AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2000
REGISTRATION NO. 333-96025
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
TANOX, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 2836 76-0196733
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
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10301 STELLA LINK, SUITE 110
HOUSTON, TEXAS 77025-5497
(713) 664-2288
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------
NANCY T. CHANG, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TANOX, INC.
10301 STELLA LINK, SUITE 110
HOUSTON, TEXAS 77025-5497
(713) 664-2288
(Name, address, including zip code, and telephone number,
including area code, of registrant's agent for service)
------------------------------------
COPIES TO:
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<S> <C>
WILBURN O. MCDONALD, JR., ESQ. RODD M. SCHREIBER, ESQ.
CHAMBERLAIN, HRDLICKA, SKADDEN, ARPS, SLATE, MEAGHER
WHITE, WILLIAMS & MARTIN & FLOM (ILLINOIS)
1200 SMITH STREET, SUITE 1400 333 WEST WACKER DRIVE
HOUSTON, TEXAS 77002-4310 CHICAGO, ILLINOIS 60606
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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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<CAPTION>
========================================================================================================================
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AMOUNT OF
SECURITIES TO BE AGGREGATE REGISTRATION
REGISTERED OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share...................... $126,000,000 $33,264
========================================================================================================================
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(1) Estimated solely for the purpose of calculating the amount of the
Registration Fee in accordance with Rule 457(o) of 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2000
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD 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.
SHARES
Tanox, Inc.
COMMON STOCK
$ PER SHARE
- --------------------------------------------------------------------------------
This is an initial public offering of common stock of Tanox, Inc.
Tanox expects that the price to the public in the offering will be between
$ and $ per share. The market price of the shares after the offering may
be higher or lower than the offering price.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "TNOX."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
PER SHARE TOTAL
---------- ----------
Price to the public.................. $ $
Underwriting discount................
Proceeds to Tanox....................
Tanox has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of additional
shares from Tanox within 30 days following the date of this prospectus to cover
over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
ROBERTSON STEPHENS
WARBURG DILLON READ LLC
ADAMS, HARKNESS & HILL, INC.
KBC SECURITIES
The date of this prospectus is , 2000.
<PAGE>
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<CAPTION>
The Allergy Cascade How Anti-IgE Works
<S> <C> <C> <C>
[graphic] When an allergy-prone [graphic] Anti-IgE binds
person is exposed to an to IgE and
allergen such as ragweed,
[graphic] he or she makes large [graphic] prevents IgE from
amounts of IgE antibody attaching to mast
to ragweed. cells.
[graphic] These IgE antibodies bind
to receptors on mast cells.
[graphic] The next time a person [graphic] Without IgE on the mast
encounters ragweed, it cross- cell, ragweed cannot cause
links the IgE antibodies on the mast cell to release its
mast cells and the IgE-primed powerful chemicals,
mast cell releases its powerful
chemicals, including histamine.
[graphic] These chemicals cause the [graphic] and the person's asthma
person to suffer asthma and allergy symptoms
and allergy symptoms, such as are prevented or reduced.
wheezing, bronchospasm,
sneezing, runny nose, watery
eyes and itching.
</TABLE>
2
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TABLE OF CONTENTS
PAGE
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Prospectus Summary...................... 4
Risk Factors............................ 8
Forward-Looking Statements.............. 20
Use of Proceeds......................... 20
Dividend Policy......................... 20
Capitalization.......................... 21
Dilution................................ 22
Selected Consolidated Financial Data.... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 24
Business................................ 29
Management.............................. 47
Principal Stockholders.................. 55
Certain Transactions.................... 57
Description of Capital Stock............ 58
Shares Eligible for Future Sale......... 61
Underwriting............................ 63
Legal Matters........................... 65
Experts................................. 65
Where You Can Find More Information..... 65
Index to Consolidated Financial
Statements............................ F-1
------------------------------------
We were incorporated in Texas in March 1986 and we reincorporated in Delaware in
January 2000. Our corporate headquarters, manufacturing facility and principal
research laboratories are located at 10301 Stella Link, Houston, Texas
77025-5497 and our telephone number is 713-664-2288.
Tanox and our logo are our registered service marks. Our website is located at
http://www.tanox.com. Information contained on our website is not part of this
prospectus. In this prospectus, references to "Tanox," "we," "us" and
"our" refer to Tanox, Inc. and/or its subsidiaries.
Unless otherwise stated, all information contained in this prospectus assumes no
exercise of the over-allotment option granted to the underwriters. On February
1, 2000, we effected a 1.6 for 1 stock split by paying a stock dividend. All
common share numbers in this prospectus reflect the stock split.
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order.
3
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
WHO WE ARE
Tanox identifies and develops therapeutic monoclonal antibodies to address
significant unmet medical needs in the areas of immunology, infectious disease
and cancer. E25, our most advanced product in development, is an
anti-immunoglobulin E, or anti-IgE, antibody being developed in collaboration
with Novartis Pharma AG and Genentech, Inc. E25 has successfully completed Phase
III clinical trials in both allergic asthma and seasonal allergic rhinitis (hay
fever). Based on the results of these trials, a biologics license application,
or BLA, is expected to be filed with the Food and Drug Administration, or FDA,
concurrent with a European registration in mid-2000 for both indications. In
addition, we are developing a number of monoclonal antibodies to treat other
allergic diseases or conditions, such as severe allergic reactions to peanuts,
autoimmune diseases, HIV and to restore the immune systems of chemotherapy
patients with neutropenia.
THE OPPORTUNITY IN MONOCLONAL ANTIBODY THERAPEUTICS
Genetically engineered monoclonal antibodies represent an exciting area of novel
therapeutic development. Monoclonal antibodies are man-made antibodies that
target a specific foreign substance, or antigen. Advances in antibody
technologies have enabled the development of antibody products that can be
administered to patients on a chronic basis with little concern for adverse
response by the human immune system and can be manufactured more
cost-effectively. As a result, a large number of monoclonal antibodies in
clinical and preclinical development has emerged. According to an industry
survey, 74 out of 350, or 21% of all, biotechnology medicines in clinical trials
in 1998 were antibodies. The FDA has approved eight therapeutic antibodies, six
of them in the last three years. In 1999, total sales of these products exceeded
$1.3 billion.
OUR PRODUCTS IN DEVELOPMENT
E25. In 1987, we discovered a novel approach for the treatment of allergies and
asthma by using monoclonal antibodies to inhibit IgE. E25, a product based on
our discovery, is a humanized (human-like) anti-IgE monoclonal antibody in
development for the treatment of allergic asthma and allergic rhinitis. We
estimate that in the United States, allergic asthma afflicts approximately 11
million people, and allergic rhinitis afflicts approximately 40 million people,
of whom approximately 32 million are seasonal sufferers. Published Phase III
clinical results have demonstrated E25's ability to prevent or reduce symptoms
of seasonal allergic rhinitis. Phase III trials have also been successfully
completed in allergic asthma and will be presented at the American Academy of
Allergy Asthma and Immunology in March 2000. As mentioned above, Novartis and
Genentech expect to file for marketing approval in the United States and Europe
in mid-2000.
OTHER PRODUCT CANDIDATES. Using our comprehensive understanding of the human
immune system, we have built a diverse pipeline of monoclonal antibody product
candidates. In addition to E25, we have two other products in clinical
development and several product candidates being evaluated in preclinical and
research studies.
o HU-901 is a humanized anti-IgE monoclonal antibody similar to E25 that
is in a Phase I/II trial to test its effectiveness in reducing severe
allergic reactions to peanuts. According to a recently published survey,
peanut or tree nut (e.g., walnut, almond and cashew) allergy affects
about 3 million Americans. If Hu-901 is effective in reducing
sensitivity to peanuts, we may also investigate its benefit to patients
with
4
<PAGE>
other food allergies. Novartis and Genentech are currently disputing our
right to independently develop this product.
o 5D12 is an anti-CD40 monoclonal antibody that we are developing for
treatment of autoimmune diseases. We are currently conducting a Phase
I/II trial in patients with Crohn's disease. We expect the results of
this trial to play an important role in determining clinical indications
that we will pursue with this product. We have exclusive rights to 5D12
in Europe and Japan under a license from Chiron Corporation. We believe
potential autoimmune disease indications, such as Crohn's disease,
rheumatoid arthritis, multiple sclerosis and psoriasis, represent
significant market opportunities in Europe and Japan.
o 5A8 is an anti-CD4 antibody that is in preclinical development for
treatment of HIV.
o 166-32 is a complement factor D inhibiting antibody in research studies
for treatment of acute inflammation.
o 163-93 is an anti-G-CSF receptor activating antibody in research studies
for treatment of neutropenia caused by chemotherapy.
OUR STRATEGY
Our objective is to leverage our expertise in monoclonal antibodies and our
understanding of the human immune system to advance our product pipeline and
become a profitable biopharmaceutical company. We intend to accomplish this
through the following strategic initiatives:
o continuing to identify and develop novel monoclonal antibodies using our
demonstrated expertise in immunology and monoclonal antibody technology;
o maximizing the market opportunity for anti-IgE antibodies by exploring
indications beyond allergic asthma and seasonal allergic rhinitis;
o building our product pipeline through attractive acquisition and
in-licensing opportunities;
o forming strategic collaborations to optimize our research and
development resources and enhance the value of our product development
programs; and
o capturing additional value from our pipeline by retaining marketing
rights for products that can be effectively sold by a small, targeted
sales force.
5
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THE OFFERING
Common stock offered................. shares
Common stock to be outstanding after
the offering....................... shares(1)
Use of proceeds...................... For research and development activities,
for capital expenditures, to finance
possible acquisitions and investments in
technology, products or businesses and
for working capital and other general
corporate purposes.
Proposed Nasdaq National Market
symbol............................. TNOX
- ---------------------------
(1) The number of shares outstanding immediately after the offering is based on
the number of shares outstanding at February 1, 2000 and excludes:
o 3,183,920 shares of common stock issuable on exercise of outstanding
options at a weighted average exercise price of $4.39 per share; and
o 7,732,480 shares of common stock reserved for issuance pursuant to
future grants under our stock option plans.
6
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 8,939 $ 2,422 $ 1,405
Research and development............. 6,926 11,933 17,163
General and administrative........... 2,230 3,431 8,582
--------- ---------- ----------
Total operating costs and expenses... 9,156 15,364 25,745
--------- ---------- ----------
Income (loss) from operations........ (217) (12,942) (24,340)
Other income, net.................... 1,045 1,240 1,028
--------- ---------- ----------
Income (loss) before income taxes.... 828 (11,702) (23,312)
(Provision) benefit of income
taxes.............................. (198) 1,533 (34)
--------- ---------- ----------
Net income (loss).................... $ 630 $ (10,169) $ (23,346)
========= ========== ==========
Earnings (loss) per share:
Basic........................... $ 0.02 $ (0.35) $ (0.75)
========= ========== ==========
Diluted......................... $ 0.02 $ (0.35) $ (0.75)
========= ========== ==========
Shares used in computing earnings
(loss) per share:
Basic........................... 27,909 29,105 31,113
Diluted......................... 31,190 29,105 31,113
DECEMBER 31, 1999
--------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................ $ 47,254 $
Working capital...................... 42,718
Total assets......................... 55,328
Long term debt....................... 10,000 10,000
Retained earnings (deficit).......... (30,461) (30,461)
Total stockholders' equity........... 40,007
- ---------------------------
(1) As adjusted for the sale of shares of common stock in this offering
at an assumed public offering price of $ per share, after deducting
estimated underwriters' discounts and commissions and offering expenses.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
WE HAVE A HISTORY OF NET LOSSES; WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND
WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred net losses since our inception. As of December 31, 1999, we had
an accumulated deficit of approximately $30.5 million, including a net loss of
approximately $23.3 million for the year ended December 31, 1999. Our losses
have primarily been the result of costs incurred in our research and development
programs and from our general and administrative costs.
We have not earned any revenues from commercial sales of any of our therapeutic
products, and we do not expect sales to commence until at least 2001, if at all.
We have funded our operations principally from licensing fees and milestone
payments under our current or former collaborations and private placements of
our common stock. We expect to continue to incur substantial operating losses
for the foreseeable future, particularly as we increase our research and
development, manufacturing, clinical trial and administrative activities. We
expect that losses will continue until such time, if ever, that we are able to
generate sufficient revenue from milestone payments and royalties on our lead
product candidate, E25, to cover our expenses.
Our ability to achieve and maintain long term profitability is dependent to a
significant extent on obtaining regulatory approval for and successfully
commercializing E25, and also on successfully completing preclinical and
clinical trials, obtaining required regulatory approvals and successfully
developing, manufacturing and marketing our other current and future product
candidates. We cannot assure you that we will be able to achieve any of the
foregoing or that we will be profitable even if we successfully commercialize
our products.
FAILURE TO COMMERCIALIZE OUR LEAD PRODUCT CANDIDATE, E25, WOULD HAVE A
SIGNIFICANT AND ADVERSE EFFECT ON US AND OUR STOCK PRICE.
E25 is our lead product candidate. Our success will depend, to a great degree,
on the success of E25. In order to successfully commercialize E25, our
collaborators, Novartis and Genentech, must be able to, among other things,
obtain regulatory approvals for and achieve market acceptance of E25.
E25 has not yet been approved by the FDA or European regulatory agencies. We
anticipate that a BLA will be filed for E25 in the United States and
registration will be filed in Europe by mid-year 2000. We cannot assure you that
the FDA or other regulatory authorities will accept these filings, that E25 will
be approved in a timely manner or that it will be approved at all.
Even if E25 is approved by the FDA, we cannot be certain that E25 will be
accepted in the United States or in any foreign markets. A number of factors may
affect the rate and level of market acceptance of E25, including:
o regulatory developments related to the manufacture or use of E25;
o the price of E25 relative to other products or competing treatments;
o the effectiveness of Novartis' and Genentech's sales and marketing
efforts;
o the perception by physicians and other members of the healthcare
community of E25's safety, efficacy and benefits compared to those of
competing products or therapies;
o the willingness of physicians to adopt a new allergy treatment regimen;
o the availability of third-party reimbursement; and
o unfavorable publicity concerning E25 or comparable products or
therapies.
8
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If our collaborators fail to successfully obtain regulatory approval for and
commercialize E25, our business, financial condition and results of operations
will be materially harmed. Moreover, since E25 is our most advanced product
candidate, a setback of this nature would cause a sharp drop in our stock price.
Failure of our E25 program could also reflect adversely on our Hu-901 program,
which is also based on anti-IgE technology.
WE DEPEND ON NOVARTIS AND GENENTECH TO DEVELOP, OBTAIN REGULATORY APPROVAL FOR,
MANUFACTURE, MARKET AND DISTRIBUTE E25 AND OTHER ANTI-IGE PRODUCTS. FAILURE BY
NOVARTIS OR GENENTECH TO PERFORM UNDER OUR COLLABORATION AGREEMENTS MAY DELAY OR
SIGNIFICANTLY IMPAIR OUR ABILITY TO GENERATE REVENUES OR OTHERWISE ADVERSELY
AFFECT OUR PROFITABILITY.
Under the terms of our collaboration agreements, Novartis and Genentech are
responsible for developing, obtaining regulatory approval for, manufacturing,
marketing and distributing E25 and other anti-IgE products that may be selected
for development through our collaboration. We expect for the extended future
that Novartis and Genentech will manufacture, market and distribute E25 and
other selected anti-IgE products, if any of these products are approved by the
FDA. We also rely on Novartis and Genentech for significant financial and
technical contributions to the development of products covered by our
collaboration agreements. Our ability to profit from these products depends on
Novartis' and Genentech's performance under their agreements with us. We cannot
control the amount and timing of resources Novartis and Genentech will devote to
any of our products. If Novartis or Genentech experiences manufacturing or
distribution difficulties, does not actively market E25 or other selected
anti-IgE products or does not otherwise perform under our collaboration
agreements, our potential for revenue from those products will be dramatically
reduced. Novartis and Genentech may terminate our collaboration agreements on
short notice. If Novartis or Genentech terminates our collaboration, we would
experience increased capital requirements to undertake development and marketing
at our expense, and we cannot assure you that we would be able to develop E25 or
our other anti-IgE products on our own.
NONE OF OUR PRODUCTS HAVE RECEIVED REGULATORY APPROVAL. IF WE DO NOT RECEIVE AND
MAINTAIN REGULATORY APPROVALS, WE WILL NOT BE ABLE TO MARKET OUR PRODUCTS.
None of our products, including E25, have been approved by the FDA or any other
regulatory authority. We cannot assure you that the data collected from our
completed or future clinical trials will be sufficient to support any approvals
by the FDA or other regulatory authorities. Approval from the FDA is required to
manufacture and market pharmaceutical products in the United States. Other
countries have similar requirements.
The process that pharmaceutical products must undergo to receive this approval
is extensive, and includes preclinical testing and clinical trials to
demonstrate safety and efficacy and a review of the manufacturing process to
ensure compliance with good manufacturing practices. This process can last many
years, be very costly and still be unsuccessful. FDA approval can be delayed,
limited or not granted at all for many reasons, including:
o a product candidate may not be safe or effective;
o data from preclinical testing and clinical trials can be interpreted by
FDA officials in different ways than we interpret it;
o the FDA might not approve our manufacturing processes or facilities or
the processes or facilities of our collaboration partners;
o the FDA may change its approval policies or adopt new regulations; and
o a product candidate may not be approved for all the indications
requested.
The process of obtaining approvals in foreign countries is subject to delay and
failure for the same reasons. Any delay in or failure to receive approval for
E25 or any of our current or future product candidates, could materially harm
our business, financial condition and results of operations.
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Our products other than E25 require significant additional laboratory
development and/or clinical testing and investment prior to commercialization.
We cannot assure you that our product candidates will prove to be safe and
effective in clinical trials. Further, any of our products may prove to have
undesirable and unintended side effects. We may not successfully develop
products currently in research and development, and our products may not meet
applicable regulatory standards, obtain required regulatory approvals, be
capable of being produced in commercial quantities at an acceptable cost and in
compliance with applicable regulatory guidelines or be successfully marketed.
Approval of a product candidate could also be contingent on post-marketing
studies. In addition, any marketed product and its manufacturer continue to be
subject to strict regulation after approval. Any unforeseen problems with an
approved product or any violation of regulations could result in restrictions on
the product, including its withdrawal from the market. Delays in receipt of or
failure to receive regulatory approvals, or the loss of previously received
approvals, would delay or prevent product commercialization, which would
adversely affect our business, financial condition and results of operations.
WE ARE INVOLVED IN LEGAL PROCEEDINGS WITH OUR FORMER ATTORNEYS THAT MAY BE VERY
COSTLY TO US.
We have been involved in an arbitration regarding a fee dispute with our former
attorneys who represented us in our 1993 lawsuit against Genentech and F.
Hoffman-La Roche, Ltd. and its affiliates, and a 1994 lawsuit filed against us
by Genentech. The arbitration panel issued an award which entitled those
attorneys to receive approximately $3.5 million, including interest, payments
ranging from 33 1/3% to 40% of any future milestone payments received by us from
Genentech following product approval and 10% of the royalties which we receive
on sales of anti-IgE products. We sought a court order vacating the arbitration
award. However, a judgment was entered confirming the award. We intend to pursue
all available remedies, including appealing the decision.
We may not be successful in this proceeding. If this proceeding continues to
result in decisions unfavorable to us, we could lose substantial value from our
collaboration with Novartis and Genentech which could negatively affect our
stock price and harm our business, financial condition and results of
operations. Whether or not we are successful in this proceeding, we expect it to
consume substantial amounts of our financial and managerial resources.
WE ARE INVOLVED IN LITIGATION AND ARBITRATION PROCEEDINGS WITH NOVARTIS AND
GENENTECH THAT MAY BE VERY COSTLY TO US AND COULD RESULT IN THE LOSS OF OUR
RIGHTS TO INDEPENDENTLY DEVELOP PRODUCTS.
We are also a party to arbitrations and a related federal district court lawsuit
with Novartis and Genentech relating to our rights to develop Hu-901 and other
anti-IgE antibodies independently of our collaboration with Novartis and
Genentech. Novartis and Genentech have disputed our right to pursue development
of Hu-901 independently and have claimed that we are using unspecified
confidential and proprietary information of Novartis and Genentech that we have
no right to use.
If we are not successful in these proceedings, we could incur substantial
damages that would harm our financial position and we could lose our rights to
independently develop products covered by the collaboration, including Hu-901.
Even if we are successful, we may not be able to secure any recovery or develop
anti-IgE products independently of the collaboration. In either case, we expect
these proceedings to consume substantial amounts of our financial and managerial
resources. Further, because of the substantial amount of discovery required in
connection with this type of litigation, there is a risk that some of our
confidential information could be compromised by disclosure.
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OUR DEPENDENCE ON COLLABORATION PARTNERS TO DEVELOP, MANUFACTURE, MARKET AND
DISTRIBUTE OUR PRODUCTS MAY DELAY OR IMPAIR OUR ABILITY TO GENERATE SIGNIFICANT
REVENUE OR OTHERWISE ADVERSELY AFFECT OUR PROFITABILITY.
We will rely on collaboration partners for developing, manufacturing,
commercializing and marketing our products. Many of our competitors are
similarly seeking to develop or expand their collaboration and license
arrangements with pharmaceutical companies. The success of these efforts by our
competitors could have an adverse impact on our ability to form future
collaboration arrangements. We cannot assure you that we will be able to
negotiate acceptable collaboration agreements in the future or that efforts
under any current or future collaboration agreements will be successful. To the
extent that we choose not to or are unable to enter into future collaboration
agreements and maintain existing collaborations, we would experience increased
capital requirements to undertake research, development and marketing at our own
expense. In addition, we may encounter significant delays in introducing our
product candidates or find that the development, manufacture or sale of our
product candidates is adversely affected by the absence of such collaboration
agreements.
Our reliance on collaboration partners poses the following additional risks:
o disputes with our partners may arise, leading to delays in or
termination of the research, development or commercialization of product
candidates or resulting in significant litigation or arbitration;
o contracts with our partners may fail to provide significant protection
or may become unenforceable if one of these partners fails to perform;
o our partners could independently develop, or develop with third parties,
products or treatments that compete with our products;
o our partners may not commit enough capital or other resources to
successfully develop our products;
o our partners may not pursue further development and commercialization of
products resulting from their collaboration with us;
o our partners with marketing and distribution rights to one or more of
our products may not commit enough resources to the marketing and
distribution of our products;
o our contracts with collaboration partners may expire or be terminated
and we may not be able to replace them; and
o the terms of our contracts with our partners may not be favorable to us
in the future.
If any of these risks occur, our product development and productivity may
suffer, and our business, financial condition and results of operations would be
materially harmed.
OUR PRECLINICAL AND CLINICAL TESTING RESULTS ARE UNCERTAIN. IF TRIAL RESULTS ARE
NEGATIVE, WE MAY BE FORCED TO TERMINATE DEVELOPMENT OF PRODUCTS IMPORTANT TO THE
FUTURE OF OUR COMPANY.
We must demonstrate through preclinical studies and clinical trials that our
products are safe and effective for use in each target indication before we can
obtain regulatory approvals for the commercial sale of those products. These
studies and trials may be very costly and time consuming. The results of
preclinical studies and initial clinical trials of our products are not
necessarily predictive of the results from later-stage clinical trials. Drugs in
later stages of clinical trials may fail to show the desired safety and efficacy
traits despite having progressed through initial clinical testing. We cannot
assure you that the data collected from clinical trials of our products will be
sufficient to support approval by the FDA or other regulatory authorities.
The speed with which we are able to enroll patients in clinical trials is an
important factor in determining how quickly clinical trials may be completed.
Many factors affect patient enrollment, including the size of the patient
population, the proximity of patients to clinical sites and the eligibility
criteria for the study. Our clinical trial protocols may be targeted at
indications that have small patient populations, which may make it difficult for
us to enroll enough patients to complete the trials. Delays in patient
enrollment in the
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trials may result in increased costs, program delays, or both, which could slow
down our product development and approval process, and could materially harm our
business.
The administration of any product we develop may produce undesirable side
effects in humans. The occurrence of side effects could interrupt or delay
clinical trials of products and could result in the FDA or other regulatory
authorities denying approval of our products for any or all targeted
indications. The FDA, other regulatory authorities or we may suspend or
terminate clinical trials at any time. Even if we received FDA and other
regulatory approvals, our products may later exhibit adverse effects that limit
or prevent their widespread use or that force us to withdraw those products from
the market. We cannot assure you that any of our products will be safe for human
use.
WE HAVE LIMITED EXPERIENCE AND CAPABILITY IN MANUFACTURING AND MAY ENCOUNTER
MANUFACTURING PROBLEMS OR DELAYS THAT COULD RESULT IN LOST REVENUE.
To be successfully commercialized, our products must be manufactured in
commercial quantities in compliance with regulatory requirements and at an
acceptable cost, either by us or by our collaboration partners. If the
facilities at which our products are manufactured cannot pass a pre-approval or
periodic plant inspection, FDA approval of our products may not be granted or
the sale of our products may be barred. Although we expect Genentech and
Novartis to manufacture E25 and other anti-IgE products developed through our
collaboration if such products are approved by the FDA or other regulatory
authorities, we have reserved the right to manufacture up to 50% of the
worldwide requirements for such products. We currently have a process
development and manufacturing facility for biological products located in
Houston, Texas. However, we have no experience in manufacturing commercial
quantities of antibodies and currently have limited manufacturing capacity. In
order to obtain regulatory approvals and to create capacity to produce our
products in sufficient quantities for commercial sale at an acceptable cost, we
will have to develop or acquire additional technology for large scale
manufacturing and build or otherwise obtain access to adequate facilities, which
will require substantial additional funds. We will also be required to
demonstrate to the FDA and corresponding foreign authorities our ability to
manufacture our products using controlled, reproducible processes. We cannot
assure you that we can develop the necessary manufacturing technology or that we
will be able to fund or build an adequate commercial manufacturing facility
necessary to obtain regulatory approvals and to produce adequate commercial
supplies of our potential products on a timely basis. We cannot assure you that
we, operating alone or with the assistance of others, will be able to
successfully make the transition to commercial production.
WE LACK SALES AND MARKETING EXPERIENCE, WHICH MAKES US DEPENDENT ON THIRD
PARTIES FOR THEIR EXPERTISE IN THIS AREA.
Assuming that we receive the required regulatory approvals, we expect to market
and sell our products principally through distribution, co-marketing,
co-promotion or licensing arrangements with third parties. Under our current
collaboration agreement, Novartis and Genentech have exclusive marketing rights
with respect to E25 and other selected anti-IgE products. However,
commercialization rights may revert back to us on termination of our
collaboration. We currently have no sales, marketing or distribution
capabilities. Any revenues we receive from our E25 collaboration will depend
primarily on the efforts of our collaboration partners. We intend to retain
marketing rights in the United States and selected Asian countries for products
that we develop that can be served effectively with a small, targeted sales
force. If we elect to market products directly, we would require significant
additional expenditures and management resources to develop an internal sales
force. We cannot assure you that we would be able to establish a successful
sales force should we choose to do so.
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WE FACE INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE THAT COULD RESULT IN
PRODUCTS THAT ARE SUPERIOR TO THE PRODUCTS WE ARE DEVELOPING.
The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. We have numerous competitors in the United
States and abroad, including, among others, major pharmaceutical and chemical
companies, specialized biotechnology firms, universities and other research
institutions. These competitors may develop technologies and products that are
more effective or less costly than any of our current or future products or that
could render our technologies and products obsolete or noncompetitive. Many of
these competitors have substantially more resources and product development,
production and marketing capabilities than we do. In addition, many of our
competitors have significantly greater experience than we do in undertaking
preclinical testing and clinical trials of new or improved pharmaceutical
products and obtaining FDA and other regulatory approvals of products for use in
health care. If we are successful in achieving significant commercial sales of
our products, we also will be competing in manufacturing efficiency and
marketing capability, areas in which we have limited or no experience.
Furthermore, our competitors may obtain FDA approval for products sooner and be
more successful in manufacturing and marketing their products than are we or our
collaborators.
Products currently exist in the market that will compete directly with the
products that we are seeking to develop. Any product candidate that we develop
and for which we receive regulatory approval must then compete for market
acceptance and market share. Our product candidates may not gain market
acceptance among physicians, patients, healthcare payors and the medical
community. Significant factors in determining whether we will be able to compete
successfully include:
o efficacy and safety of our products;
o timing and scope of regulatory approval;
o product availability;
o potential advantages over alternative treatment methods;
o development, marketing, distribution and manufacturing capabilities and
support of our collaborators;
o reimbursement coverage from insurance companies and others;
o price and cost-effectiveness of our products; and
o patent protection.
If our products are not competitive based on these or other factors, our
business, financial condition and results of operations will be materially
harmed.
WE ARE DEPENDENT ON OUR PATENTS AND PROPRIETARY RIGHTS. THE VALIDITY,
ENFORCEABILITY AND COMMERCIAL VALUE OF THESE RIGHTS ARE HIGHLY UNCERTAIN.
Our success is dependent in part on obtaining, maintaining and enforcing
patents, licensing the rights to patents and patent applications owned by others
maintaining trade secrets and operating without infringing on the proprietary
rights of third parties. While we file and prosecute patent applications to
protect our inventions, our pending patent applications may not result in the
issuance of valid patents and our issued patents may not provide competitive
advantages. Also, our patent protection may not prevent others from developing
competitive products using related technology. We cannot assure you that pending
patent applications licensed to us will result in patents being issued or that,
if issued, the patents will give us an advantage over competitors with similar
technology.
We own or have licenses to certain issued patents. The patents we own that are
most material to our business are five United States patents and six foreign
patents relating to anti-IgE antibodies. However, the patent position of
biotechnology and pharmaceutical firms is highly uncertain and involves many
complex legal and technical issues. There is no clear policy involving the
breadth of claims allowed or the degree of protection afforded under such
patents. Issued patents can be challenged in litigation in the courts and in
proceedings in the patent office. Issuance of a patent is not conclusive as to
its validity, enforceability or
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the scope of its claim. We cannot assure you that our patents will not be
successfully challenged, invalidated, or limited in the scope of their coverage.
Moreover, the cost of litigation to uphold the validity of patents and to
prevent infringement can be substantial and can result in the diversion of
technical and management personnel's time and attention which may materially
harm our business, financial condition and results of operations. If the outcome
of litigation is adverse to us, third parties may be able to use our patented
invention without payment to us. Moreover, we cannot assure you that our patents
will not be infringed or successfully avoided through design innovation. Any of
these events may materially and adversely effect our business.
There may be patent rights belonging to others that require us to alter our
products, pay licensing fees or cease certain activities. If our products
conflict with patent rights of others, the owners of those patent rights could
bring legal actions against us claiming damages and seeking to stop us from
manufacturing and marketing the affected products. If these legal actions are
successful, in addition to any potential liability for damages, we could be
required to obtain a license in order to continue to manufacture or market the
affected products. We cannot assure you that we would prevail in any such action
or that any license required under any such patent would be made available on
acceptable terms or at all. Any of these events may materially harm our
business, financial condition and results of operations.
The research, development and commercialization of a biopharmaceutical product
often involves alternative development and optimization routes, which are
presented at various stages in the development process. We cannot predict the
preferred routes at the outset of a research and development program, because
they will depend on subsequent discoveries and test results. There are numerous
third-party patents in our field, and it is possible that, to pursue the
preferred development route of one or more of our products, we will need to
obtain a license to a patent, which would decrease the ultimate profitability of
the applicable product. If we cannot negotiate a license, we might have to
pursue a less desirable development route or terminate the program altogether.
We are aware that other groups have claimed discoveries similar to those covered
by our patent applications. We do not expect to know for several years the
relative strength of our patent position as compared to these other groups. In
addition, other companies, some of which may be our competitors, have filed
applications for or have been issued patents and may obtain additional patents
and proprietary rights relating to products or processes used in, necessary to,
competitive with or otherwise related to our patents and products. These
products and processes include, among other items, patents covering technology
relating to humanized monoclonal antibodies that we anticipate developing.
Protein Design Labs, Inc. owns certain patents and patent applications relating
to such humanized antibodies. We have recently taken a non-exclusive license to
these patents and patent applications for one of our products. We do not know if
licenses from Protein Design Labs will be available for our other antibody
products.
We are required to make substantial cash payments and achieve certain milestones
and satisfy certain conditions, including filing investigational new drug
applications, obtaining product approvals and introducing products, to maintain
our rights under certain of our licenses, including our licenses from Chiron and
Biogen, Inc. We cannot assure you that we will be able to maintain our rights
under these licenses. Termination of any of these licenses could result in our
being unable to commercialize any related product.
In addition to the intellectual property rights described above, we also rely on
unpatented technology, trade secrets and confidential information. We cannot
assure you that others will not independently develop substantially equivalent
information and techniques or otherwise gain access to our technology or
disclose such technology, or that we can effectively protect our rights in
unpatented technology, trade secrets and confidential information. We require
each of our employees, consultants and advisors to execute a confidentiality
agreement at the commencement of an employment or consulting relationship with
us. We cannot assure you, however, that these agreements will provide effective
protection in the event of unauthorized use or disclosure of this confidential
information.
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WE MAY EXPERIENCE DIFFICULTIES IN MANAGING GROWTH, WHICH COULD MATERIALLY HARM
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
If our product development efforts and the product development efforts of our
collaborators are successful, our growth could strain our operations, product
development and other managerial and operating resources. Future growth will
impose significant added responsibilities on members of management, including
the need to identify, recruit, maintain and integrate additional employees,
including management. In the future, our financial performance and our ability
to compete effectively will depend, in part, on our ability to manage any future
growth effectively. To that end, we will have to be able to:
o manage our research and development efforts effectively;
o expand the capacity, scalability and performance of our product
development infrastructure;
o develop our administrative, accounting and management information
systems and controls;
o improve coordination among our research, accounting, finance, marketing
and operations personnel; and
o hire and train additional qualified personnel.
We cannot assure you that we will be able to accomplish these tasks, and if we
are unable to accomplish any of these tasks, our business, financial condition
and results of operations may be materially harmed.
FAILURE TO ATTRACT AND RETAIN KEY PERSONNEL AND PRINCIPAL MEMBERS OF OUR
SCIENTIFIC AND MANAGEMENT STAFF COULD MATERIALLY HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Our success depends greatly on our abilities to attract and retain qualified
scientific and technical personnel, as well as to retain the services of our
existing technical management staff. To expand our research and development
programs and pursue our product development plans, we will be required to hire
additional qualified scientific and technical personnel, as well as personnel
with expertise in clinical testing and government regulation. There is intense
competition for qualified staff, and we cannot assure you that we will be able
to attract and retain the necessary qualified staff for the development of our
business. The failure to attract and retain key scientific and technical
personnel and management staff or the loss of any of our current management team
could materially harm our business and financial condition. We do not maintain,
and do not currently intend to obtain, key employee global life insurance on any
of our personnel.
WE MAY NEED ADDITIONAL FINANCING, BUT OUR ACCESS TO CAPITAL FUNDING IS
UNCERTAIN.
Our current and anticipated development projects require substantial additional
capital. We expect that the net proceeds from this offering, together with our
existing assets and revenue from operations, will be sufficient to fund our
operations for the next three years. However, our future capital needs will be
dependent on many factors, including successful commercialization of E25,
receipt of milestone payments from our collaboration partners, progress in our
research and development activities, the magnitude and scope of these
activities, the progress and level of unreimbursed costs associated with
preclinical studies and clinical trials, the costs associated with acquisitions,
the costs of preparing, filing, prosecuting, maintaining and enforcing patent
claims and other intellectual property rights, competing technological and
market developments, changes in or terminations of existing collaboration and
licensing arrangements, the establishment of additional collaboration and
licensing arrangements, and the cost of manufacturing scale-up and development
of marketing activities, if undertaken by us. We do not have committed external
sources of funding and we cannot assure you that we will be able to obtain
additional funds on acceptable terms, if at all. If adequate funds are not
available, we may be required to:
o delay, reduce the scope of or eliminate one or more of our development
programs;
o obtain funds through arrangements with collaboration partners or others
that may require us to relinquish rights to technologies, product
candidates or products that we would otherwise seek to develop or
commercialize ourselves; or
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o license rights to technologies, product candidates or products on terms
that are less favorable to us than might otherwise be available.
If we raise additional funds by issuing additional stock, further dilution to
our stockholders may result, and new investors could have rights superior to
existing stockholders. If funding is insufficient at any time in the future, we
may be unable to develop or commercialize our products, take advantage of
business opportunities or respond to competitive pressures.
WE ARE SUBJECT TO THE UNCERTAINTY RELATED TO REIMBURSEMENT POLICIES AND
HEALTHCARE REFORM MEASURES.
