<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1997
REGISTRATION NO. 333-38389
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 3
TO
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:
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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. [ ]
------------------------
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 DECEMBER 17, 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 8.
-----------------------
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
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PAGE
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<S> <C>
Additional Information................................................................ 2
Summary............................................................................... 4
Background of the Planned Spin-off.................................................... 6
Risk Factors.......................................................................... 8
Use of Proceeds....................................................................... 20
Dividend Policy....................................................................... 20
Capitalization........................................................................ 21
Dilution.............................................................................. 22
Selected Financial Data............................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 24
Business.............................................................................. 29
Management............................................................................ 53
Certain Transactions.................................................................. 62
Principal Shareholder................................................................. 63
Arrangements Between the Company and Penford.......................................... 65
Description of Capital Stock.......................................................... 70
Shares Eligible for Future Sale....................................................... 72
Underwriting.......................................................................... 74
Legal Matters......................................................................... 76
Experts............................................................................... 76
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, and none of
these products, except for Cystrin CR, has received regulatory approval for
commercial sale. 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
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<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)
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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 believes that there are a number of risks and uncertainties
associated with the Spin-off, including risks related to the control of the
Company by Penford prior to the Spin-off and the Company's inability to access
the resources of Penford following the Spin-off. For a discussion of these risks
and uncertainties, see "Risk Factors -- Control by Penford Pending the Spin-off;
Uncertainty of the Spin-off," "-- Possibility of Substantial Sales of Common
Stock," "-- History of Losses; Uncertainty of Future Profitability," "-- Need
for Additional Funding; Uncertainty of Access to Capital," "-- Relationship with
Penford; Conflicts of Interest" and "-- Risk of Product Liability Claims; No
Assurance of Adequate Insurance."
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. These agreements include (i) a 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, (ii) a Services Agreement pursuant to which Penford will continue
on an interim basis to provide specified services to the Company, (iii) a Tax
Allocation Agreement relating to, among other things, the allocation of tax
liability between the Company and Penford prior to the Spin-off, (iv) an
Excipient 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 two excipients
marketed by the Company, and (v) an Employee Benefits Agreement setting forth
the parties' agreements as to the continuation of certain Penford benefits
arrangements for the employees of Penwest. 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 on or after April 1, 1998 and 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
6
<PAGE> 8
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.
7
<PAGE> 9
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 Company has agreed
that, if the Spin-off does not occur by September 30, 1998, Penford will have
the right to cause Penwest to register the shares of Penwest's Common Stock held
by Penford for resale under the Securities Act. See "Arrangements Between the
Company and Penford -- Separation Agreement -- Registration Rights." 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
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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 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.
CERTAIN 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") own patents listed for
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 these 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. The Company has been informed by 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.
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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 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 sue or undertake regulatory initiatives to preserve marketing
exclusivity. 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 product approval.
At the request of the FDA, the Company is conducting an animal toxicity study of
such ingredient to enable the FDA to determine the highest allowable amount. If
the amount of such ingredient, or any other ingredient, in a specified product
exceeds the highest amount allowed by the FDA, 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
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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."
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
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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 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. Competition may
also arise
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from therapeutic products that are functionally equivalent but produced by other
methods. 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 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
unable to comply with its obligations under its collaborative agreements, which
could result in the termination of such collaborative agreements. In addition,
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
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filed 12 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 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 have or in all cases will be obtained,
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
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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 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 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.
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
Procardia 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, 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.
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
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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 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.
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<PAGE> 18
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
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
17
<PAGE> 19
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."
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
18
<PAGE> 20
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.
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."
19
<PAGE> 21
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 (approximately $9.0 million) and expansion of existing
laboratory facilities (approximately $6.0 million). 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.
20
<PAGE> 22
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.
21
<PAGE> 23
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.
22
<PAGE> 24
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.... 13,088 13,708 15,910 17,267 18,690 14,033 14,660
-------- -------- -------- -------- -------- -------- --------
Gross profit........ 6,318 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>
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>
23
<PAGE> 25
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.
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. 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. Penford
has not determined what action, if any, it would take if the conditions to the
Spin-off 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. In
particular, if the Spin-off does not occur, the Company's future results of
operations would be affected by the continued utilization of the Company's net
operating losses by Penford without compensation to the Company. See Notes 8 and
13 of Notes to Consolidated Financial Statements.
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
24
<PAGE> 26
capital requirements or require the Company to limit the scope of its
development and commercialization activities.
Under most of these collaborative agreements, the Company has received
upfront fees and milestone payments. In connection with the receipt of certain
of the upfront fees, the Company was required to perform pilot bioequivalence
studies and only recognized such fees upon delivery of the results of such
studies to the collaborators. In addition, under most of these collaborative
agreements, the Company is entitled to receive additional milestone payments,
royalties on the sale of the products covered by such collaborative agreements
and payments for the purchase of formulated TIMERx material. Because the timing
and the amount of each of these payments are dependent on the continued
development and commercialization of the products covered by such agreements, as
to which the Company has limited control, there can be no assurance as to the
timing of receipt of some or all of these payments or as to the amount of
payments to be received by the Company.
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
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
25
<PAGE> 27
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.
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.
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<PAGE> 28
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. Therefore,
regardless of whether the Spin-off occurs, Penwest will need to rely on the
proceeds of this offering and cash generated from operations. Penford has agreed
that it will contribute the outstanding intercompany indebtedness to the capital
of Penwest as of the closing of this offering.
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 had negative cash flow from operations in each of the periods
presented primarily due to net losses for the period as well as increasing
inventory levels. Inventory has increased as the Company began manufacturing
TIMERx inventory in 1995 for a variety of uses. These uses include the supply of
the drug delivery system for use in connection with products that are complete
and awaiting regulatory approval or completion of the commercialization efforts
where regulatory approval has been obtained, and the supply of the drug delivery
system to pharmaceutical companies for use in their development efforts or in
connection with new or existing collaborative arrangements. In all of these
cases, the Company receives revenue from the supply of the TIMERx inventory.
Additionally, the Company has alternative uses of the TIMERx inventory for other
drugs which the Company may research and formulate for commercialization. The
Company will continue to build inventories until the drugs under development are
commercialized. Funds expended for the acquisition of fixed assets were
primarily related to the expansion of the Company's manufacturing facilities and
laboratory space as well as the purchase of equipment used principally for
research and development efforts. The payable to Penford increased to fund the
operations and capital needs of the Company.
The Company anticipates that its existing capital resources, together with
the net proceeds of this offering and interest earned thereon, will be used by
it to implement its strategy and to 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 to implement its strategy, including 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 costs of implementing the Company's strategy and the Company's
requirements for additional capital could be substantial and will depend on many
factors, including the timing and amount of
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<PAGE> 29
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 modify its strategy, curtail operations significantly
or 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.
Under the Company's strategic alliance agreement with Endo, the Company
expects to incur approximately $7.5 million, primarily in 1998 and 1999.
However, either the Company or Endo may terminate the agreement upon 30 days
prior written notice, at which time the Company's funding obligations would
cease. See "Business -- Collaborative Arrangements -- Endo Pharmaceuticals Inc."
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<PAGE> 30
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.
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<PAGE> 31
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 constrolled 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
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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.
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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.
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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.
The achievement of the Company's strategy is subject to various risks and
uncertainties. In particular, there can be no assurance that the Company's
capital resources will be sufficient to fully implement its strategy. The costs
of implementing the Company's strategy are difficult to predict and will depend
on numerous factors. If the Company's capital resources are insufficient to
fully implement its strategy, the Company may be required to modify its
strategy. See "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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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."
- --------------------------------------------------------------------------------
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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
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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
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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,
is a patented product that combines 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 properties enable 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(R), 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(R), 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(R), 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(R), 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.
