<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PENWEST PHARMACEUTICALS CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
WASHINGTON 2834 91-1513032
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2981 ROUTE 22
PATTERSON, NY 12563-9970
(914) 878-3414
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TOD R. HAMACHEK
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PENWEST PHARMACEUTICALS CO.
2981 ROUTE 22
PATTERSON, NY 12563-9970
(914) 878-3414
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C>
STEVEN D. SINGER, ESQ. EDMUND O. BELSHEIM, JR., ESQ. LESLIE E. DAVIS, ESQ.
HALE AND DORR LLP PENWEST PHARMACEUTICALS CO. TESTA, HURWITZ & THIBEAULT, LLP
60 STATE STREET 2981 ROUTE 22 HIGH STREET TOWER
BOSTON, MA 02109 PATTERSON, NY 12563-9970 125 HIGH STREET
(617) 526-6000 (914) 878-3414 BOSTON, MA 02110
(617) 248-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value................... 2,875,000 $12.00 $34,500,000 $10,455
=============================================================================================================
</TABLE>
(1) Includes shares which the Underwriters have the option to purchase from the
Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1997
[PENWEST PHARMACEUTICALS CO. LOGO] PENWEST PHARMACEUTICALS CO.
2,500,000 SHARES
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold
by Penwest Pharmaceuticals Co. ("Penwest" or the "Company"), which is a
wholly-owned subsidiary of Penford Corporation (previously known as PENWEST,
LTD., "Penford"). Prior to this offering, there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $10.00 and $12.00 per share. See
"Underwriting" for information relating to the method of determining the initial
public offering price.
Upon completion of this offering, Penford will own approximately 85.3%
(approximately 83.5% if the Underwriters' over-allotment option is exercised in
full) of the outstanding Common Stock of the Company. Penford has announced its
intent, subject to the satisfaction of certain conditions, to divest its
ownership interest in the Company by means of a tax-free distribution to its
shareholders, which is anticipated to occur in the second quarter of 1998. See
"Background of the Planned Spin-off," "Principal Shareholders" and "Arrangements
Between the Company and Penford."
-------------------------------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
===================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
- ---------------------------------------------------------------------------------------------------
Total(2).................................. $ $ $
===================================================================================================
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $1,000,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 375,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions, and
Proceeds to Company will be $ , $ and $ ,
respectively.
-------------------------------------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1997.
BANCAMERICA ROBERTSON STEPHENS SBC WARBURG DILLON READ INC.
The date of this Prospectus is , 1997
<PAGE> 3
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549 (the "Commission"), a Registration Statement on Form S-1
(including all amendments and exhibits thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock, reference is hereby made to the Registration Statement including
exhibits, schedules and reports filed as a part thereof. Statements contained in
this Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the principal office of
the Commission in Washington, D.C., and copies of all or any part of which may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can also be obtained at
prescribed rates by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................................................................ 2
Summary............................................................................... 4
Background of the Planned Spin-off.................................................... 6
Risk Factors.......................................................................... 7
Use of Proceeds....................................................................... 19
Dividend Policy....................................................................... 19
Capitalization........................................................................ 20
Dilution.............................................................................. 21
Selected Financial Data............................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 23
Business.............................................................................. 27
Management............................................................................ 50
Certain Transactions.................................................................. 59
Principal Shareholders................................................................ 60
Arrangements Between the Company and Penford.......................................... 62
Description of Capital Stock.......................................................... 66
Shares Eligible for Future Sale....................................................... 68
Underwriting.......................................................................... 70
Legal Matters......................................................................... 72
Experts............................................................................... 72
Index to Financial Statements......................................................... F-1
</TABLE>
------------------------
The Company was incorporated under the name Edward Mendell Co., Inc. in the
State of Washington in February 1991 as a wholly-owned subsidiary of Penford
(formerly known as PENWEST, LTD.) and has changed its name to Penwest
Pharmaceuticals Co. The Company's executive offices are located at 2981 Route
22, Patterson, NY 12563-9970. The Company's telephone number is (914) 878-3414.
TIMERx(R), EMCOCEL(R), EXPLOTAB(R), EMDEX(R), EMCOMPRESS(R) and CANDEX(R)
are registered trademarks of the Company, and PROSOLV SMCC(TM) is a trademark of
the Company. Other tradenames and trademarks appearing in this Prospectus are
the property of their respective owners.
3
<PAGE> 5
SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus.
THE COMPANY
Penwest is engaged in the research, development and commercialization of
novel drug delivery technologies. Based on its extensive experience in
developing and manufacturing tabletting ingredients for the pharmaceutical
industry, the Company has developed its proprietary TIMERx(R) controlled release
drug delivery technology, which is applicable to a broad range of orally
administered drugs. The Company has applied TIMERx technology to the development
of oral formulations of generic versions of controlled release drugs and branded
controlled release versions of immediate release drugs. Each of these
formulations has been developed under a collaborative arrangement with a
pharmaceutical company. In October 1997, the Company's collaborator, Leiras OY,
a Finnish subsidiary of Schering AG ("Leiras"), received marketing approval in
Finland for Cystrin CR(R) (oxybutynin) for the treatment of urinary
incontinence. In May 1997, the Company's collaborator, Mylan Pharmaceuticals
Inc. ("Mylan"), filed an Abbreviated New Drug Application ("ANDA") with the U.S.
Food and Drug Administration (the "FDA") for the first generic version of the 30
mg dosage strength of Procardia XL(R) (nifedipine), a leading cardiovascular
drug for angina and hypertension.
The TIMERx drug delivery system is a hydrophilic matrix consisting primarily
of two natural polysaccharides, xanthan and locust bean gums, in the presence of
dextrose. The TIMERx system can precisely control the release of the active drug
ingredient in a tablet by varying the relative proportion of the gums, the
tablet coating and the tablet manufacturing process. The Company believes that
the TIMERx controlled release system is a major advancement in oral drug
delivery because it is applicable to a wide range of soluble and insoluble drugs
of varying dosages, it offers drug developers a flexible pharmacokinetic
profile, it is easy to scale up to commercial batch levels with consistent
reproducibility, and controlled release drugs based on the TIMERx controlled
release system can be manufactured cost effectively using existing equipment.
Penwest's strategy is to establish collaborations with leading
pharmaceutical companies to develop oral controlled release drugs. The Company
believes that this strategy will create significant operating, marketing and
financial advantages for the Company and will accelerate product development and
commercialization. The Company currently has six generic controlled release
products under development with three collaborators, Mylan, Kremers Urban
Development Company, the generics division of Schwarz Pharma, Inc. ("Kremers")
and Sanofi Winthrop International S.A. ("Sanofi"). All these products are
currently in full-scale bioequivalence studies or clinical trials. Additionally,
the Company has recently entered into a strategic alliance with Endo
Pharmaceuticals Inc., formerly a division of Dupont Merck Pharmaceuticals
("Endo"), to develop jointly Numorphan TRx, a branded oral controlled release
version of the narcotic analgesic oxymorphone.
The Company is also an established manufacturer and distributor of
excipients to the pharmaceutical and nutritional industries. Excipients are the
inactive ingredients in tablets and capsules that enable tabletting of active
drug ingredients by enhancing binding, lubrication and disintegration
properties. The Company recently introduced ProSolv, a patented combination of
microcrystalline cellulose ("MCC") and colloidal silicon dioxide, which the
Company believes offers improvements over competing excipients in wet
granulation and direct compression, the most common processes of manufacturing
tabletted products in the pharmaceutical industry. In addition to ProSolv, the
Company markets a broad line of 27 other excipient products. Revenues from the
excipients business were $25.0 million for the year ended December 31, 1996.
SEPARATION FROM PENFORD
The Company is a wholly-owned subsidiary of Penford (formerly known as
PENWEST, LTD.). Penford has announced its intent, subject to the satisfaction of
certain conditions, to divest its ownership interest in the Company by means of
a tax-free distribution to its shareholders, which is anticipated to occur in
the second quarter of 1998 (the "Spin-off"). Such conditions include receipt of
a private letter ruling from the Internal Revenue Service ("IRS") or a written
opinion from Ernst & Young LLP to the effect that, among other things, the
Spin-off will qualify as a tax-free distribution. The Company and Penford will,
prior to the completion of this offering, enter into agreements that govern
various interim and ongoing relationships. See "Arrangements Between the Company
and Penford."
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 2,500,000 shares
Common Stock Outstanding after the Offering.. 17,038,282 shares(1)
Use of Proceeds.............................. For construction and equipping of a TIMERx
manufacturing facility, expansion of
existing laboratory facilities, working
capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol....... PPCO
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $23,146 $25,089 $26,089 $19,958 $20,787
Cost of product sales.................... 15,910 17,267 18,690 14,033 14,660
------- ------- ------- ------- -------
Gross profit........................... 7,236 7,822 7,399 5,925 6,127
Selling, general and administrative
expenses............................... 7,021 7,676 6,776 5,264 5,747
Research and development expenses........ 2,322 2,719 3,723 2,636 2,994
Net loss................................. $(2,629) $(3,252) $(3,864) $(2,461) $(3,175)
======= ======= ======= ======= =======
Net loss per share....................... $ (0.18) $ (0.22) $ (0.27) $ (0.17) $ (0.22)
======= ======= ======= ======= =======
Weighted average shares outstanding...... 14,538 14,538 14,538 14,538 14,538
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 1,088 $ 25,663
Working capital.................................................... (27,885) 34,193
Total assets....................................................... 37,380 61,955
Accumulated deficit................................................ (15,508) (15,508)
Shareholders' equity (deficit)..................................... (8,078) 54,000
</TABLE>
- ---------------
(1) Excludes 715,000 shares of Common Stock issuable upon the exercise of
options to be granted to certain employees and directors on the date of this
Prospectus at an exercise price equal to the initial public offering price.
Also excludes an aggregate of 3,085,000 shares reserved for future grants or
purchases pursuant to the Company's 1997 Equity Incentive Plan and 1997
Employee Stock Purchase Plan. See "Management -- Employee Benefit Plans" and
Note 13 of Notes to Consolidated Financial Statements.
(2) As adjusted to reflect (i) the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$11.00 per share and the receipt of the estimated net proceeds therefrom and
(ii) the contribution by Penford to the capital of the Company, effective
upon the closing of this offering, of the outstanding intercompany
indebtedness of the Company to Penford as of the date of the closing of this
offering (the "Penford Capital Contribution"). The intercompany indebtedness
was $37,503,000 as of September 30, 1997. See "Use of Proceeds" and Note 6
of Notes to Consolidated Financial Statements.
Unless otherwise indicated, all information contained in this Prospectus
assumes no exercise of the Underwriters' over-allotment option, and reflects a
2,907.66-for-1 stock split of the shares of Common Stock effected on October 8,
1997.
5
<PAGE> 7
BACKGROUND OF THE PLANNED SPIN-OFF
Prior to this offering, Penford owned 100% of the Company's outstanding
common stock, par value $0.001 per share (the "Common Stock"). Upon completion
of this offering, Penford will own 85.3% (approximately 83.5% if the
Underwriter's over-allotment option is exercised in full) of the Common Stock.
BACKGROUND OF THIS OFFERING AND THE SPIN-OFF
In October 1997, Penford announced its intent, subject to the satisfaction
of certain conditions, to divest its ownership interest in the Company by means
of the Spin-off, which is anticipated to occur in the second quarter of 1998. By
effecting the Spin-off, Penford would separate its pharmaceutical business from
its specialty chemical business for the paper and food industries. The Board of
Directors of Penford (the "Penford Board") intends to conduct the Spin-off
because it believes that the Spin-off will: (i) permit the managements of
Penford and Penwest to focus on their respective core businesses without regard
to the corporate objectives and policies of the other company; (ii) improve the
near-term earnings of Penford by eliminating from Penford's results of
operations the expenses associated with developing Penwest's TIMERx controlled
release technologies; (iii) permit the financial community to focus separately
on Penford and Penwest and their respective business opportunities; and (iv)
enable Penwest to have greater access to capital to finance its business. The
Company and Penford have entered into or will, on or prior to the completion of
this offering, enter into agreements that govern various interim and ongoing
relationships. See "Arrangements Between the Company and Penford."
CONDITIONS TO THE SPIN-OFF
The Penford Board currently intends to effect the Spin-off in the second
quarter of 1998. Under the Separation Agreement between Penford and Penwest, the
Penford Board has the sole discretion to determine the date of consummation of
the Spin-off at any time prior to the date six months after the closing of this
offering. Following the date six months after the closing of this offering, the
Penford Board will be obligated to effect the Spin-off as promptly as
practicable, subject to the satisfaction, or waiver by the Penford Board, in its
sole discretion, of certain conditions including: (i) a private letter ruling
from the IRS shall have been obtained and shall continue in effect, or a written
opinion from Ernst & Young LLP shall have been received, to the effect that,
among other things, the Spin-off will qualify as tax-free for federal income tax
purposes under Sections 355 and 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and such ruling or opinion shall be in form and substance
satisfactory to Penford; (ii) any material governmental approvals and consents
necessary to consummate the Spin-off shall have been obtained and shall be in
full force and effect; (iii) no order, injunction or decree issued by any court
or agency of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Spin-off shall be in effect, and no other
event outside the control of Penford shall have occurred or failed to occur that
prevents the consummation of the Spin-off; and (iv) no material adverse change
shall have occurred with respect to the business or financial condition of
Penford or Penwest that would, in the reasonable judgment of the Penford Board,
make the approval of the Spin-off inadvisable.
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby.
CONTROL BY PENFORD PENDING THE SPIN-OFF; UNCERTAINTY OF THE SPIN-OFF
Upon completion of this offering, Penford will own approximately 85.3%
(approximately 83.5% if the Underwriters' over-allotment option is exercised in
full) of the outstanding Common Stock of Penwest. Penford has announced its
intent, subject to the satisfaction of certain conditions, to divest its
ownership interest in the Company by means of a tax-free distribution to its
shareholders, which the Company anticipates will occur in the second quarter of
1998. If the Spin-off occurs, the Company will no longer be a subsidiary of
Penford.
So long as Penford owns a majority of the outstanding Common Stock, it will
have the ability to elect all the members of the Board of Directors of the
Company (the "Board") and otherwise control the management and affairs of the
Company, including any determinations with respect to acquisitions,
dispositions, borrowings, issuances of Common Stock or other securities of the
Company or the declaration and payment of any dividends on the Common Stock.
Three of the Company's directors will continue to serve as directors of Penford
following this offering. Two of these individuals have informed the Company they
intend to resign from the Penford Board upon completion of the Spin-off. The
ability of Penford to control the Company could have an adverse effect on the
market price for shares of Common Stock. See "Principal Shareholders" and
"Shares Eligible for Future Sale."
There can be no assurance as to whether or when the conditions to the
Spin-off will be satisfied or the Spin-off will occur. Such conditions include
receipt of a favorable tax ruling from the IRS or an opinion from Ernst & Young
LLP to the effect that the Spin-off will be tax-free. Penford has not determined
what action, if any, it would take if such conditions are not satisfied. If the
Spin-off does not occur, Penford may maintain ownership of the Company as a
consolidated subsidiary or sell all or a portion of its ownership interest in
the Company through a public offering or private sale. The occurrence of any of
these events could have a material adverse effect on the Company's business,
financial condition and results of operations and could materially adversely
affect the trading market for the Common Stock.
POSSIBILITY OF SUBSTANTIAL SALES OF COMMON STOCK
The Spin-off and future sales of substantial amounts of Common Stock
(including shares issued upon the exercise of options) in the public market or
the availability of such shares for sale, could have a material adverse effect
on the market price of the Common Stock and on the Company's ability to raise
any necessary capital to fund its future operations.
Upon completion of this offering, the Company will have 17,038,282 shares
of Common Stock outstanding. Of these shares, the 2,500,000 shares offered
hereby will generally be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 14,538,282 shares of Common Stock outstanding upon the
consummation of this offering will be shares of Common Stock held by Penford and
will be "restricted securities," as that term is defined in Rule 144,
promulgated under the Securities Act ("Rule 144"), that may be sold only if
registered under the Securities Act or in accordance with an applicable
exemption from registration.
The Company anticipates that the Spin-off will occur in the second quarter
of 1998. If the Spin-off occurs as planned, an aggregate of approximately
14,538,282 shares of Common Stock will be distributed to the shareholders of
Penford. Substantially all such shares would be eligible for immediate resale in
the public market. The Company is unable to predict whether substantial amounts
of Common Stock will be sold in the open market in anticipation of, or
following, the Spin-off. Sales of
7
<PAGE> 9
substantial amounts of Common Stock in the public market, or the perception that
such sales might occur, whether as a result of the Spin-off or otherwise, could
materially adversely affect the market price of the Common Stock. See "Shares
Eligible for Future Sale."
Pursuant to the Underwriting Agreement (as defined below), the Company has
agreed, subject to limited exceptions, not to sell, offer, contract to sell,
pledge, grant any option to purchase or otherwise dispose of any shares of
Common Stock (or any securities convertible into or exchangeable for, or any
right to purchase or acquire, Common Stock) for a period of 180 days after the
date of this Prospectus without the prior written consent of BancAmerica
Robertson Stephens. Similarly, Penford and the officers and directors of the
Company have agreed, subject to limited exceptions (including, with respect to
Penford, the Spin-off), not to sell, offer, contract to sell, pledge, grant any
option to purchase or otherwise dispose of any shares of Common Stock (or any
securities convertible into or exchangeable for, or any right to purchase or
acquire, Common Stock) for a period of 180 days after the date of this
Prospectus without the prior written consent of BancAmerica Robertson Stephens.
None of the shares of Common Stock distributed pursuant to the Spin-off (other
than shares distributed to the Company's "affiliates") will be subject to any
contractual restriction on sale or disposition pursuant to the Underwriting
Agreement or otherwise.
RISKS AND LITIGATION RELATING TO NIFEDIPINE XL
In May 1997, one of the Company's collaborators, Mylan, filed an ANDA with
the FDA for the 30 mg dosage strength of Nifedipine XL, a generic version of
Procardia XL, a controlled release formulation of nifedipine. Nifedipine XL is
the first product using the Company's TIMERx controlled release technology for
which an ANDA has been filed in the United States.
In an ANDA filing, the FDA generally requires data demonstrating that the
drug formulation is bioequivalent to the branded drug. In addition, under the
Drug Price Competition and Patent Restoration Act of 1984 (the "Waxman-Hatch
Act"), when an applicant files an ANDA for a generic version of a brand name
product covered by an unexpired patent listed with the FDA, the applicant must
certify to the FDA that such patent will not be infringed by the applicant's
product or that such patent is invalid or unenforceable. Notice of such
certification must be given to the patent holder and the sponsor of the New Drug
Application ("NDA") for the brand name product.
Bayer AG ("Bayer") and ALZA Corporation ("ALZA") hold patents relating to
Procardia XL, and Pfizer Inc. ("Pfizer") holds the NDA and markets the product.
In connection with the ANDA filing, Mylan certified in May 1997 to the FDA that
Nifedipine XL does not infringe the Bayer or ALZA patents and notified Bayer,
ALZA and Pfizer of such certification. Bayer and Pfizer sued Mylan in the United
States District Court for the Western District of Pennsylvania, alleging that
Nifedipine XL infringes Bayer's patent. ALZA has informed Mylan that ALZA does
not believe that the notice given to it complied with the requirements of the
Waxman-Hatch Act, and there can be no assurance that ALZA will not sue Mylan for
patent infringement or take any other actions with respect to such notice. Mylan
has advised the Company that it intends to contest vigorously the allegations
made in the lawsuit. However, there can be no assurance that Mylan will prevail
in this litigation or that it will continue to contest the lawsuit. An
unfavorable outcome or protracted litigation for Mylan would materially
adversely affect the Company's business, financial condition and results of
operations. Delays in the commercialization of Nifedipine XL could also occur
because the FDA will not grant final marketing approval of Nifedipine XL until a
final judgment on the patent suit is rendered in favor of Mylan by the district
court, or in the event of an appeal, by the court of appeals, or until 30 months
(or such longer or shorter period as the court may determine) have elapsed from
the date of Mylan's certification, whichever is sooner.
In 1993, Pfizer filed a "citizen's petition" with the FDA, claiming that
its Procardia XL formulation constituted a unique delivery system and that a
drug with a different release mechanism such as the TIMERx controlled release
system cannot be considered the same dosage form and approved in an ANDA as
bioequivalent to Procardia XL. In August 1997, the FDA rejected Pfizer's
citizen's petition.
8
<PAGE> 10
In July 1997, Pfizer also sued the FDA in the District Court of the District of
Columbia, claiming that the FDA's acceptance of Mylan's ANDA filing for
Nifedipine XL was contrary to law, based primarily on the arguments stated in
its citizen's petition. Mylan and the Company have intervened as defendants in
this suit. There can be no assurance that the FDA, Mylan and the Company will
prevail in this litigation. An outcome adverse to Mylan and the Company would
result in Mylan being required to file a suitability petition in order to
continue the ANDA or to file an NDA with respect to Nifedipine XL, each of which
would be expensive and time consuming. An adverse outcome also would result in
Nifedipine XL becoming ineligible for an "AB" rating from the FDA. Failure to
obtain an AB rating from the FDA would indicate that for certain purposes
Nifedipine XL would not be deemed to be therapeutically equivalent to the
referenced branded drug, would not be fully substitutable for the referenced
branded drug and would not be relied upon by Medicaid and Medicare formularies
for reimbursement. Any such failure would have a material adverse effect on the
Company's business, financial condition and results of operations. If any of
such events occur, Mylan may terminate its efforts with respect to Nifedipine
XL, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
There can be no assurance that Pfizer will not seek to protect its
marketing exclusivity with respect to Procardia XL by pursuing additional
regulatory initiatives and lawsuits.
Most of the controlled release products that the Company is developing with
its collaborators are generic versions of brand name controlled release products
that are covered by one or more patents. The Company expects its collaborators
will file ANDAs for such product candidates. There can be no assurance that if
ANDAs are filed for any of such products, the holders of the patents covering
the brand name product or the holders of the NDA with respect to the brand name
product will not take actions similar to those taken by Bayer and Pfizer. Any
significant delay in obtaining FDA approval to market the Company's product
candidates as a result of litigation, as well as the expense of such litigation,
whether or not the Company or its collaborators are successful, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The FDA is reviewing an inactive ingredient contained in the TIMERx
delivery system in order to determine the allowable amount for inclusion in the
FDA's Inactive Ingredients Guide. In connection with this review, the FDA has
requested that Mylan provide data from published literature regarding the
toxicity of such ingredient. If such data are not acceptable to the FDA, it
could require that additional data, including animal toxicity or other data, be
developed and submitted to determine the highest allowable amount. If the amount
of such ingredient, or any other ingredient, in a specified product exceeds the
highest amount approved in the Inactive Ingredients Guide, the Company would
likely be required to reformulate such product in order to be able to seek
approval through the ANDA process. Reformulation of a product would likely
require new bioequivalence studies. If reformulation were not possible, then new
clinical studies and an NDA filing for such product would likely be required for
FDA approval of such product. Any of such events could materially adversely
affect the Company's collaborative arrangements where ANDA filings had been made
or were contemplated, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition to filing an ANDA with respect to the 30 mg dosage strength of
Nifedipine XL, Mylan is conducting full scale bioequivalence studies of the 60
mg and 90 mg dosage strengths of Nifedipine XL. There can be no assurance that
Mylan will file ANDAs with respect to the 60 mg and 90 mg dosage strengths or
that, if Mylan does file such ANDAs, they will be the first ANDAs filed with
respect to such dosage strengths. Under the Waxman-Hatch Act, an applicant who
files the first ANDA with a certification of patent invalidity or
non-infringement with respect to a product may be entitled to receive, if such
ANDA is approved by the FDA, 180-day marketing exclusivity (a 180-day delay in
approval of other ANDAs for the same drug) from the FDA. However, there can be
no assurance that the FDA will not approve an ANDA filed by another applicant
with respect to a different dosage strength prior to or during Mylan's 180-day
marketing exclusivity period, if obtained, for the 30 mg dosage strength of
Nifedipine XL. See "Business -- Government Regulation" and "-- Litigation."
9
<PAGE> 11
DEPENDENCE ON COLLABORATIVE AGREEMENTS
The Company intends to develop and commercialize its TIMERx controlled
release products in collaboration with pharmaceutical companies. To date, the
Company has entered into collaborative agreements with Mylan, Leiras, Kremers,
Sanofi and Endo. The Company is particularly dependent on its collaboration with
Mylan, which covers three of the Company's products under development. Under its
current collaborative agreements, the Company's collaborators are generally
responsible for conducting full scale bioequivalence studies and clinical
trials, preparing and submitting all regulatory applications and submissions and
manufacturing, marketing and selling the TIMERx controlled release products.
There can be no assurance that the Company will be able to maintain
existing collaborative arrangements or establish new collaborative arrangements
on acceptable terms, if at all, or that any collaborative arrangements will be
commercially successful. To the extent that the Company is not able to maintain
or establish such arrangements, the Company would be required to undertake
product development and commercialization activities at its own expense, which
would increase the Company's capital requirements or require the Company to
limit the scope of its development and commercialization activities. Moreover,
the Company has limited or no experience in conducting full scale bioequivalence
studies and clinical trials, preparing and submitting regulatory applications
and manufacturing and marketing controlled release products. There can be no
assurance that it could be successful in performing these activities and any
failure to perform such activities could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company cannot control the amount and timing of resources that its
collaborative partners devote to the Company's programs or potential products,
which may vary because of factors unrelated to the potential products. If any of
the Company's collaborators breach or terminate their agreements with the
Company or otherwise fail to conduct their collaborative activities in a timely
manner, the preclinical and/or clinical development and/or commercialization of
product candidates will be delayed, and the Company would be required to devote
additional resources to product development and commercialization or terminate
certain development programs. Also, these relationships generally may be
terminated at the discretion of the Company's collaborators, in some cases with
only limited notice to the Company. For instance, Mylan may terminate its
agreements with the Company at any time upon 90 days' prior written notice under
specified circumstances. The termination of collaborative arrangements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There also can be no assurance that disputes will not
arise with respect to the ownership of rights to any technology developed with
third parties. These and other possible disagreements with collaborators could
lead to delays in the development or commercialization of product candidates or
could result in litigation or arbitration, which could be time consuming and
expensive and could have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, Penwest's collaborators may develop, either alone or with
others, products that compete with the development and marketing of the
Company's potential products. Competing products of the Company's collaborators
may result in their withdrawal of support with respect to their products under
development using the Company's controlled release technology, which could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Collaborative Arrangements."
UNCERTAINTY OF COMMERCIALIZATION OF TIMERX CONTROLLED RELEASE PRODUCTS
Products using the Company's TIMERx controlled release technology are in
various stages of development. None of these products has been commercialized,
and the period required to achieve commercialization is uncertain and may be
lengthy, if commercialization is achieved at all. Two products using TIMERx
technology have been the subject of regulatory filings by the Company's
collaborators. In October 1997, Leiras received marketing approval in Finland
for Cystrin CR for the
10
<PAGE> 12
treatment of urinary incontinence. In May 1997, Mylan filed an ANDA with the FDA
for the 30 mg dosage strength of Nifedipine XL, a generic version of Procardia
XL, a calcium channel blocker for treating hypertension. No regulatory approval
to market Nifedipine XL has been received, and there can be no assurance as to
when or if regulatory approval will be received. Moreover, other than Cystrin
CR, no product based on TIMERx technology has ever received regulatory approval
for commercial sale, and there can be no assurance that the results from
bioequivalence studies or clinical trials will justify such regulatory approval.
Except for milestone fees received for products under development, the Company
has not generated any revenues from controlled release products. There can be no
assurance that the Company's controlled release product development efforts will
be successfully completed, that required regulatory approvals will be obtained
or that approved products will be successfully manufactured or marketed. See
"Business -- TIMERx Product Development," "-- Collaborative Arrangements" and
"-- Government Regulation."
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company incurred net losses of approximately $2.6 million, $3.3 million
and $3.9 million during 1994, 1995 and 1996, respectively, and $2.5 million and
$3.2 million during the nine months ended September 30, 1996 and 1997,
respectively. As of September 30, 1997, the Company's accumulated deficit was
approximately $15.5 million. The Company expects net losses to continue at least
into 1999. A substantial portion of the Company's revenues have been generated
from the sales of the Company's pharmaceutical excipients. The Company's future
profitability will depend on several factors, including the successful
commercialization by the Company and its collaborators of the controlled release
products for which regulatory approval currently is pending or has recently been
obtained, the completion of the development of other pharmaceuticals using the
Company's TIMERx controlled release technology and, to a lesser extent, an
increase in sales of its pharmaceutical excipient products. There can be no
assurance that the Company will achieve profitability or that it will be able to
sustain any profitability on a quarterly basis, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
INTENSE COMPETITION; RISK OF TECHNOLOGICAL CHANGE
The pharmaceutical industry is highly competitive and is affected by new
technologies, governmental regulations, health care legislation, availability of
financing, litigation and other factors. Many of the Company's competitors have
longer operating histories and greater financial, marketing, legal and other
resources than the Company and certain of its collaborators. The Company expects
that it will be subject to competition from numerous other entities that
currently operate or intend to operate in the pharmaceutical industry, including
companies that engage in the development of controlled release technologies. The
Company's TIMERx business faces competition from numerous public and private
companies and their controlled release technologies, including ALZA's oral
osmotic pump (OROS(R)) technology, multiparticulate systems marketed by Elan
Corporation, plc ("Elan") and Biovail Corporation International, traditional
matrix systems marketed by Jago Pharma AG, a subsidiary of SkyePharma, plc, and
other controlled release technologies marketed and under development by Andrx
Corporation, among others.
The Company initially is concentrating its development efforts on generic
versions of controlled release pharmaceuticals. Typically, selling prices of
immediate release drugs have declined and profit margins have narrowed after
generic equivalents of such drugs are first introduced and the number of
competitive products has increased. Similarly, the success of generic versions
of controlled release products based on the Company's TIMERx technology will
depend, in large part, on the intensity of competition from currently marketed
drugs and technologies that compete with the branded controlled release
pharmaceuticals, as well as the timing of product approvals. In addition, under
several of the Company's collaborative arrangements, the payments due to the
Company with respect to the controlled release products covered by such
collaborative arrangements will be reduced in the event that there are competing
generic controlled release versions of such products.
11
<PAGE> 13
The generic drug industry is characterized by frequent litigation between
generic drug companies and branded drug companies. Those companies with
significant financial resources will be more able to bring and defend any such
litigation. See "Business -- Litigation."
In its excipients business, the Company competes with a number of large
manufacturers and other distributors of excipient products, many of which have
substantially greater financial, marketing and other resources than the Company.
The Company's principal competitor in this market is FMC Corporation, which
markets its own line of MCC excipient products.
The pharmaceutical industry is characterized by rapid and substantial
technological change. There can be no assurance that any products incorporating
TIMERx technology will not be rendered obsolete or non-competitive by new drugs,
treatments or cures for the medical conditions the TIMERx-based products are
addressing. Any of the foregoing could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Competition."
NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
The Company anticipates that its existing capital resources, together with
the net proceeds of this offering and interest earned thereon, will enable it to
maintain currently planned operations through at least 1999. However, this
expectation is based on the Company's current operating plan, which could change
as a result of many factors, and the Company could require additional funding
sooner than anticipated. The Company's requirements for additional capital could
be substantial and will depend on many factors, including the timing and amount
of payments received under existing and possible future collaborative
agreements; the structure of any future collaborative or development agreements;
the progress of the Company's collaborative and independent development
projects; revenues from the Company's excipients business, including from the
introduction of ProSolv; the costs to the Company of bioequivalence studies and
clinical trials for the Company's products; the prosecution, defense and
enforcement of patent claims and other intellectual property rights; and the
development of manufacturing, marketing and sales capabilities. Upon the closing
of this offering, the Company will have no credit facility or other committed
sources of capital. To the extent capital resources are insufficient to meet
future capital requirements, the Company will have to raise additional funds to
continue the development of its technologies. There can be no assurance that
such funds will be available on favorable terms, if at all. To the extent that
additional capital is raised through the sale of equity or convertible debt
securities, the issuance of such securities could result in dilution to the
Company's shareholders. If adequate funds are not available, the Company may be
required to curtail operations significantly or to obtain funds through entering
into collaboration agreements on unfavorable terms. The Company's inability to
raise capital would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTIES RELATING TO PATENTS AND PROPRIETARY RIGHTS
The Company believes that patent and trade secret protection of its drug
delivery technologies is important to its business and that its success will
depend, in part, on its ability to maintain existing patent protection, obtain
additional patents, maintain trade secret protection and operate without
infringing on the rights of others. Penwest has been issued 19 U.S. patents and
40 foreign patents relating to its controlled release drug delivery and
excipient technologies. In addition, Penwest has filed 11 U.S. patent
applications and corresponding foreign patent applications relating to its
controlled release drug delivery technology. The issuance of a patent is not
conclusive as to its validity or as to the enforceable scope of the claims of
the patent. There can be no assurance that the Company's patents or any future
patents will prevent other companies from developing similar or functionally
equivalent products or from successfully challenging the validity of the
Company's patents. Furthermore, there can be no assurance that (i) any of the
Company's future processes or products will be patentable; (ii) any pending or
additional patents will be issued in any or all appropriate jurisdictions; (iii)
the Company's processes or products will not infringe upon the patents of third
parties; or (iv) the
12
<PAGE> 14
Company will have the resources to defend against charges of patent infringement
or protect its own patent rights against third parties. The inability of the
Company to protect its patent rights or infringement by the Company of the
patent or proprietary rights of others could have a material adverse effect on
the Company's business, financial condition and results of operations.
There exists substantial patent litigation in the pharmaceutical,
biomedical and biotechnology industries. Patent litigation generally involves
complex legal and factual questions, and the outcome frequently is difficult to
predict. An unfavorable outcome in any patent litigation affecting the Company
could cause the Company to pay substantial damages, alter its products or
processes, obtain licenses and/or cease certain activities. Even if the outcome
is favorable to the Company, the Company could incur substantial litigation
costs. Although the legal costs of defending litigation relating to a patent
infringement claim (unless such claim relates to TIMERx) are generally the
contractual responsibility of the Company's collaborators, the Company could
nonetheless incur significant unreimbursed costs in participating and assisting
in the litigation.
In 1994, the Boots Company PLC ("Boots") filed in the European Patent
Office (the "EPO") an opposition to a patent granted by the EPO to the Company
relating to its TIMERx technology. In June 1996, the EPO dismissed Boots'
opposition, leaving intact all claims included in the patent. Boots has appealed
this decision to the EPO Board of Appeals. There can be no assurance that the
Company will prevail in this matter. An unfavorable outcome could materially
adversely affect the Company's business, financial condition and results of
operations.
The Company's collaborator Mylan is involved in patent litigation with
respect to Nifedipine XL. For a discussion of such patent litigation, see
"Business -- Litigation."
Penwest also relies on trade secrets and proprietary knowledge, which it
generally seeks to protect by confidentiality and non-disclosure agreements with
employees, consultants, licensees and pharmaceutical companies. There can be no
assurance, however, that these agreements will not be breached, that the Company
will have adequate remedies for any breach or that the Company's trade secrets
will not otherwise become known by others, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Patents and Proprietary Rights."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The development, clinical testing, manufacture, marketing and sale of
pharmaceutical products are subject to extensive federal, state and local
regulation in the United States. The Company cannot predict the extent to which
it may be affected by legislative and regulatory actions and developments
concerning various aspects of its operations, its products and the health care
field generally. Virtually all new prescription drugs, and many new
over-the-counter drugs, must be approved by the FDA before they can be
introduced onto the market in the United States. These approvals are based on
manufacturing, chemistry and control data, as well as safety and efficacy
studies and/or bioequivalence studies. The generation of the required data is
regulated by the FDA and can be time-consuming and expensive without assurance
that the results will be adequate to justify approval.
After submission of a marketing application, in the form of an NDA or an
ANDA, there can be substantial delays in obtaining FDA approval, including the
need to generate and submit additional data. Data submitted to the FDA is often
susceptible to varying interpretations that could delay, limit or prevent
regulatory approval. Also, delays or rejections may be encountered during any
stage of the regulatory approval process based upon the failure of clinical data
to demonstrate compliance with, or upon the failure of the product to meet, the
FDA's requirements for safety, efficacy and quality; and those requirements may
become more stringent due to changes in regulatory agency policy or the adoption
of new regulations. While the U.S. Food, Drug and Cosmetic Act provides for a
180-day review period, the FDA commonly takes one to two years to grant final
approval to a marketing application (NDA or ANDA). Further, the terms of
approval of any marketing application, including
13
<PAGE> 15
the labeling content, may be more restrictive than the Company desires and could
affect the marketability of products incorporating the Company's controlled
release technology.
Most of the controlled release products that the Company is developing with
its collaborators are generic versions of brand name controlled release
products, which require the filing of ANDAs. Certain ANDA procedures for generic
versions of controlled release products are the subject of petitions filed by
brand name drug manufacturers, which seek changes from the FDA in the approval
process for generic drugs. These requested changes include, among other things,
tighter standards for certain bioequivalence studies and disallowance of the use
by a generic drug manufacturer in its ANDA of propriety data submitted by the
original manufacturer as part of an original new drug application. The Company
is unable to predict at this time whether the FDA will make any changes to its
ANDA procedures as a result of such petitions or any future petitions filed by
brand name drug manufacturers or the effect that such changes may have on the
Company. Any changes in FDA regulations which make ANDA approvals more difficult
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The FDA also has the authority to revoke or suspend approvals of previously
approved products for cause, to debar companies and individuals from
participating in the drug-approval process, to request recalls of allegedly
violative products, to seize allegedly violative products, to obtain injunctions
to close manufacturing plants allegedly not operating in conformity with current
Good Manufacturing Practices ("cGMPs") and to stop shipments of allegedly
violative products. Such delays or FDA actions could have a material adverse
effect on the Company's business, financial condition and results of operations.
The FDA may seek to subject to pre-clearance requirements products currently
being marketed without FDA approval and there can be no assurance that the
Company or its third-party manufacturers or collaborators will be able to obtain
approval for such products within the time period specified by the FDA.
In May 1997, one of the Company's collaborators, Mylan, filed an ANDA with
the FDA for the 30 mg dosage strength of Nifedipine XL, a generic version of
Procordia XL. In addition, the Company expects that its collaborators will file
marketing applications for other products using the TIMERx controlled release
delivery system. There can be no assurance that approvals can be obtained, or be
obtained in a timely manner, for such applications or for other applications
that may be filed in the future. See "Business -- Government Regulation."
LIMITED MANUFACTURING CAPABILITY; DEPENDENCE ON SOLE SOURCE SUPPLIERS
The Company lacks commercial-scale facilities to manufacture its TIMERx
material in accordance with cGMP requirements prescribed by the FDA. To date,
the Company has relied on a large third-party pharmaceutical company for the
bulk manufacture of its TIMERx material for delivery to its collaborators under
an agreement that expires in June 1998. Although the Company intends to use a
portion of the proceeds of this offering to build a manufacturing facility for
its TIMERx material, the Company expects to continue to be dependent on
third-party manufacturers until its facility is fully operational and in
compliance with cGMP regulations. The Company believes that there are a limited
number of manufacturers that operate under cGMP regulations capable of
manufacturing the Company's products. In the event that the Company is unable to
obtain contract manufacturing, or obtain such manufacturing on commercially
reasonable terms, it may not be able to commercialize its products as planned.
There can be no assurance that third parties upon which the Company relies for
supply of its TIMERx materials will perform and any failures by third parties
may delay development or the submission of products for regulatory approval,
impair the Company's collaborators' ability to commercialize products as planned
and deliver products on a timely basis, or otherwise impair the Company's
competitive position, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
In order for the Company to develop its own manufacturing capabilities for
TIMERx material, it will need to complete the construction and qualification of
a manufacturing facility, recruit qualified
14
<PAGE> 16
personnel and acquire or lease the requisite equipment. There can be no
assurance that the Company will be able to successfully develop such
manufacturing capabilities on a cost effective and timely basis, if at all.
The manufacture of any products by the Company (both TIMERx material and
excipients) is subject to regulation by the FDA and comparable agencies in
foreign countries. Delay in complying or failure to comply with such
manufacturing requirements could materially adversely affect the marketing of
the Company's products and the Company's business, financial condition and
results of operations.
The Company's TIMERx drug delivery system is a hydrophilic matrix
consisting primarily of two natural polysaccharides, xanthan and locust bean
gums, in the presence of dextrose. The Company purchases these gums from a sole
source supplier. Most of the Company's excipients are manufactured from wood
pulp, which the Company also purchases from a sole source supplier. Although the
Company has qualified alternate suppliers with respect to these materials, there
can be no assurance that interruptions in supplies will not occur in the future
or that the Company will not have to obtain substitute suppliers. Any of these
events could have a material adverse effect on the Company's ability to
manufacture bulk TIMERx for delivery to its collaborators or manufacture its
excipients, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Manufacturing."
RELATIONSHIP WITH PENFORD; CONFLICTS OF INTEREST
Conflicts of interest may arise between the Company and Penford in a number
of areas relating to their past and ongoing relationships, including the
manufacture of certain excipients, tax and employee benefit matters, indemnity
arrangements, registration rights, sales or distributions by Penford of its
shares of Common Stock and the exercise by Penford of its ability to control the
management and affairs of the Company. Although Penford has advised the Company
that it does not currently intend to engage in the business of developing,
marketing and commercializing drug delivery products except through its
ownership of Common Stock and contractual relationships with the Company, other
than the agreement by Penford not to distribute certain products to the
pharmaceutical and nutritional industries (excluding food products), there are
no contractual or other restrictions on Penford's ability to engage in such
activities. Accordingly, circumstances could arise in which Penford would
compete with the Company.
In anticipation of this offering, and in view of Penford's intention to
undertake the Spin-off, the Company and Penford have entered into a number of
agreements, which will become effective upon the closing of this offering, for
the purpose of defining certain relationships between them. As a result of
Penford's ownership interest in the Company, the terms of such agreements were
not the result of arm's-length negotiations. Notwithstanding any tax allocation
agreement entered into between the Company and Penford, under federal income tax
law, each member of a consolidated group for federal income tax purposes is also
jointly and severally liable for the federal income tax liability of each other
member of the consolidated group. Similar rules may apply under state income tax
laws. If Penford or members of its consolidated tax group (other than the
Company and its subsidiaries) do not comply with the provisions of any such tax
allocation agreement and the Company is required to make payments in respect of
the tax liabilities allocated to Penford thereunder, such payments could
adversely affect the business, financial condition and results of operations of
the Company.
Three of the eight current directors of the Company are also directors of
Penford. Two of these individuals have informed the Company they intend to
resign from Penford's Board of Directors upon completion of the Spin-off, which
is expected to occur in the second quarter of 1998. Directors of the Company who
are also directors of Penford may have conflicts of interest with respect to
matters potentially or actually involving or affecting the Company and Penford
such as acquisitions, financings and other corporate opportunities that may be
suitable for the Company and Penford. To the extent that such opportunities
arise, such directors may consult with their legal advisors and make a
15
<PAGE> 17
determination after consideration of a number of factors, including whether such
opportunity is presented to any such director in his capacity as a director of
the Company, whether such opportunity is within the Company's line of business
or consistent with its strategic objectives and whether the Company will be able
to undertake or benefit from such opportunity. In addition, determinations may
be made by the Board, when appropriate, by the vote of the disinterested
directors only. Notwithstanding the foregoing, there can be no assurance that
conflicts will be resolved in favor of the Company. See "Arrangements Between
the Company and Penford."
NO ASSURANCE OF ADEQUATE THIRD-PARTY REIMBURSEMENT
The commercialization of the controlled release product candidates under
development by the Company and its collaborators depends in part on the extent
to which reimbursement for the cost of such products will be available from
government health administration authorities, private health insurers and other
third party payors, such as health maintenance organizations and managed care
organizations. The generic versions of controlled release products being
developed by the Company and its collaborators may be assigned an AB rating if
the FDA considers the product to be therapeutically equivalent to the branded
controlled release drug. Failure to obtain an AB rating from the FDA would
indicate that for certain purposes the drug would not be deemed to be
therapeutically equivalent, would not be fully substitutable for the branded
controlled release drug and would not be relied upon by Medicaid and Medicare
formularies for reimbursement.
Third party payors are attempting to control costs by limiting the level of
reimbursement for medical products, including pharmaceuticals. Cost control
initiatives could decrease the price that the Company or any of its
collaborators receives for their drugs and have a material adverse affect on the
Company's business, financial condition and results of operations. Further, to
the extent that cost control initiatives have a material adverse effect on the
Company's collaborators, the Company's ability to commercialize its products and
to realize royalties may be adversely affected. Moreover, health care reform has
been, and may continue to be, an area of national and state focus, which could
result in the adoption of measures that adversely affect the pricing of
pharmaceuticals or the amount of reimbursement available from third party
payors. There can be no assurance that changes in health care reimbursement laws
or policies will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Pricing and
Third-Party Reimbursement."
RISK OF PRODUCT LIABILITY CLAIMS; NO ASSURANCE OF ADEQUATE INSURANCE
Testing, manufacturing, marketing and selling pharmaceutical products
entail a risk of product liability. The Company faces the risk of product
liability claims in the event that the use of its products is alleged to have
resulted in harm to a patient or subject. Such risks exist even with respect to
those products that are manufactured in licensed and regulated facilities or
that otherwise possess regulatory approval for commercial sale. Product
liability insurance coverage is expensive, difficult to obtain and may not be
available in the future on acceptable terms, if at all. Until the Spin-off, the
Company will be covered by primary product liability insurance maintained by
Penford in the amount of $1.0 million per occurrence and $2.0 million annually
in the aggregate on a claims-made basis and by umbrella liability insurance in
excess of $5.0 million which can also be used for product liability insurance.
There can be no assurance that this coverage is adequate to cover potential
liability claims or that Penwest will be able to obtain comparable coverage
following the Spin-off. Furthermore, this coverage may not be adequate as the
Company develops additional products. As the Company receives regulatory
approvals for products under development, there can be no assurance that
additional liability insurance coverage for any such products will be available
in the future on acceptable terms, if at all. The Company's business, financial
condition and results of operations could be materially adversely affected by
the assertion of a product liability claim. See "Business -- Product Liability
Insurance."
16
<PAGE> 18
INTERNATIONAL OPERATIONS AND CURRENCY EXCHANGE RATE FLUCTUATIONS
The Company's business is conducted internationally and may be affected by
fluctuations in currency exchange rates, as well as by governmental controls and
other risks associated with international sales (such as export licenses,
collectibility of accounts receivable, trade restrictions and changes in
tariffs). The Company's international subsidiaries transact a substantial
portion of their sales and purchases in European currencies other than their
functional currency, which can result in the Company having gains or losses from
currency exchange rate fluctuations. There can be no assurance that exchange
rate fluctuations or other risks associated with international operations will
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 12 of Notes to
Consolidated Financial Statements.
DEPENDENCE ON KEY PERSONNEL
The Company's success is dependent on the Company's attracting and
retaining highly skilled scientific, managerial and business development
personnel. The loss of services of any of these key personnel could materially
adversely affect the Company. The Company's business expansion plans require
additional, highly skilled employees, particularly highly skilled scientific
personnel. Competition for qualified personnel is intense. There can be no
assurance that the Company will be successful in hiring or retaining the
personnel it requires. See "Management."
RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
The Company's research and development involves the controlled use of
hazardous materials and chemicals. Although the Company believes that its safety
procedures for 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
that result and any such liability could exceed the resources of the Company and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Regulation."
NO PRIOR PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE; POTENTIAL
VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or that the price at which the Common Stock will trade will
not be lower than the initial public offering price. The initial public offering
price will be determined through negotiations between the Company and the
Underwriters. See "Underwriting."
The market prices for securities of pharmaceutical, biopharmaceutical and
biotechnology companies have historically been highly volatile. The market from
time to time experiences significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. In addition,
factors such as fluctuations in the Company's operating results, future sales of
Common Stock, announcements of technological innovations or new therapeutic
products by the Company or its competitors, announcements regarding
collaborative agreements, clinical trial results, government regulation,
developments in patent or other proprietary rights, public concern as to the
safety of drugs developed by the Company or others, changes in reimbursement
policies, comments made by securities analysts and general market conditions can
have an adverse effect on the market price of the Common Stock. In particular,
the realization of any of the risks described in these "Risk Factors," including
the possibility of substantial sales of Common Stock as a result of the
Spin-off, could have a significant and adverse impact on such market price.
17
<PAGE> 19
DILUTION; ABSENCE OF DIVIDENDS
The public offering price is substantially higher than the net tangible
book value per share of the Company's Common Stock. Investors purchasing shares
of Common Stock in this offering will therefore incur immediate, substantial
dilution of approximately $7.95 per share. See "Dilution." The Company has not
paid any dividends on its Common Stock since inception and does not anticipate
paying any cash dividends in the foreseeable future. See "Dividend Policy."
ANTI-TAKEOVER EFFECTS OF WASHINGTON LAW AND CERTAIN CHARTER PROVISIONS
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
shareholders. 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 Preferred Stock
that may be issued in the future. While the Company has no present intention to
issue shares of Preferred Stock, such issuance, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. In addition,
the Company is subject to the anti-takeover provisions of Chapter 23B.19 of the
Washington Business Corporation Act, which prohibits the Company from engaging
in a "business combination" with an "interested shareholder" for a period of
three years after the date of the transaction in which the person became an
interested shareholder, unless the business combination is approved in a
prescribed manner. The application of Chapter 23B.19 could have the effect of
delaying or preventing a change of control of the Company. The Company's Amended
and Restated Articles of Incorporation provide for staggered terms for the
members of the Board of Directors. The staggered Board of Directors and certain
other provisions of the Company's Amended and Restated Articles of Incorporation
and Amended and Restated Bylaws may have the effect of delaying or preventing a
change of control of the Company, which could adversely affect the market price
of the Company's Common Stock. See "Description of Capital Stock -- Washington
Law and Certain Charter and Bylaw Provisions."
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby (2,875,000 if the Underwriters' over-allotment
option is exercised in full) at an assumed initial public offering price of
$11.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$24,575,000 ($28,411,250 if the Underwriters' over-allotment option is exercised
in full).
The Company anticipates that approximately $15.0 million of the net
proceeds will be used for the construction and equipping of a TIMERx
manufacturing facility and expansion of existing laboratory facilities. The
balance of the net proceeds will be used for working capital and other general
corporate purposes. Although the Company may use a portion of the net proceeds
to acquire or license products or technologies complementary to those of the
Company, there are no current plans or commitments to do so.
The amounts actually expended for each purpose and the timing of such
expenditures will depend upon numerous factors, including: the timing and amount
of payments received under existing and possible future collaborative
agreements; the structure of any future collaborative or development agreements;
the progress of the Company's collaborative and independent development
projects; financing alternatives; revenues from the Company's excipients
business, including from the introduction of ProSolv; the costs to the Company
of bioequivalence studies and clinical trials for the Company's products; the
prosecution, defense and enforcement of patent claims and other intellectual
property rights; the defense of other litigation; and the development of
manufacturing, marketing and sales capabilities.
Pending such uses, the Company intends to invest the net proceeds of this
offering in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain earnings, if any, for use in the operation of its
business, and therefore does not anticipate paying any cash dividends in the
foreseeable future.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and as adjusted to give effect to the sale of the 2,500,000
shares of Common Stock by the Company offered hereby based upon an assumed
initial public offering price of $11.00 per share and the application of the
estimated net proceeds therefrom and the Penford Capital Contribution. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(in thousands)
<S> <C> <C>
Payable to Penford(1)................................................. $ 37,503 $ --
======= ========
Shareholders' equity (deficit):
Common stock, par value $0.001; 39,000,000 shares authorized;
14,538,282 shares issued and outstanding actual, and 17,038,282
shares issued and outstanding, as adjusted(2)...................... 15 17
Additional paid-in capital............................................ 8,075 70,151
Accumulated deficit................................................... (15,508) (15,508)
Cumulative translation adjustment..................................... (660) (660)
------- --------
Total shareholders' equity (deficit)............................... (8,078) 54,000
------- --------
Total capitalization............................................ $ 29,425 $ 54,000
======= ========
</TABLE>
- ---------------
(1) Represents the intercompany advances from Penford to fund Penwest's
operations, capital expenditures and the original acquisition of the
Company's predecessor, which will be contributed to the capital of Penwest
upon the closing of this offering.
(2) Excludes 715,000 shares of Common Stock issuable upon the exercise of
options to be granted to certain employees and directors on the date of this
Prospectus at an exercise price equal to the initial public offering price.
Also excludes an aggregate of 3,085,000 shares reserved for future grants or
purchases pursuant to the Company's 1997 Equity Incentive Plan and 1997
Employee Stock Purchase Plan. See "Management -- Employee Benefit Plans" and
Note 13 of Notes to Consolidated Financial Statements.
20
<PAGE> 22
DILUTION
The net tangible book value (deficit) of the Company as of September 30,
1997 was ($10,117,000) or ($0.70) per share of Common Stock ($27,386,000 or
$1.88 per share of Common Stock, adjusted for the Penford Capital Contribution).
Net tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the total number of shares of
Common Stock outstanding at September 30, 1997. After giving effect to the sale
by the Company of 2,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $11.00 per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company, and after giving effect to the Penford Capital Contribution, the
adjusted net tangible book value of the Company as of September 30, 1997 would
have been $51,961,000 or $3.05 per share. This represents an immediate increase
in net tangible book value of $1.17 per share to the existing shareholder after
giving effect to the Penford Capital Contribution and an immediate dilution in
net tangible book value of $7.95 per share to purchasers of shares of Common
Stock in this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $11.00
Net tangible book value as of September 30, 1997.................. $ (0.70)
Increase attributable to the Penford Capital Contribution......... 2.58
Increase attributable to this offering............................ 1.17
------
Adjusted net tangible book value after this offering and after
giving effect to the Penford Capital Contribution................. 3.05
------
Dilution to new investors........................................... $ 7.95
======
</TABLE>
The following table summarizes, as of September 30, 1997, the difference
between the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by Penford after
giving effect to the contribution of the amount due to parent and affiliates and
by new investors before deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company at the
assumed initial public offering price of $11.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Penford.............. 14,538,282 85.3% $45,593,000 62.4% $ 3.14
New investors........ 2,500,000 14.7 27,500,000 37.6 11.00
------ ----- ------- -----
Total.......... 17,038,282 100.0% $73,093,000 100.0%
====== ===== ======= =====
</TABLE>
The foregoing table assumes no exercise of options to purchase 715,000
shares of Common Stock to be granted to certain employees and directors on the
date of this Prospectus at an exercise price equal to the initial public
offering price. In addition to the shares reserved for issuance upon exercise of
these options, the Company has reserved an additional 3,085,000 shares of Common
Stock for future grants or purchases pursuant to the Company's 1997 Equity
Incentive Plan and 1997 Employee Stock Purchase Plan. See
"Management -- Employee Benefit Plans" and Note 13 of Notes to Consolidated
Financial Statements.
21
<PAGE> 23
SELECTED FINANCIAL DATA
The statement of operations data for the years ended December 31, 1994,
1995 and 1996 and the nine-month period ended September 30, 1997 and the balance
sheet data as of December 31, 1995 and 1996 and September 30, 1997 are derived
from the consolidated financial statements of the Company which have been
audited by Ernst & Young LLP, independent auditors. The statement of operations
data for the years ended December 31, 1992 and 1993 and the nine month period
ended September 30, 1996 and the balance sheet data as of December 31, 1992,
1993 and 1994 are derived from unaudited consolidated financial statements. The
unaudited consolidated financial statements include all adjustments, consisting
of normal recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the nine-month period ended September 30, 1997
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1997. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements, related
Notes thereto, and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $ 19,406 $ 21,355 $ 23,146 $ 25,089 $ 26,089 $ 19,958 20,787
Cost of product sales.... 13,114 13,708 15,910 17,267 18,690 14,033 14,660
----- ----- ----- ----- ----- ----- -----
Gross profit........ 6,292 7,647 7,236 7,822 7,399 5,925 6,127
Selling, general and
administrative
expenses............... 5,024 6,383 7,021 7,676 6,776 5,264 5,747
Research and development
expenses............... 553 1,255 2,322 2,719 3,723 2,636 2,994
Net income (loss)........ $ 339 $ 8 $ (2,629) $ (3,252) $ (3,864) $ (2,461) $ (3,175)
===== ===== ===== ===== ===== ===== =====
Net income (loss) per
share.................. $ 0.02 $ 0.00 $ (0.18) $ (0.22) $ (0.27) $ (0.17) $ (0.22)
===== ===== ===== ===== ===== ===== =====
Weighted average shares
outstanding............ 14,538 14,538 14,538 14,538 14,538 14,538 14,538
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ -- $ 347 $ 668 $ 290 $ 695 $ 1,088
Working capital.......... $ (6,226) (12,321) (14,592) (19,461) (23,362) (27,885)
Total assets............. 19,961 25,430 27,000 31,671 35,083 37,380
Accumulated deficit...... (2,596) (2,588) (5,217) (8,469) (12,333) (15,508)
Total shareholder's
equity (deficit)....... 5,576 5,011 2,641 (477) (4,412) (8,078)
</TABLE>
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.
OVERVIEW
Since 1991, Penwest has been engaged in the research, development and
commercialization of novel drug delivery technologies, including the development
of its TIMERx controlled release drug delivery technology. The Company also
develops, manufactures, distributes and sells excipients to the pharmaceutical
and nutritional industries. Penwest was incorporated under the name Edward
Mendell Co., Inc. in the State of Washington in 1991 following Penford's
acquisition of substantially all the assets of its predecessor company.
The Company's principal development focus to date has been the development
of controlled release drugs based on the TIMERx technology. In October 1997, the
Company's collaborator, Leiras, received marketing approval in Finland for
Cystrin CR, a TIMERx formulation for the treatment of urinary incontinence. In
May 1997, the Company's collaborator, Mylan, filed an ANDA with the FDA for the
30 mg dosage strength of Nifedipine XL, the first generic version of Procardia
XL. Subsequent to the filing of Mylan's ANDA, Bayer and Pfizer sued Mylan
alleging patent infringement and Pfizer sued the FDA claiming that the FDA's
acceptance of Mylan's ANDA filing was contrary to law. There can be no assurance
that Mylan or the FDA will prevail in these matters or that they will continue
to contest these matters. An unfavorable outcome or protracted litigation with
respect to either of these matters would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is a party to collaborative agreements with Mylan, Leiras,
Kremers, Sanofi and Endo with respect to the development and commercialization
of TIMERx controlled release products. Under these collaborative agreements, the
Company's collaborators are generally responsible for conducting full scale
bioequivalence studies and clinical trials, preparing and submitting all
regulatory applications and submissions and manufacturing, marketing and selling
the TIMERx controlled release products. There can be no assurance that the
Company's collaborations will be commercially successful. The Company cannot
control the amount and timing of resources which its collaborators devote to the
Company's programs or potential products. If any of the Company's collaborators
breach or terminate their agreements with the Company or otherwise fail to
conduct their collaborative activities in a timely manner, the development and
commercialization of product candidates would either be terminated or delayed,
or the Company would be required to undertake product development and
commercialization activities on its own and at its own expense, which would
increase the Company's capital requirements or require the Company to limit the
scope of its development and commercialization activities.
Except for Cystrin CR, which received marketing approval in Finland, no
product based on TIMERx technology has ever received regulatory approval for
commercial sale. Virtually all the TIMERx revenues generated to date have been
milestone fees received for products under development. There can be no
assurance that the Company's controlled release product development efforts will
be successfully completed, that required regulatory approvals will be obtained
or that approved products will be successfully manufactured or marketed.
The Company has incurred net losses since 1994. As of September 30, 1997,
the Company's accumulated deficit was approximately $15.5 million. The Company
expects net losses to continue at least into 1999. A substantial portion of the
Company's revenues to date have been generated from the sales of the Company's
pharmaceutical excipients. The Company's future profitability will depend on
23
<PAGE> 25
several factors, including the successful commercialization of TIMERx controlled
release products, and, to a lesser extent, an increase in sales of its
pharmaceutical excipients products. There can be no assurance that the Company
will achieve profitability or that it will be able to sustain any profitability
on a quarterly basis, if at all.
The Company's results of operations may fluctuate from quarter to quarter
depending on the volume and timing of orders of the Company's pharmaceutical
excipients and on variations in payments under the Company's collaborative
agreements including payments upon the achievement of specified milestones. The
Company's quarterly operating results may also fluctuate depending on other
factors, including variations in gross margins of the Company's products, the
mix of products sold, competition, regulatory actions, litigation and currency
exchange rate fluctuations.
The Company's business is conducted internationally and may be affected by
fluctuations in currency exchange rates, as well as by governmental controls and
other risks associated with international sales (such as export licenses,
collectibility of accounts receivable, trade restrictions and changes in
tariffs). The Company's international subsidiaries transact a substantial
portion of their sales and purchases in European currencies other than their
functional currency, which can result in the Company having gains or losses from
currency exchange rate fluctuations. The Company does not use derivatives to
hedge the impact of fluctuations in foreign currencies. See Note 12 of Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 and 1996
Total revenues increased by 4.2% for the nine months ended September 30,
1997 to $20.8 million from $20.0 million for the nine months ended September 30,
1996. Product sales increased to $19.9 million for the nine months ended
September 30, 1997 from $19.1 million for the nine months ended September 30,
1996, primarily due to an increase in North American sales of EMCOCEL, one of
the Company's core excipient products, which increase was partially offset by a
decrease in average selling price for some excipients in Europe due to
competitive pricing pressures in European excipient operations. Licensing
revenues relating to the TIMERx drug delivery system increased to $911,000 for
the nine months ended September 30, 1997 from $850,000 for the nine months ended
September 30, 1996 due to the achievement of additional development milestones
during the 1997 period.
Gross profit increased to $6.1 million or 29.5% of total revenues for the
nine months ended September 30, 1997 from $5.9 million or 29.7% of total
revenues for the nine months ended September 30, 1996. The decrease in gross
profit percentage was due to a change in product mix and pricing pressure in the
Company's European excipients operations, which were offset in part by a slight
increase in licensing revenues.
Selling, general and administrative expenses increased by 9.2% for the nine
months ended September 30, 1997 to $5.7 million from $5.3 million for the nine
months ended September 30, 1996. This increase was primarily due to additional
general and administrative expenses associated with increased business
development efforts with respect to the Company's TIMERx business.
Research and development expenses increased by 13.6% for the nine months
ended September 30, 1997 to $3.0 million from $2.6 million for the nine months
ended September 30, 1996. This increase was due to increased spending in the
development of the TIMERx drug delivery system and its applications as well as
increased spending on developing high performance excipients such as ProSolv.
For the nine months ended September 30, 1997 and 1996, respectively, the
Company did not record a benefit for federal or state taxes because net
operating losses were utilized by Penford in the year they were generated, and
the Company was not compensated by Penford for these losses. In addition, the
Company's provision for income taxes includes foreign taxes and federal and
state deferred tax liabilities that exceed deferred tax assets.
24
<PAGE> 26
Years Ended December 31, 1996 and 1995
Total revenues increased by 4.0% in 1996 to $26.1 million from $25.1
million in 1995. Product sales equalled $25.0 million in 1996 and in 1995.
Licensing revenues relating to the TIMERx drug delivery system increased to $1.1
million in 1996 from $100,000 in 1995 due to the achievement of additional
development milestones during the 1996 period.
Gross profit decreased to $7.4 million or 28.4% of total revenues in 1996
from $7.8 million or 31.2% of total revenues in 1995. Gross margins in 1996
decreased due to higher unit costs with respect to EMCOCEL, which were partially
offset by an increase in licensing revenues. These higher unit costs resulted
from the underutilization of a new manufacturing plant opened in late 1993 to
produce EMCOCEL.
Selling, general and administrative expenses decreased by 11.7% in 1996 to
$6.8 million from $7.7 million in 1995. This decrease was due to reduced
property taxes on the Patterson facility and a reduction in professional
services.
Research and development expenses increased by 36.9% in 1996 to $3.7
million from $2.7 million in 1995. This increase was attributable primarily to
the hiring of additional research and development personnel in connection with
the development of the TIMERx drug delivery system and its applications.
For 1996 and 1995, the Company did not record a benefit for federal or
state taxes because net operating losses were utilized by Penford in the year
they were generated, and the Company was not compensated for these losses. In
addition, the Company's provision for income taxes includes foreign taxes and
federal and state deferred tax liabilities that exceed deferred tax assets.
Years Ended December 31, 1995 and 1994
Total revenues increased by 8.4% in 1995 to $25.1 million from $23.1
million in 1994. This increase was primarily due to growth in sales of the
Company's excipient products including the EMCOCEL and EXPLOTAB products.
Gross profit increased to $7.8 million or 31.2% of total revenues in 1995
from $7.2 million or 31.3% of total revenues in 1994. This change in gross
profit was primarily attributable to the increase in excipient product sales and
a change in product mix.
Selling, general and administrative expenses increased by 9.3% in 1995 to
$7.7 million from $7.0 million in 1994. This increase was primarily due to
additional staffing associated with the commencement of several development
programs related to the TIMERx drug delivery technology.
Research and development expenses increased by 17.1% in 1995 to $2.7
million from $2.3 million in 1994. This increase was due to additional staffing
and generation of clinical data to support the development of the TIMERx drug
delivery technology.
For 1995 and 1994, the Company did not record a benefit for federal or
state taxes because net operating losses were utilized by Penford in the year
they were generated, and the Company was not compensated for these losses. In
addition, the Company's provision for income taxes includes foreign taxes and
federal and state deferred tax liabilities that exceed deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Since its incorporation, the Company has received intercompany advances
from Penford to fund Penwest's operations, capital expenditures and the original
acquisition of the Company's predecessor, which equalled $37.5 million as of
September 30, 1997. Penford intends to continue to provide advances to Penwest
until the closing of this offering. After the closing of this offering, Penford
will no longer provide any financial support to the Company. Penford has agreed
that it will contribute the outstanding intercompany indebtedness to the capital
of Penwest as of the closing of this offering.
25
<PAGE> 27
As of September 30, 1997, Penwest had cash and cash equivalents of $1.1
million. Following the closing of this offering the Company will have no credit
facility or other committed sources of capital. In addition, the Company will
have no indebtedness to either third or related parties.
The Company anticipates that its existing capital resources, together with
the net proceeds of this offering and interest earned thereon, will enable it to
maintain its currently planned operations through at least 1999. The Company
expects negative cash flow and net losses to continue at least into 1999 because
the Company will require substantial funds for product development efforts with
collaborators as well as a $15.0 million investment in the planned new
manufacturing and laboratory space in Patterson, New York to support the growth
of the TIMERx technology which investment is anticipated to be made in 1998 and
1999.
The Company's requirements for additional capital could be substantial and
will depend on many factors, including the timing and amount of payments
received under existing and possible future collaborative agreements; the
progress of the Company's collaborative and independent development projects;
financing alternatives; revenues from the Company's excipients business,
including from the introduction of ProSolv; the costs to the Company of
bioequivalence studies and clinical trials for the Company's products; the
prosecution, defense and enforcement of patent claims and other intellectual
property rights; the defense of other litigation; and the development of
manufacturing, marketing and sales capabilities. To the extent capital resources
are insufficient to meet future capital requirements, the Company will have to
raise additional funds to continue the development of its technologies. There
can be no assurance that such funds will be available on favorable terms, if at
all. To the extent that additional capital is raised through the sale of equity
or convertible debt securities, the issuance of such securities could result in
dilution to the Company's shareholders. If adequate funds are not available, the
Company may be required to curtail operations significantly or to obtain funds
through entering into collaboration agreements on unfavorable terms. The
Company's inability to raise capital would have a material adverse effect on the
Company's business, financial condition and results of operations.
26
<PAGE> 28
BUSINESS
Penwest is engaged in the research, development and commercialization of
novel drug delivery technologies. Based on its extensive experience in
developing and manufacturing tabletting ingredients for the pharmaceutical
industry, the Company has developed its proprietary TIMERx controlled release
drug delivery technology, which is applicable to a broad range of orally
administered drugs. The Company has applied TIMERx technology to the development
of oral formulations of generic versions of controlled release drugs and branded
controlled release versions of immediate release drugs. Each of these
formulations has been developed under a collaborative arrangement with a
pharmaceutical company. In October 1997, the Company's collaborator, Leiras,
received marketing approval in Finland for Cystrin CR (oxybutynin) for the
treatment of urinary incontinence. In May 1997, the Company's collaborator,
Mylan, filed an ANDA with the FDA for the first generic version of the 30 mg
dosage strength of Procardia XL (nifedipine), a leading cardiovascular drug for
angina and hypertension. The Company is also an established manufacturer and
distributor of excipients to the pharmaceutical and nutritional industries.
DRUG DELIVERY OVERVIEW
Drug delivery technology is a critical component in the formulation of
pharmaceutical products. The formulation of a pharmaceutical product involves
selecting, combining and processing active and inactive ingredients. Drug
delivery technology is used to create or design a system that delivers a drug to
the body in a safe and efficacious manner. These drug delivery systems control
the dissolution, absorption and stability of the finished dosage form and
thereby enhance its safety and therapeutic effectiveness. Although there are
several routes of drug administration used in pharmaceutical products, oral
delivery (principally tablets and capsules) is the preferred delivery route due
to ease of manufacture and administration, as well as enhanced patient
compliance.
Oral Immediate Release Formulations
Oral drugs have traditionally been delivered through "immediate release"
formulations, which release all the active drug substance into the bloodstream
shortly after the patient takes the medication. Immediate release formulations
are beneficial for certain conditions where rapid concentration of the active
ingredient in the bloodstream is required, such as in acute pain relief.
However, immediate release formulations of certain drugs can cause side effects
due to toxicity associated with excessively high concentrations of the active
substance in the bloodstream. In addition, certain immediate release
pharmaceuticals have relatively short half-lives (the time required for half of
the drug to be eliminated from the body), requiring frequent dosing and rigorous
patient compliance in order to achieve successful outcomes.
Oral Controlled Release Formulations
Oral controlled release formulations are designed to alleviate the problems
associated with certain immediate release formulations by extending the period
over which the active ingredient is released into the bloodstream. This permits
the drug to be administered less frequently, enhancing patient compliance.
Controlled release drug delivery systems are typically designed to modulate peak
drug levels in order to reduce side effects such as toxicity associated with
immediate release pharmaceuticals.
In certain cases, a controlled release drug can reduce the total amount of
drug required because it is delivered over an extended period or at the
therapeutically beneficial time or site. The reduction in the total amount of
the active drug substance administered can result in diminished acute toxicity
or toxicity associated with chronic dosing and decrease or eliminate systemic
side effects. Controlled release systems can also improve drug bioavailability
(the relative amount of the active drug substance in the bloodstream). For
example, in drugs that have a narrow window for absorption, these systems can
enhance bioavailability by localizing the release of the active drug substance
in certain regions of the gastrointestinal tract. In addition, controlled
release systems can be designed to coordinate the release of the active drug
substance to coincide with the body's natural (circadian) rhythms when they are
associated with certain disease states, such as diabetes and myocardial
infarction.
27
<PAGE> 29
The following chart compares the concentration of the active drug substance
in the bloodstream for a hypothetical drug over a period of time delivered with
an immediate release delivery system and a controlled release delivery system.
[Chart comparing the concentration of the active drug substance in the
bloodstream (x axis) over a period of 30 hours (y axis) delivered with an
immediate release delivery system and a controlled release delivery system]
The controlled release system represented in the chart modulates the
release of the active drug substance which prevents the concentration of the
active drug substance at toxic levels and extends the period during which an
effective dose is provided to the body.
The usefulness of a number of types of drugs can be improved by a
controlled release delivery system. Drugs with short half-lives often require
frequent administration and are therefore candidates for controlled release
formulation. In addition, controlled release systems can be used for drugs with
a long half-life but with a narrow therapeutic index (the median toxic dose
divided by the median therapeutic dose).
The utilization of controlled release technologies also offers potential
benefits to the developers of pharmaceutical products. For instance, a drug
developer can continue to benefit from an established immediate release product
which is losing patent protection, by creating a controlled release version of
the immediate release product and then seeking patent protection for the
reformulated product based on the delivery system. By reformulating a product, a
drug developer can, in effect, develop a new product without many of the risks
and costs typically associated with the discovery and development of new drugs
such as new chemical entities ("NCEs"). While the development of a new drug
based on an NCE generally takes approximately 15 years from discovery to
regulatory approval and costs approximately $300 to $600 million, the
development and regulatory approval of a controlled release version of an
immediate release product generally takes between approximately five to seven
years and costs less than $50 million. Furthermore, under the Waxman-Hatch Act,
a drug developer can under certain circumstances obtain a three-year or
five-year period of marketing exclusivity for a controlled released product
approved under an NDA by the FDA.
Oral Controlled Release Delivery Systems
To date, drug developers have principally applied controlled release
technologies to oral and transdermal (across the skin) routes of administration.
The transdermal route of administration has not been widely commercialized
because most drugs cannot be absorbed through the skin in a sufficient
28
<PAGE> 30
therapeutic dose. Due to the limited applicability of this technology and
because oral delivery is the most prevalent and preferred route for delivery of
drugs to patients, most of the recent advances in controlled release drug
delivery technologies have focused on oral delivery. Three principal types of
oral controlled release systems are currently utilized.
Oral Osmotic Pump (OROS). The OROS drug delivery system was developed by
ALZA in the early 1980s. It consists of the active drug substance housed in a
reservoir, surrounded by a semi-permeable membrane and formulated into a tablet.
A drug portal for release of the active drug substance is created by a
laser-drilled hole in the tablet. Water from the gastrointestinal tract
permeates the semi-permeable membrane at a controlled rate, and the osmotic
pressure of this water forces the release of the active drug substance through
the drug portal.
The Company believes that each new drug which utilizes the OROS system
requires extensive and time consuming development. In addition, specialized
manufacturing equipment may be required to produce OROS-based products. Because
of the complexities inherent in the manufacturing process, the Company believes
that products formulated with the OROS system are more likely to suffer from
batch variability and validation difficulties, and the scale-up from the
laboratory to production can be difficult and expensive. Despite these
disadvantages, the OROS system has been used in several commercially successful
pharmaceutical products, including Procardia XL.
Multiparticulate Systems. Multiparticulate systems have been used in
commercially successful drugs since the 1960s. These systems consist of small
particles containing active drug substance and excipients that are coated with a
polymer to control the rate of release of the active drug substance. These small
particles are either compressed into tablets or packed into a capsule. The
active drug substance is released over time by diffusion from the particles.
The Company believes that scale-up from the laboratory to commercial-scale
production of formulations using a multiparticulate system can be lengthy,
costly and difficult. Multiparticulate systems require investment in specialized
equipment and the development of specialized solvents and solvent recovery
systems for the coatings of each small particle. The Company believes that the
major difficulty encountered in the production of multiparticulate systems is
that the size and thickness of the coating of each particle often differ, which
results in undesired variability in the release of the drug. Consequently, the
Company believes the manufacturers of drugs using multiparticulate systems often
have difficulties with reproducibility and content uniformity and experience
high batch failure rates. Multiparticulate systems have also demonstrated
limited applicability with insoluble active drug substances.
Traditional Matrix Systems. Traditional matrix systems consist of an
active drug substance, rate-controlling polymers and gel-forming excipients
mixed together and compressed in a manner similar to conventional immediate
release tablets. The matrix forms a gel after ingestion, and the active drug
substance is released over time by diffusion through the matrix.
Products using traditional matrix systems generally have low manufacturing
costs as they are manufactured in the same manner as conventional tablets.
However, the rate-controlling polymers used in such systems are not compatible
with the physical and chemical properties of a wide range of drugs. The
inconsistency of these polymers, as well as their limited drug carrying
capacity, often limits their duration to 12 hours or less, such that more
frequent dosing is often required to obtain efficacy. The usefulness of the
traditional matrix systems is also limited because these systems are difficult
to use with insoluble active drug substances.
Notwithstanding the shortcomings of existing controlled release
technologies, approximately 60 oral controlled release prescription drugs are
marketed currently. Sales of these products in the United States in 1996 were
approximately $6.0 billion.
29
<PAGE> 31
TIMERX CONTROLLED RELEASE TECHNOLOGY
The Company has developed the TIMERx delivery system, a novel drug delivery
technology, to address the limitations of currently available oral controlled
release delivery systems. The TIMERx system has evolved from the Company's
extensive experience in developing, manufacturing and marketing tabletting
ingredients for use in the pharmaceutical industry. The Company believes that
the TIMERx system is a major advancement in oral drug delivery that represents
the first easily-manufactured oral controlled release drug delivery system that
is applicable to a wide variety of drug classes, including soluble drugs,
insoluble drugs and drugs with a narrow therapeutic index. The Company intends
to utilize the TIMERx system to formulate generic versions of controlled release
drugs, controlled release formulations of currently-marketed immediate release
drugs and NCEs.
The TIMERx drug delivery system is a hydrophilic matrix consisting
primarily of two natural polysaccharides, xanthan and locust bean gums, in the
presence of dextrose. The physical interaction between these components works to
form a strong, binding gel in the presence of water. Drug release is controlled
by the rate of water penetration from the gastrointestinal tract into the TIMERx
gum matrix, which expands to form a gel and subsequently releases the active
drug substance. The TIMERx system can precisely control the release of the
active drug substance in a tablet by varying the proportion of the gums, the
tablet coating and the tablet manufacturing process. Drugs using TIMERx
technology are formulated by combining the active drug substance, the TIMERx
drug delivery system and additional excipients and compressing such materials
into a tablet.
The Company believes that the TIMERx controlled release system has several
advantages over other oral controlled release systems.
- Broad Applicability as a Drug Delivery System. The TIMERx system is
adaptable to a wide range of drugs with different physical and chemical
properties. For instance, the TIMERx system can be used to deliver both
low dose (less than 5 mg) and high dose (greater than 500 mg) drugs as
well as water soluble and insoluble drugs. Because of the high affinity
of xanthan and locust bean gums, the TIMERx system permits a formulation
with a high drug to gum ratio, which permits tablets to include a higher
dosage of the active drug substance.
- Flexible Pharmacokinetic Profile. The Company formulates the TIMERx
material to optimize the desired kinetic profile of the active drug
substance. In this manner, the TIMERx system can be designed to enhance
the therapeutic effect of the active drug substance. Depending on the
desired release profile, the Company can formulate the drug to be
released in the body (i) at a constant amount or linear rate over time,
(ii) at a decreasing amount over time where the rate is dependent on drug
concentration, or (iii) at a varied release rate.
- Ease of Manufacture. Drugs formulated using the TIMERx system are
designed for production on standard pharmaceutical processing equipment.
The TIMERx technology is easily and reproducibly scaled-up in a
commercial manufacturing environment often utilizing the direct
compression tabletting process.
- Cost-Effective System. The TIMERx system is a cost-effective drug
delivery system. It involves fewer and less complex ingredients than
other systems and does not require the manufacturer to purchase
specialized equipment. The Company believes that drug formulations using
the TIMERx system can be developed more rapidly than drugs formulated
with alternative controlled delivery systems and that the time to scale
up to commercial quantities is minimized.
30
<PAGE> 32
PENWEST STRATEGY
Penwest's objective is to become a leader in the discovery, development and
commercialization of innovative drug delivery technologies for the
pharmaceutical industry. The Company's strategy consists of the following
principal elements:
Apply TIMERx Technology to Generic Versions of Controlled Release
Pharmaceuticals. The Company's principal focus to date has been the application
of its TIMERx technology to the development of generic versions of controlled
release drugs. The Company has focused its development efforts on these drugs in
order to accelerate the commercialization of the TIMERx delivery system, since
generic drugs are regulated through the less expensive and abbreviated ANDA
regulatory process applicable to generic drugs. In selecting generic controlled
release pharmaceutical candidates to develop, the Company targets high sales
volume, technically-complex controlled release pharmaceuticals. The Company
believes these drug candidates are difficult to replicate and, as a result,
TIMERx versions may have limited competition from other formulations.
Create Innovative Controlled Release Versions of Immediate Release
Pharmaceuticals. The Company has also focused on the application of its TIMERx
technology to the development of controlled release formulations of immediate
release drugs, which will be marketed as brand name pharmaceuticals. In
developing these controlled release formulations, the Company intends to seek
collaborations with developers of the immediate release drugs or with
pharmaceutical companies having a market presence in the applicable therapeutic
area. The development of these controlled release drugs is subject to the NDA
approval process, although the Company and its collaborators may be permitted to
rely on existing safety and efficacy data with respect to the immediate release
drug in submitting the NDA.
Apply TIMERx Technology to the Development of New Chemical Entities. The
Company believes that its TIMERx technology may be applicable to the development
of products containing NCEs by pharmaceutical companies. The development of such
NCEs is subject to the full NDA approval process, including conducting
preclinical studies, filing an Investigational New Drug ("IND") application,
conducting clinical trials and submitting an NDA.
Establish Collaborations for Development, Manufacture and Marketing. The
Company has existing collaborative agreements with Mylan, Leiras, Kremers,
Sanofi and Endo and intends to enter into additional collaborative agreements
with respect to other pharmaceuticals. The Company's existing and potential
future collaborations enable the Company to secure additional financial support
for its research and development activities, to obtain access to the clinical,
manufacturing and regulatory resources and expertise of its collaborators and to
rely on them for the sales and marketing, distribution and promotion of
TIMERx-based controlled release drugs on a worldwide basis.
Expand Pharmaceutical Excipients Business. The Company's excipients
business provides financial support for the development of the Company's TIMERx
drug delivery system. In order to expand the Company's excipients business, the
Company intends to develop new excipients, such as ProSolv, its recently
introduced MCC excipient for pharmaceutical and nutritional companies. In
addition to selling ProSolv as a bulk excipient, the Company intends to pursue
selected licensing opportunities for ProSolv with pharmaceutical companies that
are developing new drug candidates.
31
<PAGE> 33
TIMERX PRODUCT DEVELOPMENT
The following table provides information relating to the therapeutic area,
the development status and the collaborator for each product under development
utilizing the Company's TIMERx technology and is qualified by reference to the
more detailed descriptions included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
BRAND NAME THERAPEUTIC DEVELOPMENT
(COMPOUND) AREA STATUS COLLABORATOR (5)
- ------------------------------ -------------- --------------- ----------------
<S> <C> <C> <C>
GENERIC CONTROLLED RELEASE (1)
Procardia XL Hypertension, ANDA filed (3) Mylan
(nifedipine) Angina
Adalat CC Hypertension Bioequivalence Mylan
(nifedipine) Studies
Adalat LA Hypertension, Clinical/ Sanofi
(nifedipine) Angina Bioequivalence
Studies
Cardizem CD Hypertension, Bioequivalence Kremers
(diltiazem) Angina Studies
Glucotrol XL Diabetes Bioequivalence Mylan
(glipizide) Studies
Covera HS Hypertension, Bioequivalence Kremers
(verapamil Angina Studies
hydrochloride)
BRANDED CONTROLLED RELEASE (2)
Cystrin CR Urinary Approved (4) Leiras
(oxybutynin) Incontinence
Numorphan TRx Pain Relief Formulation Endo
(oxymorphone)
</TABLE>
- ---------------
(1) Generic versions of controlled release products are developed in three basic
stages:
Formulation. Involves the utilization or adaptation of drug delivery
technologies to the product candidate and evaluation in in vitro dissolution
studies.
Bioequivalence Studies. (a) Pilot bioequivalence studies involve testing in
10 to 15 human subjects to determine if the formulation yields a blood level
comparable to the existing controlled release drug; (b) Full scale
bioequivalence studies involve the manufacture of at least 10% of the
intended commercial lot size and the analysis of plasma concentrations of
the drug in 24 or more human subjects under fasting conditions and multiple
dose conditions and 18 or more human subjects under fed conditions to
determine whether the rate and extent of the absorption of the drug are
substantially equivalent to that of the existing drug.
ANDA Filing. An ANDA is submitted to the FDA with results of bioequivalence
studies and other data such as in vitro specifications for the formulation,
stability data, analytical data, methods validation and manufacturing
procedures and controls. See "Business -- Government Regulation."
(2) Controlled release formulations of immediate release products are subject to
the NDA regulatory process. To the extent that the controlled release
product is an extension of an FDA-approved immediate release version of the
same chemical entity, the Company's collaborators may be permitted to rely
on existing clinical data as to the safety and efficacy of the chemical
entity in filing NDAs. See "Business -- Government Regulation."
(3) Mylan has filed an ANDA for the 30 mg dosage strength of Nifedipine XL and
is conducting full scale bioequivalence studies of the 60 and 90 mg dosage
strengths of Nifedipine XL.
(4) In October 1997, Leiras received marketing approval for Cystrin CR in
Finland.
(5) The Company's collaborators typically provide research and development
support and are responsible for conducting full scale bioequivalence studies
or clinical trials, obtaining regulatory approvals and manufacturing,
marketing and selling the product. There can be no assurance that the
results obtained in bioequivalence studies or preclinical studies will be
obtained in full scale bioequivalence studies and other late stage clinical
studies or that the Company or its collaborators will receive regulatory
approvals to continue clinical studies of such products or to market any
such products. See "Business -- Collaborative Arrangements."
32
<PAGE> 34
Generic Controlled Release Pharmaceuticals
Generic controlled release pharmaceuticals are therapeutic equivalents of
brand name drugs for which patents or marketing exclusivity rights have expired.
Generic controlled release pharmaceuticals are typically difficult to replicate
because of: (i) formulation complexity; (ii) analytical complexity; and/or (iii)
manufacturing complexity. The Company believes that such generic controlled
release pharmaceuticals are less likely to suffer the same price erosion as
other generic pharmaceuticals because of the difficulty in replicating
controlled release pharmaceuticals and the resulting limits on competition.
When developing generic pharmaceuticals, the drug developer is required to
demonstrate that the generic product candidate will exhibit in vivo release and
absorption characteristics equivalent to those of the branded pharmaceutical
without infringing on any unexpired patents. During the formulation of generic
pharmaceuticals, drug developers create their own version of the branded drug by
using or adapting drug delivery technologies to the product candidate.
The Company currently has development programs relating to the following
generic controlled release pharmaceuticals:
Nifedipine XL. The Company and Mylan are currently developing Nifedipine
XL, a generic version of Procardia XL incorporating TIMERx technology. Procardia
XL is a once-a-day controlled release formulation of nifedipine, a calcium
channel blocking agent indicated for hypertension, vasospastic angina and
chronic stable angina, which uses the OROS delivery system. Procardia XL is
marketed in three dosage strengths (30 mg, 60 mg and 90 mg) by the Pratt
Pharmaceuticals division of Pfizer and had sales in the United States in 1996 of
approximately $950 million.
In May 1997, Mylan's ANDA for Nifedipine XL (30 mg) was accepted by the FDA
for review. This was the first generic version of Procardia XL accepted by the
FDA for review. Mylan is currently conducting full scale bioequivalence studies
of the 60 mg and 90 mg dosage strengths of Nifedipine XL. The Company is aware
of a number of other companies that are developing generic formulations of
Procardia XL. For a description of certain litigation regarding the Mylan ANDA
filing, see "Business -- Litigation."
Nifedipine CC. The Company and Mylan are currently developing a generic
version of Adalat CC(R) incorporating TIMERx technology. Adalat CC is a
once-a-day controlled release formulation of nifedipine, a calcium channel
blocking agent indicated for hypertension. Adalat CC is marketed in three dosage
strengths (30 mg, 60 mg and 90 mg) by Bayer and had sales in the United States
in 1996 of approximately $250 million. Mylan is conducting full scale
bioequivalence studies of the 30 mg dosage strength of Nifedipine CC. Elan
recently filed an ANDA for a generic version of the 30 mg strength of Adalat CC.
The Company is also aware of a number of other companies that are developing
generic formulations of Adalat CC.
Nifedipine LA. The Company and Sanofi are currently developing a generic
version of Adalat LA(R) (a drug marketed in Europe that is equivalent to
Procardia XL) incorporating TIMERx technology. Adalat LA is a once-a-day
controlled release formulation of nifedipine, a calcium channel blocking agent
indicated for hypertension, vasospastic angina and chronic stable angina, which
uses the OROS delivery system. Adalat LA is marketed in two dosage strengths (30
mg and 60 mg) by Bayer in Europe and had sales in Europe in 1996 of
approximately $340 million. Sanofi is conducting full scale bioequivalence
studies and certain clinical trials in the United Kingdom of the 30 mg dosage
strength of Nifedipine LA.
Diltiazem CD. The Company and Kremers are currently developing a generic
version of Cardizem CD(R) incorporating TIMERx technology. Cardizem CD is a
once-a-day controlled release formulation of diltiazem hydrochloride, a calcium
channel blocking agent indicated for hypertension, vasospastic angina and
chronic stable angina, which uses a multiparticulate drug delivery system.
Cardizem CD is marketed in four dosage strengths (120 mg, 180 mg, 240 mg and 300
mg) by Hoechst Marion Roussel, Inc. and had sales in the United States in 1996
of approximately $730 million. Kremers
33
<PAGE> 35
is currently conducting full scale bioequivalence studies of the 240 mg version
of Diltiazem CD. The Company is aware of three competitors which have filed
ANDAs with respect to generic formulations of Cardizem CD, one of which has been
tentatively approved by the FDA pending the outcome of patent litigation.
Glipizide XL. The Company and Mylan are currently developing a generic
version of Glucotrol XL(R) incorporating TIMERx technology. Glucotrol XL is a
once-a-day controlled release formulation of glipizide, a blood-glucose lowering
agent indicated as an adjunct to diet for the control of hyperglycemia in
diabetes patients, which uses the OROS delivery system. Glucotrol XL is marketed
in 5 mg and 10 mg dosage strengths by the Pratt Pharmaceuticals division of
Pfizer and had sales in the United States in 1996 of approximately $127 million.
Mylan is conducting full scale bioequivalence studies of the 5 mg and 10 mg
dosage strengths of Glipizide XL. The Company is aware of a number of other
companies that are developing generic formulations of Glucotrol XL.
Verapamil HS. The Company and Kremers are currently developing a generic
version of Covera HS(R) incorporating TIMERx technology. Covera HS is a
once-a-day controlled release formulation of verapamil hydrochloride, a calcium
channel blocking agent indicated for the management of hypertension and angina,
which uses the OROS delivery system. Covera HS is marketed in two dosage
strengths (180 mg and 240 mg) by G. D. Searle & Co. and had sales in the United
States in 1996 of approximately $18 million. Kremers is conducting full scale
bioequivalence studies of the 180 mg and 240 mg dosage strengths of Verapamil
HS. The Company is aware of a number of other companies that are developing
generic formulations of Covera HS.
Branded Controlled Release Pharmaceuticals
The Company is applying its TIMERx technology to the development of
controlled release formulations of immediate release pharmaceuticals. The
Company currently has development programs relating to the following:
Cystrin CR. The Company and Leiras are currently developing a controlled
release formulation of Cystrin(R) incorporating TIMERx technology. Cystrin is a
twice-a-day immediate release version of the anticholinergic drug oxybutynin
indicated for the treatment of urinary incontinence. Oxybutynin is marketed in
Europe by Leiras under the trademark Cystrin and by Hoechst Marion Roussel, Inc.
under the name Ditropan(R). These products had worldwide sales in 1996 of
approximately $160 million. In October 1997, Leiras received marketing approval
in Finland for Cystrin CR. The Company has been advised that Leiras intends to
seek distributors for Cystrin CR in other countries when and if marketing
approval is obtained in such countries.
Numorphan TRx. The Company and Endo are currently developing a controlled
release formulation of Numorphan(R) incorporating TIMERx technology. Numorphan
is a parenteral and suppository dosage form of oxymorphone, a narcotic analgesic
for the treatment of moderate to severe pain. Numorphan is marketed by Endo and
had sales in the United States in 1996 of approximately $10 million. Numorphan
TRx, if successfully developed, would represent the first oral controlled
release version of Numorphan and would compete in the severe analgesic market
with products such as MS Contin and Oxycontin, which had sales in the United
States in 1996 of approximately $170 million. The Company is currently in the
process of developing a TIMERx formulation and has not yet conducted any
clinical studies.
PHARMACEUTICAL EXCIPIENTS
The Company sells 29 excipient products which are used in the manufacture
of tablets by pharmaceutical and nutritional companies worldwide. The Company's
product line is broadly classified into three distinct categories: binders,
disintegrants and lubricants. Binders, working in conjunction with other
products, are the primary tablet-forming component of excipients. Disintegrants
function to help make a tablet fall apart when consumed by drawing water into
the dosage form, a necessary precursor to dissolution and ultimately absorption
of the drug. Lubricants help facilitate the ease of
34
<PAGE> 36
manufacture of drugs so that they emerge from a tabletting machine with the
desired physical characteristics.
The Company's excipients are sold to the brand prescription, generic
prescription, over-the-counter market and nutritional markets. In 1996, the
Company sold bulk excipients to more than 300 customers, including some of the
leading pharmaceutical companies in the world such as the Perrigo Company,
Bristol-Myers Squibb Company, McNeil Consumer Products Company and SmithKline
Beecham, plc ("SmithKline"), in more than 40 countries.
The Company engages in innovative product development to develop new high
performance excipients. In October 1996, the Company introduced ProSolv, which
the Company believes represents a new class of high functionality binders.
ProSolv, the first new MCC product in the pharmaceutical industry in 35 years,
consists of a patented combination of MCC and colloidal silicon dioxide. MCC has
historically been one of the most popular excipients used in tabletting
operations. However, MCC has demonstrated certain disadvantages with respect to
the manufacture of tablets using the wet granulation method, a widely used
method of tablet preparation. One of the disadvantages of this method is that
when MCC is wetted or comes in contact with moisture during tablet
manufacturing, MCC loses 30-50% of its compactability. To counteract this loss,
additional MCC is required to be added to the formulation, which increases the
size and the cost of the tablet. In contrast, ProSolv's patented combination of
MCC and colloidal silicon dioxide enhances the particle properties of the
excipient and enables it to be used without losing compactability when wetted or
placed in contact with moisture.
The benefits of ProSolv are maintained irrespective of the method of tablet
manufacture. ProSolv can be used by manufacturers to produce harder tablets and
can enable manufacturers to reduce the amount of binders used in the tablet,
thereby reducing the size and cost of the tablet. Additionally, ProSolv can be
used to manufacture tablets with difficult active ingredients which otherwise
may not have been manufactured.
In addition to ProSolv, the principal excipient product lines currently
marketed by Penwest include the following:
EMCOCEL, the Company's largest selling product, is a tabletting binder used
in pharmaceutical formulations worldwide. EMCOCEL is utilized in a number of
products including Centrum vitamins, several store brand ibuprofen products and
many prescription pharmaceuticals.
EMCOMPRESS, or dicalcium phosphate, is a binder marketed by the Company
under an exclusive worldwide distribution agreement with the manufacturer
Albright and Wilson Americas Inc. The distribution agreement expires on December
31, 1999, subject to automatic extension on an annual basis unless either party
gives the other party 12 months notice of its desire to terminate the agreement.
EMCOMPRESS is frequently used in vitamin formulations as it serves as an
additional source of dietary calcium.
EMDEX, or dextrates, is a binder that is used as a directly compressible
excipient in both chewable and non-chewable tablets. EMDEX is odorless with a
sweet taste caused by its sugar composition. EMDEX is used in, among other
things, chewable antacid tablets and vitamins. EMDEX is manufactured by Penford
and will continue to be supplied by Penford to the Company following the
completion of this offering. See "Arrangements Between the Company and Penford."
EXPLOTAB, or sodium starch glycolate, is the principal disintegrant
marketed by the Company. EXPLOTAB is distributed by Penwest under an exclusive
worldwide distribution agreement with the manufacturer, Roquette America, Inc.
The distribution agreement is automatically renewable on an annual basis unless
either party gives the other party 12 months notice of its desire to terminate
the agreement. EXPLOTAB is used in a number of products and is an essential
component of the Tylenol family of products.
35
<PAGE> 37
PRUV, or sodium stearyl fumarate, is the principal lubricant marketed by
the Company. PRUV is marketed under an exclusive worldwide distribution
agreement with the manufacturer, Astra Pharmaceutical Production AB. The
distribution agreement is automatically renewable on an annual basis unless
either party gives the other party 12 months notice of its desire to terminate
the agreement. PRUV is used in several prescription pharmaceuticals.
The Company had revenues from the sale of pharmaceutical excipients in
1994, 1995 and 1996 of $23.1 million, $25.0 million and $25.0 million,
respectively.
COLLABORATIVE ARRANGEMENTS
The Company has entered into collaborative arrangements with five
pharmaceutical companies to facilitate and expedite the commercialization of its
TIMERx drug delivery technology.
Mylan Pharmaceuticals Inc.
In August 1994, August 1995 and March 1996, the Company entered into
product development and supply agreements with Mylan with respect to the
development of generic versions of Procardia XL (nifedipine), Adalat CC
(nifedipine) and Glucotrol XL (glipizide), based on the Company's TIMERx
technologies (the "Mylan Products"). Mylan is one of the leading generic
pharmaceutical companies in the United States.
Under these product development and supply agreements, the Company is
responsible for the formulation, manufacture and supply of TIMERx material for
use in the Mylan Products, and Mylan is responsible for conducting all
bioequivalence studies, preparing all regulatory applications and submissions
and manufacturing and marketing the Mylan Products in the United States, Canada
and Mexico. Each product development and supply agreement is terminable by
either party upon 90 days prior written notice at any time (i) prior to the
submission of the ANDA for the product covered by such agreement if such party
reasonably determines that no further development efforts are likely to lead to
the successful development of such product and (ii) prior to approval by the FDA
of such ANDA if such party reasonably determines that such ANDA is not likely to
be approved. Following approval of the ANDA, the product development and supply
agreement will extend for a term of 20 years from the date on which the ANDA is
approved, subject to earlier termination by either party upon specified
circumstances.
The Company has received milestone payments under each of the product
development and supply agreements and is entitled to additional milestone
payments under such agreements upon the continued development of the Mylan
Products. The Company is also entitled to royalties on the sale of each Mylan
Product, which royalties will be reduced with respect to such Mylan Product if
there are on the market and available for retail sale any other generic
controlled release formulations of the drug of which such Mylan Product is a
generic controlled release formulation. In addition, Mylan has agreed that
during the term of the product development and supply agreements it will
purchase formulated TIMERx material for use in the Mylan Products exclusively
from the Company at specified prices.
Penwest and Mylan also entered into a sales and distribution agreement in
January 1997 (the "Mylan Distribution Agreement") with respect to Nifedipine XL
pursuant to which Mylan agreed to manufacture and supply Nifedipine XL to
Penwest for distribution by Penwest and one or more distributors (as to which
the Company and Mylan must mutually agree) in certain specified European and
Latin American countries. This agreement expires in January 2007, subject to
automatic extension on an annual basis. Under this agreement, the Company has
agreed to purchase Nifedipine XL exclusively from Mylan at specified prices or
to pay Mylan 50% of any royalties received by the Company from its distributors
if Mylan licenses its manufacturing technology to the Company for use by the
Company's distributors instead of manufacturing the product for distribution.
Under this agreement, Mylan is entitled to 50% of any royalties or milestone
payments received by the Company under the Company's product development and
supply agreement with Sanofi described below.
36
<PAGE> 38
Kremers Urban Development Company
In May 1996 and August 1996, the Company entered into product development
and supply agreements with Kremers with respect to the development of generic
versions of Cardizem CD (diltiazem) and Covera HS (verapamil hydrochloride),
respectively (the "Kremers Products"), based on the Company's TIMERx
technologies. Kremers is the generics division of the research-based
pharmaceutical company, Schwarz Pharma Inc.
Under these product development and supply agreements, the Company is
responsible for formulating the Kremers Products and for manufacturing and
supplying TIMERx material to Kremers for use in the Kremers Products, and
Kremers is responsible for conducting bioequivalence studies, preparing all
regulatory applications and submissions and manufacturing and marketing the
Kremers Products in the United States, Canada and Mexico.
Each product development and supply agreement is terminable by either party
upon 30 days prior written notice at any time (i) prior to the successful
completion of specified bioequivalence studies if such party reasonably
determines that no further development efforts are likely to lead to the
successful development of the product covered by such product development and
supply agreement and (ii) prior to the approval by the FDA (or equivalent
regulatory authority) of the ANDA (or equivalent regulatory filing) for such
product if such party reasonably determines that the ANDA or equivalent filing
is not likely to be approved by the FDA (or equivalent regulatory authority). In
addition, Kremers may terminate each product development and supply agreement
if, due to changed circumstances, Kremers reasonably determines that the
potential commercial viability of the product covered by the product development
and supply agreement will not justify the use of best efforts by Kremers.
Following approval of the ANDA (or other regulatory filing), the product
development and supply agreement will extend with respect to each country
covered by such agreement for a term of 20 years from the date (the "Kremers
Approval Date") on which the Kremers Product covered by such agreement is
approved for commercial sale by the FDA (or equivalent regulatory authority)
pursuant to an ANDA (or equivalent regulatory filing) in such country, subject
to earlier termination by either party upon specified circumstances. At any time
following the Kremers Approval Date for commercial sale of a Kremers Product in
the United States, Kremers may terminate the product development and supply
agreement with respect to such Kremers Product for any reason upon at least 120
days prior written notice, whereupon the Company would have a paid-up license to
Kremers's rights in such Kremers Product and related data and regulatory
filings.
The Company has received milestone payments under the product development
and supply agreements and is entitled to additional milestone payments upon the
continued development of the Kremers Products. The Company also is entitled to
royalties on the sale of the Kremers Products. However, both milestone payments
and the royalties otherwise due under the product development and supply
agreements may be reduced in the event that there are competing generic
controlled release formulations of Covera HS or Cardizem CD, as may be
applicable, on the market and available for retail sale.
In addition, Kremers has agreed that, during the term of the product
development and supply agreements, it will purchase formulated TIMERx material
for use in the Kremers Products exclusively from the Company at specified
prices. These prices will be reduced in the event that there are competing
generic versions of Covera HS and/or Cardizem CD, as may be applicable, on the
market and available for retail sale.
The Company is aware of at least three generic versions of Cardizem CD for
which ANDAs have been filed. One of these ANDAs has been tentatively approved by
the FDA, pending the outcome of patent litigation. The existence of these
generic drugs will result in the reduction of any payments to be received by the
Company under the product development and supply agreement covering the generic
version of Cardizem CD.
37
<PAGE> 39
Sanofi Winthrop International S.A.
In February 1997, the Company entered into a product development and supply
agreement with Sanofi with respect to the development of a generic version of
Adalat LA based on the Company's TIMERx technology (the "Sanofi Product"), a
drug that is identical to Procardia XL. Sanofi is a research-based international
pharmaceutical company, based in Paris, France, which has a European
infrastructure from which to develop, register and market prescription
pharmaceuticals.
Under the product development and supply agreement, the Company is
responsible for conducting pilot bioequivalence studies of the Sanofi Product
and for manufacturing and supplying TIMERx material to Sanofi, and Sanofi is
responsible for conducting all full scale bioequivalence studies, preparing all
regulatory applications and submissions and manufacturing and marketing the
Sanofi Product in specified countries in Europe and in South Korea.
The product development and supply agreement expires with respect to each
specified country on the 10th, 13th, 16th or 19th anniversary of the date on
which the Sanofi Product is approved by the relevant regulatory authority in
such country for commercial sale if notice is provided by either party prior to
any of such anniversary dates that the agreement will expire with respect to
such country on such anniversary date. The agreement is also subject to earlier
termination by either party under specified circumstances.
The Company is entitled to milestone payments under the product development
and supply agreement upon the continued development of the Sanofi Product. The
Company is also entitled to royalties upon the sale of the Sanofi Product. One
half of such payments will be paid to Mylan in accordance with the Mylan
Distribution Agreement. In addition, Sanofi has agreed that, during the term of
the product development and supply agreement, it will purchase formulated TIMERx
material for use in the Sanofi Product exclusively from the Company at specified
prices.
Leiras OY
In July 1992, the Company entered into an agreement with Leiras with
respect to the development and commercialization of Cystrin CR, a controlled
release formulation of Cystrin based on the Company's TIMERx technology. In May
1995, the Company entered into a second agreement with Leiras clarifying certain
matters with respect to the collaboration. Leiras is a Finnish subsidiary of
Schering AG. Leiras is developing products focused in the areas of reproductive
health care, urology, oncology and inhalation technology.
Under the agreements, the Company is responsible for the development and
formulation of Cystrin CR and for manufacturing and supplying TIMERx material to
Leiras for use in the manufacture of Cystrin CR, and Leiras is responsible for
preparing all regulatory applications and submissions and manufacturing and
marketing Cystrin CR on a worldwide basis. Leiras has the right to appoint
distributors for marketing and distribution in specified territories, subject in
certain circumstances to the approval of the Company.
The agreements terminate upon the expiration of the TIMERx patents licensed
to Leiras (which will occur in the year 2014), subject to earlier termination by
either party under specified circumstances. Leiras has also agreed to pay the
Company royalties on the sale of Cystrin CR and to purchase formulated TIMERx
material exclusively from the Company at specified prices.
Endo Pharmaceuticals Inc.
In September 1997, the Company entered into a strategic alliance agreement
with Endo with respect to the development of controlled release formulations of
oxymorphone based on the Company's TIMERx technology (the "Endo Products"). Endo
is a research-based and generic pharmaceutical company formed from a management
buyout of a division of DuPont Merck Pharmaceuticals ("Dupont Merck"). Endo has
a broad product line including 25 drugs in the generic product division and 12
established (formerly DuPont Merck) brand products, including Percodan and
Percocet. Endo
38
<PAGE> 40
is registered with the U.S. Drug Enforcement Administration as a developer,
manufacturer and marketer of controlled narcotic substances.
Under the strategic alliance agreement, the responsibilities of the Company
and Endo with respect to any Endo Product will be determined by a committee
comprised of an equal number of members from each of the Company and Endo (the
"Alliance Committee"). However, the Company expects that it will formulate each
drug candidate and that Endo will conduct all clinical studies and prepare and
file all regulatory applications and submissions. In addition, under the
agreement, the Company has agreed to manufacture and supply TIMERx material to
Endo, and Endo has agreed to manufacture and market the Endo Products in the
United States. The manufacture and marketing of Endo Products outside of the
United States may be conducted by the Company, Endo or a third party, as
determined by the Alliance Committee.
The strategic alliance agreement is terminable with respect to an Endo
Product by either party upon 30 days prior written notice at any time (i) prior
to the completion of development activities with respect to such Endo Product if
such party determines that further development efforts are not likely to lead to
the successful development of such Endo Product and (ii) prior to obtaining
approval by the FDA (or equivalent regulatory authority) of an NDA (or
equivalent regulatory filing) with respect to such Endo Product if such party
determines that further efforts are not likely to lead to such approval,
although the non-terminating party would have the right to continue the
agreement with respect to such Endo Product for a specified period and the
royalties that might otherwise have been payable to the terminating party would
be reduced. Following regulatory approval of the marketing and sale of such Endo
Product, the term of the strategic alliance agreement will extend for up to 20
years from the date of such regulatory approval, subject to earlier termination
under specified circumstances.
The Company and Endo have agreed to share the costs involved in the
development and commercialization of the Endo Products and that the party
marketing the Endo Products (which the Company expects will be Endo) will pay
the other party royalties equal to 50% of net marketing revenues after
fully-burdened costs (although this percentage will decrease as the total U.S.
marketing revenues from an Endo Product increase), subject to each party's right
to terminate its participation with respect to any Endo Product described above.
Endo will purchase formulated TIMERx material for use in the Endo Products
exclusively from the Company at specified prices. Such prices will be reflected
in the determination of fully-burdened costs.
RESEARCH AND DEVELOPMENT
The Company conducts research and development activities with respect to
additional applications of TIMERx technology, advances in the TIMERx technology
and additional novel excipients such as ProSolv. The Company is also conducting
research and development with respect to controlled release delivery of
therapeutic substances to the respiratory tract through the use of dry powder
aerosol delivery systems and has recently received a U.S. patent relating to
such technology. The Company believes that this technology, which utilizes the
same polysaccharide materials as the Company's TIMERx technology, may be
appropriate for the delivery of peptide and protein drugs, which are often
poorly absorbed from the gastrointestinal tract. The Company expects that it
will seek to enter into collaborations to develop such new TIMERx applications
or technologies.
The Company's research and development expenses in 1994, 1995 and 1996 were
$2.3 million, $2.7 million and $3.7 million, respectively. These expenses do not
include amounts incurred by the Company's collaborators in connection with the
development of products under the collaboration agreements such as expenses for
full scale bioequivalence studies performed by the collaborators.
MANUFACTURING
The Company currently has a laboratory and pilot manufacturing facility
covering approximately 55,000 square feet contiguous to its executive offices in
Patterson, New York. However, the Company
39
<PAGE> 41
lacks commercial-scale facilities to manufacture its TIMERx material in
accordance with cGMP requirements prescribed by the FDA. As a result, to date,
the Company has relied on a large third-party pharmaceutical company, Boehringer
Ingelheim Pharmaceuticals, Inc., for the bulk manufacture of its TIMERx material
for delivery to its collaborators under an agreement that expires in June 1998.
The Company anticipates using approximately $15.0 million from the proceeds of
this offering for the construction of manufacturing facilities in Patterson, New
York for the manufacture of bulk TIMERx, as well as expanded laboratory space.
The Company is also increasing its inventory of TIMERx material.
Although the Company intends to use a portion of the proceeds of this
offering to build a manufacturing facility for its TIMERx material, the Company
expects to continue to be dependent on third-party manufacturers until its
facility is fully operational and in compliance with cGMP. The Company believes
that there are a limited number of manufacturers that operate under cGMP
regulations capable of manufacturing the Company's products. In the event that
the Company is unable to obtain contract manufacturing, or obtain such
manufacturing on commercially reasonable terms, it may not be able to
commercialize its products as planned. There can be no assurance that third
parties depended upon by the Company will perform and any failures by third
parties may delay development or the submission of products for regulatory
approval, impair the Company's collaborators' ability to commercialize products
as planned and deliver products on a timely basis, or otherwise impair the
Company's competitive position, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's TIMERx drug delivery system is a hydrophilic matrix
consisting primarily of two natural polysaccharides, xanthan and locust bean
gums, in the presence of dextrose. The Company purchases these gums from a sole
source supplier. Although the Company has qualified alternate suppliers with
respect to these gums and to date the Company has not experienced difficulty
acquiring these materials, there can be no assurance that interruptions in
supplies will not occur in the future or that the Company will not have to
obtain substitute suppliers. Any of these events could have a material adverse
effect on the Company's ability to manufacture bulk TIMERx for delivery to its
collaborators, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company currently has two cGMP-approved manufacturing facilities for
its MCC products, including EMCOCEL and ProSolv. These facilities are located in
Cedar Rapids, Iowa and Nastola, Finland and cover approximately 35,000 square
feet and 15,000 square feet, respectively. The Company's MCC products are
primarily made from wood pulp. Although the Company obtains wood pulp primarily
from a single supplier, wood pulp is widely available from a number of
suppliers.
All manufacturing operations of the Company are subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of certain materials and waste products.
MARKETING AND DISTRIBUTION
Pursuant to the Company's collaborative agreements, the Company's
collaborators have responsibility for the marketing and distribution of any
controlled release pharmaceuticals developed based on the Company's TIMERx
technology. Because the Company does not plan on developing any of such
pharmaceuticals without a collaborator, the Company has not developed and does
not intend to develop any sales force with respect to such products. As a
result, the Company is substantially dependent on the efforts of its
collaborators to market the products. In selecting a collaborator for a drug
candidate, some of the factors the Company considers include the collaborator's
market presence in the therapeutic area targeted by the drug candidate and the
collaborator's sales force and distribution network.
The Company has an in-house sales force of nine employees who market the
Company's excipients in the United States. This sales force focuses primarily on
pharmaceutical and nutritional
40
<PAGE> 42
companies. The Company also markets its excipients worldwide through the use of
distributors located in over 40 countries. The Company typically sells its
excipients to its largest customers under three-year supply agreements.
COMPETITION
The pharmaceutical industry is highly competitive and is affected by new
technologies, governmental regulations, health care legislation, availability of
financing, litigation and other factors. Many of the Company's competitors have
longer operating histories and greater financial, marketing, legal and other
resources than the Company and certain of its collaborators. The Company expects
that it will be subject to competition from numerous other entities that
currently operate or intend to operate in the pharmaceutical industry, including
companies that engage in the development of controlled release technologies. The
Company's TIMERx business faces competition from numerous public and private
companies and their controlled release technologies, including ALZA's OROS
technology, multiparticulate systems marketed by Elan and Biovail Corporation
International, traditional matrix systems marketed by Jago Pharma AG, a
subsidiary of SkyePharma, plc, and other controlled release technologies
marketed and under development by Andrx Corporation, among others.
The Company initially is concentrating its development efforts on generic
versions of controlled release pharmaceuticals. Typically, selling prices of
immediate release drugs have declined and profit margins have narrowed after
generic equivalents of such drugs are first introduced and the number of
competitive products has increased. Similarly, the success of generic versions
of controlled release products based on the Company's TIMERx technology will
depend, in large part, on the intensity of competition from currently marketed
drugs and technologies that compete with the branded pharmaceutical, as well as
the timing of product approvals. However, the Company believes that generic
versions of controlled release pharmaceuticals based on TIMERx technology are
less likely to suffer the same degree of price erosion as other generic
pharmaceuticals because the formulation, analytical and manufacturing complexity
of the generic versions may be difficult for other companies to replicate, which
could limit competition. In addition, under several of the Company's
collaborative arrangements, the payments due to the Company with respect to the
controlled release products covered by such collaborative arrangements will be
reduced in the event that there are competing generic controlled release
versions of such products.
The generic drug industry is characterized by frequent litigation between
generic drug companies and branded drug companies. Those companies with
significant financial resources will be more able to bring and to defend any
such litigation. See "Business -- Litigation."
In its excipients business, the Company competes with a number of large
manufacturers and other distributors of excipient products, many of which have
substantially greater financial, marketing and other resources than the Company.
The Company's principal competitor in this market is FMC Corporation, which
markets its own line of MCC excipient products.
The pharmaceutical industry is characterized by rapid and substantial
technological change. There can be no assurance that any products incorporating
TIMERx technology will not be rendered obsolete or non-competitive by new drugs,
treatments or cures for the medical conditions the TIMERx-based products are
addressing. Any of the foregoing could have a material adverse effect on the
Company's business, financial condition and results of operations.
PATENTS AND PROPRIETARY RIGHTS
Penwest believes that patent and trade secret protection, particularly of
its drug delivery technology, is important to its business and that its success
will depend in part on its ability to maintain existing patent protection,
obtain additional patents, maintain trade secret protection and operate without
infringing the proprietary rights of others.
41
<PAGE> 43
Penwest has been issued 17 U.S. patents and 40 foreign patents relating to
its controlled release drug delivery technology. In addition, Penwest has filed
11 U.S. patent applications and various corresponding foreign patent
applications relating to its controlled release drug delivery technology. The
U.S. patents issued to the Company cover the Company's TIMERx technology,
including the combination of the xanthan and locust bean gums, the oral solid
dosage form of TIMERx and the method of preparation, as well as the application
(and combination) of TIMERx technology to various active drug substances,
including both method of treatment and methods of preparation. All these patents
expire between 2008 and 2015.
Penwest has also been issued two U.S. patents and four U.S. patent
applications have been allowed relating to its excipient technology. The U.S.
patents and the four allowed U.S. patent applications cover ProSolv and other
augmented MCC excipient products. The U.S. patents and the four allowed U.S.
patent applications, if issued, will expire no later than January 9, 2015.
The issuance of a patent is not conclusive as to its validity or as to the
enforceable scope of the claims of the patent. There is no assurance that the
Company's patents or any future patents will prevent other companies from
developing non-infringing similar or functionally equivalent products or from
successfully challenging the validity of the Company's patents. Furthermore,
there is no assurance that (i) any of the Company's future processes or products
will be patentable; (ii) any pending or additional patents will be issued in any
or all appropriate jurisdictions; (iii) the Company's processes or products will
not infringe upon the patents of third parties; or (iv) the Company will have
the resources to defend against charges of infringement by or protect its own
patent rights against third parties. The inability of the Company to protect its
patent rights or infringement by the Company of the patent or proprietary rights
of others could have a material adverse effect on the Company's business,
financial condition and results of operations.
Penwest also relies on trade secrets and proprietary knowledge, which it
generally seeks to protect by confidentiality and non-disclosure agreements with
employees, consultants, licensees and pharmaceutical companies. There can be no
assurance, however, that these agreements will not be breached, that the Company
will have adequate remedies for any breach or that the Company's trade secrets
will not otherwise become known by competitors.
There has been substantial litigation in the pharmaceutical, biomedical and
biotechnology industries with respect to the manufacture, use and sale of new
products that are the subject of conflicting patent rights. Most of the
controlled release products that the Company is developing with its
collaborators are generic versions of brand name controlled release products
that are covered by one or more patents. Under the Waxman-Hatch Act when an
applicant files an ANDA with the FDA for a generic version of a brand name
product covered by an unexpired patent listed with the FDA, the applicant must
certify to the FDA that such patent will not be infringed by the applicant's
product or that such patent is invalid or unenforceable. Notice of such
certification must be given to the patent holder and the sponsor of the NDA for
the brand name product. If a patent infringement lawsuit is filed within 45 days
of the receipt of such notice, the FDA will conduct a substantive review of the
ANDA, but will not grant final marketing approval of the generic product until a
final judgment on the patent suit is rendered in favor of the applicant or until
30 months (or such longer or shorter period as a court may determine) have
elapsed from the date of the certification, whichever is sooner. Should a patent
holder commence a lawsuit with respect to alleged patent infringement by the
Company or its collaborators, the uncertainties inherent in patent litigation
make the outcome of such litigation difficult to predict. To date, one such
action has been commenced against one of the Company's collaborators and it is
anticipated that additional actions will be filed as the Company's collaborators
file additional ANDAs. The Company evaluates the probability of patent
infringement litigation with respect to its collaborators' ANDA submissions on a
case by case basis. The delay in obtaining FDA approval to market the Company's
product candidates as a result of litigation, as well as the expense of such
litigation, whether or not the Company is successful could have a material
adverse effect on the Company's business, financial condition and results of
operations.
