 1,085 7,941
-------- --------
Net change in cash and cash equivalents (4,678) 4,935
Cash and cash equivalents at beginning of period 14,708 8,452
-------- --------
Cash and cash equivalents at end of period $ 10,030 $ 13,387
======== ========
SUPPLEMENTARY INFORMATION:
Interest paid $ 423 $ 360
FINANCING ACTIVITY:
Conversion of notes payable into common stock $ 719 $ --
</TABLE>
See notes to condensed consolidated financial statements.
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CONNETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Connetics Corporation ("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, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
These financial statements and notes should be read in conjunction with audited
financial statements and notes to those financial statements for the year ended
December 31, 1998 included in Connetics' Annual Report on Form 10-K.
2. NET LOSS PER SHARE
The computation of diluted earnings per share does not include options to
purchase 2,470,256 shares of common stock at exercise prices ranging from
$0.4448 to $11.00 and warrants to purchase 1,289,193 shares of common stock at
exercise prices ranging from $4.89 to $11.00 as their effect would be
antidilutive.
3. COMPREHENSIVE INCOME (LOSS)
During the three and six months ended June 30, 1999, total comprehensive (loss)
amounted to $(4.8) million and $(10.7) million compared to $(9.0) million and
$(14.3) million for the same periods in 1998, respectively. The components of
comprehensive (loss) for the three and six-month periods ended June 30, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Net loss $ (4,791) $ (8,951) $(10,714) $(14,264)
Unrealized gains (loss) on securities (15) 1 (24) (1)
Foreign currency translation adjustment -- -- -- --
-------- -------- -------- --------
Comprehensive income (loss) $ (4,806) $ (8,950) $(10,738) $(14,265)
======== ======== ======== ========
</TABLE>
Accumulated other comprehensive income (loss) at June 30, 1999 and December 31,
1998, which consisted of unrealized gains (loss) on securities, were $(22,000)
and $3,000, respectively.
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4. RESEARCH AND LICENSE AGREEMENTS
In January 1999, Connetics entered into a development, commercialization and
supply agreement with Medeva PLC of the United Kingdom ("Medeva") for certain
therapeutic indications pertaining to relaxin. Under the terms of the agreement,
Medeva paid $8.0 million upon closing, which included a $4.0 million contract
fee and a $4.0 million equity investment, and will potentially pay $17.0 million
of milestone payments based upon the achievement of development milestones in
the U.S. and Europe and $5.0 million for the development and approval of each
indication in Europe in addition to scleroderma. Medeva is responsible for all
development and commercialization activities in Europe and is required to pay
royalties on sales in Europe. In addition, Medeva will reimburse Connetics for
50% of the product development costs in the U.S. up to a maximum of $1.0 million
per quarter, for an estimated total of $10.0 million. Connetics also agreed to
share U.S. co-promotion rights with Medeva for up to five years, and Medeva will
purchase relaxin materials from Connetics. For the three and six months ended
June 30, 1999, Connetics recorded $1.0 million and $6.0 million, respectively in
contract revenue ($4.0 million in contract fee and $2.0 million for the
quarterly reimbursement of product development costs) under this agreement.
In May 1999, Connetics received $791,000 (net of $88,000 international
withholding tax) as a milestone payment from Suntory Pharmaceuticals. The
milestone payment pertained to a collaboration agreement Connetics entered into
with Suntory Pharmaceuticals in April 1998 for the development and
commercialization of ConXn(R) (human recombinant relaxin) for the treatment of
scleroderma in Japan, and was due upon our initiation of a pivotal trial of
ConXn. The 1998 agreement calls for Suntory to pay approximately $14.0 million
in license fees and milestone payments to Connetics, be responsible for all
development and commercialization expenses in Japan, and pay royalties on sales
in Japan for the treatment of scleroderma.
5. SUBSIDIARY SPIN OFF
On April 28, 1999, Connetics executed its plan to spin-off InterMune
Pharmaceuticals, Inc. ("InterMune"), through the sale of a majority of its
equity ownership to outside investors. Connetics established InterMune to
develop ACTIMMUNE(R) (interferon gamma) for infectious and fungal diseases
shortly after it in-licensed Actimmune from Genentech, Inc. in May 1998. At the
close of the spin-off, Connetics retained approximately a 10% equity position in
InterMune, received a license fee payment of $500,000, a $4.7 million dividend
payment and will receive an additional $2.0 million in license and milestone
payments and $1.5 million in return of equity over the next three years.
Connetics will retain commercial rights to and revenue from Actimmune for
chronic granulomatous disease for three years and receive a royalty on Actimmune
sales thereafter. In addition, Connetics retains the product rights for
potential dermatological applications of Actimmune. The gain on the spin-off of
approximately $1.1 million has been offset by the operating results of InterMune
through April 28, 1999 of approximately $1.0 million and was included in
Interest and other income in the Condensed Consolidated Statement of Operations.
6. CO-PROMOTION AGREEMENTS
In March 1999, Connetics entered into two co-promotion agreements with MGI
Pharma, Inc. ("MGI"). Under the terms of the agreements, MGI will promote
Ridaura and Luxiq to the rheumatology market in the United States in exchange
for promotional fees. These arrangements take advantage of MGI's specialty sales
force that calls on rheumatologists and oncologists in the United States, and
allows Connetics to focus its attention on the dermatology marketplace. For the
three and six months ended June 30, 1999, Connetics recorded $250,000 in
promotion fees.
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7. SUBSEQUENT EVENTS
In July 1999, Connetics entered into a development, commercialization and supply
agreement with Paladin Labs Inc., a Canadian corporation, for recombinant human
relaxin (ConXn), a potential therapy for the treatment of scleroderma and organ
fibrosis. Under the terms of the agreement, Connetics received an initial sum of
$800,000, which includes payments for development fees and an equity investment.
In addition, Connetics will receive semi-annual development payments and
potential milestone payments of approximately $2.5 million over the next several
years. Paladin is responsible for all development and commercialization
activities in Canada, and will pay royalties on all sales of relaxin in Canada.
Also in July 1999, Connetics entered into an agreement with Soltec Research Pty
Ltd., an Australian company, whereby Connetics licensed exclusive worldwide
rights (excluding Australia and New Zealand) to develop, manufacture and market
ketoconazole foam (a quick-break foam formulation of the antifungal dermatologic
drug, ketoconazole). Under the terms of the agreement, Connetics will pay a
total of $277,500 in license fees, of which $120,000 was paid upon signing of
agreement, $67,500 is due upon the filing of a New Drug Application ("NDA") and
$90,000 is due upon FDA approval of product, plus royalties on future product
sales, if any, arising from the licensed technology. In addition, Connetics will
pay Soltec ten percent (10%) of any upfront payments received in connection with
sublicense of the rights to the product.
8. LIQUIDITY AND FINANCIAL VIABILITY
In the course of its development activities, Connetics has sustained
continuing operating losses and expects such losses to continue over at least
the next few years. Connetics 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, Connetics' ability to
establish collaborative arrangements, the level of product revenues, the
possible acquisition of new products and technologies, and the development of
commercialization activities. Therefore, such capital uses and requirements may
increase in future periods. As a result, Connetics will require substantial
additional funds prior to reaching profitability and plans to continue to
finance its operating activities with a combination of stock sales, through
public offerings and self-managed private financings, payments from corporate
partnering arrangements, product revenue, bank loans and/or debt financing. The
inability to obtain sufficient funds may require Connetics to delay, scale back
or eliminate some or all of its research and product development programs,
limit the marketing of its products, or license to third parties the rights to
commercialize products or technologies that Connetics would otherwise seek to
develop and market itself.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE: EXCEPT FOR THE HISTORICAL INFORMATION, THE FOLLOWING MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
("MD&A") CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. CONNETICS' ACTUAL RESULTS OF OPERATIONS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS, INCLUDING THOSE IDENTIFIED BELOW. POTENTIAL RISKS AND UNCERTAINTIES
INCLUDE, WITHOUT LIMITATION, UNCERTAINTY OF PRODUCT DEVELOPMENT AND MARKET
ACCEPTANCE OF A PRODUCT ONCE DEVELOPED; UNCERTAINTY OF FUTURE RIDAURA(R),
LUXIQ(TM) AND ACTIMMUNE(R) REVENUES AND COSTS; UNCERTAINTY OF CLINICAL TRIALS
RESULTS; UNCERTAINTY OF FUTURE PROFITABILITY; FUTURE CAPITAL REQUIREMENTS AND
UNCERTAINTY OF FUTURE FUNDING; AND RISKS ASSOCIATED WITH POSSIBLE FUTURE PRODUCT
ACQUISITIONS. IN PARTICULAR, THE FACTORS SET FORTH IN THE CONNETICS' ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, MAY CAUSE
ACTUAL RESULTS TO VARY FROM THOSE CONTEMPLATED BY CERTAIN FORWARD-LOOKING
STATEMENTS SET FORTH IN THIS REPORT AND SHOULD BE CONSIDERED CAREFULLY IN
ADDITION TO OTHER INFORMATION PRESENTED IN THIS REPORT.
This MD&A should be read in conjunction with the MD&A included in Connetics'
1998 Annual Report on Form 10-K, and with the unaudited condensed consolidated
financial statements and notes to financial statements included in Part I, Item
1 of this Quarterly Report. Results of operations in the current or any prior
fiscal period should not be considered as indicative of results to be expected
for any future fiscal period.
OVERVIEW
Connetics Corporation acquires, develops and markets products in the areas of
dermatology and rheumatology. We market Ridaura(R) (auranofin), a treatment for
rheumatoid arthritis, and in January 1999, we began marketing Actimmune(R)
(interferon gamma) for the treatment of chronic granulomatous disease ("CGD"),
under a license agreement we entered into with Genentech Inc. in May 1998. In
March 1999, we received marketing clearance from the U.S. Food and Drug
Administration ("FDA") to sell Luxiq(TM) (betamethasone valerate) Foam, 0.12%,
for the treatment of steroid responsive scalp dermatoses. Our products under
development include OLUX(TM) Foam (clobetasol propionate), 0.05%, for the
treatment of moderate to severe scalp dermatoses; ConXn(R) (human recombinant
relaxin-H2) for the treatment of scleroderma, infertility and organ fibrosis;
and T-cell receptor (TCR) peptide vaccines for the treatment of multiple
sclerosis and rheumatoid arthritis. There can be no assurance that any of our
potential products will be successfully developed, receive the necessary
regulatory approvals or be successfully commercialized.
On April 28, 1999, we executed our plan to spin-off InterMune Pharmaceuticals,
Inc. ("InterMune"), through the sale of a majority of our equity ownership to
outside investors. InterMune was established to develop Actimmune(R) (interferon
gamma) for infectious and fungal diseases shortly after we in-licensed Actimmune
from Genentech, Inc. in May 1998. At the close of the spin-off, we retained
approximately a 10% equity position in InterMune, received a license fee payment
of $500,000, a $4.7 million dividend payment and will receive additional cash
and equity payments over the next three years. We will retain commercial rights
to and revenue from Actimmune for chronic granulomatous disease for three years
and receive a royalty on Actimmune sales thereafter. In addition, we retain the
product rights for potential dermatological applications of Actimmune.
On May 14, 1999 we received $791,000 (net of $88,000 international withholding
tax) as a milestone payment from Suntory Pharmaceuticals. The milestone payment
pertained to a collaboration agreement we entered into with Suntory
Pharmaceuticals in April 1998 for the development and commercialization of ConXn
for the treatment of scleroderma in Japan, and was due upon our initiation of a
pivotal trial of ConXn. The 1998 agreement calls for Suntory to pay
approximately $14.0 million in license fees and milestone payments to Connetics
over the development period, be responsible for all development and
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commercialization expenses in Japan, and pay royalties on sales in Japan for the
treatment of scleroderma.
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- ---------------------
1999 1998 1999 1998
------ ------ ------- ------
(In thousands)
<S> <C> <C> <C> <C>
Product:
Luxiq $2,651 $ -- $ 2,651 $ --
Ridaura 981 1,652 2,250 3,171
Actimmune 1,090 -- 1,982 --
------ ------ ------- ------
Total product revenues 4,722 1,652 6,883 3,171
Contract:
Medeva PLC 1,000 -- 6,000 --
Suntory Limited 879 1,648 879 1,648
InterMune Pharmaceuticals 500 -- 500 --
------ ------ ------- ------
Total contract revenues 2,379 1,648 7,379 1,648
Total revenues $7,101 $3,300 $14,262 $4,819
====== ====== ======= ======
</TABLE>
Our product revenues, derived from the sales of Luxiq, Ridaura and Actimmune,
were $4.7 million and $6.9 million for the three and six months ending June 30,
1999, respectively, compared to $1.7 million and $3.2 million for the same
periods in 1998. The increase in total product sales in 1999 was due to sales of
Actimmune, which we began shipping in February, and Luxiq, which was launched in
April. These sales increases were partially offset by lower sales of Ridaura. In
March 1999 we entered into an agreement with MGI Pharmaceuticals, Inc. ("MGI")
to promote Ridaura for us, allowing us to shift our commercialization focus from
rheumatology to dermatology. It is too early in the relationship to tell what
effect, if any, MGI may be able to have on the sales trends for Ridaura, which
we believe may be lower in part due to recent introduction of several new
rheumatoid arthritis therapies. There can be no assurance that Connetics will be
able to market and sell Ridaura successfully or that Ridaura revenues will equal
or exceed those achieved in 1998. Moreover, the goal of the sales of Luxiq
during the product launch was to establish inventory at wholesalers and
therefore additional sales history is needed before a meaningful assessment of
the acceptance of Luxiq into the dermatology market in the U.S. can be
completed. If we are unable to achieve or sustain market acceptance of our
products, our financial condition and results of operations could be materially
and adversely affected.
Contract revenues were $2.4 million and $7.4 million for the three and six
months ending June 30, 1999, respectively, compared to $1.6 million for the same
periods in 1998. For the first six months in 1999, we recorded $6.0 million in
contract revenue ($4.0 million of a contract fee and $2.0 million for quarterly
reimbursements of product development costs) in connection with our agreement
with Medeva (see Note 4 of Notes to Condensed Financial Statements). In
addition, we recorded $0.9 million in contract revenue for a milestone payment
made by Suntory Pharmaceuticals that pertains to the collaboration agreement for
the development and commercialization of ConXn (see Note 4 of Notes to Condensed
Financial Statements), and $0.5 million of a license fee associated with the
spin-off of InterMune (see above). The $1.6 million contract revenue recorded
for the same period in 1998 was for an up-front license fee paid by Suntory
Pharmaceuticals under the collaboration agreement for ConXn. Contract revenue is
expected to fluctuate significantly depending on the achievement of milestones
under existing agreements and new business opportunities that may be identified.
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We have separate supply agreements with SmithKline Beecham Corporation and
Genentech, Inc. under which SmithKline will manufacture and supply Ridaura in
final package form through December 2001, and Genentech will manufacture and
supply interferon gamma, in bulk or finished form through May 2001. Our Luxiq
product is currently manufactured by CCL Pharmaceuticals in the United Kingdom.
In addition, we have a distribution arrangement with CORD Logistics, Inc.
("CORD") whereby customer orders and distribution of our current marketed
products are managed by CORD. We also have co-promotion agreements with MGI
under which MGI will promote Ridaura and Luxiq to the rheumatology market in the
United States in exchange for promotional fees.
Our cost of product revenues includes the costs of Luxiq, Ridaura and Actimmune,
royalty payments on these products based on a percentage of our product revenues
and product freight and distribution costs from CORD. For the three months and
six months ended June 30, 1999, we recorded $1.5 million and $2.7 million in
cost of product revenues compared to $0.3 million and $0.6 million for the same
periods in 1998, respectively. The increase of $1.2 million and $2.1 million in
cost of product revenues is primarily due to incremental costs associated with
the sales of Luxiq and Actimmune, including higher product and royalty costs.
Amortization expense associated with the acquisition of product rights to
Ridaura were $1.7 million and $3.4 million for the same periods in 1999 and
1998, respectively.
Although the effective closing date of our InterMune spin-off transaction to
outside investors through the sale of our equity ownership was April 28, 1999,
the amount of funding was based on the book value of InterMune at December 31,
1998. The terms of our agreement with outside investors call for the
reimbursement of all 1999 expenses associated with InterMune. Accordingly we
recorded an adjustment to reflect $0.9 million reduction for first quarter
expenses in the quarter ended June 30, 1999. The gain of the spin-off of
approximately $1.1 million has been offset by the operating results of InterMune
through April 28, 1999 of approximately $1.0 million and was recorded as other
income.
Research and development expenses were $3.9 million and $8.6 million for the
three and six months ended June 30, 1999 compared to $3.1 million and $5.3 for
the same periods in 1998, respectively. The increase in research and development
expenses of $3.3 million in the first six months of 1999 was due to the
commencement of relaxin manufacturing activities (which accounted for
approximately 79% of the increase), the initiation of a 200 patient Phase II/III
pivotal trial of ConXn for the treatment of scleroderma in February, and
staffing up of our development organization. Research and development expenses
are expected to increase over the next few quarters due to relaxin manufacturing
activity, ConXn clinical trial activities, pre-manufacturing start-up costs
associated with qualifying a new supplier for OLUX and possible acquisition of
new technologies and products.
Selling, general and administrative expenses increased to $4.9 million and $10.5
million for the three and six months ended June 30, 1999 compared to $3.0
million and $5.5 million for the same periods in 1998, respectively. The
increase in expenses in 1999 was primarily due to further staffing up of the
sales organization (52 employees as of June 30, 1999 compared to 22 as of June
30, 1998), market launch expenses associated with Luxiq, increased activities of
an established sales and marketing organization, and stock compensation related
expenses. In addition, under our co-promotion agreement with MGI for Luxiq and
Ridaura, we incurred $0.3 million in promotion fees. Selling, general and
administrative expenses are expected to increase primarily due to costs
associated with selling and marketing Luxiq, Ridaura and Actimmune, additional
hiring of sales representatives, and possible launching of acquired products.
Interest and other income was $0.2 million and $0.5 million for the three and
six months ended June 30, 1999, compared with $0.2 million and $0.4 million for
the same periods in 1998, respectively. The increase in interest income during
the first six months of 1999 was due to a higher investment balance as a result
of the $9.0 million received in January from Medeva and $0.8 million received in
May from Suntory (see Note 4 of Notes to Condensed Financial Statements). We
also recorded a $0.1 million net gain during the three and six months ending
June 30, 1999 from the spin-off of InterMune. Interest
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<PAGE> 12
earned in the future will depend on our funding cycles and prevailing interest
rates.
Interest expense decreased to $0.2 million and $0.5 million for the three and
six months ended June 30, 1999, compared with $0.3 million and $0.7 million for
the same periods in 1998, respectively. The decrease in interest expense was the
result of lower balances outstanding for obligations under capital leases and
loans, and notes payable.
Net loss for the three and six months ended June 30, 1999 was $4.8 million and
$10.7 million compared to $9.0 million and $14.3 million for the same periods in
1998, respectively. The decrease in net loss was due to higher product and
contract revenues offset in part by higher cost of product sold and a
substantial increase in operating expenses in 1999 as a result of development,
marketing and sales activities. We expect 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, clinical trial
expenses, and possible acquisitions of new products and technologies.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date primarily through proceeds from our
initial public offering in February 1996, six self-managed financings,
collaborative arrangements with corporate partners, and bank loans. At June 30,
1999, cash, cash equivalents and short-term investments totaled $16.0 million
compared to $23.0 million at December 31, 1998, and accounts receivable totaled
$3.4 million compared to $0.5 million for the same periods, respectively. Our
cash reserves are held in a variety of interest-bearing instruments including
high-grade corporate bonds, commercial paper and money market accounts.
Cash used in operations for the six months ended June 30, 1999 was $7.2 million
compared with $4.3 million for the same period in 1998. Net loss of $10.7
million for the first six months of 1999 was affected by non-cash charges of
$3.8 million depreciation and amortization expense and $1.0 million deferred
compensation expense. Cash outflow for the six months was primarily for
operating activities, including growth in both our accounts receivable due to
extended terms offered during the launch of Luxiq and inventory due primarily to
carrying three products, and changes in long term liabilities. Cash usage was
partially offset by an increase in accounts payable related to higher
development, sales and marketing expenses.
Investing activities, other than the changes in Connetics' short-term
investments, consumed $0.9 million in cash during the first six months in 1999
due to leasehold improvements and equipment expenditures required for
operations.
Cash provided by financing activities was $1.1 million for the six months ended
June 30, 1999 compared to $7.9 million for the same period in 1998. Our
agreement with Medeva provided $4.0 million investment in our common stock in
the 1999 period. This was offset in part by a $3.3 million principal payment to
SmithKline for obligations under a promissory note in connection with the
Ridaura acquisition.
Working capital decreased by $5.9 million to $6.6 million at June 30, 1999 from
$12.5 million at December 31, 1998. The decrease in working capital was due to
our use of cash in operations, higher accounts payable and accrued liabilities
as a result of increased development, sales and marketing expenses, and payment
of debt obligations, offset in part by higher accounts receivable, inventory and
prepaid expenses.
At June 30, 1999, we have an aggregate of $11.1 million in future obligations of
principal payments under capital leases, loans, long-term debt and other
obligations, of which $7.6 million is to be paid within the next year.
-12-
<PAGE> 13
We have an equity line agreement with an investor that may potentially provide
access to capital through sales of our common stock. The three-year equity line
became available on June 26, 1998. During the three-year term, if our stock
meets certain volume restrictions and trades above $10.00, then up to $500,000
would be drawn against the equity line approximately every three months in
exchange for the sale of stock at an approximate minimum price of $10.00.
We believe our existing cash, cash equivalents and short-term investments along
with cash generated from the sales of Ridaura, Luxiq and Actimmune, and from
financings including cash received through the collaborative arrangements with
corporate partners, will be sufficient to fund our operating expenses, debt
obligations and capital requirements through the second quarter of 2000. Our
future capital uses and requirements depend on numerous factors, including the
progress of our research and development programs, the progress of 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, our ability to
establish other collaborative arrangements, the level of product revenues, the
possible acquisition of new products and technologies and the development of
commercialization activities. Therefore such capital uses and requirements may
increase in future periods. As a result, we will require 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. Other than the equity line agreement discussed above, we
currently have no commitments for any additional financings, and there can be no
assurance that additional funding will be available to finance our ongoing
operations when needed or, if available, that the terms for obtaining such funds
will be favorable or will not result in dilution to the our stockholders. Our
inability to obtain sufficient funds could require us to delay, scale back or
eliminate some or all of our research and development programs, to limit the
marketing of our products or to license to third parties the rights to
commercialize products or technologies that we would otherwise seek to develop
and market ourselves.
IMPACT OF YEAR 2000
Many computer systems and software applications were not designed to handle
dates beyond the year 1999, and therefore will need to be modified prior to year
2000 in order to remain functional. As for many other companies, the year 2000
issue poses a potential risk for Connetics and as a result, computer systems
and/or software used by many companies, including Connetics, may need to be
upgraded to comply with such "Year 2000" requirements.
We have completed an assessment of our core business information systems and
related business processes used in our operations, most of which are provided by
outside suppliers. To date, we have completed testing and upgrading of
approximately 98% of our information technology systems and expect to have all
remaining systems upgraded by September 30, 1999. We are approximately 76%
complete with the testing and upgrading of our operating equipment and expect
the process to be fully completed by September 30, 1999. We have on-line access
to our third party distribution service system that includes customer orders,
billing, shipping and inventory management. This vendor has made its
distribution system Year 2000 compliant, and we converted to the compliant
system in November 1998.