PRUV(R), 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
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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.
Under most of these collaborative agreements, the Company has received
upfront fees and milestone payments and is entitled to receive additional
milestone payments. In addition, under all of the collaborative agreements, the
Company is entitled to receive royalties on the sale of the products covered by
such collaborative agreements and payments for the purchase of formulated TIMERx
material. Assuming that all milestones are achieved under these collaborative
agreements, the Company would be entitled to receive up to an aggregate of $13.4
million in upfront fees and milestone payments under these collaborative
agreements, of which $2.1 million have been received to date. There can be no
assurance that future milestone payments will be received.
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, including termination by the Company if Mylan fails to meet
minimum sales volume requirements and termination by either party upon a
material breach by the other party of the agreement. If the Company does not
satisfy its obligations under any of these agreements, the Company will be in
breach of such agreement and Mylan will be entitled to terminate such agreement.
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
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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.
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, including
upon a material breach of the agreement by a party or upon the bankruptcy of a
party. In addition, 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. If the Company does not satisfy
its obligations under either of these agreements, the Company will be in breach
of such agreement and Kremers will be entitled to terminate such agreement.
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.
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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.
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, including termination
by the Company if Sanofi fails to meet minimum sales volume requirements and
termination by either party upon a material breach of the agreement by the other
party. If the Company does not satisfy its obligations under the agreement, the
Company will be in breach of the agreement and Sanofi will be entitled to
terminate the agreement.
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
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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, including upon a material breach of
the agreement by a party or upon the bankruptcy of a party. If the Company does
not satisfy its obligations under either of these agreements, the Company will
be in breach of such agreement and Leiras will be entitled to terminate such
agreement. 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 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, including failure to launch full-scale marketing
of such Endo Product when required or material breach of the agreement by a
party.
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.
If the Company does not satisfy its funding and other obligations under the
agreement, the Company will be in breach of the agreement and Endo will be
entitled to terminate the agreement. Endo will purchase formulated TIMERx
material for use in the
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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 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.
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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 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. Competition may also arise from therapeutic products
that are functionally equivalent but produced by other methods. In addition,
under several of the Company's
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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.
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
12 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 have or in all cases will be obtained,
that these agreements will not be breached, that the Company will have
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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.
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 a license application under the Public Health Service
Act. 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
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<PAGE> 47
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 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.
ANDAs may be submitted for generic versions of brand name drugs ("Listed
Drugs") where the 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 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 FDA is reviewing an inactive ingredient contained in the TIMERx
delivery system in order to determine the allowable amount for product approval.
At the request of the FDA, the Company is conducting an animal toxicity study of
such ingredient to enable the FDA to determine the highest allowable amount. If
the amount of such ingredient, or any other ingredient, in a specified product
exceeds the highest amount allowed by the FDA, 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.
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<PAGE> 48
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 to obtain approval to
market other generic controlled release products. There can be no assurance that
ANDAs 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 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, with the exception of
applications for certain antibiotic drugs, 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 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.
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 such 180-day marketing exclusivity period.
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
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<PAGE> 49
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 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 based on Listed Drugs when
those approved products or Listed Drugs have acquired patent term extensions.
Most drug products of biological origin enter the market under licenses
approved by the FDA under the Public Health Service Act rather than under NDAs
or ANDAs. In general terms, the licensure process for these biological products
is comparable to the full NDA approval process for a drug product under the
FDCA. At the current time, most biological products must be approved in both a
product licensing application ("PLA") and an establishment license application
("ELA"). Effective February 9, 1998, the Public Health Service Act will require
a single biologics application rather than a PLA and an ELA. The FDA does not
have a process for licensing generic versions of biological products on the
basis of abbreviated applications such as ANDAs.
Manufacturers of marketed drugs (including biologicals) 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 biologics
applications, criminal prosecution and product recalls. The FDA also has the
authority to revoke for cause drug or biological 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 or ANDAs 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 product with a Penwest excipient or that the FDA will approve such an
application even if such clinical data are submitted.
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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. Certain 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.
The Company's European excipients manufacturing operations are subject to a
variety of laws and regulations, including environmental and good manufacturing
practices regulations.
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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.
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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 own
patents listed for Procardia XL (the last of which expires in 2010), 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 these 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. The
Company has been informed by 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.
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.
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 approxi-
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mately $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.
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.
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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
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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,
54
<PAGE> 56
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
55
<PAGE> 57
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.
56
<PAGE> 58
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 $4,638 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.
57
<PAGE> 59
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 either
exercisable in four or five 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).
58
<PAGE> 60
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............ 32,242 $376,264 225,000 96,000 $ 1,950,075 $ --
John V. Talley, Jr......... -- -- 6,000 63,000 -- --
Stephen J. Berte, Jr....... -- -- -- 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 $ 99,872
300,000.................................. 87,070 108,837 130,604 152,372
400,000.................................. 117,070 146,337 175,604 204,872
500,000.................................. 147,070 183,837 220,604 257,372
600,000.................................. 177,070 221,337 265,604 309,872
700,000.................................. 207,070 258,837 310,604 362,372
800,000.................................. 237,070 296,337 355,604 414,872
900,000.................................. 267,070 333,837 400,604 467,372
</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.
59
<PAGE> 61
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
60
<PAGE> 62
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.
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<PAGE> 63
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."
62
<PAGE> 64
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............................................ -- --
Rolf H. Henel............................................ 1,000 *
Robert J. Hennessey...................................... -- --
N. Stewart Rogers........................................ 153,005(4) 2.10
John V. Talley, Jr....................................... 13,001(5) *
W. Leigh Thompson........................................ -- --
Other Named Executive Officers
Anand R. Baichwal........................................ 6,480(6) *
Steven J. Berte, Jr...................................... 1,888(7) *
Paul K. Wotton........................................... 5,933(8) *
All directors and executive officers as a group
(13 persons)........................................... 579,948(9) 7.88%
</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
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<PAGE> 65
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.
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<PAGE> 66
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
summarizes the material items of the agreements and 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 on or after April 1, 1998 and 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.
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<PAGE> 67
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 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.
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<PAGE> 68
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 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.
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<PAGE> 69
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 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. Revenues from the sale of EMDEX and CANDEX represented less than 10% of
the Company's total revenues for the nine months ended September 30, 1997 and
each of the three years ended December 31, 1996.
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
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<PAGE> 70
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."
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<PAGE> 71
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
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<PAGE> 72
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.
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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
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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.
73
<PAGE> 75
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.
74
<PAGE> 76
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.
75
<PAGE> 77
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.
76
<PAGE> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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. Foreign transaction gains and losses were not significant in each
of the years in the three year period ended December 31, 1996 or the nine month
periods ended September 30, 1996 and 1997.
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, except that the Company is not compensated for tax
losses that are utilized by Penford. See Note 8.
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.
The Company receives certain nonrefundable payments upon the signing of
collaborative agreements. Up-front payments related specifically to the
achievement of certain milestones are recognized as those milestones are
achieved in accordance with the agreement. Up-front payments related solely to
the signing of agreements where additional services are not required are
recognized upon signing. Up-front payments that obligate the Company to perform
specific functions or services over the licensing term are recognized over the
term of the agreement.
Product sales revenues are recognized when goods are shipped.
F-8
<PAGE> 86
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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.
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.
F-9
<PAGE> 87
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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. The ability to continue to sell
TIMERx related inventory is dependent, in part, upon the commercialization of
products by third parties utilizing bulk TIMERx and the continued use by the
Company and third parties of the TIMERx related inventory in existing and new
research efforts. 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>
F-10
<PAGE> 88
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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 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 consists solely of advances. These advances were
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. Average balances for the years
ended December 31, 1994, 1995 and 1996 and for the nine months ended September
30, 1996 and 1997 were $17,500,000, $22,100,000, $27,300,000, $26,700,000 and
$33,200,000, respectively. 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 and represent the approximate costs
the Company would have incurred on a stand-alone basis.
