SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number: 000-21589
TRIANGLE PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 56-1930728
(State or other jurisdiction (I.R.S. Employer
or incorporation or organization) Identification No.)
4 University Place, 4611 University Drive, Durham, North Carolina 27707
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (919) 493-5980
Securities registered pursuant to Section 12(b) of
the Act: None
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 31, 1998, was approximately $176 million. For the
purposes of this calculation, shares owned by officers, directors and 10%
stockholders known to the registrant have been excluded. Such exclusion is not
intended, nor shall it be deemed, to be an admission that such persons are
affiliates of the registrant.
The number of shares of the registrant's Common Stock outstanding as of
January 31, 1998, was 20,002,338.
<PAGE>
Documents Incorporated by Reference
Portions of Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders (the "Proxy Statement") are incorporated by reference as provided
in Part III of this Annual Report on Form 10-K.
PART I
Item 1. Business
The discussion of the Company's business contained in this Annual Report
on Form 10-K may contain certain projections, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
including those discussed below at "Risks and Uncertainties." While this outlook
represents management's current judgment on the future direction of the
business, such risks and uncertainties could cause actual results to differ
materially from any future performance suggested below. The Company undertakes
no obligation to release publicly the results of any revisions to these
forward-looking statements to reflect events or circumstances arising after the
date hereof. See "--Risks and Uncertainties" and "--Risks and
Uncertainties--Special Note Regarding Forward Looking Statements." References in
this Annual Report on Form 10-K to "Triangle" and the "Company" are to Triangle
Pharmaceuticals, Inc. and its wholly-owned direct and indirect subsidiaries,
Avid Corporation, a Pennsylvania corporation, and Avid Therapeutics, Inc., a
Pennsylvania corporation (collectively, "Avid").
Overview
Triangle is engaged in the development of new drug candidates primarily in
the antiviral area, with a particular focus on therapies for the human
immunodeficiency virus ("HIV"), including the acquired immunodeficiency syndrome
("AIDS"), and the hepatitis B virus ("HBV"). Triangle has an existing portfolio
consisting of eight licensed drug candidates and one drug candidate for which
the Company has an option to acquire a license. Members of the Company's senior
management, prior to joining Triangle, played instrumental roles in the
development of several leading antiviral therapies. The Company is capitalizing
on its management team's expertise in the identification, clinical development
and commercialization of drug candidates, as well as on advances in virology and
immunology, to develop and commercialize new drug candidates that can be used
alone or in combination ("coactively") to treat serious diseases.
The treatment of HIV infection using coactive therapy has shown
significant clinical benefits, including reducing virus levels and increasing
patient longevity. The Company was founded based in part on its management
team's belief that the prolonged use of coactive therapy will generate demand
for new anti-HIV drugs with favorable resistance, compliance and/or tolerance
profiles. The Company believes the use of anti-HIV drugs will increase because
(i) the use of multiple drugs by individual patients on coactive therapy will
continue to increase, (ii) significant numbers of previously untreated patients
will seek medical care as the benefits of coactive therapy become more widely
understood and (iii) patient longevity will continue to increase and thus
lengthen the duration of drug therapy.
The Company believes that certain other serious diseases, such as
hepatitis and cancer, may also be effectively treated with coactive therapy.
Currently, the most common treatment for HBV infection involves therapy with a
single drug, which is administered by injection, is not always successful in
controlling the virus and is associated with significant side effects. The
Company believes that this virus, like HIV, due to its complexity and
demonstrated ability to develop resistance to therapeutic agents, may be more
effectively and safely treated with coactive therapy. Additionally, the Company
believes that there is a significant need to develop drugs for the treatment of
cancer because of the limited clinical benefits offered by many of the current
treatments, particularly in those patients with advanced (metastatic) disease.
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Triangle is actively developing the following drug candidates which it
believes have the potential to become valuable tools in the coactive treatment
of serious diseases:
Drug Candidates to Treat HIV
MKC-442. A nucleoside analogue which functions as a non-nucleoside reverse
transcriptase inhibitor, MKC-442 interferes with the early stages of HIV
replication and readily penetrates the central nervous system in animals, which
is an important reservoir of HIV infection. In ongoing Phase I/II studies,
MKC-442 has produced clinically significant antiviral responses and has
generally been well tolerated. Triangle recently initiated the first in a series
of pivotal Phase II/III studies where MKC-442 will be used in combination with
other anti-HIV therapies.
DMP-450. A protease inhibitor acquired by Triangle in late 1997 through
the acquisition of Avid, DMP-450 has demonstrated potent in vitro activity
against HIV and was generally well tolerated in a Phase I study. Triangle
reinitiated Phase I trials with DMP-450 in January 1998.
Drug Candidate to Treat HBV
L-FMAU. A nucleoside analogue, L-FMAU is a recent addition to Triangle's
portfolio and has demonstrated potent activity against a hepatitis virus in
naturally infected woodchucks (a disease state closely resembling that of
hepatitis B in humans), both during the course of treatment and for a period of
up to 36 weeks following treatment. Triangle intends to conduct preclinical
studies with L-FMAU in 1998.
Drug Candidates to Treat HIV and HBV
FTC. A nucleoside analogue, FTC has been shown to be a potent inhibitor in
vitro of both HIV and HBV replication. Against HIV, preclinical studies have
demonstrated that FTC is consistently more potent than 3TC (lamivudine), which
is a member of the same nucleoside series as FTC. Triangle is completing Phase
I/II studies of FTC in the treatment of HIV infection and intends to commence
later stage trials based on coactive therapy by the end of 1998. Against HBV,
FTC has demonstrated activity as potent as 3TC in vitro as well as in studies
with the woodchuck hepatitis model. Triangle intends to initiate Phase I
clinical trials with FTC for the treatment of HBV in 1998.
DAPD. A purine dioxolane nucleoside, Triangle believes that DAPD is the
only drug candidate in its nucleoside series that is currently being developed
for the treatment of viral diseases. Against HIV, the Company believes that,
because of its unique structure and pharmacological properties, DAPD may offer
advantages over other currently marketed nucleosides. Against HBV, DAPD has
demonstrated activity as potent as 3TC in vitro as well as in studies with the
woodchuck hepatitis model. Triangle intends to initiate Phase I clinical trials
with DAPD in late 1998 or early 1999.
Drug Candidate to Treat Cancer
Alanosine. An amino acid analogue, the Company believes that alanosine can
selectively target cancer cells with a particular enzyme deficiency by
inhibiting the synthesis of a molecule necessary for cellular growth. The
deficiency of this particular enzyme (MTAP) occurs in up to 30% of non-small
cell lung cancers and in up to 75% of certain severe primary brain tumors.
Triangle is currently conducting Pilot Phase II efficacy studies with alanosine.
The Company believes that certain of its drug candidates may meet the
criteria established by the United States Food and Drug Administration ("FDA")
for accelerated approval. If so, the Company may be able to commercialize these
drug candidates in a shorter time period than has historically been required for
drugs that do not meet the criteria for accelerated approval. There can be no
assurance, however, that any of the Company's drug candidates will qualify for
accelerated approval or be approved in a time period that is shorter than would
be historically expected. See "--Government Regulation."
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<PAGE>
Triangle intends to maintain a limited corporate infrastructure that is
focused on drug development. The Company does not intend to engage in basic drug
discovery, thereby avoiding much of the significant investment of time and
capital that is generally required before a compound is identified and brought
to clinical trials. The Company intends to use its expertise to perform
internally what it believes are the most critical aspects of the drug
development process, such as the design of clinical trials and the optimization
of drug synthesis. The Company out-sources many aspects of the conduct of
clinical trials and the manufacture of drug substance to carefully selected
third parties. The Company believes that the high concentration of major
prescribers of anti-HIV and cancer therapies in the United States will enable
the Company to promote most drug candidates that are successfully developed to
these prescribers through a small, direct sales force. The Company does not
currently have a sales force.
Triangle is a development stage company, has not received any revenues
from the sale of products, and does not expect any of its drug candidates to be
commercially available until at least the year 2000. As of December 31, 1997,
the Company's accumulated deficit was approximately $49.6 million and the
Company had utilized approximately $40.0 million of cash. There can be no
assurance that the Company will ever achieve profitable operations or generate
positive cash flow.
The Company was incorporated in Delaware in July 1995. The Company's
principal executive offices are located at 4 University Place, 4611 University
Drive, Durham, North Carolina 27707, and its telephone number is (919) 493-5980.
Strategy
Triangle's goal is to create a portfolio of commercialized drugs primarily
for antiviral and anticancer therapies. The Company seeks to achieve its goal
through the following strategies:
Focus on Viral Diseases and Cancer. The expertise of Triangle's management
team lies in identifying, developing and commercializing drugs for the treatment
of viral diseases and cancer. The Company is targeting the viral disease and
cancer markets because the Company believes the significant unmet medical need
and the rapid pace of scientific advances occurring in the treatment of these
diseases give these significant markets attractive growth potential. The Company
also believes that the relatively high concentration of prescribers that treat
HIV and cancer will enable the Company to promote most drug candidates it
successfully develops to these prescribers through a small, specialized direct
sales force.
Apply Selective Criteria to Drug Candidates. In evaluating drug candidates
for its product development programs, the Company seeks to in-license drug
candidates for which favorable preclinical, and where possible, clinical data
already exist. The Company uses its expertise to identify drug candidates that
it judges to have attractive preclinical profiles. In addition, the Company
prefers, where practical, to in-license drug candidates that have either
undergone some testing in humans (e.g., FTC, DMP-450 and alanosine) or share
characteristics with drugs that are currently approved for use in humans (e.g.,
2-CdAP). The Company intends to apply these selection standards where feasible
in evaluating potential drug candidates for in-licensing.
Leverage Relationships. As a result of their instrumental roles in the
identification, clinical development and commercialization of antiviral and
anticancer therapies, members of the Company's management team and Scientific
Advisory Board have extensive contacts in academia and industry. These contacts
were instrumental to the Company's acquisition of its existing drug candidates,
and the Company believes they will be valuable in its efforts to develop and
commercialize its existing and future drug candidates.
Develop Drugs for Use in Coactive Therapy. Coactive therapy is currently a
common method to treat certain cancers and the Company believes that it is
becoming an increasingly accepted method to treat viral diseases such as HIV
infection. The Company seeks to identify and develop drug candidates for use in
coactive therapy that have resistance, compliance and/or tolerance profiles that
are complementary to the profiles of existing drugs. In addition, in contrast to
the competitive marketing of single drug regimens, the Company believes that any
drug it develops as part of a coactive regimen will benefit from the promotional
efforts of the marketers of the other drugs in the regimen.
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<PAGE>
Focus on Small Molecule Drugs. Members of the Company's management team
are well known for their successful development of and expertise in small
molecule drugs generally, and nucleosides in particular. Small molecule drugs
have several advantages over large molecule drugs such as proteins, polypeptides
and polynucleotides. For example, they are often simpler to scale-up and
manufacture than large molecule drugs. Furthermore, small molecule drugs are
more likely to be orally bioavailable, a significant advantage in treating
long-term chronic illnesses where patients prefer not to be subjected to
injections over extended periods of time.
Strategically Out-Source Routine Aspects of Drug Development. Triangle
intends to maintain a limited corporate infrastructure that is focused on drug
development. Much of the drug development process consists of routine elements
that can be out-sourced to high quality, high capacity contractors. As a result,
the Company intends to focus on the aspects of drug development that require
particular expertise. For example, the Company intends to concentrate on the
design of clinical trials and the optimization of drug synthesis and to
out-source many aspects of the conduct of clinical trials and the manufacture of
drug substance. The Company believes this strategy will enable it to respond
rapidly to certain changing events, such as clinical trial results and the
availability of funds, by increasing or decreasing expenditures on particular
drug development projects or by shifting the Company's emphasis among projects.
Product Development Programs
The Company is currently focused on the development of drugs for the
treatment of viral diseases to take advantage of the opportunities presented by
the increasing use of coactive therapy. The Company believes that coactive
therapy is now recognized as the most effective available method to treat HIV
and AIDS, and is being used increasingly in the United States and Western
Europe. The Company also believes that HBV, due to its complexity and
demonstrated ability to develop resistance to therapeutic agents, may also be
more effectively treated with coactive therapy. Additionally, the Company
believes that there is a significant opportunity to develop drugs for the
treatment of cancer because of the limited clinical benefits offered by many of
the current treatments.
The Company performs a variety of tests when evaluating a drug candidate
that are designed to evaluate the potential activity, resistance profile and
toxicity of the drug candidate. For example, anti-HIV drug candidates are tested
in the Company's laboratories against both laboratory and clinical strains of
HIV in several cell lines, individually and in combination with other compounds.
In addition, other resistance and toxicity tests are sometimes performed on
behalf of the Company by carefully selected third parties.
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The following table summarizes the target indications, current
development status and license territory of each of Triangle's drug candidates:
<TABLE>
<CAPTION>
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Drug Candidate (1) Indication Status (2) Territory (3)
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<S> <C> <C> <C>
MKC-442 HIV Phase II/III Worldwide, except
Japan
Alanosine Brain, Lung and Pilot Phase II Worldwide
other Cancers
FTC HIV and HBV Phase I/II (4) Worldwide
2-CdAP Psoriasis Phase I/II Worldwide
DMP-450 HIV Phase I Worldwide
L-FMAU HBV Preclinical Worldwide, except
Korea
DAPD HIV and HBV Preclinical Worldwide
CS-92 HIV Pilot Phase I/II (5) Worldwide
Acyclovir Resistant Herpes and Preclinical (5) Worldwide
Monophosphate Herpes Labialis
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has licensed all drug candidates except alanosine, for which
it has acquired an option to obtain a license. See "--License, Option and
Other Material Agreements."
(2) "Preclinical" indicates potency, pharmacology and/or toxicology testing of
a drug candidate in animal models or biochemical or cell culture systems.
"Phase I" indicates that a drug candidate is being tested at a very early
stage in humans for preliminary safety and pharmacologic profile in a
limited patient population. "Phase I/II" indicates that a drug candidate
is being tested at an early stage in humans for safety, pharmacologic
profile and preliminary indications of efficacy in a limited patient
population. "Phase II" indicates that a drug candidate is being tested in
humans for safety, efficacy and, in some cases, optimal dosage in a
limited patient population. "Phase II/III" indicates that a drug candidate
is being tested in humans for safety and efficacy in an expanded patient
population at geographically dispersed clinical sites. "Pilot" when used
herein to describe a clinical trial means a clinical trial conducted with
a small number of patients. See "--Government Regulation."
(3) Indicates the geographic territory in which the Company has licensed, or
has an option to acquire a license to, the right to commercialize products
under the applicable license or option agreement. The Company's ability to
commercialize products in each country in the licensed territory may be
limited by proprietary rights of third parties other than the Company's
licensors. See "--Patents and Proprietary Rights."
(4) The Company is currently conducting clinical trials with FTC only for HIV.
See "--Viral Disease Program--HIV--Development Status--FTC" and "--Viral
Disease Program--HBV--Development Status--FTC."
(5) In order to focus financial and human resource support on drug candidates
which it believes have the greatest potential, the Company has elected to
limit the current support of CS-92 to the completion of the ongoing
clinical trial and of Acyclovir Monophosphate to the completion of the
current preclinical tests. Should circumstances warrant, investment in the
further development of these drug candidates may be made in the future.
See "--Viral Disease Program--HIV--Development Status--CS-92" and "--Viral
Disease Program--Herpes Simplex Virus--Development Status of Acyclovir
Monophosphate."
Viral Disease Program
HIV
Background. The World Health Organization ("WHO") estimates that through
1997, 29.5 million people worldwide were living with HIV or AIDS. It is
generally believed that, in the absence of therapeutic intervention, the vast
majority of individuals infected with HIV will ultimately develop AIDS, which
currently has a fatality rate approaching 100%.
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<PAGE>
It is currently believed that a key factor in how quickly a person
infected with HIV develops AIDS is the amount of HIV in the body at any one time
(the "viral load" or "viral burden"). The failure of vaccines and other
immunotherapy to control the virus has led current researchers to focus on
halting HIV replication and reducing viral load by blocking one or both of two
key enzymes required for viral replication.
The first enzyme, reverse transcriptase, is active early in the
replication cycle and allows the virus, which is made of RNA, to transform to
its DNA form necessary for continued replication. This enzyme can be inhibited
by two general classes of drugs defined both by their structure as well as their
mechanism of action. The first general class, nucleoside analogue reverse
transcriptase inhibitors such as AZT, ddI, ddC, d4T and 3TC, bears a strong
chemical resemblance to the natural building blocks (nucleotides) of DNA and
interferes with the function of the enzyme by displacing the natural nucleotides
used by the enzyme. The second general class, non-nucleoside reverse
transcriptase inhibitors such as nevirapine and delavirdine, is composed of an
extremely diverse group of chemicals that act by attaching to the reverse
transcriptase enzyme and modifying it so that it functions less efficiently. The
second enzyme, protease, is required to permit full virus maturation. Inhibitors
of this enzyme are represented by such drugs as saquinavir, ritonavir, indinavir
and nelfinavir.
The genetic material responsible for the production of both enzymes is
extremely prone to mutations that can produce resistance to drugs targeted at
these enzymes. If antiviral therapy does not halt all viral replication, natural
selection allows the mutant strains of virus that are resistant to the drug the
patient is receiving to continue to replicate. Depending upon the particular
mutations that occur, these virus strains may be resistant to only one of the
drugs used in therapy or may be resistant to some or all of the drugs in the
same chemical or functional class. This latter phenomenon is known as
cross-resistance.
Initially, HIV was treated only with AZT, a nucleoside analogue reverse
transcriptase inhibitor, which was first introduced in 1987. Three other
nucleoside analogues--ddI, ddC and d4T--were introduced to the market in the
late 1980's. These drugs, when used alone, provided only short-term clinical
benefit, were sometimes toxic and were often considered expensive relative to
their clinical benefits. As a result, the use of anti-HIV therapy was limited
and market penetration was low (less than 25% of the infected population in the
United States).
More recently, clinical research in HIV has been facilitated by the
introduction in the mid-1990's of tests that can reliably determine the viral
load in the blood at any given time. As a result, it is now possible to rapidly
evaluate potential therapeutic agents and combinations of agents and to
determine accurately the potency and resistance profiles of these agents. This
has led to the accelerated development of a number of new therapeutic agents and
their use in coactive therapy. The use of coactive therapy, including
combinations of protease inhibitors with one or two reverse transcriptase
inhibitors, has demonstrated significant therapeutic benefit, sometimes
rendering the virus undetectable in the blood of certain patients for up to two
years to date. Additional combinations may be possible as new therapeutic agents
are developed.
In spite of these significant advances, numerous challenges remain in the
treatment of HIV. In the absence of a cure, the disease is lifelong. Although
coactive therapy has demonstrated the ability to markedly slow resistance
development, resistant mutants are already being identified to several of the
drugs currently used during the course of coactive therapy studies, and
cross-resistance among many agents, including protease inhibitors, is being
increasingly recognized. Present coactive treatments are also often complex and
expensive (published reports indicate the cost per patient per year can exceed
$13,000). Adverse reactions to many of the drugs used in coactive therapy are
common and may limit compliance or even preclude use in some patients. Even
brief instances of non-compliance can reduce or eliminate the ability of the
combination therapy to suppress the virus, and may thus accelerate the
development of resistance. The Company believes that these challenges present an
opportunity to develop additional drugs that have attractive safety,
pharmacokinetic and/or resistance profiles.
Development Status. The Company has a portfolio of five drug candidates
for the treatment of HIV: MKC-442, FTC, DMP-450, DAPD and CS-92. Triangle's
portfolio includes at least one drug candidate in each of the three classes of
drugs currently approved for the treatment of HIV. Four are reverse
transcriptase inhibitors, although one of these (MKC-442) functions as a
non-nucleoside reverse transcriptase inhibitor, and one (DMP-450) is a protease
inhibitor.
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<PAGE>
MKC-442. The Company is currently conducting pivotal Phase II/III clinical
trials in Europe with MKC-442 in coactive regimens in HIV-infected patients to
demonstrate safety and efficacy as measured by viral load. Triangle intends to
use these trials as part of the basis of regulatory filings in the United States
and other countries. Triangle has licensed from Mitsubishi Chemical Corporation
("Mitsubishi") rights to MKC-442 worldwide, except in Japan, for the treatment
of HIV.
MKC-442, although a nucleoside analogue, functions as a non-nucleoside
reverse transcriptase inhibitor. Preclinical tests suggest that MKC-442 may
possess characteristics that address several of the therapeutic challenges of
HIV. When tested in cell culture assay systems against wild-type
(drug-sensitive) and several mutant strains of HIV known to be resistant to
established non-nucleoside reverse transcriptase inhibitors, MKC-442 retained
much of its ability to inhibit HIV replication. In these studies, MKC-442
displayed greater potency than nevirapine against wild-type and mutant strains
of HIV. Preclinical studies of MKC-442 in two-drug combinations with AZT and ddI
and in two-drug and three-drug combinations with certain nucleoside analogue
reverse transcriptase inhibitors and protease inhibitors suggest that MKC-442
may work well in coactive therapy.
Studies in animals suggest a favorable safety and pharmacokinetic profile
for MKC-442. Animal pharmacokinetic analyses showed good oral bioavailability
and excellent penetration into the central nervous system, a significant site of
HIV replication that is poorly penetrated by many currently marketed anti-HIV
drugs. In rats, for example, the concentration of MKC-442 in the brain was 100%
of that seen in the plasma.
A Phase I study conducted by the Company evaluated the pharmacokinetics
and tolerance of single escalating doses of MKC-442 in HIV-infected volunteers.
The compound was generally well tolerated, with only a few participants
experiencing minor adverse effects at the higher dose levels. In the groups
receiving higher doses, concentrations of the drug in the plasma reached levels
much higher than the levels required to suppress 90% of the virus in culture.
The Company has also released preliminary data from an ongoing Phase I/II
double-blind, placebo- controlled trial designed to evaluate the safety and
efficacy of repeated multiple oral doses of MKC-442 in HIV-infected patients. To
date, a total of 49 patients have been treated with MKC-442 for up to two
months. Doses ranging from 100 mg to 1000 mg twice a day were given to groups of
six to eight patients at each dosage level. At the highest doses tested (750 mg
and 1000 mg twice a day), the viral load was reduced by an average of 96% in all
patients after one week. This reduction was mostly sustained at two weeks
whereafter it was followed by a gradual increase in viral load from the nadir
towards baseline levels. A single point mutation at position 103 of the reverse
transcriptase that may be associated with resistance was found in the virus
obtained from some patients. To date, in over 308 patient-weeks of drug
exposure, MKC-442 has been well tolerated and only five patients (one at 100 mg
twice a day, one at 750 mg twice a day and three at 1000 mg twice a day) have
experienced a rash.
Pharmacokinetic drug interaction studies with protease inhibitors and
other agents are currently ongoing under an IND. The Company is currently
conducting pivotal Phase II/III clinical trials of MKC-442 in coactive regimens
at a dose of 750 mg twice a day in Europe under the United States
Investigational New Drug Application ("IND").
FTC. The Company is completing Phase I/II clinical trials with FTC for the
treatment of HIV. Triangle has licensed worldwide rights to FTC for the
treatment of HIV and HBV from Emory University ("Emory").
FTC is a member of the same nucleoside series as 3TC. In vitro studies
have demonstrated that FTC is consistently more potent than 3TC against HIV and
is a potent antiviral agent against HIV strains obtained from a geographically
diverse set of HIV-infected patients. In vitro studies have also shown that FTC
shares cross-resistance patterns with 3TC. The most common resistance mutation
to these two agents also reverses resistance of the virus to AZT in some cases.
The pharmacokinetics and metabolism of FTC have been investigated in
animal studies that demonstrated that FTC was cleared rapidly from the
bloodstream over all doses studied and had good oral bioavailability. FTC was
also well tolerated. Mild anemia in mice was seen only at extremely high doses
(3000 mg/kg/day).
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A Phase I single dose study evaluated the pharmacokinetics and tolerance
of FTC in 12 HIV-infected volunteers. The volunteers received six single oral
doses of FTC at six day intervals ranging from 100 mg to 1200 mg. FTC was well
tolerated by all subjects in the dose range studied. FTC was absorbed rapidly
into the blood stream following oral administration and was excreted primarily
through the kidneys. While food intake slightly decreased the rate of
absorption, it did not affect overall oral bioavailability. The absorption,
metabolism and excretion of FTC were generally consistent among the subjects.
Triangle recently released initial data from an ongoing Phase I/II
clinical trial of FTC. The first two dose levels of the Phase I/II trial were
administered to ten HIV-infected volunteers to assess pharmacokinetics, safety
and antiviral efficacy over a 14-day dosing period. This brief duration was
chosen to minimize the risk of resistance development which can occur when
anti-HIV drugs are used as monotherapy. This period, however, allows preliminary
assessment of the tolerance and efficacy of the drug candidate. The preliminary
results indicated that FTC significantly reduced plasma HIV-1 RNA viral load at
the first two dose levels of 25 mg twice a day and 200 mg once a day. At the
dose of 25 mg twice a day, HIV-1 RNA in plasma in all five patients was reduced
from baseline (4.2 log10) by an average of 96% (1.4 log10) at day 14. At the
higher dose of 200 mg once a day, HIV-1 RNA in plasma from all five patients was
reduced from baseline (4.7 log10) by an average of 99% (2.03 log10) at day 14.
FTC was generally well tolerated in these ten patients. The degree of viral
suppression was very consistent among patients within a given dosage group.
DMP-450. DMP-450 is currently in Phase I pharmacokinetic and tolerance
studies in the United States and Europe. Triangle obtained worldwide license
rights to DMP-450 through its acquisition of Avid in 1997. See "--License,
Option and Other Material Agreements--The DuPont Merck Pharmaceutical Company
and Avid Corporation."
DMP-450 is a potent, selective inhibitor of the HIV-1 protease that
belongs to a novel chemical class, the cyclic ureas. In preclinical laboratory
tests, DMP-450 showed a dose-dependent inhibition of HIV replication in three
different cell types and reduced the yield of virus by more than 99.9% at
concentrations as low as 0.5 uM. Resistance to the compound is conferred by the
82 or 84 mutation, consistent with mutations observed with several other
protease inhibitors. In two-drug in vitro combination studies with nucleoside
analogue reverse transcriptase inhibitors, such as AZT and ddI, and with
MKC-442, which functions as a non-nucleoside reverse transcriptase inhibitor,
DMP-450 showed a synergistic antiviral effect. Toxicology studies of three-month
duration have been completed in rats and dogs.
Data from a Phase I study conducted by The DuPont Merck Pharmaceutical
Company ("DuPont Merck") showed that DMP-450 was generally well tolerated
following single oral doses that ranged from 60 mg to 1250 mg in normal, healthy
male volunteers for up to four days. A Phase I/II trial initiated by Avid and
ongoing at the time of the acquisition of Avid by Triangle was put on clinical
hold by the FDA in October 1997 because of the FDA's concerns regarding the
toxicity observed in some animals exposed to extremely high doses of DMP-450.
The patients in the Phase I/II study were administered oral doses that ranged
from 500 mg to 750 mg three times a day and experienced no significant adverse
reactions. Following extensive discussions between Triangle and the FDA, a Phase
I pharmacokinetic study in the United States and a Phase I safety and tolerance
study in Europe were initiated in January 1998.
DAPD. Triangle currently intends to initiate Phase I clinical trials with
DAPD for the treatment of HIV in late 1998 or early 1999. Triangle has licensed
worldwide rights to DAPD for the treatment of HIV and HBV from Emory and the
University of Georgia Research Foundation, Inc. ("UGARF").
DAPD is a member of a different nucleoside series from FTC and CS-92. The
Company believes that DAPD is the only purine dioxolane nucleoside that is
currently being developed for the treatment of viral diseases and that it may
offer advantages over several nucleosides from other series that are already on
the market because of its unique structure and pharmacological properties. In
vitro studies indicate that DAPD inhibits the growth of HIV at submicromolar
levels and is synergistic in combination with a number of other anti-HIV drugs.
HIV strains that are resistant to AZT, 3TC or FTC are not cross-resistant to
DAPD. Pharmacokinetic studies have been completed in animals and demonstrated
that DAPD is rapidly converted to dioxolane guanosine ("DXG"), the active
anti-HIV agent. Preliminary analyses of these pharmacokinetic studies indicate
that DXG serum concentrations decline with a terminal
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half-life ranging from approximately two to eight hours. The analysis of several
urine samples from this study indicate the presence of DXG with no other
metabolites detected.
CS-92. Triangle is currently conducting a Pilot Phase I/II clinical trial
of CS-92 in Europe. The Company has licensed worldwide rights to CS-92 for the
treatment of HIV from Emory and UGARF.
CS-92 is a member of the same nucleoside series as AZT and has been
extensively studied in various preclinical assays. In vitro studies have
demonstrated unexpected synergy with AZT by mechanisms which have not yet been
fully characterized. In animal studies, CS-92 demonstrated a lack of systemic
toxicity compared to AZT, reasonable bioavailability and conversion of a
significant portion of the administered dose of CS-92 to AZT. Interim results of
the Company's ongoing Pilot Phase I/II clinical trial with CS-92 administered as
monotherapy have similarly shown little toxicity, but no significant conversion
of CS-92 to AZT nor any substantial lowering of the viral load with doses
administered to date. The current clinical trial is limited to determining
whether combination therapy with AZT will produce a substantial lowering of the
viral load as a result of synergy between the two agents.
In order to focus financial and human resource support on drug candidates
which it believes have the greatest potential, the Company has elected to limit
the current support of CS-92 to the completion of this ongoing clinical trial.
Pending evaluation of the results of this clinical trial, investment in the
further development of this drug candidate may be made in the future.
HBV
Background. HBV is the causative agent of both the acute and chronic forms
of hepatitis B, a liver disease that is a major cause of illness and death
throughout the world. HBV can lead to cirrhosis and cancer of the liver. In the
United States approximately 300,000 people become acutely infected each year and
approximately one million people currently are chronic HBV carriers. Of these,
as many as 5,000 die each year as a result of the consequences of this liver
damage. Worldwide, over 300 million people are chronically infected. Presently,
there are over 120 million carriers of HBV in Asia, of whom one-fourth may
develop serious illnesses such as cirrhosis and liver cancer. Of these, between
1.0 million and 2.0 million die each year.
Vaccines are currently available that can prevent the transmission of HBV;
however, they have no activity in those already infected with the virus.
Interferon, approved for the treatment of HBV, is administered by injection, is
not always successful in controlling the virus and is associated with
significant side-effects, the most common being severe flu-like symptoms. While
a few compounds under development may have some activity in the treatment of HBV
infection, the Company believes it is likely that additional drugs will be
necessary to effectively treat the disease. For example, clinical trials with
3TC to date have shown good tolerance and effective suppression of HBV
replication during the course of treatment. However, virus replication usually
returns after a six to 12 month course of therapy has been completed. Studies of
more prolonged therapy are in progress, but antiviral resistance has already
been observed with certain patients.
The Company believes that HBV, like HIV, may be treated more effectively
with combination therapy. Therefore, even if other drugs are approved for the
treatment of HBV, the Company believes there will still be a need for additional
safe and effective oral therapies for chronic HBV that can be used in coactive
therapies.
Development Status. The Company is developing three compounds for the
treatment of HBV, two of which, FTC and DAPD, are also being developed for the
treatment of HIV.
FTC. The Company currently intends to initiate Phase I clinical trials
with FTC for the treatment of HBV in 1998. Some of the development activities
the Company plans to undertake with FTC for the treatment of HIV will also be
used by the Company in its development of FTC for the treatment of HBV. See
"--HIV--Development Status--FTC."
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FTC has been shown to be a potent inhibitor in vitro of HBV replication,
and is synergistic in vitro in combination with several types of interferons
approved for the treatment of HBV. The anti-hepatitis activity of FTC has been
demonstrated in a chimeric mouse model and against woodchuck hepatitis virus
("WHV") in naturally infected woodchucks. The hepatitis infection of the
woodchuck results in a disease state closely resembling that found in humans
infected with HBV. In the woodchuck model, at doses above 3 mg/kg all treated
animals had significantly reduced levels of WHV DNA in their blood. One week
after treatment was stopped, WHV levels returned to pretreatment levels, as is
seen with 3TC.
L-FMAU. Triangle currently plans to initiate 90-day toxicology studies
with L-FMAU in 1998. The Company has licensed from Bukwang Pharm. Ind. Co., Ltd.
("Bukwang") rights to L-FMAU worldwide, except in Korea, for all human antiviral
applications.
L-FMAU is a pyrimidine nucleoside analogue that has been shown to be a
potent inhibitor of HBV replication in vitro, having an EC50 value ranging from
0.02 uM to 0.15 uM with a mean of 0.08 uM. Pharmacokinetic studies with L-FMAU
have been performed in adult woodchucks and in rats and showed favorable oral
bioavailability. At a 25 mg/kg dose of L-FMAU given to woodchucks, oral
bioavailability ranged from 19% to 29%. The bioavailability of LFMAU in rats was
59% to 64%. The pharmacokinetics of L-FMAU in these animal studies were
independent of dose over a range of 10 mg/kg to 50 mg/kg.
The in vivo efficacy of L-FMAU has been demonstrated in woodchucks
chronically infected with WHV who were treated at varying doses for four weeks.
Within seven days of initial treatment, a greater than 1000-fold reduction in
serum WHV DNA was observed, and at all but the lowest dose, the WHV DNA became
undetectable shortly thereafter. In a subsequent study where L-FMAU was given at
a dose of 10 mg/kg for 12 weeks, the virus did not return in the majority of
animals for prolonged periods after the cessation of dosing. Molecular evidence
of viral infection in the liver could no longer be detected between four and 12
weeks after treatment and remained undetectable for the entire 36-week
post-treatment observation period.
The toxicity of L-FMAU has been evaluated in three studies in woodchucks
and in a 30-day study in mice. Liver biopsies taken from woodchucks at the end
of the 12-week exposure to L-FMAU were normal. There were no effects on body
weight and no overt indications of toxicity attributable to L-FMAU during or up
to one year after treatment. In mice, a 30-day preliminary toxicity study with
L-FMAU administered orally at 10 mg/kg and 50 mg/kg twice a day for one month
did not show any apparent toxicity or decreased body weights.
DAPD. The Company currently intends to initiate Phase I clinical trials
with DAPD for the treatment of HBV in late 1998 or early 1999. Some of the
development activities the Company plans to undertake with DAPD for the
treatment of HIV will also be used by the Company in its development of DAPD for
the treatment of HBV. See "--HIV--Development Status--DAPD."
DAPD has been shown to be a potent inhibitor in vitro of HBV replication.
In a woodchuck model, DAPD was found to be as active as 3TC in reducing serum
levels of circulating WHV DNA when administered for 12 weeks.
Herpes Simplex Virus
Background. Herpes labialis (cold sores) caused by Herpes Simplex Virus
Type I ("HSV-1") is a latent viral infection that is found in approximately 90%
of adults over age 30. Genital herpes, caused by Herpes Simplex Virus Type 2
("HSV-2"), is one of the most common sexually transmitted diseases. There is no
cure for HSV-1 or HSV-2, and, aside from suppressive therapy to prevent frequent
recurrences of HSV-2, treatments for either viral infection are of limited
efficacy.
Development Status of Acyclovir Monophosphate. The Company is developing a
topical formulation of Acyclovir Monophosphate ("ACVMP"), a monophosphate
derivative of the nucleoside acyclovir, for the treatment of labial and genital
herpes. Triangle has licensed the worldwide rights to ACVMP from Dr. Karl
Hostetler, a director of the Company and member of its Scientific Advisory
Board.
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The results of early animal model studies had shown that ACVMP has the
potential to overcome the most common form of resistance to acyclovir and to
provide enhanced efficacy on topical application. The Company is currently
attempting to confirm these early animal model studies by conducting preclinical
and formulation studies using a variety of vehicles suitable for topical
application. However, in order to focus financial and human resource support on
drug candidates which it believes have the greatest potential, the Company has
elected to limit the current support of ACVMP to the completion of these
studies. Should circumstances warrant, investment in the further development of
this drug candidate may be made in the future.
Cancer Program
Background. Cancer, which can occur in almost any part of the body, is a
major cause of death in developed countries. In the United States, approximately
1.3 million new cases of cancer are diagnosed annually, and more than 1,500
people die of cancer each day. Colorectal, breast, prostate and lung cancers
account for approximately half of all diagnoses.
Treatments currently approved for cancer vary greatly depending on where
the disease originates in the body and the extent of the disease at the time of
treatment. The three conventional modes of treatment are radiation therapy,
chemotherapy and surgery. Radiation therapy and chemotherapy often have
significant negative side effects that may include nausea, hair loss, liver
toxicity, extreme fatigue and lowered resistance to infection. Both forms of
therapy generally require repeated treatments over extended periods of time. If
the disease recurs in a patient following these therapies, it is frequently
impossible to repeat the treatment because the recurring cancer will have
developed resistance to the form of treatment used (either drug or radiation),
or the patient will have received maximum levels of radiation. Surgery does not
cause the same side effects as radiation therapy or chemotherapy and is
considered the treatment of choice for many cancers; however, many patients are
not eligible for surgery because of the location of the cancerous tissue or
their physical condition. Even for those patients who are not subject to these
limitations, surgery can be traumatic and can require long recovery periods. For
most advanced stages of cancer, current therapies provide only short-term
benefit and the majority of patients die of their disease within a few months to
a few years.
Non-small cell lung cancer ("NSCLC") is a highly fatal disease caused
predominantly by smoking. Approximately 100,000 people are diagnosed with the
disease in the United States each year and their prognoses are typically very
poor. Surgery and radiation are the treatments of choice for NSCLC, but result
in only about ten percent five-year survival rates. For the 70% of patients
whose tumors are not amenable to surgical removal, median survival rates are
measured in months. Chemotherapeutic agents are marginally effective in
extending survival in the early stages of the disease and are used primarily to
relieve symptoms and sometimes shrink tumors to provide short-term benefit.
Antitumor agents generally do not provide significantly prolonged benefit to
NSCLC patients during their later stages of disease.
The drug options for treating brain cancer are also limited. Approximately
13,500 patients in the United States develop primary brain tumors each year, and
the currently approved chemotherapeutic agents lack specificity, resulting in
dose-limiting toxicities.
Development Status of Alanosine. The Company is funding and conducting
Pilot Phase II efficacy studies with alanosine at several sites in the United
States for the treatment of NSCLC and brain cancers that lack the enzyme
methylthioadenosine phosphorylase ("MTAP").
Alanosine is an amino acid analogue derived from Streptomyces
alanosinicus. Triangle has obtained an option from The Regents of the University
of California (the "Regents") that expires in September 1998 (with an option for
Triangle to extend the exercise period for one year) for a worldwide license to
use alanosine in treating various cancers lacking MTAP.
Alanosine has antitumor activity based upon its ability to interfere with
the synthesis of adenosine, a molecule necessary for cellular growth and
activity. Cells use two synthetic pathways to make adenosine: by de novo
synthesis and by the "salvage pathway." Alanosine interferes with the de novo
synthesis of adenosine in both malignant and
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normal cells. In cancer cells that lack MTAP (a required enzyme in the salvage
pathway), alanosine will deprive such cancer cells, but not normal cells, of all
means to make adenosine.
Alanosine was evaluated in Phase I and Phase II clinical trials at the
National Cancer Institute ("NCI") during the early 1980's. The trials were
discontinued because alanosine caused toxicity typically associated with
chemotherapy and did not produce significant response rates in common tumors
such as breast or colon cancers. Since that time, investigators at the
University of California, San Diego discovered that malignant cells from certain
cancer patients lack MTAP. The enzyme deficiency occurs in up to 30% of NSCLCs
and in up to 75% of certain severe primary brain tumors. It is absent in a lower
percentage of patients with leukemias, lymphomas, melanomas, breast cancer and
renal adenocarcinomas. The Company believes that the growth of these
MTAP-deficient tumors should be inhibited by alanosine.
A diagnostic test has been developed to identify in tumor biopsies cancers
that lack MTAP and therefore are most likely to respond to therapy with
alanosine. The Company is working to improve the current diagnostic test so that
it can be used in wide-spread clinical trials. The NCI has already conducted
dose-escalating studies and established dose-limiting toxicities. Triangle
intends to attempt to recharacterize alanosine by using advanced molecular
biological techniques to select the patients most likely to respond to
alanosine: those with malignant cancer cells that lack MTAP.
Psoriasis Program
Background. Psoriasis is a chronic condition of the skin manifested by
scaly patches, which may cause itching. The disease affects an estimated two
percent of the world's population, including approximately five million people
in the United States. It is characterized by spontaneous remissions, but
relapses are common. Although it is not usually a life-threatening condition,
psoriasis causes significant psychological distress to those affected who may
feel ostracized because of their physical appearance. In severe cases, patients
suffer from extensive skin damage and, in some cases, arthritis. There is no
known cure for psoriasis and sufferers are often treated for each recurrent
episode.
Treatments for psoriasis, though varied, are generally of only short-term
benefit. For milder symptoms, treatments range from topical therapy, including
steroids, Vitamin D derivatives, coal tars and emollients, to phototherapy and
for more severe cases, more toxic systemic treatments, such as cyclosporine,
tretinoin and methotrexate, are prescribed.
Development Status of 2-CdAP. The Company submitted an IND in late 1997
and currently intends to initiate Phase I clinical trials with a topical
formulation of 2-CdAP for the treatment of psoriasis in early 1998. 2-CdAP is a
derivative of 2-CdA (cladribine), a potent immunosuppressive and
anti-proliferative agent that is currently an approved drug and the treatment of
choice for hairy cell leukemia. Triangle has licensed worldwide rights to the
topical administration of 2-CdAP from Dr. Karl Hostetler and Dr. Dennis Carson.
In a prior clinical trial, seven patients with psoriasis enrolled in a
three month study of orally administered 2-CdA. Of six patients completing
therapy, skin lesions improved in five (two dramatic responses) and joint
disease improved in four. However, immunosuppression occurred in all patients
and an opportunistic infection occurred in one patient.
Prior experiments have shown that complex polynucleotides administered
topically are absorbed by cells such as keratinocytes and macrophages within the
superficial skin. Based on these findings, the Company believes that topical
mononucleotides such as 2-CdAP will also penetrate the skin. If this occurs, the
Company believes that the therapeutic utility of 2-CdAP in psoriasis would
result from its ability to gain direct access to hyperproliferating
keratinocytes in an activated form that would be cytotoxic. The Company believes
that 2-CdAP should also penetrate lymphocytes found in the psoriatic skin,
killing them without producing systemic toxicity. The Company believes that
systemic toxicity is unlikely to occur because of the small amount of drug that
would enter the bloodstream.
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License, Option and Other Material Agreements
The Company has licensed MKC-442 from Mitsubishi, L-FMAU from Bukwang, FTC
from Emory, DAPD and CS-92 from Emory and UGARF, ACVMP from Dr. Karl Hostetler,
and 2-CdAP from Dr. Karl Hostetler and Dr. Dennis Carson. The Company acquired
its license rights to DMP-450 by virtue of its acquisition of Avid. Avid
licensed DMP-450 from DuPont Merck. The Company has entered into an option
agreement with the Regents with respect to the acquisition of certain license
rights to alanosine. See "--Risks and Uncertainties--Risks Related to License
and Option Agreements."
Mitsubishi Chemical Corporation
In December 1995, the Company entered into an option agreement with
Mitsubishi pursuant to which Mitsubishi granted the Company an option through
December 1997 to obtain an exclusive license to MKC-442. The Company exercised
this option and, in June 1997, entered into a license agreement with Mitsubishi
pursuant to which the Company received an exclusive license to all of
Mitsubishi's rights to MKC-442 (the "MKC-442 Technology") for use in the HIV
field. The license includes all countries of the world except Japan. As
consideration for the exclusive license, Triangle paid a license initiation fee
and agreed to make certain milestone and royalty payments, including minimum
annual payments, to Mitsubishi. The Company is also required to meet certain
milestone obligations and conduct certain development work with respect to
MKC-442. Under the license agreement, Triangle has agreed to perform preclinical
testing and clinical trials with MKC-442 and, in turn, Mitsubishi has agreed to
supply a certain amount of bulk drug substance, at its own expense, for
Triangle's development work. Mitsubishi is primarily responsible for prosecuting
all patents related to the MKC-442 Technology at its own expense. The Company is
obligated to indemnify Mitsubishi against any claims or losses incurred as a
result of the Company's breach of the license agreement or the Company's
manufacture, testing, design, use, sale and labeling of products utilizing the
MKC-442 Technology. Mitsubishi has the right to terminate the license if the
Company does not satisfy certain milestone obligations or does not cure any
material breach of the license agreement. The termination of the license
agreement could have a material adverse effect on the Company.
Bukwang Pharm. Ind. Co., Ltd.
In February 1998, the Company entered into a license agreement with
Bukwang pursuant to which the Company received an exclusive license to all of
Bukwang's rights to L-FMAU (the "L-FMAU Technology") for use in the HBV field as
well as all other human antiviral applications. Bukwang obtained its rights to
L-FMAU through an exclusive license from Yale University ("Yale") and UGARF. The
Company's license includes all countries of the world except Korea. As
consideration for the exclusive license of the L-FMAU Technology, the Company
paid a license initiation fee of $6.0 million and agreed to pay development
milestones of up to $32.5 million and sales milestones of up to $30.0 million.
Triangle also agreed to pay a royalty of 14% of net sales of any licensed
products. Beginning the third year after the first FDA registration is granted
for an FDA-approved product incorporating the LFMAU Technology, the Company will
be required to pay an annual minimum royalty. Under the license agreement, Yale
and UGARF are primarily responsible for prosecuting all patents related to the
L-FMAU Technology which they licensed to Bukwang, at the Company's expense. The
Company, at its expense, is primarily responsible for prosecuting all patents
related to any L-FMAU Technology that may be acquired by Bukwang or Triangle. In
addition, Yale and UGARF have the first right to pursue any actions against
third parties for infringement of the L-FMAU Technology, either jointly with the
Company (with expenses shared equally) or, if not jointly with the Company,
solely at their expense. Upon the conclusion of any such infringement action
brought solely by the Company, the Company is entitled to offset its unrecovered
expenses incurred in connection with the infringement action against a
percentage of the aggregate milestone payments and royalties that were owing to
Bukwang during the time the infringement action was pending. The Company is
obligated to indemnify Bukwang against any claims or losses incurred as a result
of the Company's breach of the license agreement or the Company's manufacture,
testing, design, use, sale and labeling of products utilizing the L-FMAU
Technology. Bukwang has the right to terminate the license agreement in the
event the Company does not achieve certain milestone obligations. Bukwang may
also terminate the license agreement upon an uncured breach of the agreement by
the Company. In the event of such termination, the Company will grant Bukwang
certain nonexclusive, royalty free license rights in all intellectual property
under the Company's control relating to the L-FMAU Technology necessary for
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marketing products which contain L-FMAU. The termination of the license
agreement could have a material adverse effect on the Company.