Our reliance on key suppliers, and therefore on the proper functioning of their
information systems and software, is increasing, and there can be no assurance
that another company's failure to address year 2000 issues might not have an
adverse effect on Connetics. We have initiated formal communications with each
of our significant suppliers and customers to determine the extent of our
vulnerability to those third parties' failure to remediate their own Year 2000
issues. We have requested that third party vendors represent their products and
services to be Year 2000 compliant and that they have a program to test for Year
2000 compliance. However, the response of those third parties is beyond our
control.
We are in the process of evaluating the need for contingency plans with respect
to Year 2000 requirements. The necessity of any contingency plan must be
evaluated on a case-by-case basis and will
-13-
<PAGE> 14
vary considerably in nature depending on the Year 2000 issue it may need to
address. However, there can be no assurance that we may be able to solve all
potential Year 2000 issues, and if we fail to correct a material Year 2000
problem, our normal business activities and operations could be interrupted.
Such interruptions could have a material adverse affect on Connetics' results of
operations, liquidity and financial condition. To date, Year 2000 costs are not
considered to be material to our financial condition. We have incurred and
expensed approximately $40,200 and currently estimate that, in order to complete
Year 2000 compliance, we will be required to incur total expenditures of
approximately $75,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Connetics has supply contracts with Boehringer Ingelheim Austria GmbH (for a
product under research and development) and CCL Pharmaceuticals Ltd. in the U.K.
(for Luxiq). As payments under these contracts are payable in local currency,
our financial results could be affected by changes in foreign currency exchange
rates. We have a bank loan that is sensitive to movement in interest rates.
Interest income from our investments is sensitive to changes in the general
level of U.S. interest rates, particularly since the majority of our investments
are in short-term instruments. Due to the nature of our short-term investments,
we have concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required.
-14-
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 19, 1999, 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 18,821,569 274,289
Thomas G. Wiggans 18,821,808 274,050
Alexander E. Barkas, Ph.D. 18,764,455 331,403
Eugene A. Bauer, M.D. 18,822,608 273,250
Brian H. Dovey 18,822,308 273,550
John C. Kane 18,822,608 273,250
Thomas D. Kiley, Esq. 18,819,080 276,778
Joseph J. Ruvane, Jr. 18,769,483 326,375
</TABLE>
2) Approval of amendments to the Company's 1994 Stock Plan to increase
the number of shares issuable thereunder to an aggregate of
3,100,000 shares.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- -------
<S> <C> <C> <C>
13,757,301 1,066,161 55,700
</TABLE>
3) Approval of amendments to the Company's 1995 Directors' Stock Plan
to increase the number of shares issuable thereunder to an aggregate
of 400,000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- -------
<S> <C> <C> <C>
13,994,495 828,717 55,950
</TABLE>
4) Adoption of a new Year 2000 Stock Plan with the maximum number of
shares reserved and available for issuance to be 8,000,000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- -------
<S> <C> <C> <C>
13,708,189 1,105,505 65,468
</TABLE>
5) Ratification of the appointment of Ernst & Young LLP to serve as the
Company's independent auditors for the fiscal year ending
December 31, 1999.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- -------
<S> <C> <C> <C>
19,062,008 4,200 29,650
</TABLE>
-15-
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<S> <C>
10.1* Relaxin Development, commercialization and License Agreement dated July 7, 1999
between the Company and Paladin Labs Inc.
10.2 Common Stock Purchase Agreement dated July 7, 1999 between the Company
and Paladin Labs Inc.
10.3 Registration Rights Agreement dated July 7, 1999 between the Company and
Paladin Labs Inc.
10.4* License Agreement (Ketoconazole) dated July 14, 1999 between the
Company and Soltec Research Pty Limited.
27.1 Financial Data Schedule (EDGAR - filed version only)
</TABLE>
* The Company has omitted certain portions of this Exhibit and has requested
confidential treatment of such portions from the SEC.
(b) Reports on Form 8-K.
We did not file any Reports on Form 8-K during the quarter ended June 30,
1999.
-16-
<PAGE> 17
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 11, 1999
<PAGE> 18
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.1* Relaxin Development, commercialization and License Agreement dated
July 7, 1999 between the Company and Paladin Labs Inc.
10.2 Common Stock Purchase Agreement dated July 7, 1999 between the Company
and Paladin Labs Inc.
10.3 Registration Rights Agreement dated July 7, 1999 between the Company
and Paladin Labs Inc.
10.4* License Agreement (Ketoconazole) dated July 14, 1999 between the
Company and Soltec Research Pty Limited.
27.1 Financial Data Schedule (EDGAR - filed version only)
</TABLE>
* The Company has omitted certain portions of this Exhibit and has requested
confidential treatment of such portions from the SEC.
<PAGE> 1
EXHIBIT 10.1
RELAXIN
DEVELOPMENT, COMMERCIALIZATION
AND
LICENSE AGREEMENT
by and between
Paladin Labs Inc.
and
Connetics Corporation
July 7, 1999
* Confidential treatment has been requested for this portion of the Agreement.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - Definitions......................................................... 1
ARTICLE II - LICENSE............................................................ 6
2.1 License.............................................................. 6
2.1.1 Licensed IP................................................. 6
2.1.2 Trademarks.................................................. 6
2.1.3 Connetics Improvements ..................................... 7
2.1.4 Sublicenses ................................................ 7
2.2 License to Paladin Improvements..................................... 7
2.3 Third Party Technology............................................... 7
2.3.1................................................................ 7
2.3.2................................................................ 8
2.3.3................................................................ 8
2.4 Reservation of Rights................................................ 8
2.5 Enforcement.......................................................... 8
2.5.1 Enforcement of Licensed IP ................................. 8
2.5.2 Encroachment ............................................... 9
2.6 Other Countries...................................................... 9
ARTICLE III - Product Development and Regulatory Approval ...................... 10
3.1 Product Development ................................................. 10
3.1.1 Development Committee....................................... 10
3.1.2 Development Plan............................................ 10
3.1.3 Clinical Development........................................ 10
3.1.4 Regulatory Filings.......................................... 10
3.1.5 Patent Extensions........................................... 10
3.2 Product Development Costs............................................ 11
3.2.1 General..................................................... 11
3.2.2 Quarterly Reports........................................... 11
3.3 Reproductive Indications............................................. 11
3.4 Access to Information................................................ 11
3.5 Records.............................................................. 12
ARTICLE IV - PAYMENTS AND EQUITY INVESTMENT .................................... 12
4.1 Payments to Connetics................................................ 12
4.1.1 Development Fees............................................ 12
4.1.2 Milestone Payments.......................................... 12
4.1.3 Research and Development Payments........................... 13
4.2 Payment Terms........................................................ 14
4.3 Equity Purchase...................................................... 14
4.4 Adjustments to Payment Obligations................................... 14
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE V - MANUFACTURE AND COMMERCIALIZATION .................................. 14
5.1 Manufacture ......................................................... 14
5.1.1 Clinical Supplies........................................... 14
5.1.2 Product for Commercial Sale................................. 15
5.1.3 Royalty..................................................... 15
5.1.4 Contract Manufacturing...................................... 16
5.1.5 Inability to Supply......................................... 16
5.1.6 Alternate Supply............................................ 16
5.2 Payment Terms........................................................ 17
5.2.1 Royalty Payments............................................ 17
5.2.2 Timing, Form of Payment..................................... 17
5.2.3 Nonconforming Clinical Supplies............................. 17
5.2.4 Payments for Commercial Supply.............................. 18
5.3 Product Markings..................................................... 18
5.4 Commercialization.................................................... 18
5.5 Audit................................................................ 18
5.5.1 Books and Records........................................... 18
5.5.2 Audit of Paladin's Records.................................. 19
5.5.3 Audit of Connetics' Records................................. 19
5.5.4 Audit Results: Payments..................................... 19
ARTICLE VI - WARRANTIES AND INDEMNITIES......................................... 19
6.1 Representations and Warranties of Connetics.......................... 19
6.1.1 Organization: Standing...................................... 20
6.1.2 No Conflicts................................................ 20
6.1.3 Rights to Licensed IP....................................... 20
6.1.4 No Lawsuits, etc............................................ 20
6.1.5 Third Party Rights.......................................... 20
6.1.6 No Encumbrances............................................. 20
6.1.7 No Other Agreements......................................... 20
6.1.8 Information................................................. 21
6.1.9 Testing ............................................................... 21
6.1.10 Adverse Experiences ................................................... 21
6.2 Representation and Warranties of Paladin............................. 21
6.2.1 Organization; Standing...................................... 21
6.2.2 No Conflicts................................................ 21
6.3 Disclaimer of Warranties............................................. 21
6.4 Indemnification of Paladin........................................... 22
6.5 Indemnification of Connetics......................................... 22
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
6.6 Indemnification Procedure............................................ 22
6.6.1 Notice...................................................... 22
6.6.2 Copies ..................................................... 23
6.6.3 Participation .............................................. 23
6.6.4 Control of Defense .................................................. 23
6.6.5 Settlement ................................................. 23
6.6.6 Costs and Expenses.......................................... 23
6.7 Limitation of Liability.............................................. 24
ARTICLE VII - COVENANTS ........................................................ 24
7.1 Connetics' Covenants to Paladin...................................... 24
7.1.1 Manufacture................................................. 24
7.1.2 Compliance with Laws........................................ 24
7.1.3 Permits; Licenses........................................... 24
7.1.4 Future Patents.............................................. 24
7.1.5 Insurance................................................... 25
7.1.6 Non-Compete................................................. 25
7.1.7 Commercialization........................................... 25
7.1.8 Maintenance of Patents...................................... 25
7.2 Paladin's Covenants to Connetics..................................... 25
7.2.1 Commercialization........................................... 25
7.2.2 Permits; Licenses........................................... 25
7.2.3 Future Patents.............................................. 26
ARTICLE VIII - CONFIDENTIALITY AND PUBLICITY.................................... 26
8.1 Public Relations and Announcements................................... 26
8.2 Confidentiality...................................................... 26
8.2.1 Confidential Information.................................... 26
8.2.2 Exceptions.................................................. 26
8.3 Remedy............................................................... 27
8.4 Agreement Terms...................................................... 27
ARTICLE IX - TERM AND TERMINATION .............................................. 27
9.1 Term................................................................. 27
9.2 Termination.......................................................... 27
9.2.1 For Breach by Connetics..................................... 27
9.2.2 For Breach by Paladin....................................... 28
9.2.3 Loss of Third Party Licenses................................ 28
9.2.4 Termination by Paladin...................................... 28
9.2.5 Termination for Insolvency.................................. 28
</TABLE>
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
9.3 Effect of Termination................................................ 28
9.3.1 Effect on License........................................... 28
9.3.2 Ongoing Obligations......................................... 29
9.3.3 Inventory................................................... 29
ARTICLE X - REGULATORY COMPLIANCE AND REPORTING ................................ 29
10.1 Government Inspection ............................................... 29
10.2 Adverse Experience Reporting......................................... 30
10.3 Notification and Recall.............................................. 30
10.4 Recall Expense....................................................... 31
ARTICLE XI- MISCELLANEOUS ...................................................... 31
11.1 Taxes, Tariffs, Fees ................................................ 31
11.2 Currency of Payments ................................................ 31
11.3 Compliance With Laws ................................................ 32
11.4 Dispute Resolution and Governing Law................................. 32
11.4.1 Process..................................................... 32
11.4.2 Governing Law............................................... 32
11.5 Section Headings .................................................... 32
11.6 Notices.............................................................. 32
11.7 Force Majeure........................................................ 33
11.8 Nonassignability and Binding Effect.................................. 33
11.9 Partial Invalidity .................................................. 33
11.10 No Waiver ........................................................... 33
11.11 Counterparts ........................................................ 34
11.12 Entire Agreement .................................................... 34
11.13 Independent Contractors.............................................. 34
</TABLE>
<PAGE> 6
RELAXIN
DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT
This DEVELOPMENT, COMMERCIALIZATION AND LICENSE AGREEMENT, effective as of
July 7, 1999 ("EFFECTIVE DATE") is made by and between Paladin Labs Inc., having
its principal place of business at 6111 Royalmount, Suite 102, Montreal, Quebec,
Canada H4P 2T4 ("PALADIN") and Connetics Corporation, a Delaware corporation,
having its principal place of business at 3400 West Bayshore Road, Palo Alto,
California, 94303, 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 in this Agreement.
B. Connetics and Paladin desire to collaborate to develop and commercialize
Product in the Territory (all as defined in this Agreement).
THEREFORE, the Parties agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall be deemed to have the meanings stated below:
"ADDITIONAL INDICATION(S)" means all human therapeutic indications except
DSS and Reproductive Indications.
"ADVERSE EXPERIENCE" shall have the meaning set forth in SECTION 10.2 of
this Agreement.
"AFFILIATE" means any individual, corporate or other 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.
"AGREEMENT" means this agreement together with all exhibits, schedules, and
appendices attached to this agreement, all as respectively amended, modified or
supplemented by the Parties in accordance with the terms of this agreement.
"BLA" means a Biologics License Application, or equivalent FDA application
relating to the manufacturing and marketing of biologically based pharmaceutical
products, filed with the FDA or any such comparable applications in the
Territory.
-1-
<PAGE> 7
"CLINICAL DEVELOPMENT" means all activities subsequent to the Effective
Date relating to human clinical trials including pre-clinical and additional
studies specifically required to support Regulatory Filings for the purpose of
obtaining Regulatory Approval to market and sell Product. Clinical Development
specifically excludes any activities which are part of CMC Development.
"CMC DEVELOPMENT" means all development activities relating to Product
manufacturing, scale-up, quality assurance, quality control, Product
characterization, and stability.
"COGS" means a Party's cost of producing the Product, computed in
accordance with GAAP applied on a consistent basis. Such costs shall include the
reasonable, out of pocket cost (whether incurred directly by such Party or
invoiced by any Third Party) of all raw materials, labor and overhead for
manufacturing, formulation, storage, filling, finishing, labeling, packaging,
quality assurance and quality control, shipping and distribution costs, and
technical support incurred directly and exclusively for, or proportionately
allocated to, the production of the Product, any value added taxes or
transportation charges, and any royalties (other than royalties payable pursuant
to Third Party Licenses) paid pursuant to licenses in connection with the
manufacturing process or materials used. Until such time, if ever, as Connetics
manufactures Relaxin Materials and/or Product, Connetics' COGS shall equal the
net amount invoiced by Contract Manufacturer(s) allocable to the Product for
Paladin plus ten percent (10%).
"COMMERCIALLY REASONABLE EFFORTS" means the effort by Paladin or Connetics
to deploy, in light of prevailing circumstances and taking into account Third
Party obligations and commitments, sufficient resources, capital equipment,
material and labor as might reasonably be expected to achieve in an appropriate
time-scale, the benefits which are anticipated to accrue to Paladin and
Connetics from the commercial exploitation of the Product, and if the
Commercially Reasonable Efforts are to be directed to a specific goal, then that
goal.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in SECTION
8.2.1 of this Agreement.
"CONNETICS' IMPROVEMENTS" means any inventions, discoveries, improvements
or enhancements relating to Relaxin, whether patented, patentable or not,
conceived or first reduced to practice by Connetics during the Term and any and
all intellectual property rights therein and thereto. Connetics shall promptly
notify Paladin of the details of such Connetics Improvements as soon as possible
"CONTRACT MANUFACTURER" means any Third Party contracted by Connetics to
provide manufacturing services which are material to Relaxin Materials or
Product, or any component or ingredient therein. Without limiting the foregoing,
the term "Contract Manufacturer" shall include any Third Party whose acts or
omissions in connection with its assumption of any obligation under this
Agreement or the Supply Agreement would be imputed to, and would therefore be
considered, the acts or omissions of Connetics pursuant to any applicable law or
by any Regulatory Authority.
-2-
<PAGE> 8
"CONTRACT MANUFACTURER AGREEMENT" means any contract entered into with a
Contract Manufacturer pursuant to SECTION 5.1.4 of this Agreement.
"DEFENDING PARTY" shall have the meaning set forth in SECTION 2.5.2 of this
Agreement.
"DEVELOPMENT PLAN" means the plan as amended from time to time which sets
forth, in one or more sections, (a) the Parties' strategies, plans, activities
and estimated time schedules with regard to Clinical Development and Regulatory
Filings for the United States and/or the Territory; and (b) the Parties'
respective responsibilities for such development activities. Paladin shall
develop a plan for the Territory as appropriate after the Effective Date, which
shall be subject to approval by Connetics prior to its implementation.
"DSS" means diffuse systemic sclerosis, systemic sclerosis, progressive
systemic sclerosis, and/or systemic sclerosis with diffuse scleroderma.
"ENFORCING PARTY" shall have the meaning set forth in SECTION 2.5.1 of this
Agreement.
"FDA" means the U.S. Food and Drug Administration or successor agency.
"FAIR MARKET VALUE" means the price of Connetics' Common Stock calculated
as the average closing price for the ten trading days prior to the Effective
Date, as reported by The Nasdaq National Market.
"FIELD" means the treatment of DSS and all Additional Indications.
"FORMULARY PRICE" means (solely for purposes of this Agreement) the higher
of [*] for the Product or [*] for the Product.
"GAAP" (or Generally Accepted Accounting Principles) means generally
accepted accounting and reporting assumptions, standards, and practices as
applied in the United States and as prescribed by authoritative bodies such as
the Financial Accounting Standards Board.
"INDEMNITEE" and "INDEMNITOR" shall have the meanings set forth in SECTION
6.6 of this Agreement.
"LICENSED IP" means the Relaxin Patents, Relaxin Information and Third
Party Licenses.
"LOSSES" shall have the meaning set forth in SECTION 6.4 of this Agreement.
"MEDEVA AGREEMENT" means the Relaxin Development, Commercialization and
License Agreement effective as of January 11, 1999, by and between Medeva
Pharmaceuticals, Inc. ("MEDEVA") and Connetics.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
-3-
<PAGE> 9
"MEDEVA RELAXIN INFORMATION" means Relaxin Information (as that term is
defined in the Medeva Agreement) developed by Medeva and licensed to Connetics
pursuant to the Medeva Agreement.
"NET SALES" means gross amounts invoiced by Paladin (and/or an Affiliate of
Paladin or a distributor appointed by Paladin) for sales of Product in the
Territory to a Third Party, less deductions for the following amounts directly
chargeable to such Product:
(1) customary trade, quantity or cash discounts and rebates (including
non-cash rebates), actually allowed and taken;
(2) credits actually granted upon, or allowances for estimated amounts
for, returns, claims, rejections, rebates and chargebacks;
(3) an allowance for uncollectible amounts or bad debts; and
(4) recalls.
Sales of Product between a Party and its Affiliates and sales solely for
research or testing purposes shall be excluded from the computation of Net
Sales.
"NON-DEFENDING PARTY" shall have the meaning set forth in SECTION 2.5.2 of
this Agreement.
"NON-ENFORCING PARTY" shall have the meaning set forth in SECTION 2.5.1 of
this Agreement.
"PALADIN IMPROVEMENTS" means any inventions, discoveries, improvements or
enhancements relating to Relaxin, whether patentable or not, conceived or first
reduced to practice by Paladin during the Term and any and all intellectual
property rights therein and thereto. Paladin shall notify Connetics of the
details of such Paladin Improvements as soon as possible.
"PRODUCT" means a commercial pharmaceutical product containing Relaxin for
use in the Field.
"PRODUCT DEVELOPMENT" shall be comprised of: (1) CMC DEVELOPMENT, (2)
CLINICAL DEVELOPMENT, and (3) REGULATORY FILINGS.
"REGULATORY APPROVAL" means all approvals, including pricing approvals for
reimbursement purposes, from the appropriate Regulatory Authorities (a) in the
United States or (b) in the Territory that are required to promote and market
the Product in the relevant country.
"REGULATORY AUTHORITY" means the FDA or any equivalent or additional
governmental or regulatory agencies in the Territory.
-4-
<PAGE> 10
"REGULATORY FILINGS" means all activities relating to the filing for and
procurement of Regulatory Approval, including but not limited to price
reimbursement approval for the marketing and sale of Product from the relevant
Regulatory Authorities.
"RELAXIN" means a polypeptide hormone which both (1) has an amino acid
sequence corresponding to all or a part of the sequence of the polypeptide
described in EXHIBIT A-1, and peptide derivatives thereof and (2) is an agonist
to any of the biological activities of the substances identified in EXHIBIT A-2.
"RELAXIN INFORMATION" means trade secrets, know-how, information and
proprietary rights in any tangible or intangible form, other than Relaxin
Patents but including Connetics' trademarks and tradenames to the extent
licensed to Paladin pursuant to SECTION 2.1.2, and Connetics Improvements to the
extent licensed to Paladin pursuant to SECTION 2.1.3, relating to the
development and commercialization of Relaxin, Relaxin Materials and the Product,
including but not limited to any pre-clinical, clinical and regulatory
information that Paladin may need for the purposes of this Agreement that: (1)
is owned by Connetics and/or its Affiliates, or (2) is owned by a Third Party,
which Connetics and/or its Affiliates has a right to license or is not
prohibited from disclosing to Paladin and its Affiliates under this Agreement,
which Relaxin Information shall specifically include Medeva Relaxin Information.
"RELAXIN MATERIALS" means bulk Relaxin or formulated Relaxin for use in
Product Development and/or procuring Regulatory Approval for the Product.
"RELAXIN PATENTS" means the patents and patent applications including any
reissues, renewals, extensions, substitutions, divisionals, continuations and
continuations-in-part of such patents or patent applications, relating to
Relaxin or the Product, owned or controlled by Connetics and/or its Affiliates
or included in the Third Party Licenses which: (1) are in existence as of the
Effective Date or which come into existence during the Term of this Agreement;
or (2) are licensed to Connetics under the Third Party Licenses. The Relaxin
Patents include, without limitation, the patents and patent applications set
forth on EXHIBIT B to this Agreement.
"REPRODUCTIVE INDICATION" shall have the meaning set forth in SECTION 3.3
of this Agreement.
"SPECIFICATIONS" means the specifications for the Relaxin Materials and the
Product as set forth in EXHIBIT A-3 to this Agreement, and such changes to such
specifications as the Parties may subsequently agree to in writing.
"SUPPLY AGREEMENT" means the agreement to be entered into at a future date
pursuant to SECTION 5.1.2.
"TERM" shall have the meaning set forth in SECTION 9.1 of this
Agreement.
"TERRITORY" means Canada.
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"THIRD PARTY LICENSES" means the licenses to Third Party intellectual
property rights including without limitation patents, patent applications, trade
secrets, and/or know-how covering, or related to, Relaxin, Relaxin Materials and
Product, under which Connetics and/or its Affiliates has a right to grant a
sublicense to Paladin and its Affiliates. A list of the Third Party Licenses as
of the Effective Date is attached to this Agreement as EXHIBIT C-1. In addition,
EXHIBIT C-2 lists all other agreements by which Connetics has licensed its
rights to Relaxin to Third Parties.
"THIRD PARTY(IES)" means any person or entity other than Paladin,
Connetics, or an Affiliate of Paladin or Connetics.
"THIRD PARTY WORK" shall have the meaning set forth in SECTION 7.1.6 of
this Agreement.
ARTICLE II
LICENSE
2.1 LICENSE.
2.1.1 LICENSED IP. Subject to the terms and conditions of this
Agreement, during the Term, Connetics grants to Paladin and its Affiliates an
exclusive license, solely within the Territory and in the Field, with the right
to sublicense as set forth in SECTION 2.1.4, to use the Licensed IP, and to
develop, use, sell, offer for sale and import the Product for DSS and Additional
Indications.
