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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ARENA PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8734 23-2908305
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
</TABLE>
6166 NANCY RIDGE DRIVE
SAN DIEGO, CA 92121
(858) 453-7200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JACK LIEF
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARENA PHARMACEUTICALS, INC.
6166 NANCY RIDGE DRIVE
SAN DIEGO, CA 92121
(858) 453-7200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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PETER P. WALLACE, ESQ. FRODE JENSEN, ESQ.
MORGAN, LEWIS & BOCKIUS LLP TODD W. ECKLAND, ESQ.
300 SOUTH GRAND AVENUE, 22ND FLOOR WINTHROP, STIMSON, PUTNAM & ROBERTS
LOS ANGELES, CA 90071 FINANCIAL CENTRE, 695 EAST MAIN STREET
(213) 612-2500 STAMFORD, CT 06901
(203) 348-2300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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, check the following box and
list the Securities Act registration statement 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, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement 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,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.0001............................. $100,000,000 $26,400
- ---------------------------------------------------------------------------------------------------------------
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
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, AS AMENDED OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 28, 2000
PROSPECTUS
SHARES
[ARENA LOGO]
ARENA PHARMACEUTICALS, INC.
COMMON STOCK
-------------------------
Arena Pharmaceuticals is offering shares of its common stock.
This is our initial public offering. We intend to apply to have our common
stock approved for quotation on the Nasdaq National Market under the symbol
"ARNA." We anticipate that the initial public offering price will be between
$ and $ per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PER SHARE TOTAL
- ------------------------------------------------------------------------------------------------------
Public Offering Price..................................... $ $
Underwriting Discounts and Commissions.................... $ $
Proceeds to Arena Pharmaceuticals......................... $ $
- ------------------------------------------------------------------------------------------------------
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The underwriters have an option to purchase up to an additional
shares of common stock from us to cover over-allotments. The underwriters expect
to deliver the shares to purchasers on or about , 2000.
ING BARINGS
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
SG COWEN
The date of this prospectus is , 2000
<PAGE> 3
[DIAGRAMS REPRESENTING THE USE OF
CART TECHNOLOGY IN DRUG DISCOVERY]
CART(TM), Arena(TM), Aressa(TM) and ChemNavigator(TM) are trademarks of
Arena Pharmaceuticals, Inc. Arena Pharmaceuticals(R) and our logo are both
registered trademarks of Arena Pharmaceuticals, Inc. Trade names and trademarks
of other companies appearing in this prospectus are the property of the
respective holders.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.......................................... 3
RISK FACTORS................................................ 8
FORWARD-LOOKING STATEMENTS.................................. 18
USE OF PROCEEDS............................................. 19
DIVIDEND POLICY............................................. 19
CAPITALIZATION.............................................. 20
DILUTION.................................................... 21
SELECTED FINANCIAL DATA..................................... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 23
BUSINESS.................................................... 28
MANAGEMENT.................................................. 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 50
PRINCIPAL STOCKHOLDERS...................................... 52
DESCRIPTION OF CAPITAL STOCK................................ 54
SHARES ELIGIBLE FOR FUTURE SALE............................. 58
UNDERWRITING................................................ 60
LEGAL MATTERS............................................... 62
EXPERTS..................................................... 62
WHERE YOU CAN FIND ADDITIONAL INFORMATION................... 62
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
We have included this information in the prospectus summary because we believe
this information is highly important in making a decision to invest in our
common stock. However, before investing in our common stock you should read this
entire prospectus carefully, including the section entitled "Risk Factors" and
our financial statements and related notes, for a more complete understanding of
our business and this offering. Unless the context requires otherwise, the terms
"Arena," "we," "us" and "our" as used in this prospectus refer to Arena
Pharmaceuticals, Inc.
OUR COMPANY
We are a biotechnology company that has developed a broadly applicable,
platform technology that identifies drug candidates more efficiently than
traditional drug discovery techniques. Our proprietary screening technology,
which we refer to as CART, allows us and our collaborators to rapidly identify
drug candidates by eliminating an essential and time-consuming step in
traditional drug discovery. Using CART technology, we have discovered drug
candidates that have demonstrated pharmacological activity in animal studies
through our own internal research and development efforts, as well as through
the efforts of our collaborators. We have entered into collaborative agreements
with a number of pharmaceutical and biotechnology companies, including drug
discovery and development collaborations with Eli Lilly and Company and Fujisawa
Pharmaceutical Company, Ltd.
Advances in genomics research have enabled researchers to directly identify
new drug targets that can be used in the discovery and development of
therapeutic products to treat human disease. Many of these new targets are
receptors, which are located on the surface of cells. Our CART technology is
focused on discovering chemical compounds that target an important class of
receptors called G protein-coupled receptors, or GPCRs. In the recent past, the
pharmaceutical and biotechnology industries have increasingly focused on
receptor-based drug targets due to their potential for greater specificity in
regulating disease and for reduced side effects. Of the 100 leading
pharmaceutical products, based on 1998 revenues, 33 target receptors as their
primary mechanism of action. Of these 33 receptor-based drugs, 25 wholly or in
part act on GPCRs. In 1998, these GPCR-based pharmaceutical products represented
over $23 billion in sales and included some of the world's largest-selling
drugs, such as Claritin(R) for allergies, Zantac(R) for gastric ulcers,
Imitrex(R) for migraines and Cozaar(R) for hypertension.
THE DRUG DISCOVERY PROBLEM
Diseases in humans are caused by the abnormal function of cells. Changes in
cellular function occur when a signaling molecule, or ligand, is released from a
cell and binds to a receptor on that cell or another cell. This binding triggers
the initiation of various signals within the cell, resulting in changes in
biological activity. Drugs affect cellular function and thereby regulate the
disease process by interacting with the receptor to imitate or inhibit binding
of the ligand to the receptor.
Traditional drug discovery techniques require the identification and
characterization of a receptor's native ligand, which naturally binds to that
receptor and activates or inhibits a biological response. The process of
identifying native ligands is very uncertain. Even when successful, identifying
a native ligand typically takes four to five years and costs millions of dollars
per receptor. To our knowledge, only eight definitive examples exist where a
novel native ligand has been discovered by intentionally targeting an orphan
GPCR. Therefore, the process of identifying native ligands is usually the step
that limits the rate at which drugs are discovered at receptor targets.
OUR SOLUTION -- CART TECHNOLOGY
Our CART technology allows us and our collaborators to pursue drug
discovery efforts without the need to identify a receptor's native ligand.
Instead, we use our CART technology to genetically alter, or
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CART-activate, receptors to mimic or enhance the biological response that occurs
when the native ligand binds to a receptor. These CART-activated receptors are
then used as screening tools to identify chemical compounds that alter this
biological response and that are the basis for drug candidates. Our technology
is particularly applicable to GPCRs for which the native ligand has not been
discovered, referred to as orphan GPCRs. There are believed to be approximately
2,000 GPCRs in the human body with potential pharmaceutical applications, of
which approximately 1,900 are orphan GPCRs. Our CART technology enables the
pharmaceutical and biotechnology industries to rapidly access these orphan GPCRs
to develop drug candidates.
In addition, because CART technology exposes the entire receptor surface to
drug candidates, we are not limited to finding drug candidates that only bind to
a receptor at the receptor's ligand binding site. This feature of CART
technology is important not only with respect to orphan GPCRs, but also with
respect to GPCRs for which the native ligand has been discovered, referred to as
known GPCRs. We believe our CART technology provides us with the ability to
discover new drug candidates at known receptor targets that could have improved
properties relative to existing drug compounds.
APPLICATIONS OF OUR CART TECHNOLOGY
We have successfully identified drug candidates that inhibit or activate a
number of orphan and known GPCR targets. We focus on small molecule chemical
compounds because they are generally capable of being taken orally and are
relatively easy to manufacture. While we are currently focusing on GPCRs as drug
targets, we believe our CART technology can also be applied to other types of
human receptors, as well as to plant, viral and insect receptors. In the past
three years, we have obtained the full-length genetic sequences of 235 GPCRs and
made them available for CART-activation and screening. Of these, 120 are human
orphan GPCRs and 110 are human known GPCRs. The remaining five are non-human
receptors, including plant, viral and insect receptors.
We have selected and applied our CART technology to 15 orphan GPCRs that we
have identified as having high potential value as drug targets for the discovery
of therapeutics to treat diseases such as obesity, cancer, cardiovascular
disease, diabetes, inflammation and Alzheimer's Disease. For example, we
screened our chemical library against one of these orphan GPCRs, the 18F GPCR,
and discovered a number of compounds that caused an immediate and rapid loss of
body weight in laboratory animals that was maintained throughout the course of
the experiments. We believe these compounds may be the basis for the development
of therapeutic products for the treatment of obesity, which affects
approximately 25 million adults in the United States. Using our chemical
library, we have also discovered drug candidates that may be useful in the
treatment of diseases resulting from the overactivity of known GPCRs, including
the 5HT(2A) GPCR, which is associated with psychiatric disorders such as
schizophrenia. We were able to discover drug candidates for the 18F and 5HT(2A)
receptors within approximately 18 months from the initial application of our
CART technology.
OUR COLLABORATORS
In April 2000, we entered into a significant collaborative agreement with
Eli Lilly, one of the world's leading pharmaceutical companies. This
collaboration will focus principally on diseases of the central nervous system
and endocrine system, as well as cardiovascular diseases, and may be expanded to
other diseases, including cancer. We will CART-activate a number of mutually
selected GPCRs and will provide Eli Lilly with high-throughput biochemical
tests, or assays, for use at their screening facilities. We will receive
research funding from Eli Lilly for our internal resources committed to these
tasks, which will be augmented by substantial resource commitments by Eli Lilly.
Under the terms of the agreement, we will receive a technology access fee, and,
if various milestones are achieved, we are entitled to receive assay development
fees, milestone payments and royalties based on product sales.
In January 2000, we entered into a collaborative agreement with Fujisawa, a
leading Japan-based pharmaceutical company, to validate up to 13 orphan GPCRs as
drug screening targets. We have also
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entered into collaborative agreements with Lexicon Genetics, Inc. and Neurocrine
Biosciences, Inc. We intend to enter into additional collaborations focusing on
a variety of diseases and targeting a number of orphan and known GPCRs.
OTHER ELEMENTS OF OUR BUSINESS
In 1998, we licensed the rights from SSP Co., Ltd. to develop T-82, a novel
drug candidate that we are developing for the potential treatment of Alzheimer's
Disease. T-82 possesses a unique pharmacological profile that we believe, based
on animal testing, will result in enhanced therapeutic activity over current
drugs used to treat Alzheimer's Disease. We have completed three Phase I
clinical trials of T-82 and plan to begin Phase II clinical testing of T-82 in
2000. We intend to enter into a collaborative relationship with a third party to
further develop T-82.
Through our wholly-owned subsidiary, Aressa Pharmaceuticals, Inc., we may
opportunistically in-license products from pharmaceutical or biotechnology
companies. Since its formation, Aressa has in-licensed one compound, an
anti-fungal compound, which is currently in pre-clinical development. We also
have a 46% equity interest in ChemNavigator.com, Inc., which is developing an
Internet-based search engine that allows scientists to search for chemical
compounds based primarily on the similarity of chemical structures.
OUR BUSINESS STRATEGY
Our strategy is to become a leader in the development of novel
receptor-based screening assays by using our proprietary CART technology to
rapidly discover drug candidates. The elements of our strategy are to:
- apply our CART technology to orphan GPCR targets to leverage available
genomics information
- discover new drug candidates that have unique mechanisms of action for
known GPCRs
- develop multiple pharmaceutical product candidates for GPCR targets
- enter into strategic collaborations to discover and develop novel drug
candidates
- apply our CART technology to other human receptors and non-human
receptors for human therapeutic, agricultural and other applications
- continue to protect and expand our intellectual property rights
-------------------------
We were formed in April 1997. Our corporate headquarters are located at
6166 Nancy Ridge Drive, San Diego, California 92121. Our telephone number is
(858) 453-7200.
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THE OFFERING
Common stock offered by us............ shares
Common stock to be outstanding after
this offering......................... shares
Use of proceeds....................... For general corporate purposes,
including working capital, research
and development and clinical testing,
and potentially for acquisitions of
complementary businesses or
technologies. You should read the
discussion under the heading "Use of
Proceeds" for more information.
Proposed Nasdaq National Market
symbol................................ ARNA
The number of shares of our common stock to be outstanding upon completion
of this offering is based on the shares outstanding as of March 31, 2000, plus
1,323,146 shares of our common stock issuable upon the conversion of our Series
G preferred stock that we issued in April 2000, and excludes:
- 2,000,000 shares of common stock that will be reserved for issuance under
our 2000 Equity Compensation Plan
- 673,000 shares of common stock issuable upon the exercise of outstanding
options under our 1998 Equity Compensation Plan at a weighted average
exercise price of $0.50 per share
- 18,000 shares of common stock issuable upon exercise of one of our
outstanding warrants at an exercise price of $3.49 per share
- 755,000 shares of common stock issuable upon conversion of our
outstanding convertible note
You should read the discussion under the heading "Capitalization" for more
information regarding the outstanding shares of our common stock, warrants and
options to purchase our common stock.
Generally, the information in this prospectus, unless otherwise noted:
- reflects a one-for split of our common stock before the closing
of this offering
- reflects an increase in our authorized shares of capital stock from
52,608,593 to 75,000,000, pursuant to an amended and restated certificate
of incorporation that we intend to file before the closing of this
offering
- reflects the automatic conversion, on a one-for-one basis, of all of the
outstanding shares of our preferred stock into an aggregate of 12,698,578
shares of common stock at the closing of this offering
- reflects the issuance of 393,419 shares of our common stock upon the
exercise of all but one of our outstanding warrants at a weighted average
exercise price of $2.86 per share at the closing of this offering
- assumes that the over-allotment option granted to the underwriters to
purchase up to additional shares of common stock is not
exercised
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SUMMARY FINANCIAL DATA
The following table summarizes our financial data. The summary financial
data for the period from April 14, 1997 (inception) through December 31, 1997
and the years ended December 31, 1998 and 1999 are derived from our audited
financial statements. We have also included data from our unaudited financial
statements for the three months ended March 31, 1999 and 2000. The pro forma
balance sheet data gives effect to the issuance of 1,323,146 shares of our
Series G preferred stock in April 2000, the conversion of all of our outstanding
shares of preferred stock, including our Series G preferred stock, into
12,698,578 shares of common stock and the issuance of 393,419 shares of our
common stock upon the exercise of all but one of our outstanding warrants. The
pro forma as adjusted balance sheet data reflects the sale by us of
shares of common stock in this offering at an assumed initial public offering
price of $
per share. You should read this data together with our financial statements and
related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 14, 1997
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------- ------------------
1997 1998 1999 1999 2000
-------------- --------- ---------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development............ $ 447 $ 2,615 $ 8,336 $ 1,777 $ 2,399
General and administrative.......... 235 729 1,814 304 424
Amortization of deferred
compensation..................... -- -- 378 -- 181
----- ------- -------- ------- -------
Total operating expenses......... 682 3,344 10,528 2,081 3,004
Interest income....................... 23 42 447 114 157
Interest expense...................... (36) (94) (166) (31) (60)
Other income.......................... -- -- 9 -- 13
----- ------- -------- ------- -------
Net loss.............................. (695) (3,396) (10,238) (1,998) (2,894)
Non-cash preferred stock charge....... -- -- -- -- (1,360)
----- ------- -------- ------- -------
Net loss applicable to common
stockholders........................ $(695) $(3,396) $(10,238) $(1,998) $(4,254)
===== ======= ======== ======= =======
Pro forma net loss per share.......... $ (1.29) $ (0.43)
======== =======
Shares used in calculating pro forma
net loss per share.................. 7,927 9,827
======== =======
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AS OF MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 27,547 $ 33,638 $
Total assets.............................................. 30,701 36,792
Long-term debt, net of current portion.................... 2,078 2,078
Prepaid financing proceeds................................ 4,514 --
Redeemable convertible preferred stock.................... 38,797 --
Accumulated deficit....................................... (17,223) (17,223)
Total stockholders' equity (deficit)...................... (16,395) 33,007
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the following risk factors and all other information
contained in this prospectus before purchasing our common stock. If any of the
following risks actually occur, our business, financial condition and results of
operations could be seriously harmed, the trading price of our common stock
could decline and you could lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
OUR CART TECHNOLOGY MAY NOT LEAD TO THE DISCOVERY OF ANY SUCCESSFUL DRUGS.
We have developed our CART technology to identify drug candidates that may
possess therapeutic potential and have entered into collaborative arrangements
to discover and develop promising drug candidates. We cannot assure you that our
technology will enable us, or any of our collaborators, to discover or develop
any therapeutic products. To date, we have identified only a few drug
candidates, all of which are in the very early stages of development and none of
which have been commercialized.
It is statistically unlikely that the drug candidates that we or our
collaborators may identify will actually lead to successful drug development
efforts, and we do not expect any drugs resulting from our or our collaborators'
research to be commercially available for many years, if at all. The development
of new drugs is highly uncertain and subject to a number of significant risks.
Drug candidates that appear to be promising at early stages of development may
not reach the market for a number of reasons. Our drug candidates may not be:
- proven effective or safe during pre-clinical testing or clinical trials
- approved by applicable regulatory agencies
- suitable or economical for manufacturing on a large scale
- successfully marketed
- successfully commercialized without infringing the proprietary rights of
others
OUR CART TECHNOLOGY DOES NOT REPRESENT THE ONLY METHOD FOR DISCOVERING DRUG
CANDIDATES USING GPCRS AND MAY NOT BE AS EFFECTIVE AS OTHER METHODS.
An important focus of our efforts is on GPCRs, particularly orphan GPCRs.
There are other companies, as well as research and academic institutions and
organizations that also focus on the discovery and development of drug
candidates using GPCRs, and some of these companies, institutions and
organizations claim to be able to do so using orphan GPCRs. Another company,
institution or organization may have, or may develop, a technology using GPCRs,
including orphan GPCRs, to discover and develop drug candidates more
effectively, quicker or at a lower cost than our CART technology. Such a
technology could render our CART technology obsolete or noncompetitive.
WE ARE AT AN EARLY STAGE OF DEVELOPMENT, HAVE A HISTORY OF LOSSES AND NO
REVENUES AND MAY NEVER BECOME PROFITABLE.
We were formed in April 1997 and are a development stage company with a
limited operating history. To date, we have not generated any revenues, and we
do not know when we will generate any revenues, if at all. Due in large part to
the significant research and development expenditures required to identify and
validate new drug targets and new drug candidates, we have generated losses each
year since our inception. As of March 31, 2000, we had accumulated losses of
approximately $17.2 million. We expect our losses
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will continue for at least the next several years, and that these losses will
increase as we expand our research and development activities, incur significant
clinical and testing costs and possibly expand our facilities and operations.
Our revenues in the foreseeable future will be generated, if at all, solely from
our collaboration and license agreements, and our losses may continue even if we
or our collaborators successfully identify potential drug targets and drug
candidates. We cannot predict when, if ever, we will become profitable. If the
time required to generate revenues and to achieve profitability is longer than
we anticipate, or if we are unable to obtain necessary funds, we may not be able
to continue our operations.
MOST OF OUR EXPECTED FUTURE REVENUES ARE CONTINGENT UPON COLLABORATIVE AND
LICENSE AGREEMENTS AND WE MAY NOT RECEIVE SUFFICIENT REVENUES FROM THESE
AGREEMENTS TO ATTAIN PROFITABILITY.
Our strategy is to use our CART technology to generate meaningful revenues
from our collaborative and license agreements. Our ability to generate revenues
depends on our ability to enter into additional collaborative and license
agreements with third parties and to maintain the agreements we currently have
in place. We may receive limited or no revenues under these agreements due to
unsuccessful research, development or marketing efforts by us or our
collaborators, conflicts with our collaborators, or other reasons. Additionally,
our revenues may be lower than we expect due to the early termination of one or
more of our collaborative agreements, or our inability to enter into new
collaborative agreements.
Our receipt of revenues from collaborative arrangements is significantly
affected by the amount of time and effort expended by our collaborators, the
timing of the identification of useful drug targets and the timing of the
discovery and development of drug candidates. Under our existing agreements,
significant milestone payments may not be earned until our collaborators have
advanced products into clinical testing, which may not occur for many years, if
at all. We do not control the amount and timing of resources that our
collaborators devote to our programs or potential products. Furthermore, we lack
sales and marketing experience and will depend on our collaborators to market
any drugs that we develop with them. If a collaborator fails to develop or
commercialize a drug candidate or product to which we have rights, we may not
receive any milestone or royalty payments.
Conflicts may arise between us and our collaborators, for example,
concerning proprietary rights to particular drug candidates. While our existing
collaborative agreements typically provide that we receive milestone and royalty
payments with respect to drugs developed from our collaborative programs,
disputes may arise over the application of payment provisions to these drugs and
any royalty payments may be at reduced rates. If any of our collaborators were
to breach, terminate or fail to renew their collaborative agreements with us,
the pre-clinical or clinical development or commercialization of the affected
drug candidates or research programs could be delayed or terminated. Our
collaborative agreements generally allow either party to terminate the agreement
with advance written notice of that party's intent to terminate. In addition,
our collaborators have the right to terminate the collaborative agreements under
some circumstances in which we do not. For example, during the first nine
months, Eli Lilly can terminate our collaborative agreement with them by giving
us written notice, and this termination would be effective one year after the
date of the agreement. In certain situations our collaborators can continue to
use our technology after our agreements are terminated. You should read the
section entitled "Business -- Our GPCR collaborators" for further information on
the termination and other provisions of our material collaborative agreements.
Our collaborators may choose to use alternative technologies or develop
alternative drugs either on their own or with other collaborators, including our
competitors, in order to treat diseases that are targeted by collaborative
arrangements with us. Our collaborative agreements do not typically prohibit
these activities.
Consolidation in the pharmaceutical or biotechnology industry could have an
adverse effect on us by reducing the number of potential collaborators or
jeopardizing our existing relationships. We may not be able to enter into any
new collaborative agreements.
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WE FACE INTENSE COMPETITION IN THE UNITED STATES AND ELSEWHERE AND WE MAY NOT BE
ABLE TO COMPETE SUCCESSFULLY.
We face competition from pharmaceutical and biotechnology companies both in
the United States and abroad. Many of the drugs that we or our collaborators are
attempting to discover would compete with existing therapies. In addition, many
companies are pursuing the development of pharmaceuticals that target the same
diseases and conditions that we are targeting. Our competitors may use discovery
technologies and techniques or partner with collaborators in order to develop
products more rapidly or successfully, or with less cost, than we or our
collaborators are able to do. Many of our competitors, particularly large
pharmaceutical companies, have substantially greater product development
capabilities and greater financial, scientific and human resources than we do.
Academic institutions, government agencies, and other public and private
organizations conducting research may also seek patent protection with respect
to potentially competitive products or technologies and may establish exclusive
collaborative or licensing relationships with our competitors.
To compete successfully, we are largely dependent upon our ability to:
- create, maintain and license scientifically advanced technology
- find collaborators that are able to develop and commercialize
pharmaceutical products based on our CART technology
- attract and retain qualified personnel
- obtain patent protection or otherwise develop proprietary technologies or
processes
- secure sufficient capital resources for the expected substantial time
period between technological conception and commercial sales of products
based upon our CART technology
We cannot assure you that we will be able to successfully compete in these
areas, and the failure by us or any of our collaborators in any of these areas
may delay or prevent the successful commercialization of our drug candidates.
Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before we do may achieve a
significant competitive advantage, including certain patent and United States
Food and Drug Administration, or FDA, marketing exclusivity rights that would
delay or prevent our ability to market certain products. Any drugs resulting
from our research and development efforts, or from our joint efforts with our
existing or any future collaborators, might not compete successfully with our
competitors' existing or future products or products under development.
IF PROBLEMS ARISE IN THE TESTING AND APPROVAL PROCESS, WE OR OUR COLLABORATORS
MAY NOT BE ABLE TO COMMERCIALIZE DRUG CANDIDATES SUCCESSFULLY, IF AT ALL.
Commercialization of our drug candidates, or those of our collaborators,
depends upon successful completion of pre-clinical and clinical trials, and
successful completion of the approval process with regulatory agencies.
Pre-clinical studies and clinical trials are long, expensive and uncertain
processes and we do not know if we, or any of our collaborators, will be
permitted by the FDA or comparable authorities in other countries to undertake
clinical trials of any potential products. Our access to and use of some human
or other tissue samples in our research and development efforts is subject to
government regulation, both in the United States and abroad. United States and
foreign government agencies may also impose restrictions on the use of data
derived from human or other tissue samples. It may take us or our collaborators
many years to complete any pre-clinical or clinical trials, and failure can
occur at any stage of testing. Interim results of trials do not necessarily
predict final results, and acceptable results in early trials may not be
repeated in later trials. A number of pharmaceutical and biotechnology companies
have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials.
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<PAGE> 13
Moreover, if and when our projects reach clinical trials, we or our
collaborators may decide to discontinue development of any or all of these
projects at any time for commercial, scientific or other reasons.
If trials are successful, data from pre-clinical and clinical trials are
submitted to the FDA as a New Drug Application, or NDA. Sales of a new drug may
not commence until the FDA has approved an NDA. If a product receives an
approved NDA, this approval will be limited to those disease states and
conditions for which the product is demonstrated through clinical trials to be
safe and effective. Drug candidates developed by us or our collaborators may not
prove to be safe and effective in clinical trials and may not meet all of the
applicable regulatory requirements necessary to receive marketing approval. Even
if marketing approval is obtained, a marketed product and its manufacturer are
subject to continuing review by the FDA. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the market
and subject us to potential damages.
Material changes to an approved product, such as manufacturing changes or
additional labeling claims, require further FDA review and approval. Once
obtained, any approval may be withdrawn. Further, if we or our collaborators or
any third-party licensees or manufacturers fail to comply with applicable FDA
and other regulatory requirements at any stage during the regulatory process,
the FDA may issue warning letters or impose various sanctions, including fines
or civil penalties, product recalls or seizures, injunctions or criminal
prosecutions.
We typically will, and our collaborators may, rely on third-party clinical
investigators at medical institutions to conduct our clinical trials, and we
occasionally rely on other third-party organizations to perform data collection
and analysis. As a result, we may face additional delays outside of our control.
We cannot assure you that any of the drug candidates or drugs that are
discovered using our technologies will receive the necessary governmental
approvals.
Outside the United States, our ability, or that of our collaborators, to
market a product is contingent upon receiving a marketing authorization from the
appropriate regulatory authorities. This foreign regulatory approval process
typically includes all of the risks associated with FDA approval and may also
include additional risks.
OUR SUCCESS IS DEPENDENT ON INTELLECTUAL PROPERTY RIGHTS HELD BY US AND THIRD
PARTIES AND OUR INTEREST IN THESE RIGHTS IS COMPLEX AND UNCERTAIN.
Our success will depend in large part on our own and, to some extent, on
our collaborators' abilities to obtain, secure and defend patents. No patents
have been issued to us as of the date of this prospectus. However, we have
numerous applications pending for our CART technology, including patent
applications on drug candidate discovery techniques using our CART technology,
novel chemical compounds discovered using CART technology, CART-activated
versions of GPCRs and GPCRs that we have discovered. Our patent position is
highly uncertain and involves complex legal and factual questions. For example,
third parties who hold patents on known GPCRs may interpret some aspects of
patent law differently than we do and may challenge our patent applications on
CART-activated versions of known GPCRs as an infringement of their proprietary
rights.
No consistent policy regarding the breadth of claims allowed in
biotechnology patents has emerged to date. We cannot assure you that:
- any of our pending or future patent applications will result in issued
patents
- we were the first to make the inventions covered by our pending patent
applications
- we were the first to file patent applications for these inventions
- others will not independently develop similar or alternative technologies
or duplicate, or design around, technologies we have licensed or
developed
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<PAGE> 14
- others will not challenge patents licensed or issued to us, our customers
or collaborators
- any patent issued to us will be sufficient to provide adequate protection
against competing technologies and approaches
- any patents issued to us or our collaborators will provide a basis for
commercially viable products or will provide us with any competitive
advantages
- the patents or asserted rights of others will not have a negative effect
on our ability to do business.
We also rely on trade secrets to protect our technology. However, trade
secrets are difficult to protect. We require all of our employees to enter into
proprietary rights agreements with us as a condition of employment, but may be
unable to determine if our employees have conformed or will conform with their
legal obligations under these agreements. We also require collaborators and
consultants to enter into confidentiality agreements, but may not be able to
adequately protect our trade secrets or other proprietary information in the
event of any unauthorized use or disclosure or the lawful development by others
of this information. Many of our employees and consultants were, and many of our
consultants may currently be, parties to confidentiality agreements with other
pharmaceutical and biotechnology companies, and the use of our technology could
violate these agreements. In addition, third parties may independently discover
our trade secrets or proprietary information.
Technology licensed to us by others, or in-licensed technology, is
important to some aspects of our business. We generally do not control the
patent prosecution, maintenance or enforcement of in-licensed technology.
Accordingly, we are unable to exercise the same degree of control over this
intellectual property as we do over our internally developed technology.
Moreover, some of our academic institution licensors, research collaborators and
scientific advisors have rights to publish data and information to which we have
rights. If we cannot maintain the confidentiality of our technology and other
confidential information in connection with our collaborations, then our ability
to receive patent protection or protect our proprietary information will be
impaired.
A DISPUTE REGARDING THE INFRINGEMENT OR MISAPPROPRIATION OF OUR PROPRIETARY
RIGHTS OR THE PROPRIETARY RIGHTS OF OTHERS COULD BE COSTLY AND RESULT IN DELAYS
IN OUR RESEARCH AND DEVELOPMENT ACTIVITIES.
Our success depends, in part, on our ability to operate without infringing
on or misappropriating the proprietary rights of others. There are many issued
patents and patent applications filed by third parties relating to products or
processes that could be determined to be similar or identical to ours or our
licensors, and others may be filed in the future. We cannot assure you that our
activities, or those of our licensors or collaborators, will not infringe
patents owned by others. Although the government sponsored project to sequence
the human genome has made genomics information freely available to the public,
other organizations and companies are seeking proprietary positions on genomics
information that overlap with the government sponsored project. Our activities,
or those of our licensors or collaborators, could be affected by conflicting
positions that may exist between any overlapping genomics information made
publicly available as a result of the government sponsored project and genomics
information that other organizations and companies consider to be proprietary.
We believe that there may be significant litigation in the industry
regarding patent and other intellectual property rights. Any legal action
against us, or our collaborators, claiming damages or seeking to enjoin
commercial activities relating to the affected products or our methods or
processes could:
- require us, or our collaborators, to obtain a license to continue to use,
manufacture or market the affected products, methods or processes, which
may not be available on commercially reasonable terms, if at all
- prevent us from making, using or selling the subject matter claimed in
patents held by others
- subject us to potential liability for damages
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<PAGE> 15
- consume a substantial portion of our managerial and financial resources
- result in litigation or administrative proceedings that may be costly,
whether we win or lose
In addition, third parties may infringe on or misappropriate our
proprietary rights, and we may have to institute legal action against them to
protect our intellectual property rights. We cannot assure you that we will have
sufficient financial resources to enforce our intellectual property rights
against third parties.
INTERNATIONAL PATENT PROTECTION IS UNCERTAIN AND WE MAY NOT BE ABLE TO PROTECT
OUR INTELLECTUAL PROPERTY RIGHTS OUTSIDE THE UNITED STATES.
Patent law outside the United States is uncertain and in many countries is
currently undergoing review and revision. The laws of some countries do not
protect our intellectual property rights to the same extent as United States
laws. It may be necessary or useful for us to participate in proceedings to
determine the validity of our, or our competitors', foreign patents, which could
result in substantial cost and divert our efforts and attention from other
aspects of our business.
One of our United States patent applications relating to some aspects of
our CART technology that we filed internationally was not timely filed in
several foreign countries. We have taken remedial actions in an attempt to file
the patent application in these foreign countries. We cannot assure you that any
of these remedial actions will be successful, or that patents based upon this
patent application will be issued to us in any of these foreign countries. In
particular, we failed to timely file this patent application in Japan. Japanese
patent law may not allow us to successfully file this patent application and it
is uncertain whether any patent will be issued to us in Japan based upon this
patent application. Based upon other patent applications that relate to our CART
technology that we have filed in the United States and internationally, we
believe that there will be no material adverse effect on our business or
operating results if we fail to obtain a patent based on this particular patent
application.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUFFICIENTLY FUND OUR
OPERATIONS AND RESEARCH, AND WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL ON
TERMS FAVORABLE TO US.
We have consumed substantial amounts of capital to date and our operating
expenditures are expected to increase over the next several years as we expand
our infrastructure and research and development activities. We believe that the
net proceeds from this offering will be sufficient to support our current
operating plan through at least the next two years. We will likely require
additional financing in the future. Our future funding requirements will depend
on many factors, including, but not limited to:
- any changes in the breadth of our research and development programs,
pre-clinical studies or clinical trials, if any
- our ability to maintain and establish new research collaborations
- the receipt of contingent licensing or milestone fees, if any, from our
current or future collaborative and license agreements, if established
- the time and costs involved in filing, prosecuting, defending and
enforcing patent and intellectual property claims
- the timing of regulatory approvals
We cannot assure you that financing will be available or that we will be
able to obtain financing on terms favorable to us, if at all. To the extent that
we raise additional funds through collaboration and licensing arrangements, we
may be required to relinquish some rights to our technologies or drug
candidates, or grant licenses on terms that are unfavorable to us. We may also
raise additional funds through the incurrence of debt, and the holders of any
debt we may issue could have rights superior to
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<PAGE> 16
your rights. If adequate funds are not available, we will not be able to
continue developing our products, which would cause our business to suffer.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE AND MAY CAUSE OUR STOCK PRICE TO
DECLINE.
Our revenues and results of operations may fluctuate significantly from
quarter to quarter, depending on a variety of factors, including:
- variations in milestone and royalty payments
- the timing of discovery and development of drug candidates, if any
- changes in the research and development budgets of our existing
collaborators or potential collaborators
- others introducing new drug discovery techniques or new drugs that target
the same diseases and conditions that we and our collaborators target
- regulatory actions
- expenses related to, and the results of, litigation and other proceedings
relating to intellectual property rights or other matters
We will not be able to control many of these factors and we believe that
period-to-period comparisons of our financial results will not necessarily be
indicative of our future performance. If our revenues in a particular period do
not meet expectations, we may not be able to adjust our expenditures in that
period, which could cause our operating results to suffer. If our operating
results in any future period fall below the expectations of securities analysts
or investors, our stock price may fall by a significant amount.
OUR RESEARCH AND DEVELOPMENT EFFORTS WILL BE SERIOUSLY JEOPARDIZED IF WE ARE
UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES.
We are a small company with less than 100 employees. Our success depends,
in part, on the continued contributions of our principal management and
scientific personnel, and we face intense competition for such personnel. In
particular, our research programs depend on our ability to attract and retain
highly skilled scientists. If we lose the services of any of our key personnel,
in particular Jack Lief, Dominic P. Behan or Derek T. Chalmers, as well as other
principal members of our scientific or management staff, our research and
development or management efforts could be seriously and adversely affected.
Although we have not experienced problems retaining key employees, our employees
can terminate their employment with us at any time. We may also encounter
increasing difficulty in attracting enough qualified personnel as our operations
expand and the demand for these professionals increases, and this difficulty
could impede the attainment of our research and development objectives.
IF WE USE BIOLOGICAL AND HAZARDOUS MATERIALS IN A MANNER THAT CAUSES INJURY OR
VIOLATES LAWS, WE MAY BE LIABLE FOR DAMAGES.
Our research and development activities involve the controlled use of
potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We cannot completely eliminate the
risk of accidental contamination or injury from the use, storage, handling or
disposal of these materials. In the event of contamination or injury, we could
be held liable for damages, and any liability could exceed our resources. We are
subject to federal, state and local laws and regulations governing the use,
storage, handling and disposal of these materials and specified waste products.
The cost of compliance with, or any potential violation of, these laws and
regulations could be significant.
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<PAGE> 17
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US OR OUR
COLLABORATORS, WE MAY INCUR SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT
COMMERCIALIZATION OF OUR PRODUCTS.
The development, testing and marketing of medical products entail an
inherent risk of product liability and we could incur liabilities for our
activities. We currently intend to develop our drug candidates and our
in-licensed drug candidates, if any, through our collaborators, and we may incur
liabilities through our collaborators that market these drugs. We may be added
as a defendant to product liability lawsuits filed against our collaborators
with respect to any drugs developed using our CART technology. Even if we obtain
indemnification agreements from our collaborators with respect to the testing,
development and sale of drug candidates and drugs discovered using our CART
technology, indemnification may not be available or may not be adequate should
any claim arise. If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit
commercialization of our products. We currently do not have product liability
insurance. We or our collaborators might not be able to obtain insurance at a
reasonable cost, if at all. If we are unable to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product
liability claims, it could prevent or inhibit the commercialization of
pharmaceutical products we develop, whether alone or with our collaborators.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH, WHICH COULD HARM OUR BUSINESS.
We expect to continue to grow in the number of our employees and
collaborators and the scope of our operations. This growth may place a
significant strain on our management team and operations. Our ability to manage
this growth will depend on our ability to broaden our management team and on the
ability of our officers and key employees to continue to implement and improve
our operational and other systems, to manage multiple, concurrent collaborative
relationships and to hire, train and manage our employees. If we cannot scale
our business appropriately or otherwise adapt to anticipated growth, our
strategy may not be successful.
WE MAY BE UNABLE TO LICENSE T-82, AND OUR SUBSIDIARY MAY BE UNABLE TO LICENSE
ITS IN-LICENSED DRUG CANDIDATES TO ANOTHER PARTY FOR ADVANCED CLINICAL
DEVELOPMENT AND COMMERCIALIZATION.
We have in-licensed a patented compound, referred to as T-82, which we are
developing for the treatment of Alzheimer's Disease. We have completed Phase I
clinical studies for T-82 and are in the process of advancing T-82 to Phase II
clinical studies. We plan to sub-license our rights to T-82 to a pharmaceutical
company prior to initiation of Phase III clinical studies in exchange for
milestone payments and royalties based upon sales, if any, of T-82. We may not
be able to sub-license our rights in T-82 to a pharmaceutical company on terms
favorable to us, if at all. If we cannot enter into such a sub-license
agreement, we could either lose our rights to T-82 or assume the risks of
proceeding to further develop, seek regulatory approval for, and, if approved,
commercialize T-82 ourselves. Our subsidiary, Aressa, faces similar risks in
connection with sub-licensing, developing, testing and marketing compounds that
it in-licenses.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW
COULD PREVENT A POTENTIAL ACQUIROR FROM BUYING YOUR STOCK.
Provisions of our certificate of incorporation and Delaware law could make
it more difficult for a third party to acquire us, even if the acquisition would
be beneficial to our stockholders. Our amended and restated certificate of
incorporation will give our board of directors the authority to issue up to
7,500,000 shares of preferred stock and to determine the price, rights,
preferences and privileges and restrictions, including voting rights, of those
shares without any further vote or action by our stockholders. Some of the
rights of the holders of common stock may be subject to, and may be harmed by,
the rights of the holders of any shares of preferred stock that may be issued in
the future. The issuance of preferred stock could potentially prevent us from
consummating a merger, reorganization, sale of substantially all of
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<PAGE> 18
our assets, liquidation or other extraordinary corporate transaction without the
approval of the holders of the outstanding shares of preferred stock. In
addition, Section 203 of the Delaware General Corporation Law contains
provisions that impose restrictions on our stockholders' ability to acquire
control of Arena. These provisions could prevent the consummation of a
transaction in which our stockholders could receive a substantial premium over
the current market price for their shares.
OUR EQUITY INTEREST IN CHEMNAVIGATOR.COM MAY HAVE NO VALUE.
We have licensed certain Internet-related technologies to ChemNavigator.com
in exchange for shares of ChemNavigator.com stock. Since it was formed in May
1999, ChemNavigator.com has incurred net operating losses and negative cash
flows from operating activities, and we expect ChemNavigator.com to incur
increasing net operating losses and negative cash flows for the foreseeable
future. ChemNavigator.com does not currently have any revenues, and it may not
be able to generate revenues or obtain financing to offset its losses.
ChemNavigator.com's expected funding requirements for the next 12 months exceed
its existing working capital, which raises substantial doubt about
ChemNavigator.com's ability to continue as a going concern. We are currently not
attributing any book value to our equity interest in ChemNavigator.com.
ChemNavigator.com also faces intense competition from established companies
that provide Internet-based products to the same customers as ChemNavigator.com.
Some of these companies have greater financial, technical and human resources
than ChemNavigator.com does, have a longer operating history and are more
well-known to ChemNavigator.com's target customers. If ChemNavigator.com is not
able to compete successfully, it will not achieve profitability.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK PRICE MAY BE HIGHLY VOLATILE AND YOUR INVESTMENT IN OUR COMMON
STOCK COULD DECLINE IN VALUE.
The market price of our common stock may fluctuate significantly in
response to many factors, many of which are beyond our control. You may not be
able to resell your shares at or above the initial public offering price due to
the risks and uncertainties described elsewhere in this "Risk Factors" section,
as well as other factors, including:
- changes in financial estimates or recommendations by securities analysts
- announcements affecting biotechnology or pharmaceutical companies
generally
- regulatory developments in the United States and foreign countries
- public concern as to safety and effectiveness of products developed by
us, our collaborators or our competitors
- lack of adequate trading liquidity as a public company
- general market conditions
Prior to this offering, there has been no public market for our common
stock. After this offering, an active trading market in our common stock might
not develop, or if it does develop, might not continue.
In addition, the market price for securities of biotechnology companies,
particularly early-stage companies, has been increasingly volatile. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
the company. We may become involved in this type of litigation in the future.
Litigation of this type is often extremely expensive and diverts management's
attention and resources.
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WE WILL HAVE BROAD DISCRETION IN USING THE NET PROCEEDS OF THIS OFFERING AND WE
CANNOT ASSURE YOU THAT WE WILL EFFECTIVELY USE THE PROCEEDS.
We intend to use the net proceeds from this offering for general corporate
purposes, including working capital, research and development and clinical
testing. We may also use the net proceeds to acquire, or invest in, technology,
licenses, proprietary rights, or companies that complement our business. Our
management has flexibility to use the net proceeds for corporate purposes and we
cannot assure you that the proceeds will be expended effectively. The failure of
management to apply these funds effectively could harm our business. Our
management has not determined how it will allocate the proceeds among the
anticipated uses. Accordingly, you will not have the opportunity, as part of
your investment decision, to assess whether or not management will use or is
using the proceeds appropriately. Until we use the net proceeds of this
offering, we plan to invest them in short-term, investment-grade,
interest-bearing securities.
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECLINE.
The market price of our common stock could decline due to sales of a large
number of shares in the market after this offering or the perception that such
sales could occur, including sales or distributions of shares by our large
stockholders. These sales could also make it more difficult for us to sell
equity securities in the future at a time and price that we deem appropriate to
raise funds through future offerings of common stock.
A number of our existing security holders will become eligible to sell
their shares in the public market after their lock-up agreements expire 180 days
after the closing of this offering. We have entered into registration rights
agreements with many of our existing stockholders that entitle them to have an
aggregate of 11,004,739 shares registered for sale in the public market in up to
16 separate registration statements. We also intend to register on Form S-8 an
aggregate of 2,673,000 shares issuable upon exercise of options we have granted
to purchase common stock, or reserved for issuance under our equity compensation
plans, within 90 days after the date of this prospectus. You should read the
discussion under the heading entitled "Shares Eligible for Future Sale" for
further information concerning potential sales of our shares after this
offering.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION OF YOUR SHARES.
The assumed initial public offering price per share of our common stock is
substantially higher than the net tangible book value per share of our
outstanding common stock. As a result, investors purchasing common stock in this
offering will incur immediate and substantial dilution in the net tangible book
value of their common stock of $ per share based on the assumed initial
public offering price of $ per share. To the extent we raise additional
capital by issuing equity securities in the future, you and our other
stockholders may experience substantial dilution and future investors may be
granted rights superior to those of our current stockholders. In the past, we
issued options and warrants to acquire capital stock at prices significantly
below the assumed initial public offering price of common stock in this
offering. There will be further dilution to investors when any of these
outstanding options and warrants are exercised.
THE INTERESTS OF OUR LARGEST STOCKHOLDERS MAY CONFLICT WITH OUR INTERESTS AND
THE INTERESTS OF OUR OTHER STOCKHOLDERS.
Prior to the completion of this offering, our three largest stockholders
beneficially own 7,960,654 shares, or approximately 53%, of our outstanding
common stock. This number includes 855,000 shares of common stock issuable upon
conversion of a convertible note and the exercise of a warrant held by one of
these stockholders. The interests of these stockholders could conflict with our
interests, or those of our other stockholders. If our three largest stockholders
choose to act together, they could exert considerable influence over us,
including with respect to the election of directors and the approval of
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actions submitted to our stockholders. In addition, without the consent of these
stockholders, we may be prevented from entering into transactions that could be
beneficial to us, such as acquisition proposals from third parties.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are often accompanied by words
such as "believes," "anticipates," "estimates," "intends," "plans," "expects"
and similar expressions. These statements include, without limitation,
statements about market opportunity, our growth strategy and our expectations,
plans and objectives. These statements may be found in the sections of this
prospectus entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," and in this prospectus generally. Our actual results
will likely differ, perhaps materially, from those anticipated in these
forward-looking statements as a result of various factors, including all the
risks discussed under "Risk Factors" and elsewhere in this prospectus. Because
of these uncertainties, you should not place undue reliance on our
forward-looking statements. We do not intend to update any of these factors or
to publicly announce the result of any revisions to any of our forward-looking
statements contained herein, whether as a result of new information, future
events or otherwise.
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USE OF PROCEEDS
The net proceeds to us from the sale of the shares of our common
stock in this offering are estimated to be approximately $ million, or
$ million if the underwriters' over-allotment option is exercised in full.
These estimates are based upon an assumed initial public offering price of
$ per share after deducting underwriting discounts and commissions and
estimated offering expenses payable by us.
We intend to use the net proceeds from this offering for general corporate
purposes, including working capital, research and development and clinical
testing. The amounts and timing of our actual expenditures for each purpose may
vary significantly depending upon numerous factors. In addition, we may use a
portion of the net proceeds to acquire complementary businesses or technologies.
We are not currently engaged in negotiations to make any acquisitions.
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to the public equity markets. As of the date of this
offering, we cannot specify with certainty all of the particular uses for the
net proceeds of this offering. Accordingly, we will retain broad discretion in
the allocation of the net proceeds of this offering. Pending the use of the net
proceeds as described above, we intend to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We do not anticipate
paying any cash dividends in the foreseeable future. We intend to retain any
future earnings to fund the continued development and growth of our business.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis derived from our unaudited financial statements
- on a pro forma basis to give effect to the issuance of 1,323,146 shares
of our Series G preferred stock in April 2000 and the automatic
conversion of all of our outstanding shares of preferred stock, plus our
Series G preferred stock, into an aggregate of 12,698,578 shares of
common stock, and to give effect to the issuance of 393,419 shares of
common stock upon the exercise of all but one of our outstanding warrants
upon the completion of this offering
- on a pro forma as adjusted basis to also give effect to the sale of
shares of common stock offered hereby at an assumed initial public
offering price of $ per share, after deducting underwriting discounts
and commissions and estimated offering expenses
You should read this table in conjunction with the financial statements and
the notes to those statements and the other financial information included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, net of current portion...................... $ 2,078 $ 2,078 $
Prepaid financing proceeds.................................. 4,514 --
Redeemable convertible preferred stock, $.0001 par value:
17,608,593 shares authorized, 11,375,432 shares issued and
outstanding, actual; 7,500,000 shares authorized, no
shares issued and outstanding, pro forma and pro forma as
adjusted.................................................. 38,797 --
Stockholders' equity (deficit):
Common Stock, $.0001 par value: 35,000,000 shares
authorized, 1,593,725 shares issued and outstanding,
actual; 67,500,000 shares authorized, pro forma and pro
forma as adjusted; 14,685,722 shares issued and
outstanding, pro forma; shares issued and
outstanding, pro forma as adjusted..................... -- 1
Additional paid-in capital................................ 3,154 52,555
Deferred compensation..................................... (2,326) (2,326)
Accumulated deficit....................................... (17,223) (17,223)
-------- -------- -------
Total stockholders' equity (deficit)................... (16,395) 33,007
-------- -------- -------
Total capitalization................................. $ 28,994 $ 35,085 $
======== ======== =======
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 2000, and does not
include:
- 2,000,000 shares of common stock that will be reserved for issuance under
our 2000 Equity Compensation Plan
- 673,000 shares of common stock issuable upon the exercise of outstanding
options under our 1998 Equity Compensation Plan at a weighted average
exercise price of $0.50 per share
- 18,000 shares of common stock issuable upon exercise of one of our
outstanding warrants at an exercise price of $3.49 per share
- 755,000 shares of common stock issuable upon conversion of our
outstanding convertible note
20
<PAGE> 23
DILUTION
As of March 31, 2000, our pro forma net tangible book value was
approximately $33.0 million, or $2.25 per share of common stock. Pro forma net
tangible book value per share is determined by dividing pro forma net tangible
book value, consisting of total tangible assets less total liabilities, by the
pro forma number of 14,685,722 shares of common stock outstanding, after giving
effect to the issuance of 1,323,146 shares of our Series G preferred stock, the
automatic conversion of all of our outstanding shares of preferred stock, plus
our Series G preferred stock into 12,698,578 shares of common stock and the
issuance of 393,419 shares of common stock upon the exercise of all but one of
our outstanding warrants, which will occur at the closing of this offering.
Without taking into effect any other changes in pro forma net tangible book
value after March 31, 2000, and after giving effect to the sale of the common
stock offered hereby at an assumed initial public offering price of $ per
share and the application of the net proceeds of this offering, the pro forma as
adjusted net tangible book value would have been , or $
per share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and immediate and substantial
dilution in pro forma as adjusted net tangible book value of $ per share to
new investors who purchase shares in this offering. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
offering.................................................. $ 2.25
Increase per share attributable to new investors............
-------
Pro forma as adjusted net tangible book value per share
after the offering........................................
-------
Dilution in net tangible book value per share to new
investors................................................. $
=======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the pro
forma as adjusted net tangible book value per share after this offering would be
$ per share, the increase in net tangible book value per share to existing
stockholders would be $ per share and the dilution in net tangible book
value to new investors would be $ per share.
The following table summarizes, on a pro forma as adjusted basis as of
March 31, 2000, the differences between the total consideration paid and the
average price per share paid by the existing stockholders and the new investors
based on an assumed initial public offering price of $ per share:
<TABLE>
<CAPTION>
SHARES TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 14,685,722 $51,501,192 $3.51
New investors..................
---------- -------- ----------- --------
Total........................
========== ======== =========== ========
</TABLE>
These tables include 439,575 shares of common stock subject to repurchase
by us as of March 31, 2000. The shares that are subject to repurchase by us were
issued upon the exercise of options that were granted under our 1998 Equity
Compensation Plan, but that had not vested at the time of exercise. The exercise
of these unvested options was permitted by the option agreements under which
these options were granted.
These tables assume that none of the stock options outstanding as of March
31, 2000 are exercised. As of March 31, 2000, there were 673,000 shares of
common stock issuable upon exercise of outstanding stock options at a weighted
average exercise price of $0.50 per share, and 18,000 shares of common stock
issuable upon exercise of an outstanding warrant at an exercise price of $3.49
per share.
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<PAGE> 24
SELECTED FINANCIAL DATA
Our selected statement of operations data for the period April 14, 1997
(inception) through December 31, 1997 and the years ended December 31, 1998 and
1999 and our balance sheet data as of December 31, 1998 and 1999 have been
derived from our financial statements, which have been audited by Ernst & Young
LLP, independent auditors, and are included elsewhere in this prospectus. Our
balance sheet data as of December 31, 1997 have been derived from our financial
statements which have been audited by Ernst & Young LLP and are not included in
this prospectus. We have also included our statement of operations data for the
three months ended March 31, 1999 and 2000 and our balance sheet data as of
March 31, 2000 from our unaudited financial statements included in this
prospectus. You should read the data set forth below together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 14, 1997
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ -------------------
1997 1998 1999 1999 2000
-------------- ---------- ----------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development............... $ 447 $ 2,615 $ 8,336 $ 1,777 $ 2,399
General and administrative............. 235 729 1,814 304 424
Amortization of deferred
compensation........................ -- -- 378 -- 181
------ ------- -------- ------- -------
Total operating expenses............ 682 3,344 10,528 2,081 3,004
Interest income.......................... 23 42 447 114 157
Interest expense......................... (36) (94) (166) (31) (60)
Other income............................. -- -- 9 -- 13
------ ------- -------- ------- -------
Net loss................................. (695) (3,396) (10,238) (1,998) (2,894)
Non-cash preferred stock charge.......... -- -- -- -- (1,360)
------ ------- -------- ------- -------
Net loss applicable to common
stockholders........................... $ (695) $(3,396) $(10,238) $(1,998) $(4,254)
====== ======= ======== ======= =======
Historical net loss per share, basic and
diluted................................ $(0.73) $ (3.51) $ (10.05) $ (2.03) $ (3.91)
====== ======= ======== ======= =======
Shares used in calculating historical net
loss per share, basic and diluted...... 955 967 1,018 985 1,087
====== ======= ======== ======= =======
Pro forma net loss per share............. $ (1.29) $ (0.43)
======== =======
Shares used in calculating pro forma net
loss per share......................... 7,927 9,827
======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------- MARCH 31,
1997 1998 1999 2000
------ ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $1,553 $ 194 $ 5,402 $ 27,547
Total assets....................................... 2,422 1,653 8,526 30,701
Long-term debt, net of current portion............. 791 971 2,159 2,078
Prepaid financing proceeds......................... -- -- -- 4,514
Redeemable convertible preferred stock............. 2,193 2,599 18,252 38,797
Accumulated deficit................................ (695) (4,091) (14,329) (17,223)
Total stockholders' deficit........................ (695) (4,068) (13,900) (16,395)
</TABLE>
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<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a development stage biotechnology company. Since our inception in
April 1997, we have devoted substantially all of our resources to the research
and development of our CART technology. We have incurred significant operating
losses since our inception and, as of March 31, 2000, we had an accumulated
deficit of $17.2 million. We expect to incur additional operating losses as we
continue to develop our technologies and to fund internal research and
development. We have not generated any revenues to date. Our prospects should be
considered in light of the risks, expenses and difficulties encountered by
companies in the early stages of development, particularly those companies in
the rapidly changing pharmaceutical and biotechnology industries. You should
read the discussion under the heading "Risk Factors" for further information on
the risks we face.