In recent years, there have been numerous proposals to change the healthcare
system in the United States. Some of these proposals have included measures that
would limit or eliminate payments for medical procedures and treatments or
subject the pricing of pharmaceutical products to government control. In
addition, as a result of the trend towards managed healthcare in the United
States, as well as legislative proposals to reduce government insurance
programs, third-party payors are increasingly attempting to contain healthcare
costs by limiting both coverage and the level of reimbursement of new drug
products. Consequently, significant uncertainty exists as to the reimbursement
status of newly-approved healthcare products. If we or any of our collaborators
succeed in bringing one or more of our products to market, we cannot assure you
that third-party payors will establish and maintain price levels sufficient for
us to realize an appropriate return on our investment in product development.
Significant changes in the healthcare system in the United States or elsewhere,
including changes resulting from adverse trends in third-party reimbursement
programs, could materially reduce our profitability. Such changes could also
significantly harm our ability to raise the capital we would need to continue
our operations. Furthermore, if these proposals affect our collaborators, our
ability to commercialize the products we develop jointly with them would also be
harmed.
WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS, AND IT IS UNCERTAIN THAT INSURANCE
AGAINST THESE CLAIMS WILL BE AVAILABLE TO US AT A REASONABLE RATE IN THE FUTURE.
Our business exposes us to potential product liability risks, which are inherent
in the testing, manufacturing, marketing and sale of pharmaceutical products. We
may be held liable if any product we develop, or any product that is made with
the use or incorporation of any of our technologies, causes injury or is found
otherwise unsuitable during product testing, manufacturing, marketing or sale.
We cannot assure you that we will be able to avoid product liability exposure.
Product liability insurance for the biopharmaceutical industry is generally
expensive, when available at all. We have obtained product liability insurance
coverage in the amount of $5.0 million per occurrence, subject to a $5.0 million
aggregate limitation. However, we cannot assure you that our present insurance
coverage is now or will continue to be adequate. In addition, some of our
license and collaboration agreements require us to obtain product liability
insurance. It is possible that future license and collaboration agreements may
also include such a requirement. We cannot assure you that adequate insurance
coverage will be available to us at a reasonable cost in the future. Our
inability to obtain sufficient insurance coverage at an acceptable cost or
otherwise to protect against potential product liability claims could prevent or
inhibit the commercialization of products developed by us or our collaborators.
If we are sued for any injury caused by our products, our liability could exceed
our total assets.
WE DEAL WITH HAZARDOUS MATERIALS AND MUST COMPLY WITH ENVIRONMENTAL LAWS AND
REGULATIONS, WHICH CAN BE EXPENSIVE AND RESTRICT HOW WE DO BUSINESS. WE COULD
ALSO BE LIABLE FOR DAMAGES, PENALTIES OR OTHER FORMS OF CENSURE IF WE ARE
INVOLVED IN A HAZARDOUS WASTE SPILL OR OTHER ACCIDENT.
Our research and development work and manufacturing processes involve the
controlled use of hazardous materials, including chemical, radioactive and
biological materials. Our operations also produce hazardous waste products. We
are subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of these materials. Despite
precautionary procedures that we
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implement for handling and disposing of these materials, we cannot eliminate the
risk of accidental contamination or discharge or any resultant injury from these
materials. In the event of a hazardous waste spill or other accident, we could
also be liable for damages, penalties or other forms of censure. In addition, we
may be sued for injury or contamination that results from our use or the use by
third parties of these materials, and our liability could exceed our total
assets. Although we believe that we are in compliance in all material respects
with applicable environmental laws and regulations, we cannot assure you that we
will not be required to incur significant costs to comply with environmental
laws and regulations in the future. In addition, current or future environmental
laws and regulations may impair our research, development or production efforts.
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
AND WILL CONTINUE TO CONTROL OUR COMPANY AND THE OUTCOME OF MATTERS PUT TO A
VOTE OF STOCKHOLDERS AFTER THIS OFFERING.
Immediately after this offering is completed, our executive officers and
directors and their affiliates will, in the aggregate, own shares representing
approximately % of our outstanding common stock. As a result, these
stockholders, acting together, will be able to have a significant influence on
all matters submitted to our stockholders for approval, including the election
of directors and the approval of changes in control, and on general management
and affairs of our company. Such control could discourage others from initiating
potential merger, takeover or other change of control transactions. As a result,
the market price of our common stock could be adversely affected. For a more
detailed description of our management team and their ownership of common stock,
please refer to "Management" on page 47.
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE
LAW CONTAIN CERTAIN PROVISIONS THAT COULD DELAY OR PREVENT A TAKEOVER AND
SUPPRESS OUR STOCK PRICE.
Provisions of our amended and restated certificate of incorporation, bylaws and
Delaware law could delay, defer or prevent a third party from acquiring us,
despite the possible benefit to our stockholders, or otherwise adversely affect
the price of our common stock.
The provisions of our amended and restated certificate of incorporation and
bylaws include the following:
o the ability of our board of directors to issue shares of preferred stock
and to determine the price and other terms, including preferences and
voting rights, of those shares without stockholder approval;
o a staggered board of directors;
o a limitation on who may call special meetings of stockholders; and
o advance notice requirements for nomination for election to the board of
directors or for proposing matters that can be acted on by stockholders
at stockholder meetings.
In addition to these provisions, we are subject to certain Delaware laws,
including one that prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. We may also
adopt a shareholder rights plan or "poison pill" after this offering. All of
this may discourage potential takeover attempts, discourage bids for our common
stock at a premium over market price or could adversely affect the market price
of, and the voting and other rights of the holders of, our common stock.
YOU MAY NOT BE ABLE TO TRADE OUR COMMON STOCK IF AN ACTIVE TRADING MARKET DOES
NOT DEVELOP.
Prior to this offering, there has been no public market for our common stock. We
cannot predict the extent to which investor interest in us will lead to the
development of an active trading market in our common stock or how liquid that
market might become. The initial public offering price for our shares will be
determined by negotiations between us and the representatives of the
underwriters, and may not be indicative of prices that will prevail in any
future trading market. You may not be able to sell shares of our common stock at
or above our initial public offering price.
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MARKET VOLATILITY MAY AFFECT OUR STOCK PRICE AND THE VALUE OF YOUR INVESTMENT
MAY BE SUBJECT TO SUDDEN DECREASES.
The trading price for our common stock is likely to be volatile. Prices for our
common stock will be determined in the marketplace and may be influenced by many
factors, including variations in our financial results, changes in earnings
estimates by industry research analysts, investors' perceptions of us and our
financial prospects, results of the governmental approval process for our
products, results of clinical trials, changes in government regulations,
developments in our relationships with our collaboration partners, developments
in our litigation, announcements of new products, technologies or treatments by
us or our competitors and general economic, industry and market conditions. In
addition, the stock markets from time to time have experienced extreme price and
volume fluctuations. In particular, the market prices of the securities of
biotechnology companies have been especially volatile, and often these
fluctuations have been unrelated to operating performance. These broad
fluctuations may adversely affect the trading price of our common stock,
regardless of our actual operating performance.
In the past, following periods of market volatility, security holders have
instituted class action litigation. If the market value of our stock experiences
adverse fluctuations and we become involved in this type of litigation, we could
incur substantial legal costs and management's attention could be diverted,
which could materially harm our business or the market price of our stock.
SALES OF COMMON STOCK MAY HAVE AN ADVERSE IMPACT ON THE MARKET PRICE OF OUR
COMMON STOCK.
Sales of significant amounts of our common stock after this offering or the
perception that such sales will occur could adversely affect the market price of
our common stock or our future ability to raise capital through an offering of
equity securities. After this offering is completed, shares of our
common stock will be issued and outstanding. All of the shares of common stock
to be sold in this offering will be freely tradable without restriction or
further registration under the federal securities laws unless purchased by our
"affiliates" within the meaning of Rule 144 under the Securities Act. The
33,324,402 remaining shares of outstanding common stock will be "restricted
securities" under the Securities Act, subject to restrictions on the timing,
manner and volume of sales of those shares.
Our officers and directors and stockholders who together own shares of
common stock have agreed for a period of 180 days after the date of this
prospectus not to sell or otherwise dispose of any shares of our common stock,
other than shares acquired in this offering. When the lock-up periods expire,
the shares owned by these persons prior to completion of this offering may be
sold into the public market without a registration statement, to the extent
permitted by Rule 144 or exemptions under the Securities Act. Moreover,
following this offering, a substantial number of shares of common stock issuable
on exercise of outstanding options will be eligible for sale in the public
market.
For a more detailed description of additional shares that may be sold in the
future, please refer to "Shares Eligible for Future Sale" on page 61 and
"Underwriting" on page 63.
AS A NEW INVESTOR, YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK
VALUE OF YOUR SHARES.
The public offering price for our shares will be substantially higher than our
net tangible book value per share, which at December 31, 1999, was $1.20 per
share. If you purchase shares of our common stock in this offering, you will
suffer immediate, substantial net tangible book value dilution of $ per share,
or $ per share, if the underwriters' over-allotment option is exercised in
full. You will also incur additional dilution if the holders of outstanding
options to purchase common stock at prices below our net tangible book value per
share after this offering exercise such options. For a more detailed discussion
of dilution, please refer to "Dilution" on page 22.
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OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO ALLOCATE THE NET PROCEEDS OF THIS
OFFERING AND THE PROCEEDS MAY NOT BE USED APPROPRIATELY.
Our management will retain broad discretion allocating the proceeds of this
offering. We estimate the net proceeds from this offering to be approximately
$ million, after deducting estimated offering expenses. We plan to use these
proceeds to substantially increase funding of clinical development of our
products, expand our research and development infrastructure and research
facilities in the United States, The Netherlands and Taiwan, acquire or license
additional technologies and products and market our products. We have no
specific allocations for any other net proceeds of this offering. The amount of
proceeds we will actually expend on general corporate purposes will vary
depending on a number of factors, including the successful commercialization of
E25, progress in and scope of our research and development activities, changes
in or termination of existing collaboration and licensing arrangements, costs
and magnitude of product or technology acquisitions and our need for
manufacturing capacity. Consequently, management will retain a significant
amount of discretion over the application of these proceeds. Because of the
number and variability of factors that will determine the use of these proceeds,
how we spend these proceeds may vary substantially from our current intentions.
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FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements may be found
under "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus.
Forward-looking statements typically are identified by use of terms such as
"may," "will," "should," "could," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue" or similar
words, although some forward-looking statements are expressed differently. You
should be aware that our actual results could differ materially from those
contained in the forward-looking statements due to a number of factors,
including:
o the ability to develop safe and efficacious drugs;
o failure to achieve positive results in clinical trials;
o failure to successfully commercialize our products;
o relationships with our collaboration partners;
o variability of royalty, license and other revenues;
o ability to enter into future collaboration agreements;
o competition and technological change; and
o existing and future regulations affecting our business.
You should also consider carefully the statements under "Risk Factors" and
other sections of this prospectus, which address additional factors that could
cause our actual results to differ from those set forth in the forward-looking
statements.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of common stock in
this offering will be approximately $ . If the underwriters fully exercise
their over-allotment option, the net proceeds of the shares sold by us will be
$ . "Net Proceeds" are what we expect to receive after paying the
underwriters' discounts and commissions and other expenses of the offering. For
the purpose of estimating net proceeds, we are assuming an initial public
offering price of $ per share.
We intend to use the net proceeds of this offering primarily for research and
development, capital expenditures and general corporate purposes, including
working capital. We may use a portion of the proceeds to acquire or invest in
technologies, products or businesses which we believe may be complementary to
our business. We currently have no agreements or commitments in this regard. The
amount of proceeds we will actually expend on general corporate purposes will
vary depending on a number of factors, including the successful
commercialization of E25, progress in and scope of our research and development
activities, changes in or termination of existing collaboration and licensing
arrangements, costs and magnitude of product or technology acquisitions and our
need for manufacturing capacity. Our management will have broad discretion over
allocation of the net proceeds of this offering. Pending such uses, we intend to
invest the net proceeds of this offering in short-term, interest-bearing
investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
anticipate that we will retain earnings to support operations and to finance the
growth and development of our business. Therefore, we do not expect to pay cash
dividends in the foreseeable future.
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CAPITALIZATION
The following table shows:
o Our capitalization on December 31, 1999.
o Our capitalization on December 31, 1999, assuming the completion of the
offering as adjusted for the sale of shares of common stock by us at an
assumed public offering price of $ per share, net of estimated
underwriters' discounts and commissions and offering expenses.
o The shares of common stock outstanding in the actual and as adjusted
columns exclude 3,183,920 shares of common stock issuable upon exercise
of options outstanding at December 31, 1999 at a weighted average
exercise price of $4.39 per share.
DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
Long term debt....................... $ 10,000 $ 10,000
-------- ------------
Stockholders' equity:
Preferred stock, $.01 par value;
10,000,000 shares authorized, no
shares issued and outstanding;
no shares issued or outstanding,
as adjusted..................... -- --
Common stock, $.01 par value;
120,000,000 shares authorized;
33,324,402 shares issued and
outstanding, actual; ( )
shares issued and outstanding,
as adjusted..................... 333
Additional paid-in capital......... 71,701
Deferred compensation.............. (651) (651)
Loans receivable from employees.... (1,086) (1,086)
Other comprehensive income,
cumulative translation
adjustment...................... 171 171
Retained earnings (deficit)........ (30,461) (30,461)
-------- ------------
Total stockholders'
equity................... 40,007
-------- ------------
Total capitalization....... $ 50,007 $
======== ============
21
<PAGE>
DILUTION
Our net tangible book value on December 31, 1999 was approximately $39,965,000,
or $1.20 per share. "Net tangible book value" is total assets minus the sum of
liabilities and intangible assets. "Net tangible book value per share" is net
tangible book value divided by the total number of shares outstanding.
After giving effect to adjustments relating to the offering, our pro forma net
tangible book value on December 31, 1999, would have been $ or $ per share.
The adjustments made to determine pro forma net tangible book value per share
are the following:
o an increase in total assets to reflect the net proceeds of the offering
as described under "Use of Proceeds" assuming that the public offering
price will be $ per share; and
o the addition of the number of shares offered by this prospectus to the
number of shares outstanding.
The following table illustrates the pro forma increase in net tangible book
value of $ per share and the dilution (the difference between the offering
price per share and net tangible book value per share) to new investors:
Assumed public offering price per
share........................... $
---------
Net tangible book value per share
as of December 31, 1999......... $ 1.20
---------
Increase in net tangible book value
per share attributable to the
offering........................
---------
Pro forma net tangible book value
per share as of December 31,
1999, after giving effect to the
offering........................
---------
Dilution per share to new investors
in the offering................. $
=========
The following table shows the difference between existing stockholders and new
investors with respect to the number of shares purchased from Tanox, the total
consideration paid and the average price paid per share. The table assumes that
the public offering price will be $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 33,324,402 % 61,924,000 % $ 1.86
New investors........................
------------ ------- ------------- -------
Total........................... 100.0% 100.0%
============ ======= ============= =======
</TABLE>
The discussion and tables above assume no exercise of outstanding options to
purchase shares of common stock. As of December 31, 1999, there were outstanding
options to purchase a total of 3,183,920 shares of common stock at a weighted
average exercise price of $4.39 per share. To the extent that any outstanding
options are exercised, there will be further dilution to new investors.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents our selected historical financial data. You should read
carefully the consolidated financial statements included in this prospectus,
including the notes to the consolidated financial statements. The selected data
in this section is not intended to replace the consolidated financial
statements.
We derived the statement of operations data for the years ended December 31,
1997, 1998 and 1999, and balance sheet data as of December 31, 1998 and 1999
from the audited consolidated financial statements in this prospectus. Those
financial statements were audited by Arthur Andersen LLP, independent public
accountants. We derived the statement of operations data for the years ended
December 31, 1995 and 1996 and the balance sheet data as of December 31, 1995,
1996 and 1997 from audited consolidated financial statements that are not
included in the prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 6,957 $ 15,017 $ 8,939 $ 2,422 $ 1,405
Research and development............. 5,499 5,626 6,926 11,933 17,163
General and administrative........... 1,707 1,165 2,230 3,431 8,582
--------- --------- --------- ---------- ----------
Total operating costs and expenses... 7,206 6,791 9,156 15,364 25,745
--------- --------- --------- ---------- ----------
Income (loss) from operations........ (249) 8,226 (217) (12,942) (24,340)
Other income, net.................... 470 433 1,045 1,240 1,028
--------- --------- --------- ---------- ----------
Income (loss) before income taxes.... 221 8,659 828 (11,702) (23,312)
(Provision) benefit of income
taxes.............................. (10) (1,922) (198) 1,533 (34)
--------- --------- --------- ---------- ----------
Net income (loss).................... $ 211 $ 6,737 $ 630 $ (10,169) $ (23,346)
========= ========= ========= ========== ==========
Earnings (loss) per share:
Basic........................... $ 0.01 $ 0.26 $ 0.02 $ (0.35) $ (0.75)
========= ========= ========= ========== ==========
Diluted......................... $ 0.01 $ 0.23 $ 0.02 $ (0.35) $ (0.75)
========= ========= ========= ========== ==========
Shares used in computing earnings
(loss) per share:
Basic........................... 26,215 26,215 27,909 29,105 31,113
Diluted......................... 29,418 29,382 31,190 29,105 31,113
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................ $ 15,443 $ 18,235 $ 36,857 $ 33,735 $ 47,254
Working capital...................... 13,847 15,575 35,871 34,323 42,718
Total assets......................... 18,147 25,871 44,831 43,422 55,328
Long term debt....................... 7,000 7,000 9,000 10,000 10,000
Retained earnings (deficit).......... (4,313) 2,424 3,054 (7,115) (30,461)
Total stockholders' equity........... 8,470 15,811 34,428 31,540 40,007
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND OTHER
FINANCIAL INFORMATION INCLUDED IN THIS PROSPECTUS.
OVERVIEW
Tanox identifies and develops therapeutic monoclonal antibodies to address
significant unmet medical needs in the areas of immunology, infectious disease
and cancer. E25, our most advanced product in development, is an
anti-immunoglobulin E, or anti-IgE, antibody being developed in collaboration
with Novartis and Genentech. E25 has successfully completed Phase III clinical
trials in both allergic asthma and seasonal allergic rhinitis (hay fever). Based
on the results of these trials, a BLA is expected to be filed with the FDA
concurrent with a European registration in mid-2000 for both indications. In
addition, we are developing a number of monoclonal antibodies to treat certain
other allergic diseases or conditions, such as severe allergic reactions to
peanuts, autoimmune diseases, HIV and to restore the immune systems of
chemotherapy patients with neutropenia.
We currently have no products available for sale and are focusing on product
development, clinical trials and process development. We have incurred
substantial losses since inception and incurred an accumulated deficit through
December 31, 1999, of $30.5 million. We expect to continue to incur substantial
operating losses for the foreseeable future, particularly as we increase our
research and development, manufacturing, clinical trial and administrative
activities. We expect that losses will continue until such time, if ever, that
we are able to generate sufficient revenue from royalties on E25 to cover our
expenses.
Historically, our revenues primarily have been milestone payments and product
development funding under our collaboration agreements. In the future, our
principal revenues are expected to be milestone payments and royalties from
Genentech and milestone payments, royalties and profit-sharing payments from
Novartis. We may also receive royalties from Hoffman-La Roche Ltd. should it
participate in selling E25 in Europe. Our revenues will be particularly
dependent on the success of our collaboration partners in developing,
manufacturing, obtaining regulatory approvals for and marketing E25. Because a
substantial portion of our revenues for the foreseeable future will be dependent
on the achievement of development and commercialization milestones, we
anticipate that our results of operations will vary substantially from year to
year and even quarter to quarter.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues decreased to $1.4 million in 1999 from $2.4 million in 1998,
a decrease of $1.0 million. This decrease was primarily due to a difference of
$1.3 million in milestone and cost reimbursement revenues pursuant to our
agreements with Novartis and Genentech. These agreements accounted for 76% of
our revenues in 1999 and 98% of our revenues in 1998. The $1.3 million decrease
was partially offset by higher revenues of $0.4 million from foreign government
grants and technology licensing fees.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
to $17.2 million in 1999 from $11.9 million in 1998, an increase of $5.3
million. This increase was principally due to increased personnel, expansion of
preclinical and clinical development activities and a $2.7 million non-cash
charge resulting from the extension of the exercise periods for stock options to
some research and development employees. In addition, we incurred a $3.4 million
charge in 1999 and a $2.8 million charge in 1998 for in-process research and
development costs from the first two purchase payments made to the former
shareholders of PanGenetics B.V., a company we acquired in 1998. Please see
"Acquisition of PanGenetics B.V."
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $8.6 million in 1999 from $3.4 million in 1998, an increase of $5.2
million. This increase was primarily attributable to
24
<PAGE>
recognition of an arbitration award of $3.5 million to the attorneys who
represented us in our litigation against Genentech, and a $1.9 million non-cash
charge for stock-based compensation, due to the extension of some employee and
consultant stock options.
OTHER INCOME. Other income decreased to $1.0 million in 1999 from $1.2 million
in 1998, a decrease of $0.2 million. This decrease was principally due to a
decline in interest income as a result of lower average cash balances and a loss
in 1999 on foreign currency transactions.
NET LOSS. Net loss increased to $23.3 million in 1999 from $10.2 million in
1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues decreased to $2.4 million in 1998 from $8.9 million in 1997,
a decrease of $6.5 million. This decrease was due to a $4.0 million decline in
revenues from our agreements with Novartis and Genentech and a decline of $2.5
million in revenues from a former collaboration. Revenues from our collaboration
agreements with Novartis and Genentech accounted for 98% of our 1998 revenues
and 71% of our 1997 revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
to $11.9 million in 1998 from $6.9 million in 1997, an increase of $5.0 million.
This increase was primarily due to expanding our research organization,
including $2.8 million of in-process research and development expenses
associated with purchasing PanGenetics in the first quarter of 1998.
Additionally, we incurred a $1.5 million charge in 1998 to license patents that
may be required for the commercialization of one of our products.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $3.4 million in 1998 from $2.2 million in 1997, an increase of $1.2
million. This increase was principally due to increased expenses associated with
our legal proceedings.
OTHER INCOME. Other income increased to $1.2 million in 1998 from $1.0 million
in 1997, an increase of $0.2 million. This increase was primarily due to a $0.4
million increase in interest income due to higher average cash balances,
partially offset by a $0.2 increase in interest expense.
NET LOSS/INCOME. Net loss totaled $10.2 million in 1998, compared to net income
of $0.6 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through collaboration
and grant revenues, sales of equity securities, interest income and equipment
financing agreements. From inception through 1999, we recognized approximately
$59.3 million in collaboration, grant and other revenues. Additionally, we have
raised approximately $54.9 million from sales of equity securities and have
earned approximately $8.8 million in interest income. As of December 31, 1999,
we had approximately $47.3 million in cash, cash equivalents and short-term
investments available for working capital.
During 1999, we used $8.2 million to finance our operating activities. The
primary use of cash for operating purposes was our net loss of $23.3 million,
although $10.0 million of this amount was attributable to non-cash items. Our
investing activities generated $0.9 million in 1999. Financing activities
generated $23.0 million in 1999, principally from selling our common stock. The
combination of the above items resulted in a cash increase of $15.9 million
during the year.
From 1994 through 1998, Novartis advanced us $10.0 million, pursuant to a loan
agreement to finance our new clinical manufacturing facility. The loan bears
interest at the London Interbank Offered Rate, or LIBOR, plus 2% (7.3% and 8.1%
at December 31, 1998 and 1999, respectively). Through December 31, 1999,
Novartis has agreed to forgive interest on the loan. For the years 1997, 1998
and 1999, the interest forgiven by Novartis has been reflected as interest
expense and a capital contribution. Although the loan is currently scheduled to
be due in full on December 31, 2005, Novartis may partially or totally forgive
the principal and future interest payments based on the future use of the
facility.
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<PAGE>
From inception through December 31, 1999, we have invested approximately $11.6
million in property and equipment, primarily to support research and product
development activities and to construct our new clinical manufacturing facility.
We pledged all of the assets of the new clinical manufacturing facility as
security for the Novartis loan.
We have agreed to loan some employees up to $1.5 million in April 2000 for the
payment of their tax obligations pursuant to the exercise of stock options.
We are currently engaged in litigation and arbitration relating to a fee dispute
with the law firms that represented us in connection with the Genentech
litigation. An arbitration panel issued an award entitling the attorneys to
receive approximately $3.5 million, including interest, payments ranging from
33 1/3% to 40% of the future payments we would receive from Genentech following
product approval, and 10% of the royalties that we would receive on all sales of
anti-IgE products by Genentech and Novartis. We are contesting this award.
During the appeals process, we will either post a bond or place amounts in
escrow to secure payment of the award. See "Business -- Pending Legal
Proceedings."
At December 31, 1999, we had a net operating loss of approximately $6.6 million
for federal income tax reporting purposes, which begin to expire in 2019. We
also have a foreign net operating loss carryforward of approximately $5.2
million. Additionally, we have an unused U.S. research and development tax
credit carryforward of approximately $1.0 million, which will begin to expire in
2011. Because we have incurred cumulative losses to date and there is no
assurance of future taxable income, we have established a valuation allowance to
fully offset the deferred tax asset at December 31, 1999.
We expect to incur substantial additional capital, research and development,
manufacturing and other costs as we continue to develop our products.
Consequently, we may need to raise substantial additional funds. We expect that
the net proceeds from this offering, together with our existing assets and
revenue from operations, will be sufficient to fund our operations for the next
three years. However, our future capital needs will be dependent upon many
factors, including successful commercialization of E25, receipt of milestone
payments from our collaboration partners, progress in our research and
development activities, the magnitude and scope of these activities, the
progress and level of unreimbursed costs associated with preclinical studies and
clinical trials, the costs and magnitude of product or technology acquisitions,
the cost of preparing, filing, prosecuting, maintaining and enforcing patent
claims and other intellectual property rights, competing technological and
market developments, changes in or terminations of existing collaboration and
licensing arrangements, the establishment of additional collaboration and
licensing arrangements, and the cost of manufacturing scale-up and development
of marketing activities, if undertaken by us. We do not have committed external
sources of funding and we cannot assure that we will be able to obtain
additional funds on acceptable terms, if at all. If adequate funds are not
available, we may be required to:
o delay, reduce the scope of or eliminate one or more of our programs;
o obtain funds through arrangements with collaboration partners or others
that may require us to relinquish rights to technologies, product
candidates or products that we would otherwise seek to develop or
commercialize ourselves; or
o license rights to technologies, product candidates or products on terms
that are less favorable to us than might otherwise be available.
ACQUISITION OF PANGENETICS B.V.
In March 1998, we purchased PanGenetics B.V., now our subsidiary Tanox Pharma
B.V., for an initial payment to its shareholders of $0.5 million in cash and
226,409 shares of our common stock, valued at $11.25 per share, for a total
initial consideration of $3.1 million. In addition, we agreed to pay future
consideration, in two installments, totaling up to $0.7 million in cash and
484,147 shares of our common stock upon occurrence of certain future events.
26
<PAGE>
In September 1999, we paid the second installment of $0.3 million in cash and
242,075 shares of our common stock, valued at $12.50 per share, for a total
consideration of $3.4 million. If the final future payment is made as scheduled
in March 2001, we will record an additional purchase price amount based on the
cash paid and the fair value of the common stock issued at the time of payment.
If we make the final payment in March 2001, the final payment will be
principally allocated to acquired in-process research and development and
goodwill based upon the appraisal obtained as of the date of the acquisition.
The acquisition of PanGenetics was accounted for under the purchase method of
accounting. At the time of the acquisition, the total current and future
consideration of the acquisition was valued for accounting purposes at $9.2
million, based on the total of the cash and then fair value of common stock
paid, or expected to be paid, to PanGenetics shareholders. Of this amount, we
allocated approximately $7.2 million to in-process research and development and
$2.0 million to goodwill and other assets. See "Note 2 of the Notes to
Consolidated Financial Statements."
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including foreign currency exchange
fluctuations and changes in interest rates. In the normal course of business, we
have established policies and procedures to manage these risks.
FOREIGN CURRENCY EXCHANGE RATES. During 1999, our operating results reflect
foreign exchange losses of $0.1 million and our balance sheet reflects a foreign
currency translation adjustment of $0.2 million. We are subject to foreign
currency exchange risk because:
o we invest in our foreign subsidiaries;
o we incur a significant portion of our costs and expenses and a smaller
portion of our revenues in the local currencies of the countries where
we do business; and
o we finance part of the cost of our subsidiaries' operations through
dollar denominated inter-company loans and equity investments that are
recorded on their books in their respective local currency.
Fluctuations in exchange rates have not had a material impact on our revenues or
costs and expenses, but have affected the value of our equity investments and
inter-company loans. As a result of our international operations and our current
financing approach, our operating results are subject to the impact of
fluctuations in exchange rates of the currencies in which we have foreign
subsidiaries versus the United States dollar. We are primarily exposed to gains
and losses with respect to Dutch guilders and Taiwan dollars because our
subsidiaries conduct business in these currencies. To date, we have not
implemented a program to hedge our foreign currency risk, but we may do so in
the future.
INTEREST RATE RISK. Cash and short-term investments were approximately $47.3
million at December 31, 1999. These assets were primarily invested in investment
grade commercial paper with the intent of holding the securities to maturity. We
do not invest in derivative securities. Although our portfolio is subject to
fluctuations in interest rates and market conditions, no gain or loss on any
security would actually be recognized in earnings unless the asset was sold. In
addition, our loan from Novartis is based on a premium over LIBOR. As such, if
general interest rates increase, our interest costs will increase.
THE YEAR 2000
During 1998 and 1999, we had a Year 2000 Project (Y2K Project) in place to
address the potential exposures related to the impact on our computer systems
and scientific and manufacturing equipment containing computer-related
components for the Year 2000 and beyond. As of December 31, 1999, all scheduled
Y2K work was completed. As of the date hereof, we have encountered no material
Y2K system problems and no impact on operations or expenses has occurred.
Nevertheless, we do use and rely on a wide variety of information technologies,
computer systems and scientific and manufacturing equipment containing
computer-related components (such as programmable logic controllers and other
embedded systems). As a result, time-sensitive functions of those software
27
<PAGE>
programs and equipment may yet misinterpret dates after January 1, 2000, to
refer to the twentieth century rather than the twenty-first century. Although we
do not anticipate any material problems, we could suffer system or equipment
shutdowns, failures or miscalculations. Such conditions could result in
inaccuracies in computer output or disruptions of operations, including, among
other things, inaccurate processing of financial information and/or temporary
inabilities to process transactions, manufacture products, or engage in similar
normal business activities.
In addition, although all of our significant suppliers and our significant
service providers indicated that they were or expected to be Year 2000 compliant
by December 31, 1999, and although as of the date of this prospectus we are not
aware of any material Year 2000 compliance problems with these third parties'
systems, we cannot be certain that the representations of these third parties
were accurate or that their systems are or will continue to be Year 2000
compliant. If any of our significant suppliers or significant service providers
experience Year 2000 compliance problems and we are unable to replace them with
alternate sources, our business would be harmed.
28
<PAGE>
BUSINESS
OVERVIEW
Tanox identifies and develops therapeutic monoclonal antibodies to address
significant unmet medical needs in the areas of immunology, infectious disease
and cancer. In 1987, we discovered a novel approach for treatment of allergies
and asthma by using monoclonal antibodies capable of inhibiting immunoglobulin
E, or IgE. E25, our most advanced product in development is a genetically
engineered monoclonal antibody that attaches to, and inhibits, the activity of
IgE. We are developing E25 in collaboration with Novartis and Genentech for
treatment of allergic asthma and allergic rhinitis (hay fever). We estimate that
in the United States, allergic asthma afflicts approximately 11 million people,
and allergic rhinitis afflicts approximately 40 million people, of whom
approximately 32 million are seasonal sufferers. E25 has successfully completed
Phase III clinical trials for the prevention of symptoms caused by allergic
asthma and seasonal allergic rhinitis. Based on the results of these trials, our
collaboration partners intend to file a BLA with the FDA concurrently with
European registration for both indications in mid-2000.
Using our extensive understanding of the human immune system, we have built a
diverse pipeline of monoclonal antibody product candidates. We are conducting
clinical trials with two additional monoclonal antibodies: Hu-901, an anti-IgE
antibody distinct from E25 and currently in a Phase I/II trial for the treatment
of severe peanut allergy, and 5D12, an anti-CD40 antibody, currently in a Phase
I/II trial for the treatment of Crohn's disease and in preclinical studies for
other autoimmune diseases. We are conducting preclinical and research studies
with 5A8, an anti-CD4 antibody for treatment of HIV, 166-32, a complement factor
D inhibiting antibody for treatment of acute inflammation and 163-93, an
anti-G-CSF receptor activating antibody for treatment of neutropenia in
chemotherapy patients.
STRATEGY
Our objective is to leverage our expertise in monoclonal antibodies and
understanding of the human immune system to advance our product pipeline and
become a profitable biopharmaceutical company. We intend to accomplish this
through the following strategic initiatives:
o CONTINUING TO IDENTIFY AND DEVELOP NOVEL MONOCLONAL ANTIBODIES. We have
focused on the research and development of monoclonal antibodies since
our inception and have successfully identified and obtained patents for
novel monoclonal antibodies with potential therapeutic applications. We
believe that monoclonal antibodies will be one of the primary areas for
pharmaceutical development for the foreseeable future, particularly as
genomic research identifies novel disease targets. We will continue to
apply our expertise in immunology to identify new antibodies that may
bind to these novel targets. We will focus on diseases for which current
therapies are substandard or unavailable and the market opportunities
are large. With product candidates targeting autoimmune diseases, HIV,
inflammation and cancer, we believe that we have a diverse monoclonal
antibody product pipeline.
o MAXIMIZING THE MARKET OPPORTUNITY FOR ANTI-IGE ANTIBODIES. We are
focused on identifying diseases and conditions for which anti-IgE
antibodies are likely to provide a safe and effective therapy. In this
regard, we would like to work cooperatively with our partners, Novartis
and Genentech, in establishing market awareness for E25 in asthma,
allergic rhinitis and potential future indications targeted through the
collaboration. Concurrent with this effort, we are pursuing the
independent development of Hu-901 to demonstrate the efficacy of
anti-IgE antibodies for indications not currently being pursued by our
partners.
o IDENTIFYING ATTRACTIVE ACQUISITION AND IN-LICENSING CANDIDATES. In
addition to our in-house development efforts, we will continue our
efforts to identify opportunities to acquire or in-license products and
technologies. We believe that we are well positioned to continue to
attract in-licensing and acquisition candidates as a result of our
demonstrated expertise in immunology and monoclonal antibodies. Our
anti-CD40 and anti-CD4 programs are the result of this strategy.
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<PAGE>
o FORMING STRATEGIC COLLABORATIONS TO SUPPORT DEVELOPMENT AND
COMMERCIALIZATION OF OUR PRODUCTS. We often deem it advantageous to
partner with large pharmaceutical and biotechnology companies to obtain
funding and marketing support for our development activities. These
collaborations generally:
- enable us to develop a greater number of products than otherwise
would be possible;
- lower the substantial financial investment that is required of us to
develop our products; and
- provide us with domestic and international marketing and sales
expertise for our partnered products once approved.
Under future collaborations, we expect to retain strategically important
development, manufacturing or marketing rights in order to enhance the value
of our drug development opportunities.
o CAPTURING ADDITIONAL VALUE FROM OUR PRODUCT PIPELINE. As we pursue
strategic collaborations, we intend to reserve strategic marketing
rights for our products. We will focus initially on markets for which
our products have a clear advantage over other therapies or which can be
marketed using a relatively small, targeted sales force.
HUMAN IMMUNE SYSTEM
The human immune system has three general mechanisms that protect the body
against infections, toxins and cancer by responding to and clearing foreign
agents, or antigens, that have penetrated the body's protective barriers. These
mechanisms are:
o ANTIBODIES. The body produces proteins called antibodies that deactivate
and help remove the antigens from the body. Each antibody matches an
antigen much as a key matches a lock. Antibodies are made by specialized
white blood cells called B cells, with the help of other white blood
cells, called helper T cells. When a B cell encounters its triggering
antigen, it manufactures millions of identical antibody molecules and
releases them into the bloodstream.
o CELL-MEDIATED IMMUNE RESPONSE. The second protective immune mechanism
relies on cells to recognize and destroy foreign antigens. This
mechanism is known as cell-mediated immunity. T cells are important in
cell-mediated immune responses. Some T cells, called killer T cells,
seek out and kill cancer cells or virus-infected cells. Helper T cells
also play a role in cell-mediated immune response by stimulating
inflammatory cells called macrophages to actively destroy foreign
antigens, microorganisms and cancer cells.
o INNATE IMMUNE RESPONSE. Innate immunity is the body's first line of
defense against injury and infection and serves a surveillance and
maintenance role. One part of the innate immune system involves large
white blood cells called phagocytes (literally "cell-eaters") that can
engulf and digest foreign microorganisms and other antigens. Important
phagocytes include macrophages, that rid the body of dead cells and
other debris, and granulocytes, including neutrophils, that contain
granules filled with potent chemicals. These chemicals, in addition to
destroying microorganisms, play a key role in acute inflammatory
reactions. Another part of the innate immune response is known as the
complement system. The complement system is made up of a series of
proteins that work to "complement" the activity of antibodies in
destroying bacteria, either by stimulating the macrophages and
neutrophils, or by puncturing the bacterial cell membrane to kill the
cells. These proteins also cause the neutrophils to accumulate at the
site of infection or tissue damage.