42
<PAGE> 44
In May 1997, the Company's collaborator, Mylan, filed an ANDA with the FDA
for a generic version of Procardia XL, a controlled release formulation of
nifedipine. For a discussion of the litigation resulting from such filing, see
"Business -- Litigation."
In 1994, Boots filed in the EPO an opposition to a patent granted by the
European Patent Office ("EPO") to the Company relating to its TIMERx technology.
In June 1996, the EPO dismissed Boots' opposition, leaving intact all claims
included in the patent. Boots has appealed this decision to the EPO Board of
Appeals. There can be no assurance that the Company will prevail in this matter.
An unfavorable outcome could have a material adverse effect on the Company's
business, financial condition and results of operations.
GOVERNMENT REGULATION
FDA Regulation of Pharmaceutical Products
All pharmaceutical manufacturers are subject to extensive regulation by the
federal government, principally the FDA, and, to a lesser extent, by state and
local governments. The Federal Food, Drug and Cosmetic Act (the "FDCA") and
other federal statutes and regulations govern or influence the development,
testing, manufacture, safety, labeling, storage, record keeping, approval,
advertising, promotion, sale and distribution of prescription products.
Pharmaceutical manufacturers are also subject to certain record keeping and
reporting requirements, establishment registration, product listing and FDA
inspections.
Drugs can be approved by the FDA based on three types of marketing
applications: a new drug application ("NDA"), an abbreviated new drug
application ("ANDA") or an abbreviated antibiotic drug application ("AADA"). A
full NDA must include complete reports of preclinical, clinical and other
studies to prove adequately that the product is safe and effective for its
intended use. The FDCA also provides for NDA submissions that may rely in whole
or in part on publicly available clinical and other data on safety and efficacy
under section 505(b)(2) of the FDCA. These types of NDAs may be appropriate for
certain drugs containing previously approved active ingredients but differing
with regard to other characteristics such as indications for use, dosage form or
method of delivery.
As an initial step in the FDA regulatory approval process for an NDA,
preclinical studies are typically conducted in animal models to assess the
drug's efficacy and to identify potential safety problems. The results of these
studies must be submitted to the FDA as part of an Investigational New Drug
("IND") application, which must be reviewed by the FDA before proposed clinical
testing can begin. Typically clinical testing involves a three-phase process.
Phase I trials are conducted with a small number of subjects and are designed to
provide information about both product safety and the expected dose of the drug.
Phase II trials are designed to provide additional information on dosing and
preliminary evidence of product efficacy. Phase III trials are large scale
studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of an NDA, or
for a biological product in the form of a Product License Application ("PLA"),
for approval to commence commercial sales. Preparing such applications involves
considerable data collection, verification, analysis and expense. In responding
to an NDA or PLA, the FDA may grant marketing approval, request additional
information or deny the application if it determines that the application does
not satisfy its regulatory approval criteria.
This regulatory process can require many years and the expenditure of
substantial resources. Data obtained from preclinical testing and clinical
trials are subject to varying interpretations, which can delay, limit or prevent
FDA approval. In addition, changes in FDA approval policies or requirements may
occur or new regulations may be promulgated which may result in delay or failure
to receive FDA approval.
Abbreviated applications, ANDAs for non-antibiotic drugs and AADAs for
antibiotic drugs, may be submitted for generic versions of brand name
prescription drugs ("Listed Drugs") where the
43
<PAGE> 45
generic drug is the "same" as the Listed Drug with respect to active
ingredient(s) and route of administration, dosage form, strength, and conditions
of use recommended in the labeling. ANDAs may also be submitted for generic
drugs that differ with regard to certain changes from a Listed Drug if the FDA
has approved a petition from a prospective applicant permitting the submission
of an ANDA for the changed product.
Rather than safety and efficacy studies, the FDA requires data
demonstrating that the ANDA or AADA drug formulation is bioequivalent to the
Listed Drug. The FDA also requires labeling, chemistry and manufacturing
information. FDA regulations define bioequivalence as the absence of a
significant difference in the rate and the extent to which the active ingredient
becomes available at the site of drug action when administered at the same molar
dose under similar conditions in an appropriately designed study. If the
approved generic drug is both bioequivalent and pharmaceutically equivalent to
the Listed Drug, the agency will assign a code to the product in an FDA
publication entitled "Approved Drug Products With Therapeutic Equivalence
Evaluation." These codes will indicate whether the FDA considers the product to
be therapeutically equivalent to the Listed Drug. The codes will be considered
by third parties in determining whether the generic drug is therapeutically
equivalent and fully substitutable for the Listed Drug and are relied upon by
Medicaid and Medicare formularies for reimbursement.
The Company's collaborator, Mylan, has filed an ANDA with the FDA for the
30 mg dosage strength of a generic version of Procardia XL, and the Company
expects that its collaborators will file additional ANDAs and/or AADAs to obtain
approval to market other generic controlled release products. There can be no
assurance that ANDAs or AADAs will be suitable or available for such products,
or that such products will receive FDA approval on a timely basis.
Certain ANDA procedures for generic versions of controlled release products
are the subject of petitions filed by brand name drug manufacturers, which seek
changes from the FDA in the approval process for generic drugs. These requested
changes include, among other things, tighter standards for certain
bioequivalence studies and disallowance of the use by a generic drug
manufacturer in its ANDA of proprietary data submitted by the original
manufacturer as part of an original new drug application. The Company is unable
to predict at this time whether the FDA will make any changes to its ANDA
procedures as a result of such petitions or any future petitions filed by brand
name drug manufacturers or the effect that such changes may have on the Company.
Any changes in FDA regulations which make ANDA approvals more difficult could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Some products containing the Company's TIMERx formulation, such as
controlled release formulations of approved immediate release drugs, will
require the filing of an NDA. The FDA will not accept ANDAs or AADAs when the
delivery system or duration of drug availability differs significantly from the
Listed Drug. However, the Company may be able to rely on existing publicly
available safety and efficacy data to support section 505(b)(2) NDAs for
controlled release products when such data exists for an approved immediate
release version of the same chemical entity. However, there can be no assurance
that the FDA will accept such section 505(b)(2) NDAs, or that the Company will
be able to obtain publicly available data that is useful. The section 505(b)(2)
NDA process is a highly uncertain avenue to approval because the FDA's policies
on section 505(b)(2) NDAs have not yet been fully developed. There can be no
assurance that an application submitted under section 505(b)(2) will be
approved, or will be approved in a timely manner.
Sponsors of ANDAs and section 505(b)(2) NDAs must include, as part of their
applications, certifications with respect to certain patents on Listed Drugs
that may result in significant delays in obtaining FDA approvals. Sponsors who
believe that patents that are listed in an FDA publication entitled "Approved
Drug Products With Therapeutic Equivalence Evaluations" are invalid,
unenforceable, or not infringed, must notify the patent owner. If the patent
owner initiates an infringement lawsuit against the sponsor within 45 days of
the notice, the FDA's final approval of the ANDA or section 505(b)(2) NDA may be
delayed for a period of thirty months or longer. This delay may also
44
<PAGE> 46
apply to other ANDAs or 505(b)(2) NDAs for the same Listed Drug. Moreover, the
approval of an ANDA involved in such a patent lawsuit may under certain
circumstances require a further delay in the final approval of other ANDAs for
the same Listed Drug for an additional 180 days. In addition, recent court
decisions have raised the possibility that, under some circumstances, ANDAs
other than the first ANDA for a Listed Drug may be delayed indefinitely and
thereby effectively denied approval if the drug that is the subject of the first
ANDA is not brought to market.
ANDAs and section 505(b)(2) NDAs are also subject to so-called market
exclusivity provisions that delay the submission or final approval of the
applications. The submission of ANDAs and section 505(b)(2) NDAs may be delayed
for five years after approval of the Listed Drug if the Listed Drug contains a
new active molecular entity. The final approval of ANDAs and section 505(b)(2)
NDAs may also be delayed for three years where the Listed Drug or a modification
of the Listed Drug was approved based on new clinical investigations. The
three-year marketing exclusivity period would potentially be applicable to
Listed Drugs with novel drug delivery systems.
Sponsors of generic drug applications affected by patents may also be
adversely affected by patent term extensions provided under the FDCA to
compensate for patent protection lost due to time taken in conducting FDA
required clinical studies or during FDA review of data submissions. Patent term
extensions may not exceed five additional years nor may the total period of
patent protection following FDA marketing approval be extended beyond 14 years.
In addition, by virtue of the Uruguay Round Agreements Act of 1994 that ratified
the General Agreement on Tariffs and Trade ("GATT"), certain brand name drug
patent terms have been extended to 20 years from the date of filing of the
pertinent patent applications (which can be longer than the former 17-year
patent term starting from the date of patent issuance). Patent term extensions
may delay the ability of the Company and its collaborators to use the Company's
proprietary technology in the future, market new controlled release products,
file section 505(b)(2) NDAs referencing approved products, or file ANDAs and
AADAs based on Listed Drugs when those approved products or Listed Drugs have
acquired patent term extensions.
Manufacturers of marketed drugs must conform to the FDA's cGMP standard or
risk sanctions such as the suspension of manufacturing or the seizure of drug
products and the refusal to approve additional marketing applications. The FDA
conducts periodic inspections to implement these rules. There can be no
assurance that a manufacturer's facility will be found to be in compliance with
cGMP or other regulatory requirements. Failure to comply could result in
significant delays in the development, testing and approval of products
manufactured at such facility, as well as increased costs.
Noncompliance with applicable requirements can also result in total or
partial injunctions against production and/or distribution, refusal of the
government to enter into supply contracts or to approve NDAs, ANDAs or AADAs,
criminal prosecution and product recalls. The FDA also has the authority to
revoke for cause drug approvals previously granted.
FDA Regulation of Excipients
Products sold for use as excipients in finished drug products are subject
to regulation by the FDA with regard to labeling, product integrity and
manufacturing. The FDA will not approve a drug for marketing without adequate
assurances that the excipients are safe for use in the product. The FDA presumes
certain excipients that are present in approved drug products currently marketed
for human use to be safe. These excipients are listed by the FDA in a document
known as the Inactive Ingredient Guide, or "IIG." While the FDA does not
ordinarily require applicants for NDAs, ANDAs or AADAs to submit data
demonstrating the safety of excipients listed in the IIG, it may require
evidence of safety in certain circumstances, such as when evidence is required
to demonstrate that such excipients interact safely with other components of a
drug product. For excipients not listed in the IIG, the FDA will generally
require data, which may include clinical data, demonstrating the safety of the
excipient for use in the product at issue. In the case of generic drug products
approved based on bioequivalence to a reference drug, the FDA may in some cases
(e.g. products for parenteral, ophthalmic, otic or topical use) require
excipients that are identical to the excipients in the reference drug. There can
be no assurance that the FDA will not require new clinical safety data to
approve an application for a
45
<PAGE> 47
product with a Penwest excipient or that the FDA will approve such an
application even if such clinical data are submitted.
Foreign Regulatory Approval
Whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable governmental regulatory authorities in foreign countries
must be obtained prior to the commencement of clinical trials and subsequent
marketing of such product in such countries. The approval procedure varies from
country to country, and the time required may be longer or shorter than that
required for FDA approval.
Under European Community ("EC") law, either of two approval procedures may
apply to the Company's products: a centralized procedure, administered by the
EMEA (the European Medicines Evaluation Agency); or a decentralized procedure,
which requires approval by the medicines agency in each EC Member State where
the Company's products will be marketed. The centralized procedure is mandatory
for certain biotechnology products and available at the applicant's option for
certain other products. Although the decentralized procedure requires approval
by the medicines agency in each EC Member State where the products will be
marketed, there is a mutual recognition procedure under which the holder of
marketing approval from one EC Member State may submit an application to one or
more other EC Member States, including a certification to the effect that the
application is identical to the application which was originally approved or
setting forth the differences between the two applications. Within 90 days of
such application, each EC Member State will be required to determine whether to
recognize the prior approval.
Whichever procedure is used, the safety, efficacy and quality of the
Company's products must be demonstrated according to demanding criteria under EC
law and extensive nonclinical tests and clinical trials are likely to be
required. In addition to premarket approval requirements, national laws in EC
Member States will govern clinical trials of the Company's products, adherence
to good manufacturing practice, advertising and promotion and other matters. In
certain EC Member States, pricing or reimbursement approval may be a legal or
practical precondition to marketing.
A procedure for abridged applications for generic products also exists in
the EC. The general effect of the abridged application procedure is to give
scope for the emergence of generic competition once patent protection has
expired and the original product has been on the market for at least six or ten
years. Independent of any patent protection, under the abridged procedure, new
products benefit in principle from a basic six or ten year period of protection
(commencing with the date of first authorization in the EC) from abridged
applications for a marketing authorization. The period of protection in respect
of products derived from certain biotechnological processes or other high-
technology medicinal products viewed by the competent authorities as
representing a significant innovation is ten years. Further, each EC Member
State has discretion to extend the basic six-year period of protection to a
ten-year period to all products marketed in its territory. Most EC Member States
have exercised such discretion. The protection does not prevent another company
from making a full application supported by all necessary pharmacological,
toxicological and clinical data within the period of protection. Abridged
applications can be made principally for medicinal products which are
essentially similar to medicinal products which have been authorized for either
six or ten years. Under the abridged application procedure, the applicant is not
required to provide the results of pharmacological and toxicological tests or
the results of clinical trials. For such abridged applications, all data
concerning manufacturing quality and bioavailability are required. The applicant
submitting the abridged application generally must provide evidence or
information that the drug product subject to this application is essentially
similar to that of the referenced product in that it has the same qualitative
and quantitative composition with respect to the active ingredient and the same
dosage form, and is similar in bioavailability as the referenced drug.
46
<PAGE> 48
Other Regulations
The Company is governed by federal, state and local laws of general
applicability, such as laws regulating working conditions and environmental
protection. Certain drugs that the Company is developing are subject to
regulations under the Controlled Substances Act and related statutes.
PRICING AND THIRD-PARTY REIMBURSEMENT
The commercialization of the controlled release product candidates under
development by the Company and its collaborators depends in part on the extent
to which reimbursement for the cost of such products will be available from
government health administration authorities, private health insurers and other
third party payors, such as health maintenance organizations and managed care
organizations. The generic versions of controlled release products being
developed by the Company and its collaborators may be assigned an AB rating if
the FDA considers the product to be therapeutically equivalent to the branded
controlled release drug. Failure to obtain an AB rating from the FDA would
indicate that for certain purposes the drug would not be deemed to be
therapeutically equivalent, would not be fully substitutable for the branded
controlled release drug and would not be relied upon by Medicaid and Medicare
formularies for reimbursement.
Third-party payors are attempting to control costs by limiting the level of
reimbursement for medical products, including pharmaceuticals. Cost control
initiatives could decrease the price that the Company or any of its
collaborators receives for their drugs and have a material adverse effect on the
Company's business, financial condition and results of operations. Further, to
the extent that cost control initiatives have a material adverse effect on the
Company's collaborators, the Company's ability to commercialize its products and
to realize royalties may be adversely affected. Moreover, health care reform has
been, and may continue to be, an area of national and state focus, which could
result in the adoption of measures that adversely affect the pricing of
pharmaceuticals or the amount of reimbursement available from third party
payors. The Company's business, financial condition and results of operations
could be materially adversely affected if adequate coverage and reimbursement
levels are not provided by government and other third-party payors for the
products of the Company and its collaborators.
PRODUCT LIABILITY INSURANCE
The design, development, and manufacture of the Company's products involve
an inherent risk of product liability claims. The Company faces the risk of
product liability claims in the event that the use of its products is alleged to
have resulted in harm to a patient or subject. Such risks exist even with
respect to those products that are manufactured in licensed and regulated
facilities or that otherwise possess regulatory approval for commercial sale.
Until the Spin-off, the Company will be covered by primary product liability
insurance maintained by Penford in the amount of $1.0 million per occurrence and
$2.0 million annually in the aggregate on a claims-made basis and by umbrella
liability insurance in excess of $5.0 million which can also be used for product
liability insurance. The Company believes that its product liability insurance
is adequate for its current operations, and will seek to increase its coverage
prior to the commercial introduction of its controlled release product
candidates. There can be no assurance that the coverage limits of the Company's
insurance will be sufficient to offset potential claims or that Penwest will be
able to obtain comparable coverage following the Spin-off. Product liability
insurance is expensive and difficult to procure and may not be available in the
future on acceptable terms or in sufficient amounts, if available at all.
However, since some of the Company's collaborators require the Company to
maintain product liability insurance coverage as a condition to doing business
with the Company, the Company intends to take all reasonable steps necessary to
maintain such insurance coverage. A successful claim against the Company in
excess of its insurance coverage could have a material adverse effect upon the
Company's business, financial condition and results of operations.
47
<PAGE> 49
LITIGATION
In May 1997, one of the Company's collaborators, Mylan, filed an ANDA with
the FDA for the 30 mg dosage strength of Nifedipine XL, a generic version of
Procardia XL, a controlled release formulation of nifedipine. Bayer and ALZA
hold patents relating to Procardia XL (the last of which expires in 2008), and
Pfizer holds the NDA and markets the product. In connection with the ANDA
filing, Mylan certified to the FDA that Nifedipine XL does not infringe the
Bayer or ALZA patents and notified Bayer, ALZA and Pfizer of such certification.
Bayer and Pfizer sued Mylan in the United States District Court for the Western
District of Pennsylvania, alleging that Mylan's product infringes Bayer's
patent. ALZA has informed Mylan that ALZA does not believe that the notice given
to it complied with the requirements of the Waxman-Hatch Act, and there can be
no assurance that ALZA will not sue Mylan for patent infringement or take any
other actions with respect to such notice. Mylan has advised the Company that it
intends to contest vigorously the allegations made in the lawsuit. However,
there can be no assurance that Mylan will prevail in this litigation or that it
will continue to contest the lawsuit. An unfavorable outcome or protracted
litigation for Mylan would materially adversely affect the Company's business,
financial condition and results of operations. Delays in the commercialization
of Nifedipine XL could occur because the FDA will not grant final marketing
approval of Nifedipine XL until a final judgment on the patent suit is rendered
in favor of Mylan by the district court, or in the event of an appeal, by the
court of appeals, or until 30 months (or such longer or shorter period as the
court may determine) have elapsed from the date of Mylan's certification,
whichever is sooner.
In 1993, Pfizer filed a "citizen's petition" with the FDA, claiming that
its Procardia XL formulation constituted a unique delivery system and that a
drug with a different release mechanism such as the TIMERx controlled release
system cannot be considered the same dosage form and approved in an ANDA as
bioequivalent to Procardia XL. In August 1997, the FDA rejected Pfizer's
citizen's petition. In July 1997, Pfizer also sued the FDA in the District Court
of the District of Columbia, claiming that the FDA's acceptance of Mylan's ANDA
filing for Nifedipine XL was contrary to law, based primarily on the arguments
stated in its citizen's petition. Mylan and the Company have intervened as
defendants in this suit. There can be no assurance that the FDA, Mylan and the
Company will prevail in this litigation. An outcome adverse to Mylan and the
Company would result in Mylan being required to file a suitability petition in
order to maintain the ANDA filing or to file an NDA with respect to Nifedipine
XL, each of which would be expensive and time consuming. An adverse outcome also
would result in Nifedipine XL becoming ineligible for an "AB" rating from the
FDA. Failure to obtain an AB rating from the FDA would indicate that for certain
purposes Nifedipine XL would not be deemed to be therapeutically equivalent to
the referenced branded drug, would not be fully substitutable for the referenced
branded drug and would not be relied upon by Medicaid and Medicare formularies
for reimbursement. Any such failure would have a material adverse effect on the
Company's business, financial condition and results of operations. If any of
such events occur, Mylan may terminate its efforts with respect to Nifedipine
XL, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For financial information about the Company's foreign and domestic
operations and export sales, see Note 12 of Notes to Consolidated Financial
Statements.
FACILITIES
The Company's executive, administrative, research, small-scale production
and warehouse facilities, comprising approximately 55,000 square feet, currently
are located in a single facility on a 15 acre site owned by the Company in
Patterson, New York. The Company currently plans to use approximately $15
million from the proceeds of this offering for the construction of facilities
for the manufacture of formulated TIMERx material, as well as expanded
laboratory space, at its Patterson, New York facility.
48
<PAGE> 50
The Company owns a facility in Cedar Rapids, Iowa where it manufactures and
packages pharmaceutical excipients. The facility is a 35,000 square foot
building containing manufacturing and administrative space. The Company also
manufactures pharmaceutical excipients in a 15,000 square foot facility leased
by the Company in Nastola, Finland, which lease renews annually with a two-year
notification of termination period for either party.
The Company believes that all of its present facilities are well maintained
and in good operating condition.
EMPLOYEES
As of September 30, 1997, the Company employed 118 persons, of which 73
were involved in research and development, administration and sales and
marketing activities in Patterson, New York, 20 were involved in manufacturing
operations at the Company's facility in Nastola, Finland, 19 were involved in
manufacturing operations at the Company's facility in Cedar Rapids, Iowa and six
were involved in sales activities in the Company's European sales offices.
Other than the Company's employees in Finland who are covered by a national
collective bargaining agreement, none of the Company's employees are covered by
collective bargaining agreements. The Company considers its employee relations
to be good.
49
<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
October 15, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Tod R. Hamachek(1).................... 51 Chairman of the Board and Chief Executive Officer
John V. Talley, Jr.................... 41 President, Chief Operating Officer and Director
Anand R. Baichwal, Ph.D............... 42 Senior Vice President, Research and Development
Edmund O. Belsheim, Jr................ 45 Senior Vice President, Corporate Development,
General Counsel and Secretary
Stephen J. Berte, Jr.................. 42 Vice President, Marketing and Sales
Jennifer L. Good...................... 32 Vice President, Finance and Chief Financial
Officer
Paul K. Wotton, Ph.D.................. 37 Vice President, Business Development
Paul E. Freiman(1)(3)................. 63 Director
Jere E. Goyan, Ph.D.(2)............... 67 Director
Rolf H. Henel(2)...................... 60 Director
Robert J. Hennessey(1)(3)............. 55 Director
N. Stewart Rogers(2)(3)............... 67 Director
W. Leigh Thompson, M.D., Ph.D.(2)..... 59 Director
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Tod R. Hamachek was named Chairman of the Board of Directors and Chief
Executive Officer of the Company on October 8, 1997. Mr. Hamachek has served as
President and Chief Executive Officer of Penford since 1985, but will resign
from these positions effective upon the closing of this offering. He has also
served as a director of Penford since 1983 but will resign from this position
effective upon the date of the Spin-off. Mr. Hamachek is a director of DEKALB
Genetics Corporation and Northwest Natural Gas Company.
John V. Talley, Jr. has served as President of the Company since December
1993 and was named Chief Operating Officer and a director of the Company on
October 8, 1997. Mr. Talley has served as a Vice President of Penford since 1993
but will resign from that position effective upon the closing of this offering.
Prior to joining the Company, Mr. Talley served in a variety of positions at
Sterling Drug from 1979 to 1993, including Vice President of Marketing from 1992
to 1993 and Vice President, Marketing of the Hospital Products Division from
1989 to 1992. From 1979 to 1989, Mr. Talley served in the New Product
Development and Marketing Department of Sanofi where he was responsible for the
marketing of prescription drugs in the United States.
Dr. Anand R. Baichwal has served as Senior Vice President, Research and
Development of the Company since January 1997, after serving in a variety of
positions for the Company since 1987, including Vice President, Technology from
1994 to 1997, Vice President, Research and Development from 1993 to 1994,
Director of Commercial Development from 1991 to 1993 and Director of Research
and Development and Technical Affairs from 1987 to 1991. Dr. Baichwal is a
co-inventor of the TIMERx technology. See "Certain Transactions."
Edmund O. Belsheim, Jr. was named Senior Vice President, Corporate
Development, General Counsel and Secretary of the Company on October 8, 1997.
Mr. Belsheim has served as Vice President, Corporate Development and General
Counsel of Penford since September 1996 and as Secretary of
50
<PAGE> 52
Penford since March 1997, but will resign from these positions effective upon
the closing of this offering. Prior to joining Penford, Mr. Belsheim was a
member of the law firm Bogle & Gates P.L.L.C. from 1986 to 1996.
Stephen J. Berte, Jr. has served as Vice President, Marketing and Sales of
the Company since January 1995. Prior to joining the Company, Mr. Berte served
in a variety of positions at Sanofi, including Senior Director of New Product
Development from 1992 to 1995, Director of Marketing from 1990 to 1992, Senior
Product Manager from 1989 to 1990, Product Manager from 1988 to 1989 and
Assistant Project Manager for injectable drugs from 1987 to 1988.
Jennifer L. Good has served as Vice President, Finance of the Company since
March 1997 and was named Chief Financial Officer of the Company on October 8,
1997. Prior to joining the Company, Ms. Good served as Corporate Director of
Finance and Secretary of Penford from 1996 to March 1997 and as Corporate
Controller of Penford from 1993 to 1996. From 1987 to 1993, Ms. Good was
employed by Ernst & Young LLP as an audit manager.
Dr. Paul K. Wotton has served as Vice President, Business Development of
the Company, since November 1994, after serving in a variety of positions for
the Company since 1989, including Director of Business Development from 1993 to
1994 and Product Manager (Europe) from 1991 to 1993. Prior to joining the
Company, Dr. Wotton served as a Project Manager at Abbott Laboratories, a
pharmaceutical company ("Abbott"), from 1987 to 1989 and as a Research
Pharmacist at Merck and Co., Inc. ("Merck"), a pharmaceutical company, from 1985
to 1987.
Paul E. Freiman became a director of the Company on October 8, 1997. Mr.
Freiman has served as a director of Penford since April 1996 but will resign
from this position effective upon the date of the Spin-off. Mr. Freiman has
served as President of Neurobiological Technologies, Inc., a biotechnology
company, since May 1997 and as Chairman of the Board of Digital Gene
Technologies, a biotechnology company, since February 1995. From 1990 to 1995,
Mr. Freiman served as Chairman and Chief Executive Officer of Syntex
Corporation, a pharmaceutical company.
Dr. Jere E. Goyan became a director of the Company on October 8, 1997. Dr.
Goyan has been the President and Chief Operating Officer of Alteon Corporation
("Alteon"), a biopharmaceutical company, since April 1993. Dr. Goyan also served
as the Acting Chief Executive Officer of Alteon from June 1993 to February 1994
and as Senior Vice President, Research and Development of Alteon from January
1993 through April 1993. Dr. Goyan is Professor Emeritus of Pharmacy and
Pharmaceutical Chemistry and Dean Emeritus of the School of Pharmacy, University
of California, San Francisco ("UCSF"). He has been on the faculty of the School
of Pharmacy at UCSF since 1963. He took a leave of absence from 1979 to 1981 to
serve as Commissioner of Food and Drugs of the FDA. Dr. Goyan is a director of
ATRIX Laboratories, Inc., Emisphere Technologies, Inc. and SciClone
Pharmaceuticals, Inc., each a biopharmaceutical firm, and Boehringer Ingelheim
Pharmaceuticals, Inc., a pharmaceutical company.
Rolf H. Henel became a director of the Company on October 8, 1997. Mr.
Henel has served as Executive Director of Performance Effectiveness Corp., a
consulting firm for the pharmaceutical industry, since June 1995 and as a
partner of Naimark & Associates P.C., a consulting firm for the healthcare
industry, since September 1990. From 1978 to 1993, Mr. Henel served in a variety
of positions at American Cyanamid Co., a pharmaceutical company, most recently
as President of Lederle International, a division of American Cyanamid Co. Mr.
Henel is a director of SciClone Pharmaceuticals, Inc.
Robert J. Hennessey became a director of the Company on October 8, 1997.
Mr. Hennessey has served as Chairman of the Board and Chief Executive Officer of
Genome Therapeutics Corp., a biotechnology company, since March 1993. From 1990
to 1993, Mr. Hennessey served as the President of Hennessey & Associates Ltd., a
strategic consulting firm to biotechnology and healthcare companies. Prior to
1990, Mr. Hennessey held a variety of management positions at Merck, SmithKline,
51
<PAGE> 53
Abbott and Sterling Drug. Mr. Hennessey is also a director of Virus Research
Institute, Inc., a biotechnology company.
N. Stewart Rogers became a director of the Company on October 8, 1997. Mr.
Rogers has served as Chairman of the Board of Directors of Penford since 1990
and as a director of Penford since 1983. Mr. Rogers is also a director of Fluke
Corporation, an electronic test instrument manufacturer, Royal Pakhoed N.V. (The
Netherlands), a chemical logistics and distribution company, U.S. Bancorp, a
bank holding company and VWR Scientific Products Corporation, a laboratory
supply company.
Dr. W. Leigh Thompson became a director of the Company on October 8, 1997.
Dr. Thompson has served as Chief Executive Officer of Profound Quality
Resources, Ltd., a consulting firm for the pharmaceutical industry, since 1995.
From 1993 to 1994, Dr. Thompson served as Chief Scientific Officer of Eli Lilly
and Company, a pharmaceutical company, and prior to that in a variety of
positions at Eli Lilly and Company since 1982, including Executive Vice
President of Lilly Research Laboratories.
BOARD OF DIRECTORS' COMMITTEES AND OTHER INFORMATION
Each officer of the Company is elected by the Board of Directors on an
annual basis and serves until his or her successor has been duly elected and
qualified. There are no family relationships among any of the executive officers
or directors of the Company.
The Board of Directors is divided into three classes, each of whose members
serves for a staggered three-year term. The Board consists of three Class I
directors (Mr. Freiman, Mr. Henel and Mr. Rogers), three Class II directors (Dr.
Goyan, Mr. Talley and Dr. Thompson) and two Class III directors (Mr. Hamachek
and Mr. Hennessey). At each annual meeting of shareholders, a class of directors
is elected for a three-year term to succeed the directors of the same class
whose term is then expiring. The terms of the Class I directors, Class II
directors and Class III directors expire at the annual meeting of shareholders
to be held in 1998, 1999 and 2000, respectively. It is Penwest's policy that
when the Chairman of the Board and the Chief Executive Officer is the same
person, the Board of Directors will appoint one of its members as a Lead
Director to chair meetings of the Board and for certain other purposes. Mr.
Freiman has been appointed Lead Director.
The Board of Directors has established a Compensation Committee, an Audit
Committee and an Executive Committee. The Compensation Committee makes
recommendations to the Board with respect to the compensation of directors and
executive officers of the Company. The Compensation Committee also supervises
the Company's employee benefit plans. The Compensation Committee consists of
Messrs. Freiman, Hennessey and Rogers.
The Audit Committee recommends to the Board the selection of the
independent auditors, reviews the proposed scope of the independent audit,
reviews the annual financial statements and the independent auditor's report,
reviews the independent auditor's recommendations relating to accounting,
internal controls and other matters, and reviews internal controls and
accounting procedures with management. The Audit Committee consists of Messrs.
Henel and Rogers and Drs. Goyan and Thompson.
The Executive Committee exercises all powers and authority of the Board
with certain exceptions as provided under Washington law. The Executive
Committee consists of Messrs. Freiman, Hamachek and Hennessey.
DIRECTOR COMPENSATION
In connection with this offering, options to purchase 10,000 shares of
Common Stock (11,000 shares in the case of the Lead Director) will be granted to
each non-employee director under the Company's 1997 Equity Incentive Plan (the
"1997 Plan") upon the date on which the initial public offering price is
determined (the "Pricing Date") at the initial public offering price. It is
contemplated that each non-employee director will also receive an annual grant
of stock options under the
52
<PAGE> 54
Company's 1997 Plan to purchase 7,000 shares of Common Stock (8,000 shares in
the case of the Lead Director) at an exercise price equal to the closing price
of the Common Stock on the date of grant. All options granted to non-employee
directors will first become exercisable six months after their grant date. These
options will become exercisable in full upon a change in control of Penwest (as
defined).
Each non-employee director will be reimbursed for his expenses incurred in
connection with his attendance at Board and committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Messrs.
Freiman, Hennessey and Rogers, none of whom are employees of the Company.
53
<PAGE> 55
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company or
Penford in the year ended December 31, 1996 to the Company's Chief Executive
Officer and to the Company's other executive officers whose annual salary and
bonus exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION OF PENFORD
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY BONUS OPTIONS(5) COMPENSATION(6)
- ---------------------------------------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Tod R. Hamachek(2)...................... $340,000(4) $123,636 96,000 $19,702
Chairman of the Board and Chief
Executive Officer
John V. Talley, Jr. .................... 180,000(4) 58,183 19,000 8,403
President and Chief Operating Officer
Stephen J. Berte, Jr. .................. 119,000 17,927 10,000 4,745
Vice President, Marketing and Sales
Paul K. Wotton, Ph.D. .................. 107,000 25,000 6,000 6,298
Vice President, Business Development
Anand R. Baichwal, Ph.D.(3)............. 96,000 19,000 6,000 6,101
Senior Vice President, Research and
Development
</TABLE>
- ---------------
(1) In accordance with the rules of the Commission, this table and the stock
option grant table and the stock option exercise table which follow present
information concerning the Company's Chief Executive Officer and its four
other most highly compensated executive officers whose total annual salary
and bonus exceeded $100,000 (determined by reference to total annual salary
and bonus earned by such officers) for the year ended December 31, 1996.
Edmund O. Belsheim, Jr., who joined Penford as Vice President, Corporate
Development and General Counsel in September 1996, currently receives an
annual salary of $190,000 per year. During the year ended December 31, 1996,
pursuant to Penford's 1994 Stock Option Plan, Mr. Belsheim was granted stock
options to purchase an aggregate of 53,000 shares of common stock of Penford
at a weighted average exercise price of $18.33 per share.
(2) Mr. Hamachek earned the compensation set forth above for services rendered
to Penford in his capacity as President and Chief Executive Officer of
Penford.
(3) For a discussion of certain other amounts payable to Dr. Baichwal, see
"Certain Transactions."
(4) Includes $20,000 and $4,733 as to which Messrs. Hamachek and Talley,
respectively, elected to defer payment.
(5) Represents options to purchase common stock of Penford granted to the Named
Executive Officers in 1996.
(6) Represents Penford's matching and profit sharing contributions under the
Penford Savings and Stock Ownership Plan and premiums paid on behalf of the
Named Executive Officers for supplemental life and disability insurance
plans.
54
<PAGE> 56
Option Grants
The following table sets forth certain information concerning grants of
stock options to purchase shares of common stock of Penford made during the year
ended December 31, 1996 by Penford to the Named Executive Officers. No options
to purchase shares of Penwest's Common Stock were issued during the year ended
December 31, 1996.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
OF PENFORD GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM(4)
OPTIONS BY PENFORD PRICE PER EXPIRATION ---------------------
NAME GRANTED(1) IN 1996 SHARE DATE(3) 5% 10%
- ------------------------------ ---------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek............... 46,000 12.57% $ 18.50 10/23/06 $535,194 $1,356,239
50,000(2) 13.66 17.50 12/12/06 550,288 1,394,488
John V. Talley, Jr. .......... 19,000 5.19 18.50 10/23/06 221,058 560,186
Steven J. Berte, Jr. ......... 5,000 1.37 18.25 06/25/06 57,387 145,425
5,000 1.37 17.00 12/20/06 53,457 135,465
Paul K. Wotton................ 1,000 0.27 18.25 06/25/06 11,477 29,085
5,000 1.37 17.00 12/20/06 53,457 135,465
Anand R. Baichwal............. 1,000 0.27 18.25 06/25/06 11,477 29,085
5,000 1.37 17.00 12/20/06 53,457 135,465
</TABLE>
- ---------------
(1) Except as noted in note (2) below, these stock options are exercisable in
four equal annual installments commencing on the first anniversary of the
date of grant of the options.
(2) These stock options are exercisable with respect to 20,000 of such shares
and become exercisable with respect to 10,000 of such shares in four equal
annual installments commencing on the first anniversary of the date of grant
of the options, and with respect to 20,000 of such shares on the date on
which the closing price of the common stock of Penford has equaled or
exceeded $38.00 for each of the 20 consecutive trading days immediately
preceding such date.
(3) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted.
(4) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10%, compounded annually from the date the respective options were granted
to their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise and do not represent the Company's estimate or projection
of the future price of the common stock of Penford. Actual gains, if any, on
stock option exercises will depend on the future performance of the common
stock of Penford, the optionholders' continued employment through the option
period with either Penford or the Company, and the date on which the options
are exercised.
The Company has approved the grant of stock options to purchase an
aggregate of 654,000 shares of Common Stock to its employees and officers,
effective upon the Pricing Date, at an exercise price equal to the initial
public offering price, of which options to purchase 180,000 shares, 105,000
shares, 30,000 shares, 51,000 shares, 78,000 shares and 75,000 shares were
granted to Mr. Hamachek, Mr. Talley, Mr. Berte, Dr. Wotton, Dr. Baichwal and Mr.
Belsheim, respectively. These options will be exercisable in four equal annual
installments commencing on the first anniversary of the Pricing Date and will
become exercisable in full upon a change in control of Penwest (as defined).
55
<PAGE> 57
Stock Options Held as of Year-End
The following table sets forth certain information concerning each exercise
of a stock option to purchase common stock of Penford during the year ended
December 31, 1996 by a Named Executive Officer, and the number and value of
unexercised stock options to purchase shares of common stock of Penford held by
each of the Named Executive Officers as of December 31, 1996. No Named Executive
Officer held any stock options to purchase shares of Penwest's Common Stock as
of December 31, 1996.
AGGREGATE OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER NUMBER OF SECURITIES OF
OF SHARES PENFORD UNDERLYING VALUE OF UNEXERCISED
OF PENFORD UNEXERCISED OPTIONS AS OF IN-THE-MONEY OPTIONS AS OF
ACQUIRED DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ---------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek............ 34,242 $376,264 225,000 96,000 $ 1,950,075 $ --
John V. Talley, Jr......... -- -- 6,000 63,000 -- --
Stephen J. Berte, Jr....... -- -- 0 10,000 -- 2,500
Paul K. Wotton............. -- -- 2,000 14,000 -- 2,500
Anand R. Baichwal.......... -- -- 2,000 14,000 -- 2,500
</TABLE>
- ---------------
(1) Value is based on the difference between the option exercise price and the
fair market value of shares of common stock of Penford as of December 31,
1996 ($17.50 per share as quoted on the Nasdaq National Market).
Penford Retirement Plan
Penford has a defined benefit retirement plan (the "Retirement Plan"). The
table below shows the estimated annual benefits payable on retirement under the
Retirement Plan to persons in the specified compensation and years of service
classifications. The retirement benefits shown are based upon retirement at age
65 and the payments of a single-life annuity to the employee using current
average Social Security wage base amounts and are not subject to any deduction
for Social Security or other offset amounts. With certain exceptions, the Code
restricts to an aggregate amount of $120,000 (subject to cost of living
adjustments) the annual pension that may be paid by an employer from a plan
which is qualified under the Code. The Code also limits the covered compensation
which may be used to determine benefits to $150,000. The Board of Directors of
Penford has established supplemental benefits for certain highly compensated
employees to whom this limit applies or will apply in the future, so that these
employees will obtain the benefit of the formula that would have applied in the
absence of the limitation. Named Executive Officers entitled to receive
supplemental benefits as of December 31, 1996 were Messrs. Hamachek and Talley.
RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
COVERED COMPENSATION(1) 20 25 30 35
- ------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$200,000.................................. $ 57,070 $ 71,337 $ 85,604 $100,872
300,000.................................. 87,070 109,837 130,604 152,372
400,000.................................. 117,070 146,337 175,604 204,872
500,000.................................. 147,070 184,837 220,604 257,372
600,000.................................. 177,070 221,337 265,604 309,872
700,000.................................. 207,070 259,837 310,604 362,372
800,000.................................. 237,070 296,337 355,604 414,872
900,000.................................. 267,070 334,837 400,604 467,372
</TABLE>
- ---------------
(1) Represents the highest average annual earnings during five consecutive
calendar years of service.
Compensation of Named Executive Officers covered by the Retirement Plan
includes salaries and bonuses as shown in the salary and bonus columns of the
Summary Compensation Table.
56
<PAGE> 58
As of December 31, 1996, the approximate years of credited service (rounded
to the nearest year) under the Retirement Plan of the Named Executive Officers
were: Mr. Hamachek, 12, Mr. Talley, 3, Mr. Berte, 3, Dr. Wotton, 7, and Dr.
Baichwal, 9.
Under the Employee Benefits Agreement between Penford and Penwest, Penford
will freeze all benefits of employees of Penwest under this plan as of the
closing of this offering and will distribute to each employee on the date of the
Spin-off his or her fully vested interest in the form of a lump sum payment or
an annuity. See "Arrangements Between the Company and Penford."
EMPLOYEE BENEFIT PLANS
1997 Equity Incentive Plan
The Company's 1997 Plan was adopted by the Company in October 1997. The
1997 Plan provides for the grant of incentive stock options, nonstatutory stock
options, restricted stock awards and other stock-based awards, including the
grant of securities convertible into Common Stock and the grant of stock
appreciation rights (collectively "Awards"). A total of 3,500,000 shares of
Common Stock may be issued pursuant to Awards granted under the 1997 Plan.
Optionees receive the right to purchase a specified number of shares of
Common Stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Awards may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant subject to the
limitations described below. Incentive stock options may not be granted at an
exercise price less than the fair market value of the Common Stock on the date
of grant (or less than 110% of the fair market value in the case of incentive
stock options granted to optionees holding more than 10% of the voting power of
the Company). Options may not be granted for a term in excess of ten years. The
1997 Plan permits the Board to determine the manner of payment of the exercise
price of options, including through payment by cash, check or in connection with
a "cashless exercise" through a broker, by surrender to the Company of shares of
Common Stock, by delivery to the Company of a promissory note, or any
combination of the foregoing.
Restricted stock Awards entitle recipients to acquire shares of Common
Stock, subject to the right of the Company to repurchase all or part of such
shares from the recipient in the event that the conditions specified in the
applicable Award are not satisfied prior to the end of the applicable
restriction period established for such Award.
Under the 1997 Plan, the Board has the right to grant other Awards based
upon the Common Stock having such terms and conditions as the Board may
determine, including the grant of securities convertible into Common Stock and
the grant of stock appreciation rights.
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted Awards under the 1997 Plan. However,
incentive stock options may only be granted to employees. The maximum number of
shares with respect to which an Award may be granted to any participant under
the 1997 Plan may not exceed 500,000 shares per calendar year.
As of the date of adoption of the 1997 Plan, all the Company's employees
were eligible to receive Awards under the 1997 Plan. The granting of Awards
under the 1997 Plan is discretionary, and the Company cannot now determine the
number or type of Awards to be granted in the future to any particular person or
group.
The 1997 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1997 Plan and to interpret the provisions of the 1997
Plan. Pursuant to the terms of the 1997 Plan, the Board of Directors may
delegate authority under the 1997 Plan to one or more committees of the Board,
and subject to certain limitations, to one or more executive officers of the
Company. The Board has authorized the Compensation Committee to administer
certain aspects of the 1997 Plan, including the granting of
57
<PAGE> 59
options to executive officers. Subject to any applicable limitations contained
in the 1997 Plan, the Board of Directors, the Compensation Committee or any
other committee or executive officer to whom the Board delegates authority, as
the case may be, selects the recipients of Awards and determines (i) the number
of shares of Common Stock covered by options and the dates upon which such
options become exercisable, (ii) the exercise price of options, (iii) the
duration of options, and (iv) the number of shares of Common Stock subject to
any restricted stock or other stock-based Awards and the terms and conditions of
such Awards, including conditions for repurchase, issue price and repurchase
price.
The Board of Directors is required to make appropriate adjustments in
connection with the 1997 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of a merger,
liquidation or other Acquisition Event (as defined in the 1997 Plan), the Board
of Directors is authorized to provide for outstanding options or other
stock-based Awards to be assumed or substituted for, to accelerate the Awards to
make them fully exercisable prior to consummation of the Acquisition Event or to
provide for a cash out of the value of any outstanding options. If any Award
expires or is terminated, surrendered, canceled or forfeited, the unused shares
of Common Stock covered by such Award will again be available for grant under
the 1997 Plan.
The Company has approved the grant of stock options to purchase an
aggregate of 715,000 shares of Common Stock to its employees, officers and
directors, effective upon the Pricing Date, at an exercise price equal to the
public offering price. See "Management -- Director Compensation" and
"-- Executive Compensation -- Option Grants."
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company in October 1997. The Purchase Plan authorizes the
issuance of up to a total of 300,000 shares of Common Stock to participating
employees at a discount from fair market value. The Purchase Plan is intended to
qualify as an employee stock purchase plan within Section 423 of the Code.
All employees of the Company, including directors of the Company who are
employees and all employees of any designated subsidiaries, whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year, are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible to
participate. Following this offering, all the Company's full-time employees as
of the date of adoption of the Purchase Plan will be eligible to participate in
the Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 10%
of such employee's regular pay) to be deducted by the Company from such pay
during an Offering Period. On the last day of such Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase Plan,
the option price is an amount equal to 85% of the fair market value per share of
the Common Stock on either the first day or the last day of each Offering
Period, whichever is lower. In no event may an employee purchase in any one
Offering Period a number of shares which is more than the number determined by
dividing $12,500 by the closing price of a share of Common Stock on the
commencement date of each Offering Period. The Compensation Committee may, at
its discretion, choose an Offering Period of 12 months or less for each of the
offerings and choose a different Offering Period for each offering.
If an employee is not a participant on the last day of an Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded without interest. An
employee's rights under the Purchase Plan terminate upon voluntary withdrawal
from the Purchase Plan at any time, or when such employee ceases employment for
any reason.
58
<PAGE> 60
CERTAIN TRANSACTIONS
Since January 1, 1994, the Company has not engaged in any transactions with
the directors or officers of the Company or Penford except as described below.
Under a Recognition and Incentive Agreement (as amended, the "Baichwal
Agreement") with Anand Baichwal, the Company's Senior Vice President, Research
and Development, the Company is obligated to pay to Dr. Baichwal on an annual
basis in arrears (i) one-half of one percent of the Company's Net Sales (as
defined in the Baichwal Agreement) of TIMERx Material (as defined in the
Baichwal Agreement) to third parties, (ii) one-half of one percent of royalties
received by the Company under licenses, collaborations or other exploitation
agreements with third parties with respect to the sale, license, use or
exploitation by such third parties of products based on or incorporating the
TIMERx Material, and (iii) one-half of one percent of payments made in lieu of
such Net Sales or royalties and received by the Company. Such payments cease in
the event that Dr. Baichwal's employment is terminated for cause. The Baichwal
Agreement also contains non-competition and non-solicitation provisions which
expire two years after the termination of his employment.
For a description of the stock options granted to the directors and
officers of the Company, see "Management -- Director Compensation" and
"Management -- Executive Compensation."
For a description of the Company's arrangements with Penford, see
"Arrangements between the Company and Penford."
59
<PAGE> 61
PRINCIPAL SHAREHOLDER
Prior to this offering, all outstanding shares of Common Stock will be
owned by Penford. Penford's address is 777 108th Avenue N.E., Suite 2390,
Bellevue, WA 98004. Upon completion of this offering, Penford will own
approximately 85.3% (approximately 83.5% if the Underwriters over-allotment
option is exercised in full) of the outstanding Common Stock. See "Risk
Factors -- Control by Penford Pending the Spin-off; Uncertainty of the
Spin-off," "Risk Factors -- Relationship with Penford; Conflicts of Interest"
and "Arrangements between the Company and Penford."
Penford has announced its intent, subject to the satisfaction of certain
conditions, to divest its ownership interest in the Company through the
Spin-off, which is anticipated to occur in the second quarter of 1998. See
"Background of the Planned Spin-off" and "Risk Factors -- Control by Penford
Pending the Spin-off; Uncertainty of the Spin-off."
The Company has approved the grant of stock options to purchase an
aggregate of 654,000 shares of Common Stock to its employees and officers,
effective upon the Pricing Date, at an exercise price equal to the initial
public offering price, of which options to purchase 180,000 shares, 105,000
shares, 30,000 shares, 51,000 shares, 78,000 shares and 75,000 shares were
granted to Mr. Hamachek, Mr. Talley, Mr. Berte, Dr. Wotton, Dr. Baichwal and Mr.
Belsheim, respectively. Options to purchase 10,000 shares of Common Stock
(11,000 shares in the case of the Lead Director) will also be granted to each
non-employee director upon the Pricing Date at an exercise price equal to the
initial public offering price. No director or executive officer of the Company
beneficially owned any shares of Common Stock as of September 30, 1997. See
"Management -- Director Compensation" and "-- Executive Compensation -- Option
Grants."
The following table sets forth certain information regarding the beneficial
ownership of the common stock of Penford as of September 30, 1997, with respect
to (i) each director and Named Executive Officer of the Company and (ii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PENFORD
---------------------------------------
PERCENTAGE OF
OUTSTANDING SHARES
NAME (1) NUMBER OF SHARES BENEFICIALLY OWNED
- --------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
Directors
Tod R. Hamachek.......................................... 367,421(2) 5.03%
Paul E. Freiman.......................................... 3,178(3) *
Jere E. Goyan............................................ 0 0
Rolf H. Henel............................................ 1,000 *
Robert J. Hennessey...................................... 0 0
N. Stewart Rogers........................................ 152,735(4) 2.10
John V. Talley, Jr....................................... 13,001(5) *
W. Leigh Thompson........................................ 0 0
Other Named Executive Officers
Anand R. Baichwal........................................ 6,480(6) *
Steven J. Berte, Jr...................................... 1,888(7) *
Paul K. Wotton........................................... 5,483(8) *
All directors and executive officers as a group
(13 persons)........................................... 579,498(9) *
</TABLE>
- ---------------
* Less than 1%
(1) Except as reflected in the footnotes to this table, shares of Common Stock
of Penwest and Penford beneficially owned consist of shares owned by the
indicated person, and all share ownership involves sole voting and
investment power. Amounts shown in the above table and the following
60
<PAGE> 62
notes include shares issuable within the 60-day period following September
30, 1997 pursuant to the exercise of options.
(2) Includes 31,500 shares subject to outstanding options held by Mr. Hamachek,
which are exercisable within the 60-day period following September 30, 1997.
(3) Includes 2,192 shares subject to outstanding options held by Mr. Freiman,
which are exercisable within the 60-day period following September 30, 1997.
(4) Includes 11,538 shares held in irrevocable trusts for which Mr. Rogers has
sole voting power, as well as 19,521 shares subject to outstanding options
held by Mr. Rogers, which are exercisable within the 60-day period following
September 30, 1997.
(5) Includes 10,750 shares subject to outstanding stock options held by Mr.
Talley, which are exercisable within the 60-day period following September
30, 1997.
(6) Includes 4,200 shares subject to outstanding stock options held by Dr.
Baichwal, which are exercisable within the 60-day period following September
30, 1997.
(7) Includes 1,000 shares subject to outstanding stock options held by Mr.
Berte, which are exercisable within the 60-day period following September
30, 1997.
(8) Includes 4,200 shares subject to outstanding stock options held by Dr.
Wotton, which are exercisable within the 60-day period following September
30, 1997.
(9) Includes an aggregate of 91,943 shares subject to outstanding stock options
which are exercisable within the 60-day period following September 30, 1997.
61
<PAGE> 63
ARRANGEMENTS BETWEEN THE COMPANY AND PENFORD
The Company is currently a wholly-owned subsidiary of Penford. Upon
completion of this offering, Penford will own approximately 85.3% (approximately
83.5% if the Underwriters' over-allotment option is exercised in full) of the
outstanding Common Stock. Penford has announced its intent, subject to the
satisfaction of certain conditions, including receipt of either a favorable tax
ruling from the IRS or a written opinion from Ernst & Young LLP, to divest its
ownership interest in the Company through the Spin-off, which is anticipated to
occur in the second quarter of 1998. See "Background of the Planned Spin-off "
and "Risk Factors -- Control by Penford Pending the Spin-off; Uncertainty of the
Spin-off."
In anticipation of this offering, and in view of Penford's intention to
undertake the Spin-off, the Company and Penford have entered into a number of
agreements, which will become effective upon the closing of this offering, for
the purpose of defining certain relationships between them. As a result of
Penford's ownership interest in the Company, the terms of such agreements were
not the result of arm's-length negotiation. However, the Company believes the
terms of these agreements approximate fair market value. See "Risk
Factors -- Relationship with Penford; Conflicts of Interest."
The following discussion of agreements between the Company and Penford is
qualified in its entirety by reference to the forms of such agreements, which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
Separation Agreement
The Company and Penford have entered into a separation agreement (the
"Separation Agreement") setting forth the agreement of the parties with respect
to the principal corporate transactions required to effect the separation of
Penford's pharmaceutical business from its food and paper businesses, this
offering and the Spin-off, and certain other agreements governing the
relationship of the parties both prior to and after the Spin-off.
Asset Transfer. In connection with the separation of the pharmaceutical
business, Penford has agreed to assign to the Company, to the extent not
previously assigned, its rights, title and interest in any assets related to the
pharmaceutical business, and Penwest has agreed to assume, to the extent not
previously assumed, all Penford's liabilities relating to the pharmaceutical
business. As part of this assignment, Penford will assign to Penwest its rights
in the agreements entered into with the Company's collaborators, as well as
certain trademarks of Penford. Penford also has agreed to contribute to the
capital of Penwest all existing remaining intercompany indebtedness of Penwest
($37.5 million as of September 30, 1997).
Offering. Penford has agreed to undertake certain obligations with respect
to this offering, subject to specified conditions precedent. One of these
conditions is that, immediately following this offering, Penford shall "control"
Penwest within the meaning of Sections 355 and 368 of the Code in order to
permit the Spin-off to qualify as a tax-free distribution for federal income tax
purposes under Section 355 of the Code.
Spin-off. Penwest and Penford have agreed that the Board of Directors of
Penford will have the sole discretion to determine the date of consummation of
the Spin-off at any time prior to the date six months after the closing of this
offering. Following the date six months after the closing of this offering,
Penford will be obligated to consummate the Spin-off as promptly as practicable
following the date on which the conditions described below are either satisfied
or waived. In addition, in the event that Penford obtains and relies upon a
private letter ruling from the IRS and the other conditions described below are
either satisfied or waived, Penford will effect the Spin-off prior to the later
of (i) six months from the closing of this offering and (ii) three months from
the date of the private letter ruling.
Penford and Penwest have agreed to use their reasonable best efforts to
cause all conditions to be satisfied and to effect the Spin-off including: (i) a
private letter ruling from the IRS shall have been obtained, and shall continue
in effect, or a written opinion from Ernst & Young LLP shall have been received,
to the effect that, among other things, the Spin-off will qualify as tax-free
for federal income tax purposes under Sections 355 and 368 of the Code, and such
ruling or opinion shall be in form and
62
<PAGE> 64
substance satisfactory to Penford; (ii) any material governmental approvals and
consents necessary to consummate the Spin-off shall have been obtained and shall
be in full force and effect; (iii) no order, injunction or decree issued by any
court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Spin-off shall be in effect, and
no other event outside the control of Penford shall have occurred or failed to
occur that prevents the consummation of the Spin-off; and (iv) no material
adverse change shall have occurred with respect to the business or financial
condition of Penford or Penwest which would, in the reasonable judgment of the
Penford Board, make the approval of the Spin-off inadvisable.
Treatment of Options. Penford and Penwest have also agreed that at the
time of the Spin-off the stock options to purchase the common stock of Penford
will be adjusted to reflect the Spin-off. In this regard, Penford has agreed to
(i) amend its stock plans to provide that, for purposes of such stock plans, the
term employee shall include employees of Penwest, (ii) amend each stock option
held by a Penwest employee to provide that the option will continue to vest for
so long as the Penwest employee remains an employee of Penwest, (iii) adjust the
exercise price of each stock option then outstanding by multiplying the exercise
price of the stock option by a fraction, the numerator of which shall equal the
amount determined by multiplying (a) Penford's fully diluted shares outstanding
(including shares issuable upon exercise of outstanding stock options) by (b)
the fair market value of the Penford common stock as of the Spin-off (as
determined in the manner specified in the Separation Agreement) (the "Penford
Market Capitalization"), and the denominator of which shall equal the sum of (x)
the Penford Market Capitalization and (y) the amount determined by multiplying
Penwest's fully diluted shares outstanding (including shares issuable upon
exercise of outstanding stock options), by the fair market value of the Common
Stock of Penwest as of the Spin-off (as determined in the manner specified in
the Separation Agreement) (the "Penwest Market Capitalization"), and (iv) adjust
the number of shares of common stock of Penford issuable upon exercise of each
stock option then outstanding by multiplying the number of shares of common
stock of Penford issuable under the stock option by a fraction, the numerator of
which shall equal the sum of the Penford Market Capitalization and the Penwest
Market Capitalization, and the denominator of which shall equal the Penford
Market Capitalization.
Registration Rights. Penwest has agreed that if Penford has not received a
favorable private letter ruling from the IRS or a written opinion from Ernst &
Young LLP with respect to the Spin-off by September 30, 1998, Penford will have
the right, exercisable at any time after September 30, 1998, to cause Penwest to
use its reasonable best efforts to register the shares of Penwest Common Stock
held by Penford for resale under the Securities Act, subject to certain
conditions and limitations. Penwest has also agreed that if it files a
registration statement for the sale of securities on a form in which the Common
Stock held by Penford may be included, it will include shares of Common Stock
held by Penford in such registration statement.
Indemnification. Penwest has agreed to indemnify Penford from and against
any liabilities arising out of (i) the employment of individuals by Penwest,
(ii) the pharmaceutical business and the use of the assets transferred to
Penwest, (iii) purchase orders, accounts payable, accrued compensation and other
liabilities which relate to the pharmaceutical business and the assets
transferred to Penwest, and (iv) any misstatement or omission of a material fact
in any documents or filings prepared by Penwest for purposes of compliance or
qualification under applicable securities laws in connection with this offering
or the Spin-off, including this Prospectus (the "SEC filings"). Penford has
agreed to indemnify Penwest from and against all liabilities arising out of (i)
the business of Penford and the liabilities not assumed by Penwest and (ii) any
misstatement or omission of a material fact with respect to Penford based on
information supplied by Penford in the SEC filings.
Sharing of Utilities. Penford has agreed that Penwest will be entitled to
use and consume at Penwest's Cedar Rapids facility certain utilities consisting
of natural gas, electricity and steam from Penford's Cedar Rapids facility.
Penwest will reimburse Penford for such consumption based on Penford's total
cost for such utilities and Penwest's fraction of the total consumption.
Non-Competition and Non-Solicitation. Penford has agreed that, during the
period ending upon the later of (a) five years from the date of the Separation
Agreement and (b) the expiration or
63
<PAGE> 65
termination of the Excipient Supply Agreement to be entered into between Penford
and Penwest, it shall not (i) manufacture, market, sell or distribute for
inclusion in any pharmaceutical or nutritional product (excluding any food
product) any product having the same or substantially the same form, composition
or application as EMDEX or CANDEX or any similar sugar-based product or (ii)
recruit or solicit any employee of Penwest, without the consent of Penwest.
Penwest has agreed that during the same period, it will not (i) manufacture,
market, sell or distribute for inclusion in any foods product any product having
the same or substantially the same form, composition or applications as EMDEX or
CANDEX or any similar sugar-based product or (ii) recruit or solicit any
employee of Penford, without the consent of Penford.
Services Agreement
The Company and Penford have entered into a services agreement (the
"Services Agreement") pursuant to which Penford will continue on an interim
basis to provide or otherwise make available to the Company, upon the Company's
reasonable request, certain accounting and audit, finance and treasury, tax,
financial and human resources services, provide for certain insurance coverage
and arrange for administration of insurance and risk management and employee
benefit programs. Prior to the Spin-off, the Company will pay the direct costs
of these services. On or after the Spin-off, the Company will pay the direct
costs of these services, plus a percentage negotiated by and mutually agreeable
to Penwest and Penford. To the extent that such direct costs cannot be
separately measured, the Company will pay a portion of the total cost determined
on a reasonable basis selected by Penford and approved by the Company. The
initial term of the Services Agreement will expire on the date of the Spin-off
and will be extended automatically for successive one-year terms unless either
party provides written notice of its election not to renew the Services
Agreement at least 90 days prior to the expiration of the initial or any renewal
term.
Tax Allocation Agreement
The Company and Penford have entered into a tax allocation agreement (the
"Tax Allocation Agreement") providing for (i) the allocation of payments of
taxes for periods during which the Company and Penford (or any of its affiliates
other than the Company and its subsidiaries) are included in the same
consolidated group for federal income tax purposes or the same consolidated,
combined or unitary returns for state, local or foreign tax purposes, (ii) the
allocation of any taxes payable if the Spin-off fails to qualify as tax-free
under Sections 355 and 368 of the Code, (iii) the allocation of responsibility
for the filing of tax returns, (iv) the conduct of tax audits and the handling
of tax controversies and (v) various related matters. Under the Tax Allocation
Agreement, Penwest will be responsible for any tax liabilities (including
interest and penalties) imposed on it and will indemnify Penford for any tax
liabilities (including interest and penalties) imposed on Penford that are
directly related to the failure of the Spin-off to qualify as tax-free under
Sections 355 and 368 of the Code as a result of (i) the inaccuracy of certain
representations and covenants made by Penwest in the Tax Allocation Agreement or
(ii) the participation by Penwest in certain acts set forth in the Tax
Allocation Agreement that occur after the Spin-off. For periods during which the
Company is included in Penford's consolidated federal income tax returns or
state consolidated, combined or unitary tax returns (which periods are expected
to include the period between this offering and the Spin-off), the Company will
be required to pay to or entitled to receive from Penford its allocable portion
of the consolidated federal income and state tax liability or credits, other
than credits related to net operating losses. The Company will be directly
responsible for separate state, local and foreign tax returns and related
liabilities for itself and its subsidiaries for all periods.
Excipient Supply Agreement
The Company and Penford have entered into a supply agreement (the "Supply
Agreement") pursuant to which Penford will manufacture and supply exclusively to
Penwest, and Penwest will purchase exclusively from Penford, subject to certain
exceptions, all Penwest's requirements for EMDEX and CANDEX, two sugar-based
excipients marketed by the Company. Penwest will purchase such excipients at
specified prices, which will be subject to adjustment on a semi-annual basis.
The
64
<PAGE> 66
initial term of the Supply Agreement will expire on December 31, 2003, unless
earlier terminated by Penwest or Penford upon one year's prior written notice,
and will be extended automatically for successive one-year terms unless either
party provides written notice of its election not to renew the Supply Agreement
at least 90 days prior to the expiration of the initial or any renewal term.
Employee Benefits Agreement
The Company and Penford have entered into an employee benefits agreement
(the "Benefits Agreement") setting forth the parties' agreements as to the
continuation of certain Penford pension and benefits arrangements for the
employees of Penwest following this offering. Under the Benefits Agreement,
Penford has agreed that the employees of Penwest will continue to be covered by
Penford's Savings and Stock Ownership Plan, health plan (medical, dental and
vision) and flexible benefits plan (pretax payment of health plan premiums,
medical reimbursement account and dependent care account) until December 31,
1997. In connection with the continuation of these plans, Penwest will reimburse
Penford for any costs and expenses paid by Penford with respect to continued
participation in such plans by employees of Penwest following this offering. The
Benefits Agreement also provides for the termination, as of the closing of this
offering, of participation of Penwest employees under certain of Penford's other
welfare and retirement plans and sets forth the manner in which the assets and
liabilities under certain of such plans will be transferred to Penwest. Finally,
under the Benefits Agreement, Penwest has agreed to establish for its employees
a set of benefit plans similar to those provided by Penford with the exception
of Penford's defined benefit plan.
Conflicts of interest may arise between the Company and Penford in a number
of areas relating to their past and ongoing relationships, including tax and
employee benefit matters, indemnity arrangements, registration rights, sales or
distributions by Penford of its remaining shares of Common Stock and the
exercise by Penford of its ability to control the management and affairs of the
Company.
The Company and Penford may enter into amendments to the terms of the
foregoing agreements or new material transactions and agreements in the future.
The Company has been advised by Penford that it intends that the terms of any
future amendments, transactions and agreements between the Company and Penford
or its affiliates will approximate fair market value. The Board of Directors of
Penwest will utilize such procedures in evaluating the terms and provisions of
any material transactions between the Company and Penford or its affiliates as
the Board may deem appropriate in light of its fiduciary duties under state law.
Depending on the nature and size of the particular transaction, in any such
evaluation, the Board of Directors of Penwest may rely on management's
statements and opinions and may or may not utilize outside experts or
consultants or obtain independent appraisals or opinions.
Directors of the Company who are also directors of Penford may have
conflicts of interest with respect to matters potentially or actually involving
or affecting the Company and Penford, such as acquisitions, financings and other
corporate opportunities that may be suitable for the Company and Penford. To the
extent that such opportunities arise, such directors may consult with their
legal advisors and make a determination after consideration of a number of
factors, including whether such opportunity is presented to any such director in
his or her capacity as a director of the Company, whether such opportunity is
within the Company's line of business or consistent with its strategic
objectives and whether the Company will be able to undertake or benefit from
such opportunity. In addition, determinations may be made by the Board, when
appropriate, by the vote of the disinterested directors only. Notwithstanding
the foregoing, there can be no assurance that conflicts will be resolved in
favor of the Company. See "Risk Factors -- Relationship with Penford; Conflicts
of Interest."
So long as the Company remains a subsidiary of Penford, the directors and
officers of the Company will, subject to certain limitations, be indemnified by
Penford and insured under insurance policies maintained by Penford against
liability for actions taken or omitted to be taken in their capacities as
directors and officers of the Company, including actions or omissions that may
be alleged to constitute breaches of the fiduciary duties owed by such persons
to the Company and its shareholders. It is contemplated that, prior to the
Spin-off, the Company will obtain insurance coverage for its directors and
officers in respect of such matters. See "Risk Factors -- Relationship with
Penford; Conflicts of Interest."
65
<PAGE> 67
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 39,000,000 shares
of Common Stock, $0.001 par value per share, and 1,000,000 shares of Preferred
Stock, $0.001 par value per share ("Preferred Stock"). Prior to this offering,
there was outstanding 14,538,282 shares of Common Stock which were held of
record by one stockholder, Penford. Immediately after this offering, 17,038,282
shares of Common Stock will be outstanding.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Amended and Restated
Articles of Incorporation (the "Restated Articles"), which are included as an
exhibit to the Registration Statement of which this Prospectus is a part, and by
the provisions of applicable law.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends as may from time
to time be declared by the Board of Directors out of funds legally available
therefor, subject to any preferential dividend rights of any outstanding class
or series of Preferred Stock, and to one vote per share on all matters on which
the holders of Common Stock are entitled to vote. Such holders do not have any
cumulative voting rights or preemptive, conversion, redemption or sinking fund
rights. In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share equally and ratably in the
Company's assets, if any, remaining after the payment of all liabilities of the
Company and the liquidation preference of any outstanding class or series of
Preferred Stock. The outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock that the Company may issue in the
future.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock in one or more series and to fix the number of shares
constituting any such series and the preferences, limitations and relative
rights, including dividend rights, dividend rate, voting rights, terms of
redemption, redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series, without any further vote or
action by the Company's shareholders. The issuance of Preferred Stock by the
Board of Directors could adversely affect the rights of holders of Common Stock.
The potential issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price of the Common Stock and
may adversely affect the market price of, and the voting and other rights of the
holders of, the Common Stock. The Company has no current plans to issue any
shares of Preferred Stock.
WASHINGTON LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The laws of Washington, where the Company is incorporated, restrict certain
transactions between Washington corporations and certain significant
shareholders. Chapter 23B.19 of the Washington Business Corporation Act
prohibits a "target corporation," with certain exceptions, from engaging in any
"significant business transaction" with a person or group of persons which has
acquired 10% or more of the voting securities of the target corporation (an
"acquiring person") for five years after such acquisition unless the transaction
or such acquisition is approved by a majority of the members of the target
corporation's board of directors prior to acquisition. Significant business
transactions include, among others, a merger, share exchange or consolidation
with, disposition of assets to, or issuance or redemption of stock to or from,
the acquiring person, or a reclassification of securities that has the effect of
increasing the proportionate share of the outstanding securities held by
66
<PAGE> 68
the acquiring person. After the five-year period, a significant business
transaction may take place if it complies with certain fair price provisions of
the statute. A target corporation includes every Washington corporation that has
a class of voting stock registered pursuant to Section 12 or 15 of the
Securities Exchange Act of 1934, as amended.
The Restated Articles provide for the division of the Board of Directors
into three classes as nearly equal in size as possible with staggered three-year
terms. In addition, the Restated Articles provide that directors may be removed
only for cause by the affirmative vote of the holders of two-thirds of the
shares of capital stock of the Company entitled to vote. Under the Restated
Articles, any vacancy on the Board of Directors, however occurring, including a
vacancy resulting from an enlargement of the Board, may only be filled by vote
of a majority of the directors then in office. The classification of the Board
of Directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company.
The Company's Amended and Restated Bylaws (the "Restated Bylaws") provide
that any action required or permitted to be taken by the stockholders of the
Company at an annual meeting or special meeting of shareholders may only be
taken if it is properly brought before such meeting and that any such action may
also be taken without a meeting by written consent if all the shareholders
entitled to vote with respect to such action so consent. The Restated Articles
provide that special meetings of the shareholders may be called by the President
of the Company, the Chairman of the Board or the Board of Directors. Under the
Restated Bylaws, in order for any matter to be considered "properly brought"
before a meeting, a shareholder must comply with certain requirements regarding
advance notice to the Company. The foregoing provisions could have the effect of
delaying until the next shareholders meeting shareholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a shareholder (such as electing new
directors or approving a merger) only at a duly called shareholders meeting, and
not by written consent.
The laws of Washington provide generally that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's articles of incorporation or bylaws, unless a corporation's
articles of incorporation or bylaws, as the case may be, require a greater
percentage. The Restated Articles and the Restated Bylaws require the
affirmative vote of the holders of at least two-thirds of the shares of capital
stock of the Company issued and outstanding and entitled to vote to amend or
repeal any of the provisions described in the prior two paragraphs.
The Restated Articles contain certain provisions relating to the
elimination of personal liability of directors to the Company or its
shareholders for monetary damages to the full extent permitted by Washington
law. In addition, the Restated Bylaws contain provisions to indemnify the
Company's directors and officers to the fullest extent permitted by Washington
law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.
67
<PAGE> 69
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
17,038,282 shares of Common Stock. Of these shares, the 2,500,000 shares sold in
this offering (plus any shares issued upon exercise of the Underwriters'
over-allotment option) will be freely tradeable without restriction under the
Securities Act, unless purchased or held by "affiliates" of the Company as that
term is defined under the Securities Act. The remaining 14,538,282 shares of
Common Stock outstanding upon the consummation of this offering will be shares
of Common Stock held by Penford and will be "restricted securities," as that
term is defined in Rule 144, that may be sold only if registered under the
Securities Act or in accordance with an applicable exemption from registration,
such as Rule 144.
Although the shares held by Penford may not be sold by Penford absent
registration under the Securities Act or an exemption from such registration,
Penford has advised the Company that it contemplates effecting the Spin-off
without registration under the Securities Act and that the shares distributed
pursuant thereto would thereafter be freely tradeable by persons other than
"affiliates" of the Company without restriction or registration under the
Securities Act.
Pursuant to the Underwriting Agreement, the Company has agreed, subject to
limited exceptions, not to offer, sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of BancAmerica Robertson Stephens. Similarly, Penford
and the officers and directors of the Company have agreed, subject to limited
exceptions (including, with respect to Penford, the Spin-off), not to sell,
offer, contract to sell, pledge, grant an option to purchase or otherwise
dispose of any shares of Common Stock (or any securities convertible into, or
exchangeable for, or any rights to purchase or acquire, shares of Common Stock)
held by such holders, acquired by such holder after the date hereof or which may
be deemed to be beneficially owned by such holder for a period of 180 days after
the date of this Prospectus without the prior written consent of BancAmerica
Robertson Stephens. None of the shares of Common Stock distributed pursuant to
the Spin-off (other than shares distributed to the Company's "affiliates") will
be subject to any contractual restriction on sale or disposition pursuant to the
Underwriting Agreement or otherwise.
In general, under Rule 144, as currently in effect, beginning 90 days after
the effective date of the registration statement of which this Prospectus is a
part (the "Effective Date"), a person (or persons whose shares are aggregated)
who has beneficially owned "restricted securities" for at least one year would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of: (i) one percent of the number of shares of Common
Stock then outstanding (which will equal approximately 170,383 shares
immediately after this offering); or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, is entitled to sell such shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
In the event any person who is deemed to be an "affiliate" of the Company
for purposes of Rule 144 purchases Common Stock pursuant to this offering,
receives shares of Common Stock in the Spin-off or purchases shares of Common
Stock in a registered offering effected by Penford, the shares held by such
person will not be subject to any holding period requirement and may be sold in
the open market in reliance upon Rule 144, subject to the volume limitations and
lockup arrangements described above. Shares properly sold in reliance upon Rule
144 to persons who are not "affiliates" of the Company are thereafter freely
tradeable without restriction or registration under the Securities Act.
Penford has not determined what action, if any, it would take if it did not
receive a favorable tax ruling or written opinion from Ernst & Young LLP with
respect to the Spin-off. If the Spin-off does not
68
<PAGE> 70
occur, Penford may sell all or a portion of its ownership interest in the
Company through a public offering or a private sale. In order to enable Penford
to sell its ownership interest in a public offering in such event, the Company
has agreed to give Penford the right to cause the Company to register the Common
Stock owned by it under the Securities Act, in which event Penford would be able
to sell or otherwise distribute such shares upon the effectiveness of any such
registration and such shares would thereafter be freely tradeable by the
purchasers thereof, other than "affiliates" of the Company, without restriction
or registration under the Securities Act.
The Company intends to file registration statements on Form S-8 under the
Securities Act at least 90 days after the Effective Date to register shares of
Common Stock reserved for issuance under the 1997 Plan and the Purchase Plan.
Such registration statements will become effective immediately upon filing.
Prior to this offering, there has been no public market for the Common
Stock of the Company and no predictions can be made as to the effect, if any,
that market sales of shares of Common Stock prevailing from time to time may
have on the market price of the Common Stock. Nevertheless, the Spin-off and
future sales of significant numbers of shares of the Common Stock in the public
market or the perception that such future sales could occur, could adversely
affect the market price of the Common Stock offered hereby and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
69
<PAGE> 71
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens and SBC Warburg Dillon Read Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company the number of shares
of Common Stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such shares, if any are
purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
BancAmerica Robertson Stephens.......................................
SBC Warburg Dillon Read Inc..........................................
-------
Total......................................................
=======
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price, less a concession of not more than $ per share,
of which $ per share may be reallowed to other dealers. After the
initial public offering, the public offering price, concession and reallowances
to dealers may be reduced by the Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 375,000 shares of Common Stock at the same price per share as the
Company will receive for the 2,500,000 shares that the Underwriters have agreed
to purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
2,500,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 2,500,000
shares are being sold. The Company will be obligated, pursuant to such option,
to sell shares to the Underwriters to the extent such option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company and Penford against certain civil liabilities,
including liabilities under the Securities Act and liability arising from
breaches of representations and warranties contained in the Underwriting
Agreement.
Each officer, director and the sole shareholder of the Company, together
holding approximately 14,538,282 shares of Common Stock, have agreed with the
Representatives that, until 180 days from the date of this Prospectus, subject
to certain limited exceptions (including, with respect to Penford, the
Spin-off), they will not, directly or indirectly, sell, offer, contract to sell,
pledge, grant any option to purchase or otherwise dispose of any shares of
Common Stock (or any securities convertible into, or exchangeable for, or any
rights to purchase or acquire, shares of Common Stock), held by such holders,
acquired by such holder after the date hereof or which may be deemed to be
beneficially owned by such holder, without the prior written consent of
BancAmerica Robertson Stephens.
70
<PAGE> 72
BancAmerica Robertson Stephens may, in its sole discretion without notice,
release all or any portion of the securities subject to the lock-up agreements.
In addition, the Company has agreed that, until 180 days from the date of this
Prospectus, the Company will not, without the prior written consent of
BancAmerica Robertson Stephens, subject to certain limited exceptions, sell or
otherwise dispose of, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock (or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock) other than the
Company's sale of shares in this offering, the issuance of Common Stock upon the
exercise of outstanding options, or the Company's grant of options and issuance
of stock under existing employee stock option or stock purchase plans. See
"Shares Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with this offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined through negotiations between the Company and the
Representatives. The material factors to be considered in such negotiations are
prevailing market conditions, certain financial information of the Company in
recent periods, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, the Company's management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover of this
preliminary prospectus is subject to change as a result of market conditions and
other factors. There can be no assurance that an active or orderly trading
market will develop for the Common Stock or that the Common Stock will trade in
the public market subsequent to this offering at or above the initial trading
price. See "Risk Factors -- Possibility of Substantial Sales of Common Stock,"
"Risk Factors -- No Prior Public Market; Determination of Public Offering Price;
Potential Volatility of Stock Price" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
McFarland Dewey & Co. ("McFarland Dewey") has been retained by Penford
since 1996 to identify and evaluate strategic options available to it. As part
of McFarland Dewey's compensation in respect of such services, Penwest has
agreed to pay McFarland Dewey $300,000 upon the closing of this offering.
71
<PAGE> 73
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Edmund O. Belsheim, Jr., its general counsel. Certain
legal matters in connection with this offering will be passed upon for the
Company by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by Testa,
Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements and related schedule of the Company at September
30, 1997, and for the nine-month period ended September 30, 1997 as well as at
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
72
<PAGE> 74
PENWEST PHARMACEUTICALS CO.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP........................................................... F-2
Financial Statements
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Operations............................................... F-4
Consolidated Statements of Shareholder's Equity (Deficit)........................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Penwest Pharmaceuticals Co.
We have audited the accompanying consolidated balance sheets of Penwest
Pharmaceuticals Co., (formerly known as Edward Mendell Co., Inc.), as of
September 30, 1997 and December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholder's equity (deficit) and cash flows for the
nine-month period ended September 30, 1997, and each of the three years in the
period ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Penwest
Pharmaceuticals Co. at September 30, 1997 and December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for the nine-month
period ended September 30, 1997, and each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Stamford, Connecticut
October 11, 1997
F-2
<PAGE> 76
PENWEST PHARMACEUTICALS CO.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
-------------------- 30,
1995 1996 1997
------- -------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 290 $ 695 $ 1,088
Trade accounts receivable, net of allowance for doubtful
accounts of $200, $237 and $237...................... 5,157 4,680 4,813
Inventories............................................. 4,337 7,555 7,661
Prepaid expenses and other current assets............... 295 72 204
------- -------- --------
Total current assets............................... 10,079 13,002 13,766
Fixed assets, net......................................... 20,203 20,336 21,575
Other assets.............................................. 1,389 1,745 2,039
------- -------- --------
Total assets....................................... $31,671 $ 35,083 $ 37,380
======= ======== ========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses................... $ 3,455 $ 3,810 $ 3,865
Taxes payable........................................... 374 454 283
Payable to Penford...................................... 25,711 32,100 37,503
------- -------- --------
Total current liabilities.......................... 29,540 36,364 41,651
Deferred taxes............................................ 2,525 3,071 3,470
Other long-term liabilities............................... 83 60 337
------- -------- --------
Total liabilities.................................. 32,148 39,495 45,458
Shareholder's deficit
Common stock, par value $.001, authorized 39,000,000
shares, issued and outstanding 14,538,282 shares
(Note 13)............................................ 15 15 15
Additional paid in capital.............................. 8,075 8,075 8,075
Accumulated deficit..................................... (8,469) (12,333) (15,508)
Cumulative translation adjustment....................... (98) (169) (660)
------- -------- --------
Total shareholder's deficit........................ (477) (4,412) (8,078)
------- -------- --------
Total liabilities and shareholder's deficit........ $31,671 $ 35,083 $ 37,380
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 77
PENWEST PHARMACEUTICALS CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1997
------- ------- ------- 1996 -------
-------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Product sales.......................... $23,146 $24,989 $25,007 $19,108 $19,876
Royalties and licensing fees........... 100 1,082 850 911
------- ------- ------- ------- -------
Total revenues...................... 23,146 25,089 26,089 19,958 20,787
Cost of product sales.................... 15,910 17,267 18,690 14,033 14,660
------- ------- ------- ------- -------
Gross profit........................ 7,236 7,822 7,399 5,925 6,127
Operating expenses
Selling, general and administrative.... 7,021 7,676 6,776 5,264 5,747
Research and product development....... 2,322 2,719 3,723 2,636 2,994
------- ------- ------- ------- -------
Total operating expenses............ 9,343 10,395 10,499 7,900 8,741
------- ------- ------- ------- -------
Loss before income taxes................. (2,107) (2,573) (3,100) (1,975) (2,614)
Income tax expense (Note 8).............. 522 679 764 486 561
------- ------- ------- ------- -------
Net loss................................. $(2,629) $(3,252) $(3,864) $(2,461) $(3,175)
======= ======= ======= ======= =======
Net loss per share....................... $ (0.18) $ (0.22) $ (0.27) $ (0.17) $ (0.22)
======= ======= ======= ======= =======
Weighted average shares of common stock
outstanding............................ 14,538 14,538 14,538 14,538 14,538
</TABLE>
See accompanying notes.
F-4
<PAGE> 78
PENWEST PHARMACEUTICALS CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
---------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
------ ------ ------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 before stock
split.................................... 5 $ 5 $ 8,085 $ (2,588) $ (491) $ 5,011
Stock split (Note 13)...................... 14,533 10 (10)
------ --- ------ -------- ----- -------
Balances, January 1, 1994 after stock
split.................................... 14,538 15 8,075 (2,588) (491) 5,011
Net loss................................... (2,629) (2,629)
Translation adjustment..................... 259 259
------ --- ------ -------- ----- -------
Balances, December 31, 1994................ 14,538 15 8,075 (5,217) (232) 2,641
Net loss................................... (3,252) (3,252)
Translation adjustment..................... 134 134
------ --- ------ -------- ----- -------
Balances, December 31, 1995................ 14,538 15 8,075 (8,469) (98) (477)
Net loss................................... (3,864) (3,864)
Translation adjustment..................... (71) (71)
------ --- ------ -------- ----- -------
Balances, December 31, 1996................ 14,538 15 8,075 (12,333) (169) (4,412)
Net loss................................... (3,175) (3,175)
Translation adjustment..................... (491) (491)
------ --- ------ -------- ----- -------
Balances, September 30, 1997............... 14,538 $ 15 $ 8,075 $ (15,508) $ (660) $(8,078)
====== === ====== ======== ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 79
PENWEST PHARMACEUTICALS CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ---------------------
1994 1995 1996 1996 1997
------- ------------ ------- ----------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash used in operating activities:
Net loss............................... $(2,629) $ (3,252) $(3,864) $(2,461) $(3,175)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation......................... 1,408 1,724 2,190 1,601 1,713
Amortization......................... 337 282 207 156 115
Deferred income taxes................ 470 455 546 341 428
Changes in operating assets:
Accounts receivables................. (236) (1,647) 470 518 (22)
Inventories.......................... (622) (1,079) (3,218) (3,212) (105)
Prepaid expenses and other current
assets............................ (58) (123) 193 152 (295)
Accounts payable and accrued
expenses.......................... 383 519 464 248 19
------- ------- ------- ------- -------
Net cash used in operating
activities........................... (947) (3,121) (3,012) (2,657) (1,322)
Net cash (used in) provided by
investing activities:
Acquisitions of fixed assets, net.... (1,926) (3,990) (2,322) (1,857) (2,953)
Other................................ 68 (87) (657) (605) (625)
------- ------- ------- ------- -------
Net cash used in investing
activities........................... (1,858) (4,077) (2,979) (2,462) (3,578)
Cash provided by financing activities:
Increase in payable to Penford....... 3,073 6,787 6,390 5,562 5,403
Effect of exchange rate changes on
cash................................. 53 33 6 (4) (110)
------- ------- ------- ------- -------
Net increase (decrease) in cash and
cash equivalents..................... 321 (378) 405 439 393
Cash and cash equivalents at beginning
of year.............................. 347 668 290 290 695
------- ------- ------- ------- -------
Cash and cash equivalents at end of
year................................. $ 668 $ 290 $ 695 $ 729 $ 1,088
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 80
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information for the nine-month period ended September 30, 1996 is unaudited
1. BUSINESS
Penwest Pharmaceuticals Co. and subsidiaries ("Penwest" or the "Company"),
formerly known as Edward Mendell Co., Inc. is a wholly-owned subsidiary of
Penford Corporation ("Penford"). The Company is engaged in the research,
development, and commercialization of novel drug delivery products and
technologies. The Company has developed TIMERx proprietary controlled release
drug delivery technology. The Company also manufactures and distributes
pharmaceutical excipients, the inactive ingredients in tablets and capsules. The
Company has manufacturing facilities in Iowa and Finland and has customers
primarily throughout North America and Europe.
The Company is subject to the risks and uncertainties associated with an
early-stage drug delivery company. These risks and uncertainties include, but
are not limited to, a history of net losses, technological changes, dependence
on collaborators and key personnel, no assurance of regulatory approval,
compliance with government regulations, patent infringement litigation and
competition from current and potential competitors, some with greater resources
than the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Penwest and its wholly owned subsidiaries. Material intercompany balances and
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. In addition, the consolidated financial statements include various
costs allocated by Penford (see Notes 6 and 9). Although management believes the
amounts allocated are reasonable and approximate the cost of obtaining the
service from an unrelated third party, the actual costs could differ.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents.
Credit Risk and Fair Value of Financial Instruments
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company's excipient revenues and its
royalties and licensing fees are derived from major pharmaceutical companies
that have significant cash resources. The Company maintains an allowance for
doubtful accounts which management believes is sufficient to cover potential
credit losses.
The carrying value of financial instruments, which includes cash,
receivables, and payables, approximates market value.
F-7
<PAGE> 81
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
Fixed Assets
Property and equipment are recorded at cost and depreciated by the
straight-line method over their estimated useful lives. Estimated useful lives
by class of assets are as follows:
<TABLE>
<S> <C>
Buildings...................................... 20-25 years
Machinery and equipment........................ 10-12 years
Office furniture and equipment................. 5-10 years
</TABLE>
Property and equipment of the Company are reviewed for impairment whenever
events or circumstances indicate that the asset's undiscounted expected cash
flows are not sufficient to recover its carrying amount. The Company measures an
impairment loss by comparing the fair value of the asset to its carrying amount.
Fair value of an asset is calculated as the present value of expected future
cash flows.
Foreign Currencies
Monetary assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at year-end exchange rates and revenue and expenses
are translated at average exchange rates. For each of the foreign operations,
the functional currency is the local currency. Translation adjustments are
disclosed and accumulated in a separate component of consolidated shareholder's
deficit. Realized gains and losses from foreign currency transactions are
reflected in the consolidated statement of operations. The change in the
cumulative translation adjustment from December 31, 1995 to September 30, 1996
was $21,000.
Income Taxes
The Company's results of operations are included in the tax returns of
Penford. Deferred income tax expense and related income tax assets and
liabilities are reflected as if the Company were an independent entity, in
accordance with FAS 109. The Company is not compensated for tax losses that are
utilized by Penford.
Revenue Recognition
Royalties and licensing fees include royalty revenues and milestone fees
related to licensing agreements for TIMERx with various collaborators. To date
there have been no royalties recognized as there are no products currently
commercialized using the TIMERx technology. Milestone payments are derived from
reaching development milestones with collaborators and are recognized as
achieved in accordance with the contract terms. These milestones payments are
not subject to forfeiture.
Product sales revenues are recognized when goods are shipped.
Advertising Costs
Advertising costs are accounted for as expenses in the period in which they
are incurred.
Research and Development
Research and development expenses consist of costs related to products
being developed internally as well as costs related to products subject to
licensing agreements. Research and development costs are charged to expense as
incurred.
F-8
<PAGE> 82
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
Per Share Data
Earnings per common share are computed based on the weighted average number
of common shares and dilutive common stock equivalents outstanding during the
period after giving effect to the October 8, 1997 2,907.66-for-1 stock split
(see Note 13).
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share."
The statement is effective for fiscal years ending after December 15, 1997,
including interim periods, and requires public companies to present basic
earnings per share and, if applicable, diluted earnings per share. The Company
will adopt Statement No. 128 in 1997. The statement will not impact the
Company's earnings per share as disclosed.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed. The
Company adopted Statement 121 in the first quarter of 1996 with no impact on
financial position or results of operations.
Interim Consolidated Financial Statements
The unaudited interim consolidated statements of operations and cash flows
for the nine month period ended September 30, 1996 have been prepared on the
same basis as the annual audited consolidated financial statements included
herein. In the opinion of management, such interim financial statements include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the results for such periods.
The operating results for the nine month period ended September 30, 1997
are not necessarily indicative of the operating results to be expected for the
full year ending December 31, 1997 or for any future period.
3. INVENTORIES
Inventories, which consist of raw materials, pharmaceutical excipients
manufactured by the Company, pharmaceutical excipients held for distribution,
and manufactured bulk TIMERx, are stated at the lower of cost (first-in,
first-out) or market. Cost includes material, labor and manufacturing overhead
costs.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(in thousands)
<S> <C> <C> <C>
Raw materials............................... $1,150 $1,745 $ 1,561
Finished products........................... 3,187 5,810 6,100
------- ------- -------
Total inventories...................... $4,337 $7,555 $ 7,661
======= ======= =======
</TABLE>
Included in inventories are approximately $1,220,000, $1,742,000 and
$2,671,000 of TIMERx raw materials and bulk TIMERx as of December 31, 1995 and
1996 and September 30, 1997, respectively.
F-9
<PAGE> 83
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
The ability to continue to sell TIMERx related inventory is dependent, in part,
upon the commercialization of products by third parties utilizing bulk TIMERx.
Although third parties have products in various stages of development, none of
these products have been commercialized and the period required to achieve
commercialization is uncertain if achieved at all. The manufactured bulk TIMERx
does not have a predetermined shelf life.
The Company has relied on a large third-party pharmaceutical company for
the manufacture of its TIMERx products. There are a limited number of third
party manufacturers capable of producing the Company's TIMERx products.
The Company's TIMERx drug delivery system is a hydrophilic matrix
consisting primarily of two natural polysaccharides, xanthan and locust bean
gums, in the presence of dextrose. The Company purchases these gums from a sole
source supplier. Most of the Company's excipients are manufactured from wood
pulp, which the Company also purchases from a sole source supplier. Although the
Company has qualified alternate suppliers with respect to these materials, there
can be no assurance that interruptions in supplies will not occur in the future
or that the Company will not have to obtain substitute suppliers. Any of these
events could have a material adverse effect on the Company's ability to
manufacture bulk TIMERx for delivery to its collaborators or manufacture its
excipients, which could have a material adverse effect on the Company's results
of operations, cash flows and financial position.
4. FIXED ASSETS
Fixed assets, at cost, summarized by major categories, consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(in thousands)
<S> <C> <C> <C>
Buildings and equipment................... $24,682 $26,513 $27,718
Land...................................... 675 696 696
Construction in progress.................. 873 1,160 2,597
------- ------- -------
26,230 28,369 31,011
Less: accumulated depreciation............ 6,027 8,033 9,436
------- ------- -------
$20,203 $20,336 $21,575
======= ======= =======
</TABLE>
5. OTHER ASSETS
Other assets, net of accumulated amortization, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(in thousands)
<S> <C> <C> <C>
Patents, net of accumulated amortization of
$96, $162 and $225........................ $1,030 $1,443 $ 1,780
Goodwill, net of accumulated amortization of
$181, $238 and $281....................... 359 302 259
------ ------ ------
$1,389 $1,745 $ 2,039
====== ====== ======
</TABLE>
Goodwill is being amortized over ten years and was recorded upon the
acquisition of the Company by Penford. Amortization expense approximated $57,000
for each of the years ended
F-10
<PAGE> 84
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
December 31, 1994, 1995 and 1996, and $43,000 for each of the nine month periods
ended September 30, 1996 and 1997.
Patents include costs to secure patents and trademarks on technology
developed by the Company. Patents are amortized over their useful lives of 17 to
20 years. Amortization expense of $20,000, $48,000 and $66,000 was recorded in
the years ended December 31, 1994, 1995 and 1996, respectively, and $49,000 and
$63,000 for the nine month periods ended September 30, 1996 and 1997,
respectively.
Recorded intangibles are evaluated for potential impairment whenever events
or circumstances indicate that the undiscounted cash flows are not sufficient to
recover their carrying amounts. An impairment loss is recorded to the extent the
assets carrying value is in excess of related discounted cash flows.
6. PAYABLE TO PENFORD
The Payable to Penford was generated primarily from the initial acquisition
of the Company, the addition of a microcrystalline cellulose plant and the
funding of operations. The Payable to Penford is a non-interest-bearing
obligation. Penford has indicated that it intends to continue to provide
advances until the offering is completed (see Note 13). The Company also
participates in pension and other employee benefit plans sponsored by Penford
and purchases inventory from a wholly-owned subsidiary of Penford. The inventory
purchases amounted to approximately $771,000, $609,000, and $634,000 for the
years ended December 31, 1994, 1995 and 1996, respectively and $462,000 and
$311,000 for the nine month periods ended September 30, 1996 and 1997,
respectively. The Company believes the terms of its employee benefit and
inventory purchase transactions approximate those that would be reached with a
third party in an arms length transaction.
Penford allocates executive office salaries, bonuses and legal fees to the
Company in the form of a management fee. The costs making up the management fee
are allocated to the Company based upon its pro-rata portion of Penford's
consolidated revenue. The Company believes the management fee approximates the
actual costs of services provided. Included in selling, general and
administrative expenses is a management fee of $438,000, $404,000 and $391,000
for the years ended December 31, 1994, 1995 and 1996, respectively and $295,000
and $433,000 for the nine month periods ended September 30, 1996 and 1997,
respectively.
7. COMMITMENTS
Leases
The Company's manufacturing facility in Finland is leased under a two-year
operating lease with annual rental expense of $188,000 and renewal options.
Rental expense under this operating lease, including additional charges
determined on a month-to-month basis for equipment and warehouse usage, was
$186,000, $210,000 and $216,000 for the years ended December 31, 1994, 1995, and
1996, respectively and $162,000, and $162,000 for the nine month periods ended
September 30, 1996 and 1997.
F-11
<PAGE> 85
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
8. INCOME TAXES
The provision for federal, state and foreign income taxes consists of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------- --------------------
1994 1995 1996 1996 1997
---- ---- ---- ----------- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Deferred....................................... $364 $386 $423 $ 266 $338
Foreign:
Current........................................ 51 223 217 144 132
State:
Current........................................ 1 1 1 1 1
Deferred....................................... 106 69 123 75 90
--- --- --- --- ---
$522 $679 $764 $ 486 $561
=== === === === ===
</TABLE>
The reconciliation between the statutory tax rate and those reflected in
the Company's income tax provision is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Statutory tax rate........................................ (34)% (34)% (34)% (34)%
Tax benefit utilized by Penford........................... 55 56 55 53
Foreign taxes............................................. -- 1 2 --
State taxes, net of federal benefit....................... 3 2 2 2
Other..................................................... 1 1 -- 1
--- --- --- ---
25% 26% 25% 22%
=== === === ===
</TABLE>
The provision for income takes for the nine month period ended September
30, 1996 is based on the effective rate for the year ended December 31, 1996.
The components of deferred federal and state income tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Receivable allowance................................ $ (95) $ (107) $ (92)
Inventory reserves.................................. (74) (115) (126)
----- ----- -----
(169) (222) (218)
Accelerated depreciation and amortization........... 2,694 3,293 3,688
----- ----- -----
Deferred tax liability.............................. $2,525 $3,071 $ 3,470
===== ===== =====
</TABLE>
The Company has made payments for foreign income taxes of approximately
$51,000, $223,000 and $217,000 for the years ended December 31, 1994, 1995 and
1996, respectively, and $144,000 and $132,000 for the nine month periods ended
September 30, 1996 and 1997, respectively.
The Company is included in the consolidated federal and state tax returns
of Penford. In accordance with the Company's tax sharing agreement, the Company
is not compensated for tax losses that are utilized by Penford and the provision
is calculated on a separate return basis. In addition, Penford is liable for any
federal, state or foreign tax adjustments assessed against the Company for
periods through the date of the distribution.
F-12
<PAGE> 86
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
The Company's policy is to permanently reinvest foreign earnings.
Accumulated foreign earnings, for which no deferred taxes have been provided,
amounted to $1,499,000, $1,793,000 and $2,088,000 as of December 31, 1995 and
1996 and September 30, 1997, respectively. If such earnings were to be
repatriated, the income tax effect would not be significant.
Included in the loss before income taxes is foreign income of $125,000,
$606,000 and $801,000 for the years ended December 31, 1994, 1995 and 1996,
respectively, and $387,000 for the nine-month period ended September 30, 1997.
9. PENSION AND OTHER EMPLOYEE BENEFITS
Pension Plan
Penwest participates in a noncontributory defined benefit pension plan that
covers substantially all employees. The plan is sponsored by its Parent and
costs are allocated based upon actual costs incurred for the Company's
employees.
Benefits for employees are primarily related to years of credited service
and final average five-year earnings. Employees generally become eligible to
participate in the plans after attaining age 21 and benefits become vested after
five years of credited service.
Pension expense of $70,000, $73,000 and $74,000 was recorded for the years
ended December 31, 1994, 1995 and 1996, respectively. Pension expense of $55,000
and $43,000 was recorded for the nine month periods ended September 30, 1996 and
1997, respectively.
Savings and Stock Ownership Plan
The Company's employees participate in Penford's Savings and Stock
Ownership Plan and costs are charged to the Company based upon actual costs
incurred for the Company's employees. Seventy-five percent (75%) of employee's
contributions are matched up to 6% of the employee's pay, in the form of Penford
common stock. The Company's expense under the plan was $89,000, $110,000 and
$147,000 for 1994, 1995, and 1996, respectively and $112,000 and $118,000 for
the nine month periods ended September 30, 1996 and 1997, respectively.
The Plan also includes an annual profit-sharing component that is awarded
by Penford's Board of Directors based on achievement of predetermined corporate
goals. This feature of the plan is available to all employees who meet the
eligibility requirements of the plan. The profit sharing expense related to the
Company's employees was $37,000, $80,000 and $38,000 for 1994, 1995 and 1996,
respectively, and $28,000 and $44,000 for the nine month periods ended September
30, 1996 and 1997, respectively.
Supplemental Executive Retirement Plan
Penford sponsors a Supplemental Executive Retirement Plan (SERP), a
nonqualified plan, which covers certain key employees including certain
employees of Penwest. For 1994, 1995, and 1996, the net expense for the SERP
incurred by Penwest was $9,000, $32,000 and $35,000, respectively, and $30,000
and $15,000 for the nine month periods ended September 30, 1996 and 1997,
respectively. The allocated costs represent the costs attributable to the
Company's employees.
Health Care and Life Insurance Benefits
The Company offers health care and life insurance benefits to most active
employees. Costs incurred to provide these benefits are charged to expense when
incurred. Health care and life
F-13
<PAGE> 87
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
insurance expense was $262,000, $244,000 and $212,000 in 1994, 1995, and 1996,
respectively, and $133,000 and $229,000 for the nine month periods ended
September 30, 1996 and 1997, respectively.
10. LICENSING AGREEMENTS
The Company has entered into collaborative arrangements with five
pharmaceutical companies to facilitate and expedite the commercialization of its
TIMERx drug delivery technology.
In August 1994, August 1995 and March 1996, the Company entered into
product development and supply agreements with Mylan Pharmaceuticals, Inc.
("Mylan") with respect to the development of generic versions of Procardia XL
(nifedipine), Adalat CC (nifedipine) and Glucotrol XL (glipizide), based on the
Company's TIMERx technologies (the "Mylan Products"). Under these product
development and supply agreements, the Company is responsible for the
formulation, manufacture and supply of TIMERx material for use in the Mylan
Products, and Mylan is responsible for conducting all bioequivalence studies,
preparing all regulatory applications and submissions and manufacturing and
marketing the Mylan Products in the United States, Canada and Mexico. The
Company has received non-refundable milestone payments under each of the product
development and supply agreements and is entitled to additional milestone
payments under such agreements upon the continued development of the Mylan
Products. The Company is also entitled to royalties on the sale of each Mylan
Product, which royalties will be reduced with respect to such Mylan Product if
there are on the market and available for retail sale any other generic
controlled release formulations of the drug of which such Mylan Product is a
generic controlled release formulation. In addition, Mylan has agreed that
during the term of the product development and supply agreements it will
purchase formulated TIMERx material for use in the Mylan Products exclusively
from the Company at specified prices.
Penwest and Mylan also entered into a sales and distribution agreement in
January 1997 (the "Mylan Distribution Agreement") with respect to Nifedipine XL
pursuant to which Mylan agreed to manufacture and supply Nifedipine XL to
Penwest for distribution by Penwest and one or more distributors (as to which
the Company and Mylan must mutually agree) in certain specified European and
Latin American countries. Under this agreement, the Company has agreed to
purchase Nifedipine XL exclusively from Mylan at specified prices or to pay
Mylan 50% of any royalties received by the Company from its distributors if
Mylan licenses its manufacturing technology to the Company for use by the
Company's distributors instead of manufacturing the product for distribution.
Under this agreement, Mylan is entitled to 50% of any royalties or milestone
payments received by the Company under the Company's product development and
supply agreement with Sanofi described below.
In May 1996 and August 1996, the Company entered into product development
and supply agreements with Kremers Urban Development Company ("Kremers") with
respect to the development of generic versions of Cardizem CD (diltiazem) and
Covera HS (verapamil hydrochloride), respectively (the "Kremers Products"),
based on the Company's TIMERx technology. Under these product development and
supply agreements, the Company is responsible for formulating the Kremers
Products and for manufacturing and supplying TIMERx material to Kremers for use
in the Kremers Products, and Kremers is responsible for conducting
bioequivalence studies, preparing all regulatory applications and submissions
and manufacturing and marketing the Kremers Products in the United States,
Canada and Mexico. The Company has received non-refundable milestone payments
under the product development and supply agreements and is entitled to
additional milestone payments upon the continued development of the Kremers
Products. The Company also is entitled to royalties on the sale of the Kremers
Products. However, both milestone payments and the royalties otherwise due under
the product development and supply agreements may be reduced in the event that
there are competing generic controlled release formulations of Covera HS or
Cardizem CD, as may be
F-14
<PAGE> 88
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
applicable, on the market and available for retail sale. In addition, Kremers
has agreed that, during the term of the product development and supply
agreements, it will purchase formulated TIMERx material for use in the Kremers
Products exclusively from the Company at specified prices. These prices will be
reduced in the event that there are competing generic versions of Covera HS
and/or Cardizem CD, as may be applicable, on the market and available for retail
sale.
In February 1997, the Company entered into a product development and supply
agreement with Sanofi Winthrop International S.A. ("Sanofi") with respect to the
development of a generic version of Adalat LA based on the Company's TIMERx
technology (the "Sanofi Product"), a drug that is identical to Procardia XL.
Under the product development and supply agreement, the Company is responsible
for conducting pilot bioequivalence studies of the Sanofi Product and for
manufacturing and supplying TIMERx material to Sanofi, and Sanofi is responsible
for conducting all full scale bioequivalence studies, preparing all regulatory
applications and submissions and manufacturing and marketing the Sanofi Product
in specified countries in Europe and in South Korea. The Company is entitled to
non-refundable milestone payments under the product development and supply
agreement upon the continued development of the Sanofi Product. The Company is
also entitled to royalties upon the sale of the Sanofi Product. One half of such
payments will be paid to Mylan in accordance with the Mylan Distribution
Agreement. In addition, Sanofi has agreed that, during the term of the product
development and supply agreement, it will purchase formulated TIMERx material
for use in the Sanofi Product exclusively from the Company at specified prices.
In July 1992, the Company entered into an agreement with Leiras or
("Leiras") with respect to the development and commercialization of Cystrin CR,
a controlled release formulation of Cystrin based on the Company's TIMERx
technology. In May 1995, the Company entered into a second agreement with Leiras
clarifying certain matters with respect to the collaboration. Leiras is a
Finnish subsidiary of Schering AG. Leiras is developing products focused in the
areas of reproductive health care, urology, oncology and inhalation technology.
Under the agreements, the Company is responsible for the development and
formulation of Cystrin CR and for manufacturing and supplying TIMERx material to
Leiras for use in the manufacture of Cystrin CR, and Leiras is responsible for
preparing all regulatory applications and submissions and manufacturing and
marketing Cystrin CR on a worldwide basis. Leiras has the right to appoint
distributors for marketing and distribution in specified territories, subject in
certain circumstances to the approval of the Company. Leiras has also agreed to
pay the Company royalties on the sale of Cystrin CR and to purchase formulated
TIMERx material exclusively from the Company at specified prices.
In September 1997, the Company entered into a strategic alliance agreement
with Endo Pharmaceuticals, Inc. ("Endo") with respect to the development of
controlled release formulations of oxymorphone based on the Company's TIMERx
technology (the "Endo Products"). Under the agreement, the Company has agreed to
manufacture and supply TIMERx material to Endo, and Endo has agreed to
manufacture and market the Endo Products in the United States. The manufacture
and marketing of Endo Products outside of the United States may be conducted by
the Company, Endo or a third party, as determined by a committee comprised of an
equal number of members from each of the Company and Endo. The Company and Endo
have agreed to share the costs involved in the development and commercialization
of the Endo Products and that the party marketing the Endo Products (which the
Company expects will be Endo) will pay the other party royalties equal to 50% of
their respective net marketing revenues after fully-burdened costs (although
this percentage will decrease as the total U.S. marketing revenues from an Endo
Product increase), subject to each party's right to terminate its participation
with respect to any Endo Product described above. Endo will purchase formulated
TIMERx material for use in the Endo Products exclusively from the Company at
specified prices. Such prices will be reflected in the determination of
fully-burdened costs.
F-15
<PAGE> 89
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
11. CONTINGENCIES
In May 1997, one of the Company's collaborators, Mylan, filed an
Abbreviated New Drug Application ("ANDA") with the U.S. Food and Drug
Administration ("FDA") for the 30 mg dosage strength of Nifedipine XL, a generic
version of Procardia XL, a controlled release formulation of nifedipine. See
Note 10 for a description of the Company's collaborative agreements with Mylan.
Bayer AG ("Bayer") and ALZA Corporation ("ALZA") hold patents relating to
Procardia XL, and Pfizer Inc. ("Pfizer") holds the New Drug Application ("NDA")
and markets the product. In connection with the ANDA filing, Mylan certified in
May 1997 to the FDA that Nifedipine XL does not infringe the Bayer or ALZA
patents and notified Bayer, ALZA and Pfizer of such certification. Bayer and
Pfizer sued Mylan in the United States District Court for the Western District
of Pennsylvania, alleging that Nifedipine XL infringes Bayer's patent. ALZA has
informed Mylan that ALZA does not believe that the notice given to it complied
with the requirements of the Waxman-Hatch Act, and there can be no assurance
that ALZA will not sue Mylan for patent infringement or take any other actions
with respect to such notice. Mylan has advised the Company that it intends to
contest vigorously the allegations made in the lawsuit. However, there can be no
assurance that Mylan will prevail in this litigation or that it will continue to
contest the lawsuit. An unfavorable outcome or protracted litigation for Mylan
would materially adversely affect the Company's business, financial condition,
cash flows and results of operations. Delays in the commercialization of
Nifedipine XL could also occur because the FDA will not grant final marketing
approval of Nifedipine XL until a final judgment on the patent suit is rendered
in favor of Mylan by the district court, or in the event of an appeal, by the
court of appeals, or until 30 months (or such longer or shorter period as the
court may determine) have elapsed from the date of Mylan's certification,
whichever is sooner.
In 1993, Pfizer filed a "citizen's petition" with the FDA, claiming that
its Procardia XL formulation constituted a unique delivery system and that a
drug with a different release mechanism such as the TIMERx controlled release
system cannot be considered the same dosage form and approved in an ANDA as
bioequivalent to Procardia XL. In August 1997, the FDA rejected Pfizer's
citizen's petition. In July 1997, Pfizer also sued the FDA in the District Court
of the District of Columbia, claiming that the FDA's acceptance of Mylan's ANDA
filing for Nifedipine XL was contrary to law, based primarily on the arguments
stated in its citizen's petition. Mylan and the Company have intervened as
defendants in this suit. There can be no assurance that the FDA, Mylan and the
Company will prevail in this litigation. An outcome adverse to Mylan and the
Company would result in Mylan being required to file a suitability petition in
order to continue the ANDA or to file an NDA with respect to Nifedipine XL, each
of which would be expensive and time consuming. An adverse outcome would also
result in Nifedipine XL becoming ineligible for an "AB" rating from the FDA.
Failure to obtain an AB rating from the FDA would indicate that for certain
purposes Nifedipine XL would not be deemed to be therapeutically equivalent to
the referenced branded drugs would not be fully substitutable for the referenced
branded drug and would not be relied upon by Medicaid and Medicare formularies
for reimbursement. Any such failure would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.
If any of such events occur, Mylan may terminate its efforts with respect to
Nifedipine XL, which would have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations.
The FDA is reviewing an inactive ingredient contained in the TIMERx
delivery system in order to determine the allowable amount for inclusion in the
FDA's Inactive Ingredients Guide. In connection with this review, the FDA has
requested that Mylan provide data from published literature regarding the
toxicity of such ingredient. If such data are not acceptable to the FDA, it
could require that additional data, including animal toxicity or other data, be
developed and submitted to determine the highest allowable amount. If the amount
of such ingredient, or any other ingredient, in a specified
F-16
<PAGE> 90
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
product exceeds the highest amount approved in the Inactive Ingredients Guide,
the Company would likely be required to reformulate such product in order to be
able to seek approval through the ANDA process. Reformulation of a product would
likely require new bioequivalence studies. If reformulation were not possible,
then new clinical studies and an NDA filing for such product would likely be
required for FDA approval of such product. Any of such events could materially
adversely affect the Company's collaborative arrangements where ANDA filings had
been made or were contemplated, which would have a material adverse effect on
the Company's business, financial condition and results of operations.
In 1994, the Boots Company PLC ("Boots") filed in the European Patent
Office (the "EPO") an opposition to a patent granted by the EPO to the Company
relating to its TIMERx technology. In June 1996, the EPO dismissed Boots'
opposition, leaving intact all claims included in the patent. Boots has appealed
this decision to the EPO Board of Appeals. There can be no assurance that the
Company will prevail in this matter. An unfavorable outcome could materially
adversely affect the Company's business, financial condition, cash flows and
results of operations.
There exists substantial patent litigation in the pharmaceutical,
biomedical and biotechnology industries. Patent litigation generally involves
complex legal and factual questions, and the outcome frequently is difficult to
predict. An unfavorable outcome in any patent litigation affecting the Company
could cause the Company to pay substantial damages, alter its products or
processes, obtain licenses and/or cease certain activities. Even if the outcome
is favorable to the Company, the Company could incur substantial litigation
costs. Although the legal costs of defending litigation relating to a patent
infringement claim (unless such claim relates to TIMERx) are generally the
contractual responsibility of the Company's collaborators, the Company could
nonetheless incur significant unreimbursed costs in participating and assisting
in the litigation.
Testing, manufacturing, marketing and selling pharmaceutical products
entail a risk of product liability. The Company faces the risk of product
liability claims in the event that the use of its products is alleged to have
resulted in harm to a patient or subject. Such risks exist even with respect to
those products that are manufactured in licensed and regulated facilities or
that otherwise possess regulatory approval for commercial sale. Product
liability insurance coverage is expensive, difficult to obtain and may not be
available in the future on acceptable terms, if at all. Until the Spin-off, the
Company will be covered by primary product liability insurance maintained by
Penford in the amount of $1.0 million per occurrence and $2.0 million annually
in the aggregate on a claims-made basis and by umbrella liability insurance in
excess of $5.0 million which can also be used for product liability insurance.
There can be no assurance that this coverage is adequate to cover potential
liability claims or that Penwest will be able to obtain comparable coverage
following the Spin-off. Furthermore, this coverage may not be adequate as the
Company develops additional products. As the Company receives regulatory
approvals for products under development, there can be no assurance that
additional liability insurance coverage for any such products will be available
in the future on acceptable terms, if at all. The Company's business, financial
condition, cash flows and results of operations could be materially adversely
affected by the assertion of a product liability claim.
12. GEOGRAPHIC INFORMATION
The Company, which operates in one business segment as a drug delivery
company, conducts its business primarily in North America and Europe. The
European operations consist of a manufacturing facility in Nastola, Finland and
sales offices in Reigate, England and Uetersen, Germany. None of the European
locations, other than Finland, is individually significant. Intercompany sales
include a profit component for the selling company. Intercompany sales and
profits are eliminated in consolidation.
F-17
<PAGE> 91
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
Corporate operating expenses are not allocated to the European operations.
Operating profit represents gross profit less selling, general and
administrative expenses and, for North America, research and development
expense.
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ELIMINATIONS TOTAL
-------- ------- ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1997
Total Revenues..................................... $ 19,718 $ 4,525 $ (3,456) $20,787
Operating Profit (Loss)............................ (2,652) 38 -- (2,614)
Identifiable Assets................................ 32,359 6,336 (1,315) 37,380
Export Sales....................................... 1,212
DECEMBER 31, 1996
Total Revenues..................................... 25,400 6,917 (6,228) 26,089
Operating Profit (Loss)............................ (2,985) 488 (603) (3,100)
Identifiable Assets................................ 30,014 6,611 (1,542) 35,083
Export Sales....................................... 1,756
DECEMBER 31, 1995
Total Revenues..................................... 22,253 7,509 (4,673) 25,089
Operating Profit (Loss)............................ (2,695) 180 (58) (2,573)
Identifiable Assets................................ 29,420 4,108 (1,857) 31,671
Export Sales....................................... 1,865
DECEMBER 31, 1994
Total Revenues..................................... 21,813 5,897 (4,564) 23,146
Operating Profit (Loss)............................ (1,746) (361) -- (2,107)
Identifiable Assets................................ 24,514 2,865 (1,949) 25,430
Export Sales....................................... 1,947
</TABLE>
13. SUBSEQUENT EVENTS
Registration Statement
On October 8, 1997, the Board of Directors of Penford authorized the sale
of up to 20% of Penwest, through an initial public offering of Penwest's stock.
In contemplation of the Company's initial public offering, a 2907.66-for-1
stock split occurred on October 8, 1997, transforming the Company's capital
structure from 50,000 shares, $1.00 par value per share, of common stock
authorized and 5,000 shares of common stock outstanding to 39,000,000 shares,
$.001 par value per share, of common stock authorized and 14,538,282 shares of
common stock outstanding and 1,000,000 shares of preferred stock, $.001 par
value per share, authorized, that may be issued by the Board in one or more
series. Accordingly, all share and per share data have been retroactively
adjusted to give effect to the stock split.
The Company expects to file a Registration Statement with the Securities
and Exchange Commission to permit the Company to sell shares of its common stock
to the public. In connection with the proposed public offering, the Board
authorized the issuance and sale by the Company of up to 2,500,000 shares of
common stock, plus up to an additional 375,000 shares to cover over-allotments.
F-18
<PAGE> 92
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
The Parent has announced its intent, subject to the satisfaction of certain
conditions, including receipt of a favorable tax ruling from the Internal
Revenue Service or a written opinion from Ernst & Young LLP, to divest its
ownership interest in the Company by means of a tax-free distribution to its
shareholders, which is anticipated to occur for the second quarter of 1998.
In anticipation of the offering and Penford's announced intention to divest
its ownership interest in the Company, the Company and Penford have entered into
a number of agreements which will become effective upon the closing of the
offering. Those agreements include: a service agreement under which Penford will
continue to provide on an interim basis, certain general corporate services
(including accounting, audit, treasury, financial and human resources, insurance
and tax) which will be charged to the Company on an actual or allocated basis
prior to the Spin-off and on an actual or allocated basis, plus specified
percentage negotiated by and mutually agreeable to Penford and Penwest; a tax
allocation agreement wherein for as long as the Company participates in the
consolidated tax returns, calculated on a separate return basis, of Penford, the
Company will be required to pay to or be entitled to receive from Penford its
allocable portion of consolidated federal or state income tax liability or
credits, other than credits related to net operating losses; an excipients
supply agreement under which Penford will manufacture and supply exclusively to
Penwest all of the Company's EMDEX and CANDEX requirements under pricing and
quantity terms that the Company believes approximate fair market value; and an
employee benefits agreement under which Penford will enable employees of the
Company to continue to be covered under Penford's long-term disability insurance
and group life insurance policies until Penford's divestiture of the Company's
stock and under Penford's Savings and Stock Ownership plan and medical, dental,
vision and flexible benefits plans until December 31, 1997, under all of which
the Company will be charged actual costs incurred by Penford for the Company's
employees. Subsequent to the closing of the Offering no terminating liabilities
will be incurred by Penwest related to employee benefits, including the Penford
defined benefit plan.
Stock Plans
In contemplation of the initial public offering of the Company's stock, the
Company adopted the 1997 Equity Incentive Plan (the "Plan") under which the
Board of Directors or its compensation committee is authorized to grant stock
options, stock appreciation rights, restricted stock, deferred stock,
performance units, or any combination thereof, to directors, employees,
directors, officers, consultants or advisors of the Company. There are 3,500,000
shares are available for grant under the terms of the Plan. These options are to
be granted at prices equal to the fair market value of common stock at the date
of grant and vest over a period not to exceed four years. Options granted under
the Plan must be exercised within ten years of grant, unless a shorter period is
designated at the time of grant. No options can be awarded under the Plan after
ten years. In connection with the offering, options to purchase 715,000 shares
of common stock at the initial public offering price were granted. In addition,
the Company adopted the 1997 Employee Stock Purchase Plan which will enable
employees of the Company to purchase stock at 85% of market value as defined in
the plan. There are 300,000 shares available under the Plan.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock
Based Compensation," which is effective for the Company's 1997 financial
statements. Statement No. 123 allows companies to either account for stock-based
compensation under the new provisions of Statement No. 123 or under the
provisions of APB No. 25, but requires pro forma disclosure in the footnotes to
the financial statements as if the measurement provisions of Statement No. 123
had been adopted. The Company intends to continue accounting for its stock-based
compensation in accordance with the
F-19
<PAGE> 93
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
provisions of APB No. 25. As such, the adoption of Statement No. 123 has not
impacted the results of operations of the Company.