In April 2000, we entered into a significant collaborative agreement with
Eli Lilly, one of the world's leading pharmaceutical companies. This
collaboration will focus principally on diseases of the central nervous system
and endocrine system, as well as cardiovascular diseases, and may be expanded to
other diseases, including cancer. We will CART-activate a number of mutually
selected GPCRs and will provide Eli Lilly with high-throughput biochemical
tests, or assays, for use in their screening facilities. We will receive
research funding from Eli Lilly for our internal resources committed to these
tasks, which will be augmented by substantial resource commitments by Eli Lilly.
Under the terms of the agreement, we will receive a technology access fee, and,
if various milestones are achieved, are entitled to receive assay development
fees, milestone payments and royalties based on product sales. In addition, we
have entered into other collaborative agreements, including with Fujisawa,
regarding the application of our CART technology to GPCRs.
We plan to pursue several specific objectives during the remainder of 2000,
namely:
- establishing additional CART technology collaborations with
pharmaceutical and biotechnology companies
- expanding the number of receptors available for CART activation through
internal research efforts and, potentially, external licensing agreements
- increasing our internally funded drug discovery efforts, including
expansion of our chemistry and screening efforts
- continuing clinical trials of T-82 and potentially entering into
collaborations to develop our anti-obesity and anti-psychotic drug
programs
Our ability to achieve our identified goals or objectives is dependent upon many
factors, some of which are out of our control, and we may not achieve our
identified goals or objectives.
Our research and development expenses consist primarily of salaries and
related personnel expenses. As of March 31, 2000, all research and development
costs have been expensed as incurred. We believe that continued investment in
research and development is critical to attaining our strategic objectives and
we expect these expenses to continue and to increase. General and administrative
expenses consist primarily of salaries and related personnel expenses for
executive, finance and administrative personnel, professional fees, and other
general corporate expenses. As we add personnel and incur additional costs
related to the growth of our business, general and administrative expenses will
also increase.
DEFERRED COMPENSATION
Deferred compensation for stock options granted by us to our employees and
directors has been determined as the difference between the deemed fair value
for financial reporting purposes of our common stock on the date the options
were granted, and the exercise price of the options. Deferred compensation is
initially recorded as a component of stockholders' equity and is amortized using
a graded
23
<PAGE> 26
vesting method as charges to operations over the vesting period of the options.
In connection with the grant of stock options to our employees, consultants and
directors, we recorded deferred compensation of approximately $1.0 million in
the year ended December 31, 1999 and $1.9 million in the three months ended
March 31, 2000. Deferred compensation for stock options granted by us to our
consultants has been determined in accordance with Statement of Financial
Accounting Standards No. 123 and Emerging Issues Task Force 96-18 as the fair
value of the equity instruments issued. Deferred compensation for stock options
that we grant to consultants is periodically remeasured as the underlying
options vest. Our stock options generally vest over four years from the date of
grant.
RESULTS OF OPERATIONS
Three months ended March 31, 2000 compared to the three months ended March 31,
1999
Research and development expenses. Our research and development expenses
increased $600,000 to $2.4 million for the three months ended March 31, 2000,
from $1.8 million for the three months ended March 31, 1999. This increase was
primarily due to increased personnel to expand the application of our CART
technology. The increase was partially offset by reduced expenses related to the
development of T-82, for which we initiated Phase I clinical trials in early
1999, and which were completed in late 1999.
General and administrative expenses. Our general and administrative
expenses increased $120,000 to $424,000 for the three months ended March 31,
2000, from $304,000 for the three months ended March 31, 1999. This increase was
primarily due to increased personnel expenses.
Amortization of deferred compensation. We recorded amortization of deferred
compensation of approximately $181,000 for the three months ended March 31,
2000.
Interest income. Interest income increased $43,000 to $157,000 for the
three months ended March 31, 2000, from $114,000 for the three months ended
March 31, 1999. The increase was primarily attributable to higher average levels
of cash and cash equivalents in the three months ended March 31, 2000.
Interest expense. Interest expense increased $29,000 to $60,000 for the
three months ended March 31, 2000 from $31,000 for the three months ended March
31, 1999. This increase represents interest incurred on our equipment leases, as
well as interest accrued on our other debt.
Net loss. Net loss increased $900,000 to $2.9 million for the three months
ended March 31, 2000 compared to $2.0 million for the three months ended March
31, 1999. The increase reflects increases in research and development and
general and administrative expenses as well as amortization of deferred
compensation.
Non-cash preferred stock charge. We recorded a non-cash preferred stock
charge of $1.4 million for the three months ended March 31, 2000. This non-cash
preferred stock charge relates to the issuance of our Series E preferred stock
in January 2000, which is convertible into shares of our common stock. We
recorded the non-cash preferred stock charge at the date of issuance by
increasing the net loss applicable to common stockholders, without any effect on
total stockholders' equity. The amount increased our basic net loss per share
for the three months ended March 31, 2000.
Year ended December 31, 1999 compared to the year ended December 31, 1998
Research and development expenses. Our research and development expenses
increased $5.7 million to $8.3 million for the year ended December 31, 1999,
from $2.6 million for the year ended December 31, 1998. This increase was
primarily due to increased personnel to expand the application of our CART
technology, expenses related to Phase I clinical trials of T-82 and increased
facility-related expenses.
General and administrative expenses. Our general and administrative
expenses increased $1.1 million to $1.8 million for the year ended December 31,
1999, from $729,000 for the year ended December 31, 1998. This increase was
primarily due to increased personnel and to a lesser extent increased facility-
related expenses.
24
<PAGE> 27
Amortization of deferred compensation. We recorded amortization of deferred
compensation of approximately $378,000 for the year ended December 31, 1999.
Interest income. Interest income increased $405,000 to $447,000 for the
year ended December 31, 1999, from $42,000 for the year ended December 31, 1998.
The increase was primarily attributable to higher levels of cash and cash
equivalents in 1999 from the proceeds of the sale of our Series D convertible
preferred stock in January 1999.
Interest expense. Interest expense increased $72,000 to $166,000 for the
year ended December 31, 1999 from $94,000 for the year ended December 31, 1998.
This increase represents interest incurred on our equipment leases as well as
interest accrued on our other debt.
Net loss. Net loss increased $6.8 million to $10.2 million for the year
ended December 31, 1999 compared to $3.4 million for the year ended December 31,
1998. The increase reflects increases in research and development and general
and administrative expenses, offset in part by the increase in interest income.
Year ended December 31, 1998 compared to the period from April 14, 1997
(inception) through December 31, 1997
Research and development expenses. Our research and development expenses
increased $2.2 million to $2.6 million for the year ended December 31, 1998,
from $447,000 for the period from April 14, 1997 through December 31, 1997. This
increase was primarily due to increased personnel and facility-related expenses.
General and administrative expenses. Our general and administrative
expenses increased $494,000 to $729,000 for the year ended December 31, 1998,
from $235,000 for the period from April 14, 1997 through December 31, 1997. This
increase was primarily due to increased personnel and facility-related expenses.
Interest income. Interest income increased $19,000 to $42,000 for the year
ended December 31, 1998, from $23,000 for the period from April 14, 1997 through
December 31, 1997. The increase was primarily attributable to higher average
cash levels in 1998.
Interest expense. Interest expense increased $58,000 to $94,000 for the
year ended December 31, 1998 from $36,000 for the period from April 14, 1997
through December 31, 1997. The increase represents interest incurred on our
equipment lease as well as interest accrued on our other debt for a full year.
Net loss. Net loss increased $2.7 million to $3.4 million for the year
ended December 31, 1998 compared to $695,000 for the period from April 14, 1997
through December 31, 1997. The increase reflects increases in research and
development and general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
We have experienced net losses and negative cash flow from operations since
our inception. At March 31, 2000, we had an accumulated deficit of $17.2 million
and had used cash from operations of $14.6 million. Our net losses have resulted
primarily from expenses incurred in connection with our research and development
activities and general and administrative expenses. To date, we have funded our
operations primarily through private equity financings.
As of March 31, 2000, we had $27.5 million in cash and cash equivalents
compared to $5.4 million in cash and cash equivalents as of December 31, 1999.
As of March 31, 2000, on a pro forma basis, taking into effect the sale of
1,323,146 shares of our Series G preferred stock in April 2000 and the exercise
of all but one of our outstanding warrants to purchase our common stock, we had
$33.6 million in cash and cash equivalents.
Net cash used in operating activities was approximately $2.9 million during
the three months ended March 31, 2000 and was approximately $1.1 million during
the three months ended March 31, 1999. Net
25
<PAGE> 28
cash used in operating activities was approximately $8.7 million during the year
ended December 31, 1999 and was approximately $2.4 million during the year ended
December 31, 1998. The primary use of cash was to fund our net losses for these
periods, adjusted for non-cash expenses and changes in operating assets and
liabilities.
Net cash used in investing activities was approximately $150,000 during the
three months ended March 31, 2000 and was approximately $250,000 during the
three months ended March 31, 1999. Net cash used in investing activities was
approximately $2.1 million during the year ended December 31, 1999 and was
approximately $593,000 during the year ended December 31, 1998. Net cash used in
investing activities was primarily the result of the acquisition of laboratory
and computer equipment, leasehold improvements and furniture and fixtures.
Net cash proceeds from financing activities was approximately $25.2 million
during the three months ended March 31, 2000 and was approximately $14.5 million
during the three months ended March 31, 1999. Net cash proceeds from financing
activities was approximately $16.0 million during the year ended December 31,
1999 and was approximately $1.7 million during the year ended December 31, 1998.
The net cash proceeds from financing activities during these periods were
primarily from the issuance of preferred stock.
We lease our corporate and research and development facilities under a
lease which expires on April 30, 2013. The lease provides us with options to
extend the lease for two additional five-year periods. We have also entered into
capital lease agreements for various lab and office equipment. The terms of
these capital lease agreements range from 48 to 60 months. Current total minimum
annual payments under these leases are approximately $500,000 in 2000, $500,000
in 2001, $500,000 in 2002, $381,000 in 2003 and $17,000 in 2004.
We expect to continue to incur substantial losses through at least fiscal
2000, and may incur net losses in subsequent periods. The amount and timing of
future losses are highly uncertain. Our ability to achieve and thereafter
sustain profitability will be dependent upon, among other things, obtaining
additional strategic alliances as well as establishing additional collaborative
or licensing arrangements.
Based on the research collaborations we already have in place and our
current internal business plan, we expect to hire an additional 20 to 25
employees, primarily scientists, by the end of 2000. While we believe that the
net proceeds from this offering, combined with current capital resources and
anticipated cash flows from licensing activities, will be sufficient to meet our
capital requirements for at least the next two years, we cannot assure you that
we will not require additional financing before such time. Our funding
requirements may change at any time due to technological advances or competition
from other companies. Our future capital requirements will also depend on
numerous other factors, including scientific progress in our research and
development programs, additional personnel costs, progress in pre-clinical
testing, the time and cost related to proposed regulatory approvals, if any, and
the costs of filing and prosecution of patent applications and enforcing patent
claims. We cannot assure you that adequate funding will be available to us or,
if available, that such funding will be available on acceptable terms. Any
shortfall in funding could result in the curtailment of our research and
development efforts.
INCOME TAXES
As of December 31, 1999, we had approximately $12.6 million of net
operating loss carryforwards and $681,000 of research and development credit
carryforwards for federal income tax purposes. These carryforwards expire on
various dates beginning in 2012. These amounts reflect different treatment of
expenses for tax reporting than are used for financial reporting. United States
tax law contains provisions that may limit our ability to use net operating loss
and tax credit carryforwards in any year, or if there has been an ownership
change. Any future ownership change may limit the use of net operating loss and
tax credit carryforwards. Based on our valuation and applicable Internal Revenue
Code regulations, we believe this offering will not have a material effect on
our ability to use those carryforwards.
26
<PAGE> 29
QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to our cash equivalents and short-term investments. We do not use derivative
financial instruments in our investment portfolio. Our cash and investments
policy emphasizes liquidity and preservation of principal over other portfolio
considerations. We select investments that maximize interest income to the
extent possible within these guidelines. To date we have limited default risk by
investing primarily in treasury-backed securities. If market interest rates were
to decrease by 1% from March 31, 2000, future interest income from our portfolio
would decline annually by less than $275,000. The modeling technique used
measures the change in fair values arising from an immediate hypothetical shift
in market interest rates and assumes ending fair values include principal plus
earned interest.
27
<PAGE> 30
BUSINESS
OUR COMPANY
We have developed a broadly applicable, platform technology that identifies
drug candidates more efficiently than traditional drug discovery techniques. Our
proprietary CART technology allows us to develop novel biochemical assays to
discover drug candidates that target GPCRs, an important class of receptors.
Additionally, we believe that CART is applicable to other human receptor
classes, such as tyrosine kinase receptors, or TKRs, as well as to non-human
receptors for the discovery of animal therapeutics and agricultural products.
In the recent past, the pharmaceutical and biotechnology industries have
increasingly focused on receptor-based drug targets due to their potential for
increased specificity and reduced side effects. Of the leading 100
pharmaceutical products, based on 1998 revenues, 33 target receptors as their
primary mechanism of action. Of these 33 receptor-based drugs, 25 wholly or in
part act on GPCRs. In 1998, these GPCR-based pharmaceutical products represented
over $23 billion in sales, and included Claritin(RM) for allergies, Zantac(RM)
for gastric ulcers, Imitrex(RM) for migraines and Cozaar(RM) for hypertension.
We use our CART technology to discover drug candidates by genetically
altering, or CART-activating, receptors to mimic the biological response that
occurs when the native ligand binds to the receptor. These CART-activated
receptors are then used as a screening tool to identify chemical compounds that
alter this biological response and that are the basis for drug candidates. Using
CART technology, we have discovered drug candidates that have demonstrated
pharmacological activity in pre-clinical, or animal, studies through our own
internal research and drug development efforts, as well as through those of our
collaborators. We have entered into collaborative relationships with a number of
pharmaceutical and biotechnology companies, including Eli Lilly, Fujisawa,
Lexicon Genetics and Neurocrine Biosciences.
THE DRUG DISCOVERY PROBLEM
Diseases in humans are caused by the abnormal function of cells. Both
normal and abnormal cellular function is principally the result of communication
between cells. This cellular communication occurs when a ligand is released from
a cell and binds to a receptor on the surface of that cell or another cell. This
binding triggers the initiation of various signals within that cell, resulting
in changes in cellular function. By interacting with the receptor to mimic or
block ligand-receptor binding, drugs affect abnormal cellular function and
thereby regulate the disease process.
Receptors are classified into categories based upon similarities in their
biochemical and structural properties. They are located in various tissues
throughout the body and affect a variety of cellular functions. There are four
principal classes of human receptors: GPCRs; TKRs; ligand-gated ion channel
receptors; and intracellular receptors. Although we believe CART technology is
applicable to all of the principal classes of receptors, we focus on GPCRs
because they are the predominant class of receptors involved in cellular
function.
The ligand that naturally binds to a receptor and activates or inhibits a
biological response is referred to as a receptor's native ligand. A receptor for
which the native ligand has been discovered is called a known receptor, while a
receptor for which the native ligand has not been identified is called an orphan
receptor. There are believed to be approximately 2,000 GPCRs within the human
genome which are potential targets for drug development. Approximately 1,900 of
these are orphan GPCRs.
Advances in genomics research have enabled researchers, including us, to
directly identify the genetic sequence of previously unidentified receptors,
including GPCRs, from basic genetic information. As more GPCRs are made
available, the opportunity to use this information for drug discovery efforts
should increase. However, although hundreds of new, orphan GPCRs are being made
publicly available through genomics research, traditional drug discovery
techniques to find new drug candidates cannot be applied to orphan GPCRs until
the native ligands for these orphan GPCRs are identified.
28
<PAGE> 31
The process of identifying native ligands is very uncertain, generally
involving many stages of tissue extraction and extensive purification. To our
knowledge, only eight definitive examples exist where a novel native ligand has
been discovered by intentionally targeting an orphan GPCR. Even when successful,
identifying the native ligand typically requires four to five years and costs
millions of dollars per GPCR. For example, a GPCR called GPR 14 was discovered
in 1995, but its native ligand, urotensin II, was not identified until 1999. The
process of identifying native ligands is typically the step that limits the rate
at which drugs are discovered at receptor targets.
OUR SOLUTION -- CART TECHNOLOGY
We do not use, and therefore do not need to identify, the receptor's native
ligand for our drug discovery efforts. We use our CART technology to discover
drug candidates by CART-activating receptors to mimic the biological response
that occurs when the native ligand binds to the receptor. Therefore, CART
technology avoids a major bottleneck in drug discovery efforts at orphan
receptors.
CART technology can be applied broadly to GPCRs because all GPCRs have
highly similar structural elements, consisting of:
- three extracellular loops on the outside of the cell
- three intracellular loops on the inside of the cell
- seven regions that cross through the cell surface, or membrane, and
connect the extracellular and intracellular loops
When a ligand binds to the extracellular portion of the GPCR, changes occur
to the intracellular portion of the GPCR that permit a signaling molecule
located within the cell, called a G protein, to bind to the intracellular
portion of the GPCR. This leads to further intracellular changes, resulting in a
biological response within the cell.
[DIAGRAM DEPICTING GPCR-MEDIATED BIOLOGICAL RESPONSE]
Under normal physiological conditions, a GPCR exists in equilibrium between
two different states: an inactive state and an active state. When the GPCR's
equilibrium shifts to an active state, the GPCR is able to link to a G protein,
thus producing a biological response. When the GPCR's equilibrium shifts to an
inactive state, the receptor is typically unable to link to a G protein, and
therefore unable to produce a biological response. When a native ligand binds to
the GPCR, the GPCR's equilibrium shifts and the GPCR is stabilized in the active
state.
29
<PAGE> 32
[DIAGRAM DEPICTING LIGAND-DEPENDENT GPCR ACTIVATION]
By altering the genetic structure of a GPCR, our CART technology stabilizes
the GPCR in the active state in the absence of the native ligand.
[DIAGRAM DEPICTING CART-ACTIVATED GPCR]
Drug screening and discovery targeting GPCRs using CART technology is
comprised of four stages:
- altering the molecular structure of an intracellular loop or
intracellular portion of the GPCR to generate a CART-activated form of
the GPCR
- introducing the CART-activated form of the receptor into mammalian cells,
which, in turn, manufacture the CART-activated form of these receptors at
the cell surface
- analyzing the cells containing the CART-activated GPCR to detect
biological responses that result from the linking of the CART-activated
GPCR to a G protein
- screening chemical libraries of small molecule compounds against the cell
membranes containing the CART-activated GPCR to identify compounds that
interact with the GPCR
30
<PAGE> 33
Screening using CART technology allows us to simultaneously identify
compounds that act as receptor inhibitors to decrease the detected biological
responses, or act as receptor activators to increase the detected responses.
Therefore, our CART technology allows us to discover drugs that either inhibit
or enhance biological activity.
CART technology is also useful for identifying drug candidates that reduce
cellular responses resulting from ligand-independent activity of receptors.
These drugs are termed inverse agonists and are the preferred drugs for treating
diseases in which ligand-independent receptor activity may be important, such as
schizophrenia. In general, traditional ligand-based drug screening techniques
can only be used to identify neutral antagonists, which do not affect the
ligand-independent activity of the receptor. We can directly identify inverse
agonists using our CART technology by screening for ligand-independent receptor
activity. We believe the inverse agonists that we identify will possess improved
properties over neutral antagonists because they inhibit both ligand-induced as
well as ligand-independent activity.
In addition, because CART does not require the use of the native ligand, we
are not limited to finding drug candidates that bind to a receptor at the
receptor's ligand binding site. Instead, CART technology exposes the entire
receptor surface to drug candidates, allowing for the detection of drug
candidates which bind at any point on the receptor surface. We believe that this
feature of CART technology is important not only with respect to orphan
receptors, but known receptors as well, because it provides us with the ability
to discover new drugs with unique mechanisms of action.
In summary, we believe that our platform CART technology offers several key
advantages for drug discovery over other screening techniques. Screening
CART-activated receptors:
- does not require prior identification of the native ligand for an orphan
receptor
- enhances the detection of, and simultaneously identifies, both receptor
inhibitor and receptor activator compounds
- provides the ability to discover novel and improved therapeutics at known
receptor targets
- allows for the identification of compounds or drug candidates that
inhibit both ligand-induced and ligand-independent activity
OUR STRATEGY
Our strategy is to become a leader in the development of novel
receptor-based screening assays by using our proprietary CART technology to
rapidly discover drug candidates. The major elements of our strategy are to:
Apply our CART technology to orphan GPCR targets to leverage available
genomics information. Recent advances in genomics research have provided gene
sequence information on an unprecedented number of receptor drug targets,
including numerous previously unidentified GPCRs. CART technology can be applied
to these orphan GPCR targets to discover drug candidates. This can be done more
quickly and efficiently using CART technology than with traditional drug
discovery screening techniques because drug discovery using CART does not
require the identification and characterization of a receptor's native ligand, a
process which typically requires several years and costs millions of dollars per
receptor.
Discover new drug candidates that have unique mechanisms of action for
known GPCRs. We believe that CART provides us with the ability to discover new
drug candidates with unique mechanisms of action at known receptor targets,
which may be more effective and may have fewer side effects than existing drugs.
Unlike traditional drug discovery methods, we are not limited to finding drug
candidates that bind to a receptor at the receptor's ligand binding site.
Because CART technology exposes the entire GPCR surface to drug candidates, we
can discover drug candidates that act upon any part of the receptor surface.
Develop multiple pharmaceutical product candidates for GPCR targets. CART
technology allows us to identify drug candidates that act as receptor inhibitors
to reduce biological activity, or receptor activators to increase biological
activity. Therefore, CART provides the opportunity to simultaneously
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discover multiple different drug candidates with unique mechanisms of action for
each receptor target, any of which may ultimately become successful commercial
pharmaceutical products.
Enter into strategic collaborations to discover and develop novel drug
candidates. We intend to enter into a number of strategic collaborations to
discover and develop novel drug candidates using our CART technology. We believe
that the broad applicability of our CART technology will allow us to enter into
collaborations that focus on a variety of diseases and target a large number of
orphan and known GPCRs. We have recently entered into collaborations with Eli
Lilly and Fujisawa under which we will CART-activate a significant number of
GPCR targets and may receive revenues in the form of development fees, milestone
payments and royalties on products, if any, developed to target these GPCRs.
Apply our CART technology to other human receptors and non-human receptors
for human therapeutic, agricultural and other applications. CART technology can
also be applied to other types of human receptors, such as TKRs, which are often
implicated as important factors in various diseases, such as breast cancer. We
are also applying our CART technology to non-human receptors for a variety of
applications including plant receptors to discover chemical growth factors,
insect receptors to discover insect control agents and viral receptors to
discover novel anti-viral drug candidates. We have CART-activated a number of
these other types of receptors and intend to pursue opportunities developed from
these receptors.
Continue to protect and expand our intellectual property rights. We have
filed 96 independent patent applications with the United States Patent and
Trademark Office, and are filing some of these patent applications worldwide.
Although no patents have been issued to us, we believe that we can obtain
patents on our CART technology and that we can obtain patents on our
CART-activated receptors because our technology genetically modifies these
receptors and changes their function. We intend to continually seek ways to
vigorously protect and enforce our rights with respect to our intellectual
property.
APPLICATIONS OF OUR CART TECHNOLOGY
Over the past three years, we have obtained the full-length genetic
sequences of 235 GPCRs and made them available for CART-activation and
screening. Of these, 120 are human orphan GPCRs and 110 are human known GPCRs.
The remaining five are non-human receptors, including plant, viral and insect
receptors. Through the use of our proprietary CART technology, we have
successfully identified drug compounds that inhibit or activate a number of
known and orphan receptor targets.
Orphan GPCRs
An important element of our CART technology involves using the genetic
sequences of orphan GPCRs to understand and define the tissue and cellular
distribution of these GPCRs. The genetic sequences provide us with the necessary
tools to locate the orphan receptors in tissues. Once we have identified the
location of an orphan receptor in tissues, we can determine the normal function
of the orphan receptor and compare that function to the function of the orphan
GPCR in diseased tissues. We then use our CART technology to screen the targeted
receptor for drug candidates that can be employed to verify the proposed
receptor function.
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We have prioritized and applied our CART technology to 15 orphan GPCRs,
identified below by our code names, as having high potential value as drug
discovery targets against specific diseases or indications, based upon the
distribution of the GPCR in specified tissues. These GPCRs and their intended
disease targets are:
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
INDICATION ORPHAN GPCRS TISSUE DISTRIBUTION
Obesity 18F Hypothalamus
-----------------------------------------------------------------
19U Hypothalamus
-----------------------------------------------------------------
19X Forebrain
-----------------------------------------------------------------
19NY Hypothalamus
- ---------------------------------------------------------------------------------------------
Cancer:
Ovarian 18A Adrenal/ovary
-----------------------------------------------------------------
Colorectal 18AI Intestine
-----------------------------------------------------------------
Osteosarcoma 19AG Bone/pancreas
-----------------------------------------------------------------
Leiomyoma 19Y Uterus
-----------------------------------------------------------------
Breast 18AD Breast
- ---------------------------------------------------------------------------------------------
Cardiovascular disease 18C Blood vessels
-----------------------------------------------------------------
18D Heart/other
- ---------------------------------------------------------------------------------------------
Diabetes 19AJ Pancreas
- ---------------------------------------------------------------------------------------------
Inflammation 18AF Spleen/lymph nodes/brain
-----------------------------------------------------------------
19W T cells
- ---------------------------------------------------------------------------------------------
Alzheimer's Disease 18L Hippocampus
- ---------------------------------------------------------------------------------------------
</TABLE>
Obesity. National Institutes of Health statistics indicate that
approximately 100 million adults in the United States are overweight and that
25% of these are considered clinically obese. The few currently approved drugs
for the treatment of obesity in the United States act either as appetite
suppressants or blockers of fat absorption. However, cardiovascular or
gastrointestinal side effects may limit the long-term effectiveness of these
drugs. Consequently, more effective therapeutics are urgently needed for this
major public health problem.
We have an ongoing program directed towards the development of novel
anti-obesity drugs. We have identified a number of orphan GPCRs on brain cells
related to the control of feeding and metabolism, including the 18F, 19U, 19X
and 19NY GPCRs. For example, we have discovered an over-abundance of the 18F
GPCR in the brain metabolism centers of genetically obese rats. We believe that
this discovery indicates that overactivity of this GPCR may be associated with
obesity.
We are using our CART technology to identify drug candidates that inhibit
the activity of the 18F GPCR. Repeated administration of the drug candidates we
have identified has resulted in reduced food intake and sustained weight loss in
normal laboratory animals. Similar results were also obtained in a diet-induced
animal model of human obesity. In this diet-induced animal model, these drug
candidates also acted to increase fat metabolism and resulted specifically in a
loss of fat mass. We have found that the 18F GPCR is also located on human fat
cells. Therefore, we believe that these drug candidates may provide the basis
for a novel approach to the treatment of human obesity by simultaneously
reducing food intake and increasing fat metabolism. Additionally, our animal
data indicate that our drug candidates may not have the same side effects that
are associated with currently available anti-obesity drugs.
Our anti-obesity drug program demonstrates the advantages of CART
technology for rapid drug candidate discovery. The process of discovering
promising drug candidates took approximately 18 months from our initial
discovery of the over-abundance of the 18F GPCR in genetically obese animals to
the animal testing of the drug candidates that we discovered using our CART
technology. We intend to enter into one or more collaborations to further expand
our anti-obesity drug program with the ultimate goal of
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selecting one or more of our novel anti-obesity drug candidates that target
orphan GPCRs, such as the 18F GPCR, for future clinical development.
Cancer. We have identified several orphan GPCRs, including the 18A, 18AI,
19AG and 19Y GPCRs, which we believe represent therapeutic targets for the
treatment of a variety of cancers. These orphan GPCRs are attractive therapeutic
targets because they have been shown to be present at abnormally high levels in
ovarian, colorectal, gastrointestinal and uterine cancer cells and cause
unwanted proliferation of cells in laboratory experiments. Additionally, we have
identified another orphan GPCR, the 18AD GPCR, which potentially suppresses the
growth of tumor cells. We determined that there are high levels of the 18AD GPCR
present in tissues adjacent to cancerous breast tissue. We tested a CART-
activated form of the 18AD GPCR in a non-animal, or in vitro, cancer model and
showed that this GPCR suppressed cell proliferation. This suggests to us that
drug candidates that activate the function of the 18AD GPCR should inhibit tumor
growth, providing a potential new treatment approach for breast and other
cancers.
Cardiovascular disease. We have identified several orphan GPCRs, including
the 18C and 18D GPCRs, that are located within the cardiovascular system, such
as on heart tissues and blood vessel walls. Blood pressure is regulated by
constriction or relaxation of blood vessels which is effected by GPCRs located
on blood vessel walls. We believe that some of the drug candidates that we have
identified using CART technology that target these GPCRs have potential to
regulate blood pressure and treat diseases such as hypertension. According to
the National Institutes of Health, hypertension affects approximately 50 million
people in the United States, and can lead to heart disease and stroke, which are
among the leading causes of death in the United States.
Diabetes. One of the orphan GPCRs that we discovered, the 19AJ GPCR, is
specifically located on pancreatic, insulin producing, beta cells. Normally,
glucose stimulates the beta cell to produce insulin, but in diabetes the beta
cell often becomes less sensitive to glucose and the ability of the beta cell to
produce insulin is impaired. The 19AJ GPCR appears to make the beta cells more
responsive to glucose concentrations, resulting in enhanced insulin release. By
applying CART technology to the 19AJ GPCR we will seek to discover drug
candidates to treat diabetes, which, according to the National Institutes of
Health, affected approximately 15.7 million people in the United States in 1997.
Inflammation. We have identified several orphan GPCRs, including the 18AF
and 19W GPCRs, that may mediate inflammatory responses in various locations of
the body. Our preliminary data suggest that the 18AF GPCR may regulate brain
cells related to inflammation. Based upon its sequence structure, the 18AF GPCR
appears to be related to a group of GPCRs called chemokine receptors. Chemokine
receptors are known to be involved in the inflammation process, and brain
inflammation is involved in a number of neurodegenerative disorders, including
stroke. The number of 19W GPCRs is increased in dying cells during inflammation,
suggesting that the 19W GPCR may be involved in controlling the process of cell
death. We have CART-activated the 19W GPCR and have developed an assay for
screening of chemical compounds against this GPCR. Drug candidates that modulate
the activity of these GPCRs may provide a unique therapeutic approach to the
treatment or mediation of inflammatory responses. According to the National
Institutes of Health, diseases involving inflammation afflict over 25 million
people in the United States.
Alzheimer's Disease. Several of our orphan GPCR targets are located on
cells within the central nervous system, including the 18L GPCR. The 18L GPCR is
located on nerve cells in an area of the brain called the hippocampus, which is
responsible for controlling memory function. In Alzheimer's Disease, normal
memory processes in the hippocampus are severely impaired. We believe drugs that
modulate the 18L GPCR could be useful for controlling memory function and for
the treatment of symptoms of Alzheimer's Disease, which, according to the
National Institutes of Health, affects four million people in the United States.
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Known GPCRs
Although we primarily focus on orphan GPCRs, we also apply our CART
technology to known GPCRs. We believe that the application of our CART
technology to known GPCRs will identify novel classes of drug candidates that
may be more effective and may have fewer side effects than existing drugs that
target known GPCRs.
Our principal advantage in applying CART technology to known GPCRs is our
ability to directly identify drug candidates that act as inverse agonists, which
cannot be directly identified using traditional ligand-based screening
techniques. Inverse agonists are particularly relevant in treating diseases in
which ligand-independent GPCR activity, or overactivity, is implicated. Diseases
in which we believe overactive known GPCRs are implicated include:
<TABLE>
DISEASE OVERACTIVE KNOWN GPCRS
<S> <C>
Schizophrenia 5HT(2A), D(4)
- --------------------------------------------------------------------
Depression 5HT(2A)
- --------------------------------------------------------------------
Hyperthyroidism Thyrotropin
- --------------------------------------------------------------------
Hypertension Angiotensin AT(1A)
- --------------------------------------------------------------------
Asthma Adenosine A(1)
- --------------------------------------------------------------------
Melanoma MC-1
- --------------------------------------------------------------------
Retinitis Pigmentosa Rhodopsin
- --------------------------------------------------------------------
</TABLE>
We have identified drug candidates that are capable of inhibiting both
ligand-independent and ligand-dependent activity at selected known GPCR targets.
We are currently developing drug candidates that target these overactive known
GPCRs to treat the related diseases. Our most advanced program targets the
serotonin 5HT(2A) GPCR for potential treatment of schizophrenia and other
psychotic disorders.
Psychosis. According to the National Institutes of Health, approximately
2.7 million people in the United States suffer from schizophrenia. We have
tested currently available anti-psychotic drugs and have found that they act as
inverse agonists at a known GPCR, referred to as the 5HT(2A) GPCR. Using our
CART technology, we have discovered and are developing a number of new drug
candidates that act as inverse agonists at the 5HT(2A) GPCR. These drug
candidates displayed activities in tests involving laboratory animals indicating
that they would be useful in treating psychiatric disorders such as
schizophrenia. Moreover, our CART-identified 5HT(2A) inverse agonists possess a
higher degree of receptor selectivity than currently marketed anti-psychotics,
which suggests our inverse agonists may be more effective. To date, these drug
candidates exhibit no evidence of side effects in laboratory animals.
Our anti-psychotic drug program also demonstrates the advantages of CART
technology for rapid drug candidate discovery. The process of discovering
promising drug candidates took approximately 18 months from the application of
our CART technology to the 5HT(2A) GPCR to the animal testing of the drug
candidates that we discovered using CART technology. We intend to enter into a
collaboration to further expand our anti-psychotic drug program with the goal of
selecting one or more of our novel anti-psychotic drug candidates that target
the 5HT(2A) GPCR, for future clinical development.
Other areas of CART application
Olfactory and taste GPCRs. A specialized multigene family of GPCRs has been
identified in the nasal membrane and is responsible for the sense of smell.
Another family of GPCRs has recently been discovered in the tongue and is
believed to be responsible for the perception of taste. We are applying our CART
technology to a number of olfactory and taste GPCRs to identify novel compounds
that we believe will be of potential commercial value in the fragrance and food
additive industries.
Plant GPCRs. Plants respond to a variety of environmental and internal
signals that regulate aspects of their growth and development. GPCRs have
recently been identified in a variety of plants and have
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been implicated in the action of a variety of plant hormones. We are presently
applying our CART technology to plant GPCRs in an attempt to identify novel
regulators of the life cycle of plants that may affect crop growth and
development.
Viral GPCRs. GPCRs are involved in either replication or infection in a
number of viruses. Some herpes viruses, including the Kaposi's
sarcoma-associated virus, have GPCRs within their genome which are important for
replication. Other GPCRs appear necessary for primary infection. For example,
HIV infects cells by binding to a GPCR that transports the virus into cells. A
number of orphan GPCRs have been identified which appear to act in a similar
manner for other viruses. Our goal is to identify novel anti-viral drugs using
CART technology.
Insect GPCRs. Insect genomes also include GPCRs, and we have begun the
process of applying CART technology to insect GPCRs in an attempt to identify
compounds that may offer the potential for improved and environmentally safer
insect control agents. Our goal is to use CART-activated insect GPCRs to find
compounds that selectively reduce pest reproduction and feeding behavior.
Tyrosine kinase receptors. In addition to applying our CART technology to
orphan GPCRs, we are also applying our CART technology to other human receptor
classes, including orphan TKRs. A number of orphan TKRs have been located on
cancerous tissues and may be involved in excessive cell proliferation and
growth. As with GPCRs, our CART technology allows us to activate orphan TKRs in
the absence of native ligands and screen the activated TKRs to identify novel
inhibitors of TKR activity. We are currently evaluating nine orphan TKRs for
drug screening.
In vivo genetic "knock-in" models. We are collaborating with Lexicon
Genetics to develop mice that produce CART-activated GPCRs, or GPCR knock-ins,
by using state-of-the-art molecular genetic techniques. By producing
CART-activated orphan GPCRs in animals, we believe that we will gain valuable
insight into the functionality of individual GPCRs, as well as indications of
human disease for which drugs that target these GPCRs may be useful. In
addition, we expect that these knock-in animals will provide an animal model
that can be used to test the in vivo potency of drug candidates discovered using
CART-activated GPCRs.
OUR GPCR COLLABORATORS
Our success will depend in large part upon our ability to enter into
successful collaborations with other pharmaceutical and biotechnology companies.
We are active in the scientific community and within the industry and regularly
make presentations regarding our research and development programs and the
applications of our CART technology at scientific conferences and industry
conventions. We believe that our participation at these events has led, and will
continue to lead, to contacts with existing and potential collaborators. We have
entered into a number of strategic collaborations in the recent past to discover
novel drug candidates using our CART technology, and we expect to enter into
additional collaborations and expand our existing collaborations in the future.
Eli Lilly
In April 2000, we entered into a research alliance with Eli Lilly, one of
the world's leading pharmaceutical companies. Our collaboration with Eli Lilly
will principally focus on the central nervous system and endocrine therapeutic
fields. We will also focus on the cardiovascular field and may expand our
collaboration to other therapy classes, including cancer.
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During our collaboration, we will pursue an agreed upon research plan with
Eli Lilly that has several objectives. During the term of our collaboration, we
will mutually review and select GPCRs that will become subject to the
collaboration. These GPCRs may be provided either by us or by Eli Lilly. All of
our existing CART-activated GPCRs are excluded from the collaboration. We and
Eli Lilly will each share our respective knowledge of the GPCRs that become
subject to the collaboration to validate and CART-activate selected receptors.
We will jointly select a number of proprietary central nervous system, endocrine
and cardiovascular GPCRs for CART-activation, and we will then provide Eli Lilly
with enabled high-throughput screens for use at their screening facilities. We
will receive research funding from Eli Lilly for our internal resources
committed to these tasks, which will be augmented by substantial resource
commitments by Eli Lilly. Eli Lilly will be responsible for screening of its
chemical compound library using selected CART-activated receptors, for
identifying drug candidates and for the pre-clinical and clinical testing and
development of drug candidates. We will receive a technology access fee, and, if
various milestones are achieved, we are entitled to receive development fees per
GPCR assay provided to Eli Lilly, development milestone payments per drug
discovered and advanced into clinical trials, if any, and royalties depending on
the sales levels of drugs, if any.
Once the assay development fee has been paid for a CART-activated GPCR, Eli
Lilly will have exclusive rights to screen chemical libraries, discover drug
candidates that target that GPCR, and to develop, register and sell any
resulting products worldwide. We retain rights to partner or independently
develop GPCRs that do not become subject to the collaboration.
The term of our collaboration agreement with Eli Lilly is five years
beginning on the effective date of the agreement. Eli Lilly can terminate the
agreement with or without cause by giving us written notice during the first
nine months after the date of the agreement, and this termination would be
effective one year after the date of the agreement. If Eli Lilly terminates the
agreement without cause during this time, it must pay us a termination fee.
Either Eli Lilly or we can terminate the agreement with or without cause
effective three years after the date of the agreement by giving written notice
prior to the conclusion of the 33rd month after the effective date of the
agreement. In addition, either party can terminate the agreement at any time if
the other party commits a material breach, and Eli Lilly can terminate the
agreement at any time if, among other reasons, key staff leave our employ. The
parties will continue to have various rights and obligations under the agreement
after the agreement is terminated. The extent of these continuing rights and
obligations depends on many factors, such as when the agreement is terminated,
by which party and for what reason. These continuing obligations may include
further research and development efforts by us and a variety of payments by Eli
Lilly.
Fujisawa
In January 2000, we entered into a collaborative agreement with Fujisawa, a
leading Japan-based pharmaceutical company with significant drug discovery
research efforts. During the collaboration, we will jointly validate up to 13
orphan GPCRs as drug screening targets. We will be responsible for receptor
identification, location and regulation, and will apply our CART technology to
GPCRs selected by Fujisawa. We will also seek to validate screening assays based
on the selected GPCRs. Fujisawa will be entitled to screen selected assays
against its chemical compound library to identify drug candidates. Fujisawa will
also be responsible for the pre-clinical and clinical development of any drug
candidates that we or Fujisawa discover. We may also screen the selected GPCRs
using our in-house chemical library. If we or Fujisawa achieve various
milestones, we will receive research and development fees, including milestone
payments per drug candidate discovered and advanced into clinical trials, and
royalties depending on drug sales, if any.
Our collaborative agreement with Fujisawa will terminate upon the
expiration of Fujisawa's obligation to make royalty payments under the
agreement, if any. Fujisawa may terminate the agreement at any time by providing
us with written notice of their intention to do so and by returning any
proprietary rights they have acquired under the agreement. Additionally, either
party may terminate the agreement for a material breach of the agreement by the
other party. The termination or expiration of the agreement will not affect any
rights that have accrued to the benefit of either party prior to the termination
or expiration.
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Lexicon Genetics
In April 2000, we signed a binding letter of intent and memorandum of
agreement with Lexicon Genetics, a genomics company that uses a proprietary
technology to clone mice, enabling the large-scale definition of gene function.
The agreement establishes a research collaboration with Lexicon Genetics using
their proprietary technology to clone gene-targeted mice whose genomes have been
altered using specified CART-activated orphan GPCRs. Our collaboration with
Lexicon Genetics consists of a feasibility phase to determine both the utility
of this novel approach and the scope of any resulting licensing alliance. If we
proceed beyond the feasibility stage, the agreement establishes a licensing
alliance in which we and Lexicon Genetics will each contribute up to ten unique
GPCRs to clone mice containing CART-activated GPCRs for use as drug discovery
tools, and to discover drug candidates using these GPCRs. We will share equally
in the fees, milestones and royalties generated from any licensing agreement
with a third-party involving GPCRs developed through our licensing alliance.
Neurocrine Biosciences
In September 1999, we entered into an agreement with Neurocrine
Biosciences, a biotechnology company focused on the discovery and development of
novel therapeutics to treat diseases and disorders of the central nervous system
and immune system. Neurocrine Biosciences has the right, prior to September
2000, to provide us with up to three orphan GPCRs obtained by them to which we
will apply our CART technology. We will not receive any payment for
CART-activating these GPCRs. We may also screen the activated orphan GPCRs using
our in-house chemical library, or using Neurocrine Biosciences' in-house
chemical library, for which we will receive payments. Neurocrine Biosciences
will retain the rights to the CART-activated GPCRs and any drug candidates that
are discovered using these GPCRs.
OTHER ELEMENTS OF OUR BUSINESS
T-82
In 1998, we licensed the rights from SSP to develop T-82, a novel drug
candidate to treat Alzheimer's Disease. We believe T-82 possesses a unique
pharmacological profile that will translate into enhanced therapeutic activity
over currently available drugs for Alzheimer's Disease. We have completed three
Phase I clinical trials of T-82, involving single and multiple dose studies, as
well as a study to evaluate the possible interaction of T-82 with food. We
intend to begin Phase II clinical testing of T-82 in 2000 and to enter into a
collaborative relationship with a third-party to further develop T-82.
Currently available drugs to treat Alzheimer's Disease inhibit the enzyme
acetylcholinesterase. Acetylcholinesterase breaks down acetylcholine, an
important chemical for normal memory and cognitive function. By inhibiting the
enzyme acetylcholinesterase, currently available drugs prevent the breakdown of
acetylcholine. T-82 also acts to prevent the breakdown of acetylcholine by
inhibiting acetylcholinesterase, but unlike existing drugs which have limited
clinical effectiveness, we believe T-82 may cause the release of additional
acetylcholine from nerve terminals. This additional mechanism results from the
ability of T-82 to block a serotonin receptor, 5HT(3), which normally acts to
inhibit the release of acetylcholine from nerve terminals. Moreover, the
side-effects of currently-approved Alzheimer's Disease drugs include drug-
induced nausea and vomiting, which may cause some patients to reduce or
discontinue their use of the drugs. We believe T-82 possesses a pharmacological
advantage over current Alzheimer's drugs because of evidence that inhibition of
the 5HT(3) receptor not only enhances acetylcholine release, but also reduces
vomiting by inhibiting certain neural pathways.
We have worldwide rights to clinically develop and market T-82, except in
Japan. We share rights with SSP to license and market T-82 in ten Asian
countries. We will share data related to pre-clinical studies, clinical studies
and the manufacturing of T-82 with SSP, and SSP will share similar data
developed by SSP with us. SSP has agreed to manufacture and supply T-82 to us
for all clinical trials, at no cost to us. Our license requires us to make
milestone payments to SSP upon the successful completion of Phase II clinical
studies, after successful completion of Phase III clinical studies and, if
applicable, after
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receiving marketing approval by the FDA and European regulatory agencies. In
addition, we will pay SSP escalating royalties based upon net sales of T-82, if
any.
Aressa
In August 1999, we formed Aressa, a wholly-owned subsidiary, to take
advantage of opportunities to in-license and develop niche products from other
pharmaceutical or biotechnology companies. In November 1999, Aressa entered into
a licensing agreement with SSP with respect to a patented anti-fungal compound
discovered by SSP, called SS750. Aressa is currently supervising pre-clinical
studies of SS750, which are funded by SSP. Aressa may explore other
opportunities to in-license niche products.
ChemNavigator.com
In early 1999, we developed an Internet-based search engine that allows
scientists to search for chemical compounds based primarily on the similarity of
chemical structures. We believe this is important for drug discovery purposes
because chemical similarity can be used as an indicator of biological activity.
ChemNavigator.com was formed in May 1999 and subsequently obtained independent
third-party financing. We licensed the search engine's underlying technology and
related intellectual property to ChemNavigator.com in exchange for stock. We
currently beneficially own approximately 46% of the outstanding common stock of
ChemNavigator.com.
INTELLECTUAL PROPERTY
Our success depends in large part on our ability to protect our proprietary
technology and information, and operate without infringing on the proprietary
rights of third parties. We rely on a combination of patent, trade secret,
copyright and trademark laws, as well as confidentiality agreements, licensing
agreements and other agreements, to establish and protect our proprietary
rights. Since our inception, we have filed 96 patent applications in the United
States regarding our:
- CART technology
- orphan receptors and CART-activated orphan receptors
- CART-activated known receptors
- small molecule chemical compounds
- acetylcholine enhancers
- web-based search engine technologies
The term of all of our patents, if any are issued, will commence on the date of
issuance and terminate 20 years from the earliest effective filing date of the
patent application. Because the time from filing to issuance of biotechnology
patent applications is often more than three years, our patent protection, if
any, on our products and technologies may be substantially less than 20 years.
We seek patent protection for all of our key inventions, including our CART
technology, new receptors that we discover, genetically-altered receptors, and
drug candidates identified by our CART technology. It has been possible to
obtain broad, composition-of-matter patents on novel chemical compounds, such as
the drug candidates that we identify using our CART technology. It has also been
possible to obtain broad method patents for techniques and procedures for
screening and drug-identification technologies, such as those embodied by our
CART technology. It has generally not been possible to obtain broad
composition-of-matter patents for nucleic acid and amino acid sequences.
However, it has been possible to obtain patents that protect specific sequences
and functional equivalents of those sequences. Furthermore, intellectual
property law allows for separate and distinct patents for altered genetic
sequences over previously disclosed sequences. We believe that we can obtain
patents on our CART-activated receptor sequences because they are not functional
equivalents of the receptor that exists in nature. We have filed and will
continue to file patent applications on these types of technologies. We believe
that our CART technology does not infringe on third-party claims related to any
aspect of our proprietary technology.
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As a general matter, obtaining patents in the biotechnology and
pharmaceutical fields is highly uncertain and involves complex legal, scientific
and factual matters. Obtaining a patent in the United States in the
biotechnology and pharmaceutical fields can be expensive and can, and often
does, require several years to complete. Our patent filings in the United States
may be subject to interference or reexamination proceedings. The defense and
prosecution of interference and reexamination proceedings and related legal and
administrative proceedings in the United States involve complex legal and
factual questions. We also file patent applications outside of the United
States. The laws of some foreign countries may not protect our proprietary
rights to the same extent as do the laws of the United States. Third parties may
attempt to oppose the issuance of our patents in foreign countries by way of
opposition proceedings. Additionally, if an opposition proceeding is initiated
against any of our patent filings in a foreign country, that proceeding could
have an adverse effect on the corresponding patents that are issued or pending
in the United States. If we become involved in any interference, reexamination,
opposition or litigation proceedings in the United States or foreign countries
regarding patent or other proprietary rights, those proceedings may result in
substantial cost to us, regardless of the outcome, and may have a material
adverse affect on our ability to develop, manufacture, market or license our
technologies or products, or to maintain or form strategic alliances.
Although we plan to aggressively prosecute our patent applications and
defend our patents against third-party infringement, we cannot assure you that
any of our patent applications will result in the issuance of patents or that,
if issued, such patents will not be challenged, invalidated or circumvented.
Moreover, we cannot assure you that our patents, if any, will provide us
protection against competitors with other technologies. Our technologies and
potential products may conflict with patents that have been or may be granted to
competitors, universities or others. As the biotechnology industry expands and
more patents are issued, the risk increases that our technologies and potential
products may give rise to claims that they infringe the patents of others. Third
parties claiming infringement of their proprietary rights could bring legal
actions against us claiming damages and seeking to enjoin our use or
commercialization of a product or our use of a technology. In particular, patent
applications or patents for innovative and broadly applicable technologies, such
as our CART technology, are sometimes challenged by third parties as obvious, or
as obvious extensions of technologies previously developed by those third
parties. We cannot assure you that such claims will not be brought against us in
the future. If any actions based on these claims are successful, in addition to
any potential liability for damages, we could be required to obtain a license in
order to continue to use a technology or to manufacture or market a product, or
could be required to cease using those products or technologies. Any claim, with
or without merit, could result in costly litigation and divert the efforts and
attention of our scientific and management personnel. We cannot assure you that
we would prevail in any action or that any license required under any patent
would be made available or would be made available on acceptable terms.
All of our employees are required to enter into and adhere to an
employment-confidentiality and invention-assignment agreement, laboratory
notebook policy, and invention disclosure protocol, as a condition of
employment. Additionally, our employment-confidentiality and
invention-assignment agreement requires that our employees do not bring to
Arena, or use without proper authorization, any third-party proprietary
technology. We also require all of our consultants and collaborators that have
access to proprietary property to execute confidentiality and invention rights
agreements in our favor before beginning their relationship with us. While such
arrangements are intended to enable us to better control the use and disclosure
of our proprietary property and provide for our ownership of proprietary
technology developed on its behalf, they may not provide us with meaningful
protection for such property and technology in the event of unauthorized use or
disclosure.
We have obtained a worldwide license from SSP, except for Japan, to issued
and pending patents with claims directed to the chemical composition of T-82,
and Aressa has obtained a similar license to issued and pending patents with
claims directed to the chemical composition of SS750. We have also obtained an
exclusive, worldwide license from Albany Medical College to a pending patent
application with claims directed to mutations to several known GPCRs. In
addition, we have entered into a research agreement with the University of
Glasgow to jointly develop screening strategies using our CART-
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activated GPCRs, combined with techniques claimed in a patent application owned
by the University. Under this agreement, we have an option to take an exclusive
license to this patent application, as well as techniques that are developed
during the course of the research agreement. Although neither we nor Aressa are
currently in default under any of these agreements, we cannot assure you that we
or Aressa will not default under these agreements in the future. Should such a
default occur, our licenses could be terminated and we could lose the right to
continue to develop T-82, SS750, or our other products or technologies that are
subject to these agreements. The loss of our rights to develop T-82, SS750 or
our other licensed products or technologies could harm our business.
COMPETITION
A major focus of our scientific and business strategy for our CART
technology involves orphan GPCRs. Most major pharmaceutical companies, as well
as several biotechnology companies, have drug discovery programs based upon
GPCRs, including orphan GPCRs. In addition, other companies have attempted to
overcome the problems associated with traditional drug screening by embarking
upon a variety of alternative strategies. Although some of these approaches are
ligand-independent, like CART, we believe that all of these approaches have
relied upon indirect measures of receptor activity, which provide a limited
possibility of assessing receptor-drug interaction and increase the possibility
of false positive results. Several of our existing and potential competitors
have substantially greater product development capabilities and financial,
scientific and marketing resources than we do. As a result, they may be able to
adapt more readily to technological advances than we can, or to devote greater
resources than we can to the research, development, marketing and promotion of
drug discovery techniques or therapeutic products. Additionally, the
technologies being developed by these companies may be more readily accepted or
widely used than our CART technology. Our future success will depend in large
part on our ability to maintain our competitive position. The biotechnology
field is undergoing rapid and significant change and we may not be able to
compete successfully with newly emerging technologies.