Most of the time, the immune system protects us from infections, cancer and some
toxic agents. However, sometimes the immune system actually causes the disease
or symptoms of the disease. For example, in the case of allergic diseases, such
as asthma and hay fever, the immune system responds to the antigen, or allergen
in this case, by producing an IgE form of antibody. IgE is instrumental in
triggering the symptoms of the disease. In other cases, T and B cells may
recognize a part of the body as foreign, triggering an immune response against
the body resulting in an autoimmune disease and associated tissue destruction.
30
<PAGE>
MONOCLONAL ANTIBODIES AS THERAPEUTICS
Genetically engineered monoclonal antibodies represent an exciting area of novel
therapeutic product development. Monoclonal antibodies are man-made antibodies
that target a specific antigen. Most monoclonal antibodies are derived from
animals such as mice. Advances in antibody design technologies have enabled the
development of humanized (human-like) and fully human antibody products that can
be administered to patients on a chronic basis with little concern for adverse
response by the human immune system. Advances in antibody production
technologies, such as high productivity fermentation and transgenic plants and
animals, have enabled antibody products to be produced more cost-effectively.
The result of these technologies has been the emergence of a large number of
monoclonal antibodies in clinical and preclinical investigation. According to a
survey conducted by the Pharmaceutical Research and Manufacturers of America, 74
out of 350, or 21% of all, biotechnology medicines in clinical trials in 1998
were antibodies. The FDA has approved eight therapeutic antibodies, six of them
in the last three years, with total sales in 1999 in excess of $1.3 billion.
Generally speaking, there are three basic methods for using monoclonal
antibodies as therapeutics. Each of the approaches described below capitalizes
on the monoclonal antibody's precise targeting of selected receptors on specific
cells:
o BLOCKING CELL ACTIVITY AND IMMUNE FUNCTIONS -- monoclonal antibodies can
be produced to bind to specific bioactive molecules or cell receptors to
prevent undesirable cell responses, such as allergic reactions and
autoimmune diseases.
o ACTIVATING CELL ACTIVITY AND IMMUNE FUNCTIONS -- monoclonal antibodies
can be produced to bind to specific cell receptors in order to activate
a desired cellular response.
o DELIVERING THERAPEUTIC AGENTS -- monoclonal antibodies bind to specific
target receptors. Consequently, antibodies can be used to deliver active
agents, such as radioactive isotopes and toxins, to specific cells and
tissues targeted for destruction.
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PRODUCT DEVELOPMENT PROGRAMS
We have three products in clinical development and several product candidates
being evaluated in preclinical and research studies. Our drugs target various
elements or malfunctions of the immune system, and all are monoclonal
antibodies. We have drugs that are designed to deactivate or reduce the activity
of the immune system for diseases caused by over-activation or inappropriate
activation of immune responses, such as autoimmune and allergic diseases and
acute inflammation. We also have drugs designed to activate the immune system
for treatment of diseases where boosting immune protection is desirable, such as
AIDS, infectious diseases and cancer. Our products have either resulted from our
internal research and development activities or were in-licensed or acquired.
The following is a summary of the development status for our principal product
candidates.
<TABLE>
<CAPTION>
ANTIBODY
PRODUCT DESCRIPTION INDICATION STATUS PARTNERS
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
E25 Anti-IgE Allergic Asthma Phase III Completed Novartis/Genentech
Seasonal Allergic Phase III Completed Novartis/Genentech
Rhinitis
Hu-901(1) Anti-IgE Severe Peanut Phase I/II --
Allergy
5D12(2) Anti-CD40 Crohn's Disease Phase I/II --
Other Autoimmune Preclinical --
Diseases
5A8 Anti-CD4 HIV/AIDS Preclinical --
166-32 Anti-complement Acute Research --
Factor D Inflammation
163-93 Anti-G-CSF Chemotherapy-Induced Research --
Receptor Neutropenia
</TABLE>
1 Our rights to independently develop this product are the subject of a pending
legal dispute with Novartis and Genentech. Information regarding this dispute
is contained in this prospectus in the section entitled "Business -- Pending
Legal Proceedings."
2 We have the right to develop and commercialize this product in Europe and
Japan.
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ANTI-IGE DEVELOPMENT -- E25
E25 is a humanized anti-IgE monoclonal antibody designed to prevent symptoms of
allergic asthma and allergic rhinitis by reducing the immune system's ability to
be activated by allergens. We are developing E25 in collaboration with Novartis
and Genentech. The product has successfully completed Phase III clinical trials
in both allergic asthma and seasonal allergic rhinitis. Our partners intend to
file a BLA with the FDA concurrently with European registration for both
indications by mid-2000. E25 is expected to be administered by subcutaneous
injections once or twice per month.
In allergic diseases, the immune system responds to the antigen, or allergen in
this case, by producing IgE. IgE binds to the surface of mast cells and
basophils. These cells, which are found in tissue and also circulate in the
blood, contain chemicals such as histamine and leukotrienes, which induce
inflammation. The first time an allergy-prone person is exposed to an allergen,
he or she makes large amounts of an IgE antibody specific to that allergen.
These IgE molecules attach to the surfaces of mast cells or basophils. When an
IgE antibody sitting on a mast cell or basophil next comes in contact with its
specific allergen, the IgE antibody signals the mast cell or basophil to release
its powerful chemicals, causing inflammation of tissues, and the symptoms of
asthma and allergy, including wheezing, bronchospasm, sneezing, runny nose,
watery eyes and itching. E25 blocks the binding of IgE to mast cells and
basophils, thereby inhibiting the allergic response.
<TABLE>
<CAPTION>
The Allergy Cascade How Anti-IgE Works
<S> <C> <C> <C>
[graphic] When an allergy-prone [graphic] Anti-IgE binds
person is exposed to an to IgE and
allergen such as ragweed,
[graphic] he or she makes large [graphic] prevents IgE from
amounts of IgE antibody attaching to mast
to ragweed. cells.
[graphic] These IgE antibodies bind
to receptors on mast cells.
[graphic] The next time a person [graphic] Without IgE on the mast
encounters ragweed, it cross- cell, ragweed cannot cause
links the IgE antibodies on the mast cell to release its
mast cells and the IgE-primed powerful chemicals,
mast cell releases its powerful
chemicals, including histamine.
[graphic] These chemicals cause the [graphic] and the person's asthma
person to suffer asthma and allergy symptoms
and allergy symptoms, such as are prevented or reduced.
wheezing, bronchospasm,
sneezing, runny nose, watery
eyes and itching.
</TABLE>
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MARKET OPPORTUNITY.
Allergic reactions triggered by IgE include allergic rhinitis and allergic
asthma.
ALLERGIC RHINITIS. Allergic rhinitis is a disease characterized by runny nose,
sneezing, congestion, itchy eyes and similar symptoms, and includes hay fever.
Allergic rhinitis afflicts at least 39.5 million people in the United States,
most of whom have seasonal allergies. In 1993, it was estimated that the total
cost associated with all forms of allergic rhinitis in the United States was
$3.4 billion. Doctors commonly treat the symptoms of allergic rhinitis with
antihistamines, decongestants, nasal steroids and other drugs. For many
patients, however, these medications do not completely alleviate the allergic
reactions or eliminate the symptoms. According to a 1997 study, only 26% of
treated allergic rhinitis patients reported symptoms as "well" or completely
controlled. Doctors sometimes prescribe allergy shots, called hyposensitization
therapy, for severely allergic persons to treat allergic rhinitis and systemic
allergic reactions. If the specific allergen to which the patient is reacting is
known, hyposensitization can be effective. However, the difficulty in
identifying the patient's allergy and the frequent and lengthy treatment
protocols, as well as the potential for serious adverse side effects, generally
make hyposensitization undesirable.
ASTHMA. Asthma makes breathing difficult and is potentially life threatening.
According to a 1998 report by the Centers for Disease Control, approximately 17
million people in the United States suffer from asthma. Published reports also
indicate that asthma's prevalence in the United States has increased 75% from
1980 to 1994. Approximately two-thirds of these patients have allergic asthma.
According to the American Lung Association, it is estimated that over $9.8
billion is spent annually on asthma-related costs in the United States.
Corticosteroids and beta-agonists, the mainstay of asthma therapy, are
effective, yet each is associated with specific safety drawbacks. Particular
side effects of corticosteroid treatment include growth retardation in children,
osteoporosis and cataracts. Beta-agonists offer only short-term relief and do
not control the underlying inflammation. Leukotriene modifiers, a new class of
controller medications with the potential to reduce steroid requirements, appear
to be modestly effective for some patients. However, these modifiers have been
associated with drug interactions and adverse events including liver injury.
Increasing use of beta-agonists indicates inadequate control of the underlying
inflammation of asthma.
DEVELOPMENT STATUS AND CLINICAL DATA.
SEASONAL ALLERGIC RHINITIS. A Phase III clinical trial with E25 for seasonal
allergic rhinitis was conducted in Scandinavia during the spring 1998 birch
season. The randomized, placebo-controlled, multicenter clinical trial examined
symptoms of rhinoconjunctivitis and rescue medication usage in 251 adult and
adolescent patients with a history of birch pollen allergy. Patients were
treated with 300 mg of E25 or placebo via subcutaneous injection every three or
four weeks and treatment lasted eight or nine weeks. Patients received rescue
medications, such as antihistamines, when their symptoms were severe enough to
require additional medication. This Phase III clinical trial confirmed the
statistically significant results of an earlier pivotal Phase II trial in 536
patients conducted during the 1997 ragweed season in the United States.
Results from the Phase III seasonal allergic rhinitis trial were reported in May
1999 and showed that:
o E25 DECREASED THE SEVERITY OF NASAL AND OCULAR ALLERGY SYMPTOMS.
Compared to placebo, E25 treatment improved average daily nasal
(p<0.001) and ocular (p=0.031) symptom severity scores. Patients treated
with placebo experienced recurring sneezing, itchy nose and similar
symptoms that increased over the pollen season and were greatest during
highest pollen exposure. In contrast, patients treated with E25 did not
experience an increase in nasal symptoms over the whole E25 treatment
period compared to symptoms reported before the pollen season began and
before treatment began. 21% of patients treated with E25 reported
complete control of symptoms and an additional 59% reported symptom
control was improved compared to previous seasons. In addition, 6 of 7
patients who discontinued treatment because of unsatisfactory treatment
effects were in the placebo group, even though there were twice as many
patients receiving E25.
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o E25 DECREASED USE OF RESCUE MEDICATION. Patients receiving E25 used an
average 0.5 antihistamine tablets per day versus 1.3 tablets per day in
the placebo group (p<0.001), and required rescue medication on half as
many days (p<0.001). Increased use of rescue medication by placebo group
patients may have blunted the difference in symptom scores reported.
o E25 IMPROVED PATIENTS' QUALITY OF LIFE. E25 treatment delivered
clinically meaningful and statistically significant improvement over
placebo in total rhinitis quality of life score (p<0.001) and in the
specific categories of activity limitations, nasal symptoms, non-nose
and -eye symptoms and practical problems. E25 treated patients also
experienced improvements in sleep, eye symptoms and emotional state.
o E25 TREATMENT WAS SAFE AND WELL TOLERATED. In this and in the previous
trials, no antibodies against E25 were detected and no serum sickness,
immune complex disease, severe allergic reactions or other
allergy-related side effects were reported. Less than 2% of patients
experienced side effects of headache (1.8%) and upper respiratory
infection (1.2%). Three subjects reported urticaria (skin itching and
hives) following E25 injections (0.5% of all E25 injections). The
incidence of adverse events was similar for the E25 and placebo groups.
In addition, Novartis has announced the initiation of a Phase IV evaluation in
perennial (year-round) allergic rhinitis in the third quarter of 1999.
ALLERGIC ASTHMA. Phase III trials in allergic asthma have been completed in the
United States, in both adults and children. The trials included an initial
treatment phase, in which E25 was added to patients' current treatment regimens
of inhaled or oral corticosteroid and beta-agonist, followed by a steroid
withdrawal phase. Additionally, these trials had treatment extensions for one
year so that long term safety could be evaluated. In December 1999, the
preliminary analysis of these studies showed that results from these trials were
positive and consistent with the statistically significant results of the
earlier Phase II trials, which were published in the December 23, 1999 issue of
the New England Journal of Medicine. The results from the Phase III asthma
trials are expected to be presented at the American Academy of Allergy Asthma
and Immunology meeting in San Diego in March 2000.
A BLA filing for E25 in the United States and registration in Europe are planned
for mid-year 2000 for both allergic asthma and seasonal allergic rhinitis.
We and our collaboration partners have begun clinical development of E26, a
humanized anti-IgE monoclonal antibody with improved binding to IgE. Although
E26 may be several years behind the development of E25, the product is expected
to require lower doses to achieve the same clinical benefits as E25.
ANTI-IGE DEVELOPMENT -- HU-901
Hu-901 is a humanized anti-IgE monoclonal antibody that we are developing for
prevention of symptoms of peanut induced anaphylaxis, a severe, life-threatening
allergic reaction. Hu-901 binds IgE in a way similar to E25, and is designed to
prevent allergic reactions. At the initiation of our collaboration with Novartis
and Genentech in 1996, Novartis and we were developing Hu-901, and Genentech was
developing E25. We agreed with our collaboration partners to select E25 for
joint development primarily because commercial-scale manufacturing capability
existed for E25.
In July 1999, we initiated our first independent clinical trial with Hu-901. As
discussed in this prospectus under the heading "Business -- Pending Legal
Proceedings," Novartis and Genentech are contesting our right to independently
develop Hu-901. Regardless of the outcome, we believe that our development
program will highlight the potential for additional indications for the use of
anti-IgE antibodies, and encourage our partners to expand the development of
anti-IgE more rapidly into additional indications. If we lose the litigation, we
will be required to terminate independent development of Hu-901.
MARKET OPPORTUNITY. We believe anti-IgE antibodies, such as Hu-901, have
potential applications beyond asthma and allergic rhinitis in treating other
allergic reactions and diseases, including peanut and other food allergies. For
example, patients with severe peanut allergy suffer gastrointestinal, skin and
respiratory
35
<PAGE>
symptoms, and may also suffer potentially life-threatening anaphylaxis in
response to ingestion of peanuts. According to a recently published survey,
peanut or tree nut (e.g., walnut, almond and cashew) allergy affects about 3
million Americans, 1.1% of the U.S. population. There is no approved preventive
therapeutic for food allergies. Current treatment is avoidance of peanuts and
peanut oil, which is used in preparing many food products. Complete avoidance
requires constant vigilance and is difficult because peanut-derived ingredients
are not always identified in prepared foods. Accidental exposures can result in
serious allergic reactions and sometimes death. Patients with severe peanut
allergy take antihistamines for accidental exposure and epinephrine for severe
anaphylactic reactions.
It is estimated that 2 to 4% of children and 1 to 2% of adults in the United
States suffer from food allergies. If Hu-901 is effective in reducing
sensitivity to peanuts, we may also investigate its use in other food allergies.
Another indication for possible treatment with our anti-IgE product is atopic
dermatitis, or eczema, a disease resulting in itching, blisters, redness,
swelling and scaling or hardness of the skin. Eczema is correlated with higher
IgE levels and is prevalent in asthma patients. Severe eczema causes much
distress to patients and greatly impairs their quality of life. Eczema is
usually treated with skin hydration and topical steroids, and sometimes treated
with antihistamines. Some individuals are resistant to conventional therapies or
develop unacceptable side effects. Eczema is the most common skin condition in
children under the age of eleven. The percentage of children diagnosed with
eczema has increased in the United States from 3% in the 1960s to 10% in the
1990s.
DEVELOPMENT STATUS. We recently initiated a randomized, placebo-controlled,
multicenter Phase I/II trial with Hu-901. We designed the trial to determine the
extent to which Hu-901 treatment of patients with histories of severe reactions
to peanut products decreases sensitivity to eating small amounts of a peanut
preparation.
ANTI-CD40 DEVELOPMENT -- 5D12
5D12 is an anti-CD40 monoclonal antibody that we are developing for treatment of
autoimmune diseases. 5D12 blocks the CD40 pathway. The CD40 pathway enables B
cells to produce antibodies and regulates cellular immune responses, including
activation of macrophages and killer T cells. T and B cells sometimes recognize
a part of the body as "non-self," triggering an immune response against the
body that results in an autoimmune disease and associated tissue destruction. We
believe that 5D12 is the only antibody in clinical development that binds to
CD40 and inhibits cellular activation. We have exclusive rights to 5D12 in
Europe and Japan under a license from Chiron.
Preclinical studies have shown that interfering with the CD40 pathway may be
beneficial for treatment of autoimmune diseases, including multiple sclerosis
and lupus, and in preventing rejection of grafted organs. 5D12 has potently
inhibited activation of B cells and macrophages in tissue culture systems. 5D12
also was biologically active in preventing or delaying the appearance of
clinical signs and symptoms in a primate model for multiple sclerosis.
MARKET OPPORTUNITY. Based on our research and preclinical studies with 5D12, we
believe the product could reduce production of antibodies and the activation of
cellular immune responses that cause autoimmune diseases. Examples of such
diseases and estimated potential market sizes in Europe and Japan include:
o Crohn's disease, an inflammatory disease of the bowel (over 165,000
people);
o rheumatoid arthritis (approximately 3 million people);
o multiple sclerosis (approximately 200,000 people);
o lupus (approximately 320,000 people); and
o psoriasis (approximately 1 million people).
36
<PAGE>
DEVELOPMENT STATUS. We have initiated a 20 patient Phase I/II clinical study
with 5D12 in Crohn's disease in Europe. The trial is a single dose,
dose-escalating study designed to provide data regarding the safety of the
product, its behavior, including half-life and clearance characteristics, and
its biological activity using histological examination of biopsy tissue. The
results of this study are expected to play an important role in determining
clinical indications that we will pursue with 5D12.
ANTI-CD4 DEVELOPMENT -- 5A8
5A8 is a humanized anti-CD4 monoclonal antibody that is in preclinical
development for treatment of human immunodeficiency virus, or HIV. The virus
enters the host cell by binding to the CD4 receptors on these cells. In lab
studies, our 5A8 antibody binds to the CD4 receptor on the cell surface and
prevents viral entry into the cell, thereby blocking infection. We have
exclusive worldwide rights to 5A8 through a license with Biogen.
MARKET OPPORTUNITY. According to the World Health Organization, HIV infects
approximately 1.4 million people in North America and Western Europe. A number
of drugs targeting viral replication are being used, often in combination. About
30% of the patients treated with drug combinations, however, no longer respond
since HIV has become drug resistant. In addition, many drug combinations produce
a variety of undesirable toxic side effects.
DEVELOPMENT STATUS. 5A8 is now in preclinical development to determine its
usefulness for treatment of HIV-infected patients. In preliminary preclinical
testing, 5A8 has potently blocked infections in all twenty-five strains of
primary HIV isolates tested in cell culture. In a primate model for HIV
infection, 5A8 showed robust antiviral activity. Preclinical tests with our 5A8
antibody showed no reduction in CD4-positive cell numbers, no evidence that any
function of the immune system was suppressed and no toxic effects.
OTHER PRODUCT CANDIDATES
ANTI-FACTOR D DEVELOPMENT. 166-32 is a monoclonal antibody that binds to Factor
D, a component of the complement system, and is in research for the treatment of
acute inflammation. The complement system is the body's first line of defense
against infection. 166-32 binds to Factor D and inhibits complement activation.
While the complement system generally functions to protect the body, activation
of the complement system can become excessive and uncontrolled, resulting in
inflammation and tissue damage. This can occur in cases of acute tissue injury
or surgical procedures that reduce blood flow into a tissue. In addition, during
heart surgery involving cardiopulmonary bypass (CPB), the shunting of blood
outside the body for circulation through mechanical devices has been shown to
activate complement and result in tissue injury. Research studies with 166-32 in
laboratory models for heart injury showed that low levels of 166-32 prevented
heart damage, and that 166-32 inhibited complement activation in a model for
CPB.
ANTI-G-CSF RECEPTOR DEVELOPMENT. 163-93 is a monoclonal antibody that binds to
the receptor for granulocyte colony stimulating factor (G-CSF) to treat
neutropenia associated with chemotherapy in cancer patients. Granulocytes are
specialized white blood cells that contain granules filled with potent
chemicals. Neutropenia is a deficiency of a type of granulocyte called
neutrophils, which results in a compromised immune system and susceptibility to
infection. Granulocytes engulf and destroy bacteria and other microbial
pathogens. G-CSF binds specific receptors on the surface of granulocytes and
stimulates their proliferation and controls their activities. Recombinant G-CSF
is sold by Amgen as Neupogen and has been used in cancer patients to help
restore their immune protection. Amgen reported 1999 sales of $1.3 billion for
Neupogen.
We are developing 163-93 to stimulate proliferation and activity of granulocytes
just as does G-CSF. 163-93 activates the same intracellular signaling pathway as
G-CSF and supports the production of granulocytes
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<PAGE>
from human bone marrow as does G-CSF. In a preliminary study in primates,
injection of 163-93 stimulated the production of granulocytes without affecting
any other blood cells or causing any toxicity. We believe that 163-93 could
provide an alternative to G-CSF for therapeutic use in cancer patients during
chemotherapy and may have the advantage of less frequent dosing.
ADDITIONAL PRODUCTS IN RESEARCH AND DEVELOPMENT. We have additional discovery
research projects directed towards development of new products and technologies
for treatment of immunological diseases and cancer.
COLLABORATION AND LICENSING AGREEMENTS
COLLABORATION WITH NOVARTIS AND GENENTECH. We are developing our lead product,
E25, in collaboration with Novartis and Genentech. In 1990, we established a
collaboration with Novartis to jointly develop anti-IgE antibodies for the
treatment of allergic diseases. In 1996, Genentech joined our collaboration with
Novartis and we agreed to combine our respective anti-IgE development programs
in a three-party collaboration. We and our collaboration partners selected E25
as the lead product for development and commercialization.
Currently, under the terms of the collaboration agreements:
o DEVELOPMENT. Novartis and Genentech are responsible for completing the
development of and obtaining the regulatory approval for E25 and the
other anti-IgE products developed through the collaboration. All
development costs relating to E25 and other anti-IgE products that may
be selected for development through the collaboration in the United
States and Europe are to be shared by Novartis and Genentech.
Development costs relating to China, Hong Kong, Korea, Singapore and
Taiwan are to be shared equally between Novartis and us. Novartis is
responsible for development costs in the rest of the world.
o MANUFACTURING. Novartis and Genentech are responsible for manufacturing
E25 and other selected anti-IgE products worldwide, subject to our right
to manufacture up to 50% of the worldwide requirements of those
products.
o MARKETING. Novartis and Genentech share U.S. marketing rights, and
Novartis has marketing rights in Europe (with Roche retaining the option
to participate in Europe) to products developed through the
collaboration. Novartis is responsible for marketing these products in
the rest of the world, including China, Hong Kong, Korea, Singapore and
Taiwan.
o MILESTONE PAYMENTS. We are entitled to receive payments of up to $63.5
million based on the completion of development and marketing milestones
for E25, $6.5 million of which has already been received. We may also
receive payments of up to $14.0 million based on completion of
development milestones for E26, $1.0 million of which has already been
received. Our next milestone payments totaling $12 million are due upon
filing of the BLA for E25.
o ROYALTIES AND PROFIT SHARING. We are entitled to receive royalties based
on net sales of E25 and other selected anti-IgE products in the United
States and a share of Novartis' profits on such sales. We are also
entitled to receive royalties on net sales of E25 and other selected
anti-IgE products in Europe and the rest of the world (except for China,
Hong Kong, Korea, Singapore and Taiwan). Additionally, we are entitled
to an equal share of Novartis' profits from sales of E25 and other
selected anti-IgE products in China, Hong Kong, Korea, Singapore and
Taiwan.
Our rights to the full amount of the payments that we receive could be affected
by the on-going legal proceedings with our former attorneys described under
"Business -- Pending Legal Proceedings."
The collaboration agreements provide that we may independently develop, without
our collaboration partners, any anti-IgE product that the collaboration partners
are not developing through the collaboration. In the event that we choose to
independently develop a product, Novartis has a right of first refusal on the
licensing of that anti-IgE product. As described in this prospectus under the
heading "Business -- Pending Legal Proceedings," we are currently involved in a
dispute with our collaboration partners
38
<PAGE>
regarding our rights to independently pursue development of Hu-901 and our right
to use certain know-how and other information in our independent development
efforts.
Roche has an option to participate in the commercialization of E25 and other
anti-IgE products selected for development by the collaboration in Japan and
Europe. This option is exercisable on the occurrence of specified events
relating to commercialization of the product. Roche has waived this option for
E25 in Japan. In addition, Roche has an option to assume Genentech's position in
the collaboration if Genentech withdraws from the collaboration, as described
below.
Either Novartis or Genentech may withdraw from the collaboration on short
notice. If either Novartis or Genentech withdraws, rights to E25 and any other
products developed by the collaboration (including by the withdrawing partner)
revert to us and the remaining collaborator and, in the event that Genentech is
the withdrawing party, to Roche should Roche exercise the option described
above. In the event that the collaboration is dissolved in its entirety, we
would continue to retain rights to develop anti-IgE antibodies under the terms
of separate agreements with Novartis and Genentech.
In addition to the collaboration agreements, we and Genentech entered into a
cross-license agreement under which each party has an option to license the
other party's patents relating to the development of anti-IgE antibodies for use
in the development of specific products. This option may be exercised at any
time if either party chooses to independently develop a product as permitted
under the collaboration agreements, if our collaboration with Novartis and
Genentech is terminated or as we and Genentech may mutually agree.
OTHER COLLABORATIONS AND LICENSE AGREEMENTS
CHIRON LICENSE. Our European subsidiary Tanox Pharma, B.V. has entered into a
cross-license with Chiron under which Tanox Pharma licensed exclusive research
and development rights (except as to Chiron) to Chiron's murine monoclonal
antibodies against CD40. Subject to our obligations to develop an anti-CD40
product and, under certain circumstances, to pay maintenance fees, we have an
option to obtain a commercial license to Chiron's anti-CD40 antibodies, patents
and technology for Europe and Japan. Chiron retains its commercial rights in the
United States and the rest of the world. Additionally, Chiron has an option to
obtain a commercial license for the United States and the rest of the world
outside Europe and Japan to use anti-CD40 patents and technology that Tanox
Pharma develops. Chiron has two awarded United States patents and has patents
pending in Europe, Japan and Canada.
Upon registration of a product in Japan, the United Kingdom, France or Germany,
Tanox Pharma has agreed to pay Chiron a registration fee and royalties based on
its European and Japanese sales. Tanox Pharma has also agreed to pay Chiron
milestone payments if a product is developed and commercialized. Chiron has
agreed to pay us royalties based on its sales in the United States and the rest
of the world.
BIOGEN. In 1998, we entered into a license agreement with Biogen in which
Biogen licensed us its anti-CD4 monoclonal antibody and intellectual property on
an exclusive worldwide basis with limited sublicense rights. Biogen owns issued
U.S. and European patents and pending applications in Australia, Canada and
Japan. We paid Biogen a license fee and agreed to pay continuing royalties to
Biogen based on annual net sales revenue levels. Additionally, we agreed to make
milestone payments to Biogen that increase as product development continues and
if certain corporate development events occur.
BIOVATION. We entered into an agreement in 1999 with Biovation Limited of
Aberdeen, United Kingdom, in which Biovation agreed to apply its proprietary
deimmunization technology to certain of our monoclonal antibodies and protein
products. In this agreement, Biovation also licensed the patents needed to
develop and commercialize any deimmunized monoclonal antibodies it developed,
and if the deimmunized monoclonal antibodies meet certain criteria, the license
is subject to royalty payments by us. Additionally, Tanox Pharma and Biovation
have agreed to develop together their respective protein engineering
technologies.
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<PAGE>
PATENTS AND PROPRIETARY RIGHTS
We pursue patent protection for our proprietary technology and products. We
typically file United States patent applications, then international
applications, usually followed by filing foreign patent applications on our
technology and products in those countries where business considerations warrant
filings. These countries include Japan, Canada, Australia, countries of the
European Union, other European countries, certain other Asian countries and
South Africa.
We have five U.S. patents that cover and/or relate to the use of anti-IgE and
other allergy/asthma products. We also hold patents in Europe, Canada, Japan,
Singapore, Hong Kong and Australia covering such products. We have additional
anti-IgE patents pending in the United States and internationally. Some of our
patents are co-owned with Novartis, and Tanox is also cross licensed under
Genentech's patents covering anti-IgE products.
We have filed U.S. and international patent applications relating to anti-Factor
D antibodies and anti-G-CSF receptor antibodies. We anticipate filing
corresponding national phase applications in selected jurisdictions at the
appropriate time. We have a number of other United States and foreign patents
covering certain other proprietary technology and products, with over forty
United States patents granted to date. We cannot assure you that one or more of
the patents noted above would not be rescinded or successfully opposed or
revoked.
Patenting biotechnology-related products and processes can involve uncertain and
complex legal and factual questions and, to date, policies regarding the breadth
of claims allowed in biotechnology patents are not necessarily consistent.
Patents, if issued, may be challenged, invalidated, limited in their scope of
coverage or circumvented. Thus, any patents that we own or license from third
parties may not provide any protection against competitors. Our pending patent
applications, those we may file in the future, or those we may license from
third parties, may not result in patents being issued. Also, patent rights may
not provide us with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, others may independently
develop similar technologies or duplicate any technology that we have developed.
Moreover, the laws of certain foreign countries do not protect our intellectual
property rights to the same extent as do the laws of the United States.
Litigation may be necessary to enforce any patents issued or licensed to us or
to determine the scope and validity of such patents. We could incur substantial
costs and the diversion of technical and management personnel's time and
attention if we are required to participate in such suits or if we are required
to defend ourselves against patent suits against us. If the outcome of
litigation is adverse to us, third parties may be able to use our patented
invention without payment to us. Moreover, we cannot assure you that our patents
will not be infringed or successfully avoided through design innovation. Any of
these events may materially and adversely affect our business.
In addition, other companies, some of which may be our competitors, have filed
applications for or have been issued patents and may obtain additional patents
and proprietary rights relating to products or processes used in, necessary to,
competitive with or otherwise related to our patents and products. These
products and processes include, among other items, patents covering technology
relating to humanized monoclonal antibodies that we anticipate developing.
Protein Design Labs, Inc. owns certain patents and patent applications relating
to such humanized antibodies. We have recently taken a non-exclusive license to
these patents and patent applications for one of our products. We do not know if
licenses from Protein Design Labs will be available for our other antibody
products. The Medical Research Council also owns patents relating to humanized
antibodies, for which we hold a license. Our Medical Research Council license
includes a sublicense to the Boss patent relating to antibody co-expression
owned by Celltech, Ltd. Genentech has a pending application (the Cabilly
Application) that is involved in an interference before the United States Patent
& Trademark Office with the Celltech Boss patent.
We may also develop products that are chimeric antibodies. Genentech owns a
patent (the Cabilly Patent) relating to chimeric antibodies and instituted suit
against us in 1994 for infringement of this patent. We settled the lawsuit and,
pursuant to the settlement, we acquired a non-exclusive license to the Cabilly
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Patent, the Cabilly Application and other Genentech patents (or patents to which
Genentech has a license and is free to grant a sublicense) for our anti-IgE
antibody products. We also have certain rights to acquire a non-exclusive
license from Genentech for the Cabilly Patent, the Cabilly Application and
certain other Genentech patents for products not exclusively or co-exclusively
licensed by Genentech to a third party and for certain products that do not
compete with those of Genentech or its affiliates. In addition, other parties
also own patents covering chimeric and/or recombinant antibodies and/or
processes applicable to making these antibodies.
In addition, we hold a non-exclusive license to certain patents and patent
applications, including two United States patents, owned by Immunex Corporation,
relating to the G-CSF receptor. The patents and applications cover certain
reagents which may be involved in making our anti-G-CSF receptor antibodies and
other products we are developing, under which we are obligated to pay license
execution and maintenance fees, milestone payments for each developed product
and royalties on net sales of such product.
The scope and validity of these patents, the extent to which we may be required
to obtain licenses under these patents or under other proprietary rights and the
cost and availability of licenses are unknown, but these factors may limit our
ability to market our products. Moreover, even if a license were available, the
payments that would be required could render uneconomic our efforts to market
certain of our products. Should we elect to manufacture or market these products
without a license or absent a favorable result in litigation, damages could be
assessed which could be materially adverse to us. Further, failure to obtain a
license could result in an injunction prohibiting us from manufacturing or
selling the affected lines of products.
In addition to patents, we rely on trade secrets and proprietary know-how. We
seek protection, in part, through confidentiality and proprietary information
agreements. These agreements may not provide meaningful protection or adequate
remedies for our technology in the event of unauthorized use or disclosure of
such information. The parties to these agreements may breach them. Furthermore,
our trade secrets may otherwise become known to, or be independently developed
by, our competitors.
We require our employees, directors, consultants, advisors, outside scientific
collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment, consulting or
other contractual relationships with us. These agreements provide that all
confidential information developed or made known to the individual during the
course of the relationship is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees and certain
other parties, the agreements provide that all inventions conceived by the
individual shall be our exclusive property. We cannot assure you, however, that
these agreements will provide meaningful protection for our confidential
information or trade secrets against or in the event of unauthorized use or
disclosure of such information.
GOVERNMENT REGULATION
The production and marketing of our products and our research and development
activities are subject to regulations relating to product safety and efficacy by
numerous governmental authorities in the United States and other countries. In
the United States, drugs are subject to rigorous FDA regulation. The Federal
Food, Drug and Cosmetic Act and other federal and state statutes and regulations
govern, among other things, the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of our
products.
Before a pharmaceutical product may be marketed in the United States, the FDA
requires that the following steps must be completed:
o preclinical laboratory and animal tests;
o submission to the FDA of an investigational new drug application, or
IND, which must become effective before human clinical trials may
commence;
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o adequate and well controlled human clinical trials in conformance with
good laboratory and clinical practices to establish the safety and
efficacy of the product;
o submission to the FDA of a New Drug Application, or NDA, with respect to
drugs, and a Biologics License Application, or BLA, with respect to
biological products; and
o FDA approval of the NDA or BLA before any commercial sale or shipment of
the product.
In addition, the FDA requires the registration of each drug and approval of each
manufacturing establishment. For our monoclonal antibody products we are subject
to the simplified, interim procedure for well-characterized biologicals.
Domestic manufacturing establishments are subject to FDA inspection and must
comply with current good manufacturing practices, or cGMP, for pharmaceutical
products. To supply products for use in the United States, foreign manufacturing
establishments must comply with cGMP and are subject to periodic inspection by
the FDA or by regulatory authorities under reciprocal agreements with the FDA.
Preclinical tests include laboratory evaluation and animal studies to assess the
potential safety and efficacy of the product and its formulation. Such
preclinical safety tests are conducted by laboratories that comply with FDA
regulations regarding Good Laboratory Practices. The results of the preclinical
tests are submitted to the FDA as part of an IND and are reviewed by the FDA
before the commencement of human clinical trials. Unless the FDA objects, the
IND will become effective 30 days following its receipt. There is no certainty
that submission of an IND will result in FDA authorization to commence clinical
trials. If a biological product produced within the United States will be
shipped to a foreign country for clinical trials, the product must comply with
export regulations promulgated by the FDA before shipment.
Human clinical trials involve the administration of the investigational compound
to patients or other volunteers under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with protocols that
detail the objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol must be submitted to
the FDA as part of the IND. Further, each clinical study must be conducted under
the auspices of an independent institutional review board, or IRB, at the
institution where the study will be conducted. The IRB will consider, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution.
Clinical trials are typically conducted in four sequential phases, which may
overlap. In Phase I, the initial introduction of the product into human
subjects, the product is tested for safety (adverse effects), dosage tolerance,
metabolism, distribution, excretion and clinical pharmacology. Phase II involves
studies in a limited patient population:
o to determine the efficacy of the product for specific, targeted
indications;
o to determine dosage tolerance and optimal dosage; and
o to identify possible adverse effects and safety risks.
When a product is found to be effective and to have an acceptable safety profile
in Phase II evaluations, Phase III trials are undertaken:
o to continue to evaluate clinical efficacy; and
o to test further for safety within an expanded patient population at
geographically dispersed clinical study sites.