F-20
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Registrant's expenses in connection with
the issuance and distribution of the securities being registered. Except for the
SEC Registration Fee, the NASD Filing Fee and the Nasdaq National Market Listing
Fee, the amounts listed below are estimates:
<TABLE>
<S> <C>
Registration fee......................................................... $ 10,455
NASD filing fee.......................................................... 3,950
Nasdaq National Market listing fee....................................... 50,000
Printing and engraving expenses.......................................... 105,000
Legal fees and expenses.................................................. 200,000
Accounting fees and expenses............................................. 300,000
Blue Sky fees and expenses (including legal fees)........................ 10,000
Transfer agent and registrar fees and expenses........................... 2,500
Financial adviser fee.................................................... 300,000
Miscellaneous............................................................ 18,095
-------
Total.......................................................... $1,000,000
=======
</TABLE>
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Washington Business Corporation Act and the Registrant's Amended and
Restated Bylaws provide for indemnification of the Registrant's directors and
officers for liabilities and expenses that they may incur in such capacities. In
general, directors and officers are indemnified with respect to actions taken in
good faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. Reference is made to the Registrant's Amended and Restated Bylaws
filed as Exhibits 3.2 hereto. The officers and directors of the Registrant are
currently covered under director and officer liability insurance maintained by
Penford Corporation, the parent of the Registrant. The Registrant expects to
obtain its own director and officer liability insurance prior to or effective on
the Spin-off.
In addition, the Underwriting Agreement, the form of which is filed as
Exhibit 1.1 hereto, contains provisions for indemnification by the Underwriters
of the Registrant and its officers, directors and controlling stockholders
against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Registrant have been issued during the three years
preceding the date of this Registration Statement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Articles of Incorporation.
3.2 -- Amended and Restated Bylaws of the Company.
4.1* -- Specimen certificate representing the Common Stock.
</TABLE>
II-1
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------------
<S> <C> <C>
5.1* -- Opinion of Edmund O. Belsheim, Jr.
+10.1 -- Product Development and Supply Agreement dated August 17, 1994 by and between
the Registrant and Mylan Pharmaceuticals Inc. ("Mylan").
+10.2 -- Product Development and Supply Agreement dated August 3, 1995 by and between the
Registrant and Mylan.
+10.3 -- Product Development and Supply Agreement dated March 22, 1996 by and between the
Registrant and Mylan.
+10.4 -- Sales and Distribution Agreement dated January 3, 1997 by and between the
Registrant and Mylan.
+10.5 -- Product Development and Supply Agreement dated May 31, 1996 by and between the
Registrant and Kremers Urban Development Company.
+10.6 -- Product Development and Supply Agreement dated August 30, 1996 by and between
the Registrant and Kremers Urban Development Company.
+10.7 -- Product Development, License and Supply Agreement dated February 28, 1997 by and
between the Registrant and Sanofi Winthrop International S.A., as amended.
+10.8 -- Agreement dated May 26, 1995 by and between the Registrant and Leiras OY.
+10.9 -- Agreement dated July 27, 1992 by and between the Registrant and Leiras OY.
+10.10 -- Strategic Alliance Agreement dated as of September 17, 1997 by and between the
Registrant and Endo Pharmaceuticals Inc.
10.11 -- 1997 Equity Incentive Plan.
10.12 -- 1997 Employee Stock Purchase Plan.
10.13* -- Separation Agreement dated October , 1997 by and between the Registrant and
Penford Corporation ("Penford").
10.14* -- Excipient Supply Agreement dated October , 1997 by and between the Registrant
and Penford.
10.15* -- Services Agreement dated October , 1997 by and between the Registrant and
Penford.
10.16* -- Tax Allocation dated October , 1997 by and between the Registrant and Penford.
10.17* -- Employee Benefits Agreement dated October , 1997 by and between the Registrant
and Penford.
10.18* -- Recognition and Incentive Agreement dated as of May 14, 1990 between the
Registrant and Anand Baichwal, as amended.
21.1 -- Subsidiaries.
23.1 -- Consent of Ernst & Young LLP.
23.2* -- Consent of Edmund O. Belsheim, Jr. (included in Exhibit 5.1).
24.1 -- Power of Attorney (see page II-4).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commissioner.
(B) Financial Statements Schedules:
Schedule II -- Valuation and Qualifying Accounts
All other 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.
II-2
<PAGE> 96
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser; (2) that for purposes
of determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(2) or (3) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective; and (3) that for the purpose of determining
any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and this offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Patterson, New York, on October 20,
1997.
PENWEST PHARMACEUTICALS CO.
By: /s/ TOD R. HAMACHEK
------------------------------------
Tod R. Hamachek,
Chairman and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
Each person whose signature appears below constitutes and appoints Tod R.
Hamachek, John V. Talley, Jr., Edmund O. Belsheim, Jr. and Steven D. Singer, and
each of them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them for him and in his name, place and stead, and in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement (or any other Registration Statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------------------------ -------------------------------- ----------------
<C> <S> <C>
/s/ TOD R. HAMACHEK Chairman, Chief Executive October 20, 1997
- ------------------------------------------ Officer and Director
Tod R. Hamachek (Principal Executive Officer)
/s/ JENNIFER L. GOOD Vice President, Finance and October 20, 1997
- ------------------------------------------ Chief Financial Officer
Jennifer L. Good (Principal Financial and
Accounting Officer)
/s/ PAUL E. FREIMAN Director October 20, 1997
- ------------------------------------------
Paul E. Freiman
/s/ JERE E. GOYAN Director October 20, 1997
- ------------------------------------------
Jere E. Goyan, Ph.D.
/s/ ROLF H. HENEL Director October 20, 1997
- ------------------------------------------
Rolf H. Henel
/s/ ROBERT J. HENNESSEY Director October 20, 1997
- ------------------------------------------
Robert J. Hennessey
/s/ N. STEWART ROGERS Director October 20, 1997
- ------------------------------------------
N. Stewart Rogers
/s/ JOHN V. TALLEY, JR. Director October 20, 1997
- ------------------------------------------
John V. Talley, Jr.
/s/ W. LEIGH THOMPSON, PH.D., M.D. Director October 20, 1997
- ------------------------------------------
W. Leigh Thompson, Ph.D., M.D.
</TABLE>
II-4
<PAGE> 98
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
We have audited the consolidated financial statements of Penwest
Pharmaceuticals Co. as of September 30, 1997 and December 31, 1996 and 1995, and
for the nine-month period ended September 30, 1997, and each of the three years
in the period ended December 31, 1996, and have issued our report thereon dated
October 11, 1997, included elsewhere in this Registration Statement. Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Stamford, Connecticut
October 11, 1997
S-1
<PAGE> 99
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
PENWEST PHARMACEUTICALS CO.
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO OTHER DEDUCTIONS BALANCE AT
PERIOD EXPENSES ACCOUNTS DESCRIBE DESCRIBE END OF PERIOD
------------ ---------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
Nine month period ended September
30, 1997
Allowance for Doubtful Accounts.... $237 $ 0 -- -- $ 237
==== === === ==== ====
Year ended December 31, 1996
Allowance for Doubtful Accounts.... $200 $ 37 -- -- $ 237
==== === === ==== ====
Year ended December 31, 1995
Allowance for Doubtful Accounts.... $187 $ 28 -- (15)(1) $ 200
==== === === ==== ====
Year ended December 31, 1994
Allowance for Doubtful Accounts.... $198 $ 55 -- (66)(1) $ 187
==== === === ==== ====
</TABLE>
- ---------------
(1) Write-off of bad debts
S-2
<PAGE> 100
EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C> <C>
1.1* -- Form of Underwriting Agreement. .....................................
3.1 -- Amended and Restated Articles of Incorporation. .....................
3.2 -- Amended and Restated Bylaws of the Company. .........................
4.1* -- Specimen certificate representing the Common Stock. .................
5.1* -- Opinion of Edmund O. Belsheim, Jr. ..................................
+10.1 -- Product Development and Supply Agreement dated August 17, 1994 by and
between the Registrant and Mylan Pharmaceuticals Inc. ("Mylan"). ....
+10.2 -- Product Development and Supply Agreement dated August 3, 1995 by and
between the Registrant and Mylan. ...................................
+10.3 -- Product Development and Supply Agreement dated March 22, 1996 by and
between the Registrant and Mylan. ...................................
+10.4 -- Sales and Distribution Agreement dated January 3, 1997 by and between
the Registrant and Mylan. ...........................................
+10.5 -- Product Development and Supply Agreement dated May 31, 1996 by and
between the Registrant and Kremers Urban Development Company. .......
+10.6 -- Product Development and Supply Agreement dated August 30, 1996 by and
between the Registrant and Kremers Urban Development Company. .......
+10.7 -- Product Development, License and Supply Agreement dated February 28,
1997 by and between the Registrant and Sanofi Winthrop International
S.A., as amended. ...................................................
+10.8 -- Agreement dated May 26, 1995 by and between the Registrant and
Leiras OY. ..........................................................
+10.9 -- Agreement dated July 27, 1992 by and between the Registrant and
Leiras OY. ..........................................................
+10.10 -- Strategic Alliance Agreement dated as of September 17, 1997 by and
between the Registrant and Endo Pharmaceuticals Inc. ................
10.11 -- 1997 Equity Incentive Plan. .........................................
10.12 -- 1997 Employee Stock Purchase Plan. ..................................
10.13* -- Separation Agreement dated October , 1997 by and between the
Registrant and Penford Corporation ("Penford"). .....................
10.14* -- Excipient Supply Agreement dated October , 1997 by and between the
Registrant and Penford. .............................................
10.15* -- Services Agreement dated October , 1997 by and between the
Registrant and Penford. .............................................
10.16* -- Tax Allocation dated October , 1997 by and between the Registrant
and Penford. ........................................................
10.17* -- Employee Benefits Agreement dated October , 1997 by and between the
Registrant and Penford. .............................................
10.18* -- Recognition and Incentive Agreement dated as of May 14, 1990 between
the Registrant and Anand Baichwal, as amended. ......................
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C> <C>
21.1 -- Subsidiaries. .......................................................
23.1 -- Consent of Ernst & Young LLP. .......................................
23.2* -- Consent of Edmund O. Belsheim, Jr. (included in Exhibit 5.1). .......
24.1 -- Power of Attorney (see page II-4). ..................................
27.1 -- Financial Data Schedule. ............................................
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commissioner.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PENWEST PHARMACEUTICALS CO.
Pursuant to RCW 23B.10.070 of the Washington Business Corporation Act,
Edward Mendell Co., Inc., a Washington corporation, hereby amends and restates
its Articles of Incorporation as follows:
ARTICLE 1. NAME
The name of the corporation is Penwest Pharmaceuticals Co.
ARTICLE 2. PURPOSE
The purpose of the corporation is to engage in any business, trade or
activity which may lawfully be conducted by a corporation organized under the
Washington Business Corporation Act.
ARTICLE 3. REGISTERED OFFICE AND AGENT
The address of the registered office of the corporation is Two Union
Square, 601 Union Street, Seattle, Washington 98101, and the name of its
registered agent is Bogle & Co.
ARTICLE 4. SHARES
The total number of shares of stock which the corporation has authority
to issue is 40,000,000 shares, consisting of 39,000,000 shares of common stock,
par value $0.001 per share, and 1,000,000 shares of preferred stock, par value
$0.001 per share.
The preferred stock may be issued from time to time in one or more
series in any manner permitted by law and these Restated Articles of
Incorporation, as determined from time to time by the Board of Directors and
stated in the resolution or resolutions providing for the issuance thereof,
prior to the issuance of any shares thereof. The Board of Directors shall have
the authority to fix and determine and to amend, subject to the provisions
hereof, the designations, preferences, limitations and relative rights of the
shares of any series that is wholly unissued or to be established. Unless
otherwise provided in the resolution establishing any series, the Board of
Directors shall have the authority, after the issuance of shares of a series
whose number it has designated, to amend the resolution establishing such series
to decrease the number of shares of that series, but not below the number of
shares of such series then outstanding.
<PAGE> 2
ARTICLE 5. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of the corporation.
ARTICLE 6. CUMULATIVE VOTING
The right to cumulate votes in the election of directors shall not exist
with respect to shares of stock of the corporation.
ARTICLE 7. DURATION
The period of the corporation's duration shall be perpetual.
ARTICLE 8. DIRECTORS
The directors shall be divided into three classes, designated Class I,
Class II and Class III. Initially, Class I directors shall be elected for a term
ending at the first annual meeting of shareholders after their election, Class
II directors shall be elected for a term ending at the second annual meeting of
shareholders after their election, and Class III directors shall be elected for
a term ending at the third annual meeting of shareholders after their election.
At each annual meeting of shareholders thereafter, successors to the class of
directors whose term expires at that annual meeting shall be elected to serve
until the third succeeding annual meeting of shareholders. If the number of
directors is changed in the manner provided by the Bylaws, any increase or
decrease shall be apportioned among the classes so that the number of directors
in each class is as nearly equal as possible. A director shall hold office until
the annual meeting of shareholders at which such director's term expires and
until such director's successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. Vacancies on the Board of Directors, including vacancies resulting
from an increase in the number of directors, may be filled only by the
affirmative vote of a majority of all the directors then in office (although
less than a quorum) or by the sole remaining director. The term of a director
elected to fill a vacancy shall expire at the next shareholders' meeting at
which directors are elected.
A director may be removed only for cause by affirmative vote of the
holders of not less than two-thirds of the shares entitled to vote in the
election of such director.
ARTICLE 9. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal
the Bylaws of the corporation. The shareholders shall also have the power to
adopt, amend or repeal the Bylaws of the corporation upon the affirmative vote
of the holders of not less than two-thirds of the shares entitled to vote
thereon.
-2-
<PAGE> 3
ARTICLE 10. AMENDMENTS TO ARTICLES OF INCORPORATION
The corporation reserves the right to amend or repeal these Restated
Articles of Incorporation in any manner permitted by law, and the rights of the
shareholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in Articles 6, 8, 9, 10, 12 and 13 may be
amended or repealed only upon the affirmative vote of the holders of not less
than two-thirds of the shares entitled to vote thereon.
ARTICLE 11. LIMITATION OF DIRECTOR LIABILITY
To the fullest extent permitted by the Washington Business Corporation
Act as the same exists or may hereafter be amended, a director of the
corporation shall not be liable to the corporation or its shareholders for
monetary damages for conduct as a director. Any amendment to or repeal of this
Article 11 shall not adversely affect any right or protection of a director for
or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
ARTICLE 12. SPECIAL SHAREHOLDERS' MEETINGS
If the corporation is not a "Public Company" (as hereinafter defined),
then special meetings of the shareholders may be called at any time by the Board
of Directors, the Chairman of the Board of Directors or the President of the
corporation or by the holders of at least 25% of all the votes entitled to be
cast on any issue proposed to be considered at such special meeting in
accordance with RCW 23B.07.020. If the corporation is a Public Company, then
special meetings of the shareholders may be called by the Board of Directors,
the Chairman of the Board of Directors or the President of the corporation and
may not be called by any other person. "Public Company" means a corporation that
has a class of equity securities registered with the Securities and Exchange
Commission pursuant to Section 12 or 15 of the Securities Exchange Act of 1934,
as amended.
ARTICLE 13. SPECIAL VOTING REQUIREMENTS
In addition to any affirmative vote required by law, by these Restated
Articles of Incorporation or otherwise, any "Business Combination" (as
hereinafter defined) involving the corporation shall be subject to approval in
the manner set forth in this Article 13.
Section 13.1. DEFINITIONS. For the purposes of this Article:
13.1.1. "Business Combination" means (i) a merger, share
exchange or consolidation of the corporation or any of its Subsidiaries with any
other corporation; (ii) the sale, lease, exchange, mortgage, pledge, transfer or
other disposition or encumbrance, whether in one transaction or a series of
transactions, by the corporation or any of its Subsidiaries of all or a
substantial part of the corporation's assets otherwise than in the usual and
regular
-3-
<PAGE> 4
course of business; or (iii) any agreement, contract or other arrangement
providing for any of the foregoing transactions.
13.1.2. "Continuing Director" means any member of the Board of
Directors who was a member of the Board of Directors on October 1, 1997 or who
is elected to the Board of Directors after October 1, 1997 upon the
recommendation of a majority of the Continuing Directors voting separately and
as a subclass of directors on such recommendation.
13.1.3. "Subsidiary" means a corporation, a majority of the
outstanding voting shares of which are owned, directly or indirectly, by the
corporation.
Section 13.2. VOTE REQUIRED FOR BUSINESS COMBINATIONS.
13.2.1. SUPERMAJORITY VOTE. Except as provided in subsections
13.2.2 and 13.2.3 hereof, the affirmative vote of the holders of not less than
two-thirds of the outstanding shares entitled to vote thereon and, to the
extent, if any, provided by resolution adopted by the Board of Directors
authorizing the issuance of a class or series of common stock or preferred
stock, the affirmative vote of the holders of not less than two-thirds of the
outstanding shares of such class or series, voting as a separate voting group,
shall be required for the adoption or authorization of a Business Combination.
13.2.2. MAJORITY VOTE. Notwithstanding subsection 13.2.1 hereof,
if a Business Combination shall have been approved by a majority of the
Continuing Directors, voting separately and as a subclass of directors, and if
such Business Combination is otherwise required to be approved by the
corporation's shareholders pursuant to the Washington Business Corporation Act,
then the affirmative vote of the holders of not less than a majority of the
outstanding shares entitled to vote thereon and, to the extent, if any, provided
by resolution adopted by the Board of Directors authorizing the issuance of a
class or series of common stock or preferred stock, the affirmative vote of the
holders of not less than a majority of the outstanding shares of such class or
series, voting as a separate voting group, shall be required for the adoption or
authorization of such Business Combination.
13.2.3. NO SHAREHOLDER VOTE. Notwithstanding subsection 13.2.1
or 13.2.2 hereof, if a Business Combination shall have been approved by a
majority of the Continuing Directors, voting separately and as a subclass of
directors, and if such Business Corporation is not otherwise required to be
approved by the corporation's shareholders pursuant to the Washington Business
Corporation Act, then no vote of the shareholders of the corporation shall be
required for approval of such Business Combination.
-4-
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
PENWEST PHARMACEUTICALS CO.
ARTICLE I. OFFICES
The principal office of the corporation shall be located at the
principal place of business or such other place as the board of directors may
designate. The corporation may have such other offices within or without the
state of Washington as the board of directors may designate or the business of
the corporation may require from time to time.
ARTICLE II. SHAREHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on such date and at such time as may be determined by the board of
directors, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting.
SECTION 2.2. SPECIAL MEETINGS. Unless otherwise set forth in the
Articles of Incorporation, special meetings of the shareholders, for any purpose
or purposes unless otherwise prescribed by the Washington Business Corporation
Act, may not be called by shareholders and may only be called by the board of
directors, the chairman of the board of directors or the president of the
corporation.
SECTION 2.3. PLACE OF MEETING. Meetings of the shareholders shall be
held at such place within or without the state of Washington as the board of
directors, the chairman of the board of directors or the president may
designate.
SECTION 2.4. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors may fix a future date as the record date
for any such determination. Such record date shall not be more than 70 days
prior to the date on which the particular action requiring such determination of
shareholders is to be taken. If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders or
shareholders entitled to receive payment of a dividend, the day before the first
notice of a meeting is dispatched to shareholders or the date on which the
resolution of the board of directors authorizing such dividend is adopted, as
the case may be, shall be the record date for such determination. When a
determination of shareholders entitled to notice of or to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof unless the board of directors fixes a new
record date, which it must do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
SECTION 2.5. VOTING LISTS. At least 10 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the corporation shall prepare an alphabetical list of all its
shareholders on the record date who are entitled to vote at the meeting or any
adjournment thereof, arranged by voting group, and within each voting group by
class or series of shares, with the address of and the number of shares held by
each, which record for ten days prior to the meeting shall be kept on file at
the principal office of the corporation or at a place identified in the meeting
notice in the city where the meeting will be held. Such record shall be produced
and kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder, shareholder's agent or shareholder's attorney
during the whole time of the
<PAGE> 2
meeting. Failure to comply with the requirements of this Section shall not
affect the validity of any action taken at the meeting.
SECTION 2.6. NOTICE OF MEETINGS. Written notice stating the date, time
and place of a meeting of shareholders, and in the case of a special meeting of
shareholders, the purpose or purposes for which the meeting is called, shall be
given by or at the direction of the board of directors, the chairman of the
board of directors or the president to each shareholder of record entitled to
vote at such meeting (unless required by law to send notice to all shareholders
regardless of whether or not such shareholders are entitled to vote), not less
than 10 days and not more than 60 days before the meeting, except that notice of
a meeting to act on an amendment to the Articles of Incorporation, a plan of
merger or share exchange, a proposed sale, lease, exchange or other disposition
of all or substantially all of the assets of the corporation other than in the
usual course of business, or the dissolution of the corporation shall be given
not less than 20 days and not more than 60 days before the meeting. Such notice
may be transmitted by mail, private carrier or personal delivery; telegraph or
teletype; or telephone, wire or wireless equipment which transmits a facsimile
of the notice. Such notice shall be effective upon dispatch if sent to the
shareholder's address, telephone number, or other number appearing on the
records of the corporation.
If a shareholders' meeting is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment unless a new record
date is or must be fixed. If a new record date for the adjourned meeting is or
must be fixed, however, notice of the adjourned meeting must be given to persons
who are shareholders as of the new record date.
SECTION 2.7. WAIVER OF NOTICE. A shareholder may waive any notice
required to be given under the provisions of these Bylaws, the Articles of
Incorporation or applicable law, whether before or after the date and time
stated therein. A valid waiver is created by any of the following methods: (a) a
writing signed by the shareholder entitled to the notice and delivered to the
corporation for inclusion in its corporate records; (b) attendance at the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; or (c) failure to
object at the time of presentation of a matter not within the purpose or
purposes described in the meeting notice.
SECTION 2.8. PROXIES. A shareholder may vote either in person or by
proxy. A shareholder may vote by proxy by means of a proxy appointment form
which is executed in writing by the shareholder, such shareholder's agent, or
such shareholder's attorney-in-fact. Such proxy shall be effective when received
by the secretary or other officer or agent authorized to tabulate votes. A proxy
appointment is valid for 11 months after the date of its execution, unless
otherwise expressly provided in the appointment form.
SECTION 2.9. PARTICIPATION BY COMMUNICATION EQUIPMENT. At the
discretion of the board of directors, shareholders may participate in a meeting
of the shareholders by any means of communication by which all persons
participating in the meeting can hear each other during the meeting, and
participation by such means shall constitute presence in person at the meeting.
SECTION 2.10. QUORUM. Unless the Articles of Incorporation or law
provide otherwise, a majority of the votes entitled to be cast on a matter by a
voting group that, pursuant to the Articles of Incorporation, is entitled to
vote on such matter, represented in person or by proxy, shall constitute a
quorum of that voting group for action on that matter. Once a share is
represented at a meeting, other than to object to holding the meeting or
transacting business, it is deemed to be present for purposes of a quorum for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be fixed for the adjourned meeting. At such
reconvened meeting, any business may be transacted which might have been
transacted at the adjourned meeting.
SECTION 2.11. MANNER OF ACTING. If a quorum exists with respect to a
matter, action on such matter other than the election of directors is approved
by a voting group if the votes cast within the voting group
-2-
<PAGE> 3
favoring the action exceed the votes cast within the voting group opposing the
action, unless the question is one upon which a different vote is required by
the Articles of Incorporation or applicable law.
SECTION 2.12. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except as may be otherwise provided in the Articles of
Incorporation.
SECTION 2.13. VOTING FOR DIRECTORS. Each shareholder entitled to vote
at an election of directors may vote, in person or by proxy, the number of
shares owned by such shareholder for as many persons as there are directors to
be elected and for whose election such shareholder has a right to vote. Unless
otherwise provided in the Articles of Incorporation, the candidates elected are
those receiving the largest number of votes cast, up to the number of directors
to be elected.
SECTION 2.14. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action
which may or is required to be taken at a meeting of the shareholders may be
taken without a meeting if one or more written consents setting forth the action
taken shall be signed, either before or after the action taken, by all the
shareholders entitled to vote with respect to the subject matter thereof. Action
taken by written consent of the shareholders is effective when all consents are
in possession of the corporation, unless the consent specifies a later effective
date.
SECTION 2.15. SHAREHOLDER NOMINATIONS. Nominations for the election of
directors may be made by the board of directors or by any shareholder entitled
to vote in the election of the directors generally. In the case of nominations
by a shareholder, written notice of the intent to make a nomination at a meeting
of shareholders must be received by the secretary of the corporation not later
than 120 days in advance of the date of such meeting in the case of an annual
meeting and not more than seven days following the date of notice of the meeting
in the case of a special meeting. The notice must include, among other things:
(i) the name, address and stock ownership of the nominating shareholder and a
representation that such shareholder is entitled to vote at such meeting and
that such shareholder intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, (ii) the name, age and
address of each person to be nominated, (iii) the number of shares of capital
stock of the corporation beneficially owned by each nominee, (iv) a statement
that the nominee is willing to be nominated, and (v) such other information
regarding each nominee as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission if
the corporation were soliciting proxies for the election of such nominees. If
the facts warrant, the board of directors, or the chairman of the shareholders'
meeting at which directors are to be elected, shall determine and declare that a
nomination was not made in accordance with the foregoing procedure, and, if it
is so determined, the defective nomination shall be disregarded. The right of
shareholders to make nominations pursuant to the foregoing procedure is subject
to the superior rights, if any, of the holders of any class or series of stock
having a preference over the common stock. The procedures set forth in this
Section for nomination for the election of directors by shareholders are in
addition to, and not in limitation of, any procedures now in effect or hereafter
adopted by or at the direction of the board of directors or any committee
thereof.
SECTION 2.16. BUSINESS FOR SHAREHOLDERS MEETINGS
2.16.1. BUSINESS AT ANNUAL MEETINGS. In addition to the election
of directors, other proper business may be transacted at an annual meeting of
shareholders, provided that such business is properly brought before such
meeting. To be properly brought before an annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto), (b) otherwise
brought before the meeting by or at the direction of the board of directors or
the chairman of the meeting or (c) otherwise properly brought before the meeting
by a shareholder pursuant to written notice thereof, in accordance with
Subsection 2.16.3 hereof, and received by the secretary not less than 60 nor
more than 90 days prior to the date specified in Subsection 2.1 hereof for such
annual meeting (or if less than 70 days notice or prior public disclosure of the
date of the annual meeting is given or made to the shareholders, not later than
the 10th day following the day on which the notice of the date of the annual
meeting was mailed or such public disclosure was made). Any such shareholder
notice shall set forth (i)
-3-
<PAGE> 4
the name and address of the shareholder proposing such business; (ii) a
representation that the shareholder is entitled to vote at such meeting and a
statement of the number of shares of the corporation that are beneficially owned
by the shareholder; (iii) a representation that the shareholder intends to
appear in person or by proxy at the meeting to propose such business; and (iv)
as to each matter the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting, the language of the
proposal (if appropriate), and any material interest of the shareholder in such
business. No business shall be conducted at any annual meeting of shareholders
except in accordance with this Subsection 2.16.1. If the facts warrant, the
board of directors or the chairman of the annual meeting of shareholders may
determine and declare (a) that a proposal does not constitute proper business to
be transacted at the meeting or (b) that business was not properly brought
before the meeting in accordance with the provisions of this Subsection 2.16.1,
and, if in either case it is so determined, any such business shall not be
transacted. The procedures set forth in this Subsection 2.16.1 are in addition
to, and not in lieu of, the requirements set forth in Rule a-8 under Section 14
of the Securities Exchange Act of 1934, as amended, or any successor provision.
2.16.2. BUSINESS AT SPECIAL MEETINGS. At any special meeting of
the shareholders, only such business as is specified in the notice of such
special meeting given by or at the direction of the person or persons calling
such meeting, in accordance with Subsection 2.2 hereof, shall come before such
meeting.
2.16.3. NOTICE TO CORPORATION. Any written notice required to be
delivered by a shareholder to the corporation pursuant to Subsection 2.16.1
hereof must be given either by personal delivery or by registered or certified
mail, postage prepaid, to the secretary at the corporation's principal executive
offices.
ARTICLE III. BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the corporation
shall be managed under the direction of, the board of directors, except as may
be otherwise provided by these Bylaws, the Articles of Incorporation or law.
SECTION 3.2. NUMBER, TENURE AND QUALIFICATION. The board of directors
shall be composed of not less than five nor more than ten directors, the
specific number to be set by resolution of the board of directors. The number of
directors may be increased or decreased from time to time by amendment to or in
the manner provided in these Bylaws. No decrease, however, shall have the effect
of shortening the term of any incumbent director unless such director resigns or
is removed in accordance with the provisions of these Bylaws.
The directors shall be divided into three classes, designated Class I,
Class II and Class III. Initially, Class I directors shall be elected for a term
ending at the first annual meeting of shareholders after their election, Class
II directors shall be elected for a term ending at the second annual meeting of
shareholders after their election, and Class III directors shall be elected for
a term ending at the third annual meeting of shareholders after their election.
At each annual meeting of shareholders thereafter, successors to the class of
directors whose term expires at that annual meeting shall be elected to serve
until the third succeeding annual meeting of shareholders. If the number of
directors is changed in the manner provided by the Bylaws, any increase or
decrease shall be apportioned among the classes so that the number of directors
in each class is as nearly equal as possible. A director shall hold office until
the annual meeting of shareholders at which such director's term expires and
until such director's successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. Vacancies on the Board of Directors, including vacancies resulting
from an increase in the number of directors, may be filled only by the
affirmative vote of a majority of all the directors then in office (although
less than a quorum) or by the sole remaining director. The term of a director
elected to fill a vacancy shall expire at the next shareholders' meeting at
which directors are elected.
Directors need not be residents of the state of Washington or
shareholders of the corporation.
-4-
<PAGE> 5
SECTION 3.3. ANNUAL AND OTHER REGULAR MEETINGS. An annual meeting of
the board of directors shall be held immediately after and at the same place as
the annual meeting of shareholders. The board of directors may specify by
resolution the time and place, either within or without the state of Washington,
for holding any other regular meetings of the board of directors without notice
other than such resolution.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by the board of directors, the chairman of the board,
the president or any two or more directors. Notice of special meetings of the
board of directors stating the date, time and place thereof shall be given at
least two days prior to the date set for such meeting by the person or persons
authorized to call such meeting, or by the secretary at the direction of the
person or persons authorized to call such meeting. The notice may be oral or
written. Oral notice may be communicated in person or by telephone, wire or
wireless equipment, which does not transmit a facsimile of the notice. Oral
notice is effective when communicated. Written notice may be transmitted by
mail, private carrier, or personal delivery; telegraph or teletype; or
telephone, wire, or wireless equipment which transmits a facsimile of the
notice. Written notice is effective upon dispatch if such notice is sent to the
director's address, telephone number, or other number appearing on the records
of the corporation. If no place for such meeting is designated in the notice
thereof, the meeting shall be held at the principal office of the corporation.
Any director may waive notice of any meeting at any time. Whenever any notice is
required to be given to any director pursuant to applicable law, a waiver
thereof in writing signed by the director, entitled to notice, shall be deemed
equivalent to the giving of notice. The attendance of a director at a meeting
shall constitute a waiver of notice of the meeting except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully convened. Unless otherwise required
by law, neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 3.5. QUORUM. A majority of the number of directors specified
in or fixed in accordance with these Bylaws shall constitute a quorum for the
transaction of any business at any meeting of directors. If less than a majority
shall attend a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice, and a quorum present at such
adjourned meeting may transact business.
SECTION 3.6. MANNER OF ACTING. If a quorum is present when a vote is
taken, the affirmative vote of a majority of directors present is the act of the
board of directors, except as may be otherwise provided in the Articles of
Incorporation or the Washington Business Corporation Act.
SECTION 3.7. PARTICIPATION BY CONFERENCE TELEPHONE. Directors may
participate in a regular or special meeting of the board by, or conduct the
meeting through the use of, any means of communication by which all directors
participating can hear each other during the meeting and participation by such
means shall constitute presence in person at the meeting.
SECTION 3.8. PRESUMPTION OF ASSENT. A director who is present at a
meeting of the board of directors at which action is taken shall be deemed to
have assented to the action taken unless (a) the director objects at the
beginning of the meeting, or promptly upon the director's arrival, to holding
the meeting or transacting any business thereat, (b) the director's dissent or
abstention from the action taken is entered in the minutes of the meeting, or
(c) the director delivers written notice of the director's dissent or abstention
to the presiding officer of the meeting before its adjournment or to the
corporation within a reasonable time after adjournment of the meeting. Such
right of dissent or abstention shall not apply to a director who voted in favor
of the action taken.
SECTION 3.9. ACTION BY BOARD WITHOUT A MEETING. Any action permitted
or required to be taken at a meeting of the board of directors may be taken
without a meeting if one or more written consents setting forth the action so
taken are signed, either before or after the action taken, by all the directors
and delivered to the corporation. Action taken by written consent is effective
when the last director signs the consent, unless the consent specifies a later
effective date.
-5-
<PAGE> 6
SECTION 3.10. BOARD COMMITTEES. The board of directors may by
resolution designate from among its members an executive committee and one or
more other committees, each of which must have two or more members and shall be
governed by the same rules regarding meetings, action without meetings, notice,
waiver of notice, and quorum and voting requirements as applied to the board of
directors. To the extent provided in such resolutions, each such committee shall
have and may exercise the authority of the board of directors, except as limited
by applicable law. The designation of any such committee and the delegation
thereto of authority shall not relieve the board of directors, or any members
thereof, of any responsibility imposed by law.
SECTION 3.11. RESIGNATION. Any director may resign at any time by
delivering written notice to the chairman of the board, the president, the
secretary or the board of directors. A resignation is effective when the notice
is delivered unless the notice specifies a later effective date. Unless
otherwise specified in the notice, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 3.12. REMOVAL. Any director or the entire Board may be removed
only for cause by the affirmative vote of the holders of not less than
two-thirds of the shares entitled to vote in the election of such director or
directors. Such action may only be taken at a special meeting of the
shareholders called expressly for that purpose, providing that notice of the
proposed removal, which shall include a statement of the charges alleged against
the director, shall have been duly given to the shareholders together with or as
a part of the notice of meeting.
Where a question of the removal of a director for cause is to be
presented for shareholder consideration, an opportunity must be provided to such
director to present his or her defense to the shareholders by a statement which
must accompany or precede the notice of the special meeting of the shareholders,
or, if provided to shareholders prior to the notice of the special meeting, the
initial solicitation of proxies seeking authority to vote for the removal of
such director for cause. If not provided, then such proxies may not be voted for
removal. The director involved shall be served with notice of the meeting at
which such action is proposed to be taken together with a statement of the
specific charges and shall be given an opportunity to be present and to be heard
at the meeting at which his or her removal is considered.
SECTION 3.13. VACANCIES. A vacancy on the board of directors may occur
by the resignation, removal or death of an existing director, or by reason of
increasing the number of directors on the board of directors as provided in
these Bylaws. Unless the Articles of Incorporation provide otherwise, any
vacancy occurring on the board of directors may be filled by only the
affirmative vote of a majority of all the directors then in office (although
less than a quorum) or by the sole remaining director. Any vacant office held by
a director elected by the holders of one or more classes or series of shares
entitled to vote and be counted collectively thereon shall be filled only by the
vote of the holders of such class or series of shares. A director elected to
fill a vacancy shall serve only until the next election of directors by the
shareholders.
SECTION 3.14. COMPENSATION. By resolution of the board of directors,
the directors may be paid a fixed sum plus their expenses, if any, for
attendance at meetings of the board of directors or committee thereof, or a
stated salary as director, or any other form of compensation (including
corporation common stock or options to purchase common stock), or a combination
of the foregoing. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
ARTICLE IV. OFFICERS
SECTION 4.1. AUTHORIZED OFFICERS. The corporation shall have a
president and may have one or more vice presidents (who may be designated as
Vice Presidents, Senior Vice Presidents or Executive Vice Presidents), and a
secretary, each of whom shall be appointed by the board of directors. Such other
officers and assistant officers, including a chairman of the board, as may be
deemed necessary or appropriate may be appointed by the board of directors. By
resolution, the board of directors may designate any officer as chief
-6-
<PAGE> 7
executive officer, chief operating officer, chief financial officer, or any
similar designation. Any two or more offices may be held by the same person.
SECTION 4.2. APPOINTMENT AND TERM OF OFFICE. The officers of the
corporation shall be appointed by the board of directors for such term as the
board may deem advisable. Each officer shall hold office until a successor shall
have been appointed regardless of such officer's term of office, subject to such
officer's earlier death, resignation or removal.
SECTION 4.3. RESIGNATION. Any officer may resign at any time by
delivering written notice to the chairman of the board, the president or the
board of directors. A resignation is effective when the notice is delivered
unless the notice specifies a later effective date. Unless otherwise specified
in the notice, the acceptance of such resignation shall not be necessary to make
it effective.
SECTION 4.4. REMOVAL. Any officer appointed by the board of directors
may be removed by the board of directors with or without cause. The removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Appointment of an officer does not itself create contract rights.
SECTION 4.5. POWERS AND DUTIES. The officers of the corporation shall
have the authority and shall perform the duties prescribed by the board of
directors.
SECTION 4.6. COMPENSATION OF OFFICERS AND EMPLOYEES. The board of
directors shall fix the compensation of officers and may fix the compensation of
other employees from time to time. No officer shall be prevented from receiving
a salary by reason of the fact that such officer is also a director of the
corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 5.1. CONTRACTS. The board of directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and that
authority may be general or confined to specific instances.
SECTION 5.2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors, which authority may be
general.
SECTION 5.3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by the officer or officers, or agent or
agents, of the corporation and in the manner as shall from time to time be
prescribed by resolution of the board of directors.
SECTION 5.4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in the banks, trust companies or other depositories as the board of directors
may select.
ARTICLE VI. SHARES
SECTION 6.1. CERTIFICATES FOR SHARES. The shares of the corporation
may be represented by certificates in such form as prescribed by law and the
board of directors. Signatures of the corporate officers on the certificate may
be facsimiles if the certificate is manually signed on behalf of a transfer
agent, or registered by a registrar, other than the corporation itself or an
employee of the corporation. All certificates shall be consecutively numbered or
otherwise identified. All certificates shall bear such legend or legends as
prescribed by the board of directors or these Bylaws.
-7-
<PAGE> 8
SECTION 6.2. ISSUANCE OF SHARES. Shares of the corporation shall be
issued only when authorized by the board of directors, which authorization shall
include the consideration to be received for each share.
SECTION 6.3. BENEFICIAL OWNERSHIP. Except as otherwise permitted by
these Bylaws, the person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes. The board of directors may adopt by resolution a procedure whereby a
shareholder of the corporation may certify in writing to the corporation that
all or a portion of the shares registered in the name of such shareholder are
held for the account of a specified person or persons. Upon receipt by the
corporation of a certification complying with such procedure, the persons
specified in the certification shall be deemed, for the purpose or purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
SECTION 6.4. TRANSFER OF SHARES. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by such holder's legal representative who shall furnish
proper evidence of authority to transfer, or by such holder's attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the corporation, on surrender for cancellation of the certificate for the
shares. All certificates surrendered to the corporation for transfer shall be
canceled and no new certificate shall be issued until the former certificate for
a like number of shares shall have been surrendered and canceled.
SECTION 6.5. LOST OR DESTROYED CERTIFICATES. In the case of a lost,
destroyed or mutilated certificate, a new certificate may be issued therefor
upon such terms and indemnity to the corporation as the board of directors may
prescribe.
SECTION 6.6. STOCK TRANSFER RECORDS. The stock transfer books shall be
kept at the principal office of the corporation or at the office of the
corporation's transfer agent or registrar. The name and address of the person to
whom the shares represented by any certificate, together with the class, number
of shares and date of issue, shall be entered on the stock transfer books of the
corporation. Except as otherwise provided in these Bylaws, the person in whose
name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
ARTICLE VII. SEAL
This corporation need not have a corporate seal. If the directors adopt
a corporate seal, the seal of the corporation shall be circular in form and
consist of the name of the corporation, the state and year of incorporation, and
the words "Corporate Seal."
ARTICLE VIII. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
SECTION 8.1. POWER TO INDEMNIFY. The corporation shall have the
following powers:
8.1.1. POWER TO INDEMNIFY. The corporation may indemnify and
hold harmless to the full extent permitted by applicable law each person who was
or is made a party to or is threatened to be made a party to or is involved
(including, without limitation, as a witness) in any actual or threatened
action, suit or other proceeding, whether civil, criminal, administrative or
investigative, by reason of that fact that he or she is or was a director,
officer, employee or agent of the corporation or, being or having been such a
director, officer, employee or agent, he or she is or was serving at the request
of the corporation as a director, officer, employee, agent, trustee, or in any
other capacity of another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action or omission in an
official capacity or in any other capacity while serving as a director, officer,
employee, agent, trustee or in any other capacity, against all expense,
liability and loss (including, without
-8-
<PAGE> 9
limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts to be paid in settlement) actually and reasonably incurred or
suffered by such person in connection therewith. Such indemnification may
continue as to a person who has ceased to be a director, officer, employee or
agent of the corporation and shall inure to the benefit of his or her heirs and
personal representatives.
8.1.2. POWER TO PAY EXPENSES IN ADVANCE OF FINAL DISPOSITION.
The corporation may pay expenses incurred in defending any such proceeding in
advance of the final disposition of any such proceeding; provided, however, that
the payment of such expenses in advance of the final disposition of a proceeding
shall be made to or on behalf of a director, officer, employee or agent only
upon delivery to the corporation of an undertaking, by or on behalf of such
director, officer, employee or agent, to repay all amounts so advanced if it
shall ultimately be determined, that such director, officer, employee or agent
is not entitled to be indemnified under this Article or otherwise, which
undertaking may be unsecured and may be accepted without reference to financial
ability to make repayment.
8.1.3. POWER TO ENTER INTO CONTRACTS. The corporation may enter
into contracts with any person who is or was a director, officer, employee and
agent of the corporation in furtherance of the provisions of this Article and
may create a trust fund, grant a security interest in property of the
corporation, or use other means (including, without limitation, a letter of
credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.
8.1.4. EXPANSION OF POWERS. If the Washington Business
Corporation Act is amended in the future to expand or increase the power of the
corporation to indemnify, to pay expenses in advance of final disposition, to
enter into contracts, or to expand or increase any similar or related power,
then, without any further requirement of action by the shareholders or directors
of the corporation, the powers described in this Article shall be expanded and
increased to the fullest extent permitted by the Washington Business Corporation
Act, as so amended.
8.1.5. LIMITATION ON POWERS. No indemnification shall be
provided under this Article to any such person if the corporation is prohibited
by the nonexclusive provisions of the Washington Business Corporation Act or
other applicable law as then in effect from paying such indemnification.
SECTION 8.2. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS.
8.2.1. DIRECTORS AND OFFICERS. The corporation shall indemnify
and hold harmless any person who is or was a director or officer of the
corporation and pay expenses in advance of final disposition of a proceeding, to
the full extent to which the corporation is empowered.
8.2.2. EMPLOYEES AND AGENTS. The corporation may, by action of
its board of directors from time to time, indemnify and hold harmless any person
who is or was an employee or agent of the corporation and pay expenses in
advance of final disposition of a proceeding, to the full extent to which the
corporation is empowered, or to any lesser extent which the board of directors
may determine.
8.2.3. CHARACTER OF RIGHTS. The rights to indemnification and
payment of expenses in advance of final disposition of a proceeding conferred by
or pursuant to this Article shall be contract rights.
8.2.4. ENFORCEMENT. A director, officer, employee or agent
("claimants") shall be presumed to be entitled to indemnification and/or payment
of expenses under this Article upon submission of a written claim (and, in an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition, where the undertaking in
Subsection 8.1.2 above has been delivered to the corporation) and thereafter the
corporation shall have the burden of proof to overcome the presumption that the
claimant is so entitled.
-9-
<PAGE> 10
If a claim under this Article is not paid in full by the corporation
within 60 days after a written claim has been received by the corporation,
except in the case of a claim for expenses incurred in defending a proceeding in
advance of its final disposition, in which case the applicable period shall be
20 days, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, to the extent
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. Neither the failure of the corporation
(including its board of directors, its shareholders or independent legal
counsel) to have made a determination prior to the commencement of such action
that indemnification of or reimbursement or advancement of expenses to the
claimant is proper in the circumstances nor an actual determination by the
corporation (including its board of directors, its shareholders or independent
legal counsel) that the claimant is not entitled to indemnification or to the
reimbursement or advancement of expenses shall be a defense to the action or
create a presumption that the claimant is not so entitled.
8.2.5. RIGHTS NOT EXCLUSIVE. The right to indemnification and
payment of expenses in advance of final disposition of a proceeding conferred in
this Article shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, the Articles of Incorporation, these
Bylaws, any agreement, vote of shareholders or disinterested directors or
otherwise.
SECTION 8.3. INSURANCE. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee, agent or trustee
of the corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act.
SECTION 8.4. SURVIVAL OF BENEFITS. Any repeal or modification of this
Article shall not adversely affect any right of any person that existed at the
time of such repeal or modification.
SECTION 8.5. SEVERABILITY. If any provision of this Article or any
application thereof shall be invalid, unenforceable or contrary to applicable
law, the remainder of this Article, or the application of such provision to
persons or circumstances other than those as to which it is held invalid,
unenforceable or contrary to applicable law, shall not be affected thereby and
shall continue in full force and effect.
SECTION 8.6. APPLICABLE LAW. For purposes of this Article, "applicable
law" shall at all times be construed as the applicable law in effect at the date
indemnification may be sought, or the law in effect at the date of the action,
omission or other event giving rise to the situation for which indemnification
may be sought, whichever is selected by the person seeking indemnification. As
of the date hereof, applicable law shall include RCW 23B.08.500 through .600, as
amended.
ARTICLE IX. BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its shareholders
and the board of directors and such other records as may be necessary or
advisable.
ARTICLE X. FISCAL YEAR
The fiscal year of the corporation shall be determined by resolution
adopted by the board of directors. In the absence of such a resolution, the
fiscal year shall be the calendar year.
ARTICLE XI. AMENDMENTS TO BYLAWS
The board of directors shall have the power to adopt, amend or repeal
the Bylaws of the corporation, at a duly called meeting or by written consent.
The shareholders shall also have the power to adopt, amend or repeal
-10-
<PAGE> 11
the Bylaws of the corporation upon the affirmative vote of the holders of
two-thirds of the outstanding shares entitled to vote thereon.
-11-
<PAGE> 1
Exhibit 10.1
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT
THIS AGREEMENT is entered into as of the 17th day of August, 1994, by
and between Penwest Ltd., a Delaware corporation ("Penwest"), and Mylan
Pharmaceuticals Inc., a West Virginia corporation ("Mylan").
A. Penwest has developed a controlled-release agent covered by
one or more patents, patent applications, know-how and other proprietary
technology, which agent Penwest markets under the name "TIMERx" ("TIMERx").
Penwest has conducted initial biostudies with respect to the potential
development of a pharmaceutical product incorporating the active ingredient
Nifedipine ("Nifedipine"), TIMERx, and one or more other excipients.
B. Mylan is interested in developing for manufacture a
pharmaceutical product incorporating Nifedipine in a solid-dosage
controlled-release delivery system for oral administration in humans.
C. The parties desire to engage in certain research, development,
and testing activities designed to determine if Penwest's TIMERx
controlled-release system can be adapted and combined with Nifedipine to make a
generic controlled-release version of Nifedipine for oral solid-dosage
administration in humans that is bioequivalent to the product currently being
marketed in the United States under the name "Procardia XL." If such activities
are successful, Mylan desires to contract for a supply of TIMERx for use in the
manufacture of such a controlled-release form of Nifedipine, and Penwest is
willing to supply the same provided that Mylan agrees to obtain all of its
requirements for controlled-release agents for Nifedipine products that are
essentially bioequivalent to "Procardia XL" in the form of TIMERx from Penwest
as provided herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
1.1 "AFFILIATE" shall mean any individual, partnership,
corporation, limited company, trust, or other entity of whatever nature
(hereinafter collectively referred to as "Person"), which is directly or
indirectly controlling, controlled by or under common control with another
Person, identifiable based upon the context in which the term is used. The term
"control" shall mean the possession of the power to direct or cause the
direction of the management and policies and/or the distribution of the profits
of a Person.
-1-
<PAGE> 2
1.2 "APPROVAL DATE" shall mean the date on which the Designated
Product (in any dosage strength) is first approved by the U.S. Food and Drug
Administration (herein the "FDA") for commercial sale in oral solid-dosage form
for administration in humans, pursuant to an abbreviated new drug application
("ANDA").
1.3 "APPROVED GENERIC VERSION" shall mean a drug that is
bioequivalent to the product that is currently being marketed in the United
States under the name "Procardia XL", and that has been fully approved for
commercial sale in oral solid-dosage form for administration in humans by the
FDA or, as applicable, the parallel regulatory authorities in the Non-Exclusive
Territory, and which is not branded, labelled, or marketed under the names
"Procardia" or "Procardia XL", and which is not marketed by Mylan, any of its
Affiliates, or under a license or sublicense from Mylan or its Affiliate.
1.4 "CERTIFICATION PERIOD" shall mean the period beginning on the
Submission Date and ending on the earlier of:
1.4.1 the Approval Date; or
1.4.2 the termination of this Agreement as provided herein.
1.5 "CONFIDENTIAL TECHNOLOGY" shall mean all technology and
know-how disclosed hereunder that is, at the relevant time hereunder, protected
or required to be protected by both parties hereto as confidential information
pursuant to Section hereof.
1.6 "DESIGNATED PRODUCT" shall mean the solid-dosage form of a
controlled-release pharmaceutical for oral administration in humans that
combines Nifedipine with TIMERx and other excipients and that is bioequivalent
to the product currently (as of the Effective Date) marketed in the United
States under the name "Procardia XL," as more fully described in Exhibit subject
to modifications as Penwest and Mylan may mutually agree during the Development
Period. The parties intend that the Designated Product will be developed in more
than one dosage strength, as more fully described in Exhibit .
1.7 "DEVELOPMENT PERIOD" shall mean the period from the Effective
Date through the Submission Date or the earlier termination of this Agreement as
provided herein.
1.8 "DEVELOPMENT STEPS" shall mean the activities specified in
Exhibit hereto to be undertaken by the parties during the Development Period.
-2-
<PAGE> 3
1.9 "DMF" shall mean Drug Master File as defined in 21 CFR 300
et seq., including amendments and supplements which will be filed by Penwest.
1.10 "EFFECTIVE DATE" shall mean the effective date of this
Agreement, which is the date first written above.
1.11 "EXCLUSIVE TERRITORY" shall mean the United States and its
territories and possessions.
1.12 "FORMULATED TIMERx" shall mean TIMERx and certain additives in
a formulation to be developed hereunder specifically for use in the Designated
Product.
1.13 "JOINT DEVELOPMENTS" shall mean any and all inventions,
improvements, modifications, alterations, or enhancements that are developed
jointly by Mylan or any of its Affiliates, on the one hand, and Penwest or any
of its Affiliates, on the other hand, during the term of this Agreement or
during any period of mutual cooperative development prior to the Effective Date,
together with all United States and foreign intellectual property and other
rights and interests of the parties and their respective Affiliates thereto and
therein, including without limitation patents, trade secrets, copyright, periods
of market exclusivity, and other related rights or interests, to the extent the
same remain protected by any such rights and interests from being used freely by
others.
1.14 "LICENSE TERM" shall mean the cumulative period covered by the
Development Period, the Certification Period, and the Marketing Period.
1.15 "MARKETING PERIOD" shall mean the period beginning on the
Approval Date and ending on the earlier of:
1.15.1 the twentieth anniversary of the Approval Date; or
1.15.2 the termination of the License Term and/or this Agreement as
provided herein.
1.16 "MYLAN IMPROVEMENTS" shall mean, except for any Joint
Developments, any and all improvements, modifications, alterations, or
enhancements to any of the inventions covered by the Penwest Patents, Penwest's
Confidential Technology, or the TIMERx Production Technology, that are
developed, owned, or controlled by Mylan or any of its Affiliates or
sublicensees, or in which Mylan or any of its Affiliates or sublicensees
otherwise has any rights or interests during the term of this Agreement (or,
with respect to such sublicensees, during the term of the respective
sublicenses) or during any period of mutual cooperative development prior to the
Effective Date; together with all United States and foreign intellectual
property and other rights and interests of Mylan and its Affiliates and
sublicensees thereto and therein, including
-3-
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
without limitation patents, trade secrets, copyright, periods of market
exclusivity, and other related rights or interests, to the extent the same
remain protected by any such rights and interests from being used freely by
others.
1.17 "MYLAN TEST AND REGULATORY DATA" shall mean any and all test
data, test designs and protocols, clinical studies and results thereof,
government licenses and applications therefor, government certifications and
findings, and related materials, information and rights (including without
limitation information regarding bioavailability and bioequivalence, and any
adverse drug reactions), developed, commissioned or otherwise obtained by Mylan
or any of its Affiliates or sublicensees during the term of this Agreement (or,
with respect to such sublicensees, during the term of the respective
sublicenses) relating to TIMERx, Mylan Improvements, the Designated Product,
Penwest Patents, TIMERx Production Technology, and/or Penwest's Confidential
Technology, together with all intellectual property and other rights and
interests of Mylan and its Affiliates or sublicensees thereto and therein,
worldwide. It is understood that:
1.17.1 To the extent any of the Mylan Test and Regulatory Data is
available for review by the public without confidentiality restrictions, it
shall be referred to herein as the "Available Portion" of the Mylan Test and
Regulatory Data; and that
1.17.2 To the extent any of the Mylan Test and Regulatory Data meets
the criteria specified in Exhibit , it shall be referred to herein as the
"Deliverable Portion" of the Mylan Test and Regulatory Data.
1.18 "NET SALES" shall ********************************************
mean****************************************************************************
********************************************************************************
************************, calculated in accordance with United States Generally
Accepted Accounting Principles ("GAAP") consistently applied, which pertains to
the Designated Product. The calculation of Net Sales shall include *************
********************************************************************************
********************************************************************************
********************************************************************************
************************** Amounts to be included in the calculation of Net
Sales shall be those representing:
*******************************
-4-
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
***********************************************************************
****************************
***********************************************************************
****************************************************************
****************
****************
****************************************
***********************************************************************
**********************************************************************
********************************************************************************
*************
**************************************************
********************
*********************************
***************************
*********************
******************
********************************************************************************
********************************************************************************
*******************
1.19 "NON-EXCLUSIVE TERRITORY" shall mean Canada and Mexico and the
respective territories and possessions of each.
-5-
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
1.20 "PENWEST PATENTS" shall mean:
1.20.1 those United States patents and foreign equivalents in
the NonExclusive Territory and United States and foreign patent applications
listed in Exhibit and all divisions, continuations, reissues, or extensions
thereof, any periods of marketing exclusivity relating thereto, and any letters
patent that issue thereon; and
1.20.2 Penwest's rights under United States patents and
foreign patents in the Non-Exclusive Territory, if any, obtained and in force
during the License Term covering any of Penwest's improvements, modifications,
alterations, or enhancements to any of the inventions covered by the Penwest
Patents.
1.21 "PENWEST TEST AND REGULATORY DATA" shall mean any and all test
data, test designs and protocols, clinical studies and results thereof,
government licenses and applications therefor, government certifications and
findings, and related materials, information and rights (including without
limitation information regarding bioavailability and bioequivalence, and any
adverse drug reactions), developed, commissioned or otherwise obtained by
Penwest or any of its Affiliates during the term of this Agreement relating to
TIMERx, Penwest Patents, TIMERx Production Technology, and/or Penwest's
Confidential Technology, together with all intellectual property and other
rights and interests of Penwest and its Affiliates thereto and therein in the
Territory.
1.22 "PERCENTAGE MARKET SHARE" shall mean the share of the total
United States market for the aggregate of all Approved Generic Versions, the
product currently being marketed under the name "Procardia XL," and the
Designated Product which is represented by sales of the Designated Product,
stated as a percentage of such total market. The sales of such products shall be
determined through the publicly available reports of IMS or an alternate public
source mutually approved by the parties hereto.
1.23 "PRODUCTION ROYALTIES" shall mean ***************************
**************************************************************** pursuant to
Section 5.8.
1.24 "PROJECT CONTACT(S)" shall mean the persons appointed by each
party to serve as contact person between the parties during the Development
Period and the Certification Period. The initial Project Contact for Penwest is
Dr. Paul K. Wotton and the initial Project Contact for Mylan is Dr. John P.
O'Donnell. Each party shall
-6-
<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
promptly notify the other party of any substitution of other personnel as its
Project Contact. Each party may select and supervise its other project staff as
needed.
1.25 "ROYALTIES" (or "Royalty") shall mean the royalties payable to
Penwest pursuant to Section hereof.
1.26 "SPECIFICATIONS" shall mean such standards and analytical methods
established in writing by Penwest and Mylan as are reasonably necessary or
appropriate to assure the identity, strength, quality and purity of the TIMERx
and Formulated TIMERx, and any such other standards or methods as may be
required or approved by the FDA. It is understood and agreed that the
Specifications for Formulated TIMERx for use in Designated Product to be sold in
the Non-Exclusive Territory shall be the same as those for Formulated TIMERx for
use in Designated Product to be sold in the Exclusive Territory, and in no event
will Mylan permit the Designated Product to be certified for sale in the
Non-Exclusive Territory on any other basis.
1.27 "SUBMISSION DATE" shall mean the date on which Mylan submits to
the FDA an ANDA for the Designated Product (in any dosage strength), as approved
by the parties at the end of the Development Period.
1.28 "TERRITORY" shall mean the Exclusive Territory and the
Non-Exclusive Territory.
1.29 "TIMERX PRODUCTION TECHNOLOGY" shall mean Penwest's rights under
the Penwest Patents and any and all other patents, patent applications, and
other technology and know-how belonging to Penwest from time to time during the
term of this Agreement that directly relate to, and are necessary for the
production of, Formulated TIMERx for use in the Designated Product.
1.30 "UNIT PRICE" shall mean ****************** of Formulated TIMERx,
subject to adjustment ********************* to reflect any percentage increases
or decreases in the United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers for the New York City
Metropolitan Area, "All Items" (1982-84 = 100) (the "Index") over the base
period Index. The Index, which may be a monthly, quarterly or other fiscal
period Index ***************** *********************************************,
shall be considered the "base period" Index. If at any time publication of the
Consumer Price Index is discontinued, Penwest shall, with the consent of Mylan
(which consent shall not be unreasonably withheld), substitute any other index
published by the Bureau of Labor Statistics, or successor or
-7-
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
similar governmental agency or quasi-governmental or private entity
providing similar information as may then be in existence and shall be most
nearly equivalent thereto.
2. DEVELOPMENT PERIOD.
2.1 In consideration of Penwest's entering into this Agreement,
Mylan shall pay Penwest upon the Effective Date a nonrefundable initial fee of
************.
2.2 As additional inducement to Penwest to enter into this
Agreement, Mylan hereby affirms that, other than confidentiality agreements not
binding either party to any further agreement, it currently has no agreement or
arrangement with any Person other than Penwest for or including the development,
design, testing, certification, manufacture or marketing by it or such other
Person (or the Affiliate(s) of either) of any controlled-release Nifedipine
product that is intended to be essentially bioequivalent to "Procardia XL," and
agrees that it will refrain from entering into any such agreement or arrangement
(other than such confidentiality agreements) throughout the duration of the
Development Period or the period of eighteen months following the date hereof,
whichever expires later.
2.3 During the Development Period, each of Penwest and Mylan will
exert its continuing best efforts to perform their respective tasks specified in
Exhibit , within the estimated time periods there stated, in order to create and
produce the Designated Product, and each will cooperate with the other in such
efforts. It is understood that the exertion of a party's best efforts will mean
that this project will receive a priority at least as high as any of such
party's other generic drug development efforts. Each party will, promptly and
throughout the Development Period, provide to the other all necessary
information in or coming into its possession or reasonably available to it for
such purposes. Notwithstanding anything else to the contrary contained herein,
nothing shall require either party to disclose confidential information for
which such party has an obligation of confidentiality to a third party. Each
party understands and agrees that the other does not warrant or commit that the
Designated Product will be successfully developed, and neither party shall have
any liability or responsibility to the other or to third parties for any such
failure of the development process hereunder, except to the extent such failure
results from said party's intentional misconduct, negligence, or breach of its
duties or obligations as set forth herein.
2.4 Mylan shall be responsible for, and hereby agrees to conduct
or arrange for, at Mylan's expense, all testing and studies during the
Development Period,
-8-
<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
including as to bioavailability and bioequivalence, in connection with the
development, licensing, manufacture and marketing of the Designated Product, and
for substantial compliance with all material and relevant governmental
requirements imposed in the Territory with respect to the manufacture, use, and
sale of the Designated Product.
2.5 Mylan shall be primarily responsible for the preparation, at
its expense, of an ANDA for the Designated Product, to be filed with the FDA at
the end of the Development Period. In consideration of Penwest's entering into
this Agreement, Mylan agrees to pay Penwest a first milestone fee of *******,
payable *********************************************************************
(but only with respect to the ***********************************************,
where ********************** are ***********************************************
2.6 Each party's Project Contact will provide written reports to
the other party's Project Contact at least monthly throughout the Development
Period, stating in detail all efforts made and in process, and all significant
progress achieved and difficulties encountered in the development effort since
the last such report. Each party's Project Contact will also be available
throughout the Development Period to answer any reasonable questions from the
other party's Project Contact. The parties will cooperate reasonably during the
Development Period such that the sites for meetings among their respective
personnel shall be alternated among the parties' facilities to the extent
practicable.
2.7 During the Development Period, Mylan will supply, at its own
expense, all Nifedipine reasonably required to support the development effort,
and Penwest shall provide at its own expense all TIMERx reasonably required for
such effort. Each party shall bear its own expenses for all activities during
the Development Period, except as otherwise stated in Exhibit .
2.8 Either party may terminate this Agreement before completion of
the Development Period by delivery of 90 days' written notice to the other if
such party reasonably determines that, due to unfavorable or inconclusive
results to that time, no further Development Steps are likely to lead to the
successful development of the target Designated Product listed in Exhibit .
3. CERTIFICATION PERIOD.
3.1 During the Certification Period, Mylan will exert its
continuing best efforts, at its expense, to prosecute the ANDA(s) for the
Designated Product (in all
-9-
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
the contemplated dosage strengths) filed hereunder successfully to the granting
of an FDA approval to market the Designated Product. Penwest will, promptly and
throughout the Certification Period, provide to Mylan all necessary information
in or coming into Penwest's possession or reasonably available to it for such
purpose. Each party understands and agrees that the other does not warrant or
commit that the Designated Product will be successfully licensed or certified
for marketing by the FDA, and neither party shall have any liability or
responsibility to the other or to third parties for any such failure of the
certification process hereunder, except to the extent such failure results from
said party's intentional misconduct, negligence, or breach of its duties or
obligations as set forth herein.
3.2 Either party may terminate this Agreement before completion of
the Certification Period by delivery of 90 days' written notice to the other if
such party reasonably determines that, due to unfavorable action by the FDA, the
ANDA is not likely to be approved by the FDA, regardless of any further steps or
submissions that could be made.
3.3 Mylan's Project Contact will provide written reports to
Penwest's Project Contact at least quarterly throughout the Certification
Period, stating in detail all efforts made and in process, and all significant
progress achieved and difficulties encountered in the certification effort since
the last such report. Mylan's Project Contact will also be available throughout
the Certification Period to answer any reasonable questions from Penwest's
Project Contact.
3.4 During the Certification Period, Mylan shall provide at its
own expense all Nifedipine and other materials and manufacturing and testing
services reasonably required to support the testing and certification effort,
and Penwest shall provide at its own expense all TIMERx reasonably required for
such effort. Each party will bear its own expenses during the Certification
Period.
3.5 In consideration of Penwest's entering into this Agreement,
Mylan agrees to pay Penwest a second milestone fee of ****************, payable
within ************************************************** (but only with respect
to the ***********************************, where *********************** are
**************************************************. Mylan shall notify Penwest
of the occurrence of the Approval Date no later than the next business day
following Mylan's learning of such occurrence.
4. MARKETING PERIOD.
-10-
<PAGE> 11
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
4.1 Subject to the granting of all necessary governmental
approvals or concurrences to sell the Designated Product, Mylan hereby agrees,
during the Marketing Period, to use its continuing best efforts to market,
promote and sell the Designated Product throughout the Territory.
4.2 In consideration of Penwest's entering into this Agreement,
Mylan agrees to pay Penwest a third milestone fee of ***************, payable
within **************************************************** for the
******************************************* anywhere in the Territory.
4.3 Mylan hereby agrees to pay to Penwest Royalties on Net Sales
made during the License Term, pursuant to the following Royalty rate schedule:
4.3.1 with respect to all Net Sales with respect to Designated
Product sold in a nation during a quarter in which there is *****************
******************************************* on the market in such nation, the
Royalty rate shall be ********************* of such Net Sales;
4.3.2 with respect to all Net Sales with respect to Designated
Product sold in a nation during a quarter in which there is
************************************ on the market in such nation, the Royalty
rate shall be ************************* of such Net Sales;
4.3.3 with respect to all Net Sales with respect to Designated
Product sold in a nation during a quarter in which there are
*************************************** on the market in such nation, the
Royalty rate shall be ******************* of such Net Sales;
provided, however, that the Royalty rates set forth above shall be
************** **************************************************** with respect
to the initial ************* of Net Sales during the License Term; and provided
further, however, that such Royalties shall be *******************************
with respect to Net Sales of the Designated Product as to which no license to
Penwest Patents hereunder is applicable to the manufacture, sale or use of the
Designated Product (it being understood that a Penwest Patent shall not be
considered applicable to the manufacture of the Designated Product solely by
virtue of its applicability to the manufacture and/or sale of the Formulated
TIMERx to be provided by Penwest to Mylan for such purpose hereunder, unless
such Penwest Patent is also otherwise applicable to the manufacture, sale or use
of the Designated Product). For purposes of the foregoing, to be "sold in a
nation" refers to the nation in which such Designated Product will be initially
placed into actual commercial distribution, regardless of the FOB point or
-11-
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
where the agreement for such sale may have been struck. If an Approved Generic
Version (other than the Designated Product) is first put on the market in a
nation during the first half of a calendar quarter, it will be deemed for
purposes of this Section to have been on the market in such nation from the
first day of such quarter, and if it is first put on the market in a nation
during the second half of a calendar quarter, it will be deemed for purposes of
this Section not to have been on the market in such nation until the first day
of the following quarter.
4.4 All Royalties payable pursuant to this Agreement shall be due
quarterly ********************* following the end of each calendar quarter for
Net Sales in such calendar quarter. Each such payment shall be accompanied by a
statement of Net Sales for the quarter and the calculation of Royalties payable
hereunder. All Royalties and all other amounts which are overdue under this
Agreement will bear interest at the rate of 1 1/2% per month from the date due
through the date of payment. Mylan shall keep and shall cause its Affiliates and
its and their sublicensees to keep complete, true and accurate records for the
purpose of showing the derivation of all Royalties payable to Penwest under this
Agreement. Penwest's duly accredited representatives (which representatives are
approved for such purpose by Mylan, which approval shall not be unreasonably
withheld nor shall it be revocable by Mylan following the start of any
inspection hereunder) shall have the right to inspect, copy, and audit such
records at any time during reasonable business hours upon reasonable prior
notice to Mylan or any of its Affiliates or sublicensees, respectively, but such
right will not be exercised more often than annually (it being understood that a
single exercise of such right may include a series of related or continuing
inspections, copying and audits). Any such audit shall be at the expense of
Penwest, unless the audit reveals that, with respect to the period under audit,
less than 97% of the Royalties due to Penwest hereunder have been reported, in
which event Mylan shall pay or reimburse Penwest for the reasonable expenses of
such audit, in addition to Penwest's other remedies for such underpayment.
4.5 All monies due hereunder shall be paid in United States
Dollars to Penwest in Patterson, New York, USA. Said payment may be made at
Mylan's option by check or wire transfer.
5. SUPPLY OF FORMULATED TIMERx.
5.1 Except as provided in Section , and subject to the other
provisions hereof, Penwest will supply Mylan and its Affiliates and sublicensees
with quantities of Formulated TIMERx to meet their reasonable requirements for
manufacturing of the Designated Product during the Marketing Period, and Mylan
-12-
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
shall purchase all of its and its Affiliates' and sublicensees' requirements for
controlled-release agents for Nifedipine products that are essentially
bioequivalent to "Procardia XL" in the form of TIMERx from Penwest during such
period.
5.2 The price for all Formulated TIMERx sold hereunder shall equal
the Unit Price multiplied by the applicable units purchased. All sales
*******************************************, and Mylan shall bear all
transportation, insurance, taxes, duties, and other costs and risks of loss,
spoilage and damage associated with the shipping and delivery of Formulated
TIMERx to Mylan or its Affiliates or sublicensees.
5.3 Penwest warrants that it will not change or modify its DMF,
the Specifications, or its method of manufacture for Formulated TIMERx without
prior written consent from Mylan, which consent shall not be unreasonably
withheld.
5.4 Penwest shall perform quality control tests with respect to
all Formulated TIMERx as required by the FDA as set forth in the DMF. In
addition, Penwest may perform such other tests as Penwest deems necessary in
accordance with its applicable policies. No other or special tests by Penwest
with respect to the raw materials or Formulated TIMERx will be required, unless
and to the extent that Mylan establishes that the same are required in order to
obtain or maintain an FDA approval to market the Designated Product in the
Exclusive Territory. Penwest shall promptly, upon completion of each lot or
batch of Formulated TIMERx, deliver to Mylan a copy of the record of such test
performed on said lot or batch.
5.5 Each shipment of the TIMERx or Formulated TIMERx shall:
i) be accompanied by a Certificate of Analysis and a
certificate of Origin;
ii) meet all present, FDA, Compendial, and the applicable
Specifications; and
iii) be manufactured, packaged, stored and shipped in
conformance with the applicable Specifications, and
Current Good Manufacturing Practices ("cGMPs").
5.6 Within a reasonable period but not more than thirty (30) days
after receipt, Mylan will analyze each shipment of the Formulated TIMERx. If
Mylan considers any such shipment not to conform to the applicable
Specifications, Mylan shall notify Penwest immediately and provide Penwest with
the relevant analysis. If Penwest does not agree, the parties shall submit such
disagreement to the arbitration of one mutually accepted neutral analytical
laboratory. If Penwest or the neutral laboratory
-13-
<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
agree with Mylan, Penwest shall not have any obligation to Mylan other than to
accomplish at Mylan's option any of the following:
i) at its own expense accept return of any shipment not
accepted; or
ii) reimburse Mylan for the cost of disposal or
destruction; and
iii) use commercially reasonable efforts to replace the
non-conforming shipment with conforming Formulated
TIMERx.
5.7 In case Penwest cannot supply Mylan the requested quantities
of the Formulated TIMERx, the shipments may be made by an alternate supplier
designated by Penwest with Mylan's consent, which consent shall not be
unreasonably withheld. Penwest will qualify (in Penwest's reasonable judgment)
at least one such alternate supplier and notify Mylan thereof no later than 180
days following the Approval Date. If Mylan has any objections to such supplier,
it shall so notify Penwest within fifteen days following Penwest's notice of
such qualification, or else Mylan will be deemed to have consented to such
qualification and the designation of such supplier. Such shipment by the
alternate supplier shall be made under the same agreed terms and conditions as
those set forth herein, except that an additional 60 days shall be added to the
order lead time stated in any then-outstanding order for Formulated TIMERx
hereunder to reflect the transition time required to shift to such alternate
supplier. Notwithstanding anything to the contrary set forth herein, Penwest
will be responsible for enforcing all relevant terms and conditions set forth
herein against such alternate supplier and remain liable to Mylan for any breach
of such terms and conditions by such supplier.
5.8 If for any reason Penwest (or the alternate supplier) fails to
supply Mylan with its and its Affiliates' and sublicensees' requirements of
Formulated TIMERx during the Marketing Period as agreed hereunder, Penwest shall
grant Mylan a nonexclusive license to manufacture Formulated TIMERx under the
TIMERx Production Technology and make knowledgeable personnel reasonably
available to consult with Mylan, all to the extent necessary to enable Mylan to
produce Formulated TIMERx that would otherwise have been supplied by Penwest or
an alternate supplier hereunder for Mylan and its Affiliates and sublicensees in
connection with the production of the Designated Product pursuant to this
Agreement.
5.8.1 In such event Mylan shall pay to Penwest, in addition to the
Royalties under Section , Production Royalties equal to *************, if any,
of the then-current
-14-
<PAGE> 15
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
Unit Price for each kilogram of Formulated TIMERx produced by Mylan hereunder,
*************************** **************************************************
Such Production Royalties shall be payable and reported and accounted for as
stated in Sections and, except that the Production Royalties will be payable
within******* after the end of the calendar quarter in which the applicable
kilogram of Formulated TIMERx was produced.
5.8.2 Mylan shall maintain all information and technology delivered
to Mylan pursuant to this Section, whether orally or in writing, in confidence
in accordance with Section (to the extent the same is Confidential Technology)
and shall use such information and technology only for the purpose of producing
Formulated TIMERx for its own use and the use of its Affiliates and sublicensees
in connection with this Agreement.
5.8.3 Mylan acknowledges that, in doing the foregoing, Penwest will
not be providing a "turnkey" operation. Rather, Penwest will only be required to
make reasonably available to Mylan the best standard of knowledge and
information then available to Penwest and directly used in its or its
Affiliate's manufacture of Formulated TIMERx. If any professional licenses,
visas, or other permits are required for any of the consulting to be provided by
Penwest's or its Affiliates' or licensees' personnel, Mylan shall so inform
Penwest and Mylan shall bear the costs of obtaining the same.
5.8.4 Neither Penwest nor its Affiliates or licensees will be
responsible for any failure of Mylan or its personnel to understand or properly
to implement such knowledge and information or for any materials made by any
party other than Penwest or such respective Affiliate or licensee using such
knowledge and information.
5.8.5 If Penwest's non-delivery of Formulated TIMERx resulted in
whole or in part from a temporary inability to produce and deliver the same,
Penwest may, at its option and on at least 120 days' prior written notice to
Mylan, terminate the license to produce Formulated TIMERx hereunder once Penwest
or its alternative supplier is again able and willing to supply Formulated
TIMERx hereunder.
5.9 Penwest shall, after receipt of reasonable prior notice, give
duly accredited representatives of Mylan access at all reasonable times during
regular business hours to inspect, copy, and audit any relevant records of
Penwest's or its Affiliate's plant in which the Formulated TIMERx is being
produced.
-15-
<PAGE> 16
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
5.10 Mylan shall deliver to Penwest a firm written order stating its
(and/or its Affiliates' and sublicensees') requirements for Formulated TIMERx to
be used for production of the Designated Product for commercial use or sale
********* *************************************** therefor.
5.11 At least **************** before Mylan and/or its Affiliates or
sublicensees begin production of the Designated Product for commercial use or
sale, Mylan shall deliver to Penwest a written, non-binding estimate of all
requirements of Formulated TIMERx therefor. Mylan will deliver to Penwest
updates to such estimates on or before the first day of each January, April,
July and October thereafter during the Marketing Period, which updates may
revise estimates previously submitted and will add estimates for additional
months so that each such estimate covers the **************** following the end
of the firm-order period (that is, the ******************** month after the
month in which such estimates are made). Penwest shall not be obligated to
supply Mylan with quantities of Formulated TIMERx during any quarter in excess
of ************************ of the quantities estimated in Mylan's written
estimate applicable to that quarter, which estimate was given to Penwest
**************** prior to such quarter (the "************ Prior Estimate" as to
that quarter). Mylan shall be responsible for purchasing from Penwest in each
quarter at least ******************** of the quantities of Formulated TIMERx
estimated in the ************* Prior Estimate as to such quarter.
5.12 No order for Formulated TIMERx hereunder may be cancelled or
deferred by Mylan except by written notice delivered to Penwest at least
*************** the scheduled delivery date. No orders may be cancelled or
deferred ************************** without Penwest's approval if such
cancellation or deferral would reduce Mylan's purchases for the applicable
quarter to less than the ******* level referred to in Section.
5.13 Each party shall promptly notify the other of any fact,
circumstance, condition or knowledge dealing with TIMERx or the Designated
Product of which the Party becomes aware that bears upon the safety or efficacy
of TIMERx or the Designated Product. Each party shall immediately notify the
other of any inspection or audit relating to TIMERx, Formulated TIMERx, or the
Designated Product by any governmental regulatory authority in the Territory. If
a representative of the governmental authority takes samples in connection with
such audit or inspection, the parties shall immediately provide each other, as
appropriate, samples from the same batch. The party in receipt of such notice
will provide the other party within 72 hours, with copies of all relevant
documents, including FDA Forms 482, 483, warning letters and other
correspondence and notifications as such other party may
-16-
<PAGE> 17
reasonably request. Penwest and Mylan agree to cooperate with each other during
any inspection, investigation or other inquiry by the FDA or other governmental
entity, including providing information and/or documentation, as requested by
the FDA, or other governmental entity. To the extent permissible, Penwest and
Mylan also agree to discuss any responses to observations or notifications
received and to give the other party an opportunity to comment on any proposed
response before it is made. In the event of disagreement concerning the content
or form of such response, Mylan shall be responsible for deciding the
appropriate form and content of any response with respect to any of its cited
activities and Penwest shall be responsible for deciding the appropriate form
and content of any response with respect to any of its cited activities. Each
party shall inform the other of all comments and conclusions received from the
governmental authority.
6. OWNERSHIP AND LICENSES.
6.1 Except as otherwise explicitly licensed or transferred as provided
herein, each party will, as between it and the other party hereto, retain
ownership of any and all inventions, copyrights, trade secrets, know-how, patent
rights and other technology and rights to the extent conceived or developed by
its personnel or contractors (other than the other party hereto). Neither party
makes any grant of rights by implication.
6.2 Except as otherwise provided herein, each party shall be
responsible, as it shall determine, for the filing and prosecution of any and
all patent applications with respect, in whole or in part, to its own
intellectual property and for the maintenance of any available patent protection
with respect thereto; provided however, that neither party commits that any such
patent protection will be available or continuous hereunder. If one party
believes that an application for a patent in the Territory should be filed with
respect to any invention of the other party hereunder related to the Designated
Product, it may so notify such other party, and the parties will cooperate in
the investigation of the propriety of such an application, taking into account
the respective interests of the parties and the anticipated costs and benefits
of such patent protection.
6.3 Penwest hereby grants to Mylan and its Affiliates a license under
the Penwest Patents, the Joint Developments, and Penwest's Confidential
Technology disclosed to Mylan hereunder to make, have made, use and sell the
Designated Product in the Territory during the License Term. Such license shall
be exclusive for such purposes as to the Penwest Patents listed in Exhibit
within the Exclusive Territory and shall be non-exclusive in the Non-Exclusive
Territory. Such license does not extend to the making of TIMERx or Formulated
TIMERx, but does cover the incorporation of the same into the Designated
Product. Mylan shall have no right to grant sublicenses hereunder without the
prior written consent of Penwest, which consent may be withheld in Penwest's
discretion as to sublicenses in the Exclusive
-17-
<PAGE> 18
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
Territory, but will not be unreasonably withheld as to sublicenses in the
NonExclusive Territory. Penwest will, throughout the License Term, promptly
notify Mylan of all Penwest Patents referred to in Subsection and provide Mylan
with access to all of the same, solely for use within the scope of the license
stated in this section.
6.4 Mylan hereby grants to Penwest and its Affiliates a nonexclusive,
paid-up, worldwide license, with right to sublicense, under any and all patents,
patent applications, trade secrets, copyrights, and other intellectual property
rights of any sort owned or controlled by Mylan or its Affiliates or
sublicensees, to make, have made, use and sell Formulated TIMERx during the
License Term, if and to the extent such license is necessary for Penwest to do
so as agreed hereunder. Penwest and its Affiliates shall have the right to grant
sublicenses of its rights hereunder to an alternate supplier as and for the
purposes described in Section , but shall otherwise have no right to grant
sublicenses hereunder without the prior written consent of Mylan, which consent
shall not be unreasonably withheld.
6.5 Subject to and conditional upon the failure of Penwest (or the
alternate supplier) to meet Mylan's and its Affiliates' and sublicensees'
requirements as provided in Section , Penwest grants to Mylan a nonexclusive,
worldwide license under the TIMERx Production Technology to make and have made
Formulated TIMERx solely for use in the Designated Product for sale in the
Territory during the License Term. Mylan shall have no right to grant
sublicenses of its rights hereunder (whether to Affiliate(s) or otherwise)
without the prior written consent of Penwest, which consent shall not be
unreasonably withheld.
6.6 Mylan acknowledges that Penwest and its Affiliates, for itself and
for others, applies, and will seek to apply, TIMERx to products other than the
Designated Product. No provision hereof, and no exclusivity hereunder, shall
prevent Penwest from so applying TIMERx or Formulated TIMERx, so long as the end
product is not the Designated Product hereunder.
6.7 Mylan hereby grants to Penwest and its Affiliates a nonexclusive,
worldwide license, with right to sublicense, under any and all Mylan
Improvements, to make, have made, use and sell any products or services using or
based upon TIMERx or related technology, other than Designated Products in the
Territory during the License Term. Such license shall require the payment of a
reasonable royalty to Mylan if any commercial sales are made under such license.
Penwest shall notify Mylan at least *********** prior to granting any sublicense
to the rights under this section (other than to a Penwest Affiliate), and shall
consult with Mylan as to the
-18-
<PAGE> 19
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
propriety of such sublicense if Mylan, within such ********** period, notifies
Penwest of Mylan's belief, on reasonable grounds stated in such notice, that
such a sublicense would have a substantial adverse effect on Mylan or its
business. Mylan will, throughout the License Term, promptly notify Penwest of
all Mylan Improvements and provide Penwest with access to all of the same,
solely for use within the scope of the license stated in this section.
6.8 In recognition of the parties' cooperative efforts with respect to
the Joint Developments, it is agreed that each party and its Affiliates shall
have the nonexclusive, worldwide right and license, with right to sublicense,
under the Joint Developments, to make, have made, use and sell any products or
services (other than the Designated Product by Penwest or its Affiliates in the
Exclusive Territory during the License Term); provided, however.
********************************************************************************
********************************************************************************
********** Each party shall promptly notify the other of any such licenses or
sublicenses of any Joint Developments. Each party will, throughout the License
Term, promptly notify the other of all Joint Developments and provide such other
party with access to all of the same.
6.9 Mylan hereby grants Penwest and its Affiliates a nonexclusive
license under all rights of Mylan and its Affiliates and sublicensees in and to
that portion of the Mylan Test and Regulatory Data that is disclosed or provided
to Penwest hereunder, to use the same for purposes of complying with
governmental requirements of any country, other than with respect to the
Designated Product for marketing or use in the Territory. Such license shall be
on a paid-up, royalty-free basis as to Penwest and its Affiliates, and as to any
of the Available Portion of the Mylan Test and Regulatory Data (whether as to
Penwest or others), but shall ************************************************
if any but the Available Portion is used by any other party under a sublicense
from Penwest or its Affiliate. Penwest shall notify Mylan at least *********
prior to granting any sublicense to the rights under this section (other than to
a Penwest Affiliate or as to the Available Portion), and shall consult with
Mylan as to the propriety of such sublicense if Mylan, within such ********
period, notifies Penwest of Mylan's belief, on reasonable grounds stated in such
notice, that such a sublicense would have a substantial adverse effect on Mylan
or its business. Mylan hereby consents to Penwest's and its Affiliates' and
sublicensees' cross-referencing, in any filings that are essentially the
equivalent of the sorts of filings that are termed "ANDA" or "NDA" filings if
made with the FDA, made by them within the scope of such license, any ANDA or
NDA filing made or FDA master file created by Mylan or its Affiliates or
sublicensees relating to or containing any of the Mylan Test and Regulatory
Data. The license under this section
-19-
<PAGE> 20
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
shall survive any termination or expiration of the term of this Agreement,
except a termination under Section due to an uncured breach by Penwest. Mylan
will, throughout the License Term and solely for use within the scope of the
license stated in this section, promptly provide to Penwest copies of all of the
Deliverable Portion of the Mylan Test and Regulatory Data in or coming into
Mylan's possession or otherwise reasonably available to it.
6.10 Penwest hereby grants Mylan and its Affiliates (with right to
sublicense only to sublicensees under Section , as approved by Penwest) a
nonexclusive, paid-up license under all rights of Penwest and its Affiliates in
and to the Penwest Test and Regulatory Data to use the same for purposes of
complying with governmental requirements, but solely with respect to the
Designated Product for marketing or use in the Territory. Penwest hereby
consents to Mylan's and its Affiliates' and such sublicensees'
cross-referencing, in any ANDA or NDA filings made by them within the scope of
such license, any ANDA or NDA filing made or FDA master file created by Penwest
or its Affiliates relating to or containing any of the Penwest Test and
Regulatory Data. The license and rights under this section shall survive any
termination or expiration of the term of this Agreement, except a termination
under Section due to an uncured breach by Mylan. Penwest will, throughout the
License Term and solely for use within the scope of the license stated in this
section, promptly provide to Mylan copies of all of the Penwest Test and
Regulatory Data in or coming into Penwest's possession or otherwise reasonably
available to it.
6.11 Each party agrees to mark and to have marked by its Affiliates and
sublicensees (if any) every product manufactured, used or sold by it or its
Affiliates or sublicensees in accordance with the laws of the United States or
other applicable nation relating to the marking of patented articles with
notices of patent.
6.12 Any dispute concerning **************************************
********************************************************************************
**************** Each party hereto shall afford, to the extent permissible under
its agreements with the third parties, the other party hereto the same audit
rights that such party obtains from its licensees or sublicensees with respect
to any of the rights described in such sections.
-20-
<PAGE> 21
7. CONFIDENTIALITY.
7.1 In the course of performance under this Agreement, a party may
disclose to the other confidential information belonging to such party in
writing, orally or by demonstration or sample, which information is marked or
stated in writing at or within 30 days after its disclosure to be "confidential"
or "trade secret" information. All such confidential information of a party
shall be maintained in confidence by the other and will not be used by the other
party for any purpose except as authorized hereunder. Each party shall exercise,
and shall cause its Affiliates, sublicensees and consultants to exercise, a
reasonable degree of care and at least the same degree of care as it uses to
protect its own confidential information of similar nature to preserve the
confidentiality of such information of the other party. Each party shall
safeguard such information against disclosure to third parties, including
without limitation employees and persons working or consulting for such party
that do not have an established, current need to know such information for
purposes authorized under this Agreement. This obligation of confidentiality
does not apply to information and material that:
7.1.1 were properly in the possession of the receiving party,
without any restriction on use or disclosure, prior to receipt from the other
party;
7.1.2 are at the time of disclosure hereunder in the public domain
by public use, publication, or general knowledge;
7.1.3 become general or public knowledge through no fault of the
receiving party or its Affiliates or sublicensees following disclosure
hereunder;
7.1.4 are properly obtained by the receiving party from a third
party not under a confidentiality obligation to the disclosing party hereto;
7.1.5 are independently developed by or on behalf of the receiving
party without the use or assistance of the confidential information of the other
party;
7.1.6 consist merely of an idea or conception for the combination of
one or more active drug ingredients with a controlled-release agent such as
TIMERx; or
7.1.7 are required to be disclosed by order of any court or
governmental authority;
provided, however, that the exceptions stated in Sections , , and shall not
affect the continuing obligation of Mylan as the receiving party to pay any
Royalties pursuant to the terms hereof with respect to the use of such
information or materials that have not, as of the relevant time, been placed
into the public domain by the act of Penwest or its Affiliates.
-21-
<PAGE> 22
7.2 Neither party shall make any public announcement or other
publication regarding this Agreement (whether as to the existence or terms
hereof) or the development work or project hereunder or the results thereof
without the prior, written consent of the other party, which consent shall not
be unreasonably withheld; provided that the foregoing shall not prohibit any
disclosure which, in the opinion of counsel to the disclosing party, is required
by any applicable law or by any competent governmental authority. In no event
shall either party make any disclosure of any such results before a patent
application has been filed with respect thereto, except upon the prior written
approval of the other party.
8. INFRINGEMENT.
8.1 Penwest shall promptly inform Mylan of any suspected
infringement of any of the Penwest Patents or the infringement or
misappropriation of the TIMERx Production Technology by a third party, to the
extent such infringement involves the manufacture, use or sale of the Designated
Product in the Territory ("Covered Infringement"). Mylan shall promptly inform
Penwest of any suspected infringement of any of the Penwest Patents or
infringement or misappropriation of the TIMERx Production Technology, whether or
not the same involves a Covered Infringement.
8.2 If the suspected infringement or misappropriation does not
involve a Covered Infringement, Penwest may take, or refrain from taking, any
action it chooses, with or without notice to Mylan, and Mylan shall have no
right to take any action with respect to such suspected infringement or
misappropriation, nor to any recoveries with respect thereto. If the suspected
infringement or misappropriation involves a Covered Infringement, Penwest shall,
within 30 days of the first notice referred to in Section , inform Mylan whether
or not Penwest intends to institute suit against such third party with respect
to a Covered Infringement. Mylan will not take any steps toward instituting suit
against any third party involving a Covered Infringement until Penwest has
informed Mylan of its intention pursuant to the previous sentence.
8.3 If Penwest notifies Mylan that it intends to institute suit
against a third party with respect to a Covered Infringement, and Mylan does not
agree to join in such suit as provided in Section , Penwest may bring such suit
on its own and shall in such event bear all costs of, and shall exercise all
control over, such suit. Penwest may, at its expense, bring such action in the
name of Mylan and/or cause Mylan to be joined in the suit as a plaintiff.
Recoveries, if any, whether by judgment, award, decree or settlement, shall
belong solely to Penwest.
8.4 If Penwest notifies Mylan that it desires to institute suit
against such third party with respect to a Covered Infringement, and Mylan
notifies Penwest within 30 days after receipt of such notice that Mylan desires
to institute suit jointly,
-22-
<PAGE> 23
the suit shall be brought jointly in the names of both parties and all costs
thereof shall be borne equally. Recoveries, if any, whether by judgment, award,
decree or settlement, shall, after the reimbursement of each of Penwest and
Mylan for its share of the joint costs in such action, be shared between Penwest
and Mylan equally; provided however that, any portion of such net recoveries
which constitutes the equivalent of, or damages or payments in lieu of, a
royalty measured by the defendant's Net Sales shall not be shared equally, but
shall be shared between Penwest and Mylan in accordance with Section as if they
were Mylan's Net Sales.
8.5 If Penwest notifies Mylan that it does not intend to institute
suit against such third party with respect to a Covered Infringement, Mylan may
institute suit on its own. Mylan shall bear all costs of, and shall exercise all
control over, such suit. Recoveries, if any, whether by judgment, award, decree
or settlement, shall belong solely to Mylan; provided however that, after
reimbursement of Mylan for its costs in such action, any portion of such net
recoveries which constitutes the equivalent of, or damages or payments in lieu
of, a royalty measured by the defendant's Net Sales shall be shared between
Penwest and Mylan in accordance with Section as if they were Mylan's Net Sales.
8.6 Should either Penwest or Mylan commence a suit under the
provisions of this Section and thereafter elect to abandon the same, it shall
give timely notice to the other party, who may, if it so desires, be joined as a
plaintiff in the suit (or continue as such if it is already one) and continue
prosecution of such suit. The sharing of expenses and any recovery of such suit
shall be as reasonably agreed between Penwest and Mylan.
9. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
9.1 Each party represents and warrants to the other that, to the
best of its current knowledge, it has the full right and authority to enter into
this Agreement and to grant the licenses granted herein. Each party believes, to
the best of its current knowledge, that any existing patents licensed by it to
the other party under this Agreement are valid.
9.2 Penwest represents and warrants that any Formulated TIMERx
supplied by it to Mylan hereunder for use in the Designated Product, at the
point of delivery:
9.2.1 will conform to the product Specifications that Penwest and
Mylan have agreed in writing are to apply to such delivery of TIMERx; and
9.2.2 to the best of Penwest's current knowledge, will not infringe
upon an article patent of any third party.
-23-
<PAGE> 24
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
PENWEST MAKES NO REPRESENTATIONS OR WARRANTIES AS TO ANY TIMERx OR FORMULATED
TIMERx SUPPLIED BY IT TO MYLAN EXCEPT AS ARE EXPLICITLY STATED HEREIN.
9.3 Each party represents and warrants to the other party that it
has obtained and will at all times during the term of this Agreement, hold and
comply with all licenses, permits and authorizations necessary to perform this
Agreement and to test, manufacture, market, export, and import the products and
assistance to be provided by it hereunder, as now or hereafter required under
any applicable statutes, laws, ordinances, rules and regulations of the United
States and any applicable foreign, state, and local governments and governmental
entities.
9.4 Mylan warrants that any Designated Product manufactured,
marketed or distributed by Mylan or its Affiliates or sublicensees shall meet
and be manufactured, packaged, labeled, sold, and promoted in accordance with
all applicable regulatory requirements within the Territory.
9.5 Penwest shall indemnify, defend and hold harmless Mylan and
its Affiliates and sublicensees from any claim, action or damages arising out of
any alleged infringement by reason of the manufacture, use or sale by Mylan of
the Designated Product to the extent such infringement would apply as well to
the manufacture, sale or distribution of TIMERx alone. If Mylan or its Affiliate
or sublicensee, by reason of its manufacture, sale or distribution of Designated
Product, is accused of infringing the patent of a third party, and such claim of
infringement, as framed by the claimant, would apply as well to the manufacture,
sale or distribution of TIMERx alone, Mylan shall immediately so notify Penwest
and provide Penwest all available information, and the parties shall consult
reasonably as to the proper course of action. If Penwest and Mylan jointly
determine that such claim is likely to prevail, or if an arbitrator hereunder or
a court of competent jurisdiction so determines, Mylan shall be entitled to
offset against any Royalties payable to Penwest hereunder any third party
royalties for which Mylan or its Affiliate or sublicensee becomes liable.
9.6 Penwest shall indemnify, defend and hold Mylan and its
Affiliates and sublicensees harmless from any and all third-party claims to the
extent arising from, in connection with, based upon, by reason of, or relating
in any way to:
9.6.1 the ************************************************ TIMERx in
the Designated Product;
-24-
<PAGE> 25
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
9.6.2 Penwest's *********************************************** and
the Specifications therefor hereunder;
9.6.3 any failure of the Formulated TIMERx manufactured by Penwest
or its alternate supplier (but not by Mylan under Section ), as delivered to
Mylan hereunder for use in the Designated Product, to conform to the
Specifications; or
9.6.4 any failure of Penwest to comply with its obligation under
Section 5.13 to notify Mylan of any information coming into Penwest's possession
and *************************** the Designated Product and not arising from any
other aspect of the Designated Product or its formulation, development, supply,
production, manufacture, sale, delivery, distribution or use, nor from any act
or omission of Mylan with respect to the Formulated TIMERx following its
delivery to Mylan hereunder.
9.7 Mylan shall indemnify, defend and hold Penwest harmless from
any and all third-party claims to the extent arising from, in connection with,
based upon, by reason of, or relating in any way to, the formulation,
development, supply, production, manufacture, sale, delivery, distribution or
use of the Designated Product, ************************************************.
9.8 Notwithstanding anything to the contrary set forth elsewhere
herein, neither Mylan nor Penwest shall be obligated to indemnify the other
party for claims or liabilities to the extent arising from such other party's,
or its Affiliates', sublicensees' or assigns', negligence, intentional
misconduct, or breach of its duties, obligations, warranties or representations
set forth herein.
9.9 Whenever indemnification is provided for a party under this
Agreement, such right of indemnification shall extend also to the indemnified
party's Affiliates, officers, directors, shareholders, successors, assigns,
agents, employees, and insurers to the extent the same become subject to such
claim in such capacity. The party seeking indemnification shall provide the
indemnifying party with written notice of any claim or action within ten (10)
days of its receipt thereof, and shall afford the indemnifying party the right
to control the defense and settlement of such claim or action. The party seeking
indemnification shall provide reasonable assistance to the indemnifying party in
the defense of such claim or action. If the defendants in any such action
include both Mylan and Penwest and either party concludes that there may be
legal defenses available to it which are different from, additional to, or
inconsistent with, those available to the other, that party shall have the right
to select separate counsel to participate in the defense of such action on its
-25-
<PAGE> 26
behalf, and such party shall thereafter bear the cost and expense of such
separate defense. Should the indemnifying party determine not to defend such
claim or action, the other party shall have the right to maintain the defense of
such claim or action and the indemnifying party agrees to provide reasonable
assistance to it in the defense of such claim or action. Neither party shall
settle any such claim or action in a way that prejudices or adversely impacts
the other party to this Agreement without the prior approval of such other party
(which approval shall not be unreasonably withheld).
9.10 Any dispute concerning indemnification will be determined by
arbitration in accordance with Section of this Agreement.
9.11 THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS, IMPLIED OR ARISING BY LAW, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NOTHING IN
THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION OR WARRANTY (i) BY PENWEST
AS TO THE PATENTABILITY, VALIDITY (EXCEPT AS STATED IN SECTION ), OR SCOPE OF
ANY PENWEST PATENTS, PENWEST'S CONFIDENTIAL TECHNOLOGY, TIMERx PRODUCTION
TECHNOLOGY, JOINT DEVELOPMENTS, OR PENWEST TEST AND REGULATORY DATA; OR (ii) BY
MYLAN AS TO THE PATENTABILITY, VALIDITY (EXCEPT AS STATED IN SECTION ), OR SCOPE
OF ANY MYLAN IMPROVEMENTS, JOINT DEVELOPMENTS, OR MYLAN TEST AND REGULATORY
DATA.
9.12 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN (OTHER
THAN THE INDEMNITIES STATED IN THIS SECTION ), NEITHER PARTY SHALL UNDER ANY
CIRCUMSTANCES BE LIABLE FOR ANY THIRD PARTY CLAIMS OR FOR ANY INCIDENTAL,
CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES, INCLUDING ANY LOST PROFITS OR
SAVINGS, ARISING FROM ANY BREACH OF WARRANTY OR THE PERFORMANCE OR BREACH OF ANY
OTHER PROVISION OF THIS AGREEMENT OR THE USE OR INABILITY TO USE TIMERx, THE
DESIGNATED PRODUCT, PENWEST PATENTS, PENWEST'S CONFIDENTIAL TECHNOLOGY, TIMERx
PRODUCTION TECHNOLOGY, PENWEST TEST AND REGULATORY DATA, MYLAN IMPROVEMENTS, OR
MYLAN TEST AND REGULATORY DATA, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
9.13 Each party shall, at its own cost and expense, obtain and maintain
from a qualified insurance company comprehensive general liability and products
liability insurance coverage during the term of this Agreement (and any
subsequent period of sale or distribution pursuant to Section ). Such insurance
shall be in an amount no
-26-
<PAGE> 27
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
less than ************************* combined single limit for each occurrence
for bodily injury and/or property damage. Each party agrees to provide the other
party with a certificate of insurance evidencing such insurance within thirty
(30) days after the execution of this Agreement and again thereafter from time
to time as reasonably requested by such other party.
10. TERM AND TERMINATION.
10.1 The term of this Agreement shall begin on the date set forth
above and shall, unless earlier terminated as provided herein, continue until
the end of the License Term.
10.2 Subject to Sections and, Penwest may at its option terminate
this Agreement following the Approval Date if Mylan and its Affiliates and
sublicensees, in the aggregate, fail to sell, in Royalty-bearing transactions
triggering "Net Sales" hereunder, Designated Product in volumes sufficient to
satisfy at least one of the following tests: (A) the **************************
as described in Section 10.2.1; or (B) for each of the years following Year 2
(as defined below), **************** representing the minimum Percentage Market
Share determined under Section .
10.2.1 The ****************** described in clause (A) above shall be
as follows:
(i) Beginning on the Approval Date and continuing through the first
full calendar year thereafter (Year 1), the *************** be
***************************************************** for the partial calendar
year in which the Approval Date occurs.
(ii) In each of the next four successive calendar years,
*********************************************
Calendar Year Minimum Unit Volume
------------- -------------------
2 ***********
3 ***********
4 ***********
5 ***********
(iii) In each calendar year thereafter during the License Term,
**************************** equal ****** of the average
******************************* preceding two calendar years.
-27-
<PAGE> 28
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
10.2.2 The minimum percentage market shares described in clause (B)
above shall be as follows:
(i) For Year 1 and Year 2, there will be no minimum market share test,
and *********************** set forth in Section ******** will be applicable.
(ii) For Year 3 and each year thereafter during the License Term, the
minimum Percentage Market Share for purposes of this Section shall be the
greater of ********************* or the actual Percentage Market Share achieved
by the Designated Product sold by Mylan and its Affiliates and sublicensees in
Royalty-bearing transactions triggering "Net Sales" hereunder during Year 2.
10.3 If there is any period during which Mylan's ability to sell the
Designated Product is materially retarded due to:
10.3.1 events beyond its reasonable control as described in
Section 11.8 or
10.3.2 a failure of Penwest and its alternate supplier to supply
Formulated TIMERx as described in Section 5.8,
then an additional period of the lesser of the duration of such event (or
failure) or one year shall be added at that point to the schedule described in
Section .
10.4 If, at the Approval Date, there are in the United States
****************************************, the minimum amounts stated in
Section 10.2 shall ***************************** to be reasonably agreed between
Mylan and Penwest in good faith negotiations during the ninety (90) days
following the Approval Date.
10.5 Mylan may at its option terminate this Agreement following the
Approval Date, provided that any such elective termination shall require that
Mylan pay an early termination fee to Penwest **********************************
********************************************************************************
************************* stated in Section 10.2.1 prior to renegotiation of the
minimums under Section 10.4, if any ********************************************
**** ******************** during the period in which such termination occurs
(whether or not any part of
-28-
<PAGE> 29
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
************************************************** during such period), and such
termination fee shall be paid to Penwest on or before the effective date of such
termination.
10.6 Following any expiration or termination of the License Term (but
subject to Section 10.10), the licenses to Penwest under Sections 6.7, 6.8, and
6.9 shall be extended to include (in addition to their coverage as stated in
such sections) making, using and selling the Designated Product in the Territory
and the use of Mylan Test and Regulatory Data for purposes of complying with
governmental requirements with respect to the Designated Product for marketing
or use in the Territory, and otherwise shall continue to be governed by the
terms stated in such sections.
10.7 In the event that either party materially breaches any of the
terms, conditions or agreements contained in this Agreement to be kept, observed
or performed by it, then the other party may terminate this Agreement, at its
option and without prejudice to any of its other legal or equitable rights or
remedies, by giving the party who committed the breach (i) in the case of breach
of obligations other than the payment of money, 90 days' notice in writing,
unless the notified party within such 90-day period shall have cured the breach,
and (ii) in the case of breach of an obligation for the payment of money, 30
days' notice in writing, unless the notified party within such 30-day period
shall have cured the breach, including any required payment of interest on
previously unpaid amounts as set forth herein; provided, however, that:
10.7.1 no termination of this Agreement under this Section shall become
effective during the pendency of a good faith dispute between the parties as to
the existence of grounds for such a termination, provided that the parties are
complying with the process in Section 11.10 in good faith in order to resolve
such dispute, and that such termination shall become effective immediately upon
any binding determination that such grounds did exist at the time the notice of
termination was given; and
10.7.2 if a notice of termination is given pursuant to this Section and
it is subsequently determined that grounds for such a notice did not exist, the
giving of such notice shall not itself constitute a repudiation or default under
this Agreement, so long as such notice was given in the good faith belief that
such grounds did exist.
-29-
<PAGE> 30
10.8 In the event of any termination of this Agreement, Mylan shall
be entitled to sell and distribute reasonable inventories of Designated Product
remaining on hand as of the effective date of termination, provided that such
sales and distribution are otherwise in conformance with this Agreement. Mylan
may continue to make, use or sell such Designated Product only until Mylan has
exhausted remaining raw materials in its possession at the time of termination
of the license. Net Sales of the Designated Product pursuant to this Section
shall be subject to the Royalties pursuant to Section .
10.9 Any sublicenses granted by Mylan or its Affiliates under this
Agreement shall provide for termination or assignment to Penwest, at the option
of Penwest, of Mylan's or its Affiliate's interest therein upon termination of
this Agreement.
10.10 Mylan's obligations regarding payment of Royalties (and
Production Royalties, if any) accrued as of the date of termination and as
provided under Section 10.8; Penwest's rights under Sections 6.7, 6.8 and 6.9 as
modified by Section 10.6 (except if this Agreement is terminated due to an
uncured breach on the part of Penwest); and Mylan's rights under Section 6.10
(except if this Agreement is terminated due to an uncured breach on the part of
Mylan); and the provisions of Sections 7, 9 and 11 hereof shall survive any
expiration or termination of this Agreement.
11. MISCELLANEOUS.
11.1 Each of Penwest and Mylan agrees to duly execute and deliver,
or cause to be duly executed and delivered, such further instruments and do and
cause to be done such further acts and things as are reasonably within its
control and its responsibilities under this Agreement, including, without
limitation, the filing of such additional assignments, agreements, documents and
instruments, that may be necessary or as the other party hereto may from time to
time reasonably request in connection with this Agreement to carry out more
effectively the provisions and purposes of this Agreement.
11.2 This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, between the
parties hereto with respect to the subject matter hereof.
11.3 This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their Affiliates, successors and permitted assigns;
provided, however, that except for assignments or delegations to Affiliates of a
party (which shall not release such party from any of its rights or
responsibilities hereunder), or as part of the transfer of all or substantially
all assets to a single buyer or pursuant to a merger or other corporate
reorganization, or as otherwise specifically permitted hereunder, neither party
shall assign or delegate any of its rights or obligations
-30-
<PAGE> 31
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
hereunder at any time without the prior written consent of the other party
hereto, which consent shall not be unreasonably withheld.
11.4 All notices, requests or other communication provided for or
permitted hereunder shall be given in writing and shall be hand delivered or
sent by facsimile, reputable courier or by registered or certified mail, postage
prepaid, return receipt requested, to the address set forth on the signature
page of this Agreement, or to such other address as either party may inform the
other of in writing. Notices will be deemed delivered on the earliest of
transmission by facsimile, actual receipt or three days after mailing as set
forth herein.
11.5 No change, modification, extension, termination or waiver of any
obligation, term or provision contained herein shall be valid or enforceable
unless same is reduced to writing and signed by a duly authorized representative
of each of the parties to be bound hereby. No waiver of any right in any one
instance shall constitute a waiver of that right or of any other right in other
instances under this Agreement.
11.6 If any provision of this Agreement shall be held invalid, illegal
or unenforceable, such provision shall be enforced to the maximum extent
permitted by law and the parties' fundamental intentions hereunder, and the
remaining provisions shall not be affected or impaired.
11.7 Nothing herein contained shall ***************************** or
constitute either party as the partner, principal or agent of the other, this
being an Agreement between independent contracting entities. Neither party shall
have the authority to bind the other in any respect whatsoever. Except as
provided herein, nothing contained in this Agreement shall be construed as
conferring any right on either party to use any name, trade name, trademark or
other designation of the other party hereto, unless the express, written
permission of such other party has been obtained.
11.8 In the event that either party hereto is prevented from carrying
out its obligations under this Agreement by events beyond its reasonable
control, including without limitation acts or omissions of the other party, acts
of God or government, natural disasters or storms, fire, political strife, labor
disputes, failure or delay of transportation, default by suppliers or
unavailability of parts, then such party's performance of its obligations
hereunder shall be excused during the period of such event and for a reasonable
period of recovery thereafter, and the time for performance of such obligations
shall be automatically extended for a period of time equal to the duration of
such event or events.
-31-
<PAGE> 32
11.9 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to its
conflict of laws rules.
11.10 Should the parties to this Agreement fail to resolve any
controversy or claim arising out of or relating to the interpretation or
application of any term or provision set forth herein, or the alleged breach
thereof, such controversy or claim shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Judgment upon any award rendered pursuant to the terms set forth
herein may be entered in any court having jurisdiction of the party against whom
the award is rendered. Any award rendered pursuant to the terms and conditions
set forth herein shall be final and binding upon the parties and their
Affiliates. Any arbitration held pursuant to this Agreement shall be held in
Washington, D.C., or such other site as the parties may mutually agree. All
costs and expenses including reasonable attorney's fees and the fees and
expenses of the arbitrators and the AAA, incurred in the enforcement of this
Agreement shall be paid to the prevailing party by the non-prevailing party,
provided that the same may be apportioned between the parties by the arbitrators
if they determine that each party has prevailed in part. Notwithstanding the
foregoing, either party may, on good cause shown, seek a temporary restraining
order and/or a preliminary injunction from a court of competent jurisdiction, to
be effective pending the institution of the arbitration process and the
deliberation and award of the arbitration panel.
-32-
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and acknowledge this Agreement as of the
Effective Date. This Agreement may be executed in one or more counterparts, each
of which will be an original instrument, but all of which together shall
constitute a single agreement creating one set of rights and obligations.
Mylan Pharmaceuticals Inc. Penwest Ltd.
By /s/ Roderick P. Jackson By /s/ John V. Talley
----------------------- ------------------
Roderick P. Jackson John V. Talley
Senior Vice President Vice President
Address: Address:
781 Chestnut Ridge Road 2981 Route 22
Morgantown, W.V. 26504 Patterson, N.Y.
12563
FAX: (304) 598-5409 FAX: (914) 878-3420
Attn: Dr. John P. O'Donnell Attn: Dr. Paul K. Wotton
-33-
<PAGE> 34
EXHIBIT 1.6
Target Designated Product
Solid-dosage forms of a controlled-release pharmaceutical for oral
administration in humans that combine Nifedipine with TIMERx and other
excipients and that are bioequivalent to the product currently (as of the
Effective Date) marketed in the United States under the name "Procardia XL," in
the following tablet dosage strengths: 30 mgs, 60 mgs, and 90 mgs, and that are
eligible for approval by the FDA under an ANDA.
-34-
<PAGE> 35
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 1.17
Deliverable Portion of the Mylan Test and Regulatory Data
All material under or directly related to the following headings (or their
substantive equivalents) ****************************
*****************************************
******************************
*****************************************
******************************************
**********************************************
Test Procedures under the heading "Controls for the Finished Dosage
Form" (except for any Assay information that is proprietary to Mylan)
Finished Product Specifications and Test Data under the heading
"Controls for the Finished Dosage Form"
Drug Substance under the heading "Analytical Methods" (except for
Mylan's Certificate of Analysis)
Analytical Procedures - ***********************************************
******************************************************************
******************************************
Such other information and data as is reasonably necessary or facilitative for
Penwest's performance of its obligations hereunder *************************
**************************************************************
-35-
<PAGE> 36
EXHIBIT 1.20
Penwest Patents
UNITED STATES:
1) U.S. Patent No. 4,994,276, entitled "Directly Compressible Slow Release
Granulation," issued February 19, 1991.
2) U.S. Patent No. 5,128,143, entitled "Sustained Release Excipient and Tablet
Formulation," issued July 7, 1992.
3) U.S. Patent No. 5,135,757, entitled "Compressible Sustained Release Dosage
Forms," issued August 4, 1992.
4) U.S. Application Serial No. 08\118,924, entitled "Sustained Release Hetero-
Disperse Hydrogel Systems for Insoluble Drugs," filed September 9, 1993.
CANADA:
5) Canadian Patent Application No. 611,700, filed September 18, 1989
(corresponding to items 1), 2) and 3) above).
6) Canadian Patent Application to be filed corresponding to item 4) above.
MEXICO:
7) Mexican Patent Application to be filed corresponding to item 4) above.
-36-
<PAGE> 37
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 2.3:
Development Steps
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Expected Dates Activity Responsibility
-------------- -------- --------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
***** ********** Penwest
- --------------------------------------------------------------------------------------------------------------------
***** Lab Scale formulation Mylan
- --------------------------------------------------------------------------------------------------------------------
Analytical methodology Penwest
transfer
- --------------------------------------------------------------------------------------------------------------------
********* TIMERx-N bulk Penwest
****** manufacture ******
******
- --------------------------------------------------------------------------------------------------------------------
Bio-batch production Mylan
nifedipine C.R. tablets
********
- --------------------------------------------------------------------------------------------------------------------
******** Pilot bio-study Mylan
- --------------------------------------------------------------------------------------------------------------------
******** Pivotal bio-studies (fasted, Mylan
fed, steady state) stability
studies
- --------------------------------------------------------------------------------------------------------------------
******** ********** Mylan
</TABLE>
-37-
<PAGE> 1
Exhibit 10.2
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT
THIS AGREEMENT is entered into as of the 3rd day of August, 1995, by and
between Penwest, Ltd., a Washington corporation ("Penwest"), and Mylan
Pharmaceuticals Inc., a West Virginia corporation ("Mylan").
A. Penwest has developed a controlled-release agent covered by one or
more patents, patent applications, know-how and other proprietary technology,
which agent Penwest markets under the name "TIMERx" ("TIMERx"). Penwest has
conducted initial biostudies with respect to the potential development of one or
more pharmaceutical products incorporating the active ingredient Nifedipine
("Nifedipine"), TIMERx, and one or more other excipients.
B. Mylan is interested in developing for manufacture a pharmaceutical
product incorporating Nifedipine in a solid-dosage controlled-release delivery
system for oral administration in humans.
C. The parties, under a separate agreement (the "August 1994
Agreement"), are engaging in certain activities relating to the development and
testing of a product incorporating Nifedipine and TIMERx, and designed to be
bioequivalent to the product currently being marketed in the United States under
the name "Procardia XL." The parties now desire to engage in a separate program
of research, development, and testing activities designed to determine if
Penwest's TIMERx controlled-release system can be adapted and combined with
Nifedipine to make a generic controlled-release version of Nifedipine for oral
solid-dosage administration in humans that is bioequivalent to the product
currently being marketed in the United States under the name "Adalat CC." If
such activities are successful, Mylan desires to contract for a supply of TIMERX
for use in the manufacture of such a controlled-release form of Nifedipine, and
Penwest is willing to supply the same provided that Mylan agrees to obtain all
of its requirements for controlled-release agents for Nifedipine products that
are essentially bioequivalent to "Adalat CC" in the form of TIMERx from Penwest
as provided herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
1.1 "AFFILIATE" shall mean any individual,
-1-
<PAGE> 2
partnership, corporation, limited company, trust, or other entity of whatever
nature (hereinafter collectively referred to as "Person"), which is directly or
indirectly controlling, controlled by or under common control with another
Person, identifiable based upon the context in which the term is used. The term
"control" shall mean the possession of the power to direct or cause the
direction of the management and policies and/or the distribution of the profits
of a Person.
1.2 "APPROVAL DATE" shall mean the date on which the Designated
Product (in any dosage strength) is first approved by the U.S. Food and Drug
Administration (herein the "FDA") for commercial sale in oral solid-dosage form
for administration in humans, pursuant to an abbreviated new drug application
("ANDA").
1.3 "APPROVED GENERIC VERSION" shall mean a drug that is bioequivalent
to the product that is currently being marketed in the United States under the
name "Adalat CC", and that has been fully approved for commercial sale in oral
solid- dosage form for administration in humans by the FDA or, as applicable,
the parallel regulatory authorities in the Non-Exclusive Territory, and which is
not branded, labelled, or marketed under the names "Adalat" or "Adalat CC" and
which is not marketed by Mylan, any of its Affiliates, or under a license or
sublicense from Mylan or its Affiliate 1.4
1.4 "CERTIFICATION PERIOD" shall mean the period beginning on the
Submission Date and ending on the earlier of:
1.4.1 the Approval Date; or
1.4.2 the termination of this Agreement as provided herein.
1.5 "CONFIDENTIAL TECHNOLOGY" shall mean all technology and know-how
disclosed hereunder that is, at the relevant time hereunder, protected or
required to be protected by both parties hereto as confidential information
pursuant to Section 7 hereof.
1.6 "DESIGNATED PRODUCT" shall mean the solid-dosage form of a
controlled- release pharmaceutical for oral administration in humans that
combines Nifedipine with TIMERx and other excipients and that is bioequivalent
to the product currently (as of the Effective Date) marketed in the United
States under the name "Adalat CC," as more fully described in Exhibit 1.6
subject to modifications as Penwest and Mylan may mutually agree during the
Development Period. The parties intend that the Designated Product will be
developed in more than one dosage strength, as more fully described in Exhibit
1.6.
-2-
<PAGE> 3
1.7 "DEVELOPMENT PERIOD" shall mean the period from the Effective Date
through the Submission Date or the earlier termination of this Agreement as
provided herein.
1.8 "DEVELOPMENT STEPS" shall mean the activities specified in Exhibit
2.3 hereto to be undertaken by the parties during the Development Period.
1.9 "DMF" shall mean Drug Master File as defined in 21 CFR 300 et
seq., including amendments and supplements which will be filed by Penwest.
1.10 "EFFECTIVE DATE" shall mean the effective date of this Agreement,
which is the date first written above.
1.11 "EXCLUSIVE TERRITORY" shall mean the United States and its
territories and possessions.
1.12 "FORMULATED TIMERx" shall mean TIMERx and certain additives in a
formulation to be developed hereunder specifically for use in the Designated
Product.
1.13 "JOINT DEVELOPMENTS" shall mean any and all inventions,
improvements, modifications, alterations, or enhancements that are developed
jointly by Mylan or any of its Affiliates, on the one hand, and Penwest or any
of its Affiliates, on the other hand, during the term of this Agreement or
during any period of mutual cooperative development prior to the Effective Date,
together with all United States and foreign intellectual property and other
rights and interests of the parties and their respective Affiliates thereto and
therein, including without limitation patents, trade secrets, copyright, periods
of market exclusivity, and other related rights or interests, to the extent the
same remain protected by any such rights and interests from being used freely by
others.