We will rely on our collaborators for support of our development programs
for our drug candidates and intend to rely on our collaborators for the
manufacturing and marketing of these products. Our collaborators may be
conducting multiple product development efforts within the same disease areas
that are the subjects of their agreements with us. Generally, our agreements
with our collaborators do not preclude them from pursuing development efforts
using a different approach from that which is the subject of our agreement with
them. Any of our drug candidates therefore, may be subject to competition with a
drug candidate under development by a collaborator.
GOVERNMENT REGULATION
Our and our collaborators' ongoing drug development activities are subject
to the laws and regulations of governmental authorities in the United States and
other countries in which these products may be marketed. Specifically, in the
United States, the FDA and comparable regulatory agencies in state and local
jurisdictions impose substantial requirements on new product research and the
clinical development, manufacture and marketing of pharmaceutical products,
including testing and clinical trials to establish the safety and effectiveness
of these products. Our and our collaborators' drug products will require
regulatory approval before commercialization. Governments in other countries
have similar requirements for testing, approval and marketing. In the United
States, in addition to meeting FDA regulations, we are also subject to other
federal, state and local environmental and safety laws and regulations,
including regulation of the use and care of laboratory animals.
We do not plan to commercialize most of our drug candidates by ourselves,
but intend to rely on our collaborators to develop and commercialize our drug
candidates or those that our collaborators discover through the use of our
technology. Before marketing in the United States, any pharmaceutical or
therapeutic products developed by us or our collaborators must undergo rigorous
pre-clinical testing and clinical trials and an extensive regulatory approval
process implemented by the FDA under the federal Food, Drug and Cosmetic Act.
The FDA regulates, among other things, the development, testing, manufacture,
safety and effectiveness standards, record keeping, labeling, storage, approval,
advertising,
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promotion, sale and distribution of pharmaceutical products. The regulatory
review and approval process, which includes pre-clinical testing and clinical
trials of each product candidate is lengthy, and uncertain. Securing FDA
approval requires the submission of extensive pre-clinical and clinical data and
supporting information to the FDA for each indication to establish a product
candidate's safety and effectiveness. Additional animal studies, other
pre-clinical tests or clinical trials that may delay marketing approval may be
requested by FDA. The approval process takes many years, requires the
expenditure of substantial resources and may involve ongoing requirements for
post-marketing studies.
Before commencing clinical investigations in humans, we or our
collaborators must submit an Investigational New Drug application, or IND, to
the FDA. We generally intend to rely on our collaborators to file IND
applications and direct the regulatory approval process for the products they
develop using our CART technology. Clinical trials are typically conducted in
three sequential phases, although the phases may overlap or be combined. Phase I
represents the initial administration of the drug to a small group of humans,
either healthy volunteers or patients, to test for safety, dosage tolerance,
absorption, metabolism, excretion and clinical pharmacology. Phase II involves
studies in a relatively small number of patients to assess the effectiveness of
the product, to ascertain dose tolerance and the optimal dose range and to
gather additional data relating to safety and potential adverse effects. Once a
drug is found to have some effectiveness and an acceptable safety profile in the
targeted patient population, Phase III studies are initiated to establish safety
and effectiveness in an expanded patient population and multiple clinical study
sites. The FDA may require further post-marketing studies, referred to as Phase
IV studies. The FDA reviews both the clinical plans and the results of the
trials and may require that we discontinue the trials at any time if the FDA
identifies any significant safety issues. Clinical testing must meet
requirements for institutional review board oversight, informed consent, good
clinical practices and FDA oversight.
The length of time necessary to complete clinical trials varies
significantly and is difficult to predict. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent
regulatory approvals. Additional factors that can cause delay or termination of
our clinical trials, or those of our collaborators, or may increase the cost of
those trials, include, among other factors:
- lack of effectiveness of the product being tested
- adverse medical effects or side effects in treated patients
- slow patient enrollment in the clinical trial
- inadequately trained or insufficient personnel at the study site to
assist in overseeing and monitoring the clinical trial
- delays in approval from a study site's review board
- longer treatment time required to demonstrate effectiveness or determine
the appropriate product dose
- lack of sufficient supplies of the product candidate
If pre-clinical and clinical studies are successful, the results, together
with other information about the product and its manufacture, are submitted to
the FDA in the form of an NDA to request marketing approval. Before receiving
FDA approval to market a product, we or our collaborators must demonstrate that
the product is safe and effective through clinical trials on the patient
population that will be treated. The approval process is likely to require
substantial time and effort and there can be no assurance that any approval will
be granted on a timely basis, if at all. Additional animal studies or clinical
trials may be requested during the FDA review period that may delay marketing
approval. As part of the approval process, each manufacturing facility must be
inspected by the FDA. Among the conditions of approval is the requirement that a
manufacturer's quality control and manufacturing procedures conform with
federally mandated current good manufacturing practices, or GMPs. Manufacturers
must expend time, money and effort to ensure compliance with current GMPs and
the FDA conducts periodic inspections to
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certify compliance. Violations may result in restrictions on the product or
manufacturer, including costly recalls or withdrawal of the product from the
market.
If regulatory approval of a product is granted by the FDA, this approval
will be limited to those specific states and conditions for which the product is
useful, as demonstrated through clinical studies. After FDA approval for the
initial indications, further clinical trials will be necessary to gain approval
for the use of the product for additional indications. Marketing or promoting a
drug for an unapproved indication is prohibited. The FDA requires that adverse
effects be reported to the FDA and may also require post-marketing testing to
monitor for adverse effects, which can involve significant expense. Even after
FDA approvals are obtained, a marketed product is subject to continual review.
Later discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restriction on the marketing of
a product or withdrawal of the product from the market as well as possible civil
or criminal sanctions. Furthermore, failure to obtain reimbursement coverage
from governmental or third party insurers may adversely impact our successful
commercialization.
Our access to and use of human or other tissue samples in our research and
development efforts are subject to government regulation, both in the United
States and abroad. United States and foreign government agencies may also impose
restrictions on the use of data derived from human or other tissue samples. If
our access to or use of human tissue samples, or our collaborator's use of data
derived from such samples, is restricted, our business could suffer.
Additionally, if we continue to develop our plant or insect programs, we may
become subject to different government regulations relating to agricultural and
industrial biotechnology products.
In addition to regulations enforced by the FDA, we are also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, the Controlled Substances Act and other present and potential
future federal, state or local regulations. Our research and development
programs involve the controlled use of hazardous materials, chemicals,
biological materials and various radioactive compounds. Although we believe that
our 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, we could be held liable for any
damages that result, and the extent of that liability could exceed our
resources.
OUR DATABASE
We have developed a web-based database that can be used to access relevant
information and data generated from our research and development programs. Our
database has a number of characteristics which we believe are unique. Our
database allows individual users to obtain information on specific GPCR targets,
including gene sequence information, data developed by us from GPCR tissue and
cellular distribution studies, the results of drug screening and the results of
our animal studies. In developing this database, we focused on the magnitude of
data that we would generate based upon the number of GPCRs available to us, and
the number of chemical compounds that would be screened in our assays. Our
database, which is the subject of a pending patent application that we own, has
a number of proprietary features that allow us to efficiently organize, store
and access these data and information. Using this database, we and our
collaborators can search for compounds by structure and assay results, and can
search for genes by sequence and tissue or disease expression. One of our
collaborators is currently using our database, and we believe our database will
be a resource for collaborators who have a specific interest in diseases that
affect certain tissues.
EMPLOYEES
As of March 31, 2000, we employed 77 people, including 67 in research and
development and ten in administration. Twenty-three of our employees hold
doctoral degrees and an additional 13 hold other advanced degrees. None of our
employees is covered by collective bargaining agreements. We consider our
relationship with our employees to be good.
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OUR FACILITY
Our facility is located at 6166 Nancy Ridge Drive, San Diego, California.
We currently lease approximately 37,000 square feet of space, of which 19,000
square feet is laboratory space and 14,000 square feet is office space. The
remaining 4,000 square feet is available for laboratory space, but is not now in
use. Our lease has a 15-year term and will expire in 2013.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jack Lief(1)................................. 54 President, Chief Executive Officer and Director
Dominic P. Behan, Ph.D. ..................... 36 Vice President, Research and Director
Derek T. Chalmers, Ph.D. .................... 36 Vice President, Research and Director
Joyce H. Williams............................ 54 Vice President, Drug Development
Richard P. Burgoon, Jr. ..................... 38 Senior Vice President, Operations, General
Counsel and Secretary
Robert Hoffman............................... 34 Vice President, Finance
Louis J. Scotti.............................. 44 Vice President, Business Development
Elaine Alexander, M.D., Ph.D. ............... 47 Vice President, Experimental and
Clinical Research
Nigel Beeley, Ph.D. ......................... 49 Vice President, Chief Chemical Officer
John P. McAlister, III, Ph.D.(2) ............ 51 Director
Michael Steinmetz, Ph.D.(1)(2)............... 52 Director
Stefan Ryser, Ph.D.(1)(2).................... 40 Director
</TABLE>
- ---------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Jack Lief is a co-founder of Arena and has served as a director and our
President and Chief Executive Officer since April 1997. Mr. Lief is also
currently serving as a director and President of Aressa and as a director and
Chief Executive Officer of ChemNavigator.com. From 1995 until April 1997, Mr.
Lief served as an advisor and consultant to numerous biopharmaceutical
organizations. From 1989 to 1994, he served as Senior Vice President, Corporate
Development and Secretary of Cephalon, Inc. From 1983 to 1989, Mr. Lief served
as Director of Business Development and Strategic Planning for Alpha Therapeutic
Corporation. Mr. Lief joined Abbott Laboratories in 1972 where he served until
1983, most recently as the head of International Marketing Research. Mr. Lief
holds a B.A. from Rutgers University and a M.S. in psychology (experimental and
neurobiology) from Lehigh University.
Dominic P. Behan, Ph.D. is a co-founder of Arena and has served as our Vice
President, Research since April 1997 and as a director since April 2000. From
1993 to December 1996, Dr. Behan directed various research programs at
Neurocrine Biosciences. From 1990 until 1993, he was engaged in research at the
Salk Institute. Dr. Behan holds a Ph.D. in biochemistry from Reading University,
England.
Derek T. Chalmers, Ph.D. is a co-founder of Arena and has served as our
Vice President, Research since April 1997 and as a director since April 2000.
From 1994 to December 1996, Dr. Chalmers directed various research programs at
Neurocrine Biosciences. From 1990 until 1994, he was engaged in research at the
University of Michigan. Dr. Chalmers holds a Ph.D. in neuroscience and
neuropharmacology from the University of Glasgow, Scotland.
Joyce H. Williams has served as our Vice President, Drug Development since
February 1998. From January 1997 to February 1998, Ms. Williams served as
Regulatory Consultant for ProFocus Regulatory Solutions. From 1995 to 1996, she
served as Executive Director, Regulatory Affairs at Advanced Sterilization
Products, a division of Johnson & Johnson. Ms. Williams has over 20 years of
experience in regulatory affairs with pharmaceutical and medical technology
firms. Ms. Williams holds a B.A. from Case Western Reserve University and an
M.B.A. from Pepperdine University.
Richard P. Burgoon, Jr. joined Arena in April 1998, most recently serving
as our Senior Vice President, Operations, General Counsel and Secretary. Mr.
Burgoon is also currently serving as a director and Secretary of Aressa and
ChemNavigator.com. From 1997 to 1998, Mr. Burgoon was an attorney for
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Reed, Smith, Shaw & McClay. From 1994 to 1997, Mr. Burgoon served as Senior
Director and Patent Counsel at Cephalon, Inc. From 1992 to 1994, he served as
Intellectual Property Counsel to IDEC Pharmaceuticals Corporation. From 1990 to
1992, he served as Staff Attorney at Beckman Instruments, Inc. Mr. Burgoon holds
B.S. and B.A. degrees from the University of California, Irvine. He received his
J.D. from the Franklin Pierce Law Center.
Robert Hoffman has served as our Vice President, Finance since April 2000
and served as our controller from August 1997 until April 2000. From 1994 to
1997, he served as assistant controller for Document Sciences Corporation. Mr.
Hoffman holds a B.B.A. from St. Bonaventure University in New York and is
licensed as a CPA in the state of California.
Louis J. Scotti has served as our Vice President, Business Development
since August 1999. From June 1998 until July 1999, Mr. Scotti served as
President and Chief Executive Officer for ProtoMed, Inc. From April 1996 to June
1998, he served as Executive Director of Licensing for Ligand Pharmaceuticals,
Inc. From 1986 to 1995, he served in various positions at Reed & Carnrick
Pharmaceuticals, most recently as Vice President of Marketing and Business
Development. Mr. Scotti holds a B.S.E. in biomedical engineering from the
University of Pennsylvania.
Elaine Alexander, M.D., Ph.D. has served as our Vice President,
Experimental and Clinical Research since May 1999. From 1998 to 1999, she served
as a consultant to biotechnology companies and the National Institutes of
Health. From 1993 to 1997, she served as Director of Experimental and
Exploratory Research for Cephalon, Inc. Dr. Alexander holds a Ph.D. and M.D.
from the University of California, Los Angeles.
Nigel Beeley, Ph.D. has served as our Vice President, Chief Chemical
Officer since March 1999. From 1994 to 1999, he served as Senior Director of
Chemistry for Amylin Pharmaceuticals, Inc. Dr. Beeley holds a Ph.D. in chemistry
from the University of Manchester, England.
John P. McAlister, III, Ph.D. has served as a director on our board since
July 1997. Dr. McAlister joined Tripos, Inc. in 1982, and since 1988, has served
as President of Tripos, a software company serving the life sciences industry.
Dr. McAlister holds a Ph.D. in Biochemistry and X-Ray Crystallography from the
University of Wisconsin, Madison. He currently also serves as a director of
Tripos.
Michael Steinmetz, Ph.D. has served as a director on our board since May
1999. Since 1997, he has served as Managing Director for MPM Asset Management
LLC, a venture capital firm focusing on investments in the biotechnology
industry. From 1991 to 1997, he served as Vice President Preclinical Research
and Development of various divisions of F. Hoffmann-La Roche Ltd. Dr. Steinmetz
holds a Ph.D. in natural sciences from the University of Munich, Germany. He
currently also serves as a director of Caliper Technologies Corp.
Stefan Ryser, Ph.D. has served as a director on our board since May 1999.
Since 1998, Dr. Ryser has served as Chief Executive Officer and as a member and
delegate of the board of International Biomedicine Management Partners Inc., a
company that manages investments in the biotechnology industry. From January
1989 until December 1997, he held various positions, including Scientific
Assistant to the President of Global Research and Development, at F. Hoffmann-La
Roche Ltd. Dr. Ryser holds a Ph.D. in molecular biology from the University of
Basel, Switzerland. He currently also serves as a director of Genaissance
Pharmaceuticals, Inc., Telik, Inc., and Cytokinetics, Inc.
Except as otherwise provided by our by-laws for filling vacancies in our
board of directors, our directors are elected at our annual meeting of
stockholders and hold office until their respective successors are elected, or
until their earlier resignation or removal.
BOARD COMMITTEES
We have established a compensation committee and an audit committee. The
compensation committee members are Mr. Lief, Dr. Ryser and Dr. Steinmetz. The
compensation committee reviews and approves the compensation and benefits for
our executive officers, and makes recommendations to the
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board of directors regarding these matters. Under our 2000 Equity Compensation
Plan, the outside directors of our compensation committee will authorize and
approve stock option grants and make recommendations to the board of directors
regarding these matters.
The audit committee members are Dr. McAlister, Dr. Ryser and Dr. Steinmetz.
The audit committee reviews the results and scope of the audit and other
services provided by our independent auditors, and reviews and evaluates our
audit and control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Lief, who is a member of our compensation committee, is also our Chief
Executive Officer and serves as a director and Chief Executive Officer of
ChemNavigator.com and as a director and President of Aressa.
DIRECTOR COMPENSATION
Other than expenses in connection with attendance at meetings and other
customary expenses, we currently do not compensate any non-employee members of
our board of directors. Directors who are also employees do not receive
additional compensation for serving as directors.
Under our 2000 Equity Compensation Plan, non-employee directors will be
eligible to receive option grants to purchase shares of our common stock, as
determined by the board of directors. Non-employee directors will also be
eligible to receive direct stock issuances. You should read the discussion under
the section entitled "Compensation plans" for further information regarding our
2000 Equity Compensation Plan.
EXECUTIVE COMPENSATION
The following tables set forth in summary form information concerning the
compensation paid by us during the fiscal year ended December 31, 1999, to our
Chief Executive Officer and each of our other four most highly paid executive
officers whose salary and bonus for the fiscal year exceeded $100,000 and who
served as an executive officer of ours during the fiscal year.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR COMPENSATION OPTIONS/SARS(#) COMPENSATION
--------------------------- ---- ------------ --------------------- ------------
<S> <C> <C> <C> <C>
Jack Lief...................................... 1999 $197,600 12,500 --(1)
President and Chief Executive Officer
Dominic P. Behan............................... 1999 137,500 12,500 $2,404(2)
Vice President, Research
Derek T. Chalmers.............................. 1999 137,500 12,500 4,807(2)
Vice President, Research
Richard P. Burgoon, Jr. ....................... 1999 156,183 22,500 2,981(1)(2)
Senior Vice President, Operations and General
Counsel
Joyce Williams................................. 1999 154,283 10,000 --
Vice President, Drug Development
</TABLE>
- -------------------------
(1) Pursuant to a four year consulting agreement with ChemNavigator.com, Mr.
Lief was awarded 200,000 shares of common stock of ChemNavigator.com in May
1999. The shares vest at a rate of 50,000 shares a year beginning in May
2000, provided that Mr. Lief remains employed by us. Pursuant to a four year
consulting agreement with ChemNavigator.com, Mr. Burgoon was awarded 175,000
shares of common stock of ChemNavigator.com in May 1999. The shares vest at
a rate of 43,750 shares a year beginning in May 2000, provided that Mr.
Burgoon remains employed by us.
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(2) After their annual anniversary hire date, each of our employees may elect to
be paid for unused vacation time in the form of additional salary. In the
fiscal year ended December 31, 1999, Dr. Behan and Mr. Burgoon both elected
to be paid in the form of additional salary for one week of unused vacation
time and Dr. Chalmers elected to be paid in the form of additional salary
for two weeks of unused vacation time.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to the named executive officers,
information concerning stock options granted during the fiscal year ended
December 31, 1999.
Amounts represent the hypothetical gains that could be achieved from the
respective options if exercised at the end of the option term and are not
predictive of our future gains, if any. 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 based upon the grant
price, minus the applicable per share exercise price.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT EXERCISE STOCK PRICE APPRECIATION
UNDERLYING OF TOTAL PRICE FOR OPTION TERM
OPTIONS OPTIONS PER EXPIRATION ------------------------
NAME GRANTED GRANTED SHARE DATE 5% 10%
---- ----------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack Lief........................... 12,500 3.4% $0.60 6/30/08 $4,717 $11,953
Dominic P. Behan.................... 12,500 3.4 0.60 6/30/08 4,717 11,953
Derek T. Chalmers................... 12,500 3.4 0.60 6/30/08 4,717 11,953
Richard P. Burgoon, Jr.............. 22,500 6.0 0.60 4/5/09 8,490 21,516
Joyce H. Williams................... 10,000 2.7 0.60 2/8/09 3,773 9,562
</TABLE>
Pursuant to stock option agreements between us and Mr. Lief, Dr. Behan, Dr.
Chalmers, Mr. Burgoon and Ms. Williams, each of these individuals is entitled to
exercise their options prior to vesting. If they exercise their options prior to
vesting, they will receive restricted shares which will vest in accordance with
the normal vesting schedule set forth in their stock option agreement and are
subject to repurchase by us if they cease to be employed by us.
1999 YEAR-END OPTION VALUES
The following table sets forth information concerning options to purchase
common stock held as of December 31, 1999 by each of the officers named in the
summary compensation table that have stock options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AS OF DECEMBER 31, 1999(1) AS OF DECEMBER 31, 1999(2)
------------------------------ ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack Lief................................... 28,125 34,375
Dominic P. Behan............................ 28,125 34,375
Derek T. Chalmers........................... 28,125 34,375
Richard P. Burgoon, Jr...................... -- 52,500
Joyce H. Williams........................... -- 10,000
</TABLE>
- -------------------------
(1) Pursuant to stock option agreements between us and Mr. Lief, Dr. Behan, Dr.
Chalmers, Mr. Burgoon and Ms. Williams, each of these individuals is
entitled to exercise his or her options prior to vesting. Therefore, all of
the exercisable options are vested, but have not yet been exercised, and all
of the unexerciseable options may be exercised, but have not yet vested and
will only vest subject to the terms of the stock option agreements.
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(2) There was no public trading market for our common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $ per share minus the
applicable per share exercise price.
COMPENSATION PLANS
The purpose of our equity compensation plans is to provide our designated
employees, certain consultants and advisors who perform services for us, and
non-employee members of our board of directors, with the opportunity to receive
grants of incentive stock options, nonqualified stock options and restricted
stock. Our plans permit the Compensation Committee to select eligible persons to
receive awards and to determine the terms and conditions of such awards. The
Compensation Committee will also set the vesting schedule and exercise price of
the options, provided that the option exercise price may not be less than 85% of
the fair market value per share of our common stock on the date of grant. In
addition, no participant may be granted incentive stock options that are first
exercisable in any one calendar year with fair market value in excess of
$100,000. The options and restricted stock granted under our equity compensation
plans generally vest ratably over a four-year vesting period from the date of
grant and are exercisable up to ten years from the date of grant.
1998 Equity Compensation Plan
Our 1998 Equity Compensation Plan was adopted by our board of directors in
June 1998 and later approved by the stockholders. As of April 4, 2000, we had
granted incentive stock options and non-qualified stock options to purchase
1,462,600 shares of common stock at a weighted average price of $0.48 per share
under the provisions of our 1998 Equity Compensation Plan. As of April 4, 2000,
611,225 of the stock options were exercised, 5,625 were canceled and 104,250
were vested. Pursuant to stock option agreements between us and some
optionholders for option grants under this plan, some of our optionholders are
entitled to exercise their options prior to vesting. All of the unexercisable
options granted under the 1998 Equity Compensation Plan may be exercised
immediately, but will vest subject to the terms of the particular stock option
agreement. We do not intend to issue any more options pursuant to this plan.
2000 Equity Compensation Plan
Our 2000 Equity Compensation Plan was adopted by our board of directors in
April 2000 and is expected to be approved by our stockholders. The aggregate
number of shares of our common stock that may be issued pursuant to the 2000
Equity Compensation Plan is 2,000,000 shares. As of the date of this prospectus,
we have not granted any options under our 2000 Equity Compensation Plan.
401(k) PLAN
We have established a tax-qualified employee savings and retirement plan,
or 401(k) Plan, which our full-time employees may participate in if they choose
to do so. Pursuant to the 401(k) Plan, eligible employees may elect to reduce
their current compensation by up to the lesser of 14% of their annual
compensation and the statutorily prescribed limit, which is $10,500 in 2000, and
have the amount of such reduction contributed to the 401(k) Plan. The trustees
of the 401(k) Plan, at the direction of each participant, invest the
contributions to the 401(k) Plan in designated investment options. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code, so
that contributions to the 401(k) Plan and income earned on the 401(k) Plan
contributions are not taxable until withdrawn, and so that the contributions we
make will be deductible when made. Employees are eligible to participate in the
401(k) Plan on the first day of their employment. Our matching contributions
totaled $149,000 in the year ended December 31, 1999 and $27,000 in the year
ended December 31, 1998. Our matching contributions are subject to a five-year
vesting schedule.
EMPLOYMENT AGREEMENTS
Our officers serve at the discretion of our board of directors. We have not
entered into any written employment agreements with any of our employees.
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<PAGE> 52
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
Limitation of liability
Our certificate of incorporation provides that the liability of our
directors will be limited to the fullest extent permitted by Delaware law. Our
directors will not be personally liable to us or our stockholders for monetary
damages resulting from a breach of fiduciary duty except for:
- any breach of the duty of loyalty to us or our stockholders
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
- liability under Section 174 of the Delaware General Corporation Law
- any transaction from which the director derived an improper personal
benefit
This limitation of liability does not apply to the responsibility or
liability of our directors pursuant to any criminal statute nor does it relieve
our directors from payment of taxes pursuant to federal, state or local law.
Indemnification
Our by-laws provide that we will indemnify our directors and executive
officers and may indemnify our other corporate agents, to the fullest extent
permitted by Delaware law. Section 145 of the Delaware corporate laws provides a
corporation with the power to indemnify any officer or director acting in his
capacity as the corporation's representative who was, is or is threatened to be
made, a party to any action or proceeding for expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action or proceeding. The indemnity provisions apply whether the action was
instituted by a third-party or arose by or in our right. Generally, the only
limitation on our ability to indemnify our officers and directors is if their
actions violate a criminal statute or if their actions or failures to act are
finally determined by a court to have constituted willful misconduct or
recklessness.
We currently have directors' and officers' liability insurance to provide
our directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, errors and other wrongful acts.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. McAlister, a member of our board of directors, is also the Chief
Executive Officer and President of Tripos. Tripos is the beneficial owner of
approximately 13.3% of our common stock. In 1997, we issued a note payable to
Tripos in the principal amount of $755,000, at an annual interest rate of 9.5%,
convertible into 755,000 shares of our common stock, and a warrant to purchase
100,000 shares of our common stock at an exercise price of $0.70 per share in
connection with an agreement which provides us access to Tripos' chemical
library. In June 1997, we issued a total of 245,000 shares of Series A preferred
stock to Tripos for an aggregate purchase price of $245,000. In November 1997,
Tripos also purchased 480,000 shares of our Series B preferred stock for an
aggregate purchase price of $600,000. In 1998, we issued a convertible note
payable to Tripos in the principal amount of $1,500,000, at an annual interest
rate of 9.5%. The note was converted into 435,840 shares of Series D preferred
stock in January 1999. We have also entered into a research collaboration
agreement and a software license agreement with Tripos, and we may enter into
additional agreements with Tripos for the joint development of drug candidates
using CART-activated receptors and Tripos' chemical library. We will share
expenses and any proceeds resulting from our collaboration with Tripos and will
pay Tripos a fee for services they provide outside of our collaboration.
Dr. Steinmetz, a member of our board of directors, is also a Managing
Director for MPM Asset Management. MPM Asset Management is the beneficial owner
of approximately 28.1% of our common stock. In January 1999, entities controlled
by MPM Asset Management purchased 2,005,731 shares of our
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<PAGE> 53
Series D preferred stock for an aggregate purchase price of $7,000,001. In
January 2000, entities controlled by MPM Asset Management purchased 1,141,033
shares of our Series E preferred stock for an aggregate purchase price of
$4,564,132. In March 2000, entities controlled by MPM Asset Management purchased
865,385 shares of our Series F preferred stock for an aggregate purchase price
of $4,500,002. Dr. Steinmetz is the holder of record of 50,000 shares of
ChemNavigator.com's Series A preferred stock, 13,296 shares of its Series B
preferred stock and holds a warrant to purchase 3,324 shares of common stock of
ChemNavigator.com, for which he paid an aggregate purchase price of $80,315.
Dr. Ryser, a member of our board of directors, is also a member and
delegate of the board of International Biomedicine Management Partners, Inc.
International Biomedicine Management Partners is the beneficial owner of 13.5%
of our common stock. In January 1999, International BM Biomedicine Holdings,
Inc. purchased 1,432,665 shares of our Series D preferred stock for an aggregate
purchase price of $5,000,001. In January 2000, International BM Biomedicine
Holdings also purchased 500,000 shares of our Series E preferred stock for an
aggregate purchase price of $2,000,000.
Dr. Michael E. Lewis, one of our co-founders, is a principal in
BioDiligence Partners, Inc. We paid BioDiligence Partners $120,000 during 1999
and $42,500 for the first three months of 2000, for consulting services
rendered. We did not pay any cash compensation directly to Dr. Lewis in 1999 or
during the first three months of 2000.
In April 2000, Mr. Scotti, our Vice President, Business Development,
purchased 10,000 shares of our Series G preferred stock for an aggregate
purchase price of $73,000.
Mr. Lief, our President and Chief Executive Officer, is also the President
of Aressa, the Chief Executive Officer of ChemNavigator.com, and a member of the
board of directors of Aressa and of ChemNavigator.com. In November 1997, Mr.
Lief purchased 28,000 shares of our Series B preferred stock for an aggregate
purchase price of $35,000. Mr. Lief has entered into a four-year service
agreement with ChemNavigator.com in which he agrees to provide up to 200 hours
of service per year. As compensation for his services he has received 200,000
shares of common stock of ChemNavigator.com, which vest over a period of four
years, subject to Mr. Lief remaining in our employ.
Mr. Burgoon, our Senior Vice President, Operations, General Counsel and
Secretary, is also the Secretary of Aressa and ChemNavigator.com, and is a
member of the board of directors of Aressa and of ChemNavigator.com. Mr. Burgoon
has entered into a four-year service agreement with ChemNavigator.com in which
he agrees to provide up to 200 hours of service per year. As compensation for
his services he has received 175,000 shares of common stock of
ChemNavigator.com, which vest over a period of four years, subject to Mr.
Burgoon remaining in our employ.
Mr. Hoffman, our Vice President, Finance, has entered into a four-year
service agreement with ChemNavigator.com in which he agrees to provide up to 200
hours of service per year. As compensation for his services he has received
100,000 shares of common stock of ChemNavigator.com, which vest over a period of
four years, subject to Mr. Hoffman remaining in our employ.
In addition, Dr. Beeley, our Vice President, Chief Chemical Officer, and
some of our other employees have provided consulting services to
ChemNavigator.com and have received options to purchase shares of common stock
of ChemNavigator.com as compensation for services rendered. Other than as set
forth above, we do not expect our employees to provide significant services to
ChemNavigator.com. We also sublease office space to ChemNavigator.com at a fair
market rate.
We were formed in 1997. In June 1997 we issued 1,000,000 shares of common
stock to our founders at a price of $0.0001 per share for a total cash
consideration of $100. Our founders include Mr. Lief, who received 225,000
shares, Dr. Behan, who received 250,000 shares, Dr. Chalmers, who received
250,000 shares, and Dr. Lewis, who received 225,000 shares.
We believe that all of the transactions described above were made and are
on terms no less favorable to us than those that could be obtained from
independent third-parties in arms-length negotiations.
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<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table provides information regarding beneficial ownership of
our common stock as of March 31, 2000, plus 1,323,146 shares of our common stock
issuable upon the conversion of our Series G preferred stock that we issued in
April 2000, and as adjusted to reflect the sale of the shares of
common stock offered hereby, by:
- each person, group or entity who beneficially owns more than 5% of our
stock
- each of our directors
- each of our named executive officers
- all of our executive officers and directors as a group
The amounts and percentages of common stock beneficially owned are reported
on the basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities for which that person has a right to acquire beneficial
ownership presently or within 60 days. Under these rules, more than one person
may be deemed a beneficial owner of the same securities and a person may be
deemed to be the beneficial owner of securities as to which that person has no
economic interest. In addition, the following table reflects the automatic
conversion of all outstanding shares of our preferred stock into shares
of common stock upon the closing of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
NUMBER OF SHARES --------------------
OF COMMON STOCK BEFORE AFTER
NAME BENEFICIALLY OWNED OFFERING OFFERING
---- ------------------ -------- --------
<S> <C> <C> <C>
MPM Asset Management(1)................................. 4,012,149 28.1%
International BM Biomedicine Holdings, Inc.(2).......... 1,932,665 13.5
Tripos, Inc.(3)......................................... 2,015,840 13.3
Eaton Vance Worldwide Health Sciences Fund(4)........... 832,018 5.8
Jack Lief(5)............................................ 415,500 2.9
Dominic P. Behan(6)..................................... 412,500 2.9
Derek T. Chalmers(7).................................... 412,500 2.9
Richard P. Burgoon Jr.(8)............................... 112,500 *
Joyce Williams(9)....................................... 60,000 *
Michael Steinmetz(1).................................... 4,012,149 28.1
Stefan Ryser(2)......................................... 1,932,665 13.5
John P. McAlister, III(3)............................... 2,015,840 13.3
All directors and executive officers as a group (12
persons).............................................. 9,563,654 61.4
</TABLE>
- -------------------------
* Less than one percent.
(1) Reflects 3,473,112 shares held of record by BB Bioventures, Limited
Partnership, 497,310 shares held of record by MPM Bioventures Parallel Fund,
L.P., and 41,727 shares held of record by the MPM Asset Management Investors
1999 LLC. Dr. Steinmetz is the Managing Director of MPM Asset Management,
which is the fund manager of each of BB Bioventures, MPM Bioventures
Parallel Fund and MPM Asset Management Investors. The address of MPM Asset
Management is One Cambridge Center, 9th Floor, Cambridge, Massachusetts
02142. Dr. Steinmetz disclaims beneficial ownership of shares in which he
does not have a pecuniary interest. Dr. Steinmetz is the holder of record of
50,000 shares of ChemNavigator.com's Series A preferred stock, 13,296 shares
of its Series B preferred stock and holds a warrant to purchase 3,324 shares
of the common stock of ChemNavigator.com.
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<PAGE> 55
(2) Reflects shares owned by International BM Biomedicine Holdings, Inc. Dr.
Ryser is a member and delegate of the board of International Biomedicine
Management Partners, Inc., a company that manages investments on behalf of
International BM Biomedicine Holdings. Dr. Ryser disclaim beneficial
ownership of shares in which he does not have a pecuniary interest. The
address for International BM Biomedicine Holdings is House of Commerce,
Aeschenplatz, P.O. Box 136, CH-4010, Basel, Switzerland.
(3) Includes 755,000 shares that may be acquired upon the conversion of a
convertible note, and 100,000 shares that may be acquired upon exercise of a
warrant. Dr. McAlister is the President and a director of Tripos. The
address for Tripos is 1699 South Hanlev Road, St. Louis, Missouri 63144. Dr.
McAlister disclaims beneficial ownership of shares in which he does not have
a pecuniary interest.
(4) The address for Eaton Vance Worldwide Health Sciences Fund is 767 Third
Avenue, 8th Floor, New York, New York 10017.
(5) Includes 134,375 shares that were issued to Mr. Lief upon the exercise of
unvested stock options. Shares issued upon the exercise of unvested stock
options will vest over the four-year term of the underlying stock option
agreement, subject to repurchase by us if Mr. Lief leaves our employ. Mr.
Lief also owns 200,000 shares of the common stock of ChemNavigator.com,
subject to repurchase by ChemNavigator.com if Mr. Lief is no longer employed
by us.
(6) Includes 112,500 shares issuable upon the exercise of stock options.
Includes 25,000 shares that were issued to Dr. Behan upon the exercise of
unvested stock options. Shares issued upon the exercise of unvested stock
options will vest over the four-year term of the underlying stock option
agreement, subject to repurchase by us if Dr. Behan is no longer employed by
us.
(7) Includes 162,500 shares issuable upon the exercise of stock options.
(8) Includes 72,500 shares issuable upon the exercise of stock options. Includes
20,000 shares that were issued to Mr. Burgoon upon the exercise of unvested
stock options. Shares issued upon the exercise of unvested stock options
will vest over the four-year term of the underlying stock option agreement,
subject to repurchase by us if Mr. Burgoon leaves our employ. Mr. Burgoon
also owns 175,000 shares of the common stock of ChemNavigator.com, subject
to repurchase by ChemNavigator.com if Mr. Burgoon is no longer employed by
us.
(9) Includes 37,500 shares that were issued to Ms. Williams upon the exercise of
unvested stock options. Shares issued upon the exercise of unvested stock
options will vest over the four-year term of the underlying stock option
agreement, subject to repurchase by us if Ms. Williams is no longer employed
by us.
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<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock as of March 31, 2000 consisted of 35,000,000
shares of common stock and 17,608,593 shares of preferred stock, and as of this
date, there were 1,593,725 shares of common stock and 11,375,432 shares of
preferred stock outstanding. As of March 31, 2000, we had 59 stockholders of
record of our common stock and 135 stockholders of record of our preferred
stock. On April 17, 2000, we issued an aggregate of 1,323,146 shares of Series G
preferred stock to various existing stockholders and to 34 additional
stockholders of record.
Upon the closing of this offering:
- our common stock will be split on a one-for basis
- our certificate of incorporation will be amended and restated to provide
for a total of 75,000,000 shares of authorized capital stock, consisting
of 67,500,000 shares of common stock, par value $0.0001, and 7,500,000
shares of preferred stock, par value $0.0001
- all but one of our outstanding warrants will be exercised, resulting in
the issuance of 393,419 shares of common stock
- all 12,698,578 outstanding shares of our preferred stock will convert
into common stock
As a result, after giving effect to the sale of the common stock in this
offering, we will have a total of shares of common stock and no shares
of preferred stock outstanding, assuming that the underwriters do not exercise
their over-allotment option.
COMMON STOCK
Voting:
- one vote for each share held of record on all matters submitted to a vote
of our stockholders
- no cumulative voting rights
- election of directors by plurality of votes cast
- all other matters by majority of votes cast
Dividends:
- subject to preferential dividend rights of outstanding preferred stock,
if any
- common stockholders are entitled to receive ratably declared dividends
- our board of directors may only declare dividends out of legally
available funds
Additional Rights:
- subject to the preferential liquidation rights of outstanding shares of
preferred stock, if any, common stockholders are entitled to receive
ratably net assets, available after the payment of all debts and
liabilities, upon our liquidation, dissolution or winding up
- no preemptive rights
- no subscription rights
- no redemption rights
- no sinking fund rights
- no conversion rights
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<PAGE> 57
The rights and preferences of common stockholders, including the right to
elect directors, are subject to the rights of any series of preferred stock we
may issue in the future.
PREFERRED STOCK
After completion of this offering, our amended and restated certificate of
incorporation will provide that we may, by resolution of our board of directors,
and without any further vote or action by our stockholders, authorize and issue,
subject to limitations prescribed by law, up to an aggregate of 7,500,000 shares
of preferred stock. The preferred stock may be issued in one or more series.
With respect to any series, our board of directors may determine the designation
and the number of shares, preferences, limitations and special rights, including
dividend rights, conversion rights, voting rights, redemption rights and
liquidation preferences. Because of the rights that may be granted, the issuance
of preferred stock may delay, defer or prevent a change of control.
Prior to this offering, we had issued and outstanding 12,698,578 shares of
preferred stock. Upon the completion of this offering, all of our outstanding
shares of preferred stock will automatically convert into shares of
common stock.
WARRANTS AND CONVERTIBLE NOTE
Prior to this offering, we had issued and outstanding warrants to purchase:
- 100,000 shares of common stock at an exercise price of $0.70 per share
- 13,333 shares of common stock at an exercise price of $5.75 per share
- 280,086 shares of common stock at an exercise price of $3.49 per share
- 18,000 shares of common stock at an exercise price of $3.49 per share
All but one of the warrants will be exercised at the closing of this
offering. The warrant to purchase 18,000 shares of common stock, with an
exercise price of $3.49 per share, will remain outstanding after the closing of
this offering. If this warrant is not exercised by April 26, 2006, subject to
the market price of our common stock, the warrant holder has the option to
require us to purchase the warrant at a price of $12.00 per share or we have the
option to repurchase the warrant from the holder at a price of $20.00 per share.
We will also have outstanding a convertible note issued to Tripos in the
principal amount of $755,000, convertible into 755,000 shares of common stock.
REGISTRATION RIGHTS
Following completion of this offering, holders of 11,004,739 shares of
common stock, including common stock issuable upon conversion of our outstanding
note and the exercise of our outstanding warrant, will have the right to have
their shares registered under the Securities Act of 1933. These rights are
provided under the terms of three separate agreements between us and the holders
of these shares. Under these agreements, the holders of these shares have the
right, subject to specific conditions, to require us to file up to six
registration statements on their behalf and, when we become eligible to use Form
S-3 under the Securities Act, to require us to file up to ten additional
registration statements on Form S-3 on their behalf, for a total of up to 16
registration statements. The holders of these securities are also entitled to
require us to include their common stock in future registration statements we
file under the Securities Act of 1933.
Once a holder can sell all of his shares under Rule 144 of the Securities
Act during any 90 day period, the holder cannot require us to register his
shares under these agreements. Additionally, any remaining registration rights
terminate six years after the closing of this offering. Registration of shares
of common stock pursuant to the exercise of these registration rights would
result in such shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of such
55
<PAGE> 58
registration and may adversely affect our stock price. We expect that the
holders of substantially all of these securities will enter into lock-up
agreements with the underwriters preventing them from selling or transferring
their shares for 180 days after this offering.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW
Our certificate of incorporation provides that our board of directors may
establish the rights of, and cause us to issue, substantial amounts of preferred
stock without the need for stockholder approval. Further, our board may
determine the terms, conditions, rights, privileges and preferences of the
preferred stock. Our board is required to exercise its business judgment when
making such determinations. Our board's use of its discretion to issue preferred
stock may inhibit the ability of third parties to acquire us. Additionally, our
board may issue the preferred stock in an attempt to dilute the common stock
held by entities seeking to obtain control of us. Some of the rights of the
holders of common stock will be subject to, and may be adversely affected by,
any preferred stock that may be issued in the future. Our preferred stock
provides desirable flexibility in connection with possible acquisitions,
financings and other corporate transactions. However, it may also have the
effect of discouraging, delaying or making it more difficult for third parties
to acquire or attempt to acquire control of us or substantial amounts of our
common stock.
After this offering is completed, Section 203 of the Delaware General
Corporation Law will apply to us. Section 203 of the Delaware General
Corporation Law generally prohibits certain business combinations between a
Delaware corporation and an "interested stockholder." An interested stockholder
is generally defined as a person who beneficially owns, or within three years
did own, directly or indirectly, 15% or more of the outstanding voting shares of
a Delaware corporation, or is an affiliate or associate of a person who meets
these criteria. The statute broadly defines business combinations to include:
- mergers
- consolidations
- sales or other dispositions of assets having an aggregate value equal to,
or in excess of 10% of the aggregate market value of, the consolidated
assets of the corporation or aggregate market value of all outstanding
stock of the corporation
- certain transactions that would increase the interested stockholder's
proportionate share ownership in the corporation
The statute prohibits any such business combination for a period of three
years commencing on the date the interested stockholder becomes an interested
stockholder, unless:
- the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder becomes an
interested stockholder
- the interested stockholder acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also officers
or by certain employee stock plans) in the transaction in which it
becomes an interested stockholder
- the business combination is approved by the board of directors and by the
affirmative vote of at least two-thirds of the outstanding voting stock
that is not owned by the interested stockholder
The Delaware General Corporation Law contains provisions enabling a
corporation to avoid Section 203's restrictions if the corporation's
stockholders vote to approve an amendment to the corporation's certificate of
incorporation or by-laws to avoid the restrictions. In addition, the
restrictions contained in Section 203 are not applicable to any of our existing
stockholders. We have not and do not currently intend to "elect out" of the
application of Section 203 of the Delaware General Corporation Law.
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<PAGE> 59
TRANSFER AGENT
The transfer agent and registrar for our common stock is
.
NATIONAL MARKET LISTING
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "ARNA."
57
<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock outstanding based upon shares outstanding as of March 31, 2000,
after giving effect to the issuance of 1,323,146 shares of Series G preferred
stock, the conversion of all of our outstanding preferred stock into 12,698,578
shares of common stock and the exercise of all but one of our outstanding
warrants into 393,419 shares of common stock. Of these shares, the shares of
common stock offered hereby will be freely tradeable without restriction unless
these shares are held by affiliates as defined in Rule 144(a) under the
Securities Act of 1933. The remaining 14,685,722 shares of common stock to be
outstanding after this offering will be restricted shares under the Securities
Act of 1933. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule 144.
We will also have outstanding a note convertible into 755,000 shares of common
stock, a warrant exercisable for 18,000 shares of common stock and options
outstanding to purchase 673,000 shares of common stock. Upon conversion of the
note and exercise of the warrant and these options, we would have an additional
1,446,000 shares of common stock outstanding which may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rule 144. Subject to the lock-up agreements described below and the
provisions of Rule 144, additional shares will become available for sale in the
public market.
In general, under Rule 144, an affiliate of ours, or a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year, will be entitled to sell that number of shares in any
three-month period that does not exceed:
- the greater of one percent of the then outstanding shares of our common
stock, which will be approximately shares immediately after this
offering, assuming no exercise of the underwriters' over-allotment
option, or
- the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about us.
A person or persons whose shares are aggregated who is not deemed to have been
our affiliate at any time during the 90 days immediately preceding the sale and
who has beneficially owned his or her shares for at least two years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
described above.
Each of our officers and directors, substantially all of our stockholders,
and holders of options and warrants to purchase our stock, and the holder of our
convertible note, have agreed not to offer, sell, contract to sell or otherwise
dispose of, or enter into any transaction that is designed to, or could be
expected to, result in the disposition of any shares of our common stock or
other securities convertible into or exchangeable or exercisable for shares of
our common stock or derivatives of our common stock owned by these persons prior
to this offering, or common stock issuable upon exercise of options or warrants
or the conversion of a note held by these persons, for a period of 180 days
after the date of this prospectus without the prior written consent of the
underwriters. This consent may be given at any time without public notice.
We have entered into a similar agreement with the underwriters, except that
we may grant options and sell shares pursuant to our 2000 Equity Compensation
Plan without such consent. There are presently no agreements between the
underwriters and any of our stockholders or affiliates releasing them from these
lock-up agreements prior to the expiration of the 180-day period.
We intend to file a registration statement on Form S-8 under the Securities
Act within 90 days after the date of this prospectus, to register shares issued
under our equity compensation plans in connection with stock option exercises.
Under our 1998 Equity Compensation Plan, options to purchase 673,000 shares of
common stock have been issued, and under our 2000 Equity Compensation Plan,
options to purchase up to 2,000,000 shares of common stock may be issued.
Therefore, after the effective date of the Form S-8 up to 2,673,000 shares of
common stock will be available for sale in the public market,
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<PAGE> 61
subject to Rule 144 volume limitations applicable to affiliates and lock-up
agreements. We have also granted registration rights to a number of our existing
stockholders, as well as to the holders of our warrants and our convertible
note, which entitle these persons to require us to file additional registration
statements to register the shares of our common stock that they hold, or could
receive upon the exercise of their warrant or the conversion of their note. We
could be required to file up to an additional 16 registration statements for
some of our current stockholders.
Prior to this offering, there has been no public market for our common
stock. Sales of substantial amounts of common stock or the availability of such
shares for sale could adversely affect prevailing market prices of our common
stock and our ability to raise additional capital. You should read the
discussion under the heading entitled "Risk Factors -- Future sales of our
common stock could cause the market price of our common stock to decline" for
further information about the effect future sales could have on the market price
of our common stock.
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<PAGE> 62
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters, for whom ING Barings LLC, Prudential Securities Incorporated and
SG Cowen Securities Corporation are acting as representatives, have severally
agreed to purchase from us the following respective number of shares of common
stock at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
ING Barings LLC.............................................
Prudential Securities Incorporated..........................
SG Cowen Securities Corporation.............................
--------
Total.....................................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions. The underwriters are obligated to purchase all of the
shares of common stock offered hereby, other than those covered by the
over-allotment option described below, if any of the shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
some dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The underwriters may allow, and these
dealers may allow, a concession of not more than $ per share to brokers or
other dealers. After the initial public offering, the offering price and other
selling terms may be changed by the representatives.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to
additional shares of common stock at the initial public offering price
less the underwriting discounts and commissions set forth on the cover page of
this prospectus. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the common stock offered
hereby. To the extent that the underwriters exercise this option, each of the
underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above table bears
to , and we will be obligated, pursuant to this option, to
sell these shares to the underwriters to the extent this option is exercised. If
any additional shares of common stock are purchased, the underwriters will offer
the additional shares on the same terms as those on which the shares
are being offered.
The following table shows the fees to be paid to the underwriters by us in
connection with this offering. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase additional shares of
common stock:
<TABLE>
<CAPTION>
TOTAL FEES
---------------------------
FEE PER SHARE NO EXERCISE FULL EXERCISE
------------- ----------- -------------
<S> <C> <C> <C>
Payable by us....................................... $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the underwriters may be required to make in respect of
any of these liabilities.
The representatives of the underwriters have advised us that they do not
intend to confirm sales to any account over which they exercise discretionary
authority.
In January 1999, ING Barings acted as our placement agent in connection
with the private placement of our Series D preferred stock for which it received
customary compensation, including a warrant to
60
<PAGE> 63
purchase shares of our common stock, and reimbursement of expenses. Upon the
exercise of this warrant and the conversion of our preferred stock held by an
individual associated with ING Barings into common stock upon the closing of
this offering, ING Barings and this individual will own an aggregate of 302,762
shares of our common stock. The underwriters and their affiliates may, from time
to time, engage in transactions with and perform services for us in the ordinary
course of our business.
In order to facilitate this offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the underwriters may also reclaim selling concessions allowed
to an underwriter or dealer if the underwriters repurchase shares distributed by
that underwriter or dealer. Any of these activities may maintain the market
price of our common stock at a level above that which might otherwise prevail in
the open market. These transactions may be effected on the Nasdaq National
Market or otherwise. The underwriters are not required to engage in these
activities and, if commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares for our vendors, employees,
family members of employees, customers and other third parties who have agreed
to hold their shares for at least 30 days after the date of this prospectus. The
number of shares of our common stock available for sale to the general public
will be reduced to the extent these reserved shares are purchased. Any reserved
shares that are not purchased by these persons will be offered by the
underwriters to the general public on the same basis as the other shares in this
offering.
We and each of our officers and directors, substantially all of our
stockholders, and holders of options and warrants to purchase our stock, and the
holder of our convertible note, have agreed not to offer, sell, contract to sell
or otherwise dispose of, or enter into any transaction that is designed to, or
could be expected to, result in the disposition of any shares of our common
stock or other securities convertible into or exchangeable or exercisable for
shares of our common stock or derivatives of our common stock owned by these
persons prior to this offering, or common stock issuable upon exercise of
options or warrants or the conversion of a note held by these persons, for a
period of 180 days after the date of this prospectus without the prior written
consent of the underwriters. This consent may be given at any time without
public notice.
Additionally, we may grant options and sell shares pursuant to our 2000
Equity Compensation Plan without such consent.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price will be:
- prevailing market conditions
- our results of operations in recent periods
- the present stage of our development
- assessment of our management
- the market capitalization and stage of development of other companies
that we and the underwriters believe to be comparable to our business
- estimates of our business potential
61
<PAGE> 64
LEGAL MATTERS
Morgan, Lewis & Bockius LLP, Los Angeles, California will provide us with
an opinion relating to the validity of the common stock issued in this offering.
The validity of the shares of common stock issued in this offering will be
passed upon for the underwriters by Winthrop, Stimson, Putnam & Roberts,
Stamford, Connecticut.
EXPERTS
The audited financial statements included in this prospectus have been
audited by Ernst & Young LLP, independent auditors, as described in their
report. We have included our financial statements in this prospectus in reliance
upon Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the SEC with
respect to the common stock offered hereby. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are part
of the registration statement. For further information regarding us and our
common stock, you should read the registration statement and the related
exhibits and schedules. You may read and copy any document we file at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference room. Our SEC filings are also available to the public from the SEC's
website at http://www.sec.gov. Upon completion of this offering, we will become
subject to the information and periodic reporting requirements of the Securities
Exchange Act of 1934 and will file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference room and the SEC's website referred to above.
62
<PAGE> 65
ARENA PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Deficit......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 66
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Arena Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Arena Pharmaceuticals,
Inc. (a development stage company) as of December 31, 1998 and 1999, and the
related statements of operations, stockholders' deficit and cash flows for the
period from April 14, 1997 (inception) through December 31, 1997, and the years
ended December 31, 1998 and 1999. 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 auditing standards generally
accepted in the United States. 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 financial position of Arena Pharmaceuticals, Inc.