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 and represents the approximate costs the
Company would have incurred on a stand-alone basis. 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
F-11
<PAGE> 89
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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.
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.
F-12
<PAGE> 90
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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. As a result of
Penford fully utilizing all of the Company's tax losses, the Company does not
possess any net operating loss carryforwards. Although the Company is not
compensated for tax losses that are utilized by Penford, if such tax losses
remained with the Company they would have been fully offset by a valuation
allowance due to the Company's history of operating losses. As a result, the
provision as calculated approximates that which would have been recorded if
calculated on a stand-alone basis. Through September 30, 1997, Penford has
utilized approximately $17,350,000 of federal net operating loss carryforwards
that the Company would have had outstanding were it a stand-alone entity of
which approximately $3,393,000, $4,503,000, $5,084,000 and $4,370,000 would have
expired in 2009, 2010, 2011 and 2012, respectively. 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.
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 (the
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. In addition to the employees of the Company, employees of
Penford and its other subsidiaries participate in the Plan. The Company has
accounted for its involvement in the overall Plan as a participant in a
multiemployer pension plan. Under this method, the Company recognizes as net
periodic pension cost its allocated contribution for the period. The Company
recognizes a liability for any contributions due and unpaid.
Under the terms of the Employee Benefits Agreement between Penford and
Penwest, Penford will freeze all benefits of employees of Penwest under the Plan
as of the closing of this offering and will
F-13
<PAGE> 91
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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 Note 13). Based
upon the terms of the agreement there will be no termination gains or losses as
a result of the freezing of Plan benefits, the termination of the right of
employees of the Company to participate in the Plan or the subsequent
distribution. Subsequent to the distribution, the Company plans to adopt a
defined contribution plan and employees of Penwest will be eligible to
participate in such defined contribution plan.
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 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
F-14
<PAGE> 92
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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 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
F-15
<PAGE> 93
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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.
Royalties and licensing fees revenue consist solely of payments received
under TIMERx collaborative agreements. Included in royalties and licensing
revenue are approximately $100,000 and $1,082,000 for the years ended December
31, 1995 and 1996, respectively, and $850,000 and $50,000 for the nine month
periods ended September 30, 1996 and 1997, respectively, of payments received
upon the signing of collaborative agreements. These up-front payments relate
principally to the performance of pilot bioequivalence studies and have been
recognized upon the delivery of the results of such studies to the
collaborators. In addition, approximately $861,000 of non-refundable milestone
payments were recognized as the milestones were achieved during the nine month
period ended September 30, 1997. Approximately $1,590,000, $1,844,000 and
$2,819,000 for the years ended December 31, 1994, 1995 and
F-16
<PAGE> 94
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
1996, respectively, and $1,976,000 and $2,264,000 for the nine month periods
ended September 30, 1996 and 1997, respectively, of research and development
expense principally related to applications of TIMERx technology to products
covered by the Company's collaborative agreements. Since the collaborative
agreements can be terminated by either party, the costs associated with such
agreements could be discontinued by the Company. Such costs are typically
incurred prior to the receipt of milestones, royalties and other payments.
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
F-17
<PAGE> 95
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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 product approval.
At the request of the FDA, the Company is conducting an animal toxicity study of
such ingredient to enable the FDA to determine the highest allowable amount. If
the amount of such ingredient, or any other ingredient, in a specified product
exceeds the highest amount allowed by the FDA, 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.
F-18
<PAGE> 96
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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. 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>
Segment information for operations in Finland, Germany and the United
Kingdom are included under the caption "Europe." Total revenues, operating
profit (loss) and identifiable assets in Europe are principally from the Finnish
operations. None of the revenues, operating profit (loss) or identifiable assets
of the operations in Germany or the United Kingdom, individually or in the
aggregate, exceed 10% of total revenues, operating profit (loss) or identifiable
assets of the Company. North American export sales consist principally of sales
to Western Europe. European export sales consist principally of sales from
Finland to Western European countries.
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.
F-19
<PAGE> 97
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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.
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 (the Spin-off) 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,
F-20
<PAGE> 98
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
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.
At the time of the Spin-off the outstanding stock options to purchase the
common stock of Penford will be adjusted. 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 while maintaining the
vesting provisions and option period of the original grant, (iii) adjust the
exercise price of each stock option then outstanding, and (iv) adjust the number
of shares of common stock of Penford issuable upon exercise of each stock option
then outstanding. The adjustment of the exercise price and the number of shares
of Penford issuable upon exercise of each stock option outstanding are designed
to ensure the ratio of exercise price per option to the market value per share
is not reduced and to ensure the aggregate intrinsic value of options
immediately after the change is not greater than the aggregate intrinsic value
of the options immediately before the change. The changes in the stock options
to purchase the common stock of Penford will not result in additional
compensation expense.
Penford Stock Option Plan
Certain of the Company's employees participate in Penford's 1994 Stock
Option Plan (the "1994 Plan") for which 1,000,000 shares of common stock have
been authorized for grants of options by Penford. The 1994 Plan provides for the
granting of stock options at the fair market value of the common stock on the
date of grant. Either incentive stock options or non-qualified stock options
have been granted under the 1994 Plan. The incentive stock options generally
vest over five years at the rate of 20% each year and expire 10 years from the
date of grant. The non-qualified stock options generally vest over four years at
the rate of 25% each year and expire 10 years and 10 days from the date of
grant.
The Company has elected to follow Accounting Principals Board Opinion (APB)
No. 25 "Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its employee stock options. Under APB No. 25, the Company does
not recognize compensation expense for Penford options granted to employees of
Penwest, since the exercise price of the options granted is equal to the market
value of the Parent's common stock at the date of grant. Statement of Financial
Accounting Standard No. 123 "Accounting for Stock Based Compensation" (SFAS 123)
requires the Company to disclose the pro forma impact on net loss and loss per
share as if compensation expense associated with employee stock options granted
to employees of Penwest had been calculated under the fair value method of SFAS
123 for employee stock options granted to employees of Penwest subsequent to
December 31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, NINE MONTHS ENDED
------------------- ------------------
1995 1996 SEPTEMBER 30, 1997
------- ------- ------------------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C>
Net loss -- as reported............................... $(3,252) $(3,864) $ (3,175)
Net loss -- pro forma................................. (3,396) (4,123) (3,526)
Net loss per share, primary -- as reported............ (0.22) (0.27) (0.22)
Net loss per share, primary -- pro forma.............. $ (0.23) $ (0.28) $ (0.24)
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rates of 5.6% to 6.1%; expected option life of each vesting increment
of 2.8 years; expected volatility of 49%; and expected dividends of $0.20 per
share. The weighted average fair value of options granted under the 1994 Plan
during the
F-21
<PAGE> 99
PENWEST PHARMACEUTICALS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the nine-month period ended September 30, 1996 is unaudited
years ended December 31, 1995 and 1996 and nine months ended September 30, 1997
was $13.02, $9.30, and $9.67 respectively. The effect of applying Statement No.
123 for providing pro forma disclosures for the years ended December 31, 1995,
1996 and nine months ended September 30, 1997 is not likely to be representative
of the effects in future years because the amounts above reflect only the
options granted in 1995, 1996 and during the nine months ended September 30,
1997 that vest over four to five years. No additional Parent shares will be
available to the Company upon closing of the Offering.