The DuPont Merck Pharmaceutical Company and Avid Corporation
Triangle completed its acquisition of Avid on August 28, 1997, pursuant to
the terms of a reorganization agreement among Triangle, a wholly-owned
subsidiary of Triangle and Avid (the "Reorganization Agreement"). Avid's
principal assets consist of worldwide license rights to DMP-450 (the "DMP-450
Technology") for use in the HIV field, early preclinical stage compounds for the
treatment of HBV infection, proprietary assays to screen compounds for the
treatment of HBV and assay technology for potential use in screening compounds
for the treatment of hepatitis C virus infection. Avid acquired its rights to
the DMP-450 Technology in December 1996 through an exclusive license from DuPont
Merck. Pursuant to the license agreement, Triangle is required to make certain
milestone and royalty payments and to pay license preservation fees to DuPont
Merck beginning in 1998 in the event other payments do not equal certain annual
amounts. Under the license agreement, DuPont Merck is primarily responsible for
prosecuting all patents related to the DMP-450 Technology. The Company is
required to reimburse DuPont Merck for the patent prosecution costs it incurs
after the date of the license agreement, other than any litigation expenses
incurred by DuPont Merck. In certain circumstances, the Company has the right to
pursue any actions against third parties for infringement of the DMP-450
Technology at the Company's expense. In addition, the Company is obligated to
indemnify DuPont Merck against any claims or losses incurred as a result of the
Company's production, manufacture, use, sale, lease, consumption or
advertisement of products utilizing the DMP-450 Technology. DuPont Merck may
terminate the license agreement upon an uncured breach of the agreement by the
Company. The termination of the license agreement could have a material adverse
effect on the Company.
Pursuant to the terms of the Reorganization Agreement, Triangle issued
400,000 shares of Common Stock in exchange for all outstanding capital stock of
Avid. Triangle also agreed to issue up to 2,100,000 additional shares of Common
Stock, the issuance of 1,600,000 shares of which is contingent upon Triangle
initiating pivotal Phase II clinical trials with DMP-450 before February 28,
1999, or electing on or before that date to continue the development of DMP- 450
even if such clinical trials have not been initiated. The issuance of the
remaining 500,000 shares is contingent upon the attainment of other development
milestones with DMP-450 or one of Avid's other compounds. In connection with the
acquisition, Triangle also assumed operating and other liabilities of Avid
totaling approximately $1.3 million and certain development liabilities totaling
approximately $1.0 million.
Emory University and University of Georgia Research Foundation, Inc.
FTC. In April 1996, the Company entered into a license agreement with
Emory pursuant to which the Company received an exclusive worldwide license to
all of Emory's rights to purified forms of FTC (the "FTC Technology") for use in
the HIV and HBV fields. As consideration for the exclusive license of the FTC
Technology, the Company issued 500,000 shares of Common Stock and agreed to pay
certain license fees, all of which have been paid to Emory. In addition, the
Company agreed to make certain milestone and royalty payments to Emory.
Beginning the third year after the first FDA registration is granted for an
anti-HIV product incorporating the FTC Technology in the United States and after
the first registration is granted for an anti-HBV product incorporating the FTC
Technology in certain major market countries, the Company will be required to
pay Emory minimum annual royalties for the HIV and HBV indications,
respectively. Under the license agreement, Emory is primarily responsible for
prosecuting all patents related to the FTC Technology. The Company agreed to
reimburse Emory for the patent prosecution costs it incurs after December 1996.
The Company has the right to pursue any actions against third parties for
infringement of the FTC Technology at the Company's expense. Upon the conclusion
of any such infringement action, the Company is entitled to offset its
unrecovered expenses incurred in connection with the infringement action against
a percentage of the aggregate milestone payments and royalties that were owing
to Emory during the time the infringement action was pending. In addition, the
Company is obligated to defend, indemnify and hold harmless Emory and certain of
its representatives against any claims or losses incurred as a result of the
Company's manufacturing, testing, design, use and sale of products utilizing the
FTC Technology. Emory has the right to terminate the license agreement or to
convert the exclusive license to a nonexclusive license in the event the Company
does not satisfy certain milestone obligations. Emory may also terminate the
license agreement upon an uncured breach of the agreement by the Company. In the
event
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of such termination or conversion, the Company will grant Emory certain
nonexclusive, royalty-free license rights in all intellectual property under the
Company's control relating to the FTC Technology necessary for the marketing of
products incorporating the FTC Technology. The termination of the license
agreement or the conversion from an exclusive to a nonexclusive agreement could
have a material adverse effect on the Company.
DAPD. In March 1996, the Company entered into a license agreement with
Emory and UGARF pursuant to which the Company received an exclusive worldwide
license to all of Emory's and UGARF's rights to a series of nucleoside analogues
including DAPD and DXG (the "DAPD Technology") for use in the HIV and HBV
fields. As consideration for the exclusive license of the DAPD Technology, the
Company issued an aggregate of 150,000 shares of Common Stock to Emory and
UGARF. In addition, the Company agreed to make certain milestone and royalty
payments to Emory and UGARF. The Company is required to pay license maintenance
fees beginning in March 1999 in the event certain development milestones have
not been achieved. Beginning the third year after the first FDA registration is
granted for an FDA-approved product incorporating the DAPD Technology, the
Company will be required to pay Emory and UGARF a minimum annual royalty. Under
the license agreement, Emory and UGARF are primarily responsible for prosecuting
all patents related to the DAPD Technology. The Company agreed to reimburse
Emory and UGARF for the patent prosecution costs they incur after the date of
the license agreement. The Company has the right to pursue any actions against
third parties for infringement of the DAPD Technology at the Company's expense.
Upon the conclusion of any such infringement action, the Company is entitled to
offset its unrecovered expenses incurred in connection with the infringement
action against a percentage of the aggregate milestone payments and royalties
that were owing to Emory and UGARF during the time the infringement action was
pending. In addition, the Company is obligated to defend, indemnify and hold
harmless Emory, UGARF and certain of their representatives against any claims or
losses incurred as a result of the Company's manufacturing, testing, design, use
and sale of products utilizing the DAPD Technology. Emory and UGARF have the
right to terminate the license agreement or to convert the exclusive license to
a nonexclusive license in the event the Company does not satisfy certain
milestone obligations. Emory and UGARF may also terminate the license agreement
upon an uncured breach of the agreement by the Company. In the event of such
termination or conversion, the Company will grant Emory and UGARF certain
nonexclusive, royalty-free license rights in all intellectual property under the
Company's control relating to the DAPD Technology necessary for the marketing of
products incorporating the DAPD Technology. The termination of the license
agreement or the conversion from an exclusive to a nonexclusive agreement could
have a material adverse effect on the Company.
CS-92. In March 1996, the Company entered into a license agreement with
Emory and UGARF pursuant to which the Company received an exclusive worldwide
license to all of Emory's and UGARF's rights to CS-92 (the "CS-92 Technology")
for use in the HIV field. As consideration for the exclusive license of the
CS-92 Technology, the Company issued an aggregate of 50,000 shares of Common
Stock to Emory, UGARF and Dr. Raymond Schinazi, a co-inventor of the CS-92
Technology and a member of the Company's Scientific Advisory Board. In addition,
the Company agreed to make certain milestone and royalty payments to Emory and
UGARF. The Company is required to pay license maintenance fees beginning in
March 1999 in the event certain development milestones have not been achieved.
Beginning the third year after the first FDA registration is granted for an
FDA-approved product incorporating the CS-92 Technology, the Company will be
required to pay Emory and UGARF a minimum annual royalty. Under the license
agreement, Emory and UGARF are primarily responsible for prosecuting all patents
related to the CS-92 Technology. The Company agreed to reimburse Emory and UGARF
for the patent prosecution costs they incur after the date of the license
agreement. The Company has the right to pursue any actions against third parties
for infringement of the CS-92 Technology at the Company's expense. Upon the
conclusion of any such infringement action, the Company is entitled to offset
its unrecovered expenses incurred in connection with the infringement action
against a percentage of the aggregate milestone payments and royalties that were
owing to Emory and UGARF during the time the infringement action was pending. In
addition, the Company is obligated to defend, indemnify and hold harmless Emory,
UGARF and certain of their representatives against any claims or losses incurred
as a result of the Company's manufacturing, testing, design, use and sale of
products utilizing the CS-92 Technology. Emory and UGARF have the right to
terminate the license agreement or to convert the exclusive license to a
nonexclusive license in the event the Company does not satisfy certain milestone
obligations. Emory and UGARF may also terminate the license agreement upon an
uncured breach of the agreement by the Company. In the event of such termination
or conversion, the Company will grant Emory and UGARF certain nonexclusive,
royalty-free license rights in all intellectual property under the
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Company's control relating to the CS-92 Technology necessary for the marketing
of products incorporating the CS-92 Technology. The termination of the license
agreement or the conversion from an exclusive to a nonexclusive agreement could
have a material adverse effect on the Company.
Drs. Hostetler and Carson
In November 1995, the Company entered into a license agreement with Dr.
Karl Hostetler and Dr. Dennis Carson pursuant to which Dr. Hostetler granted the
Company an exclusive worldwide license to his rights to ACVMP and Drs. Hostetler
and Carson granted the Company an exclusive worldwide license to their rights to
2-CdAP (the "ACVMP and 2-CdAP Technologies"). As consideration for the exclusive
license of the ACVMP and 2-CdAP Technologies, the Company sold an aggregate of
500,000 shares of Common Stock to Drs. Hostetler and Carson. The interests of
Drs. Hostetler and Carson in such shares of Common Stock vest over time as they
continue to serve as consultants to the Company. The Company also agreed to make
two separate milestone payments of $1.0 million each and to make royalty
payments ranging from 3% to 8% of net sales of products incorporating the ACVMP
and 2-CdAP Technologies to Drs. Hostetler and Carson. The Company is obligated
to hold harmless Drs. Hostetler and Carson against any claims or losses caused
by or arising out of the Company's use of the ACVMP and 2-CdAP Technologies.
Drs. Hostetler and Carson have the right to terminate the license agreement or
convert the exclusive license to a nonexclusive license in the event that the
Company does not satisfy certain development, marketing and milestone
obligations. Additional termination events include the failure of the Company to
pay royalties to Drs. Hostetler and Carson when due. The termination of the
license agreement or the conversion from an exclusive to a nonexclusive
agreement could have a material adverse effect on the Company.
The Regents of the University of California
In September 1996, the Company entered into an option agreement with the
Regents pursuant to which the Regents granted the Company an option through
September 1, 1998 (with an option to extend the exercise period for one year),
to obtain an exclusive worldwide license to all of the Regents' rights to
alanosine and related technologies (the "Alanosine Technology") for use in the
treatment of various cancers lacking MTAP. As consideration for the grant of the
option, the Company agreed to pay the Regents certain option fees. In the event
the Company exercises the option, the Company will be required to pay a license
initiation fee and annual license maintenance fees. The Company will also be
required to make certain milestone and royalty payments to the Regents,
including minimum annual royalties. The Regents are primarily responsible for
prosecuting all patents and initiating infringement actions related to the
Alanosine Technology (and will remain primarily responsible for patent
prosecution and infringement actions if the Company exercises the option). The
Company has agreed to reimburse the Regents for all patent prosecution costs
they incur. In addition, the Company is obligated to defend, indemnify and hold
harmless the Regents and certain of their representatives against any claims or
losses incurred as a result of the Company's exercise of its rights under the
option agreement.
The Company also entered into a sponsored research agreement (the
"Research Agreement") with the Regents whereby the Company has agreed to provide
approximately $450,000 to fund two clinical trials with alanosine. These Pilot
Phase II clinical trials have been initiated at several sites in the United
States to assess the efficacy of alanosine in the treatment of NSCLC and brain
cancers. Either the Regents or the Company may terminate these trials upon the
uncured breach of the Research Agreement by the other party. In the event both
studies are terminated under the Research Agreement (other than for reasons of
the uncured breach on the part of the Regents), the Company's rights under the
option agreement would be terminated. The termination of the Company's rights
under the option agreement, the failure of the Company to enter into the related
license agreement or the termination of the license agreement could have a
material adverse effect on the Company.
Patents and Proprietary Rights
The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent protection with respect to its drug
candidates, defend patents once obtained, maintain trade secrets and operate
without infringing upon the patents and proprietary rights of others and to
obtain appropriate licenses to patents or
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proprietary rights held by third parties, both in the United States and in
foreign countries. The Company has no patents in its own name and has only one
patent application of its own pending, but has obtained or has an option to
obtain licenses to patents, patent applications and other proprietary rights
from third parties with respect to each of its nine drug candidates.
The patent positions of pharmaceutical companies, including those of the
Company, are uncertain and involve complex legal and factual questions for which
important legal principles are unresolved. There can be no assurance that the
Company or its licensors have or will develop or obtain the rights to products
or processes that are patentable, that patents will issue from patent
applications or that claims allowed will be sufficient to protect the technology
licensed to or owned by the Company. In addition, no assurance can be given that
any patents issued to or licensed by the Company will not be challenged,
invalidated, infringed or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company. The Company's success will
also depend in large part on the Company not breaching the licenses pursuant to
which the Company obtained its technology and drug candidates.
A number of pharmaceutical and biotechnology companies, universities and
research institutions have filed patent applications or received patents to
technologies that cover or are similar to the technologies licensed to or owned
by the Company. The Company is aware of certain patent applications previously
filed by and patents already issued to others that conflict with patents or
patent applications licensed to the Company either by claiming the same methods
or compounds or by claiming methods or compounds that could dominate those
licensed to the Company. In addition, there can be no assurance that the Company
is aware of all patents or patent applications that may materially affect the
Company's ability to make, use or sell any drug candidates that are successfully
developed. For example, United States patent applications are confidential while
pending in the Patent and Trademark Office ("PTO"), and patent applications
filed in foreign countries are often first published six months or more after
filing. Any conflicts resulting from third party patent applications and patents
could significantly reduce the coverage of the patents licensed to or owned by
the Company and limit the ability of the Company or its licensors to obtain
meaningful patent protection. If patents are issued to other companies that
contain competitive or conflicting claims, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. There
can be no assurance that the Company will be able to obtain any such license on
acceptable terms or at all. If such licenses are not obtained, the Company could
be delayed in or prevented from pursuing the development or commercialization of
its drug candidates, which would have a material adverse effect on the Company.
The Company is aware of significant risks regarding the patent rights
licensed by the Company relating to three of the nine compounds comprising the
Company's existing drug candidate portfolio. The Company may not be able to
commercialize FTC, DAPD or CS-92 for HIV and/or HBV due to patent rights held by
third parties other than the Company's licensors. The Company is aware of
numerous patent applications and issued patents in the United States and
numerous foreign countries held by third parties other than the Company's
licensors that relate to these compounds and their use alone or coactively to
treat HIV and HBV. As a result, the positions of the Company and its licensors
with respect to the use of FTC, DAPD and CS-92 to treat HIV and/or HBV are
highly uncertain and involve numerous complex legal and factual questions that
are unknown or unresolved. If any of these questions is resolved in a manner
that is not favorable to the Company's licensors or the Company, the Company
would not have the right to commercialize FTC, DAPD and/or CS-92 in the absence
of a license from one or more third parties, which may not be available on
acceptable terms or at all. In addition, even in the absence of an unfavorable
resolution of any of these questions, the Company may attempt to obtain licenses
from one or more third parties in order to reduce or eliminate the risks
relating to some or all of these matters. There can be no assurance that the
Company will elect to obtain any such licenses or that such licenses will be
available on acceptable terms or at all. The Company's inability to
commercialize any of these compounds could have a material adverse effect on the
Company.
FTC
FTC belongs to the same general class of nucleosides as 3TC, which has
been approved in the United States by the FDA for use in combination with AZT
for the treatment of HIV and by similar regulatory agencies in many other
countries for use in combination with other nucleoside analogues for the
treatment of HIV. 3TC is currently being sold by Glaxo Wellcome plc ("Glaxo")
for the treatment of HIV under a license agreement with BioChem Pharma Inc.
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("BioChem Pharma"). The Company obtained its rights to purified forms of FTC
under a license from Emory. In 1990 and 1991, Emory filed in the United States
and thereafter in numerous foreign countries patent applications with claims to
composition of matter and methods to treat HIV and HBV with FTC. Yale filed
patent applications on FTC and its use to treat HBV in 1991 in the United
States, and subsequently licensed all of its rights to FTC and its uses claimed
in these patent applications to Emory. The Company's license arrangement with
Emory includes all rights to FTC and its uses claimed in the Yale patent
applications.
HIV. Emory received a United States patent in 1993 covering a method to
treat HIV infection with FTC. BioChem Pharma filed a patent application in the
United States in 1989 and was issued a patent in 1991 covering a group of
nucleosides in the same general class as FTC, but which did not include FTC.
BioChem Pharma filed foreign patent applications in 1990 based upon its 1989
United States patent application, and in those foreign applications included FTC
among a large class of nucleosides. The foreign patent applications are pending
in many countries and have issued in a number of countries with claims directed
to FTC and its use to treat HIV. In addition, BioChem Pharma filed a United
States patent application in 1991 specifically directed to a purified form of
FTC that exhibits advantageous properties for the treatment of HIV on which two
patents have issued, one directed to the purified form of FTC and another
directed to a method for treating antiviral diseases with the purified form of
FTC. The PTO has declared an interference between the latter BioChem Pharma
patent and a patent application filed by Emory. There can be no assurance that
Emory will prevail in the interference proceeding, or that the interference
proceeding will not delay the decision of the PTO regarding Emory's patent
application. BioChem Pharma has also filed patent applications in many foreign
countries based upon its 1991 United States patent application, and patents have
issued in certain countries. BioChem Pharma may have additional patent
applications pending in the United States.
In the United States, the first to invent a subject matter is entitled to
patent protection on that invention. With respect to patent applications filed
prior to January 1, 1996, United States patent law provides that if a party
invented a technology outside the United States, then for purposes of
determining the first to invent the technology, that party is deemed to have
invented the technology on the earlier of the date it introduced the invention
in the United States or the date it filed its patent application. In a recent
filing with the Securities and Exchange Commission (the "Commission"), BioChem
Pharma stated that since it conducts substantially all of its research
activities outside the United States, it is at a disadvantage as to inventions
made prior to January 1, 1996, with respect to obtaining United States patents
as compared to companies that maintain research facilities in the United States.
The Company does not know whether Emory or BioChem Pharma was the first to
invent the subject matter claimed in their respective United States patent
applications or patents, or whether BioChem Pharma invented the technology
disclosed in its patent applications in the United States or introduced that
technology in the United States before the date of its patent applications. In
foreign countries, the first party to file a patent application on an invention,
not the first to invent the subject matter, is entitled to patent protection on
that invention. While the Company believes that Emory's patent applications that
disclosed FTC as a useful anti-HIV agent were filed in many foreign countries
before BioChem Pharma filed its foreign patent applications on that subject
matter, BioChem Pharma has been issued patents in several foreign countries.
Further, BioChem Pharma has filed for patent protection on FTC and its uses in
certain countries in which Emory did not file for patent protection. Emory has
opposed or otherwise challenged patent claims on FTC granted to BioChem Pharma
in Australia, Japan and Norway. There can be no assurance that Emory will
initiate opposition proceedings in any other countries or be successful in any
pending or subsequently filed foreign proceeding attempting to revoke patents
issued to BioChem Pharma or addressing the relative rights of BioChem Pharma and
Emory. BioChem Pharma has opposed patent claims on FTC granted to Emory in Japan
and Australia. There can also be no assurance that BioChem Pharma will not make
additional challenges to any Emory patents or patent applications, or that Emory
will succeed in defending any such challenges. There can be no assurance that
the sale of FTC by the Company for the treatment of HIV would not be held to
infringe United States and foreign patent rights of BioChem Pharma. Under the
patent laws of most countries, a product can be found to infringe a third party
patent either if the third party patent expressly covers the product or method
of treatment using the product, or in certain circumstances, if the third party
patent, while not expressly covering the product or method, covers subject
matter that is substantially equivalent in nature to the product or method. If
it is determined that the sale of FTC for the treatment of HIV infringes a
BioChem Pharma patent, the Company would not have the right to make, use or sell
FTC for the treatment of HIV in one or more countries in the absence of a
license from BioChem Pharma. There can be no assurance that the Company could
obtain such a license from BioChem Pharma on acceptable terms or at all.
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HBV. Burroughs Wellcome Co. ("Burroughs Wellcome") filed patent
applications in March 1991 and May 1991 in Great Britain on a method to treat
HBV with FTC. Burroughs Wellcome filed similar patent applications in other
countries, which the Company believes includes the United States. Glaxo
subsequently acquired Burroughs Wellcome's rights under those patent
applications. Those patent applications were filed in many foreign countries
prior to the date Emory filed its patent application on the use of FTC to treat
HBV, and therefore, the foreign patent applications filed by Burroughs Wellcome
have priority over those filed by Emory. In July 1996, Emory instituted
litigation against Glaxo in the United States District Court to obtain ownership
of the patent applications filed by Burroughs Wellcome, alleging that Burroughs
Wellcome converted and misappropriated Emory's invention and property, and that
an Emory employee is the inventor or a co-inventor of the subject matter covered
by the Burroughs Wellcome patent applications. There can be no assurance that
Emory will succeed in its efforts to establish ownership rights. If Emory fails
to establish ownership rights, the Company could not make, use or sell FTC for
the treatment of HBV in countries in which patents are issued to Glaxo without a
license from Glaxo. If Emory establishes only co-ownership rights (and not sole
ownership) to these patents and patent applications, laws in Europe, Korea and
perhaps other countries could prohibit Emory from licensing any co-owned patent
rights without Glaxo's consent. If the Company is required to obtain a license
from Glaxo to sell FTC for the treatment of HBV, there can be no assurance that
the Company would be able to obtain such a license on acceptable terms or at
all.
BioChem Pharma filed a patent application in May 1991 in Great Britain
also directed to a method to treat HBV with FTC. BioChem Pharma filed similar
patent applications in other countries, and in January 1996 was issued a patent
in the United States. The PTO has declared an interference between the BioChem
Pharma patent and a patent application filed by Yale. Yale licensed all of its
rights relating to FTC and its uses claimed in this patent application to Emory,
which subsequently licensed these rights to the Company. There can be no
assurance that Yale will prevail in the interference proceeding, or that the
interference proceeding will not delay the decision of the PTO regarding Yale's
patent application. In addition, interference proceedings may be declared with
respect to other patent applications filed by Emory, Burroughs Wellcome's patent
application and BioChem Pharma's issued United States patent. There can be no
assurance that Emory will pursue or succeed in any such proceedings. The Company
cannot sell FTC for the treatment of HBV in the United States unless the BioChem
Pharma patent is held invalid by a United States court or administrative body or
unless the Company obtains a license from BioChem Pharma. There can be no
assurance that the Company would be able to obtain such a license on acceptable
terms or at all. In July 1991, BioChem Pharma was issued a United States patent
on the use of 3TC to treat HBV and has corresponding patent applications pending
or issued in foreign countries. If it is determined that the use of FTC to treat
HBV is not substantially different from the use of 3TC to treat HBV, a court
could hold that the use of FTC to treat HBV infringes these BioChem Pharma 3TC
patents.
In addition, BioChem Pharma has filed in the United States and foreign
countries several patent applications on manufacturing methods relating to a
class of nucleosides that includes FTC, from which several patents have issued
in the United States and many foreign countries. If the Company uses a
manufacturing method that is covered by patents issued on any of these
applications, the Company would not be able to manufacture FTC without a license
from BioChem Pharma. There can be no assurance that the Company would be able to
obtain such a license on acceptable terms or at all.
DAPD
The Company obtained its rights to DAPD under a license from Emory and
UGARF. The DAPD portfolio licensed to the Company consists of three issued
United States patents and several United States and foreign patent applications
that cover a method for the synthesis of DAPD and its use to treat HIV and HBV.
Emory and UGARF filed patent applications claiming these inventions in the
United States in 1990 and 1992. BioChem Pharma filed a patent application in the
United States in 1988 on a group of nucleosides in the same general class as
DAPD and their use to treat HIV, and has filed corresponding patent applications
in foreign countries. The PTO issued a patent to BioChem Pharma in 1993 covering
a class of nucleosides that includes DAPD and its use to treat HIV.
Corresponding patents have been issued to BioChem Pharma in many foreign
countries. Emory has filed an opposition to BioChem Pharma's granted patent
application in the European Patent Office based, in part, upon Emory's assertion
that BioChem Pharma's patent does not disclose how to make DAPD, and Emory has
informed the Company that Emory intends to challenge BioChem
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Pharma's patents and patent applications in other countries. Patent claims
granted to Emory on a portion of the DAPD technology by the Australian Patent
Office have been opposed by BioChem Pharma. There can be no assurance that a
court or administrative body would invalidate BioChem Pharma's patent claims or
that a sale of DAPD by the Company would not infringe BioChem Pharma's patents.
If Emory, UGARF and the Company do not challenge, or are not successful in any
challenge to, BioChem Pharma's issued patents or pending patent applications (or
patents that may issue as a result of such applications), the Company will not
be able to manufacture, use or sell DAPD in the United States and any foreign
countries in which BioChem Pharma receives a patent without a license from
BioChem Pharma. There can be no assurance that the Company would be able to
obtain a license from BioChem Pharma on acceptable terms or at all.
CS-92
The Company obtained its rights to CS-92 under a license from Emory and
UGARF. Emory and UGARF have obtained two United States patents that cover CS-92
and its use to treat HIV and have filed a European patent application and a
Japanese patent application with claims limited to the use of CS-92 as a method
for administering AZT, which includes the administration of CS-92 as a precursor
form of AZT, to treat HIV infection. Burroughs Wellcome filed an application
with the European Patent Office in September 1986 directed to a broad group of
nucleosides that includes CS-92 and AZT, and their use to treat HIV infection.
Burroughs Wellcome subsequently filed similar applications in other countries,
including the United States. Patents have been issued to Burroughs Wellcome in
certain countries based upon these patent applications. Glaxo now has the rights
to these patents and patent applications. There can be no assurance that, if
challenged, a court would uphold the Emory/UGARF patents in light of the
disclosures contained in the earlier filed Burroughs Wellcome patent
applications. If the use of CS-92 is found to infringe patents owned by Glaxo,
then the Company would not have the right to sell CS-92 in one or more countries
without a license from Glaxo. There can be no assurance that the Company would
be able to obtain a license from Glaxo on acceptable terms or at all.
With respect to any of the Company's drug candidates, litigation and
interference proceedings declared by the PTO, including the currently pending
proceedings, could result in substantial cost to the Company. The Company
expects the costs of the currently pending interference proceedings to increase
significantly during the next several years. The Company anticipates that
additional litigation and/or patent interference or opposition proceedings will
be necessary or may be initiated by the Company's licensors or by third parties
to enforce any patents to which the Company has rights or to determine the
scope, validity and enforceability of other parties' proprietary rights and the
priority of an invention, any of which could result in substantial costs and/or
delays to the Company. The outcome of any of these proceedings may affect the
Company's drug candidates and technology. United States patents carry a
presumption of validity and generally can be invalidated only through clear and
convincing evidence. As indicated above, two interferences have already been
declared by the PTO in connection with the FTC technology. There can be no
assurance that the Company's licensed patents would be held valid by a court or
administrative body or that an alleged infringer would be found to be
infringing. Further, with respect to the drug candidates licensed or optioned by
the Company from Emory, UGARF, the Regents, DuPont Merck and Mitsubishi, each of
these licensors is primarily responsible for any patent prosecution activities
for the technology licensed to the Company, such as litigation, interference,
opposition or other actions and, except for litigation expenses incurred by
DuPont Merck and all patent prosecution expenses incurred by Mitsubishi, the
Company is required to reimburse these licensors for the costs they incur in
performing these activities. Similarly, Yale and UGARF, the licensors of L-FMAU
to Bukwang, are primarily responsible for patent prosecution activities with
respect to L-FMAU at the Company's expense. As a result, the Company generally
does not have the ability to institute or determine the conduct of any such
patent proceedings unless Emory, UGARF, the Regents, DuPont Merck, Mitsubishi
and/or Yale do not elect to institute or elect to abandon such proceedings. In
cases where Emory, UGARF, the Regents, DuPont Merck, Mitsubishi and/or Yale
elect to institute and prosecute patent proceedings, the Company's rights will
be dependent in part upon the manner in which these licensors conduct the
proceedings. These licensors could, in any proceedings they elect to initiate
and maintain, decide not to vigorously pursue or defend or to settle such
proceedings on terms that are not favorable to the Company. An adverse outcome
in any patent litigation or interference proceeding could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company to cease using such technology, any of
which could have a material adverse effect on the Company. Moreover, the mere
uncertainty resulting from the
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initiation and continuation of any technology related litigation or interference
proceeding could have a material adverse effect on the Company pending
resolution of the disputed matters.
The Company also relies on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants and others. There can be
no assurance that these agreements will not be breached or terminated, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently discovered by
competitors. The Company relies on certain technologies to which it does not
have exclusive rights or which may not be patentable or proprietary and thus may
be available to competitors. The Company has filed an application for but has
not obtained a trademark registration with respect to its corporate name and its
logo. The Company is aware that several other companies use trade names that are
similar to the Company's for their businesses. If the Company is not able to
obtain any licenses that may be necessary for the Company to use its corporate
name, it may be required to change its corporate name. The Company's management
personnel were previously employed by other pharmaceutical companies. In many
cases, these individuals are conducting drug development activities for the
Company in areas similar to those in which they were involved prior to joining
the Company. As a result, the Company, as well as these individuals, could be
subject to allegations of violation of trade secrets and other similar claims.
See "--Risks and Uncertainties--Uncertainty of Patents; Dependence on Patents,
Licenses and Proprietary Rights."
Government Regulation
The development of Triangle's drug candidates and the manufacturing and
marketing of any drug candidates that are successfully developed are subject to
extensive regulation by numerous governmental authorities in the United States
and other countries. See "--Risks and Uncertainties--Extensive Government
Regulation; No Assurance of Regulatory Approval."
FDA Approval
In the United States, pharmaceuticals are subject to rigorous FDA
regulation. The Federal Food, Drug, and Cosmetic Act ("FDCA") governs the
testing, manufacture, approval, labeling, storage, record keeping, reporting,
advertising and promotion of Triangle's drug candidates and any products that
Triangle may successfully develop. Product development and approval within this
regulatory framework takes a number of years and involves the expenditure of
substantial resources.
The steps required before a new prescription drug may be marketed in the
United States include (i) preclinical laboratory and animal tests, (ii) the
submission to the FDA of an IND, which must be evaluated and found acceptable by
the FDA before human clinical trials may commence, (iii) adequate and
well-controlled human clinical trials to establish the safety and effectiveness
of the drug, (iv) the submission of an NDA to the FDA and (v) FDA approval of
the NDA. Prior to obtaining FDA approval of an NDA, the facilities that will be
used to manufacture the drug must undergo a preapproval inspection to ensure
compliance with good manufacturing practices ("GMP") regulations. A company must
also pay a one-time user fee for each NDA submission and pay annual user fees
for each approved product and manufacturing establishment.
Preclinical tests include laboratory evaluation of the drug candidate and
animal studies to assess the safety and effectiveness of the drug candidate and
its formulation. The results of such preclinical tests are submitted to the FDA
as part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA. If the FDA has concerns about the
proposed clinical trial, it may delay the trial and require modifications to the
trial protocol prior to permitting the trial to begin. As a result, there can be
no assurance that the FDA will permit a proposed IND to become effective.
Clinical trials involve the administration of the drug candidate to
normal, healthy volunteers or to patients identified as having the condition for
which the drug candidate is being tested. The drug candidate is administered
under the supervision of a qualified principal investigator. Clinical trials are
conducted in accordance with protocols previously submitted to the FDA as part
of the IND that detail the objectives of the trial, the parameters used to
monitor safety and
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the efficacy criteria that are being evaluated. Each clinical trial is conducted
under the auspices of an Institutional Review Board ("IRB") at the institution
at which the trial is conducted. The IRB considers, among other things, ethical
factors, the safety of the human subjects and the possible liability risk for
the institution.
Clinical trials are typically conducted in three sequential phases that
may overlap. In Phase I, the initial introduction of the drug candidate in
normal, healthy volunteers, the emphasis is on testing for safety (adverse
effects), dosage tolerance, metabolism, distribution, excretion, clinical
pharmacology and early evidence of effectiveness. In serious diseases such as
AIDS or cancer, patients suffering from the disease rather than normal, healthy
volunteers are used in Phase I trials. Phase II involves trials in a limited
patient population to determine the effectiveness of the drug candidate for
specific targeted indications, to determine dosage tolerance and optimal dosage
and to identify possible short-term side effects and safety risks. After a drug
candidate has been shown in Phase II trials to have an acceptable safety profile
and probable effectiveness, Phase III trials are undertaken to further evaluate
clinical effectiveness and to further test for safety within an expanded patient
population at multiple clinical study sites. Pilot trials are clinical trials
involving a small number of patients. The FDA reviews both the clinical trial
plans and the results of the trials at each phase and may discontinue the trials
at any time if there are significant safety issues.
The results of the preclinical tests and clinical trials are submitted to
the FDA in the form of an NDA for marketing approval. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis or at all. The
approval process is affected by a number of factors, including the severity of
the disease, the availability of alternative treatments and the risks and
benefits demonstrated in clinical trials. Additional animal studies or clinical
trials may be requested during the FDA review process and may delay marketing
approval. Upon approval, a drug may be marketed only for the approved
indications in the approved dosage forms. Further clinical trials would be
necessary to gain approval for the use of the product for any additional
indications or dosage forms. The FDA may also require post-marketing testing,
such as monitoring for adverse effects, which can involve significant expense.
A company may conduct clinical trials outside of the United States, using
a product manufactured outside the country, and in some circumstances
manufactured within the United States, without an IND. The FDA will accept data
from foreign clinical trials to support clinical investigations in the United
States and/or approval of an NDA only if the agency determines that the trials
are well-designed, well-conducted, performed by qualified investigators, and
conducted in accordance with internationally recognized ethical principles and
any applicable foreign requirements. Triangle initiated Phase I/II clinical
trials in Europe for MKC-442 prior to submitting an IND and is conducting a
Pilot Phase I/II clinical trial in Europe for CS-92 without an IND. Triangle may
in the future conduct clinical trials with other drug candidates in various
foreign countries without an IND. There can be no assurance that clinical trials
conducted in either the United States or foreign countries will demonstrate that
any drug candidates under development by the Company are safe and effective, or
that the FDA will not require additional clinical trials to support approval of
an NDA.
As part of its IND regulations, the FDA has developed several regulatory
procedures to accelerate the clinical testing and approval of drugs intended to
treat life-threatening or seriously debilitating illnesses under certain
circumstances. For example, in 1988, the FDA issued regulations to expedite the
development, evaluation and marketing of drugs for life-threatening and severely
debilitating illnesses, especially where no alternative therapy exists (the
"1988 Regulations"). These procedures encourage early consultation between the
IND sponsors and the FDA in the preclinical testing and clinical trial phases to
determine what evidence will be necessary for marketing approval and to assist
the sponsors in designing clinical trials. Under this program, the FDA works
closely with the IND sponsors to accelerate and condense Phase II clinical
trials, which may, in some cases, eliminate the need to conduct Phase III trials
or limit the scope of Phase III trials. Under the 1988 Regulations, the FDA may
require post-marketing (Phase IV) clinical trials to obtain additional
information on the drug's risks, benefits and optimal use.
The FDA has issued regulations establishing an accelerated NDA approval
procedure for certain drugs under Subpart H of the agency's NDA approval
regulations ("Subpart H Regulations"). The Subpart H Regulations provide for
accelerated NDA approval for new drugs intended to treat serious or
life-threatening diseases where the drugs provide a meaningful therapeutic
advantage over existing treatment. Under this accelerated approval procedure,
the FDA may approve a drug based on evidence from adequate and well-controlled
studies of the drug's effect on a surrogate
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endpoint that is reasonably likely to predict clinical benefits, or on evidence
of the drug's effect on a clinical endpoint other than survival or irreversible
morbidity. This approval is conditional on the favorable completion of
post-marketing trials to establish and define the degree of clinical benefits to
the patient. These clinical trials would usually be underway when the product
obtains this accelerated approval. The FDA may also impose distribution
restrictions where necessary to assure safe use of the drug. If, after approval,
such a post-marketing clinical study establishes that the drug does not perform
as expected, or if post-marketing restrictions are not adhered to or are not
adequate to ensure the safe use of the drug, or other evidence demonstrates that
the product is not safe and/or effective under its conditions of use, the FDA
may withdraw approval through expedited administrative procedures. The Subpart H
accelerated approval regulation can complement the 1988 Regulations for
expediting the development, evaluation and marketing of drugs. These two
procedures for expediting the clinical evaluation and approval of certain drugs
may shorten the drug development process by as much as two to three years.
The Food and Drug Administration Modernization Act of 1997 ("FDAMA")
essentially codifies, in new section 506 of the FDCA, the standards and
conditions in the Subpart H Regulations. Section 506 provides for the
designation of a "fast track" product, and establishes procedures to facilitate
development and expedite FDA review of a drug intended for treatment of a
serious or life-threatening condition that demonstrates the potential to address
unmet medical needs. Approval of a fast track product may be subject to
conditions, including requirements to conduct post approval clinical trials and
to presubmit promotional materials. Approval of a fast track product can be
withdrawn, using expedited procedures, for reasons similar to those specified in
the Subpart H Regulations.
The Company believes that some of its drug candidates may be candidates
for accelerated development and/or approval under the 1988 Regulations and/or
the Subpart H Regulations and/or section 506 of the FDCA. However, there can be
no assurance that any of these drug candidates or any future drug candidates the
Company may develop will be eligible for development and/or approval under these
regulations. In addition, there can be no assurance that these drug candidates
or any future drug candidates (if eligible for development and/or approval under
these regulations) will be approved by the FDA for marketing at all or, if
approved for marketing, will be approved for marketing sooner than would be
traditionally expected.
Once the sale of a product is approved, the FDA regulates the
manufacturing, marketing, safety reporting and other activities under the FDCA
and the FDA's implementing regulations. The FDA periodically inspects both
domestic and foreign drug manufacturing facilities to ensure compliance with
applicable GMP regulations, NDA conditions and other requirements. In addition,
manufacturers must register with the FDA and submit a list of every drug in
commercial distribution. The Company does not have or currently intend to
develop the facilities to manufacture its drug candidates in commercial
quantities, and intends to establish relationships with contract manufacturers
for the commercial manufacture of any products that are successfully developed.
Some of these contract manufacturers may be located outside the United States.
There can be no assurance that the Company's contract manufacturers will be able
to attain or maintain compliance with GMP regulations and NDA conditions.
Changes in contract manufactures may result in the need for new NDA submissions
or delays in the availability of product. Post-marketing reports are also
required, for purposes such as monitoring the product's usage and any adverse
effects. Product approvals may be withdrawn, or other actions may be ordered, or
criminal or other sanctions imposed if compliance with regulatory requirements
is not maintained.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition," which generally is a
disease or condition that affects populations of fewer than 200,000 individuals
in the United States. Orphan drug designation must be requested before
submitting an NDA, and after the FDA grants orphan drug designation, the generic
identity of the therapeutic agent and its potential orphan use are publicly
disclosed by the FDA. Under current law, approval of the first NDA for a drug
with orphan drug designation confers United States marketing exclusivity to
market such designated drug for the designated indication for a period of seven
years following approval of the NDA, subject to certain limitations. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the
regulatory approval process.
The Company believes that alanosine, if successfully developed for the
treatment of NSCLC and/or brain cancers, may qualify for orphan drug
designation. There can be no assurance, however, that alanosine or any future
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products the Company may develop will be designated as an orphan drug or that
the current statutory provisions for marketing exclusivity will not change. In
addition, there can be no assurance that alanosine or any future products will
be approved for marketing.
Foreign Regulatory Approval and Sale
Many foreign countries also regulate the clinical testing, manufacturing,
reporting, marketing and use of pharmaceutical products. The requirements
relating to the conduct of clinical trials, product approval, manufacturing,
marketing, pricing and reimbursement vary widely from country to country and
there can be no assurance that the Company or any third parties with whom the
Company may establish collaborative relationships will be able to attain or
maintain compliance with such requirements.
In addition to the import requirements of foreign countries, a company
must also comply with United States laws governing the export of FDA regulated
products. Pursuant to the FDA Export Reform and Enhancement Act of 1996, a drug
that has not obtained FDA approval may be exported to any country in the world
without FDA authorization if the product both complies with the laws of the
importing country and has obtained valid marketing authorization in one of the
following countries: Australia, Canada, Israel, Japan, New Zealand, Switzerland,
South Africa, the European Union, or a country in the European Economic Area.
The FDA is authorized to add countries to this list in the future. Among other
restrictions, a drug that has not obtained FDA approval may be exported under
the new law only if it is not adulterated, accords to the specifications of the
foreign purchaser, complies with the laws of the importing country, is labeled
for export, is manufactured in substantial compliance with GMP regulations and
is not sold in the United States.
Other Regulations
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Controlled Substances Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other similar federal, state and local
regulations governing permissible laboratory activities, waste disposal,
handling of toxic, dangerous or radioactive materials and other matters. The
Company believes that it is in substantial compliance, in all material respects,
with applicable regulations. These regulations are subject to change, however,
and may, in the future, require substantial effort and cost to the Company to
comply with each of the regulations, and may possibly restrict the Company's
business activities. See "--Risks and Uncertainties--Hazardous Materials."
Competition
The Company is engaged in segments of the pharmaceutical industry that are
highly competitive and rapidly changing. If successfully developed and approved,
the drug candidates that the Company is currently developing will compete with
numerous existing therapies. In addition, a number of companies are pursuing the
development of novel pharmaceuticals that target the same diseases the Company
is targeting. The Company believes that a significant number of drugs are
currently under development and will become available in the future for the
treatment of HIV, HBV and cancer. The Company anticipates that it will face
intense and increasing competition in the future as new products enter the
market and advanced technologies become available. There can be no assurance
that any products that are successfully developed by the Company will be more
effective, or more effectively marketed and sold, than any products that may be
developed by the Company's competitors. Competitive products may render the
Company's licensed technology and products obsolete or noncompetitive prior to
the Company's recovery of development or commercialization expenses incurred
with respect to any such products. The development by others of a cure or new
treatment methods for the indications for which the Company is developing drug
candidates could render the Company's drug candidates noncompetitive, obsolete
or uneconomical. Many of the Company's competitors have significantly greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture and market products. Many of these companies
also have extensive experience in preclinical testing and clinical trials,
obtaining FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. Many of these competitors also have products that have
been approved or are in late stage development and operate large, well
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funded research and development programs. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are more actively seeking to commercialize the technology they
have developed.
If the Company's drug candidates are successfully developed and approved,
the Company will face competition based on the safety and effectiveness of its
products, the timing and scope of regulatory approvals, the availability of
supply, marketing and sales capability, reimbursement coverage, price, patent
position and other factors. There can be no assurance that the Company's
competitors will not develop or commercialize more effective or more affordable
technology or products, or obtain more effective patent protection, than the
Company. Accordingly, the Company's competitors may succeed in commercializing
products more rapidly or effectively than the Company, which could have a
material adverse effect on the Company. See "--Risks and Uncertainties--Intense
Competition; Risk of Technological Change."
Manufacturing
The Company does not have any manufacturing capacity and relies on third
party manufacturers for the manufacture of all of its clinical trial material.
The Company currently plans to expand its existing relationships or to seek to
establish relationships with additional third party manufacturers for the
commercial production of any products it may develop. There can be no assurance
that the Company will be able to establish or maintain relationships with third
party manufacturers on commercially acceptable terms or that third party
manufacturers will be able to manufacture products in commercial quantities
under applicable GMP regulations on a cost effective basis. The Company's
dependence upon third parties for the manufacture of its products may adversely
affect the Company's profit margins and its ability to develop and commercialize
products on a timely and competitive basis. Further, there can be no assurance
that manufacturing or quality control problems will not arise in connection with
the manufacture of the Company's products or that third party manufacturers will
be able to maintain the necessary governmental licenses and approvals to
continue manufacturing the Company's products. Any failure to establish or
maintain relationships with third parties for its manufacturing requirements on
commercially acceptable terms would have a material adverse effect on the
Company. See "--Risks and Uncertainties--Lack of Manufacturing Capabilities" and
"--Government Regulation."
Sales and Marketing
The Company currently has only two marketing employees and no sales
personnel. The Company will have to develop a sales force or rely on marketing
partners or other arrangements with third parties for the marketing,
distribution and sale of any products it develops. The Company currently intends
to market in the United States most of the drug candidates that it successfully
develops primarily through a direct sales force and outside the United States
through a combination of a direct sales force and arrangements with third
parties. There can be no assurance that the Company will be able to establish
marketing, distribution or sales capabilities or make arrangements with third
parties to perform those activities on terms satisfactory to the Company or that
any internal capabilities or third party arrangements will be cost-effective.
In addition, any third parties with whom the Company establishes
marketing, distribution or sales arrangements may have significant control over
important aspects of the commercialization of the Company's products, including
market identification, marketing methods, pricing, composition of sales force
and promotional activities. There can be no assurance that the Company will be
able to control the amount and timing of resources that any third party may
devote to the Company's products or prevent any third party from pursuing
alternative technologies or products that could result in the development of
products that compete with the Company's products and the withdrawal of support
for the Company's programs. See "--Risks and Uncertainties--Lack of Sales and
Marketing Capabilities."
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Health Care Reform Measures and Third Party Reimbursement
The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third party payors to
contain or reduce the cost of health care through various means. A number of
legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. In addition, an increasing emphasis on
managed care in the United States has and will continue to increase pressure on
pharmaceutical pricing. While the Company cannot predict whether legislative or
regulatory proposals will be adopted or what effect those proposals or managed
care efforts may have on its business, the announcement and/or adoption of such
proposals or efforts could have a material adverse effect on the Company. In the
United States and elsewhere, sales of prescription pharmaceuticals are dependent
in whole or in part on the availability of reimbursement to the consumer from
third party payors, such as government and private insurance plans, and these
third party payors frequently mandate predetermined discounts from list prices.