We cannot assure you that clinical testing of our products will be completed
successfully within any specified time period, if at all. Furthermore, the FDA
or we may suspend clinical trials at any time if it is felt that the subjects or
patients are being exposed to an unacceptable health risk. Phase IV studies are
typically done post-FDA approval to address safety issues not addressed in the
Phase I/II/III programs, for example, chronic use of the product.
In the case of agents for life-threatening diseases, the initial human testing
is generally done in patients rather than in healthy volunteers. Since these
patients already are afflicted with the target disease, it is
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possible that such studies may provide results traditionally obtained in Phase
II trials, potentially expediting the approval process. These trials are
frequently referred to as "Phase I/II" trials.
The results of the pharmaceutical development, preclinical studies and clinical
studies are submitted to the FDA in the form of an NDA or BLA for approval of
the marketing and commercial shipment of the product. The testing and approval
process frequently requires substantial time and effort and we cannot assure you
that any approval will be granted on a timely basis, if at all. The FDA may deny
an NDA or BLA if applicable regulatory criteria are not satisfied, require
additional testing or information or require postmarketing testing and
surveillance to monitor the safety and efficacy of the product. Notwithstanding
the submission of such data, the FDA may ultimately decide that the application
does not satisfy its regulatory criteria for approval. Finally, product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing.
Among the conditions for NDA or BLA approval is that the prospective
manufacturer's quality control and manufacturing procedures conform to cGMP. In
complying with standards set forth in these regulations, manufacturers must
continue to expend time, monies and effort in the area of production and quality
control to ensure full compliance.
In addition to FDA regulations, we are 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 and other
present and future federal, state or local regulations.
For marketing outside the United States, we also are subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. Whether or not FDA approval has been obtained, approval of a product by
the comparable regulatory authorities of foreign countries must be obtained
before manufacturing or marketing the product in those countries. The approval
process varies from country to country and the time required for such approvals
may differ substantially from that required for FDA approval. We cannot assure
you that clinical trials conducted in one country will be accepted by other
countries or that approval in one country will result in approval in any other
country. For clinical trials conducted outside the United States, the clinical
stages are comparable to the phases of clinical development established by the
FDA.
COMPETITION
The pharmaceutical and biotechnology industries are characterized by rapidly
evolving technology and intense competition. Many companies, including major
pharmaceutical and chemical companies, as well as specialized biotechnology
companies, are engaged in activities similar to ours. Many of these companies
have substantially greater financial and other resources, larger research and
development staffs and more extensive marketing and manufacturing organizations
than ours. Many of these companies have significant experience in preclinical
testing, human clinical trials and other regulatory approval procedures.
Consequently, we chose to enter into the collaboration agreements with Novartis
and Genentech, in part to secure the benefit of their experience in these areas,
as well as the contribution of their greater financial resources. In addition,
colleges, universities, governmental agencies and other public and private
research organizations conduct research and may market commercial products on
their own or through joint ventures. These institutions are becoming more active
in seeking patent protection and licensing arrangements to collect royalties for
use of technology that they have developed. We compete with these institutions
in recruiting and retaining highly qualified scientific personnel.
The diseases that we have targeted, including allergic diseases, autoimmune
diseases, transplantation, cancer, inflammation, and HIV infection, are
intensely competitive areas being targeted by both pharmaceutical companies and
other biotechnology companies, including our collaborators, Novartis and
Genentech. All of these companies may have competitive products on the market,
may be testing their products in clinical trials or may be focusing on product
approaches that could prove to be superior to our approaches. For instance, we
are aware that some of these companies, which may be our competitors, have filed
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applications for or have been issued patents and may obtain additional patent
and proprietary rights relating to products or processes used in, necessary to,
competitive with or otherwise related to, our products or processes. Such
patents include, among other items, patents relating to humanized monoclonal
antibodies.
Additionally, our competition will be determined in part by the potential
indications for which our antibodies are developed and ultimately approved by
regulatory authorities. For some of our potential products, an important factor
in competition may be the timing of market introduction of our products or
competitive products. Accordingly, the relative speed with which we develop our
products, complete the necessary approval processes and are able to generate and
market commercial quantities of the products is expected to be an important
competitive factor. We expect that competition among products approved for sale
will also be based, among other factors, on product efficacy and safety, timing
and scope of regulatory approval, product availability, advantages over
alternative treatment methods, price and cost-effectiveness, development,
distribution and marketing capabilities, third-party reimbursement and patent
position.
We are aware that several companies, including Novartis, have existing products
that will compete with E25, if it is approved for sale, including
corticosteriods, beta-agonists, antihistamines, leukotriene inhibitors and
allergen immunotherapy. In addition, several companies have products in
development that may compete with E25. These companies include, but are not
limited to, IDEC (Anti-CD23), Immunex (sIL-4R), CellTech/Schering-Plough
(Anti-IL5), Merck/Biogen (VLA-4 inhibitors), Magainin/Genentech (anti-IL-9) and
Protein Design Labs (Anti-IL4).
Our competitive position also depends upon our ability to:
o attract and retain qualified personnel;
o obtain patent protection or otherwise develop proprietary products or
processes;
o discover new therapeutic products that successfully treat human
diseases;
o secure sufficient capital resources to complete product development and
regulatory processes;
o build or obtain manufacturing facilities; and
o build or obtain a sales organization.
MANUFACTURING
We have a small-scale production and purification facility in which our products
have been produced in compliance with cGMP standards for use in Phase I and/or
Phase II clinical trials. With funding from Novartis, we recently completed
construction of a pilot manufacturing facility that can be used for larger-scale
process development and cGMP production of animal cell culture derived products.
The facility includes a 1500L bioreactor and occupies approximately 14,000
square feet of space now under lease to us in Houston, Texas. The new
manufacturing facility is not yet operational, and the Company is pursuing
required cGMP validation. The facility is available to both us and other
companies for production of monoclonal antibodies and other biologic products
for large-scale clinical trials and initial market launch.
Under our agreements with Novartis and Genentech, Novartis and Genentech are
responsible for manufacturing E25 and any other anti-IgE products selected by us
and our collaboration partners for development, although we have retained the
right to manufacture and supply up to 50% of the worldwide requirements for E25
and the other selected products. Genentech will supply the initial quantities of
E25 for product launch and until Novartis is capable of meeting worldwide
demand. Novartis has announced that it intends to supply E25 from a facility now
under construction that has a capacity of more than one ton of active substance
per year.
Our current facility will not be adequate for commercial scale manufacturing
requirements if our products are successfully developed. In the event we decide
to establish a full-scale manufacturing facility, we will require substantial
additional funds and will be required to hire and train significant numbers of
employees and comply with the extensive FDA regulations applicable to that
facility.
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MARKETING AND SALES
E25 and the other products selected for development by the collaboration will be
marketed by Novartis and Genentech. Novartis and Genentech share U.S. marketing
rights, and Novartis has marketing rights in Europe (with Roche retaining the
option to participate in Europe). Novartis is responsible for marketing these
products in the rest of the world, including China, Hong Kong, Korea, Singapore
and Taiwan, where we will share costs and profits with Novartis.
To effectively serve the worldwide markets, we intend to continue to collaborate
with major pharmaceutical companies or prominent pharmaceutical sales and
distribution organizations that can successfully market our products on a
worldwide basis or within specific geographic territories. As we pursue
strategic collaborations, we intend to reserve marketing rights for our
products, to the extent commercially reasonable, including rights in the United
States and selected Asian countries. We will focus initially on markets for
which our products have a clear advantage over other therapies or which can be
targeted using a relatively small sales force. We currently do not have an
internal sales and marketing capability. If we elect to retain marketing rights,
we will have to build a sales and marketing infrastructure.
FACILITIES
We currently lease 35,624 square feet of laboratories and office space in
Houston, Texas. This lease expires in March 2002, subject to a five-year renewal
option. This space includes a biological product manufacturing facility
occupying approximately 14,000 square feet of space. We lease approximately
2,690 square feet of temporary laboratory and office space in the Amsterdam
Science Park in The Netherlands and intend to lease approximately 10,760 square
feet of space there when it becomes available in 2001. We also lease
approximately 6,500 square feet of space in the Hsinchu Science Based Industrial
Park in Taiwan.
We believe that these facilities are adequate for our immediate needs.
Additional space will be required, however, as we expand our research
activities, clinical development activities and production capability. We are
exploring alternatives to provide additional space in Houston for research and
development laboratories. We do not foresee any significant difficulties in
obtaining additional facilities, as necessary.
HUMAN RESOURCES
Including the employees of our subsidiaries, we have 72 full-time employees, 58
of whom are based in the United States, 13 of whom are based in The Netherlands
and one of whom is based in Taiwan. Approximately 55 of our employees are
involved in research and product development activities. Twenty-nine of our
employees hold Ph.D., M.D. or Sc.D. degrees and ten employees hold other
advanced degrees. We consider our relations with our employees to be good. None
of our employees are covered by collective bargaining agreements. We enter into
confidentiality agreements with all of our employees, directors and consultants.
We do not maintain, and do not currently intend to obtain, key employee life
insurance on any of our personnel.
PENDING LEGAL PROCEEDINGS
TANOX BIOSYSTEMS, INC. VS. AKIN, GUMP, STRAUSS, HAUER AND FELD, L.L.P., THE
ROBINSON LAW FIRM AND WILLIAMS, BIRNBERG & ANDERSON, AMERICAN ARBITRATION
ASSOCIATION NO. 70-199-0167-96. We have been involved in an arbitration
regarding a fee dispute with the law firms that represented us in connection
with a lawsuit involving Genentech and Roche relating to, among other things,
the intellectual property rights of the parties surrounding the development of
anti-IgE technology. The litigation was settled contemporaneously with the
formation of our collaboration with Genentech.
We initiated the arbitration proceeding after we and our attorneys could not
reach agreement on the fee owed pursuant to the terms of our written fee
agreement. The arbitration panel issued an award entitling the attorneys to
receive approximately $3.5 million, including interest, payments ranging from
33 1/3% to 40% of
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the future milestone payments received by us from Genentech under the
collaboration following product approval and 10% of the royalties that we
receive on sales of anti-IgE products.
We sought a court order vacating the arbitration award on the grounds that the
arbitration decision exceeds the scope of the fee agreement in dispute, deviates
materially from the evidence presented and is unsupportable as a matter of law.
However, a judgment was entered confirming the award. We intend to pursue all
available remedies, including appealing the decision.
TANOX, INC. VS. NOVARTIS PHARMA AG, AMERICAN ARBITRATION ASSOCIATION NO. 50 T
153 00119 99; GENENTECH, INC., GENENTECH INTERNATIONAL LIMITED AND NOVARTIS
PHARMA AG VS. TANOX, INC., CASE NO. C 99-2060; AND TANOX, INC. VS. GENENTECH,
INC. AND GENENTECH INTERNATIONAL LIMITED, AMERICAN ARBITRATION ASSOCIATION NO.
74 Y 181 1113 99. We are currently pursuing clinical development of Hu-901 to
determine its potential in treating peanut induced anaphylaxis independently of
Novartis and Genentech. Novartis and Genentech have disputed our right to pursue
development of Hu-901 independently and have claimed that we are using
unspecified confidential and proprietary information of Novartis and Genentech
that we have no right to use. We believe our agreements with Novartis and
Genentech allow us to pursue the development of Hu-901.
In an effort to resolve this dispute, we initiated an arbitration with Novartis
in March 1999, pursuant to the arbitration provisions of our agreement with
Novartis, seeking interim relief including, among other items, confirmation of
our rights to independently develop certain anti-IgE products, including Hu-901,
and to use know-how and other information received from Novartis. We also are
seeking a final award to confirm these rights and address other claims relating
to our agreements with Novartis and compensate us for damages we believe
resulted from Novartis' efforts to prevent us from exercising our rights under
the applicable agreements. Novartis has claimed that the dispute does not
constitute a dispute for which arbitration is required under our agreements and
that our claimed rights to independently develop Hu-901 do not exist. Novartis
has also claimed damages arising from our action.
In response to the arbitration initiated by us against Novartis, Novartis and
Genentech jointly filed suit against us in April 1999 in the United States
District Court for the Northern District of California alleging breach of
contract, unfair competition and other causes of action and seeking declaratory,
injunctive and compensatory relief, as well as punitive damages, attorney's fees
and costs of suit and interest on judgment. Among the injunctive relief sought,
Novartis and Genentech are seeking to stop Hu-901 development, and to prevent
any arbitration of these claims under other agreements with Novartis and
Genentech.
In connection with the lawsuit, Novartis also asked the Federal court for an
emergency temporary stay of the arbitration requested by us. The United States
District Court Judge denied Novartis' request and ordered Novartis to proceed
with the arbitration.
We also initiated arbitration with Genentech in July 1999 claiming, among other
things, that Genentech's claim in the lawsuit that we have no independent
development rights for Hu-901 is unsupportable and that Genentech expressly
acknowledged our independent development rights in our agreement with them.
In September 1999, the United States District Court Judge issued an order which
stays all proceedings in the lawsuit and both arbitrations, except for the
parties' opportunity to engage in limited written discovery in the form of
requests for production of documents and written questions to each other. The
Judge's order required the parties with their respective chief executive
officers present, to undertake to mediate all matters in dispute between them.
The mediation took place on November 2 and 3, 1999 in San Francisco, California,
and has concluded unsuccessfully. To continue our arbitration proceedings, we
must ask the court to allow our respective arbitrations with Novartis and
Genentech to proceed.
We intend to continue to pursue independent development of Hu-901 during the
pendency of the above-described actions. In the event that we are unsuccessful
in these actions, we would be prevented from independently developing Hu-901 and
other anti-IgE products covered by the collaboration with Novartis and
Genentech.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our directors, executive officers and key employees, and their ages and
positions as of February 1, 2000 are:
NAME AGE POSITION
- ----------------------------------- --- ------------------------------
Nancy T. Chang, Ph.D. ............. 50 Chairman of the Board,
President and Chief Executive
Officer
John C. Morris..................... 56 Senior Vice President of
Operations
David W. Thomas, Ph.D. ............ 52 Senior Vice President of
Research and Development
David Duncan, Jr. ................. 51 Vice President of Finance and
Chief Financial Officer
John Blickenstaff.................. 46 Vice President of
Administration, Secretary and
Treasurer
George Y. Wang, Sc.D. ............. 46 Vice President of Process
Development and Production
Eric P. Mirabel, J.D., LL.M. ...... 43 Vice President of Intellectual
Property
Tse Wen Chang, Ph.D. .............. 52 Director
Osama I. Mikhail, Ph.D.(1)(2)...... 52 Director
Cheng Ming Lee, Ph.D.(1)(2)........ 57 Director
William J. Jenkins, M.D.(2)........ 52 Director
- ---------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
NANCY T. CHANG, PH.D. is one of our co-founders and has served as our President
and Chairman of the Board of Directors since our organization in March 1986. Dr.
Chang has served as our Chief Executive Officer since June 1990. From 1986 to
1992, Dr. Chang served as an Associate Professor at Baylor College of Medicine
in the Division of Molecular Virology. Between 1981 and 1986, Dr. Chang was
employed by Centocor, Inc., serving as the Director of Research, Molecular
Biology Group, from 1984 to 1986. From 1980 to 1981, she was employed by Roche
Institute of Molecular Biology. Dr. Chang received her Ph.D. in biological
chemistry from Harvard University.
JOHN C. MORRIS has served as our Senior Vice President of Operations since
September 1997. From September 1996 to September 1997, he served as our Vice
President of Quality Assurance. Prior to coming to us, Mr. Morris served as
President at Oread Laboratories, Inc. from 1995 to 1996. From 1992 to 1995, Mr.
Morris served as Vice President of Production Development, Regulatory Affairs
and Quality Assurance at Sanofi Animal Health Inc. Mr. Morris received an M.S.
in microbial biochemistry from the University of Missouri.
DAVID W. THOMAS, PH.D. has served as our Senior Vice President of Research and
Development since November 1997. Prior to joining us, Dr. Thomas served as Vice
President of Biological Research at Hybridon, Inc. in 1997. From 1988 to 1997,
he served as Director of Cell Biology and Immunology at Biogen, Inc. Prior to
his positions at Biogen and Hybridon, Dr. Thomas held professorships at the
University of Michigan Medical School and Washington University in St. Louis,
Missouri. He received his Ph.D. degree in microbiology and immunology from the
University of Colorado Health Sciences Center, followed by a postdoctoral
fellowship in the Laboratory of Immunology of the National Institute of Allergy
and Infectious Disease at the National Institutes of Health.
DAVID DUNCAN, JR. has served as our Vice President of Finance and Chief
Financial Officer since August 1998. Prior to joining us, he served as Chief
Financial Officer at Neuromedical Systems, Inc. from 1994 to March 1998. From
1988 to 1994, Mr. Duncan served as Chief Financial Officer at Telios
Pharmaceuticals,
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Inc. From 1983 to 1988, he served as the Controller at Hybritech Incorporated.
Mr. Duncan received an MBA from Indiana University.
JOHN BLICKENSTAFF has served as our Vice President of Administration since April
1989 and has also served as Vice President of Finance from that time until March
1996. Mr. Blickenstaff also served as our Chief Financial Officer from June 1990
until March 1996. He joined us in March 1987 as Director of Finance and
Administration, becoming our Secretary and Treasurer in September 1987. Between
1984 and 1987, Mr. Blickenstaff served as Operations Manager at Montgomery
Engineering Company. Mr. Blickenstaff holds a B.S. in health sciences and an MBA
from Brigham Young University.
GEORGE Y. WANG, SC.D. has served as our Vice President of Process Development
and Production since October 1994. He joined us in 1991 as our Assistant
Director, BioProcessing Development. Prior to joining us, Dr. Wang held various
engineering and management positions at IDEC Pharmaceuticals Corp., BP Amoco
Corp. and MGI Pharma, Inc. Dr. Wang received his Sc.D. in biochemical
engineering from Massachusetts Institute of Technology.
ERIC MIRABEL has served as our Vice President of Intellectual Property since
1994. He joined us in 1990 as our Patent Counsel. From 1986 to 1990 Mr. Mirabel
practiced intellectual property law with the Houston firm of Butler and Binion.
Mr. Mirabel received a B.S. in biochemistry from the University of British
Columbia, a J.D. from Northwestern School of Law at Lewis and Clark College, and
an LL.M. in patent and trade regulation law from the National Law Center at
George Washington University.
TSE WEN CHANG, PH.D. is one of our co-founders and has served as a member of our
board of directors since our organization in March 1986. Dr. Chang served as our
Vice President of Research and Development and Chief Scientific Officer from
March 1986 until January 1997 when he resigned that position to assume the
position of Dean of the College of Life Sciences at National Tsing Hua
University in Taipei, Taiwan. Dr. Chang is currently a professor there. Dr.
Chang was an adjunct professor at Baylor College of Medicine in the Division of
Molecular Virology from 1986 to 1991. From 1984 to 1986, Dr. Chang served as
Vice President of Research at Centocor, Inc. Dr. Chang obtained his Ph.D. from
Harvard University in cell and developmental biology.
OSAMA MIKHAIL, PH.D. has served as a member of our board of directors since
1994, and also has served as a consultant to us since 1993. Dr. Mikhail is
currently Senior Vice President and Chief Strategic Officer at St. Luke's
Episcopal Health System and Professor of Management and Policy Sciences at the
University of Texas, School of Public Health, both in the Texas Medical Center,
Houston, Texas. Dr. Mikhail has been associated with St. Luke's and the
University of Texas School of Public Health since 1989. Dr. Mikhail received an
MBA from the University of Pennsylvania's Wharton School and an M.S. and Ph.D.
from the Graduate School of Industrial Administration, Carnegie-Mellon
University.
CHENG MING LEE, PH.D. has served as a member of our board of directors since
March 1997. He is President and Chief Executive Officer of six venture capital
funds -- Cheng Xin Technology Development Corporation, Win Win Venture Capital
Corporation, Apex Venture Capital Corporation, Win Plus Capital Corporation,
Super Tech Venture Capital Corporation and First Bio Venture Capital
Corporation. Dr. Lee serves as Chairman of the Board of Aries Research Inc. and
Taiwan High-Tech Corporation. Dr. Lee received an M.S. in chemical engineering
from Stanford University and a Ph.D. in chemical engineering from the University
of Houston.
WILLIAM J. JENKINS, M.D. has served as a member of our board of directors since
November 1999. Since the beginning of 1999, Dr. Jenkins has been a strategic
consultant to the pharmaceutical industry, primarily at Hoffman-La Roche Inc.
Prior to that, he served as Head of Clinical Development & Regulatory Affairs
and a member of the board of directors of Novartis Pharma AG in Basel,
Switzerland since 1992. Dr. Jenkins served as Head of Clinical Research for the
Glaxo Group from 1988 to 1992. Dr. Jenkins received his medical degrees from the
University of Cambridge.
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SCIENTIFIC ADVISORS
An important component of our scientific strategy is to establish collaborative
relationships with leading researchers in our fields of interest. Certain of our
scientific advisors attend periodic meetings and provide us with specific
expertise in both research and clinical development. In addition, we have
collaborative research relationships with certain individual advisors. None of
our scientific advisors is employed by us, and they may have commitments to or
consulting or advisory agreements with other entities that may limit their
availability to us. These companies may also compete with us. Several of our
advisors have, from time to time, devoted significant time and energy to our
affairs. In general, our scientific advisors may hold stock options, own our
stock and/or receive financial remuneration for their services.
Our scientific advisors include:
NAME TITLE AND AFFILIATION
- -------------------------------------------------------------------------
K. Frank Austen, M.D................ Director, Inflammation and Allergic
Diseases
Brigham and Women's Hospital, Boston,
Massachusetts
James Larrick, M.D., Ph.D........... Managing Director and Founder,
Panorama Research, Inc.
Ethan M. Shevach, M.D............... Chief, Cellular Immunology Section,
National Institutes of Health
COMPOSITION OF THE BOARD OF DIRECTORS
Our amended and restated certificate of incorporation and bylaws provide that
the board of directors be divided into three classes of equal number: Classes I,
II and III. At the first annual meeting of stockholders, our stockholders
elected directors comprising Class I to a term of office to expire at the next
annual meeting of stockholders after that election; directors comprising Class
II to a term of office to expire at the second annual meeting of stockholders
after that election; and directors comprising Class III to a term of office to
expire at the third annual meeting of stockholders after that election. At each
annual meeting of stockholders thereafter, the successors to directors whose
terms will then expire will be elected to serve from the time of election and
qualification until the third annual meeting of stockholders following election
and until a successor will have been duly elected and will have qualified. The
board of directors has no present plans to increase the number of directors.
Our bylaws authorize the board of directors to fix the number of directors at
not less than one nor more than nine. The board of directors currently has five
members. Subject to the reelection of the current board at the 2000 annual
meeting of stockholders, Osama Mikhail is designated as a Class I director,
whose term expires at the 2001 annual meeting of stockholders; Tse Wen Chang and
Cheng Ming Lee are designated as Class II directors, whose terms expire at the
2002 annual meeting of stockholders; and Nancy T. Chang and William J. Jenkins
are designated as Class III directors, whose terms expire at the 2003 annual
meeting of stockholders. Each officer serves at the discretion of the board of
directors.
There are no family relationships among any of our directors, executive officers
or key employees, although Drs. Nancy T. Chang and Tse Wen Chang previously were
married.
Our amended and restated certificate of incorporation and bylaws also require
the affirmative vote of holders of at least two-thirds of the issued and
outstanding shares of common stock to remove any director or the entire board of
directors. Directors can only be removed for "cause."
DIRECTOR COMPENSATION
As compensation for serving on the board of directors, we granted Dr. Mikhail
options to acquire 108,000 shares of common stock, 96,000 of which were granted
at a price per share of $1.04 and are all currently exercisable, 8,000 of which
were granted at an exercise price of $4.06, none of which are currently
exercisable, and 4,000 of which were granted at an exercise price of $12.50,
none of which are currently exercisable. All of his options vest over a
three-year period. Outside directors also receive $1,000 for each board meeting
attended and $150 for each committee meeting attended, except for Dr. Tse Wen
Chang, who is compensated under a consulting agreement with us. Other than the
foregoing, the directors receive
49
<PAGE>
no other compensation for their services as directors. We reimburse our outside
directors, on request, for reasonable out-of-pocket expenses incurred in
attending board meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors currently has two committees: an audit committee and a
compensation committee.
The audit committee makes recommendations to our board of directors regarding
the selection of independent auditors, reviews the results and scope of audit
and other services provided by our independent auditors and reviews the
accounting principles and auditing practices and procedures to be used for our
financial statements.
The compensation committee reviews and makes recommendations to our board of
directors regarding the compensation of officers and other managerial employees.
The compensation committee also considers and recommends grants of stock options
under our stock option plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee made decisions concerning the compensation of our
executive officers for the years ended December 31, 1997, 1998 and 1999, during
which time Nancy T. Chang, our Chairman of the Board, President and Chief
Executive Officer has been a member of the committee. No interlocking
relationship exists between any member of our board of directors or our
compensation committee and any member of the board of directors or compensation
committee of any other company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation we paid during the year
1999 to our chief executive officer and the four highest paid executive officers
whose total annual salary and bonus exceeded $100,000. These individuals are
referred to as the "named executive officers" here and elsewhere in this
prospectus.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Nancy T. Chang....................... $ 368,622 $58,000 $12,132(1)
Chairman of the Board, President
and Chief Executive Officer
John C. Morris....................... 154,587 10,000 --
Senior Vice President of Operations
David W. Thomas...................... 199,548 10,000 --
Senior Vice President of Research
and Development
David Duncan, Jr..................... 164,221 5,000 10,569(2)
Vice President of Finance and
Chief Financial Officer
George Y. Wang....................... 134,359 -- --
Vice President of Process
Development and Production
</TABLE>
- ---------------------------
(1) Dr. Chang's other annual compensation includes $7,549 of taxable income
associated with a company car, $4,000 associated with 401(k) matching and
$583 relating to group term life insurance.
(2) Mr. Duncan's other annual compensation includes $8,800 related to housing
expenses, $1,054 associated with 401(k) matching and $715 relating to group
term life insurance.
50
<PAGE>
1999 OPTION GRANTS
The following table sets forth information regarding options granted to each of
our named executive officers during the year 1999. The exercise prices of the
options we granted were the fair market value of our common stock on the date of
grant, as determined by the compensation committee of our board of directors. In
determining the fair market value, the compensation committee considered
information contained in a then current valuation report made for tax purposes,
market conditions, business prospects, and the absence of a market for our
common stock.
The amounts shown as potential realizable value are based on assumed 5% and 10%
rates of stock price appreciation from the date of grant to the end of the
option term and are provided in accordance with the rules of the Securities and
Exchange Commission. They do not represent our estimate or projections of the
future common stock price. Actual gains may vary, based on future performance of
our common stock. In estimating the gain realized by these option holders, we
have deducted the option exercise price, but we have not deducted taxes or any
other expenses payable upon the exercise of the option or the sale of the common
stock underlying the option.
The options in this table were granted under our 1997 Stock Plan, have 10-year
terms, will terminate before their expiration dates if the optionee leaves his
employment with us, and, unless otherwise noted, vest over a period of 5 years.
We have not granted any stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES AT
ASSUMED ANNUAL RATES
OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE
SECURITIES OPTIONS GRANTED APPRECIATION FOR
UNDERLYING TO EMPLOYEES OPTION TERM
OPTIONS IN FISCAL EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED YEAR 1999(1) PER SHARE DATE 5% 10%
- ------------------------------------- ------------ ---------------- ---------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nancy T. Chang....................... -- -- -- -- -- --
John C. Morris(2).................... 16,000 13.7% $ 8.13 01/25/09 $ 81,807 $ 207,314
8,000 6.8 12.50 12/01/09 62,889 159,374
David W. Thomas(3)................... 16,000 13.7 8.13 01/25/09 81,807 207,314
16,000 13.7 12.50 12/01/09 125,779 318,748
David Duncan, Jr..................... -- -- -- -- -- --
George Y. Wang(4).................... 4,000 3.4 12.50 12/01/09 31,445 79,687
</TABLE>
- ---------------------------
(1) The percentage of options granted is based on an aggregate of 117,120
options to employees granted by us during 1999.
(2) The vesting start date for the options to purchase 16,000 shares of common
stock granted to Mr. Morris is January 25, 1999. 9,600 of these options
vest over a period of 3 years, and the remaining 6,400 of these options
vest over a period of 5 years. The vesting start date for the options to
purchase 8,000 shares of common stock granted to Mr. Morris is December 1,
1999. 4,800 of these options vest over a period of 3 years, and the
remaining 3,200 of these options vest over a period of 5 years.
(3) The vesting start date for the options to purchase 16,000 shares of common
stock granted to Mr. Thomas is January 25, 1999. The vesting start date for
the options to purchase an additional 16,000 shares of common stock granted
to Mr. Thomas is December 1, 1999.
(4) The vesting start date for these options is December 1, 1999.
51
<PAGE>
1999 OPTION VALUES
The following table describes for the named executive officers the exercisable
and unexercisable options held by them as of December 31, 1999. No options were
exercised by the named executive officers during the fiscal year ended December
31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Nancy T. Chang....................... 260,800 391,200 $ 1,304,000 $1,956,000
John C. Morris....................... 51,199 100,801 255,995 454,005
David W. Thomas...................... 80,000 152,000 700,000 1,120,000
David Duncan, Jr..................... 38,399 153,601 167,996 672,004
George Y. Wang....................... 201,600 4,000 2,297,571 --
</TABLE>
- ---------------------------
(1) The "Value of Unexercised In-the-Money Options at December 31, 1999" is
based on a value of $12.50 per share, the fair market value of our common
stock as of December 31, 1999, as determined by the board of directors,
less the per share exercise price, multiplied by the number of shares
issued upon exercise of the option.
EMPLOYMENT AGREEMENTS
We do not have employment agreements with our executive officers, other than
agreements that we maintain with all of our employees and option agreements
under which we issue incentive and non-qualified stock options to employees.
EMPLOYEE BENEFIT PLANS
1987 STOCK OPTION PLAN
Our 1987 Stock Option Plan expired on June 24, 1997. This plan provided for the
grant of incentive stock options, which were intended to qualify for favorable
tax treatment, and non-qualified stock options to eligible parties who were
employees. The plan was adopted by the board of directors and approved by our
stockholders in June 1987. Under the terms of the plan, as amended in April
1989, we could issue options on 4,320,000 shares of our common stock.
Special provisions applied to incentive stock options granted under the plan,
including requirements that the exercise price of incentive stock options be at
least equal to the fair market value of the common stock on the date of the
grant. There was also a $100,000 limit on the value of stock, determined at the
time of grant, covered by incentive stock options that first become exercisable
by a holder in any calendar year.
No person could receive an incentive stock option under the plan if, at the time
of grant, the person owned directly or indirectly more than 10% of our total
combined voting power. This restriction did not apply, however, if the option
price was at least 110% of the fair market value of the common stock, and the
exercise period was limited to five years.
If a reorganization, recapitalization, stock dividend, merger, consolidation or
other change in corporate structure affecting the number of issued shares of our
common stock occurred, then our board of directors could make equitable
adjustments to the terms of this plan. In particular, the board could make an
equitable adjustment in the number and type of shares authorized by this plan,
the number and type of shares covered by outstanding awards under this plan and
the exercise prices of these awards. After the adjustments, any incentive stock
options granted under the plan must have continued to constitute incentive stock
options under applicable tax laws. Our board of directors could amend or
terminate this plan at any
52
<PAGE>
time, although certain amendments required stockholder approval and an amendment
or termination could not adversely affect any rights under outstanding stock
options without the holder's consent.
For the year ended December 31, 1999, no options were granted, options to
purchase 1,738,320 shares of common stock were exercised and options to purchase
32,000 shares were canceled. As of December 31, 1999, options to purchase an
aggregate of 2,242,800 shares of common stock held by 26 employees were
outstanding under the plan at exercise prices ranging from $0.28 to $7.50 per
share with a weighted average exercise price of $4.03 per share. These options
consist of incentive stock options to purchase 856,264 shares at a weighted
average exercise price of $3.78 per share and non-qualified options to purchase
1,386,536 shares at a weighted average exercise price of $4.19 per share. At
December 31, 1999, there were no shares available for future option grants under
the plan.
1997 STOCK PLAN
Our 1997 Stock Plan was adopted by the board of directors on September 19, 1997,
and was approved by our stockholders to be effective as of November 1, 1997.
This plan provides for the grant of incentive stock options to our employees and
the grant of non-qualified stock options, awards of stock, stock appreciation
rights, purchase rights and performance units to all types of eligible parties.
The plan is administered by the board of directors or, in the discretion of the
board, by the compensation committee or other committee appointed by the board
of directors, consisting of at least two members of the board of directors. We
may grant options or other rights under the plan to some of our and our
subsidiaries' directors, employees, consultants and advisors. We may also, with
the consent of the holder, convert a holder's incentive stock options into
non-qualified stock options. We have reserved 8,000,000 shares of authorized but
unissued common stock for issuance under the plan. The plan extends for a
10-year period, beginning November 1, 1997.
Special provisions apply to incentive stock options granted under the plan in a
manner that is similar to those granted under the 1987 Stock Option Plan. The
1997 Stock Plan also contains adjustment provisions that are similar to those in
the 1987 Stock Option Plan.
For the year ended December 31, 1999, we granted options to purchase an
aggregate of 125,120 shares of common stock under the 1997 Stock Plan at a
weighted average exercise price of $10.60 per share. This includes incentive
stock options to purchase 102,720 shares at a weighted average exercise price of
$10.59 per share and non-qualified options to purchase 22,400 shares at a
weighted average exercise price of $10.63 per share. In 1999, options to
purchase 3,200 shares of common stock were exercised and options to purchase
8,000 shares were cancelled.
As of December 31, 1999, thirty individuals held options to purchase a total of
636,320 shares of common stock under the plan at exercise prices ranging from
$3.75 to $12.50 per share with a weighted average exercise price of $7.05 per
share. These options consist of incentive stock options to purchase 206,656
shares at a weighted average exercise price of $9.71 per share and non-qualified
options to purchase 429,664 shares at a weighted average exercise price of $5.77
per share. At December 31, 1999, there were 7,360,480 shares available for
future option grants under the plan.
1992 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Under our 1992 Non-Employee Directors Stock Option Plan, we may grant
non-qualified stock options to certain directors who are not also our employees.
The plan was adopted by the board of directors and approved by our stockholders
on January 10, 1992. The number of shares of common stock eligible for issuance
under the plan is 480,000. The compensation committee administers the plan.
Options may be issued under the plan at any exercise price determined by the
compensation committee. Generally, options granted under the plan expire upon
voluntary resignation of the holder from the board of directors. Upon
termination of a holder's tenure as a director for any other reason, the holder
must exercise the options within 60 days thereafter or within 180 days after the
holder's death or disability, but in no event later than the originally
prescribed term of the option. Unless otherwise determined by the compensation
committee,
53
<PAGE>
options granted under the plan vest over a three-year period. The plan
terminates on January 10, 2002, unless earlier terminated by the board of
directors.
For the year ended December 31, 1999, we granted options to purchase a total of
12,000 shares of common stock under the plan at a weighted average exercise
price of $6.88 per share. As of December 31, 1999, options to purchase an
aggregate of 108,000 shares of common stock held by one director were
outstanding under the plan at exercise prices ranging from $1.04 to $12.50 per
share with a weighted average of $1.69 per share. At December 31, 1999, there
were 372,000 shares available for future option grants under the plan. No
options issued under the plan have been exercised.
GENERAL
We intend to file a registration statement on Form S-8 upon the completion of
this offering to register the sale of common stock issuable upon exercise of
stock options issued under our stock option plans.
401(K) PLAN
Effective January 1, 1992, we adopted a qualified retirement plan, or 401(k)
plan, covering all of our employees who are at least 21 years of age and have
completed at least one year of service with us. Under the plan, employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit ($10,500 in 2000) and have the amount of the reduction contributed
to the plan. The plan is covered by the Employee Retirement Income Security Act
of 1974. We also intend for the plan to satisfy certain federal income tax law
requirements so that the contributions by employees or by us to the plan, and
income earned on plan contributions, are not taxable to employees until they
withdraw from the plan. We also intend for any contributions we make to the plan
to be deductible by us for federal income tax purposes.
The trustee of the plan, at the direction of each participant, invests the
assets of the plan in any of nine investment options. The plan permits, but does
not require, us to make additional matching contributions on behalf of all
participants in the plan. For the year ended December 31, 1998, we contributed
matching contributions of approximately $66,000 to the plan. Our matching
contribution for the year ending December 31, 1999 was 50% of employee
contributions up to a maximum employer contribution of 2.5% of each
participant's total compensation. Our matching contribution for the year ending
December 31, 2000 will be 50% of employee contributions up to a maximum employer
contribution of 2.5% of each participant's total compensation. The compensation
committee of the board of directors administers the plan.