(a development stage company) at December 31, 1998 and 1999 and the results of
its operations and its cash flows for the period from April 14, 1997 (inception)
through December 31, 1997, and the years ended December 31, 1998 and 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Diego, California
April 17, 2000
F-2
<PAGE> 67
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
----------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 194,243 $ 5,401,508 $ 27,547,339
Prepaid expenses................................... 61,981 172,052 158,926
----------- ------------ ------------
Total current assets........................ 256,224 5,573,560 27,706,265
Property and equipment, net.......................... 1,165,640 2,773,382 2,848,667
Deposits............................................. 560 98,943 8,061
Deferred financing costs............................. 150,711 -- 57,984
Restricted cash...................................... 79,955 79,955 79,955
----------- ------------ ------------
Total assets................................ $ 1,653,090 $ 8,525,840 $ 30,700,932
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.............. $ 242,219 $ 866,414 $ 511,896
Current portion of convertible note payable to
related party.................................... 1,137,172 -- --
Current portion of obligations under capital
leases........................................... 25,130 355,119 387,753
----------- ------------ ------------
Total current liabilities................... 1,404,521 1,221,533 899,649
Convertible note payable to related party, less
current portion.................................... 862,587 934,312 952,244
Obligations under capital leases, less current
portion............................................ 108,198 1,224,472 1,125,583
Deferred rent........................................ 747,424 793,123 806,296
Commitments
Prepaid financing proceeds........................... -- -- 4,514,260
Redeemable convertible preferred stock, $.0001 par
value: 7,792,533 shares authorized at December 31,
1998 and 1999, 17,608,593 shares authorized at
March 31, 2000; 2,037,533, 6,908,593 and 11,375,432
shares issued and outstanding at December 31, 1998
and 1999, and March 31, 2000, respectively;
7,500,000 shares authorized, no shares issued and
outstanding pro forma (unaudited).................. 2,598,643 18,251,949 38,797,410 $ --
Stockholders' equity (deficit):
Common stock, $.0001 par value: 25,000,000 shares
authorized at December 31, 1998 and 1999,
35,000,000 shares authorized at March 31, 2000;
1,043,500, 1,116,375, and 1,593,725 shares issued
and outstanding at December 31, 1998 and 1999,
and March 31, 2000, respectively; 67,500,000
shares authorized, 12,969,157 shares issued and
outstanding pro forma (unaudited)................ 104 111 159 1,297
Additional paid-in capital......................... 22,696 1,055,328 3,154,229 41,950,501
Deferred compensation.............................. -- (625,955) (2,326,077) (2,326,077)
Deficit accumulated during the development stage... (4,091,083) (14,329,033) (17,222,821) (17,222,821)
----------- ------------ ------------ ------------
Total stockholders' equity (deficit)........ (4,068,283) (13,899,549) (16,394,510) $ 22,402,900
----------- ------------ ------------ ============
Total liabilities and stockholders' equity
(deficit)................................. $ 1,653,090 $ 8,525,840 $ 30,700,932
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 68
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 14, 1997 APRIL 14, 1997
(INCEPTION) THREE MONTHS ENDED (INCEPTION)
THROUGH YEAR ENDED DECEMBER 31, MARCH 31, THROUGH
DECEMBER 31, -------------------------- ------------------------- MARCH 31,
1997 1998 1999 1999 2000 2000
-------------- ----------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating expenses:
Research and development... $ 447,038 $ 2,615,526 $ 8,336,483 $ 1,776,650 $ 2,399,358 $ 13,798,405
General and
administrative........... 234,614 728,806 1,814,023 304,396 423,828 3,201,271
Amortization of deferred
compensation............. -- -- 378,109 -- 181,067 559,176
--------- ----------- ------------ ----------- ----------- ------------
Total operating
expenses............... 681,652 3,344,332 10,528,615 2,081,046 3,004,253 17,558,852
Interest income.............. 22,750 42,266 446,848 113,925 157,461 669,325
Interest expense............. (35,863) (94,252) (165,603) (31,114) (59,579) (355,297)
Other income................. -- -- 9,420 -- 12,583 22,003
--------- ----------- ------------ ----------- ----------- ------------
Net loss..................... (694,765) (3,396,318) (10,237,950) (1,998,235) (2,893,788) (17,222,821)
Non-cash preferred stock
charge..................... -- -- -- -- (1,360,000) (1,360,000)
--------- ----------- ------------ ----------- ----------- ------------
Net loss applicable to common
stockholders............... $(694,765) $(3,396,318) $(10,237,950) $(1,998,235) $(4,253,788) $(18,582,821)
========= =========== ============ =========== =========== ============
Historical net loss per
share, basic and diluted... $ (0.73) $ (3.51) $ (10.05) $ (2.03) $ (3.91)
========= =========== ============ =========== ===========
Shares used in calculating
historical net loss per
share, basic and diluted... 955,000 966,799 1,018,359 984,583 1,086,988
========= =========== ============ =========== ===========
Pro forma net loss per
share...................... $ (1.29) $ (0.43)
============ ===========
Shares used in calculating
pro forma net loss per
share...................... 7,926,952 9,827,102
============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 69
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
------------------- PAID-IN DEFERRED DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION STAGE EQUITY (DEFICIT)
--------- ------ ---------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock at $.0001 per
share to founders for cash............ 1,000,000 $100 $ -- $ -- $ -- $ 100
Net loss................................ -- -- -- -- (694,765) (694,765)
--------- ---- ---------- ----------- ------------ ------------
Balance at December 31, 1997.............. 1,000,000 100 -- -- (694,765) (694,665)
Issuance of common stock warrants in
connection with technology
agreement............................. -- -- 14,000 -- -- 14,000
Issuance of Common Stock upon exercise
of options............................ 43,500 4 8,696 -- -- 8,700
Net loss................................ -- -- -- -- (3,396,318) (3,396,318)
--------- ---- ---------- ----------- ------------ ------------
Balance at December 31, 1998.............. 1,043,500 104 22,696 -- (4,091,083) (4,068,283)
Issuance of Common Stock upon exercise
of options............................ 72,875 7 28,568 -- -- 28,575
Deferred compensation related to stock
options............................... -- -- 1,004,064 (1,004,064) -- --
Amortization of deferred compensation... -- -- -- 378,109 -- 378,109
Net loss................................ -- -- -- -- (10,237,950) (10,237,950)
--------- ---- ---------- ----------- ------------ ------------
Balance at December 31, 1999.............. 1,116,375 111 1,055,328 (625,955) (14,329,033) (13,899,549)
Issuance of Common Stock upon exercise
of options (unaudited)................ 477,350 48 217,712 -- -- 217,760
Deferred compensation related to stock
options (unaudited)................... -- -- 1,881,189 (1,881,189) -- --
Amortization of deferred compensation
(unaudited)........................... -- -- -- 181,067 -- 181,067
Net loss (unaudited).................... -- -- -- -- (2,893,788) (2,893,788)
--------- ---- ---------- ----------- ------------ ------------
Balance at March 31, 2000 (unaudited)..... 1,593,725 $159 $3,154,229 $(2,326,077) $(17,222,821) $(16,394,510)
========= ==== ========== =========== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 70
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 14, 1997 THREE MONTHS ENDED APRIL 14, 1997
(INCEPTION) THROUGH YEAR ENDED DECEMBER 31, MARCH 31, (INCEPTION) THROUGH
DECEMBER 31, -------------------------- ------------------------- MARCH 31,
1997 1998 1999 1999 2000 2000
------------------- ----------- ------------ ----------- ----------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss..................... $ (694,765) $(3,396,318) $(10,237,950) $(1,998,235) $(2,893,788) $(17,222,821)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization........... 17,786 171,942 399,278 56,966 165,963 754,969
Amortization of deferred
compensation........... -- -- 378,109 -- 181,067 559,176
Interest accrued on notes
payable to related
party.................. 35,863 83,896 80,635 26,842 17,932 218,326
Warrants issued in
connection with
technology agreement... -- 14,000 -- -- -- 14,000
Deferred rent............ -- 747,424 45,699 12,380 13,173 806,296
Deferred financing
costs.................. -- (150,711) 150,711 150,711 (57,984) (57,984)
Change in operating
assets and liabilities:
Prepaid expenses....... (43,188) (18,793) (110,071) (38,589) 13,126 (158,926)
Accounts payable and
accrued expenses..... 132,049 110,170 624,195 697,612 (354,518) 511,896
---------- ----------- ------------ ----------- ----------- ------------
Net cash used in
operating
activities........... (552,255) (2,438,390) (8,669,394) (1,092,313) (2,915,029) (14,575,068)
INVESTING ACTIVITIES
Purchases of property and
equipment................ (796,435) (558,933) (2,007,020) (250,874) (241,248) (3,603,636)
Deposits and restricted
cash..................... (46,344) (34,171) (98,383) 560 90,882 (88,016)
---------- ----------- ------------ ----------- ----------- ------------
Net cash used in
investing
activities........... (842,779) (593,104) (2,105,403) (250,314) (150,366) (3,691,652)
FINANCING ACTIVITIES
Advances under capital
lease obligations........ -- 148,299 1,562,690 -- 129,207 1,840,196
Principal payments on
capital leases........... -- (14,971) (116,427) (6,020) (195,462) (326,860)
Prepaid financing
proceeds................. -- -- -- -- 4,514,260 4,514,260
Proceeds from issuance of
redeemable preferred
stock.................... 2,193,356 405,287 14,132,224 14,136,586 20,545,461 37,276,328
Proceeds from issuance of
common stock............. 100 8,700 28,575 825 217,760 255,135
Proceeds from convertible
note payable to related
party.................... 755,000 1,125,000 375,000 375,000 -- 2,255,000
---------- ----------- ------------ ----------- ----------- ------------
Net cash provided by
financing
activities........... 2,948,456 1,672,315 15,982,062 14,506,391 25,211,226 45,814,059
---------- ----------- ------------ ----------- ----------- ------------
Net increase (decrease) in
cash and cash
equivalents.............. 1,553,422 (1,359,179) 5,207,265 13,163,764 22,145,831 27,547,339
Cash and cash equivalents
at beginning of period... -- 1,553,422 194,243 194,243 5,401,508 --
---------- ----------- ------------ ----------- ----------- ------------
Cash and cash equivalents
at end of period......... $1,553,422 $ 194,243 $ 5,401,508 $13,358,007 $27,547,339 $ 27,547,339
========== =========== ============ =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid.............. $ -- $ 10,356 $ 84,968 $ 4,272 $ 41,648 $ 136,972
========== =========== ============ =========== =========== ============
Conversion of convertible
note to related party
into redeemable preferred
stock.................... $ -- $ -- $ 1,521,082 $1,521,082 $ -- $ 1,521,082
========== =========== ============ =========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 71
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Arena Pharmaceuticals, Inc. (the "Company") was incorporated on April 14,
1997 and commenced operations in July 1997. The Company has developed a broadly
applicable platform technology that is used to identify drug candidates in a
more efficient manner than traditional drug discovery approaches. The Company
has not yet generated revenues from operations and is classified as a
development stage company.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its wholly
owned subsidiary, Aressa Pharmaceuticals, Inc. ("Aressa"). All intercompany
accounts and transactions have been eliminated. During 1999, Aressa had no
operating activities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 2000, for three months ended
March 31, 1999 and 2000, and for the period from April 14, 1997 (inception)
through March 31, 2000 is unaudited and includes all adjustments, consisting
only of normal recurring adjustments, that the Company's management considers
necessary for a fair presentation of the Company's operating results and cash
flows for such periods. Results for the three month period ended March 31, 2000
are not necessarily indicative of results to be expected for the full fiscal
year of 2000 or any future period.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and investments with original
maturities of less than three months when purchased.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts payable and
accrued expenses, and convertible notes payable to related party approximates
fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents.
The Company limits its exposure to credit loss by placing its cash with high
credit quality financial institutions.
F-7
<PAGE> 72
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Costs incurred in 1998 related to the Series D Redeemable Preferred Stock
financing which closed in early 1999, and costs incurred in the three months
ended March 31, 2000 related to the Series G Preferred Stock financing which
closed in April 2000 (Note 9) have been deferred and were charged against the
proceeds of the offerings upon their completion.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (generally three to seven years) using the
straight-line method. Amortization of leasehold improvements is computed over
the shorter of the lease term or the estimated useful life of the related
assets.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, if indicators of impairment exist, the Company
assesses the recoverability of the affected long-lived assets by determining
whether the carrying value of such assets can be recovered through the
undiscounted future operating cash flows. If impairment is indicated, the
Company measures the amount of such impairment by comparing the carrying value
of the asset to the present value of the expected future cash flows associated
with the use of the asset. While the Company's current and historical operating
and cash flow losses are indicators of impairment, the Company believes the
future cash flows to be received from the long-lived assets will exceed the
assets' carrying value, and accordingly the Company has not recognized any
impairment losses through March 31, 2000.
DEFERRED RENT
Rent expense is recorded on a straight-line basis over the term of the
lease. The difference between rent expense and amounts paid under the lease
agreements is recorded as deferred rent in the accompanying balance sheets.
PREPAID FINANCING PROCEEDS
The Company received $4,514,260 in March 2000 from various prospective
investors in the Series G Preferred Stock financing which closed in April 2000
(Note 9). Such amounts were recorded as a liability at March 31, 2000, and were
transferred into Series G Redeemable Convertible Preferred Stock upon the
closing of the financing and issuance of the shares.
STOCK OPTIONS
SFAS No. 123, Accounting for Stock-Based Compensation, establishes the use
of the fair value based method of accounting for stock-based compensation
arrangements, under which compensation cost is determined using the fair value
of stock-based compensation determined as of the grant date, and is recognized
over the periods in which the related services are rendered. SFAS No. 123 also
permits companies to elect to continue using the current implicit value
accounting method specified in Accounting Principles Board (APB) Opinion No. 25
to account for stock-based compensation. The Company has
F-8
<PAGE> 73
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
elected to retain the implicit value based method, and has disclosed the pro
forma effect of using the fair value based method to account for its stock-based
compensation (Note 6).
Option grants and warrants issued to non-employees are valued using the
fair value based method prescribed by SFAS No. 123 and EITF 96-18 and expensed
over the period services are provided.
REVENUE
The up-front technology access fee under the Eli Lilly collaboration in
April 2000 (Note 9) will be deferred and recognized over the period the related
services are provided. Amounts received for research services are on a per-FTE
basis and will be recognized as revenue as the services are provided. Assay
development fees will be recognized upon completion of the screen and acceptance
by Eli Lilly. Milestone and royalty payments will be recognized as revenue as
earned.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in connection with the development of new products and
changes to existing products are charged to operations as incurred.
PATENT COSTS
Costs related to filing and pursuing patent applications are expensed as
incurred as recoverability of such expenditures is uncertain.
COMPUTER SOFTWARE COSTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs, which are incurred
during the application development stage, and amortize them over the software's
estimated useful life. The Company adopted SOP 98-1 effective January 1, 1999
with no material effect on the financial statements.
INCOME TAXES
In accordance with SFAS No. 109, Accounting for Income Taxes, a deferred
tax asset or liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse. The
Company provides a valuation allowance against net deferred tax assets unless,
based upon the available evidence, it is more likely than not that the deferred
tax assets will be realized.
COMPREHENSIVE INCOME
In accordance with SFAS No. 130, Reporting Comprehensive Income, all
components of comprehensive income, including net income, are reported in the
financial statements in the period in which they are recognized. Comprehensive
income is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Net income (loss) and
other comprehensive income (loss), including unrealized gains and losses on
investments, is reported net of their
F-9
<PAGE> 74
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
related tax effect, to arrive at comprehensive income (loss). For the period
from April 14, 1997 (inception) through December 31, 1997, the years ended
December 31, 1998 and 1999, the three months ended March 31, 1999 and 2000, and
for the period from April 14, 1997 (inception) through March 31, 2000,
comprehensive loss equals the net loss as reported.
NET LOSS PER SHARE
Basic and diluted net loss per common share are presented in conformity
with SFAS No. 128, Earnings per Share, and SAB 98, for all periods presented.
Under the provisions of SAB 98, common stock and convertible preferred stock
that has been issued or granted for nominal consideration prior to the
anticipated effective date of the initial public offering must be included in
the calculation of basic and diluted net loss per common share as if these
shares had been outstanding for all periods presented. To date, the Company has
not issued or granted shares for nominal consideration.
In accordance with SFAS No. 128, basic and diluted net loss per share has
been computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per common share, as presented in the statements of
operations, has been computed for the year ended December 31, 1999 and for the
three months ended March 31, 2000 as described above, and also gives effect to
the assumed conversion of preferred stock which will automatically convert to
common stock immediately prior to the completion of the offering contemplated by
this prospectus (using the "as if converted" method) from the original date of
issuance.
F-10
<PAGE> 75
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the calculation of net loss per share:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 14, 1997
(INCEPTION) YEAR ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------- -------------------------
1997 1998 1999 1999 2000
-------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss....................... $(694,765) $(3,396,318) $(10,237,950) $(1,998,235) $(4,253,788)
========= =========== ============ =========== ===========
Basic and diluted net loss per
share........................ $ (0.73) $ (3.51) $ (10.05) $ (2.03) $ (3.91)
========= =========== ============ =========== ===========
Weighted-average shares used in
computing historical net loss
per share, basic and
diluted...................... 955,000 966,799 1,018,359 984,583 1,086,988
========= =========== ============ =========== ===========
Pro forma net loss per share,
basic and diluted
(unaudited).................. $ (1.29) $ (0.43)
============ ===========
Shares used above.............. 1,018,359 1,086,988
Pro forma adjustment to
reflect weighted-average
effect of assumed
conversion of redeemable
convertible preferred
stock (unaudited)......... 6,908,593 8,740,114
------------ -----------
Shares used in computing pro
forma net loss per share,
basic and diluted
(unaudited)............... 7,926,952 9,827,102
============ ===========
</TABLE>
The Company has excluded all outstanding stock options and warrants, and
shares subject to repurchase from the calculation of diluted loss per common
share because all such securities are antidilutive for all periods presented.
The total number of shares excluded from the calculation of diluted net loss per
share, prior to application of the treasury stock method for stock options, was
41,000, 61,625, 81,000 and 439,575 for the period from April 14, 1997
(inception) through December 31, 1997, for the years ended December 31, 1998 and
1999, and the three months ended March 31, 2000, respectively. Such securities,
had they been dilutive, would have been included in the computation of diluted
net loss per share.
SEGMENT REPORTING
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, requires the use of a management approach in identifying segments
of an enterprise. Management has determined that the Company operates in one
business segment.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which will be
effective January 1, 2001. SFAS No. 133
F-11
<PAGE> 76
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments imbedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specified hedge
accounting criteria are met. Management believes the adoption of SFAS No. 133
will not have an effect on the financial statements as the Company does not
engage in the activities covered by SFAS No. 133.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, Revenue Recognition (SAB 101). SAB 101 provides the
SEC Staff's views in applying generally accepted accounting principles to
various revenue recognition issues. The Company must implement the guidance in
SAB 101 during the second quarter of 2000. Management believes the Company's
revenue recognition policies are in compliance with the guidelines provided in
SAB 101, and therefore, the adoption of SAB 101 will not significantly affect
the Company's results of operations.
2. INVESTMENT IN CHEMNAVIGATOR.COM
On June 30, 1999, the Company acquired 2,625,000 shares of Series A
Convertible Preferred Stock of ChemNavigator.com ("CNC") in exchange for certain
website technology then under development by the Company. As of March 31, 2000,
the Company owned approximately 46% of the outstanding voting equity securities
of CNC. The Company did not record any value for its investment in CNC as its
historical basis in the technology transferred was zero. Since the Company is
under no obligation to reimburse the other CNC stockholders for its share of
CNC's losses, the Company has not included any equity in the net loss of CNC in
the Company's Statements of Operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Laboratory and computer equipment................. $ 832,109 $2,641,072 $2,845,926
Furniture and fixtures............................ 46,009 185,220 209,910
Leasehold improvements............................ 477,250 536,096 547,800
---------- ---------- ----------
1,355,368 3,362,388 3,603,636
Less accumulated depreciation and amortization.... (189,728) (589,006) (754,969)
---------- ---------- ----------
$1,165,640 $2,773,382 $2,848,667
========== ========== ==========
</TABLE>
4. CONVERTIBLE NOTES PAYABLE TO RELATED PARTY
In 1997, the Company issued a convertible note payable to Tripos, Inc.
("Tripos"), a significant stockholder, for the principal amount of $755,000 at
an annual interest rate of 9.5%. Unless converted, the principal and accrued
interest are due in full in June 2002. The principal and accrued interest may be
converted into 755,000 shares of Series A Redeemable Convertible Preferred Stock
at the election of the holder at any time during the note term. Interest expense
for the period from April 14, 1997 (inception) through December 31, 1997, the
years ended December 31, 1998 and 1999, and the period from April 14, 1997
(inception) through March 31, 2000 totaled $35,000, $72,000, $72,000, and
$197,000,
F-12
<PAGE> 77
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
4. CONVERTIBLE NOTES PAYABLE TO RELATED PARTY (CONTINUED)
respectively. Interest expense was $27,000 and $18,000 for the three months
ended March 31, 1999 and 2000, respectively. All of the interest expense was
accrued as of March 31, 2000.
In 1998, the Company issued a convertible note payable to Tripos, for a
principal amount up to $1,500,000 at an annual interest rate of 9.5%. The
Company received proceeds of $1,125,000 on this note payable in 1998, and
$375,000 in 1999. In 1999, all outstanding principal and accrued interest under
this convertible note payable was converted into 435,840 shares of Series D
Redeemable Convertible Preferred Stock.
At the date each note was entered into, the note was convertible into
preferred stock at the then-current fair value of such stock, and therefore
there is no beneficial conversion feature associated with the notes.
5. COMMITMENTS
LEASES
In 1997, the Company leased its facilities under an operating lease that
had an expiration date in 2004. The Company had an option to buy the facilities
during the first 12 months of the lease term for $2,141,309. In 1998, the
Company assigned the option to a publicly traded Real Estate Investment Trust
(REIT) in exchange for $733,322 in cash. The $733,322 in cash is being
recognized on a straight-line basis as a reduction in the rent expense on the
underlying lease. In addition, the Company signed a new lease with the REIT,
which expires in 2013. The lease provides the Company with an option to extend
the lease term via two five-year options. Under the terms of the new lease,
effective April 30, 1998, monthly rental payments will be increased on April 30,
2000 and annually thereafter by 2.75%. Rent expense was $32,266 for the period
from April 14, 1997 (inception) through December 31, 1997, $366,505 and $598,903
for the years ended December 31, 1998 and 1999, respectively, $147,288 and
$147,939 for the three months ended March 31, 1999 and 2000, respectively, and
$1,145,613 for the period from April 14, 1997 (inception) through March 31,
2000.
In accordance with the terms of the new lease, the Company is required to
maintain restricted cash balances totaling $79,955 on behalf of the landlord as
rent deposits throughout the term of the lease.
Annual future minimum lease obligations as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING LEASES CAPITAL LEASES
------------------------ ---------------- --------------
<S> <C> <C>
2000.................................................. $ 548,945 $ 499,707
2001.................................................. 564,041 499,706
2002.................................................. 579,552 499,707
2003.................................................. 595,489 381,214
2004.................................................. 611,866 16,613
Thereafter............................................ 5,796,881 --
---------- ----------
Total minimum lease payments.................. $8,696,774 1,896,947
==========
Less amount representing interest....................... (317,356)
----------
Present value of minimum lease obligations.............. 1,579,591
Less current portion.................................... (355,119)
----------
Long-term portion of capital lease obligations.......... $1,224,472
==========
</TABLE>
F-13
<PAGE> 78
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
5. COMMITMENTS (CONTINUED)
Future minimum rentals to be received under non-cancelable subleases as of
December 31, 1999 totaled approximately $31,000.
Cost and accumulated depreciation of equipment under capital leases totaled
$1,931,000 and $331,000, respectively, at December 31, 1999.
6. PREFERRED STOCK AND STOCKHOLDERS' EQUITY
PREFERRED STOCK
Through March 31, 2000, the Company has issued 245,000 shares of Series A
Redeemable Convertible Preferred Stock to Tripos at $1.00 per share for
aggregate net proceeds of $243,000; 1,752,533 shares of Series B Redeemable
Convertible Preferred Stock to various investors, including Tripos, at $1.25 per
share for aggregate net proceeds of $2,165,000; 40,000 shares of Series C
Redeemable Convertible Preferred Stock to outside investors at $5.00 per share
for aggregate net proceeds of $191,000; 4,871,060 shares of Series D Redeemable
Convertible Preferred Stock to various investors, including Tripos, at $3.49 per
share for aggregate net proceeds of $15,488,000; 2,000,000 shares of Series E
Redeemable Convertible Preferred Stock to various investors, all of whom were
then-current stockholders in the Company, at $4.00 per share for aggregate net
proceeds of $7,959,000; and 2,466,839 shares of Series F Redeemable Convertible
Preferred Stock to various investors at $5.20 per share for aggregate net
proceeds of $12,586,000.
All of the Series E Redeemable Convertible Preferred Stock were sold to
investors who were then-current stockholders of the Company. While management
believes the shares were sold at comparable terms to those which could have been
realized on a sale to independent outside investors, the Company recorded a
non-cash preferred stock charge for the presumed beneficial conversion feature
of such shares. The amount of the charge, which increased the net loss
applicable to common stockholders, was $0.68 per share, or an aggregate of
$1,360,000, representing the difference between the $4.00 per share sale price
and $4.68 per share, the deemed fair value of the common stock at that time.
Such deemed fair value was computed as 90% of the sale price of the Series F
Redeemable Convertible Preferred Stock which was sold in March 2000, principally
to independent outside investors.
At the option of the holder, shares of the Redeemable Convertible Preferred
Stock are convertible into shares of Common Stock on a one-to-one basis, subject
to adjustment for dilution. At March 31, 2000, the Series A, Series B, Series C,
Series D, Series E and Series F Redeemable Convertible Preferred Stock are
convertible into 245,000, 1,752,533, 40,000, 4,871,060, 2,000,000 and 2,466,839
common shares, respectively. The Redeemable Convertible Preferred Stock will
automatically convert into common shares upon the earlier of the closing of a
firmly underwritten public offering of Common Stock under the Securities Act of
1933, as amended, in which the Company receives at least $20,000,000 in gross
proceeds at a price of at least $13.96 per share, or on the date specified by
written consent or agreement of the holders of 66 2/3% of the then outstanding
shares of Redeemable Convertible Preferred Stock. The Preferred stockholders
have voting rights equal to the number of common shares they would own upon
conversion.
Upon notice of at least 66 2/3% of the stockholders of each series of the
Redeemable Convertible Preferred Stock, the Company may be required to redeem
such series of the Redeemable Convertible Preferred Stock in three equal annual
installments beginning on the fifth anniversary of their respective original
issue dates and ending on the date two years from such first redemption date in
an amount consisting of the original issue price plus declared and unpaid
dividends.
F-14
<PAGE> 79
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
6. PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The holders of Series A, Series B, Series D and Series E Redeemable
Convertible Preferred Stock are entitled to receive annual cumulative dividends
of 8% of the original issue price per share, when and if declared by the Board
of Directors, prior and in preference to the Series F Redeemable Convertible
Preferred and Common stockholders. As of March 31, 2000, no dividends have been
declared.
In the event of liquidation of the Company, holders of Series D and E
Redeemable Convertible Preferred Stock in preference to other series of stock
are entitled to receive their original purchase price, plus all accumulated and
unpaid dividends compounded annually in arrears on December 31 of each year
whether or not declared by the Board of Directors. Holders of Series A, Series
B, Series C and Series F Redeemable Convertible Preferred Stock are entitled to
a liquidation preference of $1.00, $1.25, $5.00 and $5.20 per share,
respectively, plus any declared and unpaid dividends on such shares. If, upon
the occurrence of such a liquidation event, the assets and funds of the Company
are insufficient to make payment in full to all holders of the Redeemable
Convertible Preferred Stock, then such assets and funds shall be distributed to
the holders of the Redeemable Convertible Preferred Stock ratably in proportion
to the full amounts to which they would otherwise be respectively entitled.
A summary of the Redeemable Convertible Preferred Stock issued and
outstanding as of March 31, 2000 is as follows:
<TABLE>
<CAPTION>
LIQUIDATION
SHARES PREFERENCE
---------- -----------
<S> <C> <C>
Series A................................... 245,000 $ 245,000
Series B................................... 1,752,533 2,190,666
Series C................................... 40,000 200,000
Series D................................... 4,871,060 16,999,999
Series E................................... 2,000,000 8,000,000
Series F................................... 2,466,839 12,827,563
---------- -----------
11,375,432 $40,463,228
========== ===========
</TABLE>
COMMON STOCK
In June 1997, a total of 1,000,000 shares of Common Stock were issued to
the founders of the Company at a price of $.0001 per share under founder stock
purchase agreements. The Company issued 50,000 of these shares to an outside
founder, which vest ratably over 50 months. Unvested shares are subject to
repurchase by the Company, at the original purchase price, if the relationship
between the Company and the outside founder terminates. In 1999, 17,500 shares
were repurchased.
WARRANTS
In connection with the Series C Redeemable Convertible Preferred Stock
offering in December 1998, the Company issued warrants to purchase 13,333 shares
of Common Stock at $5.75 per share to the investors. The warrants are
exercisable at any time prior to the earlier of (i) ten years from the date of
issuance or (ii) immediately prior to an initial public offering, sale or merger
of the Company.
In connection with a Cooperative Technology Agreement, the Company issued
warrants to purchase 100,000 shares of Common Stock at $.70 per share to Tripos
in December 1998. The warrants are exercisable at any time prior to the earlier
of (i) seven years from the date of issuance or (ii) immediately
F-15
<PAGE> 80
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
6. PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
prior to an initial public offering. The number of warrants exercisable and the
exercise price are subject to adjustment for dilution. The estimated fair value
of the warrants of $14,000 was expensed in 1998.
In connection with the Company's offering of Series D Redeemable
Convertible Preferred Stock, the Company issued warrants to purchase 280,086
shares of Common Stock at $3.49 per share to its placement agent, ING Barings,
in 1999. The warrants are exercisable at any time prior to the earlier of (i)
ten years from the date of issuance or (ii) immediately prior to an initial
public offering. The number of warrants exercisable and the exercise price are
subject to adjustment for dilution. The estimated fair value of the warrants of
$165,300 was recorded as an issuance cost of the Series D financing.
In connection with the Company's lease line of credit, the Company issued
warrants to purchase 18,000 shares of Series D Redeemable Convertible Preferred
Stock at $3.49 per share to Silicon Valley Bank. The estimated fair value of the
warrants was not material. The warrants are exercisable anytime seven years from
the date of issuance.
INCENTIVE STOCK PLAN
The Company's Amended and Restated 1998 Equity Compensation Plan (the
"Plan") provides designated employees of the Company, certain consultants and
advisors who perform services for the Company, and non-employee members of the
Company's Board of Directors with the opportunity to receive grants of incentive
stock options, nonqualified stock options and restricted stock. The options and
restricted stock generally vest 25% a year for four years and are immediately
exercisable up to ten years from the date of grant.
The aggregate number of shares of Common Stock of the Company authorized
for issuance under the Plan is the sum of (i) 472,080 shares, plus (ii) as of
each December 31, after December 31, 1997, an additional number of shares equal
to 15% of the shares of Company Stock (as defined below) issued by the Company
during the preceding one-year period, with certain restrictions, subject to
adjustment for certain events including stock splits, reclassifications,
reorganizations and consolidations. "Company Stock" is defined as Common Stock,
or Common Stock issuable upon conversion or exercise of any Preferred Stock,
Warrants or other security convertible into Common Stock. At March 31, 2000,
1,500,000 shares of Common Stock were authorized for issuance under the Plan.
F-16
<PAGE> 81
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
6. PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
Following is a summary of stock option activity:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTIONS EXERCISE PRICE
-------- --------------
<S> <C> <C>
Granted during 1997......................................... 91,000 $0.20
--------
Balance at December 31, 1997................................ 91,000 $0.20
Granted................................................... 360,000 $0.20
Exercised................................................. (43,500) $0.20
--------
Balance at December 31, 1998................................ 407,500 $0.20
Granted................................................... 373,100 $0.60
Exercised................................................. (90,375) $0.33
Canceled.................................................. (5,625) $0.47
--------
Balance at December 31, 1999................................ 684,600 $0.40
Granted (unaudited)....................................... 465,750 $0.60
Exercised (unaudited)..................................... (477,350) $0.46
--------
Balance at March 31, 2000 (unaudited)....................... 673,000 $0.50
========
</TABLE>
At December 31, 1998 and 1999, and at March 31, 2000, options to purchase
67,000, 159,500, and 104,250 shares were vested. The weighted-average remaining
contractual life of options outstanding at December 31, 1998 and 1999 was 8.75
and 8.50 years, respectively. At December 31, 1998 and 1999, 32,625 and 63,500
shares of common stock issued upon the exercise of options were subject to
repurchase at the original purchase price at a weighted-average price of $.20
and $.23, respectively. At December 31, 1999, 345,102 shares were available for
future grant.
Pro forma information regarding net income or loss is required to be
disclosed in accordance with SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of SFAS No. 123.
The fair value for these options was estimated at the dates of grant using
the minimum value option pricing model with the following weighted average
assumptions for 1997, 1998 and 1999, respectively: (i) weighted average
risk-free interest rate of 6.0%, (ii) expected dividend yield of 0%, and (iii)
five year estimated life of the options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------- THREE MONTHS ENDED
1997 1998 1999 MARCH 31, 2000
--------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Adjusted pro forma net loss....... $(695,000) $(3,398,000) $(10,250,000) $(4,285,000)
Adjusted pro forma basic net loss
per share....................... $ (0.73) $ (3.51) $ (10.07) $ (0.44)
</TABLE>
During the year ended December 31, 1998 and the three months ended March
31, 2000, in connection with the grant of various stock options to employees,
the Company recorded deferred stock compensation totaling approximately $1.0
million and $1.9 million, respectively, representing the difference between the
exercise price and the deemed fair value of the Company's common stock as
estimated by the
F-17
<PAGE> 82
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
6. PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
Company's management for financial reporting purposes on the date such stock
options were granted. Deferred compensation is included as a reduction of
stockholders' equity and is being amortized to expense over the vesting period
of the options in accordance with FASB Interpretation No. 28, which permits an
accelerated amortization methodology. During the year ended December 31, 1999
and the three months ended March 31, 2000, the Company recorded amortization of
deferred compensation expense of approximately $378,000 and $181,000,
respectively.
COMMON SHARES RESERVED FOR ISSUANCE
The following table summarizes common shares reserved for issuance at March
31, 2000 on exercise or conversion of:
<TABLE>
<S> <C>
Convertible Notes Payable................................ 755,000
Redeemable Convertible Preferred Stock................... 11,375,432
Common Stock options..................................... 673,000
Common and Preferred Stock warrants...................... 411,419
----------
Total Common shares reserved for issuance.............. 13,214,851
==========
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company established a defined contribution employee retirement plan
(the "401(k) Plan") effective January 1, 1998, conforming to Section 401(k) of
the Internal Revenue Code ("IRC"). All full-time employees (as defined) may
elect to have a portion of their salary deducted and contributed to the 401(k)
Plan up to the maximum allowable limitations of the IRC. Through March 31, 1999,
the Company matched 50% of each participant's contribution up to the first 6% of
annual compensation (as defined).
Effective April 1, 1999, the Company amended the 401(k) Plan increasing the
Company match to 100% of each participant's contribution up to the first 6% of
annual compensation (as defined) for all contributions made after April 1, 1999.
The Company's matching portion, which totaled $27,065, $148,784, $13,705 and
$61,723 for the years ended December 31, 1998 and 1999, and the three months
ended March 31, 1999 and 2000, respectively, vests over a five-year period.
8. INCOME TAXES
At December 31, 1999, the Company had federal and California tax net
operating loss carryforwards of approximately $12,611,000 and $6,484,000,
respectively.
Significant components of the Company's deferred tax assets at December 31,
1998 and 1999 are shown below. A valuation allowance of $1,573,000 and
$5,713,000 has been recognized to offset the
F-18
<PAGE> 83
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
8. INCOME TAXES (CONTINUED)
deferred tax assets as of December 31, 1998 and 1999, respectively, as
realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 1,285,000 $ 4,787,000
Research and development credits........................ 258,000 928,000
Accrued expenses........................................ 60,000 129,000
----------- -----------
Net deferred tax assets................................... 1,603,000 5,844,000
Valuation allowance for deferred tax assets............... (1,573,000) (5,713,000)
----------- -----------
Total deferred tax assets............................ 30,000 131,000
Deferred tax liabilities:
Depreciation............................................ (30,000) (131,000)
----------- -----------
Net deferred tax assets................................. $ -- $ --
=========== ===========
</TABLE>
The federal and California tax net operating loss carryforwards will begin
to expire in 2012 and 2005, respectively, unless previously utilized. The
Company also has federal and California research tax credit carryforwards of
approximately $681,000 and $379,000, respectively, which will begin to expire in
2012 unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use
of the Company's net operating loss and credit carryforwards could be limited in
the event of cumulative changes in ownership of more than 50%. Such a change
occurred in prior years. However, the Company does not believe such limitation
will have a material effect upon the Company's ability to utilize the
carryforwards.
9. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
In April 2000, the board of directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
initial public offering is closed under the terms presently anticipated, all of
the preferred stock outstanding at March 31, 2000 will convert into 11,375,432
shares of common stock. Unaudited pro forma stockholders' equity, as adjusted
for the assumed conversion of the preferred stock, is set forth on the balance
sheet.
SERIES G PREFERRED STOCK FINANCING
On April 17, 2000, the Company issued 1,323,146 shares of Series G
Redeemable Convertible Preferred Stock at $7.30 per share for total gross
proceeds of $9,658,966. The holders of Series G Redeemable Convertible Preferred
Stock are entitled to receive annual cumulative dividends of 8% per share, when
and if declared by the Board of Directors, prior and in preference to holders of
Common Stock. In the event of liquidation of the Company, the holders of Series
G Redeemable Convertible Preferred Stock are entitled to a liquidation
preference of $7.30 per share. At the option of the holder, shares of Series G
Redeemable Convertible Preferred Stock are convertible into common shares,
subject to adjustment for dilution.
F-19
<PAGE> 84
ARENA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000, FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
2000,
AND FOR THE PERIOD FROM APRIL 14, 1997 (INCEPTION) THROUGH MARCH 31, 2000 IS
UNAUDITED)
9. SUBSEQUENT EVENTS (CONTINUED)
COLLABORATIVE AGREEMENT WITH ELI LILLY
On April 14, 2000, the Company entered into a collaborative agreement with
Eli Lilly. This collaboration is intended to focus principally on diseases of
the central nervous system and endocrine system as well as cardiovascular
diseases and may be expanded to other therapy classes, including cancer. Under
the terms of the agreement, the Company is required to CART-activate a number of
G protein-coupled receptors (GPCRs) in the therapeutic areas identified by Eli
Lilly and will provide them with enabled high-throughput screens for use in
their screening facilities. The Company will receive an up-front technology
access fee as well as assay development fees per receptor when CART-activated
and when screened, and development milestones per drug candidate when discovered
and throughout the development process, including clinical trials and royalties
on drug sales, depending on levels of sales achieved, if any. The agreement with
Eli Lilly has a five-year term and can be terminated in one year by Eli Lilly,
under certain conditions.
2000 EQUITY COMPENSATION PLAN
In April 2000, the Board adopted the 2000 Equity Compensation Plan. The
aggregate number of shares of common stock that may be issued pursuant to the
2000 Equity Compensation Plan is 2,000,000 shares. The Company has not granted
any options under the 2000 Equity Compensation Plan.
F-20
<PAGE> 85
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARENA PHARMACEUTICALS, INC.
SHARES
COMMON STOCK
[arena logo]
ING BARINGS
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
SG COWEN
--------------------
PROSPECTUS
--------------------
Until , 2000, all dealers that buy, sell or trade our
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses (other than underwriting discounts and commissions) payable by
us in connection with this offering are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $26,400
NASD filing fee............................................. 10,500
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Transfer agent and registrar fees and expenses.............. *
Miscellaneous............................................... *
-------
Total..................................................... $ *
=======
</TABLE>
- -------------------------
* To be filed by amendment
All expenses are estimated except for the SEC fee, the NASD fee and the
Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation or were or are serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, if such directors, officers, employees or agents acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. In a
derivative action, i.e., one by or in the right of the corporation,
indemnification may be made only for expenses actually and reasonably incurred
by directors, officers, employees or agents in connection with the defense or
settlement of an action or suit, and only with respect to a matter as to which
they shall have acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees, or
agents are fairly and reasonably entitled to indemnification for such expenses
in view of all of the circumstances of the case, despite such adjudication of
liability.
Our by-laws provide that we shall, to the full extent authorized or
permitted by applicable law, indemnify any current or former director or
officer. Subject to applicable law, we may indemnify an employee or agent of
ours to the extent that our board of directors or our stockholders may determine
in its or their discretion.
Article IV of our Certificate of Incorporation, as amended, provides that a
director of ours shall not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (a) for any breach of the director's duty of loyalty to us or our
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) pursuant to Section
174 of the General Corporation Law of the State of Delaware, or (d) for any
transaction from which a director derived an improper personal benefit.
II-1
<PAGE> 87
Our directors and officers are covered by insurance policies indemnifying
them against some civil liabilities, including liabilities under the federal
securities laws, which might be incurred by them in such capacity.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since our inception in April 1997, we have sold and issued unregistered
securities as follows. We believe that each of the transactions identified below
was exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) or Rule 701 for offers and sales of our securities pursuant to
compensatory benefit plans.
In June 1997, we issued 1,000,000 shares of common stock to our founders,
for a total cash consideration of $100. We also issued 245,000 shares of Series
A preferred stock and a convertible note in the principal amount of $755,000, to
Tripos, for a total cash consideration of $245,000.
In November 1997, we issued 1,572,533 shares of Series B preferred stock to
various investors for total cash consideration of $1,965,666.
In March 1998, we issued 180,000 shares of Series B preferred stock to
various investors for total cash consideration of $225,000.
In October 1998, we issued a convertible note to Tripos in the amount of
$1,500,000.
In December 1998, we issued a warrant to Tripos to purchase 100,000 shares
of common stock, at an exercise price of $0.70 per share in connection with a
cooperative technology agreement that we entered into with Tripos.
In August 1998, we issued 3 1/3 units to various investors for total cash
consideration of $200,000. The units represented an aggregate of 40,000 shares
of Series C preferred stock and warrants to purchase an aggregate of 13,333
shares of common stock at an exercise price of $5.75 per share.
In January 1999, we issued 4,871,060 shares of Series D preferred stock to
various investors for consideration consisting of cash consideration of
$15,478,918 and the conversion of the note that we issued to Tripos in October
1998. We received net cash proceeds of $14,132,224 after payment of fees and
expenses of $1,346,694. Additionally, in connection with the offering, we issued
a warrant to ING Barings in consideration of services rendered to us by them in
that private placement, for 280,086 shares of common stock at an exercise price
of $3.49 per share.
In April 1999, we issued a warrant for 18,000 shares of Series D preferred
stock at an exercise price of $3.49 per share to Silicon Valley Bank in
connection with a lease line of credit.
In January of 2000, we issued 2,000,000 shares of Series E preferred stock
to some of our previous investors for total cash consideration of $8,000,000.
In March 2000, we issued 2,466,839 shares of Series F preferred stock to
various investors for total cash consideration of $12,827,563.
In April 2000, we issued 1,323,146 shares of Series G preferred stock to
various investors, including a member of our management, for total cash
consideration of $9,658,966.
Pursuant to our 1998 Equity Compensation Plan, during 1998 through 2000, we
granted options to some of our employees, directors, officers and advisors, to
purchase a total of 1,462,600 shares of common stock at a weighted average
exercise price of $0.48, of which options for 611,225 shares have been
exercised.
II-2
<PAGE> 88
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1* Form of underwriting agreement
3.1* Amended and restated certificate of incorporation.
3.2* Amended and restated by-laws.
4.1* Convertible Promissory Note, dated June 30, 1997, issued to
Tripos, Inc.
5.1* Opinion of Morgan, Lewis Bockius LLP
10.1* Arena Pharmaceuticals, Inc. 1998 Equity Compensation Plan
10.2* Arena Pharmaceuticals, Inc. 2000 Equity Compensation Plan
10.3* Services Agreement, dated May 26, 1999, by and between
ChemNavigator.com, Inc. and Jack Lief
10.4* Services Agreement, dated of May 26, 1999, by and between
ChemNavigator.com, Inc. and Richard P. Burgoon, Jr.
10.5* Services Agreement, dated May 26, 1999, by and between
ChemNavigator.com, Inc. and Robert Hoffman
10.6* Lease, dated as of April 30, 1998, by and between
ARE -- 1666 Nancy Ridge, LLC and Arena Pharmaceuticals, Inc.
Agreement, as amended by First Amendment to Lease dated as
of June 30, 1998
10.7* Investor Rights Agreements
10.8** License Agreement, effective as of January 23, 1998 by and
between Arena Pharmaceuticals, Inc. and SS Pharmaceutical
Co., Ltd.; as amended by Addendum No. 1, dated April 5, 1999
10.9** Research Collaboration and License Agreement, effective as
of April 14, 2000, by and between Arena Pharmaceuticals,
Inc. and Eli Lilly and Company
10.10** Agreement, dated effective as of January 24, 2000, by and
between Arena Pharmaceuticals, Inc. and Fujisawa
Pharmaceutical Co., Ltd.
10.11* Binding Letter of Intent & Memorandum of Agreement, dated as
of April 3, 2000, between Lexicon Genetics, Inc. and Arena
Pharmaceuticals, Inc.
10.12* Agreement, effective as of September 15, 1999, by and
between Arena Pharmaceuticals, Inc. and Neurocrine
Biosciences, Inc.
21.1* Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, independent auditors
23.2* Consent of Morgan, Lewis & Bockius LLP (contained in the
opinion filed as exhibit 5.1)
24.1 Power of attorney (contained in signature page)
27.1 Financial data schedule
</TABLE>
- -------------------------
* To be filed by amendment
** Confidential treatment requested for portions of this document
(b) FINANCIAL STATEMENT SCHEDULES
All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in our
financial statements or is not required under the related instructions or are
inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing
II-3
<PAGE> 89
provisions, 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 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 Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) 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.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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 the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE> 90
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 San Diego, California, on April 28,
2000.
ARENA PHARMACEUTICALS, INC.
By: /s/ JACK LIEF
------------------------------------
Jack Lief
President and Chief Executive
Officer
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. Each person whose signature appears below
hereby constitutes and appoints Jack Lief his true and lawful attorney-in-fact
and agent, with full power of substitution and re-substitution for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) and supplements to this
Registration Statement and to file the same with all exhibits thereto, and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents, full power and authority to do
and perform each and every act and thing requested or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents of said
attorney-in-fact, or his substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <C> <S>
/s/ JACK LIEF Director, President and April 28, 2000
- ----------------------------------------------------- Chief Executive Officer
Jack Lief (principal executive and
financial officer)
/s/ DOMINIC P. BEHAN Vice President, Research and April 28, 2000
- ----------------------------------------------------- Director
Dominic P. Behan
/s/ DEREK T. CHALMERS Vice President, Research and April 28, 2000
- ----------------------------------------------------- Director
Derek T. Chalmers
/s/ ROBERT HOFFMAN Vice President, Finance April 28, 2000
- ----------------------------------------------------- (principal accounting officer)
Robert Hoffman
/s/ JOHN P. MCALISTER, III Director April 28, 2000
- -----------------------------------------------------
John P. McAlister, III
/s/ MICHAEL STEINMETZ Director April 28, 2000
- -----------------------------------------------------
Michael Steinmetz
/s/ STEFAN RYSER Director April 28, 2000
- -----------------------------------------------------
Stefan Ryser
</TABLE>
II-5
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1* Form of underwriting agreement
3.1* Amended and restated certificate of incorporation.
3.2* Amended and restated by-laws.
4.1* Convertible Promissory Note, dated June 30, 1997, issued to
Tripos, Inc.
5.1* Opinion of Morgan, Lewis Bockius LLP
10.1* Arena Pharmaceuticals, Inc. 1998 Equity Compensation Plan
10.2* Arena Pharmaceuticals, Inc. 2000 Equity Compensation Plan
10.3* Services Agreement, dated May 26, 1999, by and between
ChemNavigator.com, Inc. and Jack Lief
10.4* Services Agreement, dated of May 26, 1999, by and between
ChemNavigator.com, Inc. and Richard P. Burgoon, Jr.
10.5* Services Agreement, dated May 26, 1999, by and between
ChemNavigator.com, Inc. and Robert Hoffman
10.6* Lease, dated as of April 30, 1998, by and between
ARE -- 1666 Nancy Ridge, LLC and Arena Pharmaceuticals, Inc.
Agreement, as amended by First Amendment to Lease dated as
of June 30, 1998
10.7* Investor Rights Agreements
10.8** License Agreement, effective as of January 23, 1998 by and
between Arena Pharmaceuticals, Inc. and SS Pharmaceutical
Co., Ltd.; as amended by Addendum No. 1, dated April 5, 1999
10.9** Research Collaboration and License Agreement, effective as
of April 14, 2000, by and between Arena Pharmaceuticals,
Inc. and Eli Lilly and Company
10.10** Agreement, dated effective as of January 24, 2000, by and
between Arena Pharmaceuticals, Inc. and Fujisawa
Pharmaceutical Co., Ltd.
10.11* Binding Letter of Intent & Memorandum of Agreement, dated as
of April 3, 2000, between Lexicon Genetics, Inc. and Arena
Pharmaceuticals, Inc.
10.12* Agreement, effective as of September 15, 1999, by and
between Arena Pharmaceuticals, Inc. and Neurocrine
Biosciences, Inc.
21.1* Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, independent auditors
23.2* Consent of Morgan, Lewis & Bockius LLP (contained in the
opinion filed as exhibit 5.1)
24.1 Power of attorney (contained in signature page)
27.1 Financial data schedule
</TABLE>
- -------------------------
* To be filed by amendment
** Confidential treatment requested for portions of this document
<PAGE> 1
EXHIBIT 10.8
CONFIDENTIAL
LICENSE AGREEMENT BETWEEN
ARENA PHARMACEUTICALS
AND
SS PHARMACEUTICAL CO., LTD.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I. Definitions 1
Article II. Grant of License to Arena, Transfer of Technical Information 4
Article III. Compensation 4
Article IV. Manufacturing Supply 7
Article V. Information Exchange and Confidentiality 8
Article VI. Patents and Inventions 9
Article VII. Patent Infringement and Enforcement 10
Article VIII. Representations and Warranties 10
Article IX. Indemnity 11
Article X. Termination 12
Article XI. Relationship of the Parties 13
Article XII. Miscellaneous Provisions 13
Signature Blocks 16
</TABLE>
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS MARKED AS ***.
CONFIDENTIAL
<PAGE> 2
CONFIDENTIAL
LICENSE AGREEMENT
This License Agreement ("Agreement") is effective as of the
Effective Date (as defined below), by and between ARENA PHARMACEUTICALS, a
Delaware corporation having a place of business at 6166 Nancy Ridge Drive, San
Diego, California, 92121, United States of America ("Arena"), and SS
Pharmaceutical CO., LTD., a Japanese corporation having a place of business at
12-4, 2-Chome, Hamacho, Nihonbashi, Chuo-ku, Tokyo, 103 Japan ("SS
Pharmaceutical ").
WHEREAS, SS Pharmaceutical is a pharmaceutical organization and
exclusively owns or has exclusive rights in and to a compound discovered and
developed by SS Pharmaceutical, referred to by SS Pharmaceutical as "T-82" (as
more fully defined below)
WHEREAS, Arena is a biopharmaceutical organization focused on the
development of innovative therapeutics and desires to obtain certain world-wide
rights from SS Pharmaceutical in and to "T-82", in accordance with the terms of
this Agreement, to develop and commercialize such rights;
WHEREAS, Arena and SS Pharmaceuticals each desire to enter into
this Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, Arena and SS Pharmaceuticals hereby agree as
follows:
ARTICLE I
DEFINITIONS
Unless otherwise specifically provided herein, the following terms shall
have the following meanings (all referenced statutes set forth in the following
definitions are collectively appendixed to this Agreement as "Appendix A":
"Affiliate" when used with reference to a specified person, any person or entity
directly or indirectly controlling, controlled by or under common control with
the specified person, means the direct or indirect ownership of at least 50% of
the outstanding voting securities of an entity. The Parties agree that Dojin
Pharmaceutical Products Inc. shall be deemed and treated as an Affiliate of SS
Pharmaceutical.
"Annual" means a calendar year period of from January 1 through to and including
December 31 in any given year.
"Annual Net Sales" means the Annual amount of financial compensation received by
Arena for sales of T-82 Product in bona fide arm's length transactions to a
Third Party, after deduction of the following items:
(a) packing, transportation and insurance charges;
(b) credits or allowances given or made for rejection or return of
previously sold T-82 Product;
(c) any tax or other governmental charge levied directly on the sale,
transportation or delivery of T-82 Product and borne by Arena;
(d) any price reductions and/or price rebates, retroactive or
otherwise imposed, by governmental authorities; and
<PAGE> 3
CONFIDENTIAL
(e) any royalties which Arena is required to pay to a Third Party to
make, have made, use, have used, sell, have sold, import or have
imported T-82 and/or T-82 Product.
"Arena" means Arena and its Affiliates.
"Arena Exclusive Territory" means the universe, excluding only SS Pharmaceutical
Exclusive Territory and the Semi-Exclusive Territory.
"Best Reasonably Commercial Efforts" means efforts to achieve a designated
objective, which efforts are based upon reasonably prudent business factors and
considerations.
"Collaborator" means an individual or entity, other than an Affiliate, working
under the direction of, or in conjunction with, a Party.
"Effective Date" means the date on which the last of either Arena or SS
Pharmaceuticals has signed this Agreement.
"FDA" means the United States Food and Drug Administration.
"FDA Approval Date" means to date upon which Arena receives a written
communication from FDA granting Marketing Authorization for T-82 Product.
"GMP" means Good Manufacturing Practice in the manufacturing, processing,
packaging or holding of drugs as set forth in 21 C.F.R. Section 211 (including
any and all sub-parts thereto), including any and all amendments, modifications
or changes thereto as may be made in the future.
"Marketing Authorization" means the granting or authorization, by an appropriate
governmental agency, to commercialize a pharmaceutical product.