Third party payors are increasingly challenging the prices charged for medical
products and services. If the Company succeeds in bringing one or more products
to the market, there can be no assurance that these products will be considered
cost effective or that reimbursement to the consumer will be available or will
be sufficient to allow the Company to sell its products on a competitive basis.
See "--Risks and Uncertainties--Uncertainty of Health Care Reform Measures and
Third Party Reimbursement."
Human Resources
As of January 31, 1998, Triangle had 70 employees, including 48 in
development and 22 in finance and administration. Of these employees, 23 hold
advanced degrees, of which 17 are M.D.s or Ph.D.s. The Company's future success
will depend in large part upon its ability to attract and retain highly
qualified personnel. The Company's employees are not represented by any
collective bargaining agreements, and the Company has never experienced a work
stoppage. The Company believes that its employee relations are good. The Company
has entered into confidentiality agreements with all of its employees. See
"--Risks and Uncertainties--Dependence on Key Employees."
Risks and Uncertainties
In addition to the other information contained herein, the following risk
factors should be carefully considered in evaluating Triangle and its business.
Development Stage Company; Uncertainty of Product Development
Triangle was incorporated in July 1995 and accordingly has only a limited
operating history upon which an evaluation of the Company's business and
prospects can be based. In addition, many of the Company's drug candidates are
in the early developmental stage and all of the Company's drug candidates will
require significant, time consuming and costly development, testing and
regulatory clearances. The Company does not expect any of its drug candidates to
be commercially available until at least the year 2000. The successful
development of any new drug, including each of the Company's drug candidates, is
highly uncertain and is subject to a number of significant risks. These risks
include, among others, the possibility that any or all of the Company's drug
candidates will be found to be ineffective, toxic or otherwise fail to receive
necessary regulatory clearances; that the drug candidates will be uneconomical
to manufacture or market or will not achieve broad market acceptance; that third
parties will hold proprietary rights that will preclude the Company from
marketing the drug candidates; or that third parties will market equivalent or
superior products. The failure of the Company's drug development programs to
result in commercially viable products would have a material adverse effect on
the Company. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "--Product Development Programs."
History of Operating Losses; Accumulated Deficit; Uncertainty of Future
Profitability
The Company has incurred losses since its inception. As of December 31,
1997, the Company's consolidated accumulated deficit was approximately $49.6
million and the Company had utilized approximately $40.0 million of cash. Losses
have resulted principally from costs incurred in the acquisition and development
of the Company's drug candidates (including an $11.3 million charge related to
the acquisition of Avid) and general and administrative costs.
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These costs have exceeded the Company's revenues, which to date have been
generated primarily from interest income. The Company has not generated any
revenue to date from the sale of drugs and does not expect to do so until at
least the year 2000. The Company will incur significant additional operating
losses over the next several years and expects these losses to increase as the
Company's drug development efforts expand. The Company's ability to achieve
profitability will depend upon its ability to develop and obtain regulatory
approval for its drug candidates and to develop the capacity (or establish and
maintain relationships with third parties) to manufacture, market and sell any
drug candidates it successfully develops. There can be no assurance that the
Company will ever generate significant revenues or achieve profitable
operations. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Future Capital Needs; Uncertainty of Additional Funding
The Company's drug development programs require substantial capital
expenditures, including expenditures for preclinical testing, chemical synthetic
scale-up, manufacture of drug substance for clinical trials and toxicology
studies, clinical trials of drug candidates and payments to the Company's
licensors. The Company's future capital requirements will depend on many
factors, including the progress of the Company's drug development programs, the
magnitude of these programs, the scope and results of preclinical testing and
clinical trials, the cost, timing and outcome of regulatory reviews, costs under
the license and/or option agreements relating to the Company's drug candidates
(including the costs of obtaining patent protection for the Company's drug
candidates), the timing and the terms of the acquisition of any additional drug
candidates, the rate of technological advances, determinations as to the
commercial potential of the Company's drug candidates administrative and legal
expenses, the establishment of internal capacity and third party arrangements
for sales and marketing functions, the establishment of third party arrangements
for manufacturing and other factors. The Company expects that its capital
requirements will increase significantly in the future.
The Company has incurred negative cash flow from operations since
inception and does not expect to generate positive cash flow to fund its
operations for at least the next several years. As a result, substantial
additional equity or debt financings will be required in the near future to fund
the Company's operations. There can be no assurance that the Company will be
able to consummate any such financings on favorable terms or at all, or that
such financings, if consummated, will be adequate to meet the Company's capital
requirements. Any additional equity or convertible debt financings could result
in substantial dilution to the Company's stockholders. If adequate funds are not
available, the Company may be required to delay, reduce the scope of or
eliminate one or more of its drug development programs or attempt to continue
development by entering into arrangements with collaborative partners or others
that may require the Company to relinquish some or all of its rights to certain
technologies or drug candidates that the Company would not otherwise desire to
relinquish. In addition, from time to time, the Company considers the
acquisition of technologies and drug candidates that, if completed, could
increase the Company's capital requirements. The Company's inability to fund its
capital requirements would have a material adverse effect on the Company. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Uncertainties Related to Clinical Trials
Before obtaining required regulatory approvals for the commercial sale of
any of its drug candidates under development, the Company must demonstrate
through preclinical testing and clinical trials that each product is safe and
effective for use in each target indication. The results from preclinical
testing and early clinical trials may not be predictive of results that will be
obtained in pivotal clinical trials, and there can be no assurance that the
Company's clinical trials will demonstrate sufficient safety and effectiveness
to obtain required regulatory approvals or will result in marketable products. A
number of companies in the pharmaceutical industry have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. The administration of any drug candidate developed by the Company may
produce undesirable side effects in humans. The occurrence of side effects could
interrupt, delay or halt clinical trials of such drug candidate and could
ultimately prevent its approval by the FDA or foreign regulatory authorities for
any and all targeted indications. The Company, the FDA or foreign regulatory
authorities may suspend or terminate clinical trials at any time if it is
believed that the trial participants are being exposed to unacceptable health
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risks. There can be no assurance that clinical trials will demonstrate that any
drug candidate under development by the Company is safe or effective.
The rate of completion of the Company's clinical trials will depend upon,
among other factors, obtaining adequate supplies of drug substance and the rate
of patient enrollment. Patient enrollment is a function of many factors,
including the size of the patient population, the nature of the protocol, the
proximity of patients to clinical sites and the eligibility criteria for the
clinical trial. Delays in planned patient enrollment can result in increased
costs or longer development times or both, which could have a material adverse
effect on the Company. There can be no assurance that if clinical trials are
successfully completed, the Company will be able to file any required regulatory
submissions in a timely manner or that any such submissions will be approved by
regulatory agencies. Any failure of the Company to complete successfully its
clinical trials and obtain approvals of corresponding regulatory submissions
would have a material adverse effect on the Company. See "--Product Development
Programs" and "--Government Regulation."
Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights
The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent protection with respect to its drug
candidates, defend patents once obtained, maintain trade secrets and operate
without infringing upon the patents and proprietary rights of others and to
obtain appropriate licenses to patents or proprietary rights held by third
parties, both in the United States and in foreign countries. The Company has no
patents in its own name and has only one patent application of its own pending,
but has obtained or has an option to obtain licenses to patents, patent
applications and other proprietary rights from third parties with respect to
each of its nine drug candidates.
The patent positions of pharmaceutical companies, including those of the
Company, are uncertain and involve complex legal and factual questions for which
important legal principles are unresolved. There can be no assurance that the
Company or its licensors have or will develop or obtain the rights to products
or processes that are patentable, that patents will issue from patent
applications or that claims allowed will be sufficient to protect the technology
licensed to or owned by the Company. In addition, no assurance can be given that
any patents issued to or licensed by the Company will not be challenged,
invalidated, infringed or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company. The Company's success will
also depend in large part on the Company not breaching the licenses pursuant to
which the Company obtained its technology and drug candidates.
A number of pharmaceutical and biotechnology companies, universities and
research institutions have filed patent applications or received patents to
technologies that cover or are similar to the technologies licensed to or owned
by the Company. The Company is aware of certain patent applications previously
filed by and patents already issued to others that conflict with patents or
patent applications licensed to the Company either by claiming the same methods
or compounds or by claiming methods or compounds that could dominate those
licensed to the Company. In addition, there can be no assurance that the Company
is aware of all patents or patent applications that may materially affect the
Company's ability to make, use or sell any drug candidates that are successfully
developed. For example, United States patent applications are confidential while
pending in the PTO, and patent applications filed in foreign countries are often
first published six months or more after filing. Any conflicts resulting from
third party patent applications and patents could significantly reduce the
coverage of the patents licensed to or owned by the Company and limit the
ability of the Company or its licensors to obtain meaningful patent protection.
If patents are issued to other companies that contain conflicting claims, the
Company may be required to obtain licenses to these patents or to develop or
obtain alternative technology. There can be no assurance that the Company will
be able to obtain any such license on acceptable terms or at all. If such
licenses are not obtained, the Company could be delayed in or prevented from
pursuing the development or commercialization of its drug candidates, which
would have a material adverse effect on the Company.
The Company is aware of significant risks regarding the patent rights
licensed by the Company relating to three of the nine compounds comprising the
Company's existing drug candidate portfolio. The Company may not be able to
commercialize FTC, DAPD or CS-92 for HIV and/or HBV due to patent rights held by
third parties other than the Company's licensors. The Company is aware of
numerous patent applications and issued patents in the United States and
numerous foreign countries held by third parties other than the Company's
licensors that relate to these compounds
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and their use alone or coactively to treat HIV and HBV. As a result, the
positions of the Company and its licensors with respect to the use of FTC, DAPD
and CS-92 to treat HIV and/or HBV are highly uncertain and involve numerous
complex legal and factual questions that are unknown or unresolved. If any of
these questions is resolved in a manner that is not favorable to the Company's
licensors or the Company, the Company would not have the right to commercialize
FTC, DAPD and/or CS-92 in the absence of a license from one or more third
parties, which may not be available on acceptable terms or at all. In addition,
even in the absence of an unfavorable resolution of any of these questions, the
Company may attempt to obtain licenses from one or more third parties in order
to reduce or eliminate the risks relating to some or all of these matters. There
can be no assurance that the Company will elect to obtain any such licenses or
that such licenses will be available on acceptable terms or at all. The
Company's inability to commercialize any of these compounds could have a
material adverse effect on the Company.
FTC
FTC belongs to the same general class of nucleosides as 3TC, which has
been approved in the United States by the FDA for use in combination with AZT
for the treatment of HIV and by similar regulatory agencies in many other
countries for use in combination with other nucleoside analogues for the
treatment of HIV. 3TC is currently being sold by Glaxo for the treatment of HIV
under a license agreement with BioChem Pharma. The Company obtained its rights
to purified forms of FTC under a license from Emory. In 1990 and 1991, Emory
filed in the United States and thereafter in numerous foreign countries patent
applications with claims to composition of matter and methods to treat HIV and
HBV with FTC. Yale filed patent applications on FTC and its use to treat HBV in
1991 in the United States, and subsequently licensed all of its rights to FTC
and its uses claimed in these patent applications to Emory. The Company's
license arrangement with Emory includes all rights to FTC and its uses claimed
in the Yale patent applications.
HIV. Emory received a United States patent in 1993 covering a method to
treat HIV infection with FTC. BioChem Pharma filed a patent application in the
United States in 1989 and was issued a patent in 1991 covering a group of
nucleosides in the same general class as FTC, but which did not include FTC.
BioChem Pharma filed foreign patent applications in 1990 based upon its 1989
United States patent application, and in those foreign applications included FTC
among a large class of nucleosides. The foreign patent applications are pending
in many countries and have issued in a number of countries with claims directed
to FTC and its use to treat HIV. In addition, BioChem Pharma filed a United
States patent application in 1991 specifically directed to a purified form of
FTC that exhibits advantageous properties for the treatment of HIV on which two
patents have issued, one directed to the purified form of FTC and another
directed to a method for treating antiviral diseases with the purified form of
FTC. The PTO has declared an interference between the latter BioChem Pharma
patent and a patent application filed by Emory. There can be no assurance that
Emory will prevail in the interference proceeding, or that the interference
proceeding will not delay the decision of the PTO regarding Emory's patent
application. BioChem Pharma has also filed patent applications in many foreign
countries based upon its 1991 United States patent application, and patents have
issued in certain countries. BioChem Pharma may have additional patent
applications pending in the United States.
In the United States, the first to invent a subject matter is entitled to
patent protection on that invention. With respect to patent applications filed
prior to January 1, 1996, United States patent law provides that if a party
invented a technology outside the United States, then for purposes of
determining the first to invent the technology, that party is deemed to have
invented the technology on the earlier of the date it introduced the invention
in the United States or the date it filed its patent application. In a recent
filing with the Commission, BioChem Pharma stated that since it conducts
substantially all of its research activities outside the United States, it is at
a disadvantage as to inventions made prior to January 1, 1996, with respect to
obtaining United States patents as compared to companies that maintain research
facilities in the United States. The Company does not know whether Emory or
BioChem Pharma was the first to invent the subject matter claimed in their
respective United States patent applications or patents, or whether BioChem
Pharma invented the technology disclosed in its patent applications in the
United States or introduced that technology in the United States before the date
of its patent applications. In foreign countries, the first party to file a
patent application on an invention, not the first to invent the subject matter,
is entitled to patent protection on that invention. While the Company believes
that Emory's patent applications that disclosed FTC as a useful anti-HIV agent
were filed in many foreign countries before BioChem Pharma filed its foreign
patent applications on that subject matter, BioChem Pharma has been issued
patents in several foreign countries. Further, BioChem Pharma has filed for
patent protection
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on FTC and its uses in certain countries in which Emory did not file for patent
protection. Emory has opposed or otherwise challenged patent claims on FTC
granted to BioChem Pharma in Australia, Japan and Norway. There can be no
assurance that Emory will initiate opposition proceedings in any other countries
or be successful in any pending or subsequently filed foreign proceeding
attempting to revoke patents issued to BioChem Pharma or addressing the relative
rights of BioChem Pharma and Emory. BioChem Pharma has opposed patent claims on
FTC granted to Emory in Japan and Australia. There can also be no assurance that
BioChem Pharma will not make additional challenges to any Emory patents or
patent applications, or that Emory will succeed in defending any such
challenges. There can be no assurance that the sale of FTC by the Company for
the treatment of HIV would not be held to infringe United States and foreign
patent rights of BioChem Pharma. Under the patent laws of most countries, a
product can be found to infringe a third party patent either if the third party
patent expressly covers the product or method of treatment using the product, or
in certain circumstances, if the third party patent, while not expressly
covering the product or method, covers subject matter that is substantially
equivalent in nature to the product or method. If it is determined that the sale
of FTC for the treatment of HIV infringes a BioChem Pharma patent, the Company
would not have the right to make, use or sell FTC for the treatment of HIV in
one or more countries in the absence of a license from BioChem Pharma. There can
be no assurance that the Company could obtain such a license from BioChem Pharma
on acceptable terms or at all.
HBV. Burroughs Wellcome filed patent applications in March 1991 and May
1991 in Great Britain on a method to treat HBV with FTC. Burroughs Wellcome
filed similar patent applications in other countries, which the Company believes
includes the United States. Glaxo subsequently acquired Burroughs Wellcome's
rights under those patent applications. Those patent applications were filed in
many foreign countries prior to the date Emory filed its patent application on
the use of FTC to treat HBV, and therefore, the foreign patent applications
filed by Burroughs Wellcome have priority over those filed by Emory. In July
1996, Emory instituted litigation against Glaxo in the United States District
Court to obtain ownership of the patent applications filed by Burroughs
Wellcome, alleging that Burroughs Wellcome converted and misappropriated Emory's
invention and property, and that an Emory employee is the inventor or a
co-inventor of the subject matter covered by the Burroughs Wellcome patent
applications. There can be no assurance that Emory will succeed in its efforts
to establish ownership rights. If Emory fails to establish ownership rights, the
Company could not make, use or sell FTC for the treatment of HBV in countries in
which patents are issued to Glaxo without a license from Glaxo. If Emory
establishes only co-ownership rights (and not sole ownership) to these patents
and patent applications, laws in Europe, Korea and perhaps other countries could
prohibit Emory from licensing any co-owned patent rights without Glaxo's
consent. If the Company is required to obtain a license from Glaxo to sell FTC
for the treatment of HBV, there can be no assurance that the Company would be
able to obtain such a license on acceptable terms or at all.
BioChem Pharma filed a patent application in May 1991 in Great Britain
also directed to a method to treat HBV with FTC. BioChem Pharma filed similar
patent applications in other countries, and in January 1996 was issued a patent
in the United States. The PTO has declared an interference between the BioChem
Pharma patent and a patent application filed by Yale. Yale licensed all of its
rights relating to FTC and its uses claimed in this patent application to Emory,
which subsequently licensed these rights to the Company. There can be no
assurance that Yale will prevail in the interference proceeding, or that the
interference proceeding will not delay the decision of the PTO regarding Yale's
patent application. In addition, interference proceedings may be declared with
respect to other patent applications filed by Emory, Burroughs Wellcome's patent
application and BioChem Pharma's issued United States patent. There can be no
assurance that Emory will pursue or succeed in any such proceedings. The Company
cannot sell FTC for the treatment of HBV in the United States unless the BioChem
Pharma patent is held invalid by a United States court or administrative body or
unless the Company obtains a license from BioChem Pharma. There can be no
assurance that the Company would be able to obtain such a license on acceptable
terms or at all. In July 1991, BioChem Pharma was issued a United States patent
on the use of 3TC to treat HBV and has corresponding patent applications pending
or issued in foreign countries. If it is determined that the use of FTC to treat
HBV is not substantially different from the use of 3TC to treat HBV, a court
could hold that the use of FTC to treat HBV infringes these BioChem Pharma 3TC
patents.
In addition, BioChem Pharma has filed in the United States and foreign
countries several patent applications on manufacturing methods relating to a
class of nucleosides that includes FTC, from which several patents have issued
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in the United States and many foreign countries. If the Company uses a
manufacturing method that is covered by patents issued on any of these
applications, the Company would not be able to manufacture FTC without a license
from BioChem Pharma. There can be no assurance that the Company would be able to
obtain such a license on acceptable terms or at all.
DAPD
The Company obtained its rights to DAPD under a license from Emory and
UGARF. The DAPD portfolio licensed to the Company consists of three issued
United States patents and several United States and foreign patent applications
that cover a method for the synthesis of DAPD and its use to treat HIV and HBV.
Emory and UGARF filed patent applications claiming these inventions in the
United States in 1990 and 1992. BioChem Pharma filed a patent application in the
United States in 1988 on a group of nucleosides in the same general class as
DAPD and their use to treat HIV, and has filed corresponding patent applications
in foreign countries. The PTO issued a patent to BioChem Pharma in 1993 covering
a class of nucleosides that includes DAPD and its use to treat HIV.
Corresponding patents have been issued to BioChem Pharma in many foreign
countries. Emory has filed an opposition to BioChem Pharma's granted patent
application in the European Patent Office based, in part, upon Emory's assertion
that BioChem Pharma's patent does not disclose how to make DAPD, and Emory has
informed the Company that Emory intends to challenge BioChem Pharma's patents
and patent applications in other countries. Patent claims granted to Emory on a
portion of the DAPD technology by the Australian Patent Office have been opposed
by BioChem Pharma. There can be no assurance that a court or administrative body
would invalidate BioChem Pharma's patent claims or that a sale of DAPD by the
Company would not infringe BioChem Pharma's patents. If Emory, UGARF and the
Company do not challenge, or are not successful in any challenge to, BioChem
Pharma's issued patents or pending patent applications (or patents that may
issue as a result of such applications), the Company will not be able to
manufacture, use or sell DAPD in the United States and any foreign countries in
which BioChem Pharma receives a patent without a license from BioChem Pharma.
There can be no assurance that the Company would be able to obtain such a
license from BioChem Pharma on acceptable terms or at all.
CS-92
The Company obtained its rights to CS-92 under a license from Emory and
UGARF. Emory and UGARF have obtained two United States patents that cover CS-92
and its use to treat HIV and have filed a European patent application and a
Japanese patent application with claims limited to the use of CS-92 as a method
for administering AZT, which includes the administration of CS-92 as a precursor
form of AZT, to treat HIV infection. Burroughs Wellcome filed an application
with the European Patent Office in September 1986 directed to a broad group of
nucleosides that includes CS-92 and AZT, and their use to treat HIV infection.
Burroughs Wellcome subsequently filed similar applications in other countries,
including the United States. Patents have been issued to Burroughs Wellcome in
certain countries based upon these patent applications. Glaxo now has the rights
to these patents and patent applications. There can be no assurance that, if
challenged, a court would uphold the Emory/UGARF patents in light of the
disclosures contained in the earlier filed Burroughs Wellcome patent
applications. If the use of CS-92 is found to infringe patents owned by Glaxo,
then the Company would not have the right to sell CS-92 in one or more countries
without a license from Glaxo. There can be no assurance that the Company would
be able to obtain such a license from Glaxo on acceptable terms or at all.
With respect to any of the Company's drug candidates, litigation and
interference proceedings declared by the PTO, including the currently pending
proceedings, could result in substantial cost to the Company. The Company
expects the costs of the currently pending interference proceedings to increase
significantly during the next several years. The Company anticipates that
additional litigation and/or patent interference or opposition proceedings will
be necessary or may be initiated by the Company's licensors or by third parties
to enforce any patents to which the Company has rights or to determine the
scope, validity and enforceability of other parties' proprietary rights and the
priority of an invention, any of which could result in substantial costs and/or
delays to the Company. The outcome of any of these proceedings may affect the
Company's drug candidates and technology. United States patents carry a
presumption of validity and generally can be invalidated only through clear and
convincing evidence. As indicated above, two interferences have already been
declared by the PTO in connection with the FTC technology. There can
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be no assurance that the Company's licensed patents would be held valid by a
court or administrative body or that an alleged infringer would be found to be
infringing. Further, with respect to the drug candidates licensed or optioned by
the Company from Emory, UGARF, the Regents, DuPont Merck and Mitsubishi, each of
these licensors is primarily responsible for any patent prosecution activities
for the technology licensed to the Company, such as litigation, interference,
opposition or other actions and, except for litigation expenses incurred by
DuPont Merck and all patent prosecution expenses incurred by Mitsubishi, the
Company is required to reimburse these licensors for the costs they incur in
performing these activities. Similarly, Yale and UGARF, the licensors of L-FMAU
to Bukwang, are primarily responsible for patent prosecution activities with
respect to L-FMAU at the Company's expense. As a result, the Company generally
does not have the ability to institute or determine the conduct of any such
patent proceedings unless Emory, UGARF, the Regents, DuPont Merck, Mitsubishi
and/or Yale do not elect to institute or elect to abandon such proceedings. In
cases where Emory, UGARF, the Regents, DuPont Merck, Mitsubishi and/or Yale
elect to institute and prosecute patent proceedings, the Company's rights will
be dependent in part upon the manner in which these licensors conduct the
proceedings. These licensors could, in any proceedings they elect to initiate
and maintain, decide not to vigorously pursue or defend or to settle such
proceedings on terms that are not favorable to the Company. An adverse outcome
in any patent litigation or interference proceeding could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company to cease using such technology, any of
which could have a material adverse effect on the Company. Moreover, the mere
uncertainty resulting from the initiation and continuation of any technology
related litigation or interference proceeding could have a material adverse
effect on the Company pending resolution of the disputed matters.
The Company also relies on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants and others. There can be
no assurance that these agreements will not be breached or terminated, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently discovered by
competitors. The Company relies on certain technologies to which it does not
have exclusive rights or which may not be patentable or proprietary and thus may
be available to competitors. The Company has filed an application for but has
not obtained a trademark registration with respect to its corporate name and its
logo. The Company is aware that several other companies use trade names that are
similar to the Company's for their businesses. If the Company is not able to
obtain any licenses that may be necessary for the Company to use its corporate
name, it may be required to change its corporate name. The Company's management
personnel were previously employed by other pharmaceutical companies. In many
cases, these individuals are conducting drug development activities for the
Company in areas similar to those in which they were involved prior to joining
the Company. As a result, the Company, as well as these individuals, could be
subject to allegations of violation of trade secrets and other similar claims.
See "--Patents and Proprietary Rights."
Extensive Government Regulation; No Assurance of Regulatory Approval
Human pharmaceutical products are subject to rigorous preclinical testing
and clinical trials and other approval procedures mandated by the FDA and
foreign regulatory authorities. Various federal and foreign statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping, reporting and marketing of pharmaceutical products. The
process of obtaining these approvals and the subsequent compliance with
appropriate United States and foreign statutes and regulations are time
consuming and require the expenditure of substantial resources. In addition,
these requirements and processes vary widely from country to country. The time
required for completing preclinical testing and clinical trials and obtaining
regulatory approvals is uncertain. The Company may decide to replace a drug
candidate in preclinical testing and/or clinical trials with a modified drug
candidate, thus extending the development period. In addition, the FDA or
similar foreign regulatory authorities may require additional clinical trials,
which could result in increased costs and significant development delays. Delays
or rejections may also be encountered based upon changes in FDA policy during
the period of product development and FDA review. Similar delays or rejections
may be encountered in other countries. The Company's drug candidates may not
qualify for accelerated development and/or approval under FDA regulations and,
even if some of the Company's drug candidates qualify for accelerated
development and/or approval, they may not be approved for marketing sooner than
would be historically expected or at all. There can be no assurance that even
after substantial time and expenditures, any of the Company's drug candidates
under development will receive marketing approval in any country on a timely
basis or at
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all. If the Company is unable to demonstrate the safety and effectiveness of its
drug candidates to the satisfaction of the FDA or foreign regulatory
authorities, the Company will be unable to commercialize its drug candidates and
would be materially adversely affected. Further, even if regulatory approval of
a drug candidate is obtained, the approval may entail limitations on the
indicated uses for which the drug candidate may be marketed. A marketed product,
its manufacturer and the manufacturer's facilities are subject to continual
review and periodic inspections, and subsequent discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market. The failure to comply with applicable regulatory requirements can, among
other things, result in fines, suspension of regulatory approvals, refusal to
approve pending applications, refusal to permit exports from the United States,
product recalls, seizure of products, injunctions, operating restrictions and
criminal prosecutions. Further, the FDA and/or foreign regulatory authorities
may adopt policy changes or additional government regulations that could prevent
or delay regulatory approval of the Company's drug candidates.
The effect of governmental regulation may be to delay the marketing of new
products for a considerable period of time or to prevent such marketing
altogether, to impose costly requirements on the Company's activities or to
provide a competitive advantage to other companies that compete with the
Company. Adverse clinical results by others could have a negative impact on the
regulatory process and timing with respect to the development and approval of
the Company's drug candidates. A delay in obtaining or failure to obtain
regulatory approvals for any of the Company's drug candidates could have a
material adverse effect on the Company. To the extent that the Company's drug
candidates are intended for use as coactive therapy with one or more other
drugs, adverse safety, effectiveness or regulatory developments in connection
with such other drugs may also have a material adverse effect on the Company.
The extent and character of potentially adverse governmental regulation that may
arise from future legislation or administrative action cannot be predicted.
The Company is also subject to various federal, state and local laws and
regulations relating to safe working conditions, laboratory and manufacturing
practices, the experimental use of animals and the use and disposal of hazardous
or potentially hazardous substances, including radioactive compounds and
infectious disease agents, used in connection with its development work. See
"--Government Regulation."
Intense Competition; Risk of Technological Change
The Company is engaged in segments of the pharmaceutical industry that are
highly competitive and rapidly changing. If successfully developed and approved,
the drug candidates that the Company is currently developing will compete with
numerous existing therapies. In addition, a number of companies are pursuing the
development of novel pharmaceuticals that target the same diseases the Company
is targeting. The Company believes that a significant number of drugs are
currently under development and will become available in the future for the
treatment of HIV, HBV and cancer. The Company anticipates that it will face
intense and increasing competition in the future as new products enter the
market and advanced technologies become available. There can be no assurance
that any products that are successfully developed by the Company will be more
effective, or more effectively marketed and sold, than any products that may be
developed by the Company's competitors. Competitive products may render the
Company's licensed technology and products obsolete or noncompetitive prior to
the Company's recovery of development or commercialization expenses incurred
with respect to any such products. The development by others of a cure or new
treatment methods for the indications for which the Company is developing drug
candidates could render the Company's drug candidates noncompetitive, obsolete
or uneconomical. Many of the Company's competitors have significantly greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture and market products. Many of these companies
also have extensive experience in preclinical testing and clinical trials,
obtaining FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. Many of these competitors also have products that have
been approved or are in late stage development and operate large, well funded
research and development programs. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are more actively seeking to commercialize the technology they
have developed.
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If the Company's drug candidates are successfully developed and approved,
the Company will face competition based on the safety and effectiveness of its
products, the timing and scope of regulatory approvals, the availability of
supply, marketing and sales capability, reimbursement coverage, price, patent
position and other factors. There can be no assurance that the Company's
competitors will not develop or commercialize more effective or more affordable
technology or products, or obtain more effective patent protection, than the
Company. Accordingly, the Company's competitors may succeed in commercializing
products more rapidly or effectively than the Company, which could have a
material adverse effect on the Company. See "--Competition."
Risks Related to License and Option Agreements
The agreements pursuant to which the Company has in-licensed or obtained
an option to in-license its drug candidates permit the Company's licensors to
terminate the agreements under certain circumstances, such as the failure by the
Company to achieve certain development milestones or the occurrence of an
uncured material breach by the Company. The termination of any of these
agreements could have a material adverse effect on the Company. Upon termination
of the license agreements with Emory, UGARF and Bukwang, the Company is required
to grant to Emory, UGARF and Bukwang a non-exclusive, royalty free license to
all of the Company's interest in the licensed technology (including any
improvements to the technology developed by the Company). Upon termination of
the license agreement with DuPont Merck, the Company is required to transfer all
approved and pending New Drug Applications ("NDAs") relating to DMP-450 to
DuPont Merck. In addition, the license and option agreements with Emory, UGARF,
the Regents, DuPont Merck and Mitsubishi provide that each of these licensors is
primarily responsible for any patent prosecution activities for the technology
licensed to the Company, such as litigation, interference, opposition or other
actions and, except for litigation expenses incurred by DuPont Merck and all
patent prosecution expenses incurred by Mitsubishi, the Company is required to
reimburse these licensors for the costs they incur in performing these
activities. Similarly, Yale and UGARF, the licensors of L-FMAU to Bukwang, are
primarily responsible for patent prosecution activities with respect to L-FMAU
at the Company's expense. The Company believes that these costs as well as other
costs under the license and option agreements relating to the Company's drug
candidates will be substantial and may increase significantly during the next
several years, and any inability or failure of the Company to pay these costs
with respect to any drug candidate could result in the termination of the
license or option agreement for such drug candidate, which could have a material
adverse effect on the Company. See "--License, Option and Other Material
Agreements."
Lack of Manufacturing Capabilities
The Company does not have any manufacturing capacity and relies on third
party manufacturers for the manufacture of all of its clinical trial material.
The Company currently plans to expand its existing relationships or to seek to
establish relationships with additional third party manufacturers for the
commercial production of any products it may develop. There can be no assurance
that the Company will be able to establish or maintain relationships with third
party manufacturers on commercially acceptable terms or that third party
manufacturers will be able to manufacture products in commercial quantities
under applicable GMP regulations of the FDA on a cost effective basis. The
Company's dependence upon third parties for the manufacture of its products may
adversely affect the Company's profit margins and its ability to develop and
commercialize products on a timely and competitive basis. Further, there can be
no assurance that manufacturing or quality control problems will not arise in
connection with the manufacture of the Company's products or that third party
manufacturers will be able to maintain the necessary governmental licenses and
approvals to continue manufacturing the Company's products. Any failure to
establish or maintain relationships with third parties for its manufacturing
requirements on commercially acceptable terms would have a material adverse
effect on the Company. See "--Manufacturing" and "--Government Regulation."
Lack of Sales and Marketing Capabilities
The Company currently has only two marketing employees and no sales
personnel. The Company will have to develop a sales force or rely on marketing
partners or other arrangements with third parties for the marketing,
distribution and sale of any products it develops. The Company currently intends
to market in the United States most of the drug candidates that it successfully
develops primarily through a direct sales force and outside the United States
through a combination of a direct sales force and arrangements with third
parties. There can be no assurance that the
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Company will be able to establish marketing, distribution or sales capabilities
or make arrangements with third parties to perform those activities on terms
satisfactory to the Company or that any internal capabilities or third party
arrangements will be cost effective.
In addition, any third parties with whom the Company establishes
marketing, distribution or sales arrangements may have significant control over
important aspects of the commercialization of the Company's products, including
market identification, marketing methods, pricing, composition of sales force
and promotional activities. There can be no assurance that the Company will be
able to control the amount and timing of resources that any third party may
devote to the Company's products or prevent any third party from pursuing
alternative technologies or products that could result in the development of
products that compete with the Company's products and the withdrawal of support
for the Company's programs. See "--Sales and Marketing."
Dependence on Third Parties for Development and Acquisition of Drug Candidates
The Company intends to engage third party contract research organizations
("CROs") to perform certain functions in connection with the development of the
Company's drug candidates. The Company intends to design clinical trials, but
have CROs conduct the clinical trials. The Company will rely on the CROs to
perform many important aspects of clinical trials. As a result, these aspects of
the Company's drug development programs will be outside the direct control of
the Company. In addition, there can be no assurance that the CROs or other third
parties will perform all of their obligations under arrangements with the
Company. In the event that the CROs or other third parties do not perform
clinical trials in a satisfactory manner or breach their obligations to the
Company, the development and commercialization of any drug candidate may be
delayed or precluded, which would have a material adverse effect on the Company.
The Company does not intend to engage in drug discovery. The Company's strategy
for obtaining additional drug candidates is to utilize the relationships of its
management team and Scientific Advisory Board to identify drug candidates for
in-licensing from companies, universities, research institutions and other
organizations. There can be no assurance that the Company will succeed in
acquiring additional drug candidates on acceptable terms or at all. See
"--Strategy."
Dependence on Key Employees
The Company is highly dependent on its senior management and scientific
staff, including Dr. David Barry, the Company's Chairman and Chief Executive
Officer. Except for Dr. Barry, the Company has not entered into non-competition
agreements with any of its personnel. The loss of the services of any member of
its senior management or scientific staff may significantly delay or prevent the
achievement of product development and other business objectives. Retaining and
attracting qualified personnel, consultants and advisors is critical to the
Company's success. In order to pursue its drug development programs and
marketing plans, the Company will be required to hire additional qualified
scientific and management personnel. Competition for qualified individuals is
intense and the Company faces competition from numerous pharmaceutical and
biotechnology companies, universities and other research institutions. There can
be no assurance that the Company will be able to attract and retain such
individuals on acceptable terms or at all, and the failure to do so would have a
material adverse effect on the Company. In addition, the Company relies on
members of its Scientific Advisory Board to assist the Company in formulating
its drug development strategy. All of the members of the Scientific Advisory
Board are employed by other employers and each such member may have commitments
to, or consulting or advisory contracts with, other entities that may limit his
availability to the Company.
Uncertainty of Health Care Reform Measures and Third Party Reimbursement
The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third party payors to
contain or reduce the cost of health care through various means. A number of
legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. In addition, an increasing emphasis on
managed care in the United States has and will continue to increase pressure on
pharmaceutical pricing. While the Company cannot predict whether legislative or
regulatory proposals will be adopted or what effect those proposals or managed
care efforts may have on its business, the announcement and/or adoption of such
proposals or efforts could have a material adverse effect on the Company. In the
United States and elsewhere, sales
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of prescription pharmaceuticals are dependent in whole or in part on the
availability of reimbursement to the consumer from third party payors, such as
government and private insurance plans, and these third party payors frequently
mandate predetermined discounts from list prices. Third party payors are
increasingly challenging the prices charged for medical products and services.
If the Company succeeds in bringing one or more products to the market, there
can be no assurance that these products will be considered cost effective or
that reimbursement to the consumer will be available or will be sufficient to
allow the Company to sell its products on a competitive basis. See "--Health
Care Reform Measures and Third Party Reimbursement."
No Assurance of Market Acceptance
The Company's success will depend in substantial part on the extent to
which any product it develops achieves market acceptance. The degree of market
acceptance will depend upon a number of factors, including the receipt and scope
of regulatory approvals, the establishment and demonstration in the medical
community of the safety and effectiveness of the Company's products and their
potential advantages over existing treatment methods, and reimbursement policies
of government and third party payors. There can be no assurance that physicians,
patients, payors or the medical community in general will accept or utilize any
product that the Company may develop.
Risks Relating to Coactive Therapy
The Company's success will also depend in large part on the extent to
which coactive therapy for the treatment of HIV in the United States and Europe
and for the treatment of HBV in developing areas of the world, particularly
Asia, achieves market acceptance. Present coactive treatment regimens for the
treatment of HIV are expensive (published reports indicate the cost per patient
per year can exceed $13,000), and may increase as new combinations are
developed. These costs have resulted in limitations in the reimbursement
available from third party payors for the treatment of HIV infection, and the
Company expects that reimbursement pressures will continue in the future. If
coactive therapy is accepted as a method to treat HBV infection, treatment
regimens are also likely to be expensive. The Company expects that even the cost
of monotherapy for HBV will be considered expensive in developing countries
where HBV is most prevalent. Any failure of coactive therapy to achieve
significant market acceptance for the treatment of HIV or potentially HBV could
have a material adverse effect on the Company.
Limited Product Liability Insurance; Insurance Risks
The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. There can be no assurance that product liability claims will not be
asserted against the Company. The Company currently has only limited product
liability insurance relating to potential claims arising from its clinical
trials. The Company intends to expand its insurance coverage if and when the
Company begins marketing commercial products. There can be no assurance,
however, that the Company will be able to obtain any additional product
liability insurance on commercially acceptable terms or that the Company will be
able to maintain its existing insurance and/or any additional insurance it may
obtain in the future at a reasonable cost or in sufficient amounts to protect
the Company against potential losses. A successful product liability claim or
series of claims brought against the Company could have a material adverse
effect on the Company.
Hazardous Materials
The Company's drug development programs involve the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages or fines that result and any such liability could exceed the
resources of the Company. See "--Government Regulation."
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Concentration of Stock Ownership; Control by Management and Existing
Stockholders
As of January 31, 1998, the Company's directors, executive officers and
their respective affiliates beneficially owned approximately 44.2% of the
Company's outstanding Common Stock. As a result, these stockholders will be able
to exercise significant influence over all matters requiring stockholder
approval, including the election of directors and the approval of significant
corporate transactions. Such concentration of ownership may also have the effect
of delaying or preventing a change in control of the Company that may be favored
by other stockholders.
Volatility of Stock Price
The market price of the Company's Common Stock is likely to be volatile
and could be subject to wide fluctuations in response to factors such as
announcements of the results of clinical trials, developments with respect to
patents or proprietary rights, announcements of technological innovations, new
products or new contracts by the Company or its competitors, actual or
anticipated variations in the Company's operating results due to a number of
factors including, among others, the level of development expenses, changes in
financial estimates by securities analysts, conditions and trends in the
pharmaceutical and other industries, adoption of new accounting standards
affecting the industry, general market conditions and other factors. As a
result, it is possible that the Company's operating results will be below the
expectations of market analysts and investors, which could have a material
adverse effect on the prevailing market price of the Common Stock.
Further, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many pharmaceutical and biotechnology companies and that often
have been unrelated or disproportionate to the operating performance of such
companies. These market fluctuations, as well as general economic, political and
market conditions such as recessions or international currency fluctuations, may
adversely affect the market price of the Common Stock. In the past, following
periods of volatility in the market price of the securities of companies in the
pharmaceutical and biotechnology industries, securities class action litigation
has often been instituted against those companies. Such litigation, if
instituted against the Company, could result in substantial costs and a
diversion of management attention and resources, which would have a material
adverse effect on the Company. The realization of any of the risks described in
these "Risks and Uncertainties" could have a dramatic and adverse impact on the
market price of the Common Stock.
Antitakeover Effects of Charter, Bylaws and Delaware Law
The Company's Second Restated Certificate of Incorporation (the
"Certificate") authorizes the Company's Board of Directors (the "Board") to
issue shares of undesignated preferred stock without stockholder approval on
such terms as the Board may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any such preferred stock that may be issued in the future. Moreover, the
issuance of such preferred stock may make it more difficult for a third party to
acquire, or may discourage a third party from acquiring, a majority of the
voting stock of the Company. The Company's Restated Bylaws (the "Bylaws") divide
the Board into three classes of directors with each class serving a three year
term. These and other provisions of the Certificate and the Bylaws, as well as
certain provisions of Delaware law, could delay or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving the Company, even if such events could be beneficial to
the interest of the Company's stockholders. Such provisions could limit the
price that certain investors might be willing to pay in the future for the
Common Stock.
No Dividends
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently does not intend to pay any cash dividends in the
foreseeable future and intends to retain its earnings, if any, for the operation
of its business.
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Special Note Regarding Forward-Looking Statements
Statements in this Annual Report on Form 10-K regarding the dates on which
the Company anticipates commencing clinical trials with its drug candidates and
anticipated developments in the market for anti-HIV drugs constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended. The statements are subject to
certain risks and uncertainties that could cause the actual timing of such
clinical trials and developments in the market for anti-HIV drugs to differ
materially from those projected. With respect to the dates on which the Company
anticipates commencing clinical trials, management has made certain assumptions
regarding, among other things, the successful and timely completion of
preclinical tests, the approval to conduct clinical trials by the FDA or other
regulatory authorities, the availability of adequate supplies of drug substance,
the pace of patient enrollment and the availability of capital resources
necessary to complete preclinical tests and to conduct clinical trials. With
respect to future developments in the market for anti-HIV drugs, management's
assumptions include, among other things, that the number of individuals infected
with HIV will continue to increase, that current therapies will continue to have
only limited effectiveness in controlling the virus, and that additional drugs
with improved safety and effectiveness will be developed. The Company's ability
to commence clinical trials on the dates anticipated and developments in the
market for anti-HIV drugs are subject to numerous risks, including the risks
discussed under the caption "Risks and Uncertainties" contained herein. Undue
reliance should not be placed on the dates on which the Company anticipates
commencing clinical trials with respect to any of its drug candidates or
anticipated increases in the market for anti-HIV drugs. These estimates are
based on the current expectations of the Company's management which may change
in the future due to a large number of potential events, including unanticipated
future developments.
Item 2. Properties
As of January 31, 1998, the Company occupied an approximately 35,000
square foot administrative office, laboratory and pilot manufacturing facility
in Durham, North Carolina pursuant to a lease that continues through September
2003. Under the terms of the lease, the Company will occupy approximately 17,000
square feet of additional space beginning in August 1998. The Company believes
its facilities will be adequate to meet its needs through the end of 1998.
Item 3. Legal Proceedings
From time to time, Triangle may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of the
date of this Annual Report on Form 10-K, the Company is not a party to any legal
proceedings. Emory, from which the Company has licensed several of its drug
candidates, including FTC, is a party to several interference and opposition
proceedings and one lawsuit in Australia regarding certain of the patents and
patent applications related to these drug candidates. There can be no assurance
that Emory will prevail in any of these proceedings and any significant adverse
development with respect to Emory's claims could have a material adverse effect
on the Company and its ability to commercialize these drug candidates. In
addition, the Company is obligated to reimburse Emory for certain expenses
related to these proceedings and these expenses could be substantial. See "Item
1. Business--Risks and Uncertainties--Uncertainty of Patents; Dependence on
Patents, Licenses and Proprietary Rights" and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations." See also note 11
to notes to consolidated financial statements included in Item 8 of this Annual
Report on Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-39-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and related Stockholder Matters
(a) Market Price of and Dividends on the Registrant's Common Equity.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "VIRS." The following table sets forth the high and low sale prices
for the Common Stock on the Nasdaq National Market from its initial public
offering on November 1, 1996, through March 5, 1998.
High Low
------ ------
Year Ended December 31, 1996:
4th Quarter (November 1 through December 31) .... $24.25 $10.00
Year Ended December 31, 1997:
1st Quarter ..................................... $24.00 $15.00
2nd Quarter ..................................... 26.44 14.75
3rd Quarter ..................................... 24.00 18.13
4th Quarter ..................................... 19.50 14.63
Year Ended December 31, 1998:
1st Quarter (through March 5) ................... $21.13 $14.63
On March 5, 1998, the last reported sale price of the Common Stock was
$17.00 per share. As of January 31, 1998, there were approximately 215 holders
of record, and approximately 1,700 beneficial holders, of the Company's Common
Stock. The Company has never declared or paid any cash dividends on its capital
stock. The Company currently does not intend to pay any cash dividends in the
foreseeable future and intends to retain its earnings, if any, for the operation
of its business.
(b) Change in Securities and Use of Proceeds
The effective date of the Company's first registration statement (the
"Registration Statement") filed on Form S-1 (Registration No. 333-11793) under
the Securities Act was October 31, 1996. The class of securities registered was
Common Stock. The offering commenced on November 1, 1996, and all securities
were sold in the offering. The managing underwriters for the offering were
Dillon, Read & Co. Inc. and Bear, Stearns & Co. Inc.
Pursuant to the Registration Statement, the Company registered 4,830,000
and sold 4,532,652 shares of Common Stock at $10.00 per share raising aggregate
proceeds from the offering of approximately $45.3 million.
The Company incurred total expenses in the offering of approximately $4.3
million, of which $3.2 million represented underwriting discounts and
commissions and $1.1 million represented other expenses. All of such expenses
were direct or indirect payments to others. The net offering proceeds to the
Company after deducting the total expenses were approximately $41.0 million.
From the effective date of the Registration Statement to December 31,
1997, the approximate amount of net offering proceeds used were primarily: $24.0
million for development expenses, $3.1 million for purchased research and
development in connection with the acquisition of Avid, $0.6 million for the
payment of license fees in connection with certain license agreements, $7.8
million for general and administrative expenses, $2.3 million for purchase of
property, plant and equipment and the remainder for increases in working
capital. All of such payments were direct or indirect payments to others. The
actual use of proceeds from the offering does not represent a material change in
the use of proceeds described in the prospectus which is part of the
Registration Statement.