2.1.2 TRADEMARKS. Subject to the terms and conditions of this
Agreement, during the Term, Connetics grants to Paladin an exclusive,
royalty-free license to use the trademarks CONXN(R) and ConXn(R) (and any
variation thereof) for the advertising, promotion, marketing, distribution and
sale of Product in the Territory. If Paladin chooses to use the trademarks, then
in addition to the requirements set forth in SECTION 5.3, Paladin shall display
the marks in a style or size of print distinguishing the mark from any
accompanying wording or text. Where feasible, Paladin shall display the
appropriate trademark symbol to the right of and slightly above or below the
last letter of the word, or to the right of the logo. Except as expressly
permitted in this Agreement, no right or license is granted to Paladin 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. If at any time during the Term Connetics determines to use a
different trademark in connection with sales of Product outside the Territory,
Connetics agrees to make such trademarks available to Paladin on terms no less
favorable than Connetics makes the same marks available (if at all) to other
Third Party Licensees of Connetics.
2.1.3 CONNETICS IMPROVEMENTS. Subject to the terms and conditions of
this Agreement, Connetics grants to Paladin and its Affiliates an exclusive,
royalty-free license in the Field, with the right to sublicense as provided in
this Agreement, to any Connetics Improvements
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in the Territory for use in connection with the sale of Product. Notwithstanding
the foregoing sentence, to the extent any Connetics Improvement does not relate
exclusively to the Licensed IP or Product, Connetics shall have the right to use
or license such Connetics Improvement for any purpose outside the Field
throughout the Territory and for any purpose outside the Territory. Connetics
shall have no duty to notify Paladin of the details of any Connetics Improvement
to the extent that such disclosure would adversely affect the patentability of
the matters disclosed.
2.1.4 SUBLICENSES. Paladin shall have the right to grant sublicenses
under the license set forth in SECTIONS 2.1.1, 2.1.2 and 2.1.3, and to employ
Affiliates and Third Parties in connection with the performance of its rights
and obligations under this Agreement, provided that (a) the execution of a
sublicense or a subcontract shall not in any way diminish, reduce or eliminate
any of Paladin's obligations under this Agreement, and Paladin shall remain
primarily liable for such obligations, (b) Paladin shall notify Connetics within
five (5) business days after entering into such a sublicense, and shall provide
a copy of the sublicense agreement (with non-relevant passages appropriately
redacted) to Connetics within five (5) business days after execution, and (c)
Paladin shall only grant a sublicense to any Affiliate or Third Party which
undertakes to perform those obligations of this Agreement relevant to such
sublicense in accordance with the terms of this Agreement, including
specifically the obligation under SECTION 7.2.1.
2.2 LICENSE TO PALADIN IMPROVEMENTS. Subject to the terms and
conditions of this Agreement, Paladin grants to Connetics and its Affiliates an
exclusive, non-transferable, royalty-free license in the Field, without the
right to sublicense (except as provided in this Agreement), to any Paladin
Improvements in all territories of the world excluding the Territory for use in
connection with the development, manufacture and sale of Product.
Notwithstanding the foregoing sentence, to the extent any Paladin Improvement
does not relate exclusively to the Licensed IP or Product, Paladin shall have
the right to use or license such Paladin Improvement for any purpose in any
territory in the world. Paladin shall have no duty to notify Connetics of the
details of any Paladin Improvement to the extent that such disclosure would
adversely affect the patentability of the matters disclosed.
2.3 THIRD PARTY TECHNOLOGY.
2.3.1 The Parties acknowledge that the licenses granted to
Paladin in this Agreement include sublicenses under Third Party Licenses.
Connetics shall be solely responsible for all payments under the Third Party
Licenses entered into prior to the Effective Date and all amendments,
restatements or renewals thereof.
2.3.2 Subject to SECTION 6.1.3, Connetics shall offer to Paladin
a sublicense under any new Third Party License that Connetics enters into after
the Effective Date related to the manufacture, sale or use of the Product in the
Territory. The fundamental requirement of such a sublicense shall be that
Paladin (a) pay [*] and (b) agree to abide by the terms and conditions of such
Third Party Licenses applicable to Paladin as Connetics' sublicensee. Paladin
shall have no obligation under this Agreement to agree to take a sublicense on
those or any terms.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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2.3.3 Connetics shall abide by the terms and conditions of all
Third Party Licenses to maintain the Third Party Licenses to which Paladin has
taken a sublicense for Paladin as Connetics' sublicensee. Connetics agrees not
to terminate or assign, nor by act or omission permit the termination or
assignment of, any of the Third Party Licenses to which Paladin has taken a
sublicense, nor to amend or by act or omission permit the amendment of any such
Third Party Licenses to the extent such an amendment would adversely affect
Paladin's rights under this Agreement, without Paladin's prior written consent,
which consent may be granted or withheld in Paladin's sole discretion. Within
[*] entering into any amendment of a Third Party License, Connetics shall notify
Paladin and provide Paladin with a copy of the amendment.
2.4 RESERVATION OF RIGHTS. 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 under this Agreement, and each Party hereby reserves all rights not
expressly granted under this Agreement, 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 under this Agreement.
2.5 ENFORCEMENT.
2.5.1 ENFORCEMENT OF LICENSED IP.
(a) A Party shall promptly notify the other Party if it
becomes aware of any infringement or misappropriation of the Licensed
IP. As between the Parties, Connetics shall 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. Connetics shall use Commercially Reasonable Efforts,
at its sole expense, to protect the exclusive license granted to
Paladin 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.
(b) If Connetics (i) decides not to enforce the Licensed IP,
or having commenced an action fails to pursue it, or (ii) does not
bring such action within ninety (90) days after notice of Paladin's
request to enforce the Licensed IP, then Paladin may do so at its own
expense.
(c) In either case, the Party enforcing the Licensed IP at
the relevant time (the "ENFORCING PARTY") shall be entitled to recover
all of its actual costs, expenses and fees incurred in such action
from the damages awarded, and any remaining amount (subject to any
amounts payable to any Third Party licensee as a result of the damages
awarded) shall be payable [*] to the Enforcing Party and [*] to the
Party not enforcing the Licensed IP (the "NON-ENFORCING PARTY"). The
Enforcing Party shall, in its sole discretion, have the right to file
and control such action as it deems warranted; provided, however, that
the Enforcing Party shall provide to the Non-enforcing
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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Party and its attorneys the following: (i) reasonable notice of, and
permission to attend, all meetings and proceedings related to such
actions; (ii) copies of all documents (including without limitation
correspondence, notices, filings, responses, requests, orders and
rulings) related to such action in sufficient detail and with
sufficient time to enable the Non-enforcing Party to review and
provide comments on such documents; and (iii) timely information and
updates regarding the status of such action.
(d) The Non-enforcing Party agrees to cooperate with the
Enforcing Party 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 Non-enforcing Party may
choose to be represented by counsel of its choice and at its own
expense at all meetings, and to participate in all discussions, but
counsel for the Non-enforcing Party shall not be entitled to appear in
any legal or judicial proceedings.
2.5.2 ENCROACHMENT. The Royalties payable by Paladin pursuant to
SECTION 5.1.3 shall be reduced by [*] during any continuing period of
non-exclusivity in the Territory under the following circumstances: (a) Paladin
notifies Connetics that any pharmaceutical product containing Relaxin is being
marketed or sold in the Field in the Territory during the Term of this Agreement
by any Third Party, and (b) either (i) the Parties determine that the Licensed
IP is not enforceable or infringed or (ii) 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 (c) total market share of all
pharmaceutical products containing Relaxin sold in the Field in the Territory
(not including the Product marketed by Paladin) reach twenty percent (20%) or
more of the overall market for such pharmaceutical products, and (d) Connetics
is not an Enforcing Party pursuant to SECTION 2.5.1(B). Nothing in this Section
shall be construed as limiting any other remedies Paladin might have in law
(including, without limitation, pursuant to this Agreement) or equity under such
circumstances.
2.6 OTHER COUNTRIES. Connetics retains the right to grant licenses
for the sale, marketing and distribution of the Product in all countries outside
the Territory; provided, however, that Connetics agrees that for each such
license entered into after the Effective Date, it will impose on each such
licensee, to the extent permitted by applicable law, a covenant prohibiting the
licensee from: (a) seeking approval, directly or indirectly, from the relevant
Regulatory Authorities, to qualify facilities for manufacturing or finishing the
Product inside the Territory or to label or re-label the Product in a manner
that would permit it to be marketed or sold inside the Territory, (b) selling or
exporting the Product to any Third Party for use or resale inside the Territory,
(c) or selling the Product to any Third Party that Connetics has reason to
believe intends to resell or export the Product inside the Territory.
ARTICLE III
PRODUCT DEVELOPMENT AND REGULATORY APPROVAL
3.1 PRODUCT DEVELOPMENT.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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3.1.1 DEVELOPMENT COMMITTEE. The obligations and relationship
between the Parties pursuant to this Agreement shall be governed by a
development committee (the "DEVELOPMENT COMMITTEE"). Initially, and until such
time (if any) as Medeva objects, this provision shall be satisfied by the
inclusion of two representatives of Paladin on the development committee
established pursuant to the Medeva Agreement. If at any time Medeva asks that
Paladin cease to be represented on that committee, then Connetics and Paladin
shall, within thirty (30) days after receipt of notice from Medeva, establish a
separate Development Committee which will have the obligation to provide overall
direction, monitor progress, manage information exchange between the Parties,
decide key strategies and solve problems with respect to the Clinical
Development of and Regulatory Filings for the Product in the Territory. At the
first meeting of the Development Committee, the Parties shall establish a
regular meeting time and structure.
3.1.2 DEVELOPMENT PLAN. Product Development shall be performed in
accordance with this SECTION 3.1, and the Development Plan. The Development Plan
may be amended from time to time during the Term to reflect the actual needs of
Product Development.
3.1.3 CLINICAL DEVELOPMENT. Connetics shall conduct Clinical
Development in accordance with the Development Plan.
3.1.4 REGULATORY FILINGS. Connetics shall be responsible for all
Regulatory Filings for the Product in the United States; provided that Paladin
may elect to attend meetings with the FDA for the purpose of obtaining
Regulatory Approval in the U.S., if the FDA does not object to Paladin's
attendance and if including Paladin is otherwise practicable. In any event,
Paladin shall be entitled to an update (including any written minutes) of any
meeting with the FDA that Paladin is not able or permitted to attend related to
Regulatory Filings for the Product in the United States. Paladin shall be
responsible for all Regulatory Filings for the Product in the Territory;
provided that Connetics may elect to participate in meetings with the applicable
Regulatory Authorities in the Territory for the purpose of obtaining relevant
Regulatory Approval(s). Each Party shall keep the other fully informed of all
communications with the regulatory authorities and will consult with the other
before submitting applications.
3.1.5 PATENT EXTENSIONS. The Parties shall cooperate with each
other to the extent necessary to obtain any available extensions of the term of
the Patents in the Territory.
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3.2 PRODUCT DEVELOPMENT COSTS.
3.2.1 GENERAL. Connetics will pay [*] of all CMC Development
costs for the Product worldwide, and Connetics will pay [*] of the expenses
associated with Clinical Development and Regulatory Approval for the Product in
the United States (including expenses associated with products or services that
are necessary in the United States but that can be used in the Territory);
provided that Paladin shall make the contributions as provided in SECTION 4.1.3.
In addition, Paladin will pay [*] of the expenses that are unique to the
Clinical Development and Regulatory Approval for the Product solely in the
Territory, and Connetics will not incur any such expenses without Paladin's
written authorization.
3.2.2 QUARTERLY REPORTS. Within [*] days after the end of each
calendar quarter, commencing with the quarter ending June 30, 1999, each Party
shall provide to the other Party a quarterly written progress report which
shall:
(a) summarize the Product Development activities and
progress during the preceding calendar quarter; and
(b) summarize the development activities and update the
timetables of such activities expected to be conducted and development
costs estimated to be incurred in the following calendar quarter.
3.3 REPRODUCTIVE INDICATIONS. Connetics shall use Commercially
Reasonable Efforts to secure exclusive, worldwide rights to indications outside
the Field ("REPRODUCTIVE INDICATIONS"). Upon securing such exclusive rights,
Reproductive Indications shall be considered Additional Indications. If Paladin
elects to participate in the development and commercialization of Relaxin for
Reproductive Indications, Paladin shall pay [*]. Furthermore, the royalty to be
paid by Paladin to Connetics pursuant to SECTION 5.1.3 will be increased as to
Reproductive Indications in the Territory by the amount of any additional
royalty to be paid to Third Parties for Reproductive Indications in the
Territory. If Paladin elects not to participate in development and
commercialization, Connetics may request the right to commercialize Product for
Reproductive Indications within the Territory on an exclusive basis without the
right to sublicense, but Connetics shall not so commercialize within the
Territory without Paladin's consent, which consent shall not unreasonably be
withheld. If Connetics is unable to secure exclusive worldwide rights to
Reproductive Indications, Connetics shall not assign its co-exclusive rights in
the Territory to any Third Party without Paladin's consent. Furthermore,
Connetics shall use Commercially Reasonable Efforts to cause Genentech, Inc. to
agree that Connetics may assign its co-exclusive rights to Paladin in the
Territory.
3.4 ACCESS TO INFORMATION. Paladin will consult with Connetics on the
CMC Development and Clinical Development that will be necessary to accumulate
data required for submitting a BLA for the Product in the Territory. It is the
intention of this provision that the Parties cooperate with one another to
support CMC Development, Clinical Development and Regulatory Filings to optimize
commercial success in the U.S. and in the Territory. Connetics
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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will make available to Paladin, and Paladin under the license granted under this
Agreement shall be entitled to use in the Field in the Territory, all Relaxin
Information developed by or for Connetics with respect to the submission of the
BLA by Connetics, and all Medeva Relaxin Information. Paladin will make
available to Connetics, and Connetics under the license granted under this
Agreement shall be entitled to use, all Relaxin Information developed by or for
Paladin with respect to the submission of the BLA by Paladin in the Territory.
3.5 RECORDS. Connetics shall maintain, and shall cause its
Affiliates, Contract Manufacturers, and other agents to maintain, all records
necessary to comply with applicable laws, rules and regulations relating to the
manufacture and storage of Relaxin, Relaxin Materials and the Product (in bulk
or finished form). All such records shall be maintained for such period as may
be required by law, rule or regulation; provided, however, that all records
relating to the manufacture, stability and quality control of each batch or
partial batch of the Product shall be retained at least until the first
anniversary of the end of the approved shelf life for all Product from such
batch or partial batch; and provided further that neither Party shall destroy
such records without first notifying the other Party and giving the other Party
an opportunity to take control of such records if the Party being notified
believes that applicable law or its own written corporate policy requires such
records to be maintained.
ARTICLE IV
PAYMENTS AND EQUITY INVESTMENT
4.1 PAYMENTS TO CONNETICS. The Parties agree that in consideration
for the rights granted by Connetics in this Agreement, Paladin will make the
following payments to Connetics in accordance with this ARTICLE IV.
4.1.1 DEVELOPMENT FEES. For use in connection with, and for
purposes of the continued development of the Product, Paladin agrees to pay to
Connetics U.S. $400,000 cash upon execution of the Agreement.
4.1.2 MILESTONE PAYMENTS. At the time each of the following
milestones is achieved, Paladin shall pay Connetics the amounts set forth
opposite them:
<TABLE>
<CAPTION>
Milestone Amount
<S> <C>
[*] [*] if completed by
[*]
[*] if [*]
[*] if [*]
[*] if [*]
</TABLE>
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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<TABLE>
<CAPTION>
Milestone Amount
<S> <C>
[*]
[*] if [*]
[*] if [*]
Zero if [*]
[*] [*]
[*] [*]
[*] One-time payment of [*]
for [*]
</TABLE>
4.1.3 RESEARCH AND DEVELOPMENT PAYMENTS. To provide ongoing
support for Product Development through the first full calendar quarter after
submission of the BLA in the United States (the "Final Quarter"), and subject to
the exceptions described in this section below, Paladin shall pay Connetics
according to the following schedule:
<TABLE>
<CAPTION>
Amount Due Due Date
<S> <C>
[*] [*]
</TABLE>
Notwithstanding the foregoing payment schedule, Paladin shall not be required to
pay Connetics more than [*] of the amount that Medeva PLC pays to Connetics for
any given calendar quarter pursuant to Section 4.1.3 of the Medeva Agreement.
Should the Final Quarter conclude before a Due Date, then Paladin will make one
final payment to Connetics in support of Product Development in lieu of any
further "Amounts Due" listed above. The final payment shall be an amount equal
to the next "Amount Due" and shall be payable on the corresponding Due
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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Date. Upon request, Connetics shall furnish Paladin with a statement of expenses
prepared on a cash basis of the costs incurred by Connetics in connection with
its Product Development.
4.2 PAYMENT TERMS. Connetics or Paladin, as the case may be, shall
notify the other Party in writing within [*] after a milestone under SECTION
4.1.2 is achieved. The payments pursuant to SECTION 4.1.2 shall be made within
[*] after (a) the milestone is achieved, in the case of milestones in the
Territory, or (b) Paladin receives such written notice from Connetics that the
milestone has been achieved, supported by proper and verifiable backup
documentation, in the case of all other milestones.
4.3 EQUITY PURCHASE. Upon execution of the Agreement, and promptly
following approval of the Vancouver Stock Exchange as contemplated in SECTION
9.1, below, Paladin (directly or through its Affiliates) shall purchase $400,000
of Connetics' common stock at a price equal to a [*] The purchase of Connetics
stock shall be pursuant to a Stock Purchase Agreement in the form attached to
this Agreement as EXHIBIT D.
4.4 ADJUSTMENTS TO PAYMENT OBLIGATIONS. Connetics acknowledges that
Paladin reasonably anticipates being able to file for HPB approval without
having to do significant clinical testing of Relaxin on Canadian subjects, in
reliance on clinical trials in the U.S. Accordingly, Connetics agrees that it
will renegotiate this Agreement in good faith to adjust the royalty obligations
under this ARTICLE IV to compensate Paladin for unanticipated additional
expenses incurred or delays suffered (or expected to be incurred or suffered) by
Paladin as a result of a decision by the HPB within [*] after the
Effective Date that Paladin must reference clinical trials in Europe, or must
conduct additional animal or human trials in Canada prior to approval.
Specifically, [*]
ARTICLE V
MANUFACTURE AND COMMERCIALIZATION
5.1 MANUFACTURE.
5.1.1 CLINICAL SUPPLIES. Connetics shall, and shall cause its
Contract Manufacturer(s) to, commencing from the Effective Date until Paladin
receives Regulatory Approval to market the Product in the Territory, use
Commercially Reasonable Efforts to manufacture for and supply to Paladin, and
Paladin shall (subject to the terms of this Agreement) purchase at [*] all
Paladin's required quantities of Relaxin Materials for use in Product
Development; provided that Paladin shall not transfer the Relaxin Materials to
any Third Party at any time except to the extent transfer is required for
Clinical Development, Regulatory Filings or Regulatory Approval related to the
Product in the Field and Territory. If Connetics
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separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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decides that change or modification of the production procedure of the Relaxin
Materials is necessary during the Term for any reason, Connetics shall promptly
notify Paladin in writing of the need for such change or modification.
5.1.2 PRODUCT FOR COMMERCIAL SALE. Commencing upon Paladin's
initial purchase order until the termination or expiration of this Agreement,
Connetics shall, and shall cause its Contract Manufacturer(s), to use
Commercially Reasonable Efforts to manufacture for and supply to Paladin all of
Paladin's requirements for Product on the terms set forth in a Supply Agreement
to be entered into as soon as practicable after Paladin's decision to proceed
with the first Regulatory Filing in the Territory, the outlined terms of which
are reflected in EXHIBIT E. The price to Paladin for commercial supply of
Product shall be [*] plus the royalty on Paladin's Net Sales of Product in the
Territory calculated pursuant to SECTION 5.1.3. Notwithstanding the foregoing,
if the price to Paladin of Product calculated in accordance with SECTIONS 5.1.2
and 5.1.3 exceeds [*], the Parties shall negotiate in good faith a new price for
the Product. Such negotiations can be requested by either Party after [*] and
thereafter no more frequently than every [*] Notwithstanding the foregoing,
either Party can request such negotiations earlier should an event outside the
Parties' control result in the price to Paladin of the Product exceeding [*] If
following any renegotiation requested by Paladin, the price to Paladin falls
below the [*] the price shall be reset to equal [*] Solely for purposes of this
Agreement, and by way of illustration, the Parties agree to negotiate in good
faith a new price for the Product if [(A / B) + (C / D)] > E([*])], where:
A = the total of Connetics' COGS invoiced to Paladin over [*]
B = the amount of Product sold to Paladin over [*]
C = the applicable royalty payable by Paladin pursuant to SECTION
5.1.3 over [*]
D = the amount of Product sold by Paladin over [*] and
E = Paladin's Net Selling Price averaged over [*]
Subject to SECTION 5.1.5 below, during the Term, Paladin shall purchase all its
requirements for Product from Connetics. Upon Paladin'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 Paladin.
5.1.3 ROYALTY. Paladin shall pay Connetics a royalty equal to [*]
of Paladin's annual Net Sales in the Territory up to [*] plus [*] of Paladin's
annual Net Sales in the Territory over [*]
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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5.1.4 CONTRACT MANUFACTURING.
(a) Connetics may contract with one or more Contract
Manufacturers to perform any or all of its obligations under this
Agreement and the Supply Agreement, provided that Connetics provides
Paladin with a true and accurate copy of each such Contract
Manufacturer Agreement.
(b) Connetics agrees to use Commercially Reasonable Efforts
to include in each Contract Manufacturer Agreement the following
provisions:
(i) a prohibition against sublicensing by such Contract
Manufacturer of Licensed IP licensed to such Contract
Manufacturer by Connetics;
(ii) a prohibition against the sale by such Contract
Manufacturer to any Third Party of (A) Relaxin for use in any
product to be sold or distributed in the Territory or (B) Product
for resale (other than by Connetics to Paladin, or by Paladin) in
the Territory, and
(iii) a right for Connetics to terminate such Contract
Manufacturer Agreement in the event of a breach of the terms set
forth in either of (b)(i) or (b)(ii) above.
(c) The fact that Connetics may have entered into one or
more Contract Manufacturer Agreements shall not in any way diminish,
reduce, or eliminate any of Connetics' obligations under this
Agreement.
5.1.5 INABILITY TO SUPPLY. If Connetics fails for any
reason, including without limitation a force majeure event described in SECTION
11.7, to deliver Relaxin Materials and/or Product to Paladin, and such inability
to supply continues for more than [*] without a plan (acceptable to Paladin) by
which Connetics proposes to cure the inability to supply within [*] after the
inability first impacted Paladin, then Connetics hereby agrees to allocate to
Paladin a percentage of available Product equivalent to the percentage of sales
of Product in the Territory compared to sales of Product throughout the world in
the preceding [*] Alternatively, Paladin shall have the right under such
circumstances to contract with another supplier. At Paladin's request, Connetics
agrees to use Commercially Reasonable Efforts to secure the agreement of Medeva
to supply Product to Paladin in such circumstances.
5.1.6 ALTERNATE SUPPLY. Connetics agrees to use Commercially
Reasonable Efforts to cause at least two sources of supply of Relaxin to become
and remain pre-qualified as soon as practicable after the first Regulatory
Approval and during the remainder of the Term of this Agreement.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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5.2 PAYMENT TERMS.
5.2.1 ROYALTY PAYMENTS. Paladin shall remit royalty payments
to Connetics quarterly, within [*] after the end of each calendar quarter with
respect to Paladin's Net Sales in the Territory during that quarter.
5.2.2 TIMING, FORM OF PAYMENT. All payments payable by
Paladin to Connetics pursuant to this ARTICLE 5 shall be made in accordance with
SECTION 11.2. Upon shipment of clinical supplies pursuant to SECTION 5.1.1,
Connetics shall invoice Paladin, and Paladin shall pay the invoice within thirty
(30) days after receipt of the invoice. All payments to Connetics by Paladin
under this Agreement shall be made in United States dollars by wire transfer (or
such other reasonable means as Connetics may direct) to such United States bank
account as Connetics may designate from time to time.