"Party" means either Arena or SS Pharmaceuticals, as the case may be; "Parties"
means both Arena and SS Pharmceuticals.
"Phase 1 Clinical Study" shall have the same meaning as set forth in 21 C.F.R.
Section 312.21(a)(1) and (2), including any and all amendments, modifications or
changes as may be made thereto in the future.
"Phase 2 Clinical Study" shall have the same meaning as set forth in 21 C.F.R.
Section 312.21(b), including any and all amendments, modifications or changes
thereto as may be made thereto in the future.
"Phase 3 Clinical Study" shall have the same meaning as set forth in 21 C.F.R.
Section 312.21(c), including any and all amendments, modifications or changes
thereto as may be made thereto in the future.
"European Regulatory Agency" means a governmental agency of any major European
nation (i.e., United Kingdom, Germany, France, Italy and Spain) that has the
authority to issue or grant Marketing Authorization.
"Semi-Exclusive Territory" means China, Taiwan, Singapore, Malaysia, Indonesia,
Thailand, South Korea, North Korea, Philippines, and Burma.
-2-
<PAGE> 4
CONFIDENTIAL
"SS Pharmaceuticals " means SS Pharmaceuticals and its Affiliates.
"SS Pharmaceutical Patent Rights" means all present and/or future patents
(including inventor's certificates) and all present and/or future applications
(including provisional applications) therefor throughout the world as the case
may be, and substitutions, extensions, reissues, renewals, divisions,
continuations, or continuation-in-part thereof or therefor, owned or controlled
(either fully or partially) by SS Pharmaceuticals, or under which SS
Pharmaceuticals may grant licenses or sublicenses, to the extent they related to
the T-82 and/or T-82 Product. A list of SS Pharmaceuticals Patent Rights is set
forth in Appendix B; such list shall be updated as necessitated by the issuance
or expansion of additional SS Pharmaceutical Patent Rights.
"SS Pharmaceutical Exclusive Territory" means Japan.
"Successful Completion" when used in conjunction with the phrases "Phase 1
Clinical Study"; "Phase 2 Clinical Study"; or "Phase 3 Clinical Study" means
that the results of such clinical study have been fully analyzed whereby the
results of such fully analyzed study would warrant a decision, based upon the
exercise of reasonably prudent business factors and considerations, to proceed,
for example, from one clinical study to the next; as an example, "Successful
Completion" of Phase 2 Clinical Study would mean that based upon review of the
fully analyzed data from Phase 2 Clinical Study, and by exercising reasonably
prudent business factors and considerations, initiation of Phase 3 Clinical
Study is warranted; as an additional example, "Successful Completion" of Phase 3
Clinical Study would mean that based upon review of the fully analyzed data from
Phase 3 Clinical Study, and by exercising reasonably prudent business factors
and considerations, seeking Marketing Authorization from a regulatory agency is
warranted.
"T-82" means a compound as disclosed and claimed in U.S. Patent Nos. 5,190,951;
5,240,934; and 5,300,517, including any and all derivatives of such compound
having similar activity (whether now existing or developed in the future by SS
Pharmaceutical), and further including related compounds having similar activity
to T-82 (whether now existing or developed in the future by SS Pharmaceutical).
"T-82 Manufacturing Costs" means the actual costs incurred by SS Pharmaceutical
in the manufacture of T-82 and/or T-82 Product under GMP standards.
"T-82 Product" means a finished dosage form of T-82 for use in humans.
"Technical Information" means all information, trade secrets, know-how, methods
of manufacture, processes, documents and materials, related to T-82 and/or T-82
Product, and other proprietary information, whether patentable or unpatentable,
related to T-82 and/or T-82 Product that are owned or possessed by SS
Pharmaceutical, whether now existing or hereafter developed.
"Technology" means SS Pharmaceutical Patent Rights and Technical Information.
"Third Party" means any entity other than a Party, Collaborator of Affiliate.
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"Valid Claim" means a claim, covering T-82 and/or T-82 Product, of an issued and
unexpired patent which claim has not been held unenforceable, unpatentable or
invalid by court or other governmental agency of competent jurisdiction and has
not been admitted to be invalid or unenforceable through reissue or disclaimer
or otherwise.
ARTICLE II
GRANT OF LICENSE TO ARENA
TRANSFER OF TECHNICAL INFORMATION
2.1 Grant. Subject to the terms and conditions of this Agreement, SS
Pharmaceutical grants to Arena the following:
(a) an exclusive right and license, exclusive even as to SS
Pharmaceutical, to use, have used, sell, have sold, import,
have imported, further develop, improve and otherwise
exploit in any manner the Technology in the Arena Exclusive
Territory, including the right to sublicense the rights
granted to Arena by SS Pharmaceutical hereunder;
(b) a semi-exclusive right and license (together with SS
Pharmaceuticals) to use, have used, sell, have sold, import,
have imported, further develop, improve and otherwise
exploit in any manner the Technology in the Semi-Exclusive
Territory, including the right to sublicense the rights
granted to Arena by SS Pharmaceutical hereunder.
2.2 Transfer of Technical Information. Within forty-five (45) days
following the Effective Date, SS Pharmaceutical shall make available to Arena a
copy of all Technical Information owned or possessed by SS Pharmaceutical as of
the Effective Date.
2.3 Improvements.
(a) SS Pharmaceutical shall notify Arena, in writing, of any SS
Pharmaceutical Patent Rights within thirty (30) days of the
discovery or development of such SS Pharmaceutical Patent
Rights;
(b) SS Pharmaceutical shall notify Arena, in writing, of any
Technical Information within thirty (30) days of the
discovery or development of such Technical Information.
(c) The obligations of Section 2.3 of this Agreement shall be
continuing throughout the term of this Agreement.
ARTICLE III
COMPENSATION
3.1 Payments. All financial payments outlined in this Agreement shall be
made in U.S. dollars.
3.2 Milestone Payments. When applicable, Arena shall make the following
milestone payments to SS Pharmaceutical:
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(a) Phase 2 Clinical Study Milestone Payment
(1) Upon Successful Completion of Phase 2 Clinical Study of
T-82 for a first indication, Arena shall pay to SS
Pharmaceutical *************************
*************************.
(2) Upon Successful Completion of Phase 2 Clinical Study of
T-82 for an indication other than the first indication
("Phase 2 Subsequent Indication"), Arena shall pay to
SS Pharmaceutical *****************
*******************************.
(3) The Parties agree that the maximum amount of Phase 2
Clinical Study Milestone Payment(s) that Arena would be
required to pay to SS Pharmaceutical under this
Agreement is ********************** *****************.
(b) Phase 3 Clinical Study Milestone Payment(s)
(1) Upon Successful Completion of Phase 3 Clinical Study of
T-82 for a first indication, Arena shall pay to SS
Pharmaceutical *************************
*************************.
(2) Upon Successful Completion of Phase 3 Clinical Study of
T-82 for an indication other than the first indication
("Phase 3 Subsequent Indication"), Arena shall pay to
SS Pharmaceutical *****************
****************************.
(3) The Parties agree that the maximum amount of Phase 3
Clinical Study Milestone Payment(s) that Arena would be
required to pay to SS Pharmaceutical under this
Agreement is *********************************
**********************.
(c) FDA Marketing Approval Milestone(s).
(1) Within thirty (30) days of FDA Approval Date for a
first indication, Arena shall pay to SS Pharmaceutical
*************************.
(2) Within thirty (30) days of FDA Approval Date for an
indication other than a first indication ("Subsequent
Indication Marketing Authorization in U.S."), Arena
shall pay to SS Pharmaceutical ******************
*************.
(3) The Parties agree that the maximum amount of FDA
Marketing Authorization Milestone(s) that Arena would
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be required to pay to SS Pharmaceutical under this
Agreement is ********************************.
(d) European Community Marketing Approval Milestone(s).
(1) Within thirty (30) days of receipt by Arena from a
European Regulatory Agency of Marketing Authorization
for T-82 Product for a first indication, Arena shall
pay to SS Pharmaceutical **** ******* ****************
**********.
(2) Within thirty (30) days of receipt by Arena from a
European Regulatory Agency of Marketing Authorization
for T-82 Product for an indication other than a first
indication ("Subsequent Indication Marketing
Authorization in Europe"), Arena shall pay to SS
Pharmaceutical *********************
*******************.
(3) The Parties agree that the maximum amount of European
Community Marketing Approval Milestone(s) that Arena
would be required to pay to SS Pharmaceutical under
this Agreement is ********* **********************.
3.3 Royalty.
(a) Arena shall pay to SS Pharmaceutical royalty payment(s)
based upon the total Annual Net Sales of T-82 Product (1) by
Arena in the Arena Exclusive Territory; and (2) by Arena in
the Semi-Exclusive Territory, structured as follows:
(1) for total Annual Net Sales of T-82 Product (covered by
Valid Claims) of up to *********************
************************ the royalty shall be ***
*******************************.
(2) for total Annual Net Sales of T-82 Product (covered by
Valid Claims) of greater than ***************
*******************************, the royalty shall be
******************************** of any such amount
above ************.
3.4 Marketing Approval Efforts. Arena shall use its Best Reasonably
Commercial Efforts in diligently and effectively preparing for, prosecuting and
procuring Marketing Approval from FDA and European Regulatory Agency for T-82
Product in the Arena Exclusive Territory, and Marketing Approval for T-82
Product in the Semi-Exclusive Territory, at Arena's sole responsibility. Arena
further agrees to inform SS Pharmaceutical as to the status and progress of such
efforts during the term of this Agreement.
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ARTICLE IV
MANUFACTURING SUPPLY
4.1 Manufacture of T-82 and T-82 Product. SS Pharmaceutical agrees,
represents and warrants that it has facilities and capabilities necessary for
the manufacture of T-82 and the manufacture of T-82 Product under GMP standards,
and further agrees, represents and warrants that T-82 and T-82 Product shall be
manufactured by SS Pharmaceutical and supplied to Arena in accordance with GMP
standards.
4.2 Supply of T-82 and T-82 Product.
(a) For T-82 and T-82 Product supplied to Arena in accordance
with Section 4.1 of this Agreement which is not for sale by
Arena, such as for clinical trials ("Non-Commercial
Supply"), SS Pharmaceutical shall supply such Non-Commercial
Supply to Arena free of charge.
(b) For T-82 and T-82 Product supplied to Arena in accordance
with Section 4.1 of this Agreement which is commercialized
by Arena ("Commercial Supply"), SS Pharmaceutical shall
supply such Commercial Supply to Arena, *******************
********, and invoice Arena for T-82 Manufacturing Costs
incurred by SS Pharmaceuticals in manufacturing Commercial
Supply, plus an additional ***************** of such costs
("Commercial Supply Costs"). The Parties agree to discuss in
good faith Commercial Supply Costs prior to the first
shipment by SS Pharmaceutical of Commercial Supply, and to
agree upon Commercial Supply Costs within one-hundred and
eighty (180) days of the first shipment by SS Pharmaceutical
of Commercial Supply.
(1) Arena shall be permitted to analyze any such Commercial
Supply within thirty (30) days of receipt thereof in
accordance with quality assurance standards mutually
agreed to by the Parties.
(2) In the event that any Commercial Supply does not meet
such mutually agreed to quality assurance standards,
Arena shall:
a. not be required to pay such invoiced Commercial
Supply Costs; and
b. Arena may return (at SS Pharmaceutical's expense),
at Arena's sole discretion, such Commercial
Supply.
(3) In the event that any such Commercial Supply meets such
mutually agreed to quality assurance standards, Arena
shall pay SS Pharmaceuticals, within thirty (30) days
of such analysis, such invoiced Commercial Supply
Costs.
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(4) In order to verify the completeness and correctness of
Commercial Supply Costs, SS Pharmaceutical shall
maintain up to date books and records and Arena shall
each have the right to conduct, through independent
Certified Public Accountants, at any reasonable time
during business hours, and upon reasonable prior
notice, an audit of the accounting procedures and
records of SS Pharmaceutical in computing and
calculating Commercial Supply Cost due hereunder. The
auditor shall make available to SS Pharmaceutical and
Arena a report enumerating the period covered by the
audit T-82 Manufacturing Costs, and the Commercial
Supply Costs computed and calculated by the auditor.
The costs of such audit shall be borne by SS
Pharmaceutical in the event that a discrepancy of more
than ****************** is discovered through such
audit.
(c) In the event that SS Pharmaceutical is unable or unwilling
to provide Commercial Supply to Arena within a reasonable
period of time (not exceeding 90 days after written request
by Arena), then Arena shall have the right to have
Collaborator or Third Party manufacture and provide such
Commercial Supply to Arena.
(d) Drug Master File. SS Pharmaceuticals shall be responsible
for the preparation and submission of a drug master file
with FDA (as set forth in 21 C.F.R Section 314.420(b)) and,
if requested by Arena, European Regulatory Agency.
ARTICLE V
INFORMATION EXCHANGE AND CONFIDENTIALITY
5.1 Delivery of SS Pharmaceutical Patent Rights. During the term of this
Agreement, SS Pharmaceutical shall have a continuing obligation to provide any
and all information pertinent to SS Pharmaceutical Patent Rights to Arena.
5.2 Delivery of Technical Information. During the term of this
Agreement, SS Pharmaceutical shall have a continuing obligation to provide any
and all information pertinent to Technical Information to Arena.
5.3 Pre-Clinical and Clinical Data. The Parties agree to share all
available pre-clinical and clinical data related to T-82 and/or T-82 Product
which each Party develops, free of charge, including, but not limited to, any
New Drug Application prepared for filing with the FDA and/or European Regulatory
Agency by Arena.
5.4 Confidentiality. All information provided by one Party to the other
Party or its agents under this Agreement shall be regarded as confidential to
the extent that such information is designated and marked as "CONFIDENTIAL",
except information which, as can be established by the receiving Party by
competent evidence:
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(a) was already known, otherwise than under an agreement of
secrecy or non-use, by the receiving Party at the time of
its disclosure by the furnishing Party;
(b) has passed into the public domain prior to or after its
disclosure by the disclosing Party otherwise than through
any act or omission attributable to officers, employees,
consultants or agents of the receiving Party; or
(c) was subsequently disclosed, otherwise than under an
agreement of secrecy or non-use, to the receiving Party by a
Third Party that had not acquired the information under an
obligation of confidentiality to the disclosing Party.
Notwithstanding the foregoing, each Party may disclose the other's confidential
information to the extent such disclosure is reasonably necessary to comply with
government regulations. The foregoing obligations of confidentiality shall
survive for five (5) years after any termination or expiration of this
Agreement. All financial terms of this Agreement are considered CONFIDENTIAL by
Arena.
ARTICLE VI
PATENTS AND INVENTIONS
6.1 Title in Inventions. Each Party shall have and retain sole title in
inventions, whether or not patentable, made solely by it or on its behalf (as by
its employees or agents) in the course of work performed under this Agreement
which is directed to making, having made, using, having used, selling, having
sold, importing, or having imported subject matter falling within the scope of
SS Pharmaceutical Patent Rights. Any inventions made by at least one employee or
agent of SS Pharmaceutical and at least one employee or agent of Arena after the
Effective Date shall be referred to as "Joint Inventions", and all such Joint
Inventions shall be jointly owned by Arena and SS Pharmaceutical. The Parties
hereby agree to fully cooperate in the execution of all documents necessary to
effectuate such joint ownership in and to such Joint Inventions.
6.2 Registration. The Parties agree that Arena has the right during the
term of this Agreement to be registered in any part of the territory in which
the rights granted hereunder apply as the exclusive licensee of SS
Pharmaceutical for SS Pharmaceutical Patent Rights. SS Pharmaceutical agrees to
cooperate in such registration. Upon any termination of this Agreement, Arena
agrees that it shall promptly take all steps necessary to remove Arena as a
registered licensee of such SS Pharmaceutical Patent Rights.
6.3 Prosecution Patent Rights. Throughout the term of this Agreement, SS
Pharmaceutical shall be responsible for prosecution and maintenance of SS
Pharmaceutical Patent Rights, and SS Pharmaceutical shall take no action, nor
fail to take any required action, which shall jeopardize and/or abandon SS
Pharmaceutical Patent Rights, without the concurrence of Arena. As of the
Effective Date, Arena shall have the right, but not the obligation, to assist in
strategic decisions involving the prosecution of SS Pharmaceutical Patent Rights
in the Arena Exclusive Territory and in the Semi-Exclusive Territory, including,
but not limited to, the right to retain counsel for such prosecution and the
right to make all strategic decisions involving the prosecution of SS
Pharmaceutical Patent Rights. No extensions of time to respond to any official
action involving SS Pharmaceutical Patent Rights shall be permitted after the
Effective Date without the concurrence of Arena, and SS Pharmaceutical shall
provide Arena with a minimum of
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fourteen (14) days to review any proposed response to any official action prior
to the due date of such response.
ARTICLE VII
PATENT INFRINGEMENT AND ENFORCEMENT
7.1 Notification of Infringement. Each Party shall promptly notify the
other of any infringement (of which it becomes aware) of any of the SS
Pharmaceutical Patent Rights and/or Joint Inventions by Third Parties and shall
provide the other Party with any available evidence of such infringement.
7.2 Suit for Infringement. Upon reasonable notice of infringement, Arena
shall have the opportunity to bring any suit or action for infringement of the
SS Pharmaceutical Patent Rights in the Arena Exclusive Territory and/or Joint
Inventions in any territory. Any such action shall be solely at Arena's expense,
and any amount recovered, whether by judgment, award, decree or settlement,
shall belong entirely to Arena. SS Pharmaceutical shall, if requested by Arena,
actively assist in the prosecution of such action. The Parties agree to
cooperate in any decision regarding any suit or action for infringement of the
SS Pharmaceutical Patent Rights in the Semi-Exclusive Territory.
ARTICLE VIII
REPRESENTATION AND WARRANTIES
8.1 Representations and Warranties of SS Pharmaceutical. SS
Pharmaceutical represents and warrants to Arena as follows:
(a) The execution and delivery of this Agreement have been duly
and validly authorized, and all necessary action has been
taken to make this Agreement a legal, valid and binding
obligation of SS Pharmaceutical enforceable in accordance
with its terms.
(b) The execution and delivery of this Agreement and the
performance by SS Pharmaceutical of its obligations
hereunder will not contravene or result in the breach of the
Certificate of Incorporation or Bylaws of SS Pharmaceutical
or result in any material breach or violation of or material
default under any material agreement, indenture, license,
instrument or understanding or, to the best of its
knowledge, result in any law, rule, regulation, statute,
order or decree to which SS Pharmaceutical or its Affiliates
is a party or by which any of them or any of their property
is subject.
(c) SS Pharmaceutical has not received notice of any claim that
any of the Technology infringe upon any Third Party's
know-how, patent or other intellectual property rights.
(d) SS Pharmaceutical is the exclusive owner of the SS
Pharmaceutical Patent Rights and is otherwise the exclusive
owner or licensee of all other Technology.
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8.2 Representations and Warranties of Arena. Arena represents and
warrants to SS Pharmaceutical as follows:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) The execution and delivery of this Agreement have been duly
and validly authorized, and all necessary action has been
taken to make this Agreement a legal, valid and binding
obligation of Arena enforceable in accordance with its
terms.
(c) The execution and delivery of this Agreement and the
performance by Arena of its obligations hereunder will not
contravene or result in the breach of the Certificate of
Incorporation or Bylaws of Arena or result in any material
breach or violation of or material default under any
material agreement, indenture, license, instrument or
understanding or, to the best of its knowledge, result in
any law, rule, regulation, statute, order or decree to which
Arena or its Affiliates is a party or by which any of them
or any of their property is subject.
ARTICLE IX
INDEMNITY
9.1 Indemnification by SS Pharmaceutical. SS Pharmaceutical will
indemnify and hold harmless Arena and its Affiliates, employees, officers,
directors, shareholders and agents (an "Arena Indemnified Party") from and
against all liability, loss, damages, costs and expenses (including reasonable
attorneys' fees) which Arena Indemnified Party may incur, suffer or be required
to pay resulting from or arising in connection with (i) the breach by SS
Pharmaceutical of any covenant, representation or warranty of SS Pharmaceutical
obtained in this Agreement, or (ii) the successful enforcement by Arena
Indemnified Party of any of the foregoing.
9.2 Indemnification by Arena. Arena will indemnify and hold harmless SS
Pharmaceutical and its Affiliates, employees, officers, directors, shareholders
and agents (an "SS Pharmaceutical Indemnified Party") from and against all
liability, loss, damages, costs and expenses (including reasonable attorneys'
fees) which SS Pharmaceutical Indemnified Party may incur, suffer or be required
to pay resulting from or arising in connection with (i) the breach by Arena of
any covenant, representation or warranty of Arena obtained in this Agreement, or
(ii) the successful enforcement by SS Pharmaceutical Indemnified Party of any of
the foregoing.
9.3 Conditions to Indemnification. The obligations of the indemnifying
party under Sections 9.1 and 9.2 of this Agreement are conditioned upon the
prompt notification to the indemnifying party of any of the aforementioned suits
or claims in writing within fifteen (15) days after receipt of notice by the
indemnified party of such suit or claim. The indemnifying party shall have the
right to assume the defense of any such suit or claim unless, in the reasoned
judgment of the indemnified party, such suit or claim involves an issue or
matter which could have a materially adverse effect on the business, operations
or assets of the indemnified party, in which event the indemnified party may
participate in the defense of such suit or claim at its sole cost and expense.
The provision for
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indemnification shall be void and there shall be no liability against a party as
to any suit or claim for which settlement or compromise or an offer of
settlement or compromise is made without the prior consent of the indemnifying
party.
ARTICLE X
TERMINATION
10.1 Breach. Failure by either Party to comply with any of its material
obligations contained in the Agreement shall entitle the other Party to give
notice to the Party in default specifying the nature of the default and
requiring it to cure such default. If such default is not cured within ninety
(90) days after receipt of such notice, the notifying Party shall be entitled,
without prejudice to any of its other rights conferred on it by this Agreement,
to terminate this Agreement and the licenses granted to the breaching Party
hereunder with immediate effect by giving notice to such termination. The right
of either Party to terminate this Agreement as herein provided shall not be
affected in any way by its waiver of, or failure to take action with respect to,
any previous default.
10.2 Termination of this Agreement.
(a) This Agreement shall terminate automatically upon expiration
of the last to expire SS Pharmaceutical Patent Rights,
subject, however, to continuation of the licenses granted
hereunder according to their respective terms, and the
survival of the Parties' respective obligations under
Section 5.4 regarding confidentiality, Article 9 regarding
indemnification, Section 12.8 regarding governing law and
Section 12.11 regarding notice.
(b) Upon written Notice, Arena may also terminate this Agreement
without cause by
(1) returning SS Pharmaceutical Patent Rights to SS
Pharmaceutical;
(2) providing or granting access to SS Pharmaceutical (or
its designee) all pre-clinical and clinical data
generated by Arena regarding T-82 and/or T-82 Product,
without cost to SS Pharmaceutical; and
(3) providing or granting access to SS Pharmaceutical (or
its designee) any Marketing Approval obtained by Arena,
without cost to SS Pharmaceutical.
(c) SS Pharmaceutical shall be entitled to terminate this
Agreement in the event of
(1) insolvency of Arena or commencement of bankruptcy
proceedings by Arena; or
(2) dissolution of Arena by Arena, or liquidation of Arena
by Arena.
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(3) The Parties agree that in the event that Arena
sublicenses any of the rights granted to it under this
Agreement to a Third Party, such sublicense shall
include provisions whereby if such sublicensee(s)
becomes insolvent, commences bankruptcy proceedings,
dissolves, and/or liquidates its assets, any and all
rights granted by Arena to such sublicensee(s) shall
automatically revert back to Arena.
10.3 Accrued Rights; Surviving Obligations. Termination or expiration of
this Agreement for any reason shall be without prejudice to any rights which
shall have accrued to the benefit of either Party prior to such termination or
expiration, nor shall such termination or expiration relieve either Party from
obligations which are expressly indicated to survive termination or expiration
of this Agreement.
ARTICLE XI
RELATIONSHIP OF THE PARTIES - INDEPENDENT CONTRACTOR
11.1 Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, employer-employee, or joint venture
relationship between the Parties. All activities by each Party hereunder shall
be provided as an independent contractor. No Party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Limitations on Assignment. Neither this Agreement nor any interest
hereunder shall be assignable or transferable by SS Pharmaceutical without the
prior written consent of Arena.
12.2 Further Acts and Instruments. Each Party hereto agrees to execute,
acknowledge and deliver such further instruments and to do all such other acts
as may be necessary or appropriate to carry out the purpose and intent of this
Agreement.
12.3 Entire Agreement. This Agreement constitutes and contains the
entire agreement of the Parties and supersedes any and all prior negotiations,
correspondence, understandings, Letters of Intent and agreements between the
Parties respecting the subject matter hereof. This Agreement may be amended or
modified or one or more provisions hereof waived only by a written instrument
signed by the Parties.
12.4 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded.
12.5 Captions. The captions to this Agreement are for convenience only
and are to be of no force or effect in construing and interpreting the
provisions of this Agreement.
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12.6 Force Majeure. Neither Party shall be liable to the other for loss
or damages, or have any right to terminate this Agreement for any default or
delay, attributable to any act of God, flood, fire, explosion, breakdown or
plant strike, lockout, labor dispute, casualty, accident, war, revolution, civil
commotion, act of a public enemy, blockage, embargo, injunction, law, order,
proclamation, regulation, ordinance, demand or requirement of any government or
subdivision, authority or representative of any government, or any other cause
beyond the reasonable control of such Party.
12.7 No Trade Name or Trademark License.
(a) No right, express or implied, is granted by this Agreement
to SS Pharmaceutical, Affiliates of SS Pharmaceutical, SS
Pharmaceutical Collaborators or SS Pharmaceutical licensees
to use in any manner the name "Arena," "Arena
Pharmaceuticals," or any trade name or trademark or Arena in
any business dealing which is not directly connected with
the performance of this Agreement; provided, however, that
SS Pharmaceutical shall have the right to use or disclose
the name Arena only to the extent and the manner as may be
required by law.
(b) No right, express or implied, is granted by this Agreement
to Arena, Affiliates of Arena, Arena Collaborators or Arena
licensees to use in any manner the name "SS Pharmaceutical"
or any trade name or trademark of SS Pharmaceutical in any
business dealing which is not directly connected with the
performance of this Agreement; provided, however, that Arena
shall have the right to use or disclose the name SS
Pharmaceutical only to the extent and the manner as may be
required by law.
(c) During the term of this Agreement, either Party may issue a
press release regarding the acceptance of this Agreement by
the Parties, with prior notification to the other Party.
12.8 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed under the laws of the State of Delaware, excluding any
conflict of law provisions.
12.9 Expenses. Except as otherwise provided herein, each Party hereto
shall bear its legal and other expenses incurred in connection with the
negotiation, execution, delivery and performance of this Agreement.
12.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.11 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the Party to be notified or upon
deposit with the United States Post Office registered or certified mail, postage
prepaid, or upon deposit with an internationally recognized express courier with
proof of delivery, postage prepaid and addressed to the Party to be notified at
the address or addresses indicated below, or at such
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other address as such Party may designate by ten (10) days' advance written
notice to the other Party with copies to be provided as follows:
If to Arena, addressed to:
Arena Pharmaceuticals
6166 Nancy Ridge Drive
San Diego, CA 92121
Attention: Jack Lief
President and CEO
Fax: (619) 453-7210
with a copy to: Richard P. Burgoon, Jr.
Reed Smith Shaw & McClay LLP
435 Sixth Avenue
Pittsburgh, PA 15219
Fax: (412) 288-3063
If to SS Pharmaceutical, addressed to:
SS Pharmaceutical Co., Ltd.
12-4 Chome, Hamacho
Nihonbashi, Chuo-ku
Tokyo 103
Japan
Attention: Hiroshi Numata, Ph.D.
Board Director
General Manager
New Drug Planning & Coordination
Business Development
Fax: 011-81-33865-9917
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WHEREUPON, the Parties have caused this Agreement to be executed by
their duly authorized agents, as of the dates listed below.
ARENA PHARMACEUTICALS
Date: January 23, 1998 By: /s/ JACK LIEF
-------------------- -----------------------------------
Name: Jack Lief
Title: President & CEO
SS PHARMACEUTICAL CO., LTD.
Date: 16 January, 1998 By: /s/ NAOKATA TAIDO
-------------------------- -----------------------------------
Name: Naokata Taido, Ph.D.
Title: President and CEO
************
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APPENDIX A
STATUTORY REFERENCES
A-1
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APPENDIX B
SS PHARMACEUTICAL PATENT RIGHTS
United States: US Patent No. 5,190,951
US Patent No. 5,240,934
US Patent No. 5,300,517
Japan: Japanese Patent No. 1,954,459
Taiwan: Taiwan Patent No. 57,676
Korea: Korean Application No. 18237/1991
(Laid Open No. 92-8024)
Canada: Canadian Application No. 2,053,640-3
(Laid Open No. 2,053,640)
Europe: European Application No. 91117581.8
(Laid Open No. 0481429A2)
B-1
<PAGE> 20
ADDENDUM NUMBER 1 TO
JANUARY 23, 1998 AGREEMENT BETWEEN
ARENA PHARMACEUTICALS AND
SS PHARMACEUTICAL CO., INC.
This ADDENDUM NUMBER 1 TO JANUARY 23, 1998 AGREEMENT BETWEEN ARENA
PHARMACEUTICALS AND SS PHARMACEUTICAL CO., LTD. ("Addendum") is entered into as
of the date on which the last of either Arena Pharmaceuticals, Inc. ("Arena") or
SSP Co., Ltd. ("SSP") has signed this Addendum.
WHEREAS, on January 23, 1998, Arena and SSP entered into a License
Agreement pertaining to a chemical compound referred to therein as T-82 ("T-82
Agreement"); and
WHEREAS, in accordance with the terms of the T-82 Agreement, Arena has
initiated human clinical studies of T-82 within the United States; and
WHEREAS, in conjunction with such clinical studies of T-82, Arena has
secured liability insurance coverage in the amount of ******************* per
occurrence/aggregate ("Clinical Study Insurance"); and
WHEREAS, SSP has requested that during the clinical studies of T-82 in
the United States, SSP be named as an additional insured under the Clinical
Study Insurance; and
WHEREAS, Arena, to the extent permitted by law, is desirous of naming
SSP as an additional insured under the Clinical Study Insurance during the
clinical studies of T-82 in the United States.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. The T-82 Agreement Remains in Full Force and Effect. Except as
expressly modified by this Amendment, no other changes are being made to the
T-82 Agreement and the T-82 Agreement shall remain in full force and effect.
2. Amendment to the T-82 Agreement. The T-82 Agreement is hereby amended
as follows:
A. By ADDING the following new section 9.4(a) to page 12 of the
T-82 Agreement:
"(a). Arena shall, during the clinical investigation of
T-82, and to the extent permitted by law, add SS
Pharmaceutical as an additional insured to Arena's Insurance
Policy Number ADT 1089982314 ("Insurance"). Information
pertaining to such Insurance is as follows:
INSURANCE COMPANY: Columbia Casualty Company
COVERAGE: Products-Completed Operation
(Claims Covered)
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS MARKED AS ***.
<PAGE> 21
POLICY PERIOD: January 18, 1999 to
January 18, 2000
LIMITS: ********** per
occurrence/aggregate
DEDUCTIBLE: ****** per occurrence,
******* aggregate
PREMIUM: *******
The Parties agree that the deductible shall be split on a
50:50 basis between Arena and SS Pharmaceutical for any
claim made under the above-defined coverage during the
above-defined policy period. The Parties further agree that
Arena shall pay for the above-defined premium. The Parties
further agree that in the event that SS Pharmaceutical
desires to increase the above-defined limits, SS
Pharmaceutical shall provide Notice to Arena and Arena shall
thereafter, and to the extent permitted by law, seek to have
such limits increased; SS Pharmaceutical agrees to pay any
additional premiums for any such increase in policy limits."
B. By ADDING the following new section 9.4(b) to page 12 of the
T-82 Agreement:
"(b). In the event that Arena is prohibited by law form
accomplishing the objective of Section 9.4(a) of this
Agreement, Section 9.4(a) shall be automatically null and
void, and such result shall have no effect on the remaining
terms and conditions of the Agreement."
WHEREUPON, the Parties have caused this Addendum to be executed by their
duly authorized agents, as of the dates listed below.
ARENA PHARMACEUTICALS
Date: April 5, 1999 By: /s/ JACK LIEF
----------------- -----------------------------------
Name: Jack Lief
Title: President & CEO
SSP CO., LTD.
Date: April 5, 1999 By: /s/ NAOKATA TAIDO
----------------- -----------------------------------
Name: Naokata Taido, Ph.D.
Title: President & CEO
***********************************
<PAGE> 1
EXHIBIT 10.9
RESEARCH COLLABORATION AND LICENSE AGREEMENT BY AND BETWEEN
ELI LILLY AND COMPANY
AND
ARENA PHARMACEUTICALS, INC.
APRIL 14, 2000
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FORE THE PORTIONS MARKED AS ***.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS 1
ARTICLE II FUNDING OF PROJECT 10
2.1 INITIATION FEE............................................................... 10
2.2 FTE PAYMENTS................................................................. 10
2.3 MANNER OF PAYMENTS........................................................... 11
2.4 ACCOUNTING................................................................... 11
ARTICLE III STAFFING, PLANNING AND EXECUTION OF PROJECT 11
3.1 PURPOSE AND SCOPE OF PROJECT................................................. 11
3.2 STEERING COMMITTEE........................................................... 12
3.3 RESEARCH TEAM................................................................ 14
3.4 OTHER COMMITTEES............................................................. 15
ARTICLE IV RECEPTOR DESIGNATION 16
4.1 RECEPTOR DESIGNATION......................................................... 16
4.2 DESIGNATION PROCESS.......................................................... 16
ARTICLE V RESTRICTIONS ON USE OF COLLABORATION RECEPTORS BY ARENA 17
ARTICLE VI RECEPTOR POOL 20
6.1 RECEPTOR POOL................................................................ 20
ARTICLE VII RESEARCH AND DEVELOPMENT PLAN 21
7.1 RESEARCH AND DEVELOPMENT PLAN................................................ 21
7.2 RESEARCH AND DEVELOPMENT PLAN TIME PERIOD.................................... 21
7.3 RESEARCH PLAN FTES........................................................... 22
7.4 RESEARCH AND DEVELOPMENT PLAN PRIORITIZED RECEPTORS.......................... 22
7.5 COLLABORATION................................................................ 23
ARTICLE VIII DISCOVERY MILESTONE PAYMENTS 24
ARTICLE IX CLINICAL DEVELOPMENT MILESTONE PAYMENTS 25
ARTICLE X ROYALTIES 26
10.3 ROYALTY TERM................................................................. 27
10.4 POST TERM RIGHTS............................................................. 28
10.5 REPORTING AUDIT.............................................................. 28
10.6 PATENT LIST REPORTS.......................................................... 28
ARTICLE XI TECHNOLOGY LICENSE 29
11.1 ARENA TECHNOLOGY LICENSE..................................................... 29
11.2 LILLY TECHNOLOGY LICENSE RESTRICTION......................................... 29
11.3 ARENA TECHNOLOGY LICENSE RESTRICTION......................................... 29
11.4 SUBLICENSE ACKNOWLEDGEMENT................................................... 30
11.5 TECHNOLOGY OWNERSHIP......................................................... 30
ARTICLE XII TERM AND TERMINATION 30
12.1 TERM......................................................................... 30
12.2 TERMINATION BY LILLY DURING FIRST YEAR....................................... 30
12.4 BREACH....................................................................... 31
12.5 EARLY TERMINATION FOR BLOCKING PATENTS....................................... 31
12.6 KEY PERSONNEL................................................................ 32
12.7 CHANGE OF CONTROL............................................................ 32
12.8 EFFECT OF TERMINATION ON AGREEMENT........................................... 32
12.9 LILLY ACCRUED RIGHTS......................................................... 32
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE XIII EXPANSION OF COLLABORATION RECEPTORS 33
13.1 INDIVIDUAL GPCR-CV AND GPCR-ONCOLOGY RECEPTORS............................... 33
13.2 BROAD GPCR-CV AND GPCR-ONCOLOGY COLLABORATION................................ 33
ARTICLE XIV CONFIDENTIALITY 33
ARTICLE XV THIRD PARTY INFRINGEMENT 35
15.1 NOTIFICATION OF INFRINGEMENT................................................. 35
15.2 SUIT FOR INFRINGEMENT........................................................ 35
ARTICLE XVI REPRESENTATION AND WARRANTIES 36
16.1 REPRESENTATIONS AND WARRANTIES OF LILLY...................................... 36
16.2 REPRESENTATIONS AND WARRANTIES OF ARENA...................................... 36
ARTICLE XVII INDEMNITY 38
17.1 INDEMNIFICATION BY LILLY..................................................... 38
17.2 INDEMNIFICATION BY ARENA..................................................... 38
17.3 CONDITIONS TO INDEMNIFICATION................................................ 38
ARTICLE XVIII RESTRICTIONS ON UNSOLICITED ACQUISITION ACTIVITIES 38
ARTICLE XIX RELATIONSHIP OF THE PARTIES 40
ARTICLE XX MISCELLANEOUS PROVISIONS 40
20.1 LIMITATIONS ON ASSIGNMENT.................................................... 40
20.2 FURTHER ACTS AND INSTRUMENTS................................................. 40
20.3 ENTIRE AGREEMENT............................................................. 40
20.4 SEVERABILITY................................................................. 40
20.5 CAPTIONS..................................................................... 40
20.6 FORCE MAJEURE................................................................ 40
20.7 NO TRADE NAME OR TRADEMARK LICENSE........................................... 41
20.8 GOVERNING LAW; CONSENT TO JURISDICTION....................................... 41
20.9 EXPENSES..................................................................... 41
20.10 COUNTERPARTS................................................................. 41
20.11 NOTICE....................................................................... 42
20.12 NEGOTIATED DOCUMENT.......................................................... 42
20.13 SURVIVING OBLIGATIONS........................................................ 42
20.14 RIGHT TO INTELLECTUAL PROPERTY............................................... 43
ARTICLE XXI DISCONTINUATION OF DEVELOPMENT 43
ARTICLE XXII RESULTS OF PROJECT 43
22.1 QUARTERLY STATUS REPORTS..................................................... 43
22.2 PROJECT TECHNOLOGY........................................................... 43
22.3 INVENTIONS................................................................... 44
22.4 INVENTIONS OTHERWISE UNPATENTABLE IN THE UNITED STATES....................... 44
22.5 PATENT PREPARATION COOPERATION, COSTS AND OBLIGATIONS........................ 44
22.6 PUBLICATIONS................................................................. 46
ARTICLE XXIII COMMERCIAL RIGHTS 46
23.1 LICENSE TO LILLY............................................................. 46
23.2 SUBLICENSES.................................................................. 46
23.3 REGULATORY AND MANUFACTURING RESPONSIBILITY.................................. 46
ARTICLE XXIV HART-SCOTT-RODINO FILING 47
APPENDIX A RESEARCH AND DEVELOPMENT PLAN 1
APPENDIX B AMENDED SECTION 7.4 TABLE 1
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
APPENDIX C ARENA PATENT RIGHTS 1
APPENDIX D RESEARCH TEAM OPERATIONAL CONSIDERATIONS 1
APPENDIX E SELECTED CRITERIA FOR ENABLED SCREENING ASSAYS 1
APPENDIX F WIRING INSTRUCTIONS 1
APPENDIX G CONTACT INFORMATION 1
APPENDIX H EXCLUDED GPCR RECEPTORS 1
</TABLE>
iii
<PAGE> 5
RESEARCH COLLABORATION AND LICENSE AGREEMENT
This Agreement ("Agreement"), effective as of April 14, 2000 ("Effective
Date"), is by and between ARENA PHARMACEUTICALS, INC., having a place of
business at 6166 Nancy Ridge Drive, San Diego, California, 92121 USA ("Arena"),
and ELI LILLY AND COMPANY, a corporation organized under the laws of the State
of Indiana, having its principal place of business at Lilly Corporate Center,
Indianapolis, Indiana 46285 ("Lilly").
WHEREAS, Lilly is in the business of discovering, developing,
manufacturing, and marketing pharmaceutical products and animal health care
products;
WHEREAS, Lilly is interested in funding and collaborating with Arena to
screen compounds developed by Lilly in screening assay systems utilizing
G-protein coupled receptors owned or selected by the respective parties hereto
which have been constitutively activated according to technology developed by
Arena for the discovery and commercial development of pharmaceutical and animal
health products by Lilly;
WHEREAS, Arena is a biopharmaceutical organization focused on the
discovery and development of innovative therapeutics; and
WHEREAS, Arena is interested in collaborating with Lilly to develop
screening assay systems utilizing G-protein coupled receptors which have been
constitutively activated according to technology developed by Arena to screen
compounds developed by Lilly for the discovery and commercial development of
pharmaceutical and animal health products by Lilly.
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants and agreements contained herein, Arena and Lilly hereby agree as
follows:
ARTICLE I
DEFINITIONS
Unless otherwise specifically provided herein, each of the following
terms shall have the meanings set forth in this Article I.
"Affiliate" means (a) any corporation or business entity of which Lilly or
Arena, at the time in question owns or controls, directly or indirectly, 50% or
more of the stock of such corporation or business entity having the right to
vote for directors thereof or otherwise control the management of said
corporation or business entity, or (b) any corporation, individual or business
entity which now or hereafter owns or controls, directly or indirectly, fifty
percent (50%) or more of the stock of Lilly or Arena having the right to vote
for directors therefor. For purposes of this Agreement, and except as otherwise
provided for herein, "Affiliate" shall not include ChemNavigator.com, Inc. in
the case of Arena.
1
<PAGE> 6
"Alternate" has the same meaning as set forth in Section 3.2(a)(1).
"Annual" means the period between January 1 and December 31, inclusive.
"Annual FTE Payment" shall have the meaning as set forth in Section 2.2(a) of
this Agreement.
"Arena" means Arena and its Affiliates.
"Arena Activation Fee" has the same meaning as set forth in Section 8.1(a) of
this Agreement.
"Arena Assay Fee" has the same meaning as set forth in Section 8.1(b) of this
Agreement.
"Arena Know-How" means all information, including, without limitation,
Confidential Information, tangible materials, ideas, inventions (including
patentable inventions), practices, methods, knowledge, skill, experience,
documents, animal models, patent and legal data or descriptions, chemical
formulations, processes, techniques, data, rights of reference and trade secrets
which are owned or controlled by Arena on the Effective Date or developed by
Arena during the term of the Agreement.
"Arena Patent Rights" means all present and/or future patents (including
inventor's certificates) and all present and/or future patent applications
(including provisional applications) therefor throughout the world as the case
may be, and substitutions, extensions, reissues, re-examinations, Supplementary
Protection Certificates, renewals, divisions, continuations, or
continuation-in-part thereof or therefor, and foreign counterparts thereof,
owned or controlled (either fully or partially) by Arena, or under which Arena
may grant licenses or sublicenses, to the extent they are directed to (1) CART
Technology; and/or (2) CART Activated Receptor(s); and/or (3) Enabled Screening
Assay(s); and/or (4) CART Identified Compound(s); and/or (5) Drug Product(s)
and/or (6) Prioritized Receptors and/or (7) Arena Technical Information and/or
(8) Arena Receptor(s). "Controlled" for purposes of this Section means that
Arena is an assignee or a licensee of such patent or patent application, with
the right to sublicense its rights under such license to Lilly hereunder. A list
of Arena Patent Rights shall be attached hereto as APPENDIX C within seven (7)
days after the Effective Date, and Arena shall update Arena Patent Rights from
time to time during the terms of this Agreement by sending Lilly such updated
APPENDIX C and also an updated APPENDIX C as of the end of December in each year
within one (1) month after such date. The Parties understand that the fact that
the Arena Patent Rights may include technology not licensed hereunder shall not
be interpreted, express or implied, that any such technology is included within
the scope of this definition.
"Arena Receptor(s)" means those GPCR(s), including GPCR-EST(s) and GPCR-Full
Length(s), discovered, developed, owned, or acquired by Arena prior to, on, or
after the Effective Date.
2
<PAGE> 7
"Arena Technical Information" means all Arena Know-How, methods of manufacture,
processes, documents and materials (excluding Collaboration Receptors (Lilly)
and information relating thereto), and other proprietary information, whether
patentable or unpatentable, related to Collaboration Receptors (Arena), CART
Technology and Enabled Screening Assay, including but not limited to,
Improvements, that are owned or possessed by Arena, whether now existing or
hereafter developed.
"Arena Technology" means Arena Patent Rights and Arena Technical Information.
"Business Day" means Monday through Friday, inclusive, excluding: (i) any U.S.
Federal holiday; (ii) the period of time between the day before Christmas day
through to and including the day after New Years day, and (iii) any other
nationally recognized U.S. holiday.
"Cancerous", for purposes of the definition of GPCR-Oncology, means a
proliferation of cells that leads to the formation of tumorous mass(es).
"Calendar Year" means the twelve (12) month period ending on December 31.
"CART Technology" means Arena Technology for enhancing the signal of a GPCR with
or without the binding to the GPCR of the Endogenous ligand corresponding to
such GPCR.
"CART Activated Receptor" means a Prioritized Receptor to which CART Technology
has been applied, and which has reached a level of activity such that its use in
an assay results in a signal to noise ratio that predicts its utility in an
Enabled Screen Assay as determined by the Steering Committee.
"CART Identified Compound(s)" means a compound, and/or a Derivative of a
compound that has been identified as a modulator of a CART Activated Receptor in
an Enabled Screen Assay.
"Change of Control" shall mean, with respect to Arena, any of the following
events: (i) the acquisition by any Person or Group, other than a Person or Group
controlling such Party as of the Effective Date, of "beneficial ownership" (as
defined in Rule 13d-3 under the United States Securities Exchange Act of 1934,
as amended), directly or indirectly, of 50% or more of the shares of Arena's
capital stock the holders of which have general voting power under ordinary
circumstances to elect at least a majority of Arena's Board of Directors or
equivalent body (the "Board of Directors") (the "Voting Stock"); (ii) the first
day of which less than two-thirds of the total membership of Arena's Board of
Directors shall be Continuing Directors (as such term is defined below); (iii)
the approval by the shareholders of Arena of a merger, share exchange,
reorganization, consolidation or similar transaction of such Party (a
"Transaction"), other than a Transaction which would result in the Voting Stock
of Arena outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into
3
<PAGE> 8
voting securities of the surviving entity) more than fifty percent (50%) of the
Voting Stock of Arena or such surviving entity immediately after such
Transaction; or (iv) approval by the shareholders of Arena of a complete
liquidation of Arena or a sale or disposition of all or substantially all of the
assets of Arena. For purposes of this definition, "Continuing Directors" shall
mean individuals serving as of the date hereof on Arena's Board of Directors and
any individuals elected after the date hereof whose election or nomination was
approved by at least a majority of the Continuing Directors serving at the time.
"Collaboration Receptor" means a Collaboration Receptor (Lilly) or a
Collaboration Receptor (Arena) as determined under Article IV.
"Collaboration Receptor(s) (Arena)" means a GPCR ************************
******** and designated as such pursuant to Article IV for the sole purpose of
creating Collaboration Receptors and Receptor Pool pursuant to Article V and
Article VI, respectively.
"Collaboration Receptor(s) (Lilly)" means a GPCR ***********************
********* and designated as such pursuant to Article IV for the sole purpose of
creating Collaboration Receptors and Receptor Pool pursuant to Article V and
Article VI, respectively.
"Common Receptor" means at least two (2) GPCRs whose nucleic acid sequence and
predicted amino acid sequence are at least ************ and in the case of
comparisons between a GPCR-EST and a GPCR-Full Length, the same percent identity
shall apply.
"Contact Information" has the same meaning as set forth in Section 3.2(a)(1) and
as set forth in APPENDIX G.
"Derivative" and "Derivatives" means a chemical derivative of a Lilly Compound
Hit ** ***********************************************************************
***********************************************************************
******************************************************************.
"Drug Product Patent Right" means an Arena Patent Right which is (i) an issued
and unexpired patent, owned or controlled by Arena, containing a Valid Claim
that would be infringed by the unauthorized sale, offering for sale or importing
of a CART Identified Compound or Drug Product, or (ii) a patent application,
owned or controlled by Arena, containing a pending Valid Claim which, upon
issuance, would be infringed by the unauthorized sale, offering for sale or
importing of a CART Identified Compound or Drug Product, provided that such
patent application issues within at least one (1) year from the First Commercial
Sale of a CART Identified Compound or Drug Product in the country at issue where
such First Commercial Sale occurs or earlier. If a patent application that
ceased to be a Drug Product Patent Right because it had not issued within one
(1) year of such First Commercial Sale in the particular country at issue should
subsequently be issued, it shall, as of the date of issuance, again become a
Drug Product
4
<PAGE> 9
Patent Right pursuant to subsection (i) of this paragraph. "Controlled" for
purposes of this definition means that Arena is the exclusive licensee of such
patent or patent application, with the right to sublicense its rights under such
license to the other Party hereunder.
"Drug Product" means a composition which has been packaged and labeled and is
ready for administration for human or animal therapy comprising at least one (1)
CART Identified Compound.
"Endogenous" means naturally occurring.
"Effective Date" means the date first above written in this Agreement.
"Enabled Screening Assay" means a screening assay comprising a CART Activated
Receptor which can be contacted with a Lilly Compound or a Compound Library and
which meets all of the criteria set forth in APPENDIX E of this Agreement.
"Europe" means the United Kingdom, France, Germany, Italy and Spain.
"FDA" means the United States Food and Drug Administration.
"Field" means all human and animal pharmaceutical applications of a CART
Identified Compound and/or Drug Product.
"First Commercial Sale" means that point in time, on a country by country basis,
when a sale of a Drug Product by Lilly, Affiliates of Lilly, or a sublicensee of
Lilly or its Affiliates, to an unaffiliated Third Party for use by the general
public, first occurs.
"First FTE Payment" shall mean ********.
"First Quarter" means three (3) months after the Effective Date.
"FTE" means, in reference to an employee, a full time equivalent scientific
person year ******************************************************************
of scientific work, on or directly related to the Project), carried out by Arena
employees, having at least a Bachelors Degree in a science, or experience
equivalent thereto. Scientific work on or directly related to the Project to be
performed by Arena employees can include, but is not limited to, experimental
laboratory work, recording and writing up results, reviewing literature and
references, holding scientific discussions, managing and leading scientific
staff, and carrying out Project management duties or such other activities as
may be appropriate to the conduct of the Project.
"G Protein Coupled Receptor" and "GPCR" may be used interchangeably and shall
mean an Endogenous, cell-surface receptor defined by having three (3)
intracellular loops, three (3) extracellular loops, an amino terminus and a
carboxy terminus. For purposes of this
5
<PAGE> 10
Agreement, the definition of GPCR shall not include those GPCRs set forth in
APPENDIX H.
"GPCR-CNS" means a GPCR whose expression is within the central nervous system.
"GPCR-CV" means a GPCR whose expression is within the cardio-vascular system.
"GPCR-Endo" means a GPCR whose expression is within the pituitary gland, the
pancreas or the thyroid gland.
"GPCR-EST" means a partial amino acid or nucleic acid sequence corresponding to
a fraction of a full length GPCR protein or gene of sufficient length that it
can be reasonably concluded that it is a member of the GPCR family.
"GPCR-Full Length" means that the amino acid sequence of the GPCR is available
for immediate expression as a protein corresponding to a GPCR.
"GPCR-Oncology" means a GPCR whose expression is within the human body and that
has been implicated in a Cancerous condition, but excluding any GPCR that may
also be designated as a GPCR-CNS, GPCR-Endo or GPCR-CV.
"Improvement(s)" means any and all inventions, Know-How, trade secrets, and
other proprietary information, whether or not patentable or patented, relating
to the Project and which are made, conceived, reduced to practice or generated
during the period commencing on the Effective Date and ending ******** months
following expiration, or termination under Sections 12.2(a) or 12.3, or
********** months following termination under Section 12.2(b) of this Agreement.
"Initiation Fee" shall have the meaning as set forth in Section 2.1.
"Investigational New Drug Application" and "IND" may be used interchangeably and
shall have the same meaning as set forth in 21 C.F.R. Section 312, including any
and all amendments, modifications or changes as may be made thereto in the
future, or the equivalent thereof in the United States.
"Joint Improvements" means any and all inventions, Know-How, trade secrets, and
other proprietary information, whether or not patentable or patented, relating
to the Project and which are made, conceived, reduced to practice or generated
jointly by Arena and Lilly during the period commencing on the Effective Date
and ending ********* months following expiration, or termination under Sections
12.2(a) or 12.3, or ******** months following termination under Section 12.2(b)
of this Agreement.
"Lilly Know-How" means all information, including, without limitation,
Confidential Information, tangible materials, ideas, inventions (including
patentable inventions), practices, methods, knowledge, skill, experience,
documents, clinical and regulatory strategies, including pharmacological,
toxicological and clinical test data, analytical and
6
<PAGE> 11
quality control data, patent and legal data or descriptions, chemical
formulations, processes, techniques, data, rights of reference and trade secrets
which are owned or controlled by Lilly on the Effective Date or developed by
Lilly during the term of the Agreement.
"Lilly" means Eli Lilly and Company, divisions of Lilly (including Sphinx
Pharmaceuticals), and Affiliates of Lilly.