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<PAGE>
Item 6. Selected Financial Data
The selected consolidated statement of operations data with respect to the
years ended December 31, 1997 and 1996, and with respect to the period from
inception (July 12, 1995) through December 31, 1995, and the consolidated
balance sheet data at December 31, 1997 and 1996, set forth below are derived
from the consolidated financial statements of the Company included in Item 8
below, which have been audited by Price Waterhouse LLP, independent accountants.
The consolidated balance sheet data at December 31, 1995, set forth below is
derived from the consolidated financial statements of the Company which are
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, which has been audited by Price Waterhouse LLP, independent
accountants. The selected consolidated financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 below, and the
Company's consolidated financial statements and the notes thereto contained in
Item 8 below. Historical results are not necessarily indicative of future
results of operations.
<TABLE>
<CAPTION>
Period From
Inception
(July 12, 1995)
Year Ended December 31, Through
----------------------- December 31,
1997 1996 1995
-------- ----------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Statement of Operations Data:
Operating expenses:
License fees ............................... $ 610 $ 3,267 $ --
Development ................................ 22,240 4,967 --
Purchased research and development (1) ..... 11,261 -- --
General and administrative ................. 7,071 3,558 1,004
-------- -------- --------
Loss from operations .......................... (41,182) (11,792) (1,004)
Interest income, net .......................... 3,514 875 37
-------- -------- --------
Net loss ...................................... $(37,668) $(10,917) $ (967)
======== ======== ========
Basic and diluted net loss per common share (2) $ (2.00) $ (1.89) $ (0.60)
======== ======== ========
Shares used in computing net loss per common
share (2) ..................................... 18,871 5,784 1,624
======== ======== ========
December 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
Balance Sheet Data:
Cash and cash equivalents ..................... $ 34,698 $ 25,255 $ 3,082
Working capital (3) ........................... 50,247 41,349 2,868
Investments ................................... 23,098 27,946 --
Total assets .................................. 61,878 55,495 3,102
Capital lease obligation - noncurrent ......... 300 364 --
Long-term debt ................................ 178 -- --
Accumulated deficit during development stage .. (49,552) (11,884) (967)
Total stockholders' equity .................... 52,717 52,656 2,888
</TABLE>
- ----------
(1) See note 10 of notes to consolidated financial statements for information
concerning the Company's acquisition of Avid on August 28, 1997. As a
result of the acquisition, the Company recorded an in-process research and
development charge of $11.3 million in the Company's 1997 consolidated
financial statements. The operating results of Avid have been included in
the Company's consolidated financial statements from the date of the
acquisition.
(2) See note 1 of notes to consolidated financial statements for information
concerning the computation of net loss per common share and shares used in
computing net loss per common share.
(3) Working capital represents the difference between the Company's current
assets and current liabilities.
-41-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report on Form 10-K may contain certain projections, estimates
and other forward-looking statements that involve a number of risks and
uncertainties, including those discussed above at "Item 1. Business--Risks and
Uncertainties" and "Item 1. Business--Risks and Uncertainties-Special Note
Regarding Forward Looking Statements." While this outlook represents
management's current judgment on the future direction of the business, such
risks and uncertainties could cause actual results to differ materially from any
future performance suggested below. The Company undertakes no obligation to
release publicly the results of any revisions to these forward-looking
statements to reflect events or circumstances arising after the date hereof.
Overview
Triangle is engaged in the development of new drug candidates primarily in
the antiviral area. Since its inception on July 12, 1995, the Company's
operating activities have related primarily to recruiting personnel, negotiating
license and option arrangements for its drug candidates, raising capital and
developing its drug candidates. The Company has not received any revenues from
the sale of products and does not expect any of its drug candidates to be
commercially available until at least the year 2000. As of December 31, 1997,
the Company's accumulated deficit was approximately $49.6 million and the
Company had utilized approximately $40.0 million of cash.
The Company's drug development programs require substantial capital
expenditures, including expenditures for preclinical testing, chemical synthetic
scale-up, manufacture of drug substance for clinical trials and toxicology
studies, clinical trials of drug candidates and payments to the Company's
licensors. The Company has been unprofitable since its inception and expects to
incur substantial and increasing losses for at least the next several years, due
primarily to the expansion of its drug development programs. The Company will
also require substantial capital expenditures relating to activities many of
which may need to occur prior to, and in anticipation of, the potential
regulatory approval of its drug candidates, including expenditures associated
with the establishment of a sales and marketing organization, the manufacture of
drug substance, the development of a distribution system with outside vendors
and other administrative expenditures necessary to support the Company. Many of
these capital expenditures may be incurred irrespective of whether the Company's
drug candidates are approved when anticipated or at all. The Company expects
that losses will fluctuate from period to period and that such fluctuations may
be substantial. See "Item 1. Business--Risks and Uncertainties--History of
Operating Losses; Accumulated Deficit; Uncertainty of Future Profitability."
The Company has only a limited operating history upon which an evaluation
of the Company and its prospects can be based. The risks, expenses and
difficulties encountered by companies at an early stage of development must be
considered when evaluating the Company's prospects. To address these risks, the
Company must, among other things, successfully develop and commercialize its
drug candidates, secure all necessary proprietary rights, respond to competitive
developments and continue to attract, retain and motivate qualified personnel.
There can be no assurance that the Company will be successful in addressing
these risks. See "Item 1. Business--Risks and Uncertainties--Development Stage
Company; Uncertainty of Product Development."
The operating expenses of the Company will depend on several factors,
including the level of development expenses and the potential commercialization
of its drug candidates. Development expenses will depend on the progress and
results of the Company's drug development efforts, which the Company cannot
predict. Management may in some cases be able to control the timing of
development expenses in part by accelerating or decelerating preclinical testing
and clinical trial activities. The level of expenses relating to the
establishment of a sales and marketing organization, the manufacture of drug
substance, the development of a distribution system with outside vendors and
other administrative expenditures will depend on the success of the development
of the Company's drug candidates; however, many of these capital expenditures
may be incurred irrespective of whether the Company's drug candidates are
approved when anticipated or at all. As a result of these factors, the Company
believes that period to period comparisons are not necessarily meaningful and
should not be relied upon as an indication of future performance. Due to all of
the foregoing factors, it is possible that the Company's operating results will
be below the expectations of market analysts and investors. In such event, the
prevailing market price of the Common Stock could be materially adversely
affected. See "Item 1. Business--Risks and Uncertainties--Volatility of Stock
Price."
-42-
<PAGE>
Results of Operations
Avid Corporation Acquisition
On August 28, 1997 (the "Acquisition Date"), the Company acquired Avid.
Pursuant to the merger agreement, Triangle issued 400,000 shares of Common Stock
in exchange for all outstanding capital stock of Avid. Triangle also agreed to
issue up to 2,100,000 additional shares of Common Stock, the issuance of
1,600,000 shares of which is contingent upon Triangle initiating pivotal Phase
II clinical trials with DMP-450 before February 28, 1999, or electing on or
before that date to continue the development of DMP-450 even if such clinical
trials have not been initiated. The issuance of the remaining 500,000 shares is
contingent upon the attainment of other development milestones with DMP-450 or
one of Avid's other compounds. Issuance of any of these contingent shares will
be recorded as additional purchase price and will be allocated upon resolution
of the underlying contingency. The 400,000 shares issued had an aggregate fair
market value of approximately $8.1 million and direct transaction costs were
approximately $1.1 million, primarily comprised of investment banking and legal
fees. The total purchase price of $9.2 million has been allocated to the assets
purchased and liabilities assumed based on their respective fair market values.
In connection with the acquisition, the Company incurred a charge of $11.3
million in the third quarter of 1997 for acquired in-process research and
development as it assumed operating and other liabilities of Avid totaling
approximately $1.3 million and certain development liabilities totaling
approximately $1.0 million. The merger was accounted for as a purchase and the
operating results of Avid have been included in the Company's consolidated
financial statements from the Acquisition Date.
Avid's principal assets consist of worldwide license rights to DMP-450, a
protease inhibitor, for the treatment of HIV infection, early preclinical stage
compounds for the treatment of HBV infection, proprietary assays to screen
compounds for the treatment of HBV and assay technology for potential use in
screening compounds for the treatment of hepatitis C virus infection.
Interest Income, Net
The Company had total net interest income of $3.5 million in 1997,
compared to $875,000 in 1996 and $37,000 in the period from inception (July 12,
1995) through December 31, 1995 (the "Inception Period"). The increase in
interest income in 1997 compared to 1996 and the Inception Period is due
primarily to an increase in investments associated with financing activities.
See "--Liquidity and Capital Resources."
License Fees
License fees totaled $610,000 in 1997, compared to $3.3 million in 1996.
The decrease relates to the decrease in the number of license agreements
executed in 1997 as compared to 1996, and the achievement by the Company of
certain financing milestones in 1996. All license fees incurred to date are
related to the execution of license agreements and the achievement by the
Company of certain financing milestones. The Company recorded no license fees in
the Inception Period. Future license fees may also consist of milestone payments
under licensing arrangements, the amount of which could be substantial and the
timing of which will depend on a number of factors that the Company cannot
predict. These factors include, among others, the success of the Company's drug
development programs and the extent to which the Company in-licenses additional
drug candidates. See "--Liquidity and Capital Resources."
Development Expenses
Development expenses totaled $22.2 million in 1997, compared to $5.0
million in 1996. Development expenses in 1997 consisted primarily of expenses
for drug synthesis, clinical trials, toxicology studies, compensation, and
preclinical testing and patent related activities of the Company's drug
candidates. The significant increase in development expenses in 1997 compared to
1996 is due primarily to the expansion of the Company's development activities
for its drug candidates. During 1997 and 1996, development expenses were reduced
by approximately $1.2 million and $832,000, respectively, relating to the
reimbursement of certain development expenses under a license agreement for one
of the Company's drug candidates. No development expenses were incurred in the
Inception Period.
-43-
<PAGE>
The Company expects its development expenses to increase substantially in the
future due to continued expansion of drug development activities, including
preclinical testing, toxicology studies and the manufacture of drug substance
for preclinical tests and clinical trials. In addition, if the Company
in-licenses or otherwise acquires rights to additional drug candidates,
development expenses would increase as a result. For example, the Company's
recent acquisition of a license to L-FMAU will increase the Company's
development expenses in future periods.
Purchased Research and Development Expenses
Purchased research and development expenses totaled $11.3 million in 1997,
and relate to the Company's acquisition of Avid. This amount represents a charge
for Avid's in-process research and development. If the Company initiates pivotal
Phase II clinical trials with DMP-450 before February 28, 1999, or elects on or
before that date to continue the development of DMP-450 even if such clinical
trials have not been initiated, the Company will be obligated to issue an
additional 1,600,000 shares of Common Stock. The issuance of another 500,000
shares of Common Stock is contingent upon the attainment of other development
milestones with DMP-450 or one of Avid's other compounds. Issuance of any of
these contingent shares will be recorded as additional purchase price and will
be allocated upon resolution of the underlying contingency. The amount recorded
will be the fair market value of the Common Stock issued at the time the
contingency is resolved. No purchased research and development expenses were
incurred in 1996 or in the Inception Period.
General and Administrative Expenses
General and administrative expenses totaled $7.1 million in 1997, compared
to $3.6 million and $1.0 million in 1996 and the Inception Period, respectively.
Administrative expenses in 1997 consisted primarily of compensation expenses,
rent expense and amounts paid for outside professional services. The increases
in 1997 compared to 1996 and the Inception Period are due primarily to the
growth of the Company's operations. The Company expects its general and
administrative expenses to increase significantly in future periods.
Liquidity and Capital Resources
The Company has financed its operations since inception (July 12, 1995)
through December 31, 1997, primarily with the net proceeds received from private
placements of equity securities, which provided aggregate net proceeds of
approximately $51.7 million (net of offering costs), and from the Company's
initial public offering, which was completed in November 1996 and provided
aggregate net proceeds of approximately $41.0 million (net of offering costs).
In addition, the Company received approximately $2.0 million as reimbursement of
certain development expenses under a license agreement for one of its drug
candidates.
At December 31, 1997, the Company had net working capital of $50.2
million, an increase of $8.9 million over December 31, 1996. The increase in
working capital is principally the result of a private placement of equity
securities completed by the Company in June 1997 and returns on larger cash and
investment balances. The Company's principal source of liquidity at December 31,
1997, was $34.7 million in cash and cash equivalents and $23.1 million in
investments which are "available for sale," reflecting a $4.6 million increase
of cash, cash equivalent and investment balances over December 31, 1996. The
Company utilized approximately $29.0 million in cash during 1997, primarily for
its expanded drug development activities, and has utilized approximately $40.0
million in cash since its inception on July 12, 1995.
The Company had a note payable and secured equipment lease line
obligations totaling $837,000 at December 31, 1997 ($466,000 at December 31,
1996), of which $359,000 was classified as a current liability. The note payable
was issued to finance an insurance policy over a two year period. The Company
had utilized $530,000 of the secured equipment lease line facility at December
31, 1997, which expired on August 9, 1997. The Company utilized $2.3 million in
cash in 1997, as compared to $794,000 and $23,000 in 1996 and the Inception
Period, respectively, for the purchase of property, plant and equipment,
primarily associated with the growth of the Company's laboratory operations. The
Company expects its capital expenditures to increase in future periods.
-44-
<PAGE>
In conjunction with the development of its drug candidates, the Company
outsources certain aspects of clinical trials and focuses on what it believes
are the most critical aspects of the development process. Accordingly, the
Company has entered into contractual arrangements with selected third parties
for certain aspects of its drug development. Although the commitment under these
contracts is dependent upon results of the underlying clinical and toxicology
studies, the Company's management estimates the commitment to be approximately
$3.6 million at December 31, 1997, and immaterial at December 31, 1996.
The Company expects that its capital requirements will increase
substantially in future periods as the Company funds its drug development
programs, develops a sales and marketing organization, acquires drug substance
from third party manufacturers, develops a distribution system with outside
vendors and incurs other administrative expenditures necessary to support the
Company. The Company's future capital requirements will depend on many factors,
including the progress of the Company's drug development programs, the magnitude
of these programs, the scope and results of preclinical testing and clinical
trials, the cost, timing and outcome of regulatory reviews, costs under the
license and/or option agreements relating to the Company's drug candidates
(including the costs of obtaining patent protection for the Company's drug
candidates), the timing and the terms of the acquisition of any additional drug
candidates, the rate of technological advances, determinations as to the
commercial potential of the Company's drug candidates, administrative and legal
expenses, the establishment of internal capacity and third party arrangements
for sales and marketing functions, the establishment of third party arrangements
for manufacturing and other factors. Amounts payable by the Company in the
future under its existing license agreements are uncertain due to a number of
factors, including the progress of the Company's drug development programs, the
Company's ability to obtain approval to commercialize any drug candidate and the
commercial success of any approved drug. The Company's existing license
agreements and the merger agreement with Avid, as of December 31, 1997, require
future payments of up to $43.3 million in cash and up to 2,100,000 shares of
Common Stock contingent upon the achievement of certain development milestones.
One of the Company's licensors has the option to receive $2.0 million of such
future milestone payments in shares of Common Stock (based on the then current
market price) in lieu of a cash payment. Additionally, the Company will pay
royalties based on a percentage of net sales of each licensed product
incorporating these drug candidates. Most of the Company's license agreements
require minimum royalty payments after regulatory approval. Depending on the
Company's success and timing in obtaining regulatory approval, aggregate annual
minimum royalty payments could range from $500,000 (if only a single drug
candidate is approved for one indication) to $49.5 million (if all drug
candidates are approved for all indications) under the Company's existing
license agreements.
On February 27, 1998, the Company executed a license agreement with
Bukwang for L-FMAU, the Company's eighth licensed drug candidate, for the
treatment of HBV and all other human antiviral applications. The Company paid a
license initiation fee of $6.0 million and will be required to make development
milestone payments of up to $32.5 million and sales milestone payments of up to
$30.0 million. The Company is also required to make annual minimum royalty
payments beginning the third year after FDA registration is granted for the
first licensed product. Payment of the license initiation fee resulted in the
Company incurring a $6.0 million charge in the first quarter of 1998. The
license agreement grants Triangle exclusive worldwide rights, except for Korea.
The Company will be required to meet certain milestone obligations and to
conduct and fund certain development work with respect to L-FMAU.
The Company believes that its existing cash, cash equivalents and
short-term investments will be adequate to satisfy its anticipated capital
requirements through January 1999. The Company expects that it will be required
to raise substantial additional funds through equity or debt financings,
collaborative arrangements with corporate partners or from other sources. There
can be no assurance that additional funding will be available on favorable terms
from any of these sources or at all. See "Item 1. Business--Risks and
Uncertainties--Future Capital Needs; Uncertainty of Additional Funding."
Litigation and Other Contingencies
As discussed in note 11 of the notes to consolidated financial statements,
the Company is indirectly involved in several opposition and interference
proceedings and one lawsuit filed in Australia regarding the patent rights
related to three of its licensed drug candidates, including FTC. Although the
Company is not a named party in any of these proceedings, it is obligated to
reimburse its licensors for certain legal expenses associated with these
proceedings. The
-45-
<PAGE>
Company cannot predict the outcome of these proceedings. The Company believes
that an adverse judgment would not result in a material financial obligation to
the Company, nor would the Company have to recognize an impairment under
Statement of Financial Accounting Standards No. 121 "Accounting for Impairment
of Long-Lived Assets" as no amounts have been capitalized related to these drug
candidates. However, any development in these proceedings adverse to the
Company's interests, including but not limited to any adverse development
related to the patent rights licensed to the Company for these three drug
candidates or the Company's rights or obligations related thereto, could have a
material adverse effect on the Company's future consolidated financial position,
results of operations and cash flow. See "Item 1. Business--Risk and
Uncertainties--Uncertainties of Patents; Dependence on Patents, Licenses, and
Proprietary Rights."
Recent Accounting Pronouncements
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standard No. 128 "Earnings Per Share" ("SFAS 128") and will adopt
Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive
Income" ("SFAS 130") in 1998. SFAS 128 establishes and simplifies the standard
for computing earnings per share ("EPS") from previous EPS guidance. Adoption of
SFAS 128 resulted in the restatement of the Company's net loss per share for all
previous periods as this standard requires a historical approach methodology in
calculating EPS rather than the methodology required by superseded guidance
under which EPS was previously presented.
Year 2000 Compliance
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both internal
and external information systems by the end of 1998. This process will entail
communicating with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
Expenditures required to make the Company Year 2000 compliant will be expensed
as incurred and are not expected to be material to the Company's consolidated
financial position or results of operations.
-46-
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants ......................................... 48
Consolidated Balance Sheets as of December 31, 1997 and 1996 .............. 49
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 and for the period from
inception (July 12, 1995) through December 31, 1995 ....................... 50
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 and for the period from
inception (July 12, 1995) through December 31, 1995 ....................... 51
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996 and for the period from inception (July 12,
1995) through December 31, 1995 ........................................... 52
Notes to Consolidated Financial Statements ................................ 53
-47-
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Triangle Pharmaceuticals, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
stockholders' equity present fairly, in all material respects, the financial
position of Triangle Pharmaceuticals, Inc. and its subsidiaries (the "Company")
at December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996, and the period from
inception (July 12, 1995) through December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Raleigh, North Carolina
March 3, 1998
-48-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 34,698 $ 25,255
Restricted deposits ........................................ 43 56
Investments ................................................ 23,098 17,226
Interest receivable ........................................ 300 273
Other receivables .......................................... -- 456
Prepaid expenses ........................................... 791 558
--------- ---------
Total current assets ................................ 58,930 43,824
--------- ---------
Property, plant and equipment, net ........................... 2,872 832
Investments .................................................. -- 10,720
Restricted deposits .......................................... 76 119
--------- ---------
Total assets ........................................ $ 61,878 $ 55,495
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ........................................... $ 3,152 $ 1,584
Capital lease obligation - current ......................... 178 102
Long-term debt - current ................................... 181 --
Accrued expenses ........................................... 5,172 789
--------- ---------
Total current liabilities ........................... 8,683 2,475
--------- ---------
Capital lease obligation - noncurrent ........................ 300 364
Long-term debt ............................................... 178 --
--------- ---------
Total liabilities ................................... 9,161 2,839
--------- ---------
Commitments and contingencies (See notes 3, 4, 8, 10, 11,
and 12) .................................................... -- --
Stockholders' equity:
Common Stock, $0.001 par value; 75,000 shares
authorized; 19,995 and 17,568 shares, issued and
outstanding, respectively ................................ 20 18
Warrants ................................................... 114 152
Additional paid-in capital ................................. 102,260 64,549
Accumulated deficit during development stage ............... (49,552) (11,884)
Deferred compensation ...................................... (125) (179)
--------- ---------
Total stockholders' equity .......................... 52,717 52,656
--------- ---------
Total liabilities and stockholders' equity .......... $ 61,878 $ 55,495
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-49-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Period From Period From
Inception Inception
Year Year (July 12, 1995) (July 12, 1995)
Ended Ended Through Through
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating expenses:
License fees ............... $ 610 $ 3,267 $ -- $ 3,877
Development ................ 22,240 4,967 -- 27,207
Purchased research and
development .............. 11,261 -- -- 11,261
General and administrative . 7,071 3,558 1,004 11,633
--------------- --------------- --------------- ---------------
Loss from operations ......... (41,182) (11,792) (1,004) (53,978)
Interest income, net ......... 3,514 875 37 4,426
--------------- --------------- --------------- ---------------
Net loss ..................... $ (37,668) $ (10,917) $ (967) $ (49,552)
=============== =============== =============== ===============
Basic and diluted net loss per
common share ............... $ (2.00) $ (1.89) $ (0.60)
=============== =============== ===============
Shares used in computing net
loss per common share ...... 18,871 5,784 1,624
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-50-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Period From Period From
Inception Inception
Year Year (July 12, 1995) (July 12, 1995)
Ended Ended Through Through
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ....................................... $(37,668) $(10,917) $ (967) $(49,552)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ................ 313 98 3 414
Purchased research and development ........... 11,261 -- -- 11,261
Stock-based compensation: license fees ....... -- 636 -- 636
Stock-based compensation: development ........ 43 347 -- 390
Stock-based compensation: general and
administrative ............................ -- 231 -- 231
Change in assets and liabilities:
Receivables ............................... 429 (729) -- (300)
Prepaid expenses .......................... (233) (558) -- (791)
Accounts payable .......................... 1,568 1,462 122 3,152
Accrued license fees and other expenses ... 4,358 628 92 5,078
-------- -------- -------- --------
Net cash used by operating activities .......... (19,929) (8,802) (750) (29,481)
-------- -------- -------- --------
Cash flows from investing activities:
Sale (purchase) of restricted deposits ....... 56 (175) -- (119)
Purchase of investments ...................... (29,259) (33,268) -- (62,527)
Proceeds from sale and maturity of
investments ................................ 34,108 5,322 -- 39,430
Purchase of property, plant and equipment .... (2,295) (794) (23) (3,112)
Acquisition of Avid Corporation, net of
cash acquired ............................. (3,053) -- -- (3,053)
-------- -------- -------- --------
Net cash used by investing activities .......... (443) (28,915) (23) (29,381)
-------- -------- -------- --------
Cash flows from financing activities:
Sale of stock, net of related issuance costs . 29,523 59,515 3,855 92,893
Sale of stock options under salary
investment option grant program ........... 70 -- -- 70
Proceeds from stock options exercised ........ 1 25 -- 26
Proceeds from notes payable .................. 374 -- -- 374
Equipment financing .......................... -- 354 -- 354
Principal payments on capital lease
obligation and note payable ................ (153) (4) -- (157)
-------- -------- -------- --------
Net cash provided by financing activities ...... 29,815 59,890 3,855 93,560
-------- -------- -------- --------
Net increase in cash and cash equivalents ...... 9,443 22,173 3,082 34,698
Cash and cash equivalents at beginning of
period ...................................... 25,255 3,082 -- --
-------- -------- -------- --------
Cash and cash equivalents at end of period ..... $ 34,698 $ 25,255 $ 3,082 $ 34,698
======== ======== ======== ========
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
Noncash investing activities during 1997 and 1996 totaled $59 and $116,
respectively, and relate to the acquisition of laboratory equipment for the
assumption of a capital lease obligation.
On August 28, 1997, the Company issued 400 shares of Common Stock, valued at
$8,117, in exchange for all outstanding shares of Avid Corporation.
The accompanying notes are an integral part of these consolidated
financial statements.
-51-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Convertible Preferred
Stock Common Stock Additional
-------------------- ------------------ Paid-In
Shares Amount Warrants Shares Amount Capital
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Initial sale of stock ................. 933 $ 1 $ -- 1,175 $ 1 $ 710
Additional sale of stock .............. 4,249 4 -- 1,495 2 3,137
Stock-based compensation .............. -- -- -- -- -- 12
Net loss, July 12 through
December 31, 1995 ..................... -- -- -- -- -- --
-------- -------- -------- ------- -------- --------
Balance, December 31, 1995 ............ 5,182 5 -- 2,670 3 3,859
Sale of stock ......................... 3,756 4 -- 4,943 5 59,506
Stock-based compensation .............. -- -- 152 700 1 1,127
Stock options exercised ............... -- -- -- 317 -- 57
Conversion of Preferred to Common Stock (8,938) (9) -- 8,938 9 --
Net loss .............................. -- -- -- -- -- --
-------- -------- -------- ------- -------- --------
Balance, December 31, 1996 ............ -- -- 152 17,568 18 64,549
Sale of stock ......................... -- -- -- 2,014 2 29,521
Acquisition of Avid Corporation ....... -- -- -- 400 -- 8,117
Sale of stock options ................. -- -- -- -- -- 70
Stock-based compensation .............. -- -- (38) -- -- --
Stock options exercised ............... -- -- -- 13 -- 3
Net loss .............................. -- -- -- -- -- --
-------- -------- -------- ------- -------- --------
Balance, December 31, 1997 ............ -- $ -- $ 114 19,995 $ 20 $102,260
======== ======== ======== ======= ======== ========
</TABLE>
Accumulated
Deficit Compensation Total
-------- ------------ --------
Initial sale of stock ................. $ -- $ -- $ 712
Additional sale of stock .............. -- -- 3,143
Stock-based compensation .............. -- (12) --
Net loss, July 12 through
December 31, 1995 ..................... (967) -- (967)
-------- -------- --------
Balance, December 31, 1995 ............ (967) (12) 2,888
Sale of stock ......................... -- -- 59,515
Stock-based compensation .............. -- (141) 1,139
Stock options exercised ............... -- (26) 31
Conversion of Preferred to Common Stock -- -- --
Net loss .............................. (10,917) -- (10,917)
-------- -------- --------
Balance, December 31, 1996 ............ (11,884) (179) 52,656
Sale of stock ......................... -- -- 29,523
Acquisition of Avid Corporation ....... -- -- 8,117
Sale of stock options ................. -- -- 70
Stock-based compensation .............. -- 48 10
Stock options exercised ............... -- 6 9
Net loss .............................. (37,668) -- (37,668)
-------- -------- --------
Balance, December 31, 1997 ............ $(49,552) $ (125) $ 52,717
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
-52-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies
Organization and principles of consolidation
Triangle Pharmaceuticals, Inc. and its subsidiaries (the "Company" or
"Triangle"), a development stage company, was formed July 12, 1995 (the
"Inception Date"), as a Delaware corporation. The Company is engaged in the
development of new drug candidates primarily in the antiviral area and has not
yet generated revenues from operations. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash and cash equivalents
The Company considers all short-term deposits with an initial maturity at
date of purchase of three months or less to be cash equivalents. The carrying
amount of cash and cash equivalents approximates fair value.
Restricted deposits
Restricted deposits consist of cash and cash equivalents which
collateralize a letter of credit and have been classified as current or
long-term based on the expected release date of such restriction. The carrying
amount of these restricted deposits approximates fair value.
Investments
Investments consist primarily of United States and municipal government
agency obligations, corporate bonds, notes and commercial paper, and other fixed
income investments. Investments with original maturities at date of purchase
beyond three months and less than twelve months are classified as current.
Investments with a maturity beyond twelve months are classified as long-term.
Investments are considered to be available-for-sale and are carried at fair
value. Realized gains and losses are determined using the specific
identification method.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives as follows: laboratory
equipment - 5 years; office equipment - 4 to 7 years; and leasehold improvements
- - lease term.
Note payable
The carrying value of the note payable approximates its fair value as the
note bears interest at market rates.
Revenue recognition
Revenue recognition for any products that are developed will be based upon
shipment of products.
-53-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies (Continued)
License fees
Upon execution and continuation of license agreements, license initiation
and preservation fees are evaluated as to whether the underlying drug candidate
has alternative use, and if none, have been recorded as an expense at fair
value. License milestone criteria are continuously evaluated. When criterion
achievement is probable, the Company records expense at fair value, or will
capitalize the fair value if marketing approval is obtained for the licensed
compound or if the compound has an alternate future use.
Accrued expenses
The carrying value of accrued expenses approximates fair value because of
their short-term maturity.
Income taxes
Income taxes are computed using the asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, the
Company generally considers all expected future events other than enactment of
changes in tax law or rates. If it is "more likely than not" that some portion
or all of a deferred tax asset will not be realized, a valuation allowance is
recorded.
Net loss per common share
Basic net loss per share is computed using the weighted average number of
shares of Common Stock outstanding during the period. Diluted net loss per share
is computed using the weighted average number of shares of common and dilutive
potential common shares outstanding during the period. Potential common shares
consist of stock options and warrants using the treasury stock method and are
excluded if their effect is antidilutive. Had such options and warrants not been
antidilutive, their effect would be to increase the shares used in computing
diluted net loss per share to 20,113 shares at December 31, 1997.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share" ("EPS"). SFAS
128 establishes and simplifies the standards for computing earnings per share
previously found in Accounting Principles Board Opinion No. 15 "Earnings Per
Share" ("APB 15") and makes them comparable to international EPS standards.
Pursuant to the adoption of SFAS 128 and Securities and Exchange Commission
Staff Accounting Bulletin No. 98, the Company has restated its net loss per
share for all previously issued periods. Accordingly, all net loss per share
calculations reflect a historical approach methodology rather than the
methodology required by the superseded guidance of APB 15 and Staff Accounting
Bulletin No. 83 under which amounts were previously presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
-54-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies (Continued)
Stock-based compensation
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). As
provided by SFAS 123, the Company has elected to continue to account for its
stock-based compensation programs according to the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation expense has been recognized to the extent of employee
or director services rendered based on the intrinsic value of compensatory
options or shares granted under the plans. The Company has adopted the
disclosure provisions required by SFAS 123.
Recent accounting pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), was issued in June 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The Company
will adopt SFAS 130 in 1998 and believes the adoption of SFAS 130 will not have
a material impact on the Company's financial position or results of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. Investments
The following is a summary of the fair value of "available for sale"
securities by balance sheet classification:
December 31,
--------------------
1997 1996
------- -------
United States Government obligations ................. $ 6,136 $17,895
Taxable municipals ................................... -- 1,016
Corporate bonds, notes and commercial paper .......... 15,966 9,035
Other fixed income ................................... 996 --
------- -------
Total ............................................ $23,098 $27,946
======= =======
Maturities of debt securities at market value are as follows:
December 31,
--------------------
1997 1996
------- -------
Mature in one year or less ........................... $23,098 $17,226
Mature after one year through five years ............. -- 10,720
------- -------
Total ......................................... $23,098 $27,946
======= =======
Gross realized and unrealized holding gains and losses for the years ended
December 31, 1997 and 1996 were not significant.
-55-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
3. Property, Plant & Equipment
December 31,
--------------------
1997 1996
------- -------
Laboratory equipment ................................. $ 1,892 $ 643
Office equipment ..................................... 655 237
Leasehold improvements ............................... 169 53
Construction-in-progress (office and laboratory
equipment) ......................................... 570 --
------- -------
3,286 933
Accumulated depreciation ............................. (414) (101)
------- -------
$ 2,872 $ 832
======= =======
The Company leases office and laboratory facilities and office equipment
under various operating leases. Rent expense totaled $998 and $646 for 1997 and
1996, respectively. The Company has provided a $175 letter of credit,
collateralized by an equivalent amount of cash and cash equivalents, as security
for a lessor.
Minimum lease payments under operating leases at December 31, 1997 are as
follows:
Year Amount
------
1998 .................................................... $1,256
1999 .................................................... 1,350
2000 .................................................... 1,312
2001 .................................................... 1,268
2002 .................................................... 1,300
Thereafter .............................................. 991
------
Total ............................................ $7,477
======
The Company leases certain laboratory equipment under capital lease
agreements. Details of the capitalized leased assets are as follows:
December 31,
--------------------
1997 1996
------- -------
Laboratory equipment ................................. $ 567 $ 520
Less: accumulated depreciation ....................... (156) (47)
------- -------
Net capitalized leased assets ........................ $ 411 $ 473
======= =======
-56-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
3. Property, Plant & Equipment (Continued)
Future minimum lease payments under capital lease obligations at December
31, 1997 are as follows:
Year Amount
-----
1998 .............................................................. $ 222
1999 .............................................................. 168
2000 .............................................................. 153
2001 .............................................................. 8
-----
Total ............................................................. 551
Less: amounts representing interest and executory costs ........... (73)
-----
Net present values ................................................ $ 478
=====
Because the interest rates associated with these lease agreements
approximate a market rate, the carrying value of these obligations approximates
fair value. Interest expense under capital lease obligations for 1997 and 1996
was $40 and $2, respectively.
4. Accrued Expenses
Accrued expenses consist of the following:
December 31,
--------------------
1997 1996
------- -------
Accrued drug substance ........................... $1,137 $ 24
Accrued clinical studies ......................... 2,394 32
Accrued license fees ............................. 80 150
Accrued compensation and benefits ................ 279 178
Accrued professional fees ........................ 497 188
Other ............................................ 785 217
------ ------
$5,172 $ 789
====== ======
The Company enters into contractual arrangements regarding clinical and
toxicology studies in the development of its drug candidates. At December 31,
1997, the Company estimates its commitment to be approximately $3,600 under
these agreements; however, this estimate is dependent upon results of the
underlying studies.
-57-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
5. Long-Term Debt
Long-term debt consists of the following:
December 31,
--------------------
1997 1996
------- -------
Unsecured note payable to a finance company;
twenty-four monthly payments with final payment due
November 1999; interest payable at a variable rate
(6.85% at December 31, 1997) ......................... $ 359 $ --
Current portion ...................................... (181) --
------- -------
$ 178 $ --
======= =======
Interest expense associated with long-term debt obligations for 1997 was
$2.
6. Stockholders' Equity
During 1996 and 1995, the Company issued 5,232 shares of Series A
convertible Preferred Stock with a par value of $0.001 per share for $3,900, net
of offering costs. During 1996, the Company issued 3,706 shares of Series B
convertible Preferred Stock with a par value of $0.001 per share for $18,400,
net of offering costs. Preferred voting and dividend rights were one vote for
each share, and noncumulative dividends were at an annual rate of $0.05 per
share for Series A and $0.35 for Series B. No preferred dividends were declared
or paid from the date of inception (July 12, 1995) through the date of
conversion of all Preferred Stock into Common Stock on a one-for-one basis in
connection with the closing of the Company's initial public offering (the
"IPO").
In connection with a consulting agreement executed in May 1996, the
Company issued warrants which entitle the holder to purchase 130 shares of
Common Stock at a price of $0.75 per share. The shares represented by the
warrants vest over a five year period commencing March 1, 1996. On November 27,
1997, the Company terminated the consulting agreement, and pursuant to the terms
of the agreement, canceled 100 of the warrants which were outstanding. In
accordance with the terms of the agreement, 30 warrants were vested and are
exercisable at December 31, 1997.
In connection with an equipment lease line obtained in August 1996, the
Company issued warrants which entitle the holder to purchase 16 shares of Common
Stock at a price of $5.00 per share. The Company recognized $16 of interest
expense during 1996 for these warrants.
On November 6, 1996, the Company completed its IPO of 4,533 shares of
Common Stock (including the exercise of the U.S. Underwriters over-allotment
option) at $10.00 per share. The net proceeds of this offering, after
underwriting discounts and costs in connection with the sale and distribution of
the securities, were approximately $41,000. Prior to the closing of the IPO, the
Company's certificate of incorporation was amended to modify the number of
authorized capital stock to 75,000 shares of Common Stock, $0.001 par value per
share, and 5,000 shares of Preferred Stock, $0.001 par value per share. The
Company's certificate of incorporation authorizes the Board of Directors (the
"Board"), without further action by the stockholders, to issue Preferred Stock,
in one or more series and to fix the rights, priorities, preferences,
qualifications, limitations and restrictions, including dividend rights,
conversion rights, voting rights, terms of redemption, terms of sinking funds
and liquidation preferences of each series of Preferred Stock issued.
-58-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
6. Stockholders' Equity (Continued)
On June 6, 1997, the Company issued 2,000 shares of Common Stock for
$30,000 in cash, or a price of $15.00 per share (a discount of approximately 15%
from the average closing price of the Common Stock over the 30 trading days
prior to the date of the transaction). Net proceeds to the Company from the sale
were approximately $29,400. The shares were offered and sold to two non-U.S
entities and to one accredited investor under Regulation S and Regulation D,
respectively. Pursuant to the purchase agreement, the resale of the 2,000 shares
was registered on January 23, 1998 on a Registration Statement on Form S-3. The
Company was introduced to the purchaser of these shares by one of the Company's
outside directors. The director received a finders fee of $500 in connection
with the transaction which was recorded as a cost of the offering.
Under the terms of various agreements, the Company has the option to
repurchase shares of Common Stock from certain stockholders who were employed by
or who provided services to the Company at the time they acquired those shares.
The Company may repurchase such shares in the event the stockholder discontinues
employment or provision of services. The repurchase price is limited to the
amount the stockholder originally paid for the shares. During 1996 and 1995, the
Company issued shares subject to vesting totaling 560 and 2,140, respectively.
The number of shares subject to repurchase decreases to zero over periods
ranging from three to four years. The Company exercised its option to repurchase
all 150 shares of Common Stock from an officer upon her departure from the
Company in July 1996. At December 31, 1997, 941 shares were subject to
repurchase rights.
The Company accrued $43 and $347 as of December 31, 1997 and 1996,
respectively, for consulting expense related to the portion of the shares for
which the Company's repurchase option had lapsed based on the differences
between fair value and the selling price per share. During 1997 and 1996, the
Company recognized compensation expense of $43 and $1,214, respectively, related
to equity instruments for which the Company's repurchase option had lapsed based
on the differences between fair value and the selling price per share. Based on
the vesting of all equity instruments, the Company expects to recognize expenses
of $81 in 1998, $81 in 1999, and $19 in 2000.
7. Stock Option Plans and Stock Purchase Plan
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board on August 30, 1996, was subsequently approved by the
stockholders on September 5, 1996, and became effective November 1, 1996. The
Purchase Plan is designed to allow eligible employees of the Company to purchase
shares of Common Stock, at semi-annual intervals, through periodic payroll
deductions under the Purchase Plan. A reserve of 300 shares of Common Stock has
been established for this purpose. The Purchase Plan will be implemented in a
series of successive offering periods, each with a maximum duration of
twenty-four (24) months. Payroll deductions may not exceed 10% of the
participant's base salary for each semi-annual period of participation, and the
accumulated payroll deductions will be applied to the purchase of shares on the
participant's behalf on each semi-annual purchase date (the last business day of
February and August each year, with the first purchase date occurring on the
last business day of February, 1997) at a purchase price per share not less than
85% of the lower of (i) the fair market value of the Common Stock on the
participant's entry date into the offering period or (ii) the fair market value
of the Common Stock on the semi-annual purchase date. Should the fair market
value of the Common Stock on any semi-annual purchase date be less than the fair
market value of the Common Stock on the first day of the offering period, then
the current offering period will automatically end and a new twenty-four month
offering period will begin, based on the lower fair market value. The shares
vest immediately upon issuance.
During 1997, the Company issued 14 shares in conjunction with the Purchase
Plan. At December 31, 1997, the Company held payroll deductions of $84 which
will be converted to shares of Common Stock in 1998. The Purchase
-59-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
7. Stock Option Plans and Stock Purchase Plan (Continued)
Plan had insignificant impact on the Company's 1997 and 1996 operating results
and pro forma fair value disclosure as required under SFAS 123.
Salary Investment Option Grant Program
The Company's Salary Investment Option Grant Program (the "Investment
Plan") was activated by the Compensation Committee of the Board on December 13,
1996 for the calendar year 1997 and on December 4, 1997 for calendar year 1998.
The Investment Plan allows executive officers and other highly compensated
employees of the Company to reduce their base salary for that calendar year by a
specified dollar amount not less than $10 nor more than $50. Participants are
issued a non-statutory option to purchase that number of shares of Common Stock
determined by dividing the total salary reduction amount by an amount equal to
one-third of the fair market value per share of Common Stock on the grant date.
The option will be exercisable at a price per share equal to the difference
between the amount paid by the optionee for the option and the fair market value
of the option shares on the grant date. As a result, upon exercise of the
options issued under the Investment Plan, the optionee will have paid 100% of
the fair market value of the option shares as of the grant date. The option will
become vested and exercisable in a series of twelve (12) equal monthly
installments over the calendar year for which the salary reduction is in effect
and will become fully exercisable and vested upon certain changes in the
ownership or control of the Company. Options have a maximum term of ten years
from the date of grant.
Director Compensation
During 1997, all eligible non-employee directors received an option to
purchase 1.334 shares of Common Stock for the first year of the director's Board
term and 1.333 shares of Common Stock for each additional year remaining on the
director's Board term following the automatic option grant. These options have
an exercise price equal to 100% of the fair market value of the Common Stock on
the grant date and will become exercisable in annual installments after the
completion of each year of service following such grant. Options vest on the day
immediately preceding the next annual Board meeting and have a maximum term of
ten years from the date of grant, or one year from the cessation of Board
service.
1996 Stock Incentive Plan
The Company's 1996 Stock Incentive Plan (the "1996 Plan") serves as the
successor equity incentive program to the Company's 1996 Stock Option/Stock
Issuance Plan (the "Predecessor Plan"). The 1996 Plan became effective on August
30, 1996 upon adoption by the Board and was subsequently approved by the
stockholders on September 5, 1996. 2,200 shares of Common Stock have been
authorized for issuance under the 1996 Plan. This initial share reserve is
comprised of (i) the shares that remain available for issuance under the
Predecessor Plan, including the shares subject to outstanding options
thereunder, plus (ii) an additional increase of 500 shares. However, in no event
may any one participant receive option grants or direct stock issuances for more
than 500 shares in the aggregate per calendar year. The shares vest over a four
or five year period.
-60-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
7. Stock Option Plans and Stock Purchase Plan (Continued)
In accordance with the provisions of SFAS 123, the Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method.
The following table summarizes the stock option activity for the Company's
plans:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Shares Exercise Price Fair Value
------------ -------------- -----------
<S> <C> <C> <C>
Options outstanding, December 31, 1995...... -- -- --
Granted below fair value.................... 1,168 $ 0.320 $ 0.234
Granted at fair value....................... 283 $ 7.025 $ 1.579
Exercised................................... (317) $ 0.075 --
Forfeited................................... (38) $ 0.075 --
------------ --------- ---------
Options outstanding, December 31, 1996...... 1,096 $ 2.129 --
Granted at fair value....................... 626 $ 21.166 $ 11.682
Exercised................................... (13) $ 0.075 --
Forfeited................................... -- -- --
------------ --------- ---------
Options outstanding, December 31, 1997...... 1,709 $ 9.121 --
============ ========= =========
</TABLE>
In December 1997, the Board approved an amendment to the 1996 Plan
increasing the total number of shares of Common Stock available for issuance
under the 1996 Plan by 1,000 shares. The amendment is subject to stockholder
approval at the Company's 1998 Annual Meeting of Stockholders and consequently,
such shares have not been included in the table above.
The following table summarizes information concerning options outstanding
at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted Average
Weighted Remaining
Number Average Contractual Life
of Shares Exercise Price (In years)
------------ --------------- -----------------
<S> <C> <C> <C>
Options outstanding-
Price range:
$0.075...................................... 752 $ 0.075 8.13
$6.000 - $15.750............................ 460 $ 9.341 8.87
$17.625 - $21.500........................... 115 $ 19.217 8.74
$23.625..................................... 382 $ 23.625 9.36
------------ ---------
Options outstanding, December 31, 1997 1,709 $ 9.121
============ =========
Exercisable options outstanding-
Price range:
$0.075..................................... 752 $ 0.075
$6.000 - $15.750........................... 331 $ 6.876
$17.625 - $21.500.......................... 9 $ 20.750
$23.625.................................... 0 $ 0.000
------------ ---------
Exercisable options outstanding, December
31, 1997................................... 1,092 $ 2.312
============ =========
Exercisable options:
December 31, 1996.......................... 1,096 $ 2.129
============ =========
</TABLE>
-61-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
7. Stock Option Plans and Stock Purchase Plan (Continued)
To determine the impact of SFAS 123, the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions:
1997 1996
----------- -----------
Expected dividend yield ...................... 0.00% 0.00%
Expected stock price volatility .............. 65.00% 0.00%
Risk-free interest rate ...................... 5.70 - 5.72% 6.01 - 6.07%
Expected life of options ..................... 4-5 years 4-5 years
For purposes of pro forma disclosures, the estimated fair value of equity
instruments is amortized to expense over their respective vesting period. If the
Company had elected to recognize compensation cost based on the fair value of
stock-based instruments granted at grant date, as prescribed by SFAS 123, its
pro forma net loss and net loss per common share would have been as follows:
1997 1996
---------- ----------
Net loss - as reported ......................... $ (37,668) $ (10,917)
Net loss - pro forma ........................... $ (38,981) $ (11,120)
Net loss per common share - as reported ........ $ (2.00) $ (1.89)
Net loss per common share - pro forma .......... $ (2.07) $ (1.92)
8. Licensing Agreements
The Company has entered into seven license agreements for drug candidates
as of December 31, 1997. In the aggregate, these agreements required payments of
$3,101 upon execution or satisfaction of certain financing milestones, and may
require future payments of up to $43,250 contingent upon the achievement of
certain development milestones. One of the Company's licensors has the option to
receive $2,000 of such future milestone payments in shares of Common Stock
(based on the then current market price) in lieu of a cash payment. The Company
is also obligated to issue up to 2,100 shares of Common Stock upon the
achievement of certain development milestones relating to DMP-450 or another
compound acquired in the acquisition of Avid Corporation and its wholly-owned
subsidiary (collectively, "Avid"). Additionally, the Company will pay royalties
based on a percentage of net sales of each licensed product incorporating these
drug candidates. Substantially all of the agreements require minimum royalty
payments commencing three years after regulatory approval. Depending on the
Company's success and timing in obtaining regulatory approval, aggregate annual
minimum royalties could range from $500 (if only a single drug candidate is
approved for one indication) to $49,500 (if all drug candidates are approved for
all indications). Under the terms of one of the license agreements, the Company
has been reimbursed $1,515 in 1997 and $485 in 1996 associated with certain
development work. Development expenses for the year ended December 31, 1997 and
1996 have been reduced by approximately $1,168 and $832, respectively.