5.2.3 NONCONFORMING CLINICAL SUPPLIES.
(a) Within [*] after the delivery of Relaxin Materials
and the accompanying Certificate of Analysis to Paladin, Paladin shall
submit to Connetics in writing any claim that Relaxin Materials do not
conform with the Specifications, accompanied by a report of Paladin's
analysis (which analysis shall be conducted in good faith) and a
sample of the Relaxin Materials at issue, explaining in reasonable
detail the basis on which the allegedly nonconforming Relaxin
Materials does not meet the Specifications. Paladin shall not be
obligated to pay for such nonconforming shipment of Relaxin Materials.
Only those tests listed in the Specifications may be used to
demonstrate nonconformance of Relaxin Materials.
(b) Connetics shall conduct its own analysis of the
sample in good faith within [*] after the receipt by Connetics of the
report and sample from Paladin, and provide the results to Paladin. If
after Connetics' own analysis of the sample Connetics agrees with the
claim of nonconformity, Paladin shall promptly inform Connetics if
Paladin wishes to have Connetics replace the nonconforming Relaxin
Materials with conforming Relaxin Materials. If Paladin wishes to
receive such replacement Relaxin Materials, Connetics shall provide
such replacement as soon as reasonably practicable thereafter, in
which case Paladin shall be obligated to pay only for such replacement
Relaxin Materials. Paladin shall not be obligated to pay for the
nonconforming Relaxin Materials, and Connetics shall: (i) credit
Paladin for the amount paid by Paladin for the nonconforming Relaxin
Materials if Paladin has already paid for such nonconforming Relaxin
Materials or (ii) cancel its invoice to Paladin for such nonconforming
Relaxin Materials if Paladin has not yet paid for such nonconforming
Relaxin Materials, and Paladin shall not be obligated to pay such
canceled invoiced amount. If, after its own analysis, Connetics does
not agree with the claim of nonconformity or determines that Paladin
is responsible for the nonconformity, the Parties shall in good faith
discuss and agree upon a settlement of the issue, and Paladin shall
not be obligated to pay for such alleged nonconforming Relaxin
Materials until such settlement is reached.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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(c) After Connetics has agreed that the Relaxin
Materials shipment is nonconforming, and if the nonconformity is not
the fault of Paladin, then Paladin shall return or destroy it at
Connetics' request and cost in the most cost effective and
environmentally safe and appropriate manner available, consistent with
federal, state and local laws and regulations.
(d) If conforming Relaxin Materials supplied under this
Agreement become nonconforming or unsuitable at no fault of Connetics,
Paladin will remain obligated to pay Connetics for such Relaxin
Materials. At Connetics' request, Paladin shall return such unsuitable
Relaxin Materials to Connetics. Otherwise, Paladin shall destroy it in
the most environmentally safe and appropriate manner available,
consistent with federal, state and local laws and regulations.
5.2.4 PAYMENTS FOR COMMERCIAL SUPPLY. All payments by
Paladin for commercial supplies shall be made in accordance with the
Supply Agreement.
5.3 PRODUCT MARKINGS. Paladin shall market and sell Product in
the Territory as Paladin's products under trademarks selected and owned or
controlled by Paladin; provided, however, to the extent Paladin determines to
use any trademarks owned by Connetics each Product marketed and sold by Paladin
under this Agreement shall be marked: (a) in accordance with the provisions of
SECTION 2.1.2; (b) with a notice that such Product is sold under a license from
Connetics Corporation; and (c) with all patent and other intellectual property
notices relating to the Licensed IP as may be required by applicable law.
5.4 COMMERCIALIZATION. After obtaining Regulatory Approval for
the Product in the Territory, Paladin shall use Commercially Reasonable Efforts
to develop and commercialize the Product in the Territory. Connetics and Paladin
shall jointly agree on the copy platform for promotional materials and, subject
to the restrictions on trademark usage set forth in SECTIONS 2.1.2 and 5.3,
Paladin may create and develop promotional materials related to the Product
using, and based on, materials created by or for Connetics; provided, however,
Paladin will not, publish or distribute any such promotional material (or other
material) with respect to the Product that Connetics has not approved. Except as
otherwise mutually agreed, Paladin shall bear all costs and expenses related to
commercializing the Product in the Territory. In addition, and subject to
availability (including the need to allocate such resources among multiple
licensees), Connetics agrees to sell to Paladin tradepacks, placebos and other
sales and marketing materials relating to the Product that Connetics develops at
a price equal to Connetics' cost of materials for same. Paladin may, at its
option, participate in any training sessions that Connetics holds for its own
salesforce regarding the Product, provided that Paladin shall bear its expenses
associated with training the Paladin salesforce.
5.5 AUDIT.
5.5.1 BOOKS AND RECORDS. Each Party agrees to maintain and
cause its Affiliates and, to the extent possible, cause its Contract
Manufacturers, to maintain complete and accurate
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<PAGE> 24
books and records of account so as to enable the other Party to verify amounts
due and payable under this Agreement. In particular, each Party shall preserve
and maintain all such records and accounts required for audit for a period of
four (4) years after the calendar quarter for which the record applies.
5.5.2 AUDIT OF PALADIN'S RECORDS. Upon two (2) weeks notice
to Paladin, Connetics shall have the right to have an independent certified
public accountant, selected by Connetics and reasonably acceptable to Paladin,
audit Paladin's records during normal business hours to verify all records
pertaining to the calculation of Paladin's Net Sales in the Territory; provided,
however, that such audit shall not take place more frequently than once a year
and shall not cover records for more than the preceding four (4) years. Except
in the event that the audit reveals fraud, Connetics shall have no right under
this Section to audit records for periods which have already been audited under
this provision.
5.5.3 AUDIT OF CONNETICS' RECORDS. Upon two (2) weeks notice
to Connetics, Paladin shall have the right to have an independent certified
public accountant, selected by Paladin and reasonably acceptable to Connetics,
audit Connetics' records during normal business hours to verify all records
pertaining to the calculation of Connetics' COGS; provided, however, that such
audit shall not take place more frequently than once a year and shall not cover
records for more than the preceding four (4) years. Except in the event that the
audit reveals fraud, Paladin shall have no right under this Section to audit
records for periods which have already been audited under this provision.
5.5.4 AUDIT RESULTS: PAYMENTS. 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 [*] error in
payment in favor of the audited Party 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 the
payment was originally due at [*] plus the then current prime rate established
by the U.S. Federal Reserve Bank. Any dispute between the Parties with respect
to the results of any dispute shall be resolved in accordance with SECTION 11.4
of this Agreement. All information resulting from such audits conducted pursuant
to this SECTION 5.5 shall be kept confidential pursuant to SECTION 8.2. 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.
ARTICLE VI
WARRANTIES AND INDEMNITIES
6.1 REPRESENTATIONS AND WARRANTIES OF CONNETICS. Connetics
represents and warrants to Paladin as follows:
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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6.1.1 ORGANIZATION; STANDING. Connetics is duly organized,
validly existing and in good standing and has the corporate power and authority
to execute and deliver this Agreement and the other agreements contemplated by
this Agreement, including the Stock Purchase Agreement.
6.1.2 NO CONFLICTS. The execution, delivery and performance
of this Agreement have been validly authorized by Connetics; neither the
execution and delivery of, or the performance of its obligations under this
Agreement (i) conflicts with, or contravenes or constitutes any default under,
any agreement, instrument or understanding, oral or written, to which it is a
party, including without limitation its certificate of incorporation or bylaws,
or (ii) violates applicable laws, rules or regulations, or any judgment,
injunction, order or decree of any governmental authority having jurisdiction
over it.
6.1.3 RIGHTS TO LICENSED IP. As of the Effective Date,
Connetics owns, controls, or otherwise has the right to use, all Relaxin
Information and Relaxin Patents required or necessary to develop, manufacture
and sell Product (in bulk or finished form); and Connetics further represents
that it has the right to grant to Paladin the rights and licenses under the
Licensed IP in this Agreement.
6.1.4 NO LAWSUITS, ETC. To the best of Connetics' knowledge,
as of the Effective Date and during the immediately preceding [*], there have
not been any claims, lawsuits, arbitrations, legal or administrative or
regulatory proceedings, charges, complaints or investigations by any government
authority or other Third Party threatened, commenced or pending against
Connetics or its licensors relating to, and Connetics has not received any
notice of infringement with respect to, the Relaxin Information, Relaxin
Patents, Relaxin or the Relaxin Materials, including Connetics' right to
manufacture, use or sell Product.
6.1.5 THIRD PARTY RIGHTS. The exercise by Paladin of the
rights and licenses granted to Paladin by Connetics under this Agreement will
not infringe any rights owned by any Third Party or violate any agreement
between Connetics and any Third Party (including without limitation the
licensors under the Third Party Licenses). Except as set forth in the Third
Party Licenses, as of the Effective Date, Connetics is not aware of any Third
Parties that own or control any patents or Relaxin Information required for the
production, manufacture or commercialization of Product.
6.1.6 NO ENCUMBRANCES. As of the Effective Date, Connetics
controls or otherwise is entitled to use throughout the Territory all rights in,
to and under the Relaxin Patents and Relaxin Information, free and clear of any
lien, claim, charge, encumbrance or right of any Third Party (other than as set
forth in the Third Party Licenses).
6.1.7 NO OTHER AGREEMENTS. No other agreement or
understanding, verbal or written, exists to which Connetics is legally bound
regarding the intellectual property rights granted to Connetics pursuant to the
Third Party Licenses. The Third Party Licenses represent
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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the complete and entire understanding of Connetics and, to the knowledge of
Connetics, its respective Third Party License licensors as of the Effective Date
with respect to the intellectual property rights granted to Connetics pursuant
to the Third Party Licenses.
6.1.8 INFORMATION. All information relating to Relaxin or
the Product delivered to Paladin by Connetics, its officers, directors,
representatives or agents, was when delivered and is as of the date of this
Agreement in all material respects accurate and correct and Connetics is not
aware of any information which would be required to be disclosed to make any
such information not misleading.
6.1.9 TESTING. Connetics shall undertake all such Clinical
Development of the Product for the U.S. for DSS as is customary in the industry
for products of the nature of the Product and as required by all applicable U.S.
Regulatory Authorities for purposes of determining, among other things, what
adverse effects or reactions may be suffered by any person as a result of or in
connection with the use or consumption of the Product.
6.1.10 ADVERSE EXPERIENCES. Any BLA that Connetics submits
for the Product in the U.S. shall include all customary clinical information,
including information specific to Adverse Experiences seen during the course of
clinical trials. In addition, beginning on the Effective Date and until approval
for the Product in the U.S., Connetics shall provide copies to Paladin on an
ongoing basis of all correspondence with the FDA relating to safety information
in connection with the Product. After Connetics obtains FDA approval, Adverse
Experience reporting shall be governed by the provisions of ARTICLE X of this
Agreement.
6.2 REPRESENTATION AND WARRANTIES OF PALADIN. Paladin represents
and warrants to Connetics as follows:
6.2.1 ORGANIZATION; STANDING. Paladin is duly organized,
validly existing and in good standing and has the corporate power and authority
to execute and deliver this Agreement and to perform its obligations under this
Agreement and the other agreements contemplated by this Agreement, including the
Stock Purchase Agreement.
6.2.2 NO CONFLICTS. The execution, delivery and performance
of the Agreement have been validly authorized by Paladin; neither the execution
and delivery of, or the performance of its obligations under this Agreement (i)
conflicts with, or contravenes or constitutes any default under, any agreement,
instrument or understanding, oral or written, to which it is a party, including
without limitation its articles of incorporation or bylaws, or (ii) violates
applicable laws, rules or regulations, or any judgment, injunction, order or
decree of any governmental authority having jurisdiction over it.
6.3 DISCLAIMER OF WARRANTIES. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS AGREEMENT OR BY APPLICABLE LAW, NEITHER PARTY MAKES ANY
WARRANTY WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS, OR OTHER
SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ALL WARRANTIES, CONDITIONS
OR REPRESENTATIONS OF
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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.
6.4 INDEMNIFICATION OF PALADIN. Connetics shall indemnify
Paladin, its Affiliates and their respective directors, officers, employees and
agents, and defend and save each of them harmless, from and against any and all
suits, losses, actions, demands, investigations, claims, damages, liabilities,
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses) (collectively, "LOSSES") brought by Third Parties arising from or
occurring as a result of (a) any breach (or alleged breach) by Connetics of its
representations, warranties, or obligations under this Agreement; (b) any
Adverse Experiences that Connetics should have known about based on its clinical
trials, but which Adverse Experiences were not reported to the FDA or to
Paladin; (c) the manufacture or the storage of the Product prior to the date of
shipment of Product to Paladin by Connetics, its Affiliates, or Contract
Manufacturers, all except to the extent caused by the negligence or willful
misconduct of Paladin or its officers, agents, employees, Affiliates,
sublicensees or customers; (d) the negligence or willful misconduct of Connetics
or its officers, agents, employees or Affiliates; (e) the use or consumption of
the Product outside of the Territory; or (f) a claim that the Product infringes
any patents, except that (subject to SECTION 6.1.3) Connetics shall not
indemnify Paladin against any claim arising out of Paladin's decision to refuse
a sublicense to a Third Party License pursuant to SECTION 2.3 of this Agreement.
6.5 INDEMNIFICATION OF CONNETICS. Paladin shall indemnify
Connetics, its Affiliates and their respective directors, officers, employees
and agents, and defend and save each of them harmless, from and against any and
all Losses brought by Third Parties arising from or occurring as a result of (a)
any breach (or alleged breach) by Paladin of its representations, warranties, or
obligations under this Agreement; (b) the storage of the Product after the date
of shipment of Product to Paladin by Paladin, its Affiliates, or Contract
Manufacturers, all except to the extent caused by the negligence or willful
misconduct of Connetics or its officers, agents, employees, Affiliates,
sublicensees or customers; (c) the negligence or willful misconduct of Paladin
or its officers, agents, employees or Affiliates; (d) the use or consumption of
the Product within the Territory; or (e) false or intentionally misleading
statements made by Paladin or its officers, agents or employees in connection
with the marketing and/or sale of the Product in the Territory.
6.6 INDEMNIFICATION PROCEDURE.
6.6.1 NOTICE. Each indemnified party (the "INDEMNITEE")
agrees to give the indemnifying party (the "INDEMNITOR") prompt written notice
of any Losses or discovery of fact upon which such indemnified party intends to
base a request for indemnification under SECTION 6.4 or 6.5. Notwithstanding the
foregoing, the failure to give timely notice to the Indemnitor shall not release
the Indemnitor from any liability to the Indemnitee to the extent the Indemnitor
is not prejudiced thereby.
6.6.2 COPIES. The Indemnitee shall furnish promptly to the
Indemnitor copies of all papers and official documents in the Indemnitee's
possession or control which relate to any
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Losses; provided, however, that if the Indemnitee defends or participates in the
defense of any Losses, then the Indemnitor shall also provide such papers and
documents to the Indemnitee. The Indemnitee shall cooperate with the Indemnitor
in providing witnesses and records necessary in the defense against any Losses.
6.6.3 PARTICIPATION. The Indemnitor shall have the right, by
prompt notice to the Indemnitee, to participate in the defense of any third
party claim forming the basis of such Losses with counsel reasonably
satisfactory to the Indemnitee, and at the sole cost of the Indemnitor so long
as (a) the Indemnitor promptly notifies the Indemnitee in writing (but in no
event more than 60 days after its receipt of notice of the claim) that it will
indemnify the Indemnitee from and against any Losses the Indemnitee may suffer
arising out of the claim, and (b) the Indemnitor diligently participates the
defense of the claim.
6.6.4 CONTROL OF DEFENSE. If the Indemnitor participates in
the defense of the claim as provided above, the Indemnitee may at its option
relinquish total control to the Indemnitor or participate in such joint defense
with its own counsel who shall be retained, at the Indemnitee's sole cost and
expense; provided, however, that neither the Indemnitee nor the Indemnitor shall
consent to the entry of any judgment or enter into any settlement with respect
to the claim without the prior written consent of the other party, which consent
shall not be reasonably withheld or delayed. If the Indemnitee withholds consent
in respect of a judgment or settlement involving only the payment of money and
which would not involve any stipulation or admission of liability or result in
the Indemnitee becoming subject to injunctive relief or other relief, the
Indemnitor shall have the right, upon notice to the Indemnitee within five (5)
days or receipt of the Indemnitee's written denial of consent, to pay to the
Indemnitee the full amount of such proposed judgment or settlement, including
all interest, costs or other charges relating thereto, and shall pay all
attorneys' fees incurred to such date for which the Indemnitor is obligated
under this Agreement, if any at which time the Indemnitor's rights and
obligations and duty to indemnify with respect to the claim shall cease.
6.6.5 SETTLEMENT. If the Indemnitor does not so participate
in the defense of such claim, the Indemnitee may conduct such defense with
counsel of its choice and at the sole cost of the Indemnitor and may settle such
case (for monetary damages only) as it shall determine in the exercise of its
reasonable discretion. Except as provided in this SECTION 6.6.5, the Indemnitor
shall not be liable for any settlement or other disposition of a Loss by the
Indemnitee which is reached without the written consent of the Indemnitor.
6.6.6 COSTS AND EXPENSES. Except as provided in this SECTION
6.6, the costs and expenses, including fees and disbursements of counsel,
incurred by any Indemnitee in connection with any claim shall be reimbursed on a
calendar quarter basis by the Indemnitor, without prejudice to the Indemnitor's
right to contest the Indemnitee's right to indemnification and subject to refund
in the event the Indemnitor is ultimately held not to be obliged to indemnify
the Indemnitee.
6.7 LIMITATION OF LIABILITY. EXCEPT FOR ANY LOSS,
LIABILITY, DAMAGE OR OBLIGATION ARISING OUT OF OR RELATING TO THE INABILITY TO
SUPPLY
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THE PRODUCT, DISCLOSURE OF CONFIDENTIAL INFORMATION PURSUANT TO ARTICLE VIII OR
AS PROVIDED IN SECTION 6.4 OR 6.5, IN NO EVENT SHALL EITHER PARTY HAVE ANY
LIABILITY TO THE OTHER PARTY OR ANY OTHER THIRD PARTY FOR ANY LOST OPPORTUNITY
OR PROFITS, OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR SPECIAL
DAMAGES ARISING OUT OF A BREACH 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.
ARTICLE VII
COVENANTS
7.1 CONNETICS' COVENANTS TO PALADIN. Connetics covenants to
Paladin as follows:
7.1.1 MANUFACTURE. At the time of delivery of Relaxin
Materials to Paladin, the Relaxin Materials (a) will have been manufactured,
filled, packaged, stored and shipped in accordance with all applicable laws,
rules, regulations or requirements, (b) will have been manufactured, filled,
packaged and stored in accordance with the Specifications, and (c) will be free
from defects in material, manufacturing and workmanship for the shelf life of
such Relaxin Materials as set forth in the Specifications.
7.1.2 COMPLIANCE WITH LAWS. Connetics has conducted or has
caused Connetics' Contract Manufacturers to conduct, and will in the future
conduct Product Development and other relevant research and development
activities required to support clinical testing, Regulatory Approvals and
commercialization of the Product in the Field (and any Additional Indications)
in accordance with applicable laws, rules and regulations, including without
limitation, known or published standards of the FDA.
7.1.3 PERMITS; LICENSES. Connetics will maintain in effect
all governmental permits, licenses, orders, applications and Regulatory
Approvals, if applicable, necessary to manufacture, supply and sell Relaxin
Materials and/or Product and otherwise as necessary to perform its obligations
in accordance with the terms of this Agreement and the Supply Agreement.
Connetics will manufacture and supply such Relaxin Materials and/or Product in
accordance with such governmental permits, licenses, orders, applications, and
Regulatory Approvals.
7.1.4 FUTURE PATENTS. Connetics will promptly disclose to
Paladin any knowledge it acquires during the Term of this Agreement relating to
any patents or patent applications other than the Relaxin Patents, required for
the production, manufacture or commercialization of Product in the Field.
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7.1.5 INSURANCE. Connetics shall obtain and maintain
sufficient liability insurance to cover its activities and obligations
(including without limitation indemnified obligations) contemplated under this
Agreement, in such amount normal and customary for companies engaged in industry
and activities similar to Connetics.
7.1.6 NON-COMPETE. Connetics covenants that, except as
expressly permitted under this Agreement, during the Term, it will not, nor will
it permit or cause its Affiliates or any Third Party to, enter into any
agreement or arrangement to manufacture, develop, use, offer for sale, lease,
market, sell, import, commercialize or otherwise exploit either directly or
indirectly in the Territory any product which contains human or animal relaxin
(whether recombinant or natural) or any product for the treatment of DSS except
in accordance with the terms of this Agreement (collectively, "THIRD PARTY
WORK"). Without limiting the foregoing, except for sublicenses and subcontracts
entered into in accordance with the terms of this Agreement, Connetics will not
grant to any Affiliate or Third Party any rights under the Licensed IP which
would permit such Affiliates or Third Party to engage in or otherwise exploit
Third Party Work in the Territory. If Connetics breaches the provisions of this
SECTION 7.1.6, then without limiting any other remedies available to Paladin,
Connetics shall at its sole expense contribute the Third Party Work to Paladin
for use and exploitation under the terms of this Agreement and secure for
Paladin the exclusive right in the Field to use and exploit the Third Party Work
in the Territory.
7.1.7 COMMERCIALIZATION. Connetics shall use Commercially
Reasonable Efforts to develop and commercialize the Product in the United
States.
7.1.8 MAINTENANCE OF PATENTS. Connetics shall prosecute and
maintain the Relaxin Patents, and shall not take any steps to abandon, or allow
to lapse, nor fail to take any steps which are required to avoid the abandonment
or lapsing of any Relaxin Patent (nor cause or permit any other person to do so)
unless, in each case, Paladin and Connetics specifically agree otherwise in
writing.
7.2 PALADIN'S COVENANTS TO CONNETICS. Paladin covenants to
Connetics as follows:
7.2.1 COMMERCIALIZATION. Paladin shall use Commercially
Reasonable Efforts to develop and commercialize the Product in the Territory.
7.2.2 PERMITS; LICENSES. Paladin will maintain in effect in
the Territory all governmental permits, licenses, orders, applications and
Regulatory Approvals, if applicable, necessary to supply and sell Relaxin
Materials and/or Product in the Territory and otherwise as necessary to perform
its obligations in accordance with the terms of this Agreement and the Supply
Agreement (all to the extent not otherwise required to be held by Connetics
under applicable law or by the terms of this Agreement), and Paladin will supply
such Relaxin Materials and/or Product in accordance with such governmental
permits, licenses, orders, applications, and Regulatory Approvals.
7.2.3 FUTURE PATENTS. Paladin will promptly disclose to
Connetics any knowledge it acquires during the Term of this Agreement relating
to any patents or patent
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applications other than the Relaxin Patents, required for the production,
manufacture or commercialization of Product in the Field.
ARTICLE VIII
CONFIDENTIALITY AND PUBLICITY
8.1 PUBLIC RELATIONS AND ANNOUNCEMENTS. The Parties shall
provide courtesy copies of any public announcements concerning the relationship
created by this Agreement. Neither Party shall make any representations
concerning the other without the prior consent from the other Party. Except for
such disclosure as is required by applicable law and/or stock exchange
regulation, neither Party shall make any announcement, news release, public
statement, publication or presentation relating to the existence of this
Agreement or the arrangements referred to in this Agreement without the other
Party's prior written consent, which consent will not be unreasonably withheld
or delayed.