Changes in Penford stock options granted to employees of Penwest for the
three years ended December 31, 1994, 1995, and 1996 and nine months ended
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
OPTION PRICE RANGE WTD. AVERAGE
SHARES EXERCISE PRICE
------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
1994
Balance, January 1, 1994....................... 14,000 $20.13 - $22.75 $22.00
Granted........................................ --
Exercised...................................... --
Cancelled...................................... --
Balance, December 31, 1994..................... 14,000 20.13 - 22.75 22.00
=======
Options Exercisable............................ 2,800 20.13 - 22.75 22.00
1995
Granted........................................ 71,000 21.00 - 24.50 21.30
Exercised...................................... --
Cancelled...................................... --
Balance, December 31, 1995..................... 85,000 20.13 - 24.50 21.41
=======
Options Exercisable............................ 5,000 20.13 - 24.50 22.00
1996
Granted........................................ 80,500 17.00 - 18.25 17.71
Exercised...................................... --
Cancelled...................................... --
Balance, December 31, 1996..................... 165,000 17.00 - 24.50 19.61
=======
Option Exercisable............................. 14,600 20.13 - 24.50 21.86
Nine Months ended Sept. 30, 1997
Granted........................................ 1,000 18.25 18.25
Exercised...................................... (200) 18.25 18.25
Cancelled...................................... (1,800) 18.25 18.25
-------
Balance, September 30, 1997.................... 164,500 17.00 - 24.50 19.62
Options Exercisable............................ 24,600 $18.25 - $24.50 $21.26
</TABLE>
At September 30, 1997, the weighted average remaining contractual life of
options outstanding approximates 8.2 years.
F-22
<PAGE> 100
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> 101
<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* -- Form of Separation Agreement to be entered into between the Registrant and
Penford Corporation ("Penford").
10.14* -- Form of Excipient Supply Agreement to be entered into between the Registrant and
Penford.
10.15* -- Form of Services Agreement to be entered into between the Registrant and
Penford.
10.16* -- Form of Tax Allocation Agreement to be entered into between the Registrant and
Penford.
10.17* -- Form of Employee Benefits Agreement to be entered into 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.
27.1* -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ 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> 102
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> 103
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 December 17,
1997.
PENWEST PHARMACEUTICALS CO.
By: /s/ JOHN V. TALLEY, JR.
------------------------------------
John V. Talley, Jr.
President and Chief Operating
Officer
POWER OF ATTORNEY AND SIGNATURES
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>
* Chairman, Chief Executive December 17, 1997
- ------------------------------------------ Officer and Director
Tod R. Hamachek (Principal Executive
Officer)
* Vice President, Finance and December 17, 1997
- ------------------------------------------ Chief Financial Officer
Jennifer L. Good (Principal Financial and
Accounting Officer)
* Director December 17, 1997
- ------------------------------------------
Paul E. Freiman
* Director December 17, 1997
- ------------------------------------------
Jere E. Goyan, Ph.D.
* Director December 17, 1997
- ------------------------------------------
Rolf H. Henel
* Director December 17, 1997
- ------------------------------------------
Robert J. Hennessey
* Director December 17, 1997
- ------------------------------------------
N. Stewart Rogers
/s/ JOHN V. TALLEY, JR. Director December 17, 1997
- ------------------------------------------
John V. Talley, Jr.
* Director December 17, 1997
- ------------------------------------------
W. Leigh Thompson, Ph.D., M.D.
</TABLE>
*By: /s/ JOHN V. TALLEY, JR.
---------------------------------
John V. Talley, Jr.
Attorney-in-fact
II-4
<PAGE> 104
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> 105
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> 106
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* -- Form of Separation Agreement to be entered into between the
Registrant and Penford Corporation ("Penford").
10.14* -- Form of Excipient Supply Agreement to be entered into between the
Registrant and Penford.
10.15* -- Form of Services Agreement to be entered into between the Registrant
and Penford.
10.16* -- Form of Tax Allocation Agreement to be entered into between the
Registrant and Penford.
10.17* -- Form of Employee Benefits Agreement to be entered into 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> 107
<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.
27.1* -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commissioner.
<PAGE> 1
EXHIBIT 4.1
- ------ ------
NUMBER [PENWEST LOGO AND NAME OF COMPANY APPEARS HERE] SHARES
- ------ ------
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN
OF THE STATE OF WASHINGTON DEFINITIONS
CUSIP 709754 105
- --------------------------------------------------------------------------------
This certifies that
is the record holder of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
$.001 PAR VALUE, OF
PENWEST PHARMACEUTICALS CO.
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Edmund O. Belsheim, Jr. /s/ Tod R. Hamachek
SECRETARY CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
[corporate seal appears here]
<PAGE> 2
COUNTERSIGNED AND REGISTERED:
CHASE MELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT
AND REGISTRAR
By:
AUTHORIZED SIGNATURE
<PAGE> 3
This Certificate evidences shares of Common Stock of the Corporation.
The Corporation is also authorized to issue shares of Preferred Stock as well as
shares of different series within a class. The Corporation will furnish to any
shareholder, upon request and without charge, a full statement of the
designations, relative rights, preferences and limitations of the shares of each
class authorized to be issued, and the variations in rights, preferences and
limitations determined for each series, and the authority of the Corporation's
Board of Directors to determine variations for any future series.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________ Custodian ___________
(Cust) (Minor)
under Uniform Gifts to Minors Act _____________________
(State)
UNIF TRF MIN ACT - __________ Custodian ____________
(Cust) (Minor)
under Uniform Transfers to Minors Act __________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED ____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________
| |
|____________________|
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 4
Shares
- --------------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- --------------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_____________________
X_____________________________________
X_____________________________________
NOTICE: THE SIGNATURES TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAMES AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
By: _____________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
<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.
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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.
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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
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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:
*******************************
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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.
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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
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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
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<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,
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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
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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.
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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
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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
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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
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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
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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.
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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
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<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
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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
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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
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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.
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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.
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<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,
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<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.
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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;
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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
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<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
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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 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 in volumes
sufficient to satisfy at least one of the following tests: (A) the sale of
minimum volumes of tablets (stated as the "units," regardless of dosage strength
in each tablet) as described in Section 10.2.1; or (B) for each of the years
following Year 2 (as defined below), the sale of volumes representing the
minimum Percentage Market Share determined under Section 10.2.2.
10.2.1 The minimum tablet volumes 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 minimum volume shall be
***************************************************** for the partial calendar
year in which the Approval Date occurs.
(ii) In each of the next four successive calendar years,
the minimum volumes shall be as follow:
Calendar Year Minimum Unit Volume
------------- -------------------
2 ***********
3 ***********
4 ***********
5 ***********
(iii) In each calendar year thereafter during the License Term,
the minimum volume shall equal ****** of the average actual unit volumes so sold
in the immediately preceding two calendar years.
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<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 only the minimum unit volumes set forth in Section 10.2.1 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
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<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.
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<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
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<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.
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<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
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<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.
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<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 *************************
**************************************************************
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<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.
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<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>
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<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
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<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
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<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.
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<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
with the exception of Sanofi (of which MYLAN already has notice and to which it
has no objection), PENWEST shall provide prior notice to MYLAN before selecting
any Authorized Distributor and shall not utilize any Authorized Distributor to
which MYLAN has a reasonable objection. 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
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<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 45 days 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
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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
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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.
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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.
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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.
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<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
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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
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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
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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 ******************************************
******************************************
******************************************
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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.
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<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
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<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.
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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
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<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
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 shall not constitute or give rise to any
employer-employee, agency, partnership or joint venture relationship among or
between the parties, and each party's performance hereunder is that of a
separate, independent entity.
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<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.
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<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
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<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.
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<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
EXHIBIT 2
TERM OF PROPOSED SANOFI AGREEMENT:
The period (not being a period of more than 20 years from the Effective
Date [of the Sanofi Agreement]) beginning on such Effective Date and ending on
the earlier of:
1. the tenth, thirteenth, sixteenth, or nineteenth 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 one hundred eighty (180) days 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.