Additionally, under the terms of certain of these agreements, the Company
granted 700 shares of Common Stock to the licensors.
-62-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
9. Income Taxes
There is no current income tax provision or benefit recorded in any period
as the Company has generated net operating losses for income tax purposes for
which there is no carryback potential. There is no deferred income tax provision
or benefit recorded in any period as the Company is in a net deferred tax asset
position for which a full valuation allowance has been recorded due to
uncertainty of realization.
At December 31, 1997 and 1996, the Company had net operating loss
carryforwards of approximately $40,775 and $8,624, respectively, and a research
credit carryforward of approximately $1,951 and $147, respectively, which will
expire in years 2006 to 2012. The Company's ability to utilize its carryforwards
may be subject to an annual limitation in future periods pursuant to the "change
in ownership" provisions under Section 382 of the Internal Revenue Code. The
Company increased the valuation allowance by $4,300 during 1996.
In connection with Triangle's acquisition of Avid, the Company acquired
transferable net operating loss carryforwards, research and development credits
and capitalized start-up costs which may be used to offset certain future
income. Net operating loss carryforwards associated with Avid will have an
annual limitation on the amount available to reduce certain future taxable
income.
The components of deferred taxes are as follows:
December 31,
----------------------------------
1997 1996
----------- ----------
Loss carryforwards.......................... $ 15,982 $ 3,363
Research tax credit......................... 1,951 147
License fees................................ 1,270 1,204
Start-up costs.............................. 1,531 --
----------- ----------
Deferred tax assets......................... 20,734 4,714
Deferred tax assets valuation allowance..... (20,734) (4,714)
----------- ----------
Net deferred tax asset...................... $ -- $ --
=========== ==========
10. Avid Acquisition
On August 28, 1997 (the "Acquisition Date"), the Company acquired Avid.
Pursuant to the merger agreement, Triangle issued 400 shares of Common Stock in
exchange for all outstanding capital stock of Avid. Triangle also agreed to
issue up to 2,100 additional shares of Common Stock, the issuance of 1,600
shares of which is contingent upon Triangle initiating pivotal Phase II clinical
trials with DMP-450 before February 28, 1999, or electing on or before that date
to continue the development of DMP-450 even if such clinical trials have not
been initiated. The issuance of the remaining 500 shares is contingent upon the
attainment of other development milestones with DMP-450 or one of Avid's other
compounds. Issuance of any of these contingent shares will be recorded as
additional purchase price and will be allocated upon resolution of the
underlying contingency. The 400 shares issued had an aggregate fair market value
of approximately $8,117 and direct transaction costs were approximately $1,100,
primarily comprised of investment banking and legal fees. The total purchase
price of $9,217 has been allocated to the assets purchased and liabilities
assumed based on their respective fair market values. In connection with the
acquisition, the Company incurred a charge of $11,261 in the third quarter of
1997 for acquired in-process research and development as it assumed operating
and other liabilities of Avid totaling approximately $1,250 and certain
development liabilities totaling approximately $1,000.
-63-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
10. Avid Acquisition (Continued)
The merger was accounted for as a purchase and the operating results of Avid
have been included in the Company's consolidated financial statements from the
Acquisition Date.
Avid's principal assets consist of worldwide license rights to DMP-450, a
protease inhibitor, for the treatment of human immunodeficiency virus infection,
early preclinical stage compounds for the treatment of hepatitis B virus ("HBV")
infection, proprietary assays to screen compounds for the treatment of HBV and
assay technology for potential use in screening compounds for the treatment of
hepatitis C virus infection.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of Avid had occurred at the beginning of
1997 and 1996:
(Unaudited) (Unaudited)
1997 1996
----------- -----------
Revenues............................................$ -- $ --
Net loss............................................$ (40,821) $ (26,889)
Net loss per common share...........................$ (2.13) $ (4.35)
The pro forma net loss and net loss per share amounts for each period
above include the acquired in-process research and development charge. The pro
forma consolidated results do not purport to be indicative of results that would
have occurred had the acquisition been in effect for the periods presented, nor
do they purport to be indicative of the results that will be obtained in the
future.
11. Litigation and Other Contingencies
The Company is indirectly involved in several opposition and interference
proceedings and one lawsuit filed in Australia regarding the patent rights
related to three of its licensed drug candidates, including FTC. Although the
Company is not a named party in any of these proceedings, it is obligated to
reimburse its licensors for certain legal expenses associated with these
proceedings. The Company cannot predict the outcome of these proceedings. The
Company believes that an adverse judgment would not result in a material
financial obligation to the Company, nor would the Company have to recognize an
impairment under Statement of Financial Accounting Standards No. 121 "Accounting
for Impairment of Long-Lived Assets" as no amounts have been capitalized related
to these drug candidates. However, any development in these proceedings adverse
to the Company's interests could have a material adverse effect on the Company's
future consolidated financial position, results of operations and cash flow.
-64-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1997
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
12. Subsequent Events
License Agreement
On February 27, 1998, the Company executed a license agreement with
Bukwang Pharm. Ind. Co., Ltd. ("Bukwang") for L-FMAU, the Company's eighth
licensed drug candidate, for the treatment of HBV and all other human antiviral
applications. The Company paid a license initiation fee of $6.0 million and will
be required to make development milestone payments of up to $32.5 million and
sales milestone payments of up to $30.0 million. The Company is also required to
make annual minimum royalty payments beginning the third year after FDA
registration is granted for the first product. Payment of the license initiation
fee resulted in the Company incurring a $6.0 million charge in the first quarter
of 1998. The license agreement grants Triangle exclusive worldwide rights,
except for Korea. The Company will be required to meet certain milestone
obligations and to conduct and fund certain development work with respect to
L-FMAU.
Stock Offering (unaudited)
Subsequent to March 3, 1998, the Company expects to file a registration
statement with the Securities and Exchange Commission for the sale of 3,000
shares of its Common Stock. The Company intends to use the proceeds for general
corporate purposes, including the Company's drug development programs such as
preclinical testing and clinical trials, the payment of license fees, the costs
of obtaining patent protection and other payments to licensors, the potential
acquisition of additional drug candidates, the development of computerized
systems to support clinical trials and general working capital needs.
-65-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors. The information under the heading "Election of
Directors," appearing in the Proxy Statement, is incorporated herein by
reference.
(b) Identification of Executive Officers. The information under the heading
"Executive Officers," appearing in the Proxy Statement, is incorporated herein
by reference.
(c) Business Expenses. The information under the heading "Business Expenses,"
appearing in the Proxy Statement, is incorporated herein by reference.
(d) Section 16(a) Beneficial Ownership Reporting Compliance. The information
under the heading "Section 16(a) Beneficial Ownership Reporting Compliance,"
appearing in the Proxy Statement, is incorporated herein by reference.
Item 11. Executive Compensation
The information under the heading "Executive Compensation and Other
Information," appearing in the Proxy Statement, is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information under the headings "Principal Stockholders" and "Common
Stock Ownership of Directors and Management," appearing in the Proxy Statement,
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the heading "Certain Relationships and Related
Transactions," appearing in the Proxy Statement, is incorporated herein by
reference.
-66-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
The financial statements of the Company are included herein as required
under Item 8 of this Annual Report on Form 10-K. See Index to Financial
Statements on page 47.
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K.
On November 11, 1997, the Company filed a Current Report on Form 8-K/A,
which amended its Current Report on Form 8-K dated September 11, 1997, filed in
connection with the Company's acquisition of Avid. The consolidated financial
statements of Avid and the pro forma condensed combined financial information of
Triangle and Avid were filed under the Current Report on Form 8-K/A.
(c) Exhibits
Exhibit
Number Description
- ------ -----------
*2.1 Agreement and Plan of Reorganization among the Company, Project Z
Corporation and Avid Corporation dated June 30, 1997.
+3.1 Restated Certificate of Incorporation of the Company.
+3.2 Second Restated Certificate of Incorporation of the Company.
+3.3 Bylaws of the Company, as amended.
+3.4 Restated Bylaws of the Company.
+4.1 Form of Certificate for Common Stock.
+10.1 Form of Restricted Stock Purchase Agreement.
+10.2 Form of Employee Proprietary Information Agreement.
+10.3 Form of Scientific Advisor Agreement.
+10.4 Series A Preferred Stock Purchase Agreement among the Company and
the investors listed on Schedule A thereto, dated July 19, 1995.
+10.5 Series A Preferred Stock Purchase Agreement among the Company and
the investors listed on Schedule A thereto, dated October 31, 1995.
-67-
<PAGE>
+10.6 Series A Preferred Stock Purchase Agreement among the Company and
Schroder Venture Managers Limited dated November 8, 1995.
+10.7 Series A Preferred Stock Purchase Agreement among the Company and
Chris Rallis dated November 8, 1995.
+10.8 License Agreement between the Company, Karl Hostetler, M.D. and
Dennis Carson, M.D., dated November 16, 1995.
+10.9 Consulting Agreement between the Company and Karl Hostetler, M.D.,
dated November 16, 1995.
+10.10 Consulting Agreement between the Company and Dennis Carson, M.D.,
dated November 16, 1995.
+10.11 Option Agreement between the Company and Mitsubishi Chemical
Corporation, dated December 20, 1995.
+10.12 Sublease between the Company and Eli Lilly, dated January 18, 1996.
+10.13 Letter of Credit from First Union Bank, dated February 28, 1996.
+10.14 1996 Stock Option/Stock Issuance Plan.
+10.15 1996 Stock Option/Stock Issuance Plan Form of Notice of Grant.
+10.16 1996 Stock Option/Stock Issuance Plan Form of Stock Option
Agreement.
+10.17 1996 Stock Option/Stock Issuance Plan Form of Stock Purchase
Agreement.
+10.18 Sublease Amendment between the Company and Eli Lilly, dated March 1,
1996.
+10.19 License Agreement among the Company, Emory University and the
University of Georgia Research Foundation, Inc. for compound DAPD,
dated March 31, 1996.
+10.20 License Agreement among the Company, Emory University and the
University of Georgia Research Foundation, Inc. for compound CS-92,
dated March 31, 1996.
+10.21 Restricted Stock Purchase Agreement among the Company and the
stockholders listed on Exhibit A thereto, dated March 31, 1996.
+10.22 License Agreement between the Company and Emory University for
compound FTC, dated April 17, 1996.
+10.23 Restricted Stock Purchase Agreement between the Company and Emory
University, dated April 17, 1996.
+10.24 Amended and Restated Investors' Rights Agreement among the Company
and the Investors listed on Schedule A thereto, dated April 17,
1996.
+10.25 Series A Preferred Stock Purchase Agreement among the Company and
the stockholders listed on Schedule A thereto, dated May 9, 1996.
+10.26 Stock Purchase Warrant between the Company and Burrill & Craves,
dated May 21, 1996.
+10.27 Investors' Rights Agreement between the Company and Burrill &
Craves, dated May 21, 1996.
+10.28 Series B Preferred Stock Purchase Agreement among the Company and
the investors listed on Schedule A thereto, dated June 11, 1996.
-68-
<PAGE>
+10.29 Restated Investors' Rights Agreement among the Company and certain
stockholders of the Company, dated June 11, 1996.
+10.30 Restated Co-Sale Agreement among the Company and certain
stockholders of the Company, dated June 11, 1996.
+10.31 Second Amendment to Sublease between the Company and Eli Lilly and
Company, dated August 2, 1996.
+10.32 Master Lease Agreement between the Company and Comdisco Ventures
dated August 8, 1996.
+10.33 Stock Purchase Warrant between the Company and Comdisco Ventures
dated August 8, 1996.
+10.34 Option Agreement between the Company and The Regents of the
University of California, dated September 1, 1996.
+10.35 Sponsored Research Agreement between the Company and The Regents of
the University of California, dated September 1, 1996.
+10.36 1996 Stock Incentive Plan.
+10.37 1996 Stock Incentive Plan Form of Notice of Grant.
+10.38 1996 Stock Incentive Plan Form of Stock Option Agreement.
+10.39 1996 Stock Incentive Plan Form of Stock Purchase Agreement.
+10.40 Employee Stock Purchase Plan.
+10.41 Form of Indemnification Agreement between the Company and each of
its directors.
+10.42 Form of Indemnification Agreement between the Company and each of
its officers.
+10.43 Form of Written Consent of Holders of Series A and Series B
Preferred Stock to conversion, dated September 5, 1996.
+10.44 Form of Waiver of Registration Rights, dated September 5, 1996.
++10.45 Employment Agreement between the Company and Dr. David W. Barry,
dated October 28, 1996 (filed as Exhibit 10.44 to the Company's Form
10-K filed on March 28, 1997.
**10.46 License Agreement dated as of December 18, 1996 between Avid
Corporation and The Dupont Merck Pharmaceutical Company (filed as
Exhibit 10.1 to the Company's Form 10-Q filed on November 14, 1997).
*10.47 Common Stock Purchase Agreement among the Company and the investors
listed on Exhibit A thereto dated June 6, 1997 (filed as Exhibit
10.1 to the Company's Form 10-Q filed on August 14, 1997).
*10.48 First Amendment to Restated Investors' Rights Agreement among the
Company and certain stockholders' of the Company dated June 6, 1997
(filed as Exhibit 10.2 to the Company's Form 10-Q filed on August
14, 1997).
*10.49 License Agreement between the Company and Mitsubishi Chemical
Corporation dated June 17, 1997 (filed as Exhibit 10.3 to the
Company's Form 10-Q filed on August 14, 1997).
-69-
<PAGE>
**10.50 First Amendment to License Agreement between Avid Corporation and
The Dupont Merck Pharmaceutical Company, dated as of August 26, 1997
(filed as Exhibit 10.2 to the Company's Form 10-Q filed on November
14, 1997).
***10.51 License Agreement dated as of February 27, 1998, between the Company
and Bukwang Pharm. Ind. Co., Ltd.
11.1 Computation of Net Loss Per Share.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
24.1 Power of Attorney (see page 71).
27.1 Financial Data Schedule.
- ----------
+ Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Registration Statement on Form S-1
filed on September 9, 1996.
++ Incorporated by referenced to the same-numbered exhibit (except as
otherwise indicated) to the Company's Form 10-K filed on March 28, 1997.
* Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Form 10-Q filed on August 14, 1997.
** Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Form 10-Q filed on November 14,
1997.
*** Certain confidential portions of this Exhibit were omitted by means of
marking such portions with an asterisk (the "Mark"). This Exhibit has been
filed separately with the Secretary of the Commission without the Mark
pursuant to the Company's Application Requesting Confidential Treatment
under Rule 24b-2 under the Exchange Act of 1934, as amended.
Supplemental Information
Copies of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders and copies of the form of proxy to be used for such Annual Meeting
will be furnished to the Securities and Exchange Commission prior to the
time they are distributed to the Registrant's stockholders.
-70-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 9, 1998 TRIANGLE PHARMACEUTICALS, INC.
By: /s/ David W. Barry
----------------------------------------
David W. Barry
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints David W. Barry or James A. Klein, Jr., his or her
attorney-in-fact, with power of substitution in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K, and to file the same with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that the
attorney-in-fact or his or her substitute or substitutes may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ David W. Barry Chairman of the Board and March 9, 1998
- ------------------ Chief Executive Officer
(David W. Barry) (Principal Executive Officer)
/s/ James A. Klein, Jr. Chief Financial Officer March 9, 1998
- ----------------------- and Treasurer
(James A. Klein, Jr.) (Principal Financial and
Accounting Officer)
/s/ M. Nixon Ellis Director, President and March 9, 1998
- ------------------ Chief Operating Officer
(M. Nixon Ellis)
/s/ Anthony B. Evnin Director March 9, 1998
- --------------------
(Anthony B. Evnin)
/s/ Standish M. Fleming Director March 9, 1998
- -----------------------
(Standish M. Fleming)
/s/ Karl Y. Hostetler Director March 9, 1998
- ---------------------
(Karl Y. Hostetler)
/s/ George McFadden Director March 9, 1998
- -------------------
(George McFadden)
/s/ Peter McPartland
(Peter McPartland) Director March 9, 1998
-71-
LICENSE AGREEMENT
BETWEEN
BUKWANG PHARM. IND. CO., LTD.
AND
TRIANGLE PHARMACEUTICALS, INC.
*** Certain confidential portions of this Exhibit were omitted by means of
blackout of the text (the "Mark"). This Exhibit has been filed separately with
the Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24b-2 under the
Securities Exchange Act.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS.....................................................2
ARTICLE 2. LICENSES........................................................9
ARTICLE 3. LICENSE FEE, ROYALTIES, AND MILESTONE PAYMENTS.................12
ARTICLE 4. REPORTS AND ACCOUNTING.........................................18
ARTICLE 5. PAYMENTS.......................................................21
ARTICLE 6. DEVELOPMENT PROGRAM............................................23
ARTICLE 7. JOINT PROJECT COMMITTEE........................................27
ARTICLE 8. PATENT PROSECUTION.............................................29
ARTICLE 9. INFRINGEMENT...................................................33
ARTICLE 10. TRANSFER OF KNOW-HOW; TECHNICAL ASSISTANCE.....................35
ARTICLE 11. WARRANTIES AND REPRESENTATIONS; LIMITATION OF LIABILITY; AND
DISCLAIMERS....................................................37
ARTICLE 12. INDEMNIFICATION................................................41
ARTICLE 13. CONFIDENTIALITY................................................43
ARTICLE 14. CONDITIONS PRECEDENT...........................................45
ARTICLE 15. TERM AND TERMINATION...........................................45
ARTICLE 16. ASSIGNMENT.....................................................48
ARTICLE 17. REGISTRATION OF LICENSE........................................49
<PAGE>
ARTICLE 18. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE
COMPETITION AND PATENT TERM RESTORATION ACT....................49
ARTICLE 19. DISPUTE RESOLUTION AND ARBITRATION.............................51
ARTICLE 20. GENERAL PROVISIONS.............................................53
<PAGE>
THIS LICENSE AGREEMENT is made and entered into as of this 27th day of
February 1998, by and between BUKWANG PHARM. IND. CO., LTD., with its principal
offices at 398-1, Daebang-Dong, Dongjak-Ku, Seoul 156-020, Korea (hereinafter
referred to as "Bukwang"), and TRIANGLE PHARMACEUTICALS, INC., with principal
offices located at 4 University Place, 4611 University Drive, Durham, NC 27707
(hereinafter referred to as "Triangle").
WITNESSETH:
WHEREAS, Bukwang has evidenced the in vitro and in vivo activity of an
L-nucleoside compound known generically as "L-FMAU";
WHEREAS, L-FMAU is covered by patents and patent applications filed in
various countries throughout the world;
WHEREAS, Bukwang, has entered into a License Agreement, dated December 28,
1995, as amended effective September 1, 1997 and December 1, 1997 (the "Primary
License Agreement") with Yale University ("Yale") and University of Georgia
Research Foundation, Inc. ("UGARF"; Yale and UGARF are hereinafter referred to
as the "Primary Licensors"), a copy of which Primary License Agreement is
attached hereto as Exhibit A, pursuant to which Bukwang has obtained an
exclusive worldwide license under the Primary Licensors' patents and patent
applications and has acquired the right to grant licenses under such patents and
patent applications;
WHEREAS, Bukwang possesses certain technology and know-how relating to
L-FMAU and has the right to grant licenses in respect of such technology and
know-how; and
WHEREAS, Triangle desires to obtain an exclusive license under such
patents, patent applications, technology and know-how;
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the parties agree as follows:
ARTICLE 1. DEFINITIONS
The following terms as used herein, when written with an initial capital
letter, shall have the meanings ascribed to them below:
1.1 "Acquisition Cost" shall mean the actual invoiced price paid by a
party to any non-Affiliate third party for acquiring any item (e.g., a Compound
or other active ingredient), including but not limited to, shipping and handling
costs and customs duties incurred and paid by such party in connection with the
acquisition of such item.
1.2 "Affiliate" shall mean any corporation or non-corporate business
entity which controls, is controlled by, or is under common control with a party
to this Agreement. A corporation or non-corporate business entity shall be
regarded as in control of another corporation if it owns, or directly or
indirectly controls, at least fifty (50%) percent of the voting stock of the
other corporation, or (a) in the absence of the ownership of at least fifty
(50%) percent of the voting stock of a corporation or (b) in the case of a
non-corporate business entity, or non-profit corporation, if it possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation or non-corporate business entity, as
applicable.
1.3 "Agreement" or "License Agreement" shall mean this Agreement,
including all Exhibits attached to this Agreement.
1.4 "Bukwang Know-How" shall mean all inventions, discoveries, trade
secrets, information, experience, data, formulas, procedures and results which
are useful for the development and registration of the Compounds or the Licensed
Products and the development, registration, manufacturing, using or selling of
the Licensed Products which are rightfully held by Bukwang as of the Effective
Date (including, but not limited to, any of the foregoing items licensed to
Bukwang under the Primary License
2
<PAGE>
Agreement), or which are not Joint Know-How or Joint Inventions and are
developed or acquired by Bukwang during the period beginning on the Effective
Date and ending upon termination or expiration of this Agreement pursuant to
Article 15 including, but not limited to, all manufacturing and synthesis
know-how.
1.5 "Bukwang Patents" shall mean all patents and patent applications in
the Territory owned or controlled by Bukwang or under which Bukwang has a right
to practice with the right to extend such right to practice to Triangle
(including, but not limited to, all patents and patent applications licensed to
Bukwang under the Primary License Agreement) which contain claims the rights to
which are useful for the development, registration, manufacturing, using or
selling of the Compounds or Licensed Products which are filed prior to or during
the term of this Agreement in the United States or any foreign jurisdiction in
the Territory, including any addition, continuation, continuation-in-part or
division thereof or any substitute application thereof; any patent issued with
respect to such patent application, any reissue, extension or patent term
extension of any such patent, and any confirmation patent or registration patent
or patent of addition based on any such patent; and any other United States and
foreign patent or inventor's certificate with regard thereto. Bukwang Patents
shall include but not be limited to those listed in Exhibit B attached hereto.
1.6 "Bulk Drug Substance" shall mean the Compound in bulk form which, if
appropriately formulated and finished, would be suitable for preclinical or
clinical use.
1.7 "Compounds" shall mean the compound known as L-FMAU, with the chemical
name 2'-fluoro-5-methyl-(beta)-L-arabinofuranosyluracil, including any salts and
esters thereof.
1.8 "Development Program" shall mean the research and development program
described in Article 6 of this Agreement.
1.9 "Dollars" shall mean United States dollars.
1.10 "EBV" shall mean Epstein-Barr virus.
3
<PAGE>
1.11 "Effective Date" shall mean the later of (a) the date first written
above and (b) the date, if any, that the condition set forth in Article 14 shall
have been satisfied or, if applicable, waived.
1.12 "FDA" shall mean the United States Food and Drug Administration or
any successor entity.
1.13 "Field" shall mean all human antiviral applications and uses.
1.14 "HBV" shall mean hepatitis B virus.
1.15 "IND" shall mean an Investigational New Drug Application or its
domestic equivalent.
1.16 "Indemnitees" shall mean (a) in the case of the indemnity set forth
in Section 12.1, Bukwang, its Affiliates, the Primary Licensors and the
directors, officers and employees of any of the foregoing; (b) in the case of
the indemnity set forth in Section 12.2, Triangle, its Affiliates and
sublicensees, and their directors, officers and employees; and (c) in the case
of the Indemnitees referenced in Section 12.3, the parties identified in
Subsections 1.16(a) and 1.16(b) above, as applicable.
1.17 "Joint Inventions" shall mean any inventions related to the Compounds
or the Licensed Products, whether patented or not, which are jointly made during
the period beginning on the Effective Date and ending two (2) years after
termination or expiration of this Agreement pursuant to Article 15 by at least
one (1) Bukwang employee or person contractually required to assign or license
patent rights covering such inventions to Bukwang and at least one (1) Triangle
employee or person contractually required to assign or license patent rights
covering such inventions to Triangle.
1.18 "Joint Know-How" shall mean all inventions, discoveries, trade
secrets, information, data, formulas, procedures and results which are useful
for the development, registration, manufacturing, using or selling of the
Compounds or the Licensed Products which are developed jointly by at least one
(1) Bukwang employee or person
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contractually required to assign or license such data and know-how to Bukwang
and at least one (1) Triangle employee or person contractually required to
assign or license such data or know-how to Triangle, during the period beginning
on the Effective Date and ending two (2) years after termination or expiration
of this Agreement pursuant to Article 15. All Joint Know-How shall be owned
jointly by the parties hereto. Triangle shall have the exclusive right to use
such Joint Know-How in the Territory, unless the license granted pursuant to
Section 2.1 is terminated in a given country or countries of the Territory by
Bukwang pursuant to Section 6.3 or 15.2 or by Triangle pursuant to Section 15.3,
in which case, Bukwang shall have a non-exclusive right to use the Joint
Know-How in such country or countries. Bukwang shall have the exclusive right to
use such Joint Know-How outside the Territory.
1.19 "Joint Project Committee" shall mean the committee described in
Article 7 hereof.
1.20 "Licensed Product(s)" shall mean any Compound or any pharmaceutical
product containing one or more Compounds as an active ingredient, alone or in
combination with other active ingredients.
1.21 "Manufacturing Cost," in respect of a particular item (e.g., a
Compound or other active ingredient), shall mean the costs of direct labor
(including allocable employee benefits and employment taxes), direct material,
direct energy, direct utilities and other charges incurred directly by a party
in the manufacture by it of such item and, without duplication, normal
production overhead (i.e., indirect labor, utilities, maintenance, depreciation
of the manufacturing equipment and facilities and other allocable overhead of
the manufacturing facility), all determined in accordance with U.S. GAAP.
1.22 "NDA" shall mean a New Drug Application or its domestic equivalent.
1.23 "Net Sales" of Licensed Products which contain as their active
ingredients only one or more Compounds shall mean the gross sales price of such
Licensed Products
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billed by Triangle, its Affiliates or sublicensees to independent customers
including any consideration received, directly or indirectly, from such
customers in respect of the sale, distribution or transfer of Licensed Products,
less (a) normal and customary trade, quantity and cash discounts, all rebates
(including those paid to third party payors), sales, use, or other similar
taxes, and all transportation, insurance and handling charges; and (b) all
credits and allowances granted to such independent customers on account of
returns or retroactive price reductions in lieu of returns, whether during the
specific royalty period or not, all determined in accordance with U.S. GAAP. In
the event that Triangle or its Affiliates or sublicensees distribute any
Licensed Products to a third party for non-monetary consideration (e.g., barter
or exchange), such distribution shall be considered a sale for accounting and
royalty purposes. Net Sales for any such distributions shall be determined on a
country-by-country basis and shall be the average price of "arm's length" sales
by Triangle or its Affiliates or sublicensees in such country in the Territory
during the royalty period in which such sale occurs or, if no such "arm's
length" sales occurred in such country in the Territory during such royalty
period, during the last royalty period in which such "arm's length" sales
occurred. If no "arm's length" sales have occurred in a particular country in
the Territory, Net Sales for any such distributions in such country in the
Territory, shall be the average price of "arm's length" sales in all countries
in the Territory during such royalty period.
1.24 "Net Sales" of Licensed Products which contain as their active
ingredients both or one or more Compounds and other compounds (a "Combination
Product") shall mean the gross sales price of such Combination Product billed by
Triangle, its Affiliates or sublicensees to independent customers, including any
consideration received, directly or indirectly, from such customers in respect
of the sale, distribution or transfer of Licensed Products, less all the
allowances, adjustments, reductions, discounts, taxes, duties, rebates and other
items referred to in Section 1.23 multiplied by a fraction, the numerator of
which shall be the billing party's Acquisition Cost or Manufacturing Cost,
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as applicable, for all Compounds included in such Licensed Product and the
denominator of which shall be the billing party's Acquisition Cost or
Manufacturing Cost, as applicable, for all active ingredients contained in such
Licensed Product, all determined in accordance with U.S. GAAP. In the event that
Triangle or its Affiliates or sublicensees distribute any Licensed Products to a
third party for non-monetary consideration (e.g., barter or exchange), such
distribution shall be considered a sale for accounting and royalty purposes. Net
Sales for any such distributions shall be determined on a country-by-country
basis and shall be the average price of "arm's length" sales by Triangle or its
Affiliates or sublicensees in such country in the Territory during the royalty
period in which such sale occurs or, if no such "arm's length" sales occurred in
such country in the Territory during such royalty period, during the last
royalty period in which such "arm's length" sales occurred. If no "arm's length"
sales have occurred in a particular country in the Territory, Net Sales for any
such distributions in such country in the Territory, shall be the average price
of "arm's length" sales in all countries in the Territory during such royalty
period.
1.25 "Phase II Completion Date" shall mean sixty (60) days after the
completion of statistical analyses of the final results of those Phase II
clinical studies which Triangle considers reasonably necessary for purposes of
inclusion in an NDA for a Licensed Product for HBV. As used in the preceding
sentence, "Phase II clinical trials" shall mean those well-controlled clinical
trials sponsored by Triangle, the primary objective of which (as reasonably
determined by Triangle) is to ascertain additional data regarding the safety and
tolerance of a Licensed Product and preliminary data regarding such Licensed
Product's antiviral effects against HBV.
1.26 "Phase III Completion Date" shall mean sixty (60) days after the
completion of statistical analyses of the final results of those Phase III
clinical studies which Triangle considers reasonably necessary for inclusion in
an NDA for a Licensed Product for HBV. As used in the preceding sentence, "Phase
III clinical trials" shall
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mean those well-controlled clinical trials sponsored by Triangle the primary
objective of which (as reasonably determined by Triangle) is to ascertain
definitive safety data and efficacy data regarding such Licensed Product's
antiviral effects against HBV sufficient to support an NDA.
1.27 "Registration" shall mean, in relation to any Licensed Product, such
approvals by the regulatory authorities in a given country (including pricing
approvals, if any) as may be legally required before such Licensed Product may
be commercialized or sold in such country.
1.28 "Territory" shall mean the entire world, excluding Korea.
1.29 "Toxicity Study Completion Date" shall mean thirty (30) days after
completion of statistical analyses of the results of the second toxicity study
referred to in Section 6.1.
1.30 "Triangle Know-How" shall mean all inventions, discoveries, trade
secrets, information, experience, data, formulas, procedures and results arising
solely out of the Development Program or the manufacture, use or sale of the
Licensed Products which are useful for development, registration, manufacturing,
using or selling of the Compounds or the Licensed Products which are rightfully
held by Triangle as of the Effective Date, or which are not Joint Know-How or
Joint Inventions and are developed or acquired by Triangle during the period
beginning on the Effective Date and ending upon termination or expiration of
this Agreement pursuant to Article 15.
1.31 "Triangle Patents" shall mean all patents and patent applications
owned or controlled by Triangle or under which Triangle has a right to practice
with the right to extend such right to practice to Bukwang which contain claims
the rights to which are useful for the development, registration, manufacturing,
using or selling of the Compounds or the Licensed Products, including any
addition, continuation, continuation-in-part or division thereof or any
substitute application thereof; any patent issued with respect to such patent
application, any reissue, extension or patent term extension of any
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such patent, and any confirmation patent or registration patent or patent of
addition based on any such patent; and any other United States and foreign
patent or inventor's certificate with regard thereto.
1.32 "U.S. GAAP" shall mean generally accepted accounting principles in
the United States, consistently applied.
1.33 "Valid Claim" shall mean an issued or granted claim of any issued and
unexpired patent included among the Bukwang Patents, which has not been held
unenforceable, unpatentable or invalid by a decision of a court or governmental
body of competent jurisdiction, which is unappealable or unappealed within the
time allowed for appeal, which has not been rendered unenforceable through
disclaimer or otherwise or which has not been lost through an interference or
opposition proceeding.
ARTICLE 2. LICENSES
2.1 License Under Bukwang Patents and Bukwang Know-How.
Bukwang hereby grants Triangle the exclusive right and license to
practice the Bukwang Patents and the Bukwang Know-How to make, have made, use,
import, offer for sale, sell and have sold Licensed Products (including, but not
limited to, Bulk Drug Substance) in the Territory during the term of this
Agreement.
2.2 Extension to Affiliates. Triangle shall have the right to extend its
rights under the license granted in Section 2.1 to one or more of its
Affiliates, provided, that Triangle (a) gives Bukwang at least thirty (30) days'
prior written notice of such extension and (b) shall remain responsible for such
Affiliate's compliance with all obligations under this Agreement which apply to
such Affiliate.
2.3 Sublicenses. Triangle may grant sublicenses to non-Affiliate third
parties without any consent; provided, however, that in the event that Triangle
proposes to grant a sublicense to a prospective non-Affiliate sublicensee ***
***
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*** , then Triangle must first obtain the prior consent of
Bukwang and the Primary Licensors, which consent shall not be unreasonably
withheld or delayed. No sublicense granted by Triangle shall relieve it of any
obligation hereunder. With respect to any sublicense for which Bukwang's consent
is not required pursuant to the immediately preceding sentence, Triangle shall
provide Bukwang with notice of its intention to grant a sublicense at least
fifteen (15) days prior to entering into the applicable sublicense agreement.
Triangle shall promptly provide Bukwang with a copy of any executed sublicense
agreement.
2.4 License Under Triangle Patents and Triangle Know-How. Triangle hereby
grants Bukwang a non-exclusive right and license to practice the Triangle
Patents and Triangle Know-How to make, have made, use, import, offer for sale,
sell and have sold Licensed Products, with a right to sublicense, outside the
Territory and, in the event Triangle's license granted under Section 2.1 is
terminated in a given country of the Territory (other than by expiration or by
Triangle pursuant to Section 15.2 of this Agreement), in such country from and
after the date of termination. The license granted pursuant to this Section 2.4
shall be royalty free.
2.5 Covenant Not to Sue. Each party granting a license agrees that during
the term of this Agreement, neither it nor any of its Affiliates, will assert
against the other party (a "licensed party") or its Affiliates or sublicensees
any patent not included in the Bukwang Patents or Triangle Patents, as
applicable, that is or might be infringed by reason of such licensed party's or
its Affiliates' or sublicensees' exercise of the license granted to it
hereunder.
2.6 Right of First Discussion. If, at any time during the term hereof,
Bukwang (a) acquires rights in respect of human uses or applications of L-FMAU
outside the Field (a "Non-Field Use") and (b) decides to license any rights
relating to such Non-Field Use, it shall give prompt notice thereof to Triangle.
Such notice shall include a description of the rights which Bukwang wishes to
license, together with all data and information in
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Bukwang's possession relating to the applicable Non-Field Use. Thereafter,
Triangle shall have thirty (30) days to notify Bukwang whether Triangle is
interested in commencing negotiations to obtain a license to such rights (the
"Non-Field License"). If Triangle does not give such notice within such thirty
(30) day period, Bukwang shall be entitled to commence negotiations with a third
party in respect of the Non-Field License. If Triangle gives such notice within
such thirty (30) days, the parties shall commence good faith negotiations in an
effort to reach agreement on the terms of the Non-Field License. If such
negotiations do not result in the execution of the Non-Field License, Bukwang
agrees that, for a period of twelve (12) months after cessation of such
negotiations, it will not offer the Non-Field License to a third party
containing financial terms more favorable than those last offered to Triangle
during such negotiations without first offering the Non-Field License to
Triangle on the same terms. In such event, Triangle shall have thirty (30) days
to accept the Non-Field License containing such more favorable financial terms
and if it fails to do so, it shall have no further rights to such Non-Field Use.
2.7 Retained License. Triangle acknowledges that, pursuant to paragraph
2.2 of the Primary License Agreement, the Primary Licensors have retained on
their behalf and on the behalf of any of their research collaborators a
royalty-free right and license to make and use Licensed Products and to practice
the Licensed Technology (as defined therein) for research and educational
purposes only.
2.8 United States Government Rights. Triangle acknowledges that the
Bukwang Patents, Bukwang Know-How, or portions thereof were developed with
financial or other assistance through grants or contracts funded by the United
States government. Triangle acknowledges that in accordance with Public Law
96-517, other applicable statutes, regulations and Executive Orders now in
existence or as may be amended or subsequently enacted, the United States
government has certain rights in the Bukwang Patents and Bukwang Know-How.
Triangle shall take all reasonable actions
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necessary to enable the Primary Licensors to satisfy their obligations of which
Triangle is aware under any federal law relating to the Bukwang Patents or
Bukwang Know-How. If at any time during the term of this Agreement, the United
States government should take action which terminates the Primary License
Agreement or requires that the Primary License Agreement be terminated, Triangle
acknowledges that upon such termination, this Agreement will automatically
terminate. In such event, Triangle shall not have any right to the return of any
payments of any kind made by it to Bukwang prior to the date of termination,
other than any overpayment of earned royalties as determined by any audit
conducted pursuant to Section 4.2.
2.9 No Implied License. The license and rights granted in this Agreement
to Triangle shall not be construed to confer any rights upon Triangle by
implication, estoppel or otherwise as to any technology, know-how or any other
intellectual property not specifically identified as Bukwang Patents or Bukwang
Know-How.
ARTICLE 3. LICENSE FEE, ROYALTIES, AND MILESTONE PAYMENTS
3.1 License Fee. As partial consideration for entering into this
Agreement, Triangle agrees to pay Bukwang a license fee of $6,000,000, payable
within ten (10) days after the Effective Date.
3.2 Milestone Payments.
(a) Triangle shall pay Bukwang a milestone payment ("Milestone
Payment") in the amount specified below no later than *** after the occurrence
of the corresponding event designated below (except as otherwise specified in
Subsection 3.2(e)), unless Triangle has given Bukwang notice of termination of
this Agreement in the entire Territory prior to such due date.
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Milestone Milestone
--------- ---------
Payment
-------
*** ***
Marketing Milestone Payments (in accordance with
Subsection 3.2(b)) $30,000,000
-----------
Total Milestone Payments $62,500,000
(b) On each *** in Net Sales (up to a cumulative total of *** in Net
Sales within the Territory) a Marketing Milestone Payment of *** will be due (up
to an aggregate of $30,000,000), as reflected in clause (vii) of the Subsection
3.2(a). Upon payment of the final *** in respect of the first *** in cumulative
Net Sales within the Territory, the Marketing Milestone Payment obligations will
terminate. Each Marketing Milestone Payment will be due at the same time the
royalty report covering the royalty period in which such incremental *** in Net
Sales is due.
(c) The *** total reflects the additional Milestone Payments which
will be due upon ***. The Milestone Payment due upon ***
(d) All Milestone Payments described in clauses (i), (ii), and (iii)
of Subsection 3.2(a) will be *** against earned royalties payable to Bukwang.
Such credit may be applied during each royalty period (up to a maximum of *** of
royalties payable for such royalty period) until *** of such Milestone Payments
have been credited.
(e) In the event Bukwang terminates this Agreement pursuant to Section 6.3
or 15.2 or Triangle terminates this Agreement with respect to the entire
Territory pursuant to Section 15.3, any *** Milestone Payment due pursuant to
clause (vii) of Subsection 3.2(a) shall be ***. By
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way of example only, if Triangle terminates the Agreement in the entire
Territory and, at the time of termination *** , Triangle would owe Bukwang a
final *** Milestone Payment of ***
3.3 Earned Royalties; Duration and Reduction.
(a) Triangle shall pay Bukwang a royalty equal to fourteen percent
(14%) of the Net Sales of Licensed Products sold in the
Territory by Triangle and its Affiliates and sublicensees for
the periods and subject to the reductions set forth in this
Agreement.
(b) Royalties shall be paid in respect of Licensed Products in a
given country for a period of ten (10) years after the initial
commercial introduction of a Licensed Product in such country.
After such ten (10) year period in a given country, royalties
shall be paid in respect of a given Licensed Product in such
country only so long as the manufacture, use, offer for sale,
sale or importation of such Licensed Product in such country
would, in the absence of this license, infringe a Valid Claim.
(c) If at any time during such ten (10) year period, (I) a third
party or third parties commence selling a therapeutic product
in a country of the Territory in which no Valid Claims exist
and (ii) such product contains any Compound ("unlicensed unit
sales") and (iii) such unlicensed unit sales for any royalty
period amount to *** or more of Triangle's unit sales of such
Licensed Product in such country in such royalty period,
determined in accordance with Subsection 3.3(d) below, then
Triangle's royalty obligation in such country with respect to
such Licensed Product shall
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be reduced by *** of the royalty otherwise payable commencing
with the royalty period next succeeding the royalty period in
which such *** threshold was initially exceeded and shall
resume with the royalty period next succeeding the first
royalty period in which such *** threshold is no longer
exceeded.
(d) For purposes of this Section 3.3, (i) "unlicensed unit sales"
and "Triangle unit sales" shall be deemed to mean the grams of
Compounds contained in the third party product (irrespective
of dosage form) or the Licensed Product (irrespective of
dosage form), respectively, as reflected on the label of each
such unit; and (ii) unlicensed unit sales shall be determined
by the sales reports of IMS America Ltd. Of Plymouth Meeting,
Pennsylvania ("IMS") or any successor to IMS or any other
independent marketing auditing firm selected by Triangle or
its Affiliates or sublicensees and reasonably acceptable to
Bukwang. If Triangle is entitled to a royalty reduction based
on unlicensed unit sales pursuant to Subsection 3.3(b) for any
royalty period, it or its Affiliates or sublicensees shall
submit the sales report of IMS or such other independent firm,
as applicable, for the relevant royalty period to Bukwang,
together with Triangle's or its Affiliates' or sublicensees'
sales report for the relevant royalty period. Such sales
reports for each royalty period in which Triangle is entitled
to such royalty reduction shall be submitted with the royalty
report for such royalty period submitted pursuant to Section
4.1.
3.4 Annual Minimum Royalties. In the event that, during the third full
calendar year following the year during which the FDA Registration for an HBV
indication is granted for a Licensed Product or any calendar year thereafter for
as long as
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royalty obligations exist *** , Triangle's total annual royalty payments
(without giving effect to any credits taken pursuant to Subsection 3.2 (d)) to
Bukwang pursuant to Section 3.3 above are less than the annual minimum amount
set forth opposite such year below (the "Annual Minimum"), Triangle shall make a
payment to Bukwang together with the royalty report for the fourth quarter of
such year required in Section 4.1 of this Agreement equal to the difference
between such Annual Minimum and the royalties paid to Bukwang for the preceding
year pursuant to Section 3.3 above:
Calendar Year Annual Minimum
------------- --------------
***
As used in this Section 3.4, *** .
3.5 Accrual of Royalties. No royalty shall be payable on a Licensed
Product made, sold, or used for tests or development purposes, or distributed as
samples. No royalties shall be payable on sales among Triangle, its Affiliates
and sublicensees, but royalties shall be payable on subsequent sales by
Triangle, its Affiliates or sublicensees to a third party. No multiple royalty
shall be payable because the manufacture, use, offer for sale, sale or import of
a Licensed Product is covered by more than one Valid Claim or by at least one
Valid Claim and the Bukwang Know-How.
3.6 Third Party Royalties. If Triangle, its Affiliates or sublicensees
determine, after consultation with Bukwang, but at Triangle's sole discretion,
that it or they may be required to pay royalties and other amounts to any third
party because the manufacture, use, offer for sale, sale or importation of a
Licensed Product infringes or may infringe any patent or other intellectual
property rights of such third party in one or more countries (collectively, the
" Third Party Royalties"), Triangle, its Affiliates or sublicensees may
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deduct the Third Party Royalties it or they pay to such third party from earned
royalties and Milestone Payments thereafter due to Bukwang. Triangle may credit
*** of any Third Party Royalties up to *** of Net Sales of Licensed Products and
*** of the amount of any Third Party Royalties in excess of *** of Net Sales of
Licensed Products. In no event shall the royalties due on Net Sales of Licensed
Products in any royalty period or any Milestone Payment be thereby reduced on
account of any reduction pursuant to this Section 3.6 by more than *** of the
amount which would have been otherwise payable.
3.7 Compulsory Licenses. Should a compulsory license be granted to any
third party in any country of the Territory to make, have made, use, import,
offer for sale or sell Licensed Products, the royalty rate payable hereunder for
sales of the Licensed Products by Triangle in such country shall be adjusted to
match any lower royalty rate granted to the third party for such country.
3.8 Reduction in Royalty Due to Invalid Claims. In the event that
applicable claims of all patents or patent applications included within the
Bukwang Patents under which Triangle is selling or actively developing a
Licensed Product shall be held invalid or not infringed by the Licensed Products
Triangle is selling or actively developing by a court of competent jurisdiction
in a given country of the Territory, whether or not there is a conflicting
decision by another court of competent jurisdiction in such country, Triangle
may reduce all royalty payments on its, its Affiliates' or its sublicensees'
sales of such Licensed Product covered by such claims by *** and, if it does so,
shall deposit the reduced portion of such royalty payments in an
interest-bearing escrow account until such judgment is finally reversed by an
unappealed or unappealable decision of a court of competent jurisdiction of
higher dignity in such country or is otherwise unappealable or is unappealed
within the time allowed therefor, except that, in those instances, if any, in
which Triangle has patent prosecution responsibility in respect
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of such patents and patent applications, if such judgment becomes unappealable
due to the inaction of Triangle or its Affiliates or sublicensees such judgment
will be deemed to have been reversed. If such judgment is finally reversed by an
unappealable decree of a court of competent jurisdiction of higher dignity in
such country, or is deemed reversed as provided herein, the former royalty
payments shall be resumed and the royalty payments not theretofore made and
interest earned thereon shall become due and payable to Bukwang. If such
judgment is not reversed, deemed reversed, is unappealed or becomes
unappealable, as aforesaid, Triangle shall be entitled to all sums in such
escrow account. Triangle will include an accounting of any escrow account
established pursuant to this Section 3.8 in each royalty report submitted to
Bukwang pursuant to Article 4.