8.2 CONFIDENTIALITY.
8.2.1 CONFIDENTIAL INFORMATION. The Parties acknowledge that
by reason of their relationship to each other under this Agreement, each will
have access to certain information and materials concerning Relaxin Information,
the other's business, plans, trade secrets, 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"). Each Party agrees that it will not use in any way other than
expressly authorized or 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 any Regulatory Authority, an Affiliate, assignee,
distributor, consultant or Third Party contractor or research and development
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.
8.2.2 EXCEPTIONS. For 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
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Confidential Information. Confidential Information does not include information,
technical data or know-how which: (a) 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; (b) becomes part
of the public knowledge or literature, not as a result of any inaction or action
of the receiving Party; (c) is independently developed by a Party without the
use of any Confidential Information of the other Party; (d) is obtained from any
Third Party who is authorized to disclose such data and information without
obligation of confidentiality to the disclosing party, or (e) is approved for
release in writing by the disclosing Party.
8.3 REMEDY. If either Party breaches any of its obligations with
respect to this ARTICLE VIII, 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, without posting a bond.
8.4 AGREEMENT TERMS. Subject to SECTION 8.1 and the exclusions
set forth in SECTION 8.2.2, 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 of this Agreement under
circumstances that reasonably ensure the confidentiality thereof to: (a) 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), (b) its legal representatives,
advisors and prospective investors, and (c) to Connetics' licensors to the
extent required for compliance with Connetics' obligations under the Third Party
Licenses.
ARTICLE IX
TERM AND TERMINATION
9.1 TERM. The obligations of the Parties under this Agreement
are subject to the approval of the Vancouver Stock Exchange, which approval
Paladin undertakes to obtain forthwith. Subject to the preceding sentence, the
term of this Agreement shall commence on the Effective Date and continue in full
force and effect until the later of the last to expire of the Relaxin Patents,
or any regulatory extensions which provide exclusivity for the Product in the
Territory ("TERM").
9.2 TERMINATION. In addition to and notwithstanding the
termination rights stated elsewhere in this ARTICLE IX and in SECTION 11.8 of
this Agreement, this Agreement may be terminated as follows:
9.2.1 FOR BREACH BY CONNETICS. Upon breach by Connetics of
any of its material obligations contained in this Agreement ("CONNETICS
BREACH"), Paladin shall be entitled to give Connetics notice specifying the
nature of the Connetics Breach and stating its intent to terminate this
Agreement if the Connetics Breach is not cured. This Agreement shall terminate
forty-five (45) days after Connetics receives such notice (a) if Connetics does
not cure the
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Connetics Breach to the reasonable satisfaction of Paladin, or (b) if a plan,
reasonably acceptable to Paladin, is not implemented to cure as soon as
practicable after notice of the Connetics Breach.
9.2.2 FOR BREACH BY PALADIN. Upon breach by Paladin of any
of its material obligations contained in this Agreement ("PALADIN BREACH"),
Connetics shall be entitled to give Paladin notice specifying the nature of the
Paladin Breach and stating its intent to terminate this Agreement if the Paladin
Breach is not cured. This Agreement shall terminate forty-five (45) days after
Paladin receives such notice (a) if Paladin does not cure the Paladin Breach to
the reasonable satisfaction of Connetics, or (b) if a plan, reasonably
acceptable to Connetics, is not implemented to cure as soon as practicable after
notice of the Paladin Breach.
9.2.3 LOSS OF THIRD PARTY LICENSES. Notwithstanding the
provisions of SECTION 9.2.1, Paladin may terminate this Agreement on notice to
Connetics if either of the following agreements is terminated resulting in the
loss of Paladin's license under the Third Party Licenses: (a) the License
Agreement dated September 27, 1993 between Genentech and Connective
Therapeutics, Inc. (now known as Connetics) or (b) the License Agreement dated
December 31, 1982 and re-executed as amended and varied as of June 30, 1987
between the Howard Florey Institute of Experimental Physiology and Medicine and
Genentech, Inc. Connetics shall use Commercially Reasonable Efforts to obtain
from relevant Third Parties an acknowledgement that, should the relationship
contemplated by the Third Party Licenses terminate through no fault of
Paladin's, Paladin shall have the right to continue to commercialize the Product
as set forth in this Agreement.
9.2.4 TERMINATION BY PALADIN. Paladin shall have the right
to terminate this Agreement by giving one hundred eighty (180) days prior
written notice to Connetics for any reason or no reason; provided that Connetics
may elect at its sole discretion to continue development of the Product in the
Territory.
9.2.5 TERMINATION FOR INSOLVENCY. Either Party may terminate
this Agreement immediately upon delivery of written notice to the other Party
(a) 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, however with respect to
involuntary proceedings, that such proceedings are not dismissed within one
hundred and twenty (120) days; (b) upon the other Party's making an assignment
for the benefit of creditors; or (c) upon the other Party's dissolution or
ceasing to do business.
9.3 EFFECT OF TERMINATION.
9.3.1 EFFECT ON LICENSE. Upon the expiration or earlier
termination of this Agreement, the rights licensed under this Agreement shall be
treated as follows:
(a) Upon the expiration of the Term, Paladin shall have
a fully paid-up, perpetual, irrevocable, royalty-free, transferable,
worldwide, non-exclusive right and license under the Licensed IP
existing as of the date of such expiration to make, have made, use,
offer to sell, and sell Product in the Territory.
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(b) Upon termination pursuant to SECTIONS 9.2.2, 9.2.4,
or 11.8, or termination by Connetics pursuant to SECTION 9.2.5, all
rights to the Product (except to Paladin's trademarks) in the
Territory shall revert to Connetics.
(c) Upon termination by Paladin pursuant to SECTIONS
9.2.1, 9.2.3, or 9.2.5, the license granted to Paladin pursuant to
this Agreement shall become a perpetual, irrevocable, royalty-free (as
to Connetics), transferable, exclusive as to the Territory, license
under the Licensed IP existing as of the date of such termination, to
make, have made, use, offer to sell, and sell Product in the
Territory, with the right to sublicense; provided that Paladin assumes
Connetics' obligations to Third Parties under existing Third Party
Licenses with respect to the Territory.
9.3.2 ONGOING OBLIGATIONS. Except as expressly provided in
this Agreement, 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 disclosed by
the other Party, except that each Party may retain one copy of such Confidential
Information marked and used for legal archival purposes only. In the event of
termination pursuant to SECTION 9.2.2 by Connetics or SECTION 9.2.4 by Paladin,
then Paladin shall assign and deliver to Connetics all data and information
(including registration dossier) obtained in pursuing regulatory approvals, and
all regulatory approvals (e.g., to Connetics' designee in the Territory as
permitted under the applicable law) for the Product in the Territory received as
of such termination date. Except for the provisions of SECTIONS 2.2, 3.5, 5.3,
5.5 and 9.3, and ARTICLES I, VI, VIII, X and XI which shall survive such
expiration or termination (except as limited by the terms of such section or
Article), all other rights and obligations of the Parties shall cease upon
expiration or termination of this Agreement.
9.3.3 INVENTORY. Notwithstanding the foregoing, upon early
termination of this Agreement pursuant to SECTION 9.2.4, Paladin shall have the
right to sell all remaining Product in its inventory within six (6) months after
the date of termination, subject to the payment to Connetics of the amounts
specified in SECTION 4.1. Thereafter, Paladin agrees to destroy any remaining
supply of Product and Relaxin Materials at Connetics' request and direction.
ARTICLE X
REGULATORY COMPLIANCE AND REPORTING
10.1 GOVERNMENT INSPECTION. Connetics agrees to advise Paladin by
telephone and facsimile immediately of any proposed or announced visit or
inspection, and as soon as possible but in any case within twenty-four (24)
hours (or, in the case of a Contract Manufacturer, within twenty-four [24] hours
after receipt by Connetics of notice thereof), of any unannounced visit or
inspection, by any Regulatory Authority of any facilities used by Connetics or
its Contract Manufacturers in the performance of its obligations under this
Agreement, including the processes
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or procedures used at such facilities in the manufacture of Relaxin Materials,
Relaxin or Product. Connetics shall provide Paladin with a reasonable
description of each such visit or inspection promptly (but in no event later
than five [5] calendar days) thereafter, and with copies of any letters, reports
or other documents (including Form 483's) issued by any such authorities that
relate to Relaxin, Relaxin Materials, or the Product, or such facilities,
processes or procedures. Paladin may review Connetics' responses to any such
reports and communications, and if practicable, and, insofar as timely received,
Paladin's reasonable views and requests shall be taken into account prior to
submission of such reports and communications to the relevant Regulatory
Authority. Connetics shall also provide Paladin with the notice, information,
documentation, and opportunity to comment provided for above with respect to
Contract Manufacturers.
10.2 ADVERSE EXPERIENCE REPORTING. Each Party shall notify, and
shall cause its Affiliates and sublicensees and (with respect to Connetics) its
Contract Manufacturers, to notify, the other party promptly upon receipt of (a)
any information concerning any potentially serious or unexpected side effect,
injury, toxicity or sensitivity reaction or any unexpected incidence or other
adverse experience (an "ADVERSE EXPERIENCE") and the severity thereof associated
with the clinical uses, studies, investigations, tests and marketing of the
Relaxin Materials, Relaxin or the Product, whether or not determined to be
attributable to the same, (b) any information regarding any pending or
threatened action which may affect the safety or efficacy claims of the Product
or the continued marketing of the Product in any nation or jurisdiction, (c) any
material communications with or notice from a Regulatory Authority indicating
that it intends to visit or inspect a Party's facilities, or the facilities of
an Affiliate or sublicensee of such Party and (with respect to Connetics) a
Contract Manufacturer, for a purpose relevant to the development, manufacture or
marketing of the Product. Without limiting the foregoing, Connetics shall use
Commercially Reasonable Efforts to require each Affiliate, sublicensee and
Contract Manufacturer to notify Paladin's responsible drug safety department by
telephone and facsimile within twenty-four (24) hours after Connetics first
becomes aware of any Adverse Experience that gives cause for concern or is
unexpected or that is fatal, life-threatening (as it occurred), permanently
disabling, requires (or prolongs) inpatient hospitalization, represents a
significant hazard, or is a cancer or a congenital anomaly or represents an
overdose, or any other circumstance that might necessitate a recall, expedited
notification of any Regulatory Authorities or a significant change in the label
of the Product, including without limitation, any deviation from the specified
environmental conditions for shipping or storage of the Product. Each Party
shall make such reports as are necessary to comply with laws and regulations
applicable to it, at its sole expense. Further, in the event a Party (or its
Affiliates, sublicensees, or Contract Manufacturers) receives a communication or
directive from a Regulatory Authority commencing or threatening seizure of (or
other removal from the market of) Relaxin, Relaxin Materials, or Product, such
Party shall transmit such information to the other Party within twenty-four (24)
hours of receipt.
10.3 NOTIFICATION AND RECALL. If any Regulatory Authority issues
or requests a recall or takes similar action in connection with Relaxin or the
Product, or if either Party determines that an event, incident or circumstance
has occurred which may result in the need for a recall or market withdrawal, the
Party notified of or wishing to call such recall or similar action shall, within
twenty-four (24) hours, advise the other Party of notification or its
determination by telephone or facsimile, after which the Parties shall promptly
discuss and work together to effect
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an appropriate course of action; provided, however, that either Party may
initiate a recall or market withdrawal thereafter if it deems such action
necessary or appropriate. Connetics shall be responsible for notification to FDA
(or such other applicable Regulatory Authority with respect to countries other
than the United States and the Territory) and compliance with applicable laws
outside the Territory in conducting such recall. Paladin shall be responsible
for notification to the applicable Regulatory Authority with respect to
countries in the Territory and compliance with applicable laws in the Territory
in conducting such recall.
10.4 RECALL EXPENSE. If a recall results from the breach of a
Party's warranties or obligations under this Agreement, the breaching Party
shall bear the full expense of both Parties incurred in any such recall. Such
expenses of recall shall include, without limitation, the expenses of
notification and destruction or return of the recalled Product and the sum paid
for the recalled Product. Without limitation of the foregoing, if the failure to
meet applicable legal requirements is caused by the act or omission of Connetics
in manufacture or sale of Product to Paladin, (a) Connetics shall have the
option of (i) replacing the recalled Product, or (ii) reimbursing Paladin for
any amounts paid to Connetics by Paladin under this Agreement for Product which
are recalled and/or cannot be shipped by Paladin due to the condition requiring
the recall, and (b) with respect to Product manufactured by Connetics, Connetics
shall reimburse Paladin for all liabilities incurred by Paladin by virtue of
being unable to meet its supply obligations to its customers because Product
could not be shipped by Connetics or Paladin due to the condition requiring
recall. In the event, however, that a recall is partially caused by Connetics'
actions or omissions and partially caused by Paladin's actions or omissions,
then each Party shall be responsible for its proportionate share of the recall
expenses based on its proportionate share of causation.
ARTICLE XI
MISCELLANEOUS
11.1 TAXES, TARIFFS, FEES. Paladin shall have the right to deduct
from the payments set forth in SECTION 4.1 any withholding tax applicable to
Connetics' income which Paladin is obliged to pay by under applicable law;
provided however that Paladin 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. The Parties agree to cooperate in all respects necessary to take
advantage of such double taxation agreements as may be available to optimize the
tax obligations of each Party.
11.2 CURRENCY OF PAYMENTS. All amounts payable to Connetics by
Paladin pursuant to this Agreement shall be made to Connetics in U.S. dollars
and by wire transfer to the U.S. bank account(s) specified by Connetics from
time to time. Paladin shall apply a conversion rate from Canadian currency to
U.S. dollars for amounts payable under this Agreement equal to the average of
the conversion rates in effect on the last (30) days of the quarterly period for
which such payment is due. The conversion rates to be used in this Agreement
shall be the rates reported in the Wall Street Journal (West Coast Edition).
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<PAGE> 37
11.3 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 in the
Territory and the U.S. with respect to the export or re-export or release of
technology and technical data.
11.4 DISPUTE RESOLUTION AND GOVERNING LAW.
11.4.1 PROCESS. 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 of Paladin and Connetics. If the
Chief Executive Officers of Paladin and Connetics are unable to resolve such
conflict within thirty (30) days after having such conflict submitted to them
for resolution, such conflict may be submitted to arbitration in accordance with
the rules of the American Arbitration Association then in effect. Judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. In any arbitration pursuant to this Section, the award
shall be rendered by a majority of the members of a board of arbitration
consisting of three members, one being appointed by each party and the third
being appointed by mutual agreement of the two arbitrators appointed by the
parties.
11.4.2 GOVERNING LAW. 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
patents shall be governed by the laws of the jurisdiction by which such patent
was granted. The Parties specifically disclaim application to this Agreement of
the Convention on Contracts for the International Sale of Goods.
11.5 SECTION HEADINGS. 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.
11.6 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 mail, return receipt requested; by facsimile; by internationally
recognized courier; or by personal delivery, in each case addressed to the other
Party at the address below or at such other address for which such Party gives
notice under this Agreement.
Connetics Corporation
Attn: President and Chief Executive Officer
3400 West Bayshore Road
Palo Alto, California 94303
U.S.A.
Paladin Labs Inc.
Attn: Chief Executive Officer
6111 Royalmount, Suite 102
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<PAGE> 38
Montreal, Quebec H4P 2T4
CANADA
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.
11.7 FORCE MAJEURE. Neither Party shall be considered in default
of performance of its obligations under this Agreement, except any obligation
under this Agreement to make payments when due, to the extent that performance
of such obligations is delayed by contingencies or causes beyond the reasonable
control and not caused by the negligence or willful misconduct of such Party,
including but not limited to strike, fire, flood, earthquake, windstorm,
governmental acts or orders or restrictions, or force majeure, to the extent
that the failure to perform is beyond the reasonable control of the
nonperforming Party.
11.8 NONASSIGNABILITY AND BINDING EFFECT. Each Party agrees that
its rights and obligations under this Agreement may not be transferred or
assigned directly or indirectly, except as follows: (a) either Party may
transfer or assign this Agreement to an Affiliate of such Party which agrees in
writing to undertake the obligations under this Agreement provided the assigning
Party remains primarily liable, (b) either Party may transfer or assign this
Agreement in connection with the sale of all or substantially all of the
assigning Party's related business, and (c) either Party may transfer or assign
this Agreement to a non-Affiliate Third Party with the prior written consent of
the other Party, which consent shall not be unreasonably withheld. Subject to
the foregoing, this Agreement shall be binding upon and inure to, the benefit of
the Parties, their successors and assigns. Any attempted assignment contrary to
the provisions of this SECTION 11.8 shall be deemed ineffective, and either
Party shall have the right to terminate this Agreement, with the effect
described in SECTION 9.3.1.
11.9 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.
11.10 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.
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11.11 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.
11.12 ENTIRE AGREEMENT. This Agreement, including the attached
Exhibits which are incorporated in this Agreement by reference, constitutes the
entire agreement of the Parties with respect to the subject matter, and
supersedes all prior or contemporaneous understandings or agreements, whether
written or oral, between Connetics and Paladin with respect to such subject
matter. No amendment or modification of this Agreement shall be valid or binding
upon the Parties unless made in writing and signed by the duly authorized
representatives of both Parties.
11.13 INDEPENDENT CONTRACTORS. The Parties to this Agreement are
independent contractors. This Agreement does not establish a 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 the Parties
as of the Effective Date.
CONNETICS CORPORATION PALADIN LABS INC.
By: /s/ T. Wiggans By: /s/ Jonathan Goodman
------------------------------------- --------------------------
Thomas G. Wiggans Jonathan Goodman
President and Chief Executive Officer President
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LIST OF EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A-1 Amino Acid Sequence
EXHIBIT A-2 Substances
EXHIBIT A-3 Specifications
EXHIBIT B Relaxin Patents
EXHIBIT C-1 Third Party Licenses to Connetics
EXHIBIT C-2 Third Party Licenses Not Involving the
Territory and Third Party Licenses from
Connetics
EXHIBIT D Stock Purchase Agreement
EXHIBIT E Outline of Terms of Supply Agreement
</TABLE>
<PAGE> 41
EXHIBIT A-1
[*]
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 42
EXHIBIT A-2
[*]
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 43
EXHIBIT A-3
[*]
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 44
EXHIBIT E
[*]
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE> 1
EXHIBIT 10.2
CONNETICS CORPORATION
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "AGREEMENT") is entered into as
of this 7th day of July, 1999, among Connetics Corporation, a Delaware
corporation ("CONNETICS") and Paladin Labs Inc. ("PALADIN"). Connetics and
Paladin are entering into a License Agreement simultaneously with this Agreement
(the "LICENSE AGREEMENT"). All terms not otherwise defined in this Agreement
shall have the meanings ascribed to them in the License Agreement. The "CLOSING
DATE" shall be the second business day following receipt of approval by the
Vancouver Stock Exchange as contemplated in Section 9.1 of the License
Agreement.
SECTION 1
SALE OF COMMON STOCK
1.1 Sale of Common Stock. Subject to the terms and conditions of this
Agreement, on the Closing Date, Connetics will issue and sell to Paladin, and
Paladin will purchase from Connetics, for $400,000 (the "PURCHASE PRICE")
Forty-Three Thousand Three Hundred Fifteen (43,315) shares of Connetics' Common
Stock, par value $0.001 per share (the "COMMON STOCK"). The purchase price per
share shall equal 150% of the Fair Market Value. For purposes of this Agreement,
the term "FAIR MARKET VALUE" is defined as the average of the last reported sale
price of Connetics' Common Stock on the Nasdaq National Market over the ten (10)
trading days ending on the trading day preceding the Closing Date.
1.2 Closing Dates. The closing of the purchase and sale of the Common
Stock (the "CLOSING") shall be held at the offices of Connetics, 3400 West
Bayshore Road, Palo Alto, California at 10:00 a.m. Pacific Standard Time on the
Closing Date, or at such other time and location as Connetics and Paladin may
agree. The shares of Common Stock to be purchased, the purchase price to be
paid, and the timing of the Closing shall be as set forth in this Agreement.
1.3 Delivery. At the Closing, Connetics shall deliver to Paladin a
certificate or certificates representing the shares of Common Stock purchased by
Paladin, against payment of the Purchase Price by wire transfer.
1.4 Legend. The certificate or certificates for the Common Stock shall be
subject to a legend restricting transfer under the Securities Act of 1933, as
amended (the "SECURITIES ACT") and referring to restrictions on transfer of such
certificates, which legend shall be substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE, OFFERING OR DISTRIBUTION THEREOF. NO SUCH SALE, OFFERING OR DISPOSITION
MAY BE EFFECTED WITHOUT (A) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO,
OR (B) AN OPINION OF COUNSEL FOR CONNETICS THAT
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<PAGE> 2
SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT, OR (C) FULL
COMPLIANCE WITH THE PROVISIONS OF RULE 144 UNDER THE SECURITIES ACT, OR (D) FULL
COMPLIANCE WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT. HEDGING
TRANSACTIONS INVOLVING THOSE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE SECURITIES ACT."
1.5 Removal of Legends. Any legend endorsed on a certificate pursuant to
SECTION 1.4 hereof shall be removed (a) if such shares may be transferred in
compliance with Rule 144(k) promulgated under the Securities Act, or (b) if the
holder of such shares shall have provided Connetics with an opinion of counsel,
in form and substance acceptable to Connetics, stating that a public sale,
transfer or assignment of such shares may be made without registration.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF CONNETICS
Connetics hereby represents and warrants to Paladin that:
2.1 Organization. Connetics is a corporation duly organized and validly
existing under the laws of the State of Delaware and is in good standing under
such laws. Connetics has requisite corporate power and authority to own, lease
and operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. Connetics is qualified to do business
as a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a materially adverse effect on Connetics.
2.2 Authorization. Connetics has all corporate right, power and authority
to enter into this Agreement and to consummate the transactions contemplated by
this Agreement. All corporate action on the part of Connetics, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of this Agreement by Connetics, and the authorization, sale,
issuance and delivery of the Common Stock and the performance of Connetics'
obligations under this Agreement has been taken. This Agreement has been duly
executed and delivered by Connetics and constitutes a legal, valid and binding
obligation of Connetics enforceable in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies
2.3 Validity of Securities. The Common Stock, when issued, sold and
delivered by Connetics in accordance with the terms of this Agreement, will be
duly and validly issued, fully-paid and nonassessable and free and clear of any
liens and encumbrances. There are no statutory, contractual or other preemptive
rights or rights of first refusal with respect to the issuance and sale of the
Common Stock. Based in part upon the representations of Paladin in this
Agreement, the offer, sale and issuance of the Common Stock constitute
transactions exempt from the registration and prospectus delivery requirements
of the Securities Act, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
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<PAGE> 3
2.4 Capitalization. The authorized capital stock of Connetics as of March
31, 1999 consists of 50,000,000 shares of Common Stock, $0.001 par value, of
which 21,229,877 shares were issued and outstanding and 10,394 were held as
Treasury shares, and 5,000,000 shares of Preferred Stock, $0.001 par value, of
which zero shares were issued and outstanding. Connetics' Board of Directors has
authorized the creation of 90,000 shares of Series B Preferred Stock for
potential issuance under Connetics' stockholder rights plan. Since March 31,
1999, no shares of Connetics' Common or Preferred Stock have been issued, except
pursuant to the exercise of options or warrants outstanding as of that date, and
in accordance with Connetics' Employee Stock Purchase Plan. All such issued and
outstanding shares have been duly authorized and validly issued and are fully
paid and nonassessable. In addition to the foregoing, Connetics has reserved and
outstanding the following warrants, rights, options and convertible securities:
(i) warrants for the purchase of 22,728 shares of Common Stock at an
exercise price of $11.00 per share, which warrants expire in
December 2000;
(ii) warrants for the purchase of 905,000 shares of Common Stock at an
exercise price of $9.08 per share, which warrants expire in May,
2001;
(iii) warrants for the purchase of 20,000 shares of Common Stock at an
exercise price of $7.43 per share, which warrants expire in
December, 2001;
(iv) warrants for the purchase of 250,000 shares of Common Stock at an
exercise price of $8.25 per share, which warrants expire in
January 2002;
(v) warrants for the purchase of 18,395 shares of Common Stock at an
exercise price of $4.89 per share, which warrants expire in July
2002;
(vi) warrants for the purchase of 73,071 shares of Common Stock at an
exercise price of $5.78, which warrants expire in December 2002;
(vii) warrants for the purchase of 6,000 shares of Common Stock at an
exercise price of $6.00 per share, which warrants expire in
January, 2003;
(viii) 2,600,000 shares reserved for issuance pursuant to Connetics'
1994 Stock Plan, of which, at March 31, 1999, options (net of
repurchases) to purchase 519,590 shares had been exercised,
options to purchase 2,047,455 shares were outstanding and 32,955
shares remained available for future grant;
(ix) 500,000 shares reserved for issuance pursuant to Connetics' 1995
Employee Stock Purchase Plan, of which, at March 31, 1999,
210,462 shares had been issued;
(x) 250,000 shares reserved for issuance under Connetics' 1995
Directors' Stock Option Plan, of which, at March 31, 1999,
165,000 options had been granted;
(xi) 38,863 shares reserved for issuance for option grants to various
consultants; and
(xii) 500,000 shares reserved for issuance under Connetics' 1998
Supplemental Stock Plan, of which, at March 31, 1999, 234,250
options had been granted.