OTHER OPTIONS
We have granted non-qualified stock options not covered by the 1987 Stock Option
Plan, the 1997 Stock Plan or the 1992 Non-Employee Directors Stock Option Plan
to an outside, non-affiliated director and to key advisors and consultants to
purchase an aggregate of 196,800 shares of common stock, net of cancellations,
as of December 31, 1999, at a weighted average exercise price of $1.31 per
share. All of these options are currently exercisable.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of our
common stock as of February 1, 2000 by:
o each stockholder known by us to be the beneficial owner of more than 5%
of the outstanding shares of common stock;
o each of our directors;
o each of our named executive officers; and
o all directors and officers as a group.
Beneficial ownership is determined according to the rules of the Securities and
Exchange Commission, and generally means that person has beneficial ownership of
a security if he or she possesses sole or shared voting or investment power of
that security, and includes options that are currently exercisable or
exercisable within 60 days. Information with respect to beneficial ownership has
been furnished to us by each director, officer or 5% or more stockholder, as the
case may be. Except as otherwise indicated, we believe that the beneficial
owners of the common stock listed below, based on the information each of them
has given to us, have sole investment and voting power with respect to their
shares, except where community property laws may apply.
This table lists applicable percentage ownership based on 33,324,402 shares of
common stock outstanding as of February 1, 2000, and also lists applicable
percentage ownership based on shares of common stock outstanding
after completion of this offering. Options to purchase shares of our common
stock that are exercisable within 60 days of February 1, 2000, are deemed to be
beneficially owned by the persons holding these options for the purpose of
computing percentage ownership of that person, but are not treated as
outstanding for the purpose of computing any other person's ownership
percentage. Shares underlying options that are deemed beneficially owned are
listed in this table separately in the column labeled "Shares Subject to
Options." These shares are included in the number of shares listed in the
column labeled "Total Number."
Unless otherwise indicated, the principal address of each stockholder below is:
c/o Tanox, Inc., 10301 Stella Link, Houston, Texas 77025.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------------------------------
TOTAL SHARES SUBJECT PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER TO OPTIONS OFFERING OFFERING
- ------------------------------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
DIRECTORS AND NAMED OFFICERS
Nancy T. Chang(1).................... 6,973,781 260,800 20.8% %
Tse Wen Chang(2)..................... 6,564,239 -- 19.7
Cheng Ming Lee(3).................... 743,892 -- 2.2
George Y. Wang....................... 209,924 201,600 *
Osama I. Mikhail(4).................. 103,467 103,467 *
David W. Thomas(5)................... 84,000 83,200 *
John C. Morris....................... 54,399 54,399 *
David Duncan, Jr. ................... 38,399 38,399 *
William J. Jenkins(6)................ -- -- --
All directors and officers as a group
(11 persons)(7).................... 15,327,781 1,037,065 44.6%
5% STOCKHOLDERS
Novartis AG(8)....................... 6,373,732 -- 19.1
Alafi Capital Company(9)............. 2,298,724 -- 6.9
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
55
<PAGE>
- ---------------------------
* Less than 1%
(1) Includes 6,420,585 shares of common stock owned by Robinhood Ventures,
L.P. and 34,816 shares of common stock owned by AMC Ventures, L.P. Apex
Enterprises, Inc., a corporation wholly-owned by Dr. Chang, is the sole
general partner of Robinhood Ventures, L.P. and AMC Ventures, L.P. and has
voting and investment control over the common stock owned by them.
Includes 257,580 shares held in trust by Dr. Chang for her children. Does
not include 460,800 shares held by the 1992 Chang Family Trusts
established for the benefit of Dr. Chang's children. Dr. Chang disclaims
beneficial ownership of the shares held by these trusts. John Blickenstaff
is the trustee of these trusts.
(2) Includes 256,481 shares held in trust by Dr. Chang for his children. Does
not include 460,800 shares held by the 1992 Chang Family Trusts
established for the benefit of Dr. Chang's children. Dr. Chang disclaims
beneficial ownership of the shares held by these trusts. John Blickenstaff
is the trustee of these trusts. Dr. Chang's address is College of Life
Sciences, National Tsing Hua University, Hsinchu, Taiwan, Republic of
China.
(3) Includes 533,332 shares held by Apex Venture Capital Corp., 28,000 shares
held by Cheng Xin Technology Development Corporation, 48,000 shares held
by First Bio Venture Capital Corporation and 48,000 shares held by Win Win
Venture Capital Corporation. Dr. Lee is the President and Chief Executive
Officer of each of these companies. Also includes 86,560 shares held by
Hwa Xing Capital Corporation, of which Dr. Lee is the Managing Director.
Dr. Lee's address is 5th Floor, 143, Section 2, Min-Sheng E. Road, Taipei,
Taiwan, Republic of China.
(4) Dr. Mikhail's address is 6720 Bertner Ave., Suite B111, Houston, Texas
77030.
(5) Does not include 1,500 shares held by Dr. Thomas' spouse and children,
with respect to which Dr. Thomas disclaims beneficial ownership.
(6) Dr. Jenkins' address is Gelham, Church Road, Waxham, Norfolk NR12 0DY,
United Kingdom.
(7) See footnotes 1 through 3 and 5 above.
(8) The address of Novartis AG is S-202.502, CH-4002, Basel, Switzerland.
(9) Does not include 135,000 shares of common stock held by the Graduate
School of Human Behavior, an organization whose President is Margaret
Alafi, spouse of Moshe Alafi, with respect to which Dr. Alafi disclaims
beneficial ownership. Mr. Alafi is the General Partner of Alafi Capital
Company. Alafi Capital Company's address is P.O. Box 7338, Berkeley,
California 94707.
56
<PAGE>
CERTAIN TRANSACTIONS
REGISTRATION RIGHTS
Some of our stockholders, including Nancy T. Chang, our Chairman, President and
Chief Executive Officer, and Novartis and Tse Wen Chang, each of whom owns more
than 10% of our common stock, have certain registration rights which they may
exercise after this offering. They may request that we register their shares for
sale with the Securities and Exchange Commission, and, if all of the conditions
that are contained in our agreements with them are met, we must register their
shares. We would be required to bear all the expenses of a registration. There
are some restrictions on their rights, including that we are not obligated to
effect more than one registration for their shares, except that we may be
required, in certain circumstances, to register their shares up to three times
using a short-form registration. For a more detailed description see also
"Description of Capital Stock -- Registration Rights."
NOVARTIS NOTE PAYABLE
We have a loan agreement with Novartis, which, prior to this offering, held
19.1% of our common stock. Under the agreement, Novartis loaned us $10.0
million, bearing interest at a rate equal to LIBOR plus 2% (8.1% at December 31,
1999). Novartis has agreed to forgive interest on the loan through December 31,
1999. The loan is due December 31, 2005. Tanox and Novartis have agreed in
principle that the principal and future interest payments may be partially or
totally forgiven by Novartis based on our future use of the facility.
COLLABORATION AGREEMENTS WITH NOVARTIS
We also have agreements with Novartis to jointly develop anti-IgE antibody
products. For a more detailed description see "Business -- Collaboration and
License Agreements."
TRANSACTIONS WITH DIRECTORS
In addition to being one of our directors, Tse Wen Chang is also a consultant to
us. In 1999, we paid $48,000 to Dr. Chang under the terms of his consulting
agreement. Our Taiwan subsidiary, TanAsia Pharma, Ltd., also entered into a
collaboration agreement, which expired in June 1999, with Dr. Chang and the
National Tsing Hua University. Dr. Chang is a professor, and was formerly Dean
of the College of Life Sciences, at National Tsing Hua University. Under the
agreement with the university, Dr. Chang and other scientists at the university
participated in certain research and development activities for our benefit. In
1999, we paid the university $20,250 under the terms of that agreement.
LOANS TO MANAGEMENT
In April 1999, we loaned John Blickenstaff, our Vice President of
Administration, Secretary and Treasurer, $161,250 to enable him to purchase
258,000 shares of our common stock, pursuant to stock options he held which were
soon to expire. This full recourse loan is secured by shares of our common stock
owned by Mr. Blickenstaff, bears interest at a rate of 8.5% and is due and
payable in full in September 2001.
In October 1999, we loaned David W. Thomas, our Senior Vice President of
Research and Development, $150,000 to enable him to purchase a residence in
Houston. The loan is unsecured, bears interest at a rate of 8.5% per annum and
is due and payable in full on the first to occur of the sale of his
Massachusetts residence or July 15, 2000.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
In accordance with our amended and restated certificate of incorporation, we are
authorized to issue up to 120,000,000 shares of common stock, par value $.01 per
share, and 10,000,000 shares of preferred stock, par value $.01 per share. As of
February 1, 2000, there were 33,324,402 shares of common stock outstanding held
by 156 stockholders of record, and no shares of preferred stock were
outstanding.
The following summary description of our capital stock is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to our amended and restated certificate of incorporation and our bylaws, filed
as exhibits to the registration statement of which this prospectus is a part.
COMMON STOCK
Based on the number of shares outstanding as of February 1, 2000 and giving
effect to the issuance of the shares of common stock offered pursuant to
this prospectus there will be shares of common stock outstanding upon the
completion of this offering. In addition, as of February 1, 2000, there were
outstanding stock options to purchase 3,183,920 shares of common stock.
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors.
Holders of common stock are entitled to receive ratably the dividends, if any,
declared from time to time by the board of directors out of legally available
funds. Holders of common stock have no conversion, redemption or preemptive
rights to subscribe to any of our securities. In the event of any liquidation,
dissolution or winding-up of our affairs, holders of common stock will be
entitled to share ratably in our assets remaining after provision for payment of
liabilities to creditors. The rights, preferences and privileges of holders of
common stock are subject to the rights of the holders of any shares of preferred
stock which we may issue in the future.
PREFERRED STOCK
We have no present plans to issue any shares of preferred stock. However, the
board of directors has the authority, without action by the stockholders, to
designate and issue preferred stock in one or more series and to designate the
rights, preferences and privileges of each series, which may be greater than the
rights of the common stock.
REGISTRATION RIGHTS
After the completion of this offering, the holders of 21,522,247 shares of
common stock will be entitled to rights with respect to the registration of
these shares under the Securities Act. These rights include demand registration
rights.
Under the terms of the agreements providing registration rights, the holders of
a specified minimum number of shares can demand that we register their shares.
We are required to use our best efforts to effect any such registration, subject
to conditions and limitations. We are not required to effect more than three of
these registrations pursuant to these demand registration rights. Under the
terms of the agreements providing registration rights, if we propose to register
any of our securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights, these
holders are entitled to notice of the registration and are entitled to include
shares of common stock in the registration. The rights are subject to conditions
and limitations, among them the right of the underwriters of an offering subject
to the registration to limit the number of shares included in the registration.
These registration rights have been waived with respect to this offering.
Furthermore, stockholders with demand registration rights may require us to file
additional registration statements on Form S-3, subject to conditions and
limitations. We are generally required to bear all of the expenses of all of
these registrations, except underwriting discounts and selling commissions. We
also have agreed to indemnify stockholders whose shares are included in a
registration statement from losses arising from violations by us of applicable
securities laws in connection with the registration. Registration of any of the
shares of common stock held by stockholders
58
<PAGE>
with registration rights would result in shares becoming freely tradable without
restriction under the Securities Act immediately upon effectiveness of such
registration.
ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF DELAWARE LAW AND OUR AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. We are subject to the
provisions of Section 203 of the Delaware General Corporation Law which
regulates corporate takeovers. Subject to some exceptions, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless:
o before the date of the business combination, the transaction is approved
by the board of directors of the corporation;
o upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the outstanding stock; or
o the business combination is approved by the board of directors and by
the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
various exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
In addition, various provisions of our amended and restated certificate of
incorporation and our amended and restated bylaws, which provisions will be in
effect immediately after the completion of this offering and are summarized in
the following paragraphs, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
REMOVAL OF DIRECTORS; VACANCIES. Our amended and restated certificate of
incorporation provides that directors may be removed from office only for cause
and only by the affirmative vote of the holders of at least two-thirds of our
total outstanding voting stock. Vacancies on our board of directors, including
those resulting from an increase in the number of directors, may be filled only
by the remaining directors, not by stockholders.
CLASSIFIED BOARD OF DIRECTORS. Our bylaws provide for our board to be divided
into three classes of directors serving staggered, three year terms. The
classification of the board has the effect of requiring at least two annual
stockholder meetings, instead of one, to replace a majority of the members of
the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Our bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices not less than 40 days
prior to the annual meeting of stockholders or the special meeting at which the
stockholder desires the nominations to be made; provided, that if less than 50
days notice has been given to the stockholders for such meeting, notice by the
stockholder, to be timely, must be so received not later than the close of
business on the 10th day following the date on which notice of the meeting is
given to stockholders.
59
<PAGE>
Our bylaws also specify certain requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders.
SPECIAL MEETINGS OF STOCKHOLDERS. Our bylaws provide that special meetings of
our stockholders may be called only by a majority of the board of directors, the
chairman of our board of directors or our president or chief executive officer
or by our president at the request of holders of one-fifth of our common stock.
PREFERRED STOCK. The board of directors has the authority, without action by
the stockholders, to designate and issue preferred stock in one or more series
and to designate the rights, preferences and privileges of each series, which
may be greater than the rights of the common stock. We cannot predict the effect
of the issuance of any shares of preferred stock upon the rights of holders of
our common stock until the board of directors determines the specific rights of
the holders of our preferred stock. However, the effects could include one or
more of the following:
o restricting dividends on our common stock;
o diluting the voting power of our common stock;
o impairing the liquidation rights of our common stock; or
o discouraging or preventing a change in our control.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Section 145 of the Delaware General Corporation Law authorizes a corporation's
board of directors to grant indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities, including reimbursement for expenses incurred, arising under
the Securities Act.
As permitted by Delaware law, our amended and restated certificate of
incorporation includes a provision that eliminates the personal liability of our
directors for monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to
Tanox or its stockholders; (2) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; (3) under Section
174 of the Delaware General Corporation Law regarding unlawful dividends and
stock purchases; or (4) for any transaction from which the director derived an
improper personal benefit.
As permitted by Delaware law, our bylaws provide that (1) Tanox is required to
indemnify its directors and officers to the fullest extent permitted by Delaware
law; (2) Tanox is required to advance expenses, as incurred, to its directors
and officers in connection with a legal proceeding, subject to certain limited
exceptions; and (3) the rights conferred in the bylaws are not exclusive.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our officers and directors to give them
additional contractual assurances regarding the scope of the indemnification
provided in our amended and restated certificate of incorporation and bylaws and
to provide additional procedural protections.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock Transfer
and Trust Company, New York, New York.
LISTING
We will apply for quotation of the common stock on the Nasdaq National Market
under the symbol "TNOX."
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our common
stock. Future sales of substantial amounts of common stock in the public market
or the perception that sales could occur, could adversely affect the market
price of our common stock and our ability to sell equity securities.
When the offering is completed, we will have a total of shares of
common stock outstanding. The shares offered by this prospectus will be
freely tradeable unless they are purchased by our "affiliates," as defined in
Rule 144 under the Securities Act. Shares purchased by affiliates may generally
only be sold pursuant to an effective registration statement under the
Securities Act or in compliance with Rule 144 as described below. The remaining
shares are "restricted," which means they were originally sold in offerings
that were not subject to a registration statement filed with the Securities and
Exchange Commission. These restricted shares may be resold only through
registration under the Securities Act or under an available exemption from
registration, such as provided through Rule 144.
Directors and officers and stockholders who together own shares of common
stock will be subject to lock-up agreements providing that they will not offer,
sell or otherwise dispose of common stock owned by them for a period of 180 days
after the date of this prospectus. CIBC World Markets Corp., however, may in its
sole discretion, at any time, without notice, release all or any portion of the
shares subject to lock-up agreements. Upon expiration of the lock-up agreements,
shares will become eligible for sale pursuant to Rule 144(k),
shares will become eligible for sale under Rule 144 and shares will
become eligible for sale under Rule 701.
RULE 144
Generally, Rule 144 as currently in effect provides that, beginning 90 days
after the first date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period, a number of shares that does not exceed the
greater of:
o 1% of the number of shares of common stock then outstanding, which,
based on the shares outstanding as of February 1, 2000 will equal
approximately shares; or
o the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
the notice on Form 144 with respect to the sale.
Rule 144 provides limitations on the manner of sales and imposes requirements as
to notice and the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who has not been one of our affiliates at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, may sell his or her shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise restricted, a person
who has been a non-affiliate for at least two years may sell his or her shares
in the open market immediately after the lock-up agreements expire.
RULE 701
Rule 701 permits any of our employees, officers, directors, or consultants who
purchased their shares under a compensatory stock or option plan or other
written agreement prior to the effective date of this offering to sell such
shares under Rule 144 without complying with the holding period, public
information, volume limitation or notice requirements of Rule 144. All holders
of Rule 701 shares may not sell their Rule 701 shares until 90 days after the
date of this prospectus. However, substantially all shares of our common stock
issued under Rule 701 are subject to lock-up agreements described above.
61
<PAGE>
Shortly following the date of this prospectus, we intend to file a registration
statement on Form S-8 under the Securities Act covering shares of common stock
reserved for issuance under our stock option plans. Shares registered under this
registration statement will, subject to Rule 144 volume limitations applicable
to our affiliates, be available for sale in the open market immediately after
the lock-up agreements expire. As of February 1, 2000, an aggregate of 3,183,920
shares of common stock were subject to outstanding options.
REGISTRATION RIGHTS
As of February 1, 2000, holders of 21,522,247 shares of common stock will be
entitled to certain rights with respect to the registration of those shares
under the Securities Act. After these shares are registered, they will be freely
tradeable. For a description of these rights, see "Description of Capital
Stock."
62
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., FleetBoston Robertson Stephens Inc., Warburg
Dillon Read LLC, Adams, Harkness & Hill, Inc. and KBC Securities Inc. are acting
as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
UNDERWRITER NUMBER OF SHARES
- ------------------------------------- -------------------------
CIBC World Markets Corp. ............
FleetBoston Robertson Stephens Inc. .
Warburg Dillon Read LLC..............
Adams, Harkness & Hill, Inc. ........
KBC Securities Inc. .................
-------------------------
Total..............................
=========================
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated,
depending on the circumstances.
The shares should be ready for delivery on or about , 2000, against payment
in immediately available funds. The representatives have advised us that the
underwriters propose to offer the shares directly to the public at the public
offering price that appears on the cover page of this prospectus. In addition,
the representatives may offer some of the shares to other securities dealers at
such price less a concession of $ per share. The underwriters may also allow,
and such dealers may reallow, a concession not in excess of $ per share to
other dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.
We have granted the underwriters an over-allotment option. This option, which is
exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of additional shares from us to cover
over-allotments. If the underwriters exercise all or part of this option, they
will purchase shares covered by the option at the initial public offering price
that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to the public
will be $ , and the total proceeds to us will be $ . The underwriters have
severally agreed that, to the extent the over-allotment option is exercised,
they will each purchase a number of additional shares proportionate to the
underwriter's initial amount reflected in the above table.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by us:
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
---------- -------------------------- ----------------------------
<S> <C> <C> <C>
Tanox................................ $ $ $
</TABLE>
We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $ .
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
63
<PAGE>
We and our officers and directors and substantially all other stockholders have
agreed to a 180-day "lock up" with respect to shares of common stock that
they beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This means that, subject to certain exceptions, for a period of
180 days following the date of this prospectus, we and such persons may not
offer, sell, pledge or otherwise dispose of these securities without the prior
written consent of CIBC World Markets Corp.
The representatives have informed us that they do not expect discretionary sales
by the underwriters to exceed 5% of the shares offered by this prospectus.
The underwriters have reserved for sale up to shares for employees,
directors and other persons associated with us. These reserved shares will be
sold at the initial public offering price that appears on the cover page of this
prospectus. The number of shares available for sale to the general public in the
offering will be reduced to the extent reserved shares are purchased by such
persons. The underwriters will offer to the general public, on the same terms as
other shares offered by this prospectus, any reserved shares that are not
purchased by such persons.
There is no established trading market for the shares. The offering price for
the shares has been determined by us and the representatives, based on the
following factors:
o prevailing market and general economic conditions;
o our financial information;
o our history and prospects;
o Tanox and the industry in which we compete;
o an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues; and
o the present stage of our development and the above factors in relation
to the market values and various valuation measures of other companies
engaged in activities similar to ours.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
o Stabilizing transactions -- The representatives may make bids or
purchases for the purpose of pegging, fixing or maintaining the price of
the shares, so long as stabilizing bids do not exceed a specified
maximum.
o Over-allotment and syndicate covering transactions -- The underwriters
may create a short position in the shares by selling more shares than
are set forth on the cover page of this prospectus. If a short position
is created in connection with the offering, the representatives may
engage in syndicate covering transactions by purchasing shares in the
open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option.
o Penalty bids -- If the representatives purchase shares in the open
market in a stabilizing transaction or syndicate covering transaction,
they may reclaim a selling concession from the underwriters and selling
group members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
64
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the shares
of common stock offered by this prospectus will be passed upon for us by
Chamberlain, Hrdlicka, White, Williams & Martin, Houston, Texas. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago,
Illinois.
EXPERTS
The financial statements as of December 31, 1998 and 1999, and for each of the
three years in the period ended December 31, 1999 included in this prospectus
and elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
Certain legal matters with respect to the statements in this prospectus under
the captions "Risk Factors -- We are dependent on our patents and proprietary
rights. The validity, enforceability and commercial value of these rights are
highly uncertain," and "Business -- Patents and Proprietary Rights" have been
reviewed and approved by Chamberlain, Hrdlicka, White, Williams & Martin,
Houston, Texas, our patent counsel who are experts in these matters and are
subject to an opinion to be rendered to the underwriters. We are including this
information relying on their review and approval.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in connection with this offering. In addition, upon
completion of the offering, we will be required to file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission.
You may read and copy the registration statement and any other documents filed
by us at the Securities and Exchange Commission's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the Public
Reference Room. Our Securities and Exchange Commission filings are also
available to the public at the Securities and Exchange Commission's Internet
site at "http://www.sec.gov."
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of Tanox, the
reference may not be complete and you should refer to the exhibits that are a
part of the registration statement for a copy of the contract or document.
After the offering, we intend to provide annual reports to our stockholders that
include financial information examined and reported on by an independent public
accounting firm.
65
<PAGE>
TANOX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----------
Report of Independent Public
Accountants........................ F-2
Consolidated Balance Sheets as of
December 31, 1998 and 1999......... F-3
Consolidated Statements of Operations
and Comprehensive Income (Loss) for
the years ended December 31, 1997,
1998 and 1999...................... F-4
Consolidated Statements of
Stockholders' Equity for the years
ended December 31, 1997, 1998 and
1999............................... F-5
Consolidated Statements of Cash Flows
for the years ended December 31,
1997, 1998 and 1999................ F-6
Notes to Consolidated Financial
Statements......................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Tanox, Inc.:
We have audited the accompanying consolidated balance sheets of Tanox, Inc., a
Delaware corporation, and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations and comprehensive income (loss),
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tanox, Inc., and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
December 31, 1999, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
February 1, 2000
F-2
<PAGE>
TANOX, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------
1998 1999
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 28,352,000 $ 44,242,000
Short-term investments.......... 5,383,000 3,012,000
Accounts receivable............. 74,000 125,000
Interest receivable............. 253,000 414,000
Income taxes receivable......... 2,052,000 132,000
Prepaid expenses................ 91,000 114,000
------------- -------------
Total current assets....... 36,205,000 48,039,000
PROPERTY AND EQUIPMENT:
Laboratory and office
equipment...................... 8,709,000 9,369,000
Leasehold improvements.......... 1,902,000 2,102,000
Furniture and fixtures.......... 92,000 119,000
------------- -------------
10,703,000 11,590,000
Less -- Accumulated depreciation
and amortization............... (3,577,000) (4,577,000)
------------- -------------
Net property and
equipment............... 7,126,000 7,013,000
OTHER ASSETS, net of accumulated
amortization of $25,000 and
$59,000, respectively........... 91,000 276,000
------------- -------------
Total assets............... $ 43,422,000 $ 55,328,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 802,000 $ 874,000
Accrued liabilities............. 1,080,000 947,000
Accrued arbitration award....... -- 3,500,000
------------- -------------
Total current
liabilities............. 1,882,000 5,321,000
NOTE PAYABLE TO RELATED PARTY........ 10,000,000 10,000,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par
value; 10,000,000 shares
authorized; none outstanding... -- --
Common stock, $.01 par value;
120,000,000 shares authorized;
29,310,175 shares in 1998 and
33,324,402 shares in 1999
issued and outstanding......... 293,000 333,000
Additional paid-in capital...... 39,266,000 71,701,000
Deferred compensation........... (902,000) (651,000)
Loans receivable from
employees...................... -- (1,086,000)
Other comprehensive income,
cumulative translation
adjustment..................... (2,000) 171,000
Retained earnings (deficit)..... (7,115,000) (30,461,000)
------------- -------------
Total stockholders'
equity.................. 31,540,000 40,007,000
------------- -------------
Total liabilities and
stockholders' equity.... $ 43,422,000 55,328,000
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
TANOX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
------------ -------------- --------------
<S> <C> <C> <C>
REVENUES:
Development agreement with
related party................. $ 1,271,000 $ 2,369,000 $ 1,063,000
Other development agreements and
licensing fees................ 7,668,000 53,000 342,000
------------ -------------- --------------
Total revenues........ 8,939,000 2,422,000 1,405,000
OPERATING COSTS AND EXPENSES:
Research and development........ 6,926,000 11,933,000 17,163,000
General and administrative...... 2,230,000 3,431,000 8,582,000
------------ -------------- --------------
Total operating costs
and expenses........ 9,156,000 15,364,000 25,745,000
------------ -------------- --------------
LOSS FROM OPERATIONS................. (217,000) (12,942,000) (24,340,000)
OTHER INCOME (EXPENSE):
Interest income................. 1,684,000 2,061,000 1,884,000
Interest expense................ (639,000) (825,000) (741,000)
Other........................... -- 4,000 (115,000)
------------ -------------- --------------
Total other income.... 1,045,000 1,240,000 1,028,000
------------ -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES.... 828,000 (11,702,000) (23,312,000)
(Provision) benefit of
income taxes........ (198,000) 1,533,000 (34,000)
------------ -------------- --------------
NET INCOME (LOSS).................... $ 630,000 $ (10,169,000) $ (23,346,000)
============ ============== ==============
EARNINGS (LOSS) PER SHARE:
Basic........................... $ 0.02 $ (0.35) $ (0.75)
============ ============== ==============
Diluted......................... $ 0.02 $ (0.35) $ (0.75)
============ ============== ==============
SHARES USED IN COMPUTING EARNINGS
(LOSS) PER SHARE:
Basic........................... 27,909,000 29,105,000 31,113,000
============ ============== ==============
Diluted......................... 31,190,000 29,105,000 31,113,000
============ ============== ==============
COMPREHENSIVE NET INCOME (LOSS):
Net income (loss)............... $ 630,000 $ (10,169,000) $ (23,346,000)
Foreign currency translation
adjustment.................... -- (2,000) 173,000
------------ -------------- --------------
TOTAL COMPREHENSIVE NET INCOME
(LOSS)............................. $ 630,000 $ (10,171,000) $ (23,173,000)
============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TANOX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
LOANS
COMMON STOCK RECEIVABLE
--------------------- ADDITIONAL DEFERRED TREASURY FROM
SHARES PAR VALUE PAID-IN CAPITAL COMPENSATION STOCK EMPLOYEES
--------- --------- --------------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996.......... 26,215,004 $262,000 $13,125,000 $ -- $ -- $ --
Issuance of common stock for
cash, $7.50 per share, net of
issuance costs................. 2,331,262 23,000 17,308,000 -- -- --
Purchase of treasury stock,
10,425 shares.................. -- -- -- -- (78,000 ) --
Issuance of common stock upon
exercise of stock options...... 36,614 1,000 (9,000) -- 78,000 --
Capital contribution from
forgiveness of interest by
related party.................. -- -- 639,000 -- -- --
Deferred compensation related to
stock options.................. -- -- 750,000 (750,000) -- --
Amortization of deferred
compensation related to stock
options........................ -- -- -- 25,000 -- --
Net income....................... -- -- -- -- -- --
--------- --------- --------------- ------------ -------- ----------
BALANCES, December 31, 1997.......... 28,582,880 286,000 31,813,000 (725,000) -- --
Issuance of common stock for
cash, $11.25 per share, net of
issuance costs................. 273,686 3,000 3,046,000 -- -- --
Issuance of common stock upon
exercise of stock options...... 230,400 2,000 223,000 -- -- --
Exchange of mature common stock
to exercise stock options...... (3,200) -- (36,000) -- -- --
Issuance of common stock to
acquire foreign subsidiary..... 226,409 2,000 2,545,000 -- -- --
Income tax benefit from stock
options exercised.............. -- -- 400,000 -- -- --
Capital contribution from
forgiveness of interest by
related party.................. -- -- 825,000 -- -- --
Deferred compensation related to
stock options.................. -- -- 450,000 (450,000) -- --
Amortization of deferred
compensation related to stock
options........................ -- -- -- 273,000 -- --
Exchange translation
adjustment..................... -- -- -- -- -- --
Net loss......................... -- -- -- -- -- --
--------- --------- --------------- ------------ -------- ----------
BALANCES, December 31, 1998.......... 29,310,175 293,000 39,266,000 (902,000) -- --
Issuance of common stock for
cash, $12.50 per share, net of
issuance costs................. 1,896,000 19,000 22,907,000 -- -- --
Issuance of common stock upon
exercise of stock options...... 1,789,520 18,000 1,131,000 -- -- --
Issuance of common stock on a net
issuance basis upon exercise of
warrants....................... 86,632 -- -- -- -- --
Issuance of common stock to
acquire foreign subsidiary..... 242,075 3,000 3,023,000 -- -- --
Capital contribution from
forgiveness of interest by
related party.................. -- -- 738,000 -- -- --
Deferred compensation related to
stock options.................. -- -- 4,636,000 (60,000) -- --
Amortization of deferred
compensation related to stock
options........................ -- -- -- 311,000 -- --
Loans receivable from
employees...................... -- -- -- -- -- (1,086,000)
Exchange translation
adjustment..................... -- -- -- -- -- --
Net loss......................... -- -- -- -- -- --
--------- --------- --------------- ------------ -------- ----------
BALANCES, December 31, 1999.......... 33,324,402 $333,000 $71,701,000 $ (651,000) $ -- $(1,086,000)
========= ========= =============== ============ ======== ==========
OTHER
COMPREHENSIVE
INCOME-
CUMULATIVE RETAINED TOTAL
TRANSLATION EARNINGS STOCKHOLDERS'
ADJUSTMENT (DEFICIT) EQUITY
------------- ----------- -------------
BALANCES, December 31, 1996.......... $ -- $ 2,424,000 $15,811,000
Issuance of common stock for
cash, $7.50 per share, net of
issuance costs................. -- -- 17,331,000
Purchase of treasury stock,
10,425 shares.................. -- -- (78,000)
Issuance of common stock upon
exercise of stock options...... -- -- 70,000
Capital contribution from
forgiveness of interest by
related party.................. -- -- 639,000
Deferred compensation related to
stock options.................. -- -- --
Amortization of deferred
compensation related to stock
options........................ -- -- 25,000
Net income....................... -- 630,000 630,000
------------- ----------- -------------
BALANCES, December 31, 1997.......... -- 3,054,000 34,428,000
Issuance of common stock for
cash, $11.25 per share, net of
issuance costs................. -- -- 3,049,000
Issuance of common stock upon
exercise of stock options...... -- -- 225,000
Exchange of mature common stock
to exercise stock options...... -- -- (36,000)
Issuance of common stock to
acquire foreign subsidiary..... -- -- 2,547,000
Income tax benefit from stock
options exercised.............. -- -- 400,000
Capital contribution from
forgiveness of interest by
related party.................. -- -- 825,000
Deferred compensation related to
stock options.................. -- -- --
Amortization of deferred
compensation related to stock
options........................ -- -- 273,000
Exchange translation
adjustment..................... (2,000) -- (2,000)
Net loss......................... -- (10,169,000) (10,169,000)
------------- ----------- -------------
BALANCES, December 31, 1998.......... (2,000) (7,115,000) 31,540,000
Issuance of common stock for
cash, $12.50 per share, net of
issuance costs................. -- -- 22,926,000
Issuance of common stock upon
exercise of stock options...... -- -- 1,149,000
Issuance of common stock on a net
issuance basis upon exercise of
warrants....................... -- -- --
Issuance of common stock to
acquire foreign subsidiary..... -- -- 3,026,000
Capital contribution from
forgiveness of interest by
related party.................. -- -- 738,000
Deferred compensation related to
stock options.................. -- -- 4,576,000
Amortization of deferred
compensation related to stock
options........................ -- -- 311,000
Loans receivable from
employees...................... -- -- (1,086,000)
Exchange translation
adjustment..................... 173,000 -- 173,000
Net loss......................... -- (23,346,000) (23,346,000)
------------- ----------- -------------
BALANCES, December 31, 1999.......... $ 171,000 $(30,461,000) $40,007,000
============= =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TANOX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999
------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 630,000 $ (10,169,000) $ (23,346,000)
Adjustments to reconcile net
income (loss) to net cash used
in operating activities --
Depreciation and
amortization............. 199,000 934,000 1,034,000
Interest expense forgiven
by related party......... 639,000 825,000 738,000
Amortization of deferred
compensation related to
stock options............ 25,000 273,000 4,887,000
In-process research and
development.............. -- 2,798,000 3,359,000
Changes in operating assets and
liabilities --
Increase in accounts and
interest receivables and
prepaid expenses......... (17,000) (15,000) (235,000)
Change in taxes receivable
or payable............... (463,000) (1,576,000) 1,920,000
(Decrease) increase in
accounts payable and
accrued liabilities...... (694,000) 391,000 3,439,000
Decrease in collaboration
advances................. (500,000) -- --
------------- -------------- --------------
Net cash used in
operating
activities.......... (181,000) (6,539,000) (8,204,000)
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term
investments................... -- (9,517,000) (12,082,000)
Maturity of short-term
investments................... -- 4,134,000 14,453,000
Purchases of property and
equipment..................... (520,000) (455,000) (887,000)
Increase in other assets........ -- -- (219,000)
Purchase of wholly owned
subsidiary (net of cash
acquired)..................... -- (364,000) (333,000)
------------- -------------- --------------
Net cash provided by
(used in) investing
activities.......... (520,000) (6,202,000) 932,000
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of note payable to
related party................. 2,000,000 1,000,000 --
Issuance of employee loans in
connection with the exercise
of stock options.............. -- -- (1,086,000)
Proceeds from issuance of common
stock......................... 17,401,000 3,238,000 24,075,000
Purchases of treasury stock..... (78,000) -- --
------------- -------------- --------------
Net cash provided by
financing activities..... 19,323,000 4,238,000 22,989,000
IMPACT OF EXCHANGE RATES ON CASH..... -- (2,000) 173,000
------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ 18,622,000 (8,505,000) 15,890,000
CASH AND CASH EQUIVALENTS, beginning
of year............................ 18,235,000 36,857,000 28,352,000
------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 36,857,000 $ 28,352,000 $ 44,242,000
============= ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for
taxes $ 661,000 $ 37,000 $ 137,000
Noncash investing and financing
activities --
Capital contribution from
forgiveness of interest
by a related party....... 639,000 825,000 738,000
Receivable related to
income tax benefit from
stock options
exercised................ -- 400,000 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS AND RISK FACTORS:
Tanox, Inc. (Tanox), was formerly known as Tanox Biosystems, Inc. and was
originally incorporated as a Texas corporation on March 19, 1986. Tanox was
reincorporated in Delaware in January 2000. Tanox is engaged in the discovery
and development of therapeutic products that beneficially influence or are
derived from the immune system. Tanox is focusing its product development
efforts on therapeutics in three broad areas: immunology (asthma/allergy,
autoimmune diseases and inflammation), infectious diseases and oncology.
Tanox has not yet generated any significant revenues from product sales, nor is
there any assurance of significant future revenues from product sales. The
research and development activities engaged in by Tanox involve a high degree of
risk and uncertainty. The ability of Tanox to successfully develop, manufacture
and market its proprietary products is dependent upon many factors. These
factors could include, but are not limited to, the need for additional
financing, the reliance on collaborative arrangements for research and
development, marketing and product commercialization and the ability to develop
or obtain manufacturing, sales and marketing capabilities. Additional factors
could include resolution of ongoing contingencies, including legal proceedings,
changes in the level of sponsored research revenue, uncertainties as to patents
and proprietary technologies, technological change and risk of obsolescence,
development of its products, competition, government regulations and regulatory
approval, and product liability exposure. As a result of the aforementioned
factors and related uncertainties, there can be no assurance of Tanox's future
success.