1.14 "LICENSE TERM" shall mean the cumulative period covered by the
Development Period, the Certification Period, and the Marketing Period.
1.15 "MARKETING PERIOD" shall mean the period beginning on the Approval
Date and ending on the earlier of:
1.15.1 the twentieth anniversary of the Approval Date; or
1.15.2 the termination of the License Term and/or this Agreement as
provided herein.
1.16 "MYLAN IMPROVEMENTS" shall mean, except for any Joint
Developments, any and all improvements, modifications, alterations, or
enhancements to any of the inventions covered by the Penwest Patents, Penwest's
Confidential Technology, or the
-3-
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
TIMERx Production Technology, that are developed, owned, or controlled by Mylan
or any of its Affiliates or sublicensees, or in which Mylan or any of its
Affiliates or sublicensees otherwise has any rights or interests,during the term
of this Agreement (or, with respect to such sublicensees, during the term of the
respective sublicenses) or during any period of mutual cooperative development
prior to the Effective Date; together with all United States and foreign
intellectual property and other rights and interests of Mylan and its Affiliates
and sublicensees thereto and therein, including without limitation patents,
trade secrets, copyright, periods of market exclusivity, and other related
rights or interests, to the extent the same remain protected by any such rights
and interests from being used freely by others.
1.17 "MYLAN TEST AND REGULATORY DATA" shall mean any and all test data,
test designs and protocols, clinical studies and results thereof, government
licenses and applications therefor, government certifications and findings, and
related materials, information and rights (including without limitation
information regarding bioavailability and bioequivalence, and any adverse drug
reactions), developed, commissioned or otherwise obtained by Mylan or any of its
Affiliates or sublicensees during the term of this Agreement (or, with respect
to such sublicensees, during the term of the respective sublicenses) relating to
TIMERx, Mylan Improvements, the Designated Product, Penwest Patents, TIMERx
Production Technology, and/or Penwest's Confidential Technology, together with
all intellectual property and other rights and interests of Mylan and its
Affiliates or sublicensees thereto and therein, worldwide. It is understood
that:
1.17.1 To the extent any of the Mylan Test and Regulatory Data is
available for review by the public without confidentiality restrictions, it
shall be referred to herein as the "Available Portion" of the Mylan Test and
Regulatory Data; and that
1.17.2 To the extent any of the Mylan Test and Regulatory Data meets the
criteria specified in Exhibit 1.17, it shall be referred to herein as the
"Deliverable Portion" of the Mylan Test and Regulatory Data.
1.18 "NET SALES" shall************************************************
mean***************************************************************************
*******************************************************************************
********, calculated in accordance with United States Generally Accepted
Accounting Principles ("GAAP") consistently applied, which pertains to the
Designated Product. The calculation of Net Sales shall include*****************
in accordance with GAAP,*******************************************************
*******************************************************************************
-4-
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
*************************************************************Amounts to be
included in the calculation of Net Sales shall be those representing:
**********************************************
**********************************************
**********************************************
**********************************************
**********************************************
************************
************************
***********************************
**********************************************
********************************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
1.19 "NON-EXCLUSIVE TERRITORY" shall mean Canada and Mexico and the
respective territories and possessions of each.
1.20 "PENWEST PATENTS" shall mean:
1.20.1 those United States patents and foreign equivalents in the
Non-Exclusive Territory and United States and foreign patent applications listed
in Exhibit 1.20 and
-5-
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
all divisions, continuations, reissues, or extensions thereof, any periods of
marketing exclusivity relating thereto, and any letters patent that issue
thereon; and
1.20.2 Penwest's rights under United States patents and foreign patents
in the Non-Exclusive Territory, if any, obtained and in force during the License
Term covering any of Penwest's improvements, modifications, alterations, or
enhancements to any of the inventions covered by the Penwest Patents.
1.21 "PENWEST TEST AND REGULATORY DATA" shall mean any and all test
data, test designs and protocols, clinical studies and results thereof,
government licenses and applications therefor, government certifications and
findings, and related materials, information and rights (including without
limitation information regarding bioavailability and bioequivalence, and any
adverse drug reactions), developed, commissioned or otherwise obtained by
Penwest or any of its Affiliates during the term of this Agreement relating to
TIMERx, Penwest Patents, TIMERx Production Technology, and/or Penwest's
Confidential Technology, together with all intellectual property and other
rights and interests of Penwest and its Affiliates thereto and therein in the
Territory.
1.22 "PERCENTAGE MARKET SHARE" shall mean the share of the total United
States market for the aggregate of all Approved Generic Versions, the product
currently being marketed under the name "Adalat CC," and the Designated Product
which is represented by unit sales of the Designated Product, stated as a
percentage of such total market. The unit sales of such products shall be
determined through the publicly available reports of IMS or an alternate public
source mutually approved by the parties hereto.
1.23 "PRODUCTION ROYALTIES" shall mean****************************
************************************************* Mylan pursuant to Section 5.8.
1.24 "PROJECT CONTACT(S)" shall mean the persons appointed by each
party to serve as contact person between the parties during the Development
Period and the Certification Period. The initial Project Contact for Penwest is
Dr. Paul K. Wotton and the initial Project Contact for Mylan is J. Gregory Ford.
Each party shall promptly notify the other party of any substitution of other
personnel as its Project Contact. Each party may select and supervise its other
project staff as needed.
1.25 "ROYALTIES" (or "Royalty") shall mean the royalties payable to
Penwest pursuant to Section 4.3 hereof.
-6-
<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
1.26 "SPECIFICATIONS" shall mean such standards and analytical methods
established in writing by Penwest and Mylan as are reasonably necessary or
appropriate to assure the identity, strength, quality and purity of the TIMERx
and Formulated TIMERx, and any such other standards or methods as may be
required or approved by the FDA. It is understood and agreed that the
Specifications for Formulated TIMERx for use in Designated Product to be sold in
the Non-Exclusive Territory shall be the same as those for Formulated TIMERx for
use in Designated Product to be sold in the Exclusive Territory, and in no event
will Mylan permit the Designated Product to be certified for sale in the
Non-Exclusive Territory on any other basis.
1.27 "SUBMISSION DATE" shall mean the date on which Mylan submits to
the FDA an ANDA for the Designated Product (in any dosage strength), as approved
by the parties at the end of the Development Period.
1.28 "TERRITORY" shall mean the Exclusive Territory and the
Non-Exclusive Territory.
1.29 "TIMERx PRODUCTION TECHNOLOGY" shall mean Penwest's rights under
the Penwest Patents and any and all other patents, patent applications, and
other technology and know-how belonging to Penwest from time to time during the
term of this Agreement that directly relate to, and are necessary for the
production of, Formulated TIMERx for use in the Designated Product.
1.30 "UNIT PRICE" shall mean ************************ of Formulated
TIMERx, subject to adjustment ******************************* to reflect any
percentage increases or decreases in the United States Department of Labor,
Bureau of Labor Statistics Consumer Price Index for All Urban Consumers for the
New York City Metropolitan Area, "All Items" (1982-84 = 100) (the "Index") over
the base period Index. The Index, which may be a monthly, quarterly or other
fiscal period Index **********************************************************,
shall be considered the "base period" Index. If at any time publication of the
Consumer Price Index is discontinued, Penwest shall, with the consent of Mylan
(which consent shall not be unreasonably withheld), substitute any other index
published by the Bureau of Labor Statistics, or successor or similar
governmental agency or quasi-governmental or private entity providing similar
information as may then be in existence and shall be most nearly equivalent
thereto.
-7-
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
2. DEVELOPMENT PERIOD.
2.1 In consideration of Penwest's entering into this Agreement, Mylan
shall pay Penwest upon the Effective Date a nonrefundable initial fee of
************. Upon receipt of such sum, Penwest shall conduct a pilot bio-study,
the results of which will be supplied to Mylan within 180 days of payment.
2.2 As additional inducement to Penwest to enter into this Agreement,
Mylan hereby affirms that, other than confidentiality agreements not binding
either party to any further agreement, it currently has no agreement or
arrangement with any Person other than Penwest for or including the development,
design, testing, certification, manufacture or marketing by it or such other
Person (or the Affiliate(s) of either) of any controlled-release Nifedipine
product that is intended to be essentially bioequivalent to "Adalat CC," and
agrees that it will refrain from entering into any such agreement or arrangement
(other than such confidentiality agreements) throughout the duration of the
Development Period or the period of eighteen months following the date hereof,
whichever expires later.
2.3 During the Development Period, each of Penwest and Mylan will
exert its continuing best efforts to perform their respective tasks specified in
Exhibit 2.3, within the estimated time periods there stated, in order to create
and produce the Designated Product, and each will cooperate with the other in
such efforts. Each party will, promptly and throughout the Development Period,
provide to the other all necessary information in or coming into its possession
or reasonably available to it for such purposes. Notwithstanding anything else
to the contrary contained herein, nothing shall require either party to disclose
confidential information for which such party has an obligation of
confidentiality to a third party. Each party understands and agrees that the
other does not warrant or commit that the Designated Product will be
successfully developed, and neither party shall have any liability or
responsibility to the other or to third parties for any such failure of the
development process hereunder, except to the extent such failure results from
said party's intentional misconduct, negligence, or breach of its duties or
obligations as set forth herein.
2.4 Mylan shall be responsible for, and hereby agrees to conduct or
arrange for, at Mylan's expense, all testing and studies during the Development
Period, including as to bioavailability and bioequivalence, in connection with
the development, licensing, manufacture and marketing of the Designated Product,
and for substantial compliance with all material and relevant governmental
requirements imposed in the Territory with respect to the manufacture, use, and
sale of the
-8-
<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Designated Product. In consideration of Penwest's entering into this Agreement,
Mylan agrees to pay Penwest:
2.4.1 a first milestone fee of *****************, payable
*******************************************************************************
********************************************************************* (but only
with respect to the ****************************************************, where
******************** are ****************************************************.
2.5 Mylan shall be primarily responsible for the preparation, at its
expense, of an ANDA for the Designated Product, to be filed with the FDA at the
end of the Development Period.
2.6 Each party's Project Contact will provide written reports to the
other party's Project Contact at least monthly throughout the Development
Period, stating in detail all efforts made and in process, and all significant
progress achieved and difficulties encountered in the development effort since
the last such report. Each party's Project Contact will also be available
throughout the Development Period to answer any reasonable questions from the
other party's Project Contact. The parties will cooperate reasonably during the
Development Period such that the sites for meetings among their respective
personnel shall be alternated among the parties, facilities to the extent
practicable.
2.7 During the Development Period, Mylan will supply, at its own
expense, all Nifedipine reasonably required to support the development effort,
and Penwest shall provide at its own expense all TIMERx reasonably required for
such effort. Each party shall bear its own expenses for all activities during
the Development Period, except as otherwise stated in Exhibit 2.3.
2.8 Either party may terminate this Agreement before completion of the
Development Period by delivery of 90 days' written notice to the other if such
party reasonably determines that, due to unfavorable or inconclusive results to
that time, no further Development Steps are likely to lead to the successful
development of the target Designated Product listed in Exhibit 1.6.
3. CERTIFICATION PERIOD.
3.1 During the Certification Period, Mylan will exert its continuing
best efforts, at its expense, to prosecute the ANDA(s) for the Designated
Product (in all the contemplated dosage strengths) filed hereunder successfully
to the granting of an
-9-
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
FDA approval to market the Designated Product. Penwest will, promptly and
throughout the Certification Period, provide to Mylan all necessary information
in or coming into Penwest's possession or reasonably available to it for such
purpose. Each party understands and agrees that the other does not warrant or
commit that the Designated Product will be successfully licensed or certified
for marketing by the FDA, and neither party shall have any liability or
responsibility to the other or to third parties for any such failure of the
certification process hereunder, except to the extent such failure results from
said party's intentional misconduct, negligence, or breach of its duties or
obligations as set forth herein.
3.2 Either party may terminate this Agreement before completion of the
Certification Period by delivery of 90 days' written notice to the other if such
party reasonably determines that, due to unfavorable action by the FDA, the ANDA
is not likely to be approved by the FDA, regardless of any further steps or
submissions that could be made.
3.3 Mylan's Project Contact will provide written reports to Penwest's
Project Contact at least quarterly throughout the Certification Period, stating
in detail all efforts made and in process, and all significant progress achieved
and difficulties encountered in the certification effort since the last such
report. Mylan's Project Contact will also be available throughout the
Certification Period to answer any reasonable questions from Penwest's Project
Contact.
3.4 During the Certification Period, Mylan shall provide at its own
expense all Nifedipine and other materials and manufacturing and testing
services reasonably required to support the testing and certification effort,
and Penwest shall provide at its own expense all TIMERx reasonably required for
such effort. Each party will bear its own expenses during the Certification
Period.
3.5 In consideration of Penwest's entering into this Agreement, Mylan
agrees to pay Penwest a second milestone fee of $1,000,000, payable within
********************************************* (but only with respect to the
*********************************, where ********************* are
**************************************************************. Mylan shall
notify Penwest of the occurrence of the Approval Date no later than the next
business day following Mylan's learning of such occurrence.
-10-
<PAGE> 11
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
4. MARKETING PERIOD.
4.1 Subject to the granting of all necessary governmental approvals or
concurrences to sell the Designated Product, Mylan hereby agrees, during the
Marketing Period, to use its continuing best efforts to market, promote and sell
the Designated Product throughout the Territory.
4.2 Mylan hereby agrees to pay to Penwest Royalties as follows:
4.2.1 with respect to all Net Sales with respect to Designated Product
sold in a nation during a quarter in which there is ***************************
on the market in such nation, the Royalty rate shall be *************** of such
Net Sales;
4.2.2 with respect to all Net Sales with respect to Designated Product
sold in a nation during a quarter in which there is ***************************
on the market in such nation, the Royalty rate shall be ***********************
of such Net Sales;
4.2.3 with respect to all Net Sales with respect to Designated Product
sold in a nation during a quarter in which there are *************************
on the market in such nation, the Royalty rate shall be **********************
of such Net Sales;
provided, however, that such Royalties shall be********************************
************************************************** with respect to Net Sales of
the Designated Product as to which no license to Penwest Patents hereunder is
applicable to the manufacture, sale or use of the Designated Product (it being
understood that a Penwest Patent shall not be considered applicable to the
manufacture of the Designated Product solely by virtue of its applicability to
the manufacture and/or sale of the Formulated TIMERx to be provided by Penwest
to Mylan for such purpose hereunder, unless such Penwest Patent is also
otherwise applicable to the manufacture, sale or use of the Designated Product).
For purposes of the foregoing, to be "sold in a nation" refers to the nation in
which such Designated Product will be initially placed into actual commercial
distribution, regardless of the FOB point or where the agreement for such sale
may have been struck. If an Approved Generic Version (other than the Designated
Product) is first put on the market in a nation during the first half of a
calendar quarter, it will be deemed for purposes of this Section to have been on
the market in such nation from the first day of such quarter, and if it is first
put on the market in a nation during the second half of a calendar quarter, it
will be deemed for purposes of this Section not to have been on the market in
such nation until the first day of the following quarter.
-11-
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
4.3 All Royalties payable pursuant to this Agreement shall be due
quarterly ************************ following the end of each calendar quarter
for Net Sales in such calendar quarter. Each such payment shall be accompanied
by a statement of Net Sales for the quarter and the calculation of Royalties
payable hereunder. All Royalties and all other amounts which are overdue under
this Agreement will bear interest at the rate of 1 1/2% per month from the date
due through the date of payment. Mylan shall keep and shall cause its Affiliates
and its and their sublicensees to keep complete, true and accurate records for
the purpose of showing the derivation of all Royalties payable to Penwest under
this Agreement. Penwest's duly accredited representatives (which representatives
are approved for such purpose by Mylan, which approval shall not be unreasonably
withheld nor shall it be revocable by Mylan following the start of any
inspection hereunder) shall have the right to inspect, copy, and audit such
records at any time during reasonable business hours upon reasonable prior
notice to Mylan or any of its Affiliates or sublicensees, respectively, but such
right will not be exercised more often than annually (it being understood that a
single exercise of such right may include a series of related or continuing
inspections, copying and audits). Any such audit shall be at the expense of
Penwest, unless the audit reveals that, with respect to the period under audit,
less than 97% of the Royalties due to Penwest hereunder have been reported, in
which event Mylan shall pay or reimburse Penwest for the reasonable expenses of
such audit, in addition to Penwest's other remedies for such underpayment.
4.4 All monies due hereunder shall be paid in United States Dollars to
Penwest in Patterson, New York, USA. Said payment may be made at Mylan's option
by check or wire transfer.
5. SUPPLY OF FORMULATED TIMERx.
5.1 Except as provided in Section 5.8, and subject to the other
provisions hereof, Penwest will supply Mylan and its Affiliates and sublicensees
with sufficient quantities of Formulated TIMERx to meet their reasonable
requirements for manufacturing of the Designated Product during the Marketing
Period, and Mylan shall purchase all of its and its Affiliates, and
sublicensees, requirements for controlled-release agents for Nifedipine products
that are essentially bioequivalent to "Adalat CC" in the form of TIMERx from
Penwest during such period.
5.2 The price for all Formulated TIMERx sold hereunder shall equal the
Unit Price multiplied by the applicable units purchased. All sales**************
********************************************, and Mylan shall bear all
transportation, insurance, taxes, duties, and other costs and risks of loss,
spoilage and damage
-12-
<PAGE> 13
associated with the shipping and delivery of Formulated TIMERx to Mylan or its
Affiliates or sublicensees.
5.3 Penwest warrants that it will not change or modify its DMF, the
Specifications, or its method of manufacture for Formulated TIMERx without prior
written consent from Mylan, which consent shall not be unreasonably withheld.
5.4 Penwest shall perform quality control tests with respect to all
Formulated TIMERx as required by the FDA as set forth in the DMF. In addition,
Penwest may perform such other tests as Penwest deems necessary in accordance
with its applicable policies. No other or special tests by Penwest with respect
to the raw materials or Formulated TIMERx will be required, unless and to the
extent that Mylan establishes that the same are required in order to obtain or
maintain an FDA approval to market the Designated Product in the Exclusive
Territory. Penwest shall promptly, upon completion of each lot or batch of
Formulated TIMERx, deliver to Mylan a copy of the record of such test performed
on said lot or batch.
5.5 Each shipment of the TIMERx or Formulated TIMERx shall:
i) be accompanied by a Certificate of Analysis and a
certificate of Origin;
ii) meet all present, FDA, Compendial, and the applicable
Specifications; and
iii) be manufactured, packaged, stored and shipped in
conformance with the applicable Specifications, and Current
Good Manufacturing Practices ("cGMPs").
5.6 Within a reasonable period but not more than thirty (30) days
after receipt, Mylan will analyze each shipment of the Formulated TIMERx. If
Mylan considers any such shipment not to conform to the applicable
Specifications, Mylan shall notify Penwest immediately and provide Penwest with
the relevant analysis. If Penwest does not agree, the parties shall submit such
disagreement to the arbitration of one mutually accepted neutral analytical
laboratory. If Penwest or the neutral laboratory agree with Mylan, Penwest shall
not have any obligation to Mylan other than to accomplish at Mylan's option any
of the following:
-13-
<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
i) at its own expense accept return of any shipment not
accepted; or
ii) reimburse Mylan for the cost of disposal or destruction;
and
iii) use commercially reasonable efforts to replace the non-
conforming shipment with conforming Formulated TIMERx.
5.7 In case Penwest cannot supply Mylan the requested quantities of
the Formulated TIMERx, the shipments may be made by an alternate supplier
designated by Penwest with Mylan's consent, which consent shall not be
unreasonably withheld. Penwest will qualify (in Penwest's reasonable judgment)
at least one such alternate supplier and notify Mylan thereof at least ninety
(90) days prior to submission of the ANDA. If Mylan has any objections to such
supplier, it shall so notify Penwest within fifteen days following Penwest's
notice of such qualification, or else Mylan will be deemed to have consented to
such qualification and the designation of such supplier. Such shipment by the
alternate supplier shall be made under the same agreed terms and conditions as
those set forth herein, except that an additional 60 days shall be added to the
order lead time stated in any then-outstanding order for Formulated TIMERx
hereunder to reflect the transition time required to shift to such alternate
supplier. Notwithstanding anything to the contrary set forth herein, Penwest
will be responsible for enforcing all relevant terms and conditions set forth
herein against such alternate supplier and remain liable to Mylan for any breach
of such terms and conditions by such supplier.
5.8 If for any reason Penwest (or the alternate supplier) fails to
supply Mylan with its and its Affiliates, and sublicensees, requirements of
Formulated TIMERx during the Marketing Period as agreed hereunder, Penwest shall
grant Mylan a nonexclusive license to manufacture Formulated TIMERx under the
TIMERx Production Technology and make knowledgeable personnel reasonably
available to consult with Mylan, all to the extent necessary to enable Mylan to
produce Formulated TIMERx that would otherwise have been supplied by Penwest or
an alternate supplier hereunder for Mylan and its Affiliates and sublicensees in
connection with the production of the Designated Product pursuant to this
Agreement.
5.8.1 In such event Mylan shall pay to Penwest, in addition to the
Royalties under Section 4.3, Production Royalties equal to *******************,
if any, of the then-current Unit Price for each kilogram of Formulated TIMERx
produced by Mylan hereunder, ***************************************************
************************. Such Production Royalties shall be payable and
reported and accounted for as stated in
-14-
<PAGE> 15
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Sections 4.4 and 4.5, except that the Production Royalties will be payable
******************** after the end of the calendar quarter in which the
applicable kilogram of Formulated TIMERx was produced.
5.8.2 Mylan shall maintain all information and technology delivered to
Mylan pursuant to this Section, whether orally or in writing, in confidence in
accordance with Section 7 (to the extent the same is Confidential Technology)
and shall use such information and technology only for the purpose of producing
Formulated TIMERx for its own use and the use of its Affiliates and sublicensees
in connection with this Agreement.
5.8.3 Mylan acknowledges that, in doing the foregoing, Penwest will not
be providing a "turnkey" operation. Rather, Penwest will only be required to
make reasonably available to Mylan the best standard of knowledge and
information then available to Penwest and directly used in its or its
Affiliate's manufacture of Formulated TIMERx. If any professional licenses,
visas, or other permits are required for any of the consulting to be provided by
Penwest's or its Affiliates, or licensees, personnel, Mylan shall so inform
Penwest and Mylan shall bear the costs of obtaining the same.
5.8.4 Neither Penwest nor its Affiliates or licensees will be
responsible for any failure of Mylan or its personnel to understand or properly
to implement such knowledge and information or for any materials made by any
party other than Penwest or such respective Affiliate or licensee using such
knowledge and information.
5.8.5 If Penwest's non-delivery of Formulated TIMERx resulted in whole
or in part from a temporary inability to produce and deliver the same, Penwest
may, at its option and on at least 120 days, prior written notice to Mylan,
terminate the license to produce Formulated TIMERx hereunder once Penwest or its
alternative supplier is again able and willing to supply Formulated TIMERx
hereunder.
5.9 Penwest shall, after receipt of reasonable prior notice, give duly
accredited representatives of Mylan access at all reasonable times during
regular business hours to inspect, copy, and audit any relevant records of
Penwest's or its Affiliate's plant in which the Formulated TIMERx is being
produced.
5.10 Mylan shall deliver to Penwest a firm written order stating its
(and/or its Affiliates, and sublicensees') requirements for Formulated TIMERx to
be used for production of the Designated Product for commercial use or sale
***************
-15-
<PAGE> 16
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
******************************************************** therefor. Mylan shall,
within one month following the filing by Mylan of an ANDA with the FDA for the
Designated Product, submit to Penwest Mylan's first such order for Formulated
TIMERx under this Agreement, for an amount equal to the quantity necessary to
reach the Percentage Market Share *************** for the Designated Product in
the dosage strengths) submitted in such ANDA filings **************************
*******************************************************, inclusive, following
the submission of such order.
5.11 At least ********************* before Mylan and/or its Affiliates
or sublicensees begin production of the Designated Product for commercial use or
sale (and in any event not later than concurrently with the submission of the
first order described in Section 5.10), Mylan shall deliver to Penwest a
written, non-binding estimate of all requirements of Formulated TIMERx therefor.
Mylan will deliver to Penwest updates to such estimates on or before the first
day of each January, April, July and October thereafter during the Marketing
Period, which updates may revise estimates previously submitted and will add
estimates for additional months so that each such estimate covers the
****************** following the end of the firm-order period (that is, the
************************ after the month in which such estimates are made).
Penwest shall not be obligated to supply Mylan with quantities of Formulated
TIMERx during any quarter in excess of ************************ of the
quantities estimated in Mylan's written estimate applicable to that quarter,
which estimate was given to Penwest ************ prior to such quarter (the
"************** Prior Estimate" as to that quarter). Mylan shall be responsible
for purchasing from Penwest in each quarter at least *************** of the
quantities of Formulated TIMERx estimated in the *********** Prior Estimate as
to such quarter.
5.12 No order for Formulated TIMERx hereunder may be cancelled or
deferred by Mylan except by written notice delivered to Penwest **************
to the scheduled delivery date. No orders may be cancelled or deferred
*************************** without Penwest's approval if such cancellation or
deferral would reduce Mylan's purchases for the applicable quarter to less than
the ********* level referred to in Section 5.11.
5.13 Each party shall promptly notify the other of any fact,
circumstance, condition or knowledge dealing with TIMERx or the Designated
Product of which the Party becomes aware that bears upon the safety or efficacy
of TIMERx or the Designated Product. Each party shall immediately notify the
other of any inspection or audit relating to TIMERx, Formulated TIMERx, or the
Designated Product by any governmental regulatory authority in the Territory. If
a representative of the
-16-
<PAGE> 17
governmental authority takes samples in connection with such audit or
inspection, the parties shall immediately provide each other, as appropriate,
samples from the same batch. The party in receipt of such notice will provide
the other party within 72 hours, with copies of all relevant documents,
including FDA Forms 482, 483, warning letters and other correspondence and
notifications as such other party may reasonably request. Penwest and Mylan
agree to cooperate with each other during any inspection, investigation or other
inquiry by the FDA or other governmental entity, including providing information
and/or documentation, as requested by the FDA, or other governmental entity. To
the extent permissible, Penwest and Mylan also agree to discuss any responses to
observations or notifications received and to give the other party an
opportunity to comment on any proposed response before it is made. In the event
of disagreement concerning the content or form of such response, Mylan shall be
responsible for deciding the appropriate form and content of any response with
respect to any,of its cited activities and Penwest shall be responsible for
deciding the appropriate form and content of any response with respect to any of
its cited activities. Each party shall inform the other of all comments and
conclusions received from the governmental authority.
6. OWNERSHIP AND LICENSES.
6.1 Except as otherwise explicitly licensed or transferred as provided
herein, each party will, as between it and the other party hereto, retain
ownership of any and all inventions, copyrights, trade secrets, know-how, patent
rights and other technology and rights to the extent conceived or developed by
its personnel or contractors (other than the other party hereto). Neither party
makes any grant of rights by implication.
6.2 Except as otherwise provided herein, each party shall be
responsible, as it shall determine, for the filing and prosecution of any and
all patent applications with respect, in whole or in part, to its own
intellectual property and for the ,maintenance of any available patent
protection with respect thereto; provided however, that neither party commits
that any such patent protection will be available or continuous hereunder. If
one party believes that an application for a patent in the Territory should be
filed with,respect to any invention of the other party hereunder related to the
Designated Product, it may so notify such other party, and the parties will
cooperate in the investigation of the propriety of such an application, taking
into account the respective interests of the parties and the anticipated costs
and benefits of such patent protection.
6.3 Penwest hereby grants to Mylan and its Affiliates a license under
the Penwest Patents, the Joint Developments, and Penwest's Confidential
Technology disclosed to Mylan hereunder to make, have made, use and sell the
Designated Product in the Territory during the License Term. Such license shall
be exclusive for such purposes as to the Penwest Patents listed in Exhibit 1.20
within the Exclusive
-17-
<PAGE> 18
Territory and shall be nonexclusive in the Non-Exclusive Territory. Such license
does not extend to the making of TIMERx or Formulated TIMERx, but does cover the
incorporation of the same into the Designated Product. Mylan shall have no right
to grant sublicenses hereunder without the prior written consent of Penwest,
which consent may be withheld in Penwest's discretion as to sublicenses in the
Exclusive Territory, but will not be unreasonably withheld as to sublicenses in
the NonExclusive Territory. Penwest will, throughout the License Term, promptly
notify Mylan of all Penwest Patents referred to in Subsection 1.20.2 and provide
Mylan with access to all of the same, solely for use within the scope of the
license stated in this section.
6.4 Mylan hereby grants to Penwest and its Affiliates a nonexclusive,
paid-up, worldwide license,,with right to sublicense, under any and all patents,
patent applications, trade secrets, copyrights, and other intellectual property
rights of any sort owned or controlled by Mylan or its Affiliates or
sublicensees, to make, have made, use and sell Formulated TIMERx during the
License Term, if and to the extent such license is necessary for Penwest to do
so as agreed hereunder. Penwest and its Affiliates shall have the right to grant
sublicenses of its rights hereunder to an alternate supplier as and for the
purposes described in Section 5.7, but shall otherwise have no right to grant
sublicenses hereunder without the prior written consent of Mylan, which consent
shall not be unreasonably withheld.
6.5 Subject to and conditional upon the failure of Penwest (or the
alternate supplier) to meet Mylan's and its Affiliates' and sublicensees,
requirements as provided in Section 5.8, Penwest grants to Mylan a nonexclusive,
worldwide license under the TIMERx Production Technology to make and have made
Formulated TIMERx solely for use in the Designated Product for sale in the
Territory during the License Term. Mylan shall have no right to grant
sublicenses of its rights hereunder (whether to Affiliate(s) or otherwise)
without the prior written consent of Penwest, which consent shall not be
unreasonably withheld.
6.6 Mylan acknowledges that Penwest and its Affiliates, for itself and
for others, applies, and will seek to apply, TIMERx to products other than the
Designated Product. No provision hereof, and no exclusivity hereunder, shall
prevent Penwest from so applying TIMERx or Formulated TIMERx, so long as the end
product is not the Designated Product hereunder, it being understood that the
August 1994 Agreement will continue to govern on this point as to the products
covered by it.
6.7 Mylan hereby grants to Penwest and its Affiliates a nonexclusive,
worldwide license, with right to sublicense, under any and all Mylan
Improvements, to make, have made, use and sell any products or services using or
based upon TIMERx or related technology, other than: (i) Designated Products in
the Territory during the License Term, and (ii), to the extent so provided in
the August 1994
-18-
<PAGE> 19
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Agreement, the "Designated Products" defined in that agreement. Such license
shall require the payment of a reasonable royalty to Mylan if any commercial
sales are made under such license. Penwest shall notify Mylan at least
*********** prior to granting any sublicense to the rights under this section
(other than to a Penwest Affiliate), and shall consult with Mylan as to the
propriety of such sublicense if Mylan, within such ********* period, notifies
Penwest of Mylan's belief, on reasonable grounds stated in such notice, that
such a sublicense would have a substantial adverse effect on Mylan or its
business. Mylan will, throughout the License Term, promptly notify Penwest of
all Mylan Improvements and provide Penwest with access to all of the same,
solely for use within the scope of the license stated in this section.
6.8 In recognition of the parties' cooperative efforts with respect to
the Joint Developments, it is agreed that each party and its Affiliates shall
have the nonexclusive, worldwide right and license, with right to sublicense,
under the Joint Developments, to make, have made, use and sell any products or
services (other than the Designated Product by Penwest or its Affiliates in the
Exclusive Territory during the License Term, or, to the extent so provided in
the August 1994 Agreement, the "Designated Products" defined in that agreement);
provided, ********************* however,***************************************
*******************************************************************************
Each party shall promptly notify the other of any such licenses or sublicenses
of any Joint Developments. Each party will, throughout the License Term,
promptly notify the other of all Joint Developments and provide such other party
with access to all of the same.
6.9 Mylan hereby grants Penwest and its Affiliates a nonexclusive
license under all rights of Mylan and its Affiliates and sublicensees in and to
that portion of the Mylan Test and Regulatory Data that is disclosed or provided
to Penwest hereunder, to use the same for purposes of complying with
governmental requirements of any country, other than with respect to the
Designated Product for marketing or use in the Territory. Such license shall be
on a paid-up, royalty-free basis as to Penwest and its Affiliates, and as to any
of the Available Portion of the Mylan Test and Regulatory Data (whether as to
Penwest or others), but shall********************************************** if
any but the Available Portion is used by any other party under a sublicense from
Penwest or its Affiliate. Penwest shall notify Mylan at least *****************
prior to granting any sublicense to the rights under this section (other than to
a Penwest Affiliate or as to the Available Portion), and shall consult with
Mylan as to the propriety of such sublicense if Mylan, within such ************
period, notifies Penwest of Mylan's belief, on reasonable grounds stated in
-19-
<PAGE> 20
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
such notice, that such a sublicense would have a substantial adverse effect on
Mylan or its business. Mylan hereby consents to Penwest's and its Affiliates'
and sublicensees' cross-referencing, in any filings that are essentially the
equivalent of the sorts of filings that are termed "ANDA" or "NDA" filings if
made with the FDA, made by them within the scope of such license, any ANDA or
NDA filing made or FDA master file created by Mylan or its Affiliates or
sublicensees relating to or containing any of the Mylan Test and Regulatory
Data. The license under this section shall survive any termination or expiration
of the term of this Agreement, except a termination under Section 10.7 due to an
uncured breach by Penwest. Mylan will, throughout the License Term and solely
for use within the scope of the license stated in this section, promptly provide
to Penwest copies of all of the Deliverable Portion of the Mylan Test and
Regulatory Data in or coming into Mylan's possession or otherwise reasonably
available to it.
6.10 Penwest hereby grants Mylan and its Affiliates (with right to
sublicense only to sublicensees under Section 6.3, as approved by Penwest) a
nonexclusive, paid-up license under all rights of Penwest and its Affiliates in
and to the Penwest Test and Regulatory Data to use the same for purposes of
complying with governmental requirements, but solely with respect to the
Designated Product for marketing or use in the Territory, it being understood
that the August 1994 Agreement will continue to govern on this point as to the
products covered by it. Penwest hereby consents to Mylan's and its Affiliates'
and such sublicensees, cross-referencing, in any ANDA or NDA filings made by
them within the scope of such license, any ANDA or NDA filing made or FDA master
file created by Penwest or its Affiliates relating to or containing any of the
Penwest Test and Regulatory Data. The license and rights under this section
shall survive any termination or expiration of the term of this Agreement,
except a termination under Section 10.7 due to an uncured breach by Mylan.
Penwest will, throughout the License Term and solely for use within the scope of
the license stated in this section, promptly provide to Mylan copies of all of
the Penwest Test and Regulatory Data in or coming into Penwest's possession or
otherwise reasonably available to it.
6.11 Each party agrees to mark and to have marked by its Affiliates and
sublicensees (if any) every product manufactured, used or sold by it or its
Affiliates or sublicensees in accordance with the laws of the United States or
other applicable nation relating to the marking of patented articles with
notices of patent.
6.12 Any dispute concerning *******************************************
*******************************************************************************
************************************************************* Each party hereto
shall afford,
-20-
<PAGE> 21
to the extent permissible under its agreements with the third parties, the other
party hereto the same audit rights that such party obtains from its licensees or
sublicensees with respect to any of the rights described in such sections.
7. CONFIDENTIALITY.
7.1 In the course of performance under this Agreement, a party may
disclose to the other confidential information belonging to such party in
writing, orally or by demonstration or sample, which information is marked or
stated in writing at or within 30 days after its disclosure to be "confidential"
or "trade secret" information. All such confidential information of a party
shall be maintained in confidence by the other and will not be used by the other
party for any purpose except as authorized hereunder. Each party shall exercise,
and shall cause its Affiliates, sublicensees and consultants to exercise, a
reasonable degree of care and at least the same degree of care as it uses to
protect its own confidential information of similar nature to preserve the
confidentiality of such information of the other party. Each party shall
safeguard such information against disclosure to third parties, including
without limitation employees and persons working or consulting for such party
that do not have an established, current need to know such information for
purposes authorized under this Agreement. This obligation of confidentiality
does not apply to information and material that:
7.1.1 were properly in the possession of the receiving party, without
any restriction on use or disclosure, prior to receipt from the other party;
7.1.2 are at the time of disclosure hereunder in the public domain by
public use, publication, or general knowledge;
7.1.3 become general or public knowledge through no fault of the
receiving party or its Affiliates or sublicensees following disclosure
hereunder;
7.1.4 are properly obtained by the receiving party from a third party
not under a confidentiality obligation to the disclosing party hereto;
7.1.5 are independently developed by or on behalf of the receiving party
without the use or assistance of the confidential information of the other
party;
7.1.6 consist merely of an idea or conception for the combination of one
or more active drug ingredients with a controlled-release agent such as TIMERx;
or
7.1.7 are required to be disclosed by order of any court or governmental
authority;
-21-
<PAGE> 22
provided, however, that the exceptions stated in Sections 7.1.3, 7.1.4, 7.1.5
and 7.1.7 shall not affect the continuing obligation of Mylan as the receiving
party to pay any Royalties pursuant to the terms hereof with respect to the use
of such information or materials that have not, as of the relevant time, been
placed into the public domain by the act of Penwest or its Affiliates.
7.2 Neither party shall make any public announcement or other
publication regarding this Agreement (whether as to the existence or terms
hereof) or the development work or project hereunder or the results thereof
without the prior, written consent of the other party, which consent shall not
be unreasonably withheld; provided that the foregoing shall not prohibit any
disclosure which, in the opinion of counsel to the disclosing party, is required
by any applicable law or by any competent governmental authority. In no event
shall either party make any disclosure of any such results before a patent
application has been filed with respect thereto, except upon the prior written
approval of the other party.
8. INFRINGEMENT.
8.1 Penwest shall promptly inform Mylan of any suspected infringement
of any of the Penwest Patents or the infringement or misappropriation of the
TIMERx Production Technology by a third party, to the extent such infringement
involves the manufacture, use or sale of the Designated Product in the Territory
("Covered Infringement"). Mylan shall promptly inform Penwest of any suspected
infringement of any of the Penwest Patents or infringement or misappropriation
of the TIMERx Production Technology, whether or not the same involves a Covered
Infringement.
8.2 If the suspected infringement or misappropriation does not involve
a Covered Infringement, Penwest may take, or refrain from taking, any action it
chooses, with or without notice to Mylan, and Mylan shall have no right to take
any action with respect to such suspected infringement or misappropriation, nor
to any recoveries with respect thereto. If the suspected infringement or
misappropriation involves a Covered Infringement, Penwest shall, within 30 days
of the first notice referred to in Section 8.1, inform Mylan whether or not
Penwest intends to institute suit against such third party with respect to a
Covered Infringement. Mylan will not take any steps toward instituting suit
against any third party involving a Covered Infringement until Penwest has
informed Mylan of its intention pursuant to the previous sentence.
8.3 If Penwest notifies Mylan that it intends to institute suit
against a third party with respect to a Covered Infringement, and Mylan does not
agree to join in such suit as provided in Section 8.4, Penwest may bring such
suit on its own and shall in such event bear all costs of, and shall exercise
all control over, such suit. Penwest may, at its expense, bring such action in
the name of Mylan and/or cause
-22-
<PAGE> 23
Mylan to be joined in the suit as a plaintiff. Recoveries, if any, whether by
judgment, award, decree or settlement, shall belong solely to Penwest.
8.4 If Penwest notifies Mylan that it desires to institute suit
against such third party with respect to a Covered Infringement, and Mylan
notifies Penwest within 30 days after receipt of such notice that Mylan desires
to institute suit jointly, the suit shall be brought jointly in the names of
both parties and all costs thereof shall be borne equally. Recoveries, if any,
whether by judgment, award, decree or settlement, shall, after the reimbursement
of each of Penwest and Mylan for its share of the joint costs in such action, be
shared between Penwest and Mylan equally; provided however that, any portion of
such net recoveries which constitutes the equivalent of, or damages or payments
in lieu of, a royalty measured by the defendant's Net Sales shall not be shared
equally, but shall be shared between Penwest and Mylan in accordance with
Section 4.3 as if they were Mylan's Net Sales.
8.5 If Penwest notifies Mylan that it does not intend to institute
suit against such third party with respect to a Covered Infringement, Mylan may
institute suit on its own. Mylan shall bear all costs of, and shall exercise all
control over, such suit. Recoveries, if any, whether by judgment, award, decree
or settlement, shall belong solely to Mylan; provided however that, after
reimbursement of Mylan for its costs in such action, any portion of such net
recoveries which constitutes the equivalent of, or damages or payments in lieu
of, a royalty measured by the defendant's Net Sales shall be shared between
Penwest and Mylan in accordance with Section 4.3 as if they were Mylan's Net
Sales.
8.6 Should either Penwest or Mylan commence a suit under the
provisions of this Section 8 and thereafter elect to abandon the same, it shall
give timely notice to the other party, who may, if it so desires, be joined as a
plaintiff in the suit (or continue as such if it is already one) and continue
prosecution of such suit. The sharing of expenses and any recovery of such suit
shall be as reasonably agreed between Penwest and Mylan.
9. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
9.1 Each party represents and warrants to the other that, to the best
of its current knowledge, it has the full right and authority to enter into this
Agreement and to grant the licenses granted herein. Each party believes, to the
best of its current knowledge, that any existing patents licensed by it to the
other party under this Agreement ate valid.
9.2 Penwest represents and warrants that any Formulated TIMERx
supplied by it to Mylan hereunder for use in the Designated Product, at the
point of delivery:
-23-
<PAGE> 24
9.2.1 will conform to the product Specifications that Penwest and Mylan
have agreed in writing are to apply to such delivery of TIMERx; and
9.2.2 to the best of Penwest's current knowledge, will not infringe upon
an article patent of any third party.
PENWEST MAKES NO REPRESENTATIONS OR WARRANTIES AS TO ANY TIMERx OR FORMULATED
TIMERx SUPPLIED BY IT TO MYLAN EXCEPT AS ARE EXPLICITLY STATED HEREIN.
9.3 Each party represents and warrants to the other party that it has
obtained and will at all times during the term of this Agreement, hold and
comply with all licenses, permits and authorizations necessary to perform this
Agreement and to test, manufacture, market, export, and import the products and
assistance to be provided by it hereunder, as now or hereafter required under
any applicable statutes, laws, ordinances, rules and regulations of the United
States and any applicable foreign, state, and local governments and governmental
entities.
9.4 Mylan warrants that any Designated Product manufactured, marketed
or distributed by Mylan or its Affiliates or sublicensees shall meet and be
manufactured, packaged, labeled, sold, and promoted in accordance with all
applicable regulatory requirements within the Territory.
9.5 Penwest shall indemnify, defend and hold harmless Mylan and its
Affiliates and sublicensees from any claim, action or damages arising out of any
alleged infringement by reason of the manufacture, use or sale by Mylan of the
Designated Product to the extent such infringement would apply as well to the
manufacture, sale or distribution of TIMERx alone. If Mylan or its Affiliate or
sublicensee, by reason of its manufacture, sale or distribution of Designated
Product, is accused of infringing the patent of a third party, and such claim of
infringement, as framed by the claimant, would apply as well to the manufacture,
sale or distribution of TIMERx alone, Mylan shall immediately so notify Penwest
and provide Penwest all available information, and the parties shall consult
reasonably as to the proper course of action. If Penwest and Mylan jointly
determine that such claim is likely to prevail, or if an arbitrator hereunder or
a court of competent jurisdiction so determines, Mylan shall be entitled to
offset against any Royalties payable to Penwest hereunder any third party
royalties for which Mylan or its Affiliate or sublicensee becomes liable.
9.6 Penwest shall indemnify, defend and hold Mylan and its Affiliates
and sublicensees harmless from any and all third-party claims to the extent
arising from, in connection with, based upon, by reason of, or relating in any
way to:
-24-
<PAGE> 25
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
9.6.1 the *************************************************************
TIMERx in the Designated Product;
9.6.2 Penwest's *******************************************************
and the Specifications therefor hereunder;
9.6.3 any failure of the Formulated TIMERx manufactured by Penwest or
its alternate supplier (but not by Mylan under Section 5.8), as delivered to
Mylan hereunder for use in the Designated Product, to conform to the
Specifications; or
9.6.4 any failure of Penwest to comply with its obligation under Section
5.13 to notify Mylan of any information coming into Penwest's possession and
************************************************* Product,and not arising from
any other aspect of the Designated Product or its formulation, development,
supply, production, manufacture, sale, delivery, distribution or use, nor from
any act or omission of Mylan with respect to the Formulated TIMERx following its
delivery to Mylan hereunder.
9.7 Mylan shall indemnify, defend and hold Penwest harmless from any
and all third-party claims to the extent arising from, in connection with, based
upon, by reason of, or relating in any way to, the formulation, development,
supply, production, manufacture, sale, delivery, distribution or use of the
Designated Product, ***********************************************************
9.8 Notwithstanding anything to the contrary set forth elsewhere
herein, neither Mylan nor Penwest shall be obligated to indemnify the other
party for claims or liabilities to the extent arising from such other party's,
or its Affiliates', sublicensees' or assigns', negligence, intentional
misconduct, or breach of its duties, obligations, warranties or representations
set forth herein.
9.9 Whenever indemnification is provided for a party under this
Agreement, such right of indemnification shall extend also to the indemnified
party's Affiliates, officers, directors, shareholders, successors, assigns,
agents, employees, and insurers to the extent the same become subject to such
claim in such capacity. The party seeking indemnification shall provide the
indemnifying party with written notice of any claim or action within ten (10)
days of its receipt thereof, and shall afford the indemnifying party the right
to control the defense and settlement of such claim or action. The party seeking
indemnification shall provide reasonable assistance to the indemnifying party in
the defense of such claim or action. If the defendants in any such action
include both Mylan and Penwest and either party
-25-
<PAGE> 26
concludes that there may be legal defenses available to it which are different
from, additional to, or inconsistent with, those available to the other, that
party shall have the right to select separate counsel to participate in the
defense of such action on its behalf, and such party shall thereafter bear the
cost and expense of such separate defense. Should the indemnifying party
determine not to defend such claim or action, the other party shall have the
right to maintain the defense of such claim or action and the indemnifying party
agrees to provide reasonable assistance to it in the defense of such claim or
action. Neither party shall settle any such claim or action in a way that
prejudices or adversely impacts the other party to this Agreement without the
prior approval of such other party (which approval shall not be unreasonably
withheld) .
9.10 Any dispute concerning indemnification will be determined by
arbitration in accordance with Section 11.10 of this Agreement.
9.11 THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS, IMPLIED OR ARISING BY LAW, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NOTHING IN
THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION OR WARRANTY (i) BY PENWEST
AS TO THE PATENTABILITY, VALIDITY (EXCEPT AS STATED IN SECTION 9.1), OR SCOPE OF
ANY PENWEST PATENTS, PENWEST'S CONFIDENTIAL TECHNOLOGY, TIMERx PRODUCTION
TECHNOLOGY, JOINT DEVELOPMENTS, OR PENWEST TEST AND REGULATORY DATA; OR (ii) BY
MYLAN AS TO THE PATENTABILITY, VALIDITY (EXCEPT AS STATED IN SECTION 9.1), OR
SCOPE OF ANY MYLAN IMPROVEMENTS, JOINT DEVELOPMENTS, OR MYLAN TEST AND
REGULATORY DATA.
9.12 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN (OTHER
THAN THE INDEMNITIES STATED IN THIS SECTION 9), NEITHER PARTY SHALL UNDER ANY
CIRCUMSTANCES BE LIABLE FOR ANY THIRD PARTY CLAIMS OR FOR ANY INCIDENTAL,
CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES, INCLUDING ANY LOST PROFITS OR
SAVINGS, ARISING FROM ANY BREACH OF WARRANTY OR THE PERFORMANCE OR BREACH OF ANY
OTHER PROVISION OF THIS AGREEMENT OR THE USE OR INABILITY TO USE TIMERx, THE
DESIGNATED PRODUCT, PENWEST PATENTS, PENWEST'S CONFIDENTIAL TECHNOLOGY, TIMERx
PRODUCTION TECHNOLOGY, PENWEST TEST AND REGULATORY DATA, MYLAN IMPROVEMENTS, OR
MYLAN TEST AND REGULATORY DATA, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
-26-
<PAGE> 27
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
9.13 Each party shall, at its own cost and expense, obtain and maintain
from a qualified insurance company comprehensive general liability and products
liability insurance coverage during the term of this Agreement (and any
subsequent period of sale or distribution pursuant to Section 10.8). Such
insurance shall be in an amount no less than **********************************
combined single limit for each occurrence for bodily injury and/or property
damage. Each party agrees to provide the other party with a certificate of
insurance evidencing such insurance within thirty (30) days after the execution
of this Agreement and again thereafter from time to time as reasonably requested
by such other party.
10. TERM AND TERMINATION.
10.1 The term of this Agreement shall begin on the date set forth above
and shall, unless earlier terminated as provided herein, continue until the end
of the License Term.
10.2 Subject to Sections 10.3 and 10.4, Penwest may at its option
terminate this Agreement following the Approval Date if Mylan and its Affiliates
and sublicensees, in the aggregate, fail to sell, in Royalty-bearing
transactions triggering "Net Sales" hereunder, Designated Product *************
*******************************************************************************
******************************************** determined under Section 10.2.1.
10.2.1 The minimum percentage market shares described above shall be as
follows:
(i) For Year 1, the minimum Percentage Market Share for
purposes of this Section 10.2 shall be ************.
(ii) For Year 2, the minimum Percentage Market Share for
purposes of this Section 10.2 shall be *******************.
(iii) For Year 3 and each year thereafter during the License
Term, the minimum Percentage Market Share for purposes of
this Section 10.2 shall be ******************* .
10.3 If there is any period during which Mylan's ability to sell the
Designated Product is materially retarded due to:
10.3.1 events beyond its reasonable control as described in Section 11.8
or
-27-
<PAGE> 28
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
10.3.2 a failure of Penwest and its alternate supplier to supply
Formulated TIMERx as described in Section 5.8,
then an additional period of the lesser of the duration of such event (or
failure) or one year shall be added at that point to the schedule described in
Section 10.2.
10.4 If, at the Approval Date, there are in the United States
********************************************, the minimum amounts stated in
Section 10.2 shall ************************** to be reasonably agreed between
Mylan and Penwest in good faith negotiations during the ninety (90) days
following the Approval Date.
10.5 Mylan may at its option terminate this Agreement following the
Approval Date, provided that any such elective termination shall require that
Mylan pay an early termination fee to Penwest *********************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
during the period in which such termination occurs ****************************
*******************************************************************************
*******************************************************************************,
and such termination fee shall be paid to Penwest on or before the effective
date of such termination.
10.6 Following any expiration or termination of the License Term (but
subject to Section 10.10), the licenses to Penwest under Sections 6.7, 6.8, and
6.9 shall be extended to include (in addition to their coverage as stated in
such sections) making, using and selling the Designated Product in the Territory
and the use of Mylan Test and Regulatory Data for purposes of complying with
governmental requirements with respect to the Designated Product for marketing
or use in the Territory, and otherwise shall continue to be governed by the
terms stated in such sections.
10.7 In the event that either party materially breaches any of the
terms, conditions or agreements contained in this Agreement to be kept, observed
or performed by it, then the other party may terminate this Agreement, at its
option and without prejudice to any of its other legal or equitable rights or
remedies, by giving the party who committed the breach (i) in the case of breach
of obligations other than the payment of money, 90 days' notice in writing,
unless the notified party within such 90-day period shall have cured the breach,
and (ii) in the case of breach of an obligation for the payment of money, 30
days' notice in writing, unless the notified
-28-
<PAGE> 29
party within such 30-day period shall have cured the breach, including any
required payment of interest on previously unpaid amounts as set forth herein;
provided, however, that:
10.7.1 no termination of this Agreement under this Section shall become
effective during the pendency of a good faith dispute between the parties as to
the existence of grounds for such a termination, provided that the parties are
complying with the process in Section 11.10 in good faith in order to resolve
such dispute, and that such termination shall become effective immediately upon
any binding determination that such grounds did exist at the time the notice of
termination was given; and
10.7.2 if a notice of termination is given pursuant to this Section and
it is subsequently determined that grounds for such a notice did not exist, the
giving of such notice shall not itself constitute a repudiation or default under
this Agreement, so long as such notice was given in the good faith belief that
such grounds did exist.
10.8 In the event of any termination of this Agreement, Mylan shall be
entitled to sell and distribute reasonable inventories of Designated Product
remaining on hand as of the effective date of termination, provided that such
sales and distribution are otherwise in conformance with this Agreement. Mylan
may continue to make, use or sell such Designated Product only until Mylan has
exhausted remaining raw materials in its possession at the time of termination
of the license. Net Sales of the Designated Product pursuant to this Section
shall be subject to the Royalties pursuant to Section 4.3.
10.9 Any sublicenses granted by Mylan or its Affiliates under this
Agreement shall provide for termination or assignment to Penwest, at the option
of Penwest, of Mylan's or its Affiliate's interest therein upon termination of
this Agreement.
10.10 Mylan's obligations regarding payment of Royalties (and Production
Royalties, if any) accrued as of the date of termination and as provided under
Section 10.8; Penwest's rights under Sections 6.7, 6.8, and 6.9, as modified by
Section 10.6 (except if this Agreement is terminated due to an uncured breach on
the part of Penwest); and Mylan's rights under Section 6.10 (except if this
Agreement is terminated due to an uncured breach on the part of Mylan); and the
provisions of Sections 7, 9, and 11, hereof shall survive any expiration or
termination of this Agreement.
11. MISCELLANEOUS.
11.1 Each of Penwest and Mylan agrees to duly execute and deliver, or
cause to be duly executed and delivered, such further instruments and do and
cause to be done such further acts and things as are reasonably within its
control and,its
-29-
<PAGE> 30
responsibilities under this Agreement, including, without limitation, the filing
of such additional assignments, agreements, documents and instruments, that may
be necessary or as the other party hereto may from time to time reasonably
request in connection with this Agreement to carry out more effectively the
provisions and purposes of this Agreement.
11.2 This Agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof, it being understood that the
August 1994 Agreement is not superseded by or merged into this Agreement, but,
rather, shall continue in effect as to its subject matter and in accordance with
its terms.
11.3 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their Affiliates, successors and permitted assigns;
provided, however, that except for assignments or delegations to Affiliates of a
party (which shall not release such party from any of its rights or
responsibilities hereunder), or as part of the transfer of all or substantially
all assets to a single buyer or pursuant to a merger or other corporate
reorganization, or as otherwise specifically permitted hereunder, neither party
shall assign or delegate any of its rights or obligations hereunder at any time
without the prior written consent of the other party hereto, which consent shall
not be unreasonably withheld.
11.4 All notices, requests or other communication provided for or
permitted hereunder shall be given in writing and shall be hand delivered or
sent by facsimile, reputable courier or by registered or certified mail, postage
prepaid, return receipt requested, to the address set forth on the signature
page of this Agreement, or to such other address as either party may inform the
other of in writing. Notices will be deemed delivered on the earliest of
transmission by facsimile, actual receipt or three days after mailing as set
forth herein.
11.5 No change, modification, extension, termination or waiver of any
obligation, term or provision contained herein shall be valid or enforceable
unless same is reduced to writing and signed by a duly authorized representative
of each of the parties to be bound hereby. No waiver of any right in any one
instance shall constitute a waiver of that right or of any other right in other
instances under this Agreement.
11.6 If any provision of this Agreement shall be held invalid, illegal
or unenforceable, such provision shall be enforced to the maximum extent
permitted by law and the parties, fundamental intentions hereunder, and the
remaining provisions shall not be affected or impaired.
-30-
<PAGE> 31
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
11.7 Nothing herein contained ****************************************
or constitute either party as the partner, principal or agent of the other, this
being an Agreement between independent contracting entities. Neither party shall
have the authority to bind the other in any respect whatsoever. Except as
provided herein, nothing contained in this Agreement shall be construed as
conferring any right on either party to use any name, trade name, trademark or
other designation of the other party hereto, unless the express, written
permission of such other party has been obtained.
11.8 In the event that either party hereto is prevented from carrying
out its obligations under this Agreement by events beyond its reasonable
control, including without limitation acts or omissions of the other party, acts
of God or government, natural disasters or storms, fire, political strife, labor
disputes, failure or delay of transportation, default by suppliers or
unavailability of parts, then such party's performance of its obligations
hereunder shall be excused during the period of such event and for a reasonable
period of recovery thereafter, and the time for performance of such obligations
shall be automatically extended for a period of time equal to the duration of
such event or events.
11.9 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to its
conflict of laws rules.
11.10 Should the parties to this Agreement fail to resolve any
controversy or claim arising out of or relating to the interpretation or
application of any term or provision set forth herein, or the alleged breach
thereof, such controversy or claim shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Judgment upon any award rendered pursuant to the terms set forth
herein may be entered in any court having jurisdiction of the party against whom
the award is rendered. Any award rendered pursuant to the terms and conditions
set forth herein shall be final and binding upon the parties and their
Affiliates. Any arbitration held pursuant to this Agreement shall be held in
Washington, D.C., or such other site as the parties may mutually agree. All
costs and expenses including reasonable attorney's fees and the fees and
expenses of the arbitrators and the AAA, incurred in the enforcement of this
Agreement shall be paid to the prevailing party by the non-prevailing party,
provided that the same may be apportioned between the parties by the arbitrators
if they determine that each party has prevailed in part. Notwithstanding the
foregoing, either party may, on good cause shown, seek a temporary restraining
order and/or a preliminary injunction
-31-
<PAGE> 32
from a court of competent jurisdiction, to be effective pending the institution
of the arbitration process and the deliberation and award of the arbitration
panel.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and acknowledge this Agreement as of the Effective Date.
This Agreement may be executed in one or more counterparts, each of which will
be an original instrument, but all of which together shall constitute a single
agreement creating one set of rights and obligations.
Mylan Pharmaceuticals Inc. Penwest, Ltd.
By /s/ Roderick P. Jackson By /s/ John V. Talley
----------------------------- -------------------------------
Roderick P. Jackson John V. Talley
Senior Vice President Vice President
Address: Address:
781 Chestnut Ridge Road 2981 Route 22
Morgantown, W.V. 26504 Patterson, N.Y. 12563
FAX: (304) 598-5409 FAX: (914) 878-3420
Attn: J. Gregory Ford Attn: Dr. Paul K. Wotton
-32-
<PAGE> 33
EXHIBIT 1.6
Target Designated Product
Solid-dosage forms of a controlled-release pharmaceutical for oral
administration in humans that combine Nifedipine with TIMERx and other
excipients and that are bioequivalent to the product currently (as of the
Effective Date) marketed in the United States under the name "Adalat CC," in the
following tablet dosage strengths: 30 mg, 60 mg, 90 mg, and that are eligible
for approval by the FDA under an ANDA.
-33-
<PAGE> 34
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 1.17
Deliverable Portion of the Mylan Test and Regulatory Data
All material under or directly related to the following headings (or their
substantive equivalents) ****************************************************
***********************************************
***********************************************
***********************************************
***********************************************
***********************************************
***********************************************
Test Procedures under the heading "Controls for the Finished Dosage Form"
(except for any Assay information that is proprietary to Mylan)
Finished Product Specifications and Test Data under the heading "Controls
for the Finished Dosage Form"
Drug Substance under the heading "Analytical Methods" (except for Mylan's
Certificate of Analysis)
Analytical Procedures ****************************************************
*******************************************************************************
**********************************************
**************************************
Such other information and data as is reasonably necessary or facilitative for
Penwest's performance of its obligations hereunder to *************************
*******************************************************************************
*********************************************************
-34-
<PAGE> 35
EXHIBIT 1.20
Penwest Patents
UNITED STATES:
1) U.S. Patent No. 4,994,276, entitled "Directly Compressible Slow Release
Granulation," issued February 19, 1991.
2) U.S. Patent No. 5,128,143, entitled "Sustained Release Excipient and
Tablet Formulation," issued July 7, 1992.
3) U.S. Patent No. 5,135,757, entitled "Compressible Sustained Release
Dosage Forms," issued August 4, 1992.
4) U.S. Application Serial No. 08\118,924, entitled "Sustained Release
Hetero-Disperse Hydrogel Systems for Insoluble Drugs," filed September 9, 1993.
CANADA:
5) Canadian Patent Application No. 611,700, filed September 18, 1989
(corresponding to items 1), 2) and 3) above).
6) Canadian Patent Application to be filed corresponding to item 4) above.
MEXICO:
7) Mexican Patent Application to be filed corresponding to item 4) above.
-35-
<PAGE> 36
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 2.3:
Development Steps
EXPECTED
DATES ACTIVITY RESPONSIBILITY
----- -------- --------------
******************** * Penwest
******************* * Penwest
******************** * Mylan
*******************
***************
Analytical methodology Penwest
transfer
TIMERx-A bulk Penwest
********************
********************
Bio-batch production Mylan
nifedipine C.R. tablets
********************* ** Mylan
Pilot bio-study Mylan
Pivotal bio-studies Mylan
(fasted, fed,
steady state)
Stability studies Mylan
ANDA Filing Mylan
-36-
<PAGE> 1
Exhibit 10.3
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT
THIS AGREEMENT is entered into as of the 22nd day of March, 1996, by and
between Penwest, Ltd., a Washington corporation ("Penwest"), and Mylan
Pharmaceuticals Inc., a West Virginia corporation ("Mylan").
A. Penwest has developed a controlled-release agent covered by one
or more patents, patent applications, know-how and other proprietary technology,
which agent Penwest markets under the name "TIMERx(R)" ("TIMERx"). Penwest has
conducted initial biostudies with respect to the potential development of one or
more pharmaceutical products incorporating the active ingredient glipizide
("Glipizide"), TIMERx, and one or more other excipients.
B. Mylan is interested in developing for manufacture a
pharmaceutical product incorporating Glipizide in a solid-dosage
controlled-release delivery system for oral administration in humans.
C. The parties, under two prior agreements (the "Nifedipine
Agreements"), are engaging in certain activities relating to the development and
testing of a product incorporating the active ingredient Nifedipine and TIMERx,
and designed to be bioequivalent, respectively, to the products currently being
marketed in the United States under the names "Procardia XL" and "Adalat CC."
The parties now desire to engage in a separate program of research, development,
and testing activities designed to determine if Penwest's TIMERx
controlled-release system can be adapted and combined with Glipizide to make a
generic controlled-release version of Glipizide for oral solid-dosage
administration in humans that is bioequivalent to the product currently being
marketed in the United States under the name "Glucotrol XL." If such activities
are successful, Mylan desires to contract for a supply of TIMERx for use in the
manufacture of such a controlled-release form of Glipizide, and Penwest is
willing to supply the same provided that Mylan agrees to obtain all of its
requirements for controlled-release agents for Glipizide products that are
essentially bioequivalent to "Glucotrol XL" in the form of TIMERx from Penwest
as provided herein.
1
<PAGE> 2
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
1.1 "AFFILIATE" shall mean any individual, partnership, corporation,
limited company, trust, or other entity of whatever nature (hereinafter
collectively referred to as "Person"), which is directly or indirectly
controlling, controlled by or under common control with another Person,
identifiable based upon the context in which the term is used. The term
"control" shall mean the possession of the power to direct or cause the
direction of the management and policies and/or the distribution of the profits
of a Person.
1.2 "APPROVAL DATE" shall mean the date on which the Designated
Product (in the applicable dosage strength) is first approved by the U.S. Food
and Drug Administration (herein the "FDA") for commercial sale in oral
solid-dosage form for administration in humans, pursuant to an abbreviated new
drug application ("ANDA").
1.3 "APPROVED GENERIC VERSION" shall mean a drug that is
bioequivalent to the product that is currently being marketed in the United
States under the name "Glucotrol XL", and that has been fully approved for
commercial sale in oral solid- dosage form for administration in humans by the
FDA or, as applicable, the parallel regulatory authorities in the Non-Exclusive
Territory, and which is not branded, labelled, or marketed under the name
"Glucotrol" or "Glucotrol XL" and which is not marketed by Mylan, any of its
Affiliates, or under a license or sublicense from Mylan or its Affiliate.
1.4 "CERTIFICATION PERIOD" shall mean, for each dosage strength, the
period beginning on the Submission Date for such dosage strength and ending on
the earlier of:
1.4.1 the Approval Date for such dosage strength; or
1.4.2 the termination of this Agreement as provided herein.
1.5 "CONFIDENTIAL TECHNOLOGY" shall mean all technology and know-how
disclosed hereunder that is, at the relevant time hereunder, protected or
required to be protected by both parties hereto as confidential information
pursuant to Section hereof.
1.6 "DESIGNATED PRODUCT" shall mean the solid-dosage form of a
controlled- release pharmaceutical for oral administration in humans that
combines Glipizide with TIMERx and other excipients and that is bioequivalent to
the product currently (as of the Effective Date) marketed in the United States
under the name "Glucotrol
2
<PAGE> 3
XL," as more fully described in Exhibit 1.6 subject to modifications as Penwest
and Mylan may mutually agree during the Development Period. The parties intend
that the Designated Product will be developed in more than one dosage strength,
as more fully described in Exhibit 1.6.
1.7 "DEVELOPMENT PERIOD" shall mean, for each dosage strength, the
period from the Effective Date through the Submission Date for such dosage
strength or the earlier termination of this Agreement as provided herein.
1.8 "DEVELOPMENT STEPS" shall mean the activities specified in
Exhibit hereto to be undertaken by the parties during the Development Period.
1.9 "DMF" shall mean Drug Master File as defined in 21 CFR 300 et
seq., including amendments and supplements which will be filed by Penwest.
1.10 "EFFECTIVE DATE" shall mean the effective date of this
Agreement, which is the date first written above.
1.11 "EXCLUSIVE TERRITORY" shall mean the United States and its
territories and possessions.
1.12 "FORMULATED TIMERX" shall mean TIMERx and certain additives in a
formulation to be developed hereunder specifically for use in the Designated
Product.
1.13 "JOINT DEVELOPMENTS" shall mean any and all inventions,
improvements, modifications, alterations, or enhancements that are developed
jointly by Mylan or any of its Affiliates, on the one hand, and Penwest or any
of its Affiliates, on the other hand, during the term of this Agreement or
during any period of mutual cooperative development prior to the Effective Date,
together with all United States and foreign intellectual property and other
rights and interests of the parties and their respective Affiliates thereto and
therein, including without limitation patents, trade secrets, copyright, periods
of market exclusivity, and other related rights or interests, to the extent the
same remain protected by any such rights and interests from being used freely by
others.
1.14 "LICENSE TERM" shall mean the cumulative period covered by the
Development Period, the Certification Period, and the Marketing Period.
1.15 "MARKETING PERIOD" shall mean, for each dosage strength, the
period beginning on the Approval Date for such dosage strength and ending on the
earlier of:
1.15.1 the twentieth anniversary of such Approval Date; or
3
<PAGE> 4
1.15.2 the termination of the License Term and/or this
Agreement as provided herein.
1.16 "MYLAN IMPROVEMENTS" shall mean, except for any Joint
Developments, any and all improvements, modifications, alterations, or
enhancements to any of the inventions covered by the Penwest Patents, Penwest's
Confidential Technology, or the TIMERx Production Technology, that are
developed, owned, or controlled by Mylan or any of its Affiliates or
sublicensees, or in which Mylan or any of its Affiliates or sublicensees
otherwise has any rights or interests during the term of this Agreement (or,
with respect to such sublicensees, during the term of the respective
sublicenses) or during any period of mutual cooperative development prior to the
Effective Date; together with all United States and foreign intellectual
property and other rights and interests of Mylan and its Affiliates and
sublicensees thereto and therein, including without limitation patents, trade
secrets, copyright, periods of market exclusivity, and other related rights or
interests, to the extent the same remain protected by any such rights and
interests from being used freely by others.
1.17 "MYLAN TEST AND REGULATORY DATA" shall mean any and all test
data, test designs and protocols, clinical studies and results thereof,
government licenses and applications therefor, government certifications and
findings, and related materials, information and rights (including without
limitation information regarding bioavailability and bioequivalence, and any
adverse drug reactions), developed, commissioned or otherwise obtained by Mylan
or any of its Affiliates or sublicensees during the term of this Agreement (or,
with respect to such sublicensees, during the term of the respective
sublicenses) relating to TIMERx, Mylan Improvements, the Designated Product,
Penwest Patents, TIMERx Production Technology, and/or Penwest's Confidential
Technology, together with all intellectual property and other rights and
interests of Mylan and its Affiliates or sublicensees thereto and therein,
worldwide. It is understood that:
1.17.1 To the extent any of the Mylan Test and Regulatory Data
is available for review by the public without confidentiality
restrictions, it shall be referred to herein as the "Available
Portion" of the Mylan Test and Regulatory Data; and that
1.17.2 To the extent any of the Mylan Test and Regulatory Data
meets the criteria specified in Exhibit , it shall be referred
to herein as the "Deliverable Portion" of the Mylan Test and
Regulatory Data.
4
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
1.18 "NET SALES" shall mean ****************************************
*******************************************************************************
*******************************************************************************,
calculated in accordance with United States Generally Accepted Accounting
Principles ("GAAP") consistently applied, which pertains to the Designated
Product. The calculation of Net Sales shall include
*******************************************************************************
in accordance with GAAP, ******************************************************
*******************************************************************************
*******************************************************************************
**************************************************************
(a) ******************************
(b) ***********************************************
(c) ***************************************************
*********************
*********************
****************************************
*******************************************************
*******************************************************
****************************************
************************
*******************************
**************************
*************************
************************
***************************************************
1.19 "NON-EXCLUSIVE TERRITORY" shall mean Canada and Mexico and the
respective territories and possessions of each.
1.20 "PENWEST PATENTS" shall mean:
5
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
1.20.1 those United States patents and foreign equivalents in
the NonExclusive Territory and United States and foreign patent
applications listed in Exhibit and all divisions, continuations,
reissues, or extensions thereof, any periods of marketing
exclusivity relating thereto, and any letters patent that issue
thereon; and
1.20.2 Penwest's rights under United States patents and foreign
patents in the Non-Exclusive Territory, if any, obtained and in
force during the License Term covering any of Penwest's
improvements, modifications, alterations, or enhancements to any
of the inventions covered by the Penwest Patents.
1.21 "PENWEST TEST AND REGULATORY DATA" shall mean any and all test
data, test designs and protocols, clinical studies and results thereof,
government licenses and applications therefor, government certifications and
findings, and related materials, information and rights (including without
limitation information regarding bioavailability and bioequivalence, and any
adverse drug reactions), developed, commissioned or otherwise obtained by
Penwest or any of its Affiliates during the term of this Agreement relating to
TIMERx, Penwest Patents, TIMERx Production Technology, and/or Penwest's
Confidential Technology, together with all intellectual property and other
rights and interests of Penwest and its Affiliates thereto and therein in the
Territory.
1.22. "PERCENTAGE MARKET SHARE" shall mean the share of the total
United States market for the aggregate of all Approved Generic Versions, the
product currently being marketed under the name "Glucotrol XL," and the
Designated Product which is represented by unit sales of the Designated Product,
stated as a percentage of such total market. The unit sales of such products
shall be determined through the publicly available reports of IMS or an
alternate public source mutually approved by the parties hereto.
1.23 "PRODUCTION ROYALTIES" shall mean *****************************
*******************************************************************************
*******.
1.24 "PROJECT CONTACT(S)" shall mean the persons appointed by each
party to serve as contact person between the parties during the Development
Period and the Certification Period. The initial Project Contact for Penwest is
Dr. Paul K. Wotton and the initial Project Contact for Mylan is J. Gregory Ford.
Each party shall promptly notify the other party of any substitution of other
personnel as its Project Contact. Each party may select and supervise its other
project staff as needed.
1.25 "ROYALTIES" (or "Royalty") shall mean the royalties payable to
Penwest pursuant to Section hereof.
6
<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
1.26 "SPECIFICATIONS" shall mean such standards and analytical
methods established in writing by Penwest and Mylan as are reasonably necessary
or appropriate to assure the identity, strength, quality and purity of the
TIMERx and Formulated TIMERx, and any such other standards or methods as may be
required or approved by the FDA. It is understood and agreed that the
Specifications for Formulated TIMERx for use in Designated Product to be sold in
the Non-Exclusive Territory shall be the same as those for Formulated TIMERx for
use in Designated Product to be sold in the Exclusive Territory, and in no event
will Mylan permit the Designated Product to be certified for sale in the
Non-Exclusive Territory on any other basis.
1.27 "SUBMISSION DATE" shall mean the date on which Mylan submits to
the FDA an ANDA for the Designated Product (in the applicable dosage strength),
as approved by the parties at the end of the Development Period for such dosage
strength.
1.28 "TERRITORY" shall mean the Exclusive Territory and the Non-
Exclusive Territory.
1.29 "TIMERX PRODUCTION TECHNOLOGY" shall mean Penwest's rights under
the Penwest Patents and any and all other patents, patent applications, and
other technology and know-how belonging to Penwest from time to time during the
term of this Agreement that directly relate to, and are necessary for the
production of, Formulated TIMERx for use in the Designated Product.
1.30 "UNIT PRICE" shall mean ******************* of Formulated
TIMERx, subject to adjustment ********************* to reflect any percentage
increases or decreases in the United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers for the New York City
Metropolitan Area, "All Items" (1982-84 = 100) (the "Index") over the base
period Index. The Index, which may be a monthly, quarterly or other fiscal
period Index *************** **************************, shall be considered the
"base period" Index. If at any time publication of the Consumer Price Index is
discontinued, Penwest shall, with the consent of Mylan (which consent shall not
be unreasonably withheld), substitute any other index published by the Bureau of
Labor Statistics, or successor or similar governmental agency or
quasi-governmental or private entity providing similar information as may then
be in existence and shall be most nearly equivalent thereto.
2. DEVELOPMENT PERIOD.
2.1 In consideration of Penwest's entering into this Agreement,
Mylan shall pay Penwest upon the Effective Date a nonrefundable initial fee of
**************. Upon receipt of such sum, Penwest will deliver to Mylan the
results of the initial
7
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
pilot biostudy conducted by Penwest, and Mylan will conduct a second or
subsequent pilot biostudy(ies) (the "Mylan Pilot Biostudy(ies)").
2.2 As additional inducement to Penwest to enter into this
Agreement, Mylan hereby affirms that, other than confidentiality agreements not
binding either party to any further agreement, it currently has no agreement or
arrangement with any Person other than Penwest for or including the development,
design, testing, certification, manufacture or marketing by it or such other
Person (or the Affiliate(s) of either) of any controlled-release Glipizide
product that is intended to be essentially bioequivalent to "Glucotrol XL," and
agrees that it will refrain from entering into any such agreement or arrangement
(other than such confidentiality agreements) throughout the duration of the
Development Period or the period of eighteen months following the date hereof,
whichever expires later.
2.3 During the Development Period, each of Penwest and Mylan will
exert its continuing best efforts to perform their respective tasks specified in
Exhibit , within the estimated time periods there stated, in order to create and
produce the Designated Product, and each will cooperate with the other in such
efforts. Each party will, promptly and throughout the Development Period,
provide to the other all necessary information in or coming into its possession
or reasonably available to it for such purposes. Notwithstanding anything else
to the contrary contained herein, nothing shall require either party to disclose
confidential information for which such party has an obligation of
confidentiality to a third party. Each party understands and agrees that the
other does not warrant or commit that the Designated Product will be
successfully developed, and neither party shall have any liability or
responsibility to the other or to third parties for any such failure of the
development process hereunder, except to the extent such failure results from
said party's intentional misconduct, negligence, or breach of its duties or
obligations as set forth herein.
2.4 Mylan shall be responsible for, and hereby agrees to conduct or
arrange for, at Mylan's expense, all testing and studies during the Development
Period, including as to bioavailability and bioequivalence, in connection with
the development, licensing, manufacture and marketing of the Designated Product,
and for substantial compliance with all material and relevant governmental
requirements imposed in the Territory with respect to the manufacture, use, and
sale of the Designated Product. In consideration of Penwest's entering into this
Agreement, Mylan agrees to pay Penwest:
2.4.1 A milestone fee of ***************, payable
****************************************************** that the
**************************************************** under this
Agreement *****************************************************
8
<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
******************************************************* such
milestone payment will be ************************.
2.4.2 An additional milestone fee of ****************, payable
******************************************************* that the
***************************************************************
*****************************************************under this
Agreement *****************************************************
***************************************************************
********************************************************** such
milestone payment will be ************************.
2.5 Mylan shall be primarily responsible for the preparation, at its
expense, of an ANDA for the Designated Product, to be filed with the FDA at the
end of the Development Period. In consideration of Penwest's entering into this
Agreement, Mylan agrees to pay Penwest additional milestone fees as follows:
2.5.1 *************** payable *******************************
***************************************************************;
provided, however, that if the ************************ *******
******************************************************* **** for
such dosage strength, such milestone fee under this clause shall
be **************************.
2.5.2 ***************** payable *****************************
***************************************************************
********************** (whether or not made in conjunction with
**********************************); provided, however, that if
the ******************************************* for such dosage
strength, such milestone fee under this clause shall be
*********************************.
2.6 Each party's Project Contact will provide written reports to the
other party's Project Contact at least monthly throughout the Development
Period, stating in detail all efforts made and in process, and all significant
progress achieved and difficulties encountered in the development effort since
the last such report. Each party's Project Contact will also be available
throughout the Development Period to answer any reasonable questions from the
other party's Project Contact. The parties will cooperate reasonably during the
Development Period such that the sites for meetings among their respective
personnel shall be alternated among the parties' facilities to the extent
practicable.
9
<PAGE> 10
2.7 During the Development Period, Mylan will supply, at its own
expense, all Glipizide reasonably required to support the development effort,
and Penwest shall provide at its own expense all TIMERx reasonably required for
such effort. Each party shall bear its own expenses for all activities during
the Development Period, except as otherwise stated in Exhibit .
2.8 Either party may terminate this Agreement before completion of
the Development Period by delivery of 90 days' written notice to the other if
such party reasonably determines that, due to unfavorable or inconclusive
results to that time, no further Development Steps are likely to lead to the
successful development of the target Designated Product listed in Exhibit 2.3.
3. CERTIFICATION PERIOD.
3.1 During the Certification Period, Mylan will exert its continuing
best efforts, at its expense, to prosecute the ANDA(s) for the Designated
Product (in the contemplated dosage strengths) filed hereunder successfully to
the granting of an FDA approval to market the Designated Product. Penwest will,
promptly and throughout the Certification Period, provide to Mylan all necessary
information in or coming into Penwest's possession or reasonably available to it
for such purpose. Each party understands and agrees that the other does not
warrant or commit that the Designated Product will be successfully licensed or
certified for marketing by the FDA, and neither party shall have any liability
or responsibility to the other or to third partiesfor any such failure of the
certification process hereunder, except to the extent such failure results from
said party's intentional misconduct, negligence, or breach of its duties or
obligations as set forth herein.
3.2 Either party may terminate this Agreement before completion of
the Certification Period by delivery of 90 days' written notice to the other if
such party reasonably determines that, due to unfavorable action by the FDA, the
ANDA is not likely to be approved by the FDA, regardless of any further steps or
submissions that could be made.
3.3 Mylan's Project Contact will provide written reports to
Penwest's Project Contact at least quarterly throughout the Certification
Period, stating in detail all efforts made and in process, and all significant
progress achieved and difficulties encountered in the certification effort since
the last such report. Mylan's Project Contact will also be available throughout
the Certification Period to answer any reasonable questions from Penwest's
Project Contact.
3.4 During the Certification Period, Mylan shall provide at its own
expense all Glipizide and other materials and manufacturing and testing services
reasonably required to support the testing and certification effort, and
10
<PAGE> 11
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
Penwest shall provide at its own expense all TIMERx reasonably required for such
effort. Each party will bear its own expenses during the Certification Period.
3.5 In consideration of Penwest's entering into this Agreement,
Mylan agrees to pay Penwest additional milestone fees as follows:
3.5.1 ************* payable *********************************
***************************************************************;
provided, however, that if the ********************************
********************************************************** such
milestone fee under this clause shall be********************.
3.5.2 *************** payable *******************************
(whether or not concurrent with the **************************);
provided, however, that if the ********************************
***************************************************************
**************, such milestone fee under this clause shall be
*******************************.
Mylan shall notify Penwest of the occurrence of the Approval Date no later than
the next business day following Mylan's learning of such occurrence.
4. MARKETING PERIOD.
4.1 Subject to the granting of all necessary governmental approvals
or concurrences to sell the Designated Product, Mylan hereby agrees, during the
Marketing Period, to use its continuing best efforts to market, promote and sell
the Designated Product throughout the Territory.
4.2 Mylan shall launch the 5mg Designated Product and the 10mg
Designated Product on the market within thirty days following the respective
Approval Date therefor. In consideration of Penwest's entering into this
Agreement, Mylan agrees to pay Penwest additional milestone fees as follows:
4.2.1 ******************* payable concurrently with the market
launch of the **************************************; provided,
however, that if the ******************************************
***************************************************************
************************, such milestone fee under this clause
shall be *********************************.
4.2.2 ******************* payable concurrently with the market
launch of the ***************************** (whether or not
11
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
concurrent with the ******************************************);
provided, however, that if the ****************************such
milestone fee under this clause shall be**********************.
4.3 Mylan hereby agrees to pay to Penwest Royalties as follows:
4.3.1 with respect to all Net Sales with respect to Designated
Product sold in a nation during a quarter in which there
is ****** ******************* in the same dosage
strength on the market in such nation, the Royalty rate
shall be ******************************* of such Net
Sales;
4.3.2 with respect to all Net Sales with respect to Designated
Product sold in a nation during a quarter in which there
is*********************************************** in the
same dosage strength on the market in such nation, the
Royalty rate shall be ***************************** of
such Net Sales;
4.3.3 with respect to all Net Sales with respect to Designated
Product sold in a nation during a quarter in which there
are ******************************** in the same dosage
strength on the market in such nation, the Royalty rate
shall be ********************* of such Net Sales;
provided, however, that such Royalties shall be reduced
by ****************************************************
with respect to Net Sales of the Designated Product as
to which no license to Penwest Patents hereunder is
applicable to the manufacture, sale or use of the
Designated Product (it being understood that a Penwest
Patent shall not be considered applicable to the
manufacture of the Designated Product solely by virtue
of its applicability to the manufacture and/for such
purpose hereunder, unless such Penwest Patent is also
otherwise applicable to the manufacture, sale or use of
the Designated Product). For purposes of the foregoing,
to be "sold in a nation" refers to the nation in which
such Designated Product will be initially placed into
actual commercial distribution, regardless of the FOB
point or where the agreement for such sale may have been
struck. If an Approved Generic Version (other than the
Designated Product) is first put on the market in a
nation during the first half of a calendar quarter, it
will be deemed for purposes of this Section to have been
on the market in such nation from the first day
12
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
of such quarter, and if it is first put on the market in
a nation during the second half of a calendar quarter,
it will be deemed for purposes of this Section not to
have been on the market in such nation until the first
day of the following quarter.
4.4 All Royalties payable pursuant to this Agreement shall be due
quarterly **************** following the end of each calendar quarter for Net
Sales in such calendar quarter. Each such payment shall be accompanied by a
statement of Net Sales for the quarter and the calculation of Royalties payable
hereunder. All Royalties and all other amounts which are overdue under this
Agreement will bear interest at the rate of 1 1/2% per month from the date due
through the date of payment. Mylan shall keep and shall cause its Affiliates and
its and their sublicensees to keep complete, true and accurate records for the
purpose of showing the derivation of all Royalties payable to Penwest under this
Agreement. Penwest's duly accredited representatives (which representatives are
approved for such purpose by Mylan, which approval shall not be unreasonably
withheld nor shall it be revocable by Mylan following the start of any
inspection hereunder) shall have the right to inspect, copy, and audit such
records at any time during reasonable business hours upon reasonable prior
notice to Mylan or any of its Affiliates or sublicensees, respectively, but such
right will not be exercised more often than annually (it being understood that a
single exercise of such right may include a series of related or continuing
inspections, copying and audits). Any such audit shall be at the expense of
Penwest, unless the audit reveals that, with respect to the period under audit,
less than 97% of the Royalties due to Penwest hereunder have been reported, in
which event Mylan shall pay or reimburse Penwest for the reasonable expenses of
such audit, in addition to Penwest's other remedies for such underpayment.
4.5 All monies due hereunder shall be paid in United States Dollars
to Penwest in Patterson, New York, USA. Said payment may be made at Mylan's
option by check or wire transfer.
4.6 Mylan and Penwest will negotiate in good faith, for at least 60
days following the first written request by either party for such negotiations,
with respect to a separate agreement whereby Mylan would produce Designated
Product for sale to Penwest for distribution outside of the Exclusive Territory.
It is understood that neither party will be bound hereby to enter such an
agreement.
5. SUPPLY OF FORMULATED TIMERx.
5.1 Except as provided in Section , and subject to the other
provisions hereof, Penwest will supply Mylan and its Affiliates and sublicensees
with sufficient quantities of Formulated TIMERx to meet their reasonable
requirements for manufacturing of the Designated Product during the Marketing
Period, and Mylan
13
<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
shall purchase all of its and its Affiliates' and sublicensees' requirements for
controlled-release agents for Glipizide products that are essentially
bioequivalent to "Glucotrol XL" in the form of TIMERx from Penwest during such
period.
5.2 The price for all Formulated TIMERx sold hereunder shall
equal the Unit Price multiplied by the applicable units purchased. All sales
********************************************************************, and Mylan
shall bear all transportation, insurance, taxes, duties, and other costs and
risks of loss, spoilage and damage associated with the shipping and delivery of
Formulated TIMERx to Mylan or its Affiliates or sublicensees.
5.3 Penwest warrants that it will not change or modify its
DMF, the Specifications, or its method of manufacture for Formulated TIMERx
without prior written consent from Mylan, which consent shall not be
unreasonably withheld.
5.4 Penwest shall perform quality control tests with respect
to all Formulated TIMERx as required by the FDA as set forth in the DMF. In
addition, Penwest may perform such other tests as Penwest deems necessary in
accordance with its applicable policies. No other or special tests by Penwest
with respect to the raw materials or Formulated TIMERx will be required, unless
and to the extent that Mylan establishes that the same are required in order to
obtain or maintain an FDA approval to market the Designated Product in the
Exclusive Territory. Penwest shall promptly, upon completion of each lot or
batch of Formulated TIMERx, deliver to Mylan a copy of the record of such test
performed on said lot or batch.
5.5 Each shipment of the TIMERx or Formulated TIMERx shall:
i) be accompanied by a Certificate of Analysis and
a certificate of Origin;
ii) meet all present, FDA, Compendial, and the
applicable Specifications; and
iii) be manufactured, packaged, stored and shipped in
conformance with the applicable Specifications,
and Current Good Manufacturing Practices
("cGMPs").
5.6 Within a reasonable period but not more than thirty (30)
days after receipt, Mylan will analyze each shipment of
the Formulated TIMERx. If Mylan considers any such
shipment not to conform to the applicable
Specifications, Mylan shall notify Penwest immediately
and provide Penwest with the relevant analysis. If
Penwest does not agree, the parties shall submit such
disagreement to the arbitration of one mutually accepted
neutral
14
<PAGE> 15
analytical laboratory. If Penwest or the neutral
laboratory agree with Mylan, Penwest shall not have any
obligation to Mylan other than to accomplish at Mylan's
option any of the following:
i) at its own expense accept return of any shipment
not accepted; or
ii) reimburse Mylan for the cost of disposal or
destruction; and
iii) use commercially reasonable efforts to replace
the non-conforming shipment with conforming
Formulated TIMERx.
5.7 In case Penwest cannot supply Mylan the requested
quantities of the Formulated TIMERx, the shipments may be made by an alternate
supplier designated by Penwest with Mylan's consent, which consent shall not be
unreasonably withheld. Penwest will qualify (in Penwest's reasonable judgment)
at least one such alternate supplier and notify Mylan thereof at least 90 days
prior to the submission of the ANDA. If Mylan has any objections to such
supplier, it shall so notify Penwest within fifteen days following Penwest's
notice of such qualification, or else Mylan will be deemed to have consented to
such qualification and the designation of such supplier. Such shipment by the
alternate supplier shall be made under the same agreed terms and conditions as
those set forth herein, except that an additional 60 days shall be added to the
order lead time stated in any then-outstanding order for Formulated TIMERx
hereunder to reflect the transition time required to shift to such alternate
supplier. Notwithstanding anything to the contrary set forth herein, Penwest
will be responsible for enforcing all relevant terms and conditions set forth
herein against such alternate supplier and remain liable to Mylan for any breach
of such terms and conditions by such supplier.
5.8 If for any reason Penwest (or the alternate supplier)
fails to supply Mylan with its and its Affiliates' and sublicensees'
requirements of Formulated TIMERx during the Marketing Period as agreed
hereunder, Penwest shall grant Mylan a nonexclusive license to manufacture
Formulated TIMERx under the TIMERx Production Technology and make knowledgeable
personnel reasonably available to consult with Mylan, all to the extent
necessary to enable Mylan to produce Formulated TIMERx that would otherwise have
been supplied by Penwest or an alternate supplier hereunder for Mylan and its
Affiliates and sublicensees in connection with the production of the Designated
Product pursuant to this Agreement.
15
<PAGE> 16
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
5.8.1 In such event Mylan shall pay to Penwest, in
addition to the Royalties under Section ,
Production Royalties equal to ****************,
if any, of the then-current Unit Price for each
kilogram of Formulated TIMERx produced by Mylan
hereunder, ******************************. Such
Production Royalties shall be payable and
reported and accounted for as stated in Sections
and , except that the Production Royalties will
be payable ********************* after the end
of the calendar quarter in which the applicable
kilogram of Formulated TIMERx was produced.
5.8.2 Mylan shall maintain all information and
technology delivered to Mylan pursuant to this
Section, whether orally or in writing, in
confidence in accordance with Section (to the
extent the same is Confidential Technology) and
shall use such information and technology only
for the purpose of producing Formulated TIMERx
for its own use and the use of its Affiliates
and sublicensees in connection with this
Agreement.
5.8.3 Mylan acknowledges that, in doing the foregoing,
Penwest will not be providing a "turnkey"
operation. Rather, Penwest will only be required
to make reasonably available to Mylan the best
standard of knowledge and information then
available to Penwest and directly used in its or
its Affiliate's manufacture of Formulated
TIMERx. If any professional licenses, visas, or
other permits are required for any of the
consulting to be provided by Penwest's or its
Affiliates' or licensees' personnel, Mylan shall
so inform Penwest and Mylan shall bear the costs
of obtaining the same.
5.8.4 Neither Penwest nor its Affiliates or licensees
will be responsible for any failure of Mylan or
its personnel to understand or properly to
implement such knowledge and information or for
any materials made by any party other than
Penwest or such respective Affiliate or licensee
using such knowledge and information.
5.8.5 If Penwest's non-delivery of Formulated TIMERx
resulted in whole or in part from a temporary
inability to produce and deliver the same,
Penwest may, at its option and on at least 120
days' prior written notice to Mylan, terminate
the
16
<PAGE> 17
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
license to produce Formulated TIMERx hereunder
once Penwest or its alternative supplier is
again able and willing to supply Formulated
TIMERx hereunder.
5.9 Penwest shall, after receipt of reasonable prior notice,
give duly accredited representatives of Mylan access at all reasonable times
during regular business hours to inspect, copy, and audit any relevant records
of Penwest's or its Affiliate's plant in which the Formulated TIMERx is being
produced.
5.10 Mylan shall deliver to Penwest a firm written order
stating its (and/or its Affiliates' and sublicensees') requirements for
Formulated TIMERx to be used for production of the Designated Product for
commercial use or sale no less than 6 months in advance of the requested
delivery date therefor. Mylan shall, within one month following the filing by
Mylan of an ANDA with the FDA for the Designated Product, submit to Penwest
Mylan's first such order for Formulated TIMERx under this Agreement, for an
amount ************************************************************************
*******************************************************************************
************ inclusive, following the submission of such order.
5.11 At least twelve months before Mylan and/or its
Affiliates or sublicensees begin production of the Designated Product for
commercial use or sale (and in any event not later than concurrently with the
submission of the first order described in Section 5.10), Mylan shall deliver to
Penwest a written, non-binding estimate of all requirements of Formulated TIMERx
therefor. Mylan will deliver to Penwest updates to such estimates on or before
the first day of each January, April, July and October thereafter during the
Marketing Period, which updates may revise estimates previously submitted and
will add estimates for additional months so that each such estimate covers the
************** following the end of the firm-order period (that is, the
****************** after the month in which such estimates are made). Penwest
shall not be obligated to supply Mylan with quantities of Formulated TIMERx
during any quarter in excess of ******************************** of the
quantities estimated in Mylan's written estimate applicable to that quarter,
which estimate was given to Penwest ********** prior to such quarter (the
"************* Prior Estimate" as to that quarter). Mylan shall be responsible
for purchasing from Penwest in each quarter at least ************* of the
quantities of Formulated TIMERx estimated in the ***************** Prior
Estimate as to such quarter.
5.12 No order for Formulated TIMERx hereunder may be
cancelled or deferred by Mylan except by written notice delivered to Penwest at
**************** prior to the scheduled delivery date. No orders may be
cancelled or deferred (***************************) without Penwest's approval
if such cancellation or deferral
17
<PAGE> 18
would reduce Mylan's purchases for the applicable quarter to less than the 80%
level referred to in Section 5.11.
5.13 Each party shall promptly notify the other of any fact,
circumstance, condition or knowledge dealing with TIMERx or the Designated
Product of which the Party becomes aware that bears upon the safety or efficacy
of TIMERx or the Designated Product. Each party shall immediately notify the
other of any inspection or audit relating to TIMERx, Formulated TIMERx, or the
Designated Product by any governmental regulatory authority in the Territory. If
a representative of the governmental authority takes samples in connection with
such audit or inspection, the parties shall immediately provide each other, as
appropriate, samples from the same batch. The party in receipt of such notice
will provide the other party within 72 hours, with copies of all relevant
documents, including FDA Forms 482, 483, warning letters and other
correspondence and notifications as such other party may reasonably request.
Penwest and Mylan agree to cooperate with each other during any inspection,
investigation or other inquiry by the FDA or other governmental entity,
including providing information and/or documentation, as requested by the FDA,
or other governmental entity. To the extent permissible, Penwest and Mylan also
agree to discuss any responses to observations or notifications received and to
give the other party an opportunity to comment on any proposed response before
it is made. In the event of disagreement concerning the content or form of such
response, Mylan shall be responsible for deciding the appropriate form and
content of any response with respect to any of its cited activities and Penwest
shall be responsible for deciding the appropriate form and content of any
response with respect to any of its cited activities. Each party shall inform
the other of all comments and conclusions received from the governmental
authority.
6. OWNERSHIP AND LICENSES.
6.1 Except as otherwise explicitly licensed or transferred
as provided herein, each party will, as between it and the other party hereto,
retain ownership of any and all inventions, copyrights, trade secrets, know-how,
patent rights and other technology and rights to the extent conceived or
developed by its personnel or contractors (other than the other party hereto).
Neither party makes any grant of rights by implication.
6.2 Except as otherwise provided herein, each party shall be
responsible, as it shall determine, for the filing and prosecution of any and
all patent applications with respect, in whole or in part, to its own
intellectual property and for the maintenance of any available patent protection
with respect thereto; provided however, that neither party commits that any such
patent protection will be available or continuous hereunder. If one party
believes that an application for a patent in the Territory should be filed with
respect to any invention of the other party hereunder
18
<PAGE> 19
related to the Designated Product, it may so notify such other party, and the
parties will cooperate in the investigation of the propriety of such an
application, taking into account the respective interests of the parties and the
anticipated costs and benefits of such patent protection.
6.3 Penwest hereby grants to Mylan and its Affiliates a
license under the Penwest Patents, the Joint Developments, and Penwest's
Confidential Technology disclosed to Mylan hereunder to make, have made, use and
sell the Designated Product in the Territory during the License Term. Such
license shall be exclusive for such purposes as to the Penwest Patents listed in
Exhibit within the Exclusive Territory and shall be non-exclusive in the
Non-Exclusive Territory. Such license does not extend to the making of TIMERx or
Formulated TIMERx, but does cover the incorporation of the same into the
Designated Product. Mylan shall have no right to grant sublicenses hereunder
without the prior written consent of Penwest, which consent may be withheld in
Penwest's discretion as to sublicenses in the Exclusive Territory, but will not
be unreasonably withheld as to sublicenses in the NonExclusive Territory.
Penwest will, throughout the License Term, promptly notify Mylan of all Penwest
Patents referred to in Subsection and provide Mylan with access to all of the
same, solely for use within the scope of the license stated in this section.
6.4 Mylan hereby grants to Penwest and its Affiliates a
nonexclusive, paid-up, worldwide license, with right to sublicense, under any
and all patents, patent applications, trade secrets, copyrights, and other
intellectual property rights of any sort owned or cibtrikked by Mylan or its
Affiliates or sublicensees, to make, have made, use and sell Formulated TIMERx
during the License Term, if and to the extent such license is necessary for
Penwest to do so as agreed hereunder. Penwest and its Affiliates shall have the
right to grant sublicenses of its rights hereunder to an alternate supplier as
and for the purposes described in Section , but shall otherwise have no right to
grant sublicenses hereunder without the prior written consent of Mylan, which
consent shall not be unreasonably withheld.
6.5 Subject to and conditional upon the failure of Penwest
(or the alternate supplier) to meet Mylan's and its Affiliates' and
sublicensees' requirements as provided in Section , Penwest grants to Mylan a
nonexclusive, worldwide license under the TIMERx Production Technology to make
and have made Formulated TIMERx solely for use in the Designated Product for
sale in the Territory during the License Term. Mylan shall have no right to
grant sublicenses of its rights hereunder (whether to Affiliate(s) or otherwise)
without the prior written consent of Penwest, which consent shall not be
unreasonably withheld.
6.6 Mylan acknowledges that Penwest and its Affiliates, for
itself and for others, applies, and will seek to apply, TIMERx to products other
than the Designated Product. No provision hereof, and no exclusivity hereunder,
shall
19
<PAGE> 20
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
prevent Penwest from so applying TIMERx or Formulated TIMERx, so long as the end
product is not the Designated Product hereunder, it being understood that the
Nifedipine Agreements will continue to govern on this point as to the products
covered by them.
6.7 Mylan hereby grants to Penwest and its Affiliates a
nonexclusive, worldwide license, with right to sublicense, under any and all
Mylan Improvements, to make, have made, use and sell any products or services
using or based upon TIMERx or related technology, other than: (i) Designated
Products in the Territory during the License Term, and (ii), to the extent so
provided in the Nifedipine Agreements, the "Designated Products" defined in
those agreements. Such license shall require the payment of a reasonable royalty
to Mylan if any commercial sales are made under such license. Penwest shall
notify Mylan at least **************** prior to granting any sublicense to the
rights under this section (other than to a Penwest Affiliate), and shall consult
with Mylan as to the propriety of such sublicense if Mylan, within such
*********** period, notifies Penwest of Mylan's belief, on reasonable grounds
stated in such notice, that such a sublicense would have a substantial adverse
effect on Mylan or its business. Mylan will, throughout the License Term,
promptly notify Penwest of all Mylan Improvements and provide Penwest with
access to all of the same, solely for use within the scope of the license stated
in this section.
6.8 In recognition of the parties' cooperative efforts with
respect to the Joint Developments, it is agreed that each party and its
Affiliates shall have the nonexclusive, worldwide right and license, with right
to sublicense, under the Joint Developments, to make, have made, use and sell
any products or services (other than the Designated Product by Penwest or its
Affiliates in the Exclusive Territory during the License Term, or, to the extent
so provided in the Nifedipine Agreements, the "Designated Products" defined in
those agreements); provided, however, that each party
******************************************************************************
*****************************************************************. Each party
shall promptly notify the other of any such licenses or sublicenses of any Joint
Developments. Each party will, throughout the License Term, promptly notify the
other of all Joint Developments and provide such other party with access to all
of the same.
6.9 Mylan hereby grants Penwest and its Affiliates a
nonexclusive license under all rights of Mylan and its Affiliates and
sublicensees in and to that portion of the Mylan Test and Regulatory Data that
is disclosed or provided to Penwest hereunder, to use the same for purposes of
complying with governmental requirements of any country, other than with respect
to the Designated Product for marketing or use in the Territory. Such license
shall be on a paid-up, royalty-free basis as to Penwest and its Affiliates, and
as to any of the Available Portion of the Mylan Test and Regulatory Data
(whether as to Penwest or others), ********************************** to
************ if any but the Available Portion is used
20
<PAGE> 21
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
by any other party under a sublicense from Penwest or its Affiliate. Penwest
shall notify Mylan at least ************ prior to granting any sublicense to the
rights under this section (other than to a Penwest Affiliate or as to the
Available Portion), and shall consult with Mylan as to the propriety of such
sublicense if Mylan, within such **************** period, notifies Penwest of
Mylan's belief, on reasonable grounds stated in such notice, that such a
sublicense would have a substantial adverse effect on Mylan or its business.
Mylan hereby consents to Penwest's and its Affiliates' and sublicensees'
cross-referencing, in any filings that are essentially the equivalent of the
sorts of filings that are termed "ANDA" or "NDA" filings if made with the FDA,
made by them within the scope of such license, any ANDA or NDA filing made or
FDA master file created by Mylan or its Affiliates or sublicensees relating to
or containing any of the Mylan Test and Regulatory Data. The license under this
section shall survive any termination or expiration of the term of this
Agreement, except a termination under Section due to an uncured breach by
Penwest. Mylan will, throughout the License Term and solely for use within the
scope of the license stated in this section, promptly provide to Penwest copies
of all of the Deliverable Portion of the Mylan Test and Regulatory Data in or
coming into Mylan's possession or otherwise reasonably available to it.
6.10 Penwest hereby grants Mylan and its Affiliates (with
right to sublicense only to sublicensees under Section , as approved by Penwest)
a nonexclusive, paid-up license under all rights of Penwest and its Affiliates
in and to the Penwest Test and Regulatory Data to use the same for purposes of
complying with governmental requirements, but solely with respect to the
Designated Product for marketing or use in the Territory, it being understood
that the Nifedipine Agreements will continue to govern on this point as to the
products covered by them. Penwest hereby consents to Mylan's and its Affiliates'
and such sublicensees' cross-referencing, in any ANDA or NDA filings made by
them within the scope of such license, any ANDA or NDA filing made or FDA master
file created by Penwest or its Affiliates relating to or containing any of the
Penwest Test and Regulatory Data. The license and rights under this section
shall survive any termination or expiration of the term of this Agreement,
except a termination under Section due to an uncured breach by Mylan. Penwest
will, throughout the License Term and solely for use within the scope of the
license stated in this section, promptly provide to Mylan copies of all of the
Penwest Test and Regulatory Data in or coming into Penwest's possession or
otherwise reasonably available to it.
6.11 Each party agrees to mark and to have marked by its
Affiliates and sublicensees (if any) every product manufactured, used or sold by
it or its Affiliates or sublicensees in accordance with the laws of the United
States or other applicable nation relating to the marking of patented articles
with notices of patent.
6.12 Any dispute concerning the ****************************
*****************************
21
<PAGE> 22
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
*******************************************************************************
**************. Each party hereto shall afford, to the extent permissible under
its agreements with the third parties, the other party hereto the same audit
rights that such party obtains from its licensees or sublicensees with respect
to any of the rights described in such sections.
7. CONFIDENTIALITY.
7.1 In the course of performance under this Agreement, a
party may disclose to the other confidential information belonging to such party
in writing, orally or by demonstration or sample, which information is marked or
stated in writing at or within 30 days after its disclosure to be "confidential"
or "trade secret" information. All such confidential information of a party
shall be maintained in confidence by the other and will not be used by the other
party for any purpose except as authorized hereunder. Each party shall exercise,
and shall cause its Affiliates, sublicensees and consultants to exercise, a
reasonable degree of care and at least the same degree of care as it uses to
protect its own confidential information of similar nature to preserve the
confidentiality of such information of the other party. Each party shall
safeguard such information against disclosure to third parties, including
without limitation employees and persons working or consulting for such party
that do not have an established, current need to know such information for
purposes authorized under this Agreement. This obligation of confidentiality
does not apply to information and material that:
7.1.1 were properly in the possession of the receiving
party, without any restriction on use or disclosure,
prior to receipt from the other party;
7.1.2 are at the time of disclosure hereunder in the
public domain by public use, publication, or general
knowledge;
7.1.3 become general or public knowledge through no
fault of the receiving party or its Affiliates or
sublicensees following disclosure hereunder;
7.1.4 are properly obtained by the receiving party
from a third party not under a confidentiality
obligation to the disclosing party hereto;
7.1.5 are independently developed by or on behalf of
the receiving party without the use or assistance of the
confidential information of the other party;
22
<PAGE> 23
7.1.6 consist merely of an idea or conception for the
combination of one or more active drug ingredients with
a controlled-release agent such as TIMERx; or
7.1.7 are required to be disclosed by order of any
court or governmental authority; provided, however, that
the exceptions stated in Sections 7.1.3, 7.1.4, 7.1.5
and 7.1.7 shall not affect the continuing obligation of
Mylan as the receiving party to pay any Royalties
pursuant to the terms hereof with respect to the use of
such information or materials that have not, as of the
relevant time, been placed into the public domain by the
act of Penwest or its Affiliates.
7.2 Neither party shall make any public announcement or
other publication regarding this Agreement (whether as to the existence or terms
hereof) or the development work or project hereunder or the results thereof
without the prior, written consent of the other party, which consent shall not
be unreasonably withheld; provided that the foregoing shall not prohibit any
disclosure which, in the opinion of counsel to the disclosing party, is required
by any applicable law or by any competent governmental authority. In no event
shall either party make any disclosure of any such results before a patent
application has been filed with respect thereto, except upon the prior written
approval of the other party.
8. INFRINGEMENT.
8.1 Penwest shall promptly inform Mylan of any suspected
infringement of any of the Penwest Patents or the infringement or
misappropriation of the TIMERx Production Technology by a third party, to the
extent such infringement involves the manufacture, use or sale of the Designated
Product in the Territory ("Covered Infringement"). Mylan shall promptly inform
Penwest of any suspected infringement of any of the Penwest Patents or
infringement or misappropriation of the TIMERx Production Technology, whether or
not the same involves a Covered Infringement.
8.2 If the suspected infringement or misappropriation does
not involve a Covered Infringement, Penwest may take, or refrain from taking,
any action it chooses, with or without notice to Mylan, and Mylan shall have no
right to take any action with respect to such suspected infringement or
misappropriation, nor to any recoveries with respect thereto. If the suspected
infringement or misappropriation involves a Covered Infringement, Penwest shall,
within 30 days of the first notice referred to in Section , inform Mylan whether
or not Penwest intends to institute suit against such third party with respect
to a Covered Infringement. Mylan will not take any steps toward instituting suit
against any third party
23
<PAGE> 24
involving a Covered Infringement until Penwest has informed Mylan of its
intention pursuant to the previous sentence.
8.3 If Penwest notifies Mylan that it intends to institute
suit against a third party with respect to a Covered Infringement, and Mylan
does not agree to join in such suit as provided in Section , Penwest may bring
such suit on its own and shall in such event bear all costs of, and shall
exercise all control over, such suit. Penwest may, at its expense, bring such
action in the name of Mylan and/or cause Mylan to be joined in the suit as a
plaintiff. Recoveries, if any, whether by judgment, award, decree or settlement,
shall belong solely to Penwest.
8.4 If Penwest notifies Mylan that it desires to institute
suit against such third party with respect to a Covered Infringement, and Mylan
notifies Penwest within 30 days after receipt of such notice that Mylan desires
to institute suit jointly, the suit shall be brought jointly in the names of
both parties and all costs thereof shall be borne equally. Recoveries, if any,
whether by judgment, award, decree or settlement, shall, after the reimbursement
of each of Penwest and Mylan for its share of the joint costs in such action, be
shared between Penwest and Mylan equally; provided however that, any portion of
such net recoveries which constitutes the equivalent of, or damages or payments
in lieu of, a royalty measured by the defendant's Net Sales shall not be shared
equally, but shall be shared between Penwest and Mylan in accordance with
Section as if they were Mylan's Net Sales.
8.5 If Penwest notifies Mylan that it does not intend to
institute suit against such third party with respect to a Covered Infringement,
Mylan may institute suit on its own. Mylan shall bear all costs of, and shall
exercise all control over, such suit. Recoveries, if any, whether by judgment,
award, decree or settlement, shall belong solely to Mylan; provided however
that, after reimbursement of Mylan for its costs in such action, any portion of
such net recoveries which constitutes the equivalent of, or damages or payments
in lieu of, a royalty measured by the defendant's Net Sales shall be shared
between Penwest and Mylan in accordance with Section as if they were Mylan's Net
Sales.
8.6 Should either Penwest or Mylan commence a suit under the
provisions of this Section and thereafter elect to abandon the same, it shall
give timely notice to the other party, who may, if it so desires, be joined as a
plaintiff in the suit (or continue as such if it is already one) and continue
prosecution of such suit. The sharing of expenses and any recovery of such suit
shall be as reasonably agreed between Penwest and Mylan.
9. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
9.1 Each party represents and warrants to the other that, to
the best of its current knowledge, it has the full right and authority to enter
into this
24
<PAGE> 25
Agreement and to grant the licenses granted herein. Each party believes, to the
best of its current knowledge, that any existing patents licensed by it to the
other party under this Agreement are valid.
9.2 Penwest represents and warrants that any Formulated
TIMERx supplied by it to Mylan hereunder for use in the Designated Product, at
the point of delivery:
9.2.1 will conform to the product Specifications that
Penwest and Mylan have agreed in writing are to apply to
such delivery of TIMERx; and
9.2.2 to the best of Penwest's current knowledge, will
not infringe upon an article patent of any third party.
PENWEST MAKES NO REPRESENTATIONS OR WARRANTIES AS TO ANY TIMERx OR
FORMULATED TIMERx SUPPLIED BY IT TO MYLAN EXCEPT AS ARE EXPLICITLY STATED
HEREIN.
9.3 Each party represents and warrants to the other party
that it has obtained and will at all times during the term of this Agreement,
hold and comply with all licenses, permits and authorizations necessary to
perform this Agreement and to test, manufacture, market, export, and import the
products and assistance to be provided by it hereunder, as now or hereafter
required under any applicable statutes, laws, ordinances, rules and regulations
of the United States and any applicable foreign, state, and local governments
and governmental entities.
9.4 Mylan warrants that any Designated Product manufactured,
marketed or distributed by Mylan or its Affiliates or sublicensees shall meet
and be manufactured, packaged, labeled, sold, and promoted in accordance with
all applicable regulatory requirements within the Territory.
9.5 Penwest shall indemnify, defend and hold harmless Mylan
and its Affiliates and sublicensees from any claim, action or damages arising
out of any alleged infringement by reason of the manufacture, use or sale by
Mylan of the Designated Product to the extent such infringement would apply as
well to the manufacture, sale or distribution of TIMERx alone. If Mylan or its
Affiliate or sublicensee, by reason of its manufacture, sale or distribution of
Designated Product, is accused of infringing the patent of a third party, and
such claim of infringement, as framed by the claimant, would apply as well to
the manufacture, sale or distribution of TIMERx alone, Mylan shall immediately
so notify Penwest and provide Penwest all available information,
25
<PAGE> 26
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
and the parties shall consult reasonably as to the proper course of
action. If Penwest and Mylan jointly determine that such claim is likely to
prevail, or if an arbitrator hereunder or a court of competent jurisdiction so
determines, Mylan shall be entitled to offset against any Royalties payable to
Penwest hereunder any third party royalties for which Mylan or its Affiliate or
sublicensee becomes liable.
9.6 Penwest shall indemnify, defend and hold Mylan and its
Affiliates and sublicensees harmless from any and all third-party claims to the
extent arising from, in connection with, based upon, by reason of, or relating
in any way to:
9.6.1
*****************************************TIMERx
in the Designated Product;
9.6.2 Penwest's ********************************* and
the Specifications therefor hereunder;
9.6.3 any failure of the Formulated TIMERx
manufactured by Penwest or its alternate supplier (but
not by Mylan under Section ), as delivered to Mylan
hereunder for use in the Designated Product, to conform
to the Specifications; or
9.6.4 any failure of Penwest to comply with its
obligation under Section 5.13 to notify Mylan of any
information coming into Penwest's possession and
***************************************and not arising
from any other aspect of the Designated Product or its
formulation,development, supply, production,
manufacture, sale, delivery, distribution or usenor from
any act or omission of Mylan with respect to the
Formulated TIMERfollowing its delivery to Mylan
hereunder.
9.7 Mylan shall indemnify, defend and hold Penwest harmless
from any and all third-party claims to the extent arising from, in connection
with, based upon, by reason of, or relating in any way to, the formulation,
development, supply, production, manufacture, sale, delivery, distribution or
use of the Designated Product, ************************************************
9.8 Notwithstanding anything to the contrary set forth
elsewhere herein, neither Mylan nor Penwest shall be obligated to indemnify the
other party for claims or liabilities to the extent arising from such other
party's, or its Affiliates', sublicensees' or assigns', negligence, intentional
misconduct, or breach of its duties, obligations, warranties or representations
set forth herein.
9.9 Whenever indemnification is provided for a party under
this Agreement, such right of indemnification shall extend also to the
indemnified party's
26
<PAGE> 27
Affiliates, officers, directors, shareholders, successors, assigns, agents,
employees, and insurers to the extent the same become subject to such claim in
such capacity. The party seeking indemnification shall provide the indemnifying
party with written notice of any claim or action within ten (10) days of its
receipt thereof, and shall afford the indemnifying party the right to control
the defense and settlement of such claim or action. The party seeking
indemnification shall provide reasonable assistance to the indemnifying party in
the defense of such claim or action. If the defendants in any such action
include both Mylan and Penwest and either party concludes that there may be
legal defenses available to it which are different from, additional to, or
inconsistent with, those available to the other, that party shall have the right
to select separate counsel to participate in the defense of such action on its
behalf, and such party shall thereafter bear the cost and expense of such
separate defense. Should the indemnifying party determine not to defend such
claim or action, the other party shall have the right to maintain the defense of
such claim or action and the indemnifying party agrees to provide reasonable
assistance to it in the defense of such claim or action. Neither party shall
settle any such claim or action in a way that prejudices or adversely impacts
the other party to this Agreement without the prior approval of such other party
(which approval shall not be unreasonably withheld).
9.10 Any dispute concerning indemnification will be
determined by arbitration in accordance with Section of this Agreement.
9.11 THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS, IMPLIED OR ARISING BY LAW, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION OR WARRANTY (i)
BY PENWEST AS TO THE PATENTABILITY, VALIDITY (EXCEPT AS STATED IN SECTION), OR
SCOPE OF ANY PENWEST PATENTS, PENWEST'S CONFIDENTIAL TECHNOLOGY, TIMERX
PRODUCTION TECHNOLOGY, JOINT DEVELOPMENTS, OR PENWEST TEST AND REGULATORY DATA;
OR (ii) BY MYLAN AS TO THE PATENTABILITY, VALIDITY (EXCEPT AS STATED IN SECTION
), OR SCOPE OF ANY MYLAN IMPROVEMENTS, JOINT DEVELOPMENTS, OR MYLAN TEST AND
REGULATORY DATA.
9.12 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
HEREIN (OTHER THAN THE INDEMNITIES STATED IN THIS SECTION ), NEITHER PARTY SHALL
UNDER ANY CIRCUMSTANCES BE LIABLE FOR ANY THIRD PARTY CLAIMS OR FOR ANY
INCIDENTAL, CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES, INCLUDING ANY LOST
PROFITS OR SAVINGS, ARISING FROM ANY BREACH OF WARRANTY OR THE PERFORMANCE OR
BREACH OF ANY OTHER PROVISION OF THIS
27
<PAGE> 28
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
AGREEMENT OR THE USE OR INABILITY TO USE TIMERx, THE DESIGNATED PRODUCT, PENWEST
PATENTS, PENWEST'S CONFIDENTIAL TECHNOLOGY, TIMERx PRODUCTION TECHNOLOGY,
PENWEST TEST AND REGULATORY DATA, MYLAN IMPROVEMENTS, OR MYLAN TEST AND
REGULATORY DATA, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
9.13 Each party shall, at its own cost and expense, obtain
and maintain from a qualified insurance company comprehensive general liability
and products liability insurance coverage during the term of this Agreement (and
any subsequent period of sale or distribution pursuant to Section ). Such
insurance shall be in an amount no less than ************************* combined
single limit for each occurrence for bodily injury and/or property damage. Each
party agrees to provide the other party with a certificate of insurance
evidencing such insurance within thirty (30) days after the execution of this
Agreement and again thereafter from time to time as reasonably requested by such
other party.
10. TERM AND TERMINATION.
10.1 The term of this Agreement shall begin on the date set
forth above and shall, unless earlier terminated as provided herein, continue
until the end of the License Term.
10.2 Subject to Sections and , Penwest may at its option
terminate this Agreement following any Approval Date if Mylan and its Affiliates
and sublicensees, in the aggregate, fail to sell, in Royalty-bearing
transactions triggering "Net Sales" hereunder, ********************************
*******************************************************************************
*************************
10.2.1 The minimum************************************:
(i) For the first full calendar year following the
Approval Date ("Year 1"),**********************
***********************************************
**************************
(ii) For the next following calendar year ("Year 2"),
the *******************************************
************************
(iii) For the next calendar year following Year 2
("Year 3") and each year thereafter during the
License Term, the *****************************
**********************************************
28
<PAGE> 29
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
10.3 If there is any period during which Mylan's ability to
sell the Designated Product is materially retarded due to:
10.3.1 events beyond its reasonable control as
described in Section or
10.3.2 a failure of Penwest and its alternate supplier
to supply Formulated TIMERx as described in Section ,
then an additional period of the lesser of the duration of such event
(or failure) or one year shall be added at that point to the schedule described
in Section 5.8.