"Lilly Chemical Library" means the compounds contained in the research records
libraries synthesized, owned or controlled by Lilly, individual compounds or
mixtures of compounds synthesized, owned or controlled by Lilly, and compounds
synthesized by Lilly, by combinatorial chemistry methods and contained in the
combinatorial chemistry libraries owned or controlled by Lilly.
"Lilly Compound" means a compound in the Lilly Chemical Library.
"Lilly Compound Hit" means an active Lilly Compound that is confirmed by ***
************************************************* in the primary assay, and
whose structure and stability is confirmed **********************************.
"Lilly Patent Rights" means all present and/or future patents (including
inventor's certificates) and all present and/or future patent applications
(including provisional applications) therefor throughout the world as the case
may be, and substitutions, extensions, reissues, re-examinations, supplementary
protection certificates, renewals, divisions, continuations, or
continuation-in-part thereof or therefor, and foreign counterparts thereof,
owned or controlled (either fully or partially) by Lilly, or under which Lilly
may grant licenses or sublicenses, and including, Lilly Receptor(s), Lilly
Compound(s), Lilly Screen(s), Lilly Chemical Library(s), CART Identified
Compound(s), Lilly Technical Information and/or Drug Product(s). "Controlled"
for purposes of this Section means that Lilly is an assignee or a licensee of
such patent or patent application, with the right to sublicense its rights under
such license Lilly hereunder.
"Lilly Program Sanction" means approval by the Lilly Program Sanction Committee.
"Lilly Receptor(s)" means those GPCR(s), including GPCR-EST(s) and GPCR-Full
Length(s), discovered, developed, owned, or acquired by Lilly prior to, on, or
after the Effective Date.
"Lilly Screen" means a screen, including high throughput screens, developed by
Lilly independent of the Project for the identification of human and animal
pharmaceutical applications.
"Lilly Technical Information" means all information, trade secrets, Lilly
Know-How, methods of manufacture, processes, documents and materials (excluding
Collaboration Receptors (Arena) and information relating thereto), and other
proprietary information,
7
<PAGE> 12
whether patentable or unpatentable, related to screening reagents, systems,
methodologies and techniques, Improvements, Collaboration Receptors (Lilly),
Lilly Compounds, and Lilly Chemical Library.
"Lilly Technology" means Lilly Patent Rights and Lilly Technical Information.
"Lilly Termination Fee" shall have the same meaning as set forth in Section
12.2(a)(ii)(2) of this Agreement.
"Net Sales" means [*** CONFIDENTIAL TREATMENT REQUESTED***]. .
"Notice" shall have the same meaning as set forth in Section 20.11 of this
Agreement.
Optional Termination" shall have the same meaning as set forth in Section
12.1(b)(1) of this Agreement.
"Party" means either Arena or Lilly, independently, as the case may be.
"Parties" mean both Arena and Lilly, collectively.
"Phase 2 Clinical Trial" means human clinical trials conducted in a small number
of patients and primarily designed to indicate a statistically significant level
of efficacy of a Drug Product in the particular indication tested, as well as to
obtain a preliminary indication of the unit and/or daily dosage regimen of such
Drug Product in the United States.
"Phase 3 Clinical Trial" means human clinical trials conducted in a large number
of patients and designed to establish Drug Product efficacy in the particular
indication tested and required to obtain clinical registration of such Drug
Product with the FDA .
"Prioritized Receptor" means a Collaboration Receptor that has been designated
by the Steering Committee for application of CART Technology in the Field
thereto.
"Program Fee" has the same meaning as set forth in Section 8.1(c) of this
Agreement.
"Project" means the activities to be conducted by Arena in collaboration with
Lilly, including the Research and Development Plan, Enabled Screening Assays,
and Lilly Compound Hits for the identification and development of CART
Identified Compounds pursuant to the terms and conditions of this Agreement.
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<PAGE> 13
"Project Technology" means the proprietary technical information and data
developed and/or acquired by Lilly and/or Arena in connection with the Project
during the term of the Agreement, to the extent such Project Technology is
useful for the discovery, development, manufacture, use or sale of a CART
Identified Compound or Drug Product as contemplated by the Parties hereunder.
"Research Team" shall have the meaning as set forth in Section 3.3 of this
Agreement.
"Quarter" means a three (3) month period of time that is not the First Quarter.
"Quarterly FTE Payment" shall have the same meaning as set forth in Section 2.2
(b) of this Agreement.
"Reasonable Commercial Efforts" means effort, expertise and resources normally
used by the Party for its product or compound owned by it or to which it has
rights, which is of similar market potential at a similar stage in its
development or product life, taking into account issues of safety, and efficacy,
product profile, difficulty in developing the product, development history of
successes and/or failures, the competitiveness of the marketplace for resulting
products, the proprietary position of the compound or product, the regulatory
structure involved, the potential profitability of the applicable products
marketed or to be marketed, and other relevant factors affecting the cost and
timing of development and the potential reward to be obtained if a product is
commercialized.
"Receptor Expansion Notice" shall have the same meaning as set forth in Section
13.1 of this Agreement.
"Receptor Pool" means those GPCRs selected from Collaboration Receptor(s) and
which shall be prioritized pursuant to Article VI of this Agreement.
"Research and Development Plan Phases", "R&D Phase IA", "R&D Phase IB", "R&D
Phase II", and "R&D Phase III" shall have the same meanings as set forth in
Section 7.2 of this Agreement.
"Research and Development Plan" means the research and development program to be
conducted by Arena in collaboration with Lilly for the identification and
development of CART Identified Compounds and Drug Products as set forth in
Article VII and in APPENDIX A of this Agreement.
"Regulatory Agency" includes, but is not be limited to, FDA, or similar
regulatory bodies in the Territory.
"Right of Utilization" [***CONFIDENTIAL TREATMENT REQUESTED***].
"Section 7.3 Table" means the table set forth in Section 7.3 as may be amended
during the term of this Agreement by mutual written consent of the Parties.
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<PAGE> 14
"Section 7.4 Table" means the table set forth in Section 7.4, as may be amended
during the term of this Agreement by mutual written consent of the Parties.
"Steering Committee" shall have the same meaning as set forth in Section 3.2 of
this Agreement.
"Territory" means the world.
"Third Party" means any person or entity other than Lilly, a Lilly licensee, and
Arena.
"Valid Claim" means a claim which, but for the license granted hereunder, would
be infringed by Lilly's manufacture, having manufactured, use, having used, sale
or having sold, importing in to the United States or having imported into the
United States of a CART Identified Compound or Drug Product and which is in an
unexpired issued patent included within the Arena Patent Rights which has not
been held invalid or unenforceable by a decision of a court of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal, and
which has not been admitted to be invalid by the owner through reissue or
disclaimer. If there should be two or more decisions that are conflicting with
respect to the invalidity of the same claim, the decision of the higher or
highest tribunal shall thereafter control.
ARTICLE II
FUNDING OF PROJECT
2.1 Initiation Fee. Within thirty (30) days of the Effective Date, Lilly
shall pay to Arena a one-time, non-creditable, non-refundable Initiation Fee of
******* ***************************.
2.2 FTE Payments.
(a) The First FTE Payment shall be made by Lilly to Arena within thirty
(30) days after the Effective Date. Any reconciliation of the First FTE Payment
shall be made in accordance with Section 2.2(c).
(b) For all other FTE payments, Lilly shall pay to Arena an Annual FTE
Payment for Arena FTEs in the amount of **********************************
********** for each FTE. Such Annual FTE Payment shall be made quarterly within
thirty (30) days of the receipt of an invoice for the previous Quarter during
which the FTE work was performed, in the amount of
******************************* ********* for each FTE for each of such Quarters
("Quarterly FTE Payment").
(c) FTE Payments made hereunder shall be non-creditable and
non-refundable, provided that all Arena FTE time paid for by Lilly hereunder is
devoted to tasks associated with the Project as agreed to by the Parties
hereunder. In the event that it is determined under Section 2.4 that one or more
Arena FTEs did not devote the time
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<PAGE> 15
contemplated by the Project, then Arena shall reimburse Lilly for the monetary
difference between the actual time devoted and the time contemplated by the
Project in the form of (i) a credit toward future FTE Payments or (ii) a refund
to Lilly in the event this Agreement is terminated under Article XII.
2.3. Manner of Payments. All payments to be made by Lilly to Arena under
this Agreement shall be in accordance with APPENDIX F attached hereto and
incorporated into this Agreement.
2.4 Accounting.
(a) Within thirty (30) days from the end of the First Quarter, Arena
shall provide to Lilly a report detailing how Arena allocated FTEs to the
Project. Such report shall provide Lilly with the names of the Arena employees
which make up the FTEs and the amount of each employee's time devoted to tasks
associated with the Project during the First Quarter.
(b) Within thirty (30) days from the end of each Quarter, Arena shall
provide to Lilly a report detailing how Arena allocated FTEs to the Project
during such Quarter.
(c) Each report of Sections 2.4(a) and 2.4(b) shall provide Lilly with
the names of the Arena employees which make up the FTEs and the amount of each
employee's time devoted to tasks associated with the Project during the
quarterly period at issue. Arena shall, further, maintain records in reasonable
detail of all monies paid by Arena for research under the Project and shall
provide Lilly, within thirty (30) days of the end of each Calendar Year, with a
report stating the dollar amount of funds supplied by Lilly that were expended
on research activities during any year for which the report is made, using
Arena's standard project accounting procedures, and such supporting details as
are reasonably required by Lilly. Within one (1) year from receipt of the
reports, Lilly may, at its expense, request an audit by Lilly's independent
certified public accountants and, if Lilly so determines by an independent
scientist working with such accountants. The independent certified public
accountant and scientist expert shall have the right to examine all necessary
records kept pursuant to this Section 2.4 and report to Lilly the findings of
said examination of records insofar as necessary to verify the reports. Such
findings shall be maintained in confidence by Lilly. If an error in favor of
Lilly of ***** *********** or more of the total amount audited is discovered,
then the expenses of the audit shall be paid by Arena.
ARTICLE III
STAFFING, PLANNING AND EXECUTION OF PROJECT
3.1 Purpose and Scope of Project. In accordance with, and subject to,
the terms described in this Agreement, and as more fully described in Articles
IV, V, VI, VII, the Parties agree to collaborate under the Research and
Development Plan for the identification of CART Identified Compound(s) and Drug
Product(s) for the ultimate
11
<PAGE> 16
purpose of commercializing such CART Identified Compound(s) and Drug Product(s)
by Lilly. Each Party agrees to pursue their respective obligations under the
Project with Reasonable Commercial Efforts. Failure by either Party to meet
their respective diligence obligation due to reasons beyond the Party's control,
including, but not limited to, lack of technical success of the Drug Products in
the case of Lilly, will not constitute lack of diligence for purposes of this
Agreement.
3.2 Steering Committee. During the term of this Agreement, the strategic
direction and overall management of the Project, including but not limited to
scientific components of, and scientific decisions related to, the Research and
Development Plan shall be governed by a Steering Committee.
(a) Composition.
(1) During the term of this Agreement, the Steering
Committee shall be comprised of six (6) members, three (3)
selected by Lilly, and three (3) selected by Arena, with each
Party further designating one (1) alternate member ("Alternate")
who shall be entitled to attend all Steering Committee Meetings.
The number of Steering Committee members may increase or
decrease by mutual written consent of the Parties. Within
fourteen (14) days of the Effective Date, each Party shall
provide written Notice to the other Party listing the name,
title, e-mail address, telephone number and facsimile number
("Contact Information") of their respective Steering Committee
members. Such list shall be attached hereto as APPENDIX G and
updated from time to time during the term of this Agreement when
such Contact Information is changed.
(2) Steering Committee Secretary. The Steering Committee
shall have a Secretary whose role shall be, in addition to those
associated with the Steering Committee, to maintain the Steering
Committee Minutes. The Secretary can be a Steering Committee
Member or an Alternate. The term for the Secretary shall be
yearly, with each Party designating the Secretary for that year,
with Arena first, Lilly second and alternating accordingly
thereafter.
(b) Responsibilities. The Steering Committee shall have authority over,
and responsibility for, the strategic direction and overall management of the
Project. Within thirty (30) days of the Effective Date, the senior Lilly
Steering Committee member shall arrange with Arena for the first Steering
Committee meeting. The Steering Committee shall review the initial Research and
Development Plan as set forth in APPENDIX A. The Steering Committee will
periodically review the proposed revisions to the Research and Development Plan
as presented by the Research Team from a strategic perspective. The Steering
Committee shall review and consider for approval changes to the Research and
Development Plan as it deems necessary to accomplish the purpose of the Project.
The Steering Committee shall periodically review the results of the Project to
ensure, to the extent reasonably practical, that the Parties are providing their
commitments of both
12
<PAGE> 17
human and financial support and the fulfillment of all contractual obligations
between the Parties. The Steering Committee shall resolve any disputes referred
to it by the Research Team in accordance with Section 3.3 (e) below.
(c) Meetings.
(1) Required Numbers. A Steering Committee shall be
considered a Steering Committee Meeting for purposes of
conducting the business of the Steering Committee when at least
two (2) Steering Committee Members from each Party, including
Alternates, are present. In any Steering Committee Meeting where
there are two (2) Steering Committee Members from a Party, and
one (1) such person is the Alternate, then the vote of the
Alternate for that Party shall be treated and counted as if made
by a Steering Committee Member at that meeting.
(2) Location and Frequency of Meetings. During the term of
this Agreement the Steering Committee shall meet at a common
physical location once every six (6) months; the dates and times
of such meetings shall be selected by mutual consent, and the
location shall be selected by alternate selection, the first
meeting location by Lilly, the second by Arena, and alternating
thereafter by each Party. Each Party shall be responsible for
bearing the costs associated with participating in and/or
attending such meetings.
(d) Minutes.
(1) The Steering Committee shall maintain a written record
of its discussions and decisions in the form of Steering
Committee Minutes; the Steering Committee Minutes shall be
maintained by the Steering Committee Secretary.
(2) The Steering Committee Minutes shall be prepared and
provided to the Steering Committee by the Secretary within ten
(10) days after each Steering Committee Meeting. The Party whose
Steering Committee Member or Alternate is not the Secretary
shall have fourteen (14) days from receipt of the Minutes to
provide any written comments thereon. If such written comments
are not received by the expiration of the fourteenth (14) day
from receipt of such Minutes, then the Minutes shall be
considered accurate and not subject to amendment, subject to the
following: with the vote of 50% plus one of the Steering
Committee (excluding Alternates), the Minutes can be amended to
correct any subsequently discovered inaccuracies in the Minutes.
(3) Each Party shall maintain a copy of the Minutes; in
any dispute involving any aspect of the scientific collaboration
set forth in this Agreement that is governed by the Steering
Committee, the decision of the Steering Committee, as reflected
solely in the Minutes, shall control, and
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<PAGE> 18
neither Party shall be entitled to rely on information, notes,
or other documents that contradict the Minutes to establish a
point or position in contradiction to the Minutes.
(e) Decisions. Decisions of the Steering Committee shall be made by
majority vote. Except for the Excluded Decisions set forth below, if the
Steering Committee is unable to reach a majority vote on any matter, including
matters referred to it for decision by the Research Team, then the issue shall
be referred to the Chief Executive Officer for Arena (or successor position),
and the Vice President of Research Technologies and Product Development for
Lilly (or successor position), for further discussion and resolution. These
individuals shall, as soon as practicable, attempt in good faith to resolve the
dispute and, thereby, make the decision on behalf of the Steering Committee.
These individuals may obtain the advice of other employees or consultants as
they deem necessary or advisable in order to make the decision. If such issue is
not resolved within twenty (20) days after it has been referred to such persons
for resolution, the issue shall be referred to the Executive Vice President,
Science and Technology, of Lilly (or the successor thereof), who shall make the
final decision regarding the issue. With respect to the following Excluded
Decisions, if any issue related to the following cannot be resolved by the Chief
Executive Officer for Arena (or successor position) and the Vice President of
Research Technologies and Product Development for Lilly (or successor position)
on behalf of the Steering Committee, then the final decision regarding such
issue shall not vest with the Executive Vice President, Science and Technology
of Lilly (or the successor thereof): (i) any unilateral termination by Lilly of
its obligations hereunder, except as otherwise provided for in this Agreement;
(ii) any decision that would result in an amendment to this Agreement in
contravention to Section 20.3; or (iii) in the event of a dispute regarding the
Designation of a GPCR as a Collaboration Receptor (Lilly) or Collaboration
Receptor (Arena), not more than three (3) individual GPCR Designations shall be
decided by the Executive Vice President, Science and Technology of Lilly (or the
successor thereof) per Calendar Year. Any dispute relating to such issues that
do not vest with the Executive Vice President, Science and Technology of Lilly
that cannot be resolved by the Parties may be resolved by litigation brought in
accordance with Section 20.8 of this Agreement.
3.3 Research Team. During the term of this Agreement, day-to-day
management of the Project shall be the responsibility of the Research Team
consisting of an equal number of representatives from each Party and appointed
by the Steering Committee.
(a) Composition. The Research Team shall consist of those voting members
designated by the Steering Committee, each Party to have an equal number of
voting members, and may also have such non-voting members as each Party so
determines. Not later than twenty (20) Business Days after the Steering
Committee names the members of the Research Team, that team shall meet to hold
an organizational meeting to establish the operational requirements for the
Research Team to be set forth in APPENDIX D following execution of the Agreement
by the Parties hereto.
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<PAGE> 19
(b) Responsibilities. The Research Team shall provide the day-to-day
management of the Project and shall be responsible for planning, managing,
directing and overseeing specific activities under this Agreement, including but
not limited to, designation and prioritization of Collaboration Receptors
(Arena) and Collaboration Receptors (Lilly) as provided under Article IV,
development of Enabled Screen Assay(s), and other technical matters relating to
the identification and development of CART Identified Compounds, as follows: The
Research Team shall be responsible for implementing the Research and Development
Plan, addressing fully the appropriate strategy for CART Identified Compounds
and Drug Products, and for addressing all issues that develop during the course
of the Research Development Project. Such efforts shall include:(1) establish
comprehensive and detailed plans designed to accomplish the goals of Research
and Development Plan (2) allocate tasks and coordinate activities required to
carry out the objectives of the Research Development Project, (3) monitor
progress of the Research Development Project, and (4) discharge such other
obligations as are assigned to the Research Team under this Agreement or by the
Steering Committee. The mutually agreed upon initial Research and Development
Plan is set forth hereto as APPENDIX A of this Agreement. Although each of the
Parties have been given principal responsibility for each of such activities,
all significant decisions with respect to such activities shall be made by the
Research Team, with the exception that Lilly shall be solely responsible for
decisions relating to the development and commercialization activities of any
CART Identified Compound or Drug Product. The Parties shall provide the Steering
Committee and the Research Team with quarterly status reports summarizing their
efforts under this Agreement.
(c) Limitations. The Research Team shall be subordinate to the Steering
Committee, which shall have the right upon timely appeal as provided below to
review, accept, reject or modify all actions of the Research Team. Either Party
may change its representatives on the Research Team at any time by notification
to the other.
(d) Decisions. Decisions of the Research Team shall be made by majority
vote, subject to the right of either Party to appeal any decision of the
Research Team to the Steering Committee. No vote of the Research Team may be
taken unless a majority of the members of the Research Team are present,
including at least one (1) representative of each Party. Disagreement or
disputes not resolved by the Research Team shall be referred to the Steering
Committee. Disputes not resolved by the Steering Committee shall be resolved in
accordance with Section 3.3(e) above.
3.4 Other Committees. The Steering Committee, and the Research Team with
the approval of the Steering Committee, may appoint one or more other working
teams ("Working Teams") to perform such functions as the Steering Committee or
Research Team, respectively, may determine. Unless a Party elects not to
participate on a particular Working Team, all Working Teams shall have at least
one representative of each Party. Working Teams may provide advice and make
recommendations to the Research Team, but shall have no authority to bind the
Steering Committee, the Research Team, or either of the Parties.
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<PAGE> 20
ARTICLE IV
RECEPTOR DESIGNATION
4.1 Receptor Designation. During the term of this Agreement, and in
accordance with the terms and conditions of this Agreement, and for the sole
purpose of establishing a Receptor Pool as provided hereunder, Arena Receptor(s)
and Lilly Receptor(s), shall be designated as Collaboration Receptor(s) (Arena)
or as Collaboration Receptor(s) (Lilly) as provided in this Article IV
("Designation", "Designated", or "Designation Process"). The Designation of (i)
an Arena Receptor(s) as a Collaboration Receptor (Arena) or a Collaboration
Receptor (Lilly) or (ii) a Lilly Receptor(s) as a Collaboration Receptor (Arena)
or a Collaboration Receptor (Lilly) shall be made
******************************************. With respect to Lilly Receptors(s)
which are Designated as Collaboration Receptor(s) (Arena), such Designation
shall not be construed as, either implicitly or expressly, a grant, license or
transfer of ownership of a Lilly Receptor to Arena other than for the express
purpose of conducting the Project hereunder. With respect to Arena Receptors
which are Designated as a Collaboration Receptor (Lilly), such Designation shall
not be construed as, either implicitly or expressly, a grant, license or
transfer of ownership of an Arena Receptor to Lilly other than for the express
purpose of conducting the Project and as provided under Article XI and Article
XXIII.
4.2 Designation Process.
(a) The Designation as Collaboration Receptor(s) (Lilly) or as a
Collaboration Receptor (Arena) under Section 4.1 shall be made solely by the
Research Team and recommended to the Steering Committee for approval, as
reflected in the Steering Committee Minutes. During the term of this Agreement,
and except as expressly provided for under Article III, neither Party shall be
permitted to challenge such Designation, in contradiction to a Designation that
is reflected in the Minutes.
(b) In order to be Designated as either a Collaboration Receptor (Lilly)
or as a Collaboration Receptor (Arena), a Party must be the first Party to
provide ********** **************************************************** of their
respective GPCR to the Research Team for evaluation, as provided for below in
Section 4.2(d). The Designation of a GPCR as either a Collaboration Receptor
(Lilly) or as a Collaboration Receptor (Arena) shall be based solely upon (i)
the terms and conditions of this Agreement and (ii) ****************************
******************************************************** provided by a Party
under Section 4.2(d). Once a Party provides its ****************
********************************************* to the Research Team for
evaluation as provided below in Section 4.2(d), neither Party shall be permitted
to provide any additional information to either the Research Team or Steering
Committee in an effort to establish ******************** of a GPCR by that
Party.
(c) Arena shall submit all of its GPCR-EST receptors and GPCR-Full
Length receptors to the Research Team for evaluation as provided in this Section
4.2 and Lilly
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<PAGE> 21
shall be permitted to submit any of its GPCR-EST and GPCR-Full Length receptors
to the Research Team for evaluation as provided in this Section 4.2. The
GPCR-EST or the GPCR-Full Length may be owned by, or derived from the efforts
of, the submitting Party, or it may have been or may be acquired by the
submitting Party from a Third Party and/or licensed by the submitting Party from
a Third Party. The Parties are permitted to use the GPCR-EST and/or GPCR-Full
Length information submitted to the Research Team only for the express purpose
of determining the Designation of Collaboration Receptor (Lilly) or
Collaboration Receptor (Arena) and for no other purpose whatsoever.
(d) During the Term of this Agreement, the Designation of a GPCR shall
be made by the Research Team in accordance with the following Designation
Process:
(i) Each Party shall submit its respective GPCR nucleic acid and/or
predicted amino acid sequences to the Research Team not less than
twenty-four (24) hours prior to the scheduled Research Team Meeting;
(ii) The Research Team shall, within a reasonable time period, but
not more than fourteen (14) days from the date of the Research Team
Meeting, based upon the number of GPCRs submitted to the Research Team
for review, analyze the GPCRs.
(e) The Designation Process shall alternate as follows during the term
of this Agreement:
(i) With respect to the first Research Team Meeting, any GPCR that
is ************************************* shall be Designated as a
Collaboration Receptor (Arena). Any Lilly Receptor that is ************
*********************************** shall be Designated as a
Collaboration Receptor (Lilly). Any Arena Receptor that is not a
*********** shall be Designated as a Collaboration Receptor (Arena). The
Research Team Minutes shall reflect such Designations.
(ii) With respect to the second Research Team Meeting, any Lilly
Receptor or Arena Receptor that is ********************************
*********** shall be Designated as a Collaboration Receptor (Lilly). Any
Lilly Receptor that is ********************* shall be Designated as a
Collaboration Receptor (Lilly). Any Arena Receptor that is
***************************** ***************** shall be Designated as a
Collaboration Receptor (Arena). The Research Team Minutes shall reflect
such Designations.
(iii) Thereafter, the Designation shall alternate in accordance
with the foregoing provisions of Section 4.2(e)(i) and (ii).
ARTICLE V
RESTRICTIONS ON USE OF COLLABORATION RECEPTORS BY ARENA
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<PAGE> 22
5.1 During the term of this Agreement, the following restrictions shall
apply with respect to the use of Collaboration Receptors (Arena) or
Collaboration Receptors (Lilly) by Arena outside the scope of the Project:
(a) With respect to a Collaboration Receptor (Arena) or Collaboration
Receptor (Lilly) that is:
(i) **********************;
(ii) *************************; or
(iii) **********************************,
then Arena shall not be permitted to use or to sell, license or otherwise
dispose of such Collaboration Receptor (Arena) or Collaboration Receptor (Lilly)
to a Third Party or Third Parties.
5.2 During the term of this Agreement, the following restrictions shall
apply with respect to the use of Collaboration Receptors (Arena) by Arena
outside the scope of the Project:
(a) With respect to a Collaboration Receptor (Arena) that:
(i) *****************************;
(ii) ********************************;
(iii) *****************************************; and
(iv) ************************************,
then this Agreement shall not prevent Arena from using, licensing, selling or
otherwise disposing of such Collaboration Receptor (Arena) to a Third Party or
Third Parties, without obligation to Lilly.
(b) With respect to a Collaboration Receptor (Arena) that:
(i) *****************************;
(ii) ********************************; and
(ii) *****************************************,
(iv) ************************************,
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<PAGE> 23
then Arena shall be permitted to negotiate to sell, license or otherwise dispose
of such Collaboration Receptor (Arena) with a Third Party or Third Parties, with
the proviso that after a Third Party or Third Parties expresses interest in such
*********************** *************** and prior to entering into a definitive
agreement with such Third Party or Third Parties for such
***************************************, Arena shall first provide written
Notice to Lilly of Arena's intention to enter into such definitive agreement.
If, within *********** days from the date of receipt of such written Notice by
Lilly:
(1) ******************************************************
****************************************************************
****, then this Agreement shall not prevent Arena from entering
into such definitive agreement with such Third Party or Third
Parties with respect to such *********************************;
or
(2) ******************************************************
****************************************************************
*********************************, then Arena shall not enter
into any agreement with such Third Party or Third Parties with
respect to such ***************************************, and as
of the date of**************************************************
****************************************************************
*********************************** shall be deemed a
Prioritized Receptor(s) for the purpose of this Agreement and at
the same terms as all other prioritized receptors as set forth
in this Agreement.
5.3 During the term of this Agreement, the following restrictions shall
apply with respect to the use of Collaboration Receptor(s) (Lilly) by Arena
outside the scope of the Project:
(a) With respect to a Collaboration Receptor (Lilly) that :
(i) *****************************;
(ii) ********************************; and
(iii) *****************************************,
then, Arena shall not be permitted to disclose, license, sell, or otherwise
dispose of such Collaboration Receptor(s) (Lilly) to a Third Party or Third
Parties except in the case that a Third Party or Third Parties *****************
********************************************************************************
********************************************************************************
************************************************************,and prior to
entering into a definitive agreement with such Third Party or Third Parties for
such Collaboration
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<PAGE> 24
Receptor(s) (Lilly), Arena shall first provide written Notice to Lilly of
Arena's intention to enter into such definitive agreement. If, within
************ Business Days from the date of receipt of such written Notice by
Lilly:
(1) ******************************************
******************************************************
**************** then this Agreement shall not prevent Arena
from entering into such definitive agreement with such Third
Party or Third Parties with respect to such independently
identified receptor of greater than or equal to *** identity to
the amino acid sequence to that of Collaboration Receptor(s)
(Lilly); or
(2) *****************************************
****************************************************
************, then Arena shall not have the right to enter into
any agreement with such Third Party or Third Parties with
respect to such Collaboration Receptor(s) (Lilly), and as of the
date of Lilly's Notice of Right of Utilization with respect to
such Lilly receptor(s), such Collaboration Receptor(s) (Lilly)
shall be deemed a Prioritized Receptor(s) for the purposes of
this Agreement and under the same terms for all other
Prioritized Receptors as provided in this Agreement.
5.4. Under no circumstances whatsoever, except as provided in this
Article V, shall Arena be permitted to offer for sale, license or otherwise
transfer ownership of a Collaboration Receptor (Lilly).
5.5 Arena shall not enter into any agreement with a Third Party relating
to any Arena Receptor(s) (excluding those GPCRs listed on Appendix H) until such
Arena Receptor(s) are disclosed to Lilly and to the Research Team for
designation in accordance with Article IV.
ARTICLE VI
RECEPTOR POOL
6.1 Receptor Pool.
(a) The Research Team shall recommend to the Steering Committee and the
Steering Committee shall determine which Collaboration Receptors shall be
maintained within the Receptor Pool. During the term of this Agreement, the
maximum number of Collaboration Receptors that may be included at any one time
as being part of the Receptor Pool shall be at least ***********, but not more
than ***************.
(b) The Steering Committee shall determine which Collaboration Receptors
are to be included in the Receptor Pool, with the proviso that during the term
of the Agreement, Lilly, at its sole discretion and independent from the
Research Team or
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<PAGE> 25
Steering Committee, shall be permitted to unilaterally substitute, on a
one-for-one basis, a Collaboration Receptor within the Receptor Pool for another
Collaboration Receptor, so long as the total number of Collaboration Receptors
within the Receptor Pool at any one time does not exceed ******* *****
(c) When a Collaboration Receptor in the Receptor Pool has been
recommended for selection as a Prioritized Receptor by the Research Team and is
thus removed from the Receptor Pool, the Research Team shall then recommend to
the Steering Committee for review and approval to add another Collaboration
Receptor(s) to the Receptor Pool in order to replace the so removed Prioritized
Receptor.
(d) The decision of the Steering Committee set forth in Sections 6.1(a)
and 6.1(c) shall require the approval of 50% of the members of the Steering
Committee, plus one, excluding Alternates.
ARTICLE VII
RESEARCH AND DEVELOPMENT PLAN
7.1 Research and Development Plan. The Research and Development Plan ,
is to be managed by the Research Team and governed by the Steering Committee,
and is set forth in APPENDIX A. Based upon recommendations from the Research
Team during the term of this Agreement, and as may be from time to time required
or requested by the Research Team, the Research and Development Plan may be
amended by mutual, written consent of the Parties.
7.2 Research and Development Plan Time Period. The Research and
Development Plan shall be comprised of four (4) phases ("Research and
Development Phase" or "R&D Phase") as follows:
(a) R&D PHASE IA - the period of time during which R&D Phase IA shall be
in effect is six (6) months from the Effective Date;
(b) R&D PHASE IB - the period of time during which R&D Phase IB shall be
in effect is one (1) year from the Effective Date;
(c) R&D PHASE II - the period of time during which R&D Phase II shall be
in effect is two (2) years from the completion of R&D Phase IB; and
(d) R&D PHASE III - the period of time during which R&D Phase III shall
be in effect two (2) years from the completion of R&D Phase II.
It is contemplated by the Parties that the activities associated with
respect to R&D Phase IA and R&D Phase IB may simultaneously occur in whole or in
part.
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(e) Notwithstanding the foregoing Research and Development Plan Phases,
in the event that Lilly exercises its rights under Section 12.1(a) of this
Agreement, or in the event that either Party exercises its rights under Section
12.1(b) of this Agreement, the time period of the Phase which such right(s) is
exercised shall be adjusted accordingly.
7.3 Research Plan FTEs. The Research and Development Plan determines
that Arena secures and utilizes the following number of Arena FTEs for each of
the designated time periods set forth in the following Section 7.3 Table:
Section 7.3 Table
<TABLE>
<CAPTION>
------------------------------ ---------------------------------
MONTHS (PHASE) ARENA FTES
------------------------------ ---------------------------------
<S> <C>
Effective Date - 6 (IA) ******
------------------------------ ---------------------------------
7-12 (IB) ***
------------------------------ ---------------------------------
13-36 (II) ***
------------------------------ ---------------------------------
37-60 (III) Estimated: ******
------------------------------ ---------------------------------
</TABLE>
(a) The Research Team shall recommend, and the Steering Committee shall
review and consider for approval, the total number of FTEs required for Phase
III, without further approval from the Parties, with the understanding that the
total estimated number of FTEs for Phase III shall be between ***************
and ************* Arena FTEs.
(b) The number of FTEs for Phase III shall be agreed to be based upon a
vote of 50% of the Steering Committee, plus one, excluding Alternates, for
approval.
(c) The number of FTEs dedicated to any of the R&D Phases as set forth
in Section 7.3 Table, may be increased or decreased by the Steering Committee or
pursuant to the decision procedure in accordance with Article III of this
Agreement.
7.4 Research and Development Plan Prioritized Receptors. The number of
Prioritized Receptors, selected exclusively from the Receptor Pool for the
activation of CART Activated Receptors, shall be as follows during the
respective R&D Phases, as set forth in the following Section 7.4 Table:
Section 7.4 Table
<TABLE>
<CAPTION>
-------------------- ---------------- -------------- --------------- -------------- -----------------
PHASE GPCR-CNS GPCR-ENDO GPCR-CV GPCR-OTHER TOTAL GPCRS
-------------------- ---------------- -------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
IA * * * *** *
-------------------- ---------------- -------------- --------------- -------------- -----------------
IB * * *** *** *
-------------------- ---------------- -------------- --------------- -------------- -----------------
II (ALL NUMBERS * * * *** **
PER YEAR)
-------------------- ---------------- -------------- --------------- -------------- -----------------
III (ALL NUMBERS Minimum: * Minimum: * Minimum: * Minimum: * MINIMUM: **
PER YEAR)
-------------------- ---------------- -------------- --------------- -------------- -----------------
</TABLE>
For convenience, "N/A" shall mean "not applicable".
22
<PAGE> 27
(a) The Parties acknowledge and agree that during the term of this
Agreement, and to the extent that the Parties reach mutually agreeable terms as
to an increase in the number of Prioritized Receptors and/or an increase and/or
change in the type of GPCR included within the Prioritized Pool, the foregoing
shall be amended.
(b) In the event that this Agreement is not terminated in accordance
with Section 12.2, then the Parties shall negotiate in good faith terms and
conditions for expansion of the Research and Development Plan to include animal
pharmaceutical applications.
(c) In the event that the term of this Agreement continues through Phase
III, then the Research Team shall recommend to the Steering Committee the number
of Prioritized Receptors that are to be included within each Prioritized
Receptor category of the Section 7.4 Table, but in no event shall such number be
less than the designated minimum. The Parties shall in good faith, using
Reasonable Commercial Efforts, accept such recommendation of the Research Team,
and upon such acceptance, amend the Section 7.4 Table in writing and affix such
amended Section 7.4 Table to this Agreement as an additional APPENDIX B which
shall be incorporated into this Agreement and thus replacing the existing
Section 7.4 Table.
7.5 Collaboration. In the event the Parties become aware of technology
of a Third Party within the Field, the Research Team will determine whether such
technology should be brought into the Project and, to the extent the cost of
acquiring such technology is not governed by the provisions of Article XV, how
the cost of acquiring the technology should be shared by the parties. Any such
cost sharing will recognize those expenses already incurred by a Party hereto in
connection with acquiring the technology. The Research Team will make a
recommendation to the Steering Committee concerning the acquisition of
technology and the sharing of cost. Each Party shall then have thirty (30) days
in which to accept or reject the recommendation or propose an alternative
arrangement. The Parties will conduct any negotiations concerning acquiring such
technology in good faith with the interest of advancing the Project.
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<PAGE> 28
ARTICLE VIII
DISCOVERY MILESTONE PAYMENTS
8.1 During the term of this Agreement, the following shall apply to each
Prioritized Receptor selected from the Receptor Pool:
(a) For each Prioritized Receptor, Reasonable Commercial Efforts shall
be used by Arena to apply CART Technology to such Prioritized Receptor. Upon
concurrence by the Research Team that a Prioritized Receptor is a CART Activated
Receptor, Arena shall provide prompt written Notice to Lilly as to such
concurrence. Within thirty (30) days of such Notice, Lilly shall provide a fee
of *********** and **************************** to Arena ("Arena Activation
Fee").
(b) Arena shall use Reasonable Commercial Efforts to establish an
Enabled Screening Assay incorporating a CART Activated Receptor promptly
following the concurrence by the Research Team of such CART Activated Receptor.
Upon concurrence by the Research Team of the establishment of an Enabled
Screening Assay, Arena shall promptly deliver such Enabled Screening Assay to
Lilly. Within thirty (30) days of receipt of such Enabled Screening Assay by
Lilly, Lilly shall pay a fee of **** *****************************************
to Arena ("Arena Assay Fee"). With respect to any CART Activated Receptor for
which Lilly does not make payment of an Arena Assay Fee, then Lilly shall not
use such CART Activated Receptor in a Lilly Screen.
(c) Using Reasonable Commercial Efforts, Lilly shall utilize each
Enabled Screening Assay to screen Lilly Compound(s) and/or Lilly Chemical
Library for Lilly Compound Hits and shall use Reasonable Commercial Efforts to
obtain Lilly Program Sanction for an internal development program at Lilly with
such Lilly Compound Hit(s). Lilly shall notify Arena if Lilly has determined
that Lilly has identified a Lilly Compound Hit and if Lilly Program Sanction has
been received. Within thirty (30) days of the date of such Lilly Program
Sanction, Lilly shall pay a fee of ***********************
*************************** to Arena ("Program Fee").
(d) Each Arena Activation Fee, Arena Assay Fee and Program Fee made by
Lilly shall be non-creditable and non-refundable. Each Arena Activation Fee,
Arena Assay Fee and Program Fee is applicable on a one-time basis for each
Prioritized Receptor, irrespective of the number of Lilly Compound Hits that
correspond to such Prioritized Receptor and Lilly shall not be required to pay
any additional fees for such Prioritized Receptor.
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<PAGE> 29
ARTICLE IX
CLINICAL DEVELOPMENT MILESTONE PAYMENTS
9.1 During the term of this Agreement, the following milestones shall
apply with respect to each CART Identified Compound to which rights have been
granted to Lilly under this Agreement ("Development Milestones"):
(a) IND Approval Milestone. Upon approval of an IND in the United States
Lilly shall pay to Arena *************************** within thirty (30) days of
such IND Approval.
(b) Phase 2 Clinical Trial Milestone. Within thirty (30) days after the
enrollment of the first patient in a Phase 2 Clinical Trial for approval in the
United States for a CART Identified Compound, Lilly shall pay to Arena
******************* ************.
(c) Phase 3 Clinical Trial Milestone. Within thirty (30) days after the
enrollment of the first patient in a Phase 3 Clinical Trial for approval in the
United States for a CART Identified Compound, Lilly shall pay to Arena
******************** **********.
(d) In the event that any of the aforementioned Development Milestones
are not achieved because the activity necessary to trigger such Development
Milestone was not required by a Regulatory Agency, then upon the achievement of
any subsequent Development Milestone or First Commercial Sale Milestone as
described in Section 9.21(a), whichever occurs first, then any unpaid previous
Development Milestone shall be payable concurrently with the payment of the
subsequent Development Milestone or First Commercial Sale Milestone.
(e) The maximum amount of Development Milestones that Lilly would be
required to pay to Arena for each CART Identified Compound under this Section
9.1 shall be ******************* *******. In the event that the clinical
development of a CART Identified Compound under any of Sections 9.1(a), 9.1(b)
or 9.1(c) is discontinued, then Arena shall credit any payments made by Lilly
under this Section 9 against any development milestone payments for other CART
Identified Compounds that would otherwise be required to be made by Lilly.
9.2 During the term of this Agreement, the following shall apply with
respect to each Drug Product to which rights have been granted to Lilly under
this Agreement:
(a) First Commercial Sale Milestone. Upon the First Commercial Sale of
each Drug Product, Lilly shall provide to Arena a First Commercial Sale
Milestone for the First Commercial Sale for each Drug Product as follows (the
Parties acknowledge and agree that the order presented below is not
determinative as to any payment due under this Section 9.2):
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<PAGE> 30
(i) United States. Within thirty (30) days of the First Commercial
Sale in the U.S., Lilly shall pay ***************************** to Arena.
(ii) Europe. Within thirty (30) days of the First Commercial Sale
in Europe, Lilly shall pay ******************************* to Arena.
(iii) Japan. Within thirty (30) days of the First Commercial Sale
in Japan, Lilly shall pay ******************* to Arena.
(b) The maximum amount that Lilly would be required to pay to Arena for
each Drug Product under this Section 9.2 would be **************************.
(c) The Milestone payments set forth in this Section 9.2 shall be paid
only for the first indication of a Drug Product to achieve the required status.
For purposes of paying Milestones, all formulations of the same active
ingredient shall be regarded as the same Drug Product.
9.3 Regulatory Filings. All regulatory filings shall be handled by Lilly
or its sublicensees, and Lilly or its sublicensees shall be responsible for
preparing, filing, and maintaining, and shall own, the regulatory material
relating to Drug Product. Lilly, Affiliates or sublicensees shall be responsible
for the preparation of any regulatory filings and/or suitable applications
required in order to conduct clinical trials and achieve regulatory approval
(including, without limitation, achievement of marketing approval) for Drug
Product and shall be the owner and party of record for all such regulatory
approvals. Lilly, Affiliates or sublicensees shall, further, be responsible for
managing all interactions regarding such applications and/or regulatory filings
with all regulatory authorities in the Territory. Arena shall cooperate with
Lilly as Lilly reasonably requires in preparing such applications or in managing
such interactions with regulatory authorities. Lilly or Affiliates shall
determine those countries of the Territory where marketing is intended.
ARTICLE X
ROYALTIES
10.1 Royalty Payment. For each Drug Product sold by Lilly, Lilly
Affiliates, and any sublicensees of Lilly or its Affiliates, Lilly shall pay to
Arena royalty payments based upon Net Sales within three (3) months of December
31 for the Annual period to which the Net Sales applies as follows:
(a) *************** shall be due where the Annual Net Sales is
less than ************, and such Net Sales shall be CPI
Indexed according to Section 10.2 below;
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<PAGE> 31
(b) ****************** of the portion of Annual Net Sales
between ************ and *********** shall be due from Lilly
to Arena, and such Net Sales shall be CPI Indexed according
to Section 10.2 below;
(c) ****************** of the portion of Annual Net Sales
between ************ and ************* shall be due from
Lilly to Arena, and such Net Sales shall be CPI Indexed
according to Section 10.2 below;
(d) ****************** of the portion of Annual Net Sales
between ************** and ************** shall be due from
Lilly to Arena, and such Net Sales shall be CPI Indexed
according to Section 10.2 below;
(e) ****************** of the portion of Annual Net Sales
between ************** and *************** shall be due from
Lilly to Arena, and such Net Sales shall be CPI Indexed
according to Section 10.2 below;
(f) *************** of the portion of Annual Net Sales between
************ and ************** shall be due from Lilly to
Arena, and such Net Sales shall be CPI Indexed according to
Section 10.2 below;
(g) ****************** of the portion of Annual Net Sales
between ************** and ************** shall be due from
Lilly to Arena, and such Net Sales shall be CPI Indexed
according to Section 10.2 below;
(h) ******************* of the portion of Annual Net Sales
greater than ************ shall be due from Lilly to Arena,
and such Net Sales shall be CPI Indexed according to Section
10.2 below.
10.2 The Net Sales in Section 10.1 which are used to determine the
percent royalty payments shall be adjusted each January 1 from the Effective
Date according to the U.S. consumer price index by multiplying the Net Sales by
one plus the percentage increase in the consumer price index over the
immediately preceding Calendar Year. The consumer price index to be employed in
such calculation shall be that issued by the U.S. Bureau of Labor Statistics for
all urban consumers, U.S. City average Year 2000 figures as the baseline (equals
100).
10.3 Royalty Term. Running royalties paid by Lilly pursuant to Section
10.1 shall be paid on a country-by-country basis from the date of the First
Commercial Sale of each Drug Product in a particular country until (a)
expiration of all Drug Product Patent
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<PAGE> 32
Rights containing a Valid Claim in the particular country at issue or (b) if
**************************************************************************
**************************************************************************
**************************************************************************
**************************************************************************
**************************************************************************
**************************************************************************
**************************************************************************
****************************************************************** a party.
10.4 Post Term Rights. After the royalty term expires as provided under
Section 10.3, Lilly and Affiliates shall have no further obligation to pay any
royalty to Arena in such country on the Net Sales of Drug Product and shall have
a fully paid-up license to such Drug Product.
10.5 Reporting Audit. Lilly shall keep and maintain records of sales of
Drug Product. Lilly shall furnish Arena with a report on Net Sales of the Drug
Product within three (3) months after December 31 of each year after first
commercial sale of the Drug Product in the Territory. Said report shall include
Net Sales and Royalty due. Such records shall be open to inspection, at any
reasonable time within two (2) years after the royalty period to which such
records relate, by Lilly's independent certified public accountant and such
inspection shall be at Arena's expense. The independent certified public
accountant shall have the right to examine the records kept pursuant to this
Section 10.3 and report to Arena the findings of said examination of records
insofar as necessary to verify the statements made pursuant to Section 10.5. If
an error in favor of Arena of ************** or more of the total amount audited
is discovered, then the expenses of the audit shall be paid by Lilly. Such
findings shall be maintained in confidence by Arena.
10.6 Patent List Reports. Within sixty (60) days after each calendar
year-end, Arena shall provide Lilly with a report describing the status of the
Patent Rights. Such report shall include, at a minimum, the patent country,
patent and application numbers, filing date, issue date, expiration date and any
other relevant information. Such report shall be mailed to:
Eli Lilly and Company
Attention: Royalty Administration D.C. 1058
Lilly Corporate Center
Indianapolis, IN 46285
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<PAGE> 33
ARTICLE XI
TECHNOLOGY LICENSE
11.1 Arena Technology License. In consideration for the payments made to
Arena by Lilly pursuant to Article II, and conditioned upon receipt by Arena of
any payments due by Lilly under Article VIII, Article IX and Article X, Arena
grants to Lilly for the term of this Agreement, and subject to the provisions of
Article XII and Section 21.3, a non-exclusive right and license to make, use,
have used, further develop, improve and otherwise exploit Arena Technology and
Arena Improvements within the Field in the Territory, to:
(a) make and use CART Activated Receptor(s) to screen the Lilly Chemical
Library or Lilly Compounds(s) or other compounds in an Enabled Screening Assay
or Lilly Screen for the identification of CART Identified Compounds(s), and to
use such CART Identified Compound(s) for the use, development, manufacture,
promotion, marketing, sale, importation, and distribution of CART Identified
Compound(s) and/or Drug Product(s), including the right to sublicense the rights
granted to Lilly by Arena hereunder; and
(b) use Arena Technology on GPCRs contained in the Receptor Pool,
including use to create CART Activated Receptors and to use such CART Activated
Receptors in a Lilly Screen to identify CART Identified Compounds. No other
right, title, interest or license is granted, implicitly or explicitly, by Arena
to Lilly under this Agreement.
Notwithstanding this Section 11.1, Lilly shall have the exclusive right and
license to make, have made, use, have used, further develop, improve, and
otherwise exploit Enabled Screening Assay(s) within the Field in the Territory
during the term of this Agreement and following expiration or termination
thereof.
11.2 Lilly Technology License Restriction. Except as otherwise expressly
provided for herein, and in addition to any other restrictions set forth herein,
the Parties acknowledge and agree that no right is granted by Arena to Lilly,
express or implied, to make, have made, use, have used, sell, have sold, import
into the United States, have imported into the United States, develop, improve
or otherwise exploit in any manner the CART Technology anywhere in the
Territory.
11.3 Arena Technology License Restriction. No right is granted by Lilly
to Arena, express or implied, to make, have made, use, have used, sell, have
sold, import into the United States, have imported into the United States,
develop, improve or otherwise exploit in any manner CART Identified Compound(s),
Drug Product(s), Lilly Chemical Library, Lilly Compound(s), Lilly Receptor(s),
Lilly Screens, Lilly Know-how, nor Lilly Technology anywhere in the Territory.
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<PAGE> 34
11.4 Sublicense Acknowledgment. Lilly and Arena expressly acknowledge
and agree that to the extent that Lilly is granted the right to sublicense
hereunder, Lilly shall have the right to sublicense such right to Lilly's
licensee(s). Lilly shall also have the right to co-promote and co-market Drug
Products with Third Parties and to enter into joint venture arrangements
involving Drug Products. Except as specifically set forth in this Agreement,
Lilly expressly acknowledges and agrees, on behalf of itself and Lilly
licensees, that the CART Technology shall not otherwise be utilized by Lilly or
any Lilly licensee, and that any such use is unauthorized and expressly
prohibited under the terms of this Agreement.
11.5 Technology Ownership. Both Parties acknowledge and agree that Arena
has and shall retain at all times exclusive ownership of Arena Technology, and
that Lilly has and shall retain at all times exclusive ownership of Lilly
Technology, including CART Identified Compound(s) and Drug Product(s).
ARTICLE XII
TERM AND TERMINATION
12.1 Term. The term of this Agreement shall be for the period commencing
on the Effective Date and expiring five (5) years thereafter unless otherwise
extended or terminated as provided in this Agreement.
12.2 Termination By Lilly During First Year.
Lilly, in its sole discretion, shall be entitled to unilaterally
terminate this Agreement as follows:
(a) Termination With Cause. In addition to the rights to terminate set
forth in Sections 12.4 through 12.7, upon written Notice to Arena prior to the
expiration of the two hundred and seventieth (270th) day from the Effective
Date, Lilly may terminate this Agreement on the three hundred and sixty fifth
(365th) day from the Effective Date in the event that (i) Arena is unable to
maintain a Valid Claim within the Arena Patent Rights; or (ii) Arena does not
activate at least ************ of the CART Activated Receptors as provided under
Article VII. Unless this Agreement is terminated by Lilly under Sections 12.4
through 12.7, Lilly shall continue to make FTE Payments to Arena through R&D
Phase IB, and Arena shall be obligated to continue its efforts under R&D Phase
IB.
(b) Termination Without Cause. Upon written Notice to Arena of Lilly's
unilateral termination of this Agreement without cause prior to the expiration
of the two hundred and seventieth (270th) day from the Effective Date, Lilly may
terminate this Agreement ("Lilly Termination") on the three hundred sixty-fifth
(365th) day from the Effective Date. In the event of such Lilly Termination:
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<PAGE> 35
(i) Lilly shall continue to make FTE Payments to Arena through R&D
Phase IB, and Arena shall be obligated to continue its efforts through R&D Phase
IB, and
(ii) Lilly shall pay to Arena on the three hundred and sixty fifth
(365th) day from the Effective Date a Lilly Termination Fee of
*****************. This payment shall be made by Lilly only if Lilly terminates
this Agreement without cause during the first year of this Agreement.
12.3 Optional Termination. In the event that Lilly does not exercise its
unilateral right to terminate under Section 12.2(a) of this Agreement, then
neither Party shall be entitled to terminate this Agreement except as provided
under any one of Sections 12.2, and 12.4 through 12.7 except by Optional
Termination as follows:
(a) Before the last Business Day of the thirty-third (33) month from the
Effective Date, either Party may provide written Notice to the other Party of
its intent to unilaterally terminate this Agreement ("Optional Termination").
(b) In the event that either Party exercises its right of Optional
Termination, Lilly shall continue to make FTE Payments to Arena through R&D
Phase II, and Arena shall be obligated to provide to Lilly CART Activated
Receptors as provided in Article VII.
(c) In the event of Optional Termination by either Party, the term of
this Agreement shall expire on the third anniversary of the Effective Date,
prior to the initiation of R&D Phase III.
(d) In the event that either Party does not exercise its Optional
Termination Right under Section 12.3 of this Agreement, then unless extended by
mutual written consent of the Parties, the term of this Agreement shall expire
as provided in Section 12.1.
12.4 Breach. If either party shall be in default of any of its material
obligations under this Agreement and shall fail to remedy such default within
ninety (90) days after receipt of written Notice thereof, specifying the nature
of the default and requiring it to cure such default, then the Party not in
default without prejudice to any of its other rights conferred on it by this
Agreement shall have the option of terminating the Project or this Agreement
with immediate effect by confirming such termination in writing after such
ninety (90) days period. The right of either Party to terminate this Agreement
as herein provided shall not be affected in any way by its waiver of, or failure
to take action with respect to, any previous default.
12.5 Early Termination For Blocking Patents. If any Third Party or Third
Parties' patent(s), in the view of the Steering Committee, would make it
impractical to continue the Project and/or this Agreement, then the Steering
Committee shall have the right to terminate the Project or this Agreement upon
giving three (3) months written Notice of such termination.
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<PAGE> 36
12.6 Key Personnel. During the term of the Agreement, if
(a) any two from the group consisting of Drs. Dominic Behan,
Derek Chalmers, or *********** leave, or
(b) Jack Lief leaves,
the employ of Arena, for any reason, Lilly may voluntarily terminate the
Agreement upon thirty (30) days written notice to Arena if within one hundred
twenty (120) days following the departure of Jack Lief or the last to leave of
the individuals named in Section 12.6(a), Arena is unable to select replacements
for such individuals that are reasonably acceptable to Lilly. If the Agreement
is voluntarily terminated under this Section 12.6, all rights and obligations
under this Agreement shall not be affected as provided under Section 12.8.