Connetics also has an equity line agreement with Kepler Capital LLC ("KEPLER")
that allows Connetics to access up to $25 million through sales of its Common
Stock. The Equity Line,
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originally to be made available on or before December 1, 1997, became available
on June 26, 1998 and will remain open until June 2001. During any 90-day period
within the three year term, if the Company's stock meets certain volume
restrictions and trades above $10.00, then up to $500,000 would be drawn against
the Equity Line in exchange for the sale of stock at an approximate minimum
price of $10.00. The purchase price will be subject to a maximum discount of
15%. To date, the Company has not drawn down any amount against the Equity Line.
In addition, Connetics may be obligated to issue additional shares to Genentech,
Inc. before December 15, 1999, as part of the consideration paid for Connetics'
acquisition of rights to gamma interferon in 1998.
Except as described in this SECTION 2.4, there are no other options, warrants,
conversion privileges or other contractual rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of Connetics'
capital stock or other securities. All of the issued and outstanding securities
of Connetics have been issued in compliance with all applicable federal and
state securities laws.
2.5 No Conflict. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or to a loss of a material benefit under any
provision of the Certificate of Incorporation or Bylaws of Connetics or any
mortgage, indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Connetics, its properties or assets, which conflict,
violation, default or right would have a material adverse effect on the
business, properties, prospects or financial condition of Connetics.
2.6 Accuracy of Reports; Financial Statements. All reports required to be
filed with the Securities and Exchange Commission (the "SEC") by Connetics from
February 1, 1996 (the date of Connetics' initial public offering) through the
date of this Agreement under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), have been duly and timely filed, were in substantial
compliance with the requirements of their respective forms when filed, were
complete and correct in all material respects as of the dates at which the
information was furnished, and contained (as of such dates) no untrue statement
of a material fact nor omitted to state a material fact necessary in order to
make the statements made therein in light of the circumstances in which made not
misleading. All such reports are collectively referred to as the "SEC
DOCUMENTS." Connetics' financial statements included in the SEC Documents (the
"FINANCIAL STATEMENTS") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto. The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
and fairly present the consolidated financial position of Connetics and any
subsidiaries at the dates thereof and the consolidated results of operations and
consolidated cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, recurring adjustments).
2.7 Changes. Since May 13, 1999 (the date on which Connetics' Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1999 was filed with
the SEC), Connetics has
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not (a) incurred any material liability, absolute or contingent, or (b)
experienced any event or condition of any nature that has materially and
adversely affected or might materially and adversely affect Connetics' business,
properties, prospects or financial condition (as such business is presently
conducted and as it is proposed to be conducted). There is no material liability
or contingency of Connetics that is not disclosed in the SEC Documents.
2.8 Governmental Consents, Etc. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of Connetics is required in connection with the valid execution and
delivery of this Agreement, or the consummation of any other transaction
contemplated hereby, except such filings as may be required to be made with the
SEC, the National Association of Securities Dealers, Inc. ("NASD") and with
governmental authorities for purposes of effecting compliance with the
securities and Blue Sky laws in the states in which Common Stock is offered
and/or sold, which compliance will be effected in accordance with such laws.
Connetics has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which could materially and adversely affect the business, properties,
prospects or financial condition of Connetics; provided further, Connetics
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of business which it plans to conduct.
2.9 Litigation. There is no pending or, to the best of Connetics'
knowledge, threatened lawsuit, administrative proceeding, arbitration, labor
dispute or governmental investigation ("LITIGATION") to which Connetics is a
party or by which any material portion of its assets, taken as a whole, may be
bound, nor is Connetics aware of any basis therefor, which Litigation, if
adversely determined, would have a material adverse effect on the business,
properties, prospects or financial condition of Connetics. Connetics is not a
party or subject to the provisions of any order, writ, injunction, judgement, or
decree of any court or governmental agency or instrumentality. There is no
action, suit, proceeding, or investigation by Connetics currently pending or
that Connetics intends to initiate.
2.10 Intellectual Property. To its knowledge, and except as disclosed in
the SEC Documents, Connetics owns or possesses sufficient legal rights to all
patents, trademarks, service marks, tradenames, copyrights, trade secrets,
licenses, information and proprietary rights and processes necessary for its
business as now conducted and as proposed to be conducted, without infringement
of any rights of a third party. Connetics has not received any communications
alleging that Connetics has violated or, by conducting its business as proposed,
would violate any of the patents, trademarks, service marks, tradenames,
copyrights, trade secrets or other proprietary rights or processes of any other
person or entity, which violation would have a material adverse effect on the
business, properties, prospects or financial condition of Connetics. Except as
disclosed in the SEC Documents and as contemplated in the License Agreement,
Connetics has not granted (nor has Connetics licensed from a third party) any
material rights to or licenses to its patents, trademarks, service marks,
tradenames, copyrights, trade secrets or other proprietary rights or processes.
2.12 No Material Default. Connetics is not in violation of or default
under any provision of (a) its Certificate of Incorporation or Bylaws or (b) any
mortgage, indenture, lease or other
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agreement or instrument, permit, concession, franchise or license to which it is
a party or by which it is bound or (c) any federal or state judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Connetics,
except with respect to clauses (b) and (c) above, such violations or defaults as
would not have a material adverse effect on the business, properties, prospects
or financial condition of Connetics.
2.13 Disclosure. No representation or warranty of Connetics contained in
this Agreement or the exhibits attached to this Agreement (when read together
and taken as a whole), contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained in
this Agreement or its exhibits not misleading in light of the circumstances
under which they were made.
2.14 Solvency; No Default. As of this date Connetics has sufficient funds
and cash flow to pay its debts and other liabilities as they become due, and
Connetics is not in default with respect to any material debt or liability.
2.15 Rights of Common Stock. The Common Stock shall have the rights,
preferences, privileges and restrictions provided in Connetics' Amended and
Restated Certificate of Incorporation. Connetics has furnished Paladin with
copies of its Amended and Restated Certificate of Incorporation and Bylaws. Said
copies are true, correct and complete and contain all amendments through the
Closing Date.
2.16 Real Property Holding Corporation. Connetics is not a real property
holding corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code and any regulations promulgated thereunder.
2.17 Investment Company Act. Connetics is not an "investment company,"
or a company "controlled" by an "investment," within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF PALADIN
Paladin hereby represents and warrants to Connetics as follows:
3.1 Accredited Investor. Paladin is an "accredited investor" as defined
by Rule 501(a) under the Securities Act. Paladin has received all the
information it has requested regarding Connetics. Paladin has such business and
financial experience as is required to give it the capacity to protect its own
interests in connection with the purchase of the Common Stock.
3.2 Investment. Paladin is acquiring the Common Stock for investment for
its own account, not as a nominee or agent and not with a view to or for resale
in connection with any distribution thereof. Paladin understands that its
purchase of Common Stock from Connetics pursuant to this Agreement has not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon,
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among other things, the bona fide nature of Paladin's investment intent and the
accuracy of Paladin's representations as expressed in this Agreement.
3.3 Authority. Paladin has duly executed and delivered this Agreement,
which constitutes a legal, valid and binding obligation of Paladin, enforceable
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with or result in any
violation of any obligation under any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Paladin.
3.4 Government Consents, Etc. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of Paladin is required in connection with the valid execution and delivery of
this Agreement, or the offer, sale or issuance of the Common Stock, or the
consummation of any other transaction contemplated by this Agreement.
3.5 Regulation S. For purposes of this Section 3.5, unless otherwise
defined in this Section, capitalized terms used and not otherwise defined in
this Section shall have the meanings given to them in Regulation S ("REGULATION
S") under the Securities Act.
(a) Paladin is not a U.S. Person as defined in Rule 902(k) of
Regulation S under the Securities Act and is not acquiring the Common Stock for
the account or benefit of any U.S. Person. That rule defines a "U.S. Person" to
mean
(i) any natural person resident in the United States;
(ii) any partnership or corporation organized or incorporated
under the laws of the United States;
(iii) any estate of which any executor or administrator is
a U.S. person;
(iv) any trust of which any trustee is a U.S. person;
(v) any agency or branch of a foreign entity located in the
United States;
(vi) any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other
fiduciary for the benefit or account of a U.S. Person;
(vii) any discretionary account or similar account (other than
an estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in
the United States; and
(viii) any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction;
and (B) formed by a U.S. Person principally for the
purpose of investing in securities not registered under
the Securities Act, unless it is organized or
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incorporated, and owned, by accredited investor (as
defined in Rule 501(a) under the Securities Act) who are
not natural persons, estates or trusts;
(b) At the time the buy order for the Common Stock was
originated, Paladin was located outside the United States;
(c) Neither Paladin nor any of its affiliates nor anyone acting
on its or their behalf has engaged or will engage in any Directed Selling
Efforts with respect to the Common Stock, and all such persons understand and
have complied and will otherwise comply with the requirements of Regulation S;
(d) Paladin will not, through its own actions or any of its
affiliates or any person acting on its or their behalf, during the Distribution
Compliance Period applicable to the Common Stock, offer or sell any of the
Common Stock (or create or maintain any derivative position equivalent thereto)
in the United States, to or for the account or benefit of Paladin other than in
accordance with Regulation S, or engage in hedging transactions with regard to
any of the Common Stock in the United States, to or for the account or benefit
of Paladin other than in compliance with the Securities Act; and
(e) Paladin will, after the expiration of the applicable
Distribution Compliance Period, offer, sell, pledge or otherwise transfer the
Common Stock (or create or maintain any derivative position thereto) only
pursuant to registration under the Securities Act or an available exemption
therefrom, or engage in hedging transactions with regard to the Common Stock
only in compliance with the Securities Act and, in any case, in accordance with
applicable state securities laws.
SECTION 4
CONDITIONS TO OBLIGATIONS OF PALADIN
Paladin's obligations to Connetics under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties Correct. The representations and
warranties made by Connetics in SECTION 2 of this Agreement and in the License
Agreement shall be true and correct in all material respects on the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the Closing Date; provided, however, that representations and
warranties which are made as of a particular date shall be true and correct only
as of the date such representations and warranties were made.
4.2 Performance. All covenants, agreements and conditions contained in
this Agreement or in the License Agreement to be performed by Connetics on or
prior to such Closing Date shall have been performed or complied with in all
material respects.
4.3 License Agreement. Paladin shall have received a License Agreement
validly executed and delivered by Connetics.
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4.4 No Order Pending. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
4.5 No Law Prohibiting or Restricting Sale. There shall not be in effect
any law, rule or regulation prohibiting or restricting such sale, or requiring
any consent or approval of any person which shall not have been obtained to
issue the Common Stock (except as otherwise referenced in this Agreement).
4.6 Compliance Certificate. Connetics shall have delivered to Paladin a
certificate substantially in the form attached as EXHIBIT A to this Agreement,
executed by a duly authorized officer, dated the Closing Date, and certifying to
the fulfillment of the conditions specified in SECTIONS 4.1 and 4.2.
SECTION 5
CONDITIONS TO OBLIGATIONS OF CONNETICS
The obligations of Connetics under this Agreement are subject to the
fulfillment on or prior to the Closing of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties Correct. The representations and
warranties made by Paladin in SECTION 3 of this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed by Paladin on or prior to the Closing Date shall
have been performed or complied with in all material respects.
5.3 License Agreement. Connetics shall have received a License Agreement
validly executed and delivered by Paladin.
5.4 No Order Pending. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
5.5 No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale, or
requiring any consent or approval of any person which shall not have been
obtained to issue the Common Stock (except as otherwise provided in this
Agreement).
SECTION 6
MISCELLANEOUS
6.1 Governing Law. This Agreement and all acts and transactions pursuant
to this Agreement and the rights and obligations of the parties to this
Agreement shall be governed,
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controlled, interpreted and defined by and under the laws of the State of
Delaware and the United States without regard to that body of law known as
conflicts of law.
6.2 Survival. Unless otherwise set forth in this Agreement, the
warranties, representations and covenants of Connetics and Paladin contained in
or made pursuant to this Agreement shall survive the execution and delivery of
this Agreement and the Closing.
6.3 Registration Rights. Paladin shall have the registration rights set
forth in EXHIBIT B attached to this Agreement.
6.4 Successors and Assigns. 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, their successors and assigns; provided that Paladin may
assign all or part of the Common Stock to any Affiliate of Paladin. For purposes
of this Agreement, "Affiliate" means any entity that controls, is controlled by
or is under common control with Paladin.
6.5 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant to this Agreement which are incorporated in this Agreement by
reference, together with the License Agreement, constitutes the entire agreement
of the Parties with respect to the subject matter, and supersedes all prior or
contemporaneous understandings or agreements, whether written or oral, between
Connetics and Paladin with respect to such subject matter, including
specifically the Binding Letter of Intent entered into on November 19, 1998. No
amendment or modification of this Agreement or any term of this Agreement shall
be valid or binding upon the Parties unless made in writing and signed by the
duly authorized representatives of both Parties.
6.6 Notices and Dates. Unless otherwise provided in this Agreement, any
notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon delivery, when delivered personally or by overnight
courier and addressed to the party to be notified at such party's address as set
forth on the signature page to this Agreement or as subsequently modified by
written notice. If any date provided for in this Agreement falls on a Saturday,
Sunday or legal holiday, such date shall be deemed extended to the next business
day.
6.7 Partial Invalidity. If any term, provision, covenant or restriction
of this Agreement is held to be invalid, void or unenforceable by a court of
competent jurisdiction, then the remaining provisions shall remain in full force
and effect and shall in no way be affected, impaired or invalidated. 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.
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6.8 No Third Party Rights. Nothing in this Agreement shall create or be
deemed to create any rights in any person or entity not a party to this
Agreement.
6.9 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.
6.10 Captions and Headings. 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 captions and headings used
herein are for convenience and ease of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
6.11 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.
IN WITNESS WHEREOF, the parties to this Agreement have executed or caused
their respective authorized officers to execute this Agreement as of the first
date written above.
<TABLE>
<S> <C>
Connetics Corporation Paladin Labs Inc.
By: /s/ T. Wiggans By: /s/ Jonathan Goodman
------------------------------------- -------------------------------
Thomas G. Wiggans Jonathan Goodman
President and Chief Executive Officer President
Connetics Corporation Paladin Labs, Inc.
3400 West Bayshore Road 6111 Royalmount, Suite 102
Palo Alto, California 94303 Montreal, Quebec H4P 2T4
Fax No. 650-843-2838 Fax No.
</TABLE>
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EXHIBIT A TO COMMON STOCK PURCHASE AGREEMENT
CONNETICS CORPORATION
COMPLIANCE CERTIFICATE
The undersigned, Thomas G. Wiggans, hereby certifies as follows:
1. He is the duly elected President and Chief Executive Officer of
Connetics Corporation, a Delaware corporation ("Connetics").
2. Connetics' representations and warranties set forth in Section 2 of
the Common Stock Purchase Agreement (the "Agreement") dated July 7, 1999
are true and correct in all material respects as though made on and as of the
date of this Certificate.
3. Connetics has performed and complied with all covenants, agreements,
obligations and conditions contained in the Agreement to be performed by
Connetics on or prior to the Closing Date.
The undersigned has executed this Certificate this 7th day of July,
1999.
/s/ T. Wiggans
------------------------------
Thomas G. Wiggans
President and Chief Executive Officer
<PAGE> 13
EXHIBIT B TO COMMON STOCK PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
[DOCUMENT C990051]
<PAGE> 1
EXHIBIT 10.3
CONNETICS CORPORATION
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made as of the
7th day of July, 1999, by and among Connetics Corporation, a Delaware
corporation ("Connetics") and Paladin Labs, Inc. ("Investor," which term for
purposes of this Agreement shall also include any assignee of Paladin Labs Inc.,
in accordance with this Agreement). Connetics and Investor are sometimes
referred to as a "Party" or as the "Parties" to this Agreement.
R E C I T A L S
A. Effective as of the same date as this Agreement, Connetics and the
Investor have entered into a Common Stock Purchase Agreement (the "Purchase
Agreement") pursuant to which Connetics has agreed to sell to the Investor and
the Investor has agreed to purchase from Connetics shares of Connetics' Common
Stock (all terms not otherwise defined in this Agreement shall have the meanings
ascribed in the Purchase Agreement).
B. A condition to the Investor's obligations under the Purchase
Agreement is that Connetics and the Investor enter into this Agreement in order
to provide the Investor with certain rights to register the Common Stock
acquired by the Investor pursuant to the Purchase Agreement. Connetics desires
to induce the Investor to purchase the Common Stock pursuant to the Purchase
Agreement by agreeing to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
1. Registration Rights. Connetics and Investor covenant and agree
as follows:
1.1 Definitions. For purposes of this SECTION 1:
(a) The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing
a registration statement or similar document in compliance with the
Securities Act of 1933, as amended (the "Securities Act"), and the
declaration or ordering of effectiveness of such registration statement
or document.
(b) The term "Registrable Securities" means (i) the
shares of Common Stock issued or sold in connection with the Purchase
Agreement (such shares of Common Stock are collectively referred to as
the "Shares" or "Stock") and (ii) any other shares of common stock of
Connetics issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in
replacement of, the Stock; provided, that the foregoing definition
shall exclude in all cases any Registrable Securities sold by a person
in a transaction in which his or her rights under this Agreement are
not assigned. Notwithstanding the foregoing, shares of common stock
shall only be treated as
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Registrable Securities if and so long as they have not been (x) sold to
or through a broker or dealer or underwriter in a public distribution
or a public securities transaction, or (y) sold in a transaction exempt
from the registration and prospectus delivery requirements under
Section 4(1) of the Securities Act so that all transfer restrictions,
and restrictive legends with respect to such securities, if any, are
removed upon the consummation of such sale.
(c) The number of shares of "Registrable Securities
then outstanding" shall be determined by the number of shares of Common
Stock then outstanding which are Registrable Securities, plus the
number of shares of common stock issuable pursuant to then exercisable
or convertible securities which are Registrable Securities.
(d) The term "Form S-3" means such form under the
Securities Act as in effect on the date of this Agreement or any
successor form under the Securities Act.
(f) The term "SEC" means the Securities and Exchange
Commission.
(g) The term "Registration Expenses" means all
expenses, except as otherwise stated below, incurred by Connetics in
complying with SECTION 1.2 of this Agreement, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for Connetics
and special counsel to the Investor, blue sky fees and expenses, the
expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of
Connetics which shall be paid in any event by Connetics).
(h) The term "Selling Expenses" shall mean all
underwriting discounts, selling commissions and stock transfer taxes
applicable to the securities registered by the Investor.
1.2 Registration
(a) Notice of Registration. If at any time or from
time to time Connetics determines to register any of its securities,
either for its own account or the account of a security holder or
holders, other than (i) a registration relating solely to employee
benefit plans or (ii) a registration relating solely to a Commission
Rule 145 transaction, Connetics will:
(i) promptly give Investor written notice of
its intention to register securities; and
(ii) include in such registration (and any
related qualification under blue sky laws or other
compliance), and in any underwriting involved in the
registration, all the Registrable Securities
specified in a written request or requests, made
within twenty (20) days after receipt of such written
notice from Connetics by Investor.
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(b) Underwriting. If the registration of which
Connetics gives notice is for a registered public offering involving an
underwriting, Connetics shall so advise Investor as a part of the
written notice given pursuant to SECTION 1.2(a)(i). In such event
Investor's right to registration pursuant to SECTION 1.2 shall be
conditioned upon Investor's participation in such underwriting, and the
inclusion of Investor's Registrable Securities in the underwriting to
the extent requested shall be limited to the extent provided in this
Agreement. If Investor proposes to distribute its securities through
such underwriting, it shall (together with Connetics) enter into an
underwriting agreement in customary form with the managing underwriter
selected for such underwriting by Connetics. Notwithstanding any other
provision of this SECTION 1.2, if the managing underwriter determines
that marketing factors require a limitation of the number of shares to
be underwritten, the managing underwriter may limit the Registrable
Securities to be distributed through such underwriting and if so
limited, such Registrable Securities shall be excluded from such
underwriting and registration. Connetics shall so advise Investor (if
Investor is distributing its securities through such underwriting) of
such limitation, and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be
allocated among all sellers in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities requested by such
sellers to be included in such registration statement. To facilitate
the allocation of shares in accordance with the above provisions,
Connetics may round the number of shares allocated to any seller to the
nearest 100 shares. If any seller disapproves of the terms of any such
underwriting, such seller may elect to withdraw from the underwriting
by written notice to Connetics and the managing underwriter. Any
securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration, and shall not be transferred in a
public distribution prior to 90 days after the effective date of the
registration statement relating thereto, or such other shorter period
of time as the underwriters may require.
(c) Right to Terminate Registration. Connetics shall
have the right to terminate or withdraw any registration that it
initiates under this SECTION 1.2 prior to the effectiveness of such
registration whether or not Investor has elected to include securities
in such registration. Connetics shall bear the Registration Expenses of
such withdrawn registration in accordance with SECTION 1.3 of this
Agreement.
1.3 Expenses of Registration. Connetics shall bear all Registration
Expenses incurred in connection with registrations pursuant to SECTION 1.2. All
Selling Expenses relating to securities registered on behalf of the Investor
shall be borne by the Investor pro rata with Connetics and any other sellers on
the basis of the number of shares so registered.
1.4. Registration Procedures. In the case of any registration,
qualification or compliance effected by Connetics pursuant to this SECTION 1,
Connetics will keep Investor advised in writing as to the initiation and
completion of such registration, qualification and compliance. At its expense
Connetics will:
(a) Prepare and file with the Commission a
registration statement with respect to such securities and use its best
efforts to cause such registration statement to
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<PAGE> 4
become and remain effective for at least thirty (30) days or until the
distribution described in the registration statement has been
completed;
(b) Prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may
be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement;
(c) Furnish to the Investor and to the underwriters
of the securities being registered such reasonable number of copies of
the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in
order to facilitate the public offering of such securities;
(d) Furnish, at the Investor's request at the time
any Registrable Securities are delivered to the underwriters (if any)
for sale in connection with a registration pursuant to this SECTION
1.4, (i) an opinion, dated such date, of the counsel representing
Connetics for the purposes of such registration, in form and substance
as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Investor.