3.9 Limitation on Royalty Reduction. Any provision of this Agreement to
the contrary notwithstanding, in no event will earned royalties paid to Bukwang
be less than *** of Net Sales of Licensed Products for any royalty period during
the term hereof.
ARTICLE 4. REPORTS AND ACCOUNTING
4.1 Royalty Reports and Records.
(a) During the term of this Agreement commencing with the commercial
introduction of the first Licensed Product, Triangle shall furnish, or cause to
be furnished to Bukwang, written reports governing each of Triangle's fiscal
quarters showing:
(i) the gross sales of all Licensed Products sold by Triangle, its
Affiliates and sublicensees during the reporting period, together with the
calculations of Net Sales in accordance with Sections 1.23 and 1.24; and
(ii) the royalties payable in Dollars, which shall have accrued
hereunder in respect of such Net Sales; and
(iii) the exchange rates used, if any, in determining the amount of
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Dollars; and
(iv) any withholding taxes required to be made from such royalties.
(b) With respect to sales of the Licensed Product invoiced in
Dollars, the gross sales, Net Sales, and royalties payable shall be expressed in
Dollars. With respect to sales of the Licensed Product invoiced in a currency
other than Dollars, the gross sales, Net Sales, and royalties payable shall be
expressed in the domestic currency of the party making the sale together with
the Dollar equivalent of the royalty payable, calculated using the simple
average of the exchange rates published in the Wall Street Journal on the last
day of each month during the reporting period. If any Triangle Affiliate or
sublicensee makes any sales invoiced in a currency other than its domestic
currency, the gross sales and Net Sales shall be converted to its domestic
currency in accordance with the Affiliate's or sublicensee's normal accounting
practices. Triangle or its Affiliate or sublicensee making any royalty payment
shall furnish to Bukwang appropriate evidence of payment of any tax or other
amount deducted from any royalty payment.
(c) Reports shall be made on a quarterly basis. Quarterly reports
shall be due within *** of the close of every Triangle fiscal quarter and shall
be prepared in accordance with U.S. GAAP. Triangle shall keep accurate records
in sufficient detail to enable royalties and other payments payable hereunder to
be determined. Triangle shall be responsible for all royalties and late payments
that are due to Bukwang that have not been paid by Triangle's Affiliates and
sublicensees. Triangle's Affiliates and sublicensees shall have, and shall be
notified by Triangle that they have, the option of making any royalty payment
directly to Bukwang.
4.2 Right to Audit. Bukwang (or the Primary Licensors on Bukwang's behalf
if authorized in writing to Triangle by Bukwang and provided they agree to be
bound by the provisions of Sections 4.2 and 4.3) shall have the right, upon
prior notice to Triangle,
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not more than once in each Triangle fiscal year nor more than once in respect of
any fiscal year, through an independent certified public accountant selected by
Bukwang or the Primary Licensors, as applicable, and acceptable to Triangle,
which acceptance shall not be unreasonably refused, to have access during normal
business hours to those records of Triangle as may be reasonably necessary to
verify the accuracy of the royalty reports required to be furnished by Triangle
pursuant to Section 4.1 of the Agreement. Such accountant may report only the
accuracy or inaccuracy of the royalty reports furnished by Triangle and, in the
event they are determined to be inaccurate, the corrections in the amounts which
need to be made to such reports. Triangle shall include in any sublicenses
granted pursuant to this Agreement a provision requiring the sublicensee to keep
and maintain records of sales made pursuant to such sublicense in accordance
with U.S. GAAP and to grant access to such records by Bukwang's or the Primary
Licensors' independent certified public accountant, as applicable, under the
same terms that Bukwang has access to Triangle's records. If such independent
certified public accountant's report shows any underpayment of royalties by
Triangle its Affiliates or sublicensees, within thirty (30) days after
Triangle's receipt of such report, Triangle shall remit or shall cause its
sublicensees to remit to Bukwang:
(a) the amount of such underpayment; and
(b) if such underpayment exceeds *** percent of the total royalties
owed for the fiscal year then being reviewed, the reasonably necessary fees and
expenses of such independent certified public accountant performing the audit.
Otherwise, Bukwang's accountant's fees and expenses shall be borne by Bukwang.
Any overpayment of royalties shall be fully creditable against future royalties
payable in any subsequent royalty periods or if this Agreement terminates or
expires before such overpayment in fully credited, Bukwang agrees to refund the
uncredited portion of such overpayment within *** after receipt of the final
royalty payment hereunder.
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Upon the expiration of *** following the end of any fiscal year, the calculation
of royalties payable with respect to such fiscal year shall be binding and
conclusive on Bukwang and Triangle, unless an audit for such fiscal year is
initiated before expiration of such *** . Triangle shall retain, and shall cause
its Affiliates and sublicensees to retain, those records required to be
maintained pursuant to this Section 4.2 in respect of each fiscal year for a
period of *** after the end of such fiscal year.
4.3 Confidentiality of Records. All information subject to review under
this Article 4 shall be confidential. Except where otherwise required by law,
Bukwang and its accountant shall retain all such information in confidence.
ARTICLE 5. PAYMENTS
5.1 Payments and Due Dates. (a) Except as otherwise provided herein,
royalties and other amounts payable to Bukwang as a result of activities
occurring during the period covered by each royalty report provided for under
Article 4 of this Agreement shall be due and payable on the date such royalty
report is due. Payments of royalties and other amounts in whole or in part may
be made in advance of such due date. Bukwang and Triangle agree that unless
otherwise directed by Bukwang in writing, subject, however, to the last sentence
of this Subsection 5.1(a), Triangle will remit all royalties and other amounts
due pursuant to Article 3 of this Agreement in the following percentages (or, if
different, in the percentages then in effect under the Primary License
Agreement) to Bukwang and each of the Primary Licensors:
Percentage Allocation
Type of Payment (Section) UGARF Yale Bukwang
License Fee (Section 3.1) *** *** ***
Milestone Payments (Section 3.2) *** *** ***
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Earned Royalties (Section 3.3) *** *** ***
Annual Minimum Royalties (Section 3.4) *** *** ***
Bukwang agrees that payment by Triangle of any amounts due pursuant to Article 3
to Bukwang, UGARF and Yale in the percentages set forth above shall be deemed to
a payment to Bukwang. Bukwang further agrees that in the event royalties payable
hereunder for a given royalty period are less than *** of the Net Sales of
Licensed Products during such royalty period, Triangle may make such adjustments
in the applicable percentages set forth above as are necessary to ensure that
the sum of the royalties paid to UGARF and YALE is not less than *** of the Net
Sales of Licensed Products for such royalty period. Bukwang shall have the
option to have Triangle make all payments described in this Subsection 5.1(a)
directly to Bukwang upon thirty (30) days' prior written notice and, if it
exercises such option, may, thereafter, elect to have Triangle make payments as
aforesaid to Bukwang, UGARF and Yale upon thirty (30) days' prior written
notice. Bukwang may not change its election more than once during each fiscal
year unless such change is required in order for Bukwang to comply with
applicable laws and regulations. In the event this License Agreement becomes a
direct license among Triangle and the Primary Licensors pursuant to paragraph
2.5 of the Primary License Agreement, all payments made pursuant to this
Subsection 5.1(a) will be made by Triangle to the Primary Licensors in the
percentages then in effect under the Primary License Agreement and to Bukwang as
provided in Subsection 5.1(b) below.
(b) Any provision of this Agreement to the contrary notwithstanding,
any royalties on Net Sales of Licensed Products due pursuant to this Agreement
which would not constitute Licensed Products as defined in the Primary License
Agreement shall be payable solely to Bukwang. Bukwang shall notify Triangle of
any instances to which this Subsection 5.1(b) applies and, thereafter, Triangle
shall remit royalties on such sales as
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provided in this Subsection 5.1(b).
(c) All payments to Bukwang shall be made by wire transfer to an
account of Bukwang designated by Bukwang from time to time; provided, however,
that in the event that Bukwang fails to designate such account, Triangle or its
Affiliates and sublicensees may remit payment to Bukwang to the address
applicable for the receipt of notices hereunder; provided, further, that any
notice by Bukwang of such account or change in such account, shall not be
effective until fifteen (15) days after receipt thereof by Triangle. Unless
otherwise agreed, all payments to Yale and UGARF shall be made as specified in
paragraph 5.1 of the Primary License Agreement.
5.2 Currency Restrictions. Except as hereinafter provided in this Section
5.2, all royalties and other amounts shall be paid in Dollars. If, at any time,
legal restrictions prevent the prompt remittance of part of or all royalties
with respect to any country in the Territory where Licensed Products are sold,
Triangle or its sublicensee shall have the right and option to make such
payments by depositing the amount thereof in local currency to Bukwang's
accounts in a bank or depository in such country.
5.3 Overdue Payments. In the event any payment due hereunder is not made
when due, the payment shall accrue interest (beginning on the date such payment
is due) calculated at the rate of *** and such payment when made shall be
accompanied by all interest so accrued. The remittance of such interest shall
not foreclose Bukwang from exercising any other rights it may have pursuant to
this Agreement because such payment is late.
ARTICLE 6. DEVELOPMENT PROGRAM
6.1 Development Program. Subject to Bukwang's timely performance of its
obligations hereunder, and in complete fulfillment of Triangle's diligence
obligations hereunder and any such obligations implied by law, Triangle will
undertake, or, if applicable, will cause its Affiliates and sublicensees to
undertake, the development
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activities described in this Article 6. Triangle shall, at its expense, use its
*** (a) to conduct a development program (the "Development Program") relating to
the use of the Licensed Product for HBV and (b) if the results of the
Development Program so justify, to seek Registration for such Licensed Product
in the United States. As part of the Development Program, Triangle shall be
responsible for conducting 3-month toxicity studies in two species of animals
pursuant to protocols which it develops or approves, as applicable. Triangle
shall commence both toxicity studies as promptly as practicable *** after it
obtains Bulk Drug Substance of a quality and in such quantities reasonably
necessary to perform such toxicity studies. Bukwang shall promptly reimburse
Triangle for *** of the out-of-pocket costs (excluding all drug costs, which
shall be the responsibility of Triangle) incurred by Triangle in conducting such
toxicity studies, subject to reasonable substantiation by Triangle of such
out-of-pocket costs. The Development Program shall be mutually discussed by the
parties hereto at the meetings of the Joint Project Committee held pursuant to
Article 7 and shall take into consideration studies and experiments carried out,
or to be carried out by, Bukwang and its licensees, if any, outside the
Territory, but the activities within the Territory comprising the Development
Program shall be determined at Triangle's sole discretion. Anything in this
Agreement to the contrary notwithstanding, Triangle shall be entitled to
exercise prudent and justifiable business judgment in meeting its ***
obligations hereunder. For purposes of this Article 6, *** .
6.2 Fulfillment.
(a) Subject to the foregoing provisions of this Article 6,
Triangle's *** obligations set forth in this Article 6 shall be deemed to have
been satisfied if
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Triangle:
(i) files what it reasonably believes to be a complete NDA for a
Licensed Product for HBV with the FDA within *** after the Effective Date;
provided, however, said *** period shall be subject to up to *** extensions
of *** , at Triangle's election, by payment to Bukwang of a sum of *** for each
*** extensions and *** for each *** extensions; and
(ii) commercially introduces, or causes its Affiliates or
sublicensees to commercially introduce, such Licensed Product in the United
States within *** after FDA Registration of such Licensed Product, if otherwise
commercially feasible.
(b) Triangle agrees to use its *** to give Bukwang at least ten (10)
days' notice prior to the exercise of any extension pursuant to Subsection 6.2
(a). Extension payments under Subsection 6.2(a) shall be made within the first
ten (10) days of each such extension period. Notwithstanding any provision of
Subsection 6.2(a) to the contrary: (i) in the event that Triangle is unable to
obtain Bulk Drug Substance of a quality and in such quantities reasonably
necessary to perform the toxicity studies referred in Section 6.1 within ***
after the Effective Date, the *** period referred to in Subsection 6.2(a) shall
be adjusted by that period in excess of such *** period that expires before
Triangle obtains such Bulk Drug Substance; provided, however, that the period of
the extension prescribed in this clause (i) of this Subsection 6.2(b) shall, in
no event, exceed *** ; and (ii) such *** period shall also be adjusted
appropriately (x) to account for any delay by Bukwang in the transfer of Bukwang
Know-How beyond the period specified in Section 10.1 and (y) in the event the
FDA requires that toxicity studies other than those described in Section 6.1 be
performed prior to the commencement of clinical trials in the U.S.
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6.3 Bukwang Remedies.
(a) In the event Triangle fails to meet any diligence requirements
set forth in Subsection 6.2(a), and does not demonstrate to Bukwang's reasonable
satisfaction that, despite Triangle's *** , the failure to meet the diligence
requirement was delayed due to reasons beyond Triangle's reasonable control,
Bukwang shall have the option, as its sole and exclusive remedy, to terminate
the Agreement in the entire Territory. The remedy set forth in this Section 6.3
shall be Bukwang's sole and exclusive remedy.
(b) Prior to exercising any rights under this Section 6.3, Bukwang
shall give Triangle thirty (30) days' notice and shall meet with Triangle, at
Triangle's request and expense, during such thirty (30) day period, to discuss
any disagreements about whether Triangle has complied with the applicable
diligence requirements of this Article 6. Upon expiration of such thirty (30)
day period, Bukwang shall have the right in its sole discretion to proceed with
the exercise of all rights and remedies provided for herein unless the
applicable diligence requirement is fulfilled during such thirty (30) day
period.
6.4 Clinical Utility Diligence Obligation. Triangle acknowledges that
viral resistance may limit the clinical utility and commercial potential of the
Compounds. In the conduct of the Development Program, Triangle shall use its ***
to conduct preclinical and clinical studies of the Compounds in combination with
other anti-HBV drugs or drug candidates in order to determine *** . Triangle
shall conduct preclinical combination studies with at least *** and shall use
its *** to conduct clinical combination studies with as many other drugs or drug
candidates as it deems
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appropriate to determine the optimal combinations or sequence of combinations
necessary to provide maximum efficacy against HBV and enhance the clinical
utility and commercial potential of the Compounds. Such combination studies may
include *** and, because the outcome of such combination studies cannot be
predicted with certainty, these studies may include other drugs or drug
candidates being developed by Triangle or third parties which because of various
factors are ultimately determined not to be additive to, or synergistic with,
the Compounds.
ARTICLE 7. JOINT PROJECT COMMITTEE
7.1 Appointment of Coordinators. As soon as practicable after the
Effective Date, Bukwang and Triangle shall each appoint an authorized
representative (a "Coordinator"). Each such party shall provide notice to the
other as to the identity of the individual so appointed. Each Coordinator shall
be responsible for communications, other than legal notices, between the parties
with respect to the subject matter of this Agreement. Each party may replace its
Coordinator at any time for any or no reason by providing written notice to the
other party.
7.2 Joint Project Committee. The Coordinators shall establish the Joint
Project Committee consisting of representatives of Triangle and Bukwang. The
Joint Project Committee will consist of at least three (3) persons from each of
Triangle and Bukwang, such persons having significant responsibility for the
development and/or marketing of the Licensed Product. The Joint Project
Committee will meet from time to time at mutually agreeable times via
teleconference or in-person, but no less than semi-annually during the term of
the Agreement. The Coordinators shall set the agenda for each meeting, and each
Coordinator shall determine which regular members of Joint Project Committee and
other representatives of such Coordinator's party shall attend in light of the
agenda. Each party shall bear its own costs incurred in connection with
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participation in the Joint Project Committee.
7.3 Objective of the Joint Project Committee. The primary objective of the
Joint Project Committee will be to facilitate the expeditious Registration of a
Licensed Product in the U.S. by Triangle and in Korea by Bukwang by, inter alia:
(a) facilitating the exchange of data and study results between the
parties;
(b) providing a forum for protocol and development plan review; and
(c) coordinating the developmental efforts of the parties so as to
avoid duplication and inconsistency of such efforts.
Each party agrees to give due consideration to any input received from the
other party at such Joint Project Committee meetings; provided, however, that
all final decisions relating to the development of Licensed Products in the
Territory will be made by Triangle and all final decisions relating to the
development of Licensed Products in Korea will be made by Bukwang; provided,
further, that Bukwang will give due consideration to input from Triangle as to
the design of clinical trial protocols from Phase I to Phase III in Korea and
will give Triangle's scientists access to the results of such clinical trials.
7.4 Exchange of Study Results. Each party shall submit a report detailing
the results of each non-clinical and clinical study which it performs to the
other party within thirty (30) days after completion of the final statistical
analyses of the results of such study. In addition, each party will provide the
other party with *** progress reports summarizing its activities in respect of
the development of Licensed Products during the relevant semi-annual period.
Such reports shall cover the *** and shall be due on or before *** .
7.5 Publications. Each party reserves the right to publish or publicly
present
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the results of its own development activities in respect of the Licensed
Products (the "Results"). The party proposing to publish or publicly present the
Results (the "publishing party") will, however, submit a draft of any proposed
manuscript, abstract, speech, transparencies, presentation materials and press
releases to the other party (the "non-publishing party") for comments at least
fifteen (15) days prior to submission for publication or oral presentation,
except, in the case of press releases, where applicable law, in the reasonable
opinion of the publishing party, requires such press release to be issued within
time constraints which would make such review impractical. The non-publishing
party shall notify the publishing party in writing within fifteen (15) days of
receipt of such draft whether such draft contains Information (as hereinafter
defined) of the non-publishing party which it considers to be confidential under
the provisions of Article 13 hereof, or information that if published would have
an adverse effect on a patent application for which the non-publishing party has
initial patent prosecution responsibility pursuant to Article 8 of this
Agreement. In the latter case, the non-publishing party shall have the right to
request a delay and the publishing party shall delay such publication for a
period not exceeding sixty (60) days. In any such notification, the
non-publishing party shall indicate with specificity its suggestions regarding
the manner and degree to which the publishing party may disclose such
information. The publishing party shall have the final authority to determine
the scope and content of any publication, provided that such authority shall be
exercised with reasonable regard for the interests of the non-publishing party,
except that no publication will contain any Information disclosed by the
non-publishing party to the publishing party without the non-publishing party's
prior written permission. Each party shall cause its Affiliates, licensees or
sublicensees, as the case may be, to comply with the requirements of this
Section 7.5 with respect to any of their proposed publications.
ARTICLE 8. PATENT PROSECUTION
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8.1 Title to Inventions. Each party shall have and retain sole title in
inventions, whether or not patentable, made by it or on its behalf (as by its
employees or agents) in the course of work performed under this Agreement.
8.2 Bukwang Patents. (a) During the period ending *** after the Effective Date,
Bukwang shall, in consultation with Triangle, file, prosecute and maintain all
patent applications and patents included in the Bukwang Patents which Bukwang
owns, if any, at its sole expense. At the end of such *** period, Triangle shall
assume responsibility for filing, prosecution and maintenance of the Bukwang
Patents owned by Bukwang, if any, at Triangle's expense. Bukwang and its patent
counsel will cooperate fully with Triangle and its patent counsel to effect an
orderly transfer of such prosecution and maintenance responsibilities.
(b) With respect to any Bukwang Patents licensed to it pursuant to
the Primary License Agreement in the Territory, Triangle shall have those rights
relating to the prosecution and maintenance of such Bukwang Patents as are set
forth in Article 7 of the Primary License Agreement.
(c) Except as otherwise expressly set forth in the first sentence of
Subsection 8.2(a), Triangle agrees to reimburse the Primary Licensors or
Bukwang, as applicable, for all external fees, costs and expenses incurred by
them in filing, prosecuting and maintaining the Bukwang Patents in the
Territory. Invoices, including reasonable substantiation thereof, shall be
submitted once in respect of each fiscal quarter as promptly as practicable
after the end of such quarter. Payments shall be due net thirty (30) days from
the date of invoice. If Triangle fails to reimburse Bukwang or the Primary
Licensors, as applicable, for any undisputed patent prosecution expenses
respecting any patent application or issued patent included in the Bukwang
Patents within the time allowed therefor, upon at least thirty (30) days' prior
notice to Triangle, Bukwang or the Primary Licensors, as applicable, may remove
such patent application or issued patent
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from the Bukwang Patents and Bukwang or the Primary Licensors shall be free, at
its or their election, to abandon or maintain the prosecution of such patent
application or issued patent or grant rights to such patent application or
issued patent to third parties.
(d) Triangle reserves the right to terminate its obligations
pursuant to this Section 8.2 with respect to any patent application or patent
included in the Bukwang Patents in any country or countries upon at least ***
prior written notice to Bukwang and the Primary Licensors. After the date
specified in such notice on which Triangle's obligation to pay further expenses
terminates, such patent application or patent, as the case may be, shall no
longer be included in the Bukwang Patents in those countries in which Triangle
has exercised its rights to terminate such obligations.
8.3 Triangle Inventions. Triangle shall, in consultation with Bukwang,
file such patent applications regarding any of the Triangle Patents owned or
controlled by Triangle, and thereafter shall diligently and in the exercise of
its discretion in a manner reasonably consistent with the goals and expectations
of the parties hereunder, giving due and reasonable consideration to Bukwang's
position, prosecute and maintain in force the resulting Triangle Patents, all at
Triangle's expense. Triangle shall enable Bukwang to directly contact and confer
with Triangle's patent counsel, at Bukwang's expense, with respect to the
prosecution of any patent applications constituting part of the Triangle Patents
and shall use its reasonable efforts to amend, correct or refile any patent or
patent application included in the Triangle Patents to include claims reasonably
requested by Bukwang. The territorial scope of such filings shall be the subject
of specific discussion between the parties. If for any reason Triangle declines
to file a patent application or, having filed, declines to prosecute or maintain
any of the Triangle Patents in any country, Bukwang may so file, prosecute or
maintain in Triangle's name and at Bukwang's expense in such country, in which
event, Triangle shall, at Bukwang's request and expense, provide all reasonable
assistance.
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8.4 Joint Inventions. With respect to Joint Inventions: (a) all patent
applications and patents with respect thereto shall be jointly owned by Bukwang
and Triangle; (b) Triangle and its sublicensees and assignees shall be free to
use such patent applications and patents in the Territory and Bukwang and its
licensees and assignees shall be free to use such patent applications and
patents outside the Territory, in each event, without payment of royalty or
accounting therefor; (c) each party agrees to consult with the other party and
to give due and reasonable consideration to the other party's position in
determining the territorial scope of patent filings within the Territory (in the
case of Triangle) and outside the Territory (in the case of Bukwang), and the
prosecution and maintenance of resulting patent rights based on Joint
Inventions; and (d) Triangle shall have the sole right and discretion to file
any patent application and prosecute and maintain any resulting patent rights on
Joint Inventions, in which event, Bukwang shall, at Triangle's request, provide
all reasonable assistance and shall promptly reimburse Triangle with *** of the
out-of-pocket expenses so incurred by Triangle.
8.5 Further Obligations.
(a) Except as otherwise provided in Articles 9 and 18, each party's
responsibilities for patent prosecution activities pursuant to this Article 8
shall also include all ex parte and inter partes activities relating to the
relevant patent applications and patents, including all interference, opposition
and observation proceedings before any patent offices and litigation to
determine the validity, enforceability, allowability or subsistence of such
patent applications and patents. Each party agrees to give due consideration to
the other party's position with respect to any such patent prosecution
activities (which term, as used herein, shall include without limitation, any
inter partes activities of the type described in the first sentence of this
Subsection 8.5 (a)). In the event a party fails to initiate or pursue any patent
prosecution activities for which it is responsible, or having commenced such
patent prosecution activities, declines to pursue
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such patent prosecution activities, the other party may initiate, pursue or
assume such patent prosecution activities, at its sole expense.
(b) In conducting its patent prosecution activities under this
Agreement, each party may use patent attorneys selected by it in its own
discretion. In addition to the other obligations set forth in this Article 8,
each party undertakes to keep the other party throughout the term of this
Agreement regularly informed of the status and progress of the patent
prosecution activities it undertakes under this Agreement including, but not
limited to, supplying the other, upon reasonable request and at reasonable
intervals, with all correspondence with the United States, Japan and European
patent office counterparts with respect to the United States, Japan and European
patents and patent applications. To the extent that a party has not previously
done so, or promptly upon request by the other party in order to assist such
other party in connection with any of its activities or the exercise of any of
its rights pursuant to Articles 8 and 9, such party shall provide the other
party with such additional relevant documentation which such other party may
reasonably request relating to such patent applications and patents in the
Bukwang Patents, Triangle Patents or those relating to Joint Inventions, as
applicable, including but not limited to, copies thereof and access to
laboratory notebooks, other supporting data and relevant employees. If a party
decides to abandon or allow to lapse any patent application or patent or not to
initiate or any other patent prosecution activity for which it has patent
prosecution responsibility pursuant to this Article 8, it shall give the other
party notice thereof in a sufficiently timely manner so as to enable such other
party to determine whether to assume patent prosecution activity in connection
therewith. Each party shall use its *** to give such notice at least sixty (60)
days before any abandonment, lapse or any other relevant deadline.
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ARTICLE 9. INFRINGEMENT
9.1 Third Party Infringement. If Triangle or Bukwang becomes aware
of any activity that it believes represents a substantial infringement of a
Valid Claim or patents relating to Joint Inventions, the party obtaining such
knowledge shall promptly advise the other of all relevant facts and
circumstances pertaining to the potential infringement.
9.2 Triangle's Rights Against Third Party Infringers.
(a) Except to the extent otherwise provided in paragraph 8.1
of the Primary License Agreement in respect of those Bukwang Patents licensed to
Bukwang thereunder, Triangle shall have the first right to enforce or have
enforced, at no expense to Bukwang, any Bukwang Patents or patent rights
relating to Joint Inventions against infringement by third parties and shall be
entitled to retain recovery from such enforcement as prescribed by this
Subsection 9.2(a). Upon Triangle's undertaking to pay all expenditures
reasonably incurred by Bukwang, Bukwang shall reasonably cooperate in any such
enforcement and, as necessary, join as a party therein. After first deducting
its costs and expenses incurred in respect of enforcement (to the extent not
otherwise awarded by settlement or a court), Triangle shall pay royalties
(calculated per Section 3.3) on the balance of any monetary recovery. In the
event that Triangle does not file suit against or commence settlement
negotiations with a substantial infringer of the Bukwang Patents or patent
rights relating to Joint Inventions within six (6) months after receipt of a
written demand from Bukwang that Triangle bring suit, then the parties will
consult with one another in an effort to determine whether a reasonably prudent
licensee would institute litigation to enforce the patent in question in light
of all relevant business and economic factors (including, but not limited to,
the projected cost of such litigation, the likelihood of success on the merits,
the probable amount of any damage award, the prospects for satisfaction of any
judgment against the alleged infringer, the possibility of
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counterclaims against Triangle and Bukwang, the diversion of Triangle's human
and economic resources, the impact of any possible adverse outcome on Triangle
and the effect any publicity might have on Triangle's and Bukwang's respective
reputations and goodwill). If the parties cannot agree, the determination will
be made by a mutually and reasonably acceptable third party consultant. If after
such process, it is determined that a suit should be filed and Triangle does not
file suit or commence settlement negotiations forthwith against the substantial
infringer, then Bukwang shall have the right to enforce any patent licensed
hereunder on behalf of itself and Triangle (with Bukwang retaining all
recoveries from such enforcement).
(b) In the event Triangle commences a suit pursuant to
Subsection 9.2(a), Triangle may deposit up to *** of any royalties and Milestone
Payments which are otherwise payable to Bukwang during the pendency of such suit
in an interest-bearing escrow account. Upon final resolution of such suit,
Triangle shall provide Bukwang with an accounting of the amounts escrowed and
Triangle's expenses incurred in such infringement suit. Triangle shall be
entitled to offset any expenses which Triangle fails to recoup in such suit
against the escrowed amounts. Any escrowed amounts (and interest thereon) in
excess of Triangle's unrecouped expenses shall be promptly paid to Bukwang and
the Primary Licensors pursuant to Section 5.1.
ARTICLE 10. TRANSFER OF KNOW-HOW; TECHNICAL ASSISTANCE
10.1 Transfer by Bukwang. Within *** following the Effective Date and as
far as it has not previously done so, Bukwang shall supply Triangle with all
Bukwang Know-How. With respect to any Bukwang Know-How developed by Bukwang
during the term of this Agreement, such disclosure will be made at least on a
quarterly basis or sooner, if practicable.
10.2 Technical Assistance.
(a) Bukwang shall, upon request by Triangle, provide Triangle with
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reasonable cooperation and assistance, consistent with the other provisions
hereof, in connection with the transfer of Bukwang Know-How. Such assistance may
include, but is not limited to, development of the formulations of the Licensed
Products; procurement of supplies and raw materials; initial developmental and
production batch manufacturing runs; process, specification and analytical
methodology design and improvement; and, in general, such other assistance as
may contribute to the efficient application by Triangle of the Bukwang Know-How.
In this regard, Bukwang agrees to make appropriate employees of Bukwang
reasonably available to assist Triangle, and Bukwang agrees to provide
reasonable numbers of appropriate Triangle personnel with access during normal
business hours to the appropriate personnel and operations of Bukwang for such
periods of time as may be reasonable in order to familiarize Triangle personnel
with the Bukwang Know-How as applied by Bukwang. At Triangle's reasonable
request, such assistance shall be furnished at Triangle's or its subcontractors'
or sublicensees' facilities in the Territory, subject to a mutually agreed upon
schedule. Such technical assistance shall include but not be limited to the
following:
(i) Bukwang shall: (A) provide Triangle with access to any and all
Drug Master File(s) or counterparts thereof in any countries of the Territory
("DMF") of Bukwang relating to the manufacture of Bulk Drug Substance existing
as of the Effective Date; (B) provide Triangle with letters of authorization to
the FDA and other applicable government authorities in other countries of the
Territory to refer to Bukwang's DMF's; and (C) reasonably cooperate with
Triangle in obtaining access to and letters of authorization to refer to the
DMF's of Bukwang's subcontractors which are, or will be, supplying any Bulk Drug
Substance; and
(ii) Within *** after the Effective Date, Bukwang shall provide
Triangle with copies of all documentation in Bukwang's possession, including all
correspondence between Bukwang and its subcontractors, regarding the manufacture
of
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the Bulk Drug Substance which would be necessary or useful to assist Triangle in
the commercial production of Bulk Drug Substance or to support Registration of
the Licensed Products.
(b) During the period prior to the *** anniversary of the Effective
Date, (i) Bukwang shall provide up to *** man-days of such technical assistance
during each year of such period at Bukwang's sole expense and (ii) subsequent to
such *** man-days of technical assistance, Bukwang shall provide such additional
technical assistance as may be reasonably requested by Triangle, provided, that
all reasonable out-of-pocket travel costs and expenses incurred by Bukwang in
rendering technical assistance pursuant to this Section 10.2 in excess of such
*** man-days per year shall be reimbursed to Bukwang by Triangle and, in
addition, Triangle will pay Bukwang a consultancy fee in an amount to be
negotiated by the parties hereto in good faith (but not to exceed the
consultancy fee, if any, then being charged by Bukwang to third parties) for
each consultancy day in excess of *** man-days spent by personnel of Bukwang in
rendering technical assistance to Triangle. Technical assistance furnished
pursuant to this Section 10.2 shall continue only until the *** anniversary of
the Effective Date of this Agreement.
(c) In the event Bukwang supplies any Bulk Drug Substance to
Triangle, Triangle will reimburse Bukwang for its Manufacturing Cost or
Acquisition Cost therefor, subject, however, to reasonable substantiation
thereof.
(d) Triangle shall be responsible for arranging for the synthesis of
adequate quantities of Licensed Products for all clinical, non-clinical and
commercial purposes in the Territory to fulfill its obligations hereunder.
10.3 Transfer by Triangle. With respect to any Triangle Know-How developed
by Triangle during the term of this Agreement, Triangle shall supply Bukwang
with such Triangle Know-How on at least a quarterly basis or sooner, if
practicable.
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10.4 Language of Disclosures. All disclosures pursuant to this Agreement
will be in English.
ARTICLE 11. WARRANTIES AND REPRESENTATIONS; LIMITATION OF
LIABILITY; AND DISCLAIMERS
11.1 Warranties and Representations of Bukwang. Bukwang warrants and
represents the following as of the date hereof:
(a) It possesses the necessary rights to enter into this License
Agreement;
(b) Exhibit A is a true, complete and accurate copy of the Primary
License Agreement
(c) Exhibit B is a complete list of all patents and patent
applications included in the Bukwang Patents as of the Effective Date;
(d) it is not aware of any material facts which it has not disclosed
to Triangle regarding the manufacture, use or sale of any Licensed Product or
the practice of any inventions included in the Bukwang Patents or the use of the
Bukwang Know-How by Triangle (except, potentially, details regarding the Bukwang
Know-How to be provided under Article 10), including without limitation any
material facts regarding the possibility that such manufacture, use, sale or
practice might infringe any third party's know-how, patent rights or other
intellectual property in the Territory;
(e) it is aware of no third party using or infringing all or any of
the Bukwang Patents in derogation of the rights granted pursuant to this
Agreement;
(f) it is aware of no third party claim to any rights in the Bukwang
Patents or the Bukwang Know-How;
(g) it is aware of no pending interference or opposition proceeding
or litigation or any communication which threatens an interference or opposition
proceeding or litigation before any patent and trademark office, court, or any
other governmental
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entity or court in any jurisdiction in regard to the Bukwang Patents; and
(h) the Primary License Agreement is in full force and effect and
Bukwang will: (i) use its best efforts to fulfill all of its obligations under
the Primary License Agreement, including, but not limited to any due diligence
obligations outside the Territory set forth therein; (ii) take no action or fail
to take any action which will cause it to be in breach of any provision of the
Primary License Agreement; (iii) immediately notify Triangle in the event that
Bukwang receives written notice from the Primary Licensors (or their successors)
that Bukwang is in default under the Primary License Agreement or that the
Primary Licensors (or their successors) have terminated or intend to terminate
the Primary License Agreement; and (iv) not amend the Primary License Agreement
in a manner which adversely affects Triangle's rights and obligations hereunder.
11.2 Warranties and Representations by Triangle. Triangle represents and
warrants that it has or will obtain, the skill and expertise in the technical
areas relating to the Bukwang Patents and Bukwang Know-How to make or have made
an evaluation of the capabilities, safety, utility and commercial application of
the Bukwang Patents and the Bukwang Know-How.
11.3 Warranties and Representations of Each Party. Each party hereto
warrants and represents to: (a) the other that it is free to enter into this
Agreement (including the receipt of all corporate authorizations) and to carry
out all of the provisions hereof, including, its grant to the other of the
licenses described in Article 2; (b) to its knowledge, there is no failure to
comply with, no violation of or any default under, any law, permit or court
order applicable to it which might have a material adverse effect on its ability
to execute, deliver and perform this Agreement or on its ability to consummate
the transactions contemplated hereby; and (c) it shall comply with laws and
regulations relating to the performance of its obligations or the exercise of
its rights hereunder including, in the case of Triangle, those relating to the
manufacture, processing,
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producing, use, sale, or distribution of Licensed Products; and that it shall
not take any action which would cause it or the other party to violate such laws
and regulations.
11.4 Disclaimer and Limitation of Warranties. Bukwang makes no warranty as
to validity of the Bukwang Patents licensed hereunder and, except as expressly
stated in Section 11.1, makes no representation whatsoever with regard to the
scope of the Bukwang Patents or Bukwang Know-How, or that the Bukwang Patents or
Bukwang Know-How may be exploited by Triangle or its Affiliates or sublicensees
without infringing intellectual property rights of third parties.
EXCEPT AS OTHERWISE SET FORTH IN SECTION 11.1 ABOVE, BUKWANG MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE BUKWANG PATENTS OR
BUKWANG KNOW-HOW AND EXPRESSLY DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER IMPLIED WARRANTIES WITH RESPECT
TO THE CAPABILITIES, SAFETY, UTILITY, OR COMMERCIAL APPLICATION OF BUKWANG
PATENTS OR BUKWANG KNOW-HOW.
11.5 Limitation of Liability.
(a) Neither Bukwang nor the Primary Licensors shall be liable to
Triangle or Triangle's Affiliates, sublicensees or any of its or their customers
for any special, incidental or consequential damages resulting from defects in
the testing, labeling, manufacture or other application of the Licensed Products
manufactured, tested or sold pursuant to this Agreement.
(b) Any provision of this Agreement to the contrary notwithstanding,
Bukwang shall not be liable to Triangle, its Affiliates or sublicensees for any
damage that any party may suffer as a result of any third party actions for
patent infringement or for any other claims against Triangle, its Affiliates or
sublicensees in connection with their use of Bukwang Patents or Bukwang
Know-How; provided, however, that the foregoing
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limitation shall in no way affect or otherwise limit any remedies which Triangle
or its Affiliates or sublicensees may have against Bukwang as a result of
Bukwang's breach of any of its warranties and representations set forth in
Article 11 hereof.
11.6 Insurance. Without limiting Triangle's indemnity obligations under
Article 12, Triangle shall maintain throughout the term of this Agreement, and
shall use its *** to maintain for a reasonable period of time thereafter, a
commercial, general liability insurance policy, written by a reputable insurance
company authorized to do business in the United States, which:
(a) insures Indemnitees for all claims, damages, and actions
mentioned in Section 12.1 of this Agreement;
(b) includes a contractual endorsement providing coverage for all
liability arising out of bodily injury and property damage;
(c) requires the insurance carrier to provide Bukwang with no less
than thirty (30) days' written notice of any change in the terms or coverage of
the policy or its cancellation; and
(d) provides the Indemnitees with product liability coverage in an
amount no less than *** per occurrence for bodily injury and *** per occurrence
for property damage, subject to a reasonable aggregate amount.
Triangle shall provide Bukwang with certificates of insurance evidencing the
above insurance coverage.
ARTICLE 12. INDEMNIFICATION
12.1 Triangle's Indemnification. Subject to compliance by the Indemnitees
with the provisions set forth in Section 12.3, Triangle shall defend, indemnify,
and hold harmless the Indemnitees, from and against any and all claims, demands,
losses, liabilities, expenses, and damages including investigative costs, court
costs and
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reasonable attorneys' fees (collectively, the "Liabilities") which Indemnitees
may suffer, pay, or incur as a result of or in connection with: (a) any and all
personal injury (including death) and property damage caused or contributed to,
in whole or in part, by manufacture, testing, design, use, sale, or labeling of
any Licensed Products or the practice of the Bukwang Patents or Bukwang Know-How
by Triangle or Triangle's Affiliates or sublicensees, excluding any Liabilities
arising as a result of Bukwang's or, if applicable, its subcontractor's
negligence, intentional misconduct or breach of contract in supplying Bulk Drug
Substance (it being acknowledged by Triangle that neither Bukwang nor any
Bukwang subcontractor currently intends to supply any Bulk Drug Substance to
Triangle and in the event Triangle acquires any Bulk Drug Substance from *** ,
such acquisition will be pursuant to a direct contract); and (b) any breach by
Triangle of its representations, warranties and covenants contained in this
Agreement. Triangle's obligations under this Article shall survive the
expiration or termination of this Agreement for any reason.
12.2 Bukwang's Indemnification. Subject to compliance by the Indemnitees
with the provisions set forth in Section 12.3, Bukwang shall indemnify and hold
the Indemnitees harmless from and against any and all Liabilities which
Indemnitees may suffer, pay or incur as a result of or in connection with: (a)
any breach by Bukwang of any of its representations, warranties and covenants
set forth in this Agreement; and (b) any claims or suits asserted or commenced
by the Primary Licensors regarding any royalty payments made by Triangle to
Bukwang pursuant to Subsection 5.1(b) of this Agreement. Bukwang's obligations
under this Article shall survive expiration or termination of this Agreement for
any reason.
12.3 Indemnification Procedures. Any Indemnitee which intends to claim
indemnification under this Article shall, promptly after becoming aware thereof,
notify the party from whom it is seeking indemnification (the "Indemnitor") in
writing of any
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matter in respect of which the Indemnitee or any of its employees intend to
claim such indemnification. The Indemnitee shall permit, and shall cause its
employees to permit, the Indemnitor, at its discretion, to settle any such
matter and agrees to the complete control of such defense or settlement by the
Indemnitor; provided, however, that such settlement does not adversely affect
the Indemnitee's rights hereunder or impose any obligations on the Indemnitee in
addition to those set forth herein in order for it to exercise such rights. No
such matter shall be settled by such Indemnitee without the prior written
consent of the Indemnitor and neither the Indemnitor nor the Indemnitee shall be
responsible for any legal fees or other costs incurred other than as provided
herein. The Indemnitee and its employees shall cooperate fully with the
Indemnitor and its legal representatives in the investigation and defense of any
matter covered by the applicable indemnification. The Indemnitee shall have the
right, but not the obligation, to be represented by counsel of its own selection
and expense.
ARTICLE 13. CONFIDENTIALITY
13.1 Treatment of Confidential Information. Except as otherwise provided
hereunder, during the term of this Agreement and for a period of *** thereafter:
(a) Triangle and its Affiliates and sublicensees shall retain in
confidence and use only for purposes of this Agreement, any written information
and data supplied by or on behalf of Bukwang under this Agreement and the
Restricted Disclosure and Testing Agreement, dated October 27, 1997, between
Bukwang and Triangle (the "Confidentiality Agreement"); and
(b) Bukwang shall retain in confidence and use only for purposes of
this Agreement any written information and data supplied by or on behalf of
Triangle to Bukwang under this Agreement.
For purposes of this Agreement, all such information and data which a
party is
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obligated to retain in confidence shall be called "Information."
13.2 Right to Disclose. To the extent that it is reasonably necessary to
fulfill its obligations or exercise its rights under this Agreement, or any
rights which survive termination or expiration hereof, each party may disclose
Information to its Affiliates, sublicensees (actual or prospective),
consultants, outside contractors, actual or prospective investors, and clinical
investigators on condition that such entities or persons agree in writing:
(a) to keep the Information confidential for a period of at least
*** from the date of disclosure by such party to the same extent as such party
is required to keep the Information confidential; and
(b) to use the Information only for those purposes for which the
disclosing party is authorized to use the Information.
Each party or its Affiliates or sublicensees, as applicable, may disclose
Information to the government or other regulatory authorities to the extent that
such disclosure (i) is necessary for the prosecution and enforcement of patents,
or authorizations to conduct preclinical or clinical trials to commercially
market Licensed Products, provided such party is then otherwise entitled to
engage in such activities in accordance with the provisions of this Agreement,
or (ii) is legally required.
13.3 Release from Restrictions. The obligation not to disclose or use
Information shall not apply to any part of such Information that:
(a) is or becomes patented (but the existence of a patent shall only
permit disclosure and not, unless otherwise provided hereunder, use), published
or otherwise part of the public domain, other than by unauthorized acts of the
party obligated not to disclose such Information (for purposes of this Article
13 the "receiving party") or its Affiliates or sublicensees in contravention of
this Agreement; or
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(b) is disclosed to the receiving party or its Affiliates or
sublicensees by a third party provided that such Information was not obtained by
such third party directly or indirectly from the other party to this Agreement;
or
(c) prior to disclosure under the Confidentiality Agreement or this
Agreement, as the case may be, was already in the possession of the receiving
party, its Affiliates or sublicensees, provided that such Information was not
obtained directly or indirectly from the other party to this Agreement; or
(d) results from research and development by the receiving party or
its Affiliates or sublicensees, independent of disclosures from the other party
to this Agreement, provided that the persons developing such information have
not had exposure to the information received from the other party to this
Agreement; or
(e) is required by law to be disclosed by the receiving party,
provided that in the case of disclosure in connection with any litigation, the
receiving party uses reasonable efforts to notify the other party immediately
upon learning of such requirement in order to give the other party reasonable
opportunity to oppose such requirement; or
(f) Triangle and Bukwang agree in writing may be disclosed.
ARTICLE 14. CONDITIONS PRECEDENT
This Agreement will not become effective until the Primary Licensors
and Bukwang shall have properly executed and delivered an Amendment to the
Primary License Agreement to Triangle in the form and substance attached hereto
as Exhibit C. In the event the condition set forth in this Article 14 has not
been satisfied within thirty (30) days from the date set forth at the beginning
of this Agreement, Triangle may terminate this Agreement by giving Bukwang ten
(10) days' prior notice.
ARTICLE 15. TERM AND TERMINATION
15.1 Term. Unless sooner terminated as otherwise provided in this
Agreement,
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the term of this Agreement shall commence on the Effective Date and shall
continue in full force and effect until the expiration of Triangle's obligations
to pay royalties hereunder.
15.2 Termination by Default.
(a) If either party defaults in the performance of, or fails to be
in compliance with, any material agreement, condition or covenant of this
Agreement, including, as to Triangle, the provisions of Section 16.2 hereof, the
non-defaulting party may terminate this Agreement with respect to the defaulting
party if such default or noncompliance shall not have been remedied, or, in the
event the default or non-compliance cannot be remedied within such period,
reasonable steps shall not have been initiated to remedy the same, within ***
after receipt by the defaulting party of a written notice thereof from the
non-defaulting party.
(b) In the event that: (i) any proceeding is commenced by or against
a party seeking relief under any bankruptcy, insolvency or similar law and if
such proceeding is involuntary, it remains undismissed for *** ; or a party, by
action or answer, approves of, consents to or acquiesces in such proceeding or
admits the material allegations of or defaults in answering a petition filed in
such proceeding; or (ii) a receiver, liquidator, assignee, custodian or trustee
(or similar official) is appointed for a party in respect of any substantial
part of its assets or for purposes of the winding-up or liquidation of its
business and such appointment remains unstayed and in effect for a period of ***
; or (iii) a party makes an assignment for the benefit of creditors; then, in
any such event, such party shall be deemed in default for purposes of this
Section 15.2.
15.3 Termination by Triangle. Triangle shall have the right to terminate
this Agreement in the entire Territory or one or more countries of the Territory
(without affecting this Agreement in the remaining countries of the Territory),
by giving Bukwang sixty (60) days' prior written notice thereof.