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<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
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<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.
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<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.
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<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
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<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
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<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
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<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
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<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 *****************************
*******************************************************************************
*************************************************.
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<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
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<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.
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<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.
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<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
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<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
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<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.
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<PAGE> 15
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 TIMERx Technologies will attempt at all times to maintain an
inventory of approximately six months' production of Formulated TIMERx for
Schwarz Pharma and its Affiliates and sublicensees, in light of their recent
ordering history and reasonable projections.
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<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
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<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.
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<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.
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<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.
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<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.
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<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
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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.
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<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
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<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.
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<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
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<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
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<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
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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
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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
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<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.
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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
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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:
----------------------------- -------------------------------
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<PAGE> 33
HEADS OF AGREEMENT and DEVELOPMENT AGREEMENT
This HEADS OF AGREEMENT and DEVELOPMENT AGREEMENT ("Agreement")
is entered into on September 20, 1995 ("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").
1. Background and Objectives.
1.1 TIMERx Technologies is a pharmaceutical company
specializing in the development, manufacture and distribution of
controlled-release delivery systems. TIMERx(R) is the product name of TIMERx
Technologies' patented oral delivery system. The system facilitates release of
therapeutically active agents into the human gastrointestinal tract at
predetermined rates. Formulated TIMERx(R) is designed to increase an active
agent's effectiveness and performance.
1.2 Schwarz Pharma is a pharmaceutical company, which
wishes to develop a controlled release version of Diltiazem to be
Therapeutically Equivalent (as hereinafter defined) to Cardizem CD, in four
dosage strengths: 120mg, 180mg, 240mg, and 300mg ("Products").
1.3 Schwarz Pharma and TIMERx Technologies desire to enter
into an agreement(s) for TIMERx Technologies and Schwarz Pharma to jointly
develop, and allowing Schwarz Pharma to exclusively license, manufacture, market
and distribute, the Products in territories expected to comprise the United
States, Mexico and Canada (the "Territory"), utilizing TIMERx(R) supplied by
TIMERx Technologies. In anticipation of such an agreement, Schwarz Pharma and
TIMERx Technologies additionally desire to conduct certain biostudies with
respect to Cardizem CD, which studies have direct application to the
contemplated Products. This Agreement sets forth certain key business points
which in turn will form the basis for future, more detailed, agreement(s)
between the parties. The Agreement also sets forth the understanding of the
parties with respect to the biostudies and initial development of the Products.
1.4 The parties anticipate that the value of the Products
will be likely to vary depending upon the presence or absence of effective
competing drug formulations in the United States market. For purposes of this
Agreement, a "Competing Generic Version" means a drug that meets all of the
following criteria: (i) it is rated AB bioequivalent to Cardizem CD in the same
dosage strength(s) (herein "Therapeutically Equivalent") as the applicable
Products being studied, manufactured, or marketed, (ii) it has been fully
approved for commercial sale in oral solid-dosage form for administration in
humans by the FDA, (iii) it is actively on the market in the United States
under a brand other than "Cardizem" or "Cardizem CD", and (iv) 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.
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<PAGE> 34
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSION
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the receipt and sufficiency of which is acknowledged, the parties agree as
follows:
2. Option and Option Fee. In consideration for TIMERx Technologies granting
to Schwarz Pharma (i) an exclusive option to negotiate and enter into the
agreements described in Section 4 below, and otherwise on reasonable terms to
be negotiated by the parties in accordance with the terms of this Agreement,
and (ii) an exclusive option to negotiate and enter into agreements to
exclusively license, manufacture, market and distribute Products in Europe on
reasonable terms to be negotiated by the parties, Schwarz Pharma will pay TIMERx
Technologies a fee of ******** upon execution of this Agreement. The option
under clause (i) will expire on June 1, 1996, if the parties have not reached
such an agreement prior to that date. The option under clause (ii) with respect
to Europe must be exercised by Schwartz Pharma by written notice to TIMERx
Technologies of its intent to negotiate to be delivered to TIMERx Technologies
on or before June 30, 1996, and will expire on January 1, 1997, if the parties
have not reached such an agreement prior to that date.
3. Development Milestones.
3.1 Dissolution Profile Studies. Upon execution of this Agreement and
payment of the Option Fee, TIMERx Technologies will conduct in vitro
"Dissolution Profile Studies" of a TIMERx(R) formulation designed to be
Therapeutically Equivalent to Cardizem CD in each of the four dosage strengths.
The parties anticipate that the first dosage strength to be so studied will
be either 180mg or 240mg, as the parties may determine. TIMERx Technologies
will complete the Dissolution Profile Study for the first dosage strength
within four to six months of execution of this Agreement. Regardless of the
outcome or results of such study, Schwarz Pharma agrees to pay TIMERx
Technologies a fee therefor equal to *****************************************
********************************* first such installment to be due and payable
thirty days after the Effective Date.
3.2 Initiation of Pilot Biostudy. Upon successful completion of the
Dissolution Profile Studies, the parties shall proceed with Pilot Biostudies
after agreement on study design and costs. Schwarz Pharma will pay all of TIMERx
Technologies' GAAP costs (including, without limitation, allocated
administration and overhead, labor and benefits, and the costs of materials
manufacture and acquisition but excluding capital costs) (the "Pilot Study
Costs") to conduct an initial Pilot Biostudy with respect to one or more dosage
strengths, as needed, it being understood that further development of the four
dosage strengths may not require that Pilot Biostudies be performed for all four
strengths. The dosage strength(s) to be the subject of such initial Pilot
Biostudy, the design of the study(ies), and the appropriate clinical research
organization to conduct the study(ies), will be mutually agreed by the parties.
The Pilot Study Costs will be invoiced by TIMERx Technologies to Schwarz Pharma
periodically as incurred, and will be payable within thirty days of invoice
date. TIMERx Technologies will complete the initial Pilot Biostudy within four
months of such agreement to proceed and notification from Schwarz Pharma. If the
initial Pilot Biostudy requires further optimization of the TIMERx(R)
formulation, Schwarz Pharma agrees to pay similarly all the Pilot Study Costs
for an additional biostudy to develop a formulation of TIMERx(R) Therapeutically
Equivalent to each desired dosage strength of Cardizem CD. If the parties agree
that additional Pilot Biostudies are needed for such purposes following the
first two such studies,
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<PAGE> 35
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSION
Schwarz Pharma agrees to pay similarly one-half of TIMERx Technologies' Pilot
Study Costs for such additional biostudies.
3.3 Successful Completion of Pilot Biostudy. When a Pilot Biostudy is
successfully completed (i.e., TIMERx Technologies develops a formulation of
TIMERx(R) Therapeutically Equivalent to any of the desired dosage strengths of
Cardizem CD), Schwarz Pharma will pay TIMERx Technologies a fee determined as
set forth in Exhibit A, it being understood that such fee will be payable only
once, and not for the subsequent successful completion of Pilot Biostudies for
other dosage strengths.
3.4 Pivoral Biostudies. Within twelve months of successful completion of
such Pilot Biostudies, Schwarz Pharma will conduct and complete at its expense
Pivotal Biostudies of two or more dosage strengths (it being understood that
"bracketing" and other techniques may make it unnecessary to perform Pivotal
Biostudies on all four dosage strengths) as necessary for U.S. Food and Drug
Administration ("FDA") (or equivalent regulatory authority) approval of the
Products in the four dosage strengths. Upon successful completion of a Pivotal
Biostudy, Schwarz Pharma will pay TIMERx Technologies a fee determined as set
forth in Exhibit A, it being understood that such fee will be payable only
once, and not for the subsequent successful completion of Pivotal Biostudies
for other dosage strengths.