10.4 If, at the Approval Date, there are in the United States
*******************************************************************************,
the minimum amounts stated in Section 10.2 shall **************************** to
be reasonably agreed between Mylan and Penwest in good faith negotiations during
the ninety (90) days following the Approval Date.
10.5 Mylan may at its option terminate this Agreement
following any Approval Date, provided that any such elective termination shall
require that Mylan pay an early termination fee to Penwest equal **************
*******************************************************************************
*******************************************************************************
****** the period in which such termination occurs (whether or not any part of
*******************************************************************************
******************, and such termination fee shall be paid to Penwest on or
before the effective date of such termination.
10.6 Following any expiration or termination of the License
Term (but subject to Section 10.10), the licenses to Penwest under Sections 6.7,
6.8, and 6.9 shall be extended to include (in addition to their coverage as
stated in such sections) making, using and selling the Designated Product in the
Territory and the use of Mylan Test and Regulatory Data for purposes of
complying with governmental requirements with respect to the Designated Product
for marketing or use in the Territory, and otherwise shall continue to be
governed by the terms stated in such sections.
10.7 In the event that either party materially breaches any
of the terms, conditions or agreements contained in this Agreement to be kept,
observed or performed by it, then the other party may terminate this Agreement,
at its option and without prejudice to any of its other legal or equitable
rights or remedies, by giving the party who committed the breach (i) in the case
of breach of obligations other than the payment of money, 90 days' notice in
writing, unless the notified party within
29
<PAGE> 30
such 90-day period shall have cured the breach, and (ii) in the case of breach
of an obligation for the payment of money, 30 days' notice in writing, unless
the notified party within such 30-day period shall have cured the breach,
including any required payment of interest on previously unpaid amounts as set
forth herein; provided, however, that:
10.7.1 no termination of this Agreement under this Section shall become
effective during the pendency of a good faith dispute between the parties as to
the existence of grounds for such a termination, provided that the parties are
complying with the process in Section in good faith in order to resolve such
dispute, and that such termination shall become effective immediately upon any
binding determination that such grounds did exist at the time the notice of
termination was given; and
10.7.2 if a notice of termination is given pursuant to this Section and it is
subsequently determined that grounds for such a notice did not exist, the giving
of such notice shall not itself constitute a repudiation or default under this
Agreement, so long as such notice was given in the good faith belief that such
grounds did exist.
10.8 In the event of any termination of this Agreement, Mylan
shall be entitled to sell and distribute reasonable inventories of Designated
Product remaining on hand as of the effective date of termination, provided that
such sales and distribution are otherwise in conformance with this Agreement.
Mylan may continue to make, use or sell such Designated Product only until Mylan
has exhausted remaining raw materials in its possession at the time of
termination of the license. Net Sales of the Designated Product pursuant to this
Section shall be subject to the Royalties pursuant to Section 4.3.
10.9 Any sublicenses granted by Mylan or its Affiliates under
this Agreement shall provide for termination or assignment to Penwest, at the
option of Penwest, of Mylan's or its Affiliate's interest therein upon
termination of this Agreement.
10.10 Mylan's obligations regarding payment of Royalties (and
Production Royalties, if any) accrued as of the date of termination and as
provided under Section 10.8; Penwest's rights under Sections 6.7, 6.8 and 6.9 as
modified by Section (except if this Agreement is terminated due to an uncured
breach on the part of Penwest); and Mylan's rights under Section (except if this
Agreement is terminated due to an uncured breach on the part of Mylan); and the
provisions of Sections 7, 9, and 11, hereof shall survive any expiration or
termination of this Agreement.
30
<PAGE> 31
11. MISCELLANEOUS.
11.1 Each of Penwest and Mylan agrees to duly execute and
deliver, or cause to be duly executed and delivered, such further instruments
and do and cause to be done such further acts and things as are reasonably
within its control and its responsibilities under this Agreement, including,
without limitation, the filing of such additional assignments, agreements,
documents and instruments, that may be necessary or as the other party hereto
may from time to time reasonably request in connection with this Agreement to
carry out more effectively the provisions and purposes of this Agreement.
11.2 This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter hereof, it being
understood that the Nifedipine Agreements are not superseded by or merged into
this Agreement, but, rather, shall continue in effect as to their subject matter
and in accordance with their terms.
11.3 This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their Affiliates, successors and permitted
assigns; provided, however, that except for assignments or delegations to
Affiliates of a party (which shall not release such party from any of its rights
or responsibilities hereunder), or as part of the transfer of all or
substantially all assets to a single buyer or pursuant to a merger or other
corporate reorganization, or as otherwise specifically permitted hereunder,
neither party shall assign or delegate any of its rights or obligations
hereunder at any time without the prior written consent of the other party
hereto, which consent shall not be unreasonably withheld.
11.4 All notices, requests or other communication provided
for or permitted hereunder shall be given in writing and shall be hand delivered
or sent by facsimile, reputable courier or by registered or certified mail,
postage prepaid, return receipt requested, to the address set forth on the
signature page of this Agreement, or to such other address as either party may
inform the other of in writing. Notices will be deemed delivered on the earliest
of transmission by facsimile, actual receipt or three days after mailing as set
forth herein.
11.5 No change, modification, extension, termination or
waiver of any obligation, term or provision contained herein shall be valid or
enforceable unless same is reduced to writing and signed by a duly authorized
representative of each of the parties to be bound hereby. No waiver of any right
in any one instance shall constitute a waiver of that right or of any other
right in other instances under this Agreement.
31
<PAGE> 32
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
11.6 If any provision of this Agreement shall be held
invalid, illegal or unenforceable, such provision shall be enforced to the
maximum extent permitted by law and the parties' fundamental intentions
hereunder, and the remaining provisions shall not be affected or impaired.
11.7 Nothing herein contained shall ************************
agreement or constitute either party as the partner, principal or agent of the
other, this being an Agreement between independent contracting entities. Neither
party shall have the authority to bind the other in any respect whatsoever.
Except as provided herein, nothing contained in this Agreement shall be
construed as conferring any right on either party to use any name, trade name,
trademark or other designation of the other party hereto, unless the express,
written permission of such other party has been obtained.
11.8 In the event that either party hereto is prevented from
carrying out its obligations under this Agreement by events beyond its
reasonable control, including without limitation acts or omissions of the other
party, acts of God or government, natural disasters or storms, fire, political
strife, labor disputes, failure or delay of transportation, default by suppliers
or unavailability of parts, then such party's performance of its obligations
hereunder shall be excused during the period of such event and for a reasonable
period of recovery thereafter, and the time for performance of such obligations
shall be automatically extended for a period of time equal to the duration of
such event or events.
11.9 This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York without regard to
its conflict of laws rules.
11.10 Should the parties to this Agreement fail to resolve any
controversy or claim arising out of or relating to the interpretation or
application of any term or provision set forth herein, or the alleged breach
thereof, such controversy or claim shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Judgment upon any award rendered pursuant to the terms set forth
herein may be entered in any court having jurisdiction of the party against whom
the award is rendered. Any award rendered pursuant to the terms and conditions
set forth herein shall be final and binding upon the parties and their
Affiliates. Any arbitration held pursuant to this Agreement shall be held in
Washington, D.C., or such other site as the parties may mutually agree. All
costs and expenses including reasonable attorney's fees and the fees and
expenses of the arbitrators and the AAA, incurred in the enforcement of this
Agreement shall be paid to the prevailing party by the non-prevailing party,
provided that the same may be apportioned between the parties by the arbitrators
if they determine that each party has prevailed in part. Notwithstanding the
foregoing, either party may, on good cause shown, seek a temporary restraining
order and/or a
32
<PAGE> 33
preliminary injunction from a court of competent jurisdiction, to be effective
pending the institution of the arbitration process and the deliberation and
award of the arbitration panel.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and acknowledge this Agreement as of the Effective Date
Mylan Pharmaceuticals Inc. Penwest, Ltd.
By /s/ Roderick P. Jackson By /s/ John V. Talley
------------------------ -------------------
Roderick P. Jackson John V. Talley
Senior Vice President Vice President
Address: Address:
781 Chestnut Ridge Road 2981 Route 22
Morgantown, W.V. 26504 Patterson, N.Y. 12563
FAX: (304) 598-5409 FAX: (914) 878-3420
Attn: J. Gregory Ford Attn: Dr. Paul K. Wotton
33
<PAGE> 34
EXHIBIT 1.6
Target Designated Product
Solid-dosage forms of a controlled-release pharmaceutical for oral
administration in humans that combine Glipizide with TIMERx and other excipients
and that are bioequivalent to the product currently (as of the Effective Date)
marketed in the United States under the name "Glucotrol XL," in 5mg and 10mg
tablet dosage strengths, and that are eligible for approval by the FDA under an
ANDA.
34
<PAGE> 35
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 1.17
Deliverable Portion of the Mylan Test and Regulatory Data
All material under or directly related to the following headings (or their
substantive equivalents) *******************************
*********************************************
*********************************************
***********************************************
*********************************************************
*********************************************************
Test Procedures under the heading "Controls for the Finished Dosage Form"
(except for any Assay information that is proprietary to Mylan)
Finished Product Specifications and Test Data under the heading "Controls for
the Finished Dosage Form"
Drug Substance under the heading "Analytical Methods" (except for Mylan's
Certificate of Analysis)
Analytical Procedures - *********************************************
**********************************************
Such other information and data as is reasonably necessary or facilitative for
Penwest's performance of its obligations hereunder*****************************
***************************************************
35
<PAGE> 36
EXHIBIT 1.20
Penwest Patents
UNITED STATES:
1) U.S. Patent No. 4,994,276, entitled "Directly Compressible Slow Release
Granulation," issued February 19, 1991.
2) U.S. Patent No. 5,128,143, entitled "Sustained Release Excipient and
Tablet Formulation," issued July 7, 1992.
3) U.S. Patent No. 5,135,757, entitled "Compressible Sustained Release
Dosage Forms," issued August 4, 1992.
4) U.S. Application Serial No. 08\118,924, entitled "Sustained Release
Hetero-Disperse Hydrogel Systems for Insoluble Drugs," filed September 9, 1993.
CANADA:
5) Canadian Patent Application No. 611,700, filed September 18, 1989
(corresponding to items 1), 2) and 3) above).
6) Canadian Patent Application to be filed corresponding to item 4) above.
MEXICO:
7) Mexican Patent Application to be filed corresponding to item 4) above.
36
<PAGE> 37
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 2.4.1
Milestone Payment Payment Payment Payment
******* ******* ******* *******
******* ******* ******* *******
******* ******* ******* *******
******* ******* ******* *******
******* ******* ******* *******
******* ******* ******* *******
********* ******* ******* ******* *******
********* ******* ******* ******* *******
*********
****
********* ******* ******* ******* *******
*********
****
********* ******* ******* ******* *******
********* ******* ******* ******* *******
********* ******* ******* ******* *******
********* ******* ******* ******* *******
*******
********* ******* ******* ******* *******
********* ******* ******* ******* *******
********* ******* ******* ******* *******
Royalty *************************
*************************
*************************
Price of TIMERx: **********
Territories: *************************
37
<PAGE> 1
Exhibit 10.4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
SALES AND DISTRIBUTION AGREEMENT
This Agreement is entered into this 3rd day of January, 1997 by and between:
Mylan Pharmaceuticals, Inc., a West
Virginia Corporation, with offices
located at 781 Chestnut Ridge Road
Morgantown, West Virginia 26505
(hereinafter referred to as "MYLAN")
and
Penwest, Ltd., a Washington Corporation
with offices located at 2981 Route 22
Patterson, New York 12563-3415
(hereinafter referred to as "PENWEST")
WHEREAS, MYLAN develops, manufactures, markets and distributes
generic and proprietary pharmaceutical products; and
WHEREAS, PENWEST markets, licenses and distributes
controlled-release systems for generic and proprietary pharmaceutical products
and distributes certain finished pharmaceutical products; and
WHEREAS, MYLAN and PENWEST are parties to an agreement dated
the 17th of August, 1994 (the "Nifedipine XL Agreement"), detailing the
development, marketing and sale of a pharmaceutical product incorporating
Nifedipine in a solid-dosage controlled-release delivery system for oral
administration in humans in the MYLAN Territory (as therein and hereinafter
defined); and
WHEREAS, PENWEST and MYLAN believe that the product to be
-1-
<PAGE> 2
made under the Nifedipine XL Agreement may be approvable for sale in certain
specified nations outside of the MYLAN Territory as a substitute (referred to as
the "Product" herein) for the product marketed in Europe under the name "Adalat
LA"; and
WHEREAS, PENWEST and MYLAN wish to enter into an agreement
whereby MYLAN will manufacture and supply the Product to PENWEST and PENWEST
will supply the Product to one or more authorized distributors in certain
specified nations outside the MYLAN Territory.
NOW, THEREFORE, for and in consideration of the material
covenants, promises and agreements contained herein, the receipt and sufficiency
of all of which are hereby acknowledged, MYLAN and PENWEST, intending to be
legally bound, do hereby agree as follows.
I. DEFINITIONS.
1.1 "Affiliate" shall mean any individual, partnership,
corporation, limited company, trust, or other entity of whatever nature
(hereinafter collectively referred to as "Person"), which is directly or
indirectly controlling, controlled by or under common control with another
Person, identifiable based upon the context in which the term is used. The term
"control" shall mean the possession of the power to direct or cause the
direction of the management and policies and/or the distribution of the profits
of a Person.
1.2 "Authorized Distributor(s)" shall mean that distributor or
distributors selected by PENWEST (subject to Section 2.1) from time to time to
register, market and sell the Product in the Territory or defined portions
thereof.
1.3 "Authorized Distributor Agreement" shall mean that
agreement between PENWEST and an Authorized Distributor which establishes that
the Authorized Distributor shall register the Product in the Territory or a
portion thereof, shall market and sell the Product in the Territory or such
portion, and shall pay to PENWEST some form(s) of remuneration for the supply of
the Product.
1.4 "Bulk Packaging" shall mean ten kg fiber pack double lined
with polyethylene bag liners.
1.5 "Commercially Reasonable Efforts" shall mean that degree
of effort, expertise and resources which a person of ordinary skill, ability,
and experience in the matters addressed herein would utilize and otherwise apply
with respect to fulfilling the obligations assumed hereunder.
1.6 "MYLAN Cost of Product" shall mean MYLAN's per tablet
actual
-2-
<PAGE> 3
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
direct materials (other than TIMERx-N), manufacturing costs, and allocable
indirect costs relating to the manufacture of the Product. Currently, the
estimated MYLAN Cost of Product is ***************** for each 30mg tablet and
*************************** ********** for each 60mg tablet. These estimates are
based on a developmental formulation and could change based upon final
formulation.
1.7 "MYLAN Manufacturing Technology" shall mean that
information from MYLAN reasonably necessary to enable the Authorized Distributor
to manufacture the Product pursuant to the terms and conditions of this
Agreement in the event MYLAN is unable to supply the Product. The MYLAN
Manufacturing Technology shall be specifically agreed to herein by the Parties
as confidential and shall be protected by PENWEST and the Authorized Distributor
as set forth in Section 11.15 herein.
1.8 "MYLAN Territory" shall mean the United States, Canada
and Mexico, and their respective territories and possessions.
1.9 "Other Compensation" shall mean all compensation other
than the Product Sales Price received by PENWEST generated by the license and/or
sale of the Product to the Authorized Distributor including, but not limited to,
royalties, license fees, and marketing and distribution fees.
1.10 "Product" shall mean those pharmaceutical products in
finished dosage form supplied in Bulk Packaging which are intended, in their
30mg and 60mg versions, to be a generic version of (or otherwise a substitute
for) Adalat LA, meeting the Specifications set forth in Exhibit 1, it being
understood that the 90mg version of the product to be made under the Nifedipine
XL Agreement may also be a "Product" covered by one or more Authorized
Distributor Agreements (although the 90mg version is not now contemplated to be
covered by the proposed agreement with Sanofi Winthrop International S.A.
("Sanofi")). If the 90mg version is covered by an Authorized Distributor
Agreement, MYLAN and PENWEST will negotiate in good faith as to the pricing and
costs for the certification and supply thereof under this Agreement.
1.11 "Product Sales Price" shall mean the total amount
received by PENWEST from any Authorized Distributor for the sale of the Product,
where such amount is measured on a per-tablet basis and is not contingent on the
Authorized Distributor's resale thereof, and not including any Other
Compensation.
-3-
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
1.12 "Sales Royalties" shall mean that portion of the Other
Compensation which is designated as a royalty for, and is measured by, the sales
of the Product by an Authorized Distributor or its subdistributors.
1.13 "Specifications" shall mean the specifications for the
Product as set forth in Exhibit 1 hereto, and which, except as otherwise
explicitly stated in such Exhibit, shall indicate that the Product hereunder
shall be in all respects the same, and of at least as high a quality, as the
Designated Product to be produced by MYLAN under the Nifedipine XL Agreement.
1.14 "Territory" shall mean the nations of Belgium, France,
Ireland (Eire), Italy, Netherlands, the United Kingdom and all nations of Latin
America (i.e., Central and South America, not including Mexico).
1.15 "TIMERx" shall mean the Formulated TIMERx defined in the
Nifedipine XL Agreement.
1.16 "TIMERx Cost of Materials" shall mean, with respect to
Product ordered **************************************************************
******************************************************** (the "Initial Period"),
*************** the then-current price of the TIMERx to be supplied to MYLAN
under Section 6.2 hereof, and as specified in the Nifedipine XL Agreement;
provided, however, that if there is, during the Initial Period, an increase in
the price of the tangible raw materials included in the TIMERx that is
significantly in excess of the increase in the Producers' Price Index for the
comparable period, the TIMERx Cost of Materials shall, at PENWEST's election, be
subject to adjustment under the next sentence prior to the end of the Initial
Period. After the end of the Initial Period (or such earlier time as may be
applicable pursuant to the proviso in the preceding sentence), the TIMERx Cost
of Materials shall be adjusted ********************** and shall mean TIMERx
Technologies'**************************************************************
************************************************************** to be provided
under Section 6.2 hereof following the end of the Initial Period (or such
earlier time as may be applicable).
II. SCOPE OF AGREEMENT
2.1 Pursuant to the terms and conditions of this Agreement,
MYLAN shall manufacture and supply the Product to PENWEST for marketing,
distribution, and sale in the Territory by the Authorized Distributor(s).
Provided however, that,
-4-
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
********************************************************************************
********************************************************************************
********************************************************************************
*****************. MYLAN may present potential Authorized Distributors to
PENWEST for PENWEST's consideration at any time during the term of this
Agreement. In the event that either party presents a potential Authorized
Distributor to the other party, said other party shall respond within thirty
days by accepting or rejecting the proposed Authorized Distributor. A failure to
respond shall be deemed an acceptance by said other party. An acceptance or
rejection of an Authorized Distributor shall mean that the parties agree or do
not agree to proceed with discussions and negotiations with said Authorized
Distributor. It is specifically recognized by both parties that the discussions
and negotiations may not lead to an Authorized Distributor Agreement and neither
party makes any warranty as to the success of the negotiations leading to an
Authorized Distributor Agreement.
2.2 The terms of the Authorized Distributor Agreement(s), if
any, shall be determined by PENWEST and the Authorized Distributor, provided
that none of such terms shall conflict with this Agreement nor preclude
PENWEST's compliance with this Agreement, specifically including, but not
limited to, protecting the confidentiality of the MYLAN Manufacturing
Technology. MYLAN shall be entitled to review the terms and conditions of any
Authorized Distributor Agreement. It is understood that, while PENWEST intends
to attempt to obtain and to maintain one or more Authorized Distributors, it has
not committed that it will be able to do so and will have no liability to MYLAN
for any failure to do so. Except as set forth in Section 2.3 and Section 5.7,
MYLAN shall have no responsibility for assisting PENWEST or the Authorized
Distributor in obtaining registrations or approval to market the Product in the
Territory.
2.3 Upon request for specific information by PENWEST and/or an
Authorized Distributor, MYLAN shall, at no significant expense to MYLAN, provide
to the Authorized Distributor, in a reasonably timely manner, such information
in its possession necessary to allow the Authorized Distributor to obtain and
maintain regulatory approval to market the Products in the Territory. Such
disclosures shall include, after receipt of reasonable prior notice to MYLAN,
MYLAN's giving duly accredited representatives of PENWEST and/or the Authorized
Distributor(s) access at all reasonable times during regular business hours to
inspect and audit any relevant records of MYLAN's plant in which the Product or
any raw materials therefor are produced, packaged or stored, all to the extent
required to allow the Authorized Distributor to obtain and maintain regulatory
approval to market the
-5-
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Products in the Territory. Any such disclosure shall be subject to the
Confidentiality provisions set forth herein. PENWEST shall confirm the date of
submission of all applications for required registrations and approvals from any
applicable regulatory authority in the Territory and then quarterly inform MYLAN
in writing about the status of said application in the Territory, as such
information is available to PENWEST from the Authorized Distributor. PENWEST
shall also obtain the agreement of the Authorized Distributor(s) ************
to obtain the necessary registrations in the Territory and to market and sell
the Product in the Territory.
III. TERM
The Term of this Agreement shall begin on the date first
hereinabove entered and shall continue for a period of ten (10) years ("Initial
Term") or, if later, until the expiration of the term of any Authorized
Distributor Agreement then in force, provided that MYLAN was given notice of
such term of the Authorized Distributor Agreement at least *******************
prior to its execution and MYLAN did not object thereto in writing within such
period; provided, however, that MYLAN has already received notice of the
proposed term of an agreement with Sanofi, as set forth in Exhibit 2 hereto,
and need not be given further notice thereof as to that agreement. The Term of
this Agreement shall automatically renew for additional terms of one (1) year
("Additional Terms") unless, not later than six (6) months prior to the end of
the Initial Term or any Additional Term, one party provides written notice to
the other party that the term of this Agreement will not be renewed past the
end of such then-current term. The term of this Agreement will, at PENWEST's
option, remain in effect as specified herein notwithstanding the earlier
termination of the Nifedipine XL Agreement, but only if such termination is as
a result of: (i) the expiration of the Term of the Nifedipine XL Agreement or
(ii) the breach of the Nifedipine XL Agreement by MYLAN. In the event the Term
of this Agreement exists beyond the term of the Nifedipine XL Agreement, those
terms and provisions contained in the Nifedipine XL Agreement, which are
necessary for MYLAN to perform under this Agreement shall survive as if fully
set forth herein.
IV. INDEMNIFICATION AND INSURANCE
4.1 MYLAN agrees to indemnify, defend and hold PENWEST
harmless from and against any and all liabilities, damages, costs or expenses,
including reasonable attorney's fees, ("Losses") resulting from or arising out
of MYLAN's manufacturing, storage, handling, distribution, and/or delivery of
the
-6-
<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Product at the FOB delivery point, the execution of MYLAN of this Agreement, the
performance or breach by MYLAN of its representations, warranties or obligations
under this Agreement, the negligence or willful misconduct of MYLAN, its
employees or its agents (collectively "MYLAN Activities"), including without
limitation any matters or MYLAN Activities that would be the responsibility of
MYLAN as provided under the Nifedipine XL Agreement (that is, as if the
Nifedipine XL Agreement contemplated the manufacture and sale of the Product for
distribution in the Territory pursuant to this Agreement), except: (1) to the
extent such Losses result from PENWEST Activities (as defined in Section 4.2);
and (2) MYLAN's indemnity, defense and hold harmless responsibilities as to
claims of patent infringement in the Territory shall apply only to infringements
of which MYLAN knew or (without undertaking any special investigation) had
reason to know prior to the delivery at the FOB delivery point to PENWEST of the
units of the Product at issue, and of which MYLAN failed to inform PENWEST in
writing at or prior to the earlier of such delivery or thirty (30) days
following MYLAN's first obtaining such knowledge or reason to know.
4.2 PENWEST agrees to indemnify, defend and hold MYLAN
harmless from and against any Losses resulting from or arising out of PENWEST's
or any Authorized Distributor's re-packaging, labeling, testing, storage,
handling, distribution, delivery, marketing and/or sale of the Product
(including without limitation the Consignment Inventory), the execution by
PENWEST of this Agreement, the breach by PENWEST of its representations,
warranties or obligations under this Agreement, the negligence or willful
misconduct of PENWEST, its employees or its agents (collectively "PENWEST
Activities"), including without limitation any matters or PENWEST Activities
that would be the responsibility of PENWEST as provided under the Nifedipine XL
Agreement, except to the extent such Losses result from MYLAN Activities (as
defined in Section 4.1).
4.3 A party seeking indemnification ("Indemnified Party"),
shall notify, in writing, the other party ("Indemnifying Party") within
****************** of the assertion of any claim or discovery of any fact upon
which the Indemnified Party intends to base a claim for indemnification. An
Indemnified Party's failure to so notify the Indemnifying Party shall not,
however, relieve such Indemnifying Party from any liability under this Agreement
to the Indemnified Party with respect to such claim except to the extent that
such Indemnifying Party is actually denied, during the period of delay in
notice, the opportunity to remedy or otherwise mitigate the event or
activity(ies) giving rise to the claim for indemnification and thereby suffers
or otherwise incurs additional liquidated or other readily quantifiable damages
as a
-7-
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
result of such failure. The Indemnifying Party, while reserving the right to
contest its obligations to indemnify hereunder, shall be responsible for the
defense of any claim, demand, lawsuit, or other proceeding in connection with
which the Indemnified Party claims indemnification hereunder. The Indemnified
Party shall have the right, at its own expense, to participate jointly with the
Indemnifying Party in the defense of any such claim, demand, lawsuit or other
proceeding, but with respect to any issue involved in such claim, demand,
lawsuit or other proceeding with respect to which the Indemnifying Party has
acknowledged its obligation to indemnify the Indemnified Party hereunder, the
Indemnifying Party shall have the right to select counsel, settle, try or
otherwise dispose of or handle such claim, demand, lawsuit or other proceeding
on such terms as the Indemnifying Party shall deem appropriate, subject to any
reasonable objection of the Indemnified Party. If the defendants in any such
action include both MYLAN and PENWEST, and either party concludes that there may
be legal defenses available to it which are different from, additional to, or
inconsistent with, those available to the other, that party shall have the right
to select separate counsel to participate in the defense of such action on its
behalf, and such party shall thereafter bear the cost and expense of such
separate defense.
4.4 Each party shall, at its own cost and expense, obtain and
maintain from a qualified insurance company comprehensive general liability and
products liability insurance coverage during the term of this Agreement. Such
insurance shall be in an amount no less than *********************************
combined single limit for each occurrence for bodily injury and/or property
damage. Each party agrees to provide the other party with a certificate of
insurance evidencing such insurance within thirty (30) days after the execution
of this Agreement and again thereafter from time to time as reasonably
requested by such other party.
-8-
<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
V. PRODUCT PRICING
5.1 The price of the Product to be supplied to PENWEST under
this Agreement shall have four components as described in Sections 5.2, 5.3,
5.4, and 5.7.
5.2 The first component of the price shall *******************
********************************.
5.3 The second component of the price shall be ***************
*********************************************************** pursuant to
Section 6.2 and ****************************************************************
********************************.
5.4 The third component of the price shall *******************
**************************************************************************
********************************.
5.5 Except with respect to ****** of the tablets in the
Consignment Inventory, the first component of the price will be invoiced to
PENWEST upon Product shipment from Mylan to PENWEST, on ********* payment terms.
The second component of the price will be invoiced to PENWEST upon Product
shipment, on ********** payment terms, including with respect to any Consignment
Inventory tablets. The third component of the price for all tablets, including
any Consignment Inventory tablets, will be paid to MYLAN within ********* days
following the receipt by PENWEST of the Product Sales Price; provided that in no
case shall the total of the first, second and third components exceed the
Product Sales Price for the respective tablets. If the total of these components
exceeds the Product Sales Price in any instance, the difference will be carried
over for purposes of Section 5.7.
5.6 Payment of the first component of the price with respect
to **** ***** of the tablets in the Consignment Inventory will be paid to MYLAN
within ********* following the receipt by PENWEST of the Product Sales Price for
the tablets drawn by the Authorized Distributor from the Consignment Inventory
on a FIFO basis as described in Section 6.8, and, if not previously paid, shall
be paid within ********* following the receipt by PENWEST of the Product Sales
Price for the last tablets drawn by the Authorized Distributor from the
Consignment Inventory, either at the end of the term of the Authorized
Distributor Agreement or otherwise at the exhaustion of such inventory, such as
in the circumstances described in Section 6.9.
-9-
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
5.7 The fourth component of the price shall be a further sum
(the "Other Compensation Payment") equal to ******************, if any, received
from an ******************. The Other Compensation Payment will be payable
within ********* following the receipt by PENWEST of such Other Compensation.
Provided, however, if the combined first, second, and third components of the
price exceeded the Product Sales Price in any instance, that excess shall be so
paid to MYLAN from the Other Compensation, if any, and ********* of the balance
of the Other Compensation shall then be paid to MYLAN under this Section. If
additional biostudies should be required for Product approval in the Territory,
MYLAN and PENWEST will ********* ********* the cost of additional biostudies.
PENWEST shall **************** for said required biostudies and shall be
reimbursed the amount from Other Compensation until such amount has been
recovered by PENWEST up to a maximum of **********. The necessity of such
studies shall be agreed to by both MYLAN and PENWEST.
VI. SUPPLY OF PRODUCT
6.1 As provided herein, PENWEST shall purchase in whole lot
quantities, and MYLAN will supply PENWEST with, sufficient quantities of Product
to meet all of the requirements therefor of each Authorized Distributor during
the term of this Agreement; provided, however, that MYLAN will supply, in less
than whole lot quantities, up to a ****************** as reasonably requested
for use in the testing and certification of the Product and its manufacture.
MYLAN and PENWEST will share equally the costs of such testing and certification
quantities by adjustments to the amounts payable from Other Compensation. To the
extent permitted under applicable law, PENWEST shall cause the Authorized
Distributor(s) to agree that they shall purchase all of their requirements for
the Product from PENWEST during such period, subject to such commercially
reasonable contingent agreements (the "Contingent License") as PENWEST may make
to permit one or more Authorized Distributors to manufacture the Product on its
own (or to obtain it from an alternate source) in the event that MYLAN is not
able, or for any reason fails, for any continuous period in excess of *********,
or has been so unable, or has so failed, for any cumulative period of
***************************, to supply PENWEST hereunder Product sufficient in
quantity and quality to meet such Authorized Distributor's requirements
therefor, including without limitation the Consignment Inventory described in
Section 6.8.
6.2 MYLAN shall purchase and PENWEST shall supply TIMERx for
use in the manufacture of the Product pursuant to this Agreement at the price,
and on the terms, set forth in the Nifedipine XL Agreement. Following the FDA
U.S.
-10-
<PAGE> 11
approval of the Designated Product for sale under the Nifedipine XL Agreement,
quantities to be purchased hereunder shall be added to the estimates and orders
called for under the Nifedipine XL Agreement. If PENWEST notifies MYLAN of an
Authorized Distributor's estimates for Product to be ordered hereunder (whether
before or after FDA approval of the Designated Product for sale in the Mylan
Territory under the Nifedipine XL Agreement), MYLAN shall time its orders for
TIMERx accordingly, as if (for such scheduling purposes) the Authorized
Distributor's requested shipment dates were the dates for MYLAN's sales of the
Designated Product under the Nifedipine XL Agreement. Payment for the TIMERx
shall be made as provided in the Nifedipine XL Agreement.
6.3 All sales of Product shall be F.O.B., Morgantown,
West Virginia, or Caguas, Puerto Rico, as MYLAN may specify (but no change from
one location to the other shall be made on less than 45 days' prior written
notice), and PENWEST or the Authorized Distributor (as they may agree) shall
bear all transportation, insurance, taxes, duties, and other costs and risks of
loss, spoilage and damage associated with the shipping and delivery of Product
to PENWEST or the Authorized Distributor.
6.4 MYLAN shall be responsible to obtain and maintain any
and all regulatory approvals and licenses for the manufacture of the Product by
it in West Virginia and/or in Puerto Rico and for export from those locations to
the Territory. MYLAN warrants that it will not change or modify the formulation,
manufacturing methods, Bulk Packaging specifications, and/or Product
Specifications as provided hereunder, without at least thirty days' prior
written notice to PENWEST. If MYLAN is required by the FDA to change the
formulation, manufacturing methods, or Product Specifications for the product it
is then making for sale in the MYLAN Territory, or MYLAN otherwise institutes
such changes on its own due to its good faith determination that the same are
necessary or beneficial for the production of the product for sale in the MYLAN
Territory, and if such changes would require the consent of any regulatory
agency in the Territory with regard to the approval or continuing right to use
the same in connection with the Product for sale in the relevant country, MYLAN
will have the following options, with respect to the relevant country(ies) in
the Territory:
6.4.1 MYLAN may continue to manufacture the
Product under the prior formulation,
manufacturing methods and Product
Specifications, for supply under this
Agreement, and Section 1.6.2 will be
applicable;
6.4.2 where such changes may reasonably be
acceptable to the relevant regulatory
agency(ies), MYLAN may assist PENWEST and
the Authorized Distributor to secure the
approval from the relevant health
-11-
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
regulatory agency(ies) in the Territory for
its making the same changes with respect to
the Product to be supplied under this
Agreement, including without limitation
MYLAN's sharing equally with PENWEST the
costs of all reasonable efforts to secure
such approval(s);
6.4.3 MYLAN may permit this circumstance to be a
triggering event that brings into effect the
Contingent License, without the contingency
of the passage of the 30 days specified in
Section 6.1.
MYLAN must pursue at least one of these options with respect to each applicable
country in the Territory at all times, in such a circumstance. MYLAN may pursue
more than one of these options simultaneously as follows: If MYLAN pursues the
option in 6.4.1, it may, but it need not, also pursue the option in 6.4.2 (and,
in either case, the option in 6.4.3 would not be then applicable). If MYLAN
pursues the option in 6.4.3, it may, but it need not, also pursue the option in
6.4.2 (but, in either case, the option in 6.4.1 would not be then applicable).
MYLAN must pursue either 6.4.1 or 6.4.3 in conjunction with 6.4.2, if it elects
to pursue 6.4.2 at all.
6.5 At least ********* before an Authorized Distributor
begins sale of the Product, PENWEST shall deliver to MYLAN a written,
non-binding estimate of all the Authorized Distributor's requirements of Product
for the ********* ********* period following the anticipated first commercial
sale by the Authorized Distributor. PENWEST will deliver to MYLAN updates to
such estimates on or before the first day of each ********* thereafter during
the term of this Agreement, which updates may revise estimates previously
submitted and will add estimates for additional months so that at all times such
estimate shall cover the ****************** ********* period following the end
of the ********* in which the estimate is made. MYLAN shall not be obligated to
supply the Authorized Distributor with quantities of the Product during any
********* in excess of ****************** of the quantities estimated in the
Authorized Distributor's highest written estimate applicable to that *********.
6.6 PENWEST shall deliver to MYLAN a firm written order
stating the Authorized Distributor's requirements for Product no less than
********* in advance of the requested delivery date therefor. To the extent
practicable, PENWEST will group into single orders all such requirements for
each Authorized Distributor
-12-
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
for the entire Territory for each ********* covered by each such order.
6.7 No order for the Product hereunder may be cancelled or
deferred by PENWEST except by written notice delivered to MYLAN at least
********* prior to the scheduled delivery date. No orders may be cancelled or
deferred (even with such ********* notice) without MYLAN's approval if such
cancellation or deferral would reduce PENWEST's or the Authorized Distributor's
purchases for the ********* *************************** of the highest
quantities of the Product estimated as to such
*********.
6.8 MYLAN will supply to PENWEST, to be consigned with the
applicable Authorized Distributor, an inventory of approximately *********
production of the Product for such Authorized Distributor, based on PENWEST's
projections given under Section 6.5 for the ********* extending beyond the
********* firm ordering period. This shall be referred to as the "Consignment
Inventory." The initial Consignment Inventory will be drawn down and replenished
on a regular, first-in-first-out basis as the Authorized Distributor takes
deliveries therefrom for its sales. The parties agree that each of them will
*************************** of the MYLAN Cost of Product for the Consignment
Inventory at any given time.
6.9 Subject to and conditional upon the failure of MYLAN to
meet the PENWEST Authorized Distributor's requirements for Product as described
in Section 6.1, upon the request of PENWEST, MYLAN grants to PENWEST, as part of
the Contingent License, a license under the MYLAN Manufacturing Technology to
have made by the Authorized Distributor Product for sale in the Territory during
the term of the Authorized Distributor Agreement. Said license shall exist only
for those periods, if any, in which MYLAN is unable to supply the Product, plus
an additional period of up to ********* after MYLAN's notice that it is again
able and ready to supply the Product, during which the Authorized Distributor
will be entitled to exhaust work-in-process and any inventory of finished goods.
Neither PENWEST nor the Authorized Distributor shall have the right to grant a
sublicense hereunder (other than by PENWEST to the Authorized Distributor)
without the prior written consent of MYLAN, which consent shall not be
unreasonably withheld. In order to facilitate the communication of the MYLAN
Manufacturing Technology to the Authorized Distributor and the certification of
its facility as contemplated herein, such that there will be no significant
delay in doing so if PENWEST's rights under this Section 6.9 ever become
applicable, MYLAN will exert reasonable efforts to disclose the MYLAN
Manufacturing Technology to the Authorized Distributor(s) designated for such
purpose by PENWEST, including without limitation by making knowledgeable MYLAN
personnel reasonably available, at a consulting fee not in excess of MYLAN's
-13-
<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
actual costs, to consult with the Authorized Distributor or with representatives
of PENWEST who may then consult in turn with the Authorized Distributor, all to
the extent necessary to enable the Authorized Distributor to produce Product
that would otherwise have been supplied by MYLAN. MYLAN will make such
disclosure and provide such consultation within a reasonable time following the
signing of this Agreement, and in any event prior to the filing by the
Authorized Distributor of the first Product License Application for the Product
to be filed by such Authorized Distributor in the Territory, it being
understood, however, that such early consultation shall not give the Authorized
Distributor any right to make any production use of the MYLAN Manufacturing
Technology unless and until the license under this Section becomes applicable,
other than in connection with obtaining the advance regulatory certification in
the Territory of the Authorized Distributor's own facility as an approved
alternate site of manufacture of the Product. This Section and the license
described will survive the termination of this Agreement due to any breach by
MYLAN, for the balance of the Term otherwise provided for in Section 3.1.
6.10 In the event that, and for so long as, MYLAN is
unable due to causes beyond its control to supply product to PENWEST and the
Authorized Distributor, and Section 6.9 is instituted, or if Section 6.9 is
instituted as described in 6.4.3, PENWEST shall, in lieu of the price and
payments described in Section 5, pay to MYLAN in consideration of the grant of
such license to the MYLAN Manufacturing Technology an amount equal to *********
of the Sales Royalties received from the Authorized Distributor making the
Product using the MYLAN Manufacturing Technology as permitted under Section 6.9.
6.11 If and to the extent that the failure of MYLAN
described in Section 6.9 is due to causes beyond MYLAN's control, and if MYLAN
establishes to PENWEST's reasonable satisfaction that MYLAN is diligently
attempting through its best efforts to remove or resolve such causes such that
MYLAN will be able, or will again be able, to supply the Product as contemplated
herein (which, in the circumstances described in Section 6.4, will require, at a
minimum, that 6.4.2 be applicable and that MYLAN actively and continuously
pursue the option described in 6.4.2), PENWEST shall, in addition to the sums
payable under Section 6.10, pay to MYLAN a further sum equal to *********:
6.11.1 ******************************************
******************************************
******************************************
-14-
<PAGE> 15
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
******************************************
********** as permitted under Section 6.9
for the supply by PENWEST of TIMERx to be
used in such manufacturing, ***************
************************** ****** therefor;
*******
6.11.2 ********************************************
*********** for by such Authorized
Distributor during such period as to which
MYLAN so establishes that it is diligently
making such attempts to remove or resolve
such causes of MYLAN's disability to supply
the Product.
VII. REGULATORY OR MEDICAL INQUIRY
7.1 PENWEST shall require the Authorized Distributor to report to
MYLAN by facsimile any and all Serious Adverse Drug Experiences related to the
Product within twenty-four (24) hours of receipt of notice with a hard copy by
mail sent out to MYLAN by the end of business on the date such notice is
received. PENWEST shall require the Authorized Distributor to report all other
Adverse Drug Experiences to MYLAN by mail sent out within three (3) business
days from the date such notice is received. For purposes of this Agreement,
Adverse Drug Experience and Serious Adverse Drug Experience, (collectively
referred to as "Experiences"), shall be defined as set forth in 21 C.F.R.
314.80(a), and as amended from time to time. Any notice made pursuant to this
section shall contain:
- - The name, address and status (e.g. physician, patient) of the reporter.
- - The nature, duration and result of the event.
- - MYLAN lot number of the Product, if possible.
- - The name of person taking the call.
- - The date and time the event was reported.
- - The patient's name or initials, sex and age, if possible.
- - Name of Product and daily dosage of the Product and was use
discontinued.
-15-
<PAGE> 16
MYLAN will report all Experiences to the FDA as per regulations. PENWEST shall
require the Authorized Distributor to do all investigation necessary to comply
with the relevant regulatory agency in the Territory. PENWEST will require the
Authorized Distributor to obtain the information ("Investigation Information")
as set forth on the information sheet attached as Exhibit 3 to this Agreement.
For Serious Adverse Drug Experiences, PENWEST will require the Authorized
Distributor to forward the Investigation Information to MYLAN within three (3)
business days after the information is received by the Authorized Distributor
and for all other Adverse Drug Experiences, the distributor will forward the
Investigation Information to MYLAN within three (3) business days of the
completion of the investigation to allow MYLAN to report the Experiences to the
FDA in a timely manner as set forth in 21 C.F.R. 314.80. PENWEST shall require
the Authorized Distributor to provide all reasonable assistance to MYLAN, at
MYLAN's expense, in any additional follow-up deemed necessary by MYLAN.
Notwithstanding anything else contained herein, any notice made pursuant to this
section shall be in English and sent to the attention of Ellen Sarris, MYLAN
Pharmaceuticals Inc., 781 Chestnut Ridge Road, Morgantown, West Virginia, 26505.
7.2 Each party shall promptly notify the other of any fact,
circumstance, condition or knowledge dealing with the Product of which the party
becomes aware that bears upon the safety or efficacy of the Product. Each party
shall immediately notify the other of any inspection or audit relating to
Product, by any governmental regulatory authority in the Territory. If a
representative of the governmental authority takes samples in connection with
such audit or inspection, the parties shall immediately provide each other, as
appropriate, samples from the same batch. PENWEST and MYLAN also agree to
discuss any responses to observations or notifications received and to give the
other party an opportunity to comment on any proposed response before it is
made.
VIII. REPRESENTATIONS AND WARRANTIES
8.1 REPRESENTATIONS AND WARRANTIES BY MYLAN. MYLAN hereby
represents and warrants to PENWEST as follows:
(a) MYLAN is a corporation duly organized and validly
existing under the laws of the State of West Virginia;
(b) MYLAN has the requisite corporate authority to
execute and deliver this Agreement and to perform its obligations hereunder;
(c) Any Product delivered by MYLAN to PENWEST shall, at
the time of shipment, be in full conformity with the Specifications and have
been manufactured, labeled, packaged, stored and shipped by MYLAN in conformity
with
-16-
<PAGE> 17
all laws, including without limitation those of the place of manufacture and
those applicable in the nations in which the Authorized Distributor(s) will sell
the Product, it being understood that PENWEST will obtain the agreement of the
Authorized Distributor(s), if any, that the Product will not be required to
differ in various nations, although various nations may impose differing
standards and requirements for tests and certificates of analysis;
(d) The execution and performance of MYLAN's obligations
hereunder are not and will not be in violation of or in conflict with any
material obligation it may have to any third party; and
(e) MYLAN has and will maintain throughout the term of this
Agreement all federal, state and local permits, licenses, registrations and
other forms of governmental authorization and approval as required by law in
order for MYLAN to execute and deliver this Agreement and to perform its
obligations hereunder, and MYLAN will perform such obligations in accordance
with all applicable laws.
EXCEPT AS EXPRESSLY PROVIDED IN SECTION 4.1 AND/OR THIS SECTION 8.1, MYLAN MAKES
NO REPRESENTATION OR WARRANTY AS TO THE PRODUCT, EXPRESS OR IMPLIED, EITHER IN
FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND MYLAN SPECIFICALLY
DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES, INCLUDING WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY, WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE OR WARRANTY OF NON-INFRINGEMENT.
8.2 REPRESENTATIONS AND WARRANTIES BY PENWEST. PENWEST hereby
represents and warrants to MYLAN as follows:
(a) PENWEST is a corporation duly organized and in good
standing under the laws of Washington;
(b) PENWEST has the requisite corporate authority to execute
and deliver this Agreement and to perform its obligations hereunder;
(c) The execution and performance of PENWEST's obligations
hereunder, are not and will not be in violation of or in conflict with any
material obligations it may have to any third party; and
(d) PENWEST has and will maintain throughout the term of this
Agreement all federal, state and local permits, licenses, registrations and
other forms of governmental authorization and approval as required by law in
order for PENWEST to execute and deliver this Agreement and will perform its
obligations hereunder in accordance with all applicable laws.
-17-
<PAGE> 18
EXCEPT AS EXPRESSLY PROVIDED IN SECTION 4.2 AND/OR THIS SECTION 8.2, PENWEST
MAKES NO REPRESENTATION OR WARRANTY AS TO THE PRODUCT, EXPRESS OR IMPLIED,
EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND PENWEST
SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES, INCLUDING
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE OR WARRANTY OF NON-INFRINGEMENT.
IX. NOTICES
9.1 Any notices or reports required or permitted under this Agreement
shall be deemed to have been given for all purposes if mailed by first class
certified or registered mail or transmitted electronically by telefacsimile with
mailed confirmation copy to the following address of either party;
For MYLAN:
MYLAN PHARMACEUTICALS INC.
781 Chestnut Ridge Road
Morgantown, West Virginia, 26505
Fax: (304) 599-7284
Attn: Gregory Ford
Associate Director of
Business Development
For PENWEST:
PENWEST, LTD.
2981 Route 22
Patterson, New York, 12563-3415
Fax: 914-878-3420
Attn: Paul K. Wotton
Vice President,
Business Development
X. FURTHER ASSISTANCE
Each of PENWEST and MYLAN agrees to duly execute and deliver, or cause
to be duly executed and delivered, such further instruments and do and cause to
be done such further acts and things, including, without limitation, the filing
of such additional assignments, agreements, documents and instruments, or the
providing of samples to obtain FDA or other regulatory agency approval in the
Territory, that may be necessary or as the other party hereto may at any time
and from time to time
-18-
<PAGE> 19
reasonably request in connection with this Agreement or to carry out more
effectively the provisions and purposes of this Agreement.
XI. MISCELLANEOUS
11.1 BREACH AND DISPUTE RESOLUTION:
Should the parties to this Agreement fail to resolve any controversy or
claim arising out of or relating to the interpretation or application of any
term or provision set forth herein, or the alleged breach thereof, such
controversy or claim shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Judgment
upon any award rendered pursuant to the terms set forth herein may be entered in
any court having jurisdiction of the party against whom the award is rendered.
Any award rendered pursuant to the terms and conditions set forth herein shall
be final and binding upon the parties and their Affiliates. Any arbitration held
pursuant to this Agreement shall be held in Washington, D.C., or such other site
as the parties may mutually agree. All costs and expenses including reasonable
attorney's fees and the fees and expenses of the arbitrators and the AAA,
incurred in the enforcement of this Agreement shall be paid to the prevailing
party by the non-prevailing party, provided that the same may be apportioned
between the parties by the arbitrators if they determine that each party has
prevailed in part. Notwithstanding the foregoing, either party may, on good
cause shown, seek a temporary restraining order and/or a preliminary inunction
from the court of competent jurisdiction, to be effective pending the
institution of the arbitration process and the deliberation and award of the
arbitration panel.
11.2 GOVERNING LAW; SEVERABILITY:
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to its
conflict of laws rules. To the extent any provision or term set forth herein is
or becomes unenforceable by operation of law, such unenforceability shall not
affect the remaining provisions of this Agreement. The parties agree to
renegotiate in good faith any provision or term held to be unenforceable and to
be bound by the mutually agreed substitute provision.
11.3 WAIVER:
The waiver by either party to this Agreement of a breach of any
provision set forth herein or of any right contained herein shall not operate as
or be construed as a continuing waiver of any subsequent breach or right granted
herein.
11.4 PARTIES BOUND:
This Agreement shall be binding upon and inure to the benefit of the
parties
-19-
<PAGE> 20
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
hereto and their Affiliates, successors and permitted assigns; provided,
however, that except for assignments or delegations to Affiliates of a party
(which shall not release such party from any of its rights or responsibilities
hereunder), or as part of the transfer of all or substantially all assets to a
single buyer or pursuant to a merger or other corporate reorganization (which in
PENWEST's case hereunder shall refer to the assets of, or the merger or other
reorganization of, the PENWEST Pharmaceutical Group), or as otherwise
specifically permitted hereunder, neither party shall assign or delegate any of
its rights or obligations hereunder at any time without the prior written
consent of the other party hereto, which consent shall not be unreasonably
withheld.
11.5 FORCE MAJEURE:
If either party is prevented from complying, either totally or in part,
with any of the terms or provisions set forth herein, by reason of force
majeure, including, by way of example and not of limitation, fire, flood,
explosion, storm, strike, lockout or other labor dispute, riot, war, rebellion,
accidents, acts of God, acts of governmental agencies or instrumentalities
(including, but not limited to, lack of a sufficient governmentally-mandated
quota for the Product) or any other cause or externally induced casualty beyond
its reasonable control, whether similar to the foregoing contingencies or not,
said party shall provide written notice of same to the other party. Said notice
shall be provided within five (5) working days of the occurrence of such event
and shall identify the requirements of this Agreement or such of its obligations
as may be affected, and to the extent so affected, said obligations shall be
suspended during the period of such disability.
11.6 NO ORAL MODIFICATIONS:
No change, modification, amendment or waiver of any obligation, term or
provision contained herein shall be valid or enforceable unless same is reduced
to writing and signed by a duly authorized representative of each of the parties
to be bound hereby.
11.7 INDEPENDENT CONTRACTORS:
This Agreement
********************************************************************************
********************************************************************** and each
party's performance hereunder is that of a separate, independent entity.
-20-
<PAGE> 21
11.8 NO IMPLIED RIGHTS:
Nothing in this Agreement shall be deemed or implied to be the grant by
one party to the other of any right, title or interest in the Product,
Intellectual Property or any other proprietary right of the other except as is
expressly provided for herein.
11.9 MODIFICATION BY OPERATION OF LAW:
If any of the terms or provisions of this Agreement are in or come into
conflict with any applicable law within the Territory then such term or
provision shall be deemed inoperative to the extent it may conflict therewith
and shall be deemed to be modified to conform with such law unless such
modification would render the affected provision inconsistent with or contrary
to the intent of the parties. However, in the event the terms and conditions of
this Agreement are materially altered as a result of this subsection, the
parties shall in good faith attempt to renegotiate said terms and conditions to
resolve any disputes related thereto. Should they be unable to agree on suitable
substantial language the issue shall be referred to arbitration pursuant to
Section 11.1.
11.10 CAPTIONS:
Paragraph and section headings are provided for convenience only and
are not to be used in construing the intent of the parties.
11.11 ENTIRE AGREEMENT:
This instrument and the Exhibits and Schedules attached hereto,
contains, together with the Nifedipine XL Agreement, the entire agreement
between the parties and supersedes all prior drafts or understandings with
respect to its subject matter.
11.12 COUNTERPARTS:
This Agreement may be executed in two (2) counterparts each of which is
to be considered an original and taken together as one and the same document.
11.13 DOCUMENT PREPARATION:
The parties acknowledge that this Agreement is a product of extensive
negotiations and that no inference should be drawn regarding the drafting or
preparation of this document.
-21-
<PAGE> 22
11.14 SINGULAR AND PLURAL:
The singular form of any noun or pronoun shall include the plural when
the context in which such a word is used is such that it is apparent the
singular is intended to include the plural or vice versa.
11.15 CONFIDENTIALITY:
In the course of performance under this Agreement, a party may disclose
to the other confidential information belonging to such party in writing, orally
or by demonstration or sample, which information is marked or stated in writing
at or within thirty (30) days after its disclosure to be "confidential" or
"trade secret" information. All such confidential information of a party shall
be maintained in confidence by the other and will not be used by the other party
for any purpose except as authorized hereunder. Each party shall exercise, and
shall cause its Affiliates, sublicensees and consultants to exercise, a
reasonable degree of care and at least the same degree of care as it uses to
protect its own confidential information of similar nature to preserve the
confidentiality of such information of the other party. Each party shall
safeguard such information against disclosure to third parties, including
without limitation employees and persons working or consulting for such party
that do not have an established, current need to know such information for
purposes authorized under this Agreement. This obligation of confidentiality
does not apply to information and material:
a. that were properly in the possession of the receiving
party, without any restriction on use or disclosure, prior to receipt from the
other party;
b. that are at the time of disclosure hereunder in the public
domain by public use, publication, or general knowledge;
c. that become general or public knowledge through no fault of
the receiving party or its Affiliates or sublicensees following disclosure
hereunder;
d. that are properly obtained by the receiving party from a
third party not under a confidentiality obligation to the disclosing party
hereto;
e. that are independently developed by or on behalf of the
receiving party without the use or assistance of the confidential information of
the other party;
f. that consist merely of an idea or conception for the
combination of one or more active ingredients with a controlled-release agent
such as TIMERx; or
g. to the extent the same are required to be disclosed by
order of
-22-
<PAGE> 23
any court or governmental authority; provided, however, that the receiving party
shall use its best efforts to give the disclosing party prior notice of any such
disclosure so as to afford the disclosing party a reasonable opportunity to
seek, at the expense of the disclosing party, such protective orders or other
relief as may be available in the circumstances.
Neither party shall make any public announcement or other publication
regarding this Agreement (whether as to the existence or terms hereof) or the
development work or project hereunder or the results thereof without the prior,
written consent of the other party, which consent shall not be unreasonably
withheld; provided that the foregoing shall not prohibit any disclosure which,
in the opinion of counsel to the disclosing party, is required by any applicable
law or by any competent governmental authority. In no event shall either party
make any disclosure of any such results before a patent application has been
filed with respect thereto, except upon the prior written approval of the other
party.
11.16 INSPECTION AND AUDIT:
a. Each party shall maintain all records attributable to the
matters contemplated herein according to its normal corporate and accounting
procedures. Either party, upon reasonable notice to the other party, shall have
the right to inspect said other party's records, and relevant facilities, during
normal business hours.
b. In the event either party receives notice of an inspection
or other notification by a governmental entity, including FDA, relating to the
Products or other matters within the scope of this Agreement, the party in
receipt of such notice of an inspection or other notification will notify the
other party within twenty-four (24) hours of when such notice or notification is
received, and provide to such other party, within seventy-two (72) hours, copies
of all relevant documents, including FDA Forms 482, 483, warning letters, and
other correspondence and notifications as such other party may reasonably
request. PENWEST and MYLAN agree to cooperate with each other during any
inspection, investigation or other inquiry by FDA or any governmental entity,
including providing information and/or documentation as required by the FDA or
other governmental entity. To the extent permissible, PENWEST and MYLAN also
agree to discuss any response to observations or notifications received and to
give the other party an opportunity to comment on any proposed response before
it is made. In the event of disagreement concerning the content or form of such
response, MYLAN shall be responsible for deciding the appropriate form and
content of any response with respect to any of its cited activities and PENWEST
shall be responsible for deciding the appropriate form and content of any
response with respect to any of its cited activities. Each party shall inform
the other of all comments and conclusions received from the governmental
authority.
-23-
<PAGE> 24
c. In the event PENWEST or MYLAN shall be required or
requested by a governmental authority, or shall voluntarily decide to recall any
Products, MYLAN shall be responsible for coordinating such recall. The parties
shall cooperate fully with one another in connection with any recall. If the
recall is due to any act or omission of PENWEST or the Authorized Distributor,
PENWEST shall reimburse MYLAN for all of the reasonable costs and expenses
actually incurred by MYLAN in connection with the recall including, but not
limited to, costs of retrieving Products already distributed by MYLAN, and such
other costs as may be reasonably related to the recall. If the recall is due to
any act or omission of MYLAN, MYLAN shall reimburse PENWEST and the Authorized
Distributor for any reasonable costs or expenses actually incurred by PENWEST or
the Authorized Distributor in connection with said recall. Pursuant to this
section, the party claiming any reimbursement shall provide the other party with
reasonable documentation of all reimbursable costs and expenses.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
MYLAN PHARMACEUTICALS, INC. PENWEST, LTD.
/s/ Roderick P. Jackson /s/ John V. Talley, Jr.
- ----------------------------- ----------------------------
Signature Signature
Roderick P. Jackson John P. Talley, Jr.
- ----------------------------- ----------------------------
Name Name
Senior Vice President President, PPG
- ----------------------------- ----------------------------
Title Title
1/3/97 1/3/97
- ----------------------------- ----------------------------
Date Date
-24-
<PAGE> 25
EXHIBIT 1
PRODUCT SPECIFICATIONS
TO BE PROVIDED
-25-
<PAGE> 26
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 2
TERM OF PROPOSED SANOFI AGREEMENT:
The period (not being a period of more than ****** from the Effective
Date [of the Sanofi Agreement]) beginning on such Effective Date and ending on
the earlier of:
1. the ***********************************************
anniversary of the first Approval Date in any country in the
European portion of the Territory, if either party so notifies
the other at least ***************************** prior to such
anniversary that the Marketing Period will end on such
anniversary; or
2. the termination of the License Term and/or the [Sanofi]
Agreement as provided therein.
-26-
<PAGE> 27
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 3
INVESTIGATION INFORMATION
TO BE PROVIDED
-27-
<PAGE> 1
Exhibit 10.5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT
THIS AGREEMENT is entered into as of the 31st day of May, 1996, by and
between TIMERx Technologies, a division of Penwest, Ltd., a Washington
corporation, with principal place of business at 2981 Route 22, Patterson, New
York 12563 ("TIMERx Technologies"), and SCHWARZ PHARMA INC., a Delaware
corporation, with principal place of business at 5600 County Line Road, Mequon,
Wisconsin 53092 ("Schwarz Pharma").
A. TIMERx Technologies has developed a controlled-release agent covered
by one or more patents, patent applications, know-how and other proprietary
technology, which agent TIMERx Technologies markets under the name and mark
"TIMERx(R)" ("TIMERx").
B. Schwarz Pharma is interested in developing for manufacture the
active pharmaceutical ingredient diltiazem ("Diltiazem") and desires to
formulate Diltiazem into a solid-dosage controlled-release delivery system for
oral administration in humans in four dosage strengths to be therapeutically
equivalent AB rated to the drug currently sold under the brand name "Cardizem
CD".
C. The parties desire to engage in certain research, development, and
testing activities designed to determine if such a drug can be developed using
TIMERx. If such activities are successful, Schwarz Pharma desires to contract
for a supply of TIMERx for use in the manufacture of such a controlled-release
form of Diltiazem, and TIMERx Technologies is willing to supply the same
provided that Schwarz Pharma agrees to obtain all of its requirements of TIMERx
from TIMERx Technologies as provided herein.
D. The parties have entered that certain Heads of Agreement and
Development Agreement with an effective date of September 20, 1995 as attached
hereto as Exhibit One (the "Heads of Agreement"), in order to set forth certain
key business points for this Agreement and the understanding of the parties with
respect to the biostudies and initial development of the Designated Products.
NOW, THEREFORE, the parties hereby agree as follows:
<PAGE> 2
1. DEFINITIONS.
1.1 "AFFILIATE" of TIMERx Technologies or of Schwarz Pharma shall
mean entities that, directly or indirectly, own and control the voting of more
than 50% of the voting capital shares of such party ("Parent"), or more than 50%
of the voting capital shares (or equivalent control) of which is, directly or
indirectly, owned, and the voting of which is controlled, by such party or its
Parent, as of the Effective Date. For purposes of this definition and this
Agreement no Affiliate shall remain such unless it continues to meet the
foregoing criteria. Current Affiliates of TIMERx Technologies and Schwarz Pharma
are listed as such in Exhibit .
1.2 "APPROVAL DATE" shall mean the date on which a Designated
Product in any dosage strength is first approved by the U.S. Food and Drug
Administration (herein "FDA") (the "U.S. Approval Date") or other equivalent
regulatory authority in the Territory for commercial sale in oral solid-dosage
form for administration in humans, pursuant to an Abbreviated New Drug
Application (or the equivalent in such other regulatory authority) ("ANDA").
1.3 "CERTIFICATION PERIOD" with respect to the United States shall
mean the period beginning at the end of the Development Period and ending on the
earlier of:
1.3.1 the U.S. Approval Date;
1.3.2 the termination of this Agreement as provided herein.
With respect to Canada and/or Mexico, the Certification Period, if any, will
mean the period described as such for that nation in Section 3.3.
1.4 "COMPETING GENERIC VERSION" shall mean a drug that meets all
of the following criteria:
1.4.1 it is Therapeutically Equivalent to the applicable Designated
Product being studied, manufactured, or marketed, as the case may be;
1.4.2 it has been fully approved for commercial sale in oral
solid-dosage form for administration in humans by the FDA (for all purposes of
this Agreement, "solid-dosage form" shall include tablets, capsules, hydrogels,
or any combination thereof);
1.4.3 it is actively on the market and immediately available for
retail sale throughout the United States other than under the brand "Cardizem"
or "Cardizem CD"; and
1.4.4 it is not marketed by Schwarz Pharma, any of its Affiliates,
or under a license or sublicense from Schwarz Pharma or its Affiliates or
sublicensees in any tier.
-2-
<PAGE> 3
1.5 "CONFIDENTIAL TECHNOLOGY" shall mean all technology that is,
at the relevant time hereunder, protected or required to be protected by both
parties hereto as confidential information pursuant to Section 7 hereof.
1.6 "DESIGNATED PRODUCT" shall mean a Therapeutically Equivalent
solid-dosage form of a controlled-release pharmaceutical for oral administration
in humans that combines Diltiazem with TIMERx and other excipients. The parties
contemplate that the Designated Product will be developed and marketed in the
following four dosage strengths: 120mg, 180mg, 240mg, and 300mg.
1.7 "DEVELOPMENT PERIOD" shall mean the period from the Effective
Date through the earlier of the termination of this Agreement as provided herein
or the successful completion, through demonstration of bioequivalence to FDA
standards, of the Pivotal Biostudies contemplated in Section 3.4 of the Heads of
Agreement.
1.8 "DISSOLUTION PROFILE STUDIES" shall mean the studies
contemplated in Section 3.1 of the Heads of Agreement.
1.9 "EFFECTIVE DATE" shall mean the effective date of the Heads of
Agreement, which is September 20, 1995.
1.10 "FORMULATED TIMERx" shall mean TIMERx and certain additives in
a formulation to be developed hereunder specifically for use in the Designated
Product.
1.11 "LICENSE TERM" shall mean the cumulative period covered by the
Development Period, the Certification Period, and the Marketing Period.
1.12 "MARKETING PERIOD" with respect to a nation shall mean the
period beginning on the Approval Date for such nation and ending on the earlier
of:
1.12.1 the twentieth anniversary of the Effective Date; or
1.12.2 the termination of the License Term and/or this Agreement as
provided herein.
1.13 "NET SALES" shall mean that portion of the net sales (or
equivalent current value, where Designated Product is used without being sold,
other than as to reasonable quantities of samples of Designated Products
marketed as branded drugs, if any) recognized by Schwarz Pharma or its
Affiliate, or a sublicensee of either (excluding sales by Schwarz Pharma to its
Affiliate or sublicensee, or by Schwarz Pharma's Affiliate to Schwarz Pharma or
its sublicensee, for resale to a third party), calculated in accordance with
United States Generally Accepted Accounting Principles ("GAAP") consistently
applied, which pertains to the Designated Product.
-3-
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
The calculation of Net Sales shall include amounts specifically identifiable to
the Designated Product and amounts allocated to the Designated Product in
accordance with GAAP, it being understood that amounts which are not
specifically identifiable to the Designated Product by virtue of their being
identifiable to a group of products or services that includes the Designated
Product shall be allocated to the Designated Product in a consistent and
equitable manner which will not unduly or disproportionately reduce Net Sales of
the Designated Product. Net Sales shall be considered "made" as of the date of
the applicable invoice. Amounts to be included in the calculation of Net Sales
shall be those representing:
1.13.1 **********************
1.13.2 **************************************************************
1.13.3 **************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
1.13.4 **************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
******************
1.13.5 ********************************************
1.13.6 **************************************************************
***********************************************************************
1.14 "PILOT BIOSTUDIES" shall mean the biostudies contemplated
in Sections 3.2 and 3.3 of the Heads of Agreement and more fully described in
Exhibit .
1.15 "PIVOTAL BIOSTUDIES" shall mean the biostudies contemplated in
Section 3.4 of the Heads of Agreement, it being understood that such Pivotal
Biostudies are those that will be designed and conducted in a manner to support
the submission to the
-4-
<PAGE> 5
FDA of an ANDA for the Designated Products (whether or not such ANDA is
ultimately approved).
1.16 "PROJECT CONTACT(S)" shall mean the persons appointed by each
party to serve as contact persons between the parties during the Development
Period and the Certification Period. The initial Project Contact for TIMERx
Technologies for business matters is Dr. Paul K. Wotton, and the initial Project
Contact for TIMERx Technologies for technical and scientific matters is Dr.
Anand Baichwal. The initial Project Contact for Schwarz Pharma for business
matters is Dr. R. Stratton, and the initial Project Contact for Schwarz Pharma
for technical and scientific matters is Dr. Tammy Antonucci. Each party shall
promptly notify the other party of any substitution of other personnel as its
Project Contact(s). Each party may select and supervise its other project staff
as needed.
1.17 "ROYALTIES" shall mean the royalties payable to TIMERx
Technologies pursuant to Section 4.3 hereof.
1.18 "SCHWARZ PHARMA IMPROVEMENTS" shall mean any and all improvements,
modifications, alterations, or enhancements to any of the inventions covered by
the TIMERx Technologies Patents, TIMERx Technologies' Confidential Technology,
or the TIMERx Production Technology, that are developed for or are otherwise
related to or useful with the Designated Product and that are developed, owned,
or controlled by Schwarz Pharma or any of its Affiliates or sublicensees, or in
which Schwarz Pharma or any of its Affiliates or sublicensees otherwise has any
rights or interests during the term of this Agreement; together with all United
States and foreign intellectual property and other rights and interests of
Schwarz Pharma and its Affiliates and sublicensees thereto and therein,
including without limitation patents, trade secrets, copyright, periods of
market exclusivity, and other related rights or interests.
1.19 "SCHWARZ PHARMA TEST AND REGULATORY DATA" shall mean any and all
test data, test designs and protocols, clinical studies and results thereof,
government licenses and applications therefor, government certifications and
findings, and related materials, information and rights (including without
limitation information regarding bioavailability and bioequivalence, and any
adverse drug reactions), developed, commissioned or otherwise obtained by
Schwarz Pharma or any of its Affiliates or sublicensees during the term of this
Agreement for the uses intended by this Agreement relating to TIMERx, Schwarz
Pharma Improvements, the Designated Product, TIMERx Technologies Patents, TIMERx
Production Technology and/or TIMERx Technologies' Confidential Technology;
together with all intellectual property and other rights and interests of
Schwarz Pharma and its Affiliates and sublicensees thereto and therein,
worldwide.
1.20 "SOLID-DOSAGE UNIT" shall mean any individual tablet, capsule,
hydrogel, or any combination thereof, manufactured to be a solid-dosage form of
the
-5-
<PAGE> 6
Designated Product in the following dosage strengths: 120mg, 180mg, 240mg, and
300mg.
1.21 "SPECIFICATIONS" shall mean such standards and analytical methods
established by TIMERx Technologies and Schwarz Pharma by agreement during the
Development Period; provided, however, that once such specifications are
established in an application for regulatory approval, such specifications shall
become the Specifications referred to herein, and shall remain unchanged, unless
either changes are required by the regulatory authorities or are mutually agreed
to by the parties. It is understood and agreed that the Specifications for
Formulated TIMERx for use in Designated Product to be sold outside the United
States shall be the same as those for Formulated TIMERx for use in Designated
Product to be sold in the United States, because this will be required for the
technically satisfactory production, regulatory approval, and exploitation of
the Designated Product. Accordingly, in no event will Schwarz Pharma permit the
Designated Product to be certified for sale outside the United States on any
other basis, unless TIMERx Technologies has consented thereto in writing after
detailed consultation with Schwarz Pharma.
1.22 "TERRITORY" shall, subject to Section 3.3, mean Canada, Mexico,
the United States, and the territories and possessions thereof. Schwarz Pharma
hereby waives its rights under clause (ii) of Section 2 of the Heads of
Agreement and agrees that it shall have no rights hereunder or under the Heads
of Agreement with respect to Europe.
1.23 "THERAPEUTICALLY EQUIVALENT" shall mean that a drug of a given
dosage strength is rated AB bioequivalent to the drug, in the same dosage
strength, currently sold in the United States under the brand name "Cardizem
CD".
1.24 "TIMERx TECHNOLOGIES PATENTS" shall mean:
1.24.1 those United States patents and foreign equivalents in the
Territory and United States and foreign patent applications in the Territory
listed in Exhibit and all divisions, continuations, reissues, or extensions
thereof, any periods of marketing exclusivity relating thereto, and any letters
patent that issue thereon; and
1.24.2 TIMERx Technologies' rights under United States and foreign
patents in the Territory, if any, obtained and in force during the License Term
covering any of TIMERx Technologies' improvements, modifications, alterations,
or enhancements to any of the inventions covered by the TIMERx Technologies
Patents that are developed for or are otherwise related to or useful with the
Designated Product.
1.25 "TIMERx PRODUCTION TECHNOLOGY" shall mean TIMERx Technologies'
rights under the TIMERx Technologies Patents and any and all other patents,
patent applications, and other technology belonging to TIMERx Technologies or
which
-6-
<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
TIMERx Technologies has the right to practice and to sublicense from time to
time during the term of this Agreement that directly relate to, are desirable
for, or are necessary for the production of, Formulated TIMERx for use in the
Designated Product.
1.26 "TIMERx TECHNOLOGIES TEST AND REGULATORY DATA" shall mean any
and all test data, test designs and protocols, clinical studies and results
thereof, government licenses and applications therefor, government
certifications and findings, and related materials, information and rights
(including without limitation information regarding bioavailability and
bioequivalence, and any adverse drug reactions), developed, commissioned or
otherwise obtained by TIMERx Technologies or any of its Affiliates during the
term of this Agreement relating to TIMERx, TIMERx Technologies Patents, and/or
TIMERx Production Technology and that are developed for or are otherwise related
to or useful with the Designated Product; together with all intellectual
property and other rights and interests of TIMERx Technologies and its
Affiliates thereto and therein in the Territory.
1.27 "UNIT PRICE" shall mean the price for Formulated TIMERx as
stated in Exhibit C to the Heads of Agreement, subject to annual adjustment by
TIMERx Technologies to reflect changes in the Pharmaceutical Producers' Index,
or an equivalent index.
2. DEVELOPMENT PERIOD.
2.1 During the Development Period, TIMERx Technologies will exert
its continuing best efforts to perform the Dissolution Profile Studies pursuant
to Section 3.1 of the Heads of Agreement, and Schwarz Pharma will cooperate in
such effort. Schwarz Pharma shall make the payments called for in Section 3.1 of
the Heads of Agreement.
2.2 Following completion of the Dissolution Profiles Studies,
TIMERx Technologies will exert its continuing best efforts to perform the Pilot
Biostudies in accordance with Section 3.2 of the Heads of Agreement and with
Exhibit hereof. The parties will bear the costs of such Pilot Biostudies in
accordance with Section 3.2 of the Heads of Agreement, as modified by Exhibit .
2.3 Within ******** following the completion of a successful Pilot
Biostudy as described in Section 3.3 of the Heads of Agreement, Schwarz Pharma
shall make the
-7-
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
payment called for in that section. Schwarz Pharma will, during the balance of
the Development Period, exert its continuing best efforts to perform the Pivotal
Biostudies pursuant to Section 3.4 of the Heads of Agreement, and to do so
within the ************* period there stated. TIMERx Technologies will cooperate
in such effort. Schwarz Pharma shall make the payment called for in Section 3.4
of the Heads of Agreement upon the successful completion of such Pivotal
Biostudy with respect to any dosage strength, through demonstration of AB rated
bioequivalence to FDA standards.
2.4 Each party's Project Contact(s) will provide written reports to the
other party's Project Contact(s) at least quarterly (and more often upon
reasonable request of the other party) throughout the Development Period,
stating in detail all efforts made and in process, and all significant progress
achieved and difficulties encountered in the reporting party's portion of the
development effort since the last such report. Each of the Project Contacts will
also be available throughout the Development Period to answer any reasonable
questions from the other party's Project Contacts, as appropriate.
2.5 Each party will, promptly and throughout the Development Period,
provide to the other all necessary information in or coming into its possession
or reasonably available to it to support the goals of the Development Period.
Notwithstanding anything else to the contrary contained herein, nothing shall
require either party to disclose confidential information for which such party
has an obligation of confidentiality to a third party. Each party understands
and agrees that the other does not warrant or commit that the Designated Product
will be successfully developed, and neither party shall have any liability or
responsibility to the other or to third parties for any such failure of the
development process hereunder, except wherein such failure occurs as a result of
a party's intentional misconduct, negligence, or breach of its duties or
obligations under this Agreement.
2.6 Except as provided otherwise in the cost reimbursement provisions
of Section 3.2 of the Heads of Agreement, Schwarz Pharma will supply to TIMERx
Technologies, without charge, all Diltiazem and Cardizem CD (in all dosage
strengths) reasonably required to support the development effort by TIMERx
Technologies during the Development Period, and *****************************
*******************************************************************************
*************************************************.
-8-
<PAGE> 9
2.7 As the term is used in this Section 2 and in Section 3, the
exertion of a party's best efforts will mean that (i) such party will exert on a
continuing basis such reasonable efforts as would be normal for sponsors or
applicants for regulatory approval of drugs under ANDAs generally, and (ii) this
project will receive a priority at least as high as any of such party's other
generic drug development efforts (if such a priority would lead to the exertion
of greater efforts than those described in clause (i).
2.8 Either party may terminate this Agreement before completion of
the Development Period by delivery of 30 days' written notice to the other, if,
due to unfavorable or inconclusive results to that time, no further development
efforts are likely to lead to the successful development of the Designated
Product. In addition, Schwarz Pharma may terminate this Agreement prior to the
completion of the Development Period by delivery of 30 days' written notice to
TIMERx Technologies if at any time it determines (and reasonably demonstrates to
TIMERx Technologies) that, due to changed circumstances following the date this
Agreement is signed, the potential commercial viability of the Designated
Product will not justify the devotion of the best efforts of Schwarz Pharma
called for during the remainder of the Development Period or during the
Certification Period. No such termination under this section will lessen any
duty of Schwarz Pharma to make any of the payments called for hereunder, which
have accrued prior to the effective date of such termination.
3. CERTIFICATION PERIOD.
3.1 During the Certification Period with respect to the United
States, Schwarz Pharma will exert its continuing best efforts, at its expense,
to prepare and file an ANDA or ANDAs for the Designated Products with the FDA
and to prosecute the same successfully to the granting of an FDA license to
market the Designated Product in each of the four dosage strengths. TIMERx
Technologies will, promptly and throughout the Certification Period, provide to
Schwarz Pharma all necessary information in or coming into TIMERx Technologies'
possession or reasonably available to it for such purpose. Also, during the
Certification Period, TIMERx Technologies will exert its continuing best efforts
to qualify the manufacturing sites referred to in Section 5.2 for the
manufacture of Formulated TIMERx.
3.2 Schwarz Pharma shall exert its continuing best efforts to
conduct or arrange for, at Schwarz Pharma's expense, all further testing and
studies during the Certification Period, including as to efficacy,
bioavailability, bioequivalence, and safety and toxicology, in connection with
the development, licensing, manufacture and marketing of the Designated Product,
and for compliance with all requirements imposed by the government of the United
States with respect to the Designated Products, and, if there is a Certification
Period for Canada and/or Mexico pursuant
-9-
<PAGE> 10
to Section 3.3, also as imposed by the government of such nation(s). TIMERx
Technologies will, promptly and throughout the Certification Period, provide to
Schwarz Pharma all necessary information in or coming into TIMERx Technologies'
possession or reasonably available to it for such purpose.
3.3 If, at any time or times during the License Period, TIMERx
Technologies reasonably demonstrates to Schwarz Pharma that
(i) Cardizem CD or an AB bioequivalent to it has been approved
for marketing in Canada or Mexico, or such approval has been applied for and is
reasonably likely to be granted; and
(ii) TIMERx Technologies or a third party is interested in
good faith in undertaking to market the Designated Product in such nation
pursuant to the equivalent of an ANDA in such nation,
Then TIMERx Technologies shall afford Schwarz Pharma a period of 60
days in which to agree that a Certification Period with respect to such nation,
and governed by this Section 3, shall commence hereunder, during which Schwarz
Pharma will exert its continuing best efforts, at its expense, to prepare and
file such ANDA-equivalent applications for the Designated Products with the
regulatory authorities in such nation, and to prosecute the same successfully to
the granting of marketing approvals from such authorities for the Designated
Product in each of the four dosage strengths. It is understood that Schwarz
Pharma may meet such obligations with respect to such nation through the efforts
of its sublicensee, which may be TIMERx or the third party (if any) identified
by TIMERx Technologies and referenced in clause (ii) above, to whom Schwarz
Pharma may sublicense its rights as set forth in this Agreement. (If TIMERx
Technologies is the sublicensee, the same terms and conditions of this Agreement
shall apply to the sublicense.) If Schwarz Pharma fails to agree in writing
within such period to prepare, file and prosecute an ANDA equivalent, either
directly or through sublicensing as described herein, such nation and its
territories and possessions shall thereupon be removed from the Territory.
3.4 Schwarz Pharma's Project Contacts will provide written reports
to TIMERx Technologies' Project Contacts, as appropriate, at least quarterly
(and more often upon reasonable request of the other party) throughout the
Certification Period, stating in detail all efforts made and in process, and all
significant progress achieved and difficulties encountered in the certification
effort since the last such report. Schwarz Pharma's Project Contacts will also
be available throughout the Certification Period to answer any reasonable
questions from TIMERx Technologies' Project Contacts, as appropriate.
-10-
<PAGE> 11
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
3.5 During the Certification Period, Schwarz Pharma shall provide
at its own expense all Diltiazem and other materials and manufacturing and
testing services **************************************************************
*******************************************************************************
**********************.
3.6 If TIMERx Technologies personnel travel outside the Patterson,
New York area during the Certification Period at the request of Schwarz Pharma,
*******************************************************************************
**********************.
3.7 In consideration of TIMERx Technologies' entering into this
Agreement, Schwarz Pharma agrees to pay TIMERx Technologies the following
non-refundable fees:
3.7.1 a first milestone fee payable within ************************
*************************************************************
*************************************************************
and
3.7.2 a second milestone fee payable within ***********************
*************************************************************
*************************************************************
3.8 Either party may terminate this Agreement before completion of
the Certification Period by delivery of 30 days' written notice to the other if,
due to unfavorable action by the FDA, the ANDA is not likely (regardless of any
further steps or submissions that could be made) to be approved by the FDA. In
addition, Schwarz Pharma may terminate this Agreement prior to the completion of
the Certification Period by delivery of 30 days' written notice to TIMERx
Technologies if at any time it determines (and reasonably demonstrates to TIMERx
Technologies) that, due to changed circumstances following the date this
Agreement is signed, the potential commercial viability of the Designated
Product will not justify the devotion of the best efforts of Schwarz Pharma
called for during the remainder of the Certification Period or during the
Marketing Period. No such termination under this section will lessen any duty of
Schwarz Pharma to make any of the payments called for hereunder, which have
accrued prior to the effective date of such termination.
-11-
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
4. MARKETING PERIOD.
4.1 Subject to the granting of all necessary governmental
approvals or concurrences to sell the Designated Products, Schwarz Pharma hereby
agrees, during the Marketing Period, to use its continuing best efforts to
market, promote and sell the Designated Products throughout the United States
following the U.S. Approval Date, and in Canada and/or Mexico, following the
Approval Date, if any, for that nation(s). As the term is used in this Section
4, the exertion of Schwarz Pharma's best efforts will mean that Schwarz Pharma
will devote to such marketing, promotion and sales of the Designated Products
resources and priorities at least as substantial and high as any like-kind
resources and priorities devoted by Schwarz Pharma or any of its Affiliates to
the marketing, promotion or sale of any other generic drug of substantially the
same potential in the same nation of the Territory, measured in terms of sales
and profitability potentials.
4.2 In consideration of TIMERx Technologies' entering into this
Agreement, Schwarz Pharma agrees to pay TIMERx Technologies a non-refundable
third milestone fee payable within ********************************************
*************************************************************** in the amount
determined in Exhibit A to the Heads of Agreement.
4.3 Schwarz Pharma hereby agrees to pay to TIMERx Technologies
Royalties equal to the percentages of all Net Sales during the License Term, as
determined under Exhibit B of the Heads of Agreement; provided, however, that
such Royalties shall be ********************************* with respect to Net
Sales of the Designated Product as to ****************************************
********************************************************************************
****************************************.
4.4 All Royalties and other amounts payable pursuant to this
Agreement shall be due quarterly ****************************************
following the end of each calendar quarter for Net Sales in such calendar
quarter. Each such payment shall be accompanied by a statement of Net Sales for
the quarter and the calculation of Royalties payable hereunder. All Royalties
and all other amounts payable under this Agreement will bear interest at the
rate of 1 1/2% per month or the maximum legal rate, whichever is less, from the
date due through the date of payment. Schwarz Pharma shall keep and shall cause
its Affiliates and its and their sublicensees to keep complete, true and
accurate records for the purpose of showing the derivation of all
-12-
<PAGE> 13
Royalties payable to TIMERx Technologies under this Agreement. TIMERx
Technologies or its representatives shall have the right to inspect, copy, and
audit such records at any time during reasonable business hours upon notice to
Schwarz Pharma or any of its Affiliates or sublicensees, respectively.
Information gathered during such an audit shall be held in confidence by TIMERx
Technologies and its Affiliates, except to the extent any of the exceptions
stated in Sections 7.1.1 through 7.1.7 apply thereto. Any such audit shall be at
the expense of TIMERx Technologies, unless the audit reveals that, with respect
to the period under audit, less than 95% of the Royalties due to TIMERx
Technologies hereunder have been paid, in which event Schwarz Pharma shall pay
or reimburse TIMERx Technologies for the reasonable expenses of such audit, in
addition to TIMERx Technologies' other remedies for such underpayment.
4.5 All monies due hereunder shall be paid in United States
Dollars to TIMERx Technologies in Patterson, New York, USA. The rate of exchange
to be used shall be the average commercial rate of exchange for the 30 days
preceding the date of payment for the conversion of local currency to United
States Dollars as published by The Wall Street Journal (or if it ceases to be
published, a comparable publication to be agreed upon by the parties) or, for
those countries for which such average exchange rate is not published by The
Wall Street Journal, the exchange rate fixed on the fifth day prior to the date
of payment as promulgated by the appropriate United States governmental agency
as mutually agreed upon by the parties.
5. SUPPLY OF FORMULATED TIMERx.
5.1 It is understood and agreed that supply of Formulated TIMERx
by TIMERx Technologies (or otherwise as provided in Section 5.13) in accordance
with the Specifications is desired by both parties for the technically
satisfactory production, regulatory approval, and exploitation of the Designated
Product. Accordingly, except as provided in Section 5.13, and subject to the
other provisions hereof, TIMERx Technologies will supply Schwarz Pharma and its
Affiliates and sublicensees with sufficient quantities of Formulated TIMERx
produced in accordance with the Specifications in compliance with GMP and all
applicable laws and regulations, to meet their reasonable requirements for
development, testing and manufacturing of the Designated Product during the
Certification Period and the Marketing Period, and Schwarz Pharma shall purchase
all of its and its Affiliates' and sublicensees' requirements for TIMERx from
TIMERx Technologies during such period.
5.2 The price for all Formulated TIMERx sold hereunder shall equal
the Unit Price multiplied by the applicable kgs purchased; provided, however,
that the
-13-
<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
******** all **************************************** **********************
**************************************** ********************************
******************************* (subject to annual adjustment by TIMERx
Technologies to reflect changes in the Pharmaceutical Producers' Index, or an
equivalent index, using as a base for comparison such index value as of the U.S.
Approval Date) ************* ********************************************* by
Schwarz Pharma, its Affiliates and its and their sublicensees. Schwarz Pharma
shall keep and shall cause its Affiliates and its and their sublicensees to keep
complete, true and accurate records of the number of such solid-dosage units
produced. TIMERx Technologies or its representatives shall have the right to
inspect, copy, and audit such records, and otherwise to enter upon the premises
of Schwarz Pharma or its Affiliates or such sublicensees, at any time during
reasonable business hours upon notice, for purposes of verifying the number of
solid-dosage units produced. Information gathered during such an audit shall be
held in confidence by TIMERx Technologies and its Affiliates, except to the
extent any of the exceptions stated in Sections 7.1.1 through 7.1.7 apply
thereto. Any such audit shall be at the expense of TIMERx Technologies, unless
the audit reveals that, with respect to the period under audit, less than 95% of
the aggregate price due to TIMERx Technologies hereunder was paid, in which
event Schwarz Pharma shall pay or reimburse TIMERx Technologies for the
reasonable expenses of such audit, in addition to TIMERx Technologies' other
remedies for such underpayment.
5.3 All sales of Formulated TIMERx shall be ************* and Schwarz
Pharma shall bear all transportation, insurance, taxes, duties, and other costs
and risks of loss, spoilage and damage associated with the shipping and delivery
of Formulated TIMERx to Schwarz Pharma or its Affiliates or sublicensees.
5.4 TIMERx Technologies shall perform routine quality control tests
with respect to all Formulated TIMERx as required by the FDA, or otherwise as
TIMERx Technologies deems necessary in accordance with its applicable policies.
TIMERx Technologies will also bear the expenses and fees for filing the Drug
Master File for TIMERx with the FDA. No other or special tests by TIMERx
Technologies with respect to the raw materials or Formulated TIMERx will be
required, unless and to the extent that Schwarz Pharma establishes that the same
are required in order to obtain or maintain a governmental license to market the
Designated Product in the Territory. In any event, the cost of providing any
such other or special tests shall be separately reimbursed to TIMERx
Technologies by Schwarz Pharma. TIMERx Technologies shall promptly, upon
completion of each lot or batch of Formulated TIMERx, deliver a copy of the
record of such test performed on said lot or batch.
-14-
<PAGE> 15
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Schwarz Pharma will perform quality control tests on Formulated TIMERx
immediately on receipt at its plant and advise TIMERx Technologies within thirty
(30) days of any deviations from Specifications.
5.5 If Schwarz Pharma considers any such shipment not to conform
to the applicable Specifications, Schwarz Pharma shall notify TIMERx
Technologies immediately and provide TIMERx Technologies with the relevant
analysis. TIMERx TECHNOLOGIES' SOLE OBLIGATION AND SCHWARZ PHARMA'S EXCLUSIVE
REMEDY FOR ANY SUCH NONCONFORMITY SHALL BE AS FOLLOWS:
i) TIMERx Technologies shall at its own expense accept return of
any shipment not accepted, or else reimburse Schwarz Pharma for the cost of
disposal or destruction; and
iii) TIMERx Technologies shall use its best efforts to replace the
non-conforming shipment with conforming Formulated TIMERx.
5.6 While TIMERx Technologies is supplying Formulated TIMERx
hereunder to Schwarz Pharma, TIMERx Technologies shall, after receipt of
reasonable prior notice, give duly accredited representatives of Schwarz Pharma
access at all reasonable times during regular business hours to TIMERx
Technologies' or its Affiliate's plant in which the Formulated TIMERx is being
produced, to ensure production practices created Formulated TIMERx conforming to
Specifications.
5.7 TIMERx Technologies will exert its best efforts to supply test
quantities of Formulated TIMERx during the Certification Period within 90 days
following receipt of Schwarz Pharma's firm written order therefor.
5.8 As the term is used in this Section 5, the exertion of TIMERx
Technologies' best efforts will mean that it will devote to the production and
supply of Formulated TIMERx called for hereunder efforts that would be
reasonable and normal for such supply arrangements, and if, greater, that it
will devote thereto resources and priorities at least as substantial and high as
any like-kind resources and priorities devoted by TIMERx Technologies to the
production or supply of TIMERx for any other drug or project, and also (if
additional) that *************************************************************
************************************************************************
********** for Schwarz Pharma and its Affiliates and sublicensees, in light of
their recent ordering history and reasonable projections.
-15-
<PAGE> 16
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
5.9 Schwarz Pharma shall deliver to TIMERx Technologies a firm
written order stating its (and/or its Affiliates' and sublicensees')
requirements for Formulated TIMERx to be used for production of the Designated
Product for commercial use or sale no less than 6 months in advance of the
requested delivery date therefor.
5.10 ***************before Schwarz Pharma and/or its Affiliates or
sublicensees begin production of the Designated Product for commercial use or
sale (and in any event not later than concurrently with the submission of the
first order for use in the production of Designated Product intended for
commercial sale -- herein called the "Initial Order"), Schwarz Pharma shall
deliver to TIMERx Technologies a written, non-binding estimate of all
requirements of Formulated TIMERx therefor during the following
******************. Schwarz Pharma will deliver to TIMERx Technologies updates
to such estimates on or before the first day of each
**************************** thereafter, which updates may revise estimates
previously submitted, and will add estimates for additional months so that each
such estimate covers the ******* period following the end of the firm-order
period (that is, the ************************************ after the month in
which such estimates are made).
5.11 The Initial Order will be firm and will not be cancelled or
deferred by Schwarz Pharma. No other order for Formulated TIMERx hereunder may
be cancelled or deferred by Schwarz Pharma except by written notice delivered to
TIMERx Technologies at least 90 days prior to the scheduled delivery date. No
orders may be cancelled or deferred (even with such 90-day notice) without
TIMERx Technologies' approval if such cancellation or deferral would reduce
Schwarz Pharma's purchases for the applicable ***** to less than
********************************** of the quantities ordered under Section 5.9
for that *****. TIMERx Technologies will exert its best efforts to supply
Schwarz Pharma with all amounts of Formulated TIMERx requested by Schwarz
Pharma, but TIMERx Technologies shall have no obligation to supply Schwarz
Pharma with quantities of Formulated TIMERx during any ***** in excess of *****
of the quantity estimated in Schwarz Pharma's estimate for that ***** which
estimate was given to TIMERx Technologies ****** prior to the end of such *****
pursuant to Section 5.10.
5.12 In case TIMERx Technologies cannot supply Schwarz Pharma the
requested quantities of the Formulated TIMERx, the shipments may be made by
*******************************************************************************
********************* (and a total of at least two qualified manufacturing
sites, of its own and/or such alternate supplier(s)) and notify Schwarz Pharma
thereof within 90
-16-
<PAGE> 17
days from the filing of the first ANDA. If Schwarz Pharma has any objections to
such alternate supplier(s), it shall so notify TIMERx Technologies within
fifteen days following TIMERx Technologies' notice of such qualification, or
else Schwarz Pharma will be deemed to have consented to such qualification and
the designation of such supplier(s). Such shipment by the alternate supplier
shall be made under the same agreed terms and conditions as those set forth
herein, except that an additional 90 days shall be added to the order lead time
stated in any then-outstanding order for Formulated TIMERx hereunder to reflect
the transition time required to shift to such alternate supplier.
Notwithstanding anything to the contrary set forth herein, TIMERx Technologies
will be responsible for enforcing all relevant terms and conditions set forth
herein against such alternate supplier and remain liable to Schwarz Pharma for
any breach of such terms and conditions by such supplier.
5.13 If for any reason TIMERx Technologies or an alternate
supplier, as described in Section 5.12, fails to supply Schwarz Pharma with its
and its Affiliates' and sublicensees' requirements of Formulated TIMERx during
the Certification Period or the Marketing Period, TIMERx Technologies shall, AS
SCHWARZ PHARMA'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE TO SUPPLY FORMULATED
TIMERx, grant Schwarz Pharma a nonexclusive license to manufacture Formulated
TIMERx under the TIMERx Production Technology and make knowledgeable personnel
reasonably available, at TIMERx Technologies' expense, to consult with Schwarz
Pharma, all to the extent necessary to enable Schwarz Pharma to produce
Formulated TIMERx that would otherwise have been supplied by TIMERx Technologies
hereunder for Schwarz Pharma and its Affiliates and sublicensees in connection
with the production of the Designated Product pursuant to this Agreement.
5.13.1 ******************************
5.13.2 Schwarz Pharma shall maintain TIMERx Production Technology
delivered to Schwarz Pharma pursuant to this Section, whether orally or in
writing, in strictest confidence and shall use such information and technology
only for the purpose of producing Formulated TIMERx for its own use and the use
of its Affiliates and sublicensees in connection with this Agreement.
5.13.3 Schwarz Pharma acknowledges that, in doing the foregoing,
TIMERx Technologies will not be providing a "turnkey" operation. Rather, TIMERx
Technologies will only be required to make reasonably available to Schwarz
Pharma the best standard of knowledge and information then available to TIMERx
Technologies and directly used in its or its Affiliate's manufacture of
Formulated TIMERx. TIMERx Technologies will not be required to prepare, provide
or obtain any information not then in its possession, nor to adapt any of the
knowledge or information provided to the particular plant or manufacturing
location of Schwarz Pharma, including without limitation any local legal,
licensing, or environmental considerations.
-17-
<PAGE> 18
5.13.4 Neither TIMERx Technologies nor its Affiliates or licensees
will be responsible for any failure of Schwarz Pharma or its personnel to
understand or properly to implement such knowledge and information or for any
materials made by any party other than TIMERx Technologies or such respective
Affiliate or licensee using such knowledge and information.
5.13.5 If TIMERx Technologies' non-delivery of Formulated TIMERx
resulted in whole or in part from a temporary inability to produce and deliver
the same, TIMERx Technologies may, at its option and on at least 90 days' prior
written notice to Schwarz Pharma, terminate the license to produce Formulated
TIMERx hereunder once TIMERx Technologies has demonstrated to the reasonable
satisfaction of Schwarz Pharma that it is again able and willing to reliably
supply Formulated TIMERx hereunder. If and to the extent that Schwarz Pharma
has, prior to the receipt of such notice from TIMERx Technologies, committed
itself to produce, or to purchase from a permitted sublicensee, any Formulated
TIMERx deliverable during the nine months following such notice from TIMERx
Technologies, Schwarz Pharma may continue to produce or to purchase from such
sublicensee such Formulated TIMERx during such period, but not thereafter.
5.14 Each party shall promptly notify the other of any fact,
circumstance, condition or knowledge dealing with TIMERx, Formulated TIMERx, or
the Designated Product of which the Party becomes aware that bears upon the
safety or efficacy of TIMERx, Formulated TIMERx, or the Designated Product. Each
party shall immediately notify the other of any inspection or audit relating to
TIMERx, Formulated TIMERx, or the Designated Product by any governmental
regulatory authority in the Territory. If a representative of the governmental
authority takes samples in connection with such audit or inspection, the parties
shall immediately provide each other, as appropriate, samples from the same
batch. The party in receipt of such notice will provide the other party within
72 hours, with copies of all relevant documents, including FDA Forms 482 and 483
(as applicable), warning letters and other correspondence and notifications as
such other party may reasonably request. TIMERx Technologies and Schwarz Pharma
agree to cooperate with each other during any inspection, investigation or other
inquiry by the FDA or other governmental entity, including providing information
and/or documentation, as requested by the FDA, or other governmental entity. To
the extent permissible, TIMERx Technologies and Schwarz Pharma also agree to
discuss any responses to observations or notifications received and to give the
other party an opportunity to comment on any proposed response before it is
made. In the event of disagreement concerning the content or form of such
response, Schwarz Pharma shall be responsible for deciding the appropriate form
and content of any response with respect to any of its cited activities and
TIMERx Technologies shall be responsible for deciding the appropriate form and
content of any response with respect to any of its cited activities. Each party
shall inform the other of all comments and conclusions received from the
governmental authority.
-18-
<PAGE> 19
6. OWNERSHIP AND LICENSES.
6.1 Except as otherwise explicitly licensed or transferred as
provided herein, each party will, as between it and the other party hereto,
retain ownership of any and all inventions, copyrights, trade secrets, patent
rights and other technology and rights to the extent conceived or developed by
its personnel or contractors (other than the other party hereto). Neither party
makes any grant of rights by implication. TIMERx Technologies will retain
ownership in (but Schwarz Pharma shall have the right to use within the scope of
its licenses) all Dissolution Profile Studies and Pilot Biostudies and Schwarz
Pharma will retain ownership of its Pivotal Biostudies and its ANDA. Except as
otherwise provided herein, each party shall be responsible, as it shall
determine, for the filing and prosecution of any and all patent applications
with respect, in whole or in part, to its own intellectual property and for the
maintenance of any available patent protection with respect thereto; provided
however, that neither party commits that any such patent protection will be
available or continuous hereunder.
6.2 TIMERx Technologies hereby grants to Schwarz Pharma an
exclusive license under the TIMERx Technologies Patents and TIMERx Technologies'
Confidential Technology disclosed to Schwarz Pharma hereunder to make, have
made, use and sell the Designated Product in the Territory during the License
Term. Such license does not extend to the making of TIMERx or Formulated TIMERx,
but does cover the incorporation of the same into the Designated Product.
Schwarz Pharma shall have the right to grant sublicenses of its rights hereunder
to any Affiliate(s) of Schwarz Pharma, but shall otherwise have no right to
grant sublicenses hereunder without the prior written consent of TIMERx
Technologies, which consent shall not be unreasonably withheld. TIMERx
Technologies will, throughout the License Term, promptly notify Schwarz Pharma
of all TIMERx Technologies Patents referred to in Subsection 1.24.2 and provide
Schwarz Pharma with access to all of the same, solely for use within the scope
of the license stated in this section.
6.3 Schwarz Pharma acknowledges that TIMERx Technologies, for
itself and for others, applies, and will seek to apply, TIMERx to products
(which may include, without limitation, the Designated Product and other
controlled-release products containing Diltiazem) for manufacture and sale
outside the Territory, or to products within the Territory (but in that case,
during the License Term, only for products other than the Designated Product or
another controlled-release product containing Diltiazem). No provision hereof,
and no exclusivity hereunder, shall prevent TIMERx Technologies from so applying
TIMERx or Formulated TIMERx, so long as the end product is not the Designated
Product (or another controlled-release product containing Diltiazem) for
manufacture or sale in the Territory.
-19-
<PAGE> 20
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
6.4 Schwarz Pharma hereby grants to TIMERx Technologies a nonexclusive,
paid-up, worldwide license, with right to sublicense, under any and all patents,
patent applications, trade secrets, copyrights, and other intellectual property
rights of any sort owned or controlled by Schwarz Pharma or its Affiliates, to
make, have made, use and sell Formulated TIMERx during the License Term for
supply to Schwarz Pharma or its Affiliates or sublicensees, if and to the extent
such license is necessary for TIMERx Technologies to do so as agreed hereunder.
6.5 Subject to and conditional upon the failure or continuing
unwillingness of TIMERx Technologies to meet Schwarz Pharma's and its
Affiliates' and sublicensees' requirements as provided in Section 5.13, TIMERx
Technologies grants to Schwarz Pharma a nonexclusive license under the TIMERx
Production Technology to make and have made Formulated TIMERx in the Territory
solely for use in the Designated Product for sale in the Territory during the
License Term, subject to Section 5.13.5. Schwarz Pharma shall have no right to
grant sublicenses of its rights hereunder (whether to Affiliate(s) or otherwise)
without the prior written consent of TIMERx Technologies, which consent shall
not be unreasonably withheld.
6.6 Schwarz Pharma hereby grants to TIMERx Technologies a nonexclusive,
paid-up, worldwide license, with right to sublicense, under any and all Schwarz
Pharma Improvements to make, have made, use and sell any products or services
using or based upon TIMERx or related technology. ******************************
*******************************************************************************
******************* such license; provided, however, that if Schwarz Pharma
terminates this Agreement pursuant to Section 2.8, 3.8 , or 10.2, this license
to TIMERx Technologies ********************************************************
******************* of the Designated Product or any services involving the
Designated Product. Schwarz Pharma will, throughout the License Term, promptly
notify TIMERx Technologies of all Schwarz Pharma Improvements and provide TIMERx
Technologies with access to all of the same, solely for use within the scope of
the license stated in this section.
6.7 Schwarz Pharma hereby grants TIMERx Technologies a nonexclusive
license, with right to sublicense, under all rights of Schwarz Pharma and its
Affiliates and sublicensees in and to the Schwarz Pharma Test and Regulatory
Data to use the same for purposes of complying with governmental requirements of
any country, other than with respect to the Designated Product or another
controlled-release product containing Diltiazem for manufacturing, marketing or
use in the Territory.
-20-
<PAGE> 21
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Schwarz Pharma hereby consents to TIMERx Technologies' and its sublicensees'
cross-referencing, in any ANDA or NDA filings made by them within the scope of
such license, any ANDA or NDA filing made or FDA master file created by Schwarz
Pharma or its Affiliates relating to or containing any of the Schwarz Pharma
Test and Regulatory Data. ******************************************************
********************* to be determined, if any commercial sales are made under
such license, **************** ******************** the Schwarz Pharma Test and
Regulatory Data so used or referenced could have been properly accessed and used
by third parties not operating under such a license. It is also understood that
****************************************** ************** as licensed hereunder,
as such consideration may be later determined either by agreement of the parties
or pursuant to Section 10.6. The license under this section shall survive any
termination or expiration of the term of this Agreement, except a termination
under Section 10.3 due to an uncured breach by TIMERx Technologies. Schwarz
Pharma will, throughout the License Term and solely for use within the scope of
the license stated in this section, provide to TIMERx Technologies on request
access to all of the Schwarz Pharma Test and Regulatory Data in or coming into
Schwarz Pharma's possession or otherwise reasonably available to it.
6.8 TIMERx Technologies hereby grants Schwarz Pharma a nonexclusive,
paid-up license, with right to sublicense, under all rights of TIMERx
Technologies and its Affiliates in and to the TIMERx Technologies Test and
Regulatory Data to use the same for purposes of complying with governmental
requirements, but solely with respect to the Designated Product for marketing or
use in the Territory. TIMERx Technologies hereby consents to Schwarz Pharma's
and its sublicensees' cross-referencing, in any ANDA filings made by them within
the scope of such license, any NDA filing made or FDA master file created by
TIMERx Technologies or its Affiliates relating to or containing any of the
TIMERx Technologies Test and Regulatory Data. The license and rights under this
section shall survive any termination or expiration of the term of this
Agreement, except a termination under Section 10.3 due to an uncured breach by
Schwarz Pharma. TIMERx Technologies will, throughout the License Term and solely
for use within the scope of the license stated in this section, provide to
Schwarz Pharma on request access to all of the TIMERx Technologies Test and
Regulatory Data in or coming into TIMERx Technologies' possession or otherwise
reasonably available to it.
6.9 Each party agrees to mark and to have marked by its sublicensees
every product manufactured, used or sold by it or its sublicensees in accordance
with the
-21-
<PAGE> 22
laws of the United States or other applicable nation relating to the marking of
patented articles with notices of patent.
7. CONFIDENTIALITY AND NON-SOLICITATION.
7.1 In the course of performance under this Agreement or the Heads
of Agreement, or during the discussions leading thereto, a party may disclose,
or may have disclosed, to the other confidential information belonging to such
party in writing, orally or by demonstration or sample, which information is
marked or stated in writing at or within 30 days after its disclosure to be
"confidential" or "trade secret" information. All such confidential information
of a party shall be maintained in confidence by the other and will not be used
by the other party for any purpose except as authorized hereunder. Each party
shall exercise, and shall cause its Affiliates, sublicensees, and consultants to
exercise, a reasonable degree of care and at least the same degree of care as it
uses to protect its own confidential information of similar nature to preserve
the confidentiality of such information of the other party. Each party shall
safeguard such information against disclosure to third parties, including
without limitation employees and persons working or consulting for such party
that do not have an established, current need to know such information for
purposes authorized under this Agreement. This obligation of confidentiality
does not apply to information and material that:
7.1.1 were properly in the possession of the receiving party,
without any restriction on use or disclosure, prior to receipt from the other
party;
7.1.2 are at the time of disclosure hereunder in the public domain
by public use, publication, or general knowledge;
7.1.3 become general or public knowledge through no fault of the
receiving party or its Affiliates following disclosure hereunder;
7.1.4 are properly obtained by the receiving party from a third
party not under a confidentiality obligation to the disclosing party hereto;
7.1.5 are independently developed by or on behalf of the receiving
party without the assistance of the confidential information of the other party;
7.1.6 consist merely of an idea or conception for the combination of
one or more active drug ingredients with a controlled-release agent such as
TIMERx; or
7.1.7 are required to be disclosed by order of any court or
governmental authority.
-22-
<PAGE> 23
7.2 Neither party shall make any public announcement or other
publication regarding this Agreement (whether as to the existence or terms
hereof) or the development work or project hereunder or the results thereof
without the prior, written consent of the other party, which consent shall not
be unreasonably withheld; provided that the foregoing shall not prohibit any
disclosure which, in the opinion of counsel to the disclosing party, is required
by any applicable law or by any competent governmental authority. In no event
shall either party make any disclosure of any such results before a patent
application has been filed with respect thereto, except upon the prior written
approval of the other party.
7.3 Each of TIMERx Technologies and Schwarz Pharma agrees that
during the License Period, neither of them will directly or indirectly solicit
or encourage any employee or consultant of the other to leave or terminate such
employment or consultancy for any reason, including without limitation, becoming
employed or otherwise engaged in any capacity by such party (or any person or
entity associated with such party, whether or not an Affiliate), nor will it
assist others in doing so.
8. INFRINGEMENT.
8.1 TIMERx Technologies shall promptly inform Schwarz Pharma of
any suspected infringement of any of the TIMERx Technologies Patents or the
infringement or misappropriation of the TIMERx Production Technology by a third
party, to the extent such infringement involves the manufacture, use or sale of
the Designated Product in the Territory ("Covered Infringement"). Schwarz Pharma
shall promptly inform TIMERx Technologies of any suspected infringement of any
of the TIMERx Technologies Patents or infringement or misappropriation of the
TIMERx Production Technology of which Schwarz Pharma is aware, whether or not
the same involves a Covered Infringement.
8.2 If the suspected infringement or misappropriation does not
involve a Covered Infringement, TIMERx Technologies may take, or refrain from
taking, any action it chooses, with or without notice to Schwarz Pharma, and
Schwarz Pharma shall have no right to take any action with respect to such
suspected infringement or misappropriation, nor to any recoveries with respect
thereto. TIMERx Technologies will exert reasonable efforts to keep Schwarz
Pharma informed of actions TIMERx Technologies may take as described in the
preceding sentence to the extent the same bear on rights protected within the
Territory. If the suspected infringement or misappropriation involves a Covered
Infringement, TIMERx Technologies shall, within 120 days of the first notice
referred to in Section 8.1, inform Schwarz Pharma whether or not TIMERx
Technologies intends to institute suit against such third party with respect to
a Covered Infringement. Schwarz Pharma will not take any steps toward
instituting suit against any third party involving a Covered Infringement until
-23-
<PAGE> 24
TIMERx Technologies has informed Schwarz Pharma of its intention pursuant to the
previous sentence.
8.3 If TIMERx Technologies notifies Schwarz Pharma that it intends
to institute suit against a third party with respect to a Covered Infringement,
and Schwarz Pharma does not agree to join in such suit as provided in Section
8.4, TIMERx Technologies may bring such suit on its own and shall in such event
bear all costs of, and shall exercise all control over, such suit. TIMERx
Technologies may, at its expense, bring such action in the name of Schwarz
Pharma and/or cause Schwarz Pharma to be joined in the suit as a plaintiff.
Recoveries, if any, whether by judgment, award, decree or settlement, shall
belong solely to TIMERx Technologies.
8.4 If TIMERx Technologies notifies Schwarz Pharma that it desires
to institute suit against such third party with respect to a Covered
Infringement, and Schwarz Pharma notifies TIMERx Technologies within 30 days
after receipt of such notice that Schwarz Pharma desires to institute suit
jointly, the suit shall be brought jointly in the names of both parties and all
costs thereof shall be borne equally. Recoveries, if any, whether by judgment,
award, decree or settlement, shall, after the reimbursement of each of TIMERx
Technologies and Schwarz Pharma for its share of the joint costs in such action,
be shared between TIMERx Technologies and Schwarz Pharma as the interests of the
parties were affected by the infringement.
8.5 If TIMERx Technologies notifies Schwarz Pharma that it does
not intend to institute suit against such third party with respect to a Covered
Infringement, Schwarz Pharma may institute suit on its own. Schwarz Pharma shall
bear all costs of, and shall exercise all control over, such suit. Recoveries,
if any, whether by judgment, award, decree or settlement, shall belong solely to
Schwarz Pharma; provided however that, after reimbursement of Schwarz Pharma for
its costs in such action, any portion of such net recoveries which constitutes
the equivalent of, or damages or payments in lieu of, a royalty measured by the
defendant's Net Sales, shall be shared between TIMERx Technologies and Schwarz
Pharma in accordance with Section 4.3 as if they were Schwarz Pharma's Net Sales
(counting the infringing party's product as a Competing Generic Version).
8.6 Should either TIMERx Technologies or Schwarz Pharma commence a
suit under the provisions of this Section 8 and thereafter elect to abandon the
same, it shall give timely notice to the other party, who may, if it so desires,
be joined as a plaintiff in the suit (or continue as such if it is already one)
and continue prosecution of such suit, provided, however, that the sharing of
expenses and any recovery of such suit shall be as agreed upon between TIMERx
Technologies and Schwarz Pharma.
9. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
-24-
<PAGE> 25
9.1 Each party represents and warrants to the other that, to its
current knowledge, without undertaking any special investigation, it has the
full right and authority to enter into this Agreement and to grant the licenses
granted herein.
9.2 TIMERx Technologies represents and warrants that any
Formulated TIMERx supplied by it to Schwarz Pharma hereunder for use in the
Designated Product, at the point of delivery:
9.2.1 will conform to the Specifications in effect as of the
order date therefor; and
9.2.2 to TIMERx Technologies' current knowledge, without
undertaking any special investigation, will not infringe upon
an article patent of any third party.
OTHERWISE, TIMERx TECHNOLOGIES PROVIDES "AS-IS," AND MAKES NO REPRESENTATIONS OR
WARRANTIES AS TO, ANY TIMERx OR FORMULATED TIMERx SUPPLIED BY IT TO SCHWARZ
PHARMA FOR TESTING, DEVELOPMENT, OR ANY OTHER PURPOSES EXCEPT EXPLICITLY FOR USE
IN THE DESIGNATED PRODUCT FOR COMMERCIAL USE OR SALE.
9.3 Each party represents and warrants to the other that it has
obtained, and will at all times during the term of this Agreement hold and
comply with, all licenses, permits and authorizations necessary to perform this
Agreement and to test, manufacture, market, export, and import the Designated
Product or Formulated TIMERx, as now or hereafter required under any applicable
statutes, laws, ordinances, rules and regulations of the United States and any
applicable foreign, state, and local governments and governmental entities.
9.4 THE FOREGOING WARRANTIES ARE IN LIEU OF, AND THE PARTIES EACH
DISCLAIM, ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR ARISING BY LAW, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, AND NON-INFRINGEMENT. NOTHING IN THIS AGREEMENT SHALL BE
CONSTRUED AS A REPRESENTATION OR WARRANTY (I) BY TIMERx TECHNOLOGIES AS TO THE
PATENTABILITY, VALIDITY, OR SCOPE OF ANY TIMERx TECHNOLOGIES PATENTS, TIMERX
TECHNOLOGIES' CONFIDENTIAL TECHNOLOGY, TIMERx PRODUCTION TECHNOLOGY, OR TIMERX
TECHNOLOGIES TEST AND REGULATORY DATA, NOR AS TO THE UTILITY, EFFICACY,
NONTOXICITY, SAFETY OR APPROPRIATENESS OF TIMERx OR THE DESIGNATED PRODUCT; OR
(II) BY SCHWARZ PHARMA AS TO THE PATENTABILITY, VALIDITY, OR SCOPE OF ANY
SCHWARZ PHARMA IMPROVEMENTS OR SCHWARZ PHARMA TEST AND
-25-
<PAGE> 26
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
REGULATORY DATA, NOR AS TO THE UTILITY, EFFICACY, NONTOXICITY, SAFETY OR
APPROPRIATENESS OF ANY PRODUCTS MADE THEREFROM.
9.5 TIMERx Technologies shall indemnify, defend and hold harmless
Schwarz Pharma and its Affiliates and sublicensees from any claim, action or
damages arising out of any alleged infringement by reason of the manufacture,
use or sale by Schwarz Pharma of the Designated Product to the extent such
infringement would apply as well to the manufacture, sale or distribution of
TIMERx alone or otherwise to the extent the same is covered by Section 9.6.2. If
Schwarz Pharma or its Affiliate or sublicensee, by reason of its manufacture,
sale or distribution of Designated Product, is accused of infringing the patent
of a third party, and such claim of infringement, as framed by the claimant,
would apply as well to the manufacture, sale or distribution of TIMERx alone or
otherwise to the extent the same is covered by Section 9.6.2, Schwarz Pharma
shall immediately so notify TIMERx Technologies and provide TIMERx Technologies
all available information, and the parties shall consult reasonably as to the
proper course of action. If TIMERx Technologies and Schwarz Pharma jointly
determine that such claim is likely to prevail, or if an arbitrator hereunder or
a court of competent jurisdiction so determines, *******************************
************************************************************************.
9.6 TIMERx Technologies shall indemnify, defend and hold Schwarz
Pharma and its Affiliates and sublicensees harmless from any and all third-party
claims to the extent arising from, in connection with, based upon, by reason of,
or relating in any way to:
9.6.1 *************************************************************
*************************************************************** in the
Designated Product;
9.6.2 TIMERx Technologies'*****************************************
*******************************************************************************
and the Specifications therefor hereunder;
9.6.3 any failure of the Formulated TIMERx manufactured by TIMERx
Technologies or its alternate supplier (but not by Schwarz Pharma under Section
5.13), as delivered to Schwarz Pharma hereunder for use in the Designated
Product, to conform to the Specifications; or
-26-
<PAGE> 27
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
9.6.4 any failure of TIMERx Technologies to comply with its
obligation under Section 5.14 to notify Schwarz Pharma of any information coming
into TIMERx Technologies' possession ***************************************
and not arising from any other aspect of the Designated Product or its
formulation, development, supply, production, manufacture, sale, delivery,
distribution or use, nor from any act or omission of Schwarz Pharma with
respect to the Formulated TIMERx following its delivery to Schwarz Pharma
hereunder.
9.7 Schwarz Pharma shall indemnify, defend and hold TIMERx
Technologies harmless from any and all third-party claims to the extent arising
from, in connection with, based upon, by reason of, or relating in any way to,
the formulation, development, supply, production, manufacture, sale, delivery,
distribution or use of the Designated Product by Schwarz Pharma, its Affiliates
or sublicensees, except for any matters which are covered by TIMERx
Technologies' indemnities under Sections 9.5 and 9.6.
9.8 Notwithstanding anything to the contrary set forth elsewhere
herein, neither Schwarz Pharma nor TIMERx Technologies shall be obligated to
indemnify the other party for claims or liabilities to the extent arising from
such other party's, or its Affiliates', sublicensees' or assigns', negligence,
intentional misconduct, or breach of its duties, obligations, warranties or
representations set forth herein.
9.9 Whenever indemnification is provided for a party under this
Agreement, such right of indemnification shall extend also to the indemnified
party's Affiliates, officers, directors, shareholders, successors, assigns,
agents, employees, and insurers to the extent the same become subject to such
claim in such capacity. The party seeking indemnification shall provide the
indemnifying party with written notice of any claim or action within ten (10)
days of its receipt thereof, and shall afford the indemnifying party the right
to control the defense and settlement of such claim or action. The party seeking
indemnification shall provide reasonable assistance to the indemnifying party in
the defense of such claim or action. If the defendants in any such action
include both Schwarz Pharma and TIMERx Technologies and either party concludes
that there may be legal defenses available to it which are different from,
additional to, or inconsistent with, those available to the other, that party
shall have the right to select separate counsel to participate in the defense of
such action on its behalf, and such party shall thereafter bear the cost and
expense of such separate defense. Should the indemnifying party determine not to
defend such claim or action, the other party shall have the right to maintain
the
-27-
<PAGE> 28
defense of such claim or action and the indemnifying party agrees to provide
reasonable assistance to it in the defense of such claim or action. Neither
party shall settle any such claim or action in a way that prejudices or
adversely impacts the other party to this Agreement without the prior approval
of such other party (which approval shall not be unreasonably withheld).
9.10 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT (OTHER THAN SECTION 7 WITH RESPECT TO BREACHES OF CONFIDENTIALITY AND
NONSOLICITATION AND SECTION 9.5 WITH RESPECT TO INDEMNITIES FOR PATENT
INFRINGEMENT AND SECTIONS 9.6 AND 9.7 WITH RESPECT TO INDEMNITIES FOR HARM TO
PERSONS OR TANGIBLE PROPERTY), NEITHER PARTY SHALL UNDER ANY CIRCUMSTANCES BE
LIABLE FOR ANY THIRD PARTY CLAIMS OR FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT
OR SPECIAL DAMAGES, INCLUDING ANY LOST PROFITS OR SAVINGS, ARISING FROM ANY
BREACH OF WARRANTY OR THE PERFORMANCE OR BREACH OF ANY OTHER PROVISION OF THIS
AGREEMENT OR THE USE OR INABILITY TO USE TIMERx, THE DESIGNATED PRODUCT, TIMERx
TECHNOLOGIES PATENTS, TIMERx TECHNOLOGIES' CONFIDENTIAL TECHNOLOGY, TIMERx
PRODUCTION TECHNOLOGY, TIMERx TECHNOLOGIES TEST AND REGULATORY DATA, SCHWARZ
PHARMA IMPROVEMENTS, OR SCHWARZ PHARMA TEST AND REGULATORY DATA, OR ANY CLAIMS
ARISING IN TORT, PERSONAL INJURY, OR PRODUCT LIABILITY, EVEN IF SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10. TERM AND TERMINATION.