12.7 Change of Control. Lilly may terminate the Agreement upon thirty
(30) Business Days written notice if at any time there is a Change of Control of
Arena. If the Agreement is voluntarily terminated under this Section 12.7, all
rights and obligations under this Agreement shall not be affected as provided
under Sections 12.8.
12.8 Effect of Termination on Agreement. Termination of this Agreement
shall not affect the rights and obligations of the parties accrued under this
Agreement prior to termination. In particular, all royalties owed under Articles
X and all obligations under Article XIV shall survive. Further, should Lilly
elect to terminate this Agreement due to a breach on the part of Arena, then all
licenses granted Lilly under Article XI and Article XXIII shall survive such
termination and shall become fully paid up, except for any royalties which may
otherwise be due, as of the effective date of such termination.
12.9 Lilly Accrued Rights. For purposes of Sections 12.8, Lilly's
accrued rights thereunder shall mean the following:
(a) Lilly shall have the right to utilize **************************
***************************** prior to the date of termination to create
******** *************** which Lilly may then utilize to
*************************** ********** to identify *******************.
(b) Lilly shall have the right to utilize ***********************
developed by Arena prior to the date of termination to
********************************* ********* identify *******************.
(c) Lilly shall have the right to develop and commercialize ************
****** identified prior to date of termination or pursuant to the rights granted
in this Section 12.9 (a) and (b).
(d) All rights under the licenses set forth in Article XI and XXIII.
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<PAGE> 37
Lilly's rights as set forth in this Section 12.9 shall be subject to the
obligations of Lilly as set forth in Section 12.10 below.
12.10 The exercise of the rights set forth in Section 12.9 by Lilly
shall be subject to the obligations of Lilly to make the payments set forth in
Sections 8.1, 9.1, and 9.2 and Article X.
ARTICLE XIII
EXPANSION OF COLLABORATION RECEPTORS
13.1 Individual GPCR-CV and GPCR-Oncology Receptors. At any time during
the term of this Agreement, Lilly shall have the option to provide written
Notice to Arena to include GPCR-CV and/or GPCR-Oncology within the definition of
Collaboration Receptor ("Receptor Expansion Notice"), under the following
conditions:
(a) prior to receipt of such Receptor Expansion Notice, Arena shall be
permitted to enter into an agreement(s) with a Third Party(ies) with respect to
any individual GPCR-CV and/or GPCR-Oncology receptors, excepting the *******
GPCR-CV selected during R&D Phase IA ; the ******* GPCR-CV selected during R&D
Phase II; and (iii), if applicable, the ******* GPCR-CV selected during R&D
Phase III; and
(b) any GPCR-CV or GPCR-Oncology to which Arena has assumed an
obligation to a Third Party prior to the date of such Receptor Expansion Notice
shall not be included within the definition of a Collaboration Receptor.
13.2 Broad GPCR-CV and GPCR-Oncology Collaboration. Except as provided
under Section 13.1, through and including the third year of this Agreement:
(a) Arena shall not enter into any agreement with a Third Party that
would prevent Lilly from having Arena activate GPCR-CV or GPCR-Oncology.
(b) Lilly shall have the exclusive option to further expand the Project
to include GPCR-Oncology and GPCR-CV, and Arena shall not enter into any
agreement with a Third Party that would significantly limit the scope of the
option created under this Section 13.2(b). If Arena is approached by a Third
Party for such collaboration prior to the beginning of the *******year of this
Agreement, Arena must inform Lilly in writing within ten (10) Business Days. If
Lilly issues a Receptor Expansion Notice to Arena within thirty (30) day of
receipt of Notice informing Lilly of Third Party interest in such collaboration,
Arena will not undertake such Third Party collaboration.
ARTICLE XIV
CONFIDENTIALITY
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<PAGE> 38
14.1 Each Party agrees that it shall not disclose to any Third Party any
information disclosed during this Agreement which is deemed confidential by the
disclosing Party ("Information"), including any Information exchanged between
the Parties under the Confidential Disclosure Agreement between the Parties
dated *********** nor the Material Transfer Agreement between the Parties dated
********************* ("Previous Agreements"), nor permit any Third Party to
have access to such Information, nor use such Information for any purpose other
than for purpose of this Agreement (except as may otherwise be provided for
herein), without the prior written consent of the other. The Parties acknowledge
and agree that with respect to the information and materials provided to Lilly
under the Previous Agreements, the terms of the Previous Agreements shall
control with respect to any information and/or materials provided thereunder. A
Party must indicate in writing at the time of disclosure whether it deems any
information to be disclosed as confidential.
14.2 The receiving Party's obligations under Article 14.1 of this
Agreement shall not apply with respect to any of such Information to the extent
that the receiving Party can demonstrate that such Information:
(a) is published, known publicly, or is already in the public domain at
the time of receipt of it by the receiving Party;
(b) is published, becomes known publicly or becomes a part of the public
domain by publication or otherwise after the time of receipt of it by the
receiving Party, except by breach of this Agreement by the receiving Party;
(c) is obtained from a third Party after the receipt of it by the
receiving Party, provided, however, that said Third Party has not obtained it
directly or indirectly from the disclosing Party;
(d) is in the receiving Party's possession on the date of the receipt of
it and was not acquired directly or indirectly from the disclosing Party; or
(e) is subsequently developed by the receiving Party independent of the
information received hereunder, as evidenced by the written records of the
receiving Party.
14.3 Notwithstanding anything to the contrary in this Agreement, the
receiving Party shall be entitled to disclose such Information (i) to the extent
required by applicable law or court order provided that the receiving Party
furnishes the disclosing Party with written notice of such request, in advance
of any such disclosure of the Information or (ii) to a government agency,
regulatory authority, clinical research organization, clinical investigator or
other third Party to whom disclosure is necessary for development of the CART
Identified Compound or Drug Product in connection with the development, approval
or registration of such CART Identified Compound and/or Drug Product, or (iii)
for the preparation of any patent applications in the Territory.
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14.4 The foregoing obligations of confidentiality shall survive for five
(5) years after any termination or expiration of this Agreement.
14.5 Except as provided herein, neither Arena nor Lilly shall release
any information to any third party with respect to the existence and terms of
this Agreement without the prior written consent of the other. This prohibition
includes, but is not limited, to further press releases, educational and
scientific conferences, promotional materials, governmental filings, and
discussions with public officials and the media. If either party determines a
release of further information is required by law or governmental regulation, it
shall notify the other in writing at least thirty (30) days before the time of
the proposed release. The notice shall include the exact text of the proposed
release and the time and manner of the release. At the other party's request and
before the release, the party desiring to release such further information shall
consult with the other party on the necessity for the disclosure and the text of
the proposed further release. In no event shall a release include further
information regarding the existence or terms of this Agreement that is not
required by law or governmental regulation or unless already publicly disclosed.
ARTICLE XV
THIRD PARTY INFRINGEMENT
15.1 Notification of Infringement. Each Party shall promptly provide
written Notice to the other of any infringement (of which it becomes aware) of
the intellectual property rights including patent rights on any Collaboration
Receptor(s) and/or Prioritized Receptor(s) and/or CART Activated Receptor and/or
CART Identified Compound(s) and/or Drug Product(s) by any Third Party and shall
provide the other with any available evidence of such infringement of which the
Party is aware.
15.2 Suit for Infringement.
(a) During the term of this Agreement, Arena shall be responsible for
enforcement of the Arena Patent Rights including, but not limited to, the
bringing of an action for patent infringement, selection of the forum for such
action, and counsel, settlement of any such action, and the costs devoted to
such action. Lilly agrees to provide reasonable assistance (except for financial
assistance) to Arena in the enforcement of Arena Patent Rights. Lilly may join
such action as initiated by Arena with counsel at Lilly's own expense and seek
its own damages and other relief where such infringement may affect Lilly's
rights under this Agreement. If, within ninety (90) days of Lilly's giving
notice to Arena of a Third Party infringement in the Territory, Arena fails to
institute the infringement suit that Lilly reasonably feels is required, Lilly
may institute such infringement proceedings against said Third Party at Lilly's
expense and Lilly shall have the right to receive all the amounts payable by
said Third Party as a result of such proceedings.
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(b) During the term of this Agreement, Lilly shall be responsible for
enforcement of the Lilly Patent Rights including, but not limited to, the
bringing of an action for patent infringement, selection of the forum for such
action, and counsel, settlement of any such action, and the costs devoted to
such action. Arena agrees to provide reasonable assistance (except for financial
assistance) to Lilly in the enforcement of Lilly Patent Rights.
(c) In the event a claim of patent infringement is made against Lilly by
a Third Party in the Territory by reasons of Lilly's commercial activities
hereunder, Lilly and Arena shall meet to analyze the infringement claim and
avoidance of the same. If it is necessary to obtain an appropriate license from
such a Third Party, the Parties shall, in negotiating such a license, make every
effort to minimize the amount of license fees and/or royalties payable to such
Third Party and (i) in case that such license is related to CART Activation
Technology, Arena shall be responsible for such license fees and/or royalties,
(ii) in the case that such license is related to CART Identified Compound(s)
and/or Drug Product(s), Lilly shall be responsible for such license fees and/or
royalties, and (iii) in all other cases, Arena shall be responsible for such
license fees and/or royalties.
ARTICLE XVI
REPRESENTATION AND WARRANTIES
16.1 Representations and Warranties of Lilly. Lilly represents and
warrants to Arena as follows:
(a) The execution and delivery of this Agreement have been duly and
validly authorized, and all necessary action has been taken to make this
Agreement a legal, valid and binding obligation of Lilly enforceable in
accordance with its terms.
(b) The execution and delivery of this Agreement and the performance by
Lilly of its obligations hereunder will not contravene or result in the breach
of the Certificate or Article of Incorporation of Lilly, or Bylaws of Lilly, or
result in any material breach or violation of or material default under any
material agreement, indenture, license, instrument or understanding or, to the
best of its knowledge, result in any law, rule, regulation, statute, order or
decree, to which Lilly is a party or by which it or any of its property is
subject.
16.2 Representations and Warranties of Arena. Arena represents and
warrants to Lilly as follows:
(a) The execution and delivery of this Agreement have been duly and
validly authorized, and all necessary action has been taken to make this
Agreement a legal, valid and binding obligation of Arena enforceable in
accordance with its terms.
(b) The execution and delivery of this Agreement and the performance by
Arena of its obligations hereunder will not contravene or result in the breach
of the
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Certificate or Article of Incorporation of Arena, or Bylaws of Arena, or result
in any material breach or violation of or material default under any material
agreement, indenture, license, instrument or understanding or, to the best of
its knowledge, result in any law, rule, regulation, statute, order or decree, to
which Arena is a party or by which it or any of its property is subject.
(c) Arena has not received notice of any claim, and as of the Effective
Date has no knowledge of any such notice or claim, that the CART Technology
infringes upon any Third Party's know-how, patent or other intellectual property
rights.
16.3 NEITHER PARTY MAKES ANY REPRESENTATION TO THE OTHER THAT ANY
RECEPTOR DESIGNATED AS A LILLY RECEPTOR IN THE CASE OF LILLY, OR ANY RECEPTOR
DESIGNATED AS AN ARENA RECEPTOR IN THE CASE OF ARENA, IS PATENTABLE OR WILL NOT
INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, TRADE SECRET OR OTHER PROPRIETARY
RIGHT OF ANY OTHER PERSON. NEITHER PARTY MAKES ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED,
TO THE OTHER WITH RESPECT TO ANY ARENA RECEPTOR, IN THE CASE OF ARENA, ANY LILLY
RECEPTOR, IN THE CASE OF LILLY, ANY COLLABORATION RECEPTOR AND/OR ANY
PRIORITIZED RECEPTOR.
16.4 ARENA MAKES NO REPRESENTATION THAT ANY CART ACTIVATED RECEPTOR
AND/OR ENABLED SCREENING ASSAY TRANSFERRED BY ARENA TO LILLY WILL NOT INFRINGE
ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHT OF ANY OTHER PERSON.
ARENA MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY CART ACTIVATED
RECEPTOR AND/OR ENABLED SCREENING ASSAY, AS THE CASE MAY BE.
16.5 NEITHER PARTY MAKES ANY REPRESENTATION TO THE OTHER THAT ANY CART
IDENTIFIED COMPOUND IS PATENTABLE OR WILL NOT INFRINGE ANY PATENT, COPYRIGHT,
TRADEMARK OR OTHER PROPRIETARY RIGHT OF ANY OTHER PERSON. NEITHER PARTY MAKES
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED, TO THE OTHER WITH RESPECT TO ANY CART IDENTIFIED
COMPOUND.
16.6 NEITHER PARTY MAKES ANY REPRESENTATION TO THE OTHER THAT ANY DRUG
PRODUCT IS PATENTABLE OR WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR
OTHER PROPRIETARY RIGHT OF ANY OTHER PERSON. NEITHER PARTY MAKES ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY,
EXPRESS OR IMPLIED, TO THE OTHER WITH RESPECT TO ANY DRUG PRODUCT.
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ARTICLE XVII
INDEMNITY
17.1 Indemnification by Lilly. Lilly will indemnify and hold harmless
Arena and its Affiliates, employees, officers, directors, shareholders and
agents (an "Arena Indemnified Party") from and against all liability, loss,
damages, costs and expenses (including reasonable attorneys' fees) which Arena
Indemnified Party may incur, suffer or be required to pay resulting from or
arising in connection with (i) the breach by Lilly of any agreement, covenant,
representation or warranty of Lilly obtained in this Agreement, or (ii)
negligence or omission of Lilly in performing its obligations under this
Agreement.
17.2 Indemnification by Arena. Arena will indemnify and hold harmless
Lilly and its Affiliates, employees, officers, directors, shareholders and
agents (an "Lilly Indemnified Party") from and against all liability, loss,
damages, costs and expenses (including reasonable attorneys' fees) which Lilly
Indemnified Party may incur, suffer or be required to pay resulting from or
arising in connection with (i) the breach by Arena of any agreement, covenant,
representation or warranty of Arena obtained in this Agreement, or (ii)
negligence or omission of Arena in performing its obligations under this
Agreement.
17.3 Conditions to Indemnification. The obligations of the indemnifying
Party under Sections 17.1 and 17.2 of this Agreement are conditioned upon the
prompt Notice to the indemnifying Party of any of the aforementioned suits or
claims in writing within fifteen (15) days after receipt of notice by the
Indemnified Party of such suit or claim. Failure of an indemnified Party to
provide notice of a claim to the indemnifying Party shall affect the indemnified
Party's rights to indemnification only to the extent that such failure has a
material adverse effect on the ability of the indemnifying Party to defend or on
the nature or amount of the liability. The indemnified Party shall cooperate
fully in the defense of all claims or suits. The indemnifying Party shall have
the right to assume the defense of any such suit or claim and the Indemnified
Party shall have the right to participate in such claim or suit with counsel of
its choice at its sole cost and expense. The provision for indemnification shall
be void and there shall be no liability against a party as to any suit or claim
for which settlement or compromise or an offer of settlement or compromise is
made without the prior consent of the indemnifying Party. Consent of the
indemnified Party to a settlement or compromise offer shall not be unreasonably
withheld.
ARTICLE XVIII
RESTRICTIONS ON UNSOLICITED ACQUISITION ACTIVITIES
18.1 In consideration of rights granted by Arena to Lilly hereunder,
Lilly agrees that, during the term of this Agreement, and for a period of one
(1) year from the
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termination or sooner expiration of this Agreement, and without the prior
written consent of the Board of Directors of Arena, neither Lilly,
representatives of Lilly ("Lilly Representatives") nor any of its or their
Affiliates (including any person or entity directly or indirectly, through one
or more intermediaries, controlling it or such Lilly Representatives or
controlled by it or such Lilly Representatives or under common control with it
or such Lilly Representatives) will or shall:
(a) purchase, offer or agree to purchase, or announce an intention to
purchase, directly or indirectly, any voting securities or assets of Arena;
(b) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" to vote or "consents" (as such terms are used in the
rules and regulations of the Securities and Exchange Commission) or seek to
advise or influence any person with respect to the voting of any voting
securities of Arena or any subsidiary thereof;
(c) initiate or support, directly or indirectly, any stockholder
proposal with respect to Arena;
(d) directly or indirectly make any public announcement with respect to,
or submit a proposal for, or offer of (with or without conditions) any
extraordinary transaction involving Arena or its securities or assets or any
subsidiary thereof, or of any successor to or person in control of Arena or any
of its businesses, or any assets of Arena or any subsidiary or division thereof
or of any such successor or controlling person;
(e) except as provided for under Article II of this Agreement with
respect to the Steering Committee, seek or propose to influence or control
Arena's management or policies;
(f) seek to negotiate or influence the terms and conditions of
employment of employees of Arena or, to the extent applicable, any agreement of
collective bargaining with employees of Arena, provided that Lilly shall not be
prohibited from employing an Arena employee seeking employment by Lilly; or
(g) form, join or in any way participate in a "group" as defined in
Section 13(d)(3) of the Exchange Act in connection with any of the foregoing.
18.2 In the event that a Third Party makes an unsolicited offer to
purchase all or substantially all of the assets or securities of Arena or
proposes a merger or similar transaction, or in the event that Arena's Board of
Directors determines to seek proposals for or the sale of all or substantially
all of the assets of Arena or the merger or consolidation with a third party,
then Arena, to the extent consistent with applicable law and the fiduciary
duties of the Board of Directors of Arena, as reasonably determined by the Board
of Directors of Arena, shall notify Lilly thereof and shall provide Lilly with
the opportunity to engage in discussions with Arena regarding such a transaction
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ARTICLE XIX
RELATIONSHIP OF THE PARTIES
Nothing in this Agreement is intended or shall be deemed to constitute a
partnership, agency, employer-employee, or joint venture relationship between
the Parties. All activities by each Party hereunder shall be provided as an
independent contractor. No Party shall incur any debts or make any commitments
for the other, except to the extent, if at all, specifically provided herein.
ARTICLE XX
MISCELLANEOUS PROVISIONS
20.1 Limitations on Assignment. Except for Lilly's rights described in
Section 11.4, neither this Agreement nor any interest hereunder shall be
assignable or transferable by Lilly without the prior written consent of Arena.
20.2 Further Acts and Instruments. Each Party hereto agrees to execute,
acknowledge and deliver such further instruments and to do all such other acts
as may be necessary or appropriate to carry out the purpose and intent of this
Agreement.
20.3 Entire Agreement. This Agreement constitutes and contains the
entire agreement of the Parties and, with the specific exception of the two
agreements designated in Article XIV, supersedes any and all prior negotiations,
correspondence, understandings, letters of intent and agreements between the
Parties respecting the subject matter of this Agreement. This Agreement may be
amended or modified or one or more provisions of this Agreement waived only by a
written instrument signed by the Parties.
20.4 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded.
20.5 Captions. The captions to this Agreement are for convenience only
and are to be of no force or effect in construing and interpreting the
provisions of this Agreement.
20.6 Force Majeure. Neither Party shall be liable to the other for loss
or damages, or have any right to terminate this Agreement for any default or
delay, attributable to any act of God, flood, fire, explosion, breakdown or
plant strike, lockout, labor dispute, casualty, accident, war, revolution, civil
commotion, act of a public enemy, blockage, embargo, injunction, law, order,
proclamation, regulation, ordinance, demand or requirement of any government or
subdivision, authority or representative of any government, or any other cause
beyond the reasonable control of such Party.
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20.7 No Trade Name or Trademark License.
(a) No right, express or implied, is granted by this Agreement to Lilly,
Lilly collaborators or Lilly's Licensees to use in any manner the name "Arena,"
"Arena Pharmaceuticals," "CART" or any trade name or trademark of Arena in any
business dealing which is not directly connected with the performance of this
Agreement; provided, however, that Lilly shall have the right to use or disclose
the name Arena only to the extent and the manner as may be required by law.
(b) No right, express or implied, is granted by this Agreement to Arena,
Arena collaborators or Arena licensees to use in any manner the name "Eli Lilly"
"Lilly" or any trade name or trademark of Lilly in any business dealing which is
not directly connected with the performance of this Agreement; provided,
however, that Arena shall have the right to use or disclose the name Lilly only
to the extent and the manner as may be required by law.
(c) During the term of this Agreement, the Parties shall issue a press
release regarding the acceptance of this Agreement by the Parties with prior
written consent of the other party on the contents of such release, which
consent shall not be unreasonably withheld. It shall not be necessary to obtain
the consent of the other party for disclosing the information regarding this
Agreement that a Party is required by law to disclose. In the event that Lilly
terminates this Agreement under Section 12.2(a), or in the event that either
Party terminates this Agreement under Section 12.31, the Parties agree that a
joint press release shall be issued by the Parties regarding such termination,
and that the Parties shall use good faith efforts to agree on the wording of
such joint press release.
20.8 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed under applicable federal law of the United States of
America and the laws of the State of California, excluding any conflict of law
provisions. Each Party hereby expressly waives any and all objections it may
have to venue, including, without limitation, the inconvenience of such forum.
In addition, each Party consents to the service of process by personal service
or any manner in which notices may be delivered hereunder in accordance with
Section 20.11. Each Party hereby voluntarily and irrevocably waives trial by
jury in any action or other proceeding brought in connection with this
Agreement, any of the other transaction documents or any of the transactions
contemplated hereby or thereby. The Parties agree that any legal action
initiated by Lilly under this Section 20.8 shall be brought in San Diego,
California and that any legal action initiated by Arena under this Section 20.8
shall be brought in Indianapolis, Indiana.
20.9 Expenses. Except as otherwise provided herein, each Party hereto
shall bear its legal and other expenses incurred in connection with the
negotiation, execution, delivery and performance of this Agreement.
20.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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20.11 Notice. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the Party to be notified or upon
deposit with the United States Post Office registered or certified mail, postage
prepaid, or upon deposit with an internationally recognized express courier with
proof of delivery, postage prepaid and addressed to the Party to be notified at
the address or addresses indicated below, or upon the date of fax transmission
of such notice (with proof of such fax transmission established by the sender's
fax receipt) using the fax numbers listed below, or at such other address or fax
number as such Party may designate by ten (10) days' advance written notice to
the other Party with copies to be provided as follows:
If to Arena, addressed to:
Arena Pharmaceuticals, Inc.
6166 Nancy Ridge Drive
San Diego, CA 92121 USA
Attention: Jack Lief, President & CEO
Fax: (858) 453-7210
with a copy to: General Counsel
Address : (same as above)
Fax : (same as above)
If to Lilly, for legal Notices, addressed to:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: General Counsel
Fax: 317-433-3000
If to Lilly for general correspondence and Notices relating to the Project:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: Steven E. Twait
Fax: 317-276-7600
20.12 Negotiated Document. The Parties acknowledge and agree that the
Agreement is a negotiated document and that no Party to this Agreement shall be
deemed to have been the sole drafter of the Agreement and any construction of
its terms shall be without regard to any rules of construction concerning such
drafter.
20.13 Surviving Obligations. The following Articles and Sections shall
survive any termination or expiration of this Agreement: Article I; Article 4.1,
Section 8.1;
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Article IX; Article X; Sections 12.9 and 12.10; Article XIV; Article XV; Article
XVI; Article XVII; Article XVIII; Section 20.8; Section 20.11; Article XXI.
20.14 Right to Intellectual Property. The Parties agree that all rights
and licenses granted under or pursuant to Articles XI and XXIII of this
Agreement are, and shall be deemed to be, for purposes of Section 365(n) of the
United States Bankruptcy Code, as such section may be amended, licenses to
rights to "intellectual property" as defined in the Bankruptcy Code. The Parties
agree that Lilly, as licensee of such rights, shall retain and may exercise all
of its rights and elections under the Bankruptcy Code, including, without
limitation, Section 365(n).
ARTICLE XXI
DISCONTINUATION OF DEVELOPMENT
During the term of this Agreement, and for a period of ****** years
thereafter, in the event Lilly desires to license or discontinue development of
a CART Identified Compound or Drug Product, Lilly hereby grants to Arena a right
to negotiate a license to such CART Identified Compound or Drug Product. Lilly
shall provide to Arena written Notice of such desire to license or discontinue
development of such CART Identified Compound or Drug Product.
ARTICLE XXII
RESULTS OF PROJECT
22.1 Quarterly Status Reports. During the Project, the Research Team
shall provide to the Steering Committee a Quarterly status report that generally
summarizes the progress of the activities conducted pursuant to the Research and
Development Plan during such Quarter. The report shall include, without
limitation, a general summary of important events, progress on critical success
objectives, any milestones reached, significant personnel changes, learning
points and other matters that the Steering Committee may deem appropriate.
22.2 Project Technology. Except as otherwise set forth in this
Agreement, Project Technology, including Improvements, conceived and reduced to
practice or otherwise developed solely by employees of Arena shall be owned
solely by Arena. Likewise, Project Technology, including Improvements, conceived
and reduced to practice or otherwise developed solely by employees of Lilly
shall be owned solely by Lilly. With respect to Project Technology conceived
and/or reduced to practice or otherwise developed jointly by employees of Arena
and Lilly, both parties will jointly own such Project Technology. Each Party
shall have the right to use and disclose Project Technology in which it has an
ownership interest (either sole or joint), provided such use and/or disclosure
is consistent with the terms of this Agreement, including, in particular, this
Article XXII, Article XXIII, and XIV.
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22.3 Inventions. If an invention is conceived in the course of the
Parties' work on the Project and is reduced to practice during such work on the
Project or within six (6) months of termination of the Project, Lilly and Arena
shall discuss such invention and the desirability of filing a United States
patent application covering such invention as well as any foreign counterparts.
The Party owning the invention (or both parties if the invention is a joint
invention) shall make the final decision with respect to any such filings. All
patent applications and patents on inventions made in the course of the parties'
work on the Project solely by employees of Lilly shall be owned by Lilly. All
patent applications and patents on inventions made in the course of the parties'
work on the Project solely by employees of Arena shall be owned by Arena. All
patent applications and patents on inventions made jointly by employees of Lilly
and employees of Arena shall be jointly owned. If such joint invention is within
the Field, Article XXIII shall determine Lilly's rights with respect to Arena's
interest in such joint invention. If such joint invention is outside the Field,
Lilly shall have a right of first negotiation as to Arena's interest in such
Joint Invention and the parties shall negotiate in good faith the terms under
which Lilly can exclusively commercialize such invention. Should Lilly choose
not to commercialize such invention, Arena shall then have a right of first
negotiation as to Lilly's share of such Joint Invention and the Parties shall
negotiate in good faith the terms under which Arena can exclusively
commercialize such invention. If the Parties, despite good faith negotiations,
fail to reach agreement on terms which would allow either Lilly or Arena, as
appropriate, to exclusively commercialize such invention, either Party may
develop and commercialize such invention and such development/commercialization
shall not in any way affect the other Parties right to develop and commercialize
such joint invention as well.
22.4 Inventions otherwise unpatentable in the United States. Any
invention made by a Party hereto that would be rendered unpatentable in the
United States solely on account of prior art under one or more of subsections
102(e), (f), or (g) of Title 35 U.S.C., but for the absence of an obligation of
assignment of said invention (or an undivided interest therein) to one or more
other parties hereto, is hereby subjected to an obligation of assignment to such
other Parties of such interest in the invention as renders the invention
patentable in the United States. Such assignment shall have force and effect
only with respect to patents granted in the United States. The rights of the
Parties with respect to any invention subject to an obligation of assignment
under this Section 22.4, except for subject matter patentable to the assignee in
the absence of the assignment, shall be the same as the rights that would have
applied under this Agreement had no obligation to assign under this paragraph
existed. If and only if required to give force and effect to the immediately
preceding sentence and, in such case, only to the extent required to give such
force and effect, each assignee under this paragraph hereby grants to each of
the assignors under this paragraph such licenses, if any, as are required to
vest in the assignor rights to make, have made, use, sell and import the
assigned invention, except for subject matter patentable to the assignee in the
absence of the assignment.
22.5 Patent Preparation Cooperation, Costs and Obligations. Each Party
shall be responsible for preparing, filing, prosecution and maintaining patent
applications and patents relating to inventions owned by it, as set forth in
this Section 22.5, at its sole
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expense. Arena shall, further, be responsible for preparing, filing, prosecuting
and maintaining the Arena Patent Rights as set forth in APPENDIX C, at its sole
expense. Arena shall also be responsible for preparing, filing, prosecuting and
maintaining, using counsel mutually acceptable to Lilly and Arena, patent
applications and patents relating to inventions jointly owned by Lilly and Arena
and the parties shall equally share all out-of-pocket costs (including
reasonable attorney's fees) associated with such activities. The Parties shall
cooperate with each other in connection with any activities described in this
Section 22.5 and shall keep the other informed of all material developments
regarding patent matters relating to any patent applications and patents filed
hereunder, as well as those Arena Patent Rights set forth in APPENDIX C. Each
Party shall, further, provide to the other a copy of any patent application
which discloses Project Technology, prior to filing in the United States if
reasonably possible, for review and comment by the other Party. Any such patent
application shall be maintained in confidence by the receiving Party pursuant to
Article XIV.
(a) If Arena files a patent application on a Joint Invention encompassed
by this Article XXII and either Party, later, decides that it no longer wishes
to continue to pay for its share of costs associated with prosecution and/or
maintenance of such application (or any patent resulting therefrom), the Party
declining to pay for any further costs shall inform the other Party of its
decision to discontinue payment, in writing. Such non-declining Party may then
elect to continue prosecution and/or maintenance of such application or patent
at its sole expense. If the Party declining to pay for any further costs is
Arena, Arena shall provide all reasonable assistance (including preparing any
papers required to allow Lilly to prosecute and/or maintain such application)
required by Lilly in prosecuting and/or maintaining such application or patent.
Further, if one Party declines to pay for any further costs associated with
prosecuting and/or maintaining such application or patent, and the other Party
elects to continue to pay for such costs, the Party declining to pay for such
costs shall lose all ownership and other rights to such application or patent
and such rights shall vest totally in the Party continuing to pay for such
costs.
(b) If Arena files during the term of this Agreement or has filed prior
to the Effective Date a patent application on Arena Technical Information or
Project Technology owned by Arena and, later, decides that it no longer wishes
to continue prosecution and/or maintenance of such application (or any patent
resulting therefrom), Arena shall inform Lilly of its decision to discontinue
prosecution and/or maintenance prior to discontinuance. Lilly may then elect to
continue prosecution and/or maintenance of such application or patent at its
sole expense and Arena shall provide all reasonable assistance (including
preparing any papers required to allow Lilly to prosecute and/or maintain such
application) required by Lilly in prosecuting and/or maintaining such
application or patent. If Arena elects to discontinue prosecuting and/or
maintenance of an application or patent encompassed hereunder, and Lilly elects
to continue prosecution and/or maintenance of such application or patent, Arena
shall lose all ownership and other rights to such application or patent and such
rights shall vest totally in Lilly. The decision by Arena not to proceed into
the National Phase of the Patent Cooperation Treaty patenting process in every
country originally designated as a Designated Country
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in any Patent Cooperation Treaty patent application encompassed by this Article,
shall not, by itself, be considered as an election to discontinue prosecution.
Should Arena ever fail to inform Lilly in a timely manner of its decision to
discontinue prosecution or maintenance of a patent or patent application
encompassed hereunder prior to such discontinuance, and such patent or patent
application, therefore, goes abandoned, Lilly shall have the right to deduct
from any payments owed Arena by Lilly for the damages caused to Lilly by Arena's
action. Should the parties fail to mutually agree on the extent of Lilly's
damages, both parties agree to submit the issue of damages to a Third Party who
is mutually acceptable to both parties or, if the parties cannot agree on a
Third Party, such Third Party shall be selected by the American Arbitration
Association. Such Third Party's decision on such issue shall be final.
22.6 Publications. Neither Party shall publish the results of the
Project without the prior approval of the other Party. Each Party agrees to
provide the other the opportunity to review any proposed manuscripts or
abstracts which relate to the Project at least thirty (30) days prior to their
intended submission for publication and to not submit such manuscript or
abstracts without the written authorization of the reviewing Party. If such
written authorization is not provided, within such period, authorization shall
be presumed to be withheld. Furthermore, such authorization shall not be
unreasonably denied. Nothing contained in this Section 22.6 shall prohibit the
inclusion of information necessary for a patent application provided the
non-filing Party is given a reasonable opportunity to review the information to
be included. Lilly and Arena both agree to withhold publication of any
manuscript or abstract for a maximum of ninety (90) days if Lilly reasonably
believes such manuscript or abstract would jeopardize the patentability of any
Lilly Invention or Joint Invention made under this Agreement. Lilly and Arena
both agree to withhold publication of any manuscript or abstract for a maximum
of thirty (30) days if either Party reasonably believes such manuscript or
abstract would jeopardize the patentability of any Arena Invention made under
this Agreement.
ARTICLE XXIII
COMMERCIAL RIGHTS
23.1 License to Lilly. In consideration for the payments made to Arena
by Lilly pursuant to Article II, Article VIII, Article XI and Article X, Arena
grants to Lilly an exclusive right and license, with the right to sublicense, in
the Territory to make, have made, use, sell, have sold, market, import, promote
and distribute, for any indication within the Field, any CART Identified
Compound and/or Drug Product, and to use Enabled Screening Assays as provided
for in this Agreement and developed in the course of the Project.
23.2 Sublicenses. Lilly shall have the right to sublicense its rights
and licenses granted under Section 23.1, above, at its sole discretion, provided
the terms of such sublicense are consistent with the terms of this Agreement.
23.3 Regulatory and Manufacturing Responsibility. Lilly shall have sole
responsibility for and control of all manufacturing of Drug Products required
under this
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Agreement (including any process development efforts required for such
manufacturing) and all governmental health authority regulatory aspects
associated with developing Products (including any toxicology and clinical
trials associated with such development). Lilly may contract with a Third Party
for manufacture of Drug Product subject to Lilly's quality assurance
requirements.
ARTICLE XXIV
HART-SCOTT-RODINO FILING
If either Lilly or Arena conclude that filing is required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"), the other
Party will be notified within five (5) Business Days of the Effective Date and
this Agreement shall not be implemented until Required Approval (as hereafter
defined) has been received. In such event both Lilly and Arena shall file, as
soon as reasonably practicable after the Effective Date of this Agreement, with
the Federal Trade Commission and the Antitrust Division of the United States
Department of Justice the notification and report form required of each of them
with respect to the transactions described in this Agreement. Each Party shall
cooperate with the other to the extent necessary to assist the other Party in
the preparation of its Report and to proceed to obtain necessary approval under
the HSR Act to complete the transactions contemplated by this Agreement,
including, but not limited to, the expiration or earlier termination of any and
all applicable waiting periods required by the HSR Act ("Required Approval").
Each Party will use reasonable efforts to obtain Required Approval.
[END OF TEXT - NEXT PAGE IS SIGNATURE PAGE.]
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WHEREUPON, the Parties have caused this Agreement to be executed, in
duplicate originals, by their duly respective officers thereunto duly
authorized, the day and year herein as of the dates listed below.
ARENA PHARMACEUTICALS, INC. ELI LILLY AND COMPANY
By: /s/ JACK LIEF By: /s/ AUGUST M. WATANABE, M.D.
--------------------------------- -----------------------------------
Name: Jack Lief Name: August M. Watanabe, M.D.
Title: President & CEO Title: Executive Vice President
Science and Technology
Date: April 13, 2000 Date: April 14, 2000
------------------- --------------------------
Approved as to form by Legal: /init/ Approved as to form by Legal: /init/
---------- ---------
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APPENDIX A
RESEARCH AND DEVELOPMENT PLAN
[***CHART DELETED, CONFIDENTIAL TREATMENT REQUESTED***]
APPENDICES
<PAGE> 54
APPENDIX B
AMENDED SECTION 7.4 TABLE
[To be added, if appropriate, by action of the Research Team in
accordance with Section 7.4(c).]
APPENDICES
<PAGE> 55
APPENDIX C
ARENA PATENT RIGHTS
The following Arena Patent Rights have been filed in the United
States and world-wide under the Patent Cooperation Treaty*
<TABLE>
<CAPTION>
---------------------------------- --------------------------------------------------- ----------------------------
SERIAL NO. APPLICATION TITLE DATE FILED
(REVERSE DATE ORDER)
---------------------------------- --------------------------------------------------- ----------------------------
<S> <C> <C>
A. U.S.09/170,496 Non-Endogenous, Constitutively Activated Human G 10/13/98
NOTE:PLEASE INSERT ALL Protein-Coupled Receptors OTHER PRIORITY DATES
PRIORITY/RELATED APPLICATION
NUMBERS, IF ANY
---------------------------------- --------------------------------------------------- ----------------------------
B. 09/060,188 A Method of Identifying Modulators of Cell 04/14/98
NOTE: PLEASE INSERT ALL Surface Membrane Receptors Useful in the OTHER PRIORITY DATES
PRIORITY/RELATED APPLICATION Treatment of Disease
NUMBERS, IF ANY
---------------------------------- --------------------------------------------------- ----------------------------
</TABLE>
ANY PATENT APPLICATIONS OR PATENTS RELATING TO PRIORITIZED GPCRS, AS WELL AS
PENDING APPLICATIONS RELATING THERETO, SHALL BE ADDED.
*PCT NUMBERS
A. PCT/US99/23938
B. PCT/US98/07496
Case B was also filed separately in Japan via the PCT:
PCT/US99/23935
APPENDICES
<PAGE> 56
APPENDIX D
RESEARCH TEAM OPERATIONAL CONSIDERATIONS
Unless determined by the Steering Committee or otherwise required
by the terms of the Agreement, the Research Team shall determine the
following organizational matters.
Representation.
1. Determine whether there will be any limit on the number of
nonvoting representatives of a Party that may attend a meeting.
2. Determine whether only employees of a Party will be allowed to
attend or whether consultants of a Party may attend subject to
notice to the other Party and entry into an appropriate
confidentiality agreement.
Meetings.
1. Select the frequency of meetings. Should meet at least once
quarterly. Determine whether meeting can be held by conference
telephone.
2. Determine where the meetings will be held. It is typical to have
the meetings alternate between each Party's offices. Meeting at a
more central or convenient location may be considered.
3. Typically the Parties are responsible for their own expenses in
attending and hosting a meeting. If a different arrangement is
contemplated that should be discussed.
4. Minutes of all meetings setting forth decisions must be prepared.
Typically the minutes are prepared by the Party hosting the
meeting subject to review by the other Party before becoming
final. Confirm how Minutes will be prepared and whether specific
members of the Research Team should be designated to prepare the
Minutes. It is typical for the Minutes to become official when
agreed to by all members of the Research Team. In order to
simplify the process, draft Minutes will be circulated to all
members and shall be deemed approved unless any member of the
Research Team objects to the accuracy of such Minutes within five
(5) days of receipt. Any different procedure must be documented in
the Minutes.
<PAGE> 57
All decisions reached at the organization meeting should be documented
in the Minutes.
Decisions.
1. Determine whether decisions are to be unanimous or by majority
Vote. If by majority vote, each party should have at least one
member voting in the affirmative.
Miscellaneous.
1. Specify how voting members can be replaced by a Party, i.e., how
Notice is to be given and how much advance notice (if any) is
required. Typically either Party may replace its voting
representatives by written Notice of such change to the other
Party. However, it may be acceptable for a Party to change its
representatives and announce the change at the meeting. All such
changes should be noted in the Minutes.
2. Specify whether a Party will have access to employees of the other
Party for matters relating to the Project, and, if so, whether
there are any limitations on such access. It is typical for each
Party to have reasonable access on an informal basis to the
personnel of the other Party assigned to work on the Project.
APPENDICES
<PAGE> 58
APPENDIX E
SELECTED CRITERIA FOR ENABLED SCREENING ASSAYS
1. **********
2. *******************
a. ******************************************
b. ****************
c. *****************
3. *****************************************************
4. **********************
a. **********************************************************
b. **********************************************************
5. ******************
a. *************************
b. *************************
c. **********************
6. ****************************************************
a. **************************
b. ****************************
c. ******************************************
d. ***********************************
e. ********************************************
f. ***********************************************
APPENDICES
<PAGE> 59
APPENDIX F
WIRING INSTRUCTIONS
Wire to: ***************
*********************
For Credit to: Account: *********
********************
In favor of: ************************
Acct#: **********
Arena Pharmaceuticals
APPENDICES
<PAGE> 60
APPENDIX G
CONTACT INFORMATION
APPENDICES
<PAGE> 61
APPENDIX H
EXCLUDED GPCR RECEPTORS
Known Receptors:
***
***
****
***
***
***
***
**** *********
================================================================================
***
***
***
***
****
****
****
****
****
****
*****
*****
****
***
****
****
****
================================================================================
**** Receptors:
********** ********receptors with code names to be provided.
APPENDICES
<PAGE> 1
EXHIBIT 10.10
AGREEMENT BY AND BETWEEN
ARENA PHARMACEUTICALS, INC.
AND
FUJISAWA PHARMACEUTICAL CO., LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I. Definitions 1
Article II. Preliminary Activities And Transfer Of Material And Data 6
Article III. CART(TM) Activation Of Arena ************** Orphan Receptors 9
Article IV. License and Screening With Fujisawa Activated Receptor
Using Fujisawa Receptor Assay; Maintenance Fee; Exclusivity Fee 10
Article V. Clinical Development Of CART Identified Compound 12
Article VI. Drug Product Revenue 14
Article VII. Confidentiality 16
Article VIII. Patent Infringement And Enforcement 17
Article IX. Representations And Warranties 17
Article X. Indemnity 18
Article XI. Termination 19
Article XII. Relationship of the Parties 20
Article XIII. Miscellaneous Provisions 20
Signature Blocks 23
Appendices A-1 and A-2
Exhibits Ex1 through Ex7
</TABLE>
--PLEASE NOTE--
Provisions Within This Agreement Are Deemed "CONFIDENTIAL" In Accordance With
The Terms of Article VII.
Reviewers are advised to confirm with their attorney as to any
obligations and/or requirements regarding review of this Agreement
Confidential Treatment has been requested for the portions marked as ***.
COVER PAGE
<PAGE> 2
AGREEMENT
This Agreement ("Agreement") is effective as of January 24, 2000
("Effective Date") by and between ARENA PHARMACEUTICALS, INC., having a place of
business at 6166 Nancy Ridge Drive, San Diego, California, 92121 USA ("Arena"),
and FUJISAWA PHARMACEUTICAL CO., LTD, having a place of business at 4-7,
Doshomachi 3-Chome, Chuo-Ku, Osaka 541-8514, JAPAN ("Fujisawa").
WHEREAS, Fujisawa is a pharmaceutical company dedicated to innovative
research to discover drugs that satisfy unmet medical needs;
WHEREAS, Arena is a biopharmaceutical organization focused on the
discovery and development of innovative therapeutics;
WHEREAS, Arena and Fujisawa each desire to enter into this Agreement on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Arena and Fujisawa hereby agree as follows:
ARTICLE I
DEFINITIONS
Unless otherwise specifically provided herein, the following terms shall
have the following meanings (all referenced statutes set forth in the following
definitions are collectively appendixed to this Agreement as "APPENDIX A"):
"Affiliate" when used with reference to a specified person, any person or entity
directly or indirectly controlling, controlled by or under common control with
the specified person, means the direct or indirect ownership of at least 50% of
the outstanding voting securities of an entity.
"Annual" means the period between January 1 and December 31, inclusive.
"Arena" means Arena and its Affiliates.
"Arena Activation Technology" means an Arena proprietary approach to identifying
and selecting a region within a G Protein Coupled Receptor that, when altered,
leads to constitutive activation of the altered receptor.
"Arena Activated Receptor" means an Arena ************** Orphan Receptor that
has been constitutively activated by Arena using the Arena Activation
Technology.
"Arena Antisense Oligonucleotide" and "Arena Antisense Oligonucleotides" means
oligonucleotide(s) designed by or on behalf of Arena to specifically bind with
the nucleic acid of a designated Arena ************** Orphan Receptor(s) to
inhibit the expression of such Arena ************** Orphan Receptor(s).
"Arena ************** Orphan Receptor" and "Arena ************** Orphan
Receptors" means any Orphan Receptor evidencing sequence homology with a
1
CONFIDENTIAL
<PAGE> 3
previously identified ********* receptor discovered, or provided to Fujisawa
hereunder, by Arena.
"Arena Library Compounds" means Library Compounds synthesized by Arena prior to
the Effective Date or during the term of the Agreement, or obtained by Arena
from a Third Party prior to the Effective Date or during the term of this
Agreement, excluding: (i) any compound(s) set forth in any Arena patent
application(s) filed with the United States Patent & Trademark Office prior to
Screening of any Fujisawa Activated Receptor, and/or (ii) any compound(s)
licensed by Arena to any Third Party prior to Screening of any Fujisawa
Activated Receptor, and/or (iii) any compound(s) that is the subject of any
negotiation between Arena and a Third Party prior to Screening of any Fujisawa
Activated Receptor.
"Arena Missense Oligonucleotide" and "Arena Missense Oligonucleotide(s)" means
oligonucleotide(s) designed by or on behalf of Arena that are the same length
and having the same base composition as a corresponding Arena **************
Orphan Receptor(s), but having a different sequence from the corresponding Arena
************** Orphan Receptor(s).
"Arena Patent Rights" means all present and/or future patents (including
inventor's certificates) and all present and/or future applications (including
provisional applications) therefor throughout the world as the case may be, and
substitutions, extensions, reissues, renewals, divisions, continuations, or
continuation-in-part thereof or therefor, owned or controlled (either fully or
partially) by Arena, or under which Arena may grant licenses or sublicenses, to
the extent they are directed to (1) Arena Activation Technology applied to
Fujisawa Activated Receptor(s) and/or (2) Arena Activated Receptor(s) and/or (3)
Fujisawa Receptor Assay(s) and/or (4) CART Identified Compound and/or (5) Drug
Product and/or (6) Screening Assay. It is understood that Fujisawa's exclusive
patent right on Fujisawa Library Compound described in the Section 4.1(c) hereof
shall be excluded from the scope of Arena Patent Right. A list of Arena Patent
Rights shall be attached hereto as APPENDIX B as of the Effective Date and Arena
shall update APPENDIX B from time to time during the terms of this Agreement by
sending Fujisawa such updated APPENDIX B and also the updated APPENDIX B as of
the end of December in each year within one (1) month after such date.
"Back-Up Compound" has the same meaning as set forth in Section 5.2(a) of this
Agreement.
"Best Reasonable Commercial Efforts" means efforts to achieve a designated
objective, which efforts are based upon reasonably prudent business factors and
considerations.
"CART Identified Compound(s)" means a compound, and/or a Derivative of a CART
Identified Compound, that has been identified as a modulator of a Fujisawa
Activated Receptor provided to Fujisawa by Arena hereunder, provided, however,
that for the purposes of this Agreement the following specific compounds shall
be excluded from the scope of the CART Identified Compound: *************
********************* and Derivatives of ********************************** and
any compound to be identified by Fujisawa as a back-up compound of *************
******************** by providing notice to Arena before completion of Fujisawa
Activities described in the Section 2.4.
2
CONFIDENTIAL
<PAGE> 4
"Combination Product(s)" means any product containing both an agent or
ingredient which constitutes a CART Identified Compound and one or more other
active agents or ingredients which do not constitute CART Identified Compounds.
"Cooperative Efficacy Criteria" has the same meaning as set forth in Section
2.3(c) of this Agreement.
"Derivative" and "Derivatives" of a first compound means a compound having the
same core structure as the first compound.
"Developing Receptor Fee" has the same meaning as set forth in Section 3.1 of
this Agreement.
"Drug Product" means a therapeutic product comprising a CART Identified
Compound.
"Drug Product Revenue" means an aggregate gross amount of monies received by
Fujisawa, Fujisawa's Licensee(s), and/or Affiliates of Fujisawa, for the sale of
Drug Product, provided, however, that sales between and among Fujisawa and its
Affiliates and Fujisawa's Licensee of Drug Product which are subsequently resold
or to be resold by such Affiliates or Fujisawa Licensees shall be excluded from
the scope of Drug Product Revenue. In the case of a Combination Product for
which the agent or ingredient constituting a CART Identified Compound and each
of the other active agents or ingredients not constituting CART Identified
Compounds have established market prices when sold separately, Drug Product
Revenue shall be determined by multiplying the Drug Product Revenue for each
such Combination Product by a fraction, the numerator of which shall be the
established market price for the Drug Product(s) contained in the Combination
Product and the denominator of which shall be the sum of the established market
prices for the CART Identified Compound(s) plus the other active agents or
ingredients contained in the Combination Product. When such separate market
prices are not established, then the parties shall negotiate in good faith to
determine a fair and equitable method of calculating Drug Product Revenue in
question.
"Effective Date" means the date first above written in this Agreement.
"Endogenous" means naturally occurring.
"FDA" means the United States Food and Drug Administration.
"Fujisawa" means Fujisawa and its Affiliates.
"Fujisawa Activated Receptor" has the same meaning as set forth in Section
3.1(a) of this Agreement.
"Fujisawa Animal Models(s)" has the same meaning as set forth in Section 2.3(a)
of this Agreement.
"Fujisawa Library Compounds" means Library Compounds owned or acquired by
Fujisawa or to which Fujisawa has a certain rights including, but not limited
to, development, manufacture or commercialization thereof.
"Fujisawa's Licensee(s)" means any person or entity to which Fujisawa has
granted sublicenses as referred to in Section 4.1
3
CONFIDENTIAL
<PAGE> 5
"Fujisawa Receptor Assay" has the same meaning as set forth in Section 3.1(b) of
this Agreement.
"Fujisawa Receptor Information" has the same meaning as set forth in Section
3.1(c) of this Agreement.
"Fujisawa Selected Receptor" has the same meaning as set forth in Section 3.1 of
this Agreement.
"G Protein Coupled Receptor" means an Endogenous cell-surface receptor defined
by having three (3) intracellular loops, three (3) extracellular loops, an amino
terminus and a carboxy terminus.
"Information" has the same meaning as set forth in Section 7.1 of this
Agreement.
"Initiation Notice" has the same meaning as set forth in Section 2.6 of this
Agreement.
"Investigational New Drug Application" and "IND" each has the same meaning as
set forth in 21 C.F.R. Section 312.20, including any and all amendments,
modifications or changes as may be made thereto in the future, or the equivalent
thereof in any applicable country within the Territory.
"In Vivo Data" has the same meaning as set forth in Section 2.4(b) of this
Agreement.
"Library Compounds" means chemical compounds.
"Localization Data" has the same meaning as set forth in Section 2.1(b) of this
Agreement.
"Marketing Authorization" means the granting or authorization, by an appropriate
governmental agency, to commercialize a pharmaceutical product; by way of
example, the FDA is an appropriate governmental agency.
"Measured Response" when used in reference to the phrase "Arena Activated
Receptor" means counts per minute based upon use of a radiolabeled tracer.
"Non-Success Data" has the same meaning as set forth in Section 2.4(b)(1) of
this Agreement.
"Non-Success Notice" has the same meaning as set forth in Section 2.4(b)(1) of
this Agreement.
"Notice" has the same meaning as set forth in Section 13.11 of this Agreement.
"Orphan Receptor" means a G Protein Coupled Receptor that is not constitutively
active and for which the Endogenous ligand is not publicly known.
"Phase 3 Clinical Study" has the same meaning as set forth in 21 C.F.R. Section
312.21(c), including any and all amendments, modifications or changes thereto as
may be made thereto in the future, or the equivalent thereof, in any applicable
country within the Territory.
4
CONFIDENTIAL
<PAGE> 6
"Party" means either Arena or Fujisawa, as the case may be; "Parties" means both
Arena and Fujisawa.
"Regulation Data" has the same meaning as set forth in Section 2.1 of this
Agreement.
"Regulatory Agency" includes, but is not be limited to, FDA, or similar
regulatory bodies in the Territory.
"Screening" means the process of contacting a chemical compound with a Fujisawa
Activated Receptor.
"Screening Assay" means an Arena assay approach for Screening that has been
validated based upon Successful Screening of a Fujisawa Activated Receptor.
"Screening Terms" has the same definition as set forth in Section 4.2(b) of this
Agreement.
"Success Notice" has the same meaning as set forth in Section 2.4(b)(2) of this
Agreement.
"Successful Screening" when used in conjunction with the phrase "Fujisawa
Selected Receptor" means that the results of the Screening has been positive
whereby at least one molecule that has been contacted with the Fujisawa
Activated Receptor reduces the Measured Response of the Fujisawa Activated
Receptor by at least two (2) standard deviations from the mean response of a
screening plate that includes that compound.
"Technical Information" means all information, trade secrets, know-how, methods
of manufacture, processes, documents and materials (excluding Fujisawa Activated
Receptor(s) and Fujisawa Receptor Assay(s) ), related to Fujisawa Activated
Receptor(s) and/or Fujisawa Receptor Assay(s), and other proprietary
information, whether patentable or unpatentable, related to Fujisawa Activated
Receptor(s) and/or Fujisawa Receptor Assay(s), including but not limited to,
improvements, that are owned or possessed by Arena, whether now existing or
hereafter developed.
"Technology" means Arena Patent Rights and Technical Information.
"Territory" means the world.
"Third Party" means any person or entity other than Fujisawa, Fujisawa's
Licensee(s) and Arena.