(e) Representations of Investor. The Investor hereby
represents to and covenants with Connetics that, during the period in
which a registration statement effected pursuant to SECTION 1.2 remains
effective, it will:
(i) not engage in any stabilization activity
in connection with any of Connetics' securities;
(ii) cause to be furnished to any purchaser
of the Shares and to the broker-dealer, if any,
through whom Shares may be offered, a copy of the
Prospectus; and
(iii) not bid for or purchase any securities
of Connetics or any rights to acquire Connetics'
securities, or attempt to induce any person to
purchase any of Connetics' securities or any rights
to acquire Connetics' securities other than as
permitted under the Securities Exchange Act of 1934,
as amended ("Exchange Act").
1.5 Furnish Information. It shall be a condition precedent to
Connetics' obligations to take any action pursuant to this SECTION 1 with
respect to Investor's Registrable Securities that Investor shall furnish to
Connetics such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Registrable Securities.
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<PAGE> 5
1.6 Delay of Registration. Investor shall not have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any dispute that might arise with respect to the interpretation or
implementation of this SECTION 1.
1.7 Indemnification. If any Registrable Securities are included in a
registration statement under this SECTION 1:
(a) To the extent permitted by law, Connetics will indemnify
and hold harmless Investor, any underwriter (as defined in the
Securities Act) for the Investor, and each person, if any, who controls
the Investor or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement
of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained in the registration statement, or any amendments or
supplements to the registration statement,
(ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by Connetics
of the Securities Act, the Exchange Act, any state securities
law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law;
and Connetics will pay to each such indemnified person, as incurred,
any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this SUBSECTION 1.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if
such settlement is effected without Connetics' consent (which consent
shall not be unreasonably withheld), nor shall Connetics be liable in
any such case for any such loss, claim, damage, liability, or action to
the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any
such indemnified person.
(b) To the extent permitted by law, Investor will indemnify
and hold harmless Connetics, each of its directors, each of its
officers who has signed the registration statement, each person, if
any, who controls Connetics within the meaning of the Securities Act,
any underwriter, any other person selling securities in such
registration statement and any controlling person of any such
underwriter or other seller, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing
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<PAGE> 6
persons may become subject, under the Securities Act, the Exchange Act
or other federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity
with written information furnished by Investor expressly for use in
connection with such registration; and Investor will pay, as incurred,
any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this SUBSECTION 1.7(b), in connection
with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this SUBSECTION 1.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the Investor's consent (which consent
shall not be unreasonably withheld) and provided further, that in no
event shall any indemnity under this SUBSECTION 1.7(b) exceed the net
proceeds from the offering received by Investor, except in the case of
willful fraud by Investor.
(c) Promptly after receipt by an indemnified party under this
SECTION 1.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
SECTION 1.7, deliver to the indemnifying party a written notice of the
commencement of such action and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume the defense of such action with counsel mutually satisfactory
to the parties; provided, however, that an indemnified party (together
with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate
counsel, with the reasonable fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
SECTION 1.7, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this SECTION 1.7.
(d) If the indemnification provided for in this SECTION 1.7 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage,
or expense referred to in this Section, then the indemnifying party, in
lieu of indemnifying such indemnified party under this Agreement, shall
contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that resulted in
such loss, liability, claim, damage, or expense as well as any other
relevant equitable considerations; provided that, in no event shall any
contribution by the Investor under this SUBSECTION 1.7(d) exceed the
net proceeds from the offering received by the Investor,
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except in the case of willful fraud by the Investor. The relative fault
of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party
or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
(e) The obligations of Connetics and the Investor under this
SECTION 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this SECTION 1.
1.8 Reports Under Securities Exchange Act Of 1934. With a view to
making available to the Investor the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit Investor to sell securities of
Connetics to the public without registration or pursuant to a registration on
Form S-3, Connetics agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, so long as Connetics remains
subject to the periodic reporting requirements under Sections 13 or
15(d) of the Exchange Act;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary
to enable Investor to use Form S-3 for the sale of its Registrable
Securities;
(c) file with the SEC in a timely manner all reports and other
documents required of Connetics under the Securities Act and the
Exchange Act; and
(d) furnish to Investor, so long as Investor owns any
Registrable Securities, forthwith upon request (i) a written statement
by Connetics that it has complied with the reporting requirements of
the Exchange Act and the rules and regulations promulgated thereunder,
or that it qualifies as a registrant whose securities may be resold
pursuant to Form S-3, (ii) a copy of the most recent annual or
quarterly report of Connetics and such other reports and documents so
filed by Connetics, and (iii) such other information as may be
reasonably requested in availing Investor of any rule or regulation of
the SEC which permits the selling of any such securities without
registration or pursuant to such form.
1.9 Termination of Registration Rights. The rights granted under this
SECTION 1 shall terminate on the second anniversary of the effective date of
this Agreement.
2. MISCELLANEOUS.
2.1 Successors and Assigns. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any of the Shares). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than
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<PAGE> 8
the Parties or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
2.2 Governing Law. This Agreement and all acts and transactions
pursuant to this Agreement shall be governed, construed and interpreted in
accordance with the laws of the State of California, without giving effect to
principles of conflicts of laws.
2.3 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided in this Agreement, any notice
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier and
addressed to the party to be notified at such party's address as set forth on
the signature page of this Agreement or as subsequently modified by written
notice. In the event that any date provided for in this Agreement falls on a
Saturday, Sunday or legal holiday, such date shall be deemed extended to the
next business day. Notwithstanding the foregoing, any notice delivered pursuant
to SECTION 1.6 of this Agreement must be made by personal delivery or confirmed
facsimile transmission.
2.6 Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of Connetics and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and Connetics.
2.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. If the Parties cannot reach a mutually agreeable and
enforceable replacement for such provision, then (a) such provision shall be
excluded from this Agreement, (b) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (c) the balance of the
Agreement shall be enforceable in accordance with its terms.
2.9 Entire Agreement. This Agreement, and the documents referred to in
this Agreement (with the exception of the registration statement) constitute the
entire agreement between the Parties pertaining to the subject matter of this
Agreement, and any and all other written or oral agreements existing between the
Parties are expressly canceled.
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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.
COMPANY
<TABLE>
<S> <C>
Connetics Corporation Address:
3400 West Bayshore Road
Palo Alto, California 94303
By: /s/ T. Wiggans Fax No. (650) 843-2899
-------------------------------
Thomas G. Wiggans
President and Chief Executive Officer
INVESTOR
Paladin Labs Inc. Address:
Paladin Labs Inc.
6111 Royalmount, Suite 102
Montreal, Quebec H4P 2T4
By: /s/ Jonathan Goodman Fax No.
-------------------------------
Jonathan Goodman
President
</TABLE>
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<PAGE> 1
EXHIBIT 10.4
LICENSE AGREEMENT
(KETOCONAZOLE)
THIS AGREEMENT, effective as of July 14, 1999 (the "EFFECTIVE DATE"), is entered
into by and between Soltec Research Pty Limited ("SOLTEC"), an organization
organized under the laws of Australia (A.C.N. 006 363 891), having an address at
8 Macro Court, Rowville, Victoria 3178 Australia and Connetics Corporation
("CONNETICS"), a Delaware corporation, having an address at 3400 West Bayshore
Road, Palo Alto, California 94303 U.S.A.
B A C K G R O U N D
A. Soltec owns all rights for the Territory to develop, manufacture,
use, distribute, market or sell the ketoconazole hydroalcoholic quick-break
foam/mousse product defined in this Agreement as the "Product."
B. Pursuant to the Exclusive Option Letter Agreement dated March 25,
1996 as amended on June 14, 1996 and January 6, 1998 (collectively, the "OPTION
AGREEMENT," copies attached as EXHIBIT A). Connetics (under its former name,
Connective Therapeutics, Inc.) has acquired from Soltec an exclusive option for
a license to the exclusive rights, including the right to grant sublicenses,
under Soltec's entire rights in and to "Pharmaceutical Mousse Delivery System
Technology," including "all active agents and/or uses of the Technology" as
defined in the Option Agreement.
C. The Product, as defined in this Agreement, is subject to the Option
set forth in the Option Agreement, and Connetics wishes to exercise its option
for the Product pursuant to the Option Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED as follows:
A G R E E M E N T
ARTICLE 1
DEFINITIONS
In addition to certain terms defined in the body of this Agreement, the
following terms shall be deemed to have the meanings stated below:
"AFFILIATE" means in respect of either party any corporation or business
entity controlled by, controlling, or under common control with Soltec or
Connetics, respectively. For this purpose "control" means the direct or indirect
beneficial ownership of at least fifty percent (50%) of the voting stock of, or
at least fifty percent (50%) interest in the income of, such corporation or
other business entity, or such other relationship as, in fact, constitutes
actual control.
"COMMENCEMENT OF COMMERCIAL MARKETING" shall mean the first arms' length
sale of the Product by Connetics or an Affiliate or sublicensee of Connetics to
a third party, forming part
* Confidential treatment has been requested for this portion of the Agreement.
<PAGE> 2
of a continuous program or campaign designed to market the Product in the
Territory during the term of this Agreement.
"CONNETICS BREACH" shall have the meaning set forth in SECTION
9.4(b)(i).
"DELIVERY SYSTEM" means Soltec's hydroalcoholic quick-break foam
delivery system encompassed by the Technology that is the subject of Connetics'
option.
"DULY AUTHORIZED REPRESENTATIVE" means a representative of Connetics who
is authorized in a written notice, from Connetics to Soltec to receive
information under this Agreement, and who is bound to Soltec by obligations of
confidentiality at least as stringent as those by which Connetics is bound under
this Agreement.
"EUROPE" means the countries of France, Germany, the United Kingdom,
Italy and Spain.
"FDA" means the United States Food and Drug Administration.
"MINIMUM ROYALTY" means aggregate annual royalties of [*] beginning in
the first full calendar year following Commencement of Commercial Marketing in
the United States, and increasing to [*] beginning in the third full calendar
year following Commencement of Commercial Marketing in the United States. The
Minimum Royalty shall be reduced to [*] and [*], respectively, if Connetics does
not have Market Exclusivity in NAFTA.
"NAFTA" means the United States of America, Canada, and Mexico.
"NDA" means a new drug application filed with the FDA.
"NET SALES" means the proceeds actually received by Connetics, its
Affiliates and its sublicensees from the sale of Product to purchasers who are
not Affiliates, less:
(a) trade, quantity and cash discounts actually allowed and taken;
(b) credits actually allowed on account of the rejection or return or
billing error relating to any Product previously billed and paid;
(c) freight, other transportation and insurance costs;
(d) taxes imposed on account of such sale (including, without
limitation, sales, value-added and distribution taxes); and
(e) rebates and adjustments, including chargebacks.
"PATENT(S)" means PCT application WO 99/20250, filed 19 October 1998
(copy attached as EXHIBIT B) together with any extensions, reissues,
reexaminations, substitutions, renewals, divisions, continuations,
continuations-in-part and counterparts thereof or therefor.
"PRODUCT" or "PRODUCTS" means a hydroalcoholic quick break foam product
incorporating the Technology and containing ketoconazole, particularly (but not
exclusively) as described in the Product Specification.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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"PRODUCT INFORMATION" means the dossier, data and results of clinical
and other trials and investigations relating to the Product, including
regulatory status and information, together with all other information relating
to the specification of the Product and information relating to the manufacture
(including method, conditions, and process equipment), testing (including
quality control standards, assay methods and stability studies), storage and use
of the Product now or hereafter during the term of this Agreement owned by
Soltec. If Soltec controls or otherwise possesses Product Information that is
owned by a third party, Soltec shall use commercially reasonable efforts to help
Connetics secure permission from that third party to share the information with
Connetics.
"PRODUCT SPECIFICATIONS" means the description of the Product set forth
in EXHIBIT C, a copy of which is attached.
"PROJECTED DEADLINE" means, with respect to the United States, the dates
set forth in SECTION 4.2, and with respect to each of Japan, Europe, and South
East Asia, the dates set forth in SECTION 4.3.
"PROPRIETARY INFORMATION" means any information of value, not generally
known to the public, including (but not limited to):
(a) the Product Information; the development status of the Product;
Product indications and modes of administration; technical
information, such as clinical, biological, pharmaceutical and
characterizing data; and know-how; and
(b) business information, such as reports; records; customer lists;
supplier lists; marketing and sales plans; financial information;
costs; and pricing information.
"QUARTER" means calendar quarter, except when used to refer to the first
or last year this Agreement is in effect, in which case the first "Quarter"
shall be deemed to mean the period from the Effective Date until the first to
occur thereafter of the dates March 31, June 30, September 30 or December 31,
and the last "Quarter" shall be deemed to mean the period from the last to occur
of the dates January 1, April 1, July 1 or October 1 and ending on the date of
termination.
"SOLTEC BREACH" shall have the meaning set forth in SECTION 9.4(b)(ii).
"SOUTH EAST ASIA" means at least Hong Kong, Indonesia, Malaysia,
Singapore, and the Philippine Islands.
"TECHNOLOGY" has the same meaning as set forth in the Option Agreement.
"TERRITORY" means the world, except for (a) Australia, (b) New Zealand,
and (c) any country group excluded from the definition of Territory pursuant to
SECTION 4.2.
"VALID CLAIM" means a claim of an issued, unexpired Patent in the
Territory that has not been abandoned for any reason, which, but for the license
to Connetics under this Agreement would be infringed by Connetics' manufacture,
use or sale of a Product, which claim has not been held invalid or unenforceable
by a decision of a court of competent jurisdiction, nonappealable or
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<PAGE> 4
unappealed within the time allowed for appeal, and which has not been admitted
to be invalid through reissue, reexamination or disclaimer. With respect to
countries in which patents cannot be "abandoned" or which do not recognize the
concept of "abandonment," the term "Valid Claim" shall mean a claim of any
issued, unexpired Patent in that country.
ARTICLE 2
GRANT/ACQUISITION OF RIGHTS
2.1 As of the Effective Date, Soltec exclusively licenses the following
rights to Connetics in the Territory free and clear from all liens,
interests or equities, charges and encumbrances, namely: the Product and
the Product Information, for the purpose of the development,
manufacture, use, distribution, marketing and sale of the Product in the
Territory, with the right of sublicense.
2.2 As of the Effective Date, and only to the extent required to enable
Connetics to develop, manufacture, use, distribute, market, offer to
sell, and/or sell the Product directly or indirectly, Soltec hereby
grants to Connetics the exclusive license under the Patents in the
Territory with the right to sublicense.
2.3 Soltec undertakes to do all such acts and provide all such formal
assignments, transfers and licenses as may be legally permissible and
appropriate to ensure that Connetics is licensed to (directly or
indirectly) develop, manufacture, distribute, use, market and sell the
Product in the Territory as of the Effective Date.
2.4 During the term of this Agreement, and within the Territory, Soltec
shall not (a) manufacture, distribute, use, market or sell, directly or
indirectly, the Product or a hydroalcoholic quick-break foam containing
an antifungal agent [excluding Hexifoam(TM) (being a quick-break foam
product incorporating chlorhexidene and ethanol)] except on Connetics'
behalf, or (b) authorize or purport to authorize any person, firm or
company other than Connetics to develop such a product.
2.5 Nothing in this Agreement shall prevent Soltec from granting licenses
under the Patents in respect of products or product information which is
not within the definition of "Product" or "Product Information" (as the
case may be) under this Agreement.
2.6 Soltec agrees to promptly inform Connetics of any inquiries of it for
purchase of the Product in the Territory. Connetics agrees to promptly
inform Soltec of any inquiries of it for purchase of the Product outside
the Territory.
2.7 Connetics agrees that it will not manufacture or sell the Product
outside the Territory, nor permit any other person to manufacture or
sell the Product outside the Territory, during the term of this
Agreement. Connetics further agrees not to sell the Product to any
person whom Connetics knows or reasonably believes will resell the
Product outside the Territory. For purposes of this provision, a written
notification from Soltec to Connetics given in good faith to the effect
that Soltec knows or reasonably believes that a person will so resell
the Product shall be deemed to give Connetics a reasonable belief of
such resale or proposed resale.
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<PAGE> 5
2.8 If Soltec determines at any time during the Term of this Agreement to
license the rights to the Product outside the Territory, Soltec shall
first notify Connetics that the countries outside of the Territory are
available, and give Connetics the opportunity to license or acquire such
rights.
ARTICLE 3
TECHNOLOGY TRANSFER AND ASSISTANCE
3.1 Promptly after the Effective Date, Soltec shall transfer and communicate
the Product Information to Connetics or its Duly Authorized
Representative(s). Until such transfer is completed, Soltec will allow
Connetics or its Duly Authorized Representatives to inspect and/or to be
provided with copies of all such information.
3.2 At Connetics' request, Soltec shall promptly provide to Connetics or its
Duly Authorized Representatives such technical assistance and the
services of its suitably qualified staff as may reasonably be required
to assist Connetics (on its own behalf, or on behalf of its authorized
assigns under SECTION 9.8) to acquire a proper understanding of the
Product Information, whether at Connetics' United States premises or at
Soltec's premises, at Soltec's cost and expense (except as modified by
the last sentence of this SECTION 3.2). The obligation to provide such
assistance and services shall terminate twelve (12) months after the
beginning of manufacture of the Product by Connetics or its nominee or
assignee as the case may be. Where the provision of assistance and
services requires the attendance of Soltec's staff in the United States,
Connetics shall pay all of Soltec's reasonable travel-related expenses,
and Soltec's representatives shall be paid [*] per hour for services
rendered to Connetics during the trip.
3.3 As part of or in addition to the foregoing, Soltec shall give Connetics
the following assistance (subject to Connetics' reimbursement
obligations stated in SECTION 3.2):
(a) Provision of formula, manufacturing methods, test specifications,
packaging specification and raw material specifications.
(b) Written reports on formulation development and stability studies
conducted by Soltec as part of the development process, to the
extent necessary for inclusion in Connetics' regulatory
submissions.
(c) Prompt responses to Connetics' or manufacturers' queries with
regard to the technology.
(d) Provision of qualified chemist to supervise pre-production or
manufacturing trials. Limited to no more than 2 visits per annum
where the trials do not fit in with a regular visit.
(e) Technical improvements to the Products as and when they become
available.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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<PAGE> 6
(f) Validation of Production Methodology, analysis of Product and
validation of Product assay.
(g) Provision of information with regard to any application for
patent protection.
3.4 Nothing in this ARTICLE 3 shall be construed to require Soltec to
provide any assistance or services in respect of which Soltec does not
have the existing skills or capabilities.
ARTICLE 4
PRODUCT DEVELOPMENT
4.1 It shall be Connetics' responsibility to apply for all product licenses
and other marketing authorizations required in the Territory, in
sufficient time to enable Connetics to comply with its obligations under
SECTIONS 4.1, 4.2 and 4.3. Connetics agrees that, within three (3)
months after the Effective Date, it will present Soltec with a written
development plan that will, among other things, include the anticipated
timing of:
(a) the filing of an NDA with the FDA as soon as practicable after
the Effective Date, but in any event no later than [*]
(subject to the provisions of SECTION 4.2);
(b) the date of projected Commencement of Commercial Marketing of the
Product in the United States;
(c) applications for those drug registrations and approvals required
in Europe, Japan and South East Asia (as defined) for the
commercial marketing of the Product; and
(d) the date of projected Commencement of Commercial Marketing of the
Product in Europe, Japan and South East Asia (as defined).
4.2 Connetics agrees that it shall file an NDA for the Product by [*],
provided that Connetics shall have the option to extend that date for
six months by paying an additional [*] to Soltec no later than the [*].
If Connetics has not filed an NDA for the Product by [*], Soltec shall
have the right to terminate this Agreement and rescind Connetics'
license under this Agreement, upon written notice to Connetics. The [*]
and [*] dates are hereinafter referred to as the "Projected Deadlines"
for the United States. Notwithstanding the foregoing, it shall not be
deemed a failure by Connetics under this SECTION 4.2 if Connetics is
unable to meet the Projected Deadlines in the U.S. due to (a) a force
majeure event, (b) failure of the clinical trial(s) for the Product in
the U.S., or (c) failure of the product development effort, in each case
such that the event would reasonably be expected to significantly impact
the Projected Deadlines in the U.S. In the latter event, the Projected
Deadlines in the U.S. shall automatically be extended by the length of
time equal to the delay caused by such event. Notwithstanding anything
contained in SECTION 9.4 to the contrary, the rights of Soltec in the
event of Connetics' failure to comply with SECTION 4.2 are limited to
those set forth in this SECTION.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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4.3 (a) Connetics agrees that in addition to any other obligations it
may have in this Agreement, it will meet the Projected Deadlines
(defined below) for each of Japan, Europe, and South East Asia,
subject to the penalties described in this Section.
(b) For purposes of this Agreement, the "Projected Deadlines" are the
dates by which Connetics must file drug registration applications
or otherwise partner the Product, with respect to each of Europe,
Japan, and South East Asia, as follows: either (i) partner by
[*] and secure the partner's commitment to file the drug
registration application no later than [*], or (ii) file the drug
registration application no later than [*].
(c) Connetics shall keep Soltec promptly informed regarding the
status of the Projected Deadlines in each of Europe, Japan and
South East Asia, including providing Soltec with copies of any
distribution, sublicense or other agreements immediately upon
execution thereof.
(d) If Connetics fails to comply with any of its obligations
contained in this SECTION 4.3, then Soltec may give written
notice to Connetics identifying that failure with respect to one
or more of Europe, Japan and South East Asia and stating that the
countries or groups of countries referred to in the notice no
longer form part of the Territory. Such notice will take effect
from the date the notice is received by Connetics, and the
definition of "Territory" is modified accordingly, and Connetics'
obligations under this Agreement will cease to apply to that one
or more of Europe, Japan, and South East Asia which has ceased to
form part of the Territory pursuant to the operation of this
Section.
(e) Notwithstanding anything contained in SECTION 9.4 to the
contrary, the rights of Soltec in the event of Connetics' failure
to comply with SECTION 4.3 are limited to those set forth in
SECTION 4.3(d).
4.4 All product licenses and marketing authorizations for the Product in the
Territory shall be and remain the property of Connetics. Connetics
agrees that, upon written request by Soltec, it will sell to Soltec at
the cost to Connetics or at such other prices as may be agreed upon any
information developed by Connetics in connection with the Product that
Soltec may require in order to apply for approval to commercialize the
Product outside of the Territory. In addition, if Soltec rescinds any
license pursuant to SECTION 4.3, Soltec shall have the right to purchase
at a price to be agreed upon any such licenses or authorizations from
Connetics, and Connetics agrees to cooperate with Soltec to effect a
transfer at Soltec's sole expense of any market authorizations or
regulatory approvals of the Product relating to any country which is
deleted from the definition of "Territory."
4.5 Connetics and Soltec shall make available to each other during the term
of this Agreement all safety data obtained, including any details
regarding complaints and adverse event reports relating to the use of
the Product. Connetics shall assume responsibility for compliance with
governmental regulations in the Territory, including without limitation
adverse event reporting requirements. To the extent that Soltec receives
any adverse event reports (distinguished as serious and non-serious by
FDA regulations), Soltec shall promptly forward copies of such reports
to Connetics at the address set forth above. To the extent
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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that Connetics receives any adverse event reports (distinguished as
serious and non-serious by FDA regulations), Connetics shall promptly
forward copies of such reports to Soltec at the address set forth above.
For purposes of this SECTION 4.5, "promptly" shall mean (a) for serious
adverse events, no later than two business days after the appropriate
adverse experience reporting form (e.g., for the U.S., MedWatch Form
3500A) is completed by the party responsible for reporting it to the FDA
or other regulatory authorities, or (b) for non-serious adverse events,
a monthly line-listing of all adverse experience reports received by
Soltec or Connetics, as the case may be, during a given month, such
report due on the 15th day after the end of each month in which any such
reports are received.
ARTICLE 5
CONSIDERATION
5.1 Connetics agrees to pay Soltec a License Fee of [*] payable as
follows:
- [*] upon signing this License Agreement,
- [*] upon [*], and
- [*] upon [*].