10.1 The term of this Agreement shall begin on the date set forth
above and shall, unless earlier terminated as provided herein, continue until
the end of the License Term.
10.2 Schwarz Pharma may at its option terminate this Agreement
following the U.S. Approval Date, upon at least 120 days' written notice to
TIMERx Technologies.
10.3 In the event that either party materially breaches any of the
terms, conditions or agreements contained in this Agreement to be kept, observed
or performed by it, then the other party may terminate this Agreement, at its
option and without prejudice to any of its other legal or equitable rights or
remedies, by giving the party who committed the breach (i) in the case of breach
of obligations other than the payment of money, 60 days' notice in writing,
unless the notified party within such 60-day period shall have cured the breach,
and (ii) in the case of breach of an
-28-
<PAGE> 29
obligation for the payment of money, 20 days' notice in writing, unless the
notified party within such 20-day period shall have cured the breach, including
any required payment of interest on previously unpaid amounts as set forth
herein.
10.4 This Agreement will automatically terminate if Schwarz Pharma
files for protection under federal or state bankruptcy laws, becomes insolvent,
makes an assignment for the benefit of creditors, appoints or suffers
appointment of a receiver or trustee over its property, files a petition under
any bankruptcy or insolvency act or has such petition filed against it.
10.5 Any sublicenses granted by Schwarz Pharma under this Agreement
shall provide for assignment to TIMERx Technologies of Schwarz Pharma's interest
therein upon termination of this Agreement, subject to TIMERx Technologies'
approval, which shall not be unreasonably withheld, but which, if properly
withheld, shall result in the termination of such sublicense.
10.6 Following any expiration or termination of the License Term, the
license to TIMERx Technologies under Section 6.7 shall be thereafter extended to
include (in addition to its coverage as stated in such section) the use of
Schwarz Pharma Test and Regulatory Data for purposes of complying with
governmental requirements with respect to the Designated Product for
manufacturing, marketing or use in the Territory. While exercises of the rights
licensed under Section 6.7 prior to the extension under this Section will
continue to bear a reasonable consideration as provided in Section 6.7,
exercises of such rights as so extended under this Section for purposes of
complying with governmental requirements with respect to the Designated Product
or another controlled-release product containing Diltiazem for manufacturing,
marketing or use in the Territory will be fully paid-up and royalty free.
10.7 Schwarz Pharma's obligations regarding payment of Royalties
accrued as of the date of termination, TIMERx Technologies' rights under
Sections 6.6 and 6.7 (except if this Agreement is terminated due to an uncured
breach on the part of TIMERx Technologies), and Schwarz Pharma's rights under
Section 6.8 (except if this Agreement is terminated due to an uncured breach on
the part of Schwarz Pharma), and the provisions of Sections 7, 9, and 11, hereof
shall survive any expiration or termination of this Agreement.
10.8 All rights and licenses granted under or pursuant to this
Agreement by TIMERx Technologies (as the "licensor") to Schwarz Pharma (as the
"licensee") or by Schwarz Pharma (as the "licensor") to TIMERx Technologies (as
the "licensee") are and shall otherwise be deemed to be, for purposes of Section
365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as
defined under Section 101(52) of the Bankruptcy Code. The parties agree that the
licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and
-29-
<PAGE> 30
elections under the Bankruptcy Code. The parties further agree that, in the
event of the commencement of a bankruptcy proceeding by or against the licensor
under the Bankruptcy Code, the licensee shall be entitled to a complete
duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, and the same, if not
already in its possession, shall to the extent required for the exercise of the
licenses granted hereunder, be promptly delivered to the licensee (i) upon any
such commencement of a bankruptcy proceeding upon written request therefor by
the licensee, unless the licensor elects to continue to perform all of its
obligations under this Agreement, or (ii) if not delivered under (i) above, upon
the rejection of this Agreement by or on behalf of the licensee upon written
request therefor by the licensee.
11. MISCELLANEOUS.
11.1 This Agreement incorporates the numbered Exhibits referenced
herein. This Agreement, together with Sections 2 and 3 and Exhibits A, B and C
of the Heads of Agreement as referenced and incorporated herein, constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties hereto with respect to the subject matter
hereof (including without limitation the balance of the Heads of Agreement).
11.2 This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their successors and permitted assigns; provided,
however, that except as part of the transfer of all or substantially all assets
to a single buyer or pursuant to a merger or other corporate reorganization:
11.2.1 TIMERx Technologies shall not delegate or subcontract any of
its obligations during the Development Period, and
11.2.2 Schwarz Pharma shall not assign or delegate its rights or
obligations hereunder at any time, without the prior written consent of the
other party hereto.
11.3 All notices, requests or other communication provided for or
permitted hereunder shall be given in writing and shall be hand delivered or
sent by facsimile, reputable courier or by registered or certified mail, postage
prepaid, return receipt requested, to the address set forth on the signature
page of this Agreement, or to such other address as either party may inform the
other of in writing. Notices will be deemed delivered on the earliest of
transmission by facsimile, actual receipt or three days after mailing as set
forth herein.
11.4 Any terms of this Agreement may be amended, modified or waived
only in a writing signed by both parties.
-30-
<PAGE> 31
11.5 If any provision of this Agreement shall be held invalid, illegal
or unenforceable, such provision shall be enforced to the maximum extent
permitted by law and the parties' fundamental intentions hereunder, and the
remaining provisions shall not be affected or impaired.
11.6 Nothing herein contained shall constitute this a joint venture
agreement or constitute either party as the partner, principal or agent of the
other, this being an Agreement between independent contracting entities. Neither
party shall have the authority to bind the other in any respect whatsoever.
Except as provided herein, nothing contained in this Agreement shall be
construed as conferring any right on either party to use any name, trade name,
trademark or other designation of the other party hereto, unless the express,
written permission of such other party has been obtained.
11.7 In the event that either party hereto is prevented from carrying
out its obligations under this Agreement by events beyond its reasonable
control, including without limitation acts or omissions of the other party, acts
of God or government, natural disasters or storms, fire, political strife, labor
disputes, failure or delay of transportation, default by suppliers or
unavailability of parts, then such party's performance of its obligations
hereunder shall be excused during the period of such event and for a reasonable
period of recovery thereafter, and the time for performance of such obligations
shall be automatically extended for a period of time equal to the duration of
such event or events; provided, however, that the other party may, at its
election, terminate this Agreement upon 120 days' prior notice to the party
affected by such events, unless such events cease to prevent such affected
party's performance hereunder during such 120-day period.
11.8 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to its
conflict of laws rules.
11.9 Any dispute, other than a question relating to patent validity,
between the parties which arises under this Agreement or is otherwise related to
this Agreement and which cannot be resolved by good faith negotiation between
the parties over a period of at least ninety (90) days shall be resolved by
arbitration conducted in the English language in Seattle, Washington, before a
panel of three arbitrators under the then current rules and procedures of the
American Arbitration Association (the "AAA"), or other rules and procedures as
the parties may agree. The prevailing party in any such proceeding shall be
entitled to an award of its reasonable attorneys' fees and other costs,
including the fees and expenses of the arbitrators and the AAA, provided that
the same may be apportioned between the parties by the arbitrators if they
determine that each party has prevailed in part. The arbitral award shall be
binding and conclusive on both parties and may be enforced in any court of
competent jurisdiction. Notwithstanding the foregoing, either party
-31-
<PAGE> 32
may, on good cause shown, seek a temporary restraining order and/or a
preliminary injunction from a court of competent jurisdiction, to be effective
pending the institution of the arbitration process and the deliberation and
award of the arbitration panel.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and acknowledge this Agreement as of the date
first written above.
SCHWARZ PHARMA INC. TIMERx TECHNOLOGIES
By /s/ [illegible] By /s/ [illegible]
-------------------------------- --------------------------------
Its President Its President
-------------------------------- --------------------------------
Address: Address:
5600 County Line Road 2981 Route 22
Mequon, Wisconsin 53092 Patterson, N.Y. 12563
FAX: (414) 238-0958 FAX: (914) 878-3420
----------------------------- -----------------------------
Attn: Attn:
----------------------------- -------------------------------
-32-
<PAGE> 33
EXHIBIT 1.1
TIMERx Technologies Affiliates
Schwarz Pharma Affiliates
TIMERx Technologies Affiliates
PENWEST, LTD.
Edward Mendell Co., Inc.
Penford Products Co.
Edward Mendell GmBH
Edward Mendell Finland OY
PENWEST Foreign Sales Corporation
-33-
<PAGE> 34
EXHIBIT 1.1, CONTINUED
TIMERx Technologies Affiliates
Schwarz Pharma Affiliates
Schwarz Pharma Affiliates:
-34-
<PAGE> 35
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 1.14
Pilot Biostudies
1. The Clinical Research Organization that we will work with for the Pilot
Biostudies is *********************************************.
2. The Pilot Biostudies will be based on two studies wherein the first study is
a ******************************************************************************
********************************. The second study is a ***********************
*******************************************************************************.
These two studies can be done simultaneously and ****************************
**********************************************.
3. We will evaluate the PK data (see #2 above) prior to starting formulation
work at Central.
-35-
<PAGE> 36
EXHIBIT 1.24
TIMERx Technologies Patents
UNITED STATES:
1) U.S. Patent No. 4,994,276, entitled "Directly Compressible Slow Release
Granulation," issued February 19, 1991.
2) U.S. Patent No. 5,128,143, entitled "Sustained Release Excipient and Tablet
Formulation," issued July 7, 1992.
3) U.S. Patent No. 5,135,757, entitled "Compressible Sustained Release Dosage
Forms," issued August 4, 1992.
4) U.S. Patent No. 5,455,046, entitled "Sustained Release Hetero-Disperse
Hydrogel Systems for Insoluble Drugs," issued October 3, 1995.
CANADA:
5) Canadian Patent Application No. 611,700, filed September 18, 1989
(corresponding to items 1), 2) and 3) above).
6) Canadian Patent Application Number 2131647, filed September 8, 1994,
corresponding to item 4) above.
MEXICO:
7) Mexican Patent Application Number 94-6885, filed September 8, 1994,
corresponding to item 4) above.
-36-
<PAGE> 1
Exhibit 10.6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT
THIS AGREEMENT is entered into as of the 30th day of August, 1996 (the
"Effective Date"), by and between TIMERx Technologies, a division of Penwest,
Ltd., a Washington corporation, with principal place of business at 2981 Route
22, Patterson, New York 12563 ("TIMERx Technologies"), and SCHWARZ PHARMA INC.,
a Delaware corporation, with principal place of business at 5600 County Line
Road, Mequon, Wisconsin 53092 ("Schwarz Pharma").
A. TIMERx Technologies has developed a controlled-release agent
covered by one or more patents, patent applications, know-how and other
proprietary technology, which agent TIMERx Technologies markets under the name
and mark "TIMERx(R)" ("TIMERx").
B. Schwarz Pharma is interested in developing for manufacture the
active pharmaceutical ingredient verapamil ("Verapamil") and desires to
formulate Verapamil into a solid-dosage controlled-release delivery system for
oral administration in humans in two dosage strengths to be therapeutically
equivalent AB rated to the drug currently sold under the brand name "Covera-HS."
C. The parties, under a separate agreement (the "Diltiazem
Agreement"), are engaging in certain activities relating to the development and
testing of a product incorporating diltiazem and TIMERx, and designed to be
bioequivalent to the product currently being marketed in the United States under
the name "Cardizem CD." The parties now desire to engage in a separate program
of research, development, and testing activities designed to determine if a drug
that is bioequivalent to Covera-HS can be developed using TIMERx. If such
activities under this separate program are successful, Schwarz Pharma desires to
contract for a supply of TIMERx for use in the manufacture of such a
controlled-release form of Verapamil, and TIMERx Technologies is willing to
supply the same provided that Schwarz Pharma agrees to obtain all of its
requirements of TIMERx from TIMERx Technologies as provided herein.
NOW, THEREFORE, the parties hereby agree as follows:
1
<PAGE> 2
1. DEFINITIONS.
1.1 "AFFILIATE" of TIMERx Technologies or of Schwarz Pharma shall
mean entities that, directly or indirectly, own and control the voting of more
than 50% of the voting capital shares of such party ("Parent"), or more than 50%
of the voting capital shares (or equivalent control) of which is, directly or
indirectly, owned, and the voting of which is controlled, by such party or its
Parent, as of the Effective Date. For purposes of this definition and this
Agreement no Affiliate shall remain such unless it continues to meet the
foregoing criteria. Current Affiliates of TIMERx Technologies and Schwarz Pharma
are listed as such in Exhibit .
1.2 "APPROVAL DATE" shall mean the date on which a Designated
Product in either dosage strength is first approved by the U.S. Food and Drug
Administration (herein "FDA") (the "U.S. Approval Date") or other equivalent
regulatory authority in the Territory for commercial sale in oral solid-dosage
form for administration in humans, pursuant to an Abbreviated New Drug
Application (or the equivalent in such other regulatory authority) ("ANDA").
1.3 "CERTIFICATION PERIOD" with respect to the United States shall
mean the period beginning at the end of the Development Period and ending on the
earlier of:
1.3.1 the U.S. Approval Date;
1.3.2 the termination of this Agreement as provided herein. With
respect to Canada and/or Mexico, the Certification Period, if any, will mean the
period described as such for that nation in Section 3.3.
1.4 "COMPETING GENERIC VERSION" shall mean a drug that meets all of
the following criteria:
1.4.1 it is Therapeutically Equivalent to the applicable Designated
Product being studied, manufactured, or marketed, as the case may be;
1.4.2 it has been fully approved for commercial sale in oral
solid-dosage form for administration in humans by the FDA (for all purposes of
this Agreement, "solid- dosage form" shall include tablets, capsules, hydrogels,
or any combination thereof);
1.4.3 it is actively on the market and immediately available for
retail sale throughout the United States other than under the brand "Covera" or
"Covera-HS"; and
2
<PAGE> 3
1.4.4 it is not marketed by Schwarz Pharma, any of its Affiliates, or
under a license or sublicense from Schwarz Pharma or its Affiliates or
sublicensees in any tier.
1.5 "CONFIDENTIAL TECHNOLOGY" shall mean all technology that is, at
the relevant time hereunder, protected or required to be protected by both
parties hereto as confidential information pursuant to Section 7 hereof.
1.6 "DESIGNATED PRODUCT" shall mean a Therapeutically Equivalent
solid- dosage form of a controlled-release pharmaceutical for oral
administration in humans that combines Verapamil with TIMERx and other
excipients. The parties contemplate that the Designated Product will be
developed and marketed in the following dosage strengths: 180mg and 240mg.
1.7 "DEVELOPMENT PERIOD" shall mean the period from the Effective
Date through the earlier of the termination of this Agreement as provided herein
or the successful completion, through demonstration of bioequivalence to FDA
standards, of the Pivotal Biostudies.
1.8 "DISSOLUTION PROFILE STUDIES" shall mean the studies
contemplated in Section 2.2.
1.9 "FORMULATED TIMERx" shall mean TIMERx and certain additives in a
formulation to be developed hereunder specifically for use in the Designated
Product.
1.10 "LICENSE TERM" shall mean the cumulative period covered by the
Development Period, the Certification Period, and the Marketing Period.
l.11 "MARKETING PERIOD" with respect to a nation shall mean the
period beginning on the Approval Date for such nation and ending on the earlier
of:
1.11.1 the twentieth anniversary of the Effective Date; or
1.11.2 the termination of the License Term and/or this Agreement as
provided herein.
1.12 "MILESTONE FEE SCHEDULE" shall mean the schedule set forth in
Exhibit .
1.13 "NET SALES" shall mean that portion of the net sales (or
equivalent current value, where Designated Product is used without being sold,
other than as to reasonable quantities of samples of Designated Products
marketed as branded drugs, if any) recognized by Schwarz Pharma or its
Affiliate, or a sublicensee of either (excluding sales by Schwarz Pharma to its
Affiliate or sublicensee, or by Schwarz Pharma's Affiliate to Schwarz Pharma or
its sublicensee, for resale to a third party), calculated in accordance with
United States Generally Accepted Accounting Principles
3
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
("GAAP") consistently applied, which pertains to the Designated Product. The
calculation of Net Sales shall include amounts specifically identifiable to the
Designated Product and amounts allocated to the Designated Product in accordance
with GAAP, it being understood that amounts which are not specifically
identifiable to the Designated Product by virtue of their being identifiable to
a group of products or services that includes the Designated Product shall be
allocated to the Designated Product in a consistent and equitable manner which
will not unduly or disproportionately reduce Net Sales of the Designated
Product. Net Sales shall be considered "made" as of the date of the applicable
invoice. Amounts to be included in the calculation of Net Sales shall be those
representing:
************
************************************************************
*********
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
**************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
**************
************************************************************
************************************************************
******************************************
1.14 "PILOT BIOSTUDIES" shall mean the biostudies to be conducted by
Schwarz Pharma as more fully described in Section 2.3 and Exhibit 1.14.
1.15 "PIVOTAL BIOSTUDIES" shall mean the biostudies contemplated in
Section 2.4, it being understood that such Pivotal Biostudies are those that
will be designed and conducted in a manner to support the submission to the FDA
of an ANDA for the Designated Products (whether or not such ANDA is ultimately
approved).
4
<PAGE> 5
1.16 "PROJECT CONTACT(S)" shall mean the persons appointed by each
party to serve as contact persons between the parties during the Development
Period and the Certification Period. The initial Project Contact for TIMERx
Technologies for business matters is Dr. Paul K. Wotton, and the initial Project
Contact for TIMERx Technologies for technical and scientific matters is Dr.
Anand Baichwal. The initial Project Contact for Schwarz Pharma for business
matters is Dr. Klaus Veitinger, and the initial Project Contact for Schwarz
Pharma for technical and scientific matters is Dr. Tammy Antonucci. Each party
shall promptly notify the other party of any substitution of other personnel as
its Project Contact(s). Each party may select and supervise its other project
staff as needed.
1.17 "ROYALTIES" shall mean the royalties payable to TIMERx
Technologies pursuant to Section 4.3 hereof.
1.18 "SCHWARZ PHARMA IMPROVEMENTS" shall mean any and all
improvements, modifications, alterations, or enhancements to any of the
inventions covered by the TIMERx Technologies Patents, TIMERx Technologies'
Confidential Technology, or the TIMERx Production Technology, that are developed
for or are otherwise related to or useful with the Designated Product and that
are developed, owned, or controlled by Schwarz Pharma or any of its Affiliates
or sublicensees, or in which Schwarz Pharma or any of its Affiliates or
sublicensees otherwise has any rights or interests during the term of this
Agreement; together with all United States and foreign intellectual property and
other rights and interests of Schwarz Pharma and its Affiliates and sublicensees
thereto and therein, including without limitation patents, trade secrets,
copyright, periods of market exclusivity, and other related rights or interests.
1.19 "SCHWARZ PHARMA TEST AND REGULATORY DATA" shall mean any and all
test data, test designs and protocols, clinical studies and results thereof,
government licenses and applications therefor, government certifications and
findings, and related materials, information and rights (including without
limitation information regarding bioavailability and bioequivalence, and any
adverse drug reactions), developed, commissioned or otherwise obtained by
Schwarz Pharma or any of its Affiliates or sublicensees during the term of this
Agreement for the uses intended by this Agreement relating to TIMERx, Schwarz
Pharma Improvements, the Designated Product, TIMERx Technologies Patents, TIMERx
Production Technology and/or TIMERx Technologies' Confidential Technology;
together with all intellectual property and other rights and interests of
Schwarz Pharma and its Affiliates and sublicensees thereto and therein,
worldwide.
1.20 "SOLID-DOSAGE UNIT" shall mean any individual tablet, capsule,
hydrogel, or any combination thereof, manufactured to be a solid-dosage form of
the Designated Product in the following dosage strengths: 180mg and 240mg.
5
<PAGE> 6
1.21 "SPECIFICATIONS" shall mean such standards and analytical
methods established by TIMERx Technologies and Schwarz Pharma by agreement
during the Development Period; provided, however, that once such specifications
are established in an application for regulatory approval, such specifications
shall become the Specifications referred to herein, and shall remain unchanged,
unless either changes are required by the regulatory authorities or are mutually
agreed to by the parties. It is understood and agreed that the Specifications
for Formulated TIMERx for use in Designated Product to be sold outside the
United States shall be the same as those for Formulated TIMERx for use in
Designated Product to be sold in the United States, because this will be
required for the technically satisfactory production, regulatory approval, and
exploitation of the Designated Product. Accordingly, in no event will Schwarz
Pharma permit the Designated Product to be certified for sale outside the United
States on any other basis, unless TIMERx Technologies has consented thereto in
writing after detailed consultation with Schwarz Pharma.
1.22 "TERRITORY" shall, subject to Section 3.3, mean Canada, Mexico,
the United States, and the territories and possessions thereof.
1.23 "THERAPEUTICALLY EQUIVALENT" shall mean that a drug of a given
dosage strength is rated AB bioequivalent to the drug, in the same dosage
strength, currently sold in the United States under the brand name "Covera-HS".
1.24 "TIMERx TECHNOLOGIES PATENTS" shall mean:
1.24.1 those United States patents and foreign equivalents in the
Territory and United States and foreign patent applications in the Territory
listed in Exhibit and all divisions, continuations, reissues, or extensions
thereof, any periods of marketing exclusivity relating thereto, and any letters
patent that issue thereon; and
1.24.2 TIMERx Technologies' rights under United States and foreign
patents in the Territory, if any, obtained and in force during the License Term
covering any of TIMERx Technologies' improvements, modifications, alterations,
or enhancements to any of the inventions covered by the TIMERx Technologies
Patents that are developed for or are otherwise related to or useful with the
Designated Product.
1.25 "TIMERx PRODUCTION TECHNOLOGY" shall mean TIMERx Technologies'
rights under the TIMERx Technologies Patents and any and all other patents,
patent applications, and other technology belonging to TIMERx Technologies or
which TIMERx Technologies has the right to practice and to sublicense from time
to time during the term of this Agreement that directly relate to, are desirable
for, or are necessary for the production of, Formulated TIMERx for use in the
Designated Product.
6
<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
1.26 "TIMERX TECHNOLOGIES TEST AND REGULATORY DATA" shall mean any
and all test data, test designs and protocols, clinical studies and results
thereof, government licenses and applications therefor, government
certifications and findings, and related materials, information and rights
(including without limitation information regarding bioavailability and
bioequivalence, and any adverse drug reactions), developed, commissioned or
otherwise obtained by TIMERx Technologies or any of its Affiliates during the
term of this Agreement relating to TIMERx, TIMERx Technologies Patents, and/or
TIMERx Production Technology and that are developed for or are otherwise related
to or useful with the Designated Product; together with all intellectual
property and other rights and interests of TIMERx Technologies and its
Affiliates thereto and therein in the Territory.
1.27 "UNIT PRICE" shall mean the price for Formulated TIMERx as
stated in Exhibit hereto, ************************* by TIMERx Technologies to
reflect changes in the ********************************************************
*************************.
7
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
2. DEVELOPMENT PERIOD.
2.1 In consideration of TIMERx Technologies' entering into this
Agreement, Schwarz Pharma shall pay TIMERx Technologies upon the Effective Date
a nonrefundable initial fee of ***********.
2.2 During the Development Period, TIMERx Technologies will exert
its continuing best efforts to conduct in vitro Dissolution Profile Studies in
accordance with its normal practices of a TIMERx formulation designed to be
Therapeutically Equivalent to Covera-HS in each of the dosage strengths. TIMERx
Technologies will *************************************************************
************************. Regardless of the outcome or results of such study,
Schwarz Pharma agrees to pay TIMERx Technologies a fee therefor equal to
*******, payable in four equal monthly installments of ******* each, the first
such installment to be due and payable thirty days after the Effective Date.
2.3 Following successful completion of the Dissolution Profiles
Studies, Schwarz Pharma will exert its continuing best efforts to perform the
Pilot Biostudies by engaging the laboratory stated in Exhibit to conduct the
same in accordance with that Exhibit and with a study design and budget mutually
agreed by Schwarz Pharma and TIMERx Technologies. Schwarz Pharma will pay all
costs of the initial Pilot Biostudy with respect to one or both dosage
strengths, as needed, **********************************************************
********************************************************************************
************************. The initial Pilot Biostudy will be completed within
four months of such agreement to proceed. If the initial Pilot Biostudy requires
further optimization of the TIMERx formulation, Schwarz Pharma agrees to pay
similarly all the costs for an additional biostudy to develop a formulation of
TIMERx Therapeutically Equivalent to each desired dosage strength of Covera-HS.
********************************************************************************
********************************************************************************
********************************************************************************
************************.
2.4 Within thirty days following the completion of a successful
Pilot Biostudy (i.e., a formulation of TIMERx is indicated within the limits of
such study to be Therapeutically Equivalent to either of the desired dosage
strengths of Covera- HS), Schwarz Pharma shall pay TIMERx Technologies a fee
determined as set forth in the Milestone Fee Schedule, ************************
*******************************************************************************
************************ ********. Within twelve months of successful completion
of such Pilot Biostudies, Schwarz Pharma exert its continuing best effort to
perform and complete at its expense *********************************** . TIMERx
Technologies will cooperate in such
8
<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
effort. Upon successful completion of a Pivotal Biostudy through demonstration
of AB rated bioequivalence to FDA standards, Schwarz Pharma will pay TIMERx
Technologies a fee determined as set forth in the Milestone Fee Schedule,
*******************************************************************************
************************************************************.
2.5 Each party's Project Contact(s) will provide written reports to
the other party's Project Contact(s) at least quarterly (and more often upon
reasonable request of the other party) throughout the Development Period,
stating in detail all efforts made and in process, and all significant progress
achieved and difficulties encountered in the reporting party's portion of the
development effort since the last such report. Each of the Project Contacts will
also be available throughout the Development Period to answer any reasonable
questions from the other party's Project Contacts, as appropriate.
2.6 Each party will, promptly and throughout the Development Period,
provide to the other all necessary information in or coming into its possession
or reasonably available to it to support the goals of the Development Period.
Notwithstanding anything else to the contrary contained herein, nothing shall
require either party to disclose confidential information for which such party
has an obligation of confidentiality to a third party. Each party understands
and agrees that the other does not warrant or commit that the Designated Product
will be successfully developed, and neither party shall have any liability or
responsibility to the other or to third parties for any such failure of the
development process hereunder, except wherein such failure occurs as a result of
a party's intentional misconduct, negligence, or breach of its duties or
obligations under this Agreement.
2.7 Except as provided otherwise in the cost reimbursement
provisions of Section 2.3, Schwarz Pharma will supply to TIMERx Technologies,
without charge, all Verapamil and Covera-HS (in both dosage strengths)
reasonably required to support the ********************************************
***************** for such effort, and each party shall otherwise bear its own
expenses for all activities during the Development Period.
2.8 As the term is used in this Section 2 and in Section3 , the
exertion of a party's best efforts will mean that (i) such party will exert on a
continuing basis such reasonable efforts as would be normal for sponsors or
applicants for regulatory approval of drugs under ANDAs generally, and (ii) this
project will receive a priority at least as high as any of such party's other
generic drug development efforts (if such a priority would lead to the exertion
of greater efforts than those described in clause (i).
2.9 Either party may terminate this Agreement before completion of
the Development Period by delivery of 30 days' written notice to the other, if,
due to
9
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
unfavorable or inconclusive results to that time, no further development efforts
are likely to lead to the successful development of the Designated Product. In
addition, Schwarz Pharma may terminate this Agreement prior to the completion of
the Development Period by delivery of 30 days' written notice to TIMERx
Technologies if at any time it determines (and reasonably demonstrates to TIMERx
Technologies) that, due to changed circumstances following the date this
Agreement is signed, the potential commercial viability of the Designated
Product will not justify the devotion of the best efforts of Schwarz Pharma
called for during the remainder of the Development Period or during the
Certification Period. No such termination under this section will lessen any
duty of Schwarz Pharma to make any of the payments called for hereunder, which
have accrued prior to the effective date of such termination.
3. CERTIFICATION PERIOD.
3.1 During the Certification Period with respect to the United
States, Schwarz Pharma will exert its continuing best efforts, at its expense,
to prepare and file an ANDA or ANDAs for the Designated Products with the FDA
and to prosecute the same successfully to the granting of an FDA license to
market the Designated Product in both of the dosage strengths. TIMERx
Technologies will, promptly and throughout the Certification Period, provide to
Schwarz Pharma all necessary information in or coming into TIMERx Technologies'
possession or reasonably available to it for such purpose. Also, during the
Certification Period, *********************************************************
************************.
3.2 Schwarz Pharma shall exert its continuing best efforts to
conduct or arrange for, at Schwarz Pharma's expense, all further testing and
studies during the Certification Period, including as to efficacy,
bioavailability, bioequivalence, and safety and toxicology, in connection with
the development, licensing, manufacture and marketing of the Designated Product,
and for compliance with all requirements imposed by the government of the United
States with respect to the Designated Products, and, if there is a Certification
Period for Canada and/or Mexico pursuant to Section 3.3, also as imposed by the
government of such nation(s). TIMERx Technologies will, promptly and throughout
the Certification Period, provide to Schwarz Pharma all necessary information in
or coming into TIMERx Technologies' possession or reasonably available to it for
such purpose.
3.3 If, at any time or times during the License Period, TIMERx
Technologies reasonably demonstrates to Schwarz Pharma that
10
<PAGE> 11
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
(i) Covera-HS or an AB bioequivalent to it has been approved for
marketing in Canada or Mexico, or such approval has been applied for and is
reasonably likely to be granted; and
(ii) TIMERx Technologies or a third party is interested in good faith
in undertaking to market the Designated Product in such nation pursuant to the
equivalent of an ANDA in such nation,
then TIMERx Technologies shall afford Schwarz Pharma a period of 60 days in
which to agree that a Certification Period with respect to such nation, and
governed by this Section 3, shall commence hereunder, during which Schwarz
Pharma will exert its continuing best efforts, at its expense, to prepare and
file such ANDA-equivalent applications for the Designated Products with the
regulatory authorities in such nation, and to prosecute the same successfully to
the granting of marketing approvals from such authorities for the Designated
Product in both of the dosage strengths. It is understood that Schwarz Pharma
may meet such obligations with respect to such nation through the efforts of its
sublicensee, which may be TIMERx or the third party (if any) identified by
TIMERx Technologies and referenced in clause (ii) above, to whom Schwarz Pharma
may sublicense its rights as set forth in this Agreement. (If TIMERx
Technologies is the sublicensee, the same terms and conditions of this Agreement
shall apply to the sublicense.) If Schwarz Pharma fails to agree in writing
within such period to prepare, file and prosecute an ANDA equivalent, either
directly or through sublicensing as described herein, such nation and its
territories and possessions shall thereupon be removed from the Territory.
3.4 Schwarz Pharma's Project Contacts will provide written reports
to TIMERx Technologies' Project Contacts, as appropriate, at least quarterly
(and more often upon reasonable request of the other party) throughout the
Certification Period, stating in detail all efforts made and in process, and all
significant progress achieved and difficulties encountered in the certification
effort since the last such report. Schwarz Pharma's Project Contacts will also
be available throughout the Certification Period to answer any reasonable
questions from TIMERx Technologies' Project Contacts, as appropriate.
3.5 During the Certification Period, Schwarz Pharma shall provide at
its ****************************************************************************
*********** reasonably required to support the testing and certification effort,
and ***************************************************************************
************************.
3.6 If TIMERx Technologies personnel travel outside the Patterson,
New York area during the Certification Period at the request of Schwarz Pharma,
Schwarz Pharma shall bear all of the reasonable travel, lodging and meal
expenses for such
11
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
personnel. Otherwise, each party shall bear its own expenses for all activities
during the Certification Period.
3.7 In consideration of TIMERx Technologies' entering into this
Agreement, Schwarz Pharma agrees to pay TIMERx Technologies the following
non-refundable fees:
3.7.1 a milestone fee payable within ********************************
*******************************************************************************
************************; and
3.7.2 a milestone fee payable within
*******************************************************************************
************************.
3.8 Either party may terminate this Agreement before completion of
the Certification Period by delivery of 30 days' written notice to the other if,
due to unfavorable action by the FDA, the ANDA is not likely (regardless of any
further steps or submissions that could be made) to be approved by the FDA. In
addition, Schwarz Pharma may terminate this Agreement prior to the completion of
the Certification Period by delivery of 30 days' written notice to TIMERx
Technologies if at any time it determines (and reasonably demonstrates to TIMERx
Technologies) that, due to changed circumstances following the date this
Agreement is signed, the potential commercial viability of the Designated
Product will not justify the devotion of the best efforts of Schwarz Pharma
called for during the remainder of the Certification Period or during the
Marketing Period. No such termination under this section will lessen any duty of
Schwarz Pharma to make any of the payments called for hereunder, which have
accrued prior to the effective date of such termination.
4. MARKETING PERIOD.
4.1 Subject to the granting of all necessary governmental approvals
or concurrences to sell the Designated Products, Schwarz Pharma hereby agrees,
during the Marketing Period, to use its continuing best efforts to market,
promote and sell the Designated Products throughout the United States following
the U.S. Approval Date, and in Canada and/or Mexico, following the Approval
Date, if any, for that nation(s). As the term is used in this Section 4, the
exertion of Schwarz Pharma's best efforts will mean that Schwarz Pharma will
devote to such marketing, promotion and sales of the Designated Products
resources and priorities at least as substantial and high as any like-kind
resources and priorities devoted by Schwarz Pharma or any of its Affiliates to
the marketing, promotion or sale of any other generic drug of substantially the
same potential in the same nation of the Territory, measured in terms of sales
and profitability potentials.
12
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
4.2 In consideration of TIMERx Technologies' entering into this
Agreement, Schwarz Pharma agrees to pay TIMERx Technologies a non-refundable
milestone fee payable *********************************************************
******************************************************in the amount determined
as set forth in the Milestone Fee Schedule.
4.3 Schwarz Pharma hereby agrees to pay to TIMERx Technologies
Royalties equal to the percentages of all Net Sales during the License Term, as
determined under Exhibit ; provided,*******************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
************************.
4.4 All Royalties and other amounts payable pursuant to this
Agreement shall be due quarterly *************************** of each calendar
quarter for Net Sales in such calendar quarter. Each such payment shall be
accompanied by a statement of Net Sales for the quarter and the calculation of
Royalties payable hereunder. All Royalties and all other amounts payable under
this Agreement will bear interest at the rate of 1 1/2% per month or the maximum
legal rate, whichever is less, from the date due through the date of payment.
Schwarz Pharma shall keep and shall cause its Affiliates and its and their
sublicensees to keep complete, true and accurate records for the purpose of
showing the derivation of all Royalties payable to TIMERx Technologies under
this Agreement. TIMERx Technologies or its representatives shall have the right
to inspect, copy, and audit such records at any time during reasonable business
hours upon notice to Schwarz Pharma or any of its Affiliates or sublicensees,
respectively. Information gathered during such an audit shall be held in
confidence by TIMERx Technologies and its Affiliates, except to the extent any
of the exceptions stated in Sections through apply thereto. Any such audit shall
be at the expense of TIMERx Technologies, unless the audit reveals that, with
respect to the period under audit, less than 95% of the Royalties due to TIMERx
Technologies hereunder have been paid, in which event Schwarz Pharma shall pay
or reimburse TIMERx Technologies for the reasonable expenses of such audit, in
addition to TIMERx Technologies' other remedies for such underpayment.
4.5 All monies due hereunder shall be paid in United States Dollars
to TIMERx Technologies in Patterson, New York, USA. The rate of exchange to be
used shall be the average commercial rate of exchange for the 30 days preceding
the date of payment for the conversion of local currency to United States
Dollars as published by The Wall Street Journal (or if it ceases to be
published, a comparable publication to be agreed upon by the parties) or, for
those countries for which such average exchange rate is not published by The
Wall Street Journal, the exchange rate fixed on the fifth day prior to the date
of payment as promulgated by the appropriate United States governmental agency
as mutually agreed upon by the parties.
13
<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
5. SUPPLY OF FORMULATED TIMERx.
5.1 It is understood and agreed that supply of Formulated TIMERx by
TIMERx Technologies (or otherwise as provided in Section 5.13) in accordance
with the Specifications is desired by both parties for the technically
satisfactory production, regulatory approval, and exploitation of the Designated
Product. Accordingly, except as provided in Section 5.13, and subject to the
other provisions hereof, TIMERx Technologies will supply Schwarz Pharma and its
Affiliates and sublicensees with sufficient quantities of Formulated TIMERx
produced in accordance with the Specifications in compliance with GMP and all
applicable laws and regulations, to meet their reasonable requirements for
development, testing and manufacturing of the Designated Product during the
Certification Period and the Marketing Period, and Schwarz Pharma shall purchase
all of its and its Affiliates' and sublicensees' requirements for TIMERx from
TIMERx Technologies during such period.
5.2 The price for all Formulated TIMERx sold hereunder shall equal
********************************************************************************
********************************************************************************
********************************************************************************
************************ (subject to ****** adjustment by TIMERx Technologies to
reflect changes in the Pharmaceutical Producers' Index, or an equivalent index,
********************************************************************************
********************************************************************************
its Affiliates and its and their sublicensees. Schwarz Pharma shall keep and
shall cause its Affiliates and its and their sublicensees to keep complete, true
and accurate records of the number of such Solid-Dosage Units produced. TIMERx
Technologies or its representatives shall have the right to inspect, copy, and
audit such records, and otherwise to enter upon the premises of Schwarz Pharma
or its Affiliates or such sublicensees, at any time during reasonable business
hours upon notice, for purposes of verifying the number of Solid-Dosage Units
produced. Information gathered during such an audit shall be held in confidence
by TIMERx Technologies and its Affiliates, except to the extent any of the
exceptions stated in Sections through apply thereto. Any such audit shall be at
the expense of TIMERx Technologies, unless the audit reveals that, with respect
to the period under audit, less than 95% of the aggregate price due to TIMERx
Technologies hereunder was paid, in which event Schwarz Pharma shall pay or
reimburse TIMERx Technologies for the reasonable expenses of such audit, in
addition to TIMERx Technologies' other remedies for such underpayment.
5.3 All sales of Formulated TIMERx shall be **********************
and Schwarz Pharma shall bear all transportation, insurance, taxes, duties, and
other costs and risks of loss, spoilage and damage associated with the shipping
and delivery of Formulated TIMERx to Schwarz Pharma or its Affiliates or
sublicensees.
14
<PAGE> 15
5.4 TIMERx Technologies shall perform routine quality control tests
with respect to all Formulated TIMERx as required by the FDA, or otherwise as
TIMERx Technologies deems necessary in accordance with its applicable policies.
TIMERx Technologies will also bear the expenses and fees for filing the Drug
Master File for TIMERx with the FDA. No other or special tests by TIMERx
Technologies with respect to the raw materials or Formulated TIMERx will be
required, unless and to the extent that Schwarz Pharma establishes that the same
are required in order to obtain or maintain a governmental license to market the
Designated Product in the Territory. In any event, the cost of providing any
such other or special tests shall be separately reimbursed to TIMERx
Technologies by Schwarz Pharma. TIMERx Technologies shall promptly, upon
completion of each lot or batch of Formulated TIMERx, deliver a copy of the
record of such test performed on said lot or batch. Schwarz Pharma will perform
quality control tests on Formulated TIMERx immediately on receipt at its plant
and advise TIMERx Technologies within thirty (30) days of any deviations from
Specifications.
5.5 If Schwarz Pharma considers any such shipment not to conform to
the applicable Specifications, Schwarz Pharma shall notify TIMERx Technologies
immediately and provide TIMERx Technologies with the relevant analysis. TIMERx
TECHNOLOGIES' SOLE OBLIGATION AND SCHWARZ PHARMA'S EXCLUSIVE REMEDY FOR ANY SUCH
NONCONFORMITY SHALL BE AS FOLLOWS:
i) TIMERx Technologies shall at its own expense accept return of
any shipment not accepted, or else reimburse Schwarz Pharma for the cost of
disposal or destruction; and
iii) TIMERx Technologies shall use its best efforts to replace the
non-conforming shipment with conforming Formulated TIMERx.
5.6 While TIMERx Technologies is supplying Formulated TIMERx
hereunder to Schwarz Pharma, TIMERx Technologies shall, after receipt of
reasonable prior notice, give duly accredited representatives of Schwarz Pharma
access at all reasonable times during regular business hours to TIMERx
Technologies' or its Affiliate's plant in which the Formulated TIMERx is being
produced, to ensure production practices created Formulated TIMERx conforming to
Specifications.
5.7 TIMERx Technologies will exert its best efforts to supply test
quantities of Formulated TIMERx during the Certification Period within 90 days
following receipt of Schwarz Pharma's firm written order therefor.
5.8 As the term is used in this Section 5, the exertion of TIMERx
Technologies' best efforts will mean that it will devote to the production and
supply of Formulated TIMERx called for hereunder efforts that would be
reasonable and
15
<PAGE> 16
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
normal for such supply arrangements, and if, greater, that it will devote
thereto resources and priorities at least as substantial and high as any
like-kind resources and priorities devoted by TIMERx Technologies to the
production or supply of TIMERx for any other drug or project, and also (if
additional) that***************************************************************
********************************* in light of their recent ordering history and
reasonable projections.
5.9 Schwarz Pharma shall deliver to TIMERx Technologies a firm
written order stating its (and/or its Affiliates' and sublicensees')
requirements for Formulated TIMERx to be used for production of the Designated
Product for commercial use or sale no less than ******************************
******************************.
5.10 At least ****** before Schwarz Pharma and/or its Affiliates or
sublicensees begin production of the Designated Product for commercial use or
sale (and in any event not later than concurrently with the submission of the
first order for use in the production of Designated Product intended for
commercial sale -- herein called the "Initial Order"), Schwarz Pharma shall
deliver to TIMERx Technologies a written, non-binding estimate of all
requirements of Formulated TIMERx therefor during the following ***********.
Schwarz Pharma will deliver to TIMERx Technologies updates to such estimates on
or before the first day of each January, April, July and October thereafter,
which updates may revise estimates previously submitted, and will add estimates
for additional months so that each such estimate covers the ********** period
following the end of the firm-order period (that is, the **************** after
the month in which such estimates are made).
5.11 The Initial Order will be firm and will not be cancelled or
deferred by Schwarz Pharma. No other order for Formulated TIMERx hereunder may
be cancelled or deferred by Schwarz Pharma except by written notice delivered to
TIMERx Technologies at least 90 days prior to the scheduled delivery date. No
orders may be cancelled or deferred (even with such 90-day notice) without
TIMERx Technologies' approval if such cancellation or deferral would reduce
Schwarz Pharma's purchases for the applicable ****** to less than
********************* of the quantities ordered under Section 5.9 for that
******* . TIMERx Technologies will exert its best efforts to supply Schwarz
Pharma with all amounts of Formulated TIMERx requested by Schwarz Pharma, but
TIMERx Technologies shall have no obligation to supply Schwarz Pharma with
quantities of Formulated TIMERx during any ****** in excess of ******* of the
quantity estimated in Schwarz Pharma's estimate for that ****** which estimate
was given to TIMERx Technologies ******* prior to the end of such ******
pursuant to Section .
5.12 In case TIMERx Technologies cannot supply Schwarz Pharma the
requested quantities of the Formulated TIMERx, the shipments may be made by an
16
<PAGE> 17
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
alternate supplier designated by TIMERx Technologies with Schwarz Pharma's
consent, which consent shall not be unreasonably withheld. ********************
*******************************************************************************
******************************************* and notify Schwarz Pharma thereof
within 90 days from the filing of the first ANDA. If Schwarz Pharma has any
objections to such alternate supplier(s), it shall so notify TIMERx Technologies
within fifteen days following TIMERx Technologies' notice of such qualification,
or else Schwarz Pharma will be deemed to have consented to such qualification
and the designation of such supplier(s). Such shipment by the alternate supplier
shall be made under the same agreed terms and conditions as those set forth
herein, except that an additional 90 days shall be added to the order lead time
stated in any then-outstanding order for Formulated TIMERx hereunder to reflect
the transition time required to shift to such alternate supplier.
Notwithstanding anything to the contrary set forth herein, TIMERx Technologies
will be responsible for enforcing all relevant terms and conditions set forth
herein against such alternate supplier and remain liable to Schwarz Pharma for
any breach of such terms and conditions by such supplier.
5.13 If for any reason TIMERx Technologies or an alternate supplier,
as described in Section , fails to supply Schwarz Pharma with its and its
Affiliates' and sublicensees' requirements of Formulated TIMERx during the
Certification Period or the Marketing Period, TIMERx Technologies shall, AS
SCHWARZ PHARMA'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE TO SUPPLY FORMULATED
TIMERx, grant Schwarz Pharma a nonexclusive license to manufacture Formulated
TIMERx under the TIMERx Production Technology and make knowledgeable personnel
reasonably available, at TIMERx Technologies' expense, to consult with Schwarz
Pharma, all to the extent necessary to enable Schwarz Pharma to produce
Formulated TIMERx that would otherwise have been supplied by TIMERx Technologies
hereunder for Schwarz Pharma and its Affiliates and sublicensees in connection
with the production of the Designated Product pursuant to this Agreement.
5.13.1 **********************
5.13.2 Schwarz Pharma shall maintain TIMERx Production Technology
delivered to Schwarz Pharma pursuant to this Section, whether orally or in
writing, in strictest confidence and shall use such information and technology
only for the purpose of producing Formulated TIMERx for its own use and the use
of its Affiliates and sublicensees in connection with this Agreement.
5.13.3 Schwarz Pharma acknowledges that, in doing the foregoing, TIMERx
Technologies will not be providing a "turnkey" operation. Rather, TIMERx
Technologies will only be required to make reasonably available to Schwarz
Pharma the best standard of knowledge and information then available to TIMERx
Technologies and directly used in its or its Affiliate's manufacture of
Formulated
17
<PAGE> 18
TIMERx. TIMERx Technologies will not be required to prepare, provide or obtain
any information not then in its possession, nor to adapt any of the knowledge or
information provided to the particular plant or manufacturing location of
Schwarz Pharma, including without limitation any local legal, licensing, or
environmental considerations.
5.13..4 Neither TIMERx Technologies nor its Affiliates or licensees will
be responsible for any failure of Schwarz Pharma or its personnel to understand
or properly to implement such knowledge and information or for any materials
made by any party other than TIMERx Technologies or such respective Affiliate or
licensee using such knowledge and information.
5.13.5 If TIMERx Technologies' non-delivery of Formulated TIMERx
resulted in whole or in part from a temporary inability to produce and deliver
the same, TIMERx Technologies may, at its option and on at least 90 days' prior
written notice to Schwarz Pharma, terminate the license to produce Formulated
TIMERx hereunder once TIMERx Technologies has demonstrated to the reasonable
satisfaction of Schwarz Pharma that it is again able and willing to reliably
supply Formulated TIMERx hereunder. If and to the extent that Schwarz Pharma
has, prior to the receipt of such notice from TIMERx Technologies, committed
itself to produce, or to purchase from a permitted sublicensee, any Formulated
TIMERx deliverable during the nine months following such notice from TIMERx
Technologies, Schwarz Pharma may continue to produce or to purchase from such
sublicensee such Formulated TIMERx during such period, but not thereafter.
5.14 Each party shall promptly notify the other of any fact,
circumstance, condition or knowledge dealing with TIMERx, Formulated TIMERx, or
the Designated Product of which the Party becomes aware that bears upon the
safety or efficacy of TIMERx, Formulated TIMERx, or the Designated Product. Each
party shall immediately notify the other of any inspection or audit relating to
TIMERx, Formulated TIMERx, or the Designated Product by any governmental
regulatory authority in the Territory. If a representative of the governmental
authority takes samples in connection with such audit or inspection, the parties
shall immediately provide each other, as appropriate, samples from the same
batch. The party in receipt of such notice will provide the other party within
72 hours, with copies of all relevant documents, including FDA Forms 482 and 483
(as applicable), warning letters and other correspondence and notifications as
such other party may reasonably request. TIMERx Technologies and Schwarz Pharma
agree to cooperate with each other during any inspection, investigation or other
inquiry by the FDA or other governmental entity, including providing information
and/or documentation, as requested by the FDA, or other governmental entity. To
the extent permissible, TIMERx Technologies and Schwarz Pharma also agree to
discuss any responses to observations or notifications received and to give the
other party an opportunity to comment on any proposed response before it is
made. In the event of disagreement
18
<PAGE> 19
concerning the content or form of such response, Schwarz Pharma shall be
responsible for deciding the appropriate form and content of any response with
respect to any of its cited activities and TIMERx Technologies shall be
responsible for deciding the appropriate form and content of any response with
respect to any of its cited activities. Each party shall inform the other of all
comments and conclusions received from the governmental authority.
6. OWNERSHIP AND LICENSES.
6.1 Except as otherwise explicitly licensed or transferred as
provided herein, each party will, as between it and the other party hereto,
retain ownership of any and all inventions, copyrights, trade secrets, patent
rights and other technology and rights to the extent conceived or developed by
its personnel or contractors (other than the other party hereto). Neither party
makes any grant of rights by implication. TIMERx Technologies will retain
ownership in (but Schwarz Pharma shall have the right to use within the scope of
its licenses) all Dissolution Profile Studies and Pilot Biostudies and Schwarz
Pharma will retain ownership of its Pivotal Biostudies and its ANDA. Except as
otherwise provided herein, each party shall be responsible, as it shall
determine, for the filing and prosecution of any and all patent applications
with respect, in whole or in part, to its own intellectual property and for the
maintenance of any available patent protection with respect thereto; provided
however, that neither party commits that any such patent protection will be
available or continuous hereunder.
6.2 TIMERx Technologies hereby grants to Schwarz Pharma an exclusive
license under the TIMERx Technologies Patents and TIMERx Technologies'
Confidential Technology disclosed to Schwarz Pharma hereunder to make, have
made, use and sell the Designated Product in the Territory during the License
Term. Such license does not extend to the making of TIMERx or Formulated TIMERx,
but does cover the incorporation of the same into the Designated Product.
Schwarz Pharma shall have the right to grant sublicenses of its rights hereunder
to any Affiliate(s) of Schwarz Pharma, but shall otherwise have no right to
grant sublicenses hereunder without the prior written consent of TIMERx
Technologies, which consent shall not be unreasonably withheld. TIMERx
Technologies will, throughout the License Term, promptly notify Schwarz Pharma
of all TIMERx Technologies Patents referred to in Subsection and provide Schwarz
Pharma with access to all of the same, solely for use within the scope of the
license stated in this section.
6.3 Schwarz Pharma acknowledges that TIMERx Technologies, for itself
and for others, applies, and will seek to apply, TIMERx to products (which may
include, without limitation, the Designated Product and other controlled-release
products containing Verapamil) for manufacture and sale outside the Territory,
or to products within the Territory (but in that case, during the License Term,
only for products
19
<PAGE> 20
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
other than the Designated Product or another controlled-release product
containing Verapamil). No provision hereof, and no exclusivity hereunder, shall
prevent TIMERx Technologies from so applying TIMERx or Formulated TIMERx, so
long as the end product is not the Designated Product (or another
controlled-release product containing Verapamil) for manufacture or sale in the
Territory, it being understood that the Diltiazem Agreement will continue to
govern on this point as to the products covered by it.
6.4 Schwarz Pharma hereby grants to TIMERx Technologies a
nonexclusive, paid-up, worldwide license, with right to sublicense, under any
and all patents, patent applications, trade secrets, copyrights, and other
intellectual property rights of any sort owned or controlled by Schwarz Pharma
or its Affiliates, to make, have made, use and sell Formulated TIMERx during the
License Term for supply to Schwarz Pharma or its Affiliates or sublicensees, if
and to the extent such license is necessary for TIMERx Technologies to do so as
agreed hereunder.
6.5 Subject to and conditional upon the failure or continuing
unwillingness of TIMERx Technologies to meet Schwarz Pharma's and its
Affiliates' and sublicensees' requirements as provided in Section , TIMERx
Technologies grants to Schwarz Pharma a nonexclusive license under the TIMERx
Production Technology to make and have made Formulated TIMERx in the Territory
solely for use in the Designated Product for sale in the Territory during the
License Term, subject to Section . Schwarz Pharma shall have no right to grant
sublicenses of its rights hereunder (whether to Affiliate(s) or otherwise)
without the prior written consent of TIMERx Technologies, which consent shall
not be unreasonably withheld.
6.6 Schwarz Pharma hereby grants to TIMERx Technologies a
nonexclusive, paid-up, worldwide license, with right to sublicense, under any
and all Schwarz Pharma Improvements to make, have made, use and sell any
products or services using or based upon TIMERx or related technology. ******
********************************************************************************
******* Agreement pursuant to Section 2.9, 3.8 , or 10.2, this license to TIMERx
Technologies ******************************************************************
************************************************************** of the Designated
Product or any services involving the Designated Product. Schwarz Pharma will,
throughout the License Term, promptly notify TIMERx Technologies of all Schwarz
Pharma Improvements and provide TIMERx Technologies with access to all of the
same, solely for use within the scope of the license stated in this section.
6.7 Schwarz Pharma hereby grants TIMERx Technologies a nonexclusive
license, with right to sublicense, under all rights of Schwarz Pharma and its
Affiliates and sublicensees in and to the Schwarz Pharma Test and Regulatory
Data to use the same for purposes of complying with governmental requirements of
any country, other than with respect to the Designated Product or another
controlled-release
20
<PAGE> 21
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
product containing Verapamil for manufacturing, marketing or use in the
Territory, it being understood that the Diltiazem Agreement will continue to
govern on this point as to the products covered by it. Schwarz Pharma hereby
consents to TIMERx Technologies' and its sublicensees' cross-referencing, in any
ANDA or NDA filings made by them within the scope of such license, any ANDA or
NDA filing made or FDA master file created by Schwarz Pharma or its Affiliates
relating to or containing any of the Schwarz Pharma Test and Regulatory Data.
Except as provided in Section 10.6, the license under this Section ************
*******************************************************************************
***** under such license,************************************************** the
only portions of the Schwarz Pharma Test and Regulatory Data so used or
referenced could have been properly accessed and used by third parties not
operating under such a license. It is also understood that ********************
**************************************** will not prevent the use of the Schwarz
Pharma Test and Regulatory Data as licensed hereunder, as such consideration may
be later determined either by agreement of the parties or pursuant to Section .
The license under this section shall survive any termination or expiration of
the term of this Agreement, except a termination under Section due to an uncured
breach by TIMERx Technologies. Schwarz Pharma will, throughout the License Term
and solely for use within the scope of the license stated in this section,
provide to TIMERx Technologies on request access to all of the Schwarz Pharma
Test and Regulatory Data in or coming into Schwarz Pharma's possession or
otherwise reasonably available to it.
6.8 TIMERx Technologies hereby grants Schwarz Pharma a nonexclusive,
paid-up license, with right to sublicense, under all rights of TIMERx
Technologies and its Affiliates in and to the TIMERx Technologies Test and
Regulatory Data to use the same for purposes of complying with governmental
requirements, but solely with respect to the Designated Product for marketing or
use in the Territory. TIMERx Technologies hereby consents to Schwarz Pharma's
and its sublicensees' cross- referencing, in any ANDA filings made by them
within the scope of such license, any NDA filing made or FDA master file created
by TIMERx Technologies or its Affiliates relating to or containing any of the
TIMERx Technologies Test and Regulatory Data. The license and rights under this
section shall survive any termination or expiration of the term of this
Agreement, except a termination under Section due to an uncured breach by
Schwarz Pharma. TIMERx Technologies will, throughout the License Term and solely
for use within the scope of the license stated in this section, provide to
Schwarz Pharma on request access to all of the TIMERx Technologies Test and
Regulatory Data in or coming into TIMERx Technologies' possession or otherwise
reasonably available to it.
6.9 Each party agrees to mark and to have marked by its sublicensees
every product manufactured, used or sold by it or its sublicensees in accordance
with the
21
<PAGE> 22
laws of the United States or other applicable nation relating to the marking of
patented articles with notices of patent.
7. CONFIDENTIALITY AND NON-SOLICITATION.
7.1 In the course of performance under this Agreement, or during the
discussions leading thereto, a party may disclose, or may have disclosed, to the
other confidential information belonging to such party in writing, orally or by
demonstration or sample, which information is marked or stated in writing at or
within 30 days after its disclosure to be "confidential" or "trade secret"
information. All such confidential information of a party shall be maintained in
confidence by the other and will not be used by the other party for any purpose
except as authorized hereunder. Each party shall exercise, and shall cause its
Affiliates, sublicensees, and consultants to exercise, a reasonable degree of
care and at least the same degree of care as it uses to protect its own
confidential information of similar nature to preserve the confidentiality of
such information of the other party. Each party shall safeguard such information
against disclosure to third parties, including without limitation employees and
persons working or consulting for such party that do not have an established,
current need to know such information for purposes authorized under this
Agreement. This obligation of confidentiality does not apply to information and
material that:
7.7.1 were properly in the possession of the receiving party, without
any restriction on use or disclosure, prior to receipt from the other party;
7.1.2 are at the time of disclosure hereunder in the public domain by
public use, publication, or general knowledge;
7.1.3 become general or public knowledge through no fault of the
receiving party or its Affiliates following disclosure hereunder;
7.1.4 are properly obtained by the receiving party from a third party
not under a confidentiality obligation to the disclosing party hereto;
7.1.5 are independently developed by or on behalf of the receiving
party without the assistance of the confidential information of the other party;
7.1.6 consist merely of an idea or conception for the combination of
one or more active drug ingredients with a controlled-release agent such as
TIMERx; or
7.1.7 are required to be disclosed by order of any court or
governmental authority.
22
<PAGE> 23
7.2 Neither party shall make any public announcement or other
publication regarding this Agreement (whether as to the existence or terms
hereof) or the development work or project hereunder or the results thereof
without the prior, written consent of the other party, which consent shall not
be unreasonably withheld; provided that the foregoing shall not prohibit any
disclosure which, in the opinion of counsel to the disclosing party, is required
by any applicable law or by any competent governmental authority. In no event
shall either party make any disclosure of any such results before a patent
application has been filed with respect thereto, except upon the prior written
approval of the other party.
7.3 Each of TIMERx Technologies and Schwarz Pharma agrees that
during the License Period, neither of them will directly or indirectly solicit
or encourage any employee or consultant of the other to leave or terminate such
employment or consultancy for any reason, including without limitation, becoming
employed or otherwise engaged in any capacity by such party (or any person or
entity associated with such party, whether or not an Affiliate), nor will it
assist others in doing so.
8. INFRINGEMENT.
8.1 TIMERx Technologies shall promptly inform Schwarz Pharma of any
suspected infringement of any of the TIMERx Technologies Patents or the
infringement or misappropriation of the TIMERx Production Technology by a third
party, to the extent such infringement involves the manufacture, use or sale of
the Designated Product in the Territory ("Covered Infringement"). Schwarz Pharma
shall promptly inform TIMERx Technologies of any suspected infringement of any
of the TIMERx Technologies Patents or infringement or misappropriation of the
TIMERx Production Technology of which Schwarz Pharma is aware, whether or not
the same involves a Covered Infringement.
8.2 If the suspected infringement or misappropriation does not
involve a Covered Infringement, TIMERx Technologies may take, or refrain from
taking, any action it chooses, with or without notice to Schwarz Pharma, and
Schwarz Pharma shall have no right to take any action with respect to such
suspected infringement or misappropriation, nor to any recoveries with respect
thereto. TIMERx Technologies will exert reasonable efforts to keep Schwarz
Pharma informed of actions TIMERx Technologies may take as described in the
preceding sentence to the extent the same bear on rights protected within the
Territory. If the suspected infringement or misappropriation involves a Covered
Infringement, TIMERx Technologies shall, within 120 days of the first notice
referred to in Section , inform Schwarz Pharma whether or not TIMERx
Technologies intends to institute suit against such third party with respect to
a Covered Infringement. Schwarz Pharma will not take any steps toward
instituting suit against any third party involving a Covered Infringement until
23
<PAGE> 24
TIMERx Technologies has informed Schwarz Pharma of its intention pursuant to the
previous sentence.
8.3 If TIMERx Technologies notifies Schwarz Pharma that it intends
to institute suit against a third party with respect to a Covered Infringement,
and Schwarz Pharma does not agree to join in such suit as provided in Section ,
TIMERx Technologies may bring such suit on its own and shall in such event bear
all costs of, and shall exercise all control over, such suit. TIMERx
Technologies may, at its expense, bring such action in the name of Schwarz
Pharma and/or cause Schwarz Pharma to be joined in the suit as a plaintiff.
Recoveries, if any, whether by judgment, award, decree or settlement, shall
belong solely to TIMERx Technologies.
8.4 If TIMERx Technologies notifies Schwarz Pharma that it desires
to institute suit against such third party with respect to a Covered
Infringement, and Schwarz Pharma notifies TIMERx Technologies within 30 days
after receipt of such notice that Schwarz Pharma desires to institute suit
jointly, the suit shall be brought jointly in the names of both parties and all
costs thereof shall be borne equally. Recoveries, if any, whether by judgment,
award, decree or settlement, shall, after the reimbursement of each of TIMERx
Technologies and Schwarz Pharma for its share of the joint costs in such action,
be shared between TIMERx Technologies and Schwarz Pharma as the interests of the
parties were affected by the infringement.
8.5 If TIMERx Technologies notifies Schwarz Pharma that it does not
intend to institute suit against such third party with respect to a Covered
Infringement, Schwarz Pharma may institute suit on its own. Schwarz Pharma shall
bear all costs of, and shall exercise all control over, such suit. Recoveries,
if any, whether by judgment, award, decree or settlement, shall belong solely to
Schwarz Pharma; provided however that, after reimbursement of Schwarz Pharma for
its costs in such action, any portion of such net recoveries which constitutes
the equivalent of, or damages or payments in lieu of, a royalty measured by the
defendant's Net Sales, shall be shared between TIMERx Technologies and Schwarz
Pharma in accordance with Section as if they were Schwarz Pharma's Net Sales
(counting the infringing party's product as a Competing Generic Version).
8.6 Should either TIMERx Technologies or Schwarz Pharma commence a
suit under the provisions of this Section and thereafter elect to abandon the
same, it shall give timely notice to the other party, who may, if it so desires,
be joined as a plaintiff in the suit (or continue as such if it is already one)
and continue prosecution of such suit, provided, however, that the sharing of
expenses and any recovery of such suit shall be as agreed upon between TIMERx
Technologies and Schwarz Pharma.
9. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
24
<PAGE> 25
9.1 Each party represents and warrants to the other that, to its
current knowledge, without undertaking any special investigation, it has the
full right and authority to enter into this Agreement and to grant the licenses
granted herein.
9.2 TIMERx Technologies represents and warrants that any Formulated
TIMERx supplied by it to Schwarz Pharma hereunder for use in the Designated
Product, at the point of delivery:
9.2.1 will conform to the Specifications in effect as of the order
date therefor; and
9.2.2 to TIMERx Technologies' current knowledge, without undertaking
any special investigation, will not infringe upon an article patent of any third
party. Without limiting the generality of this clause, TIMERx specifically
warrants that it will be able to formulate the Designated Product such that it
will not be infringing of that certain United States Patent No. 5,419,917,
issued May 30, 1995 and assigned to Andrx Pharmaceuticals, Inc. (the "Andrx
Patent").
OTHERWISE, TIMERx TECHNOLOGIES PROVIDES "AS-IS," AND MAKES NO REPRESENTATIONS OR
WARRANTIES AS TO, ANY TIMERx OR FORMULATED TIMERx SUPPLIED BY IT TO SCHWARZ
PHARMA FOR TESTING, DEVELOPMENT, OR ANY OTHER PURPOSES EXCEPT EXPLICITLY FOR USE
IN THE DESIGNATED PRODUCT FOR COMMERCIAL USE OR SALE.
9.3 Each party represents and warrants to the other that it has
obtained, and will at all times during the term of this Agreement hold and
comply with, all licenses, permits and authorizations necessary to perform this
Agreement and to test, manufacture, market, export, and import the Designated
Product or Formulated TIMERx, as now or hereafter required under any applicable
statutes, laws, ordinances, rules and regulations of the United States and any
applicable foreign, state, and local governments and governmental entities.
9.4 THE FOREGOING WARRANTIES ARE IN LIEU OF, AND THE PARTIES EACH
DISCLAIM, ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR ARISING BY LAW, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, AND NON-INFRINGEMENT. NOTHING IN THIS AGREEMENT SHALL BE
CONSTRUED AS A REPRESENTATION OR WARRANTY (i) BY TIMERx TECHNOLOGIES AS TO THE
PATENTABILITY, VALIDITY, OR SCOPE OF ANY TIMERX TECHNOLOGIES PATENTS, TIMERx
TECHNOLOGIES' CONFIDENTIAL TECHNOLOGY, TIMERx PRODUCTION TECHNOLOGY, OR TIMERx
TECHNOLOGIES TEST AND REGULATORY DATA, NOR AS TO THE UTILITY, EFFICACY,
NONTOXICITY, SAFETY OR APPROPRIATENESS OF TIMERx OR THE DESIGNATED PRODUCT; OR
(ii) BY SCHWARZ PHARMA AS
25
<PAGE> 26
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
TO THE PATENTABILITY, VALIDITY, OR SCOPE OF ANY SCHWARZ PHARMA IMPROVEMENTS OR
SCHWARZ PHARMA TEST AND REGULATORY DATA, NOR AS TO THE UTILITY, EFFICACY,
NONTOXICITY, SAFETY OR APPROPRIATENESS OF ANY PRODUCTS MADE THEREFROM.
9.5 TIMERx Technologies shall indemnify, defend and hold harmless
Schwarz Pharma and its Affiliates and sublicensees from any claim, action or
damages arising out of any alleged infringement by reason of the manufacture,
use or sale by Schwarz Pharma of the Designated Product to the extent such
infringement would apply as well to the manufacture, sale or distribution of
TIMERx alone or otherwise to the extent the same is covered by Section . If
Schwarz Pharma or its Affiliate or sublicensee, by reason of its manufacture,
sale or distribution of Designated Product, is accused of infringing the patent
of a third party, and such claim of infringement, as framed by the claimant,
would apply as well to the manufacture, sale or distribution of TIMERx alone or
otherwise to the extent the same is covered by Section , Schwarz Pharma shall
immediately so notify TIMERx Technologies and provide TIMERx Technologies all
available information, and the parties shall consult reasonably as to the proper
course of action. If TIMERx Technologies and Schwarz Pharma jointly determine
that such claim is likely to prevail, or if an arbitrator hereunder or a court
of competent jurisdiction so determines, Schwarz Pharma shall be entitled to
offset against any Royalties payable to TIMERx Technologies hereunder any third
party royalties for which Schwarz Pharma or its Affiliate or sublicensee becomes
liable.
9.6 TIMERx Technologies shall indemnify, defend and hold Schwarz
Pharma and its Affiliates and sublicensees harmless from any and all third-party
claims to the extent arising from, in connection with, based upon, by reason of,
or relating in any way to:
9.6.1 the formulation, development, supply, production, manufacture,
sale, delivery, distribution or use of TIMERx in the Designated Product;
9.6.2 TIMERx Technologies' *****************************************
************************ and the Specifications therefor hereunder, including
without limitation any infringement claims based on the Andrx Patent;
9.6.3 any failure of the Formulated TIMERx manufactured by TIMERx
Technologies or its alternate supplier (but not by Schwarz Pharma under Section
), as delivered to Schwarz Pharma hereunder for use in the Designated Product,
to conform to the Specifications; or
9.6.4 any failure of TIMERx Technologies to comply with its obligation
under Section to notify Schwarz Pharma of any information coming into TIMERx
Technologies' possession and *********************************************.
26
<PAGE> 27
and not arising from any other aspect of the Designated Product or its
formulation, development, supply, production, manufacture, sale, delivery,
distribution or use, nor from any act or omission of Schwarz Pharma with respect
to the Formulated TIMERx following its delivery to Schwarz Pharma hereunder.
9.7 Schwarz Pharma shall indemnify, defend and hold TIMERx
Technologies harmless from any and all third-party claims to the extent arising
from, in connection with, based upon, by reason of, or relating in any way to,
the formulation, development, supply, production, manufacture, sale, delivery,
distribution or use of the Designated Product by Schwarz Pharma, its Affiliates
or sublicensees, except for any matters which are covered by TIMERx
Technologies' indemnities under Sections and .
9.8 Notwithstanding anything to the contrary set forth elsewhere
herein, neither Schwarz Pharma nor TIMERx Technologies shall be obligated to
indemnify the other party for claims or liabilities to the extent arising from
such other party's, or its Affiliates', sublicensees' or assigns', negligence,
intentional misconduct, or breach of its duties, obligations, warranties or
representations set forth herein.
9.9 Whenever indemnification is provided for a party under this
Agreement, such right of indemnification shall extend also to the indemnified
party's Affiliates, officers, directors, shareholders, successors, assigns,
agents, employees, and insurers to the extent the same become subject to such
claim in such capacity. The party seeking indemnification shall provide the
indemnifying party with written notice of any claim or action within ten (10)
days of its receipt thereof, and shall afford the indemnifying party the right
to control the defense and settlement of such claim or action. The party seeking
indemnification shall provide reasonable assistance to the indemnifying party in
the defense of such claim or action. If the defendants in any such action
include both Schwarz Pharma and TIMERx Technologies and either party concludes
that there may be legal defenses available to it which are different from,
additional to, or inconsistent with, those available to the other, that party
shall have the right to select separate counsel to participate in the defense of
such action on its behalf, and such party shall thereafter bear the cost and
expense of such separate defense. Should the indemnifying party determine not to
defend such claim or action, the other party shall have the right to maintain
the defense of such claim or action and the indemnifying party agrees to provide
reasonable assistance to it in the defense of such claim or action. Neither
party shall settle any such claim or action in a way that prejudices or
adversely impacts the other party to this Agreement without the prior approval
of such other party (which approval shall not be unreasonably withheld).
9.10 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT (OTHER THAN SECTION WITH RESPECT TO BREACHES OF CONFIDENTIALITY AND
NONSOLICITATION
27
<PAGE> 28
AND SECTION WITH RESPECT TO INDEMNITIES FOR PATENT INFRINGEMENT AND SECTIONS AND
WITH RESPECT TO INDEMNITIES FOR HARM TO PERSONS OR TANGIBLE PROPERTY), NEITHER
PARTY SHALL UNDER ANY CIRCUMSTANCES BE LIABLE FOR ANY THIRD PARTY CLAIMS OR FOR
ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES, INCLUDING ANY LOST
PROFITS OR SAVINGS, ARISING FROM ANY BREACH OF WARRANTY OR THE PERFORMANCE OR
BREACH OF ANY OTHER PROVISION OF THIS AGREEMENT OR THE USE OR INABILITY TO USE
TIMERx, THE DESIGNATED PRODUCT, TIMERx TECHNOLOGIES PATENTS, TIMERx
TECHNOLOGIES' CONFIDENTIAL TECHNOLOGY, TIMERx PRODUCTION TECHNOLOGY, TIMERx
TECHNOLOGIES TEST AND REGULATORY DATA, SCHWARZ PHARMA IMPROVEMENTS, OR SCHWARZ
PHARMA TEST AND REGULATORY DATA, OR ANY CLAIMS ARISING IN TORT, PERSONAL INJURY,
OR PRODUCT LIABILITY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
10. TERM AND TERMINATION.
10.1 The term of this Agreement shall begin on the date set forth
above and shall, unless earlier terminated as provided herein, continue until
the end of the License Term.
10.2 Schwarz Pharma may at its option terminate this Agreement
following the U.S. Approval Date, upon at least 120 days' written notice to
TIMERx Technologies.
10.3 In the event that either party materially breaches any of the
terms, conditions or agreements contained in this Agreement to be kept, observed
or performed by it, then the other party may terminate this Agreement, at its
option and without prejudice to any of its other legal or equitable rights or
remedies, by giving the party who committed the breach (i) in the case of breach
of obligations other than the payment of money, 60 days' notice in writing,
unless the notified party within such 60-day period shall have cured the breach,
and (ii) in the case of breach of an obligation for the payment of money, 20
days' notice in writing, unless the notified party within such 20-day period
shall have cured the breach, including any required payment of interest on
previously unpaid amounts as set forth herein.
10.4 This Agreement will automatically terminate if Schwarz Pharma
files for protection under federal or state bankruptcy laws, becomes insolvent,
makes an assignment for the benefit of creditors, appoints or suffers
appointment of a receiver
28
<PAGE> 29
or trustee over its property, files a petition under any bankruptcy or
insolvency act or has such petition filed against it.
10.5 Any sublicenses granted by Schwarz Pharma under this Agreement
shall provide for assignment to TIMERx Technologies of Schwarz Pharma's interest
therein upon termination of this Agreement, subject to TIMERx Technologies'
approval, which shall not be unreasonably withheld, but which, if properly
withheld, shall result in the termination of such sublicense.
10.6 Following any expiration or termination of the License Term, the
license to TIMERx Technologies under Section shall be thereafter extended to
include (in addition to its coverage as stated in such section) the use of
Schwarz Pharma Test and Regulatory Data for purposes of complying with
governmental requirements with respect to the Designated Product for
manufacturing, marketing or use in the Territory. While exercises of the rights
licensed under Section prior to the extension under this Section will continue
to bear a reasonable consideration as provided in Section , exercises of such
rights as so extended under this Section for purposes of complying with
governmental requirements with respect to the Designated Product or another
controlled-release product containing Verapamil for manufacturing, marketing or
use in the Territory will be fully paid-up and royalty free.
10.7 Schwarz Pharma's obligations regarding payment of Royalties
accrued as of the date of termination, TIMERx Technologies' rights under
Sections and (except if this Agreement is terminated due to an uncured breach on
the part of TIMERx Technologies), and Schwarz Pharma's rights under Section
(except if this Agreement is terminated due to an uncured breach on the part of
Schwarz Pharma), and the provisions of Sections , , and , hereof shall survive
any expiration or termination of this Agreement.
10.8 All rights and licenses granted under or pursuant to this
Agreement by TIMERx Technologies (as the "licensor") to Schwarz Pharma (as the
"licensee") or by Schwarz Pharma (as the "licensor") to TIMERx Technologies (as
the "licensee") are and shall otherwise be deemed to be, for purposes of Section
365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as
defined under Section 101(52) of the Bankruptcy Code. The parties agree that the
licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the Bankruptcy Code. The parties
further agree that, in the event of the commencement of a bankruptcy proceeding
by or against the licensor under the Bankruptcy Code, the licensee shall be
entitled to a complete duplicate of (or complete access to, as appropriate) any
such intellectual property and all embodiments of such intellectual property,
and the same, if not already in its possession, shall to the extent required for
the exercise of the licenses granted hereunder, be promptly delivered to the
licensee (i) upon any such commencement of a bankruptcy proceeding upon written
request therefor by the licensee, unless the
29
<PAGE> 30
licensor elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, upon the rejection of this
Agreement by or on behalf of the licensee upon written request therefor by the
licensee.
11. MISCELLANEOUS.
11.1 This Agreement incorporates the numbered Exhibits referenced
herein. This Agreement constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof, it being understood that the
Diltiazem Agreement is not superseded by or merged into this Agreement, but,
rather, shall continue in effect as to its subject matter and in accordance with
its terms.
11.2 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns; provided,
however, that except as part of the transfer of all or substantially all assets
to a single buyer or pursuant to a merger or other corporate reorganization:
11.2.1 TIMERx Technologies shall not delegate or subcontract any of its
obligations during the Development Period, and
11.2.2 Schwarz Pharma shall not assign or delegate its rights or
obligations hereunder at any time, without the prior written consent of the
other party hereto.
11.3 All notices, requests or other communication provided for or
permitted hereunder shall be given in writing and shall be hand delivered or
sent by facsimile, reputable courier or by registered or certified mail, postage
prepaid, return receipt requested, to the address set forth on the signature
page of this Agreement, or to such other address as either party may inform the
other of in writing. Notices will be deemed delivered on the earliest of
transmission by facsimile, actual receipt or three days after mailing as set
forth herein.
11.4 Any terms of this Agreement may be amended, modified or waived
only in a writing signed by both parties.
11.5 If any provision of this Agreement shall be held invalid,
illegal or unenforceable, such provision shall be enforced to the maximum extent
permitted by law and the parties' fundamental intentions hereunder, and the
remaining provisions shall not be affected or impaired.
11.6 Nothing herein contained shall constitute this a joint venture
agreement or constitute either party as the partner, principal or agent of the
other, this being an
30
<PAGE> 31
Agreement between independent contracting entities. Neither party shall have the
authority to bind the other in any respect whatsoever. Except as provided
herein, nothing contained in this Agreement shall be construed as conferring any
right on either party to use any name, trade name, trademark or other
designation of the other party hereto, unless the express, written permission of
such other party has been obtained.
11.7 In the event that either party hereto is prevented from carrying
out its obligations under this Agreement by events beyond its reasonable
control, including without limitation acts or omissions of the other party, acts
of God or government, natural disasters or storms, fire, political strife, labor
disputes, failure or delay of transportation, default by suppliers or
unavailability of parts, then such party's performance of its obligations
hereunder shall be excused during the period of such event and for a reasonable
period of recovery thereafter, and the time for performance of such obligations
shall be automatically extended for a period of time equal to the duration of
such event or events; provided, however, that the other party may, at its
election, terminate this Agreement upon 120 days' prior notice to the party
affected by such events, unless such events cease to prevent such affected
party's performance hereunder during such 120-day period.
11.8 This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York without regard to its
conflict of laws rules.
11.9 Any dispute, other than a question relating to patent validity,
between the parties which arises under this Agreement or is otherwise related to
this Agreement and which cannot be resolved by good faith negotiation between
the parties over a period of at least ninety (90) days shall be resolved by
arbitration conducted in the English language in Seattle, Washington, before a
panel of three arbitrators under the then current rules and procedures of the
American Arbitration Association (the "AAA"), or other rules and procedures as
the parties may agree. The prevailing party in any such proceeding shall be
entitled to an award of its reasonable attorneys' fees and other costs,
including the fees and expenses of the arbitrators and the AAA, provided that
the same may be apportioned between the parties by the arbitrators if they
determine that each party has prevailed in part. The arbitral award shall be
binding and conclusive on both parties and may be enforced in any court of
competent jurisdiction. Notwithstanding the foregoing, either party may, on good
cause shown, seek a temporary restraining order and/or a preliminary injunction
from a court of competent jurisdiction, to be effective pending the institution
of the arbitration process and the deliberation and award of the arbitration
panel.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and acknowledge this Agreement as of the date first written
above.
31
<PAGE> 32
SCHWARZ PHARMA INC. TIMERx TECHNOLOGIES
By [ILLEGIBLE] By [ILLEGIBLE]
----------------------- --------------------------
Its PRESIDENT Its PRESIDENT
Address: Address:
5600 County Line Road 2981 Route 22
Mequon, Wisconsin 53092 Patterson, N.Y. 12563
FAX: (414) 242-1641 FAX: (914) 878-3420
Attn:________________ Attn:________________
32
<PAGE> 33
EXHIBIT 1.1
TIMERx Technologies Affiliates
Schwarz Pharma Affiliates
TIMERx Technologies Affiliates
PENWEST, LTD.
Edward Mendell Co., Inc.
Penford Products Co.
Edward Mendell GmBH
Edward Mendell Finland OY
PENWEST Foreign Sales Corporation
33
<PAGE> 34
EXHIBIT 1.1, CONTINUED
TIMERx Technologies Affiliates
Schwarz Pharma Affiliates
Schwarz Pharma Affiliates:
Central Pharmaceuticals, Inc.
Schwarz Pharma AG
Schwarz Pharma Deutschland GmbH
Sanol GmbH
ISIS Pharma GmbH
Schwarz Pharma Ltd.
Schwarz Pharma S.p.A.
Laboratories Schwarz Pharma S.A.
Schwarz Pharma Poland Sp.zo.o.
Seloc AG
SIFA Ltd.
SICOR S.A.
HOYER GmBH & Co.
Schwarz/[illegible]
34
<PAGE> 35
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 1.12
MILESTONE FEE SCHEDULE
The milestone payments will vary *****************************************
******************************************** for each such milestone. The
Trigger Date for a milestone is the date that the conditions to such milestone
have been satisfied, as stated in this Agreement; e.g., the Trigger Date for
each of the biostudies is the completion of the respective study, the Trigger
Date for the Filing is the date of such Filing, the Trigger Date for the
Approval is the date of the Approval, and the Trigger Date for the Launch is the
date of the Launch. The following table sets forth the applicable milestone
payments, in U.S. Dollars:
**********************************************
MILESTONE ***************************
- --------- ---------------------------------------------------------
*** *** *** ***
--- --- --- ---
*************
********** ****** ****** ****** ******
********** ****** ****** ****** ******
********** ****** ****** ****** ******
********** ****** ****** ****** ******
********** ****** ****** ****** ******
35
<PAGE> 36
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 1.14
Pilot Biostudies
1. The Clinical Research Organization that we will work with for the Pilot
Biostudies ***************************.
2. The Pilot Biostudies will be based on two studies wherein the first
study is a ********************************************************************
***********. The second study is a ********************************************
*******************************************************************************
*******. These two studies can be done simultaneously and will be done only on
the ***************************************************************************
****************************************************************** described
above.
3. We will evaluate the PK data (see #2 above) prior to starting
formulation work at Central.
36
<PAGE> 37
EXHIBIT 1.24
TIMERx Technologies Patents
UNITED STATES:
1) U.S. Patent No. 4,994,276, entitled "Directly Compressible Slow Release
Granulation," issued February 19, 1991.
2) U.S. Patent No. 5,128,143, entitled "Sustained Release Excipient and
Tablet Formulation," issued July 7, 1992.
3) U.S. Patent No. 5,135,757, entitled "Compressible Sustained Release
Dosage Forms," issued August 4, 1992.
4) U.S. Patent No. 5,455,046, entitled "Sustained Release Hetero-Disperse
Hydrogel Systems for Insoluble Drugs," issued October 3, 1995.
CANADA:
5) Canadian Patent Application No. 611,700, filed September 18, 1989
(corresponding to items 1), 2) and 3) above).
6) Canadian Patent Application Number 2131647, filed September 8, 1994,
corresponding to item 4) above.
MEXICO:
7) Mexican Patent Application Number 94-6885, filed September 8, 1994,
corresponding to item 4) above.
37
<PAGE> 38
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 1.27
UNIT PRICES
The price for the Formulated TIMERx product to be supplied by TIMERx
Technologies to Schwarz Pharma will vary **************************************
***************************************** when the product units are ordered.
The following table sets forth the applicable prices, per kilogram, in U.S.
Dollars, subject to adjustment as stated in the Agreement:
*********************************************
**********************
---------------------------------------------------------
**** **** **** ****
---- ---- ---- ----
Price* **** **** **** ****
* In all cases, Price shall be subject to an overall cap (to be determined
annually) of ***** per tablet (subject to annual adjustment by TIMERx
Technologies to reflect changes in the Pharmaceutical Producers' Index, or an
equivalent index) calculated on a unit weighted average of both dosage
strengths.
38
<PAGE> 39
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 4.3
ROYALTY RATES
The royalty rates *************************************************************
**************************************** during the calendar quarter in which
the royalties accrue, and the Net Sales then reached for that year. ***********
**********************************************************************
**********************************************************************
**********************************************************************
**********************************************************************
***********************, in percentages of Net Sales:
Portion of Net Sales ***********************************************
during Each Year the Applicable Quarter
-----------------------------------------------
**** **** **** ****
---- ---- ---- ----
First
******** **** **** **** ****
********
******** **** **** **** ****
********
******** **** **** **** ****
******** **** **** **** ****
****
39
<PAGE> 1
EXHIBIT 10.7
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
PRODUCT DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT
THIS AGREEMENT is entered into as of the 28th day of February, 1997 (the
"Effective Date"), by and between TIMERx Technologies, a division of Penwest,
Ltd., a Washington corporation, with principal place of business at 2981 Route
22, Patterson, New York 12563, USA ("TIMERx Technologies"), and SANOFI WINTHROP
INTERNATIONAL S.A., a company incorporated under the laws of France, with
registered office at 9 rue du President Salvador Allende, 94250 Gentilly, France
("Sanofi").
A. TIMERx Technologies has developed a controlled-release agent ,
which agent marketed by TIMERx Technologies under the name and trademark
"TIMERx(R)" ("TIMERx") and which is covered by one or more patents, patent
applications, know-how and other proprietary technology of which TIMERx
Technologies or its affiliates are beneficial owner or authorized users.
B. Sanofi is a pharmaceutical company that wishes to develop a 24-
hour controlled release version of nifedipine in tablet form to be marketed in
Europe in the 30mg and 60mg dosage strengths.
C. TIMERx Technologies has developed a specific formulation of
TIMERx which may be combined with nifedipine.
D. The parties desire to engage in certain development, regulatory
and testing activities designed to determine if the formulation of TIMERx
combined with nifedipine as developed by TIMERx Technologies is comparable to
Adalat LA and is capable of registration. If such activities are successful, the
parties desire to allow Sanofi to exclusively manufacture, market and distribute
the Designated Product in the Territory defined herein, and Sanofi desires to
contract for the supply of its requirements of Formulated TIMERx for use in such
manufacture.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
1.1. "ADALAT LA" shall mean 24 hour controlled-release nifedipine
manufactured and marketed by BAYER.
1.2. Affiliate" of TIMERx Technologies and "Affiliate" of Sanofi
shall mean and include the entities that, directly or indirectly, own and
control the voting of more than 45% of the voting capital shares of such party
("Parent"), or more than 45% of the voting capital shares (or equivalent
control) of which is, directly or indirectly,
<PAGE> 2
owned, and the voting of which is controlled, by such party or its Parent, as of
the Effective Date. For purposes of this definition and this Agreement, no
Affiliate shall remain such unless it continues to meet the foregoing criteria,
and neither Bayer nor Pfizer or their affiliates will qualify as an Affiliate of
either party, regardless of any ownership or control relationships.
1.3. "AGREEMENT" shall mean this agreement and all exhibits attached
hereto, which form an integral part hereof.
1.4. "APPROVAL DATE" shall mean, as to each country in the Territory,
the date on which a Designated Product is approved by Regulatory
Authority in such country for commercial sale in oral tablet
form for administration in humans, pursuant to a Product License
Application submitted by or for Sanofi or its Affiliates (a
"PLA"), in the name of Sanofi or its Affiliates.
1.5. "CHEMICAL PRODUCERS' INDEX" shall mean the producers' price
index for commodities currently regularly maintained and
published by the Bureau of Labor Statistics of the U.S. Labor
Department ("BLS") under the group and item name "Chemicals and
allied products" and Series ID WPU06, or, if such index is
discontinued or substantially restructured, "Chemical Producers'
Index" shall mean a successor to such index reasonably
acceptable to both parties as a reasonable equivalent or
substitute index. For purposes of calculations to be made
hereunder, the most recent published index for the reporting
period ending most recently prior to the then-current month in
which such adjustment is being made hereunder shall be used,
even though such index may be designated as "preliminary" and
even though it may thereafter be adjusted by the BLS or other
entity publishing such index.
1.6. "CONFIDENTIAL TECHNOLOGY" shall mean all technology that is, at
the relevant time hereunder, protected or required to be
protected by both parties hereto as confidential information
pursuant to Section 8 hereof.
1.7. "DESIGNATED PRODUCT" shall mean a tablet form of a
controlled-release pharmaceutical for oral administration in
humans that combines nifedipine with Formulated TIMERx and other
excipients in 30mg and 60mg dosage strengths and which conforms
in all respects with the Specifications.
1.8. "DEVELOPMENT PERIOD" shall mean the period from the Effective
Date through the earlier of the termination of this Agreement as
provided herein or the approval of the Phase II Dissolution
Profile Studies by Sanofi pursuant to Section 3.3.
1.9. "DISSOLUTION PROFILE STUDIES" shall mean the in vitro studies to
compare
2
<PAGE> 3
Adalat LA from the Territory to the Designated Product, as more
fully described in Exhibit . The "Phase I Dissolution Profile
Studies" will be conducted by TIMERx Technologies using
Designated Product manufactured by Mylan Pharmaceuticals. The
"Phase II Dissolution Profile Studies" will be conducted by
Sanofi using Designated Product manufactured by Sanofi.
1.10. "EXCLUSIVITY PERIOD" shall mean, with respect to each country in
the Territory and subject to earlier transformation into
non-exclusive rights, as provided in Section 11.2, the period
during the License Term until there are no longer any TIMERx
Technologies Patents in that country applicable to the
Designated Product or, if later, until all of TIMERx
Technologies' Confidential Technology provided to Sanofi
hereunder has been disclosed without restriction to the public
(but in this case, where there are no longer any TIMERx
Technologies Patents in that country applicable to the
Designated Product, the Exclusivity Period will not last longer
in such country than ten years from the later of the first
Approval Date or the first Other Governmental Approval Date in
any country in the European portion of the Territory).
1.11. "FORMULATED TIMERx" shall mean TIMERx and certain additives in
a formulation which has been developed by TIMERx Technologies
specifically for use in the Designated Product and which is
referred to by TIMERx Technologies as "TIMERx-N." The Formulated
TIMERx will be identical in all respects to TIMERx (also
referred to by TIMERx Technologies as "TIMERx-N") to be supplied
by TIMERx Technologies to Mylan Pharmaceuticals pursuant to
their license agreement calling for registration with the US FDA
of the Designated Product using such TIMERx-N.
1.12. "LICENSE TERM" shall mean the cumulative period covered by the
Development Period, the Regulatory Period, and the Marketing
Period.
1.13. "MARKETING PERIOD" shall mean the period (not being a period of
more than 20 years from the Effective Date) beginning on the
later of the Approval Date or the Other Governmental Approval
Date in the particular country and ending on the earlier of:
1.13.1. the tenth, thirteenth, sixteenth, or nineteenth
anniversary of the first Approval Date (or, if later,
the first Other Governmental Approval Date) in any
country in the Territory, if either party so notifies
the other at least one hundred eighty (180) days prior
to such anniversary that the Marketing Period will end
on such anniversary; or
1.13.2. the termination of the License Term and/or this
Agreement as
3
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
provided herein;
provided, however, that the Marketing Period may be
ended sooner with respect to a country or group of
countries (as indicated in Exhibit 11.2) pursuant to
Section 11.3, in which event such country or group shall
be deemed thereafter removed from the Territory for all
purposes of this Agreement.**
1.14. "NET SALES" shall mean *****************************************
****************************************************************
****************************************************************
*********
1.15. "OTHER GOVERNMENTAL APPROVAL DATE" shall mean, as to each
country in the Territory, the date on which a Designated Product
is approved by all required governmental agencies in such
country (other than the Regulatory Authority) for commercial
sale in such country.
1.16. "PER-KILOGRAM PRICE" shall mean ****** for each kilogram of
Formulated TIMERx sold hereunder during the three years
following the Effective Date, and shall mean, for each kilogram
sold thereafter, such ******, subject to upward adjustment if
mutually agreed by the parties (which agreement shall not be
unreasonably withheld), taking into account changes in the
Chemical Producers' Index since the Effective Date.
1.17. "PIVOTAL PHARMACODYNAMIC STUDIES" shall mean the studies
undertaken by Sanofi, as more fully described in Exhibit and
designed to support the submission to the Regulatory Authority
of a PLA for the Designated Product (whether or not such PLA is
ultimately approved).
1.18. "PRODUCT PRODUCTION TECHNOLOGY" shall mean TIMERx Technologies'
rights under the TIMERx Technologies Patents and any and all
other patents, patent applications, and other technology and
know-how belonging to TIMERx Technologies from time to time
during the term of this Agreement that directly relate to, and
are necessary for the production of, the Designated Product from
Formulated TIMERx supplied by TIMERx Technologies.
1.19. "PROJECT CONTACT(S)" shall mean the persons appointed by each
party to serve as contact persons between the parties during the
Development Period and the Regulatory Period. The initial
Project Contact for TIMERx Technologies for business matters is
Michael T. Mallon, and the initial Project Contact for TIMERx
Technologies for technical and
4
<PAGE> 5
scientific matters is Dr. Dileep Bhagwat. The initial Project
Contact for Sanofi for business matters is Dr. John Buckle, and
the initial Project Contact for Sanofi for technical and
scientific matters is Dr. Brian Bond (both based at Sanofi
Winthrop Ltd., but each of whom have full authority to act as a
Project Contact for Sanofi hereunder). Each party shall promptly
notify the other party of any substitution of other personnel as
its Project Contact(s). Each party may select and supervise its
other project staff as needed.
1.20. "REGULATORY AUTHORITY" shall mean the competent authority for
each country of the Territory or for the European Union or for
any other relevant grouping of countries in the Territory
legally responsible for authorising the sale or supply of
medicinal products in that country, Union or grouping of
countries as the case may be.
1.21. "REGULATORY PERIOD" shall mean the period beginning at the end
of the Development Period and ending on the earlier of:
1.21.1. the later of the Approval Date or the Other Governmental
Approval Date in all countries of the Territory; or
1.21.2. the termination of this Agreement as provided herein.
1.22. "ROYALTIES" shall mean the royalties payable to TIMERx
Technologies pursuant to Section 5.5 hereof.
1.23. "SANOFI IMPROVEMENTS" shall mean any and all improvements,
modifications, alterations, or enhancements to any of the
inventions covered by the TIMERx Technologies Patents, TIMERx
Technologies' Confidential Technology, the Product Production
Technology, or the TIMERx Production Technology, that are
developed, owned, or controlled by Sanofi or any of its
Affiliates or sublicensees at any time during the License Term
(to the extent the same are discloseable by Sanofi without
violation of duties of confidentiality owed to third parties).
1.24. "SANOFI TEST AND REGULATORY DATA" shall mean any and all test
data, test designs and protocols, clinical studies and results
thereof (including without limitation the Phase II Dissolution
Profile Studies and the Pivotal Pharmacodynamic Studies and any
other studies required by Regulatory Authorities or otherwise
prepared by or for Sanofi, more specifically called herein the
"Sanofi Clinical Data"), government licenses and applications
therefor, government certifications and findings, and
5
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
related materials, information and rights (including without
limitation information regarding any adverse drug reactions),
developed, commissioned or otherwise obtained by Sanofi or any
of its Affiliates or sublicensees during the term of this
Agreement relating to controlled- release nifedipine in 30mg
and/or 60mg dosage strengths (to the extent the same are
discloseable by Sanofi without violation of duties of
confidentiality owed to third parties), TIMERx, Sanofi
Improvements, the Designated Product, TIMERx Technologies
Patents, Product Production Technology, TIMERx Production
Technology and/or TIMERx Technologies' Confidential Technology.
For the avoidance of doubt TIMERx Technologies Test and
Regulatory Data are excluded from this definition.
1.25. "SANOFI TRADEMARKS" shall mean trademarks which are the
exclusive property of and which will remain at all times the
exclusive property of Sanofi or its Affiliates.
1.26. "SPECIFICATIONS" shall mean, as determined by the context in
which such term is used: (i) the description and product
specification for the Designated Product set forth in Exhibit
1.26A, together with such variations to the standards and
analytical methods agreed by TIMERx Technologies and Sanofi and
approved by the Regulatory Authority in the PLA in each country
of the Territory (subject to Section 4.8); and/or (ii) the
description and product specification for the Formulated TIMERx
set forth in Exhibit 1.26B, which are identical to those used or
designed to be used in the production of Formulated TIMERx for
use in Designated Product for sale outside the Territory by
TIMERx Technologies or its licensees, together with such
variations to the standards and analytical methods agreed by
TIMERx Technologies and Sanofi and approved by the Regulatory
Authority in the PLA in each country of the Territory (subject
to Section 4.8).
1.27. "TERRITORY" shall mean the countries **************************
1.28. "TIMERx" is a customized blend or blends of homopolysacharides
and heteropolysacharides and other additives as exemplified in
one or more of the TIMERx Technologies Patents in Exhibit 1.31.
1.29. "TIMERx IMPROVEMENTS" shall mean any and all improvements,
modifications, alterations, or enhancements to any of the
inventions covered by the TIMERx Technologies Patents, TIMERx
Technologies' Confidential Technology, the Product Production
Technology, or the TIMERx Production Technology, that relate to
the Designated Product and that are developed, owned, or
controlled by TIMERx or any of its
6
<PAGE> 7
Affiliates, sublicensees or subcontractors at any time during
the License Term (to the extent the same are discloseable by
TIMERx Technologies without violation of duties of
confidentiality owed to third parties).
1.30. "TIMERx PRODUCTION TECHNOLOGY" shall mean TIMERx Technologies'
rights under the TIMERx Technologies Patents and any and all
other patents, patent applications, and other technology
belonging to TIMERx Technologies from time to time during the
term of this Agreement that directly relate to, and are
necessary for the production of, Formulated TIMERx for use in
the Designated Product.
1.31. "TIMERx TECHNOLOGIES PATENTS" shall mean:
1.31.1. those patents, patent applications, and equivalents
(such as supplementary protection certificates) in the
Territory owned by TIMERx Technologies or its Affiliates
in respect of TIMERx and/or Formulated TIMERx required
to give effect to this Agreement and as listed in
Exhibit 1.31 and all divisions, continuations, reissues,
or extensions thereof; and
1.31.2. TIMERx Technologies' rights under patents in the
Territory, if any, obtained and in force during the
License Term covering any of TIMERx Technologies'
improvements, modifications, alterations, or
enhancements to any of the inventions covered by the
TIMERx Technologies Patents. The patent issued in Europe
under No. 0360562 (but currently on appeal) and any
patents in Europe arising therefrom shall be referred to
herein as the "'89 Patent"). The pending patent
application in the EPO filed August 30,1994 as
Application No. 94401925.6 and any patents in Europe
arising therefrom shall be referred to herein as the
"'94 Application/Patent"). The '89 Patent and the '94
Application/Patent are sometimes referred to
collectively herein as the "Principal Patents."
1.32. "TIMERx TECHNOLOGIES TEST AND REGULATORY DATA" shall mean any
and all test data, test designs and protocols, clinical studies
and results thereof, government licenses and applications
therefor, government certifications and findings, and related
materials, information and rights (including without limitation
information regarding bioavailability and bioequivalence, and
any adverse drug reactions), developed, commissioned or
otherwise obtained by TIMERx Technologies or any of its
Affiliates, sublicensees or subcontractors during the term of
this Agreement relating to Formulated TIMERx, Designated
Product, controlled-release nifedipine in 30mg and/or 60mg
dosage strengths,
7
<PAGE> 8
TIMERx Technologies Patents, Product Production Technology,
and/or TIMERx Production Technology (to the extent the same are
discloseable by TIMERx Technologies without violation of duties
of confidentiality owed to third parties), together with all
intellectual property and other rights and interests of TIMERx
Technologies and its Affiliates thereto and therein in the
Territory. For the avoidance of doubt Sanofi Test and Regulatory
Data are excluded from this definition.
1.33. "TIMERx TRADEMARK(S)" shall mean those names, symbols and or
characters described in Exhibit 1.33 hereto, as the same may be
amended from time to time during the term of this Agreement by
TIMERx Technologies on at least six (6) months' prior written
notice to Sanofi, that are owned and registered (or are
registrable) by TIMERx Technologies and that have been
designated by it for use in conjunction with Sanofi's packaging
and promotion of the Designated Product hereunder, pursuant to
Section 5.2.
2. GRANT OF LICENSE AND TRANSFER OF TECHNOLOGY.
2.1. TIMERx Technologies hereby grants to Sanofi a license under the
TIMERx Technologies Patents and TIMERx Technologies'
Confidential Technology disclosed to Sanofi hereunder and to all
TIMERx Improvements, to manufacture, use and sell and register
the Designated Product in the Territory during the License Term.
Subject to Section 7.3, such license shall be exclusive for such
purposes in each country during the Exclusivity Period for that
country, and otherwise shall be nonexclusive. TIMERx
Technologies hereby grants to Sanofi a nonexclusive license
under the Product Production Technology to make and have made
the Designated Product in the Territory during the License Term
using Formulated TIMERx supplied by TIMERx Technologies or
produced pursuant to the license under Section 7.6. Such
licenses do not extend to the making of TIMERx or Formulated
TIMERx, those matters being covered by Section 7.6. Sanofi shall
have the right to grant sublicenses of its rights hereunder to
any Affiliate(s) of Sanofi (and this Agreement shall thereby be
binding upon and inure to the benefit of such Affiliate within
the area of such sublicense), but shall otherwise have no right
to grant sublicenses hereunder without the prior written consent
of TIMERx Technologies in its discretion. TIMERx Technologies
will, throughout the License Term, promptly notify Sanofi of all
TIMERx Technologies Patents referred to in Subsection 1.31.2 and
provide Sanofi with access to all of the same and to other
TIMERx Improvements, solely for use within the scope of the
license stated in this section.
8
<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
2.2. TIMERx Technologies hereby grants Sanofi a nonexclusive, paid-up
license, with right to sublicense as stated in Section 2.1,
under all rights of TIMERx Technologies and its Affiliates in
and to the TIMERx Technologies Test and Regulatory Data to use
the same for purposes of complying with governmental
requirements, but solely with respect to the Designated Product
for marketing or use in the Territory. TIMERx Technologies
hereby consents to Sanofi's and its permitted sublicensees'
cross-referencing, in any PLA or other governmental filings made
by them within the scope of such license, any ANDA, NDA or other
PLA filing made or drug master file created by TIMERx
Technologies or its Affiliates relating to or containing any of
the TIMERx Technologies Test and Regulatory Data. The license
and rights under this section shall survive any termination or
expiration of the term of this Agreement, except a termination
under Section 11.4 due to an uncured breach by Sanofi. TIMERx
Technologies will, throughout the License Term and solely for
use within the scope of the license stated in this section,
provide to Sanofi on request access to all of the TIMERx
Technologies Test and Regulatory Data in or coming into TIMERx
Technologies' possession or otherwise reasonably available to
it.
2.3. TIMERx Technologies will at its expense exert reasonable efforts
to make knowledgeable personnel reasonably available within
thirty (30) days from the later of the Effective Date or
Sanofi's written request, to consult with Sanofi to the extent
necessary to enable Sanofi to produce Designated Product for
Sanofi and its Affiliates pursuant to this Agreement. The
parties understand and agree that Sanofi's performance under
this Agreement depends upon the communication of the Product
Production Technology, and that, if for any reason, it is not
possible to transfer such technology to Sanofi, this will not
lead to liability on Sanofi's part. The Product Production
Technology will be deemed to have been successfully transferred
upon the satisfactory completion of the Phase II Dissolution
Profile Studies.
3. DEVELOPMENT AND REGULATORY PERIODS.
3.1. In consideration of TIMERx Technologies' entering into this
Agreement, Sanofi shall pay TIMERx Technologies upon the
Effective Date a nonrefundable initial fee of ********.
3.2. During the Development Period, TIMERx Technologies will exert
all its reasonable efforts to complete the Phase I Dissolution
Profile Studies and Sanofi will cooperate in such effort.
********** Phase I Dissolution Profile Studies (as more fully
described in Exhibit 1.9), Sanofi will pay TIMERx Technologies a
milestone fee of **********.
9
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
3.3. During the Development Period, Sanofi will exert all its
reasonable efforts to complete the Phase II Dissolution Profile
Studies as soon as is practicable, and TIMERx Technologies will
cooperate in such effort. ********** Phase II Dissolution
Profile Studies (as more fully described in Exhibit 1.9), Sanofi
will pay TIMERx Technologies a milestone fee of **********.
3.4. Each party's Project Contact(s) will provide written reports to
the other party's Project Contact(s) at least monthly throughout
the Development Period and the Regulatory Period, stating in
detail all efforts made and in process, and all significant
progress achieved and difficulties encountered in the reporting
party's portion of the development effort or regulatory efforts,
as the case may be, since the last such report. Each of the
Project Contacts will also be available throughout the
Development Period and the Regulatory Period to answer any
reasonable questions from the other party's Project Contacts, as
appropriate.
3.5. Sanofi will supply to TIMERx Technologies, without charge, all
Adalat LA and Designated Product reasonably required to support
the development effort by TIMERx Technologies during the
Development Period (other than Designated Product for the Phase
I Dissolution Profile Studies, which shall be supplied by TIMERx
Technologies at its expense), and TIMERx Technologies shall
provide at its own expense all Formulated TIMERx reasonably
required for such effort.
3.6. Throughout the Development Period and the Regulatory Period, the
parties' Project Contacts and other relevant personnel (as
determined in good faith by each party) shall attend project
meetings to be held quarterly or on such other basis as may be
mutually agreed. The sites for such meetings will alternate
between Patterson, N.Y. and Guildford, Surrey (which is the
location of Sanofi's Affiliate, Sanofi Winthrop Limited ("Sanofi
Winthrop"), which will be the Sanofi branch with the closest
relationship to this Agreement). Each party shall bear its own
expenses of its personnel's travel, lodging and meals incurred
in connection with attending such quarterly meetings. Each party
shall bear its own expenses for all activities during the
Development Period and the Regulatory Period, except that, if
TIMERx Technologies personnel travel outside the Patterson, New
York area during the Development Period or the Regulatory Period
at the request of Sanofi and for the convenience of Sanofi,
other than to attend such meetings, Sanofi shall bear all of the
reasonable travel, lodging and meal expenses for such personnel,
and if Sanofi personnel travel outside the Guildford, Surrey
area during the Development Period or the Regulatory Period at
the request of TIMERx Technologies and for the convenience of
TIMERx Technologies, other than to attend such meetings, TIMERx
Technologies
10
<PAGE> 11
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
shall bear all of the reasonable travel, lodging and meal
expenses for such personnel.
4. OTHER REGULATORY PERIOD PROVISIONS.
4.1. Promptly following approval by Sanofi of the Phase II
Dissolution Profile Study for the Designated Product pursuant to
Section 3.3 above, the Regulatory Period will begin. Sanofi
will, during the Regulatory Period, exert all its reasonable
efforts to perform the ********** and TIMERx Technologies will
cooperate in such effort. As to scheduling, the parties
understand that *************.
4.2. Subject to completion by Sanofi of the **********, Sanofi will
exert all its continuing reasonable efforts to obtain and retain
marketing approval for the Designated Product throughout the
Territory, including, at its expense, the preparation and filing
during and after the Regulatory Period of PLAs for the
Designated Product with the relevant Regulatory Authorities
throughout the Territory, and the prosecution of the same
successfully to the granting of marketing approvals from such
authorities for the Designated Product. As the term is used in
this Section 4, the exertion of all Sanofi's reasonable efforts
will mean that (i) Sanofi will exert on a continuing basis such
reasonable efforts as would be normal for sponsors or applicants
for regulatory approval of drugs under PLAs generally, and (ii)
this project will receive a priority at least as high as any of
Sanofi's other generic drug development efforts (if such a
priority would lead to the exertion of greater efforts than
those described in clause (i)).
4.3. Each party will cooperate with the other throughout the
Regulatory Period and may at its discretion provide to the other
party all information in or coming into its possession or
reasonably available to it which it considers useful to support
the goals of the Regulatory Period. Without prejudice to its
obligations under this Agreement, each party understands and
agrees that the other does not warrant or commit that the
Designated Product will be successfully developed, nor that, if
developed, that it will be successfully registered in any county
or countries, and neither party shall have any liability or
responsibility to the other or to third parties for any such
failure of the development process hereunder.
4.4. In addition to the fees payable in Section 3.1, 3.2, and 3.3,
and in consideration of TIMERx Technologies' entering into this
Agreement, Sanofi agrees to pay TIMERx Technologies the
following non-refundable fees:
11
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
4.4.1 a milestone fee payable within ********** in the
Territory, in the amount of **********; and
4.4.2 another milestone fee, also in the amount of **********,
payable within ********** in the Territory.
4.5. Except as otherwise provided in this Section 4, each party shall
bear its own expenses for all activities during the Regulatory
Period, provided, however that TIMERx Technologies shall provide
to ************, and reasonable quantities of Designated Product
********** for purposes of comparing therewith the Designated
Product manufactured by Sanofi in dissolution profile testing
and finished product quality control testing, and provided
further, however, that Sanofi shall provide at its own expense
all other Designated Product and other materials and
manufacturing and testing services reasonably required to
support the testing and certification effort.
4.6 Except as provided in Section 4.7, Sanofi shall be responsible
for, and hereby agrees to conduct or arrange for, at Sanofi's
expense, all testing and studies during the Regulatory Period,
including as to efficacy, bioavailability, bioequivalence, and
safety and any other necessary testing, in connection with the
development, manufacture and marketing of the Designated
Product, and for compliance with all requirements imposed by any
Regulatory Authority or otherwise by the government of any
country in the Territory with respect to the Designated Product
provided that TIMERx Technologies shall have promptly and
throughout the Regulatory Period provided to Sanofi all
necessary information in or coming into TIMERx Technologies'
possession and available to it in support of the completion of
such testing.
4.7 If one or more Regulatory Authorities, following Sanofi's filing
of a PLA with it or them, require additional tests or studies,
******************************* (i.e., ************), *****
************* shall be borne entirely by Sanofi, within the
context and limits of its agreement hereunder to exert all
reasonable efforts to obtain marketing approval for the
Designated Product.
4.8 It is understood and agreed that the Specifications for
Formulated TIMERx for Designated Product to be sold in the
United Kingdom and outside the United Kingdom shall be the same,
because this will be required for the technically satisfactory
production, regulatory approval, and exploitation of the
Designated Product. Accordingly, in no event will Sanofi permit
the Designated Product to be certified for sale anywhere in the
Territory on any other basis, unless TIMERx Technologies has
consented thereto in writing after detailed consultation
12
<PAGE> 13
with Sanofi. It is understood, however, that the Regulatory
Authority in the respective countries of the Territory may
require differing tests and certificates of analysis on the
Formulated TIMERx to be provided hereunder with respect to
Designated Products to be sold in those countries, and in such
event the parties shall agree on how to proceed.
4.9 Sanofi's Project Contacts will provide written reports to TIMERx
Technologies' Project Contacts, as appropriate, at least monthly
throughout the Regulatory Period, stating in detail all efforts
made and in process, and all significant progress achieved and
difficulties encountered in the certification effort since the
last such report. Sanofi's Project Contacts will also be
available throughout the Regulatory Period to answer any
reasonable questions from TIMERx Technologies' Project Contacts,
as appropriate.
5. MARKETING PERIOD.
5.1. Subject to the granting of all necessary governmental approvals
or concurrences to sell the Designated Product, Sanofi hereby
agrees, during the Marketing Period, to use all continuing
reasonable efforts to market and sell the Designated Product
throughout the portion of the Territory for which its sale has
been approved.
5.2 Sanofi will manufacture and package the Designated Product in
accordance will all applicable laws and regulations in the
Territory. Provided that the TIMERx Trademarks remain registered
in the countries listed in Exhibit 1.33, and that TIMERx
Technologies undertakes reasonable efforts to protect and defend
the same in such countries, Sanofi agrees to market the
Designated Product in conjunction with the appropriate TIMERx
Trademark(s), and as provided below in this Section, and in
association, if Sanofi so desires in any country of the
Territory, with a Sanofi Trademark.
5.2.1 Sanofi acknowledges that all TIMERx Trademarks and all
rights therein or registrations thereof, worldwide,
shall belong exclusively to TIMERx Technologies, and
TIMERx Technologies shall use all reasonable efforts to
obtain and maintain registrations for the TIMERx
Trademarks in the countries of the Territory. All use of
the TIMERx Trademarks as contemplated in this Agreement
by Sanofi shall accrue to the benefit of TIMERx
Technologies. Sanofi shall make no use of any of the
TIMERx Trademarks except to identify and promote the
Designated Product as contemplated hereunder for sale in
the Territory. Sanofi shall not continue using the
TIMERx Trademarks after
13
<PAGE> 14
termination or expiration of this Agreement, nor after
the removal or alteration of any such TIMERx Trademark
from Exhibit , except to complete sale of reasonable
quantities of inventory of the Designated Product on
hand at the time of termination or expiration, or at the
time of such removal or alteration.
5.2.2 Sanofi shall cooperate with TIMERx Technologies, at
TIMERx Technologies' request and at TIMERx Technologies'
expense, to protect the interest of TIMERx Technologies
in the TIMERx Trademarks, and shall neither attempt to
register nor authorize others to register the TIMERx
Trademarks without the prior written consent of TIMERx
Technologies in each instance. Sanofi shall promptly
inform TIMERx Technologies of any actual or apparent
infringement of any TIMERx Trademarks or other
intellectual properties of TIMERx Technologies which may
come to Sanofi's attention during the term hereof.
5.2.3 Sanofi shall use all appropriate notices of trademark
status of the TIMERx Trademarks, including the "TM"
designation (or the (R) symbol for registered marks), in
all labeling and promotional materials and shall
otherwise conform with all policies and notices of
TIMERx Technologies' rights in the marks and for the
protection of the TIMERx Trademarks, including without
limitation the inclusion of an appropriate footnote
acknowledging the use of the TIMERx Trademark(s) under
license.
5.2.4 Samples of the Designated Product and any advertising,
promotional materials or packaging related thereto shall
be provided by Sanofi to TIMERx Technologies at least
thirty days prior to the first use or sale thereof, and
at other times upon the reasonable written request of
TIMERx Technologies. Sanofi shall use its reasonable
commercial endeavours to present drafts (or their
equivalents) of such items for the written approval of
TIMERx Technologies, which approval shall not be
unreasonably withheld, prior to the initial use thereof
(or, where this is not possible prior to such initial
use, then as soon as possible thereafter). So long as
the TIMERx Trademark is registered in the Territory,
TIMERx Technologies shall have the right to enter into
Sanofi's facilities up to once a year at times agreed by
the parties and/or to take other appropriate methods to
check the quality of the Designated Product manufactured
or offered by Sanofi, from time to time during the term
of this Agreement after reasonable prior notice to
Sanofi. If at any time or times TIMERx Technologies
determines that the quality of the Designated Product
manufactured or offered by Sanofi, or the packaging or
14
<PAGE> 15
promotional materials therefor, does not comply with
TIMERx Technologies standards as communicated from time
to time to Sanofi, TIMERx Technologies, at its option
(and as its only remedy as to trademark matters), shall
have the right to suspend or prohibit the use of the
TIMERx Trademark(s), provided that TIMERx Technologies
has given Sanofi a written notice thereof and a period
of 60 days to bring them up to TIMERx Technologies'
standards; provided further, however, that TIMERx
Technologies need not give such opportunity to cure any
deficiency that has been the subject of more than two
such notices on prior occasions during the preceding
twelve months.
5.3. Except for sales to Sanofi or its Affiliates hereunder, and
subject also to the provisions of Section 7.3, TIMERx
Technologies agrees that it shall not directly or indirectly,
during the Exclusivity Period for any country in the Territory,
sell or market the Designated Products or the Formulated TIMERx
(for use in the Designated Product) in such country or knowingly
for export into such country, provided that Sanofi understands
that TIMERx Technologies may not have effective means to control
where the Designated Products or Formulated TIMERx are
ultimately sold or used after being sold by TIMERx Technologies
or its licensees; provided, however, that nothing herein shall,
without any objectively justified reason, require TIMERx
Technologies (i) to refuse to meet unsolicited orders from users
or resellers outside the Territory who would market the
Designated Products or Formulated TIMERx within the Territory or
(ii) to make it difficult for users or resellers to obtain the
Designated Products or Formulated TIMERx in accordance with
applicable law from other resellers within the European Union,
or in particular to prevent users or resellers from obtaining
outside or from putting on the market in the Territory
Designated Products or Formulated TIMERx which have been
lawfully put on the market within the European Union by TIMERx
Technologies, or with its consent.
5.4 Subject to Section 7.3, Sanofi shall have no right to sell the
Designated Products directly or indirectly in or knowingly for
export to any area other than the Territory, and Sanofi hereby
agrees that neither it nor its Affiliates shall do so or attempt
to do so, whether directly or indirectly, provided that TIMERx
Technologies understands that Sanofi may not have effective
control over where the Designated Products are ultimately sold
or used after being sold by Sanofi or its Affiliates; provided,
however, that nothing herein shall, without any objectively
justified reason, require Sanofi or its Affiliates (i) to refuse
to meet unsolicited orders from users or resellers in the
Territory who would market the Designated Products within that
part of the European Union outside of the Territory or (ii) to
make it difficult for users or resellers to obtain the
15
<PAGE> 16
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
Designated Products in accordance with applicable law from other
resellers within the European Union, or in particular to prevent
users or resellers from obtaining outside or from putting on the
market in the Territory Designated Products which have been
lawfully put on the market within the European Union by TIMERx
Technologies, or with its consent.
5.5 In consideration of TIMERx Technologies' entering this Agreement
and of the grant of the licenses by TIMERx Technologies
hereunder, Sanofi hereby agrees to pay to TIMERx Technologies
Royalties equal to ********************************************
***************************************************************
***************************************************************
***************************************************************
************************************************.
5.6 All Royalties payable pursuant to this Agreement shall be due
quarterly within 60 days following the end of each calendar
quarter for Net Sales in such calendar quarter. Each such
payment of Royalties shall be accompanied by a statement of Net
Sales for the quarter and the calculation of Royalties payable
hereunder, including an itemization of the quantities of the two
dosage strengths sold. All Royalties and all other amounts
payable under this Agreement will bear interest at the rate of 1
1/2% per month or the maximum legal rate, whichever is less,
from the date due through the date of payment. Sanofi shall keep
and shall cause its Affiliates to keep complete, true and
accurate records for the purpose of showing the derivation of
all Royalties payable to TIMERx Technologies under this
Agreement. TIMERx Technologies shall have the right to have such
records inspected, copied and audited no more than one a year by
an independent expert during reasonable business hours upon
reasonable prior written notice to Sanofi or any of its
Affiliates, respectively. Any such audit shall be at the expense
of TIMERx Technologies, unless the audit reveals that, with
respect to the period under audit, less than 97% of the
Royalties due to TIMERx Technologies hereunder have been paid,
in which event Sanofi shall pay or reimburse TIMERx Technologies
for the reasonable expenses of such audit, in addition to TIMERx
Technologies' other remedies for such underpayment. The parties
shall reasonably agree from time to time as to whether Royalties
and other amounts payable under this Agreement shall be
collected on a local or centralised basis, provided that the
basis of collection will not reduce the net amounts ultimately
realized by TIMERx Technologies.