"Valid Claim" means a claim which, but for the license granted hereunder, would
be infringed by Fujisawa's manufacture, having manufactured, use, having used,
sale or having sold of the Drug Product, and which is in an unexpired issued
patent included within the Arena Patent Rights which has not been held invalid
or unenforceable by a decision of a court of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, and which has not
been admitted to be invalid by the owner through reissue or disclaimer. If there
should be two or more decisions that are conflicting with respect to the
invalidity of the same claim, the decision of the higher or highest tribunal
shall thereafter control.
5
CONFIDENTIAL
<PAGE> 7
ARTICLE II
PRELIMINARY ACTIVITIES
AND
TRANSFER OF MATERIAL AND DATA
2.1 Arena Activities. Subject to the terms and conditions of this
Agreement, Arena agrees to use Best Reasonable Commercial Efforts to complete
the following within four (4) months of the Effective Date:
(a) Arena shall select at least eight (8), but not more than
twelve (12), Arena ************** Orphan Receptors for evaluation;
(b) Arena shall determine the ******** and/or *********
localization of each Arena ************** Orphan Receptor selected in accordance
with Section 2.1(a) of this Agreement ("Localization Data");
(c) Arena shall develop at least one (1) Arena Antisense
Oligonucleotide and at least one (1) corresponding Arena Missense
Oligonucleotide for each Arena ************** Orphan Receptor that has been
localized in accordance with Section 2.1(b) of this Agreement;
(d) Arena shall evaluate the effect of each Arena Antisense
Oligonucleotide and Arena Missense Oligonucleotide developed in accordance with
Section 2.1(c) of this Agreement on the activation of astrocyte and microglia;
(e) Arena shall determine the expression of each Arena
************** Orphan Receptor selected in accordance with Section 2.1(a) of
this Agreement in brain tissue prepared and supplied by Fujisawa from animal
model(s) selected by Fujisawa in such manner as separately agreed upon between
the Parties in accordance with the terms and conditions of the Material Transfer
Agreement ("MTA") attached hereto as EXHIBIT A.
The Parties acknowledge and agree that Arena may, but is not obligated to,
determine the regulation of Arena ************** Orphan Receptor(s) in an in
vitro model of *** *************************** ("Regulation Data"). The Parties
further acknowledge and agree that after the Effective Date, if the Endogenous
ligand for any Arena ************** Orphan Receptor is discovered, then such
non-orphan receptor shall continue to be treated as an Arena **************
Orphan Receptor for purposes of this Agreement.
2.2 Material Transfer. For EACH Arena ************** Orphan Receptor
that has been localized in accordance with Section 2.1(b) of this Agreement for
which at least one (1) Arena Antisense Oligonucleotide has been developed in
accordance with Section 2.1(c) of this Agreement, Arena shall transfer to
Fujisawa the following in accordance with the terms and conditions of MTA
attached hereto as EXHIBIT A which MTA shall form a complete part of this
Agreement (The Parties acknowledge and agree that to the extent that any term of
the MTA is in conflict with any term of this Agreement, this Agreement in such
instances shall control):
6
CONFIDENTIAL
<PAGE> 8
(a) such reasonable quantities of at least one (1) Arena
Antisense Oligonucleotide corresponding to each Arena ************** Orphan
Receptor as requested by Fujisawa to conduct Fujisawa Activities of Section 2.4;
and
(b) such reasonable quantities of at least one (1) Arena Missense
Oligonucleotide corresponding to each Arena Antisense Oligonucleotide of Section
2.2(a) Receptor as requested by Fujisawa to conduct Fujisawa Activities of
Section 2.4; and
(c) Localization Data and data developed in accordance with
Section 2.1(d); and
(d) data developed in accordance with Section 2.1(e) indicating
the expression in animal model(s) brain tissue for the Arena **************
Orphan Receptor of Section 2.1(a); and
(e) if developed by Arena, Regulation Data.
The Parties hereto acknowledge and agree that *********************************
******** for the activities of Section 2.1 of this Agreement and for the
transfer of materials under Section 2.2 of this Agreement. Arena agrees that the
transfer to Fujisawa under this Section 2.2 shall be accomplished within one (1)
month after completion of Arena Activities of Section 2.1.
2.3 Joint Activities. Subject to the terms and conditions of this
Agreement, the Parties jointly agree to cooperate in completing the following
within one (1) month of the Effective Date:
(a) Fujisawa shall provide Arena with a written outline of animal
model(s) developed by Fujisawa ("Fujisawa Animal Model(s)") for the in vivo
analysis of Arena Antisense Oligonucleotides and the behavioral and/or
biological end-points that indicate the efficacy of such Arena Antisense
Oligonucleotides in accepted animal models of ************************
*****************;
(b) Arena shall thereafter provide Fujisawa with comments and/or
suggestions as to the written outline provided by Fujisawa in accordance with
Section 2.3(a) of this Agreement;
(c) the Parties shall thereafter develop a mutually agreed-to set
of criteria for establishing the efficacy of the Arena Antisense
Oligonucleotides in the Fujisawa Animal Model(s) ("Cooperative Efficacy
Criteria"). Such Cooperative Efficacy Criteria shall include the amount of each
Arena Antisense Oligonucleotide and Arena Missense Oligonucleotide required by
Fujisawa to conduct such in vivo analysis, and shall be attached hereto as
EXHIBIT B and shall form a complete part of this Agreement.
2.4 Fujisawa Activities. Subject to the terms and conditions of this
Agreement, Fujisawa agrees to use Best Reasonable Commercial Efforts to
complete, per each Arena ************** Orphan Receptor, the following within
twelve (12) months of the date that Fujisawa receives all materials to be
transferred in accordance with Section 2.2 hereof from Arena; Fujisawa shall
provide Arena with quarterly interim status reports for each three (3) month
period of the twelve (12) month period:
(a) For each Arena Antisense Oligonucleotide and its
corresponding Arena Missense Oligonucleotide transferred to Fujisawa in
accordance with Section 2.2
7
CONFIDENTIAL
<PAGE> 9
of this Agreement, Fujisawa shall conduct in vivo analysis thereof with using
Fujisawa Animal Model(s) set forth in the Cooperative Efficacy Criteria.
(b) Within ten (10) days after completion of the in vivo analysis
of each Arena Antisense Oligonucleotide ("In Vivo Data"), Fujisawa shall provide
Notice to Arena indicating whether such tested Arena Antisense Oligonucleotide
has met the Cooperative Efficacy Criteria:
(1) Non-Success Notice. In the event that the Arena
Antisense Oligonucleotide does not meet the
Cooperative Efficacy Criteria, then all data
developed by Fujisawa thereon ("Non-Success
Data") shall be transferred to Arena within one
(1) month of the date of such Non-Success
Notice, and all such Non-Success Data shall be
owned exclusively, even as to Fujisawa, by
Arena.
(2) Success Notice. In the event that the Arena
Antisense Oligonucleotide meets the Cooperative
Efficacy Criteria, then the Parties acknowledge
and agree that the provisions of Article III
shall automatically begin with respect to the
Arena ************** Orphan Receptor
corresponding to such Arena Antisense
Oligonucleotide.
The Parties hereto acknowledge and agree that no fees shall be paid by Arena to
Fujisawa for the activities of Section 2.4(a) of this Agreement or for the
transfer of data under Section 2.4(b)(1) of this Agreement.
2.5 Ownership. Except as provided for in Section 2.6 of this Agreement,
the Parties acknowledge and agree that Arena shall exclusively have and
exclusively retain full right, title and interest in Arena ************** Orphan
Receptor(s); Arena Antisense Oligonucleotide(s); Arena Missense
Oligonucleotide(s); Localization Data; Regulation Data; In Vivo Data; and
Non-Success Data; provided, however, that either Party may use In Vivo Data and
Non-Success Data for research purposes. The Parties further acknowledge and
agree that in the event that a Third Party wishes to secure rights to any Arena
************** Orphan Receptor, Arena shall provide Notice to Fujisawa informing
Fujisawa of such Third Party interest together with documentation evidencing
such Third Party interest; Fujisawa shall thereafter have twenty-one (21) days
to provide Notice to Arena as to whether Fujisawa shall exercise the provisions
of Section 2.6 of this Agreement. In the event that Arena does provide such
Notice to Fujisawa and Fujisawa does not provide Notice to Arena within such
twenty-one (21) day period, Fujisawa shall be deemed to have understood the
rights of Arena to exercise its ownership interests in and to such Arena
************** Orphan Receptor, and all data related thereto, whether developed
by Arena or Fujisawa.
2.6 Initiation of Collaboration. Fujisawa may at any time prior to
completion of the in vivo analysis referred to in Section 2.4 (a) provide Notice
to Arena that Fujisawa shall exercise the provisions of Article III with respect
to selection of any or all Arena ************** Orphan Receptor(s) ("Initiation
Notice"). If such selected Arena ************** Orphan Receptor(s) has not been
licensed or obligated by Arena to any Third Party prior to the date of receipt
by Arena of such Initiation Notice or Fujisawa provides notice to Arena of such
Initiation Notice in accordance with Section 2.5, then the provisions of Article
III of this Agreement shall automatically apply with respect to any Arena
************** Orphan Receptor(s) set forth in the Initiation Notice.
8
CONFIDENTIAL
<PAGE> 10
ARTICLE III
CART(TM) ACTIVATION
OF ARENA **************
ORPHAN RECEPTORS
3.1 Collaboration Initiation; Developing Receptor Fee. Upon selection by
Fujisawa of the first Arena ************** Orphan Receptor that is the subject
of a Success Notice or Initiation Notice, Fujisawa shall, within one (1) month
of such Success Notice or one (1) month of such Initiation Notice, provide to
Arena Developing Receptor Fee of ******************************************. (It
is understood and agreed between the Parties that Fujisawa is not required to
pay such Developing Receptor Fee to Arena in case that Fujisawa does not select
any Arena ************** Orphan Receptor). The Developing Receptor Fee shall
only be applicable with respect to this Agreement. Upon receipt of such
Developing Receptor Fee by Arena, any Arena ************** Orphan Receptor
selected by Fujisawa ("Fujisawa Selected Receptor") shall be the subject of an
exclusive collaboration between Arena and Fujisawa, as set forth below, and in
accordance with terms and conditions of this Agreement (The Parties acknowledge
and agree that the maximum amount of Developing Receptor Fee that Fujisawa would
be required to make to Arena under this Agreement is ************
***************************** irrespective of the number of Fujisawa Selected
Receptor.):
(a) Arena shall apply the Arena Activation Technology, using Best
Reasonable Commercial Efforts, to constitutively activate each Fujisawa Selected
Receptor ("Fujisawa Activated Receptor").
(b) For each Fujisawa Activated Receptor, Arena, using Best
Reasonable Commercial Efforts, shall establish a corresponding Screening Assay
("Fujisawa Receptor Assay").
(c) Arena shall use Best Reasonable Commercial Efforts to
complete the Section 3.1 (a) and (b) hereof within one (1) month per each
Fujisawa Activated Receptor and immediately after completion transfer to
Fujisawa EACH Fujisawa Activated Receptor (in the cell line used by Arena to
develop the Fujisawa Receptor Assay) and the protocol for its respective
Fujisawa Receptor Assay as well as any Technical Information owned or possessed
by Arena and necessary for Fujisawa to evaluate the Fujisawa Receptor Assay for
its intended purpose (collectively, "Fujisawa Receptor Information"). For each
Fujisawa Receptor Information transferred by Arena to Fujisawa, Fujisawa shall
have one (1) month from the date of such transfer to evaluate such Fujisawa
Receptor Information; at the end of such one month period, Fujisawa shall inform
Arena of its decision either to (a) decline to take the Fujisawa Receptor
Information and return that Fujisawa Receptor Information to Arena, or (b) make
the applicable payment of Section 3.2 of this Agreement.
3.2 Assay Transfer Fee. Within one (1) month after Fujisawa has informed
Arena of its decision to make payment in accordance with Section 3.1 (c) on EACH
Fujisawa Receptor Information transferred from Arena in accordance with Section
3.1(c) that is not returned to Arena by Fujisawa, Fujisawa shall provide Arena
with an Assay Transfer Fee of ******************************************. Upon
payment of
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such Assay Transfer Fee, the exclusive license provisions of Article IV
regarding such Fujisawa Receptor Information shall become effective.
3.3 Transfer of Technical Information. Within forty-five (45) days
following receipt by Arena of such Assay Transfer Fee, Arena shall make
available to Fujisawa a copy of all additional Technical Information owned or
possessed by Arena then.
ARTICLE IV
LICENSE AND SCREENING WITH
FUJISAWA ACTIVATED RECEPTOR
USING FUJISAWA RECEPTOR ASSAY;
MAINTENANCE FEE; EXCLUSIVITY FEE
4.1 Arena License. Upon receipt by Arena of an Assay Transfer Fee in
accordance with Section 3.2, Arena grants to Fujisawa, subject to the provisions
of Sections 4.3 and 4.4 of this Agreement, the following with respect ONLY to
the Fujisawa Receptor Information that is the subject of such Assay Transfer
Fee:
(a) an exclusive right and license, exclusive even as to Arena,
to use, have used, sell, have sold, import, have imported, further develop,
improve and otherwise exploit in any manner the Technology, for the purpose of
identification of CART Identified Compound(s) and develop, manufacture, have
manufactured, promote, market, sell and distribute CART Identified Compound(s)
and/or Drug Product(s) in the Territory including the right to sublicense the
rights granted to Fujisawa by Arena hereunder,
(b) in the event that Fujisawa sublicenses any right granted by
Arena hereunder, Fujisawa warrants that it shall notify Arena within one (1)
month of the effective date of any such sublicense agreement; at all times
during the term of this Agreement, Fujisawa shall have an affirmative obligation
to make any such payments to Arena that Fujisawa would be required to make to
Arena hereunder, irrespective of the financial situation of any such Fujisawa's
Licensee(s).
(c) Fujisawa's Ownership. Fujisawa shall exclusively have and
exclusively retain full right, title and interest in any and all preclinical and
clinical data as well as the patent right to the inventions and/or discoveries
related to the Fujisawa Library Compounds, including, but not limited to, CART
Identified Compound and Drug Product, that are Fujisawa Library Compounds.
(d) Improvements.
(1) Fujisawa shall notify Arena, in writing, of any
improvement related to Technology except related to CART Identified Compound
discovered or developed by Fujisawa and/or Fujisawa Licensee(s) within one (1)
month of the discovery or development of such improvement right, title and
interest in which shall be retained by Fujisawa.
(2) Arena shall notify Fujisawa, in writing, of any
improvement discovered or developed by Arena related to Technology within one
(1) month of the discovery or development of such improvement.
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(3) The obligations of Sections 4.1(c)(1) and (2) of this
Agreement shall be continuing throughout the term of this Agreement. During the
term of this Agreement, Fujisawa shall be entitled to use any such improvement
in accordance with the provisions of Sections 4.1 (a) and (b) of this Agreement.
(4) Subject to Section 4.1 (a) hereof, Arena shall have a
royalty-free, non-exclusive right and license to use all improvements of
Fujisawa and/or Fujisawa Licensee(s) referred to in Section 4.1(d)(1) hereof and
to disclosure and sublicense the same to its licensees, if any.
(e) Fujisawa and Arena expressly acknowledge and agree that to
the extent that Fujisawa is granted the right to sublicense hereunder, Fujisawa
shall sublicense such right to Fujisawa's Licensee(s). Except as specifically
set forth herein, Fujisawa expressly acknowledges and agrees, on behalf of
itself and Fujisawa Licensee, that the Arena Activation Technology shall not
otherwise be utilized by Fujisawa or any Fujisawa Licensee, and that any such
use is unauthorized and expressly prohibited under the terms of this Agreement.
(f) Both Parties acknowledge and agree that Arena has exclusive
ownership of the Technology.
(g) ARENA MAKES NO REPRESENTATION THAT ANY FUJISAWA ACTIVATED
RECEPTOR OR FUJISAWA RECEPTOR ASSAY TRANSFERRED BY ARENA TO FUJISAWA WILL NOT
INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHT OF ANY
OTHER PERSON. ARENA MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
ANY FUJISAWA ACTIVATED RECEPTOR OR Fujisawa receptor assaY, AS THE CASE MAY BE.
(h) The Parties acknowledge and agree that any and all payments
to be made by Fujisawa to Arena under this Agreement are to be (i) in United
States Dollars and (ii) in full as indicated; provided, however, that any income
or other tax which Fujisawa is required to pay or withhold on behalf of Arena
with respect to payments payable to Arena hereunder shall be deducted from the
amounts of such payments. Fujisawa agrees to reasonably cooperate with Arena in
obtaining a foreign tax credit in the U.S. with respect to such payment due to
Arena.
4.2 Screening.
(a) For EACH Fujisawa Activated Receptor and its corresponding
Fujisawa Receptor Assay transferred by Arena to Fujisawa in accordance with
Section 3.1(c), Fujisawa is entitled to conduct Screening of Fujisawa Library
Compounds using the Fujisawa Receptor Information, and upon Screening of five
thousand (5,000) compounds, Fujisawa shall provide Arena with a Screening
Milestone Fee of ************ ******************* within one (1) month of the
Screening of such compounds. When requested by Fujisawa in writing, Arena shall
use its Best Reasonable Commercial Efforts to assist Fujisawa in setting-up the
Fujisawa Receptor Assays at Fujisawa's facility within the time period(s)
requested by Fujisawa.
(b) Fujisawa may, but is not obligated to, request that Arena
conduct Screening of Arena Library Compounds using Fujisawa Receptor
Information. In the
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event that such request is made by Fujisawa, the Parties shall enter into
discussions to determine mutually agreeable terms and conditions for such
Screening by Arena ("Screening Terms"). In the event that Arena declines to
conduct such Screening, then the provisions of Section 4. 2(a) of this Agreement
shall apply.
4.3 Maintenance Fee. For EACH Fujisawa Activated Receptor and its
corresponding Fujisawa Receptor Assay and Technical Information transferred by
Arena to Fujisawa in accordance with Section 3.1(c), Fujisawa shall retain
exclusive rights in and to such Fujisawa Activated Receptor and its
corresponding Fujisawa Receptor Assay and Technical Information only to the
extent that Fujisawa provides Arena with a Maintenance Fee of ************
************************* before the expiration of three hundred and sixty five
(365) days from the date of such transfer of Fujisawa Activated Receptor and its
corresponding Fujisawa Receptor Assay and Technical Information by Arena to
Fujisawa ("Transfer Anniversary Date"). The entire portion of the Maintenance
Fee shall be credited by Fujisawa against any royalty due to Arena under Article
VI of this Agreement.
4.4 Exclusivity Fee. For EACH Fujisawa Activated Receptor and its
corresponding Fujisawa Receptor Assay and Technical Information that Fujisawa
has provided to Arena a Maintenance Fee in accordance with Section 4.3, and
during the term of this Agreement, Fujisawa shall retain exclusive rights in and
to such Fujisawa Activated Receptor and its corresponding Fujisawa Receptor
Assay and Technical Information only to the extent that Fujisawa provides Arena
with a yearly Exclusivity Fee of ************************************ for a
period of four (4) years, with such Exclusivity Fee being paid by Fujisawa on or
before the anniversary date of Transfer Anniversary Date. To the extent that
such Exclusivity Fee is not paid by Fujisawa for a period of four (4) years
after Transfer Anniversary Date, Fujisawa's exclusive rights in and to such
Fujisawa Activated Receptor and its corresponding Fujisawa Receptor Assay shall
automatically convert to a non-exclusive rights. In the event that Fujisawa
unilaterally decides to convert its exclusive rights in and to any Fujisawa
Activated Receptor, and if Arena is able to find an additional partner for such
Fujisawa Activated Receptor desirous of obtaining a non-exclusive license to
such Fujisawa Activated Receptor, the Parties agree to discuss, in good faith,
the reduction of the milestones payments of Article V and the Marketing Fee and
royalty of Article VI that pertains to such Fujisawa Activated Receptor. The
entire portion of the Exclusivity Fee paid with respect to any Fujisawa
Activated Receptor shall be credited by Fujisawa against any royalty due to
Arena under Article VI of this Agreement with respect to any Drug Product
developed using such Fujisawa Activated Receptor.
ARTICLE V
CLINICAL DEVELOPMENT
OF CART IDENTIFIED COMPOUND
5.1 During the term of this Agreement, the following shall apply with
respect to EACH Fujisawa Activated Receptor used by Fujisawa, and/or Fujisawa
Licensee(s):
(a) One Time IND Milestone. Upon the filing of the first IND in
the Territory for clinical investigation of the first CART Identified Compound
identified using such Fujisawa Activated Receptor, Fujisawa shall provide to
Arena a One Time IND Milestone of *********** ******* ************** within one
(1) month of such filing.
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(b) The Parties acknowledge and agree that the maximum amount
that Fujisawa would be required to pay to Arena under the provisions of Section
5.1 of this Agreement for each Fujisawa Activated Receptor would be ************
************** irrespective of the number of CART Identified Compounds
identified using such Fujisawa Activated Receptor.
5.2 During the term of this Agreement, and in addition to any fees due
under Section 5.1 of this Agreement, the following shall apply with respect to
EACH CART Identified Compound used by Fujisawa, and/or Fujisawa Licensee(s):
(a) Phase 3 Clinical Study Milestone. Upon the initiation of
Phase 3 Clinical Study in the Territory of each CART Identified Compound,
Fujisawa shall provide to Arena with a Phase 3 Clinical Study Milestone for each
CART Identified Compound of ******************************* within one (1) month
of dosing of the first patient in such Phase 3 Clinical Study. The Parties
acknowledge and agree that if Fujisawa discontinues Phase 3 clinical development
of any CART Identified Compound after the Phase 3 Clinical Study Milestone has
been made, then if Fujisawa replaces that particular CART Identified Compound
with another CART Identified Compound ("Back-Up Compound") and initiates another
Phase 3 Clinical Study using such Back-Up Compound, then Fujisawa shall not be
required to make an additional Phase 3 Clinical Study Milestone for such Back-Up
Compound.
(b) Marketing Authorization Milestone. Upon the first filing for
Marketing Authorization in the Territory for each CART Identified Compound,
Fujisawa shall provide to Arena a Marketing Authorization Milestone for each
CART Identified Compound of ********** ********** ********* within one (1) month
of such filing. The Parties acknowledge and agree that if Fujisawa fails to
receive Marketing Authorization of any CART Identified Compound after the
Marketing Authorization Milestone has been made, then if Fujisawa replaces that
particular CART Identified Compound with Back-Up Compound and file another
Marketing Authorization of such Back-Up Compound, then Fujisawa shall not be
required to make an additional Marketing Authorization Milestone for such
Back-Up Compound.
(c) The Parties acknowledge and agree that the maximum amount
that Fujisawa would be required to pay to Arena under the provisions of Section
5.2 of this Agreement for each CART Identified Compound would be
******************** *******.
5.3 Drug Master File. Fujisawa shall be responsible for the preparation
and submission of a drug master file with FDA (as set forth in 21 C.F.R Section
314.420(b)), or any similar file required by any Regulatory Agency. Arena shall,
upon request by Fujisawa, give all reasonable assistance to Fujisawa to enable
Fujisawa to develop, and obtain Marketing Authorization of, CART Identified
Compound.
5.4 NEITHER PARTY MAKES ANY REPRESENTATION TO THE OTHER THAT ANY CART
IDENTIFIED COMPOUND WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER
PROPRIETARY RIGHT OF
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ANY OTHER PERSON. NEITHER PARTY MAKES ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, TO THE OTHER
WITH RESPECT TO ANY CART IDENTIFIED COMPOUND.
ARTICLE VI
DRUG PRODUCT REVENUE
6.1 Marketing Fee. For EACH Drug Product that has received Marketing
Authorization, Fujisawa shall provide Arena with a Marketing Fee of **********
*********************** within one (1) month of the first sale of such Drug
Product anywhere in the Territory.
6.2 Royalty Payment. For EACH Drug Product that has received Marketing
Authorization, Fujisawa shall provide Arena with a royalty payment based on
Annual Drug Product Revenue as set forth below; such royalty payment shall be
made within three (3) months of December 31 for the Annual period to which the
Annual Drug Product Revenue applies:
(a) In any country within the Territory ("Valid Claim Countries")
where there is a Valid Claim under the Arena Patent Rights on such Drug Product,
so long as such Valid Claim is effective and for a period of two (2) years
thereafter on a country-by-country basis:
(1) *************** of the portion of Annual Drug
Product Revenue in Valid Claim Countries between
****** and ************; and
(2) ************ of the portion of Annual Drug
Product Revenue in Valid Claim Countries between
*******************************; and
(3) ********************************* of the portion
of Annual Drug Product Revenue in Valid Claim
Countries between **************** and
**************; and
(4) *************** of the portion of Annual Drug
Product Revenue in Valid Claim Countries above
**************.
(b) In any country within the Territory ("No Valid Claim
Countries") where there is (1) no Valid Claim and (2) pending claim under the
Arena Patent Rights covering either the manufacture of the Drug Product in such
country of the manufacture or the use or sale of the Drug Product in the country
of sale until any patent including the Valid Claim has been granted, such
pending claim has been abandoned on a country by country basis or twenty (20)
years has passed from the Effective Date, whichever occurs first:
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(1) *************************** of the portion of
Annual Drug Product Revenue in No Valid Claim
Countries between *************************; and
(2) ************************** of the portion of
Annual Drug Product Revenue in No Valid Claim
Countries between
*********************************; and
(3) ********************************** of the
portion of Annual Drug Product Revenue in No
Valid Claim Countries between ************** and
************; and
(4) *****************of the portion of Annual Drug
Product Revenue in No Valid Claim Countries
above **************.
6.3 Audit. In order to verify the completeness and correctness of Drug
Product Revenue, Fujisawa shall maintain up to date books and records and Arena
shall each have the right to conduct, through independent Certified Public
Accountants, at its own cost and at any reasonable time during business hours,
not more often than once each Annual period for not more than three (3) previous
years, and upon reasonable prior notice, an audit of the accounting procedures
and records of Fujisawa in computing and calculating Royalty Payment for Annual
Drug Product Revenue due hereunder. The auditor shall make available to Fujisawa
and Arena a report enumerating the period covered by the audit of Drug Product
Revenue computed and calculated by the auditor. The costs of such audit shall be
borne by Fujisawa in the event that a discrepancy of more than ************* is
discovered through such audit.
6.4 NEITHER PARTY MAKES ANY REPRESENTATION TO THE OTHER THAT ANY DRUG
PRODUCT WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY
RIGHT OF ANY OTHER PERSON. NEITHER PARTY MAKES ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED,
TO THE OTHER WITH RESPECT TO ANY DRUG PRODUCT.
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ARTICLE VII
CONFIDENTIALITY
7.1 Each party shall neither disclose to any Third Party any and all of
the information ("Information") disclosed by the other party hereunder and under
the Confidential Disclosure Agreement of September 3, 1999 between Arena and
Fujisawa, nor permit any such Third Party to have access to such Information,
nor use such Information for any purpose other than for purpose of this
Agreement, without the prior written consent of the other party.
7.2 The receiving party's obligations under Article 7.1 hereof shall not
apply, with respect to any of such Information to the extent that the receiving
party can establish by competent proof that such Information:
(a) is published, known publicly, or is already in the public
domain at the time of receipt of it by the receiving party;
(b) is published, becomes known publicly or becomes a part of the
public domain by publication or otherwise after the time of receipt of it by the
receiving party, except by breach of this Agreement by the receiving party;
(c) is obtained from a third party after the receipt of it by the
receiving party, provided, however, that said Third Party has not obtained it
directly or indirectly from the disclosing party;
(d) is in the receiving party's possession on the date of the
receipt of it and was not acquired directly or indirectly from the disclosing
party; or
(e) is subsequently developed by the receiving party independent
of the information received hereunder, as evidenced by competent written records
established by the receiving party.
7.3 Notwithstanding anything to the contrary in this Agreement, the
receiving party shall be entitled to disclose such Information (i) to the extent
required by applicable law or court order provided that the receiving party
furnishes the disclosing party with written notice of such request, in advance
of any such disclosure of the Information or (ii) to a government agency,
regulatory authority, clinical research organization, clinical investigator or
other third party to whom disclosure is necessary for development of the CART
Identified Compound in connection with drug development, approval or
registration of the CART Identified Compound and/or Drug Product.
The foregoing obligations of confidentiality shall survive for five (5) years
after any termination or expiration of this Agreement. All terms and conditions
of Article II, Article III, Article IV, Article V and Article VI of this
Agreement are designated CONFIDENTIAL by Arena and Fujisawa.
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ARTICLE VIII
PATENT INFRINGEMENT AND ENFORCEMENT
8.1 Notification of Infringement. Each Party shall promptly provide
Notice to the other of any infringement (of which it becomes aware) of the
intellectual property rights including patent rights on any Fujisawa Activated
Receptor(s) and/or Fujisawa Receptor Assay(s) and/or CART Identified Compound(s)
and/or Drug Product(s) by any Third Party and shall provide the other with any
available evidence of such infringement of which the Party is aware.
8.2 Suit for Infringement.
(a) During the term of this Agreement, Arena shall be responsible
for enforcement of the Arena Patent Rights including, but not limited to, the
bringing of an action for patent infringement, selection of the forum for such
action, and counsel, settlement of any such action, and the costs devoted to
such action. Fujisawa agree to provide reasonable assistance except for
financial assistance to Arena in the enforcement of Arena Patent Rights and
Fujisawa may join such action as initiated by Arena with counsel at its own
expense and seek its own damages and other relief. If within ninety (90) days of
Fujisawa's giving notice to Arena of a Third Party infringement in the Territory
Arena fails to institute the infringement suit that Fujisawa reasonably feels is
required, Fujisawa may institute such infringement proceedings against said
Third Party at its expense and Fujisawa shall have the right to receive all the
amounts payable by said Third Party as a result of such proceedings. And in such
case, Fujisawa shall also have the right at any time thereafter to cease paying
royalties on *********************of the Royalty Payment of Drug Product so long
as infringement exists in the Territory.
(b) In the event a claim of patent infringement is made against
Fujisawa by a Third Party in the Territory by reasons of Fujisawa's commercial
activities hereunder, Fujisawa and Arena shall meet to analyze the infringement
claim and avoidance of the same. If it is necessary to obtain an appropriate
license from such a Third Party, the Parties shall, in negotiating such a
license, make every efforts to minimize the amount of license fees and/or
royalties payable to such Third Party and (i) in case that such license is
related to Arena Activation Technology, Arena shall be responsible for such
license fees and/or royalties, (ii) in case that such license is related to
Fujisawa Activated Receptor and/or Fujisawa Receptor Assay, Arena shall be
responsible for a half amount of such license fees and/or royalties.
ARTICLE IX
REPRESENTATION AND WARRANTIES
9.1 Representations and Warranties of Fujisawa. Fujisawa represents and
warrants to Arena as follows:
(a) The execution and delivery of this Agreement have been duly
and validly authorized, and all necessary action has been taken to make this
Agreement a legal, valid and binding obligation of Fujisawa enforceable in
accordance with its terms.
(b) The execution and delivery of this Agreement and the
performance by Fujisawa of its obligations hereunder will not contravene or
result in the breach of the Certificate of Incorporation or Bylaws of Fujisawa
or result in any material breach or
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violation of or material default under any material agreement, indenture,
license, instrument or understanding or, to the best of its knowledge, result in
any law, rule, regulation, statute, order or decree, to which Fujisawa is a
party or by which it or any of its property is subject.
(c) Fujisawa has the appropriate facilities and personnel and
expertise to undertake its designated activities set forth in Article II,
Article IV and Article V.
9.2 Representations and Warranties of Arena. Arena represents and
warrants to Fujisawa as follows:
(a) The execution and delivery of this Agreement have been duly
and validly authorized, and all necessary action has been taken to make this
Agreement a legal, valid and binding obligation of Arena enforceable in
accordance with its terms.
(b) The execution and delivery of this Agreement and the
performance by Arena of its obligations hereunder will not contravene or result
in the breach of the Certificate of Incorporation or Bylaws of Arena or result
in any material breach or violation of or material default under any material
agreement, indenture, license, instrument or understanding or, to the best of
its knowledge, result in any law, rule, regulation, statute, order or decree, to
which Arena is a party or by which it or any of its property is subject.
(c) Arena has not received notice of any claim, and as of the
Effective Date has no knowledge, that the Arena Activation Technology infringes
upon any Third Party's know-how, patent or other intellectual property rights.
(d) Arena has the appropriate facilities and personnel and
expertise to undertake its designated activities set forth in Article II and
Article III.
ARTICLE X
INDEMNITY
10.1 Indemnification by Fujisawa. Fujisawa will indemnify and hold
harmless Arena and its Affiliates, employees, officers, directors, shareholders
and agents (an "Arena Indemnified Party") from and against all liability, loss,
damages, costs and expenses (including reasonable attorneys' fees) which Arena
Indemnified Party may incur, suffer or be required to pay resulting from or
arising in connection with (i) the breach by Fujisawa of any agreement,
covenant, representation or warranty of Fujisawa obtained in this Agreement, or
(ii) negligence or omission of Fujisawa.
10.2 Indemnification by Arena. Arena will indemnify and hold harmless
Fujisawa and its Affiliates, employees, officers, directors, shareholders and
agents (an "Fujisawa Indemnified Party") from and against all liability, loss,
damages, costs and expenses (including reasonable attorneys' fees) which
Fujisawa Indemnified Party may incur, suffer or be required to pay resulting
from or arising in connection with (i) the breach by Arena of any agreement,
covenant, representation or warranty of Arena obtained in this Agreement, or
(ii) negligence or omission of Arena.
10.3 Conditions to Indemnification. The obligations of the indemnifying
Party under Sections 10.1 and 10.2 of this Agreement are conditioned upon the
prompt Notice to the indemnifying Party of any of the aforementioned suits or
claims in writing within
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fifteen (15) days after receipt of notice by the indemnified Party of such suit
or claim. The indemnifying Party shall have the right to assume the defense of
any such suit or claim unless, in the reasoned judgment of the indemnified
Party, such suit or claim involves an issue or matter which could have a
materially adverse effect on the business, operations or assets of the
indemnified party, in which event the indemnified party may participate in the
defense of such suit or claim at its sole cost and expense. The provision for
indemnification shall be void and there shall be no liability against a party as
to any suit or claim for which settlement or compromise or an offer of
settlement or compromise is made without the prior consent of the indemnifying
Party.
ARTICLE XI
TERMINATION
11.1 Breach. Failure by either Party to comply with any of its material
obligations contained in the Agreement shall entitle the other Party to give
Notice to the Party in default specifying the nature of the default and
requiring it to cure such default. If such default is not cured within one (1)
month after receipt of such Notice, the notifying Party shall be entitled,
without prejudice to any of its other rights conferred on it by this Agreement,
to terminate this Agreement and the licenses granted to the breaching Party
hereunder with immediate effect by giving notice to such termination. The right
of either Party to terminate this Agreement as herein provided shall not be
affected in any way by its waiver of, or failure to take action with respect to,
any previous default.
In the event that Fujisawa has obtained the right to terminate this Agreement
pursuant to this Section 11.1 hereof, Fujisawa shall have an option to
alternatively continue this Agreement on the condition that any payments made by
Fujisawa to Arena thereafter in accordance with any provisions of this Agreement
shall be reduced by *********** ********** without prejudice to Fujisawa's
rights to seek any other remedies.
11.2 Early Termination. Except as otherwise provide under Section 2.5 of
this Agreement, Fujisawa may, without prejudice, terminate this Agreement prior
to the Non-Success Notice or the first Success Notice and/or the first
Initiation Notice by providing termination Notice to Arena
11.3 Duration of this Agreement.
(a) This Agreement shall become effective from the Effective Date
and continue to be in effect until expiration of Fujisawa's obligation of
royalty payment hereunder. Thereafter, all licenses or sublicenses granted
hereunder shall become fully paid-up irrecoverable license. Upon written Notice,
Fujisawa may also terminate this Agreement without cause on and after notifying
Arena of Non-Success Notice and/or the first Success Notice and/or the first
Initiation Notice by returning all Arena Patent Rights to Arena.
(b) Either Party shall be entitled to terminate this Agreement in
the event of
(1) insolvency of the other Party or commencement of
bankruptcy proceedings by such Party; or
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(2) dissolution of the other Party by that Party, or
liquidation of such Party by that Party.
(c) The Parties agree that in the event that Fujisawa sublicenses
any of the rights granted to it under this Agreement to a Third Party, such
sublicense shall include provisions whereby if such sublicensee(s) becomes
insolvent, commences bankruptcy proceedings, dissolves, and/or liquidates its
assets, any and all rights granted by Fujisawa to such sublicensee(s) shall
automatically revert back to Fujisawa.
11.4 Accrued Rights; Surviving Obligations. Termination or expiration of
this Agreement for any reason shall be without prejudice to any rights which
shall have accrued to the benefit of either Party prior to such termination or
expiration, nor shall such termination or expiration relieve either Party from
obligations which are expressly indicated to survive termination or expiration
of this Agreement.
ARTICLE XII
RELATIONSHIP OF THE PARTIES
Nothing in this Agreement is intended or shall be deemed to constitute a
partnership, agency, employer-employee, or joint venture relationship between
the Parties. All activities by each Party hereunder shall be provided as an
independent contractor. No Party shall incur any debts or make any commitments
for the other, except to the extent, if at all, specifically provided herein.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Limitations on Assignment. Neither this Agreement nor any interest
hereunder shall be assignable or transferable by Fujisawa without the prior
written consent of Arena, which consent shall not be unreasonably withheld.
13.2 Further Acts and Instruments. Each Party hereto agrees to execute,
acknowledge and deliver such further instruments and to do all such other acts
as may be necessary or appropriate to carry out the purpose and intent of this
Agreement.
13.3 Entire Agreement. This Agreement constitutes and contains the
entire agreement of the Parties and supersedes any and all prior negotiations,
correspondence, understandings, Letters of Intent and agreements between the
Parties respecting the subject matter hereof. This Agreement may be amended or
modified or one or more provisions hereof waived only by a written instrument
signed by the Parties.
13.4 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded.
13.5 Captions. The captions to this Agreement are for convenience only
and are to be of no force or effect in construing and interpreting the
provisions of this Agreement.
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13.6 Force Majeure. Neither Party shall be liable to the other for loss
or damages, or have any right to terminate this Agreement for any default or
delay, attributable to any act of God, flood, fire, explosion, breakdown or
plant strike, lockout, labor dispute, casualty, accident, war, revolution, civil
commotion, act of a public enemy, blockage, embargo, injunction, law, order,
proclamation, regulation, ordinance, demand or requirement of any government or
subdivision, authority or representative of any government, or any other cause
beyond the reasonable control of such Party.
13.7 No Trade Name or Trademark License.
(a) No right, express or implied, is granted by this Agreement to
Fujisawa, Fujisawa collaborators or Fujisawa's Licensees to use in any manner
the name "Arena," "Arena Pharmaceuticals," "CART" or any trade name or trademark
of Arena in any business dealing which is not directly connected with the
performance of this Agreement; provided, however, that Fujisawa shall have the
right to use or disclose the name Arena only to the extent and the manner as may
be required by law.
(b) No right, express or implied, is granted by this Agreement to
Arena, Arena collaborators or Arena licensees to use in any manner the name
"Fujisawa" or any trade name or trademark of Fujisawa in any business dealing
which is not directly connected with the performance of this Agreement;
provided, however, that Arena shall have the right to use or disclose the name
Fujisawa only to the extent and the manner as may be required by law.
(c) During the term of this Agreement, the Parties may issue a
press release regarding the acceptance of this Agreement by the Parties with
prior written consent of the other party on the contents of such release, which
consent shall not be unreasonably withheld . (it is not necessary to obtain the
consent of the other party for disclosing the information regarding this
Agreement which a Party is required by law to disclose).
13.8 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed under applicable federal law of the United States of
America and the laws of the State of Illinois, excluding any conflict of law
provisions. Each Party hereto hereby voluntarily and irrevocably waives trial by
jury in any action or proceeding brought in connection with this Agreement. Each
Party hereby expressly waives any and all rights to bring any suit, action or
other proceeding in or before any court or tribunal other than the International
Chamber of Commerce and covenants that it shall not seek in any manner to
resolve any dispute other than as set forth in this Section 13.8 or to challenge
or set aside any decision, award or judgment obtained in accordance with the
provisions hereof. Each Party hereby expressly waives any and all objections it
may have to venue, including, without limitation, the inconvenience of such
forum, in any of such courts. In addition, each Party consents to the service of
process by personal service or any manner in which notices may be delivered
hereunder in accordance with Section 13.11. Each Party hereby voluntarily and
irrevocably waives trial by jury in any action or other proceeding brought in
connection with this agreement, any of the other transaction documents or any of
the transactions contemplated hereby or thereby. The Parties further agree that
any dispute resolution initiated by Fujisawa under this Section 13.8 shall take
place in San Diego, California (U.S.A.) and that any dispute resolution
initiated by Arena under this Section 13.8 shall take place in Chicago, Illinois
(U.S.A.).
21
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<PAGE> 23
13.9 Expenses. Except as otherwise provided herein, each Party hereto
shall bear its legal and other expenses incurred in connection with the
negotiation, execution, delivery and performance of this Agreement.
13.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.11 Notice. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the Party to be notified or upon
deposit with the United States Post Office registered or certified mail, postage
prepaid, or upon deposit with an internationally recognized express courier with
proof of delivery, postage prepaid and addressed to the Party to be notified at
the address or addresses indicated below, or upon the date of fax transmission
of such notice (with proof of such fax transmission established by the sender's
fax receipt) using the fax numbers listed below, or at such other address or fax
number as such Party may designate by ten (10) days' advance written notice to
the other Party with copies to be provided as follows:
IF TO ARENA, ADDRESSED TO:
Arena Pharmaceuticals, Inc.
6166 Nancy Ridge Drive
San Diego, CA 92121 USA
Attention: Jack Lief
President & CEO
Fax: (858) 453-7210
with a copy to: General Counsel
Address: same as above
Fax: same as above
IF TO FUJISAWA, ADDRESSED TO:
Fujisawa Pharmaceutical Co., Ltd.
1-6, Kashima 2-Chome,
Yodogawa-Ku
Osaka 532-8514, JAPAN
Attention: Executive Director of Research Division
Fax: 06-6304-5460
with a copy to: Director, Legal Affairs Division
Address : 4-7, Doshomachi
3-Chome, Chuo-Ku
Osaka 541-8514, JAPAN
Fax : 06-6206-7929
13.12 Surviving Obligations. The following Articles and Sections shall
survive any termination or expiration of this Agreement: Article I
(Definitions); Article VII (Confidentiality); Article VIII (Patent Infringement
and Enforcement); Article IX
22
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<PAGE> 24
(Representations and Warranties); Article X (Indemnity); and Sections 2.5,
4.1(c), 4.1(f), 5.4, 6.4, 13.1, 13.2, 13.7, 13.8, 13.11 and 13.12.
WHEREUPON, the Parties have caused this Agreement to be executed by
their duly authorized agents, as of the dates listed below.
ARENA PHARMACEUTICALS, INC. FUJISAWA PHARMACEUTICAL CO., LTD.
- --------------------------------------------------------------------------------
By: /s/ JACK LIEF By: /s/ MASANOBU KOHSAKA
------------------------------ ---------------------------------
Name: Jack Lief Name: Masanobu Kohsaka
Title: President & CEO Title: Executive Director
Date: January 17, 2000 Date: January 24, 2000
- --------------------------------------------------------------------------------
23
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<PAGE> 25
APPENDIX A
STATUTORY REFERENCES
ATTACHED
A-1
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<PAGE> 26
APPENDIX B
ARENA PATENT RIGHTS
ALL OF THE FOLLOWING CASES HAVE BEEN FILED WORLD-WIDE VIA THE PCT*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SERIAL NO. APPLICATION TITLE DATE FILED
(REVERSE DATE ORDER)
- --------------------------------------------------------------------------------------
<S> <C> <C>
A. 09/417,044 Human Orphan G Protein-Coupled Receptors 10/12/99
- --------------------------------------------------------------------------------------
B. 09/416,760 Non-Endogenous, Constitutively Activated 10/12/99
Human G Protein-Coupled Receptors
- --------------------------------------------------------------------------------------
C. 09/364,425 Endogenous, Constitutively Activated G 07/30/99
Protein-Coupled Receptors
- --------------------------------------------------------------------------------------
D. 09/170,496 Non-Endogenous, Constitutively Activated 10/13/98
Human G Protein-Coupled Receptors
- --------------------------------------------------------------------------------------
E. 09/060,188 A Method of Identifying Modulators of 04/14/98
Cell Surface Membrane Receptors Useful
in the Treatment of Disease
- --------------------------------------------------------------------------------------
</TABLE>
PCT NUMBERS
A. PCT/US99/23687
B. PCT/US99/24065
C. PCT/US99/17425
D. PCT/US99/23938
E. PCT/US98/07496
Case E was also filed separately in Japan via the PCT:
PCT/US99/23935
A-2
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<PAGE> 27
EXHIBIT A
MATERIAL TRANSFER AGREEMENT
Ex-1
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<PAGE> 28
[ARENA LOGO]
NON-ACADEMIC MATERIALS TRANSFER AGREEMENT
ARENA PHARMACEUTICALS, INC.
This MATERIALS TRANSFER AGREEMENT is made as of January ___, 2000 by and
between ARENA PHARMACEUTICALS, INC. ("Arena"), and FUJISAWA PHARMACEUTICAL CO.,
LTD. ("Fujisawa").
WHEREAS, Arena possesses certain material or materials described on
SCHEDULE 1-(1) hereto (hereinafter, together with any derivatives, components,
modifications, products or part thereof, referred to as the "MATERIALS-A"); and
Fujisawa possesses certain material or materials described on SCHEDULE 1-(2)
hereto (hereinafter referred to as "MATERIALS-F), "MATERIALS-A" and
"MATERIALS-F" hereinafter collectively called "MATERIALS",
WHEREAS, Fujisawa desires to obtain from Arena such MATERIALS-A for the
purposes described on SCHEDULE 2-(1) hereto (hereinafter the "PROJECT-A"); and
Arena desires to obtain from Fujisawa such MATERIALS-F for the purposes
described on SCHEDULE 2-(2) hereto (hereinafter the "PROJECT-F"), "PROJECT-A"
and "Project-F" hereinafter collectively called "PROJECTS".
WHEREAS, Arena is willing to make available to Fujisawa the MATERIALS-A
for use in connection with the PROJECT-A, and Fujisawa is willing to make
available to Arena the MATERIALS-F for use in connection with the PROJECT-F
subject to the following terms and conditions.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
SECTION 1. OWNERSHIP. Arena retains all rights and title in and to the
MATERIALS-A, subject to the limited right of use granted to Fujisawa herein.
Fujisawa retains all rights and title in and to the MATERIALS-F, subject to the
limited right of use granted to Arena herein
SECTION 2. USE. Fujisawa agrees that the MATERIALS-A (i) shall be used solely in
connection with the PROJECT-A and in accordance with SCHEDULE 2-(1) hereto; (ii)
are provided solely for investigational use in laboratory animals and/or in
vitro studies but shall not be used in humans; and (iii) shall not be used,
directly or indirectly, for commercial purposes and it shall return to Arena the
remaining Materials-A, if any, after completion of Fujisawa Activities described
in the Section 2.4 of the agreement executed as of the same date of this
Agreement between Arena and Fujisawa ("Main Agreement"). Fujisawa specifically
agrees that it shall, under no circumstances, seek to determine by any means the
sequence of any MATERIALS transferred hereunder, and/or any other associated
genetic material. Arena agrees that the MATERIALS-F shall be used solely in
connection with the PROJECT-F and in accordance with SCHEDULE 2-(2) hereto and
it shall return to Fujisawa the remaining of MATERIALS-F, if any, after
completion of Arena Activities described in the Section 2.1 of the Main
Agreement
SECTION 3. DISTRIBUTION AND CONTROL. Both Parties agree not to transfer or
distribute any of the other party's MATERIALS or any information resulting from
the Projects (the
Ex-2
CONFIDENTIAL
<PAGE> 29
"Information") to any third party without the prior written permission of the
other party. In addition, both Parties shall allow only employees and agents
under its direct control and supervision to have access to the MATERIALS and
Information. The MATERIALS-A shall be used only at Fujisawa and MATERIALS-F
shall be used only at Arena.
SECTION 4. NO LICENSE. No license is granted under this Agreement by either
party to the other either expressly or by implication, except for both parties'
right to use the MATERIALS for purposes of each PROJECT.
SECTION 5. INVENTIONS. Any inventions or discoveries related to the MATERIALS
provided by the other party, such as a new use of the MATERIALS, shall be owned
by the providing party of such MATERIALS. Each Party shall cooperate in
assigning any rights it may have in such inventions or discoveries to the other
party.
SECTION 6. COMPLIANCE WITH LAW. Both parties agree to comply with all laws,
rules and regulations applicable to the use of the MATERIALS and Information.
Because all of the MATERIALS' characteristics are not known, both parties
acknowledge that the MATERIALS must be used with caution and prudence.
SECTION 7. NO WARRANTY. Each party acknowledges that the Materials are
experimental in nature. EACH PARTY MAKES NO WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. EACH
PARTY MAKES NO REPRESENTATION THAT THE USE OF THE MATERIALS OR INFORMATION WILL
NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHT OF ANY
OTHER PERSON.
SECTION 8. NO AGENCY RELATIONSHIP. Nothing in this Agreement is intended to or
shall be construed to establish a relationship of principal and agent between
the parties hereto.
SECTION 9. GOVERNING LAW. The validity and interpretation of this Agreement
shall be governed by the laws of the State of Illinois, excluding the body of
law governing conflicts of law.
SECTION 10. ASSIGNMENT. This Agreement may not be assigned without the prior
written permission of the other party.
SECTION 11. COUNTERPARTS. This Agreement shall become binding when any one or
more counterparts hereof, individually or taken together, bear the signatures of
both parties. Each counterpart shall be deemed an original as against any party
whose signature appears thereon, but all counterparts hereof shall constitute
but one and the same instrument.
SECTION 12. IACUC COMPLIANCE ACKNOWLEDGEMENT. Arena endeavors to comply with
applicable regulations and guidelines regarding the care and use of animals in
its research activities. If contract activities covered by this Agreement
include the use of animals by Fujisawa on behalf of or in conjunction with
Arena, the following applies. By signing this Agreement, Fujisawa acknowledges
that it has or will possess, prior to initiation of the PROJECT-A, (a) an IACUC
protocol applicable to the Project and (b) approval of the Project by Fujisawa's
IACUC and, (c) USDA and or AAALAC registration/accreditation or equivalent for
Fujisawa located outside the United States.
Ex-3
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<PAGE> 30
IN WITNESS THEREOF, Arena and Fujisawa have caused this Agreement to be
executed in duplicate by their respective duly authorized officers.
ARENA PHARMACEUTICALS, INC. FUJISAWA PHARMACEUTICAL CO., LTD.
By: /s/ JACK LIEF By: /s/ MASANOBU KOHSAKA
-------------------------------- ------------------------------------
Jack Lief Name: Masanobu Kohsaka
President & CEO Title: Executive Director
Arena Pharmaceuticals, Inc. Fujisawa Pharmaceutical Co., Ltd.
6166 Nancy Ridge Drive 4-7 Doshomachi
San Diego, CA 92121 USA 3-Chome Chuo-Ku
Osaka 541-8514, JAPAN
Date: January 17, 2000 Date: January 24, 2000
Approved by Legal:____/init/_____
Ex-4
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<PAGE> 31
SCHEDULE 1
DESCRIPTION OF MATERIALS
(1) MATERIALS-A
ARENA ANTISENSE OLIGONUCLEOTIDE(s)
ARENA MISSENSE OLIGONUCLEOTIDE(s)
LOCALIZATION DATA
REGULATORY DATA
ASTROCYTE AND MICROGLIA ACTIVATION DATA
ARENA ************** ORPHAN RECEPTOR EXPRESSION DATA
(2) MATERIALS-F
BRAIN TISSUE PREPARED FROM FUJISAWA ANIMAL MODEL(s)
Ex-5
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<PAGE> 32
SCHEDULE 2
DESCRIPTION OF PROJECT
(1) PROJECT-A
IN VIVO ANALYSIS OF MATERIALS BY FUJISAWA AT FUJISAWA FACILITY.
(2) PROJECT-F
DETERMINATION OF THE EXPRESSION OF EACH ARENA ************** ORPHAN RECEPTOR
SELECTED IN BRAIN TISSUE
Ex-6
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<PAGE> 33
EXHIBIT B
COOPERATIVE EFFICACY CRITERIA
Ex-7
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated April 17, 2000 in the
Registration Statement (Form S-1) and related prospectus of Arena
Pharmaceuticals, Inc. for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
April 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 MAR-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 5,401,508 2,754,339
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,573,560 27,706,265
<PP&E> 3,362,388 3,603,636
<DEPRECIATION> (589,006) (754,969)
<TOTAL-ASSETS> 8,525,840 30,700,932
<CURRENT-LIABILITIES> 1,221,533 899,649
<BONDS> 0 0
18,251,949 38,797,410
0 0
<COMMON> 111 159
<OTHER-SE> (13,899,549) (16,394,510)
<TOTAL-LIABILITY-AND-EQUITY> 8,525,840 30,700,932
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 10,528,615 3,004,253
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 165,603 59,579
<INCOME-PRETAX> (10,237,950) (4,253,788)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10,237,950) (10,237,950)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,237,950) (4,253,788)
<EPS-BASIC> (10.05) (3.91)
<EPS-DILUTED> (10.05) (3.91)
</TABLE>