Tanox entered into a development and licensing agreement with Novartis Pharma AG
(Novartis) in May 1990. Under this agreement, Tanox and Novartis agreed to
jointly develop certain products for IgE-mediated diseases, including asthma and
allergies. Tanox received a contract payment upon signing the agreement and has
received additional contract payments and reimbursement payments upon the
occurrence of specified events. Under a separate agreement (the Stock
Agreement), Tanox and Novartis also agreed to the sale and purchase of shares of
Tanox's common stock. Sales of these shares were completed in May 1990, May 1992
and June 1994. Tanox notified Novartis of the termination of the Stock Agreement
as provided therein, and the termination was effective as of May 10, 1997.
Novartis owned approximately 19.1 percent of Tanox's outstanding common stock at
December 31, 1999.
On December 22, 1993, Tanox sued Genentech, Inc. (Genentech), F. Hoffman-La
Roche Ltd., Roche Holdings, Inc., Roche Holding Ltd. and Hoffman-La Roche, Inc.
(collectively referred to as "Roche"), in Harris County District Court in
Houston, Texas. The action arose from collaboration discussions between Tanox
and Genentech in 1989 and 1990 relating to Tanox's anti-IgE product as a
treatment for IgE-mediated diseases, including allergy and asthma. In response,
Genentech filed suit against Tanox for patent infringement and subsequently
named Novartis in the suit. Tanox's litigation against Genentech and Roche and
Genentech's litigation against Tanox and Novartis were settled in July 1996.
Contemporaneously with the settlement, Genentech, Novartis and Tanox also
entered into a binding agreement in principle to combine their existing anti-IgE
antibody programs into a cooperative effort to develop and commercialize
selected anti-IgE antibodies (the Three-Party Collaboration). Tanox also entered
into additional licensing arrangements with Genentech. Tanox received an initial
payment upon entering into the Three-Party Collaboration and settling the
litigation. Tanox received and will receive additional milestone and royalty
payments upon the accomplishment of specified subsequent events. Novartis or
Genentech may terminate their participation in the Three-Party Collaboration on
short notice, subject to reversion of product rights to Tanox and the remaining
collaborator.
F-7
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITION OF PANGENETICS B.V.:
In March 1998, Tanox acquired the common stock of Tanox Pharma B.V. (formerly
PanGenetics), a biotechnology company located in Amsterdam, The Netherlands.
Tanox recorded the transaction for accounting purposes as a purchase, and the
consolidated financial statements include the operations of Tanox Pharma
subsequent to the acquisition date. Under the terms of the agreement, Tanox
purchased Tanox Pharma for an initial cash payment of $508,000 and 226,409
shares of common stock, valued at $11.25 per share, for a total initial
consideration of $3,055,000. In addition, Tanox agreed to pay future
consideration, in two installments, totaling up to $667,000 in cash and 484,147
shares of common stock upon occurrence of specified future events. In September
1999, Tanox made the second installment payments of $333,000 in cash and 242,075
shares of common stock valued at $12.50 per share, for a total additional
consideration of $3,359,000. If specified future events take place and the final
future payment is made in March 2001, Tanox will record an additional purchase
price amount based on the cash paid and fair value of the common stock issued at
the time of payment.
Tanox engaged an independent firm to perform an appraisal of the assets acquired
in the transaction. The appraisal was completed and the report issued in 1998.
The acquisition of Tanox Pharma was accounted for under the purchase method of
accounting in which the aggregate purchase price was allocated to tangible and
intangible assets acquired based on their relative fair values as of the date of
the transactions. At the time of the acquisition, the total current and future
consideration of the acquisition was valued for accounting purposes at $9.2
million, based on the total of the cash and then fair value of common stock paid
to Tanox Pharma shareholders. Of this amount, we allocated approximately $0.2
million to tangible fixed assets, $0.1 million to intangible assets, $7.2
million to in-process research and development and $1.7 million to goodwill.
The valuation of acquired in-process research and development considered:
o the current technological feasibility, scientific and development states
of the anti-CD40 research project;
o the expected amount of time and resources required to complete the
projects;
o the alternative future use of the acquired research and development; and
o valuation and allocation approaches.
Tanox's ability to commercialize the acquired anti-CD40 research project is
affected by several risks. These risks include:
o Tanox's ability to construct low cost versions of the antibody;
o successful preclinical testing;
o successful completion of Phase I, II and III clinical testing;
o successful filing and acceptance of European and Japanese regulatory
submissions;
o Tanox's ability to successfully commercialize the anti-CD40 monoclonal
antibody by itself or in connection with a collaborative partner; and
o Tanox's ability to manufacture the anti-CD40 monoclonal antibody
at a competitive cost.
At the time of the acquisition, the anti-CD40 monoclonal antibody required
additional development work and preclinical testing to enter clinical trials. In
order for anti-CD40 to become a marketable product, it was necessary to conduct
several clinical trials and to improve the manufacturing of the product. Tanox
estimated at the time of the acquisition that it would take from seven to nine
years and cost at least $50 million to complete the development of the anti-CD40
product.
F-8
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The initial purchase price installment was allocated as follows:
In-process research and
development........................ $ 2,798,000
Net working capital.................. 125,000
Intangible assets.................... 100,000
Tangible fixed assets................ 22,000
Noncurrent financial assets.......... 10,000
------------
Total........................... $ 3,055,000
============
The allocation of the second installment payment of $3,359,000 was assigned to
in-process research and development based on the appraisal. Accordingly, Tanox's
financial statements for the years ended December 31, 1998 and 1999 include a
charge of $2,798,000 in 1998 and $3,359,000 in 1999 for expensing the cost of
the in-process research and development. If the final purchase price payments
are made to the former shareholders of Tanox Pharma in 2001, Tanox anticipates
that the cost of such additional payments will be allocated to acquired
in-process research and development and goodwill based upon the appraisal
obtained as of the date of the acquisition.
If Tanox had acquired PanGenetics prior to January 1, 1997, the unaudited pro
forma financial results would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------- -------------- --------------
<S> <C> <C> <C>
Total assets......................... $ 44,984,000 $ 43,422,000 $ 55,328,000
Total revenues....................... 9,384,000 2,439,000 1,405,000
Net income (loss).................... 557,000 (7,473,000) (19,988,000)
Basic earnings (loss) per share...... 0.02 (0.25) (0.64)
Diluted earnings (loss) per share.... 0.02 (0.25) (0.64)
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Tanox
and its wholly owned subsidiaries, Tanox Pharma International, Inc., Tanox
Pharma B.V. and TanAsia Pharma, Ltd. Intercompany transactions and balances are
eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues associated with development agreements which include rights to license
or sublicense Tanox's technology are recognized when payments are earned.
Development revenues are received under best efforts contracts, and such
revenues are not refundable. Revenues earned in connection with sponsored
research are recognized as Tanox performs its obligations related to such
research. Any revenue contingent upon future
F-9
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
performance by Tanox is deferred and recognized as the performance is completed.
Any revenue from milestones is recognized when the milestones are achieved.
Tanox recognized revenues of $6.3 million, $2.4 million and $1.1 million during
1997, 1998 and 1999, respectively, under the Three-Party Collaboration described
in Note 1. Included in these revenues are milestone payments of $5.0 million,
$1.5 million and $1.0 million, respectively. Expenses incurred related to these
agreements were approximately $1.3 million, $0.2 million and $0.1 million in
1997, 1998 and 1999, respectively. Revenues from collaborative agreements with
Novartis accounted for 15 percent of 1997 revenues, 98 percent of 1998 revenues
and 76 percent of 1999 revenues. Revenues from collaborative agreements with
Genentech accounted for 56 percent of 1997 revenues and none of 1998 and 1999
revenues. At December 31, 1998, Tanox had accounts receivable of approximately
$14,000 for estimated costs reimbursable under the Three-Party Collaboration.
There were no receivables under the Three-Party Collaboration at December 31,
1999.
Tanox recognized revenues of $2.5 million in 1997 from advances made to Tanox in
1996 and 1997 under a development and licensing agreement (the Takara Agreement)
with Takara Shuzo, Ltd.. The Takara Agreement was concluded effective November
30, 1997. The Takara Agreement accounted for 28 percent of 1997 revenues.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with an original maturity
of three months or less when purchased.
SHORT-TERM INVESTMENTS
Short-term investments consist of U.S. Government agency debt obligations and
investment grade commercial paper with an original maturity greater than three
months but less than one year. Tanox's policy is to hold short-term investments
until maturity. Short-term investments are recorded at cost, which approximates
fair value. Tanox has no available-for-sale or trading securities.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and depreciated on a straight-line
basis over the estimated useful economic lives of the assets or, in the case of
leasehold improvements, over the remaining term of the lease. The estimated
useful lives employed in computing depreciation are three to seven years for
laboratory and office equipment, five to seven years for furniture and fixtures,
and the lesser of nine years or the remaining lease term for leasehold
improvements. When property is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in income. Maintenance and repairs are charged to expense when
incurred.
Tanox has adopted 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." Management periodically reviews long-lived assets and
certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If factors
indicate that an asset should be evaluated for possible impairment, management
compares estimated undiscounted future operating cash flow from the related
asset to the carrying amount of the asset. If the carrying amount of the asset
were greater than undiscounted future operation cash flow, an impairment loss
would be recognized. Any impairment loss would be computed as the excess of the
carrying amount of the asset over the estimated fair value of the asset
(calculated based on discounting estimated future operating cash flows).
F-10
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The application of SFAS No. 121 has had no material impact on Tanox's financial
position or results of operations.
RESEARCH AND DEVELOPMENT
Research and development costs, including incidental patent costs, are expensed
as incurred.
ACCRUED LIABILITIES
Accrued liabilities at December 31, 1998 and 1999, consist of the following:
1998 1999
------------ ----------
Accrued payroll...................... $ 413,000 $ 282,000
Accrued vacation..................... 178,000 153,000
Accrued taxes........................ 122,000 55,000
Accrued rent......................... 7,000 24,000
Accrued professional fees............ 270,000 264,000
Other................................ 90,000 169,000
------------ ----------
$ 1,080,000 $ 947,000
============ ==========
See Note 9 for discussion of accrued arbitration award as of December 31, 1999.
INCOME TAXES
Tanox accounts for income taxes using the liability method prescribed by SFAS
No. 109, "Accounting for Income Taxes." Under this method, deferred income tax
assets and liabilities reflect the impact of temporary differences between the
financial accounting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATIONS
The balance sheet accounts of Tanox are generally translated into U.S. dollars
at exchange rates in effect on reporting dates. These amounts are reflected in
other comprehensive income. Income statement items are translated at average
exchange rates in effect during the financial statement period. Gains and losses
resulting from foreign currency transactions denominated in currency other than
the functional currency are classified as other income (expense).
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share," requires dual presentation of basic and
diluted earnings per share (EPS). Basic EPS is computed by dividing net income
by the weighted average number of shares of common stock outstanding during the
year. Diluted EPS is computed in the same manner as basic EPS, except that
diluted EPS reflects the potential dilution that would occur if outstanding
options and warrants were exercised.
F-11
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles basic and diluted EPS for the year ended December
31, 1997. Since Tanox incurred net losses for the years ended December 31, 1998
and 1999, basic and diluted EPS are the same.
NET PER SHARE
INCOME SHARES AMOUNT
---------- ------------ ---------
For the year ended December 31,
1997 --
Basic EPS....................... $ 630,000 27,909,000 $0.02
=========
Effect of dilutive securities --
Options and warrants
outstanding................... -- 3,281,000
---------- ------------
Diluted EPS..................... $ 630,000 31,190,000 $0.02
========== ============ =========
OTHER COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and displaying comprehensive income and its components in an entity's
financial statements, and is effective for fiscal years beginning after December
15, 1997. The standard requires that all items that meet the definition of
components of comprehensive income be reported in Tanox's financial statements.
Tanox has included comprehensive income in its consolidated statements of
operations and comprehensive income (loss).
CONCENTRATION OF CREDIT RISK
Tanox's receivables are primarily associated with research collaborations with
pharmaceutical and biotechnology companies and grants from foreign government
entities. Tanox does not believe this concentration of credit risk presents a
material risk to Tanox. Tanox does not require collateral from these entities.
Tanox has invested its excess cash generally in high-quality commercial paper
and U.S. Government agency debt obligations. As of December 31, 1999, these
investments mature within 68 days of year-end and, therefore, management
believes that they bear minimal risk. Tanox has not experienced any losses on
its investments.
F-12
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GEOGRAPHIC AREAS:
Tanox operates in a single business segment. Tanox's operations by geographic
area for the years ended December 31, 1997, 1998 and 1999, are presented below:
<TABLE>
<CAPTION>
TOTAL NET INCOME IDENTIFIABLE
REVENUES (LOSS) ASSETS
--------- ----------- -------------
<S> <C> <C> <C>
Year ended December 31, 1997 --
North America................... $8,939,000 $ 630,000 43,330,000
Asia............................ -- -- 1,501,000
--------- ----------- -------------
$8,939,000 $ 630,000 $ 44,831,000
========= =========== =============
Year ended December 31, 1998 --
North America................... $3,089,000 $(8,983,000) $ 42,794,000
Europe.......................... 39,000 (1,192,000) 282,000
Asia............................ -- 6,000 1,507,000
Interarea eliminations.......... (706,000) -- (1,161,000)
--------- ----------- -------------
$2,422,000 $(10,169,000) $ 43,422,000
========= =========== =============
Year ended December 31, 1999 --
North America................... $3,865,000 $(19,242,000) $ 58,522,000
Europe.......................... 244,000 (4,039,000) 754,000
Asia............................ -- (65,000) 1,534,000
Interarea eliminations.......... (2,704,000) -- (5,482,000)
--------- ----------- -------------
$1,405,000 $(23,346,000) $ 55,328,000
========= =========== =============
</TABLE>
5. NOTE PAYABLE TO RELATED PARTY:
Novartis has advanced Tanox $10.0 million pursuant to a loan agreement to
finance a new clinical manufacturing facility. The loan bears interest at LIBOR
plus two percent (7.3 percent and 8.1 percent at December 31, 1998 and 1999,
respectively). Through December 31, 1999, Novartis has agreed to forgive
interest on the loan. For the years ended December 31, 1997, 1998 and 1999, the
interest forgiven by Novartis has been reflected as interest expense and a
capital contribution. These amounts totalled $639,000, $825,000 and $738,000,
respectively for the years 1997 through 1999. The loan is due December 31, 2005.
Subject to modifications agreed to in principle concurrent with completion of
the Three-Party Collaboration, the principal and future interest payments may be
partially or totally forgiven by Novartis based on the future use of the
facility.
6. INCOME TAXES:
Tanox's pretax income (loss) consists of the following:
1997 1998 1999
------------ -------------- --------------
U.S. .......................... $ 1,253,000 $ (7,973,000) $ (16,505,000)
Foreign........................ (425,000) (3,729,000) (6,807,000)
------------ -------------- --------------
$ 828,000 $ (11,702,000) $ (23,312,000)
============ ============== ==============
F-13
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision (benefit) for income taxes are as follows:
1997 1998 1999
---------- ------------- ---------
Current.............................. $ 198,000 $ (1,533,000) $ 34,000
Deferred............................. -- -- --
---------- ------------- ---------
$ 198,000 $ (1,533,000) $ 34,000
========== ============= =========
Tanox's effective income tax rate for 1997 was less than the statutory federal
income tax rate of 35 percent primarily due to benefits from franchise tax
adjustments and research and developments tax credits that were partially offset
by increases in the valuation allowance. For 1998 and 1999, the benefit was less
than that computed at the statutory rate primarily due to an increase in the
valuation allowance and nondeductible foreign losses. At December 31, 1998,
Tanox recorded a $2.1 million income tax receivable related to the carryback of
1998 losses to prior periods. Of this receivable $2.0 million was collected in
1999 and the remaining $0.1 million will be received in 2000.
Significant components of Tanox's deferred tax assets are as follows:
1998 1999
------------- --------------
Federal net operating loss
carryforward....................... $ -- $ 1,821,000
In-process research and
development........................ 979,000 2,038,000
Foreign net operating loss
carryforwards...................... 417,000 1,831,000
Deferred compensation related to
stock options...................... 360,000 1,909,000
Research and development tax
credits............................ 278,000 1,019,000
Alternative minimum tax credit....... 171,000 248,000
Differences in book and tax
depreciation....................... 211,000 --
Capitalized interest................. 308,000 300,000
Accruals not currently deductible.... 157,000 1,291,000
Other, net........................... 4,000 28,000
------------- --------------
Total deferred tax assets....... 2,885,000 10,485,000
Differences in book and tax
depreciation....................... -- (130,000)
Deferred tax valuation allowance..... (2,885,000) (10,355,000)
------------- --------------
Net deferred taxes.............. $ -- $ --
============= ==============
At December 31, 1999, Tanox has a net operating loss of approximately $6,560,000
for federal income tax reporting purposes. Tanox's intent is to carry back
approximately $1,360,000 of the net operating loss to prior years to obtain a
refund of approximately $132,000. The remaining net operating loss will begin to
expire in 2019. Tanox also has a foreign net operating loss carryforward of
approximately $5,230,000 which will be available to offset the separate company
taxable incomes of certain foreign subsidiaries. Additionally, Tanox has an
unused U.S. research and development tax credit carryforward at December 31,
1999, of approximately $1,019,000 which will begin to expire in 2011. Tanox also
has alternative minimum tax credit carryforwards of approximately $248,000 as of
December 31, 1999. As Tanox has incurred cumulative losses to date and there is
no assurance of future taxable income, a valuation allowance has been
established to fully offset the deferred tax asset at December 31, 1998 and
1999. Tanox's valuation allowance increased from $2,885,000 at December 31,
1998, to $10,355,000 at December 31, 1999, primarily due to Tanox's increase in
net operating loss carryforwards, tax credit carryforwards and deferred
compensation.
F-14
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE OBLIGATIONS:
Tanox leases its facilities pursuant to various operating leases that expire at
various dates through March 2002. Future minimum lease obligations under
noncancelable leases at December 31, 1999, are as follows:
Year ending December 31 --
2000............................ $ 305,000
2001............................ 258,000
2002............................ 65,000
----------
Total...................... $ 628,000
==========
Tanox incurred rent expense of $287,000, $344,000 and $331,000 in 1997, 1998 and
1999, respectively. Certain of the facility leases include escalation clauses
for operating expenses and real estate taxes.
At December 31, 1999, Tanox had outstanding an unsecured, irrevocable letter of
credit for $20,000 related to a lease agreement.
8. CAPITAL STOCK:
PREFERRED STOCK
Tanox is authorized to issue up to 10,000,000 shares of $.01 par value
preferred stock. The board of directors has the authority to issue these shares
in one or more series and to establish the rights, preferences and dividends. No
shares of preferred stock have been issued.
STOCK SPLIT
On March 31, 1997, Tanox declared a stock dividend to effect a stock split that
provided two shares of Tanox's common stock for every one share of Tanox's
common stock held by stockholders of record as of March 21, 1997. On February 1,
2000, Tanox declared a stock dividend to effect a stock split that provided 1.6
shares of Tanox's common stock for every one share of Tanox's common stock held
by stockholders of record as of January 31, 2000. In both cases the aggregate
par value of the dividend was transferred from additional paid-in capital to
common stock. The stock splits have been retroactively reflected in the
accompanying consolidated financial statements.
STOCK OPTIONS
During 1987, Tanox established the 1987 Stock Option Plan (the 1987 Plan)
covering key employees, officers and directors of Tanox. Under the terms of the
1987 Plan, as amended, the number of shares of common stock eligible for
issuance was 4,320,000. Options issued under the 1987 Plan were generally
granted at a purchase price equal to the fair market value at the date of grant
and are generally exercisable beginning two years after the date of grant for 40
percent of the shares, with the balance to become exercisable cumulatively in
three installments of 20 percent each year thereafter. Options expire ten years
after the date of grant. At December 31, 1999, options to purchase 2,242,800
shares of Tanox's common stock were outstanding under the 1987 Plan. The 1987
Plan expired June 24, 1997, and no more shares may be granted under this plan.
Tanox established the 1997 Stock Plan (the 1997 Plan) in November 1997. Under
the terms of the 1997 Plan, Tanox may grant options to purchase up to 8,000,000
shares of Tanox's common stock to employees,
F-15
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
directors, advisors and consultants. The 1997 Plan also provides for several
types of grants including incentive stock options, non-qualified stock options,
stock appreciation rights, stock awards, stock purchases and performance units.
Incentive stock options provide the right to purchase common stock at a price
not less than 100 percent of the fair value of common stock on the date of the
grant. Non-qualified stock options provide the right to purchase common stock at
a price not less than 50 percent of the fair value of the common stock on the
date of the grant. The options granted under the 1997 Plan generally expire ten
years after date of grant and are generally completely exercisable five years
after the grant date. At December 31, 1999, options to purchase 636,320 shares
of common stock were outstanding and 7,360,480 were available for future grants.
The 1997 Plan will expire on October 31, 2007.
In January 1992, Tanox established the 1992 Non-Employee Directors Stock Option
Plan (the Directors Plan) and reserved 480,000 shares of common stock for
issuance upon the exercise of options granted pursuant to the Directors Plan.
Unless otherwise provided, options granted under the Directors Plan will vest
one-third annually from the date of grant. The exercise price of the options
granted will be determined by a committee appointed by Tanox's board of
directors. At December 31, 1999, options to purchase 108,000 shares of Tanox's
common stock were outstanding under the Directors Plan and options to purchase
372,000 shares were available for future grants.
In addition to the plans discussed above, Tanox has entered into various stock
option agreements with certain outside consultants and advisors. At December 31,
1999, options to purchase 196,800 shares of Tanox's common stock were
outstanding under such agreements. All of the outstanding options issued under
these agreements were issued prior to 1996, are currently exercisable and expire
in either 2002 or 2003.
At December 31, 1999, options to purchase 3,183,920 shares were outstanding with
a weighted average exercise price of $4.39 per share, of which options to
purchase 2,106,318 shares were exercisable at a weighted average exercise price
of $2.79 per share. The following table summarizes stock option transactions
since December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF EXERCISE AVERAGE
SHARES PRICE EXERCISE PRICE
------------ ------------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1996....... 3,680,400 $ 0.21- 5.28 $ 0.95
Granted......................... 1,337,600 3.75- 7.50 6.94
Exercised....................... (47,040) 0.63- 2.50 1.50
Canceled........................ (54,240) 0.21- 3.02 1.47
------------ ------------- --------------
Outstanding, December 31, 1997....... 4,916,720 0.21- 7.50 2.57
Granted......................... 322,400 5.63-11.25 7.81
Exercised....................... (230,400) 0.21- 2.29 0.98
Canceled........................ (127,600) 2.29- 7.50 6.86
------------ ------------- --------------
Outstanding, December 31, 1998....... 4,881,120 0.21-11.25 2.88
Granted......................... 137,120 4.06-12.50 10.27
Exercised....................... (1,789,520) 0.63- 5.63 0.64
Canceled........................ (44,800) 2.29-11.25 7.61
------------ ------------- --------------
Outstanding, December 31,
1999.......................... 3,183,920 $ 0.21-12.50 $ 4.39
============ ============= ==============
Exercisable, December 31,
1999.......................... 2,106,318 $ 0.21-12.50 $ 2.79
============ ============= ==============
</TABLE>
F-16
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tanox follows SFAS No. 123 which permits one of two methods of accounting for
stock options. Tanox adopted Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock options. SFAS No. 123, however, requires Tanox
to disclose the income statement effect of the alternative fair value method
assuming Tanox was required to record compensation expense for stock options
equal to the assumed fair value on the grant date.
Under APB No. 25, Tanox recognizes as compensation expense the excess of the
estimated fair value of the common stock issuable upon exercise of such options
over the aggregate exercise price of such options. This compensation expense is
amortized ratably over the vesting period of each option. The compensation
expense of such options, net of reversals for terminations, was $25,000,
$273,000 and $311,000 during the years ended December 31, 1997, 1998 and 1999,
respectively.
The fair value of each option grant is estimated using the Black-Scholes option
pricing model. The Black-Scholes model uses grant price, as stated in the option
agreements, market price as established by stock sales in 1997, 1998 and 1999
and deemed market prices established by the Compensation Committee of Tanox's
board of directors. The following assumptions were used for options granted in
1997: risk-free interest rate of six percent, expected option life of ten years,
no expected dividends, no expected turnover and a 20 percent volatility factor.
The following assumptions were used for options granted in 1998: risk-free
interest rate of five percent, expected option life of six years, no expected
dividends, expected turnover of 20 percent and a volatility factor of 20
percent. The assumptions used for options granted in 1999 were the same as those
used in 1998, with the exception of the risk-free interest rate which was six
percent and the volatility factor which was 42 percent.
Assuming the compensation cost for these plans had been determined pursuant to
the fair value method under SFAS No. 123, Tanox's pro forma net income (loss)
would have been as follows:
1997 1998 1999
---------- -------------- --------------
Net income (loss) --
As reported................ $ 630,000 $ (10,169,000) $ (23,346,000)
Pro forma.................. 176,000 (11,260,000) (24,551,000)
Basic EPS --
As reported................ 0.02 (0.35) (0.75)
Pro forma.................. 0.01 (0.39) (0.79)
Diluted EPS --
As reported................ 0.02 (0.35) (0.75)
Pro forma.................. 0.01 (0.39) (0.79)
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1996, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
F-17
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The number and weighted average fair value of options granted in 1997, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES FAIR VALUE SHARES FAIR VALUE SHARES FAIR VALUE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Option price equals fair market
value.............................. 1,137,600 $3.69 234,400 $2.71 129,120 $5.24
Option price greater than fair market
value.............................. -- -- 8,000 1.18 -- --
Option price less than fair market
value.............................. 200,000 5.46 80,000 5.63 8,000 5.65
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ---------------------------------------------------------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ---------------------------------
OUTSTANDING REMAINING EXERCISABLE
AS OF CONTRACTUAL WEIGHTED AS OF WEIGHTED
RANGE OF DECEMBER 31, LIFE AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1999 (IN YEARS) EXERCISE PRICE 1999 EXERCISE PRICE
- ------------------------------------- ------------ ------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
$ 0.21 - $ 2.50 1,386,000 2.3 $ 1.06 1,386,000 $ 1.06
2.50 - 5.00 354,400 5.7 3.46 226,400 3.28
5.00 - 7.50 1,080,000 7.1 7.35 443,839 7.30
7.50 - 10.00 264,800 8.8 8.13 42,079 8.13
10.00 - 12.50 98,720 8.9 12.20 8,000 12.50
------------ ------------
$ 0.21 - 12.50 3,183,920 5.0 $ 4.39 2,106,318 $ 2.79
============ ============
</TABLE>
In April 1999, Tanox loaned 12 employees approximately $1,086,000 to enable the
employees to exercise 1,738,320 options to purchase shares of Tanox's common
stock, pursuant to stock options held by such employees. All of the loans are
full-recourse, secured by shares of Tanox's common stock owned by the employees,
bear interest at a rate of 8.5 percent, and are due and payable in full in
September 2001. The loans have been reflected as a contra equity in the
accompanying financial statements.
Also during 1999, Tanox agreed to extend, for an additional three-year period,
the term of 524,400 stock options held by certain employees and consultants that
were scheduled to expire. In connection with this extension, Tanox expensed, for
accounting purposes, approximately $4,576,000 of deferred compensation expense
representing the fair value of the options as of the remeasurement date.
WARRANTS
In connection with the issuance of notes payable to an unrelated company for
equipment financing in 1989, Tanox issued warrants to purchase 93,053 shares of
Tanox's common stock at $0.86 per share. All of the warrants were exercised on a
net issuance basis in 1999 and converted into 86,632 shares of common stock. As
of December 31, 1999, there were no outstanding warrants.
F-18
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
ARBITRATIONS
Following settlement of Tanox's lawsuit against Genentech and Roche referred to
in Note 1, Tanox filed a demand for arbitration against the attorneys who
represented Tanox in the litigation in order to resolve a dispute over the
amount of attorneys' fees due by Tanox. On September 29, 1999, the arbitration
panel issued an award entitling the attorneys to receive approximately $3.5
million, including interest, payments ranging from 33 1/3 percent to 40 percent
of the future payments that Tanox may receive from Genentech following product
approval and ten percent of the royalties that Tanox may receive on sales of
anti-IgE products. At December 31, 1999, Tanox has reflected an accrued expense
of $3.5 million for the arbitration award in its consolidated financial
statements.
Tanox sought a court order vacating this arbitration award. However, a judgment
was entered confirming the award. Tanox intends to pursue all available
remedies, including appealing the decision. If Tanox is ultimately required to
pay all or part of the award to the attorneys, Tanox could be required to pay up
to $3.5 million, plus accrued interest would become due, and the award would
effectively reduce certain future milestone payments from Genentech by up to 40
percent and reduce future royalties from the Three-Party Collaboration by ten
percent. Tanox's future revenues, results of operations, cash flows and
financial condition could be materially adversely affected. During the appeals
process we will either post a bond or place cash in escrow to secure payment of
the award.
Tanox is also engaged in a dispute with Novartis and Genentech over its right to
independently develop certain of its anti-IgE monoclonal antibodies, which are
not being developed in connection with the Three-Party Collaboration. Tanox is
attempting to resolve the dispute in separate arbitrations with each of Novartis
and Genentech and they are attempting to resolve the dispute in federal court.
If Tanox ultimately loses its right to independently develop these anti-IgE
monoclonal antibodies, Tanox may be required to discontinue development of
Hu-901.
LITIGATION
From time to time, Tanox is a defendant in lawsuits incidental to its business.
Management believes that the outcome of these lawsuits will not be material to
Tanox's financial statements.
MILESTONES AND ROYALTIES
Tanox has agreements with several institutions that call for payments upon the
achievement of milestones by Tanox and royalty payments based upon a percentage
of product sales. No milestone or royalty expense has been incurred related to
these agreements.
LOAN COMMITMENTS
Tanox has agreed that under certain conditions, it will lend certain of its
employees up to $1,500,000 in April 2000 for payment of their tax obligations
pursuant to the exercise of their stock options.
F-19
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REGISTRATION RIGHTS
Some of Tanox's stockholders including founders, some early investors and
persons who hold 15 percent or more of our stock, have certain registration
rights.
401(K) PLAN
Effective January 1, 1992, Tanox adopted a qualified retirement plan (the 401(k)
Plan) covering all of Tanox's employees who are at least 21 years of age and
have completed at least one year of service with Tanox. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require,
additional matching contributions by Tanox on behalf of all participants in the
401(k) Plan. Tanox's contributions totaled approximately $81,000, $54,000 and
$66,000 in 1997, 1998 and 1999, respectively, representing matching 50 percent
of employee contributions, including those made by executive officers. Tanox's
matching contribution only applies to the first five percent of each employee's
total compensation.
F-20
<PAGE>
(This page has been intentionally left blank)
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
Tanox, Inc.
SHARES
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
, 2000
CIBC WORLD MARKETS
ROBERTSON STEPHENS
WARBURG DILLON READ LLC
ADAMS, HARKNESS & HILL, INC.
KBC SECURITIES
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting discounts
and commissions payable by the Registrant in connection with the sale of the
common stock being registered. All the amounts shown are estimates except for
the registration fee and the NASD filing fee.
Registration fee..................... $ 33,264
NASD filing fee...................... 13,100
Nasdaq National Market listing fee... 95,000
Printing and engraving expenses...... *
Legal fees and expenses.............. *
Accounting fees and expenses......... *
Blue Sky fees and expenses........... *
Transfer agent and registrar fees.... *
Premium for directors and officers
insurance............................ *
Miscellaneous........................ *
---------
Total........................... *
=========
- ---------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our amended and restated certificate of incorporation requires us to indemnify
our directors and officers against liabilities they may incur in these
capacities, including liabilities under the Securities Act, as amended, to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law.
Our bylaws require that we indemnify each of our directors and officers for the
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with any type of threatened, pending or
completed action, suit or proceeding (other than actions by us or on our behalf)
if he or she:
o acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to our best interests; and
o in the case of a criminal proceeding (including preliminary), had no
reason to believe his or her conduct was unlawful.
Under our bylaws we also must indemnify a director and officer for expenses of
an action brought by us or on our behalf if he or she acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to our best
interests. We may not indemnify a director or officer for expenses of an action
brought by us or on our behalf if the director or officer is adjudged liable to
the corporation, unless a court determines that, despite such adjudication but
in view of all of the circumstances, he or she is entitled to indemnification of
such expenses.
We have a duty to indemnify only if the director or officer has met the
applicable standard of conduct described above. This is determined by:
o a majority vote of the disinterested directors; or
o a majority vote of a committee of disinterested directors designated by
a majority vote of the disinterested directors; or
II-1
<PAGE>
o if there are no disinterested directors, or if the disinterested
directors so direct, independent legal counsel in a written opinion; or
o the stockholders.
We must indemnify a director or officer for all expenses of litigation or other
legal proceedings actually and reasonably incurred when he or she is successful
on the merits or otherwise in defense of the litigation or proceeding or in
defense of any claim, issue or matter therein.
We must advance to a director the actually and reasonably incurred expenses
incurred in defending an action before the action is finally disposed if the
director undertakes to repay these expenses if the director is ultimately
determined not entitled to be indemnified in connection with the action to which
the expenses relate. We may advance to an officer the expenses incurred in
defending an action before the action is finally disposed if the board of
directors authorizes the advance, and the officer undertakes to repay these
expenses if the officer is ultimately determined not entitled to be indemnified
in connection with the action to which the expenses relate. The board of
directors may not consider the officer's financial ability to repay these
advances in determining whether to authorize the advancement.
We may purchase and maintain insurance on behalf of any director and officer to
the extent permitted by Section 145. We intend to purchase liability insurance
policies covering our directors and officers in certain circumstances.
In addition to the indemnification rights described above, our amended and
restated certificate of incorporation eliminates, in certain circumstances, our
directors' liability for monetary damages for breach of fiduciary duty as a
director. These provisions do not eliminate a director's liability:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the Delaware General Corporation Law, which relates
to the declaration of dividends and purchase or redemption of shares in
violation of this law; or
o for any transaction from which the director derived an improper personal
benefit.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our directors and officers to give them
additional contractual assurances regarding the scope of the indemnification
provided in our amended and restated certificate of incorporation and bylaws and
to provide additional procedural protections.
The underwriting agreement (exhibit 1.1 to this Registration Statement) provides
that the underwriters must, under some circumstances, indemnify our directors,
officers and controlling persons against specified liabilities, including
liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1997, the Registrant has sold and issued the following
unregistered securities:
(a) Between February 21, 1997 and September 4, 1997, the Registrant issued and
sold an aggregate of 2,331,260 shares of its common stock to 23 non-U.S.
persons in reliance on Regulation S promulgated under the Securities Act
for an aggregate consideration of $17,484,468.
(b) Between February 16, 1998 and April 6, 1998, the Registrant issued and
sold an aggregate of 273,684 shares of its common stock to 8 non-U.S.
persons in reliance on Regulation S promulgated under the Securities Act
for an aggregate consideration of $3,078,972.
(c) Between August 31, 1999 and December 30, 1999, the Registrant issued and
sold an aggregate of 880,000 shares of its common stock to 14 non-U.S.
persons in reliance on Regulation S promulgated under the Securities Act
for an aggregate consideration of $11,000,000. The placement agent was KBC
Securities, NV. The Registrant paid to KBC Securities, N.V. a placement
agent fee of $715,000.
(d) Between October 25, 1999 and December 10, 1999, the Registrant issued and
sold an aggregate of 1,016,000 shares of its common stock to 12 non-U.S.
persons in reliance on Regulation S promulgated under the Securities Act
for an aggregate consideration of $12,700,000.
II-2
<PAGE>
(e) Between March 12, 1998 and September 12, 1999, the Registrant issued
468,726 shares of its common stock, at a price per share (as of March 12,
1998) of $18, with an aggregate value of $4,395,150, to 3 United States
residents and 5 non-U.S. persons in connection with the Registrant's
acquisition of Tanox Pharma, formerly PanGenetics B.V. The sale and
issuance to the United States residents were exempt from registration
under Section 4(2) of the Securities Act. With respect to the 5 persons
who were not residents of the United States, the transaction was not a
"sale," because the offer and sale to those 5 persons occurred outside
the United States, and therefore exemption from registration was
unnecessary.
(f) From time to time since January 1, 1997, the Registrant has granted stock
options to purchase shares of its common stock to various employees,
directors and consultants pursuant to its 1997 Stock Plan and its 1992
Non-Employee Directors Stock Option Plan. With respect to all grants of
options, exemption from registration was unnecessary in that the
transactions did not involve a "sale" of securities as that term is used
in Section 2(a)(3) of the Securities Act.
(g) As of , 2000, the Registrant had issued and sold, in the
aggregate, 1,898,960 shares of its common stock for per share exercise
prices ranging from $0.63 to $5.63 to employees and one consultant
pursuant to their exercise of stock options granted under the Registrant's
1987 Stock Option Plan and 1997 Stock Plan. The Registrant relied on the
exemption provided by Rule 701 under the Securities Act.