5.7 All monies due to TIMERx Technologies under this Agreement shall
be paid in United States Dollars to TIMERx Technologies in
Patterson, New York, USA. ********** preceding the date of
payment for the conversion of local currency to United States
Dollars as published by The Wall Street Journal (or if it ceases
to be published, a comparable publication to be agreed upon by
the parties) or, for those countries for which such
16
<PAGE> 17
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
average exchange rate is not published by The Wall Street
Journal, the exchange rate fixed on the fifth day prior to the
date of payment as promulgated by the appropriate United States
governmental agency as mutually agreed upon by the parties.
6. SUPPLY OF FORMULATED TIMERx.
6.1. It is understood and agreed that an established source of supply
of the Formulated TIMERx for use in the Designated Product in
accordance with the Specifications will be required for
technically satisfactory exploitation of the rights granted
hereunder. Accordingly, except as provided in Section 6.2, and
subject to the other provisions hereof, TIMERx Technologies will
supply Sanofi and its Affiliates with quantities of Formulated
TIMERx sufficient to meet their reasonable requirements thereof
during the Marketing Period, and Sanofi shall purchase all of
its and its Affiliates' requirements for TIMERx from TIMERx
Technologies during such period. The price for each kilogram of
Formulated TIMERx sold hereunder shall equal the applicable Per-
Kilogram Price multiplied by the kilograms purchased.
************************************************************
**********. If at any time during the term of this Agreement the
value of the French franc depreciates by more than **********
during period of at ********** in comparison to the exchange
rate fixed at the Effective Date, TIMERx Technologies may review
accordingly the price at which the Formulated TIMERx is supplied
to Sanofi.
6.2 If TIMERx Technologies, for reasons of force majeure, fails or
is unable to supply Sanofi with its and its Affiliates'
requirements of Formulated TIMERx during the Marketing Period
pursuant to Section 6.1, TIMERx Technologies shall grant Sanofi
a nonexclusive license to manufacture Formulated TIMERx under
the TIMERx Production Technology, and shall make knowledgeable
personnel available at the expense of TIMERx Technologies (up to
a maximum of ******) to consult with Sanofi, all to the extent
necessary to enable Sanofi to produce Formulated TIMERx (from
the appropriate raw materials) that would otherwise have been
supplied by TIMERx Technologies or an alternate supplier
hereunder for Sanofi and its Affiliates in connection with the
production of the Designated Product pursuant to this Agreement.
TIMERx Technologies will provide as much prior notice to Sanofi
of any failure described in this section as the circumstances
permit. In such event Sanofi shall pay to TIMERx Technologies,
in addition to the Royalties under Section 5.5,****** of
Formulated TIMERx produced, converted to Designated Product and
sold by Sanofi hereunder, *************************************.
6.3 The following provisions shall be applicable to the situation
described in Section 6.2:
17
<PAGE> 18
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
6.3.1 Sanofi shall maintain all information and technology
delivered to Sanofi pursuant to such Section, whether
orally or in writing, in strictest confidence and shall
use such information and technology only for the purpose
of producing the Formulated TIMERx for its own use and
the use of its Affiliates and permitted sublicensees (if
any) in connection with this Agreement.
6.3.2 Sanofi acknowledges that, in doing the foregoing, TIMERx
Technologies will not be providing a "turnkey"
operation. Rather, TIMERx Technologies will only be
required to make available to Sanofi the best standard
of knowledge and information then available to TIMERx
Technologies and directly used in its or its Affiliate's
or licensee's manufacture of the Formulated TIMERx.
TIMERx Technologies will not be required to prepare,
provide or obtain any information not then in its
possession, nor to adapt any of the knowledge or
information provided to the particular plant or
manufacturing location of Sanofi, including without
limitation any local legal, licensing, or environmental
considerations. If any professional licenses, visas, or
other permits are required for any of the consulting to
be provided by TIMERx Technologies' or its Affiliates'
or licensees' personnel, Sanofi shall so inform TIMERx
Technologies and Sanofi shall bear the costs of
obtaining the same.
6.3.3. Without prejudice to TIMERx Technologies' obligations
under this Agreement, neither TIMERx Technologies nor
its Affiliates or licensees will be responsible for any
failure of Sanofi or its personnel to understand or
properly to implement such knowledge and information or
for any materials made by any party other than TIMERx
Technologies or such respective Affiliate or licensee
using such knowledge and information, except where such
failure to understand results from the negligence or
willful misconduct of TIMERx Technologies.
6.3.4. If TIMERx Technologies' non-delivery of the Formulated
TIMERx as described in Section 6.2 resulted in whole or
in part from a temporary inability to produce and
deliver the same, and TIMERx Technologies gives
****************************** that TIMERx Technologies
will again be able and willing to supply the Formulated
TIMERx and demonstrates to Sanofi's reasonable
satisfaction that TIMERx Technologies is so able and
willing to supply the Formulated TIMERx on a long-term
basis, TIMERx Technologies will, upon the agreement of
both parties (which agreement will not be withheld
unreasonably), resume the supply of the Formulated
TIMERx hereunder, it being understood that
18
<PAGE> 19
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
Sanofi will be entitled to exhaust its work in process
and any inventory of Formulated TIMERx ****************
6.4 All sales of Formulated TIMERx hereunder shall be F.O.B.
Patterson, N.Y., and Sanofi shall bear all transportation,
insurance, taxes, duties, and other costs and risks of loss,
spoilage and damage associated with shipping and delivery to
Sanofi or its Affiliates. All payments by Sanofi to TIMERx
Technologies pursuant to this Section 6 will be made in US
dollars within thirty (30) days of receipt by Sanofi of TIMERx
Technologies' invoice, by direct bank transfer to such account
of TIMERx Technologies as TIMERx Technologies shall from time to
time notify Sanofi.
6.5 TIMERx Technologies shall perform routine quality control tests
with respect to all Formulated TIMERx as required by the
applicable Regulatory Authority and any additional quality
control tests as TIMERx Technologies deems necessary in
accordance with its applicable policies. No other or special
tests by TIMERx Technologies will be required, unless and to the
extent that Sanofi establishes that the same are required in
order to obtain or maintain a Regulatory Authority or other
governmental license to market the Designated Product in the
Territory. The parties will reasonably and timely agree in a
separate quality control agreement upon quality control, quality
assurance, and inspection testing procedures and
responsibilities as required by applicable regulations.
6.6 If Sanofi considers any such shipment not to conform to the
applicable Specifications for the Formulated TIMERx, Sanofi
shall notify TIMERx Technologies in accordance with the quality
control agreement referenced in Section 6.5 and provide TIMERx
Technologies with the relevant analysis. TIMERx TECHNOLOGIES'
SOLE OBLIGATION AND SANOFI'S EXCLUSIVE REMEDY FOR ANY SUCH
NONCONFORMITY THAT IS EITHER DETECTED, OR THAT WOULD HAVE BEEN
DETECTABLE THROUGH PROPER APPLICATION OF THE STANDARD QUALITY
CONTROL PROCEDURES IN THE INDUSTRY, SHALL BE AS FOLLOWS:
i) TIMERx Technologies shall at its own expense
accept return, or cause its supplier to accept
return, of any shipment not accepted, or else
reimburse Sanofi for the cost of disposal or
destruction; and
ii) TIMERx Technologies shall replace the
non-conforming shipment as quickly as possible
with conforming Formulated TIMERx and
reconstitute, ******, the inventory of
Formulated TIMERx pursuant to Section 6.9 below.
19
<PAGE> 20
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
6.7 While TIMERx Technologies is supplying Formulated TIMERx
hereunder to Sanofi, TIMERx Technologies shall, after receipt of
reasonable prior notice, give duly accredited representatives of
Sanofi access at all reasonable times during regular business
hours to TIMERx Technologies' or its Affiliate's plant in which
the Formulated TIMERx is being produced, and (if and to the
extent Sanofi establishes that it must have such access in order
to obtain or maintain a Regulatory Authority or other
governmental license to market the Designated Product) to the
plant of any licensee in which the Formulated TIMERx is being
produced, in up to two visits per year. In addition, TIMERx
Technologies will use all its reasonable efforts to obtain the
permission of any such licensee for other access to such
licensee's plant as may be reasonably requested by Sanofi.
6.8 Sanofi shall, within three months following the filing by Sanofi
of each PLA with each Regulatory Authority for the Designated
Product, submit to TIMERx Technologies Sanofi's best estimate of
its requirements for Formulated TIMERx in the six month period
following the later of the Approval Date or the Other
Governmental Approval Date in the applicable country, which
estimates will be subject to firm order pursuant to Section 6.9.
6.9 Sanofi shall deliver to TIMERx Technologies a firm written order
stating its (and/or its Affiliates') requirements for Formulated
TIMERx to be used for production of the Designated Product for
commercial use or sale no less than **** in advance of the
requested delivery date therefor. All such firm orders shall be
non-cancellable by Sanofi. TIMERx Technologies will supply
quantities within **** following receipt of Sanofi's firm
written order therefor. TIMERx Technologies shall have no
obligation to supply Sanofi with quantities during any quarter
in excess of **** of the highest quantity estimated in Sanofi's
estimates for that quarter pursuant to Section 6.10. TIMERx
Technologies, will supply to Sanofi an inventory of ****
production requirements of Formulated TIMERx for Sanofi and its
Affiliates, based on Sanofi's projections given under Section
6.10 for the **** extending beyond the **** firm ordering period
(but not in excess of **** of Sanofi's actual firm order volume
for such firm order period). TIMERx Technologies will bear the
costs of this **** inventory of Formulated TIMERx to be held by
Sanofi at its own storage facilities (at Sanofi's costs and risk
as to storage), by not invoicing Sanofi for the price of such
inventory (unless and until the inventory is finally depleted).
6.10 At least **** before Sanofi and/or its Affiliates begin
commercial sale of the Designated Product, Sanofi shall deliver
to TIMERx Technologies a written, non-binding estimate of all
requirements of Formulated TIMERx
20
<PAGE> 21
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
during the following ****. Sanofi will deliver to TIMERx
Technologies updates to such estimates on or before the first
day of each January, April, July and October thereafter, which
updates may revise estimates previously submitted, and will add
estimates for additional months so that each such estimate
covers the **** period following the end of the firm-order
period (that is, the **** after the month in which such
estimates are made), it being understood, however, that as to
****, Sanofi may give such estimates on an aggregated quarterly
or semi-annual basis.
6.11 Pursuant to the terms of Exhibit 6.11, each party shall promptly
notify the other of any fact, circumstance, condition or
knowledge dealing with TIMERx or the Designated Product of which
the Party becomes aware that bears upon the safety or efficacy
of TIMERx or the Designated Product or as to any adverse drug
reaction (whether or not due to a defect in the Designated
Product or the Formulated TIMERx). Each party shall immediately
notify the other of any inspection or audit relating to TIMERx,
Formulated TIMERx, or the Designated Product by any governmental
regulatory authority in the Territory. If a representative of
the governmental authority takes samples in connection with such
audit or inspection, the parties shall immediately provide each
other, as appropriate, with samples from the same batch. The
party in receipt of such notice will provide the other party
within 72 hours, with copies of all relevant documents, warning
letters and other correspondence and notifications as such other
party may reasonably request. TIMERx Technologies and Sanofi
agree to cooperate with each other during any inspection,
investigation or other inquiry by a Regulatory Authority or
other governmental entity, including providing information
and/or documentation, as requested by the Regulatory Authority,
or other governmental entity. To the extent permissible, TIMERx
Technologies and Sanofi also agree to discuss any responses to
observations or notifications received and to give the other
party an opportunity to comment on any proposed response before
it is made. In the event of disagreement concerning the content
or form of such response, Sanofi shall be responsible for
deciding the appropriate form and content of any response with
respect to any of its cited activities and TIMERx Technologies
shall be responsible for deciding the appropriate form and
content of any response with respect to any of its cited
activities. Each party shall inform the other of all comments
and conclusions received from the governmental authority.
7. OWNERSHIP AND OTHER LICENSES.
7.1. Except as otherwise explicitly licensed or transferred as
provided herein, each party will, as between it and the other
party hereto, retain
21
<PAGE> 22
ownership of any and all inventions, copyrights, trade marks,
trade secrets, patent rights and other technology and rights to
the extent conceived or developed by its personnel or
contractors (other than the other party hereto) pursuant to this
Agreement. Neither party makes any grant of rights by
implication. TIMERx Technologies will retain ownership in (but
Sanofi shall have the right to use within the scope of its
licenses) the Phase I Dissolution Profile Studies and Sanofi
will retain ownership (but TIMERx Technologies shall have the
right to use within the scope of, and as limited by, its
licenses thereto under Section 7.8) Sanofi Test and Regulatory
Data and its PLAs.
7.2 Except as otherwise provided herein, each party shall be
responsible, as it shall determine, for the filing and
prosecution of any and all patent applications with respect, in
whole or in part, to its own intellectual property and for the
maintenance of any available patent protection with respect
thereto; provided however, that neither party commits that any
such patent protection will be available or continuous
hereunder, but TIMERx Technologies shall exert, as to the
Territory, all reasonable efforts to secure and to maintain in
force patent protection under the Principal Patents.
7.3 Notwithstanding Section 2.1, Sanofi understands and agrees that
TIMERx Technologies and/or its other licensee(s) may, during the
Exclusivity Period, supply the Designated Product within any
country in the Territory, so long as it does so following the
fifth anniversary of the first time the Designated Product is
put on the market anywhere in the European Union and in response
to unsolicited orders and does not pursue an active policy of
putting the Designated Product on the market in such
country(ies) during the Exclusivity Period. Similarly, Sanofi
will have the right to supply the Designated Product within any
country in the European Union that is not part of the Territory,
so long as it does so in response to unsolicited orders and does
not pursue an active policy of putting the Designated Product on
the market in such country(ies), and so long as it does so
following such fifth anniversary with respect to any areas in
which TIMERx Technologies has at any time granted another entity
distribution rights with respect to the Designated Product.
7.4 Sanofi acknowledges that TIMERx Technologies, for itself and for
others, applies, and will seek to apply, TIMERx to products
other than the Designated Product. No provision hereof, and no
exclusivity hereunder, shall prevent TIMERx Technologies from so
applying TIMERx or Formulated TIMERx, so long as the end product
is not the Designated Product in the Territory hereunder.
7.5 Sanofi hereby grants to TIMERx Technologies a nonexclusive,
paid-up
22
<PAGE> 23
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
license under any and all patents, patent applications, and
other intellectual property rights of any sort in the Territory
owned or controlled and licensable by Sanofi or its Affiliates,
to make, have made, use and sell Formulated TIMERx during the
License Term, if and to the extent such license is necessary for
TIMERx Technologies to do so as agreed hereunder, for the
purposes of manufacturing, having manufactured and supplying the
Formulated TIMERx to Sanofi hereunder, including without
limitation any and all Sanofi Test and Regulatory Data.
7.6 Subject to and conditional upon the failure or continuing
inability of TIMERx Technologies to meet Sanofi's and its
Affiliates' requirements for Formulated TIMERx for reasons of
force majeure as provided in Section 6.2, TIMERx Technologies
grants to Sanofi a nonexclusive license under the TIMERx
Production Technology to make and have made the Formulated
TIMERx during the License Term (subject to Section 6.3.4) solely
for use in manufacturing the Designated Product as permitted
hereunder. Sanofi shall have no right to grant sublicenses of
its rights hereunder except to an Affiliate of Sanofi without
the prior written consent of TIMERx Technologies, in its
discretion.
7.7 Sanofi hereby grants to TIMERx Technologies a nonexclusive,
paid-up, worldwide license, with right to sublicense, under any
and all Sanofi Improvements and any and all patents, patent
applications, trade secrets, copyrights, and other intellectual
property rights of any sort covering the Sanofi Improvements, to
make, have made, use and sell any products or services using or
based upon TIMERx or related technology, other than the
Designated Product in the Territory during the License Term.
Sanofi will, throughout the License Term, promptly notify TIMERx
Technologies of all Sanofi Improvements and provide TIMERx
Technologies with access to all of the same, solely for use
within the scope of the license stated in this section; provided
that the exercise of any patents covering any Sanofi
Improvements shall, except as stated in Section 7.5, require the
payment to Sanofi of a reasonable fee or royalty.
7.8 Sanofi hereby grants TIMERx Technologies a nonexclusive, paid-up
(except as noted below in this section) license, with right to
sublicense, under all rights of Sanofi and its Affiliates in and
to the Sanofi Test and Regulatory Data to use the same for
purposes of complying with regulatory or other governmental
requirements of any country, other than with respect to the
Designated Product for marketing or use in a country in the
Territory during the Exclusivity Period in such country. Such
licensed use of Sanofi Clinical Data shall require prior notice
to Sanofi and its consent thereto, which consent shall not be
unreasonably withheld or delayed, and such license shall also
require ********** so used
23
<PAGE> 24
(payable only once hereunder, regardless of the number of uses
or areas involved) if and to the extent any of the Sanofi
Clinical Data is used under this license; provided, however that
no such fee shall be payable if the only use of the Sanofi
Clinical Data is in connection with attempts to secure
regulatory approval for the Designated Product in a country or
countries which were once in the Territory but as to which
Sanofi has, for any reason, abandoned its efforts to secure such
approval. Sanofi hereby agrees to make the Sanofi Test and
Regulatory Data available to TIMERx Technologies which may in
turn make the same available to sublicensees for use by them in
respect of any Abbreviated New Drug Application ("ANDA"), New
Drug Application ("NDA"), PLA, or other governmental filings
made by them within the scope of such license. The license under
this section shall survive any termination or expiration of the
term of this Agreement, except a termination under Section 11.4
due to an uncured breach by TIMERx Technologies. Sanofi will,
throughout the License Term and solely for use within the scope
of the license stated in this section, provide to TIMERx
Technologies on request access to all of the Sanofi Test and
Regulatory Data in or coming into Sanofi's possession or
otherwise reasonably available to it.
7.9 Each party agrees to mark and to have marked by its sublicensees
every product manufactured, used or sold by it or its
sublicensees in accordance with applicable laws relating to the
marking of patented articles with notices of patent.
8. CONFIDENTIALITY.
8.1. In the course of performance under this Agreement or during the
discussions leading thereto, a party may disclose, or may have
disclosed, in writing, orally or by demonstration or sample, to
the other party confidential information belonging to such party
or entrusted to it by a supplier or licensee, which information
is marked or stated in writing at or within 30 days after its
disclosure to be "confidential" or "trade secret" information.
All such confidential information disclosed by a party shall be
maintained in confidence by the other and will not be used by
the other party for any purpose except as authorized hereunder.
Each party shall exercise, and shall cause its Affiliates,
sublicensees, and consultants to exercise, a reasonable degree
of care and at least the same degree of care as it uses to
protect its own confidential information of similar nature to
preserve the confidentiality of such information disclosed by
the other party. Each party shall safeguard such information
against disclosure to third parties, including without
limitation employees and persons working or consulting for such
party that do not have an established, current need to know such
information for purposes authorized under this Agreement. This
obligation of confidentiality does
24
<PAGE> 25
not apply to information and material:
8.1.1. that were properly in the possession of the receiving
party, without any restriction on use or disclosure,
prior to receipt from the other party, each party
acknowledging that the other very likely already has
information that is relevant to this Agreement;
8.1.2. that are at the time of disclosure hereunder in the
public domain by public use, publication, or general
knowledge;
8.1.3. that become general or public knowledge through no fault
of the receiving party or its Affiliates following
disclosure hereunder;
8.1.4. that are properly obtained by the receiving party from a
third party not under a confidentiality obligation to
the disclosing party hereto; or
8.1.5. to the extent the same are required to be disclosed by
order of any court or governmental authority; provided,
however, that the receiving party shall use its best
efforts to give the disclosing party prior notice of any
such disclosure so as to afford the disclosing party a
reasonable opportunity to seek, at the expense of the
disclosing party, such protective orders or other relief
as may be available in the circumstances.
8.2 Neither party shall make any public announcement or other
publication regarding this Agreement (whether as to the
existence or terms hereof) or the development work or project
hereunder or the results thereof without the prior, written
consent of the other party, which consent shall not be
unreasonably withheld; provided that the foregoing shall not
prohibit any disclosure which, in the opinion of counsel to the
disclosing party, is required by any applicable law or by any
competent governmental authority. In no event shall either party
make any disclosure of any such results before a patent
application has been filed with respect thereto, except upon the
prior written approval of the other party.
9. INFRINGEMENT.
9.1. TIMERx Technologies shall exert all reasonable efforts to
monitor and to attempt to stop any infringements by third
parties of any patent included within the Principal Patents and
shall promptly inform Sanofi of any such suspected infringements
or of any of the other TIMERx
25
<PAGE> 26
Technologies Patents or the infringement or misappropriation of
the Product Production Technology or the TIMERx Production
Technology by a third party of which it becomes aware, to the
extent such infringement involves the manufacture, use or sale
of the Designated Product in a country in the Territory during
the Exclusivity Period for such country ("Covered
Infringement"). Sanofi shall exert reasonable efforts to monitor
the marketplace and shall promptly inform TIMERx Technologies of
any suspected infringement of any of the TIMERx Technologies
Patents or infringement or misappropriation of the Product
Production Technology or the TIMERx Production Technology of
which it becomes aware, whether or not the same involves a
Covered Infringement.
9.2 If the suspected infringement or misappropriation does not
involve a Covered Infringement, TIMERx Technologies may take, or
refrain from taking, any action it chooses, with or without
notice to Sanofi, and Sanofi shall have no right to take any
action with respect to such suspected infringement or
misappropriation, nor to any recoveries with respect thereto. If
the suspected infringement or misappropriation involves a
Covered Infringement, TIMERx Technologies shall, within 120 days
of the first notice referred to in Section 9.1, inform Sanofi
whether or not TIMERx Technologies intends to institute suit
against such third party with respect to a Covered Infringement,
it being understood that any failure of TIMERx Technologies to
bring any such suit shall only lead to the consequences stated
in Section 9.7 if such failure is a breach of TIMERx
Technologies' duty of reasonable efforts stated in Section 9.1.
Sanofi will not take any steps toward instituting suit against
any third party involving a Covered Infringement until TIMERx
Technologies has informed Sanofi of its intention pursuant to
the previous sentence.
9.3 TIMERx Technologies shall notify Sanofi of any suit that it
institutes against a third party with respect to a Covered
Infringement. If Sanofi does not agree to join in such suit as
provided in Section 9.4, TIMERx Technologies may bring such suit
on its own and shall in such event bear all costs of, and shall
exercise all control over, such suit. TIMERx Technologies may,
at its expense, bring such action in the name of Sanofi and/or
cause Sanofi to be joined in the suit as a plaintiff.
Recoveries, if any, whether by judgment, award, decree or
settlement, shall belong solely to TIMERx Technologies.
9.4 If TIMERx Technologies notifies Sanofi that it intends to
institute suit against such third party with respect to a
Covered Infringement together with a description of all of the
material information available to TIMERx Technologies with
respect thereto, and Sanofi notifies TIMERx Technologies within
30 days after receipt of such notice and description
26
<PAGE> 27
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
that Sanofi desires to institute suit jointly, the suit shall be
brought jointly in the names of both parties and all costs
thereof shall be borne equally. Recoveries, if any, whether by
judgment, award, decree or settlement, shall, after the
reimbursement of each of TIMERx Technologies and Sanofi for its
share of the joint costs in such action, be shared between
TIMERx Technologies and Sanofi equally.
9.5 If TIMERx Technologies notifies Sanofi that it does not intend
to institute suit against such third party with respect to a
Covered Infringement, Sanofi may institute suit on its own.
***************************************************************
**************************************************************
**************************************************************
***************************************************************
****************** substantial relief, whether in the form of an
injunction, a declaration that the third party was infringing,
or in the form of damages in excess of Sanofi's costs incurred
in connection with such suit. Otherwise, Sanofi may ****** as
such reimbursements. Recoveries, if any, whether by judgment,
award, decree or settlement covered by this section, shall
belong solely to Sanofi.
9.6 Should either TIMERx Technologies or Sanofi commence a suit
under the provisions of this Section 9 and thereafter elect to
abandon the same, it shall give timely notice to the other
party, who may, if it so desires, be joined as a plaintiff in
the suit (or continue as such if it is already one) and continue
prosecution of such suit, provided, however, that the sharing of
expenses and any recovery of such suit shall be as agreed upon
between TIMERx Technologies and Sanofi.
9.7 In no event shall Sanofi's monetary remedies for any breaches or
deficiencies in TIMERx Technologies' performance of its
obligations under this Section 9 or under Section 7.2,
regardless of the number or severity thereof, exceed the rebate
of one-third of the Royalties that would otherwise be due to
TIMERx Technologies under Section 5.5 with respect to Net Sales
made in or to the country or countries to which such breaches or
deficiencies relate, unless such breaches or deficiencies lead
to a result described in Exhibit 5.5 , in which case that
Exhibit shall apply as stated in Section 5.5.
10. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
10.1. Each party represents and warrants to the other that, to the
best of its current knowledge, it has the full right and
authority to enter into this Agreement and to grant the licenses
granted herein.
10.2 TIMERx Technologies represents and warrants that it or its
Affiliates are the beneficial owner of the TIMERx Technologies
Patents, the TIMERx Trademarks, and the TIMERx Production
Technology, and that it is duly
27
<PAGE> 28
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
authorized to grant license rights to Sanofi thereunder, and
under the Product Production Technology, pursuant to this
Agreement. TIMERx Technologies represents and warrants that the
Designated Product is within one or more claims of the TIMERx
Technologies Patents.
10.3 TIMERx Technologies represents and warrants that the
Specifications for the Designated Product describe a Designated
Product which:
10.3.1. to the extent of TIMERx Technologies' current knowledge,
will not infringe upon the intellectual property rights
of any third party, nor, to such knowledge of TIMERx
Technologies, will the registration, manufacture, sale
or promotion of such Designated Product so infringe; and
10.3.2 will not infringe upon the patents in the Territory of
any third party which were issued or published prior to
September 19, 1989 and which disclose an oral tablet,
time-release form of nifedipine dosage or delivery
system, other than: (i)**********; or (ii) **********.
10.4 TIMERx Technologies represents and warrants that (i) the
Formulated TIMERx to be supplied by it to Sanofi hereunder shall
conform to the Specifications therefor at the point of delivery;
(ii) the Designated Product to be manufactured by Mylan
Pharmaceuticals and to be used by TIMERx Technologies in the
Phase I Dissolution Profile Studies shall conform to the
Specifications for the Designated Product when so used; and
(iii) the Designated Product to be manufactured by Mylan
Pharmaceuticals and to be provided to Sanofi by TIMERx
Technologies pursuant to Section 4.5 shall conform to the
Specifications when so provided.
10.5 In no event shall Sanofi's monetary remedies or TIMERx
Technologies' damages for any breaches of TIMERx Technologies'
obligations under Section 10.3.2, regardless of the number or
severity thereof, exceed the rebate of the Royalties theretofore
paid to TIMERx Technologies under Section 5.5 with respect to
Net Sales made in or to the country or countries to which such
breaches relate.
10.6 TIMERx Technologies represents and warrants that it has, or has
access to, annual manufacturing capability to manufacture
quantities of the Formulated TIMERx at least equivalent to the
quantities required for Sanofi to produce quantities of the
Designated Product sufficient to meet ******, as stated in
Exhibit 11.2.
28
<PAGE> 29
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
10.7 TIMERx Technologies represents and warrants to Sanofi that it
has obtained, and will at all times during the term of this
Agreement hold and comply with, all licenses, permits and
authorizations necessary to perform this Agreement and to test,
manufacture, market, and export the Formulated TIMERx as now or
hereafter required under any applicable statutes, laws,
ordinances, rules and regulations of the United States. Sanofi
represents and warrants to TIMERx Technologies that it has
obtained, and will at all times during the term of this
Agreement hold and comply with, all licenses, permits and
authorizations necessary to perform this Agreement and to test,
manufacture, market, export the Designated Product or Formulated
TIMERx in the Territory, and to import Formulated TIMERx into
the Territory from the United States, as now or hereafter
required under any applicable statutes, laws, ordinances, rules
and regulations of any applicable governments and governmental
entities in the Territory.
10.8 THE FOREGOING WARRANTIES IN THIS SECTION 10 ARE IN LIEU OF, AND
THE PARTIES EACH DISCLAIM, ALL OTHER WARRANTIES, EXPRESS,
IMPLIED OR ARISING BY LAW, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTIES OF MERCHANTABILITY, SATISFACTORY QUALITY,
FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT. NOTHING
IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION OR
WARRANTY (i) BY TIMERx TECHNOLOGIES AS TO THE PATENTABILITY,
VALIDITY, OR SCOPE OF ANY TIMERx TECHNOLOGIES PATENTS, TIMERx
TECHNOLOGIES' CONFIDENTIAL TECHNOLOGY, TIMERx IMPROVEMENTS,
PRODUCT PRODUCTION TECHNOLOGY, TIMERx PRODUCTION TECHNOLOGY, OR
TIMERx TECHNOLOGIES TEST AND REGULATORY DATA, NOR AS TO THE
UTILITY, EFFICACY, NONTOXICITY, SAFETY OR APPROPRIATENESS OF
TIMERx OR THE DESIGNATED PRODUCT; OR (ii) BY SANOFI AS TO THE
PATENTABILITY, VALIDITY, OR SCOPE OF ANY SANOFI IMPROVEMENTS OR
SANOFI TEST AND REGULATORY DATA, NOR AS TO THE UTILITY,
EFFICACY, NONTOXICITY, SAFETY OR APPROPRIATENESS OF ANY PRODUCTS
MADE THEREFROM.
10.9 TIMERx Technologies shall indemnify, defend and hold Sanofi and
its Affiliates and sublicensees harmless from any and all
third-party claims to the extent arising from, in connection
with, based upon, by reason of, or relating in any way to:
10.9.1. *******************************************************
***** Product;
10.9.2. a breach of TIMERx Technologies' warranty under Section
10.1,
29
<PAGE> 30
10.2 or 10.3.1;
10.9.3. a breach of TIMERx Technologies' warranty under Section
10.6, except as otherwise provided in Section 6.2, in
the circumstances there stated;
10.9.4. any failure of the Formulated TIMERx manufactured by
TIMERx Technologies or its alternate supplier (but not
by Sanofi under Section 6.2), as delivered to Sanofi
hereunder to conform to the applicable Specifications or
the negligent or defective manufacture by TIMERx
Technologies of the Formulated TIMERx; or
10.9.5 any failure of TIMERx Technologies to comply with its
obligation under Section 6.11 to notify Sanofi of any
information coming into TIMERx Technologies' possession
and bearing on the safety of TIMERx or the Designated
Product, and not arising from any other aspect of the
Designated Product or its formulation, development,
supply, production, manufacture, sale, delivery,
distribution or use, nor from any act or omission of
Sanofi with respect to the Designated Product or with
respect to any Formulated TIMERx following its delivery
to Sanofi hereunder. TIMERx Technologies shall also
indemnify, defend and hold Sanofi and its Affiliates and
sublicensees harmless from any and all third-party
claims to the extent arising from, in connection with,
based upon, by reason of, or relating in any way to a
breach of TIMERx Technologies' warranty under Section
10.3.2 (subject, however to Section 10.5), provided,
however, that if TIMERx Technologies reasonably believes
that it may have committed any such breaches, it may at
its election terminate the License Term upon thirty (30)
days' notice to Sanofi with respect to any Designated
Product with respect to sales thereof that could add to
the size of its exposure under Section 10.5; provided,
however, that if TIMERx Technologies so terminates the
License Term under this sentence, Sanofi's remedies will
not be limited by Section 10.5 as to claims arising
from, in connection with, based upon, by reason of, or
relating in any way to, such situation.
10.10 Sanofi shall indemnify, defend and hold TIMERx Technologies
harmless from any and all third-party claims to the extent
arising from, in connection with, based upon, by reason of, or
relating in any way to: (i) the supply, registration,
production, manufacture, sale, delivery, distribution or use of
the Designated Product, except for any matters which are covered
by TIMERx Technologies' indemnities under Section 10.9; (ii) a
breach of Sanofi's warranty under Section 10.1; or (iii) any
30
<PAGE> 31
failure of Sanofi to comply with its obligation under Section
6.11 to notify TIMERx Technologies of any information coming
into Sanofi's possession and bearing on the safety of TIMERx or
the Designated Product.
10.11 Notwithstanding anything to the contrary set forth elsewhere
herein, neither Sanofi nor TIMERx Technologies shall be
obligated to indemnify the other party for claims or liabilities
to the extent arising from such other party's negligence,
intentional misconduct, or breach of its duties, obligations,
warranties or representations set forth herein or those of its
Affiliates, sublicensees or assigns.
10.12 Whenever indemnification is provided for a party under this
Agreement, such right of indemnification shall extend also to
the indemnified party's Affiliates, officers, directors,
shareholders, successors, assigns, agents, employees, and
insurers to the extent the same become subject to such claim in
such capacity. The party seeking indemnification shall provide
the indemnifying party with written notice of any claim or
action within ten (10) days of its receipt thereof, and shall
afford the indemnifying party the right to control the defense
and settlement of such claim or action. The party seeking
indemnification shall provide reasonable assistance to the
indemnifying party in the defense of such claim or action. If
the defendants in any such action include both Sanofi and TIMERx
Technologies and either party concludes that there may be legal
defenses available to it which are different from, additional
to, or inconsistent with, those available to the other, that
party shall have the right to select separate counsel to
participate in the defense of such action on its behalf, and
such party shall thereafter bear the cost and expense of such
separate defense. Should the indemnifying party determine not to
defend such claim or action, the other party shall have the
right to maintain the defense of such claim or action and the
indemnifying party agrees to provide reasonable assistance to it
in the defense of such claim or action. Neither party shall
settle any such claim or action in a way that prejudices or
adversely impacts the other party to this Agreement without the
prior approval of such other party (which approval shall not be
unreasonably withheld).
10.13 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT (OTHER THAN SECTION 8, SECTION 9.7, SECTION 10.5,
SECTION 10.9, AND SECTION 10.10), NEITHER PARTY SHALL UNDER ANY
CIRCUMSTANCES BE LIABLE FOR CLAIMS FOR ANY INCIDENTAL,
CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES, INCLUDING ANY LOST
PROFITS OR SAVINGS, ARISING FROM ANY BREACH OF WARRANTY OR THE
PERFORMANCE OR BREACH OF ANY PROVISION OF THIS
31
<PAGE> 32
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
AGREEMENT OR THE USE OR INABILITY TO USE TIMERx, THE DESIGNATED
PRODUCT, TIMERx TECHNOLOGIES PATENTS, TIMERx TECHNOLOGIES'
CONFIDENTIAL TECHNOLOGY, PRODUCT PRODUCTION TECHNOLOGY, TIMERx
PRODUCTION TECHNOLOGY, TIMERx TECHNOLOGIES TEST AND REGULATORY
DATA, SANOFI IMPROVEMENTS, OR SANOFI TEST AND REGULATORY DATA.
11. TERM AND TERMINATION.
11.1 The term of this Agreement shall begin on the date set forth
above and shall, unless earlier terminated as provided herein,
continue until the end of the License Term.
11.2 TIMERx Technologies may at its option transform the Exclusivity
Period in a country (or group of countries, as so designated in
Exhibit 11.2) into a period for the balance of the License Term,
in which Sanofi's rights will be nonexclusive, if Sanofi fails
to sell at least the minimum sales volumes stated in Exhibit
11.2 in such country or group (as indicated in Exhibit 11.2),
for any of the periods stated. Such option shall be exercised by
TIMERx Technologies, if at all, by written notice to Sanofi
given during the 120 days following TIMERx Technologies' receipt
of Sanofi's report of sales indicating that any such minimum
sales volume was not met during the applicable period.
11.3 If Sanofi fails to meet at least ***** of the minimum sales
volumes specified in Exhibit 11.2 with respect to any country or
group of countries (as indicated in Exhibit 11.2) for any of the
periods stated in such Exhibit, TIMERx Technologies may at its
option elect to terminate the Marketing Period and the License
Term with respect to that country or group upon the delivery of
written notice to Sanofi, delivered on or prior to the 90th day
after the later of the end of such period or TIMERx
Technologies' receipt of a report from Sanofi reporting such
failure.
11.4 In the event that either party materially breaches any of the
terms, conditions or agreements contained in this Agreement to
be kept, observed or performed by it, then the other party may
terminate this Agreement, at its option and without prejudice to
any of its other legal or equitable rights or remedies, by
giving the party who committed the breach (i) in the case of
breach of obligations other than the payment of money, 60 days'
notice in writing, unless the notified party within such 60-day
period shall have cured the breach, and (ii) in the case of
breach of an obligation for the payment of money, 20 days'
notice in writing, unless the notified party within such 20-day
period shall have cured the
32
<PAGE> 33
breach, including any required payment of interest on previously
unpaid amounts as set forth herein.
11.5 This Agreement will automatically terminate if either party
files for protection under applicable bankruptcy laws, becomes
insolvent, makes an assignment for the benefit of creditors,
appoints or suffers appointment of a receiver or trustee over
its property, files a petition under any bankruptcy or
insolvency act or has such petition filed against it.
11.6 Any sublicenses granted by Sanofi under this Agreement shall
provide for termination or assignment to TIMERx Technologies, at
the option of TIMERx Technologies, of Sanofi's interest therein
upon termination of this Agreement.
11.7 Following any expiration or termination of the License Term, or
of the Exclusivity Period in any country, the license to TIMERx
Technologies under Section 7.8 shall be thereafter extended to
include (in addition to its coverage as stated in such section)
the use of Sanofi Test and Regulatory Data for purposes of
complying with governmental requirements with respect to the
Designated Product for marketing or use in the Territory, or in
such country as to which the Exclusivity Period has expired or
terminated.
11.8 Sanofi's obligations regarding payment of Royalties accrued as
of the date of termination, TIMERx Technologies' rights under
Sections 7.7 and 7.8 (except if this Agreement is terminated due
to an uncured breach on the part of TIMERx Technologies), and
Sanofi's rights under Section 2.2 (except if this Agreement is
terminated due to an uncured breach on the part of Sanofi), and
the provisions of Sections 8, 10, and 12, hereof shall survive
any expiration or termination of this Agreement.
12. MISCELLANEOUS.
12.1. This Agreement incorporates the Exhibits referenced herein. This
Agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter
hereof.
12.2 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns;
provided, however, that except as part of the transfer of all or
substantially all assets (which, as to TIMERx Technologies,
shall refer to the assets of its division of Penwest, Ltd.) to a
single buyer or pursuant to a merger or
33
<PAGE> 34
other corporate reorganization (other than a sale by either
party to Bayer or Pfizer or any of their affiliates):
12.2.1 TIMERx Technologies shall not delegate or subcontract
any of its obligations during the Development Period,
and
12.2.2 Sanofi shall not assign or delegate its rights or
obligations hereunder at any time, without the prior
written consent of the other party hereto.
Notwithstanding the foregoing, either party may assign
or delegate all or part of its rights and obligations
hereunder to its Affiliates without the prior written
consent of the other party (but such assignment or
delegation shall require that the other party be given
notice thereof).
12.3. All notices, requests or other communication provided for or
permitted hereunder shall be given in writing and shall be hand
delivered or sent by facsimile, reputable courier or by
registered or certified mail, postage prepaid, return receipt
requested, to the address set forth on the signature page of
this Agreement, or to such other address as either party may
inform the other of in writing. Notices will be deemed delivered
on the earliest of transmission by facsimile, actual receipt or
three days after mailing as set forth herein.
12.4 Any terms of this Agreement may be amended, modified or waived
only in a writing signed by both parties.
12.5 If any provision of this Agreement shall be held invalid,
illegal or unenforceable, such provision shall be enforced to
the maximum extent permitted by law and the parties' fundamental
intentions hereunder, and the remaining provisions shall not be
affected or impaired.
12.6 Nothing herein contained shall constitute this a joint venture
agreement or constitute either party as the partner, principal
or agent of the other, this being an Agreement between
independent contracting entities. Neither party shall have the
authority to bind the other in any respect whatsoever. Except as
provided herein, nothing contained in this Agreement shall be
construed as conferring any right on either party to use any
name, trade name, trademark or other designation of the other
party hereto, unless the express, written permission of such
other party has been obtained.
12.7 In the event that either party hereto is prevented from carrying
out its obligations under this Agreement by events beyond its
reasonable
34
<PAGE> 35
control, including without limitation acts of God or government,
natural disasters or storms, fire, political strife, labor
disputes, failure or delay of transportation, default by
suppliers or unavailability of parts, then such party's
performance of its obligations hereunder shall be excused during
the period of such event and for a reasonable period of recovery
thereafter, and the time for performance of such obligations
shall be automatically extended for a period of time equal to
the duration of such event or events; provided, however, that
the other party may, at its election, terminate this Agreement
upon 120 days' prior notice to the party affected by such
events, unless such events cease to prevent such affected
party's performance hereunder during such 120-day period.
12.8 This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of England without regard to its
conflict of laws rules.
12.9 Any dispute or difference, other than a question relating to
patent validity, between the parties arising out of or in
connection with this Agreement shall be resolved by arbitration
conducted in the English language in London, England before a
panel of three arbitrators under the administration and
then-current rules of the London Court of International
Arbitration, or other rules or administration as the parties may
agree. The arbitrators shall apply to the merits of the dispute
or claim the provisions of this Agreement, and in case of
silence of such provisions, the laws of England. The prevailing
party in any such proceeding shall be entitled to an award of
its reasonable attorneys' fees and other costs, including the
fees and expenses of the arbitrators and the London Court of
International Arbitration, provided that the same may be
apportioned between the parties by the arbitrators if they
determine that each party has prevailed in part. The arbitral
award shall be binding and conclusive on both parties and may be
enforced in any court of competent jurisdiction. Notwithstanding
the foregoing, either party may, on good cause shown, seek a
temporary restraining order and/or a preliminary injunction from
a court of competent jurisdiction, to be effective pending the
institution of the arbitration process and the deliberation and
award of the arbitration panel.
35
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and acknowledge this Agreement as of the date first written
above.
SANOFI WINTHROP TIMERx TECHNOLOGIES
INTERNATIONAL S.A.
By /s/ C. Perol, Jr. By /s/ John V. Talley, Jr.
---------------------------- -------------------------
Head of Corporate Its President
Address: Address:
9 rue du President Salvador Allende 2981 Route 22
94250 Gentilly, France Patterson, N.Y. 12563
FAX: ____________________ FAX: (914) 878-3420
Attn: Directeur Juridique Attn: John V. Talley, Jr.
cc: PENWEST, LTD.
777 - 108th Ave. N.E.,
Suite 2390
Bellevue, WA 98004-5193
Attn: General Counsel
36
<PAGE> 37
EXHIBIT 1.9
Dissolution Profile Studies Design
Phase I:
Representative samples of Adalat LA or equivalent from the Territory will be
provided by Sanofi to TIMERx Technologies for in vitro dissolution testing (USP
Type III - 30% PEG - 15cpm). The studies will be completed and these data will
be provided to Sanofi by TIMERx Technologies within thirty days after receipt of
such representative samples from all of the countries in the Territory.
Phase II:
Sanofi will conduct similar studies in the UK, using Designated Product
manufactured by Sanofi and samples of Adalat LA or equivalent from the
Territory.
37
<PAGE> 38
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 1.17
Pivotal Pharmacodynamic Studies
[CONFIDENTIAL:]
Pharmacokinetic Study
********** study comparing the ********** . The actual treatments compared will
be ********** . The study is likely to be performed in a hospital in the area of
Newcastle upon Tyne, England, under the control of Sanofi Winthrop.
Clinical Study
********** comparing the ********** . There will be ********** . Patients will
then receive ********** . The study is likely to be conducted by an independent
Clinical Research Organization under the control of Sanofi Winthrop.
38
<PAGE> 39
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 1.26A
Specifications for Designated Product
CONFIDENTIAL
NIFEDIPINE
EXTENDED-RELEASE TABLETS
30 MG
I. DESCRIPTION
A brown film-coated, 3/8" round, biconvex beveled edge tablet with "M"
imprinted on one side in black ink. **********
Each Tablet contains **********
II. TESTS
A. IDENTIFICATION -**********
B. DRUG RELEASE -**********
C. UNIFORMITY OF DOSAGE UNITS -********** Conforms to USP
criteria for compressed tablets.
D. ASSAY -**********
39
<PAGE> 40
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 1.26A CONTINUED
CONFIDENTIAL NIFEDIPINE EXTENDED-RELEASE TABLETS
60 MG: TENTATIVE SPECIFICATIONS
SPECIFICATION #: SPEC. 94T019D-01:0.0
PRODUCT NAME: TIMERxO Nifedipine XL 60mg Tablets
MASTER FORMULA #: 94T019D-01:0
TEST SPECIFICATIONS
- ---- --------------
GRANULATION:
BLEND UNIFORMITY ********** .
CORES:
- -----
APPEARANCE Glossy red round biconvex tablets.
HARDNESS **********
COATED TABLETS:
APPEARANCE Round red biconvex tablets.
IDENTIFICATION **********
UNIFORMITY OF DOSAGE UNITS **********
ASSAY **********
RELATED COMPOUNDS
**********
DISSOLUTION **********
(1) British Pharmacopeia **********
40
<PAGE> 41
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 1.26B
Specifications for Formulated TIMERx
CONFIDENTIAL
SPECIFICATION #: SPEC. 32001.2
PRODUCT: TIMERx(R)-N
INVENTORY#: 32001
TEST METHOD SPECIFICATIONS
APPEARANCE ********** Off-white free flowing granules
IDENTIFICATION ********** Forms firm, rubbery gel
VISCOSITY ********** **********
pH ********** **********
LOSS ON DRYING ********** **********
LOOSE DENSITY ********** **********
(BULK DENSITY)
TAPPED DENSITY ********** **********
AVERAGE PARTICLE SIZE ********** **********
MICROBIAL LIMIT TEST **********
Total plate count **********
Pathogens **********
********** NMT 500/g
(1) EC specification **********
41
<PAGE> 42
EXHIBIT 1.31
TIMERx Technologies Patents
"Directly Compressible Sustained Release Excipient", issued as EP patent No.
0360562, subject to opposition proceeding (patent upheld by EPO Opposition
Division -- now under appeal).
Pending Patent in Ireland, entitled "Directly Compressible Sustained Release
Excipient", filed September 18, 1989 as Application No. 2968/89.
Pending Patent in EPO, entitled "Sustained Release Heterodisperse Hydrogel
Systems for Insoluble Drugs", filed August 30, 1994 as Application No.
94401925.6.
PCT filing entitled "Sustained Release Excipient", filed in US/PCT March 21,
1995 under number PCT/US95/03825.
Pending Patent in EPO, entitled "Sustained Release Excipient", filed April 21,
1995 as Application No. 95914917.0.
42
<PAGE> 43
EXHIBIT 1.33
Trademarks
TIMERx(R) Oral Delivery System
43
<PAGE> 44
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
Exhibit 5.5
**********
I. The Royalties otherwise provided for in Section 5.5********** of the
Designated Product made in a country ********** :
(1) ***********************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
Following the expiration of patent protection for all claims *****************
(2) ***********************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
Following the expiration of patent protection for all claims *****************
is on the market in such country.
(3) Following the *********************************************************
*******************************************************************************
*******************************************************************************
********************************************************************************
********************************************************************************
For purposes of the foregoing "Competing Generic Product" shall mean a drug that
meets all of the following criteria: (A) it is a 30mg or 60mg (as applicable)
once-a-day form of nifedipine considered substitutable for Adalat LA; (B) it has
been fully approved for commercial sale in oral solid-dosage form for
administration in humans by the relevant Regulatory Authority(ies) and has
received all required Other Governmental Approval(s) in such country; (C) it is
not marketed in such country under the brand "Adalat" or "Adalat LA"; and (D) it
is not marketed or co-marketed by Sanofi, any of its Affiliates, or under a
license or sublicense or other arrangement from or with Sanofi or its Affiliates
or sublicensees in any tier.
II. If all claims ********** country, or if issued as a patent in such
country, **********************************************************************
*******************************************************************************
********************************************************************************
********************************************************************************
*******************************************************************************
*******************************************************************************
********************************************************************************
********************************************************************************
44
<PAGE> 45
EXHIBIT 6.11
Pharmacovigilance and other Regulatory Reporting Requirements
PROCEDURES FOR PHARMACOVIGILANCE
SANOFI WINTHROP PROCEDURES FOR PHARMACOVIGILANCE
INTRODUCTION
The purpose of these procedures is to confirm the pharmacovigilance
responsibilities of Sanofi and TIMERx with respect of the marketing of the
Product in the UK.
CONTACT WITH THE MCA
Sanofi shall be responsible for all contact with the MCA regarding safety
issues. The contact name from SANOFI for this purpose will be the Medical
Director.
DEFINITIONS
Adverse Event (ADE) Any untoward medical occurrence in a patient or clinical
investigation subject administered a medicinal product
which does not necessarily have a causal relationship
with this treatment.
Adverse Reaction (ADR) An event which is harmful and unintended and where a
relationship with a medicinal product cannot be
excluded.
Serious An adverse event/reaction that :
a. is fatal or immediately life threatening
b. is incapacitating
c. results in permanent or significant disability or
d. requires or prolongs hospitalisation
e. requires medical or surgical intervention to present
those mentioned above (a, b, c, d)
f. congenital anomaly.
Labelled Consistent with the SPC for the Product
Unlabelled Inconsistent with SPC for the Product
45
<PAGE> 46
SAE Serious Adverse Event
MINIMUM DETAILS REQUIRED FOR AN ADR REPORT
There are : Suspected drug
Details of suspected reaction
Specific patient with at least one of the
following known (sex, age/dob, identifier, lab test,
patient history)
Identifiable health care professional source
(doctor, dentist, coroner, pharmacist or nurse).
46
<PAGE> 47
1. PROVISION OF ADR/ADE REPORTS TO THE MCA BY SANOFI WINTHROP UK
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Timeframe from date
Country of Type of receipt1 by Sanofi Format Method
Origin Winthrop UK
(calendar Days)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Confirmed2 Spontaneous ADR UK All Serious 15 CSM form Post
Reports 3,4,5 EEC All Serious 56 CIOMS I Post
Non EEC Serious & Unexpected 56 CIOMS I Post
Published Case Reports of ADRs 2,3,4 UK All Serious 30 CSM form Post
EEC All Serious 56 CIOMS I Post
Non EEC Serious & Unexpected 56 CIOMS I Post
- --------------------------------------------------------------------------------------------------------------------------
Post Authorisation Studies UK All Serious Events* 15 CSM form Post
EEC All Serious Events* 56 CIOMS I Post
Non EEC All Serious Events* 56 CIOMS I Post
(*excluding unrelated)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Date of receipt of minimum details for reporting an ADR
2 Confirmed by identifiable health care professional
3 Minimum details for an ADR report
4 Possible causal association will be assumed unless specifically stated as
unrelated/excluded by reporter
5 If reporter states unrelated, report does not meet criteria for an ADR,
unless Pharmacovigilance disagrees
6 In order to comply with "the 15 days" rule to the MCA, from receipt within
the company Worldwide.
- --------------------------------------------------------------------------------
47
<PAGE> 48
2. PROVISION OF UK ADR/ADE INFORMATION TO TIMERx TECHNOLOGIES BY SANOFI
WINTHROP UK
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Timeframe from date
Country of Type of receipt1 by Sanofi Format Method
Origin Winthrop UK
(calendar Days)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Confirmed2 Spontaneous ADR UK Serious 5 CSM form Fax & Post
Reports 3,4,5 UK Non-Serious 60 IRF Fax & Post
Published Case Reports submitted to UK Serious 30 CSM form Post
MCA
- ------------------------------------------------------------------------------------------------------------------------------
Post Authorisation Studies UK Serious adverse effects 5 CSM form Fax & Post
(excluding unrelated)
- ------------------------------------------------------------------------------------------------------------------------------
ASPPs received from MCA6 UK Serious 30 ASPP Post
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Date of receipt of minimum details for reporting an ADR
2 Confirmed by identifiable health care professional
3 Minimum details for an ADR report
4 Possible causal association will be assumed unless specifically stated as
unrelated/excluded by reporter
5 If reporter states unrelated, report does not meet criteria for an ADR,
unless Pharmacovigilance disagrees
6 ASPP (Anonymised Single Patient Print) represents spontaneous ADR sent
directly to MCA by doctor, dentist or coroner
- --------------------------------------------------------------------------------
48
<PAGE> 49
3. RECEIPT OF SAFETY INFORMATION BY SANOFI WINTHROP UK FROM TIMERx TECHNOLOGIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Timeframe from date
Country of Type of receipt1 by Sanofi Format Method
Origin Winthrop UK
(calendar Days)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Spontaneous ADR Reports All Serious 10 CIOMS I Post1
Published ADR Case Reports All Serious 10 CIOMS I Post1
- ----------------------------------------------------------------------------------------------------------------------
Post Authorisation Studies All Serious adverse 10 CIOMS I Post1
effects Events
(excluding unrelated)
- ----------------------------------------------------------------------------------------------------------------------
Periodic Safety Updates (PSU) All 3See below 60 PSU2 Post
(of data lock) (CIOMS II)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Only by fax if 10 day time frame cannot be met by post.
2 Every 5 years based on international birthdate or at specific request of MCA.
If newly registered, every 6 months for 24 months and then annually for 3
years until renewal.
3 Content and format as described in Notice to Applicants, Chapter V - Section
3, Periodic Safety Update Reports.
- --------------------------------------------------------------------------------
49
<PAGE> 50
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 11.2
Minimum **********
Minima are stated below **********
and refer to the **********
in each country or group of countries
Time periods are measured from first day of the
Marketing Period in the country (or, where a group of
countries is listed below,
from the first day of the Marketing Period in any country in such group)
COUNTRY OR GROUP FIRST YEAR SECOND YEAR THIRD YEAR
- ---------------- ---------- ----------- ----------
********** ********** 120 175
********** ********** 1,540 2,320
********** ********** 220 335
********** ********** 2,150 2,300
(which shall for purposes
hereof be a group of countries)
Minima for the Fourth Year and each subsequent year in each country or group
shall equal the higher of (i) the number stated above for the Third Year or (ii)
********************************************************************************
**********.
50
<PAGE> 51
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
AMENDMENT NO. 1 TO THE PRODUCT DEVELOPMENT, LICENSE AND
SUPPLY AGREEMENT OF 28 FEBRUARY 1997 BETWEEN SANOFI WINTHROP
INTERNATIONAL AND TIMERx TECHNOLOGIES
BETWEEN
TIMERx Technologies, a division of Penwest Ltd., a Washington corporation, with
principal place of business at 2981 Route 22, Patterson, New York 12563, USA.
(hereinafter referred to as TIMERx Technologies)
AND
SANOFI WINTHROP INTERNATIONAL, a company incorporated under the laws of France,
with registered office at 9 rue du President Salvador Allende, 94250, Gentilly,
France.
(hereinafter referred to as Sanofi)
TIMERx Technologies and Sanofi are defined hereinafter as the Parties.
WITNESSETH
WHEREAS, TIMERx Technologies and Sanofi entered into a Product Development,
License and Supply Agreement on 28 February 1997 (hereafter the Agreement), for
the development, registration, manufacture and sale of a controlled-release
pharmaceutical containing nifedipine and Formulated TIMERx (hereinafter the
Designated Product);
WHEREAS, Sanofi wishes to register and sell the Designated Product in South
Korea, in addition to the countries already listed in the Agreement;
WHEREAS, TIMERx Technologies is willing to extend the Territory defined in the
Agreement to South Korea.
NOW THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:
<PAGE> 52
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
ARTICLE 1
The definition of Territory at Article 1.27 of the Agreement is amended by the
addition of South Korea.
ARTICLE 2
Exhibit 1.31 of the Agreement is amended by the addition of the following:
**************************************
**************************************
*************
ARTICLE 3
In consideration for the addition of South Korea to the Territory, Sanofi agrees
to pay TIMERx Technologies a milestone fee of ********************************,
payable within thirty (30) days of the signature of this amendment no. 1 by the
Parties.
ARTICLE 4
All other terms of the Agreement shall remain the same and the Agreement as
amended hereby shall continue in full force and effect between the Parties. The
capitalised terms used herein shall have the same meaning as indicated in the
Agreement.
IN WITNESS WHEREOF the presents have been executed in two original counterparts
on September 1997.
TIMERx Technologies SANOFI WINTHROP INTERNATIONAL
/s/ John V. Talley, Jr. /s/ Jean-Claude Barassat
By: John V. TALLEY, Jr. By: Jean-Claude BARASSAT
Title: President Title: Chief Executive Officer
<PAGE> 1
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 10.8
LETTER OF CONSENT
The parties hereto have today agreed upon the following:
1. PARTIES
TIMERx TECHNOLOGIES
2981 Route 22
Patterson
New York, 12563-9970
U.S.A.
in the following TIMERx and
LEIRAS OY
Pansiontie 45-47
FIN-20210 Turku
Finland
in the following Leiras.
1. BACKGROUND
Leiras and TIMERx (formerly Edward Mendell Co., Inc.) are parties to an
agreement dated July 27th, 1992 (in the following Agreement) and a
Letter of Agreement signed concurrently with this Letter of Consent,
concerning, in particular, Leiras' Cystrin (Oxybutynin) product and the
TIMERx Controlled Release System, and the utilization of a combination
or combinations thereof and/or of developments thereof. Leiras and
TIMERx have cooperated in the
-1-
<PAGE> 2
development and formulation of the Oxybutynin-TIMERx product, which
programme is now in its final stages. TIMERx has completed its portion
of the Development Programme, and any further development will be
conducted by Leiras.
2. CONSENT TO DISCLOSURES
In connection with the commercial utilization of Cystrin (Oxybutynin)
worldwide, Leiras may wish to assign and transfer the product rights
pertaining thereto, inclusive of the TIMERx element and any
developments as foreseen or contemplated in the Agreement, in various
manners and in various territories. Prior to such potential assignments
and transfers, Leiras may have to disclose relevant and proprietary
information needed by the potential assignee/transferee for evaluation
purposes. Such disclosure may also comprise TIMERx elements and, as the
case may be, key portions of the Agreement. TIMERx hereby gives its
approval to such disclosures on the condition that the potential
assignee/transferee enters into a confidentiality agreement basically
in the form of Appendix A attached as a specimen hereto.
3. CONSENT TO ASSIGNMENTS AND TRANSFERS
Should Leiras agree with a potential assignee/transfer on the
assignment and transfer of the above-mentioned product rights as
foreseen as a possibility above, such assignment and transfer shall
take place on the terms and conditions of an agreement basically in the
form of Appendix B attached as a specimen hereto. TIMERx's approval to
such assignment(s) and transfer(s) on such terms and conditions, shall
not be unreasonably withheld unless such assignment and transfer would
be seriously detrimental to the interests of TIMERx from an objective
point of view, taking also into consideration Leiras' interest in such
an assignment and transfer. TIMERx's approval may be withdrawn in the
thirty (30) day period following the receipt from Leiras of written
notification of the identity of the potential assignee/transferee.
-2-
<PAGE> 3
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Notwithstanding anything to the contrary, TIMERx does not grant its
approval to any disclosures, assignments, transfers or attempted
assignments or transfers of product rights by Leiras to any of the
following: *********************************** their respective
subsidiaries and affiliated companies.
4. CONSIDERATION
In consideration of TIMERx' consent to a materialized assignment and
transfer as set out above, TIMERx shall be entitled to a royalty of
*************** on the net sales of the Product by the
assignee/transferee.
5. OBLIGATION TO SUPPLY
a. Except as provided herein, and in particular with respect
to the cost of TIMERx set forth in Paragraph 5(b) below, in
connection with an assignment/transfer of the product rights
as contemplated herein, TIMERx undertakes and agrees to supply
each assignee/transferee with TIMERx (or improvements) as set
out in the Agreement, mutatis mutandis, on terms and
conditions equal to those regarding supplies to Leiras unless
otherwise agreed between TIMERx and each assignee/transferee.
b. The price to be charged by TIMERx to the assignee/transferee
in fulfillment of the assignee/transferee's requirements shall
be *********** per kilogram, subject to increase no more often
than once a year, *************************************** All
other TIMERx supply conditions shall remain in force,
************************* sales of TIMERx will be
-3-
<PAGE> 4
F.O.B. Patterson, N.Y. (INCOTERMS 1990). Leiras' purchases of
TIMERx in fulfillment of its own requirements shall be under
the terms of the Agreement.
6. INFORMATION
Leiras agrees to inform TIMERx about the enterprises with which Leiras
conducts negotiations concerning possible product sales or transfers as
contemplated herein, at or about at such time as when Leiras is ready
to present the Appendix B Agreement to a possible assignee/transferee.
TIMERx in turn agrees to inform Leiras about enterprises with which
TIMERx conduct negotiations concerning other Oxybutynin product
development projects or similar prior to entering into a definite
agreement.
7. VALIDITY
This Letter of Consent enters into force immediately. The validity
period of this Letter of Consent shall not expire before the Agreement
(as amended as the case may be) has expired.
8. CHOICE OF LAW
In congruence with the corresponding Clause 12 of the Agreement, this
Letter of Consent shall also be governed by and interpreted in
accordance with English law. Any dispute concerning the interpretation
or application of this Letter of Consent shall be referred for
settlement to the Arbitration Institute of the Stockholm Chamber of
Commerce pursuant to the regulations in force. The question of payment
of such expenses arising out of the arbitral proceedings as may be
incurred by the Arbitration and the parties concerned shall likewise be
referred to the Institute for settlement. The arbitration language
shall be English.
-4-
<PAGE> 5
IN WITNESS WHEREOF this Letter of Agreement has been signed and issued
in duplicate on this 26th day of May, 1995.
Date: 5/26/95 Place: Patterson, NY
-------------------------- -----------------------------
TIMERx
By: /s/ John V. Talley, Jr. By: /s/ John V. Talley, Jr.
--------------------------- -------------------------------
Date: June 6, 1995 Place: Turko, Finland
-------------------------- -----------------------------
LEIRAS OY
By: /s/ Timo Lappalainer By: /s/ Mahi Urho
--------------------------- -------------------------------
-5-
<PAGE> 6
LETTER OF AGREEMENT
The parties hereto have today agreed upon the following:
1. PARTIES
TIMERx TECHNOLOGIES
2981 Route 22
Patterson
New York, 12563-9970
U.S.A.
in the following TIMERx and
LEIRAS OY
Pansiontie 45-47
FIN-20210 Turku
Finland
in the following Leiras.
1. BACKGROUND
Leiras and TIMERx (formerly Edward Mendell Co., Inc.) are parties to an
agreement dated July 27th, 1992 (in the following Agreement)
concerning, in particular, Leiras' Cystrin (Oxybutynin) product and the
TIMERx Controlled Release System, and the utilization of a combination
or combinations thereof and/or of developments thereof. Both parties
have subsequently filed patent applications as described below, with
relevance as regards their co-operation under the Agreement. For the
avoidance of doubt and in order to clarify the situation, the parties
have agreed to treat the patents/patent applications in question in the
manner set out herein.
-1-
<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
2. PATENTS/PATENT APPLICATIONS
TIMERx has filed a US patent application on March 4, 1994, which
application has been approved on March 21, 1995 under patent
registration number 5,399,359 (the TIMERx Patent). TIMERx has also
filed International (PCT) Patent Application No. ***********, on March
18, 1994. The TIMERx Patent, patent applications, and all improvements
and enhancements thereon, are and shall remain the property of TIMERx,
worldwide.
Leiras has filed a worldwide patent application on October 24, 1994,
which application is still pending at the date hereof under the patent
application number(s) ********************************** (U.S.A.), and
******************************** (collectively, the Leiras Patent). The
Leiras Patent is and shall remain the property of Leiras, worldwide.
3. LICENCE
TIMERx hereby grants to Leiras a ****************************** licence
to the TIMERx Patent, including also any further registrations thereof
anywhere, together with all patent applications, and all improvements
and enhancements thereon, to utilize in connection with the field of
use set forth in the Agreement, and subject to the same terms and
conditions of the Agreement, except as expressly set forth herein, or
as set forth in the Letter of Consent.
4. TRANSFER BY LEIRAS OF PRODUCT RIGHTS
In accordance with the Letter of Consent signed concurrently with this
Letter of Agreement, Leiras may wish to transfer the product rights set
out in the Agreement to TIMERx in such areas of the world
-2-
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
************************************************************** to
TIMERx in a specific area, ******************************************
therewith for the utilization thereof in such specified area. A
transfer of product rights by Leiras to an assignee/licensee for a
particular Territory shall include a provision that the
assignee/licensee agrees to buy TIMERx for the manufacture, sale or use
of the Oxybutynin-TIMERx product in the Territory directly from TIMERx
Technologies.
5. ROYALTY
a. In consideration of the licence by TIMERx to Leiras as set out
above, TIMERx shall be entitled to a royalty
*************************************** on the U.S. net sales
(as defined in Appendix A) of the product in the question for
the term of the Agreement as extended by the term of the
TIMERx Patent, which the parties anticipate will end March 4,
2014.
b. The royalty payable for net sales (as defined in Appendix A)
********************* After the expiration of the patents
mentioned in Appendix A of the Agreement, which the parties
anticipate will be September 19, 2009, and provided that
TIMERx acquires equivalent patent rights for the TIMERx Patent
in the appropriate European nations, the royalty payable to
TIMERx for net sales outside *******************************
for the life of such patents, which the parties anticipate
will end March 4, 2014.
c. The royalty scheme set out above shall remain unchanged.
Without affecting the rights of TIMERx to maintain and develop
its intellectual
-3-
<PAGE> 9
property and product/patent assortment, Leiras shall have an
automatic licence in accordance with the Agreement, under any
and all subsequent TIMERx Technologies patents insofar as the
substance Oxybutynin in combination with the TIMERx excipient
is concerned.
6. INFRINGEMENTS
The parties agree in accordance with Paragraph 7 of the Agreement, that
any expenses that result from any infringements against the
above-mentioned TIMERx Patent and the Leiras Patent shall be defrayed
by TIMERx with respect to the TIMERx Patent and by Leiras with respect
to the Leiras Patent.
7. VALIDITY
This Letter of Agreement enters into force immediately and shall remain
valid until the term of the Agreement as extended by the term of the
TIMERx Patent, which the parties anticipate will end March 4, 2014. The
right of Leiras to utilize the rights granted hereunder shall not be
affected by the expiration of this Letter, and any rights and licenses
granted hereunder shall become non-exclusive and royalty-free. Leiras
shall not be under any obligation to return any material etc. or to
cease using any rights for the reason of the expiration of the validity
period mentioned.
8. CHOICE OF LAW
In congruence with the corresponding Clause 12 of the Agreement, this
Letter of Agreement shall also be governed by and interpreted in
accordance with english law. Any dispute concerning the interpretation
or application of this Letter of Agreement shall be referred for
settlement to the Arbitration Institute of the Stockholm Chamber of
Commerce pursuant to the regulations in force. The question of payment
of such expenses arising out of the arbitral proceedings as may be
incurred by the Arbitration and the parties concerned
-4-
<PAGE> 10
shall likewise be referred to the Institute for settlement. The
arbitration language shall be English.
IN WITNESS WHEREOF this Letter of Agreement has been signed and issued
in duplicate on this 26th day of May, 1995.
Date: 5/26/95 Place: Patterson, NY
-------------------------- -----------------------------
TIMERx
By: /s/ John V. Talley, Jr. By: /s/ John V. Talley, Jr.
--------------------------- -------------------------------
Date: June 6, 1995 Place: Turko, Finland
-------------------------- -----------------------------
LEIRAS OY
By: /s/ Timo Lappalainer By: /s/ Mahi Urho
--------------------------- -------------------------------
-5-
<PAGE> 11
APPENDIX A
CONFIDENTIALITY AGREEMENT
This Agreement is made and entered into this ____ day of ___________ 1995, by
and between:
LEIRAS OY
Pansiontie 45-47
FIN-20210 Turku
Finland
hereinafter referred to as the "DISCLOSER" and
hereinafter referred to as the "RECIPIENT".
WHEREAS, the DISCLOSER possesses information, data and experience relating to
the pharmaceutical specialties listed in the Annex of this Agreement,
hereinafter referred to as the "PRODUCTS";
WHEREAS, such information, data and experience are considered by the DISCLOSER
to be secret and confidential and constitute a valuable commercial asset to the
DISCLOSER;
WHEREAS, the DISCLOSER is willing, subject to the terms and conditions hereof,
to disclose such information, data and experience to the RECIPIENT for the sole
purpose of evaluating its interest in a future co-operation with the DISCLOSER
regarding the PRODUCTS; NOW, THEREFORE, the parties hereto agree as follows:
1. The term "Confidential Information" as used herein means all
information, data and experience of the type referred to above, whether
of a documentary,
-1-
<PAGE> 12
scientific, technical, engineering, operational or economic nature,
supplied to or obtained by the RECIPIENT in written form which relate
to the PRODUCTS and which are disclosed to the RECIPIENT by the
DISCLOSER.
2. In consideration of such disclosure by DISCLOSER the RECIPIENT agrees
to not make use of or to disclose Confidential Information to any third
party except affiliates, consultants and employees (subject to the
provisions of Clause 3 below), unless the DISCLOSER agrees otherwise in
writing or unless such information falls within the following
exceptions, that is:
to the extent it can be established by competent proof that:
A) such Confidential Information was known to the RECIPIENT prior
to the disclosure by the DISCLOSER and was not acquired
directly or indirectly from the DISCLOSER; or
B) such Confidential Information is or becomes publicly known
through no fault or omission attributable to the RECIPIENT; or
C) such Confidential Information is rightfully given to the
RECIPIENT from sources independent of the DISCLOSER; or
D) the RECIPIENT develops the Confidential Information
independently of any disclosure from the DISCLOSER.
3. The RECIPIENT will divulge this Confidential Information only to such
affiliates, consultants and employees who have a need to know of it as
a part of the evaluation of the same and they will hold such
information in confidence in the same manner as they would hold the
RECIPIENT's own proprietary information.
-2-
<PAGE> 13
4. The RECIPIENT will make its evaluation as promptly as possible.
5. If the RECIPIENT has no further interest in the Confidential
Information, or should the DISCLOSER so request, the RECIPIENT shall
promptly return to the DISCLOSER all documents, regarding the
Confidential Information and received from the DISCLOSER.
6. This Agreement contains no direct or implied offer of a license or any
other rights to the PRODUCTS to the RECIPIENT and neither party hereto
shall be obligated to enter into any further agreement(s).
7. This Agreement shall be governed by and interpreted in accordance with
English Law. Any dispute concerning the interpretation or application
of this Agreement shall be referred for settlement to the Arbitration
Institute of the Stockholm Chamber of Commerce pursuant to the
regulations in force. The question of payment of such expenses arising
out of the arbitral proceedings, as may be incurred by the Arbitration
and the parties concerned, shall likewise be referred to the Institute
for settlement. The arbitration language shall be English.
-3-
<PAGE> 14
IN WITNESS WHEREOF this Confidentiality Agreement has been signed and issued in
duplicate on this ____ day of ___________________________, 1995.
Date: Place:
-------------------------- -----------------------------
THE RECIPIENT
By: By:
--------------------------- -------------------------------
Date: Place:
-------------------------- -----------------------------
LEIRAS OY
By: By:
--------------------------- -------------------------------
-4-
<PAGE> 15
APPENDIX B
AGREEMENT
This Agreement is dated the ___ day of _______________, 199__ and is made
between
(hereinafter called [__________________]);
and
EDWARD MENDELL CO., INC.
2981 Route 22,
Patterson
New York 12563
U.S.A.
(hereinafter called "Mendell");
WHEREAS
A) Leiras Oy, Pansiontie 45-47, 20210 Turku, Finland (hereinafter
"Leiras") has developed and is in possession of the medical product
CYSTRIN (Oxybutynin), and is the proprietor of valuable knowhow, data,
skills and other information in relation thereto and wishes to further
develop such technology (hereinafter called "the Technology").
B) Mendell is the owner of TIMERx Controlled Release System and certain
patents pertaining thereto (hereinafter called "the Mendell
Manufacturing Technology"), all more closely set out in Annex A
attached hereto,
-1-
<PAGE> 16
C) Leiras and Mendell have cooperated in a "Development Programme" whereby
Mendell developed a slow-release tablet/slow-release tablet formulation
for Leiras' Cystrin product, adjusting the TIMERx Controlled Release
System. Leiras and TIMERx have cooperated in the development and
formulation of the Oxybutynin-TIMERx product, which programme is now in
its final stages. TIMERx has completed its portion of the Development
Programme, and any further development will be conducted by Leiras on
terms to be separately agreed between Leiras and _____________________.
D) The parties also wish to enter into arrangements for the manufacture
and supply of pharmaceutical products using the Technology on the basis
of the terms and conditions set out below.
NOW IT IS HEREBY agreed as follows;
1. DEFINITIONS
In this Agreement the following terms have the following meanings:
1.1 "Oxybutynin"
means Oxybutynin and its pharmaceutically acceptable salts,
enantiomeres and active metabolites.
1.2 "Mendell Manufacturing Technology"
means all knowhow, methods, processes, techniques, trade secrets,
specifications, technological information and other data relating to
the manufacture and use of TIMERx and TIMERx Technology which Mendell
has heretofore developed.
-2-
<PAGE> 17
1.3 "Leiras Technology"
means all information, knowhow and technology pertaining to Leiras
Cystrin Technology and the CYSTRIN (Oxybutynin) product and the
manufacturing of the said product.
1.4 "Product Specification"
means the final product specification for the CYSTRIN slow-release
product prepared in the Development Programme in relation to the
commercial supply of CYSTRIN slow-release products.
1.5 "Product"
means the product referred to in item (C) in the WHEREAS-section of
this Agreement.
1.6 "Territory"
means _______________________.
1.7 "TIMERx"
means the slow-release system developed by Mendell.
References to Clauses and Schedules are to Clauses and Schedules of this
Agreement.
-3-
<PAGE> 18
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
2. ROYALTIES
2.1 In consideration of the licenses and rights granted herein,
[_________________] shall pay Mendell a royalty of ***************
calculated on [_______________________] net ex factory sales prices of
the Product.
2.2 Mendell shall be entitled to verify [____________________'] net
sales of the Product by an independent third-party auditor to be
appointed and paid by Mendell with the consent of
[______________________], which consent shall not be unreasonably
withheld.
2.3 Within sixty (60) days of the end of each [___________] fiscal
quarters ending March 31st, June 30th, September 30th and December 31st
of each fiscal year commencing with the first fiscal quarter during
which the Product has been sold by [__________________],
[______________] shall provide Mendell with a true and complete
statement accounting for all sales of the Product by
[____________________] during such fiscal quarter. Within thirty (30)
business days after rendering such statement, [_________________] shall
pay Mendell the royalties due thereunder on the basis of this
Agreement.
3. CONFIDENTIALITY
Each party recognizes that they have been and will be granted access to
proprietary information of the other in connection with their co-operation as
set forth herein.
-4-
<PAGE> 19
3.1 The parties hereto undertake during the period of this Agreement and
subject to Clause 3.3 without limit in time thereafter:
3.1.1 to use the confidential information received from the other
party (hereinafter called "Confidential Information") solely
for the purpose of performing its obligations and using its
rights under this Agreement and for no other purpose
whatsoever without the prior written consent of the disclosing
party.
3.1.2 to hold the Confidential Information received from the
disclosing party in strictest confidence (subject to Clause
3.1.1).
3.2 In the event of one party visiting any of the offices or other premises
of the other party, the visiting party undertakes that any of the
information which may come to its knowledge as a result of any such
visit inclusive of the form, materials and design of the various
elements of any plant and machinery which may be seen at such offices
or premises as well as the plant as a whole, the method of operation
and the various applications thereof shall be Confidential Information
for the purpose of this Agreement.
3.3 It is agreed and understood that nothing contained herein shall be
considered Confidential Information, if:
3.3.1 it is and can be shown to be already known to the recipient at
the time of disclosure;
3.3.2 it subsequently becomes lawfully and freely available to the
recipient from a third party not under a duty of
confidentiality to the disclosing party;
3.3.3 it is in the public domain or is subsequently disclosed to the
public other than through the recipient or any other person to
whom the recipient is permitted to disclose the Confidential
Information under this Agreement;
3.3.4 it is required to be disclosed by law or otherwise with
mandatory effect.
-5-
<PAGE> 20
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
4. LICENSE OF MENDELL PATENTS, INFORMATION AND TECHNOLOGY; SALES OF TIMERx
4.1 Mendell hereby grants [________________], an exclusive, unlimited but
nontransferable right and license throughout the Territory to
manufacture, use and sell the Product contemplated herein by utilizing
the Mendell Manufacturing Technology including, without limitation,
patents and other Mendell information pertaining to TIMERx.
4.2 [_____________________] shall purchase directly from Mendell all of its
requirements of TIMERx for the Product's manufacture, use or sale in
the Territory and Mendell shall sell [_______________] all of
[_________________'] requirements of TIMERx for the said purpose. The
price to be charged by TIMERx to [______________________] in
fulfillment of [_____________________'s] requirements shall be
*****************, subject to increase no more often than once a year,
and *******************************************************, whichever
is less.
4.3 Mendell hereby warrants that the TIMERx sold or to be sold to
[___________________] hereunder will meet, at the time of shipment and
receipt by [____________________] thereof, the specifications attached
hereto as Annex B and incorporated herein by this reference. Mendell
also warrants that (i) it will, at the time of shipment and receipt
thereof, have a good and marketable title to the TIMERx sold to
[_______________] and (ii) all TIMERx sold hereunder shall, on the date
of shipment and receipt, not be adulterated or misbranded within the
meaning of the United States Federal Food, Drug and Cosmetic Act, as
amended from time to time, and not be an article which may not, under
the provisions of Section 404 or 505 of the said act, be introduced
into interstate commerce.
4.4 All sales of TIMERx shall be F.O.B. Patterson, New York (INCOTERMS
1990).
-6-
<PAGE> 21
5. INFRINGEMENT
5.1 Mendell warrants that, to the best of its knowledge, the use by
[__________________] of the Mendell Manufacturing Technology in
accordance with the terms of this Agreement will not infringe the
intellectual property or other proprietary rights of any third party.
Mendell shall defend, indemnify and hold [_________________] harmless
from and against all claims, actions, liabilities and costs, including,
without limitations, reasonable attorneys' fees and expenses, suffered
or incurred by [_______________] based upon or arising out of a claim
of infringement or contributory infringement of any patent, or the
violation of another's trade secret rights, by reason of the practice
or use of the Mendell Manufacturing Technology or of TIMERx provided by
Mendell to [______________] pursuant to this Agreement.
6. TERM AND TERMINATION
6.1 This Agreement shall commence with effect from the date hereof and,
unless terminated earlier pursuant to Clause 6.2, shall continue until
the last effective and enforceable date of any of the patents listed in
Annex A, which the parties anticipate will be March 4, 2014.
6.2 If one party (hereinafter called "the Defaulting Party"):
6.2.1 is in material breach of its obligations under this Agreement;
or
6.2.2 becomes insolvent or enters into liquidation (other than as a
party of a scheme for solvent reconstruction or amalgamation)
or makes an assignment for the benefit of its creditors
generally or has a receiver or administrative receiver
appointed of all or any of its assets or if any event
analogous to the foregoing shall occur of the Defaulting Party
in any jurisdiction where that party is resident or carries on
business; or
6.2.3 is unable by reason of the events and circumstances referred
to in Clause 8 to perform its obligations hereunder for a
continuous period of six (6)
-7-
<PAGE> 22
months, the other party may at any time thereafter by notice
in writing to the defaulting party require the defaulting
party to withdraw from this Agreement provided that, in the
case of a breach capable of remedy, the defaulting party shall
have sixty (60) days or fourteen (14) days in the case of
non-payment of monies from the date of such notice to remedy
the breach and, if the breach is remedied within such period,
the notice shall not take effect.
7. CONSEQUENCES OF TERMINATION
Upon termination by either party of this Agreement the rights and
obligations of such party shall cease with effect from the date of
termination save for confidentiality obligations and the obligation to
pay accrued royalties, all of which shall remain in full force and
effect provided that the termination by either party of this Agreement
shall be without prejudice to any accrued claims or rights of action
that either party may have against the other up to the date of such
termination. Following expiration of the full term of this Agreement,
the license granted shall become non-exclusive and royalty-free.
8. FORCE MAJEURE
If and to the extent that either party is hindered or prevented by
circumstances not now foreseeable and not within its reasonable ability
to control from performing any of its obligations under this Agreement
and promptly so notifies the other party giving particulars of the
circumstances in question, then the party so affected shall be relieved
of liability to the other for failure to perform such obligations, but
shall nevertheless use all reasonable endeavours to resume full
performance thereof without avoidable delay.
-8-
<PAGE> 23
9. NOTICES
9.1 Any notice to be given under this Agreement shall be in writing in
English and shall be deemed duly given if signed by or on behalf of a
duly authorized office of the party giving the notice and if left at or
sent by registered or recorded delivery post or by telex, telegram,
facsimile transmission or other means of telecommunication in permanent
written form to the address of the party set out above or such other
address as either party may from time to time notify to the other. Any
such notice or other communication shall be deemed to be given:
9.1.1 at the time when the same is handed to or left at the address
of the party to be served;
9.1.2 by post on the day (not being a Sunday or public holiday)
five (5) days following the day of posting; and
9.1.3 in the case of a telegram, telex or facsimile transmission on
the next following day.
9.2 Notices shall be addressed to the parties under their above-mentioned
addresses.
9.3 In proving the giving of a notice it shall be sufficient to prove that
the notice was left or that the envelope containing the notice was
properly addressed and dispatched (as the case may be).
10. CHOICE OF LAW
This Agreement shall be governed by and interpreted in accordance with
English Law. Any dispute concerning the interpretation or application
of this Agreement shall be referred for settlement to the Arbitration
Institute of the Stockholm Chamber of Commerce pursuant to the
regulations in force. The question of payment of such expenses arising
out of the arbitral proceedings, as may be incurred by the Arbitration
and the parties concerned, shall likewise be referred to the Institute
for settlement. The arbitration language shall be English.
-9-
<PAGE> 24
11. ASSIGNMENT
This Agreement may not be assigned by either party without the prior
written consent of the other. Should Mendell sell all or substantially
all of its assets, or should Mendell itself or a major party thereof be
sold, transferred, assigned or similar to a third party,
[_________________] shall have the right to terminate this Agreement
forthwith.
12. NO IMPLIED WAIVER
A waiver by either party of any right under this Agreement in any one
instance shall not be deemed or construed to be a waiver of such right
for any similar instance in the future or of any subsequent breach
hereof nor shall it prevent a subsequent enforcement of that right.
13. SEVERABILITY
If any provision(s) of this Agreement are or become invalid, or are
ruled illegal or are deemed unenforceable under the current applicable
law from time to time in effect during the term thereof, it is the
intention of the parties that the remainder of this Agreement shall not
be affected thereby. It is further the intention of the parties that in
lieu of each such provision which is invalid, illegal or unenforceable,
there be substituted or added as part of this Agreement a provision
which shall be as similar as possible in objectives as intended by the
parties.
14. SOLE UNDERSTANDING
No representations, warranties, conditions or other statements not
contained herein shall be binding on the parties hereto, and no
variation of the terms hereof
-10-
<PAGE> 25
shall be binding on the parties unless made in writing by the
authorized representatives of the parties. This Agreement and the
documents referred to herein together contain the entire agreement
between the parties with respect to its subject matter and supersede
and replace all prior agreements written or oral with respect thereto.
15. PARTNERSHIP
Nothing in this Agreement shall constitute a partnership between the
parties hereto.
16. HEADINGS
The headings of Clauses shall not affect their interpretation.
17. EXECUTION IN COUNTERPARTS
This Agreement shall be executed in two (2) counterparts both of which
shall be considered one and the same agreement and shall become a
binding agreement when the two (2) counterparts have been signed by
authorized representatives of the parties and delivered to the other
party.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their duly authorized officers.
[_______________________] EDWARD MENDELL CO., INC.
Date: ____________________ Date: _____________________
Place: _____________________ Place: ____________________
By: ______________________ By: _______________________
-11-
<PAGE> 26
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
ANNEX A
"MENDELL MANUFACTURING TECHNOLOGY"
To the Agreement between LEIRAS OY and EDWARD MENDELL CO., INC. of
_____________________, 199_.
LIST OF PATENT AND PATENT APPLICATIONS COVERING TIMERx
1) U.S. Patent No. 4,994,276, entitled "Directly Compressible Slow Release
Granulation," issued February 19, 1991.
2) U.S. Patent No. 5,128,143, entitled "Sustained Release Excipient and
Tablet Formulation," issued July 7, 1992.
3) U.S. Patent No. 5,135,757, entitled "Compressible Sustained Release
Dosage Forms," issued August 4, 1992.
4) European Patent Application, Publication No. 0360562 entitled "Directly
Compressible Sustained Release Excipient", filed Sept. 19, 1989, issued
July 28, 1993 as Pub. No. 0360562B1.
5) U.S. Application Serial No. **************************************
6) U.S. Patent Application Serial No. 08/206,416, 08/206,416, filed March
4, 1994, issued as U.S. Patent No. 5,399,359 on March 21, 1995,
"CONTROLLED RELEASE OXYBUTYNIN FORMULATIONS."
7) International (PCT) Patent Application No.*************************
<PAGE> 1
EXHIBIT 10.9
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
AGREEMENT
This Agreement is dated the 27th day of July, 1992 and is made between
LEIRAS OY
Pansiontie 45 - 47
20210 Turku
FINLAND
(hereinafter called "Leiras");
and
EDWARD MENDELL CO., INC.
2981 Route 22, Patterson
New York 12563 U.S.A.
(hereinafter called "Mendell");
WHEREAS
A) Leiras has developed and is in possession of the medical product CYSTRIN
(Oxybutynin), and is the proprietor of valuable knowhow, data, skills
and other information in relation thereto and wishes to further develop
such technology (hereinafter called "the Technology").
B) Mendell is the owner of TIMERx Controlled Release System and certain
patents pertaining thereto (hereinafter called "the Mendell
Manufacturing Technology"), all more closely set out in Annex A attached
hereto.
<PAGE> 2
C) The parties are interested in co-operation whereby Mendell develops a
slow-release tablet/slow-release tablet formulation for Leiras' Cystrin
product, adjusting the TIMERx Controlled Release System and on the basis
of the development programme more closely defined below.
D) The parties also wish to enter into arrangements for the manufacture and
supply of pharmaceutical products by Leiras using the Technology on the
basis of the terms and conditions set out below.
NOW IT IS HEREBY agreed as follows;
1. DEFINITIONS
1.1. In this Agreement the following terms have the following meanings:
"Oxybutynin"
means Oxybutynin and its pharmaceutically acceptable salts, enantiomeres
and active metabolites.
"Mendell Manufacturing Technology"
means all knowhow, methods, processes, techniques, trade secrets,
specifications, technological information and other data relating to the
manufacture and use of TIMERx and TIMERx Technology which Mendell has
heretofore developed or which are developed by it in the course of the
Development Programme.
-2-
<PAGE> 3
"Leiras Technology"
means all information, knowhow and technology pertaining to Leiras
Cystrin Technology and the CYSTRIN (Oxybutynin) product and the
manufacturing of the said product.
"Development Programme"
means the programme of work agreed in writing between the parties from
time to time for the development of CYSTRIN slow-release and
Cystrin-TIMERx slow-release tablet as a pharmaceutical product capable
of commercial utilization by Leiras exclusively including milestones to
be achieved, cost estimates and relevant time schedules, the current
programme being in the form annexed hereto marked "B".
"Development Specification"
means the CYSTRIN slow-release mode preformulation developed by Mendell
for clinical trials and approved by Leiras.
"Effective Date"
means the date hereof.
"Product Specification"
means the final product specification for the CYSTRIN slow-release
product prepared by the parties (to be approved by Leiras in writing) in
relation to the commercial supply of CYSTRIN slow-release products by
Leiras.
-3-
<PAGE> 4
"Project Commencement Date"
means the date hereof.
"Product"
means the product referred to in item (C) in the WHEREAS-section of this
Agreement.
"Territory"
means worldwide.
"TIMERx"
means the slow-release system developed by Mendell.
1.2. References to Clauses and Schedules are to Clauses and Schedules of this
Agreement.
2. Development Programme
2.1. After the Effective Date, Leiras shall provide Mendell with the
Oxybutynin active ingredient for the purposes hereof, and Mendell shall
begin the development work set out herein. Mendell shall use its best
efforts to complete the development of CYSTRIN slow-release in
accordance with the Development Programme.
2.2 Leiras shall pay Mendell for the development and engineering work
carried out by Mendell hereunder as set out in Annex B attached hereto.
Within
-4-
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
************** after completion of each development stage, Mendell shall
provide Leiras with a report detailing the data and findings from such
stage. Leiras shall then, at its discretion, decide whether it wishes to
continue with the Development Programme as set out herein, or whether
the Development Programme shall be discontinued. Mendell shall not
commence any new stage until it has received written consent from Leiras
to commence such new stage.
2.3. Leiras may, during the continuance of this Agreement, at its own
expense, send engineers and other suitably qualified employees to visit
Mendell's premises for the purpose of familiarizing themselves with the
development work in connection with CYSTRIN slow-release.
2.4. Should Leiras so request, Mendell shall offer Leiras consultancy
assistance e.g. by sending such of its employees to Leiras as are to be
agreed upon separately in order to assist Leiras in matters pertaining
to production and quality control. The terms and conditions of such
assistance are to be agreed upon separately.
3. INTELLECTUAL PROPERTY RIGHTS
3.1. The parties confirm their understanding that;
a) The result of the slow-release development programme set out herein and
the Product shall be the property of Leiras. Leiras is also the sole
proprietor of its Cystrin knowhow, as well as further inventions,
developments, improvements etc. both as regards Cystrin and Oxybutynin
with no rights assigned or licensed to Mendell, unless otherwise set out
herein.
-5-
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
b) Leiras acknowledges Mendell's industrial and other rights to the TIMERx
and the TIMERx Technology (including also further inventions,
developments, improvements etc.), with regard to which Leiras has
received a license in accordance with this Agreement to the extent the
Product comprises TIMERx and TIMERx Technology.
3.2. Leiras acknowledges that Oxybutynin slow-release may incorporate and in
part be made in accordance with certain technology and knowhow which are
and shall remain the property of Mendell. Mendell shall be free to
exploit and supply such technology to third parties other than for use
with Oxybutynin slow-release products.
3.3. Mendell shall provide Leiras with such of the Technology owned by it as
it considers necessary to enable Leiras to perform its obligation and to
carry out its functions under this Agreement. The provisions of Clause 5
shall apply in relation to any part of the Technology which is
Confidential Information. The compensation payable by Leiras to Mendell
for Technology to be licensed by Mendell to Leiras shall be as set out
in Clause 4 below.
4. ROYALTIES
4.1. In consideration of the licenses and rights granted herein, Leiras shall
pay Mendell a royalty of **********************************************
************************.
-6-
<PAGE> 7
4.2. Mendell shall be entitled to verify Leiras' net sales of the Product by
an independent third-party auditor to be appointed and paid by Mendell
with the consent of Leiras, which consent shall not be unreasonably
withheld.
4.3. Within sixty (60) days of the end of each Leiras fiscal quarters ending
March 31st, June 30th, September 30th and December 31st of each fiscal
year commencing with the first fiscal quarter during which the Product
has been sold by Leiras, Leiras shall provide Mendell with a true and
complete statement accounting for all sales of the Product by Leiras
during such fiscal quarter. Within thirty (30) business days after
rendering such statement, Leiras shall pay Mendell the royalties due
thereunder on the basis of this Agreement.
5. CONFIDENTIALITY
5.1. Each party recognizes that they have been and will be granted access to
proprietary information of the other in connection with their
co-operation as set forth herein.
5.2. The parties hereto undertake during the period of this Agreement and
subject to Clause 5.4. without limit in time thereafter;
a) to use the confidential information received from the other party
(hereinafter called "Confidential Information") solely for the purpose
of performing its obligations and using its rights under this Agreement
and for no other purpose whatsoever without the prior written consent of
the disclosing party.
b) to hold the Confidential Information received from the disclosing party
in strictest confidence (subject to Clause 5.2.a).
-7-
<PAGE> 8
5.3. In the event of one party visiting any of the offices or other premises
of the other party, the visiting party undertakes that any of the
information which may come to its knowledge as a result of any such
visit inclusive of the form, materials and design of the various
elements of any plant and machinery which may be seen at such offices or
premises as well as the plant as a whole, the method of operation and
the various applications thereof shall be Confidential Information for
the purpose of this Agreement.
5.4. It is agreed and understood that nothing contained herein shall be
considered Confidential Information, if;
a) it is and can be shown to be already known to the recipient at the time
of disclosure;
b) it subsequently becomes lawfully and freely available to the recipient
from a third party not under a duty of confidentiality to the disclosing
party;
c) it is in the public domain or is subsequently disclosed to the public
other than through the recipient or any other person to whom the
recipient is permitted to disclose the Confidential Information under
this Agreement;
d) it is required to be disclosed by law or otherwise with mandatory
effect.
6. LICENSE OF MENDELL PATENTS, INFORMATION AND TECHNOLOGY; SALES OF TIMERx
6.1. Mendell hereby grants Leiras an exclusive, unlimited but nontransferable
right and license throughout the Territory to manufacture, use and sell
the Products contemplated herein by utilizing the Mendell Manufacturing
Technology
-8-
<PAGE> 9
including, without limitation, patents and other Mendell information
pertaining to TIMERx.
6.2. Leiras shall use its best efforts in the promotion of the Product
worldwide, taking into consideration the competitive advantage and
superiority pertaining to the Product, Leiras' resources, acts and
measures by competitors, etc. In particular with respect to the United
States of America, Leiras shall consult Mendell regarding distribution
arrangements and alternatives. Leiras shall also be entitled to ask for
Mendell's assistance in the choice of a partner for the US area. For
guidance purposes, the parties shall seek to agree upon an estimated
time schedule for the marketing of the Products in the US area, with
possible milestones to be agreed upon separately.
6.3. In case Leiras decides to manufacture the TIMERx slow-release product on
the basis of the results of the Development Programme, Leiras shall
purchase from Mendell all of its requirements of TIMERx for the Product,
and Mendell shall sell Leiras all of Leiras' requirements of TIMERx for
the said purpose provided that if Mendell is unable to supply all of the
TIMERx required by Leiras within sixty (60) days after Leiras gives
notice to Mendell of such requirements for a specific dosage form, then
Mendell shall put the information etc. necessary for the production of
TIMERx at the disposal of Leiras for the sole and only purpose of
enabling Leiras to manufacture such amounts of TIMERx as Mendell is
unable to supply to Leiras but for no other purpose whatsoever and such
information etc. to be used solely by Leiras for the purpose set out
herein, and only for such time as Mendell is unable so to supply. Leiras
shall use all TIMERx sold by Mendell to Leiras hereunder solely and
exclusively in connection with the license granted by Mendell pursuant
to this Agreement and in particular to this Clause 6.
-9-
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
6.4. Mendell shall sell TIMERx to Leiras for a price of *******************.
Such price shall be valid for a period of ********** from the first
launch of the Products. Thereafter, Mendell shall be entitled to
increase or decrease such price from the ******************************
*********************************. Leiras shall be entitled to negotiate
with Mendell both before launching the Product and the start of
marketing thereof, and thereafter, with the aim of adjusting such price
to a level mutually acceptable by both parties.
6.5. Mendell shall invoice Leiras at the time any TIMERx sold hereunder is
shipped to Leiras. Payment of such invoice is due sixty (60) days from
the date of such invoice.
6.6. Shipments of TIMERx shall be made upon Leiras' instruction and delivery
will be CIP Turku (Incoterms 1990).
6.7. Mendell hereby warrants that the TIMERx sold or to be sold to Leiras
hereunder will meet, at the time of shipment and receipt by Leiras
thereof, the specifications attached hereto as Appendix C and
incorporated herein by this reference. Mendell also warrants that (i) it
will, at the time of shipment and receipt thereof, have a good and
marketable title to the TIMERx sold to Leiras and (ii) all TIMERx sold
hereunder shall, on the date of shipment and receipt, not be adulterated
or misbranded within the meaning of the United States Federal Food, Drug
and Cosmetic Act, as amended from time to time, and not be an article
which may not, under the provisions of Section 404 or 505 of the said
act, be introduced into interstate commerce.
-10-
<PAGE> 11
7. INFRINGEMENT
Mendell warrants that, to the best of its knowledge, the use by Leiras
of the Mendell Manufacturing Technology in accordance with the terms of
this Agreement will not infringe the intellectual property or other
proprietary rights of any third party. Mendell shall defend, indemnify
and hold Leiras harmless from and against all claims, actions,
liabilities and costs, including, without limitation, reasonable
attorneys' fees and expenses, suffered or incurred by Leiras based upon
or arising out of a claim of infringement or contributory infringement
of any patent, or the violation of another's trade secret rights, by
reason of the practice or use of the Mendell Manufacturing Technology or
of TIMERx provided by Mendell to Leiras pursuant to this Agreement.
Leiras warrants that, to the best of its knowledge, its contribution to
the development project and to the Product does not infringe the
intellectual property rights of any third party. Should Leiras be in
violation of this warrant, Leiras will defend, indemnify and hold
Mendell harmless from and against all claims based upon such breach of
warrant.
8. TERM AND TERMINATION
8.1. This Agreement shall commence with effect from the date hereof and,
unless terminated earlier pursuant to Clause 8.2. or 8.3. inclusive,
shall continue until the expiration of the Mendell patents mentioned in
Appendix A.
8.2. If one party (hereinafter called "the Defaulting Party")
-11-
<PAGE> 12
a) is in material breach of its obligations under this Agreement; or
b) becomes insolvent or enters into liquidation (other than as part of a
scheme for solvent reconstruction or amalgamation) or makes an
assignment for the benefit of its creditors generally or has a receiver
or administrative receiver appointed of all or any of its assets or if
any event analogous to the foregoing shall occur of the Defaulting Party
in any jurisdiction where that party is resident or carries on business;
or
c) is unable by reason of the events and circumstances referred to in
Clause 10 to perform its obligations hereunder for a continuous period
of six (6) months, the other party may at any time thereafter by notice
in writing to the defaulting party require the defaulting party to
withdraw from this Agreement provided that, in the case of a breach
capable of remedy, the defaulting party shall have sixty (60) days or
fourteen (14) days in the case of non-payment of monies from the date of
such notice to remedy the breach and, if the breach is remedied within
such period, the notice shall not take effect.
9. CONSEQUENCES OF TERMINATION
9.1. Upon termination by either party of this Agreement, the rights and
obligations of such party shall cease with effect from the date of
termination save for those set out in Clauses 3, 5, 7, 9 and 12, all of
which shall remain in full force and effect provided that the
termination by either party of this Agreement shall be without prejudice
to any accrued claims or rights of action that either party may have
against the other up to the date of such termination.
9.2. In the event of termination or expiry of this Agreement howsoever
arising Mendell shall deliver to Leiras within fifteen (15) working days
all and
-12-
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
everything set out in the Leiras Technology, the Development Programme,
the Development Specification and the Project Specification or other
materials which are the property of Leiras and as is in its direct or
indirect possession, and Leiras shall be under an equivalent obligation
with respect to Mendell Technology and Mendell materials, mutatis
mutandis.
9.3. On termination or expiry of this Agreement each party shall return the
other party, at the other party's cost, all designs, drawings,
specifications, materials and other information comprising and relating
to the other party's Technology as is in such party's possession and
shall cease all further use of the same.
9.4. Leiras shall be entitled to terminate the development work set out
herein at each "Go/No Go" point mentioned in the Development Programme.
Leiras shall also decide, at its sole discretion, whether the result of
the Development Programme shall lead to a registration, manufacturing
and marketing of the Product. Should Leiras decide to discontinue the
Development Programme or to refrain from registering, manufacturing and
marketing the Product, the parties have agreed that:
a) Should Leiras make the "No Go"-decision after phase 2 of the
Development Programme, Mendell shall be entitled to use the Leiras
project for reference purposes in its promotion after ******************
from such Leiras' decision, provided that Mendell shall keep any and all
Leiras' Confidential Information strictly in confidence. Mendell is
neither entitled to transfer nor disclose any development results to any
third parties. Either party shall not be responsible
-13-
<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
for compensation to the other party with respect to the discontinuation
of the development work hereof.
b) Should Leiras make the "No Go"-decision after phase 4 of the
Development Programme, Mendell shall also be entitled to use the Leiras
project for reference purposes in its promotion after ******************
from such Leiras' decision on the same provisions of confidentiality as
set out in Subclause 9.4.a) hereinabove. Furthermore, in addition to the
compensation set forth in the Development Programme, Leiras shall pay
Mendell a total compensation of ********** in consideration of Mendell's
reasonable overhead costs.
c) Should Leiras make the "No Go"-decision, or should Leiras decide to
discontinue the manufacturing and marketing of the Product any time
after phase 5 of the Development Programme, Mendell shall be entitled to
use the Leiras project for reference purposes in its promotion after
****************** from such Leiras' decision on the provisions set out
in Subclause 9.4.a) hereinabove. Furthermore, in addition to the
compensation set forth in the Development Programme, Leiras shall pay
Mendell a total compensation of *********** in consideration of
Mendell's reasonable overhead costs.
In the event Leiras decides to discontinue the development work hereof,
Leiras has free and unencumbered right to use, transfer and sell the
results of the development work. Should Leiras elect to transfer the
right to a third party, Leiras shall be obligated to transfer this
Agreement also to such third party.
-14-
<PAGE> 15
9.5. Upon termination of this Agreement or the discontinuation of the
Development Programme and/or the registering, manufacturing and
marketing of the Product, as applicable, Mendell shall have no right to
use the Development Programme, the results thereof or anything else of a
proprietary nature belonging to Leiras, whether for its own or for third
party purposes. However, Mendell shall be entitled to utilize the
Mendell-generated information for publicity purposes only, and may, in
this respect, disclose Leiras as the company holding the worldwide
rights to the Oxybutynin-TIMERx product. The manner of such disclosure
shall be agreed upon between the parties in advance.
10. FORCE MAJEURE
If and to the extent that either party is hindered or prevented by
circumstances not now foreseeable and not within its reasonable ability
to control from performing any of its obligations under this Agreement
and promptly so notifies the other party giving particulars of the
circumstances in question, then the party so affected shall be relieved
of liability to the other for failure to perform such obligations, but
shall nevertheless use all reasonable endeavours to resume full
performance thereof without avoidable delay.
11. NOTICES
11.1. Any notice to be given under this Agreement shall be in writing in
English and shall be deemed duly given if signed by or on behalf of a
duly authorized officer of the party giving the notice and if left at or
sent by registered or recorded delivery post or by telex, telegram,
facsimile transmission or other means of telecommunication in permanent
written form to the address of the party set out above or such other
address as either party may from time to
-15-
<PAGE> 16
time notify to the other. Any such notice or other communication shall
be deemed to be given;
a) at the time when the same is handed to or left at the address of
the party to be served;
b) by post on the day (not being a Sunday or public holiday) five
(5) days following the day of posting; and
c) in the case of a telegram, telex or facsimile transmission on
the next following day.
11.2. Notices shall be addressed to the parties under their above-mentioned
addresses.
11.3. In proving the giving of a notice it shall be sufficient to prove that
the notice was left or that the envelope containing the notice was
properly addressed and dispatched (as the case may be).
12. CHOICE OF LAW
This Agreement shall be governed by and interpreted in accordance with
English Law. Any dispute concerning the interpretation or application of
this Agreement shall be referred for settlement to the Arbitration
Institute of the Stockholm Chamber of Commerce pursuant to the
regulations in force. The question of payment of such expenses arising
out of the arbitral proceedings, as may be incurred by the Arbitration
and the parties concerned, shall likewise be referred to the Institute
for settlement. The arbitration language shall be English.
-16-
<PAGE> 17
13. ASSIGNMENT
This Agreement may not be assigned by either party without the prior
written consent of the other unless otherwise follows from Clause 9.4.
Should Mendell sell all or substantially all of its assets, or should
Mendell itself or a major part thereof be sold, transferred, assigned or
similar to a third party, Leiras shall have the right to terminate this
Agreement forthwith.
14. NO IMPLIED WAIVER
A waiver by either party of any right under this Agreement in any one
instance shall not be deemed or construed to be a waiver of such right
for any similar instance in the future or of any subsequent breach
hereof nor shall it prevent a subsequent enforcement of that right.
15. SEVERABILITY
If any provision(s) of this Agreement are or become invalid, or are
ruled illegal or are deemed unenforceable under the current applicable
law from time to time in effect during the term thereof, it is the
intention of the parties that the remainder of this Agreement shall not
be affected thereby. It is further the intention of the parties that in
lieu of each such provision which is invalid, illegal or enforceable,
there be substituted or added as part of this Agreement a provision
which shall be as similar as possible in objectives as intended by the
parties.
-17-
<PAGE> 18
16. SOLE UNDERSTANDING
No representations, warranties, conditions or other statements not
contained herein shall be binding on the parties hereto, and no
variation of the terms hereof shall be binding on the parties unless
made in writing by the authorized representatives of the parties. This
Agreement and the documents referred to herein together contain the
entire agreement between the parties with respect to its subject matter
and supersede and replace all prior agreements written or oral with
respect thereto.
17. PARTNERSHIP
Nothing in this Agreement shall constitute a partnership between the
parties hereto.
18. HEADINGS
The headings of Clauses shall not affect their interpretation.
19. EXECUTION IN COUNTERPARTS
This Agreement shall be executed in two (2) counterparts both of which
shall be considered one and the same agreement and shall become a
binding agreement when the two (2) counterparts have been signed by
authorized representatives of the parties and delivered to the other
party.
-18-
<PAGE> 19
IN WITNESS WHEREOF the parties have caused this Agreement to be executed
by their duly authorized officers.
Date: June 30, 1992 Date: July 27, 1992
Place: Turku Place: Patterson, N.Y.
LEIRAS OY EDWARD MENDELL CO., INC.
/s/ [illegible] /s/ [illegible]
-------------------------------- ----------------------------
-19-
<PAGE> 20
ANNEX A
"MENDELL MANUFACTURING TECHNOLOGY"
to the Agreement between LEIRAS OY and EDWARD MENDELL CO., INC. of July
27, 1992.
LIST OF PATENT AND PATENT APPLICATIONS COVERING TIMERx:
1) U.S. Patent No. 4,994,276 entitled "Directly Compressible Slow
Release Granulation", filed Sept. 19, 1988
2) U.S. Serial No. 491,189 entitled "Sustained Release Excipient",
filed March 9, 1990
3) U.S. Application entitled "Compressible Sustained Release Solid
Dosage Forms", filed Jan. 16, 1991
4) European Patent Application, Publication No. 0360562 entitled
"Directly Compressible Sustained Release Excipient", filed Sept.
19, 1989.
Date: June 30, 1992 Date: July 27, 2992
Place: Turku Place: Patterson, N.Y.
LEIRAS OY EDWARD MENDELL CO., INC.
/s/ [illegible] /s/ [illegible]
--------------- ---------------
-20-
<PAGE> 21
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
ANNEX B
"DEVELOPMENT PROGRAMME"
to the Agreement between LEIRAS OY and EDWARD MENDELL CO., INC. of July
27, 1992.
PRODUCT DEVELOPMENT AGREEMENT:
Payment
-------
1. Agreement exchange. After sign of the **********
Agreement a fee of ************* will be
paid.
2. The work in Mendell's laboratory will consist of:
***********************************
***********************************
***********************************
The target is ********************************.
Data from stages 1 - 2 will be presented within
8 - 12 weeks.
3. "Go/No Go"-decision.
4. If the decision is "Go", a fee of **********
***************** will be paid.
Development of the Product in laboratory scale
(Mendell). The work will consist of:
**************************************
**************************************
*****************************
-21-
<PAGE> 22
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
*************************************
*************************************
*************************************
*************************************.
Final tablets and data from stages
1 - 4 will be presented **************
5. "Go/No Go"-decision.
6. If the decision is "Go", a fee of **********
************* will be paid.
Typical activities after stage 5
decision include:
**********************************
**********************************
**********************************
7. After registration and marketing, Mendell will work on a
royalty basis. All development costs outlined above will be
*****************************************************.
TOTAL **********
Date: June 30, 1992 Date: July 27, 1992
Place: Turku Place: Patterson, N.Y.
LEIRAS OY EDWARD MENDELL CO., INC.
/s/ [Illegible] /s/ [Illegible]
---------------------------- ----------------------------
-22-
<PAGE> 23
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
ANNEX C
TIMERx Specification
Description: *********************************************************
**********************************************************************.
****************************** **************************
****************************** **************************
****************************** **************************
****************************** **************************
Final specification to be decided between Leiras and Mendell based on
the development project.
-23-
<PAGE> 1
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS
EXHIBIT 10.10
STRATEGIC ALLIANCE AGREEMENT
THIS AGREEMENT is entered into as of the 17th day of September, 1997
(the "Effective Date"), by and between PENWEST Pharmaceuticals Group ("PPG"), a
division of PENWEST, LTD., a Washington corporation, with its principal place of
business at 2981 Route 22, Patterson, New York 12563, and Endo Pharmaceuticals
Inc., a Delaware corporation with its principal place of business at 223
Wilmington West Chester Pike, Chadds Ford, PA 19317 ("Endo").
A. PPG has developed a controlled-release agent covered by one or more
patents, patent applications, know-how and other proprietary technology, which
agent PPG markets under the name and mark "TIMERx(R)" ("TIMERx").
B. Endo manufactures and markets various pharmaceutical products,
including without limitation the product marketed under the name "Numorphan,"
having as an active drug substance oxymorphone HCL ("Oxymorphone") and has
developed know-how and other proprietary technology with respect thereto. Endo
is interested in developing one or more products incorporating Oxymorphone and
TIMERx to make a solid-dosage controlled-release delivery system for oral
administration in humans in one or more dosage strengths.
C. The parties desire to engage in certain research, development, and
testing activities designed to determine if such drugs can be developed using
TIMERx. If such activities are successful, Endo desires to make and market such
drug(s) as its only line of controlled-release Oxymorphone products. In that
connection, Endo desires to contract for a supply of TIMERx for use in the
manufacture of such controlled-release forms of Oxymorphone, and PPG is willing
to supply the same provided that Endo agrees to obtain all of its and its
Affiliates' and sublicensees' requirements of TIMERx from PPG as provided
herein.
D. The parties desire to build mutual opportunities for the expansion
of the scope of their efforts and agreements to involve other drugs in related
areas and to cooperate in promoting the marketing of such products, worldwide.
NOW, THEREFORE, the parties hereby agree as follows:
I. DEFINITIONS. Certain terms used herein are defined alphabetically in
"Section 1," Sections 1.1 through 1.48, as set forth in the Definitions Exhibit
attached hereto and incorporated herein by this reference. For convenience of
reference,
<PAGE> 2
italicized type indicates at least one of the uses in the body of the Agreement
of terms defined in the Definitions Exhibit.
II. DEVELOPMENT PERIOD(S).
A. During each Development Period, each of PPG and Endo will exert its
Best Commercial Efforts: (i) to perform the respective Development Tasks
allotted to it; (ii) to do so in accordance with the applicable Development
Budget; and (iii) to assist and to cooperate as requested with the other party's
Best Commercial Efforts to do the same as to its own Development Tasks.
B. Each party will, promptly and throughout each Development Period,
provide to the other party all necessary or useful information in or coming into
its possession or reasonably available to it to support the achievement of the
Development Tasks. Notwithstanding anything else to the contrary contained
herein, nothing shall require either party to disclose confidential information
for which such party has an obligation of confidentiality to a third party, but
each party will exert its Best Commercial Efforts to bring to the attention of
the Alliance Committee any such third party restrictions as may be relevant to
its role hereunder.
C. Each party's Project Contact(s) will provide written reports to the
other party's Project Contact(s) at least quarterly (and more often upon
reasonable request of the other party) throughout each Development Period,
stating in detail all efforts made and in process, and all significant progress
achieved and difficulties encountered in the reporting party's portion of the
development effort since the last such report. Each of the Project Contacts will
also be available throughout each Development Period to answer any reasonable
questions from the other party's Project Contacts, as appropriate.
D. During the Development Period, Endo shall provide Oxymorphone and
related materials reasonably required to support the applicable Development
Tasks, although it is understood that the same may be required to remain at one
or more of Endo's facilities covered by Facilities Certifications. During the
Development Period, PPG shall provide all TIMERx reasonably required for the
applicable Development Tasks, all as shall be more fully described in the
applicable Development Tasks adopted by Committee Action, although it is
understood that the prototypes of the Formulated TIMERx will be developed
internally by PPG's personnel at its own research facilities, and that such
prototypes may then be tested with the Oxymorphone in accordance with the
Development Tasks at one or more of such Endo facilities. The costs of such
materials will be treated as among the parties' respective expenditures pursuant
to the Development Budget, using for this purpose the Formulated TIMERx Price as
to the TIMERx and the Oxymorphone Price as to the Oxymorphone.
-2-
<PAGE> 3
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
E. Subject to Section 5.3, each party will *********************************
********************************************************, regardless of which
party is allocated one or more of the relevant Development Tasks. Each party
shall submit to the Alliance Committee at least quarterly (or on such other
schedule as may be determined by Committee Action) a written accounting of the
expenditures, costs, and other resources actually devoted by it to the
Development Tasks in accordance with the applicable Development Budget since the
last such accounting. Each of the parties' quarterly accountings will be
reviewed and approved in whole or in part (and/or returned in whole or in part
to a party for correction or adjustment prior to resubmission) by Committee
Action. The Alliance Committee will notify each party on a quarterly basis of
the results of such review by it of the accountings of both parties. Subject to
Section 5.3, to the extent that both parties' accountings for prior
expenditures, costs and other resources for a particular Development Budget have
been so approved, the Alliance Committee will direct by a quarterly invoice
(with copies to both parties), issued against records for such quarter and
payable prior to the 30th day following the date of invoice, that the party
which has, with respect to such Development Budget, devoted thereto less in the
aggregate than the other party to that time (taking into account all prior
reconciliation invoices with respect to such Development Budget under this
section) shall reconcile such disparity by paying to the other party
************************* in such aggregate amounts.
F. The parties hereby agree that the Designated Product(s) described in Exhibit
2.6 shall be the "Initial Designated Product(s)." The initial Development Tasks,
and the initial Development Budget with respect to such Initial Designated
Product(s) shall be laid out in a project plan to be developed *****************
following the Effective Date by the parties' Project Contacts, subject to
approval by Committee Action. During such ****** period, the parties will
conduct the Proof of Principle Studies, and during the *************** of such
period, Endo shall conduct the Patent Review (and PPG shall cooperate reasonably
therewith). Other than the costs of the Proof of Principle Studies or the Patent
Review, and the incidental costs of the Project Contacts associated with the
development of such a project plan, neither party will devote substantial
resources or make substantial expenditures in connection with the Initial
Development Period prior to the approval of such project plan by Committee
Action. The parties understand that such project plan will be preliminary and
will require revisions, clarifications and supplementation by Committee Action
in light of the interim results achieved or difficulties encountered during the
Initial Development Period.
G. Except for the Initial Designated Products described in Section 2.6, neither
party will be obligated to designate any drug product or potential drug product
as a Designated Product under this Agreement. However, during the term of this
Agreement, neither party shall, and hereby represents and warrants that none of
its Affiliates shall, develop, attempt to develop, or actively investigate any
version, materials, or system for any controlled-release or time-release oral
tablet or capsule
-3-
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
product containing any Oxymorphone as its only active ingredient, or as one
active ingredient together with ASA or APAP (or agree or seek to agree with
others to do so or any part thereof), *****************************************:
(i) such activities are with respect to a Certification Period (and subsequent
Marketing Period(s)) as to which **************************************** or as
to which it ******************************, as permitted hereunder, or (ii) the
relevant product has been demonstrated ****************************************
************* as a Designated Product, as shown by a *********************
Development Period therefor pursuant to Section 5.2, or (iii) all of the
conditions in Sections 2.7.1 and 2.7.2 have been satisfied. In addition, neither
party shall, and hereby represents and warrants that none of its Affiliates
shall, during the ************************ term of this Agreement, in a
co-development project or marketing arrangement with a non-Affiliate third party
(i.e. this clause will not apply to internal projects of either party), develop,
attempt to develop, or actively investigate any version, materials, or system
for any controlled-release or time-release oral tablet or capsule product for
either (a) any controlled multisource opiate analgesic product (e.g., morphine,
oxycodone, hydromorphone) not covered by the preceding sentence, or (b) any
other tablet or capsule product containing a new chemical entity with opiate
analgesic activity (provided, however, that this clause (b) will not apply to
restrict PPG as to any such products as to which Endo has no actual or potential
competitive product then at a substantially equivalent or later stage of
development) ****************************************: (i) such activities are
with respect to a Certification Period (and subsequent Marketing Period(s)) as
to which *********** ************************************ or as to which it
*****************************, as permitted hereunder, or (ii) the relevant
product has been demonstrated ************* ******************** as a Designated
Product, as shown by a *********************** Development Period therefor
pursuant to Section 5.2, or (iii) the other party has informed the party that
would otherwise be restricted by this section that such other party has
*******************************************************************************
********* (it being understood that such other party shall inform the party that
would otherwise be restricted by this section, and which has a bona fide intent
to commence such a project with a non-Affiliate third party, whether or not such
other party has such ******************** whenever it is requested in writing to
do as to a particular ADS), or (iv) all of the conditions in Sections 2.7.1 and
2.7.2 have been satisfied. Such conditions are:
1. The party desiring to conduct a project or to enter a third-party
agreement covered hereby has first notified the other party hereto of
its desire to do so; and
2. such notifying party has exerted its *****************************,
through good faith negotiations over a period of at least ********, to
reach agreement with the other party hereto to add such product or
investigation to the coverage of this Agreement, unless such other
party waives this Section 2.7.2 in writing or fails to negotiate in
good faith.