5.2 Connetics will pay Soltec a royalty on Net Sales of Product in the
Territory as follows:
(a) [*] of Net Sales by Connetics, an Affiliate, or an unaffiliated
third party Connetics sublicensee, of Product in a country in the
Territory where [*];
(b) [*] of Net Sales by Connetics, an Affiliate, or an unaffiliated
third party Connetics sublicensee, of Product in a country in the
Territory where [*].
Notwithstanding the foregoing, if the Minimum Royalty is higher than the
royalties described above with respect to sales of Product in NAFTA,
Connetics shall pay the Minimum Royalty for NAFTA, and the royalties
referred to above in respect of sales of Product outside NAFTA.
5.3 In addition to the amounts set forth in SECTIONS 5.1 and 5.2, Connetics
will pay Soltec [*] of any upfront payments (excluding payments for
development) that Connetics receives in connection with a sublicense of
the rights to the Product.
5.4 In the event of any dispute between Soltec and Connetics as to (a)
whether there are any material sales of a ketoconazole quick-break foam
product or other antifungal quick-break foam product; or (b) whether a
product is a ketoconazole quick-break foam product or
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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other antifungal quick-break foam product (as those terms are used in
the definition of "Market Exclusivity"), then the matter will be
determined in accordance with the procedures set forth in SECTION 9.2.
5.5 All royalties payable on Net Sales pursuant to this Agreement shall be
paid within two (2) months after the close of the Quarter during which
the Net Sales were actually made. Each royalty payment shall be
accompanied by a statement that sets forth Net Sales (including details
of all amounts deducted from the proceeds invoiced for the purpose of
calculating Net Sales) during the Quarter in question and the royalty
payment due thereon.
5.6 Unless the parties agree otherwise in writing, the payments of SECTIONS
5.2 and 5.3 will be paid in U.S. Dollars and by wire transfer to the
U.S. bank account(s) specified by Soltec from time to time. Connetics
shall apply a conversion rate from all other currencies to Dollars for
amounts payable under this Agreement equal to the average of the
conversion rates in effect on each day of the quarterly period for which
such payment is due. The conversion rates to be used in this Agreement
shall be the rates reported by Olsen & Associates, Ltd. and referenced
on the internet website at http://www.olsen.ch/, and if that source is
no longer available from a comparable source to be agreed upon from time
to time by the parties.
5.7 If any taxes, withholding or otherwise, are levied by any taxing
authority in connection with the accrual or payment of royalties under
this Agreement and are required to be paid by Connetics in connection
with such accrual or payment, then Connetics shall pay such taxes to the
local taxing authorities on behalf of Soltec and remit to Soltec in full
satisfaction of its royalty obligations under this Agreement the net
amount due after reduction by the amount of such taxes, together with
evidence of payment of such taxes.
5.8 No royalty payment shall be made with respect to any non-commercial sale
or transfer of a product between and among Connetics, its Affiliates,
and/or its sublicensees where such sale or transfer is made in the
course of a subsequent royalty-generating transaction under this
Agreement. No multiple royalties shall be payable on account of the sale
of any Product, regardless of whether or not more than one patent, or
patent and other intellectual property rights, exist(s) covering such
Product in any country. No royalty shall be payable with respect to
reasonable quantities of samples provided free of charge to physicians
and reasonable quantities of free "trade goods" including indigent
patient programs.
5.9 Connetics shall keep records of all items in a manner and in sufficient
detail to accurately and fully determine Net Sales in accordance with
this Agreement and in accordance with U.S. generally accepted accounting
principles and to regularly maintain such records in sufficient detail
to permit calculation of Net Sales. Such records shall be retained for
five (5) years after the end of the relevant Quarter.
5.10 Soltec shall have the right to nominate an independent firm of certified
public accountants reasonably acceptable to Connetics to verify records
of Connetics pertaining to, the calculation of any royalties payable
under this Agreement with respect to the preceding calendar year, and
Connetics shall maintain records for at least five (5) years after each
year to which the records apply. Such verification shall not occur more
than once each calendar year during the term of this Agreement and shall
be conducted during normal business
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hours. Soltec shall be responsible for the fees and expenses of the
accountants performing such verification. The accountants appointed
under this Agreement shall not be authorized to disclose to Soltec any
information other than the accuracy or inaccuracy of the item(s) to be
verified. If the audit reveals that Connetics has over-reported for the
period of the audit, Soltec shall immediately remit to Connetics any
refund due, together with interest at [*] over the then-current U.S.
prime rate, accruing from the date the original overpayment was made. If
the audit reveals that Connetics has under-reported for the period of
the audit, Connetics shall immediately remit to Soltec any balance
owing, together with interest at [*] over the then-current U.S. prime
rate, accruing from the date the original payment was due. In addition,
if the audit reveals that Connetics under-reported by more than [*],
Connetics shall be responsible for paying the accountants' fees in
connection with the audit. Except in the event that the audit reveals
fraud, Soltec shall have no right under this Section to audit records
for periods that have already been audited under this provision.
5.11 The royalties payable under this Agreement shall be reduced by the
amount of any consideration Connetics pays if required to obtain a
patent license from a third party in respect of the Delivery System in
order to make, use or sell Product in the Territory.
ARTICLE 6
PATENTS
6.1 Soltec confirms that the Patents represent the only patent protection it
or its Affiliates have applied for in relation to an antifungal agent in
the formulation used in the Product [excluding [*].
6.2 Soltec shall retain title to the Patents and to any patent rights and
know-how related to the Product developed solely by Soltec in the
future. Connetics shall retain title to any patent rights and know-how
related to the Product developed solely by Connetics in the future.
Connetics and Soltec shall own in equal undivided interests any patent
rights and know-how related to the Product developed jointly by Soltec
and Connetics in the future.
6.3 Soltec shall be responsible for the prosecution and maintenance of the
Patents at Soltec's expense. Soltec shall keep Connetics promptly
informed of the status of prosecution of the Patents, including
providing copies of all material correspondence with the U.S. or other
Patent Office. Connetics shall have the right to comment upon and make
suggestions for such prosecution and Soltec agrees to give such comments
and suggestions due consideration, but the decision whether to implement
Connetics' comments and suggestions shall rest solely with Soltec.
6.4 Connetics shall assist Soltec in prosecuting the Patents as contemplated
by SECTION 6.3. If Soltec decides to discontinue prosecution or
maintenance of any or all of the Patents, at its option Connetics may
elect to continue such prosecution and maintenance at its own expense,
upon which election title to such Patent(s) shall be assigned to
Connetics.
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
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6.5 (a) Action. If either party learns that a third party is infringing
the Patents, 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. If
such efforts are unsuccessful, Soltec may take steps to remove
the infringement of the Patents, including, without limitation,
initiating suit. If Soltec decides not to take such steps to
remove the infringement within three (3) months of discovering or
being notified of the infringement, Connetics may, but shall not
be required to, take steps to remove the infringement.
(b) Expenses; Control. 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 moneys
remaining 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.
6.6 If a notice of infringement is received by, or a suit is initiated
against either Soltec or Connetics with respect to the Product as made,
used or sold in the Territory, the parties will in good faith discuss
the best way to respond.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 Soltec represents and warrants to Connetics as follows:
(a) Capacity. Soltec has all requisite power and authority to enter
into and perform this Agreement.
(b) Accuracy of Information. To the best of Soltec's knowledge and
belief, as of the Effective Date the Product Information
comprises all information necessary to enable the Product to be
manufactured to the Product Specifications.
(c) Investigations. Soltec is not aware of any complaint concerning
or relating to the Product or the Delivery System and nor is
Soltec aware of any regulatory authority or any other
governmental authority proposing to carry out or carrying out an
investigation into the Product or the Delivery System.
(d) Competitive Products. Soltec has not entered into any agreements
or arrangements with any other party for the sale of the Product
in the Territory.
(e) Litigation. Soltec is not engaged in any litigation, arbitration,
or other legal or administrative proceedings with respect to the
Product, the Delivery System or the Patents, and to the best of
Soltec's knowledge and belief no such litigation,
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arbitration, or administrative proceedings are threatened by or
against Soltec in relation to the Product, the Delivery System,
or the Patents.
(f) Intellectual Property.
(i) To the best of Soltec's knowledge and belief, no claim has
been made or threatened against Soltec alleging any
infringement by the Product or the Delivery System of the
patent rights of any other person.
(ii) To the best of Soltec's knowledge and belief, none of the
processes or materials (with the exception of ketoconazole)
used in the Delivery System or the Product infringes the
intellectual property rights of any other person.
7.2 Connetics represents and warrants to Soltec that Connetics:
(a) has all requisite power and authority to enter into and perform
its obligations under this Agreement; and
(b) is not aware, having made full and proper inquiry, of any state
of affairs existing or which may come to exist which will
adversely affect Connetics' ability to market (or have marketed
by an Affiliate or sublicensee) the Product in any country in the
Territory.
7.3 Connetics covenants to Soltec as follows:
(a) Connetics will provide for and maintain a sales organization and
a marketing program reasonably adequate and competent to promote,
sell and stimulate interest in the Product;
(b) Connetics will conduct its business in a proper and businesslike
manner;
(c) Connetics will actively and diligently promote and advertise the
sale of the Product in the U.S., Europe, Japan, and South East
Asia;
(d) the Product will be manufactured, filled, packaged, stored and
shipped in accordance with all applicable laws, rules,
regulations or requirements;
(e) Connetics shall obtain and maintain sufficient liability
insurance to cover its activities and obligations (including
without limitation indemnified obligations) contemplated under
this Agreement, in such amount normal and customary for companies
engaged in industry and activities similar to Connetics; and
(f) Connetics will carry sufficient liability insurance to cover its
indemnification obligations under this Agreement and will, as and
when reasonably requested by Soltec, provide Soltec with evidence
of such insurance (including evidence of payment of premiums).
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ARTICLE 8
INDEMNIFICATION
8.1 Soltec hereby undertakes to indemnify and hold harmless Connetics from
and against any and all liabilities and obligations to third parties
incurred or arising in connection with or arising out of any default by
Soltec under the terms of this Agreement, save to the extent that such
default arises out of any negligence, wrongful act or default of
Connetics.
8.2 Connetics hereby undertakes to indemnify Soltec from and against all
liabilities and obligations incurred or arising in connection with or
arising out of any default by Connetics under the terms of this
Agreement, save to the extent that such default arises out of any
negligence, wrongful act or default of Soltec.
ARTICLE 9
GENERAL TERMS AND CONDITIONS
9.1 Confidentiality. In order to facilitate this Agreement it will be
necessary for the parties to exchange certain Proprietary Information,
each recipient of which agrees to retain such Proprietary Information in
strict confidence and not to disclose or transfer to any party or use
other than as authorized by the terms of this Agreement or otherwise in
writing by the discloser. The parties hereby acknowledge that such
Proprietary Information can constitute "inside information" for
securities purposes and the responsibility to refrain from any
unauthorized disclosure, trading or other such use. These obligations of
confidentiality and non-use shall not apply to Proprietary Information:
(a) that was previously known to the recipient as evidenced by
recipient's written records, (b) that is lawfully obtained by recipient
from a source independent of the discloser, or (c) that is now or
becomes public knowledge other than by breach of this Agreement. These
obligations of confidentiality and non-use shall survive the expiration
or termination of this Agreement.
9.2 Arbitration and Applicable Law
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement, including any dispute, controversy or claim
surrounding a breach or termination of this Agreement, shall
first be referred to the chief executive officer of each of
Soltec and Connetics for resolution at a place to be agreed
between such chief executive officers and, failing agreement, at
the head office of the Soltec (if Connetics requests the
referral) or Connetics (if Soltec requests the referral).
(b) If the dispute, controversy or claim is not settled or agreed
between such chief executive officers within a period of one (1)
month, then it shall be settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association then in effect. At the written request of either
party, Soltec and Connetics may each nominate one or more
appropriately qualified experts, but both parties must agree to
the expert to be appointed. If the Parties are unable to agree on
an expert or experts, the arbitration will be conducted by a
panel of three (3) arbitrators who are knowledgeable in the
subject matter that is at issue in the dispute, are not
affiliated directly or indirectly with either Party, one of whom
is
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selected by Soltec, one of whom is selected by Connetics, and one
of whom is selected by the mutual agreement of the other two
arbitrators. During the arbitration, the Parties shall have such
discovery rights as the arbitrators may allow, consistent with
the discovery permitted by the Federal Code of Civil Procedure.
The place of arbitration shall be Palo Alto, California. The
arbitrators shall apply the law of the State of California
(regardless of that jurisdiction's or any other jurisdiction's
choice of law principles).
(c) In any arbitration pursuant to this section, the arbitrators
shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary
restraining order, a preliminary or permanent injunction, as well
as specific performance. The arbitrators shall also be able to
award direct and indirect damages, but shall not award any other
form of damage (e.g., punitive or exemplary damages). The
reasonable fees and expenses of the arbitrators, the fees and
expenses of a court reporter, and any expenses for a hearing
room, shall be borne equally by the Parties. The decision of the
arbitrators shall be final and will be handed down within a
period of sixty days of being appointed; The Party in whose favor
the decision runs may enter, sued on or enforced the decision in
any court of competent jurisdiction at the option of such Party.
9.3 Notices. Any notice required or permitted by the terms of this Agreement
shall be given by registered mail, prepaid and properly addressed, or
delivered by hand to Soltec or Connetics at the respective addresses
first given above or at such other address as either party to this
Agreement may designate by notice pursuant to this SECTION 9.3. Any such
notice shall be deemed to have been given when received. All notices to
Connetics shall be sent to the attention of its President. All notices
to Soltec shall be sent to the attention of its Managing Director, with
a copy to the Company Secretary of F. H. Faulding and Co. Limited,
Sheriff Street Underdale, South Australia, or at such other address as
Soltec and/or Faulding may designate by notice given pursuant to this
Section.
9.4 Term and Termination
(a) Term. This Agreement shall come into force with effect from the
Effective Date and shall remain in force for the Territory, for
the longer of ten (10) years after Commencement of Commercial
Marketing of the Product, or expiration of the last to expire
Patent having a Valid Claim in the respective segment of the
Territory, unless earlier terminated by Soltec pursuant to
SECTION 4.2, or otherwise terminated in accordance with the terms
of this Agreement.
(b) Termination. In addition to and notwithstanding the termination
rights stated elsewhere in this Agreement, this Agreement may be
terminated as follows:
(i) For Breach by Connetics. Upon breach by Connetics of any
of its material obligations contained in this Agreement
("CONNETICS BREACH"), Soltec shall be entitled to give
Connetics notice specifying the nature of the Connetics
Breach and stating its intent to terminate this Agreement
if the Connetics Breach is not cured. This Agreement shall
terminate forty-five (45) days after Connetics
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receives such notice (A) if Connetics does not cure the
Connetics Breach to the reasonable satisfaction of Soltec,
or (B) if a plan, reasonably acceptable to Soltec, is not
implemented to cure as soon as practicable after notice of
the Connetics Breach.
(ii) For Breach by Soltec. Upon breach by Soltec of any of its
material obligations contained in this Agreement ("SOLTEC
BREACH"), Connetics shall be entitled to give Soltec
notice specifying the nature of the Soltec Breach and
stating its intent to terminate this Agreement if the
Soltec Breach is not cured. This Agreement shall terminate
forty-five (45) days after Soltec receives such notice (A)
if Soltec does not cure the Soltec Breach to the
reasonable satisfaction of Connetics, or (B) if a plan,
reasonably acceptable to Connetics, is not implemented to
cure as soon as practicable after notice of the Soltec
Breach.
(iii) Termination for Insolvency. Either party may terminate
this Agreement immediately upon delivery of written notice
to the other party (A) 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, however with respect to
involuntary proceedings, that such proceedings are not
dismissed within one hundred and twenty (120) days; (B)
upon the other party's making an assignment for the
benefit of creditors; or (C) upon the other party's
dissolution or ceasing to do business.
(c) Effect of Termination. Upon the expiration or earlier termination
of this Agreement, the rights licensed under this Agreement shall
be treated as follows:
(i) Upon the expiration of the Term, Connetics shall have a
fully paid-up, perpetual, irrevocable, royalty-free,
transferable, worldwide, non-exclusive right and license
to make, have made, use, offer to sell, and sell Products
in the Territory.
(ii) Upon termination by Soltec pursuant to SECTIONS 9.4(b)(i)
or 9.4(b)(iii), all rights to the Product in the Territory
shall revert to Soltec, and all rights of Connetics to
develop, manufacture, use, distribute, market and sell
Products in the Territory shall thereupon cease.
(d) Ongoing Obligations. Except as expressly provided in this
Agreement, 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 disclosed
by the other party, except that each party may retain one copy of
such Confidential Information marked and used for legal archival
purposes only.
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(e) No Refunds. Except as described in SECTION 5.10 regarding
overpayment of royalties, no payment by Connetics under any
clause of this agreement is refundable to Connetics for any
reason whatsoever including, but without limitation, whether or
not any patent issues in respect of the Product in any country in
the Territory or, if issued, whether or not such patent is valid,
or if valid, whether or not such patent covers the Product.
9.5 Remedies. If either party breaches any of its obligations with respect
to this Agreement, 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, without posting a
bond.
9.6 Announcements/Publicity. Subject to the requirements of law and/or The
Australian Stock Exchange Limited or the Nasdaq National Market System,
any announcements or publicity (whether verbal or written, including,
but not limited to shareholder reports, prospectuses, communications
with stock market analysts, press releases or other communications with
the media) to be made or given in respect of this Agreement by either
party shall be subject to the prior approval in writing of the other
party (such approval not to be unreasonably withheld or delayed) where
such announcement or publicity refers to such other party, the Product
or the Delivery System. The parties agree that once approval for
disclosure of information has been obtained in accordance with the
provisions of this SECTION 9.6, the party that requested such approval
shall be entitled to use such information without any obligation to seek
further approval.
9.7 Force Majeure. Neither party shall be liable for failure to perform any
duty or obligation that party may have under this Agreement where such
failure has been occasioned by any force majeure which shall mean and
include government regulation, fire, strike, inevitable accident,
national emergency, or any other cause outside the reasonable control of
the party having the duty so to perform. Such failure to perform shall
only be excusable under the provisions of this Section for so long as,
and to the extent that, the same is rendered impossible by force
majeure. The party claiming that force majeure has occurred shall send
full particulars to the other party within five working days of the
first occurrence of force majeure including its date of first occurrence
and of the cause or event giving rise to it. Notwithstanding the relief
granted to any party by this Section, the relevant party shall
nevertheless use its reasonable endeavors in any situation where it has
invoked this Section to perform its relevant obligations as soon as
possible after force majeure has ceased.
9.8 Assignment.
(a) Each party agrees that its rights and obligations under this
Agreement may not be transferred or assigned directly or
indirectly, except as follows: (i) either party may transfer or
assign this Agreement to an Affiliate of such party, or in
connection with the sale of all or substantially all of the
assigning party's related business, provided that the assignee
agrees in writing to undertake the obligations under this
Agreement provided the assigning party remains primarily liable,
and (ii) either party may transfer or assign this Agreement to a
non-Affiliate Third party with the prior written consent of the
other party, which consent shall not be unreasonably
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withheld. In addition, in the case of an assignment by Connetics,
Connetics agrees that Soltec may seek to enforce Connetics'
remedies against the assignee directly against such assignee
without first exhausting its remedies against Connetics if the
assignee breaches its agreement so as to cause Connetics to
become liable to Soltec for damages due to Connetics' breach in
accordance with the terms of this Agreement. As to each such
assignee, Connetics shall use commercially reasonable efforts to
cause each assignee to execute and deliver to Soltec prior to the
date of the assignment a letter acknowledging Soltec's right to
enforce Connetics' remedies directly against the assignee.
Notwithstanding the preceding sentence, if Soltec shall seek to
exercise such remedies, Connetics shall remain primarily liable
and obligated to Soltec under all provisions of this Agreement.
(b) Subject to the foregoing, this Agreement shall be binding upon
and inure to, the benefit of the Parties, their successors and
assigns. Any attempted assignment contrary to the provisions of
this SECTION 9.8 shall be deemed ineffective, and shall give rise
to the right to terminate this Agreement for breach. Nothing set
forth in this SECTION 9.8 shall prevent Connetics, or any
Affiliate to which it has assigned its rights, from sublicensing
the rights granted to Connetics under this Agreement; provided
that:
(i) such sublicensing shall be effected on terms which are not
inconsistent or in conflict with the terms of this
Agreement;
(ii) Connetics shall remain responsible for royalty payments in
accordance with the terms of this Agreement on Products
sold by such sublicensee as if such sales had been made by
Connetics; and
(iii) the sublicensee shall specifically be bound by the
confidentiality provisions of this Agreement and by
Soltec's audit rights under this Agreement.
9.9 Survival. The covenants and agreements set forth in SECTIONS 5.10,
6.5(b), 6.6 and 9.1, and ARTICLE 8, shall survive any termination or
expiration of this Agreement and remain in full force and effect
regardless of the cause of termination. All other rights and obligations
of the parties shall cease upon expiration or termination of this
Agreement.
9.10 Nonwaiver of Rights. No failure or delay on the part of a party in
exercising any right under this Agreement will operate as a waiver of,
or impair, any such right. No single or partial exercise of any such
right will preclude any other or further exercise thereof or the
exercise of any other right. No waiver of any such right will be deemed
a waiver of any other right under this Agreement.
9.11 Headings. Section headings contained in this Agreement are included for
convenience only and form no part of the agreement between the parties.
9.12 Validity of Provisions and Severability. If any provision of this
Agreement is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction: such provision will be deemed amended
to conform to applicable laws of such jurisdiction so as to be valid and
Page 17
<PAGE> 18
enforceable, or, if it cannot be so amended without materially altering
the intention of the parties, it will be stricken; the validity,
legality and enforceability of such provision will not in any way be
affected or impaired thereby in any other jurisdiction; and the
remainder of this Agreement will remain in full force and effect.
9.13 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. No amendment or
modification of this Agreement shall be valid or binding upon the
Parties unless made in writing and signed by the duly authorized
representatives of both Parties.
9.13 Entire Agreement. This Agreement, together with its exhibits which are
incorporated in this Agreement by reference, sets forth the entire
agreement of the parties with respect to the subject matter set forth.
In the event of any conflict between this Agreement and the Option
Agreement with respect to ketoconazole, this Agreement shall control.
This Agreement may not be modified except by a writing signed by the
parties' authorized representatives.
9.14 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.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
first written above.
Connetics Corporation Soltec Research Pty Ltd.
By /s/ T. Wiggans By: /s/ Ross A. Macdonald
------------------------------------- ------------------------------
Thomas G. Wiggans Ross A. Macdonald, Ph.D.
President and Chief Executive Officer Managing Director
Page 18
<PAGE> 19
EXHIBIT A TO LICENSE AGREEMENT
[OPTION LETTER AS AMENDED]
<PAGE> 20
EXHIBIT B TO LICENSE AGREEMENT
[PATENTS]
<PAGE> 21
EXHIBIT C TO LICENSE AGREEMENT
[PRODUCT SPECIFICATIONS]
[*]
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,030
<SECURITIES> 5,941
<RECEIVABLES> 3,373
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 956
<PP&E> 4,512
<DEPRECIATION> 2,874
<TOTAL-ASSETS> 25,244
<CURRENT-LIABILITIES> 13,725
<BONDS> 0
0
0
<COMMON> 111,446
<OTHER-SE> (103,394)
<TOTAL-LIABILITY-AND-EQUITY> 25,244
<SALES> 6,883
<TOTAL-REVENUES> 14,262
<CGS> 2,651
<TOTAL-COSTS> 2,651
<OTHER-EXPENSES> 22,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (524)
<INCOME-PRETAX> (10,714)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,714)
<EPS-BASIC> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