4. Product Marketing and Supply Agreement.
4.1 Overview of the Agreement. The next step in the parties' transactions
is to enter into a long-term agreement referred to as the "Product Marketing
and Supply Agreement" with respect to the United States, Mexico and Canada.
(The parties anticipate that subsequent discussions between them will be
directed toward appropriate agreements with respect to Europe.) The Product
Marketing and Supply Agreement sets forth: (i) the terms of the license granted
to Schwarz Pharma to manufacture and distribute the Products, (ii) supply
requirements for manufacture of the Products; (iii) development milestones
marking achievement of specified goals; and (iv) royalty payments. Structuring
the relationship into a series of "development milestones" promotes certainty
in each party's responsibilities, and eliminates misunderstanding in mutual
obligations. Schwarz Pharma's right shall include the right to sublicense,
subject to the approval of TIMERx Technologies, which shall not be unreasonably
withheld.
4.2 Development Milestones. Schwarz Pharma shall pay to TIMERx
Technologies the following milestone payments:
4.2.1. First Milestone: *************************************
***********************************************************************
**************************************************** Schwarz Pharma will pay
TIMERx Technologies a fee determined as set forth in Exhibit A. It is
understood that the parties currently anticipate a single ANDA filing for all
dosage strengths.
4.2.2. Second Milestone: ***********************************
*****************************************************************************
************
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<PAGE> 36
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSION
***********, Schwarz Pharma will pay TIMERx Technologies a fee determined as
set forth in Exhibit A.
4.2.3 Third Milestone: ********************************************
*****************************************************************************
Schwarz Pharma will pay TIMERx Technologies a fee determined as set forth in
Exhibit A.
4.3 The Marketing Period. The Marketing Period denotes the time frame
during which Schwarz Pharma is licensed to use the TIMERx(R) controlled
delivery system to manufacture, market, promote and sell the Products in a
designated geographic territory.
4.3.1 Term. Duration of the Marketing Period depends on the length of
the license period negotiated, and the parties anticipate a twenty year term.
4.3.2 Royalties. The royalty rate due TIMERx Technologies for sales
of the Products during the Marketing Period will be determined as set forth in
Exhibit B.
5. Supply of Formulated TIMERx(R). In order to assure consistently high product
quality, and as part of the consideration for the license grant to Schwarz
Pharma of TIMERx Technologies' patented technology, Schwarz Pharma will buy all
its requirements of TIMERx(R) from TIMERx Technologies during the Marketing
Period, at a price determined as set forth in Exhibit C, subject to (i) annual
adjustment by TIMERx Technologies to reflect changes in the Pharmaceutical
Producers' Index, or an equivalent index; and (ii) appropriate provisions
assuring continuity of supply.
6. Confidentiality and Non-Disclosure Obligations. In addition to the terms of
the Secrecy Agreement entered into between the parties on April 27, 1995, both
parties agree to maintain the terms and conditions of this Agreement in
strictest confidence, and not disclose or use, or allow others to disclose or
use, information exchanged under this Agreement, including information included
in the biostudies, in any way that would compete, directly or indirectly, with
the other party. Additionally, 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 ANDA. Each party shall retain ownership of
its own trademarks, tradenames and trade dress. Schwarz Pharma and TIMERx
Technologies shall each have the right to access and reference the other's
DMFs. The non-disclosure and confidentiality obligations shall continue for
five (5) years following the Effective Date.
7. Governing Law. This Agreement shall be interpreted and construed under the
laws of the State of New York.
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<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Agreement to take
effect on the Effective Date.
SCHWARZ PHARMA INC. TIMERx TECHNOLOGIES
By: /s/ [illegible] By: /s/ John V. Talley, Jr.
------------------------ ------------------------
Title: President Title: President
--------------------- ---------------------
Date: 9/20/95 Date: 9/20/95
---------------------- ----------------------
<PAGE> 38
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
EXHIBIT A
TO HEADS OF AGREEMENT AND DEVELOPMENT AGREEMENT
BETWEEN TIMERx TECHNOLOGIES AND SCHWARZ PHARMA INC.
MILESTONE PAYMENTS
The milestone payments will vary depending on whether, and how many, Competing
Generic Versions are in existence on the Trigger Date 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:
<TABLE>
<CAPTION>
Number of Completing Generic Versions on
Milestone the Applicable Trigger Date
- --------- -------------------------------------------
***** ***** ***** *****
------- ------- ------- ---------
<S> <C> <C> <C> <C>
****************
****** ******* ******* ******* *******
**************** ******* ******* ******* *******
**************** ******* ******* ******* *******
**************** ******* ******* ******* *******
</TABLE>
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<PAGE> 39
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
EXHIBIT B
TO HEADS OF AGREEMENT AND DEVELOPMENT AGREEMENT
BETWEEN TIMERx TECHNOLOGIES AND SCHWARZ PHARMA INC.
ROYALTY RATES
The royalty rates will vary depending on whether, and how many, Competing
Generic Versions are in existence during the calendar quarter in which the
royalties accrue, and the Net Sales then reached for that year. If a Competing
Generic Version first comes into existence during the first half of a calendar
quarter, it will be deemed to have been in existence from the first day of such
quarter, and if it first comes into existence during the second half of a
calendar quarter, it will be deemed not to have been in existence until the
first day of the following quarter. The following table sets forth the
applicable incremental royalty rates, in percentages of Annual GAAP Net Sales:
<TABLE>
<CAPTION>
Portion of Net Sales Number of Competing Generic Versions during
during Each Year the Applicable Quarter
- -------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
***** ***** ***** *****
**************** ******* ******* ******* *******
**************** ******* ******* ******* *******
*************
**************** ******* ******* ******* *******
*************
**************** ******* ******* ******* *******
*************
</TABLE>
Page 7
<PAGE> 40
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
EXHIBIT C
TO HEADS OF AGREEMENT AND DEVELOPMENT AGREEMENT
BETWEEN TIMERx TECHNOLOGIES AND SCHWARZ PHARMA INC.
FORMULATED TIMERx(R) PRODUCT PRICES
The price for the Formulated TIMERx(R) product to be supplied by TIMERx
Technologies to Schwarz Pharma will vary depending on whether, and how many,
Competing Generic Versions are in existence 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:
<TABLE>
<CAPTION>
Number of Competing Generic Versions on
the Applicable Order Date
-----------------------------------------------------
<S> <C> <C> <C> <C>
**** **** **** ****
---- --- --- ---------
Price* *** *** *** ***
</TABLE>
*In all cases, Price shall be subject to an *********** (to be determined
annually) ************* 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 all dosage strengths.
Page 8
<PAGE> 41
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
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<PAGE> 42
EXHIBIT 1.1, CONTINUED
TIMERx Technologies Affiliates
Schwarz Pharma Affiliates
Schwarz Pharma Affiliates:
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<PAGE> 43
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.
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<PAGE> 44
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.
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<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.
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<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
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<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
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<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
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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 *****************************
*******************************************************************************
*************************************************.
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<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
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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.
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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.
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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
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<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
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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.
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<PAGE> 15
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 TIMERx Technologies will attempt at all times to maintain an
inventory of approximately six months' production of Formulated TIMERx for
Schwarz Pharma and its Affiliates and sublicensees, in light of their recent
ordering history and reasonable projections.
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<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
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<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.
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<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.
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<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.
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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.
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<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
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<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.
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<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
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<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.
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<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
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<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
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<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
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<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
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<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
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<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.
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<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
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<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:
----------------------------- -------------------------------
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HEADS OF AGREEMENT and DEVELOPMENT AGREEMENT
This HEADS OF AGREEMENT and DEVELOPMENT AGREEMENT ("Agreement")
is entered into on September 20, 1995 ("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").