(h) Between June 24, 1997 and October 1, 1999, the Registrant issued and sold
168,000 shares of its common stock for per share exercise prices ranging
from $0.21 to $1.04, to consultants of the Registrant, pursuant to their
exercise of stock options. The Registrant relied on the exemption provided
by Rule 701 under the Securities Act.
(i) On October 25, 1999, the Registrant issued and sold to Phoenix Leasing
Incorporated 86,632 shares of its common stock, on a net issuance basis,
at a price per share of $0.86, for an aggregate consideration of 6,421
shares of common stock, pursuant to the exercise by Phoenix Leasing
Incorporated of warrants.
All sales of common stock made pursuant to the exercise of stock options were
made in reliance on Section 701 under the Securities Act or Section 4(2) of the
Securities Act. All other sales were made in reliance on Section 4(2) of the
Securities Act and/or Regulation S promulgated under the Securities Act. These
sales were made without general solicitation or advertising, to investors who
were sophisticated and had access to all relevant information necessary to
evaluate the investment, and who represented to the Registrant that they were
acquiring the securities for investment and appropriate legends were affixed to
the share certificates issued in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
1.1+ -- Form of Underwriting Agreement.
3.1+ -- Amended and Restated Certificate of
Incorporation of the Registrant, as
amended, as currently in effect.
3.2+ -- Bylaws of the Registrant, as
currently in effect.
4.1+ -- Specimen of Common Stock Certificate,
$.01 par value, of the Registrant.
4.2+ -- Warrant to Purchase 6,462 Shares of
Common Stock, dated November 1989, by
and between the Registrant and
Phoenix Venture Incorporated.
5.1+ -- Opinion of Chamberlain, Hrdlicka,
White, Williams & Martin.
10.1+ -- Form of Indemnification Agreement
between the Registrant and its
officers and directors.
10.2+ -- 1987 Stock Option Plan of the
Registrant, as amended.
10.3+ -- 1992 Non-employee Directors Stock
Option Plan of the Registrant.
II-3
<PAGE>
10.4+ -- 1997 Stock Plan of the Registrant.
10.5+ -- Lease of premises at 10301 Stella
Link, Suite 110, Houston, Texas,
dated December 3, 1986, as amended.
10.6+ -- Stock Purchase Agreement, dated July
14, 1987, by and among the Registrant
and Tse Wen Chang, Nancy T. Chang,
Alafi Capital Company, Shireen Alafi,
Joseph Heskel, Trustee for
Christopher Alafi, and Invitron
Corporation.
10.7++ -- License for Winter Patent, dated June
26, 1989, by and between Medical
Research Council and the Registrant.
10.8++ -- Amendment to the License for Winter
Patent, dated February 9, 1990, by
and between Medical Research Council
and the Registrant.
10.9++ -- Development and Licensing Agreement,
dated May 11, 1990, by and between
the Registrant and Ciba-Geigy
Limited.
10.10+ -- Term Sheet for Secured Loan, dated
December 14, 1994, by and between the
Registrant and Ciba-Geigy Limited.
10.11++ -- Chiron-PanGenetics Research and
Development License and Options for
Commercial License, dated September
25, 1995, by and between PanGenetics,
B.V., Panorama Research Inc. and
Chiron Corporation.
10.12+ -- Stock Purchase Agreement, dated as of
March 12, 1998, by and between the
Registrant and the holders of shares
of PanGenetics, B.V.
10.13++ -- License Agreement, dated June 1,
1998, by and between Biogen, Inc. and
the Registrant.
10.14++ -- Outline of Terms for Settlement of
the Litigations Among Genentech,
Inc., Genentech International, Ltd.,
the Registrant and Ciba-Geigy Limited
Relating to Anti-IgE Inhibiting
Monoclonal Antibodies, dated July 8,
1996.
10.15++ -- Supplemental Agreement between the
Registrant and Ciba-Geigy Limited, dated
July 8, 1996.
10.16++ -- Settlement and Cross-Licensing
Agreement, dated July 8, 1996, by and
between the Registrant and Genentech,
Inc. and Genentech International
Limited.
10.17++ -- Settlement and Participation Agreement,
dated July 8, 1996, by and between
the Registrant and F. Hoffman-La Roche,
Ltd., Hoffman-La Roche, Inc., Roche
Holding Ltd. and Roche Holdings, Inc.
10.18++ -- Patent License Agreement, dated June
30, 1998, by and between Protein
Design Labs, Inc. and the Registrant.
10.19++ -- Amendment to Patent License
Agreement, dated June 28, 1999, by
and between Protein Design Labs, Inc.
and the Registrant.
10.20+ -- Research and License Agreement, dated
April 21, 1999, by and between the
Registrant and Biovation Limited.
10.21+ -- Material Transfer and Commercial
Evaluation Agreement, dated March 9,
1999, by and between Tanox, Inc. and
Biovation Limited.
10.22++ -- G-CSF Receptor Non-exclusive License
Agreement, dated January 11, 2000, by
and between Immunex Corporation and
the Registrant.
21.1+ -- List of Subsidiaries of the
Registrant.
23.1 -- Consent of Arthur Andersen LLP dated
February 8, 2000.
23.2+ -- Consent of Chamberlain, Hrdlicka,
White, Williams & Martin (included in
Exhibit 5.1).
24.1* -- Power of Attorney.
27* -- Financial Data Schedule.
- ---------------------------
+ To be filed by amendment.
++ Certain confidential material contained in the document has been omitted and
filed seperately with the Securities and Exchange Comission pursuant to Rule
406 of the Securities Act.
* Previously filed
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing 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.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act,
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) That for the purposes of determining any liability under the Securities
Act, each posteffective 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.
(3) 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.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS
ON FEBRUARY 11, 2000.
TANOX, INC.
By: /s/ NANCY T. CHANG,
NANCY T. CHANG, PH.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION STATEMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON FEBRUARY 11,
2000.
By: /s/ NANCY T. CHANG
Nancy T. Chang, Ph.D.
Attorney-in-fact
<TABLE>
<CAPTION>
<C> <S> <C>
Chairman of the Board,
NANCY T. CHANG, PH.D. President, and Chief
Executive Officer
Vice President of Finance and
DAVID DUNCAN, JR. Chief Financial Officer
Director
TSE WEN CHANG, PH.D.
Director
OSAMA MIKHAIL, PH.D.
Director
CHENG MING LEE, PH.D.
Director
WILLIAM J. JENKINS, M.D.
</TABLE>
II-6
EXHIBIT 10.7
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
Dated: 26 June, 1989
MEDICAL RESEARCH COUNCIL
-and-
TANOX BIOSYSTEMS INC
LICENSE
FOR
WINTER PATENT
<PAGE>
THIS AGREEMENT is made the 26th day of June, One Thousand Nine Hundred and
Eighty-Nine, between MEDICAL RESEARCH COUNCIL of 20 Park Crescent, London W1N
4AL (hereinafter called "MRC" which expression includes its successors and
assigns) of the one part and TANOX BIOSYSTEMS, INC., 10301 Stella Link, Suite
110, Houston, Texas 77025, U.S.A. (hereinafter called the "Licensee" which
expression includes its successors and permitted assigns) of the other part.
WHEREAS, MRC is the proprietor of certain patent rights as herein defined in
respect of the genetic engineering of monoclonal antibodies comprising the
replacement, in whole or in part, of the complementarity determining regions of
one antibody by those of another.
Now, it is hereby agreed as follows:
1. DEFINITIONS.
(1) In this Agreement, the following words and expressions shall be
construed as follows:
"THE EFFECTIVE DATE" shall mean the date set forth above.
"THE RESHAPING PROCESS" shall mean the genetic engineering of
monoclonal antibodies comprising the replacement, in whole or in part,
of the complementarity determining regions of one antibody by those of
another as described in the Winter Patent.
"THE PRODUCTS" shall mean products produced either directly or
indirectly from antibodies which have been modified using the
Reshaping Process and which are in a form capable of being marketed or
sold upon a commercial basis (the parties intend that the Products
will include in some manner such an antibody).
1
<PAGE>
"AFFILIATE" means any company, partnership or other entity which
directly or indirectly controls, is controlled by or is under common
control with either party to this Agreement.
"CONTROL" means the ownership of more than fifty percent (50%) of the
issued share capital or the legal power to direct or cause the
direction of the general management and policies of the party in
question.
"FIELDS" shall mean the field of human therapy and human in vivo and
in vitro diagnostics.
"NET RECEIPTS" shall mean all monies received by Licensee in respect
of the sale of the Products, less the following items to the extent
that they are paid or allowed and, as appropriate, indicated on the
invoice:
o normal discounts actually granted;
o credits allowed for Products returned or not accepted by
customers;
o packaging, transportation and prepaid insurance changes on
shipments or deliveries to customers;
o taxes actually incurred and paid by Licensee in connection with
the sale or delivery of Products to customers.
"THE WINTER PATENT" shall mean the patents and applications therefor
set out in Schedule 1 hereto of which MRC is the proprietor or under
which MRC has the right to grant licenses at the Commencement Date and
any divisions, renewals, continuations, extensions or reissues
thereof, and any further patent application which names the same
Gregory Winter as an inventor and discloses and claims similar subject
matter, or which claims the same Convention priority
2
<PAGE>
date; and any patent granted or to be granted on such patent
application(s). MRC will promptly notify Licensee of the issuance of
any such patents.
"THE BOSS PATENTS" shall mean
(i) European Patent Application 0 120 693 (84301996.9) of 23
March 1984 naming Michael Alan Boss as an inventor;
(ii) GB Patent Application 8308235 of 25 March 1983;
(iii) Japanese Patent Application 501609/84 of 23 March 1984;
(iv) and any patent granted or to be granted on such patent
application(s).
(v) US Patent 4 816 397 of 28 March 1989.
(2) In this Agreement, the singular shall where the context so permits
include the plural and vice versa.
2. COMMENCEMENT.
This Agreement shall be deemed to have come into force on the Effective
Date and shall be read and construed accordingly.
3. GRANT OF RIGHTS.
(1) MRC agrees to grant to the Licensee the following licenses under the
Winter Patent:
(i) a non-exclusive worldwide license to exploit the Winter Patent
commercially in any way whatsoever by the use of the Reshaping
Process in the Fields and by the commercial exploitation in the
Fields of any resulting antibodies provided always that any such
exploitation does not involve the antibodies detailed in the
Second Schedule hereto; and
3
<PAGE>
(ii) a non-exclusive sublicense under the Boss Patents to the extent
required to enable the licensee to use the Reshaping Process in
accordance with (i) above and for no other purpose.
(2) The Licensee shall not be entitled to grant sublicenses of the rights
granted to it under this Agreement except with the prior written
consent of MRC. The licensee shall use its best endeavors to ensure
that any sublicensee performs its obligations under any such
sublicense.
(3) The following arrangements shall not require the prior consent of MRC:
(i) The appointment of any person as agent or distributor to market,
sell, use or otherwise dispose of the Products in any part of
the world;
(ii) The subcontracting of the development of new Products for the
Licensee;
(iii) The subcontracting of manufacture for the Licensee of Products
or intermediates for Products.
4. PAYMENTS.
(1) IN CONSIDERATION for the non-exclusive license granted pursuant to
Clause 3.1 hereof, the Licensee shall pay to the MRC the sum of *
exclusive of Value Added Tax ("VAT") upon signature of this Agreement.
(2) IN FURTHER consideration of the licenses granted by MRC to Licensee
under this Agreement, Licensee shall pay to MRC a royalty at the rate
of * of Net Receipts and VAT thereon on all sales of Products by
Licensee or any Affiliate where the Products are either manufactured
and/or sold in a country where the Winter Patent is granted, valid and
subsisting at the date of such sale. MRC agrees to notify Licensee of
any actions or oppositions contesting validity of the Winter Patent.
4
<PAGE>
(3) If MRC licenses another party under the Winter Patent in the
fields at a lower royalty rate than is payable by Licensee by virtue
of this Agreement, or with another substantial term more favorable to
such party than the corresponding term of this Agreement, MRC will
notify Licensee of same and then Licensee shall have an option to
convert this Agreement so that the royalty rate payable thereunder, or
other corresponding term, is the same as the rate or term that applies
to the third party; provided that if the third party's license
imposes upon that party any other obligation (including any
restriction as to product or territory) which is associated with that
party's operations as patent licensee and which is more onerous than
an obligation of corresponding category on the part of Licensee under
this Agreement, then any exercise of the option by Licensee shall
operate so that Licensee assumes an obligation as patent licensee
corresponding to such other obligation of the third party, either as a
substitute in place of Licensee's obligation(s) of corresponding
category, or if there is no such obligation of corresponding
category, then as an additional obligation.
This clause sball not entitle the Licensee to a license in respect of
any of the restricted antibodies set out in Schedule 2.
(4) Licensee agrees to keep true and accurate records and books of account
containing all data necessary for the calculation of the royalties
payable to MRC under Clause 4(2). Such records and books of account
shall upon reasonable notice having been given by MRC be open at all
reasonable times during business hours for inspection by MRC or its
duly authorized representative.
(5) When sales of Products commence, Licensee shall prepare a statement in
respect of each calendar quarter of this Agreement which shall show
for the calendar quarter in question Licensee's Net Receipts on sales
by it of the Products on a country-by-country basis, details of the
quantities of Products manufactured and sold in each country and the
royalty and VAT due to MRC thereon pursuant to Clause 4(2) above. Such
statement shall be submitted to MRC within sixty (60) days of the end
of the calendar quarter of this
5
<PAGE>
Agreement or part thereof to which it relates together with a
remittance for the royalties and VAT due to MRC. If MRC shall give
notice to Licensee within thirty (30) days of the receipt of any such
statement that it does not accept the same, such statement shall be
certified by an independent certified or chartered accountant
appointed by agreement between the parties or, in default of
agreement within fourteen (14) days, by the President for the 1ime
being of the Institute of Chartered Accountants of Eng1and and
Wales in London (the parties agree that an accountant located in the
U.S. may be appointed). Licensee shall make available all books and
records required for the purpose of such certification and the
statement so certified shall be binding between the parties. The costs
of such certification shall be the responsibility of MRC if the
certification shows the original statement to have been accurate or
overpaid and otherwise shall be the responsibility of Licensee if
royalties are determined to have been underpaid by greater than two
percent (2%). Following any such certification, the parties shall
make any adjustments necessary in respect of the royalties already
paid to MRC in relation to the year in question.
(6) Payments due under this Agreement shall be made in fu1l, provided that
in the event and to the extent that any such payment is subject to
direct taxes levied or assessed by any government authority under the
laws of the country from which payment is made and there is a relevant
treaty or other provision for the avoidance of double taxation or for
other relief in respect of tax deducted at source, Licensee shall have
the right to deduct from the payment any such taxes, provided that
Licensee shall for each such deduction furnish to MRC a certificate or
other documentary evidence executed in the matter required by the
relevant government authority to enable MRC to obtain relief from
double taxation or such other relief in respect of the tax so
deducted.
Sums are expressed in this Agreement as exclusive of VAT. MRC agrees
to provide Licensee with a VAT invoice in respect of every payment
affected by VAT.
6
<PAGE>
(7) Where MRC does not receive payment of any sums due to it within the
period specified hereunder in respect thereof interest shall accrue on
the sum outstanding at the rate of one percent (1%) per month
calculated on a daily basis without prejudice 10 MRC's right to
receive payment on the due date therefor.
5. TERM AND TERMINATION.
(1) Subject as hereinafter provided, this Agreement and the licenses
granted pursuant thereto shall continue in force in each territory
during the subsistence of the last to expire of the Winter Patent in
such territory.
(2) MRC may terminate this Agreement and the said licenses forthwith by
notice to the Licensee to that effect upon the happening of any of the
following events:
(a) if the Licensee fails to perform or observe any of the
obligations on its part to be performed or observed and if the
breach is one capable of remedy has not been remedied within
three (3) months of the giving of a notice informing the
Licensee of such breach; or
(b) if the Licensee files a voluntary petition in bankruptcy or
applies to any tribunal for a receiver, trustee or similar
officer to be appointed by any court or executive department to
liquidate or conserve the Licensee or any substantial part of its
property or assets due to insolvency or to the threat thereof or
if the Licensee suffers any trusteeship or receivership to
continue undischarged for a period of sixty (60) days or suffers
any similar procedure for the relief of distressed debtors
entered into by the Licensee voluntarily or involuntarily or if
the Licensee is otherwise divested of its assets for a period of
sixty (60) days or makes a general assignment for the benefit of
its creditors.
7
<PAGE>
(3) The Licensee may terminate this Agreement and the licenses granted
pursuant hereto by giving to MRC six (6) months notice to that
effect if the Licensee considers that substantial unlicensed
competition is seriously interfering with Licensee's exploitation of
the Reshaping Process under this Agreement and that MRC is not taking
appropriate steps to seek to prevent or reduce such un licensed
competition. Such termination shall be without prejudice to the right
of MRC to enforce the Winter Patent in the event of subseqnent
manufacture of Products by the Licensee.
(4) Termination of this Agreement or of the said licenses shall be without
prejudice to any rights of either party against the other which may
have accrued up to the date of such termination and the Licensee shall
pay to MRC the appropriate royalties hereunder on and stocks of
the Products (on which royalties have not already been paid) held at
the date of termination by the Licensee or any person engaged by the
same to manufacture the Products and shall thereafter be free to sell
such Products on which royalty has been paid.
6. WARRANTIES.
(1) MRC hereby represents and warrants that MRC owns the Winter Patent or
is otherwise authorized to license the Winter Patent to the Licensee.
(2) MRC hereby represents and warrants that MRC is entitled or
authorized to grant a license or sublicense under the Boss Patents to
the limited extent needed for effectively licensing Licensee to use
the Reshaping Process without hindrance due to rights conferred by the
Boss Patents.
(3) Nothing in this Agreement or in any licenses to be granted pursuant
thereto shall be construed as a representation or warranty that any of
the said patents are valid or that any manufacture, use, sale or other
disposal of the Products is not an infringement of any patents or
other rights not vested in MRC.
8
<PAGE>
(4) Licensee sha11 promote the sale of the Products and shall use
reasonable endeavors consistent with Licensee's reasonable business
plans to meet the market demand therefore.
7. INFRINGEMENT.
If Licensee becomes aware of a suspected infringement of the Winter Patent,
it sha1l notify MRC giving full particulars thereof. If the alleged
infringement consists of any act which (if done by Licensee) would be
within the scope of the licenses granted under this Agreement, MRC and
Licensee shall (within a reasonable time of the said notification) consult
together with a view to agreeing upon a course of action to be pursued.
Where utilised by the Licensee to produce Products from mammalian
cells. If Licensee should be sued for infringing the Winter Patent or Boss
Patents/and not be in breach of Licensee's obligations under this
Agreement, then MRC agrees to indemnify and hold Licensee harmless from
and against any claims, damages, expenses, or other liabilities which might
result or be incurred.
8. WAIVER.
The waiver by MRC or Tanox of any breach, default or omission in the
performance or observance of any of the terms of this Agreement by the
other shall not be deemed to be a waiver of any other such breach, default
or omission.
9. NOTICES.
Any notice, consent or other communication authorized or required to be
given hereunder or for the purposes hereof shall be in writing and be
deemed to be duly given to MRC if left at or sent by recorded delivery or
registered post addressed to its principal office and to Licensee if left
at or sent by recorded delivery or registered post to its principal place
of business. Any such notice, consent or other communication if served by
post shall be deemed to have been given at the time when it would have been
received in due course of the post.
9
<PAGE>
10. LAW AND JURISDICTION.
This Agreement is to be read and construed in accordance with and governed
by the laws of England so far as the subject matter allows and the parties
hereby submit to the jurisdiction of the English courts in relation to any
dispute arising out of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in the manner legally binding upon them by causing authorized
representatives to sign this Agreement
MEDICAL RESEARCH COUNCIL TANOX BIOSYSTEMS, INC.
By: /s/ M. R. WOOD By: /s/ NANCY T. CHANG
Name: M. R. Wood Nancy T. Chang, President
Title: Head of Industrial
Liaison Group
10
<PAGE>
SCHEDULE 1
INVENTORS Gregory Paul Winter (Medical Research Council)
APPLICATION/PATENTEE Gregory Paul Winter (Medical Research Council)
TITLE Recombinant DNA Products and Methods
PRIORITY APPLICATION
APPLICATION NUMBER UK PA 8607679 27.03.86
FINAL APPLICATION
APPLICATION NUMBER
(PUBLICATION DATE) (DATE OF PUBLICATION)
TERRITORY *(PATENT NUMBER) (DATE OF GRANT)
- --------- ------------------ ---------------------
U.K ................................ 8707252 26.03.87
(GB 2188638A) (7.10.87)
Europe ............................. 870302620.7 26.03.87
(Austria, Be1gium,
France, W. Germany,
Greece, Italy, Luxembourg,
Netherlands, Spain,
Sweden, Switzerland, U.K.)
Canada ............................. 533071 26.03.86
U.S.A .............................. 903776 04.09.86
Japan .............................. 73970/87 27.03.87
<PAGE>
SCHEDULE 2
ANTIBODY EXCLUDED FROM THE LICENSE
1. All antibodies to alpha tumor necrosis factor having an association constant
greater than l0 (6th power) L/mole.
*
EXHIBIT 10.8
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
THIS AGREEMENT is made the ninth day of February 1990
BETWEEN
MEDICAL RESEARCH COUNCIL of 20 Park Crescent, London WlN 4AL (hereinafter called
"MRC" which expression includes its successors and assigns) of the one part and
TANOX BIOSYSTEMS INC. of 10301 Stella Link, Suite 110, Houston, Texas 77025,
U.S.A. (hereinafter called "the Licensee" which expression includes its
successors and permitted assigns) of the other part
WHEREAS
(A) MRC is the proprietor of certain Patent rights in respect of genetic
engineering of monocolonal antibodies comprising the replacement in whole or in
part of the complementarity determining regions of one antibody by those of
another.
(B) By an Agreement between the parties dated 26th June 1989 MRC granted certain
rights to the Licensee to make use 0f those rights ("the Licence Agreement").
(C) The parties wish to make certain adjustments to the Licence Agreement as
hereinafter appears.
NOW THIS AGREEMENT WITNESSETH
1. INTERPRETATION
Terms defined in the Licence Agreement shall have the same meaning herein
save where the context otherwise requires.
2. AMENDMENT TO LICENCE AGREEMENT
2.1 The definition in Clause 1 of "the Boss Patents" shall be amended as
follows:-
<PAGE>
"The Boss Patents" - shall mean the following Patents and Patent
applications in relation to multi-chain polypeptides or proteins and
processes for their production and any Patent granted or to Be granted on
such Patent applications:-
(i) European Patent Application D120694
(ii) UK Patent 2137631
(iii) PCT Application 84/00094
(iv) US Patent 4816397
(v) Japanese Patent Application 501609/84.
2.2 Clause 3(1)(ii) shall be amended to read as follows:-
"A non-exclusive sub-Licence under the Boss Patents to the extent required
to enable the Licensee to use the reshaping process in accordance with (i)
above to produce products from mammalian cells and for no other purpose."
2.3 The following antibodies shall be deleted from Schedule 2 "Antibodies
Excluded from the Licence" and shall cease to be excluded from the Licence
Agreement:-
*
2.4 The Licence Agreement shall remain in full force and effect as amended
hereby.
3. GOVERNING LAW AND JURISDICTION
This Agreement is to be read and construed in accordance with and governed
by the laws of England and the parties
-2-
<PAGE>
hereby submit to the jurisdiction of the English Courts in relation to any
dispute arising out of this Agreement.
IN WITNESS whereof the parties hereto have caused this Agreement to be executed
in the manner legally binding upon them by causing authorised representatives to
sign this Agreement.
SIGNED by }
for and on behalf of the } SIGNATURE ILLEGIBLE
MEDICAL RESEARCH COUNCIL }
SIGNED BY Nancy T. Chang, Pres }
for and on behalf of } /s/Nancy T. Chang
TANOX BIOSYSTEMS INC. }
-3-
EXHIBIT 10.9
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
DEVELOPMENT AND LICENSING AGREEMENT
This Development and Licensing Agreement ("Agreement") is made and
entered into as of the 11th day of May, 1990, between TANOX BIOSYSTEMS, INC., a
Texas corporation ("Tanox"), and CIBA-GEIGY Limited, a body corporate of
Switzerland ("Ciba-Geigy").
RECITALS:
Tanox and Ciba-Geigy posses, have developed, and are developing certain
antibodies and related technology directed toward treatment of IgE-mediated
allergic reactions in humans. Each possesses certain trade secrets, know-how,
and other proprietary technology related thereto, including such proprietary
technology disclosed under the pending patent applications reference in Annex 1,
attached hereto.
To continue research, development, and commercialization of anti-allergy
products within the Field, as hereinafter defined, Tanox and Ciba-Geigy desire
to enter into a joint cooperation. It is understood that the parties shall
contribute, subject to the provisions of this Agreement, to the cooperation all
of their existing and future rights or studies owned or to be owned in the
Field.
Beyond the cooperation in the Field, Ciba-Geigy intends, subject to the
terms and conditions of that certain Stock Purchase Agreement of even date
herewith, to make an equity investment in Tanox.
Therefore, Tanox and Ciba-Geigy have entered into this Agreement which sets
forth the terms and conditions of their cooperation and the respective rights
and licenses within the Field which each shall have as a result of such
cooperation.
1. DEFINITIONS.
1.1 Agreement Period shall mean the period of time commencing on the date
of execution of this Agreement and extending on a country by country basis until
a) the last to expire in each country of the patents issuing from the patent
applications of Tanox listed in Annex 1 or claiming its priorities thereof (such
expiration to occur only after expiration of extensions to such patents which
may be obtained under the Drug Price Competition and Parent Term Restoration Act
of 1984 in the U.S.A. and similar patent extension laws in other countries) or
b) the expiry of nine (9) years from the day of the first commercial sale of the
respective Product(s) in each country, whichever is later. Ciba-Geigy shall have
the right to extend the Agreement Period, by written notice to Tanox give within
ninety (90) days of Ciba-Geigy's receipt of written notice of the issuance of
such parent, in the event that Tanox obtains rights to a patent, not issuing
from the patent applications of Tanox listed in Annex 1 or claiming its
priorities thereof, upon which Ciba-Geigy relies in order to make, have made,
use or sell Product(s). Such notice shall effect an inclusion of such patent
under clause a) above of this Paragraph 1.1 for purposes of determining the
applicable agreement Period.
Development and Licensing Agreement - Page 1.
<PAGE>
1.2 Product(s) shall mean the monoclonal antibodies owned or controlled by
Tanox and Ciba-Geigy for use in the Field, as described in the U.S. patent
application(s) of Tanox and the U.K. patent application of Ciba-Geigy referenced
in Annex 1, and fragments, toxin conjugates, antibody toxin chimeric constructs,
humanized or reshaped antibodies derived from such monoclonal antibodies
including such forms as are ready to be administered in humans.
1.3 Field shall mean anti-IgE antibody-based treatments in humans for
IgE-mediated reactions, *.
1.4 Patent Rights shall mean any patent application or patent(s) owned or
controlled by Tanox or Ciba-Geigy whose claims cover the manufacture, use, or
sale of the Product(s), as well as any additional patents hereafter issuing from
additional patent applications relating to the Product(s), including, but not
limited to, a method of use of the Product(s), and any substitutions,
continuations, continuations-in-part, divisions, reissues, re-examinations,
renewals, or extensions of the terms thereof.
1.5 Know-How shall mean any and all unpatented and/or non-patentable
technical data, information, materials, biological materials, such as plasmids,
vectors, DNA sequences, organisms, cell lines, and antibodies, samples and other
information owned or controlled by Tanox or Ciba-Geigy in the Field during the
Agreement Period which (i) relate to Product(s), including, without limitation,
its chemical, biological, pharmacological, toxicological, nonclinical and
clinical data, formulations, specifications and/or usage, or (ii) relate to
processes, techniques and specifications for the manufacture of Product(s),
including, without limitation, preparation, synthesis, culture, recovery and
purification and quality control processes, techniques and specifications.
Know-How shall not encompass Patent Rights. Know-How of Ciba-Geigy and Tanox
shall be limited, however, to only that information which is developed as part
of or in conjunction with CIGA-Geigy's and Tanox's program directed at
development of Product(s) in the Field; but shall not include such information
which relates to non-classical, non-conventional, high technology delivery
systems for the Product(s).
1.6 Affiliate(s) shall mean all corporations or business entities which,
directly or indirectly, are controlled by, control, or are under common control
with Ciba-Geigy or Tanox, including, with respect to Ciba-Geigy, its Affiliate,
CIBA-GEIGY Corporation, headquartered in the United States of America (U.S.A.).
For this purpose, the meaning of the word "control" shall mean the
ownership of fifty percent (50%) or more of the voting shares or interest of
such corporation or business entity, or any corporation or business entity, even
though the extent of ownership of a party in such corporation or business entity
is less than fifty percent
Development and Licensing Agreement - Page 2.
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(50%), as to which a party to this Agreement can demonstrate that the operation
and management of such corporation or business entity is carried out in
conformity with such party's standing policy; provided, that any such
corporation or business entity shall be deemed an Affiliate only so long as such
ownership of voting shares or interest or adherence to such standing policy
continues.
1.7 Third Party(ies) shall mean any person or entity other than a party to
this Agreement, its Affiliate(s), and/or its respective employees.
1.8 Net Sales shall mean the amount billed by Ciba-Geigy, its Affiliate(s)
or sublicensees to Third Parties for the sale of Product(s) less cash discounts
and/or quantity allowances actually allowed; credits for customers; returns and
allowances; charges for freight, handling and transportation separately billed;
and sales and use taxes and other similar taxes incurred, as reasonably and
fairly determined in accordance with Ciba-Geigy's standard accounting method.
1.9 Exclusive Rights shall mean the sole right of the party possessing
such right, as expressly conferred by this Agreement, to sell Product(s) within
a territory for which such right is granted.
1.10 Semi-Exclusive Rights shall mean the joint or shared right of the
parties possessing such right, as expressly conferred by this Agreement, to the
exclusion of all Third Parties, to sell Product(s) within a territory for which
such right is granted.
1.11 Co-Promotion shall mean the promotion in accordance with Paragraph
8.3 by both parties of Product(s) under the same trademark. Products subject to
Co-Promotion shall be sold solely by Ciba-Geigy and shall be identified by a
trademark chosen by Ciba-Geigy with due consideration to trademark suggestions,
if any, from Tanox.
1.12 Co-Marketing shall mean the marketing and sale of Product(s) by each
party under a separate trademark, chosen by each party; provided, that
Ciba-Geigy, at its option, may co-market Product(s) under the same trademark
used by the parties for Product(s) being co-promoted and, in such event, Tanox
may not use such trademark in those countries where the Product is being
co-marketed.
1.13 Abandoned Product(s) shall mean any Product(s) with respect to which
Ciba-Geigy relinquishes its rights under this Agreement by notice of such
relinquishment.
1.14 Major Country shall mean and include the following countries: Japan,
the United Kingdom, West Germany, Italy, France and the U.S.A.
1.15 Other commonly used terms or abbreviations, such as Food and Drug
Administration ("FDA"), Phase I. Phase II, Phase III, Notice of Claimed
Investigational Exemption for a New Drug ("IND"), New Drug Application
("NDA"), Establishment License Application ("ELA"), and Product License
Application ("PLA"), shall mean or have the meanings indicated in the United
States Food, Drug and Cosmetic Act and
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applicable regulations promulgated thereunder, and all such terms or
abbreviations shall apply equally, as applicable, to any counterpart or
equivalent agencies or activities in countries outside the U.S.A.
1.16 Exclusive Territories shall mean all countries of the world except
those included within the Semi-exclusive Territories.
1.17 Semi-exclusive Territories shall mean the U.S.A., Taiwan, Hong Kong,
Singapore, China and Korea.
2. GRANT OF LICENSE; SUBLICENSE; REPRESENTATIONS.
2.1 Subject to the provisions of this Agreement, Tanox grants to
Ciba-Geigy during the Agreement Period a world-wide license under its Know-How
and Patent Rights, with the right to grant sublicenses, to make, have made, use
and sell the Product(s) for use in the Field. Said license shall be exclusive in
the Exclusive Territories and shall be co-exclusive with Tanox in the
Semi-exclusive Territories.
2.2 Subject to the provisions of this Agreement, Ciba-Geigy grants to
Tanox during the Agreement Period a license under its Know-How and Patent
Rights, to make, have made, use and sell the Product(s) for use in the Field.
Said license shall be limited to the Semi-exclusive Territories and shall be
co-exclusive with Ciba-Geigy in said Territories.
2.3 At the end of the Agreement Period in each respective country, the
licenses granted in Paragraphs 2.1 and 2.2 hereinabove shall be converted into
perpetual, royalty-free, non-exclusive licenses.
2.4 Ciba-Geigy shall warrant the performance of any and all rights and
obligations of this Agreement by its Affiliate(s) and/or sublicensees. Tanox
shall warrant the performance of any and all rights and obligations of this
Agreement by its Affiliate(s).
Tanox agrees, if Ciba-Geigy so requests, to enter into a separate agreement
with any Affiliate(s) of Ciba-Geigy granting a license in accordance with the
provisions of this Agreement. Such agreement shall incorporate all of the terms
of this Agreement to the extent that they are applicable. Ciba-Geigy shall
guarantee the performance of any and all responsibilities of the Affiliate(s)
under such separate agreement.
Additionally, the parties may, by mutual written consent, license rights
granted or retained under this Agreement to a third party to manufacture the
commercial supply of Product(s) for itself and/or the other party.
2.5 Each party warrants to the other that it is the owner of, or has
exclusive rights to commercialize, with the right to grant licenses under its
respective Patent Right(s) and Know-How and has not assigned, conveyed or
otherwise encumbered by any agreement, either oral or written, any right, title
or interest in and to the respective
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Patent Rights and Know-How which would be inconsistent with the rights granted
hereunder. Each party warrants that it is free to enter into this Agreement and
is free to carry out all of its obligations under this Agreement. Except as
provided in Paragraphs 2.4, 2.5 and 7 and the Annexes hereto and as may be
otherwise agreed in writing between the parties, the parties expressly disclaim
all other warranties, express or implied, including without limitation,
warranties of merchantability or fitness for a particular purpose with respect
to the Product(s).
3. PROJECT STEERING COMMITTEE/WORKING GROUPS
3.1 A. Upon execution of this Agreement, the parties hereto shall set up
a Project Steering Committee to which each party shall appoint up to three (3)
experts as its deputies.
A member of the Project Steering Committee appointed by Ciba-Geigy shall
assume the chairmanship of this Project Steering Committee.
Decisions of the Project Steering Committee shall be taken, if possible, by
unanimous vote and the chairman shall have a casting vote; provided, however,
that no action may be taken by the Project Steering Committee to impose or
increase upon either party financial or any other obligations not expressly
contained in this Agreement except with the prior written consent of such party.
B. The Project Steering Committee shall:
(i) agree from time to time, particularly before entering into a new
research and/or development phase as hereinafter set forth, on the
development and detailed working program (including timetable) to be
carried out and the budgets thereto, whereby the Project Steering Committee
shall set up the priorities and determine the various tasks of each partner
as hereinafter described;
(ii) coordinate and monitor the progress of such development work;
(iii) provide for a free exchange of any relevant information and
results relating to the development work under this Agreement and subject
to the terms of this Agreement.
C. As necessary or required, the Project Steering Committee shall hold
meetings at intervals and locations to be mutually agreed upon, but at least
once a year. The minutes to the meetings shall be marked as "Confidential" and
shall be subject to the secrecy obligations and restrictions on use as per
Paragraph 6 hereinafter.
3.2 A. The Working Groups shall be responsible for proposing a detailed
development plan (setting forth the different steps and time frames, as well as
the budget for their respective activities) to the Project Steering Committee.
After approval of the development plan by the Project Steering Committee, which
must occur in a timely way
Development and Licensing Agreement - Page 5.
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so as not to impede the progress of the Working Groups, the Working Groups shall
coordinate and implement all day-to-day activities of the parties, respectively,
under this Agreement. The Working Groups shall work openly and cooperatively and
shall meet periodically, as the parties reasonably determine may be necessary,
to coordinate research, preclinical and clinical development, process
development and production, and other activities conducted by the parties
according to the objectives and priorities of the cooperation under this
Agreement. The results of such meetings shall be recorded in writing. The
minutes shall be approved and signed by both parties' project leaders. The
minutes shall be marked as "Confidential" and shall be subject to the secrecy
obligations and restrictions on use as per Paragraph 6 hereinafter.
B. The Working Groups shall include those of its expert employees that
each party reasonably determines to be necessary or appropriate (such employees
may participate in more than one Working Group which, unless requested by a
party, need not include an equal number of each party's expert employees).
The Working Groups shall include the following and such other Working
Groups as may be agreed from time to time by the Project Steering Committee.