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15.4 Obligations Upon Termination. If this Agreement is terminated as a
result of Triangle's breach pursuant to Section 15.2, or is terminated in whole
or in part by Bukwang in accordance with Section 6.3 or by Triangle in
accordance with Section 15.3, then: (a) in the case of termination in the entire
Territory, Triangle shall use, and shall cause its Affiliates and sublicensees
to use, its and their *** to return, or at Bukwang's direction, destroy all
data, writings and other documents and tangible materials supplied to Triangle
by Bukwang properly organized and to provide Bukwang with reasonable transition
assistance, and upon Bukwang's request, Triangle shall sell any Licensed Product
in its possession to Bukwang at Triangle's Acquisition Cost or Manufacturing
Cost therefor, as applicable; and (b) with respect to those countries with
respect to which termination occurs, Triangle shall provide Bukwang with full
and complete copies of all toxicity, efficacy, and other data generated by
Triangle or Triangle's Affiliates, and sublicensees, in the course of Triangle's
efforts to develop Licensed Products or to obtain governmental approval for the
sale of Licensed Products, including but not limited to any regulatory filings
with any government agency in such countries. Bukwang shall be authorized to
cross-reference any such regulatory filings made by Triangle, its Affiliates and
sublicensees in the countries in which termination occurs where permitted by
law. Bukwang shall be entitled to provide information pertaining to the Triangle
Patents, Triangle Know-How and Joint Know-How to any third party with a bona
fide interest in licensing such technology in the countries in which termination
occurs. Such data shall be provided on a confidential basis; provided, however,
that if such third party concludes a license with Bukwang, such third party
shall be free to use such data for all purposes, including to obtain government
approvals to sell any product containing any Compound in such countries.
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15.5 Effect of Termination. In the event of any expiration or termination
pursuant to this Article 15, neither party shall have any remaining rights or
obligations under this Agreement other than as provided below:
(a) Bukwang will have the right to receive all payments accrued
prior to the effective date of termination;
(b) termination or expiration of this Agreement for any reason shall
have no effect on the parties' obligations under Articles 9, 12 and 13 or their
respective rights in Joint Know-How set forth in Section 1.18;
(c) upon expiration of Triangle's royalty obligations under this
Agreement in a given country, Triangle shall have a perpetual, fully paid-up,
non-exclusive license to use the Bukwang Know-How in such country;
(d) termination of this Agreement by Bukwang pursuant to Section 6.3
or 15.2 or by Triangle pursuant to Section 15.3, shall have no effect on the
rights and obligations of the parties under Section 15.4; and
(e) the parties' shall retain any other remedies for breach of this
Agreement they may otherwise have.
15.6 Default by Triangles' Affiliates and Sublicensees. For purposes of
this Article 15, any breach or default of the provisions of this Agreement by
Triangle's Affiliates or sublicensees shall be deemed to be breach of this
Agreement by Triangle, and Triangle shall be liable to Bukwang for such breach
or default to the same extent as if such breach or default had been made
directly by Triangle.
ARTICLE 16. ASSIGNMENT
16.1 Assignment by Either Party. Neither party shall assign this Agreement
or any part thereof without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed. Each party may, however,
without such consent, assign or sell its rights under this Agreement (a) in
connection with the sale or
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transfer of all or substantially all of its pharmaceutical business to a third
party; (b) in the event of a merger or consolidation with a third party; or (c)
to an Affiliate. No assignment shall relieve any party of responsibility for the
performance of any accrued obligation which such party has under this Agreement.
Any assignment shall be contingent upon the assignee assuming in writing all of
the obligations of its assignor under this Agreement.
16.2 ***. Subsequent to any assignment by Triangle pursuant Subsection
16.1(a) or (b) above, ***. Bukwang shall so inform Triangle in writing
specifying with reasonable particularity the basis for such determination. If
Triangle disagrees with Bukwang regarding Bukwang's determination, Triangle
shall so inform Bukwang in writing within thirty (30) days after receipt of such
written notice and this issue shall be determined pursuant to the provisions set
forth in Section 19.2. If the arbitrator(s) determine that *** . Triangle shall
have *** from the date it receives written notice of the arbitration result ***
that is not easily curable within such *** period, Triangle shall have an
additional reasonable period of time to effect such cure (which additional
period shall in no event exceed *** ). If Triangle does not send written notice
of Bukwang within such thirty (30) day period disagreeing with Bukwang's
position on the matter, Triangle shall have *** from the date of its receipt of
Bukwang's written notice *** that is not reasonably curable within such ***
period, Triangle shall have an additional reasonable period of time to effect
such cure (which
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additional period shall in no event exceed *** ).
ARTICLE 17. REGISTRATION OF LICENSE
Triangle, at its expense, may register the license granted under this Agreement
in any country of the Territory where the use, sale or manufacture of a Licensed
Product in such country would be covered by a Valid Claim. Upon request by
Triangle, Bukwang agrees promptly to execute any "short form" licenses submitted
to it by Triangle reasonably necessary in order to effect the foregoing
registration in such country.
ARTICLE 18. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE
COMPETITION AND PATENT TERM RESTORATION ACT
18.1 Notices Relating to the Act. Bukwang shall use its best efforts to
cause the Primary Licensors to notify Triangle of (a) the issuance of each U.S.
patent included among the Bukwang Patents, giving the date of issue and patent
number for each such patent; and (b) each notice pertaining to any patent
included among the Bukwang Patents which the Primary Licensors receive as patent
owners pursuant to the Drug Price Competition and Patent Term Restoration Act of
1984 (hereinafter the "Act"), including but not necessarily limited to notices
pursuant to ss.ss.101 and 103 of the Act from persons who have filed an
abbreviated NDA ("ANDA") or a "paper" NDA. Such notices shall be given promptly,
but in any event within ten (10) days of notice of each such patent's date of
issue or receipt of each such notice pursuant to the Act, whichever is
applicable.
18.2 Authorization Relating to Patent Term Extension. Bukwang hereby
authorizes Triangle and will use its best efforts to obtain the Primary
Licensors' authorization for Triangle (a) to include in any NDA for a Licensed
Product, as Triangle may deem appropriate under the Act, a list of patents
included among the Bukwang Patents that relate to such Licensed Product and such
other information as Triangle in its reasonable discretion believes is
appropriate to be filed pursuant to the Act; (b) to
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commence suit for any infringement of the Bukwang Patents under ss. 271(e) (2)
of Title 35 of the United States Code occasioned by the submission by a third
party of an IND or a paper NDA for a Licensed Product pursuant to ss.ss.101 or
103 of the Act; and (c) in consultation with Bukwang and the Primary Licensors,
to exercise any rights that may be exercisable by Bukwang or the Primary
Licensors, as applicable, as patent owners under the Act to apply for an
extension of the term of any patent included among the Bukwang Patents. In the
event that applicable law in any other country of the Territory hereafter
provides for the extension of the term of any patent included among the Bukwang
Patents in such country, upon request by Triangle, Bukwang shall authorize
Triangle and shall use its best efforts to obtain the Primary Licensors'
authorization for Triangle or, if requested by Triangle, its sublicensees, to
apply for such extension, in consultation with Bukwang and the Primary
Licensors. Bukwang agrees to cooperate and shall use its best efforts to cause
the Primary Licensors to cooperate with Triangle or its sublicensees, as
applicable, in the exercise of the authorizations granted herein or which may be
granted pursuant to this Section 18.2 and will execute such documents and take
such additional action and use its best efforts to cause the Primary Licensors
to execute such documents and to take such additional actions as Triangle may
reasonably request in connection therewith, including, if necessary, permitting
itself and using its best efforts to permit the Primary Licensors to permit
themselves to be joined as proper parties in any suit for infringement brought
by Triangle under subsection (b) above. Triangle shall bear the costs and
expenses, including but not limited to attorneys' fees, of any suit for
infringement brought by Triangle under subsection (b) above.
ARTICLE 19. DISPUTE RESOLUTION AND ARBITRATION
19.1 Initial Resolution. In the case of any disputes between the parties
arising from this Agreement, and in case this Agreement does not provide a
solution for how to resolve such disputes, the parties shall discuss and
negotiate in good faith a solution acceptable to both parties and in the spirit
of this Agreement. If after negotiating in good
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faith pursuant to the foregoing sentence, the parties fail to reach agreement
within thirty (30) days, then the President of Bukwang and the Chief Executive
Officer or Chief Operating Officer of Triangle shall discuss in good faith an
appropriate resolution to the dispute. If these executives fail, after good
faith discussions not to exceed thirty (30) days, to reach an amicable agreement
then the parties shall submit to binding arbitration pursuant to Section 19.2
("Arbitration"). The date of submission of the matter to substrate shall be the
"Dispute Date".
19.2 Arbitration. The following provisions shall govern any arbitration
pursuant to this Agreement.
(a) Arbitration shall be conducted in accordance with the Rules of
the American Arbitration Association. In the event of any conflict between the
Rules and this Section, the provisions of this Section shall govern. The
Arbitration shall be conducted in ***.
(b) The Arbitration shall be heard by a panel of three arbitrators
(each an "Arbitrator"). Triangle and Bukwang shall each select one Arbitrator.
Such Arbitrators shall be attorneys, licensed to practice law in the State of
Georgia, actively engaged in the full-time practice of law for a period of no
less than seven (7) years. Such Arbitrators shall not be affiliated, directly or
indirectly, with the parties or the attorneys representing the parties in the
Arbitration and shall not have any prior involvement in the matter. In the event
that either party fails within fifteen (15) days after the Dispute Date (i) to
select an Arbitrator who, to its knowledge, meets the requirements set forth in
this subsection (b) and (ii) to notify the other party of the selection, the
other party will then have the right to select such Arbitrator. The third
Arbitrator shall be selected by mutual agreement of the parties from a list of
neutral arbitrators compiled by the American Arbitration Association
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for the parties. Such Arbitrator shall be an attorney, licensed to practice law
in the State of Georgia, actively engaged in the full time practice of law for a
period of no less than ten (10) years. The third Arbitrator shall not have any
prior or current relationship, direct or indirect, with any party to this
Agreement. If the parties to the Arbitration are unable to agree upon the third
Arbitrator within fifteen (15) days from the Dispute Date, the appointment of
the third Arbitrator shall be made as expeditiously as possible and in
compliance with this Section 19.2 by the two Arbitrators selected by the
parties. If those Arbitrators cannot agree on the third Arbitrator within ten
(10) days, then the third Arbitrator shall be designated by the American
Arbitration Association or the appropriate designated representative thereof
upon the written request of any party with simultaneous notice of such request
to the other party to the Arbitration. The third Arbitrator shall preside over
the panel of Arbitrators and the Arbitration.
(c) The Arbitrators shall apply the substantive laws of the *** to
the validity, construction and interpretation of this Agreement as is applicable
to contracts made wholly performable within the state.
(d) The Arbitration shall be resolved no later than sixty (60) days
from the date of acceptance by the third Arbitrator of his or her appointment
unless otherwise agreed to by the parties to the Arbitration.
(e) Each party shall bear the expenses and costs of the Arbitrator
selected by the party. The third Arbitrator shall be compensated for services
rendered at the prevailing hourly rate of compensation and reimbursed for any
expenses incurred in
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Confidential Treatment and filed separately with the Commission.
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connection with rendering such services. The non-prevailing party shall bear the
costs and expenses of compensation and reimbursement for the third Arbitrator.
(f) The decision of the Arbitrators shall be rendered in writing and
shall be final and binding and may be enforced at the request of either party to
the Arbitration in the United States District Court for the Northern District of
Georgia or any court of the State Georgia having competent jurisdiction. Such
decision may not be appealed except upon a claim of bad faith or fraud by the
Arbitrators.
(g) This Article 19 shall not apply to issues relating to the
validity, construction or effect of the Bukwang Patents. In the event that, in
any Arbitration, any issue arises concerning the validity, construction or
effect of any of the Bukwang Patents, the Arbitrators shall assume the validity
of all claims as set forth in such Bukwang Patents. Matters, controversies or
disputes concerning the Licensed Patents shall be resolved in any court having
jurisdiction thereof or in any other manner mutually agreed to by the parties.
ARTICLE 20. GENERAL PROVISIONS
20.1 Export Controls. Bukwang acknowledges that Triangle is subject to
United States laws and regulations controlling the export of technical data,
biological materials, chemical compositions and other commodities and that
Triangle's obligations under this Agreement are contingent upon compliance with
applicable United States export laws and regulations. The transfer of technical
data, biological materials, chemical compositions and commodities may require a
license from the cognizant agency of the United States government or written
assurances by Bukwang that Bukwang shall not export data or commodities to
certain foreign countries without the prior approval of certain United States
agencies, or as otherwise prescribed by applicable law or regulation.
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Triangle neither represents that an export license shall not be required nor
that, if required, such export license shall issue.
20.2 Independent Contractors. It is understood and agreed that the parties
hereto are independent contractors and are engaged in the operation of their own
respective businesses, and neither party hereto is to be considered the agent of
the other party for any purpose whatsoever, and neither party shall have any
authority to enter into any contracts or assume any obligations for the other
party nor make any warranties or representations on behalf of that other party.
20.3 Patent Marking. Triangle shall mark Licensed Products sold in the
United States with United States patent numbers. Licensed Products manufactured
or sold in other countries shall be marked in compliance with the intellectual
property laws in force in such countries. The foregoing obligations shall be
subject to size and space limitations. If Bukwang believes that a Licensed
Product should be marked with the number of a Bukwang Patent, Bukwang shall
provide written notice to Triangle which identifies the patent number and the
Licensed Product on which it should appear. It shall also be Bukwang's
responsibility to inform Triangle in writing when marking with a Bukwang Patent
number should be discontinued. To the extent that Triangle complies with
Bukwang's instructions, Bukwang shall indemnify and hold Triangle harmless for
any liability, claim or action for false patent marking or non-marking.
20.4 Publicity. The parties agree to issue mutual press releases
concerning their entry into this Agreement, with the content of such releases to
be approved (which consent shall not be unreasonably withheld or delayed) in
advance by the parties. In all other respects, except as required by law,
neither party shall use the name of the other party in any publicity release
without the prior written permission of such other party, which shall not be
unreasonably withheld. The other party shall have a reasonable opportunity to
review and comment on any such proposed publicity release. Except as required by
law, neither party shall publicly disclose the terms of this Agreement or issue
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any publicity release with regard thereto unless expressly authorized to do so
by the other party which authorization shall be agreed upon.
20.5 Governing Law. This Agreement and all amendments, modifications,
alterations, or supplements hereto, and the rights of the parties hereunder,
shall be construed under and governed by the laws of the *** , exclusive of its
conflicts of laws principles.
20.6 Entire Agreement. This Agreement, together with the Exhibits attached
hereto, constitutes the entire agreement between Bukwang and Triangle with
respect to the subject matter hereof and shall not be modified, amended or
terminated, except as herein provided or except by another agreement in writing
executed by the parties hereto. Upon the Effective Date, the Confidentiality
Agreement shall terminate.
20.7 Interpretation. Except (a) as otherwise provided in the Primary
License Agreement and (b) for any amendment to the Primary License Agreement to
the extent such amendment would adversely affect the rights and obligations of
Triangle hereunder (unless Triangle has given prior written consent thereto in
writing), in the event of any conflict between the terms hereof and the terms of
the Primary License Agreement, the terms of the Primary License Agreement shall
control.
20.8 Waiver. No provision of this Agreement may be waived except by a
writing signed by the party entitled to the benefit thereof, and no such waiver
of any provision hereof in one instance shall constitute a waiver of any other
provision or of such provision in any other instance. No omission, delay or
failure on the part of any party hereto in exercising any rights hereunder will
constitute a waiver of such rights or of any other rights hereunder.
20.9 Severability. All rights and restrictions contained herein may be
exercised and shall be applicable and binding only to the extent that they do
not violate any applicable laws and are intended to be limited to the extent
necessary so that they will not
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render this Agreement illegal, invalid or unenforceable. If any provision or
portion of any provision of this Agreement, not essential to the commercial
purpose of this Agreement, shall be held to be illegal, invalid or unenforceable
by a court of competent jurisdiction, it is the intention of the parties that
the remaining provisions or portions thereof shall constitute their agreement
with respect to the subject matter hereof, and all such remaining provisions, or
portions thereof, shall remain in full force and effect. To the extent legally
permissible, any illegal, invalid or unenforceable provision of this Agreement
shall be replaced by a valid provision which shall implement the commercial
purpose of the illegal, invalid, or unenforceable provision. In the event that
any provision essential to the commercial purpose of this Agreement is held to
be illegal, invalid or unenforceable and cannot be replaced by a valid provision
which will implement the commercial purpose of this Agreement, this Agreement
and the rights granted herein shall terminate.
20.10 Force Majeure.
(a) Any delays in, or failure of performance of, any party to this
Agreement, shall not constitute a default hereunder, or give rise to any claim
for damages, if and to the extent caused by occurrences beyond the control of
the party affected, including, but not limited to, acts of God, strikes or other
concerted acts of workmen, civil disturbances, fires, floods, explosions, riots,
war, rebellion, sabotage, acts of governmental authority or failure of
governmental authority to issue licenses or approvals which may be required
("Force Majeure").
(b) The party asserting the Force Majeure shall promptly notify the
other party of the event constituting Force Majeure and of all relevant details
of the occurrence and where appropriate an estimate of how long such Force
Majeure event shall continue.
(c) If such Force Majeure event continues thereafter and in any
event, the parties shall consult with each other in order to find a fair
solution and shall use all reasonable endeavors to minimize the consequences of
such Force Majeure.
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20.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20.12 Notices. All notices, statements, and reports required to be given
under this Agreement shall be in writing and shall be deemed to have been given
upon delivery in person or, when deposited (a) in the mail in the country of
residence of the party giving the notice, registered or certified postage
prepaid or (b) with a professional courier service (e.g., FedEx or UPS), and
addressed as follows:
To Bukwang: Bukwang Pharm. IND. Co., Ltd
398-1 Daebang-Dong-Dongjak-Ku
Seoul 156-020
Korea
Attn: Sung-Koo Lee, Managing Director
Fax: 02-816-2792
With a copy to: Robert Finch, Esq.
Arnall, Golden & Gregory, LLP
2800 One Atlantic Center
1201 W. Peachtree St.
Atlanta, Georgia 30309 USA
Fax: (404) 873-8617
To Triangle: Triangle Pharmaceuticals, Inc.
4 University Place, 4611 University Drive
Durham, NC 27707, U.S.A.
Attn: Chris A. Rallis, Vice President Business
Development, General Counsel
Fax: (919) 493-5925
Any party hereto may change the address to which notices to such party are to be
sent by giving notice to the other party at the address and in the manner
provided above. Any notice may be given, in addition to the manner set forth
above, by telex, facsimile or cable, provided that the party giving such notice
obtains acknowledgment by telex, facsimile or cable that such notice has been
received by the party to be notified. Notices
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made in this manner shall be deemed to have been given when such acknowledgment
has been transmitted. Any provision of this Section 20.12 to the contrary
notwithstanding, any notice to Bukwang shall be effective if given as to Bukwang
prescribed above by Triangle, despite any failure to deliver copies as
prescribed above.
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IN WITNESS WHEREOF, Bukwang and Triangle have caused this Agreement to be
signed by their duly authorized representatives, under seal, as of the day and
year indicated above.
BUKWANG PHARM. IND. CO., LTD.
By: /s/ Illegible
------------------------------------
Title:
----------------------------------
TRIANGLE PHARMACEUTICALS, INC.
By: /s/ David N. Barry
------------------------------------
Title: Chairman & CEO
----------------------------------
[SIGNATURE PAGE FOR BUKWANG LICENSE AGREEMENT]
<PAGE>
EXHIBIT A
LICENSE AGREEMENT
between
UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC.
YALE UNIVERSITY, AND
BUKWANG PHARM. IND. CO., LTD.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS.............................................. 2
ARTICLE 2. GRANT OF LICENSE......................................... 4
ARTICLE 3. DILIGENCE AND COMMERCIALIZATION.......................... 6
ARTICLE 4. CONSIDERATION FOR LICENSE................................ 7
ARTICLE 5. REPORTS AND PAYMENTS..................................... 9
ARTICLE 6. RECORDS.................................................. 11
ARTICLE 7. PATENT PROSECUTION....................................... 12
ARTICLE 8. ABATEMENT OF INFRINGEMENT................................ 14
ARTICLE 9. DISCLOSURE OF INFORMATION AND CONFIDENTIALITY............ 15
ARTICLE 10. REPRESENTATIONS, MERCHANTABILITY AND EXCLUSION OF
WARRANTIES............................................... 17
ARTICLE 11. DAMAGES, INDEMNIFICATION AND INSURANCE................... 18
ARTICLE 12. TERM AND TERMINATION..................................... 20
ARTICLE 13. ASSIGNMENT............................................... 23
ARTICLE 14. MISCELLANEOUS............................................ 23
ARTICLE 15. NOTICES.................................................. 26
EXHIBIT A LICENSED PATENTS......................................... 28
EXHIBIT B LICENSEE'S DEVELOPMENT PLAN.............................. 29
<PAGE>
THIS LICENSE AGREEMENT is dated the 28th day of December, 1995, by and
among the UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC., a nonprofit Georgia
corporation with offices located in Boyd Graduate Studies Research Center, The
University of Georgia, Athena, Georgia 30602 (hereinafter "UGARF"), and YALE
UNIVERSITY (hereinafter "YALE"), located in New Haven, Connecticut, and BUKWANG
PHARM. IND. CO. LTD., a Korean corporation with headquarters located at 398-1
Daebang-Dong, Dongjak-ku, Seoul 156-020, Republic of Korea (hereinafter
"BUKWANG").
WITNESSETH
WHEREAS, Dr. Chung K. Chu, during the course of his employment at The
University of Georgia, and Dr. Yung-chi Cheng, during the course of his
employment at YALE, developed certain inventions as more fully defined herein;
and
WHEREAS, UGARF is the assignee of all right, title, and interest in
inventions developed by employees of The University of Georgia and is
responsible for the protection and commercial development of such inventions;
and
WHEREAS, UGARF and YALE want to have the inventions further developed and
made available for commercial use by the public; and
WHEREAS, BUKWANG represents that it has the necessary expertise and
resources to fully develop and commercialize the inventions; and
WHEREAS, UGARF and YALE wish to grant BUKWANG such a license in accordance
with the terms and conditions of this Agreement.
<PAGE>
NOW THEREFORE, for and in consideration of the mutual covenants and the
premises herein contained, the parties, intending to be legally bound, hereby
agree as follows:
ARTICLE 1. DEFINITIONS
The following terms are as used herein shall have the following meaning:
1.1 "Affiliates" shall mean any corporation, partnership or other business
entity which is directly or indirectly controlled by BUKWANG or any entity which
directly or indirectly controls BUKWANG. "Controls" as used herein means owns
directly or indirectly at least thirty percent (30%) of the voting shares.
1.2 "Agreement" or "License Agreement" shall mean this Agreement,
including all Exhibits attached to this Agreement.
1.3 "BUKWANG's Development Plan" shall mean the development plan
reproduced as EXHIBIT B of this Agreement.
1.4 "Field of Use" shall mean the treatment of viral infections.
1.5 "Indemnitees" shall mean UGARF, UGARF's officers and directors, UGA,
UGA's employees, YALE, YALE's officers and directors, the Inventors, and their
heirs, executors, administrators, and legal representatives.
1.6 "Inventors" shall mean Dr. Yung-chi Cheng and Dr. Chung K. Chu.
1.7 "License Agreement Year" shall mean and include each twelve-month
period, beginning with the Operative Date, during the term of this Agreement.
1.8 "Licensed Patents" shall mean the patent applications and patents
identified in EXHIBIT A hereof, together with all divisionals, continuations,
reissues, reexaminations and foreign counterparts of such applications or
patents.
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1.9 "Licensed Product(s)" shall mean any process, service, or product, the
manufacture, use, or sale of which is covered by a Valid Claim or incorporates
or uses any Licensed Technology.
1.10 "Licensed Technology" shall mean all designs, technical information,
know-how, knowledge, data, specifications, test results and other information,
whether or not patented, which are known to the Inventors, except such
technology already existing in the public domain or such technology already
known to BUKWANG, on the date of this Agreement, and which are useful for the
development, commercialization, manufacture, use or sale of any Licensed
Product.
1.11 "Licensed Territory" shall mean the world.
1.12 "LICENSOR" shall mean UGARF and YALE, jointly.
1.13 "Net Selling Price" of Licensed Products shall mean the total
invoiced price paid to BUKWANG or its Affiliates by a purchaser of a Licensed
Product less the following discounts: a) customary trade, quantity and cash
discounts actually allowed and taken; b) credits actually given for rejected or
returned Licensed Products; c) freight and insurance costs, if separately
itemized on the invoice paid by the customer; and d) excise taxes and customs
duties included in the invoiced amount. Where a Sale is deemed consummated by a
gift, use, or other disposition of Licensed Products for other than a selling
price stated in cash, the term "Net Selling Price" shall mean the average gross
selling price billed by BUKWANG for the same quantity of Sales of Licensed
Products during the three (3) month period immediately preceding such Sale,
without reduction of any kind.
1.14 "Operative Date" of this Agreement shall mean the date on which
LICENSOR receives notification from the United States Government of its approval
of the grant of rights made to BUKWANG hereunder.
1.15 "Sale" or "Sold" shall mean the sale, transfer, exchange or other
disposition of Licensed
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Products whether by gift or otherwise, by BUKWANG, its Affiliates or any other
person authorized by
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BUKWANG. For the purposes of this Agreement, the following activities shall not
be deemed as Sale: (a) the provision of Licensed Products, prior to the approval
of Licensed Products in a country and pursuant to a requirement issued by the
appropriate governmental agency in that country, for consumption by or
administration to persons for humanitarian purposes or compassionate use, (b)
the provision of Licensed Products for use in clinical trials, or (c) the
provision of samples of Licensed Products without charge by BUKWANG for
promotional purposes. Sales of Licensed Products shall be deemed consummated
upon the first to occur of: (a) receipt of payment from the purchaser; (b)
delivery of Licensed Products to the purchaser or a common carrier; (c) release
of Licensed Products from consignment; (d) if deemed Sold by use, when first put
to such use; or (e) if otherwise transferred, exchanged, or disposed of whether
by gift or otherwise when such transfer, exchange, gift, or other disposition
occurs.
1.16 "UGA" shall mean The University of Georgia.
1.17 "Valid Claim" shall mean a claim included among the Licensed Patents
so long as such claim shall not have been irrevocably abandoned or held invalid
in an unappealable decision of a court or other authority of competent
jurisdiction.
ARTICLE 2. GRANT OF LICENSE
2.1 License. LICENSOR hereby grants BUKWANG an exclusive right and license
under the Licensed Patents to make, have made, use, and Sell Licensed Products
and to practice Licensed Technology for the Field of Use in the Licensed
Territory during the term of this Agreement.
2.2 Retained License. LICENSOR retains on behalf of UGARF, YALE and UGA
and any research collaborators, a royalty-free right and license to make and use
Licensed Products and to practice Licensed Technology for research and
educational purposes only.
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2.3 No Implied License. The license and right granted in this Agreement
shall not be construed to confer any rights upon BUKWANG by implication,
estoppel, or otherwise as to any technology not specifically identified in this
Agreement as Licensed Patents or Licensed Technology.
2.4 United States Government Rights. The Licensed Patents, Licensed
Technology, or portions thereof were developed with financial or other
assistance through grants or contracts funded by the United States government.
BUKWANG acknowledges that in accordance with Public Law 96-517 and other
statutes, regulations, and Executive Orders as now exist or may be amended or
enacted, the United States government has certain rights in the Licensed Patents
and Licensed Technology. BUKWANG shall take all reasonable actions necessary to
enable LICENSOR to satisfy its obligations under any federal law relating to the
Licensed Patents or Licensed Technology. BUKWANG acknowledges that LICENSOR must
obtain a waiver from the United States government, pursuant to United States
Code of Federal Regulations, Section 37.401.14(i), to enable LICENSOR to grant
the rights and license hereunder. LICENSOR has requested such a waiver, but if
this Agreement is executed prior to the granting of said waiver, BUKWANG agrees
that this Agreement will automatically terminate if the request for waiver is
denied. LICENSOR shall notify BUKWANG within ten (10) days of receipt of notice
of denial of said waiver from the United States government. If at any time
during the term of this Agreement, the United States government should take
action which renders it impossible or impractical for LICENSOR to grant the
rights and license granted herein to BUKWANG under this Agreement or otherwise
perform LICENSOR's obligations, LICENSOR or BUKWANG may terminate this Agreement
immediately by notice to the other party. BUKWANG shall not have any right to
the return of any payments of any kind made by it to LICENSOR prior to the date
of termination.
2.5 Republic of Korea Government Approval. It will be necessary for the
Fair Trade
6
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Committee in Economic Planning Ministry of the Republic of Korea to approve this
Agreement. If this Agreement is executed prior to the granting of such approval,
LICENSOR agrees that this Agreement shall
7
<PAGE>
automatically terminate if approval is denied. BUKWANG shall not have any right
to the return of any payments of any kind made by it to LICENSOR prior to the
date of termination.
ARTICLE 3. DILIGENCE AND COMMERCIALIZATION
3.1 Diligence and Commercialization. BUKWANG shall use its *** throughout
the term of this Agreement to diligently pursue BUKWANG's Development Plan and
to bring Licensed Products to market through a thorough, rigorous, and diligent
program for exploitation of the rights and license herein granted to BUKWANG and
to create, supply, and service in the Licensed Territory as extensive a market
as possible. In no instance shall BUKWANG's *** be less than efforts customary
in the pharmaceutical industry.
3.2 Lack of Diligence. If LICENSOR concludes that BUKWANG is not diligent
in developing and Selling Licensed Products pursuant to paragraph 3.1 for any
reason other than a) the withholding by a regulatory agency of marketing
approval despite BUKWANG's diligent effort to obtain such approval; or b)
unanticipated technical or scientific problems which have been reported to
LICENSOR in writing; or c) other causes beyond the reasonable control of
BUKWANG; then LICENSOR may, at its sole discretion, terminate this Agreement
pursuant to paragraph 12.4 hereof.
3.3 No Competing Products. BUKWANG agrees that it will not concurrently
develop a compound or composition with the same mode or mechanism of action as
compound(s) or composition(s) covered by the Licensed Patents. BUKWANG shall
provide, on a semi-annual basis, a certified statement from a corporate officer
of BUKWANG that BUKWANG is not concurrently developing a competing compound or
composition with the same mode or mechanism of action as compound(s) or
composition(s) covered by the Licensed Patents. In the event that BUKWANG
undertakes the concurrent development
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Confidential Treatment and filed separately with the Commission.
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<PAGE>
of such a competing product or does not provide certification as stipulated in
this paragraph, LICENSOR shall have the right, at its sole discretion, to
terminate this Agreement upon thirty (30) days written notice to BUKWANG.
ARTICLE 4. CONSIDERATION FOR LICENSE
4.1 Research Gift. As partial consideration for the license granted to
BUKWANG under this Agreement, BUKWANG shall provide nonrefundable research
funding to UGARF and YALE according to the following schedule:
***
Such payments shall be made on a quarterly basis on each of the first
(1st), ninetieth (90th), one-hundred eightieth (180th), and two-hundred
seventieth (270th) days of the indicated License Agreement Year. In the event
that this Agreement is terminated for any reason during one of the first ***
License
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
Agreement Years, BUKWANG agrees to make all four quarterly payments due under
this paragraph for the License Agreement Year in which this Agreement is
terminated.
4.2 Milestone Payments. As partial consideration for the license granted
to BUKWANG under this Agreement, BUKWANG shall pay LICENSOR nonrefundable
milestone payments according to the following schedule:
Milestone: Payment:
***
*** of the milestone payments shall be credited against royalties actually due
and payable under Article 4.3; provided, however, that in any single License
Agreement Year, such credit shall not exceed *** of the royalties otherwise due.
4.3 Royalties. As partial consideration for the license granted to BUKWANG
under this Agreement, BUKWANG shall pay LICENSOR a royalty equal to *** of the
Net Selling Price of all Licensed Products Sold by BUKWANG or its Affiliates
during the term of this Agreement.
4.4 Reimbursement for Patent Expenses. BUKWANG shall reimburse LICENSOR
for all external fees, costs and expenses heretofore and hereafter during the
term of this Agreement paid or incurred by LICENSOR in filing, prosecuting, and
maintaining the Licensed Patents in the Licensed Territory.
ARTICLE 5. REPORTS AND PAYMENTS
5.1 Payments. All royalty payments required under this Agreement pursuant
to Article 4. 3 shall be due *** days following the end of a quarter, for Sales
occurring during the immediately preceding
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
10
<PAGE>
quarter of each License Agreement Year. Such royalties shall be accompanied by a
royalty report, as detailed in paragraph 5.3. All other payments required under
this Agreement are payable on the due date, or, for payments due under Article
4.4, such reimbursement shall be delivered within thirty (30) days after receipt
by BUKWANG from time to time of an invoice from UGARF, including all supportive
documentation of such fees and costs.
(a) Payments due under Articles 4.2 and 4.3 shall be made in person, via
the United States mail, or by private carrier to the following
addresses:
***, made payable to:
University of Georgia Research Foundation, Inc.
Attention: Patsy Songer
Boyd Graduate Studies Research Center
Athena, Georgia, U.S.A. 30602-7411
Facsimile: (706) 542-5638
***, made payable to:
Yale University
Attention: Office of Cooperative Research
246 Church Street, Suite 401
New Haven, Connecticut, U.S.A. 06510
Facsimile: (203) 432-7245
(b) Payments due under Article 4.4 shall be made payable to UGARF and
sent to the address given in 5.1(a) for UGARF
5.2 Progress Reports. BUKWANG will provide UGARF with semi-annual reports
detailing the activities of BUKWANG described in BUKWANG's Development Plan.
Such reports shall be due on July 1 and January 1 of each License Agreement
Year, beginning with July 1, 1996, for the immediately preceding half-year.
5.3 Royalty Reports. Within sixty (60) days of the first (1st), ninetieth
(90th), one-hundred eightieth (180th), and two-hundred seventieth (270th) days
of each License Agreement Year, beginning
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
11
<PAGE>
with the License Agreement Year in which the first approval for marketing
Licensed Products in any country of the Licensed Territory is granted, and
ending with the year following the termination of expiration of this Agreement,
BUKWANG shall provide a written report to LICENSOR setting forth for the
preceding calendar quarter, the following as may be applicable:
(a) all Sales (including Net Selling Price of each product sold) of
Licensed Products by BUKWANG and its Affiliates on a
country-by-country basis throughout the Licensed Territory;
(b) the amount of royalties payable pursuant to this Agreement;
(c) any other information reasonably necessary to show the basis on
which such royalties have been computed;
(d) the amount of any credits taken pursuant to Article 4.2;
(e) in case no payment is due, BUKWANG shall so report.
5.4 Currency Conversion. If any Licensed Products are Sold for monies
other than United States dollars, the Net Selling Price of such Licensed
Products shall first be determined in the foreign currency of the country in
which such Licensed Products are Sold and then converted to United States
dollars at the spot rate published by the Wall Street Journal (U.S. edition) for
conversion of that foreign currency into United States dollars on the last day
of the quarter for which such payment is due.
5.5 Interest. Payments required under this Agreement shall, if overdue,
bear interest until payment at a per annum rate *** above the prime rate in
effect at the *** in ***, on the due date. The payment of such interest shall
not foreclose LICENSOR from exercising any other rights it may have because any
payment is late.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
ARTICLE 6. RECORDS
6.1 Records of Sales. During the term of this Agreement and for a period
of *** thereafter, BUKWANG shall keep at its principal place of business true
and accurate records of all Sales in accordance with generally accepted
accounting principals and in such form and manner so that all royalties owed to
LICENSOR may be readily and accurately determined. BUKWANG shall furnish
LICENSOR copies of such records upon LICENSOR's request, which shall not be made
more often than once per License Agreement Year.
6.2 Audit of Records. LICENSOR shall have the right, from time to time at
reasonable times during normal business hours through an independent certified
public accountant, to examine the records of BUKWANG maintained in accordance
with the provisions of paragraph 6.1 in order to verify the calculation of any
royalties payable under this Agreement. Such examination and verification shall
not occur more than once each License Agreement Year and the calendar year
immediately following termination of this Agreement. Unless otherwise agreed in
writing by BUKWANG, the fees and expenses of performing such examination and
verification shall be borne by LICENSOR. If such examination reveals an
underpayment by BUKWANG of more than *** for any quarter examined, BUKWANG shall
pay LICENSOR the amount of such underpayment plus interest and shall reimburse
LICENSOR for all expenses of the accountant performing the examination.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE>
ARTICLE 7. PATENT PROSECUTION
7.1 Prosecution and Maintenance of Licensed Patents. The prosecution and
maintenance of the Licensed Patents shall be the primary responsibility of
LICENSOR. LICENSOR shall keep BUKWANG informed as to all developments with
respect to Licensed Patents. BUKWANG shall be afforded reasonable opportunities
to advise LICENSOR and cooperate with LICENSOR in such prosecution and
maintenance. On or before March 1, 1996, BUKWANG shall notify LICENSOR of the
countries in which BUKWANG wishes the International Patent Cooperation Treaty
Application No. US94/06080, filed May 27, 1994 to be filed. LICENSOR may, at its
own expense, file patent applications in those countries in which BUKWANG elects
not to file national applications. Such non-elected countries in which LICENSOR
has filed a patent application will no longer be included in the Licensed
Territory and BUKWANG shall not have the right to Sell Licensed Products in
non-elected countries. Prior to the execution of any third party licenses in
such non-elected countries, LICENSOR shall offer BUKWANG a right of first
refusal, which, if it is to be exercised, shall be exercised within thirty (30)
days of BUKWANG's receipt in writing from LICENSOR of a written proposal
outlining the terms of a third party license. If BUKWANG elects to exercise its
right of first refusal, then LICENSOR and BUKWANG shall execute a license on the
same terms and conditions as those referred to in the third party license. If
BUKWANG elects not to exercise its right of first refusal or fails to exercise
its right of first refusal before the expiration of the aforesaid thirty (30)
day period, then LICENSOR shall be free to execute the third party license.
If BUKWANG should fail to timely make reimbursement for patent expenses
incurred in filing, prosecuting or maintaining applications or patents in a
particular country(ies) as required by Article 4.4 of this Agreement, LICENSOR
shall have no further obligation to prosecute or maintain the Licensed Patents
in said country(ies).
BUKWANG, upon ninety (90) days advance written notice to LICENSOR, may
advise LICENSOR that it no longer wishes to pay expenses for filing, prosecuting
or maintaining one or more Licensed Patents. LICENSOR may, at its option, elect
to pay such expenses or permit such Licensed Patents to become abandoned or
lapsed. If LICENSOR elects to pay such expenses, such patents shall not be
subject to any license granted to BUKWANG hereunder.
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<PAGE>
7.2 Extension of Licensed Patents. In the event that it is possible to
have the normal term of any Licensed Patent extended or restored under a
country's procedure of extending patent terms for time lost in government
regulatory approval processes, BUKWANG agrees to cooperate full with LICENSOR
and provide all necessary documentation and information needed to enable
LICENSOR to timely apply for such extension(s). All out-of-pocket expenses
incurred by LICENSOR in applying for such extension(s) shall be borne in
accordance with the terms of Article 4.4. In the case of such extension(s),
royalties due LICENSOR pursuant to Article 4.3 hereof shall be payable until the
end of the extended term of the Licensed Patent.
ARTICLE 8. ABATEMENT OF INFRINGEMENT
8.1 BUKWANG shall promptly inform LICENSOR of any suspected infringement
of any Licensed Patents. During the term of this Agreement, LICENSOR and BUKWANG
shall have the right to institute an action for infringement of the Licensed
Patents against such third party in accordance with the following:
(a) If LICENSOR and BUKWANG agree to institute suit jointly, the suit
shall be brought in both their names and out-of-pocket costs thereof
shall be borne equally. Any recovery or settlement received by
LICENSOR and/or BUKWANG for punitive or exemplary damages shall be
shared equally, and any other recovery or settlement received,
including compensatory damages or damages based on a loss of
revenues, shall be paid to BUKWANG, and BUKWANG shall pay to
LICENSOR an amount representing the royalty which would have been
paid by BUKWANG on such amount in accordance with the provisions of
Article 4 had such amount been accrued by BUKWANG as Sales. BUKWANG
and LICENSOR shall agree upon the manner in which they shall
exercise control over such action. LICENSOR may, if it so desires,
also be represented by
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<PAGE>
separate counsel of its own selection, the fees for which counsel
shall be paid by LICENSOR;
(b) In the absence of agreement to institute a suit jointly, LICENSOR
may institute a suit, and, at its option, name BUKWANG as a
plaintiff. LICENSOR shall bear the entire cost of such litigation,
including defending any counterclaims brought against BUKWANG and
paying any judgments rendered against BUKWANG, and shall be entitled
to retain the entire amount of any recovery or settlement; and
(c) In the absence of agreement to institute a suit jointly and if
LICENSOR notifies BUKWANG that it has decided not to join in or
institute a suit as provided in (a) or (b) above, BUKWANG may
institute suit and, at its option, name LICENSOR as a plaintiff.
BUKWANG shall bear the entire cost of such litigation, including
defending any counterclaims brought against LICENSOR and paying any
judgment rendered against LICENSOR, and shall be entitled to retain
the entire amount of any recovery or settlement.
8.2 Should either LICENSOR or BUKWANG commence suit under the provisions
of this Article and thereafter elect to abandon such suit, the abandoning party
shall give timely notice to the other party who may, if it so desires, continue
prosecution of such suit, provided that the sharing of expenses and any recovery
in such suit shall be as agreed upon between LICENSOR and BUKWANG.
ARTICLE 9. DISCLOSURE OF INFORMATION AND CONFIDENTIALITY
9.1 It will be necessary for LICENSOR to disclose to BUKWANG and for
BUKWANG to disclose to LICENSOR such information and technology as will assist
the parties to successfully carry out the objectives of this Agreement. BUKWANG
will need to disclose to LICENSOR such information and technology relating to
the filing of any patents related to Licensed Products and such other
information
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<PAGE>
as may be requested by LICENSOR which is necessary for LICENSOR to ascertain to
BUKWANG is performing its obligations pursuant to this Agreement. All such
information and technology to be exchanged will be in writing and marked
"CONFIDENTIAL". BUKWANG or LICENSOR, as the case may be, shall not, during the
life of this Agreement and for a period of *** after the termination or
expiration of this Agreement, disclose to any third party the other's
technology, except to an Affiliate under appropriate written confidentiality
provisions who requires such information to carry out the objectives of this
Agreement; shall use the same degree of care as is exercised with respect to its
own confidential information to prevent disclose of the same to any third party;
and shall not use the same for any purpose other than exercising any right or
rights granted to it herein; provided, however, that nothing herein contained
shall restrict either party with respect to the disclosure or use of information
which the recipient party can show:
(a) was in its possession at the time of its receipt of same from the
disclosing party; or
(b) was part of the public knowledge or literature at the time of its
receipt from the disclosing party, or thereafter becomes part of the
public knowledge or literature through no fault of either party,
their Affiliates, employees representatives or any third party to
whom such information was disclosed in accordance with the
provisions of this Agreement; or
(c) was received form a third party having the right to disclose such
information. Specific technology was disclosed by one party to the other
hereunder shall not be deemed to be within any of the above three (3) exclusions
merely because it is embraced by more general information included within one of
the exclusions.
9.2 Notwithstanding the provisions of paragraph 9.1 above, and to the
extent necessary;
(a) a party may disclose and use the other party's information for
purposes of securing the registration of, and or governmental approval to
market, pursuant to this Agreement, any Licensed Products;
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
17
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(b) a party may disclose and use the other party's information where the
disclosure and use of such will be necessary to the procurement of
patent protection, pursuant to this Agreement, for a Licensed
Product;
(c) a party may disclose and use the other party's information to the
extent that it is necessary to aid in the development and
commercialization, pursuant to this Agreement, of any Licensed
Product provided that any such disclosure of the disclosing party's
information shall be in confidence and subject to provisions the
same, or substantially the same, as those in paragraph 9.1 hereof.
If this Agreement is terminated for any reason whatsoever, LICENSOR shall have
the unrestricted right to use and disclose information generated by LICENSOR or
BUKWANG pertaining to methods of synthesis, pharmacokinetics, toxicology,
efficacy, clinical and other technical data related to Licensed Products. Such
use and disclosure shall not be subject to the confidentiality provisions of
paragraph 9.1 that survive termination of this Agreement.
9.3 Prior Agreements. The provisions of this Agreement supersede and shall
be substituted for any terms of any prior confidentiality agreements between
BUKWANG and LICENSOR which are not consistent with this Agreement.
ARTICLE 10. REPRESENTATIONS, MERCHANTABILITY
AND EXCLUSION OF WARRANTIES
10.1 LICENSOR represents and warrants that it has the right and authority
to enter into this Agreement and that neither the execution of this Agreement
nor the performance of its obligations hereunder will constitute a breach of the
terms and provisions of any other agreement to which UGARF or YALE is a party.
LICENSOR does not warrant the validity of the Licensed Patents licensed
hereunder and makes no representation whatsoever with regard to the scope of the
Licensed
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<PAGE>
Patents or that such Licensed Patents may be exploited by BUKWANG or its
Affiliates without infringing other patents.
10.2 BUKWANG has the necessary expertise and skill in the technical areas
in which the Licensed Products and Licensed Technology are involved to make, and
has made, its own evaluation of the capabilities, safety, utility, and
commercial application of the Licensed Patents and Licensed Technology.
ACCORDINGLY, LICENSOR MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND WITH
RESPECT TO THE LICENSED PATENTS OR LICENSED TECHNOLOGY AND EXPRESSLY DISCLAIMS
ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND ANY
OTHER IMPLIED WARRANTIES WITH RESPECT TO THE CAPABILITIES, SAFETY, UTILITY, OR
COMMERCIAL APPLICATION OF LICENSED PATENTS OR LICENSED TECHNOLOGY.
ARTICLE 11. DAMAGES, INDEMNIFICATION AND INSURANCE
11.1 NO LIABILITY. LICENSOR shall not be liable to BUKWANG or BUKWANG's
customers for special, incidental, indirect or consequential damages resulting
from defects in the testing, labeling, manufacture, or other application of
Licensed Products manufactured, tested or Sold pursuant to this Agreement.
11.2 Indemnification. BUKWANG shall defend, indemnify, and hold harmless
the Indemnitees from and against any and all claims, demands, loss, liability,
expense, or damage (including investigative costs, court costs and attorneys'
fees) Indemnitees may suffer, pay or incur as a result of claims, demands or
actions against any of the Indemnitees arising or alleged to arise by reason of
or in connection with any and all personal injury and property damage caused or
contributed to in whole or in part by BUKWANG's manufacture, testing, use, sale,
or labeling of any Licensed Products, or the practice by BUKWANG of any Licensed
Patents. BUKWANG's obligations under
19
<PAGE>
this Article shall survive the expiration or termination of this Agreement for
any reason.