1. Background and Objectives.
1.1 TIMERx Technologies is a pharmaceutical company
specializing in the development, manufacture and distribution of
controlled-release delivery systems. TIMERx(R) is the product name of TIMERx
Technologies' patented oral delivery system. The system facilitates release of
therapeutically active agents into the human gastrointestinal tract at
predetermined rates. Formulated TIMERx(R) is designed to increase an active
agent's effectiveness and performance.
1.2 Schwarz Pharma is a pharmaceutical company, which
wishes to develop a controlled release version of Diltiazem to be
Therapeutically Equivalent (as hereinafter defined) to Cardizem CD, in four
dosage strengths: 120mg, 180mg, 240mg, and 300mg ("Products").
1.3 Schwarz Pharma and TIMERx Technologies desire to enter
into an agreement(s) for TIMERx Technologies and Schwarz Pharma to jointly
develop, and allowing Schwarz Pharma to exclusively license, manufacture, market
and distribute, the Products in territories expected to comprise the United
States, Mexico and Canada (the "Territory"), utilizing TIMERx(R) supplied by
TIMERx Technologies. In anticipation of such an agreement, Schwarz Pharma and
TIMERx Technologies additionally desire to conduct certain biostudies with
respect to Cardizem CD, which studies have direct application to the
contemplated Products. This Agreement sets forth certain key business points
which in turn will form the basis for future, more detailed, agreement(s)
between the parties. The Agreement also sets forth the understanding of the
parties with respect to the biostudies and initial development of the Products.
1.4 The parties anticipate that the value of the Products
will be likely to vary depending upon the presence or absence of effective
competing drug formulations in the United States market. For purposes of this
Agreement, a "Competing Generic Version" means a drug that meets all of the
following criteria: (i) it is rated AB bioequivalent to Cardizem CD in the same
dosage strength(s) (herein "Therapeutically Equivalent") as the applicable
Products being studied, manufactured, or marketed, (ii) it has been fully
approved for commercial sale in oral solid-dosage form for administration in
humans by the FDA, (iii) it is actively on the market in the United States
under a brand other than "Cardizem" or "Cardizem CD", and (iv) 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.
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COMMISSION. ASTERISKS DENOTE OMISSION
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the receipt and sufficiency of which is acknowledged, the parties agree as
follows:
2. Option and Option Fee. In consideration for TIMERx Technologies granting
to Schwarz Pharma (i) an exclusive option to negotiate and enter into the
agreements described in Section 4 below, and otherwise on reasonable terms to
be negotiated by the parties in accordance with the terms of this Agreement,
and (ii) an exclusive option to negotiate and enter into agreements to
exclusively license, manufacture, market and distribute Products in Europe on
reasonable terms to be negotiated by the parties, Schwarz Pharma will pay TIMERx
Technologies a fee of ******** upon execution of this Agreement. The option
under clause (i) will expire on June 1, 1996, if the parties have not reached
such an agreement prior to that date. The option under clause (ii) with respect
to Europe must be exercised by Schwartz Pharma by written notice to TIMERx
Technologies of its intent to negotiate to be delivered to TIMERx Technologies
on or before June 30, 1996, and will expire on January 1, 1997, if the parties
have not reached such an agreement prior to that date.
3. Development Milestones.
3.1 Dissolution Profile Studies. Upon execution of this Agreement and
payment of the Option Fee, TIMERx Technologies will conduct in vitro
"Dissolution Profile Studies" of a TIMERx(R) formulation designed to be
Therapeutically Equivalent to Cardizem CD in each of the four dosage strengths.
The parties anticipate that the first dosage strength to be so studied will
be either 180mg or 240mg, as the parties may determine. TIMERx Technologies
will complete the Dissolution Profile Study for the first dosage strength
within four to six months of execution of this Agreement. Regardless of the
outcome or results of such study, Schwarz Pharma agrees to pay TIMERx
Technologies a fee therefor equal to *****************************************
********************************* first such installment to be due and payable
thirty days after the Effective Date.
3.2 Initiation of Pilot Biostudy. Upon successful completion of the
Dissolution Profile Studies, the parties shall proceed with Pilot Biostudies
after agreement on study design and costs. Schwarz Pharma will pay all of TIMERx
Technologies' GAAP costs (including, without limitation, allocated
administration and overhead, labor and benefits, and the costs of materials
manufacture and acquisition but excluding capital costs) (the "Pilot Study
Costs") to conduct an initial Pilot Biostudy with respect to one or more dosage
strengths, as needed, it being understood that further development of the four
dosage strengths may not require that Pilot Biostudies be performed for all four
strengths. The dosage strength(s) to be the subject of such initial Pilot
Biostudy, the design of the study(ies), and the appropriate clinical research
organization to conduct the study(ies), will be mutually agreed by the parties.
The Pilot Study Costs will be invoiced by TIMERx Technologies to Schwarz Pharma
periodically as incurred, and will be payable within thirty days of invoice
date. TIMERx Technologies will complete the initial Pilot Biostudy within four
months of such agreement to proceed and notification from Schwarz Pharma. If the
initial Pilot Biostudy requires further optimization of the TIMERx(R)
formulation, Schwarz Pharma agrees to pay similarly all the Pilot Study Costs
for an additional biostudy to develop a formulation of TIMERx(R) Therapeutically
Equivalent to each desired dosage strength of Cardizem CD. If the parties agree
that additional Pilot Biostudies are needed for such purposes following the
first two such studies,
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COMMISSION. ASTERISKS DENOTE OMISSION
Schwarz Pharma agrees to pay similarly one-half of TIMERx Technologies' Pilot
Study Costs for such additional biostudies.
3.3 Successful Completion of Pilot Biostudy. When a Pilot Biostudy is
successfully completed (i.e., TIMERx Technologies develops a formulation of
TIMERx(R) Therapeutically Equivalent to any of the desired dosage strengths of
Cardizem CD), Schwarz Pharma will pay TIMERx Technologies a fee determined as
set forth in Exhibit A, it being understood that such fee will be payable only
once, and not for the subsequent successful completion of Pilot Biostudies for
other dosage strengths.
3.4 Pivoral Biostudies. Within twelve months of successful completion of
such Pilot Biostudies, Schwarz Pharma will conduct and complete at its expense
Pivotal Biostudies of two or more dosage strengths (it being understood that
"bracketing" and other techniques may make it unnecessary to perform Pivotal
Biostudies on all four dosage strengths) as necessary for U.S. Food and Drug
Administration ("FDA") (or equivalent regulatory authority) approval of the
Products in the four dosage strengths. Upon successful completion of a Pivotal
Biostudy, Schwarz Pharma will pay TIMERx Technologies a fee determined as set
forth in Exhibit A, it being understood that such fee will be payable only
once, and not for the subsequent successful completion of Pivotal Biostudies
for other dosage strengths.
4. Product Marketing and Supply Agreement.
4.1 Overview of the Agreement. The next step in the parties' transactions
is to enter into a long-term agreement referred to as the "Product Marketing
and Supply Agreement" with respect to the United States, Mexico and Canada.
(The parties anticipate that subsequent discussions between them will be
directed toward appropriate agreements with respect to Europe.) The Product
Marketing and Supply Agreement sets forth: (i) the terms of the license granted
to Schwarz Pharma to manufacture and distribute the Products, (ii) supply
requirements for manufacture of the Products; (iii) development milestones
marking achievement of specified goals; and (iv) royalty payments. Structuring
the relationship into a series of "development milestones" promotes certainty
in each party's responsibilities, and eliminates misunderstanding in mutual
obligations. Schwarz Pharma's right shall include the right to sublicense,
subject to the approval of TIMERx Technologies, which shall not be unreasonably
withheld.