-4-
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
III. CERTIFICATION PERIOD(S).
A. During each Certification Period, each of PPG and Endo will exert its
****** ********************: (i) to perform the respective Certification Tasks
allotted to it; (ii) to do so in accordance with the applicable Certification
Budget; and (iii) to assist and to cooperate as requested with the other party's
*************************** to do the same as to its own Certification Tasks.
B. Each party will, promptly and throughout each Certification Period,
provide to the other party all necessary or useful information in or coming into
its possession or reasonably available to it to support the achievement of the
Certification Tasks. Notwithstanding anything else to the contrary contained
herein, nothing shall require either party to disclose confidential information
for which such party has an obligation of confidentiality to a third party, but
each party will exert its ************* *********** to bring to the attention of
the Alliance Committee any such third party restrictions as may be relevant to
its role hereunder.
C. Each party's Project Contact(s) will provide written reports to the
other party's Project Contact(s) at least quarterly (and more often upon
reasonable request of the other party) throughout each Certification Period,
stating in detail all efforts made and in process, and all significant progress
achieved and difficulties encountered in the reporting party's portion of the
certification effort since the last such report. Each of the Project Contacts
will also be available throughout each Certification Period to answer any
reasonable questions from the other party's Project Contacts, as appropriate.
D. During each Certification Period in which it is participating, Endo
shall provide Oxymorphone and related materials reasonably required to support
the applicable Certification Tasks, and PPG shall provide all Formulated TIMERx
reasonably required therefor, all as shall be more fully described in the
applicable Certification Tasks adopted by Committee Action. The costs of such
materials will be treated as among the parties' respective expenditures pursuant
to the Certification Budget, using for this purpose the Formulated TIMERx Price
as to the TIMERx and the Oxymorphone Price as to the Oxymorphone. Where, as
permitted hereunder, a party is not participating in a Certification Period, it
will sell such materials to the participating party pursuant to Section 6.9.5 or
Section 7, as applicable, and the price paid therefor shall be treated as part
of the buyer's expenditures pursuant to the Certification Budget.
E. The parties hereby agree that, unless the Initial Development Period is
terminated pursuant to Section 5.2 or Section 5.3, a separate Certification
Period will be established directed toward the filing of one or more NDAs with
the FDA for the Initial Designated Product(s), and securing an Approval with
respect thereto in the United States (the "Initial US Certification Period").
Each party will ***************
-5-
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
*********************************************** for the Initial US Certification
Period regardless of which party is allocated one or more of the relevant
Certification Tasks, subject to Section 5.5. In no event shall the aggregate of
both parties' expenditures, costs, and other resources to be devoted to the
Certification Tasks pursuant to the Certification Budget during the Initial US
Certification Period, when added to the aggregate of both parties' expenditures,
costs, and other resources devoted to the Initial Development Budget, exceed
*************************************, unless both parties have consented
thereto in writing. If the Certification Tasks for the Initial US Certification
Period have not been completed when such ********* level of aggregate
expenditures, costs and other resources has been reached, and one party but not
the other desires to spend further sums or to devote further resources to
complete such Certification Tasks, then the following shall apply:
1. The party that does not participate further in the Initial US
Certification Period once such point is reached shall not be required
to contribute to the reconciliations for the costs of such
Certification Period under Section 3.7. Rather, a Certification Excess
shall be established with respect to the Initial Designated Product in
the US, which shall equal the sums such party would have paid under
Section 3.7, had it fully participated in such Certification Period,
but did not pay due to its election under this section.
2. If Endo is the party electing not to participate further in the Initial
US Certification Period, this shall have the results stated in Section
6.9 as to the Initial Designated Product in the United States, except
that:
a. the relevant Exclusivity Period for the applicable license to
PPG in the US will be coterminous with the License Term, and
Section 6.9.3 will accordingly not be applicable; and
b. the applicable license to PPG will be royalty-bearing without
the relevant Net Realization being reduced as specified in
clause (ii) of Section 6.9.4.
3. If PPG is the party electing not to participate further in the Initial
US Certification Period, this shall be treated, for all purposes of the
licenses and the parties' rights hereunder, as if PPG had continued to
participate in the Initial US Certification Period, except that the
Certification Excess described in Section 3.5.1 shall have the results
stated in Section 4.5.
F. Certification Periods other than the Initial US Certification Period as
described in Section 3.5 may be instituted from time to time by Committee
Action, and shall be so instituted if: (i) an Eligible Party so requests as to
certain Specified Nation(s) and (ii) Committee Action determines that there is a
reasonable likelihood that Approval(s) for such Designated Product will be
obtained in such Specified Nation(s).
-6-
<PAGE> 7
1. If both parties, as Eligible Parties, elect to participate fully in
such Certification Period, each party will share equally the total
costs of the entire Certification Budget, regardless of which party is
allocated one or more of the relevant Certification Tasks, unless both
parties have consented in writing to an alternative arrangement.
2. If an Eligible Party not requesting such Certification Period elects
not to participate fully therein, it shall do so by written notice to
the other party given within 90 days of the request by the requesting
party for such Certification Period (whether or not such Certification
Period has been instituted by Committee Action prior to such election).
3. A party that does not fully participate in a Certification Period
(whether due to its election or because it is not an Eligible Party as
to that Certification Period) shall not be required to contribute to
the reconciliations for the costs of such Certification Period under
Section 3.7. Rather, a Certification Excess shall be established with
respect to the relevant Designated Product(s) in the relevant Specified
Nation(s), which shall equal the sums such party would have borne or
paid under Sections 3.6.1 and 3.7, had it participated in such
Certification Period, but did not pay due to its election or such
ineligibility under this section.
4. If Endo is the party electing not to participate, or is so ineligible,
this shall have the results stated in Section 6.9.
5. If PPG is the party electing not to participate, or is so ineligible,
this shall have the results stated in Section 6.8.
G. Except as otherwise provided in Section 3.6 or Section 5.5, each party
shall submit to the Alliance Committee at least quarterly (or on such other
schedule as may be determined by Committee Action) a written accounting of the
expenditures, costs, and other resources actually devoted by it to the
Certification Tasks in accordance with the applicable Certification Budget since
the last such accounting. Each of the parties' quarterly accountings will be
reviewed and approved in whole or in part (and/or returned in whole or in part
to a party for correction or adjustment prior to resubmission) by Committee
Action. The Alliance Committee will notify each party on a quarterly basis of
the results of such review by it of the accountings of both parties. Except as
otherwise provided in Section 3.6 or Section 5.5, to the extent that both
parties' accountings for prior expenditures, costs and other resources for a
particular Certification Budget have been so approved, the Alliance Committee
will direct by a quarterly invoice (with copies to both parties), issued against
records for each such quarter and payable prior to the 30th day following the
date of invoice, that the party which has, with respect to such Certification
Budget, devoted thereto less in the aggregate than the other party to that time
(taking into account all
-7-
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
prior reconciliation invoices with respect to such Certification Budget under
this section) shall reconcile such disparity by paying to the other party
******** of the difference in such aggregate amounts.
IV. MARKETING PERIOD(S).
A. Endo hereby agrees, during the Marketing Period for each and every
Designated Product as to which it participated throughout the Development Period
and the relevant Certification Period as to the United States, to use its
****************************** to manufacture, market, promote and sell the
Designated Product throughout the United States, once Approval has been obtained
therefor in the United States, commencing with any normal and appropriate
pre-Approval preparations and a full product launch as soon as practical
following the applicable Approval, and to do so in accordance with the
applicable Manufacturing and Marketing Plan(s).
B. PPG hereby agrees, during the Marketing Period for each and every
Designated Product as to which it participated throughout the Development Period
and the relevant Certification Period as to the United States, but as to which
Endo did not fully participate (including without limitation an election by Endo
not to continue to participate in the Initial US Certification Period after the
********** level of aggregate expenditures, costs and other resources referred
to in Section 3.5.2 has been reached), and as to which Section 6.9 applies
(entirely or to the extent provided in Section 3.5.2, where that section is
applicable), to use its ******************** to manufacture, market, promote and
sell the Designated Product throughout the United States or to arrange therefor
with appropriate third parties, once Approval has been obtained therefor in the
United States, commencing with any normal and appropriate pre-Approval
preparations and a full product launch as soon as practical following the
applicable Approval, and to do so in accordance with the applicable
Manufacturing and Marketing Plan(s). When considering the establishment of any
relationships whereby PPG would contract for a third party to manufacture the
Designated Product covered by this section, PPG will give some preference for
manufacturing to be conducted by Endo, where Endo has a demonstrated ability to
manufacture such Designated Product.
C. Each of the parties shall, during the Marketing Period for each and
every Designated Product as to which it participated throughout the Development
Period and the relevant Certification Period as to Specified Nation(s) other
than the United States (whether or not the other party also so participated), to
use its Best Commercial Efforts either (i) to present to the Alliance Committee
a plan (in the form of a Manufacturing and Marketing Plan) for such party's
manufacturing, marketing, promoting and selling the Designated Product
throughout such Specified Nation(s) and/or other nations to be proposed as
Specified Nation(s) under a Manufacturing and Marketing Plan (other than the
United States) or (ii) to present to the Alliance Committee an arrangement
whereby a third party or third parties will do some or all
-8-
<PAGE> 9
of the tasks described under clause (i). The Alliance Committee will determine,
by Committee Action, which of the approaches (i.e., clause (i) and/or clause
(ii), and as to one or both of the parties' approaches so presented) will be
most likely to maximize the early market entry and ultimate market success of
the applicable Designated Product in the applicable Specified Nation(s), or any
of them, it being understood, however, that the Alliance Committee will give
preference, other factors being essentially equal, for marketing, promotion and
selling to be conducted by a party hereto or an Affiliate of a party hereto, if
any such approach is presented in a timely manner by such party. If and to the
extent that PPG is determined by Committee Action to be the party whose approach
to clauses (i) and (ii) above will be pursued, this will (unless otherwise
specified by such Committee Action) have the results stated in Section 6.9 as to
the relevant Specified Nation(s), except that (unless Section 6.9 is fully
applicable due to any of the reasons stated therein, other than as provided in
this Section 4.3):
1. the relevant Exclusivity Period for the applicable license to PPG in
the Specified Nation(s) will be as provided in Section 1.24 (mutatis
mutandis for application to patents on Endo Technology existing as of
the Effective Date or on Joint Technology and to Endo's Confidential
Technology provided to PPG), and Section 6.9.3 will accordingly not be
applicable; and
2. the applicable license to PPG will be royalty-bearing without the
relevant Net Realization being reduced as specified in clause (ii) of
Section 6.9.4.
D. Supply of Formulated TIMERx by PPG (or otherwise as provided in
Section 7.4) in accordance with the Specifications is desired by both parties
for the technically satisfactory production, regulatory approval, and
exploitation of the Designated Product(s). In accordance with Section 7 (and
except as provided in Section 7.4), PPG will supply Endo and its Affiliates and
sublicensees with sufficient quantities of Formulated TIMERx produced in
accordance with the Specifications in compliance with GMP and all applicable
laws and regulations, to meet their requirements for the manufacturing of the
Designated Product(s) during the Marketing Period, and Endo shall purchase all
of its and its Affiliates' and sublicensees' requirements thereof from PPG
during such period. The price for all Formulated TIMERx sold hereunder shall
equal the applicable Formulated TIMERx Price, and shall be payable by Endo to
PPG within forty-five (45) days after the shipping of the Formulated TIMERx to
Endo. As provided in Exhibit 1.35, the price of the Formulated TIMERx used in
the Designated Product will be one of the deductions applied in the calculation
of the Net Realization.
E. Endo hereby agrees to pay to PPG Royalties equal to the Applicable
Percentage of the relevant Net Realization from any and all Designated Products;
provided, however, that, if a Development Excess exists pursuant to Section
5.3.3 (where PPG is the terminating party) or a Certification Excess exists
pursuant to Sections 3.5.1, 3.6.3, or 5.5.3 (where PPG is the non-participating
or terminating party), Endo shall pay
-9-
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
PPG ************************ the Applicable Percentage of the relevant Net
Realization from the relevant Designated Product(s) from the relevant Specified
Nation(s), until Endo has thereby ********************************************
**********************. (That is, for example, if the total resources devoted by
both Endo and PPG to the relevant Development Period and Certification Period,
as approved pursuant to Section 2.5 and/or Section 3.7, is ************* in this
example, and Endo bore **************** and PPG bore ****** of that total prior
to PPG's making its election under Section 5.3 or Section 5.5.3, and if the
Applicable Percentage is ****, then Endo would pay PPG ********************** of
the Net Realization from the relevant Designated Product(s) from the relevant
Specified Nation(s) until Endo has thereby recouped the ***********************
*********************************************************, which would occur in
this example when the total of such Net Realization reaches **************.
Where a Development Period is relevant to more than one Certification Period,
the total resources so devoted to that Development Period will, for the purposes
of this section, be apportioned to the various relevant Certification Periods
pro rata by the respective total resources devoted to those Certification
Periods.)
F. Endo has agreed to make the payments specified in Section 4.5 in recognition
of PPG's anticipated contributions of know-how, resources, and money during the
Development Period(s) and the Certification Period(s), and irrespective of
whether any patents cover such Designated Products; provided, however, that if
there are any Net Realizations from Designated Products sold in the United
States to which no license to U.S. PPG Patents or to U.S. Joint Technology
Patents (including patent applications, as if patents had issued thereon) is
applicable to the making, using, sale, offer for sale, or import thereof, such
Net Realizations shall be ****************************************************
******************************************** Royalties hereunder.
G. All Royalties and other amounts payable pursuant to this Agreement shall be
due quarterly within 60 days following the end of each calendar quarter for Net
Realization in such calendar quarter. Each such payment shall be accompanied by
a statement of Net Realization for the quarter and the calculation of the
Royalties payable hereunder. All Royalties and all other amounts payable under
this Agreement will bear interest at the rate of 1 1/2% per month or the maximum
legal rate, whichever is less, from the date due through the date of payment.
Endo shall keep and shall cause its Affiliates and its and their sublicensees to
keep complete, true and accurate records for the purpose of showing the
derivation of all Royalties payable to PPG under this Agreement. PPG or its
representatives shall have the right to inspect, copy, and audit such records at
any time during reasonable business hours upon notice to Endo or any of its
Affiliates or sublicensees, respectively. Information gathered during such an
audit shall be held in confidence by PPG and its Affiliates, except to the
extent any of the exceptions stated in Sections 10.1.1 through 10.1.7 apply
thereto, and PPG's auditors will be required to execute an agreement consistent
-10-
<PAGE> 11
with this obligation and otherwise reasonably acceptable to Endo. Any such audit
shall be at the expense of PPG, unless the audit reveals that, with respect to
the period under audit, less than 90% (for the first such audit conducted with
respect to a particular Designated Product) or 97% (for any subsequent audits
with respect to such Designated Product) of the Royalties due to PPG hereunder
have been paid, in which event Endo shall pay or reimburse PPG for the
reasonable expenses of such audit, in addition to PPG's other remedies for such
underpayment.
H. All monies due hereunder shall be paid in United States Dollars to PPG
in Patterson, New York, USA. The rate of exchange to be used shall be the
average commercial rate of exchange for the 30 days preceding the date of
payment for the conversion of local currency to United States Dollars as
published by The Wall Street Journal (or if it ceases to be published, a
comparable publication to be agreed upon by the parties) or, for those countries
for which such average exchange rate is not published by The Wall Street
Journal, the exchange rate fixed on the fifth day prior to the date of payment
as promulgated by the appropriate United States governmental agency as mutually
agreed upon by the parties.
V. TERM AND TERMINATION.
A. The term of this Agreement shall begin on the Effective Date and shall,
unless earlier terminated as provided herein, continue until the last to occur
of: (i) the fifth anniversary of the later of the Effective Date or the most
recent agreement of the parties to start a Development Period hereunder; or (ii)
the end of the last License Term to expire or be terminated, if any such License
Term(s) are in effect on any date determined under clause (i) or clause (iii)
below; or (iii) the end of the term of any license under Section 6.9, if any
such license(s) are in effect on any date determined under clause (i) or (ii).
B. A Development Period for a Designated Product may be terminated before
completion thereof, if it is determined by Committee Action that due to
unfavorable or inconclusive results to that time, no further efforts are likely
to lead to the successful development of the Designated Product. The Initial
Development Period will terminate pursuant to this section if Committee Action
determines that, due solely to technical reasons of the pharmaceutical sciences
growing from results obtained in the course of the Proof of Principle Studies,
that it will not be practicable to develop any Initial Designated Product. The
Initial Development Period will also terminate if the Patent Review results in a
determination by Endo, concurred in by Committee Action, that the PPG Patents
are not as contemplated hereunder. If the Initial Development Period is
terminated pursuant to this section, this Agreement shall thereupon terminate,
and, subject to Section 5.11, neither party will have any further liabilities or
obligations to the other hereunder. Similarly, Committee Action may determine
that no Certification Period should be undertaken with respect to a
-11-
<PAGE> 12
Designated Product in one or more nation(s), but such a determination will not
by itself terminate this Agreement.
C. Either party may at its option terminate its participation in a
Development Period (including without limitation the Initial Development Period)
at its election and upon at least 30 days' prior written notice to the other
party (subject, however, to a continuing duty to contribute as provided herein
to the costs of tasks previously committed prior to such notice), if it
determines that no further efforts are likely to lead to the successful
development of any of the relevant Designated Products.
1. If the terminating party is Endo, this shall have the results stated in
Section 6.9.
2. If the terminating party is PPG, this shall have the results stated in
Section 6.8.
3. The terminating party shall not be required to contribute further to
the annual reconciliations for the costs of such Development Period
under Section 2.5, other than to the extent that a disparity of the
sort described in Section 2.5 has theretofore accrued that would call
for a reconciliation payment by such terminating party to the other
party, in which event such reconciliation payment shall be accounted
for and made by such terminating party within sixty (60) days of the
termination of its participation under this section, or with the next
scheduled annual reconciliation payment under Section 2.5 (whichever is
sooner). Rather, a Development Excess shall be established with respect
to the relevant Designated Product(s), which shall equal the sums such
party would have paid under Section 2.5, had it participated fully in
such Development Period, but did not pay due to its election under this
section.
D. A Certification Period for a Designated Product may be terminated
before completion thereof, if it is determined by Committee Action that due to
unfavorable or inconclusive results to that time, no further efforts are likely
to lead to the applicable Approval for the Designated Product.
E. Either party may at its option terminate its participation in any
Certification Period (including without limitation the Initial US Certification
Period) at its election and upon at least 30 days' prior written notice to the
other party (subject, however, to a continuing duty to contribute as provided
herein in the costs of tasks previously committed prior to such notice), if it
determines that no further efforts are likely to lead to the applicable Approval
for any of the relevant Designated Products.
1. If the terminating party is Endo, this shall have the results stated in
Section 6.9.
2. If the terminating party is PPG, this shall have the results stated in
Section 6.8.
-12-
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
3. The terminating party shall not be required to contribute further to
the annual reconciliations for the costs of such Certification Period
under Section 3.7, other than to the extent that a disparity of the
sort described in Section 3.7 has theretofore accrued that would call
for a reconciliation payment by such terminating party to the other
party, in which event such reconciliation payment shall be accounted
for and made by such terminating party within sixty (60) days of the
termination of its participation under this section, or with the next
scheduled annual reconciliation payment under Section 3.7 (whichever is
sooner). Rather, a Certification Excess shall be established with
respect to the relevant Designated Product(s), which shall equal the
sums such party would have paid under Section 3.7, had it participated
fully in such Certification Period, but did not pay due to its election
under this section.
F. PPG may at its option terminate the Exclusivity Period for a particular
Designated Product in one or more Specified Nation(s) if Endo fails to ********
******************* in such Specified Nation(s) under the then-current
Manufacturing and Marketing Plan(s) for such Designated Product during ********
***************************************
G. If Endo fails to launch full-scale marketing of a Designated Product in
any Specified Nations within the time frames specified in the then-current
Manufacturing and Marketing Plan(s) therefor, or announces its intention to
discontinue active marketing of such Designated Product in such nation(s), PPG
may at its option elect to terminate the License Term for such Designated
Product in such nation(s) upon the delivery of written notice to Endo. Any such
termination of such License Term will have the effect of removing the affected
Specified Nation(s) from the Territory for such Designated Product and shall
have the results stated in Section 6.9.
H. In the event that either party materially breaches any of the terms,
conditions or agreements contained in this Agreement to be kept, observed or
performed by it, then the other party may terminate this Agreement, at its
option and without prejudice to any of its other legal or equitable rights or
remedies, by giving the party who committed the breach (i) in the case of breach
of obligations other than the payment of money, 90 days' notice in writing,
unless the notified party within such 90-day period shall have cured the breach,
and (ii) in the case of breach of an obligation for the payment of money, 30
days' notice in writing, unless the notified party within such 30-day period
shall have cured the breach, including any required payment of interest on
previously unpaid amounts as set forth herein.
1. If the defaulting party is Endo, a termination under this section
shall have the results stated in Section 6.9.
2. If the defaulting party is PPG, a termination under this section shall
have the results stated in Section 6.8.
-13-
<PAGE> 14
I. This Agreement will automatically terminate if Endo files for
protection under federal or state bankruptcy laws, becomes insolvent, makes an
assignment for the benefit of creditors, appoints or suffers appointment of a
receiver or trustee over its property, files a petition under any bankruptcy or
insolvency act or has such petition filed against it. A termination under this
section shall have the results stated in Section 6.9.
J. This Agreement will automatically terminate if PPG files for protection
under federal or state bankruptcy laws, becomes insolvent, makes an assignment
for the benefit of creditors, appoints or suffers appointment of a receiver or
trustee over its property, files a petition under any bankruptcy or insolvency
act or has such petition filed against it. A termination under this section
shall have the results stated in Section 6.8.
K. Endo's obligations regarding payment of Royalties accrued as of the
date of termination, PPG's rights under Sections 6.10 and 6.11 (except if this
Agreement is terminated due to an uncured breach on the part of PPG), and Endo's
rights under Section 6.12 (except if this Agreement is terminated due to an
uncured breach on the part of Endo), and the provisions of Sections 5, 6.6, 6.8
- - 6.13, 9, 10, 12, 13, and 14, hereof shall survive any expiration or
termination of this Agreement.
VI. OWNERSHIP AND LICENSES.
A. Except as otherwise explicitly licensed or transferred as provided
herein, each party will, as between it and the other party hereto, retain
ownership of any and all inventions, copyrights, trade secrets, patent rights
and other technology and rights to the extent made solely by its personnel,
Affiliates, or contractors (other than the other party hereto), and the parties
will jointly own any and all Joint Technology. Inventorship for these purposes
will be determined under the prevailing U.S. rules and interpretations. Unless
otherwise approved by Committee Action, the party primarily responsible for the
filing of a PLA, including without limitation NDAs in the U.S., shall own such
PLAs. Neither party makes any grant of rights by implication.
B. Except as otherwise provided herein, each party shall be responsible,
as it shall determine, for the filing and prosecution of any and all patent
applications with respect, in whole or in part, to its own intellectual property
and for the maintenance of any available patent protection with respect thereto,
and the Alliance Committee will determine which of PPG or Endo, or both, will be
responsible for the filing and prosecution of any and all patent applications
with respect to the Joint Technology, with due regard to reasonable concerns, if
any, expressed by either party as to the impact such a filing and prosecution
may have on its other rights and technologies; provided however, that neither
party commits that any such patent protection will be available or continuous
hereunder.
-14-
<PAGE> 15
C.
1. PPG hereby grants to Endo a license under the Joint Technology, the PPG
Patents, and PPG's Confidential Technology disclosed to Endo hereunder
to make, have made, use, sell, offer for sale, and import the
Designated Product(s) in the Territory during the License Term
applicable to such Designated Product. Such license shall be exclusive
as to the applicable nation(s) during the Exclusivity Period applicable
thereto for such Designated Product, and shall otherwise be
nonexclusive. Such license does not extend to the making of TIMERx or
Formulated TIMERx, but does cover the incorporation of the same into
the Designated Product(s). Endo shall have no right to grant
sublicenses hereunder without the prior written consent of PPG, which
consent shall not be unreasonably withheld. PPG will, throughout the
License Term, promptly notify Endo of all PPG Patents referred to in
Section 1.38.3 and provide Endo with access to all of the same, solely
for use within the scope of the license stated in this section.
2. Endo hereby grants to PPG a license, with right to sublicense, under
any and all Endo Technology and Joint Technology to make, have made,
use, sell, offer for sale, and import the Designated Product(s) in the
Territory; provided, however, that during the term and within the scope
of the Exclusivity Period(s) for the license granted by PPG to Endo
under Section 6.3.1, such license under Section 6.3.1 will take
precedence over the license under this Section 6.3.2, and the rights
under this section will be exercised by Endo. The license under this
Section 6.3.2 shall be exclusive to PPG for an "Exclusivity Period" (as
defined in Section 1.24, mutatis mutandis for application to patents on
Endo Technology and Joint Technology and to Endo's Confidential
Technology provided to PPG); provided, however, that if and to the
extent that the license granted to Endo under Section 6.3.1 continues
after the end of an applicable Exclusivity Period thereunder (whether
pursuant to Section 5.6, 1.24, or otherwise), this license to PPG under
this Section 6.3.2 shall be nonexclusive.
D. Endo acknowledges that PPG, for itself and for others, applies, and
will seek to apply, TIMERx to other products. Other than Section 2.7, no
provision hereof, and no exclusivity hereunder, shall prevent PPG from so
applying TIMERx or Formulated TIMERx, so long as the end product is not a
Designated Product for manufacture or sale in the Territory during the
Exclusivity Period applicable thereto.
E. [intentionally omitted]
F. In recognition of the parties' cooperative efforts with respect to the
Joint Technology, but without the express or implied grant of any license to any
underlying or enabling rights or technology (except as otherwise provided
herein), it
-15-
<PAGE> 16
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
is agreed that each party and its Affiliates shall have the nonexclusive,
worldwide right and license, with right to sublicense, under the Joint
Technology, to make, have made, use, sell, offer for sale, and import any
products or services (other than a Designated Product by PPG or its Affiliates
in the relevant Specified Nation(s) during an applicable Exclusivity Period
under the license in Section 6.3.1, or by Endo or its Affiliates in the relevant
Specified Nation(s) during an applicable Exclusivity Period described in Section
6.9.3). Such license will be royalty-free except as is otherwise provided
herein. Each party will promptly notify the other of all Joint Technology and
provide such other party with access to all of the same.
G. Subject to and conditional upon the failure or continuing unwillingness
of PPG to meet Endo's and its Affiliates' and sublicensees' requirements as
provided in Section 7.4, PPG grants to Endo a nonexclusive license under the
TIMERx Production Technology to make and have made Formulated TIMERx in the
Territory solely for use in the Designated Product(s) for sale in the Territory
during the License Term. Endo shall have no right to grant sublicenses of its
rights hereunder (whether to Affiliate(s) or otherwise) without the prior
written consent of PPG, which consent shall not be unreasonably withheld.
H. Subject to and conditional upon PPG's termination of its participation
in a Development Period pursuant to Section 5.3 or in a Certification Period
pursuant to Section 5.5, or PPG's election not to participate in a Certification
Period (or its ineligibility to do so) as provided in Section 3.6, or the
termination of this Agreement pursuant to Section 5.8 due to an uncured breach
by PPG, or a termination pursuant to Section 5.10, PPG's license to Endo under
Section 6.3.1 and its conditional license under Section 6.7, shall continue with
respect to the relevant Specified Nation(s) and the relevant Designated
Product(s) or successors thereto containing Oxymorphone and designed as tablets
or capsules for substantially the same functions and indications (as may be
determined by Committee Action), but with the following changes and adjustments
as to such license with respect to such Designated Product(s) or successors in
the relevant Specified Nation(s):
1. Endo's license to PPG under Section 6.3.2 shall terminate upon the
effectiveness of this Section 6.8 with respect to the relevant
Designated Product in the relevant Specified Nation(s).
2. The Exclusivity Period for the license under Section 6.3.1, to the
extent applicable to the relevant Designated Product(s) in the relevant
Specified Nation(s), shall, unless earlier ended pursuant to Section
1.24.1, last until the longer of ************** commencing with the
effective date of the applicable termination (or from the start of a
Certification Period covered by Section 3.6.5) or until there are no
more Joint Technology Patents (if any) applicable to such Designated
Product in the relevant Specified Nation(s) (or, as to pending
-16-
<PAGE> 17
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
patent applications, that would be so applicable, if they were then
issued as patents), and shall thereafter be nonexclusive in such
Specified Nation(s).
3. The license under Section 6.3.1, to the extent applicable to the
relevant Designated Product(s) in the relevant Specified Nation(s),
will be royalty-bearing and Sections 4.5, 4.7 and 4.8 shall apply
thereto; provided, however, that the relevant Net Realization (without
regard to Section 4.6, which it is agreed shall not be applicable)
shall be ************* prior to the calculation of the proportion
thereof to be paid to PPG as Royalties hereunder.
4. The parties' agreements under Section 4.4 and Section 7 will continue
to apply to Endo's and its Affiliates' and sublicensees' requirements
of Formulated TIMERx for use in the Designated Product(s) produced
pursuant to this section for sale in the relevant Specified Nation(s),
throughout the life of the license under Section 6.3.1, to the extent
applicable to the relevant Designated Product(s) in the relevant
Specified Nation(s).
5. As used herein, the "relevant Specified Nation(s)" shall be the entire
Territory as to a termination of PPG's participation in a Development
Period, and shall be the Specified Nation(s) for the applicable
Certification Period as to a termination of PPG's participation in a
Certification Period or its election not to participate therein (or its
ineligibility to do so).
6. The license under Section 6.3.1, to the extent applicable to the
relevant Designated Product(s) in the relevant Specified Nation(s),
will apply only to the PPG Patents, the Joint Technology, the TIMERx
Production Technology, and PPG's Confidential Technology made or
discovered prior to expiration of ************** after the
effectiveness of the applicable termination (or prior to the start of a
Certification Period covered by Section 3.6.5), together with any and
all intellectual property and other rights thereto and therein in the
relevant Specified Nation(s), inclusive of later-issued patents to the
extent disclosing the same. Notwithstanding Sections 1.38.2 or 1.38.3,
any such technology made or discovered more than *****************
following such termination shall not be licensed to Endo for
exploitation with respect to the applicable Designated Product(s) in
the relevant Specified Nation(s). PPG will, throughout the term of the
license under Section 6.3.1, to the extent applicable to the relevant
Designated Product(s) in the relevant Specified Nation(s), promptly
notify Endo of all the licensed PPG technology and provide Endo with
access to all of the same, solely for use within the scope of the
license under Section 6.3.1, to the extent applicable to the relevant
Designated Product(s) in the relevant Specified Nation(s).
7. The requirement that Endo obtain PPG's consent to sublicenses under
Section 6.3.1 shall not apply to the extent that such sublicenses
relate only to the
-17-
<PAGE> 18
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
relevant Designated Product in the relevant Specified Nation(s) covered
by this section.
I. Subject to and conditional upon Endo's termination of its participation
in a Development Period pursuant to Section 5.3 or in a Certification Period
pursuant to Section 5.5, or Endo's election not to participate in a
Certification Period (or its ineligibility to do so) as provided in Section 3.5
(to the extent specified in Section 3.5.2) or Section 3.6, or the termination of
an Exclusivity Period pursuant to Section 5.6 or of a License Term pursuant to
Section 5.7, or (to the extent specified in Section 4.3) the acceptance by
Committee Action under Section 4.3 of PPG or its designated third party to
pursue the activities described in that section in a Specified Nation(s), or the
termination of this Agreement pursuant to Section 5.8 due to an uncured breach
by Endo, or a termination pursuant to Section 5.9, Endo's license to PPG under
Section 6.3.2 shall continue with respect to the relevant Specified Nation(s)
and the relevant Designated Product(s) or successors thereto designed as tablets
or capsules for substantially the same functions and indications (as may be
determined by Committee Action), but with the following changes and adjustments
as to such license with respect to Designated Product(s) or successors in the
relevant Specified Nation(s):
1. Except where the applicable termination is only of an Exclusivity
Period under Section 5.6, the License Term with respect to the relevant
Designated Product(s) in the relevant Specified Nation(s) affected by
such termination shall, for purposes of the licenses granted by PPG
under Sections 6.3.1 and 6.7, terminate upon the applicable
termination.
2. The term of the license under Section 6.3.2, to the extent applicable
to the relevant Designated Product(s) in the relevant Specified
Nation(s), shall last for the duration of a "Marketing Period" as
specified in Section 1.33.1, mutatis mutandis for application to
patents on Endo Technology or Joint Technology.
3. Except where the applicable termination is only of an Exclusivity
Period under Section 5.6, the license under Section 6.3.2, to the
extent applicable to the relevant Designated Product(s) in the relevant
Specified Nation(s), shall be exclusive within its scope to PPG for an
"Exclusivity Period" (as defined in Section 1.24, mutatis mutandis for
application to patents on Endo Technology existing as of the Effective
Date and to Endo's Confidential Technology provided to PPG) lasting,
unless earlier terminated pursuant to Section 1.24.1 as made applicable
by this section, until the longer of ********************* commencing
with the effective date of the applicable termination (or from the
start of a Certification Period covered by Section 3.6.4) or until
there are no more Joint Technology Patents (if any) applicable to such
Designated Product in the relevant Specified Nation(s) (or, as to
pending patent applications, that
-18-
<PAGE> 19
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
would be so applicable, if they were then issued as patents), and shall
thereafter be nonexclusive in such Specified Nation(s).
4. The license under Section 6.3.2, to the extent applicable to the
relevant Designated Product(s) in the relevant Specified Nation(s),
will be royalty- bearing and Sections 4.5, 4.7 and 4.8 shall apply
thereto, mutatis mutandis, as follows: (i) subject to clause (ii)
below, PPG shall pay Royalties thereunder to Endo with respect to
relevant Net Realization of PPG or its Affiliates or licensees pursuant
to such license under this Section 6.9 and with due regard (as provided
in Section 4.5, but applied in the other direction) to any Development
Excess or Certification Excess theretofore borne by PPG due to Endo's
not making the payments it would otherwise have made under Section 2.5
and/or Section 3.7; and (ii) the relevant Net Realization shall be
************* *********** prior to the calculation of the proportion
thereof to be paid to Endo as Royalties hereunder; and (iii) payments
of Royalties will be made to Endo in Chaddsford, PA USA.
5. Throughout the life of the license under Section 6.3.2, to the extent
applicable to the relevant Designated Product(s) in the relevant
Specified Nation(s), Endo will provide to PPG and its Affiliates and
sublicensees reasonable assistance on commercially reasonable terms for
the purposes of developing, testing, certifying, making, using,
selling, offering for sale, or importing the relevant Designated
Product(s) or any services involving such Designated Product(s) in the
relevant Specified Nation(s), including without limitation making
available to PPG the benefit of any and all Facilities Certifications
to the maximum extent permitted by law. Without limiting the generality
of the foregoing, Endo will specifically either:
(i) supply PPG and its Affiliates and sublicensees with
sufficient quantities of the Oxymorphone active drug substance
(ADS) produced in accordance with the Specifications in
compliance with GMP and all applicable laws and regulations,
to meet their reasonable requirements for the manufacturing of
the Designated Product(s). If and to the extent this clause
(i) is effective, PPG shall purchase all of its and its
Affiliates' and sublicensees' requirements thereof for such
uses from Endo during such period. The price for all
Oxymorphone ADS sold hereunder shall equal the applicable
Oxymorphone Price, and shall be payable by PPG to Endo within
thirty (30) days after the shipping of the Oxymorphone ADS to
PPG. As provided in Exhibit 1.35, ***************************
************************************************************
*************************************************************.
The Oxymorphone ADS shall be provided FOB Garden City, New
York, and all other terms of such supply shall be as provided
in Section 7, mutatis mutandis for application to the
Oxymorphone ADS sold by Endo,
-19-
<PAGE> 20
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
inclusive without limitation of the provisions of Section 7.4,
which shall be applicable if Endo for any reason fails to
supply PPG with its and its Affiliates' and sublicensees'
requirements of Oxymorphone ADS during the life of the license
under Section 6.3.2, to the extent applicable to the relevant
Designated Product(s) in the relevant Specified Nation(s); or
(ii) manufacture and sell to PPG and its Affiliates and
sublicensees, on commercially reasonable terms, the finished
Designated Product(s) for sale in the relevant Specified
Nation(s) and shall deliver the same to the relevant Specified
Nation(s), or otherwise assist PPG or its Affiliates or
sublicensees to effect such deliveries.
In the absence of any specific election by PPG between clause
(i) and (ii), it will be deemed to have selected clause (ii). PPG may,
on good cause shown and after consultation with Endo, reasonably elect
to switch a single time as to the relevant Designated Product in any
Specified Nation (unless Endo in its discretion approvals subsequent
switches, one way or the other as to such Designated Product in such
Specified Nation) from the course specified in clause (ii) to that in
clause (i), and Endo agrees to reasonably assist PPG to be able to make
such a switch. PPG will, at the reasonable request of Endo, switch to
clause (i) in those situations in which it is able to do so without
significant harm to its interests and in which this would be of
substantial benefit to Endo.
6. As used herein, the "relevant Specified Nation(s)" shall mean the
entire Territory as to a termination of Endo's participation in a
Development Period or as to the termination of this Agreement pursuant
to Section 5.8 due to an uncured breach by Endo or a termination
pursuant to Section 5.9. The "relevant Specified Nation(s)" shall mean
the Specified Nation(s) for the applicable Certification Period as to a
termination of Endo's participation in a Certification Period or its
election not to participate therein (or its ineligibility to do so);
shall mean, as to Marketing Period licenses to PPG or its designated
third parties under Section 4.3, those nation(s) to which the last
sentence of Section 4.3 is applicable; and shall mean the applicable
Specified Nation(s) as to the termination of an Exclusivity Period
pursuant to Section 5.6 or of a License Term pursuant to Section 5.7.
7. As used herein, the "then-existing Endo Technology and then-existing
Joint Technology" shall mean the Endo Technology and Joint Technology
made or discovered prior to the expiration of ************ following
the effectiveness of the applicable termination (or prior to the start
of a Certification Period covered by Section 3.6.4), together with any
and all intellectual property and other rights thereto and therein in
the relevant Specified Nation(s), inclusive of later-issued patents to
the extent disclosing the same. Notwithstanding Section
-20-
<PAGE> 21
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
6.10, Endo Technology made or discovered following more
than ************* such termination shall not be licensed to PPG for
exploitation with respect to the applicable Designated Product(s) in
the relevant Specified Nation(s). Endo will promptly notify PPG of all
existing Endo Technology and provide PPG with access to all of the
same, solely for use within the scope of the license under Section
6.3.2, to the extent applicable to the relevant Designated Product(s)
in the relevant Specified Nation(s).
J. Subject to Section 6.9.7, Endo hereby grants to PPG a worldwide,
nonexclusive license, with right to sublicense, under any and all Endo
Improvement Technology to make, have made, use, sell, offer for sale, and import
any products or services using or based upon TIMERx or related technology. Such
license will be royalty-free except as is otherwise provided herein. Endo will,
throughout the term of this license, promptly notify PPG of all Endo Improvement
Technology and provide PPG with access to all of the same, solely for use within
the scope of the license stated in this section.
K. Endo hereby grants PPG a nonexclusive and royalty-free license, with
right to sublicense, under all rights of Endo and its Affiliates and
sublicensees in and to the Endo Test and Regulatory Data to use the same for
purposes of marketing or complying with governmental requirements of any country
(other than with respect to a Designated Product or a product directly
competitive with a Designated Product for manufacturing, marketing or use in the
Territory during an applicable Exclusivity Period); provided that PPG will not
use any of the same for purposes of marketing or disclosure to the public, to
the extent the particular Endo Test and Regulatory Data is then Endo's
Confidential Technology, unless Endo has consented thereto, which consent shall
not be unreasonably withheld. Endo hereby consents to PPG's and its
sublicensees' cross-referencing, in any PLAs or other regulatory filings made by
them within the scope of such license, any PLA filing made or drug master file
created by Endo or its Affiliates relating to or containing any of the Endo Test
and Regulatory Data. The license under this section shall survive any
termination or expiration of the term of this Agreement, except a termination
under Section 5.8 due to an uncured breach by PPG. Endo will, throughout the
License Term and solely for use within the scope of the license stated in this
section, provide to PPG on request access to all of the Endo Test and Regulatory
Data in or coming into Endo's possession or otherwise reasonably available to
it.
L. PPG hereby grants Endo a nonexclusive, paid-up license, with right to
sublicense, under all rights of PPG and its Affiliates in and to the PPG Test
and Regulatory Data to use the same for purposes of complying with governmental
requirements, but solely with respect to the Designated Product(s) for marketing
or use in the Territory. PPG hereby consents to Endo's and its sublicensees'
cross-referencing, in any PLAs or other regulatory filings made by them within
the scope of such license, any PLA filing made or drug master file created by
PPG or its
-21-
<PAGE> 22
Affiliates relating to or containing any of the PPG Test and Regulatory Data.
The license and rights under this section shall survive any termination or
expiration of the term of this Agreement, except a termination under Section 5.8
due to an uncured breach by Endo. PPG will, throughout the License Term and
solely for use within the scope of the license stated in this section, provide
to Endo on request access to all of the PPG Test and Regulatory Data in or
coming into PPG's possession or otherwise reasonably available to it.
M. Each party agrees to mark and to have marked by its sublicensees every
product manufactured, used or sold by it or its sublicensees in accordance with
the laws of the United States or other applicable Specified Nation relating to
the marking of patented articles with notices of patent.
VII. SUPPLY OF FORMULATED TIMERX.
A. All sales of Formulated TIMERx shall be F.O.B. Patterson, New York, and
Endo shall bear all transportation, insurance, taxes, duties, and other costs
and risks of loss, spoilage and damage associated with the shipping and delivery
of Formulated TIMERx to Endo or its Affiliates or sublicensees.
B. Subject to Sections 2.5 and 3.7, PPG shall perform routine quality
control tests with respect to all Formulated TIMERx as required by the FDA, or
otherwise as PPG deems necessary in accordance with its applicable policies, and
PPG will also bear the expenses and fees for filing the Drug Master File for
TIMERx with the FDA. No other or special tests by PPG with respect to the raw
materials or Formulated TIMERx will be required, unless and to the extent that
Endo establishes that the same are required in order to obtain or maintain a
governmental license to market a Designated Product in the Territory. PPG shall
promptly, upon completion of each lot or batch of Formulated TIMERx, deliver to
Endo a copy of the record of such test performed on said lot or batch. Endo will
perform quality control tests on Formulated TIMERx immediately on receipt at its
plant and advise PPG within thirty (30) days of any deviations from
Specifications.
C. If Endo considers any such shipment not to conform to the applicable
Specifications, Endo shall notify PPG as provided in Section 7.2 and provide PPG
with the relevant analysis. PPG'S SOLE OBLIGATION AND ENDO'S EXCLUSIVE
REMEDY FOR ANY SUCH NONCONFORMITY SHALL BE AS FOLLOWS:
i) PPG shall at its own expense accept return of any
shipment not accepted, or else reimburse Endo for the
cost of disposal or destruction;
ii) PPG shall use its Best Commercial Efforts to replace
the non- conforming shipment with conforming
Formulated TIMERx; and
-22-
<PAGE> 23
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
iii) Section 7.4 shall apply if in any circumstances set
out in that Section PPG shall be unable to supply
replacement conforming Formulated TIMERx.
D. If for any reason PPG fails to supply Endo with its and its Affiliates'
and sublicensees' requirements of Formulated TIMERx during a Marketing Period,
PPG shall, AS ENDO'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE TO SUPPLY
FORMULATED TIMERx, grant Endo a nonexclusive license to manufacture Formulated
TIMERx under the TIMERx Production Technology and make knowledgeable personnel
reasonably available, at PPG's expense, to consult with Endo, all to the extent
necessary to enable Endo to produce Formulated TIMERx that would otherwise have
been supplied by PPG hereunder for Endo and its Affiliates and sublicensees in
connection with the production of the relevant Designated Product pursuant to
this Agreement during such Marketing Period.
1. Such license shall be royalty-free, it being understood that *********
**********************************************************************
**********************************************************************
*****************************.
2. Endo shall maintain TIMERx Production Technology delivered to Endo
pursuant to this section, whether orally or in writing, in strictest
confidence and shall use such information and technology only for the
purpose of producing Formulated TIMERx for its own use and the use of
its Affiliates and sublicensees in connection with this Agreement.
3. Endo acknowledges that, in doing the foregoing, PPG will not be
providing a "turnkey" operation. Rather, PPG will only be required to
make reasonably available to Endo the best standard of knowledge and
information then available to PPG and directly used in its or its
Affiliate's manufacture of Formulated TIMERx.
E. While PPG is supplying Formulated TIMERx hereunder to Endo, PPG shall,
after receipt of reasonable prior notice, give duly accredited representatives
of Endo access at all reasonable times during regular business hours to PPG's
plant in which the Formulated TIMERx is being produced, to ensure production
practices created Formulated TIMERx conforming to Specifications. PPG will exert
its Best Commercial Efforts to maintain at all times during the Marketing Period
at least two approved sources for the production of Formulated TIMERx (whether
or not inclusive of PPG's own production facilities). To the extent necessary to
obtain or maintain an Approval, PPG will exert its Best Commercial Efforts to
obtain similar access for Endo to the production facilities of any of PPG's
third-party suppliers of the Formulated TIMERx.
-23-
<PAGE> 24
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
F. Endo shall deliver to PPG firm written orders stating its (and/or its
Affiliates' and sublicensees') requirements for Formulated TIMERx to be used for
production of the Designated Product(s) for commercial use or sale no less than
************* in advance of the requested delivery date therefor, by giving firm
orders at the beginning of each month that creates firm orders during the third
following month (the order-submission month and the first and second months
following having already been the subject of prior firm orders). All such orders
shall be firm and shall not be cancelled or deferred by Endo.
G. At least ************* before Endo and/or its Affiliates or
sublicensees begin production of the Designated Product for commercial use or
sale (and in any event not later than concurrently with the submission of the
first order for use in the production of the applicable Designated Product
intended for commercial sale during each Marketing Period), Endo shall deliver
to PPG a written, non-binding estimate of all requirements of Formulated TIMERx
therefor during the following *************. Endo will deliver to PPG updates to
such estimates on or before the first day of each
********************************** thereafter, which updates may revise
estimates previously submitted, and will add estimates for additional months so
that each such estimate covers the ********** period following the end of the
firm-order period (that is, the ************************ after the month in
which such estimates are made).
H. PPG will exert Best Commercial Efforts to supply Endo with all amounts
of Formulated TIMERx requested by Endo, but PPG shall have no obligation to
supply Endo with quantities of Formulated TIMERx during any quarter in excess of
**** of the quantity estimated in Endo's estimate for that quarter which
estimate was given to PPG **************************************** pursuant to
Section 7.7 (the "*********** Estimated Quantity"), nor shall Endo order
quantities for any *********************************************************.
I. Each party shall promptly notify the other of any fact, circumstance,
condition or knowledge dealing with TIMERx, Formulated TIMERx, or the Designated
Product of which the Party becomes aware that bears upon the safety or efficacy
of TIMERx, Formulated TIMERx, or the Designated Product. Each party shall
immediately notify the other of any inspection or audit relating to TIMERx,
Formulated TIMERx, or the Designated Product by any governmental regulatory
authority in the Territory. If a representative of the governmental authority
takes samples in connection with such audit or inspection, the parties shall
immediately provide each other, as appropriate, samples from the same batch. The
party in receipt of such notice will provide the other party within 72 hours,
with copies of all relevant documents, including FDA Forms 482 and 483 (as
applicable), warning letters and other correspondence and notifications as such
other party may reasonably request. PPG and Endo agree to cooperate with each
other during any inspection, investigation or other inquiry by the FDA or other
governmental entity, including providing information and/or documentation, as
requested by the FDA, or other governmental entity. To the extent
-24-
<PAGE> 25
permissible, PPG and Endo also agree to discuss any responses to observations or
notifications received and to give the other party an opportunity to comment on
any proposed response before it is made. In the event of disagreement concerning
the content or form of such response, Endo shall be responsible for deciding the
appropriate form and content of any response with respect to any of its cited
activities and PPG shall be responsible for deciding the appropriate form and
content of any response with respect to any of its cited activities. Each party
shall inform the other of all comments and conclusions received from the
governmental authority.
VIII. USE OF TRADEMARKS. Endo agrees to market the Designated Product(s) in
conjunction with the appropriate PPG Trademark(s), and as provided in this
section, including uses on such packaging, labeling and other materials as the
Alliance Committee shall reasonably determine. The provisions of this Section 8
shall apply, mutatis mutandis, to marketing of Designated Product(s) by PPG or
its designees as contemplated under Sections 4.2, 4.3, or 6.9, with respect to
the use by PPG or such designees of the Endo Trademarks.
A. Endo acknowledges that all PPG Trademarks and all rights therein or
registrations thereof, worldwide, shall belong exclusively to PPG. All use of
the PPG Trademarks as contemplated in this Agreement by Endo shall accrue to the
benefit of PPG. Endo shall make no use of any of the PPG Trademarks except to
identify and promote the Designated Product as contemplated hereunder for sale
in the Territory. Endo shall not continue using the PPG Trademarks after
termination or expiration of this Agreement, nor after the removal or alteration
of any such PPG Trademark from Exhibit 1.20, except to complete the sale of
inventory of the Designated Product on hand at the time of termination or
expiration, or at the time of such removal or alteration.
B. Endo shall cooperate with PPG to protect the interest of PPG in the PPG
Trademarks, and shall neither attempt to register nor authorize others to
register any PPG Trademarks without the prior written consent of PPG in each
instance. Endo shall promptly inform PPG of any actual or apparent infringement
of any PPG Trademarks or other intellectual properties of PPG which may come to
Endo's attention during the term hereof.
C. Endo shall use all appropriate notices of trademark status of the PPG
Trademarks, including the "(TM)" designation (or the (R) symbol for registered
marks, if any), in all labeling and promotional materials and shall otherwise
conform with all policies and notices of PPG's rights in the marks and for the
protection of the PPG Trademarks, including without limitation the inclusion of
an appropriate footnote acknowledging the use of the PPG Trademark(s) under
license. Endo will impose a spatial separation between any PPG Trademarks and
any other names or marks of Endo or any others, and will not otherwise use any
of PPG's names, marks or
-25-
<PAGE> 26
symbols in any manner that could, whether immediately or over time, create any
substantial association between them and the business of Endo.
D. Samples of the Designated Product and any advertising, promotional
materials or packaging related thereto that bear the PPG Trademarks shall be
provided by Endo to PPG at least thirty days prior to the first use or sale
thereof, and at other times upon the request of PPG. Endo shall not put any of
such items into initial use without first obtaining the written approval of PPG,
which approval shall not be unreasonably withheld. PPG shall at all times have
the right to enter into Endo's facilities and/or to take other appropriate
methods to check the quality of the Designated Product manufactured or offered
by Endo, from time to time during the term of this Agreement. If at any time or
times PPG thinks that the quality of the Designated Product manufactured or
offered by Endo, or the packaging or promotional materials therefor, is not
suitable for using the PPG Trademarks or any of them, PPG, at its option, shall
have the right to suspend or prohibit the use of such PPG Trademark(s), provided
that PPG has given Endo a written notice thereof and a period of 60 days to
bring them up to PPG's standards; provided further, however, that PPG need not
give such opportunity to cure any deficiency that has been the subject of more
than two such notices on prior occasions during the preceding twelve months.
IX. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
A. Each party represents and warrants to the other that it is duly
organized and validly existing under the laws of the state of its organization,
that it has the requisite corporate or limited liability company authority to
execute and deliver this Agreement and to perform its obligations hereunder, and
that the execution and performance of its obligations hereunder are not and will
not be in violation of or in conflict with any material obligation it may have
to any third party.
B. PPG represents and warrants that any Formulated TIMERx supplied by it
to Endo hereunder for use in the Designated Product, at the point of delivery:
1. will conform to the Specifications in effect as of the order date
therefor; and
2. to PPG's current knowledge, without undertaking any special
investigation, will not infringe upon the intellectual property rights
of any third party.
C. Each party represents and warrants to the other that it has obtained,
and will at all times during the term of this Agreement hold and comply with,
all licenses, permits and authorizations necessary to perform this Agreement and
to test, manufacture, market, export, and import the Designated Product(s),
Oxymorphone, or Formulated TIMERx to be so tested, manufactured, marketed,
exported or imported by it as provided herein, as now or hereafter required
under any applicable
-26-
<PAGE> 27
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
statutes, laws, ordinances, rules and regulations of the United States and any
applicable foreign, state, and local governments and governmental entities,
including without limitation all Facilities Certifications (as to Endo).
D. THE FOREGOING WARRANTIES ARE IN LIEU OF, AND THE PARTIES EACH DISCLAIM,
ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR ARISING BY LAW, INCLUDING WITHOUT
LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, AND NON-INFRINGEMENT. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A
REPRESENTATION OR WARRANTY (i) BY PPG AS TO THE PATENTABILITY, VALIDITY, OR
SCOPE OF ANY PPG PATENTS, PPG'S CONFIDENTIAL TECHNOLOGY, TIMERx PRODUCTION
TECHNOLOGY, PPG TEST AND REGULATORY DATA, OR JOINT TECHNOLOGY, NOR AS TO THE
UTILITY, EFFICACY, NONTOXICITY, SAFETY OR APPROPRIATENESS OF TIMERx OR THE
DESIGNATED PRODUCT; OR (ii) BY ENDO AS TO THE PATENTABILITY, VALIDITY, OR SCOPE
OF ANY ENDO TECHNOLOGY, ENDO TEST AND REGULATORY DATA, OR JOINT TECHNOLOGY, NOR
AS TO THE UTILITY, EFFICACY, NONTOXICITY, SAFETY OR APPROPRIATENESS OF ANY
PRODUCTS MADE THEREFROM.
E. PPG shall indemnify, defend and hold Endo and its Affiliates and
sublicensees harmless from any and all third-party claims to the extent arising
from, in connection with, based upon, by reason of, or relating in any way to:
1. any claim, action or damages arising out of any alleged infringement by
reason of the manufacture, use or sale by Endo of the Designated Product(s) to
the extent such infringement would apply as well to the manufacture, sale or
distribution of TIMERx alone;
2. PPG's ***************************************************************
************* and the Specifications therefor hereunder; provided,
however, that matters of infringement of third party rights or
intellectual properties shall be included under this clause only to the
extent the same are covered by Section 9.5.1 or are within PPG's
knowledge, without undertaking any special investigation, and of which
PPG failed to inform Endo within 30 days following the later of the
Effective Date or PPG's first obtaining such knowledge;
3. any failure of the Formulated TIMERx manufactured by PPG or its
alternate supplier (but not by Endo under Section 7.4), as delivered to
Endo hereunder for use in the Designated Product(s), to conform to the
Specifications; or
-27-
<PAGE> 28
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
4. any failure of PPG to comply with its obligation under Section 7.9 to
notify Endo of any information coming into PPG possession and
***********************************************************************
***,
and not arising from any other aspect of the Designated Product(s) ************,
*******************************************************************************
******************************************************************************
************************************** following its delivery to Endo hereunder.
F. Endo shall indemnify, defend and hold PPG harmless from any and all
third-party claims to the extent arising from, in connection with, based upon,
by reason of, or relating in any way to, the formulation, development, supply,
production, manufacture, sale, delivery, distribution or use of the Designated
Product(s) by Endo, its Affiliates or sublicensees, ***************************
*****************************.
G. Notwithstanding anything to the contrary set forth elsewhere herein,
neither Endo nor PPG shall be obligated to indemnify the other party for claims
or liabilities to the extent arising from such other party's, or its
Affiliates', sublicensees' or assigns', negligence, intentional misconduct, or
breach of its duties, obligations, warranties or representations set forth
herein.
H. Whenever indemnification is provided for a party under this Agreement,
such right of indemnification shall extend also to the indemnified party's
Affiliates, officers, directors, shareholders, successors, assigns, agents,
employees, and insurers to the extent the same become subject to such claim in
such capacity. The party seeking indemnification shall provide the indemnifying
party with written notice of any claim or action within ten (10) days of its
receipt thereof, and shall afford the indemnifying party the right to control
the defense and settlement of such claim or action. The party seeking
indemnification shall provide reasonable assistance to the indemnifying party in
the defense of such claim or action. If the defendants in any such action
include both Endo and PPG, and either party concludes that there may be legal
defenses available to it which are different from, additional to, or
inconsistent with, those available to the other, that party shall have the right
to select separate counsel to participate in the defense of such action on its
behalf, and such party shall bear the cost and expense of such separate defense,
unless and to the extent the parties otherwise agree, or it is determined
through arbitration hereunder that such costs and expense are or were required
to be indemnified by the other party hereunder and are or were required to be
incurred separately due to such different, additional, or inconsistent defenses.
Should the indemnifying party determine not to defend such claim or action, the
other party shall have the right to maintain the defense of such claim or action
and the indemnifying party agrees to provide reasonable assistance to it in the
defense of such claim or action and to bear the reasonable cost and expense of
such defense (including attorneys' and experts' fees
-28-
<PAGE> 29
and expenses). Neither party shall settle any such claim or action in a way that
prejudices or adversely impacts the other party to this Agreement without the
prior approval of such other party (which approval shall not be unreasonably
withheld).
I. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT
(OTHER THAN FOR: BREACHES OF SECTION 9.3; INDEMNITIES UNDER SECTIONS 9.5 AND 9.6
FOR PATENT INFRINGEMENT OR FOR HARM TO PERSONS OR TANGIBLE PROPERTY; AND
BREACHES OF SECTION 10), NEITHER PARTY SHALL UNDER ANY CIRCUMSTANCES BE LIABLE
FOR ANY THIRD PARTY CLAIMS OR FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT OR
SPECIAL DAMAGES, INCLUDING ANY LOST PROFITS OR SAVINGS, ARISING FROM ANY BREACH
OF WARRANTY OR THE PERFORMANCE OR BREACH OF ANY OTHER PROVISION OF THIS
AGREEMENT OR THE USE OR INABILITY TO USE TIMERx, THE DESIGNATED PRODUCT, PPG
PATENTS, PPG'S CONFIDENTIAL TECHNOLOGY, TIMERx PRODUCTION TECHNOLOGY, PPG TEST
AND REGULATORY DATA, ENDO TECHNOLOGY, ENDO TEST AND REGULATORY DATA, OR JOINT
TECHNOLOGY, OR ANY CLAIMS ARISING IN TORT, PERSONAL INJURY, OR PRODUCT
LIABILITY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
X. CONFIDENTIALITY AND NON-SOLICITATION.
A. In the course of performance under this Agreement or during the
discussions leading thereto, a party may disclose, or may have disclosed, to the
other confidential information belonging to such party in writing, orally or by
demonstration or sample, which information is marked or stated in writing to be
"confidential" or "trade secret" information, or where the circumstances of the
disclosure and/or the nature of the information otherwise reasonably give notice
of the confidential character of the information. All such confidential
information of a party shall be maintained in confidence by the other and will
not be used by the other party for any purpose except as authorized hereunder.
Each party shall exercise, and shall cause its Affiliates, sublicensees, and
consultants to exercise, a reasonable degree of care and at least the same
degree of care as it uses to protect its own confidential information of similar
nature to preserve the confidentiality of such information of the other party.
Each party shall safeguard such information against disclosure to third parties,
including without limitation employees and persons working or consulting for
such party that do not have an established, current need to know such
information for purposes authorized under this Agreement. This obligation of
confidentiality does not apply to information and material:
1. that were properly in the possession of the receiving party, without
any restriction on use or disclosure, prior to receipt from the other
party;
-29-
<PAGE> 30
2. that are at the time of disclosure hereunder in the public domain by
public use, publication, or general knowledge;
3. that become general or public knowledge through no fault of the
receiving party or its Affiliates following disclosure hereunder;
4. that are properly obtained by the receiving party from a third party
not under a confidentiality obligation to the disclosing party hereto;
5. that are documented to have been independently developed by or on
behalf of the receiving party without the assistance of the
confidential information of the other party;
6. that consist merely of an idea or conception for the combination of one
or more active drug ingredients with a controlled-release agent such as
TIMERx; or
7. to the extent the same are required to be disclosed by order of any
court or governmental authority; provided, however, that the receiving
party shall use its Best Commercial Efforts to give the disclosing
party prior notice of any such disclosure so as to afford the
disclosing party a reasonable opportunity to seek, at the expense of
the disclosing party, such protective orders or other relief as may be
available in the circumstances.
B. Neither party shall make any public announcement or other publication
regarding this Agreement (whether as to the existence or terms hereof) or the
development work or project hereunder or the results thereof without the prior,
written consent of the other party, which consent shall not be unreasonably
withheld; provided that the foregoing shall not prohibit any disclosure which,
in the opinion of counsel to the disclosing party, is required by any applicable
law or by any competent governmental authority. In no event shall either party
make any disclosure of any such results before a patent application has been
filed with respect thereto, except upon the prior written approval of the other
party.
C. Each of PPG and Endo agrees that during the License Period, neither of
them will directly or indirectly solicit or encourage any employee or consultant
of the other to leave or terminate such employment or consultancy for any
reason, including without limitation, becoming employed or otherwise engaged in
any capacity by such party (or any person or entity associated with such party,
whether or not an Affiliate), nor will it assist others in doing so.
-30-
<PAGE> 31
XI. INFRINGEMENT.
A. PPG shall promptly inform Endo of any suspected infringement of any of
the PPG Patents or Joint Technology Patents or the infringement or
misappropriation of the TIMERx Production Technology or Joint Technology by a
third party, to the extent such infringement or misappropriation involves the
manufacture, use or sale of a Designated Product or a substitutable or directly
competitive product in the Territory ("Covered Infringement"). Endo shall
promptly inform PPG of any suspected infringement of any of the PPG Patents or
Joint Technology Patents or infringement or misappropriation of the TIMERx
Production Technology or Joint Technology of which Endo is aware, whether or not
the same involves a Covered Infringement.
B. If the suspected infringement or misappropriation does not involve a
Covered Infringement, PPG may take, or refrain from taking, any action it
chooses, with or without notice to Endo, and Endo shall have no right to take
any action with respect to such suspected infringement or misappropriation, nor
to any recoveries with respect thereto. If the suspected infringement or
misappropriation involves a Covered Infringement, PPG shall, within 120 days of
the first notice referred to in Section 11.1, inform Endo whether or not PPG
intends to institute suit against such third party with respect to a Covered
Infringement. Endo will not take any steps toward instituting suit against any
third party involving a Covered Infringement until PPG has informed Endo of its
intention pursuant to the previous sentence.
C. If PPG notifies Endo that it intends to institute suit against a third
party with respect to a Covered Infringement, and Endo does not agree to join in
such suit as provided in Section 11.4, PPG may bring such suit on its own and
shall in such event bear all costs of, and shall exercise all control over, such
suit. PPG may, at its expense, bring such action in the name of Endo and/or
cause Endo to be joined in the suit as a plaintiff. Recoveries, if any, whether
by judgment, award, decree or settlement, shall belong solely to PPG.
D. If PPG notifies Endo that it desires to institute suit against such
third party with respect to a Covered Infringement, and Endo notifies PPG within
30 days after receipt of such notice that Endo desires to institute suit
jointly, the suit shall be brought jointly in the names of both parties and all
costs thereof shall be borne equally to the extent applicable to the Covered
Infringement. Recoveries, if any, whether by judgment, award, decree or
settlement, shall (to the extent attributable to the Covered Infringement),
after the reimbursement of each of PPG and Endo for its share of the joint costs
in such action, be shared equally between PPG and Endo.
E. If PPG notifies Endo that it does not intend to institute suit against
such third party with respect to a Covered Infringement, Endo may institute suit
on its own. Endo shall bear all costs of, and shall exercise all control over,
such suit. Recoveries,
-31-
<PAGE> 32
if any, whether by judgment, award, decree or settlement, shall belong solely to
Endo; provided however that, after reimbursement of Endo for its costs in such
action, any portion of such net recoveries which constitutes the equivalent of,
or damages or payments in lieu of, a royalty measured by the defendant's sales,
shall be shared equally between PPG and Endo.
F. Should either PPG or Endo commence a suit under the provisions of this
Section 11 and thereafter elect to abandon the same, it shall give timely notice
to the other party, who may, if it so desires, be joined as a plaintiff in the
suit (or continue as such if it is already one) and continue prosecution of such
suit, provided, however, that the sharing of expenses and any recovery of such
suit shall be as may be determined for that situation by Committee Action.
XII. ESCALATION PROCEDURES.
A. The parties intend that, to the maximum extent practicable, they shall
reach decisions hereunder cooperatively through the deliberations of the
Alliance Committee and by consent of its members as described in Section 1.10.1.
In cases in which that does not occur (other than as to a question of patent
validity or as to a matter left to the discretion of a party hereunder), either
party may institute an Escalation Procedure in which a proposed Committee Action
approved by at least two members of the Alliance Committee, is provided in
writing to each party's Escalation Officer. Such Escalation Officers shall
discuss the proposed Committee Action, and shall meet with respect thereto if
either of them believes a meeting or meetings to be useful. If the Escalation
Officers do not resolve the matter by either approving the proposed Committee
Action (whether or not in a revised form) or agreeing to reject it, within
thirty (30) days (or such lesser or longer period as they may agree is a useful
period for their discussions), then either of them may institute a formal
mediation of such matter pursuant to Section 12.2.
B. Any dispute or difference (other than as to a question relating to
patent validity or as to a matter left to the discretion of a party hereunder),
between the parties arising out of or in connection with this Agreement,
including without limitation a disagreement over a proposed Committee Action,
that cannot be resolved by the consent of the Escalation Officer of each party
shall be referred to mediation before any party resorts to arbitration,
litigation, or other dispute resolution procedure. Unless the parties agree
otherwise, the mediation will be conducted in accordance with The CPR Mediation
Procedure for Business Disputes (Revised 1994) of the CPR Institute for Dispute
Resolution by a mediator who has had both training and experience as a mediator
of general corporate and commercial matters. If the parties cannot agree on a
mediator, then the mediator will be selected by the President of the CPR
Institute for Dispute Resolution in accordance with the criteria set forth in
the preceding sentence. Within thirty days after the selection of the mediator,
the parties and their respective attorneys will meet with the mediator for
-32-
<PAGE> 33
one mediation session of at least four hours. If the dispute cannot be settled
during such mediation session or during any mutually agreed continuation of such
session, any party to this Agreement may give to the mediator and the other
party to this Agreement written notice declaring the mediation process at an
end, and such dispute will be resolved by arbitration pursuant to Section 13.
All discussions pursuant to this section will be confidential and will be
treated as compromise and settlement discussions. Nothing said or disclosed, and
no document produced, in the course of such discussions which is not
independently discoverable may be offered or received as evidence or used for
impeachment or for any other purpose in any arbitration or litigation. The costs
of any mediation pursuant to this section will be shared equally by the parties
to this Agreement. Each party to this Agreement acknowledges receipt of a copy
of The CPR Model Mediation Procedure for Business Disputes (Revised 1994) of the
CPR Institute for Dispute Resolution. The use of mediation will not be construed
under the doctrines of laches, waiver or estoppel to affect adversely the rights
of either party, and in particular either party may seek a preliminary
injunction or other interim judicial relief at any time if in its judgment such
action is necessary to avoid irreparable damage.
XIII. ARBITRATION. Should the parties fail to reach agreement with respect to
a dispute or difference (other than as to a question relating to patent validity
or as to a matter left to the discretion of a party hereunder), between the
parties arising out of or in connection with this Agreement, including without
limitation a disagreement over a proposed Committee Action, through the
aforesaid mediation or otherwise, then the dispute or difference will be
determined by arbitration in New York City in accordance with the
Non-Administered Arbitration Rules & Commentary (Amended 1993) of the CPR
Institute for Dispute Resolution by a tribunal of three independent and
impartial arbitrators, one of which will be appointed by each of Endo and PPG,
and the third of which shall have had both training and experience as an
arbitrator of general corporate and commercial matters and who shall be, and for
at least ten years shall have been, a partner, shareholder or member in a highly
respected law firm headquartered in the United States. If the parties to this
Agreement cannot agree on the third arbitrator, then the third arbitrator will
be selected by the President of the CPR Institute for Dispute Resolution in
accordance with the criteria set forth in the preceding sentence; provided that
no person who served as a mediator pursuant to Section 12.2 with respect to such
dispute may be selected by the President of the CPR Institute for Dispute
Resolution as an arbitrator pursuant to this section. The tribunal may decide
any issue as to whether, or as to the extent to which, any dispute is subject to
the arbitration and other dispute resolution provisions in this Agreement. The
tribunal must base its award on the provisions of this Agreement and must render
its award in a writing which must include an explanation of the reasons for such
award. Any arbitration pursuant to this section will be governed by the
substantive laws of the State of New York applicable to contracts made and to be
performed in that state, without regard to conflicts of law rules, and by the
arbitration law of the Federal Arbitration Act
-33-
<PAGE> 34
(9 U.S.C. sec.1 et seq.), and judgment upon the award rendered by the arbitrator
may be entered by any court having jurisdiction thereof. The statute of
limitations of the state of New York applicable to the commencement of a lawsuit
will apply to the commencement of an arbitration under this section, except that
no defenses will be available based upon the passage of time during any
negotiation or mediation required pursuant to Section 12. All fees, costs and
expenses of the arbitrators, and all other costs and expenses of the
arbitration, will be shared equally by the parties to this Agreement unless such
parties agree otherwise or unless the tribunal in the award assesses such costs
and expenses against one of such parties or allocates such costs and expenses
other than equally between such parties. Each party to this Agreement
acknowledges receipt of a copy of the Non-Administered Arbitration Rules &
Commentary (Amended 1993) of the CPR Institute for Dispute Resolution.
Notwithstanding the foregoing, either party may, on good cause shown, seek a
temporary restraining order and/or a preliminary injunction from a court of
competent jurisdiction, to be effective pending the institution of the
arbitration process and the deliberation and award of the arbitration tribunal.
XIV. MISCELLANEOUS.
A. This Agreement incorporates the Definitions Exhibit and the numbered
Exhibits referenced herein. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter hereof.
B. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and permitted assigns; provided, however,
that except as part of the transfer of all or substantially all assets to a
single buyer or pursuant to a merger or other corporate reorganization, neither
party shall assign or delegate any of its rights or obligations hereunder at any
time without the prior written consent of the other party hereto, which consent
shall not be unreasonably withheld.
C. All notices, requests or other communication provided for or permitted
hereunder shall be given in writing and shall be hand delivered or sent by
facsimile, reputable courier or by registered or certified mail, postage
prepaid, return receipt requested, to the address set forth on the signature
page of this Agreement, or to such other address as either party may inform the
other of in writing. Notices will be deemed delivered on the earliest of
transmission by facsimile, actual receipt or three days after mailing as set
forth herein.
D. Any terms of this Agreement may be amended, modified or waived only in
a writing signed by both parties.
E. If any provision of this Agreement shall be held invalid, illegal or
unenforceable, such provision shall be enforced to the maximum extent permitted
by
-34-
<PAGE> 35
law and the parties' fundamental intentions hereunder, and the remaining
provisions shall not be affected or impaired.
F. Nothing herein contained shall constitute this a joint venture
agreement or constitute either party as the partner, principal or agent of the
other, this being an Agreement between independent contracting entities. Neither
party shall have the authority to bind the other in any respect whatsoever.
G. In the event that either party hereto is prevented from carrying out
its obligations under this Agreement by events beyond its reasonable control,
including without limitation acts or omissions of the other party, acts of God
or government, natural disasters or storms, fire, political strife, labor
disputes, failure or delay of transportation, default by suppliers or
unavailability of parts, then such party's performance of its obligations
hereunder shall be excused during the period of such event and for a reasonable
period of recovery thereafter, and the time for performance of such obligations
shall be automatically extended for a period of time equal to the duration of
such event or events; provided, however, that the other party may, at its
election, terminate this Agreement upon 120 days' prior notice to the party
affected by such events, unless such events cease to prevent such affected
party's performance hereunder during such 120-day period.
H. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to its
conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and acknowledge this Agreement as of the date
first written above.
ENDO PHARMACEUTICALS INC. PPG
By /s/ Carol A. Ammon By John V. Talley, Jr.
---------------------------------- -------------------------------
Its Its President
--------------------------------- ------------------------------
Address: Address:
223 Wilmington West Chester Pike 2981 Route 22
Chadds Ford, PA 19317 Patterson, N.Y. 12563
FAX: FAX: (914) 878-3420
Attn: Carol A. Ammon Attn: John V. Talley
CC: Osagie Imasogie CC: Michael Mallon
-35-
<PAGE> 36
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
DEFINITIONS EXHIBIT
XV. DEFINITIONS.
A. "AFFILIATE" of PPG shall mean and include the entities listed as such
in Exhibit 1.1, and "Affiliate" of Endo shall mean and include the entities
listed as such in Exhibit 1.1, which, in each case are the entities that,
directly or indirectly, own and control the voting of more than 50% of the
voting capital interests of such party ("Parent"), or more than 50% of the
voting capital interests (or equivalent control) of which is, directly or
indirectly, owned, and the voting of which is controlled, by such party or its
Parent, as of the Effective Date. Subject to Section 14.2, for purposes of this
definition and this Agreement:
1. no entity shall remain an "Affiliate" unless it continues to meet the
foregoing criteria; and
2. no entity shall become an "Affiliate" (even if it meets such criteria)
without the consent of the other party hereto, which consent shall not
be unreasonably withheld.
B. "ALLIANCE COMMITTEE" shall mean a committee of six members, three of
whom will be designated in writing by each of PPG and Endo. The initial Alliance
Committee shall have six members, as follows: John V. Talley, Jr., Dr. Paul
Wotton, and Dr. Anand Baichwal, designated by PPG, and Dr. D. Kao, Chuck
Cottone, and Osagie Imasogie designated by Endo. If at any time a vacancy occurs
(whether due to death, disability, resignation, removal by a party of its
designee by written notice to the other party, or otherwise), the vacancy will
be filled as soon as is reasonably practicable by designation by the party that
originally designated the prior incumbent. In the meantime, the Alliance
Committee shall continue to function with its remaining members, provided that
any Committee Action described in Section 1.2 will continue to require the
consent of at least four members.
C. "APPLICABLE PERCENTAGE" shall mean the following percentages of the
following portions of Net Realization:
1. ********************** of all Net Realization from all units of each
respective Designated Product *************************************;
2. ********************* of all Net Realization from all units of each
respective Designated Product sold by Endo or its distributors or
licensees ************* *****************, until the aggregate of all
such Net Realization from such Designated Product described in this
clause 1.3.2 during the term of this Agreement equals
**********************************************;
-1-
<PAGE> 37
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
3. *********************** of all Net Realization from all units of each
respective Designated Product sold by Endo or its distributors or
licensees ************* *******************, after the aggregate of all
such Net Realization from such Designated Product described in clause
1.3.2 and this clause 1.3.3 during the term of this Agreement equals
***************, but before such aggregate equals
******************************************;
4. ********************* of all Net Realization from all units of each
respective Designated Product sold by Endo or its distributors or
licensees ************** ************************, after the aggregate
of all such Net Realization from such Designated Product described in
clause 1.3.2, clause 1.3.3, and this clause 1.3.4 equals
*****************;
5. ********************* of all Net Realization from all units of each
respective Designated Product sold by PPG or its distributors or
licensees ****************** *****************, until the aggregate of
all such Net Realization from such Designated Product described in this
clause 1.3.5 during the term of this Agreement equals
*************************************;
6. ********************* of all Net Realization from all units of each
respective Designated Product sold by PPG or its distributors or
licensees ****************** *********************, after the aggregate
of all such Net Realization from such Designated Product described in
clause 1.3.5 and this clause 1.3.6 during the term of this Agreement
equals ****************, but before such aggregate equals
********************************************; and
7. ********************* of all Net Realization from all units of each
respective Designated Product sold by PPG or its distributors or
licensees ***************** ******************, after the aggregate of
all such Net Realization from such Designated Product described in
clause 1.3.5, clause 1.3.6, and this clause 1.3.7 equals
***************.
D. "APPROVAL" shall mean, with respect to each Designated Product and as
to each nation in the Territory, the approval by the Regulatory Authority in
such nation of a Designated Product for commercial sale in oral solid-dosage
form for administration in humans, pursuant to a Product License Application
("PLA") submitted by or for Endo, or if a license to PPG under Section 6.9 is
applicable, pursuant to a PLA submitted by or for PPG. In the United States, the
"Approval" for a Designated Product shall be the approval of the U.S. Food and
Drug Administration (herein "FDA") of such Designated Product for sale in oral
solid-dosage form for administration in humans, pursuant to a New Drug
Application ("NDA").
-2-
<PAGE> 38
E. "BEST COMMERCIAL EFFORTS" shall mean the exertion on a substantially
continuous basis of efforts as would normally be devoted to the applicable task
by commercial parties with similar resources to those of the applicable party,
where such parties are highly motivated to accomplish such task to the maximum
extent practicable, and consider and treat such task as having a priority at
least as high as that for any similar task with respect to such party's other
drug development or marketing efforts (as the case may be). Best Commercial
Efforts will not mean that a party commits that it will actually accomplish the
applicable task, nor that it will devote thereto efforts or resources beyond
those that a prudent commercial enterprise would devote, even though remaining
motivated to do so as described above.
F. "CERTIFICATION BUDGET(S)" shall mean the set of expenditures, costs,
and other resources anticipated to be devoted by the respective parties to the
Certification Tasks during a Certification Period, with respect to the
applicable Designated Product.
G. "CERTIFICATION EXCESS" shall mean the amount which a party would have
borne or paid under Sections 3.6.1 and 3.7, had it participated fully in a
Certification Period, but did not pay due to its ineligibility to participate in
such Certification Period or due to its election, duly made as provided herein,
not to participate fully in such Certification Period.
H. "CERTIFICATION PERIOD" shall mean, with respect to each Designated
Product and as to each Specified Nation or group of Specified Nations as may be
specified herein or by Committee Action, the period beginning at the later of
the end of the Development Period for such Designated Product or the institution
of such Certification Period by Committee Action, and ending on the earliest of:
1. the completion of all of the Certification Tasks applicable thereto;
2. the termination of the Certification Period for such Designated Product
pursuant to Section 5.4; or
3. the termination of this Agreement as provided herein.
I. "CERTIFICATION TASK(S)" shall mean, with respect to each Designated
Product and as to each Specified Nation or group of Specified Nations as may be
specified herein or by Committee Action for the relevant Certification Period:
1. those tasks or milestones as shall be designated from time to time by
Committee Action as being, within industry norms and standards,
sufficient (together with the Development Tasks for such Designated
Product) to support the filing of an NDA with the FDA for such
Designated Product, or, as to other nations than the U.S., to support
the filing of an analogous PLA in the applicable Regulatory Authority;
-3-
<PAGE> 39
2. the filing of one or more NDAs and other PLAs with respect to the
Designated Product with the FDA and/or the other Regulatory Authorities
designated by Committee Action;
3. obtaining Approval of such NDAs and PLAs (on a nation-by-nation basis,
as to the approval by the Regulatory Authority having jurisdiction in
that nation); and
4. the preparation by Endo, or if and to the extent that Sections 4.2 or
4.3, or a license to PPG under Section 6.9 are applicable, the
preparation by PPG, and the approval by Committee Action, of an initial
Manufacturing and Marketing Plan for such Designated Product.
In most cases, the Certification Tasks will include (without limitation)
large-scale trials of safety and efficacy, of the sort called "Phase III
Clinical Trials" in the FDA context, and all other testing and studies including
as to efficacy, bioequivalence, and safety and toxicology, in connection with
the development, licensing, manufacture and marketing of the Designated Product,
and for compliance with all requirements imposed by the government of the United
States (inclusive without limitation of the FDA and the DEA) and by any other
government(s) as may be designated by Committee Action. However, the applicable
Certification Tasks may be defined and altered in specific cases by Committee
Action, whether or not in conformity with the above described usual case as now
anticipated. Committee Action to designate Certification Tasks may occur
contemporaneously with the designation of the Designated Product, but this
(and/or alterations and amendments) may be deferred for later Committee Action.
J. "COMMITTEE ACTION" shall mean an official act, decision, or ruling of
the Alliance Committee, which shall require in each case that at least one of
the following applies:
1. all members of the Alliance Committee present and acting (but in any
event a minimum of four such members) have consented thereto, where
such consent is given either in writing (signed either collectively or
in multiple identical counterparts, the signers being considered
"present and acting" for this purpose) or by vote at a duly convened
meeting of the Alliance Committee subsequently entered into the minutes
of such meeting; or
2. at least two members of the Alliance Committee have consented thereto
(in the manner described above), and have further instituted an
Escalation Procedure in which the act, decision, or ruling has received
the written approval of the Escalation Officer of each party; or
-4-
<PAGE> 40
3. arbitration pursuant to Section 13 results in the adoption of the act,
decision, or ruling as constituting Committee Action.
A Committee Action may include the rescinding or amendment of any prior
Committee Action.
K. "CONFIDENTIAL TECHNOLOGY" shall mean all technology that is, at the
relevant time hereunder, protected or required to be protected as confidential
information pursuant to Section 10 hereof.
L. "DESIGNATED PRODUCT(S)" shall mean one or more solid-dosage form(s) of
controlled-release pharmaceutical(s) for oral administration in humans that
combine(s) Oxymorphone with TIMERx and, perhaps, also with other active drug
substances or excipients. The parties anticipate that there will be multiple
Designated Products developed and marketed under this Agreement and the
relationship established hereby, as the same shall be designated pursuant to
Section 2.6 or otherwise from time to time by written consent of both parties.
M. "DEVELOPMENT BUDGET(S)" shall mean the set of expenditures, costs, and
other resources anticipated to be devoted by the respective parties to the
Development Tasks during a Development Period.
N. "DEVELOPMENT EXCESS" shall mean the amount which a party would have
borne or paid under Section 2.5, had it participated fully in a Development
Period, but did not pay due to its election, duly made as provided herein, not
to participate fully in such Development Period.
O. "DEVELOPMENT PERIOD" shall mean, with respect to each Designated
Product, the period from the designation of such Designated Product as such by
the parties (or as stated in Section 2.6), through the earliest of
1. the successful completion of the Development Tasks therefor;
2. the termination of the Development Period for such Designated Product
pursuant to Section 5.2; or
3. the termination of this Agreement as provided herein.
P. "DEVELOPMENT TASK(S)" shall mean, with respect to each Designated
Product:
1. those tasks or milestones, together with estimated completion dates or
durations therefor, as shall be designated from time to time by
Committee Action as being, within industry norms and standards,
sufficient evidence of a potentially useful and marketable product that
the next steps in the
-5-
<PAGE> 41
development of such product would be Certification Tasks, or (where no
Certification Tasks have then been designated by Committee Action)
large-scale clinical trials to determine the safety and efficacy of
such Designated Product; and
2. the designation by Committee Action of an initial set of Certification
Tasks and an initial Certification Budget for such Designated Product.
In most instances, the Development Tasks will include (without limitation)
formulation development, in vitro dissolution studies and/or animal studies and
bioavailability studies, as well as small-scale clinical trials conducted under
an Investigational New Drug Application ("IND") filed with the FDA, of the sort
called "Phase I Clinical Trials" and "Phase II Clinical Trials" in order to
demonstrate that, within the scope of such studies, the Designated Product is
shown, when administered BID, to be a stable formulation having substantially
equigesic effect in blood level studies to the targeted dosage strength of the
relevant immediate release Oxymorphone product. In most cases, the large-scale
trials to follow during the Certification Period would be of the sort called
"Phase III Clinical Trials" in the FDA context. However, the applicable
Development Tasks may be defined and altered in specific cases by Committee
Action, whether or not in conformity with the above described usual case as now
anticipated.
Q. "ELIGIBLE PARTY" shall mean:
1. with respect to the first proposed Certification Period for a
particular Designated Product (or group of Designated Products that
were developed in the same Development Period), a party to this
Agreement that participated in the Development Period for the relevant
Designated Product(s) and that did not, as to such Development Period,
exercise its rights to cease its participation hereunder; and
2. with respect to any other proposed Certification Period, a party to
this Agreement that participated in the Development Period and the
first Certification Period for the relevant Designated Product (or
group of Designated Products developed in such Development Period), and
that did not, as to either of such Development Period or such first
Certification Period, exercise its rights to cease its participation
hereunder.
R. "ENDO IMPROVEMENT TECHNOLOGY" shall mean any and all technology and
rights of Endo, or in which Endo or any of its Affiliates or sublicensees
otherwise has any rights or interests during the term of this Agreement, to the
extent the same are improvements, modifications, alterations, or enhancements to
any of the inventions covered by the PPG Patents, PPG's Confidential Technology,
or the TIMERx Production Technology, and to the extent made or discovered, or
disclosing
-6-
<PAGE> 42
inventions made or discovered, prior to the end of the applicable Certification
Period, together with all United States and foreign intellectual property and
other rights and interests of Endo and its Affiliates and sublicensees thereto
and therein, including without limitation patents, trade secrets, copyright,
periods of market exclusivity, and other related rights or interests.
S. "ENDO TECHNOLOGY" shall mean any and all technology and rights of Endo,
or in which Endo or any of its Affiliates or sublicensees otherwise has any
rights or interests during the term of this Agreement, which are used or
contemplated to be used in connection with the activities contemplated under
this Agreement, including without limitation all Oxymorphone rights and
technology (and other technology, rights and properties) to the extent the same
directly relate to, are desirable for, or are necessary or useful for, the
production, storage and/or marketing of one or more Designated Product(s) and
any and all Endo Improvement Technology, together with all United States and
foreign intellectual property and other rights and interests of Endo and its
Affiliates and sublicensees thereto and therein, including without limitation
patents, trade secrets, copyright, periods of market exclusivity, and other
related rights or interests.
T. "ENDO TRADEMARK(S)" shall mean those names, symbols and or characters
described in Exhibit 1.20 hereto, as the same may be amended from time to time
during the term of this Agreement by Endo on at least six (6) months' prior
written notice to PPG, that are owned by Endo and that have been designated by
it for use in conjunction with PPG's packaging and promotion of a Designated
Product hereunder, pursuant to Section 8.
U. "ENDO TEST AND REGULATORY DATA" shall mean any and all test data, test
designs and protocols, clinical studies and results thereof, government licenses
and applications therefor, government certifications and findings, and related
materials, information and rights (including without limitation information
regarding bioavailability and bioequivalence, and any adverse drug reactions),
developed, commissioned or otherwise obtained by Endo or any of its Affiliates
or sublicensees during the term of this Agreement for the uses intended by this
Agreement relating to TIMERx, Endo Technology, Joint Technology, the Designated
Product, PPG Patents, Joint Technology, TIMERx Production Technology and/or
PPG's Confidential Technology.
V. "ESCALATION OFFICER" shall mean the President and Chief Executive
Officer of PENWEST, LTD., (currently Tod Hamachek) and the President and Chief
Executive Officer of Endo (currently Carol Ammon) , and the persons holding such
positions from time to time.
-7-
<PAGE> 43
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
W. "ESCALATION PROCEDURE" shall mean the decision making procedure
described in Section 12, whereby the parties intend to avoid deadlocks between
them and undue delays reaching mutually-acceptable Committee Action(s).
X. "EXCLUSIVITY PERIOD" shall mean, with respect to each Designated
Product:
1. with respect to any member nation of the European Union (and any other
nation in the Territory in which applicable law would restrict the
permissible duration of a period of exclusivity to the life of
applicable patents), the Exclusivity Period is the period during the
License Term for such Designated Product in such nation, until there
are no longer any PPG Patents (exclusive of those described in Section
1.38.3) or Joint Technology Patents in that nation applicable to the
Designated Product or, if later, until all of PPG's Confidential
Technology provided to Endo hereunder has been disclosed without
restriction to the public (but in this case, where there are no longer
any such PPG Patents and there are no Joint Technology Patents in that
nation applicable to the Designated Product, the Exclusivity Period
will not last longer in such nation than ten years from the first
Approval for such Designated Product in any nation in the European
Union); and
2. with respect to any other nation, the Exclusivity Period is coterminous
with the License Term,
except where the Exclusivity Period is shortened as otherwise provided in this
Agreement.
Y. "FACILITIES CERTIFICATIONS" shall mean those governmental
certifications, licenses and other approvals however designated held or obtained
at any time by or for Endo or its Affiliates or sublicensees, and for the
facilities of any of them, that are required for the legal production,
transportation, storage, testing and or packaging of Oxymorphone products,
whether for commercial or research use or sale, or otherwise.
Z. "FORMULATED TIMERX" shall mean TIMERx *********************************
**************************************************************************.
AA. "FORMULATED TIMERX PRICE" shall mean *********************************
*******************************************************************************
************************************************************ to be provided to
Endo or its Affiliates or sublicensees hereunder, as shall be determined and
adjusted ********** ***********************; provided, however, that any amounts
paid or payable by PPG for third-party royalties (or for materials acquisition
costs to the extent attributable to third-party intellectual properties and
essentially equivalent to royalties) which are the responsibility of PPG under
Sections 9.5.1 or 9.5.2 *********************************
-8-
<PAGE> 44
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
********************************. If any patent applications are filed or
prosecuted by PPG on Joint Technology, as provided in Section 6.2, the
reasonable costs thereof, and of the maintenance of any patents that issue
therefrom, shall (to the extent not reflected in a Development Budget or a
Certification Budget and the reconciliations under Sections 2.5 or 3.7) be part
of the allocable indirect costs of the manufacture or acquisition of any
Formulated TIMERx provided for use in a Designated Product that would be
disclosed in whole or in part in such patent or patent application.
BB. "INITIAL DEVELOPMENT PERIOD" shall mean the Development Period for the
Initial Designated Product(s), to be planned and conducted as described in
Section 2.6.
CC. "JOINT TECHNOLOGY" shall mean any and all inventions, improvements,
modifications, alterations, or enhancements that are made jointly by Endo or any
of its Affiliates, on the one hand, and PPG or any of its Affiliates, on the
other hand, during and in the course of the parties' cooperative development
activities under or in support of this Agreement, together with all United
States and foreign intellectual property and other rights and interests of the
parties and their respective Affiliates thereto and therein, including without
limitation patents, trade secrets, copyright, periods of market exclusivity, and
other related rights or interests, to the extent the same remain protected by
any such rights and interests from being used freely by others.
DD. "JOINT TECHNOLOGY PATENT(S)" shall mean any United States patents and
foreign equivalents and United States and foreign patent applications and all
divisions, continuations, continuations-in-part, reissues, or extensions
thereof, any periods of marketing exclusivity relating thereto, and any letters
patent that issue thereon, to the extent the same claim any Joint Technology.
EE. "LICENSE TERM" shall mean, with respect to each Designated Product in
each nation in the Territory, the cumulative period covered by the Development
Period, the Certification Period, and the Marketing Period.
FF. "MANUFACTURING AND MARKETING PLAN(S)" shall mean, with respect to each
Designated Product and as to those Specified Nation(s) specified in such
Manufacturing and Marketing Plan, a detailed business, manufacturing, and
marketing plan of the sort prepared internally and used by Endo and/or its
Affiliates (or, if a license to PPG under Section 6.9 is applicable, and/or in
the circumstances described in Section 4.2 or 4.3, such a plan of the sort
prepared and used internally by PPG and/or its designated third-party marketer)
with respect to their drug products generally, including without limitation
quantifiable and verifiable plans, goals and milestones for the levels and types
of resources, personnel, promotion, advertising, detailing, and other efforts to
be devoted to the manufacturing, packaging, quality control, and marketing of
such Designated Product, and with
-9-
<PAGE> 45
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
respect to the measures of the degree of success achieved in doing so, including
without limitation target dates for the full-scale market launch of the
Designated Product in each of the Specified Nation(s), and Minimum Net
Realization(s) for each of the Specified Nation(s) in such Manufacturing and
Marketing Plan (and related goals and projections for pretax profitability).
Each Manufacturing and Marketing Plan shall also describe the schedule and
methods to be used to effect the revision thereof and the adoption of
substituted Manufacturing and Marketing Plans no less often than annually,
through Committee Action.
GG. "MARKETING PERIOD" shall mean, with respect to each Designated Product
and as to each nation in the Territory, the period beginning at the end of the
Certification Period for such Designated Product in such nation and ending on
the earliest of:
1. the twentieth (20th) anniversary of the end of such Certification
Period or, if later, the time at which there are no longer any PPG
Patents or Joint Technology Patents applicable to such Designated
Product in such nation, to the extent such patents disclose inventions
made prior to the end of such Certification Period; or
2. the termination of the Marketing Period for such Designated Product in
such nation pursuant to Section 5.7 or of the License Term for such
Designated Product in such nation pursuant to Section 6.9.1; or
3. the termination of this Agreement as provided herein.
HH. "MINIMUM NET REALIZATION" shall mean, with respect to each Designated
Product and each Specified Nation or group of Specified Nations under the
then-current Manufacturing and Marketing Plan therefor, a minimum amount of Net
Realization generated from sales of such Designated Product in such Specified
Nation(s) (as will be stated in such Manufacturing and Marketing Plan). The
Minimum Net Realization(s) shall be set at levels at least as high as those that
Endo and its Affiliates would expect to obtain from the marketing of their most
prominently marketed drug products, taking into account the level and nature of
competitive products, the method of promotion and marketing, the Net
Realizations specified and obtained for such Designated Product in other
nations, and other factors as shall be determined by Committee Action.
II. "NET REALIZATION" shall mean that portion of the amounts paid or
payable (whether in cash, cash equivalents, current or deferred consideration,
barter, or other monetary or in-kind compensations or considerations of any
nature) attributable to the sale or other distribution of a Designated Product,
or to the grant of any rights to make, market, or otherwise exploit a Designated
Product, which is to be treated hereunder as a net amount realized by the actual
or intended recipient of the same, *******************************************
as provided under a
-10-
<PAGE> 46
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Manufacturing and Marketing Plan approved by Committee Action and appropriately
attributable thereto (including without limitation the Formulated TIMERx Price
paid to PPG for the Formulated TIMERx incorporated therein, or if Section 6.9.5
becomes applicable, the amounts paid to Endo thereunder), all to be determined
in accordance with the accounting and attribution standards and principles
described in Exhibit 1.35, as the same may be amended from time to time by
Committee Action.
JJ. "OXYMORPHONE PRICE" shall mean ***************************************
*******************************************************************************
******************************************************** to be provided to PPG
or its Affiliates or sublicensees hereunder, as shall be determined and adjusted
************* ***********************; provided, however, that any amounts paid
or payable by Endo for third-party royalties (or for materials acquisition costs
to the extent attributable to third-party intellectual properties and
essentially equivalent to royalties) which are the responsibility of Endo under
Section 9.6 ******************************************************************.
KK. "Patent Review" shall mean Endo's and its counsel's review, during the
first 30 days after the Effective Date, of the PPG Patents listed in Exhibit
1.38, to confirm to Endo's reasonable satisfaction that the same are as
contemplated to the extent relevant to this Agreement.
LL. "PPG PATENTS" shall mean:
1. those United States patents and foreign equivalents listed in Exhibit
1.38 and all divisions, continuations, continuations-in-part, reissues,
or extensions thereof, any periods of marketing exclusivity relating
thereto;
2. (i) those United States and foreign patent applications pending as of
the Effective Date that are owned by PPG, to the extent the same would,
if issued as patent(s), in the absence of the licenses granted
hereunder be infringed by Endo's production, use, sale, offer for sale,
or import of a Designated Product as contemplated under this Agreement;
and (ii) subject to Section 6.8.6, any other patent rights owned or
controlled and sublicenseable by PPG, to the extent the same would in
the absence of the licenses granted hereunder be infringed by Endo's
production, use, sale, offer for sale, or import of a Designated
Product as contemplated under this Agreement and to the extent
disclosing inventions made or discovered prior to the end of the
applicable Certification Period; and
3. subject to Section 6.8.6, PPG's rights under United States and foreign
patents in the Territory, if any, to the extent disclosing any of PPG's
improvements, modifications, alterations, or enhancements to any of the
inventions covered by
-11-
<PAGE> 47
the PPG Patents that are made for or are otherwise related to or useful
with one or more of the Designated Product(s) prior to the end of the
applicable Certification Period.
MM. "PPG TEST AND REGULATORY DATA" shall mean any and all test data, test
designs and protocols, clinical studies and results thereof, government licenses
and applications therefor, government certifications and findings, and related
materials, information and rights (including without limitation information
regarding bioavailability and bioequivalence, and any adverse drug reactions),
developed, commissioned or otherwise obtained by PPG or any of its Affiliates
during the term of this Agreement relating to TIMERx, PPG Patents, and/or TIMERx
Production Technology and that are developed for or are otherwise related to or
useful with a Designated Product.
NN. "PROOF OF PRINCIPLE STUDIES" shall mean those early-stage in vitro
studies to be mutually agreed upon by the parties and conducted by them within
the first 120 days of the Initial Development Period as part of the Initial
Development Tasks, and directed at a determination of whether there is physical
compatibility between Oxymorphone ADS and TIMERx and whether it is likely, as a
technical matter of the pharmaceutical sciences, that at least one Initial
Designated Product can be developed.
OO. "PPG TRADEMARK(S)" shall mean those names, symbols and or characters
described in Exhibit 1.20 hereto, as the same may be amended from time to time
during the term of this Agreement by PPG on at least six (6) months' prior
written notice to Endo, that are owned by PPG and that have been designated by
it for use in conjunction with Endo's packaging and promotion of a Designated
Product hereunder, pursuant to Section 8.
PP. "PROJECT CONTACT(S)" shall mean the persons appointed by each party to
serve as contact persons between the parties from time to time in relation to
this Agreement (in addition to those representatives of the parties on the
Alliance Committee, who may or may not also contemporaneously be Project
Contact(s)). The initial Project Contact for PPG for business matters is Michael
Mallon, and the initial Project Contact for PPG for technical and scientific
matters is Dr. Dileep Bhagwat. The initial Project Contact for Endo for business
matters is Osagie Imasogie, and the initial Project Contact for Endo for
technical and scientific matters is Dr. D. Kao. Each party shall promptly notify
the other party of any substitution of other personnel as its Project
Contact(s). Each party may select and supervise its other project staff as
needed.
QQ. "REGULATORY AUTHORITY" shall mean the competent authority for each
nation of the Territory or for any relevant grouping of nations legally
responsible for authorizing the sale or supply of drug products in that nation
or group.
-12-
<PAGE> 48
RR. "ROYALTIES" shall mean the royalties payable to PPG pursuant to
Section 4.5 hereof, or the royalties payable to Endo pursuant to Section 6.9, if
that section becomes applicable.
SS. "SPECIFICATIONS" shall mean such standards and analytical methods
established by Committee Action from time to time with respect to particular
Designated Products and the components thereof (including without limitation the
Formulated TIMERx).
TT. "SPECIFIED NATION(S)" shall mean, as applicable, those nations
specified herein or by Committee Action as the nation(s) in which or as to which
the Certification Tasks under the respective Certification Period will be
conducted, and/or those nations specified in a Manufacturing and Marketing Plan
as nation(s) in which the manufacturing, marketing, and promotional activities
for a Designated Product will be conducted.
UU. "TERRITORY" shall initially mean all nations of the world, but may be
reduced as to particular nations and particular Designated Products, pursuant to
Section 5.7 or Section 6.9.1.
VV. "TIMERX PRODUCTION TECHNOLOGY" shall mean PPG's rights under the PPG
Patents and any and all other patents, patent applications, and other technology
belonging to PPG or which PPG has the right to practice and to sublicense from
time to time during the term of this Agreement that directly relate to, are
desirable for, or are necessary or useful for the production of, Formulated
TIMERx for use in a Designated Product.
-13-
<PAGE> 49
EXHIBIT 1.1
Affiliates
PPG Affiliates:
PENWEST, LTD.
Edward Mendell Co., Inc.
Penford Products Co.
Edward Mendell GmBH
Edward Mendell Finland OY
PENWEST Foreign Sales Corporation
Endo Affiliates: None
-14-
<PAGE> 50
EXHIBIT 1.20
Trademarks
Endo Trademarks:
Endo
Numorphan
PPG Trademarks:
TIMERx(R) Oral Delivery System
-15-
<PAGE> 51
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 1.35
Accounting and Attribution Standards and Principles
NET SALES **********************************************************
**********************************************************
**********************************************************
**********************************************************
*****************************.
GRANTS OF RIGHTS Amount realized from grant of rights to make, market or
otherwise exploit a Designated Product.
MANUFACTURING
COSTS
Bulk ADS The Oxymorphone Price for the Oxymorphone ADS used.
Cost"
TIMERx The Formulated TIMERx Price for the Formulated TIMERx used.
Excipient
Dose Form ***********************************************************
Finishing ***********************************************************
& ***********************************************************
Packaging ************** that are approved by Committee Action.
DEVELOPMENT COSTS
Dosage ************************************ approved by Committee
Form Action that is applied to ********************************.
MARKETING
EXPENSES
Premarketing Expenses incurred ****************************************
**********************************************************
**********************************************************
******************************* Expenses are subject to
Alliance Committee review and approval by Committee Action
on a quarterly basis.
-16-
<PAGE> 52
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT 1.35, CONTINUED
Sales & Product As mutually agreed, but not to be duplicative with
Management Field Selling costs defined below, subject to
Alliance Committee review and approval by Committee
Action on a quarterly basis.
Field Selling Common Standard Selling Cost per detail multiplied by
number of details subject to Alliance Committee
review and approval by Committee Action on a
quarterly basis.
Advertising & ***************************************************
Promotion (to the extent not already included in Sales &
Product Management costs defined above)
********************************* subject to Alliance
Committee review and approval by Committee Action on
a quarterly basis.
Commissioned Actual reasonable commissions, if applicable.
Sales Rep.
FINISHED PRODUCT
DISTRIBUTION
EXPENSE (FPDE)
Variable and ****************************************************
Fixed ************************.
POST REGISTRATION Studies required by the FDA or other applicable
STUDIES Regulatory Authority. Direct costs will be charged.
Studies are subject to Alliance Committee review and
approval by Committee Action.
GENERAL & *****************************************************
ADMIN. EXPENSES *****************************************************
(G&A) **************************************************,
and as reviewed and approved by Committee Action on a
quarterly basis.
TOTAL COST OF ****************************************************
SALES ***************************************************.
Note, however, that the Total Costs of Sales will not
include as appropriately attributable expenses or
costs any amounts paid or payable by a party for
third-party royalties to the extent the same would be
the responsibility of the paying party under Section
9.5.1, 9.5.2, or 9.6 of the Agreement.
NET REALIZATION *************************************************.
-17-
<PAGE> 53
EXHIBIT 1.38
PPG Patents
<TABLE>
<CAPTION>
Patent
Number Date Title Inventor
- ----------------------------------------------------------------------------------------------
U.S. Patents
- ------------
<S> <C> <C> <C> <C>
1. 4,994,276 2/19/91 Directly Compressible Sustained A. Baichwal
Release Excipient J. Staniforth
2. 5,128,143 7/7/92 Sustained Release Excipient and A. Baichwal
Tablet Formulation J. Staniforth
3. 5,135,757 8/4/92 Compressible Sustained Release A. Baichwal
Solid Dosage Forms J. Staniforth
4. 5,169,639 12/8/92 Controlled Release Verapamil A. Baichwal
Tablets J. Staniforth
5. 5,330,761 7/19/94 Bioadhesive Tablet for Non- A. Baichwal
Systemic Use Products
6. 5,399,358 3/21/95 Sustained Release Formulations A. Baichwal
for 24 Hour Release of J. Staniforth
Metoprolol
7. 5,399,359 3/21/95 Controlled Release Oxybutynin A. Baichwal
Formulations T. McCall
8. 5,399,362 3/21/95 Once-A-Day Metoprolol Oral A. Baichwal
Dosage Form T. McCall
9. 5,455,046 10/3/95 Sustained Release Heterodisperse A. Baichwal
Hydrogel Systems for Insoluble
Drugs
10. 5,472,711 12/5/95 Agglomerated Hydrophilic A. Baichwal
Complexes with Multi-Phasic J. Staniforth
Release Characteristics
11. 5,478,547 12/26/95 Agglomerated Hydrophilic A. Baichwal
Complexes with Multi-Phasic J. Staniforth
Release Characteristics
</TABLE>
-18-
<PAGE> 54
<TABLE>
<S> <C> <C> <C> <C>
12. 5,512,297 4/30/96 Sustained Release Heterodisperse A. Baichwal
Hydrogel Systems for Insoluble
Drugs
13. 5,554,387 9/10/96 Sustained Release Heterodisperse A. Baichwal
Hydrogel Systems for Insoluble
Drugs
14. 5,612,053 3/18/97 Controlled Release Insufflation A. Baichwal
Carrier for Medicaments J. Staniforth
Japanese Patents
- ----------------
1. 1903060 2/8/95 Directly Compressible Sustained A. Baichwal
Release Excipient J. Staniforth
2. 2014960 4/12/95 Controlled Release Verapamil A. Baichwal
Tablet J. Staniforth
Australian Patents
- ------------------
1. 649163 8/1/92 Controlled Release Verapamil A. Baichwal
Tablet J. Staniforth
2. 623182 10/12/9 Directly Compressible Sustained A. Baichwal
Excipient J. Staniforth
3. 669531 10/1/96 Agglomerated Hydrophilic A. Baichwal
Complexes with Multi-Phasic J. Staniforth
Release Characteristics
Europe (EPO) Patents
- --------------------
1. EPO360562* 7/28/93 Directly Compressible Sustained A. Baichwal
Release Excipient J. Staniforth
(*subject to opposition proceeding; patent upheld by EPO Opposition Division now
under appeal.
2. EPO550737 1/22/97 Controlled Release Verapamil A. Baichwal
Tablet J. Staniforth
</TABLE>
-19-
<PAGE> 55
EXHIBIT 2.6
Initial Designated Products
Oxymorphone SE, all oral tablet dosage strengths
-20-
<PAGE> 1
EXHIBIT 10.11
PENWEST PHARMACEUTICALS CO.
1997 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this 1997 Equity Incentive Plan (the "Plan") of Penwest
Pharmaceuticals Co., a Washington corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any present or future subsidiary corporations of Penwest Pharmaceuticals Co.
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder (the "Code").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the
<PAGE> 2
power to make Awards and exercise such other powers under the Plan as the Board
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
common stock, $0.001 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act." All references in the Plan to the "Board" shall mean
the Board or a Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.
4. STOCK AVAILABLE FOR AWARDS
(a) NUMBER OF SHARES. Subject to adjustment under Section 4(c), Awards
may be made under the Plan for up to 3,500,000 shares of Common Stock. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as hereinafter defined), to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 4(c),
for Awards granted after the Common Stock is registered under the Exchange Act,
the maximum number of shares with respect to which an Award may be granted to
any Participant under the Plan shall be 500,000 per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) ADJUSTMENT TO COMMON STOCK. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Option, (iii) the repurchase price per
security subject to each outstanding Restricted
-2-
<PAGE> 3
Stock Award, and (iv) the terms of each other outstanding stock-based Award
shall be appropriately adjusted by the Company (or substituted Awards may be
made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 4(c) applies and Section 8(e)(1) also applies to any event, Section
8(e)(1) shall be applicable to such event, and this Section 4(c) shall not be
applicable.
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to
be an "incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall only be granted to employees of the Company and
shall be subject to and shall be construed consistently with the requirements of
Section 422 of the Code. The Company shall have no liability to a Participant,
or any other party, if an Option (or any part thereof) which is intended to be
an Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price
at the time each Option is granted and specify it in the applicable option
agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) EXERCISE OF OPTION. Options may be exercised only by delivery
to the Company of a written notice of exercise signed by the proper person
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the
-3-
<PAGE> 4
Participant valued at their fair market value as determined by the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the Participant at
least six months prior to such delivery, (ii) by delivery of a promissory note
of the Participant to the Company on terms determined by the Board, or (iii) by
payment of such other lawful consideration as the Board may determine; or
(3) any combination of the above permitted forms of payment.
6. RESTRICTED STOCK
(a) GRANTS. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each,
"Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either
-4-
<PAGE> 5
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award under the Plan shall be evidenced by
a written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan,
each type of Award may be made alone or in addition or in relation to any other
type of Award. The terms of each type of Award need not be identical, and the
Board need not treat Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on
an Award of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) ACQUISITION EVENTS
(1) CONSEQUENCES OF ACQUISITION EVENTS. Upon the occurrence of
an Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more of the following actions with respect to then outstanding Awards: (i)
provide that outstanding Options shall be assumed, or equivalent Options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such Options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code; (ii) upon written notice to the Participants, provide that
all then unexercised Options will become exercisable in full as of a specified
time (the "Acceleration Time") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants between the Acceleration Time and the
consummation of such Acquisition Event; (iii) in the event of an Acquisition
Event under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"), provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and each Participant shall receive, in exchange therefor, a cash payment equal
to the amount (if any) by which (A) the Acquisition Price multiplied by the
number of shares of Common Stock subject to such outstanding Options (whether or
not then exercisable), exceeds (B) the aggregate exercise price of such
-5-
<PAGE> 6
Options; (iv) provide that all Restricted Stock Awards then outstanding shall
become free of all restrictions prior to the consummation of the Acquisition
Event; and (v) provide that any other stock-based Awards outstanding (A) shall
become exercisable, realizable or vested in full, or shall be free of all
conditions or restrictions, as applicable to each such Award, prior to the
consummation of the Acquisition Event, or (B), if applicable, shall be assumed,
or equivalent Awards shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto representing immediately thereafter (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 60% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; or (c) the complete liquidation
of the Company.
(2) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. The Board may
grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(f) WITHHOLDING. Each Participant shall pay to the Company, or
make provision satisfactory to the Board for payment of, any taxes required by
law to be withheld in connection with Awards to such Participant no later than
the date of the event creating the tax liability. The Board may allow
Participants to satisfy such tax obligations in whole or in part in shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to a Participant.
(g) AMENDMENT OF AWARD. The Board may amend, modify or terminate
any outstanding Award, including but not limited to, substituting therefor
another Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) CONDITIONS ON DELIVERY OF STOCK. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions
-6-
<PAGE> 7
from shares previously delivered under the Plan until (i) all conditions of the
Award have been met or removed to the satisfaction of the Company, (ii) in the
opinion of the Company's counsel, all other legal matters in connection with the
issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market
rules and regulations, and (iii) the Participant has executed and delivered to
the Company such representations or agreements as the Company may consider
appropriate to satisfy the requirements of any applicable laws, rules or
regulations.
(i) ACCELERATION. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of (i)
the date on which the Plan was adopted by the Board or (ii) the date the Plan
was approved by the Company's stockholders, but Awards previously granted may
extend beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such
-7-
<PAGE> 8
Award (to the extent that such amendment to the Plan was required to grant such
Award to a particular Participant), unless and until such amendment shall have
been approved by the Company's stockholders.
(e) STOCKHOLDER APPROVAL. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 162(m) of the Code.
(f) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Washington, without regard to any applicable conflicts of law.
-8-
<PAGE> 1
EXHIBIT 10.12
Penwest Pharmaceuticals Co.
1997 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Penwest
Pharmaceuticals Co. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.01 par value
(the "Common Stock"), commencing on October 8, 1997. THREE HUNDRED THOUSAND
(300,000) shares of Common Stock in the aggregate have been approved for this
purpose.
1. ADMINISTRATION. The Plan will be administered by the Company's
Board of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. Participation in the Plan will neither be
permitted nor denied contrary to the requirements of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations promulgated
thereunder. All employees of the Company, including Directors who are employees,
and all employees of any subsidiary of the Company (as defined in Section 424(f)
of the Code) designated by the Board or the Committee from time to time (a
"Designated Subsidiary"), are eligible to participate in any one or more of the
offerings of Options (as defined in Section 9) to purchase Common Stock under
the Plan provided that:
(a) they are customarily employed by the Company or a
Designated Subsidiary for more than 20 hours a week and for more than
five months in a calendar year; and
(b) they have been employed by the Company or a Designated
Subsidiary for at least three months prior to enrolling in the Plan;
and
(c) they are employees of the Company or a Designated
Subsidiary on the first day of the applicable Plan Period (as defined
below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
<PAGE> 2
3. OFFERINGS. The Company will make one or more offerings ("Offerings")
to employees to purchase stock under this Plan. Offerings will begin each on
such date or dates as may be established by the Board from time to time (the
"Offering Commencement Dates"). Each Offering Commencement Date will begin a
6-month period (a "Plan Period") during which payroll deductions will be made
and held for the purchase of Common Stock at the end of the Plan Period. The
Board or the Committee may, at its discretion, choose a different Plan Period of
twelve (12) months or less for each Offering.
4. PARTICIPATION. An employee eligible on the Offering Commencement
Date of any Offering may participate in such Offering by completing and
forwarding a payroll deduction authorization form to the employee's appropriate
payroll office at least seven days prior to the applicable Offering Commencement
Date. The form will authorize a regular payroll deduction from the Compensation
received by the employee during the Plan Period. Unless an employee files a new
form or withdraws from the Plan, his deductions and purchases will continue at
the same rate for future Offerings under the Plan as long as the Plan remains in
effect. The term "Compensation" means the amount of money reportable on the
employee's Federal Income Tax Withholding Statement, excluding overtime, shift
premium, incentive or bonus awards, allowances and reimbursements for expenses
such as relocation allowances for travel expenses, income or gains on the
exercise of Company stock options or stock appreciation rights, and similar
items, whether or not shown on the employee's Federal Income Tax Withholding
Statement, but including, in the case of salespersons, sales commissions to the
extent determined by the Board or the Committee to be part of such sales
person's regular compensation.
5. DEDUCTIONS. The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any dollar amount up to a
maximum of 10% of the Compensation he or she receives during the Plan Period or
such shorter period during which deductions from payroll are made.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. DEDUCTION CHANGES. An employee may decrease or discontinue his
payroll deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
-2-
<PAGE> 3
7. INTEREST. Interest will not be paid on any employee accounts, except
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close
of business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. PURCHASE OF SHARES. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by dividing $12,500 by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period or such other number as may be determined by the Board prior to the
Offering Commencement Date.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
THE WALL STREET JOURNAL. If no sales of Common Stock were made on such a day,
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option Price
on such date and shall be deemed to have purchased from the Company the number
of full shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for, but not in excess of
the maximum number determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the
end of a Plan Period will be automatically refunded to the employee, except that
any balance which is less than the purchase price of one share of Common Stock
will be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
-3-
<PAGE> 4
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or (in the Company's sole discretion) in
the name of a brokerage firm, bank or other nominee holder designated by the
employee. The Company may, in its sole discretion and in compliance with
applicable laws, authorize the use of book entry registration of shares in lieu
of issuing stock certificates.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
14. APPLICATION OF FUNDS. All funds received or held by the Company
under this Plan may be combined with other corporate funds and may be used for
any corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event
of a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, the
number of shares subject to any outstanding Option and the purchase price
thereof shall be adjusted proportionately, and such other adjustment shall be
made as may be deemed equitable by the Board or the Committee. In the event of
any other change affecting the Common Stock, such adjustment shall be made as
may be deemed equitable by the Board or the Committee to give proper effect to
such event.
-4-
<PAGE> 5
16. MERGER. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the company with or into
another corporation which does not involve continuity of control, or of a sale
of all or substantially all of the assets of the company while unexercised
options remain outstanding under the plan, all outstanding options shall be
cancelled by the board or the committee as of the effective date of any such
transaction, provided that notice of such cancellation shall be given to each
holder of an option, and each holder of an option shall have the right to
exercise such option in full based on payroll deductions then credited to his
account as of a date determined by the board or the committee, which date shall
not be less than ten (10) days preceding the effective date of such
transaction.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. INSUFFICIENT SHARES. In the event that the total number of shares
of Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan exceeds
the maximum number of shares issuable under this Plan, the Board or the
Committee will allot the shares then available on a pro rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the Nasdaq National Market and the approval of all
governmental authorities required in connection with the authorization, issuance
or sale of such stock.
-5-
<PAGE> 6
21. GOVERNING LAW. The Plan shall be governed by Delaware law except to
the extent that such law is preempted by federal law.
22. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased or
one year after the date of exercise of the Option.
24. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take
effect on October 8, 1997 subject to approval by the shareholders of the Company
as required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.
Adopted by the Board of Directors
on October 8, 1997
Approved by the stockholders on
October 8, 1997
-6-
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Wholly owned subsidiaries of the Registrant include:
Mendell U.K. Ltd.,
incorporated under the laws of the United Kingdom
Edward Mendell GmbH,
incorporated under the laws of Germany
Edward Mendell Finland OY,
incorporated under the laws of Finland
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our reports dated October 11, 1997,
in the Registration Statement (Form S-1 No. 333- ) and related
Prospectus of Penwest Pharmaceuticals Co. for the registration of 2,875,000
shares of its common stock.
ERNST & YOUNG LLP
Stamford, Connecticut
October 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 695
<SECURITIES> 0
<RECEIVABLES> 4,680
<ALLOWANCES> 237
<INVENTORY> 7,555
<CURRENT-ASSETS> 13,002
<PP&E> 28,369
<DEPRECIATION> 8,033
<TOTAL-ASSETS> 35,083
<CURRENT-LIABILITIES> 36,364
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> (4,427)
<TOTAL-LIABILITY-AND-EQUITY> 35,083
<SALES> 25,007
<TOTAL-REVENUES> 26,089
<CGS> 18,690
<TOTAL-COSTS> 10,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,100)
<INCOME-TAX> 764
<INCOME-CONTINUING> (3,864)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,864)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