11.3 Insurance. Without limiting LICENSEE's indemnity obligations
under the preceding paragraph, LICENSEE shall maintain throughout the term of
this Agreement and for *** thereafter a commercial, general liability insurance
policy, written by a reputable insurance company authorized to do business in
the United States of America, which:
(a) insures Indemnification for all claims, damages, and actions
mentioned in Article 11.1 of this Agreement;
(b) includes a contractual endorsement providing coverage for all
liability which may be incurred by Indemnitees in connection
with this Agreement;
(c) Requires the insurance carrier to provide UGARF with no less
than thirty (30) days written notice of any change in the
terms or coverage of the policy or its cancellation; and
(d) Provides Indemnitees product liability coverage in an amount
no less than *** per occurrence for bodily injury and *** per
occurrence for property damage, subject to a reasonable
aggregate amount.
BUKWANG shall provide LICENSOR with Certificates of Insurance evidencing the
above.
11.4 Notice of Claims. BUKWANG shall promptly notify LICENSOR of all
claims involving the Indemnitees and will advise LICENSOR of the policy amounts
that might be needed to defend and pay any such claims.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
20
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ARTICLE 12. TERM AND TERMINATION
12.1 Term. Unless sooner terminated as otherwise provided in this
Agreement, the term of this Agreement shall commence on the Operative Date and
shall continue until the date of expiration of the last-to-expire of the
Licensed Patents, including any renewals or extensions thereof. In the event
that there are no Valid Claims, this Agreement shall terminate on the tenth
anniversary of the date of this Agreement.
12.2 Termination by LICENSOR. LICENSOR shall have the right to terminate
this Agreement upon the occurrence of any one or more of the following events:
(a) failure to BUKWANG to make any payment required pursuant to this
Agreement when due; or
(b) failure of BUKWANG to render reports to LICENSOR as required by this
Agreement; or
(c) failure of BUKWANG to comply with BUKWANG's Development Plan,
attached hereto as Exhibit B; or
(d) the insolvency of BUKWANG; or
(e) the institution of any proceeding by BUKWANG under any bankruptcy,
insolvency or moratorium law; or
(f) any assignment by BUKWANG of substantially all of its assets for the
benefit of creditors; or
(g) placement of BUKWANG's assets in the hands of a trustee or a
receiver unless the receivership or trust is dissolved within thirty
(30) days thereafter; or
(h) the breach of any other material term of this Agreement by BUKWANG.
12.3 Notice of Bankruptcy. BUKWANG must inform LICENSOR of its intention
to file a voluntary petition in bankruptcy or of another's intention to file an
involuntary petition in bankruptcy to be received at least thirty (30) days
prior to filing such a petition. A party's filing without conforming to this
requirement shall be deemed a material, pre-petition incurable breach.
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12.4 Exercise. LICENSOR may exercise its right of termination by giving
BUKWANG, its trustees or receivers or assigns, thirty (30) days prior written
notice of the occurrence of an event giving cause for termination hereunder and
of LICENSOR's election to terminate. Upon the expiration of such period, this
Agreement shall automatically terminate unless BUKWANG has cured the breach.
Such notice and termination shall not prejudice LICENSOR's right to receive
royalties or other sums due hereunder and shall not prejudice any cause of
action or claim of LICENSOR accrued or to accrue on account of any breach or
default by BUKWANG.
12.5 Failure to Enforce. The failure of LICENSOR at any time, or for any
period of time, to enforce any of the provisions of this Agreement shall not be
construed as a waiver of such provisions or as a waiver of the right of LICENSOR
thereafter to enforce each and every such provision.
12.6 Termination by BUKWANG. LICENSEE may terminate this Agreement at its
sole discretion upon six (6) month's written notice to UGARF.
12.7 Effect.
(a) In the event this Agreement is terminated for any reason whatsoever,
BUKWANG shall return, or at LICENSOR's directory destroy, all plans,
notes, writings and other documents, samples, and other materials
pertaining to the Licensed Patents and Licensed Technology,
retaining only one copy in its corporate counsel's office for the
sole purpose of compliance with surviving terms of this Agreement or
defense against any legal actions related to this Agreement.
Immediately upon termination of this Agreement, BUKWANG shall cease
manufacturing, processing, producing, using, Selling or distributing
Licensed Products; provided, however, that BUKWANG may continue to
Sell in the ordinary course of business for a period of three (3)
months reasonable quantities of Licensed Products which are fully
manufactured and in BUKWANG's normal inventory at the date of
termination if (a) all monetary
22
<PAGE>
obligations of BUKWANG to LICENSOR have been satisfied and (b)
royalties on such sales are paid to LICENSOR in the amounts and in
the manner provided in this Agreement.
(b) Upon termination of the Agreement for any reason whatsoever, BUKWANG
shall provide LICENSOR with full and complete copies of all
toxicology, pharmacokinetics, efficacy, clinical and other technical
data and all correspondence to and from regulatory agencies relating
to approval of Licensed Products generated by BUKWANG and/or its
Affiliates, contractors and agents in the course of BUKWANG's
efforts to develop Licensed Products and/or obtain governmental
approval for the Sale of Licensed Products.
12.8 Survival. The provisions of Articles 9 (except as explicitly stated
in paragraph 9.2), 10, and 11 of this Agreement shall remain in full force and
effect notwithstanding the termination of this Agreement.
ARTICLE 13. ASSIGNMENT
This Agreement is dependent upon the special relationship between the
parties and the special knowledge and unique skills of BUKWANG. Therefore,
BUKWANG shall not grant, transfer, convey or otherwise assign any of its rights
or delegate any of its obligations under this Agreement, without the prior
written consent of LICENSOR. This Agreement shall be assignable by UGARF to UGA,
the University of Georgia Foundation, or any other nonprofit corporation which
promotes the research purposes of UGA.
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<PAGE>
ARTICLE 14. MISCELLANEOUS
14.1 Export Controls. BUKWANG acknowledges that LICENSOR is subject to
United States laws and regulations controlling the export of technical data,
computer software, laboratory prototypes, and other commodities and that
LICENSOR's obligations under this Agreement are contingent upon compliance with
applicable United States export laws and regulations. The transfer of technical
data and commodities may require a license from the cognizant agency of the
United States government or written assurances by BUKWANG that BUKWANG shall not
export data or commodities to certain foreign countries without the prior
approval of certain United States agencies. LICENSOR neither represents that an
export license shall not be required nor that, if required, such export license
shall issue.
14.2 Legal Compliance. BUKWANG shall comply with all laws and regulations
relating to its manufacture, processing, producing, use, Selling or distributing
of Licensed Products. BUKWANG shall not take any action which would cause
LICENSOR or BUKWANG to violate any laws and regulations.
14.3 Independent Contractor. BUKWANG's relationship to LICENSOR shall be
that of a licensee only. BUKWANG shall not be the agent of LICENSOR and shall
have no authority to act for or on behalf of LICENSOR in any matter. Persons
retained by BUKWANG as employees or agents shall not by reason thereof be deemed
to be employees or agents of UGARF, UGA or YALE.
14.4 Patent Marking. BUKWANG shall mark Licensed Products Sold in the
United States with United States patent numbers. Licensed Products manufactured
or Sold in other countries shall be marked in compliance with the intellectual
property laws in force in such foreign countries.
14.5 Use of Names. BUKWANG shall obtain the prior written approval of
YALE, UGARF, UGA or the Inventors prior to making use of their names for any
commercial purpose, except as required by law. As an exception to the foregoing,
both BUKWANG and LICENSOR shall have the right to publicize the existence of
this Agreement; however, neither BUKWANG nor LICENSOR shall disclose the terms
and conditions of this Agreement without the other party's consent, except as
may be required by law.
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<PAGE>
14.6 Place of Execution. This Agreement and any subsequent modifications
or amendments hereto shall be deemed to have been executed in the State of
Georgia, U.S.A.
14.7 Governing Law. This Agreement and all amendments, modifications,
alternations or supplements hereto, and the rights of the parties hereunder,
shall be construed under and governed by the laws of the *** and the United
States of America.
14.8 Entire Agreement. This Agreement constitutes the entire agreement
between LICENSOR and BUKWANG with respect to the subject matter hereof and shall
not be modified, amended or terminated except as herein provided or except by
another agreement in writing executed by the parties hereto.
14.9 Severability. All rights and restrictions contained herein may be
exercised and shall be applicable and binding only to the extent that they do
not violate any applicable laws and are intended to be limited to the extent
necessary so that they will not render this Agreement illegal, invalid or
unenforceable. If any provision or portion of any provision of this Agreement
not essential to the commercial purpose of this Agreement shall be held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, it is
the intention of the parties that the remaining provisions or portions thereof
shall constitute their agreement with respect to the subject matter hereof, and
all such remaining provisions or portions thereof shall remain in full force and
effect. To the extent legally permissible, any illegal, invalid or unenforceable
provision of this Agreement shall be replaced by a valid provision which will
implement the commercial purpose of the illegal invalid or unenforceable
provision. In the event that any provision essential to the commercial purpose
of this Agreement is held to be illegal, invalid or unenforceable and cannot be
replaced by a valid provision which will implement the commercial purpose of
this Agreement, this Agreement and the rights granted herein shall terminate.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
25
<PAGE>
14.10 Force Majeure. Any delays in, or failure of, performance of any part
to this Agreement shall not constitute default hereunder, or give rise to any
claim for damages, if and to the extent cause by occurrences beyond the control
of the party affected, including, but not limited to, acts of God, strikes or
other work stoppages; civil disturbances, fires, floods, explosions, riots, war,
rebellion, sabotage, acts of governmental authority or failure of governmental
authority to issue licenses or approvals which may be required.
ARTICLE 16. NOTICES
All notices and other communications shall be hand delivered, sent by
private mail service, or sent by registered or certified U.S. mail, postage
prepaid, return receipt requested, and addressed to the party to receive such
notice or other communication at the address given below, or such other address
as may hereafter be designated by notice in writing:
If to LICENSOR: Executive Vice President
University of Georgia Research Foundation, Inc.
Boyd Graduate Studies Research Center, 6th Floor
Athena, Georgia 30602 Facsimile: (404) 542-5638
If to BUKWANG: Attn: Dr. C.H. Koo
Bukwang Pharm.Ind.Co.Ltd.
398-1 Daebang-Dong
Dongjak-ku
Seoul 156-020
Republic of Korea Facsimile 82-2-816-2792
Such notices or other communications shall be effective upon receipt by an
employee, agent or representative of the receiving party authorized to receive
notices or other communications sent or delivered in the manner set forth above.
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<PAGE>
IN WITNESS WHEREOF, LICENSOR and BUKWANG have caused this Agreement to be
signed by their duly authorized representatives, under seal, as of the day and
year indicated above.
LICENSOR: BUKWANG:
UNIVERSITY OF GEORGIA
RESEARCH FOUNDATION BUKWANG PHARM. IND. CO., LTD.
By: /s/ Joe L. Key By: /s/ C.H. Koo
----------------------- ---------------------
Name: Joe L. Key Name: C.H. Koo
Title: Executive Vice President Title: Managing Director
(corporate seal) (corporate seal)
YALE UNIVERSITY:
By: /s/ Janet H. Ackerman
------------------------
Name: Janet Ackerman
---------------------
Title: Associate V.P. for Finance
--------------------------
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<PAGE>
EXHIBIT A
Licensed Patents
U.S.S.N. 08/189,070 filed January 28, 1994, entitled "L-Nucleosides for the
Treatment of Hepatitis B Virus and Epstein-Barr Virus"
U.S.S.N. 08/466,274 filed June 6, 1995 as a continuation application of USSN
08/189,070, entitled "L-Nucleosides for the Treatment of Hepatitis B Virus and
Epstein-Barr Virus"
U.S.S.N. 08/467,010 filed June 6, 1995 as a divisional application of USSN
08/189,070, entitled "L- Nucleosides for the Treatment of Hepatitis B Virus and
Epstein-Barr Virus"
International Patent Cooperation Treaty Application No. US94/06080, Filed May
27, 1994
28
<PAGE>
EXHIBIT B
<The Development Schedule for L-FMAU>
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
29
<PAGE>
AMENDMENT
to
LICENSE AGREEMENT
between
UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC.
YALE UNIVERSITY, and
BUKWANG PHARM. IND. CO., LTD.
This AMENDMENT to LICENSE AGREEMENT (AMENDMENT) is effective on September
1, 1997, by and among the UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC., a
nonprofit Georgia corporation with offices located in Boyd Graduate Studies
Research Center, The University of Georgia, Athens, Georgia 30602-7411 (UGARF),
YALE UNIVERSITY, located in New Haven, Connecticut (YALE), and BUKWANG PHARM.
IND. CO., LTD., a Korean corporation with headquarters located at 398-1
Daebong-dong, Dongjak-ku, Seoul 156-020, Republic of Korea (BUKWANG).
WITNESSETH
WHEREAS, UGARF, YALE and BUKWANG entered into a License Agreement
(LICENSE) as of December 28, 1995; and
WHEREAS, UGARF, YALE and BUKWANG desire to amend the LICENSE to provide
sublicensing rights to BUKWANG;
NOW, THEREFORE, UGARF, YALE and BUKWANG agree as follows:
1. The partial consideration of the grant by UGARF and YALE of sublicensing
rights to BUKWANG, BUKWANG agrees to pay a one-time, nonrefundable,
nonceditable fee of *** to be split equally between UGARF and YALE.
2. The following new paragraphs are added to the LICENSE.
2.5 BUKWANG shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder. Upon any
termination of this Agreement, sublicensees' rights shall also
terminate.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 1 of 3
<PAGE>
2.6 BUKWANG agrees that any sublicenses granted by it shall provide that
the obligations to UGARE and YALE of Articles 2, 3.3, 5, 6, 8, 9,
10, 11, 12 and 14 of this Agreement shall be binding upon the
sublicensee as if it were a party to this Agreement. BUKWANG further
agrees to attach copies of these Articles to sublicense agreements.
2.7 BUKWANG shall not receive from sublicenses anything of value in lieu
of cash payments in consideration for any sublicense under this
Agreement without the prior written permission of UGARF and YALE.
2.8 BUKWANG shall obtain in advance the written approval of UGARF and
YALE before it enters into any sublicense agreements. However, in
the event that the sublicense from BUKWANG is with a company ***,
then such written approval is not needed in advance.
2.9 BUKWANG agrees to forward to UGARF and YALE a copy of any and all
sublicense agreements promptly upon execution by the parties.
2.10 BUKWANG agrees that any sublicense agreement shall contain a
provision for the payment of a royalty of no less than *** of the
Net Selling Price of all Licensed Products by the sublicensee.
2.11 BUKWANG, UGARF and YALE agree to share income from sublicensing in
the following manner:
UGARF/YALE BUKWANG
Income from royalties from sublicensee(s) *** ***
Income from sublicense issue fees, *** ***
milestone payments, or fees other than
royalties
Except as otherwise modified herein, the LICENSE remains in full force and
effect.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 2 of 3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be executed
by their duly authorized representatives, under seal, as of the effective date.
UNIVERSITY OF GEORGIA
RESEARCH FOUNDATION, INC. BUKWANG PHARM. IND. CO., LTD.
By: /s/ Joe L. Key By: /s/ C. H. Koo
--------------------------- ----------------------------
Name: Joe L. Key Name: C. H. Koo
Title: Executive Vice President Managing Director
(corporate seal) (corporate seal)
BUKWANG PHARM. IND. CO., LTD.
398-1 Daebang-Dong, Dongjak-ku
YALE UNIVERSITY Seoul, 156-020, KOREA
By: /s/ Gregory E. Gardiner
---------------------------
Name: Gregory E. Gardiner, Ph.D.
Title: Director, Cooperative Research
(corporate seal)
Page 3 of 3
<PAGE>
AMENDMENT NUMBER 2
to
LICENSE AGREEMENT and AMENDMENT
between
UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC.
YALE UNIVERSITY, and
BUKWANG PHARM. IND. CO., LTD.
This AMENDMENT NUMBER 2 to LICENSE AGREEMENT and AMENDMENT (dated
September 1, 1997) is effective on December 1, 1997, by and among the UNIVERSITY
OF GEORGIA RESEARCH FOUNDATION, INC., a nonprofit Georgia corporation with
offices located in Boyd Graduate Studies Research Center, The University of
Georgia, Athens, Georgia 30602-7411 (UGARF), YALE UNIVERSITY, located in New
Haven, Connecticut (YALE), and BUKWANG PHARM. IND. CO., LTD., a Korean
corporation with headquarters located at 398-1 Daebong-dong, Dongjak-ku, Seoul
156-020, Republic of Korea (BUKWANG).
WITNESSETH
WHEREAS, UGARF, YALE and BUKWANG entered into a License Agreement
(LICENSE) as of December 28, 1995, and an AMENDMENT dated September 1, 1997; and
WHEREAS, UGARF, YALE and BUKWANG desire to amend the LICENSE and AMENDMENT
as follows:
NOW, THEREFORE, UGARF, YALE and BUKWANG agree as follows:
1. Article 1 of the AMENDMENT dated September 1, 1997, is replaced with the
following:
In partial consideration of the grant by UGARF and YALE of sublicensing
rights to BUKWANG, BUKWANG agrees to pay on completion of a sublicense
agreement with a third party, a one-time, nonrefundable, noncreditable fee
of *** to be split equally between UGARF and YALE. This fee is in
addition to the *** sharing of sublicense fees, milestone payments or fees
other than royalties received by BUKWANG from a sublicensee, as provided
in Article 2.11 of this AMENDMENT.
2. Paragraph 2.6 of the LICENSE is replaced by the following:
2.6 BUKWANG agrees that any sublicenses granted by it shall provide that
the obligations to UGARF and YALE of Articles 2, 3.3, 5, 6, 8, 9,
10, 11, 12 and 14
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 1 of 2
<PAGE>
of this Agreement shall be binding upon the sublicensee as if it
were a party to this Agreement. BUKWANG further agrees to attach
copies of these Articles to sublicense agreements. ***
3. Exhibit A of the LICENSE is amended to include ***
Except as otherwise modified herein, the LICENSE remains in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this AMENDMENT to be executed
by their duly authorized representatives, under seal, as of the effective date.
UNIVERSITY OF GEORGIA
RESEARCH FOUNDATION, INC. BUKWANG PHARM. IND. CO., LTD.
By: /s/ Joe L. Key By: /s/ S. K. Lee
--------------------------- -------------------------
Name: Joe L. Key Name: S. K. Lee
Title: Executive Vice President Managing Director
(corporate seal) (corporate seal)
YALE UNIVERSITY
By: /s/ Gregory E. Gardiner
---------------------------
Name: Gregory E. Gardiner
Title: Director, Office of Cooperative Research
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 2 of 2
<PAGE>
Exhibit B
L-Nucleosides for the Treatment of Hepatitis B-Virus and Epstain Bar Virus
Inventors: Chung K. Chu, Yung-Chi Cheng, Balakrishna S. Pai and Gang-Qing Yao
================================================================================
Docket Country Serial No. Filing Date Patent No. Grant Date
Name
================================================================================
UGA 500 USA 08/189.070 1-28-94 5,587,362 12-24-96
- --------------------------------------------------------------------------------
Div (1) USA 08/467.010 6-6-95 5,567,688 10-22-96
- --------------------------------------------------------------------------------
Div (2) USA 08/466.274 6-9-95 5,565,438 10-15-96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PCT US95/01253 1-30-95
- --------------------------------------------------------------------------------
Australia 17376/95 1-30-95
- --------------------------------------------------------------------------------
Brazil PI9506 1-30-95
- --------------------------------------------------------------------------------
Bulgaria 100792 1-30-95
- --------------------------------------------------------------------------------
Canada 2.182.273 1-30-95
- --------------------------------------------------------------------------------
Chile 1353-95 1-30-95
- --------------------------------------------------------------------------------
China 95/191415.4 1-30-95
- --------------------------------------------------------------------------------
Czech PV2114-96 1-30-95
Republic
- --------------------------------------------------------------------------------
Europe 95/909404.6 1-30-95
- --------------------------------------------------------------------------------
Finland 962986 1-30-95
- --------------------------------------------------------------------------------
Hungary P9601774 1-30-95
- --------------------------------------------------------------------------------
Japan 520247/1995 6-30-95
- --------------------------------------------------------------------------------
Mexico 96/3029 1-30-95
- --------------------------------------------------------------------------------
New 281058 1-30-95
Zealand
- --------------------------------------------------------------------------------
N. Korea 96-0582 1-30-95
- --------------------------------------------------------------------------------
Norway 96-3138 1-30-95
- --------------------------------------------------------------------------------
Page 1 of 3
<PAGE>
================================================================================
Docket Country Serial No. Filing Date Patent No. Grant Date
Name
================================================================================
Romania 96-01548 1-30-95
- --------------------------------------------------------------------------------
Russia 96-117323 1-30-95
- --------------------------------------------------------------------------------
Sri Lanka 11021 1-30-95 11021 11/15/95
- --------------------------------------------------------------------------------
S. Korea 96-704125 1-30-95
- --------------------------------------------------------------------------------
Slovak PV-926-96 1-30-95
Republic
- --------------------------------------------------------------------------------
Viet Nam SCO147/96 1-30-95
- --------------------------------------------------------------------------------
================================================================================
Page 2 of 3
<PAGE>
PROCESS FOR THE PREPARATION OF
2'-FLUORO-5-METHYL-B-L-ARABINOFURANOSYLURIDINE
Inventors: Chung Kewan Chu, Jinfa Du, Yong Seok Choi
================================================================================
Docket Country Serial No. Filing Date Patent No. Grant Date
Name
================================================================================
*** *** *** ***
- --------------------------------------------------------------------------------
PCT IB97/01254 8-29-97
- --------------------------------------------------------------------------------
Argentina P9701 04409 9-25-97
- --------------------------------------------------------------------------------
China 97116278.6 9-8-97
- --------------------------------------------------------------------------------
India unknown 9-15-97
- --------------------------------------------------------------------------------
Indonesia P-973026 9-16-97
- --------------------------------------------------------------------------------
Israel 121.730 9-10-97
- --------------------------------------------------------------------------------
Korea 98-1421 1-19-97
- --------------------------------------------------------------------------------
Malaysia unknown 9-13-97
- --------------------------------------------------------------------------------
Pakistan 706/97 9-13-97
- --------------------------------------------------------------------------------
Philippines I-57996 9-24-97
- --------------------------------------------------------------------------------
Saudi 98180771 1-4-98
Arabia
- --------------------------------------------------------------------------------
Taiwan 86111816 8-16-97
- --------------------------------------------------------------------------------
Thailand 039630 9-15-97
- --------------------------------------------------------------------------------
Turkey 97/0151 9-26-97
================================================================================
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 3 of 3
<PAGE>
Exhibit C
AMENDMENT NUMBER 3
to
LICENSE AGREEMENT
among
UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC.,
YALE UNIVERSITY and
BUKWANG PHARM. IND. CO., LTD.
This AMENDMENT NUMBER 3, dated as of this February 27, 1998, and effective
in accordance with paragraph 15 hereof, by and among the UNIVERSITY OF GEORGIA
RESEARCH FOUNDATION, INC., a nonprofit Georgia corporation with offices located
in Boyd Graduate Studies Research Center, The University of Georgia, Athens,
Georgia 30602-7411 ("UGARF"), YALE UNIVERSITY, located in New Haven, Connecticut
("YALE"), and BUKWANG PHARM. IND. CO., LTD., a Korean corporation with
headquarters located at 398-1 Daebong-dong, Dongjak-ku, Seoul 156-020, Republic
of Korea ("BUKWANG").
WITNESSETH:
WHEREAS, UGARF, YALE, and BUKWANG entered into a License Agreement as of
December 28, 1995, and Amendment Number 1 thereto, dated September 1, 1997 and
Amendment Number 2 thereto dated December 1, 1997 (collectively, the "License
Agreement"); and
WHEREAS, BUKWANG and TRIANGLE PHARMACEUTICALS, INC., a Delaware
corporation with offices located at 4 University Place, 4611 University Drive,
Durham, North Carolina 27707 ("TRIANGLE") have entered into a license agreement,
1
<PAGE>
dated as of even date herewith (the "Triangle Sublicense Agreement"), pursuant
to which BUKWANG has granted TRIANGLE an exclusive sublicense to the Bukwang
Patents and Bukwang Know-How (each as defined in the Triangle Sublicense
Agreement), in the entire world, except Korea; and
WHEREAS, TRIANGLE has requested that BUKWANG, UGARF and YALE execute this
Amendment Number 3 in order, inter alia, to reconcile certain inconsistencies
between this License Agreement and the Triangle Sublicense Agreement and
BUKWANG, UGARF and YALE are willing to do so;
NOW, THEREFORE, UGARF, YALE and BUKWANG agree as follows:
1. All capitalized terms used in this Amendment Number 3 and not defined in
this Amendment Number 3 shall have the meanings given them in the License
Agreement, except as otherwise explicitly set forth herein.
2. UGARF and YALE hereby expressly consent to BUKWANG's entering into the
Triangle Sublicense Agreement.
3. UGARF and YALE confirm that the License Agreement is in full force and
effect and UGARF and YALE are not aware of any breach thereof by any party
thereto.
4. The following amendments are made to Article 2 of the License Agreement:
(a) Delete the last two sentences of paragraph 2.4 of the License
Agreement and replace them with the following:
If at any time during the term of this License Agreement, the United
States government should take action which terminates this License
Agreement or requires that this License Agreement be terminated,
BUKWANG acknowledges this License Agreement will automatically
terminate. In
2
<PAGE>
such event, BUKWANG shall not have any right to the return of any
payments of any kind made by it to LICENSOR prior to the date of
termination, other than any overpayment of earned royalties as
determined by any audit conducted pursuant to paragraph 6.2 of this
License Agreement.
(b) Delete paragraph 2.5 of the License Agreement entitled "Republic of
Korea Government Approval" and add the following sentences to
paragraph 2.5 of Amendment Number 1 to the License Agreement:
Notwithstanding the foregoing, UGARF and YALE agree that, if this
License Agreement terminates pursuant to paragraph 12.4 or 12.6, the
Triangle Sublicense Agreement shall, with respect to the Licensed
Patents and Licensed Technology, automatically become a direct
license with UGARF and YALE on the terms stated therein; provided,
however that UGARF and YALE shall be entitled to receive only those
percentages of milestone payments, royalties and other fees payable
to UGARF and YALE under the Triangle Sublicense Agreement as are
specified in paragraph 2.11 hereof on the date of such termination.
In such event, UGARF and YALE agree promptly to provide Triangle
with written confirmation of such a direct license.
(c) Delete the paragraph 2.6 of Amendment Number 2 and replace it with
the following:
UGARF and YALE agree that:
(i) TRIANGLE's performance of its obligations set forth in the
Triangle Sublicense Agreement shall be deemed to be complete
performance of any
3
<PAGE>
obligations which Triangle, as BUKWANG's sublicensee, and Bukwang
have pursuant to the provisions of this License Agreement including,
but not limited to, any and all obligations set forth herein
relating to diligence, progress reports, royalties (and the
calculation thereof), milestone payments and any other amounts
payable to UGARF and YALE pursuant to the terms of the License
Agreement and the due dates in respect of any of the foregoing and
including the provisions of Articles 2, 5, 6, 8, 10, 11, 12 and 14
of the License Agreement; provided however, BUKWANG agrees that the
Triangle Sublicense Agreement shall contain a provision for the
payment of a royalty of no less than *** of the Net Sales of all
Licensed Products by TRIANGLE (as defined therein);
(ii) Triangle's sole financial obligations as BUKWANG's sublicensee
shall be those which are set forth in the Triangle Sublicense
Agreement and shall be deemed to be performance by BUKWANG of its
financial obligations hereunder; and
(iii) Triangle's performance of its diligence obligations as set
forth in Article 6 of the Triangle Sublicense Agreement shall be
deemed to be performance by BUKWANG of its diligence obligations
under the License Agreement including, but not limited to, those set
forth in Article 3 hereof.
(d) Delete paragraph 2.10 of Amendment Number 1 and replace it as
follows:
BUKWANG agrees that payments to LICENSOR in respect of royalties
received by BUKWANG under the Triangle Sublicense Agreement shall
not be less than *** of Net Sales of Licensed Products (as defined
in the Triangle Sublicense Agreement) for any royalty period during
the term
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE>
thereof.
(e) Add the following paragraph 2.12 to Article 2 of the License
Agreement:
To the extent that the rights have not already been licensed
exclusively to another party, UGARF and YALE agree not to sue
BUKWANG or its Affiliates or sublicensees for patent infringement
for practicing a claim of a patent assigned to UGARF and YALE if
practicing said claim is required to make, have made, use, import,
offer for sale, sell or have sold Licensed Products.
5. Delete paragraph 3.3 of the License Agreement and replace it with the
following paragraph:
3.3 Chemical Utility Diligence Obligation. As used herein, the term
"Compounds" shall mean the compound known as L-FMAU, with the
chemical name, 2'-fluoro-5-methyl-(beta)-L-arabinofuranosyluracil,
including any salts and esters thereof. BUKWANG acknowledges that
viral resistance may limit the clinical utility and commercial
potential of the Compounds. In the conduct of the BUKWANG
Development Program, BUKWANG shall use its *** to conduct, or shall
cause its sublicensee to use its *** to conduct, preclinical and
clinical studies of the Compounds in combination with other anti-HBV
drugs or drug candidates in order to determine ***. BUKWANG shall
conduct, or shall cause its sublicensee to conduct, preclinical
combination studies with at least *** and shall use, or shall cause
its sublicensee to use, its *** to conduct clinical combination
studies with as many other drugs or drug candidates as it deems
appropriate to determine the optimal combinations or sequence of
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
5
<PAGE>
combinations necessary to provide maximum efficacy against HBV and
enhance the clinical utility and commercial potential of the
Compounds. Such combination studies may include *** and, because the
outcome of such combination studies cannot be predicted with
certainty, these studies may include other drugs or drug candidates
being developed by BUKWANG, its sublicensee or third parties which
because of various factors are ultimately determined not to be
additive to, or synergistic with, the Compounds.
6. Add the following paragraph to paragraph 4.4 of the License Agreement:
Invoices, including reasonable substantiation thereof, shall be submitted
once in respect of each fiscal quarter as promptly as practicable after
the end of such quarter. Payments shall be due net thirty (30) days from
the date of invoice. BUKWANG hereby authorizes UGARF and YALE to submit,
and UGARF and YALE hereby agree to submit, all such invoices in respect of
the Licensed Territory (other than Korea) directly to TRIANGLE for
reimbursement.
7. Make the following amendments to Article 5 of the License Agreement:
(a) Add the following sentence to paragraph 5.1 of the License Agreement:
Any provision of this License Agreement to the contrary
notwithstanding, payments and reports due hereunder in respect of
payments and reports received by BUKWANG from TRIANGLE pursuant to
the Triangle Sublicense Agreement will not be due to be submitted to
LICENSOR until ten (10) days after the date of receipt by BUKWANG
from TRIANGLE.
(b) Delete the first sentence of paragraph 5.5 and replace it with the
following:
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
6
<PAGE>
Payments required under the License Agreement shall, if overdue,
bear interest at the rate of *** until paid.
(c) Add the following paragraph 5.6 to Article 5 of the License
Agreement:
5.6 Performance of BUKWANG's Sublicensee. UGARF and YALE agree that
any and all reports required to be submitted by BUKWANG pursuant to
this Article 5 may instead be submitted by TRIANGLE in respect of
that portion of the Licensed Territory in which the Triangle
Sublicense Agreement is in effect and that submission of a report by
TRIANGLE to UGARF and YALE in accordance with this Article 5 shall
be deemed to satisfy BUKWANG's obligation to do so under this
Article 5.
8. Make the following amendments to Article 7 of the License Agreement:
(a) Delete the second paragraph of paragraph 7.1 and replace it as
follows:
If BUKWANG or its sublicensee, as applicable, fail to reimburse
LICENSOR for any undisputed patent prosecution expenses respecting
any patent application or issued patent included in the Licensed
Patents within the time allowed therefor, upon at least thirty (30)
days' prior notice to BUKWANG or its sublicensee, as applicable,
LICENSOR may remove such patent application or issued patent from
the Licensed Patents and LICENSOR shall be free, at its election, to
abandon or maintain the prosecution of such patent application or
issued patent or grant rights to such patent application or issued
patent to third parties.
(b) Add the following paragraph 7.3 to Article 7:
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
7
<PAGE>
7.3 Further Obligations.
(a) Except as otherwise provided in Article 8, each party's
responsibilities for patent prosecution activities pursuant to this
Article 7 shall also include all ex parte and inter partes activities
relating to the relevant patent applications and patents, including all
interference, opposition and observation proceedings before any patent
offices and litigation to determine the validity, enforceability,
allowability or subsistence of such patent applications and patents. Each
party agrees to give due consideration to the other party's or its
sublicensee's position with respect to any such patent prosecution
activities (which term, as used herein, shall include without limitation,
any inter partes activities of the type described in the first sentence of
this subparagraph (a)). In the event a party fails to initiate or pursue
any patent prosecution activities for which it is responsible, or having
commenced such patent prosecution activities, declines to pursue such
patent prosecution activities, it shall give notice to the other party
pursuant to the applicable provisions of subparagraph (b) below and the
other party or its sublicensee, as applicable, may initiate, pursue or
assume such patent prosecution activities, at its sole expense.
(b) In conducting its patent prosecution activities under this License
Agreement, each party may use patent attorneys selected by it in its own
discretion. In addition to the other obligations set forth in this Article
7, each party undertakes to keep the other party and, if applicable, such
other party's sublicensee throughout the term of this License Agreement
regularly informed of the status and progress of the patent prosecution
8
<PAGE>
activities it undertakes under this License Agreement including, but not
limited to, supplying the other party or its sublicensee, as applicable,
upon reasonable request and at reasonable intervals, with all
correspondence with the United States, Japan and European patent office
counterparts with respect to the United States, Japan and European patents
and patent applications. To the extent that a party has not previously
done so, or promptly upon request by the other party or its sublicensee,
in order to assist such other party or its sublicensee in connection with
any of its activities or the exercise of any of its rights pursuant to
Articles 7, such party shall provide the other party or its sublicensee
with such additional relevant documentation which such other party or its
sublicensee may reasonably request relating to such patent applications
and patents in the Licensed Patents, including but not limited to, copies
thereof and access to laboratory notebooks, other supporting data and
relevant employees. If a party decides to abandon or allow to lapse any
patent application or patent or not to initiate or any other patent
prosecution activity for which it has patent prosecution responsibility
pursuant to this Article 7, it shall give the other party or its
sublicensee notice thereof in a sufficiently timely manner so as to enable
such other party or its sublicensee to determine whether to assume patent
prosecution activity in connection therewith. Each party shall use its ***
to give such notice at least sixty (60) days before any abandonment, lapse
or any other relevant deadline.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
9
<PAGE>
(c) BUKWANG and LICENSOR agree that, during the term of the Triangle
Sublicense Agreement, the rights of BUKWANG under this Article 7 shall be
exercised, if at all, by TRIANGLE with respect to all patent prosecution
activities in any portion of the Licensed Territory in which the Triangle
Sublicense Agreement is then in effect. With respect to such patent
prosecution activities, LICENSOR shall communicate with TRIANGLE directly.
10. Make the following amendments to Article 8 of the License Agreement:
(a) Delete subparagraph (c) to paragraph 8.1 and replace it as follows:
(c) If LICENSOR shall fail with ninety (90) days after receiving
notice from BUKWANG of a potential infringement, to either (i)
terminate such infringement or (ii) to institute, either jointly as
provided in subparagraph (a) above or solely as provided in
subparagraph (b) above and, thereafter, to prosecute such suit
diligently, or (iii) if LICENSOR notifies BUKWANG that it does not
plan to institute or join in such suit, BUKWANG may institute suit
and, at its option, name LICENSOR as a plaintiff. BUKWANG shall bear
the entire cost of such litigation, including defending any
counterclaims brought against LICENSOR and paying any judgments
rendered against LICENSOR, and shall be entitled to retain the
entire amount of any recovery or settlement.
(b) Add the following subparagraph (d) to paragraph 8.1:
(d) In the event BUKWANG commences a suit pursuant to subparagraph
(c), BUKWANG may deposit up to *** of any royalties and milestone
payments which are otherwise payable to LICENSOR during
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
10
<PAGE>
the pendency of such suit in an interest-bearing escrow account.
Upon final resolution of such suit, BUKWANG shall provide LICENSOR
with an accounting of the amounts escrowed and BUKWANG's expenses
incurred in such infringement suit. BUKWANG shall be entitled to
offset any expenses which BUKWANG fails to recoup in such suit
against the escrowed amounts. Any escrowed amounts (and interest
thereon) in excess of BUKWANG's unrecouped expenses shall be
promptly paid to LICENSOR.
(c) Add the following paragraph 8.3 to Article 8:
8.3 Sublicensee Rights. BUKWANG and LICENSOR agree that, during the
term of the Triangle Sublicense Agreement, the rights of BUKWANG
under this Article 8 shall be exercised, if at all, by TRIANGLE with
respect to any infringements in any portion of the Licensed
Territory in which the Triangle Sublicense Agreement is then in
effect. With respect to such infringements, LICENSOR shall contact
Triangle regarding decisions relating to whether it desires to
commence any infringement suit and, if so, whether such suit should
be commenced jointly.
11. Add the following paragraph 9.4 to Article 9 of the License Agreement:
9.4 Rights to Disclose. Notwithstanding any provision of this
Article 9 to the contrary, BUKWANG shall have the right to disclose
any and all information and technology disclosed to it by LICENSOR
to TRIANGLE. LICENSOR agrees that TRIANGLE shall have the right to
disclose such information and technology as provided in Article 13
of the Triangle Sublicense Agreement.
11
<PAGE>
12. Exhibit A of the License Agreement is deleted and replaced with Exhibit A
attached hereto. LICENSOR warrants and represents that, with the exception
of the two patent cases identified by serial numbers ***, (a) Exhibit A is
a complete list of all patents and patent applications which it owns as of
the date hereof which relate to the Compounds per se, the use of the
Compounds in the Field of Use or the manufacture of the Compounds; and (b)
no patents or patent applications which relate to the Compounds per se,
.the use of the Compounds in the Field of Use or the manufacture of the
Compounds have been filed by LICENSOR in any non-elected countries (as
defined in paragraph 7.1 hereof).
13. Attached hereto as Exhibit B is a true and correct copy of the ***.
14. BUKWANG, UGARF and YALE agree not to amend this Amendment Number 3 in any
manner which would adversely affect TRIANGLE's rights and obligations
under the Triangle Sublicense Agreement. Any such purported amendment,
without TRIANGLE's prior written consent (which Triangle may withhold at
its sole discretion), shall be void. BUKWANG, UGARF and YALE agree to give
TRIANGLE at least thirty (30) days' notice of any other proposed amendment
to the License Agreement (including a true and correct copy thereof) and
will not enter into such an amendment if prior to such thirty (30) days'
TRIANGLE identifies any provisions contained in such proposed amendment
which would adversely affect the rights and obligations of TRIANGLE under
the Triangle Sublicense Agreement. If TRIANGLE gives such notice in a
timely fashion, the parties will meet in an attempt to mutually agree on
acceptable terms of such amendment or, in lieu thereof, BUKWANG, UGARF,
and YALE may enter into such amendment deleting the adverse provisions
identified in TRIANGLE's
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
12
<PAGE>
notice.
15. This Amendment Number 3 shall become effective upon the Effective Date of
the Triangle Sublicense Agreement (as defined therein) provided, however,
that in the event the Triangle Sublicense Agreement terminates in one or
more countries, this Amendment Number 3 shall terminate automatically in
respect of such countries.
16. Except as otherwise expressly amended hereby, the License Agreement
remains in full force and effect.
17. This Amendment Number 3 may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
[REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
13
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their duly authorized representatives, under seal, as of the date set forth
above.
LICENSOR: BUKWANG:
UNIVERSITY OF GEORGIA BUKWANG PHARM. IND. CO., LTD.
RESEARCH FOUNDATION, INC.
By: /s/ Joe L. Key By: /s/ Sung Koo Lee
----------------------------- -----------------------------
Name: Joe L. Key Name: Sung Koo Lee
Title: Executive Vice President Title: Managing Director
[Corporate Seal] [Corporate Seal]
YALE UNIVERSITY
By: /s/ Gregory E. Gardiner
-----------------------------
Name: Gregory E. Gardiner
Title: Director, OCR
[Corporate Seal]
14
<PAGE>
Exhibit A
L-Nucleosides for the Treatment of Hepatitis B-Virus and Epstein Bar Virus
Inventors: Chung K. Chu, Yung-Chi Cheng, Balakrishna S. Pai and Gang-Qing Yao
================================================================================
Docket Country Serial No. Filing Date Patent No. Grant Date
Name
================================================================================
UGA 500 USA 08/189.070 1-28-94 5,587,362 12-24-96
- --------------------------------------------------------------------------------
Div (1) USA 08/467.010 6-6-95 5,567,688 10-22-96
- --------------------------------------------------------------------------------
Div (2) USA 08/466.274 6-9-95 5,565,438 10-15-96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PCT US95/01253 1-30-95
- --------------------------------------------------------------------------------
Australia 17376/95 1-30-95
- --------------------------------------------------------------------------------
Brazil PI9506 1-30-95
- --------------------------------------------------------------------------------
Bulgaria 100792 1-30-95
- --------------------------------------------------------------------------------
Canada 2.182.273 1-30-95
- --------------------------------------------------------------------------------
Chile 1353-95 1-30-95
- --------------------------------------------------------------------------------
China 95/191415.4 1-30-95
- --------------------------------------------------------------------------------
Czech PV2114-96 1-30-95
Republic
- --------------------------------------------------------------------------------
Europe 95/909404.6 1-30-95
- --------------------------------------------------------------------------------
Finland 962986 1-30-95
- --------------------------------------------------------------------------------
Hungary P9601774 1-30-95
- --------------------------------------------------------------------------------
Japan 520247/1995 6-30-95
- --------------------------------------------------------------------------------
Mexico 96/3029 1-30-95
- --------------------------------------------------------------------------------
New 281058 1-30-95
Zealand
- --------------------------------------------------------------------------------
N. Korea 96-0582 1-30-95
- --------------------------------------------------------------------------------
Norway 96-3138 1-30-95
================================================================================
Page 1 of 3
<PAGE>
================================================================================
Docket Country Serial No. Filing Date Patent No. Grant Date
Name
================================================================================
Romania 96-01548 1-30-95
- --------------------------------------------------------------------------------
Russia 96-117323 1-30-95
- --------------------------------------------------------------------------------
Sri Lanka 11021 1-30-95 11021 11/15/95
- --------------------------------------------------------------------------------
S. Korea 96-704125 1-30-95
- --------------------------------------------------------------------------------
Slovak PV-926-96 1-30-95
Republic
- --------------------------------------------------------------------------------
Viet Nam SCO147/96 1-30-95
- --------------------------------------------------------------------------------
================================================================================
Page 2 of 3
<PAGE>
PROCESS FOR THE PREPARATION OF
2'-FLUORO-5-METHYL-B-L-ARABINOFURANOSYLURIDINE
Inventors: Chung Kewan Chu, Jinfa Du, Yong Seok Choi
================================================================================
Docket Country Serial No. Filing Date Patent No. Grant Date
Name
================================================================================
*** *** *** ***
- --------------------------------------------------------------------------------
PCT IB97/01254 8-29-97
- --------------------------------------------------------------------------------
Argentina P9701 04409 9-25-97
- --------------------------------------------------------------------------------
China 97116278.6 9-8-97
- --------------------------------------------------------------------------------
India unknown 9-15-97
- --------------------------------------------------------------------------------
Indonesia P-973026 9-16-97
- --------------------------------------------------------------------------------
Israel 121.730 9-10-97
- --------------------------------------------------------------------------------
Korea 98-1421 1-19-97
- --------------------------------------------------------------------------------
Malaysia unknown 9-13-97
- --------------------------------------------------------------------------------
Pakistan 706/97 9-13-97
- --------------------------------------------------------------------------------
PhilippinesI-57996 9-24-97
- --------------------------------------------------------------------------------
Saudi 98180771 1-4-98
Arabia
- --------------------------------------------------------------------------------
Taiwan 86111816 8-16-97
- --------------------------------------------------------------------------------
Thailand 039630 9-15-97
- --------------------------------------------------------------------------------
Turkey 97/0151 9-26-97
================================================================================
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Page 3 of 3
<PAGE>
Exhibit B
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
EXHIBIT 11.1
Computation of Net Loss Per Common Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Period From
Inception
Year Year (July 12, 1995)
Ended Ended Through
December 31, December 31, December 31,
1997 1996 (1) 1995 (1)
-------- -------- --------
<S> <C> <C> <C>
Historical weighted average shares outstanding 18,871 5,784 1,624
-------- -------- --------
Shares used in computing net loss per common share 18,871 5,784 1,624
======== ======== ========
Net loss $(37,668) $(10,917) $ (967)
Basic and diluted net loss per common share $ (2.00) $ (1.89) $ (0.60)
</TABLE>
- ----------
(1) The weighted average shares outstanding used in the calculation of net
loss per common share have been restated to reflect the adoption of
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
and its interpretation by Securities and Exchange Staff Accounting
Bulletin No. 98.
-73-
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-15187) and the Prospectus constituting part
of the Registration Statement on Form S-3 (File No. 333-44881) of our report
dated March 3, 1998, which appears on page 48 of Triangle Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997.
PRICE WATERHOUSE LLP
Raleigh, North Carolina
March 6, 1998
-74-
EXHIBIT 24.1
Power of Attorney
(See Page 75)
-75-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary consolidated financial information extracted from
its Annual Report on Form 10-K for the year ended December 31, 1997 and is
qualified in it's entirety by reference to such consolidated financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 34,698,000
<SECURITIES> 23,098,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,930,000
<PP&E> 3,286,000
<DEPRECIATION> (414,000)
<TOTAL-ASSETS> 61,878,000
<CURRENT-LIABILITIES> 8,683,000
<BONDS> 478,000
0
0
<COMMON> 20,000
<OTHER-SE> 52,697,000
<TOTAL-LIABILITY-AND-EQUITY> 61,878,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 41,182,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (37,668,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,668,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,668,000)
<EPS-PRIMARY> (2.00)
<EPS-DILUTED> (2.00)
</TABLE>