4.2 Development Milestones. Schwarz Pharma shall pay to TIMERx
Technologies the following milestone payments:
4.2.1. First Milestone: *************************************
***********************************************************************
**************************************************** Schwarz Pharma will pay
TIMERx Technologies a fee determined as set forth in Exhibit A. It is
understood that the parties currently anticipate a single ANDA filing for all
dosage strengths.
4.2.2. Second Milestone: ***********************************
*****************************************************************************
************
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***********, Schwarz Pharma will pay TIMERx Technologies a fee determined as
set forth in Exhibit A.
4.2.3 Third Milestone: ********************************************
*****************************************************************************
Schwarz Pharma will pay TIMERx Technologies a fee determined as set forth in
Exhibit A.
4.3 The Marketing Period. The Marketing Period denotes the time frame
during which Schwarz Pharma is licensed to use the TIMERx(R) controlled
delivery system to manufacture, market, promote and sell the Products in a
designated geographic territory.
4.3.1 Term. Duration of the Marketing Period depends on the length of
the license period negotiated, and the parties anticipate a twenty year term.
4.3.2 Royalties. The royalty rate due TIMERx Technologies for sales
of the Products during the Marketing Period will be determined as set forth in
Exhibit B.
5. Supply of Formulated TIMERx(R). In order to assure consistently high product
quality, and as part of the consideration for the license grant to Schwarz
Pharma of TIMERx Technologies' patented technology, Schwarz Pharma will buy all
its requirements of TIMERx(R) from TIMERx Technologies during the Marketing
Period, at a price determined as set forth in Exhibit C, subject to (i) annual
adjustment by TIMERx Technologies to reflect changes in the Pharmaceutical
Producers' Index, or an equivalent index; and (ii) appropriate provisions
assuring continuity of supply.
6. Confidentiality and Non-Disclosure Obligations. In addition to the terms of
the Secrecy Agreement entered into between the parties on April 27, 1995, both
parties agree to maintain the terms and conditions of this Agreement in
strictest confidence, and not disclose or use, or allow others to disclose or
use, information exchanged under this Agreement, including information included
in the biostudies, in any way that would compete, directly or indirectly, with
the other party. Additionally, 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 ANDA. Each party shall retain ownership of
its own trademarks, tradenames and trade dress. Schwarz Pharma and TIMERx
Technologies shall each have the right to access and reference the other's
DMFs. The non-disclosure and confidentiality obligations shall continue for
five (5) years following the Effective Date.
7. Governing Law. This Agreement shall be interpreted and construed under the
laws of the State of New York.
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IN WITNESS WHEREOF, the parties have executed this Agreement to take
effect on the Effective Date.
SCHWARZ PHARMA INC. TIMERx TECHNOLOGIES
By: /s/ [illegible] By: /s/ John V. Talley, Jr.
------------------------ ------------------------
Title: President Title: President
--------------------- ---------------------
Date: 9/20/95 Date: 9/20/95
---------------------- ----------------------
<PAGE> 38
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
EXHIBIT A
TO HEADS OF AGREEMENT AND DEVELOPMENT AGREEMENT
BETWEEN TIMERx TECHNOLOGIES AND SCHWARZ PHARMA INC.
MILESTONE PAYMENTS
The milestone payments will vary depending on whether, and how many, Competing
Generic Versions are in existence on the Trigger Date 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:
<TABLE>
<CAPTION>
Number of Completing Generic Versions on
Milestone the Applicable Trigger Date
- --------- -------------------------------------------
***** ***** ***** *****
------- ------- ------- ---------
<S> <C> <C> <C> <C>
****************
****** ******* ******* ******* *******
**************** ******* ******* ******* *******
**************** ******* ******* ******* *******
**************** ******* ******* ******* *******
</TABLE>
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
EXHIBIT B
TO HEADS OF AGREEMENT AND DEVELOPMENT AGREEMENT
BETWEEN TIMERx TECHNOLOGIES AND SCHWARZ PHARMA INC.
ROYALTY RATES
The royalty rates will vary depending on whether, and how many, Competing
Generic Versions are in existence during the calendar quarter in which the
royalties accrue, and the Net Sales then reached for that year. If a Competing
Generic Version first comes into existence during the first half of a calendar
quarter, it will be deemed to have been in existence from the first day of such
quarter, and if it first comes into existence during the second half of a
calendar quarter, it will be deemed not to have been in existence until the
first day of the following quarter. The following table sets forth the
applicable incremental royalty rates, in percentages of Annual GAAP Net Sales:
<TABLE>
<CAPTION>
Portion of Net Sales Number of Competing Generic Versions during
during Each Year the Applicable Quarter
- -------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
***** ***** ***** *****
**************** ******* ******* ******* *******
**************** ******* ******* ******* *******
*************
**************** ******* ******* ******* *******
*************
**************** ******* ******* ******* *******
*************
</TABLE>
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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
EXHIBIT C
TO HEADS OF AGREEMENT AND DEVELOPMENT AGREEMENT
BETWEEN TIMERx TECHNOLOGIES AND SCHWARZ PHARMA INC.
FORMULATED TIMERx(R) PRODUCT PRICES
The price for the Formulated TIMERx(R) product to be supplied by TIMERx
Technologies to Schwarz Pharma will vary depending on whether, and how many,
Competing Generic Versions are in existence 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:
<TABLE>
<CAPTION>
Number of Competing Generic Versions on
the Applicable Order Date
-----------------------------------------------------
<S> <C> <C> <C> <C>
**** **** **** ****
---- --- --- ---------
Price* *** *** *** ***
</TABLE>
*In all cases, Price shall be subject to an *********** (to be determined
annually) ************* 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 all dosage strengths.
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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
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<PAGE> 42
EXHIBIT 1.1, CONTINUED
TIMERx Technologies Affiliates
Schwarz Pharma Affiliates
Schwarz Pharma Affiliates:
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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.
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<PAGE> 44
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.
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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.
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ASTERISKS DENOTE SUCH OMISSIONS.
E. Subject to Section 5.3, each party will share equally the total costs of the
entire Development Budget for each Development Period, 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
one-half of the difference 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
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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), unless one of the following applies: (i)
such activities are with respect to a Certification Period (and subsequent
Marketing Period(s)) as to which the other party is not an Eligible Party or as
to which it has elected not to participate, as permitted hereunder, or (ii) the
relevant product has been demonstrated not to be a workable candidate as a
Designated Product, as shown by a termination of 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 first five
years of 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) unless
one of the following applies: (i) such activities are with respect to a
Certification Period (and subsequent Marketing Period(s)) as to which the other
party is not an Eligible Party or as to which it has elected not to participate,
as permitted hereunder, or (ii) the relevant product has been demonstrated not
to be a workable candidate as a Designated Product, as shown by a termination of
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 in process an internal project for the development of such
product or a substitutable product (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 an internal project
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.
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<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 share equally the total costs of the entire Certification Budget
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<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).
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<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
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<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
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<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
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<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
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<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
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<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.
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<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.
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<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.
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<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
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<PAGE> 16
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 five (5) years 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
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<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
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<PAGE> 18
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 five (5) years 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
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<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,
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<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
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<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
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<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
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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.
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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
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<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
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<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
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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
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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
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<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;
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<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.
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<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,
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<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
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<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
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<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
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<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
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<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
**********************************************;
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<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").
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<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
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<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.
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<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.
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<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
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<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.
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<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 *************************************************.
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<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 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. 333-38389 Amendment No. 3) and
related Prospectus of Penwest Pharmaceuticals Co. for the registration of
2,875,000 shares of its common stock.
/s/ Ernst & Young LLP
Stamford, Connecticut
December 16, 1997