(i) Research Group -- The Research Group shall be responsible for
proposing research plans to the Project Steering Committee, supervising
research activities, and coordinating and implementing all day-to-day
activities in connection with those various research activities Annex 2.
The Research Group shall report to the Project Steering Committee from time
to time the research results for review of the work performed and for the
discussion of and decision on the subsequent activities.
(ii) Clinical Development Group -- The Clinical Development Group
shall be responsible for proposing the clinical development plans to the
Project Steering Committee, supervising all clinical activities, and
coordinating and implementing the clinical trials and regulatory
submissions in connection with those various clinical trial activities
identified in Annex 3. The Clinical Development Group shall report to the
Project Steering Committee from time to time the results of development
activities for review and for decisions on subsequent activities.
(iii) Process Development and Production (PDP) Group -- The PDP Group
shall be responsible, as necessary from time to time, for proposing the
process development and production activities to the Project Steering
Committee supervising such activities, and coordinating and implementing
initial, adaption and scale-up activities identified in Annex 4. The PDP
Group also shall support with its activities the clinical development
process as outlined in Annex 3. The PDP Group shall report to the Project
Steering Committee from time to time the results of the work performed for
decisions on subsequent activities.
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4. RESPONSIBILITIES OF THE PARTIES.
4.1 Activities of the parties under this Agreement can be characterized as
follows: a) activities in which both parties will participate independently or
on an agreed basis at each party's own cost: b) activities for which Tanox will
have primary or sole responsibility at Tanox's cost; c) activities for which
Ciba-Geigy will have primary or sole responsibility at Ciba-Geigy's cost; d)
activities which can be undertaken with mutual agreement of the parties and for
which Tanox or Ciba-Geigy will be entitled to reimbursement of its costs and e)
activities for which Ciba-Geigy will have primary or sole responsibility at a
cost to be shared between the parties. Each party shall be responsible for
performing, in good faith, all activities for which it is responsible in a
commercially reasonable manner.
4.2 Categories of activities in which the respective parties will
participate, and identification of the party which will have responsibility for
each of such activities is set forth in Annex 2 (Research Activities), Annex 3
(Clinical Development Activities), and Annex 4 (Process Development and
Production Activities), respectively. For activities in which both parties have
a major participation, the parties will share responsibility for such activities
or one party will have the overall responsibility, as the Project Steering
Committee may mutually agree (except as specified in Paragraph 4.4 below for
clinical development activities).
4.3 Costs for each party's activities, as set forth in Annex 2, Annex 3,
and Annex 4, will be borne by such party or will be subject to reimbursement,
all as specified in each such Annex. Reimbursement of Tanox's reimbursable
activities will be made in accordance with the guidelines for reimbursement set
forth in Annex 5.
4.4 The overall responsibility for IND Application -- U.S. and Clinical
Development -- U.S., as identified in Annex 3, along with the overall regulatory
strategy during clinical development, NDA approval and post-NDS approval phases,
is agreed to be with Ciba-Geigy. However, the parties will jointly participate
through the Clinical Development and PDP Groups in all of such activities. Both
parties will have full access to all submissions to, including clinical studies
and other supporting information, and communications with the FDA relating to
the Product(s). Ciba-Geigy, or its Affiliates, shall file and hold title to all
regulatory applications, approvals and supplements hereto in the U.S.A. Each
party, or its Affiliate(s) or (in the case of Ciba-Geigy and at its discretion,
sublicensees), shall have the irrevocable right to refer to and cross-reference
all such documents for registrations in such other countries, subject to the
terms of this Agreement.
4.5 Ciba-Geigy and Tanox shall have continuing obligations to timely
advise each other of all adverse drug reactions and other similar matters
relevant to maintaining approvals and registrations of the Product(s).
Ciba-Geigy and Tanox shall have the continuing obligations to timely advise each
other of any governmental regulatory problems, notices, actions or
communications relating to the Product(s).
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4.6 Ciba-Geigy will bear overall responsibility for commercialization of
the Product(s) in all counties in which it desires to maintain the marketing
rights to the Product(s) set forth in Paragraph 8. Ciba-Geigy agrees to use
commercially reasonable efforts to obtain and maintain all Product(s) approvals,
registrations, and government authorizations necessary for commercial sale of
the Product(s) in all such countries (see 4.7), and will, subject to section
12.2A (ii), maintain commercial sales of Product(s) in those countries in which
such approvals are obtained. Ciba-Geigy shall notify Tanox as provided in
Paragraph 4.7 below should it elect not to exercise its rights to pursue
commercialization of a Product in a country. Ciba-Geigy shall be in compliance
with its responsibilities hereunder so long as it is proceeding with all such
activities in a commercially reasonable manner.
4.7 A. When the registration package requesting approval for commercial
sale of the Product(s) (including approval for reimbursement by the appropriate
health insurance authorities as well as price approvals where required) is first
filed in a Major Country, Ciba-Geigy will notify Tanox in writing of such filing
and will advise Tanox in such notice of any countries for which Ciba-Geigy holds
the Exclusive Rights, but does not intend to file for registration of the
Product(s). Such notice will effectuate Ciba-Geigy's voluntary abandonment of
its right hereunder to market Product(s) in such country. With respect to all
other countries outside the U.S., Ciba-Geigy shall submit the registration
package requesting approval for commercial sale of the Products as soon as
reasonably consistent with its normal practice for products within its
organization [currently approximately 3 to 9 months in countries where
Ciba-Geigy's Basic International Registration Dossier (BIRD) forms the basis of
the local submissions]. Thereafter, absent the occurrence of any events beyond
its control, including non-performance by Tanox, of its obligations under this
Agreement, Ciba-Geigy shall have the following maximum periods in which to
commence regular commercial sales of the Product(s) following the date of
approval for commercial sale (including reimbursement and price approval where
required) in each such country.
In the U.S.A. -- 12 months
In each Major County -- under normal circumstances 6 months
(outside the U.S.A.)
In each other country -- 24 months
The abandonment of (a) Product(s) pursuant to this Paragraph 4 shall not be
construed to be a termination of this Agreement.
B. In the U.S., Ciba-Geigy may voluntarily abandon its right hereunder to
market a Product(s), upon written notice to Tanox, at any time prior to
submission of the NDA for such Product(s) to the FDA. Between the time of
submission and the time of approval of said NDA, Ciba-Geigy may voluntarily
abandon its right hereunder to market a Product(s) in the U.S., upon written
notice to Tanox, solely for the reasons set forth in Section 12.2A (ii) as
grounds for a termination.
C. With respect to the Territory outside the U.S.A., Ciba-Geigy shall be
obligated to establish, prior to the commercial introduction of the Product(s),
a
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reasonable minimum sales forecast for years 1 to 4 after introduction in the
Major Countries (established as 1/3 of the best estimate of expected sales);
whereby, if the minimum sales in an average of two consecutive years are not
achieved in a Major Country, Tanox shall have the right to grant a second
license in such Major Country, unless Ciba-Geigy shall pay the minimum royalties
so accrued based on the minimum sales forecast for such period or shall be able
to show that these sales figures have not been reached due to reasons beyond the
control of Ciba-Geigy.
4.8 If Tanox at any time should advise Ciba-Geigy of its concern, and the
specific reasons for same, that Ciba-Geigy is not pursuing development,
commercialization and sale of the Product(s) outside the U.S.A. in the manner
required under this Agreement, then both parties shall discuss the situation in
good faith to reach a satisfactory resolution addressing Tanox's concerns, as
appropriate.
5. EXCHANGE OF INFORMATION.
5.1 Subject to the confidentiality of Paragraph 6, Tanox and Ciba-Geigy
shall share their Know-How with each other. If necessary, each party also will
provide such information to the other, to the extent reasonable, in suitable
form for regulatory approval and registration purposes. Know-How that is subject
to the confidentiality obligations of Paragraph 6 received by each party from
the other shall only be used for the Product(s) in the Field, except with the
express written consent of the other party, such consent not to be unreasonably
withheld. Prior to any use of such Know-How in products outside the Field, each
party agrees that it will discuss in good faith with the other any such intended
use and the possibility of compensation for such use as appropriate in view of
the source and the scientific inventiveness of such Know-How, the source of
funding, and other reasonable factors.
5.2 The Project Steering Committee and Working Groups, as described in
Paragraph 3, shall be responsible for the exchange of Know-How between Tanox and
Ciba-Geigy. (As appropriate, written reports shall be prepared for the meetings
of the Project Steering Committee and Working Groups).
5.3 Tanox will obtain, at its cost, its Patent Right(s) covering the
Product(s) in each country in which Tanox believes patent protection to be
appropriate. After the Agreement date, Tanox will advise Ciba-Geigy in writing
not later than four (4) months before the expiration date of the priority year
of the filing of any foreign patent applications, as to those countries where it
does not intend to timely file for patent protection and will offer at the same
time in writing to file in the remaining countries suggested by Ciba-Geigy
corresponding patent applications within such applicable priority year on
Ciba-Geigy's behalf and at Ciba-Geigy's cost. Ciba-Geigy shall collaborate and
share equally with Tanox the cost of preparing and filing patent applications
covering jointly made inventions. Ciba-Geigy will obtain, at its cost, patents
based upon its independent research activities for the Product(s) in each
country in which Ciba-Geigy believes such patent protection to be beneficial or
appropriate.
Development and Licensing Agreement - Page 9.
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The parties have communicated to each other, prior to the date of this
Agreement, the text of the priority patent applications, and
continuations-in-part, currently filed in the Field as listed in Annex 1. The
parties will communicate to each other, not later than ninety (90) days after
the filing thereof, the text of any additional priority patent applications
which are filed or notice of intention to abandon any such application so as to
permit the other party to assume prosecution of same at its own expense.
6. CONFIDENTIALITY AND PUBLICATIONS.
6.1 Unless otherwise provided for in this Agreement, both parties shall
treat the Know-How and any and all other information and data received or
derived under this Agreement as strictly confidential, and shall not disclose
the same to any Third Party during the Agreement Period and for five years
thereafter, except for information which:
(1) is or shall have been known to the receiving party prior to the
disclosure by the other party as evidenced by written record of other
proof;
(2) is or shall have been public knowledge through no fault of the
receiving party;
(3) has been received from a Third Party who did not acquire it
directly or indirectly from the disclosing party;
(4) needs to be disclosed to government officials for purposes of
obtaining registration of the Product(s); or
(5) is compelled to be disclosed in the course of litigation by a
Third Party, provided that the party compelled to make such disclosure
provides the other party to this Agreement with notice of such compulsion
sufficiently in advance of disclosure so as to provide such other party a
reasonable time period to seek a protective order.
Notwithstanding the above, both parties may disclose such information (i)
to their legal representatives and employees, to Affiliates, to legal
representatives and employees of Affiliates, and to consultants to the extent
such disclosure is necessary to achieve the purposes of this Agreement and
provided such legal representatives, employees and consultants are covered by
obligations of confidentiality with respect to such information no less
stringent than those set forth herein; and (ii) as required by law.
6.2 The parties acknowledge the legitimate interest of their respective
employees in publishing findings under this Agreement to the scientific
community. On the other hand, the parties recognize their mutual interest that
publications be made and lectures, seminars, or other presentations be given
only to the extent that both parties' commercial interests have been reasonably
safeguarded through patent protection or otherwise so that Third Parties cannot
make commercial and/or industrial use of the information contained in such
disclosures. For this purpose, each party shall ensure that the other shall have
the opportunity to comment in advance on any publication or oral
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presentation in public involving disclosure of any information under this
Agreement that may constitute confidential information and that no such
publication or presentation relating to such confidential information under this
Agreement shall be made without such other party's prior written consent. The
party from which such consent is requested shall not unreasonably withhold or
delay such consent. A request from the non-disclosing party that any such
publication or presentation be delayed until a patent application is filed
thereon shall be a reasonable request to delay; provided, that such delay lasts
no more than six (6) months from the date of such request.
7. PRODUCT MANUFACTURING.
7.1 In the interest of the competitive position of the Products emerging
from the cooperation, an economic, safe and reliable source of manufacture must
be identified. After the start of Phase I clinical trials, the PDP Group will
initiate the cooperative identification and development of suitable
manufacturing technology to provide the best reasonable conditions for
manufacturing the Product(s). Regulatory provisions which apply to biologicals
may have an impact on the final manufacturing arrangements. For example, it may
be required that Ciba-Geigy obtain and maintain the ELA for the Product(s) in
the U.S.A. to assume and maintain its governmental marketing approval for the
U.S.A. in accordance with this Agreement. If so, Ciba-Geigy may be required to
satisfy FDA requirements for ownership and/or control over the means of
manufacture in order to obtain and maintain such ELA. In that event, Ciba-Geigy
shall hold ownership and/or control over such means of manufacture. The parties
shall negotiate in good faith to reach mutually agreeable terms to permit
Ciba-Geigy to comply with its regulatory responsibilities.
7.2 In accordance with Amex 4 (Process Development and Production), Tanox
will produce Product(s) required for pre-clinical and Phase I and Phase II
clinical development, subject to reimbursement of Tanox's manufacturing costs
(as defined in the third and fourth sentence of Paragraph 7.4) by Ciba-Geigy.
Production of Product(s) for Phase III clinical trials and subsequent commercial
production will be subject to the respective manufacturing rights of the parties
agreed under this Paragraph 7.
7.3 Should neither Ciba-Geigy nor Tanox -- working in cooperation to
identify the best reasonable conditions for manufacturing the Product(s) -- be
capable of providing such manufacturing conditions and reasonably determine that
an alternative Third Party source of manufacturing is necessary, then Tanox and
Ciba-Geigy will negotiate in good faith on a reasonable compensation to Tanox
for relinquishing its manufacturing rights. Such compensation to Tanox shall be
established as an appropriate percentage of the estimated manufacturing profits
to Tanox, as mutually agreed.
7.4 Subject to Paragraph 7.3 above, Tanox will retain manufacturing rights
for *. Ciba-Geigy shall
determine, in good faith, considering Tanox's input and the objectives of this
Agreement, which of Ciba-Geigy's Affiliates' requirements * shall
be supplied by Tanox. For all Product(s) manufactured by Tanox for sale to
Ciba-Geigy pursuant hereto, Ciba-Geigy will purchase such Product(s) from Tanox
at a price *
Development and Licensing Agreement - Page 11.
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*
In any event, all Product(s) supplied by Tanox shall satisfy the standards
set forth in Annex 3 and 4 and the specifications for the Product(s) to be
agreed upon between the parties. Payment for such Product(s) shall not be due
until after quality control evaluation by Ciba-Geigy determines that said
Product(s) satisfy said standards and specifications.
7.5 In addition to quantities and pricing of the Product(s) agreed in
Paragraph 7.3 above, additional details concerning the commercial manufacturing
arrangements will be negotiated in good faith between the parties. These
discussions may cover Ciba-Geigy's financial support of Tanox's contribution
to acquisition and/or development of the Know-How for the commercial manufacture
of the Product(s). *
7.6 If the parties reasonably determine that manufacture of the Product(s)
from one facility provides the best reasonable manufacturing conditions, then,
as an alternative, Tanox and Ciba-Geigy may agree to establish manufacturing
capability for the Product(s) in the form of a joint venture.
7.7 In the event that (i) Tanox could not supply Ciba-Geigy's
requirements, in whole or in part, for the Product(s) or that (ii) Tanox should
not be able to supply, in whole or in part, the Product(s) in the quality as
agreed upon between the parties in writing at least twelve (12) months prior to
the delivery date established for the first commercial supplies by Tanox to
Ciba-Geigy, or that (iii) Ciba-Geigy or its Affiliates or sublicensees should be
compelled to manufacture the Product(s) locally in any country of the Territory
due to the laws or regulations by the government authorities in such country or
due to other compelling commercial reasons beyond the control of the parties,
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Tanox or Ciba-Geigy, as the case may be, shall notify the other party
immediately to this effect and both parties hereto shall, as promptly as
possible, but not later than thirty (30) days after the receipt by Tanox or
Ciba-Geigy, as the case may be, shall notify the other party immediately to this
effect and both parties hereto shall as promptly as possible, but not later than
thirty (30) days after the receipt by Tanox or Ciba-Geigy, as the case may be,
of said notification by Tanox or Ciga-Geigy, start good faith negotiations with
the aim to find a quick solution to overcome the difficulties arisen. If the
parties hereto do not come to an agreement in this respect within ninety (90)
days after the date of notification, then Ciba-Geigy shall have the right to
manufacture itself such portion of its requirements of the Product(s) as may be
necessary without any compensation to Tanox.
If Ciba-Geigy is manufacturing such Product(s) due to the occurrence of
event (iii) above, then Ciba-Geigy will agree to adjust purchases of its
requirements for other countries in a manner that will permit Tanox to continue
to supply * Regarding the occurrence of events (i) or (ii) above, Ciba-Geigy and
Tanox will negotiate in good faith in concluding the details of the
manufacturing and supply arrangements to establish the return of such
manufacturing responsibility to Tanox as soon as reasonable or to terminate its
manufacturing responsibility, in whole or in part, as appropriate under the
circumstances.
7.8 Ciba-Geigy shall have the right to have, at its own expense, an
independent certified public accountant, to which Tanox has no reasonable
objection, inspect Tanox's books and records of account to determine and
communicate to Ciba-Geigy only whether Tanox has properly charged Ciba-Geigy
pursuant to Article 7 for supplies of Product(s) and for reimbursement of other
Tanox costs pursuant to this Agreement and the amount of any discrepancy. Tanox
agrees that such records are maintained or will be maintained in sufficient
detail to permit such determination for a period of at least three (3) years
from the date of their origin. If any review by the independent accountant of
Ciba-Geigy of such books and records should indicate that the amount(s) paid by
Ciba-Geigy has not been correct, the parties shall seek to mutually agree to
settle any discrepancies raised by Ciba-Geigy's accountants and, if the parties
mutually agree that the discrepancy is greater than one percent (1%) in Tanox's
favor, then Tanox shall agree to reimburse Ciba-Geigy for the expense of such
inspection.
8. MARKETING
8.1 Subject to the terms and conditions of this Agreement, Ciba-Geigy will
have Exclusive Rights in the Exclusive Territories during the Agreement Period.
8.2 Subject to the terms and provisions of this Agreement, both Tanox and
Ciba-Geigy will have Semi-Exclusive, Co-Marketing Rights in the Semi-exclusive
Territories during the Agreement Period.
8.3 Notwithstanding anything above to the contrary, in the U.S.A.,
Ciba-Geigy and Tanox will have Semi-Exclusive, Co-Promotion Rights to the
Product(s), subject, as applicable, to the following:
Development and Licensing Agreement - Page 13.
<PAGE>
A. Tanox and Ciba-Geigy agree to negotiate in good faith the details of
their Co-Promotion agreement at a mutually agreeable time and in accordance with
the terms and conditions described in this Paragraph 8.3 and elsewhere in this
Agreement as applicable. Such negotiation, however, shall commence no later than
the date of filing of the NDA in the U.S. or at such other earlier time as Tanox
and Ciba-Geigy determine is commercially reasonable.
B. Tanox's and Ciba-Geigy's compensation shall be fairly determined based
on the profits from such Co-Promotion computed in a mutually agreeable manner
based on Ciba-Geigy's standard accounting procedures ("Ciba-Geigy Profits"),
which Ciba-Geigy Profits are defined as the difference between Net Sales of the
Product(s) in the U.S.A. and Ciba-Geigy's "Total Marketing Expense" in the
U.S.A. Ciba-Geigy's "Total Marketing Expense" shall include but not
necessarily be limited to the following costs incurred by Ciba-Geigy and by
Tanox, if any, as may be reasonable:
(i) Cost of goods to Tanox and Ciba-Geigy, as appropriately
determined in accordance with Ciba-Geigy's standard accounting procedures:
(ii) Royalty payments from Ciba-Geigy to Tanox on that proportion of
Net Sales attributable to Ciba-Geigy;
(iii) Product specific marketing expenses (PSME) which include but
are not limited to costs for direct advertising, films, samples, exhibits,
clinical conference aids, peer promotion activities, marketing reasearch
and such other costs as are normally included in PSME according to
Ciba-Geigy's standard accounting procedures;
(iv) Field force costs (FF) which are the direct and indirect costs
of the combined Tanox and Ciba-Geigy field forces, such costs to be borne
by Tanox and Ciba-Geigy respectively, properly allocated to the sale of the
Product(s) and in accordance with Ciba-Geigy's (and Tanox's) standard
accounting procedures; provided, that the FF costs may be included or
excluded from Ciba-Geigy's Total Marketing Expenses as the parties may
mutually agree;
(v) Other marketing expenses according to Ciba-Geigy's standard
accounting procedures; and
(vi) Overhead costs and cost of services as determined in accordance
with Ciba-Geigy's standard accounting procedures.
C. Tanox's compensation (TC) shall be a proportion of Ciba-Geigy Profits,
* of Ciba-Geigy Profits. Such proportion shall be determined by Ciba-Geigy
Profits, and the two factors described below:
Development and Licensing Agreement - Page 14.
<PAGE>
(i) Relative field force time (RFFT) is that amount of Tanox's field
force time spent in direct promotion of the Product(s) to the Product(s)
target audience, divided by that time spent by the combined Ciba-Geigy and
Tanox field forces.
(ii) Relative field force productivity (RFFP) is that amount of the
Tanox field force experience, in terms of years, in promoting Product(s) in
the indication(s) for which the Product(s) are approved, divided by that
quantity for the Ciba-Geigy field force. RFFP shall at no time be less than
0.75 or greater than 1.0.
D. Tanox acknowledges that it shall permit Ciba-Geigy to design and
implement the overall marketing and sales program as Ciba-Geigy determines is
commercially reasonable for the Product(s), with consideration of such input as
Tanox representatives may from time to time provide, for a reasonable time
following the launch of the Product(s).
Ciba-Geigy acknowledges that after said reasonable time which shall be no
less than three (3) years following the launch of the Product(s), if Tanox gives
notice to Ciba-Geigy that it is not satisfied with the sales performance of the
Product(s), then in such case Ciba-Geigy, in its discretion, reasonably
exercised, may grant Tanox the right to imitate certain activities on its own in
order to increase the sales performance of the Product(s) and its relative
benefits therefrom.
E. Ciba-Geigy acknowledges that, in accordance with its sole right to
determine the overall marketing and sales strategy for the Product(s), and in
consideration of the input to same which, from time to time may be provided by
Tanox, it shall provide Tanox with a commercially reasonable opportunity to
achieve its * compensation of Ciba-Geigy Profits as defined above.
8.4 If Ciba-Geigy abandons its right to market a Product in a country in
accordance with Paragraph 4.7 (without electing to sublicense), then such rights
shall be owned in full by Tanox and Tanox shall thereafter retain the Exclusive
Rights to market the Product in such country. If Ciba-Geigy has abandoned and
relinquished (either worldwide or in particular countries) its marketing rights
hereunder with respect to the Product(s) (one or more than one, as applicable),
without electing to sublicense, Tanox or a Third Party licensee or sublicensee
of Tanox may freely carry on future development and commercialization of the
Abandonment Product. If Tanox acquires any rights to an Abandoned Product, Tanox
may use any studies conducted by Ciba-Geigy and its Affiliate(s), and shall have
access and rights thereto, to the extent that such rights and access have not
already been provided under this Agreement.
Development and Licensing Agreement - Page 15.
<PAGE>
9. Financial Commitments of Ciba-Geigy.
9.1 Subject to the continuing interest of Ciba-Geigy in this project,
Ciba-Geigy shall pay the following amounts to Tanox upon the happening of the
events specified hereinafter.
PAYMENT
EVENT (in millions)
1. On signing of the Agreement by both *
parties
2. Within 30 working days after receipt *
by Ciba-Geigy of a two (2) mg sample
of a chimeric mAb developed by Tanox
at a quality to be agreed upon in
advance in writing between the
parties
3. Within 30 working days after receipt *
by Ciba-Geigy of batch 0 of the
Product at quantity / quality /
specifications to be agreed upon in
advance in writing between the
parties
4. Start by Ciba-Geigy of phase I *
clinical trials
5. Start by Ciba-Geigy of phase II *
clinical trials
6. Start by Ciba-Geigy of phase III *
clinical trials
7. Upon submission of NDA/PLA/ELA in *
first Major Country (other than
Japan) (50% creditable against
royalties)
8. Upon submission of NDA/PLA in Japan *
(50% creditable against royalties)
9. Upon approval of NDA/PLA/ELA in first *
Major Country (other than Japan) (50%
creditable against royalties)
10. Upon approval of NDA/PLA in Japan *
(50% creditable against royalties)
The above payments under event numbers 1 and 4 to 10 shall be due within
thirty (30) days after occurrence of the event specified.
The above payments (except for the signing payment) shall be made for the
initial Product and for each different Product which the parties agree to pursue
which
Development and Licensing Agreement - Page 16.
<PAGE>
is not a follow-up or second generation product initiated solely by
Ciba-Geigy's R&D activities; however, if the parties agree to replace a Product
being developed with another Product of the same type and function which shows
greater promise, then such payments will continue with the payment next due at
the time such initial product was replaced.
9.2 A. In consideration of the rights herewith granted, Ciba-Geigy shall
pay royalties to Tanox on Net Sales of the Product(s) based on the following:
(i) on all Net Sales within a calendar year in Exclusive
Territories, in the aggregate, where Tanox's Patent Right(s)
exist in the form of issued, valid, and unexpired patents:
-- up to and including *: *
-- between * and up to
and including *: *
-- over *: *
(ii) on Net Sales in Semi-exclusive Territories where Tanox's
Patent Rights exist in the form of issued, valid, and
unexpired patents: *
(iii) on Net Sales in countries outside of the U.S.A. in which
there are no Tanox Patent Rights in the form of issued,
valid, and unexpired patents: *
(iv) on Net Sales in the U.S.A. if there are no Tanox Patent
Rights in the form of issued, valid, and unexpired patents: *
Tanox, at its option on written notice to Ciba-Geigy, may permanently waive
prior to a commercial introduction of the Product(s) its Semi-Exclusive Rights
in one or more countries, from time to time, and such countries shall thereafter
be considered for purposes hereof as countries with Exclusive Rights held by
Ciba-Geigy.
B. If the Product(s) contain one or more therapeutically active substances and
such substances are of comparable significance, or the added one(s) are of
greater significance than the original Product(s), then the parties shall in
good faith renegotiate a reduction to the above royalty rates applicable to such
Product(s).
C. Where royalty payments to Tanox become due, Ciba-Geigy shall have the right
to receive a credit for * of the total amount of each such royalty
payment until such time as the cumulative credits received under this provision
shall equal * of the amounts paid under
Paragraph 9.1, event numbers 7, 8, 9 and 10), plus amounts as may be permitted
to be credited against royalty payments under Annex 3, paragraph number 4.
Development and Licensing Agreement - Page 17.
<PAGE>
D. If in any country any Product is covered by more than one of Tanox's Patent
Rights which entitles Tanox to royalty payments hereunder, the highest royalty
rate shall be applicable, but no cumulation of royalties shall be made.
E. The royalties shall be payable in each country as follows: (i) until the
last to expire in each of the respective countries of the patents actually used
and covering the manufacture, use, or sale of Product(s) issuing from the patent
applications of Tanox listed in Annex 1 as of the date of the signature of this
Agreement or claiming its priorities thereof (such expiration to occur only
after expiration of extensions of any nature to such patents which may be
obtained under applicable statues or regulations in the respective countries of
Territory, such as the Drug Price Competition and Patent Term Restoration Act of
1984 in the U.S.A. and similar patent extension laws in other countries), or
(ii) for a duration of nine (9) years from the day of the first commercial sale
of the respective Product(s) in each of the respective sales countries if there
is no patent protection in such country at the expiration of such nine (9) year
period, whichever is longer. If a patent expires in a country prior to such nine
(9) year period, then the royalty rate shall drop to the rate applicable in
countries without patent protection.
F. All royalty payments shall be made in U.S. Dollars for each calendar half
year (ending on June 30 and December 31, respectively) within ninety (90) days
after the end of such calendar half year. Such royalty payments shall be
accompanied by a written statement indicating Net Sales of the Product(s), as
applicable, by country.
If Ciba-Geigy is required to pay or withhold any income tax or other tax with
respect to royalty payments, Ciba-Geigy shall first (i) furnish Tanox, in
writing, with satisfactory evidence that such payment or withholding is
required, (ii) give Tanox its reasonable assistance to enable or assist Tanox to
claim exemption from any such deduction and (iii) shall provide satisfactory
documentation to confirm the payment of the tax.
To the extent and as long as the laws and/or regulations in force in any country
prohibit the payment, conversion or remittance of the royalties as hereby
contemplated, Ciba-Geigy's obligations under this Paragraph 9.2.F. shall be
discharged by the deposit thereof to the account of Tanox, or its designee, in
any commercial bank or trust company selected by Tanox located in such country;
provided, that no infraction of law or regulation occurs in making such deposit.
Tanox shall have the right to have, at its own expense, an independent certified
accountant, to which Ciba-Geigy has no reasonable objection, inspect
Ciba-Geigy's books and records of account to determine and communicate to Tanox
only whether appropriate payments have been made to Tanox and the amount of any
discrepancy. Ciba-Geigy agrees that such records are maintained or will be
maintained in sufficient detail to permit such determination for a period of at
least three (3) years from the date of their origin. If any review by the
independent accountant of Tanox of such books and records should indicate that
the amount(s) paid by Ciba-Geigy have not been correct, the parties shall seek
to mutually agree to settle any discrepancies raised
Development and Licensing Agreement - Page 18.
<PAGE>
by Tanox's accountants and, if the parties mutually agree that the discrepancy
is greater than 1% in Ciba-Geigy's favor, then Ciba-Geigy shall agree to
reimburse Tanox for the expense of such inspection.
9.3 Notwithstanding any set-offs or other reductions to royalties which
may be provided under this Agreement, the parties agree that the total annual
aggregate royalties payable to Tanox under this Agreement shall in no event be
reduced by greater than * of the total annual aggregate amount which would be
payable absent any such set-offs or reductions.
10. INDEMNIFICATION; LIABILITY; INFRINGEMENT.
10.1 Ciba-Geigy shall indemnify and hold Tanox harmless from and against
any and all damages, costs, expenses, and other liabilities, including, without
limitation, all liability claims and damages with respect to the Product(s) sold
by Ciba-Geigy (including sales under Co-Promotion Rights) provided that a) no
later than ten days after receipt of notice by Tanox of such claim, Tanox shall
notify Ciba-Geigy thereof; b) said damages, costs, expenses and other
liabilities do not arise out of the negligence or violation by Tanox of
applicable laws or of its obligations under this Agreement; c) Tanox fully
cooperates with Ciba-Geigy in the defense of such claims without out-of-pocket
cost to Tanox; and d) Ciba-Geigy shall control the defense and or settlement
thereof. Ciba-Geigy also agrees to add Tanox as an additional named insured on
any product liability insurance policy that Ciba-Geigy may have outside the
U.S.A. which covers such Product(s) and furnish satisfactory evidence of same
upon request from time to time.
Tanox shall indemnify and hold Ciba-Geigy harmless from and against any and
all damages, costs, expenses, and other liabilities, including, without
limitation, all liability claims and damages with respect to the Product(s) sold
by Tanox under its Co-Marketing Rights (or any subsequent Exclusive Rights it
may obtain); provided that a) no later than ten days after receipt of notice by
Ciba-Geigy of such claim, Ciba-Geigy shall notify Tanox thereof; b) said
damages, costs, expenses and other liabilities do not arise out of the
negligence or violation by Ciba-Geigy of applicable laws or of its obligations
under this Agreement; c) Ciba-Geigy fully cooperates with Tanox in the defense
of such claims without out-of-pocket cost to Ciba-Geigy; and d) Tanox shall
control the defense and or settlement thereof. Tanox also agrees to add Ciba-
Geigy as an additional named insured on any product liability insurance policy
that Tanox may have outside the U.S.A. which covers such Product(s) and furnish
satisfactory evidence of same upon request from time to time.
It is understood, however, that neither party nor their officers, directors
and employees shall be liable for any loss or damage caused by the negligence of
the other party while the latter party is performing its work under this
Agreement.
10.2 Tanox shall indemnify and hold harmless Ciba-Geigy, its Affiliates
and sublicensees from and against any and all damages, costs, expenses, and
other liabilities incurred by them as the result of any infringement of patent
rights of any Third Party arising from the manufacture, use or sale of the
Product(s); provided that no later than
Development and Licensing Agreement - Page 19.
<PAGE>
ten days after receipt of notice by Ciga-Geigy of any such claim, Ciga-Geigy
shall notify Tanox thereof and give Tanox the opportunity to undertake and
direct the defense and/or settlement thereof. Any amount due to Ciga-Geigy, its
Affiliates or sublicensees pursuant to this indemnification shall be paid solely
out of royalties thereafter due by Ciga-Geigy to Tanox hereunder.
In the event of any such infringement, Tanox may obtain, or Ciga-Geigy may
require Tanox to use its best efforts to obtain, for Ciga-Geigy a license
applicable to such country of such Third Party's patent rights. If royalties
shall become payable to third parties under such a license obtained by Tanox or
under a license which Ciga-Geigy is compelled to execute with a Third Party to
market Product(s) without infringing the patent rights of that Third Party, such
royalties shall be deductible of the royalties due Tanox, but the royalties due
Tanox shall in any event at least be equal to those in countries of the
Territory without Tanox's Patent Rights.
10.3 If Tanox, Ciga-Geigy, or its respective Affilite(s) or sublicensees
becomes aware of any actual or threatened infringement of any Patent Rights,
such party shall promptly notify the other party in writing. Ciga-Geigy and its
Affiliate(s) or sublicensees, shall have the first right to bring, at
Ciga-Geigy's own expense, an infringement action against any third party in its
own name, or if necessary in the name of Tanox. If Ciga-Geigy, or its
Affiliate(s) or sublicensees, do not bring a particular patent infringement
action within six (6) months from the date of notification, or within two months
prior to expiration of any applicable statute of limitations on such action,
Tanox, after notifying Ciga-Geigy in writing, shall be entitled to bring such
infringement action at Tanox's own expense. The party not conducting such suit
shall assist the other party and cooperate in any such litigation at the other's
reasonable request without out-of-pocket expense to the party providing such
assistance. The award or settlement in such litigation shall first be used to
pay the legal costs and expenses of such suit and any remaining amount shall be
divided between the parties in proportion to each party's respective injury
caused by the infringer.
11. RIGHT OF FIRST REFUSAL. Ciba-Geigy will have the right of first
refusal to market any Product(s) with the Field that are independently developed
by Tanox as permitted under Annex 3, paragraph number 5. At such time as Tanox
desires to license out all or part of the rights to any such Product(s), Tanox
shall notify Ciba-Geigy in writing, specifying in such notice the terms and
conditions upon which such license will be offered. Ciba-Geigy will have sixty
(60) days after the date of receipt of all relevant information to review such
information regarding the Product(s) as Tanox has made or will make available to
interested Third Parties. If Ciba-Geigy desires to exercise its right of first
refusal hereunder, it will notify Tanox of same and negotiate any details
necessary to consummate such license transaction within one hundred and twenty
(120) days from the date of its decision to exercise such right of first
refusal. At the conclusion of such one hundred and twenty (120) days period,
unless Ciba-Geigy and Tanox have reached written agreement with respect to the
exercise of its rights (with closing to occur within thirty (30) days
thereafter), Tanox shall be free to conclude such license transaction with a
Third Party in accordance with its notice to Ciba-Geigy, provided, that if Tanox
should determine that it will conclude any such license transaction on terms and
conditions
Development and Licensing Agreement - Page 20.
<PAGE>
materially more favorable than those stated in its notice to Ciba-Geigy, then
Tanox will permit Ciba-Geigy to have another right of refusal with respect to
such other terms and conditions.
12. TERM; TERMINATION
12.1 A. The term of this Agreement shall begin as of the date hereof
and, on a country by country basis, unless earlier terminated as permitted
hereunder, shall remain in effect for the Agreement Period.
B. Upon such expiration of the Agreement Period, each party shall continue
to have the right and license to sell Product(s) under any name, trademark, and
product label applicable to the Product(s) sold by such party during the term of
this Agreement so long as such party takes all actions reasonably necessary to
protect and maintain the goodwill associated with such names or marks; except
that in the U.S.A. only Ciba-Geigy shall have the right to continue to use the
previously used trademark. Actions to protect and maintain such goodwill shall
include, without limitation, (i) using and displaying such marks in the manner
required by law and consistent with the manner in which such name(s) or marks
were used or displayed during the term of this Agreement and (ii) using such
names or marks only in connection with Product(s) which meet standards,
specifications, and quality assurance requirements that are the same, in all
material respects, as were applicable to such Product(s) during the term of this
Agreement.
12.2 A.(i) Prior to submission of a registration package requesting
approval for commercial sale of the Product(s) in the first Major Country, this
Agreement and the licenses granted hereunder may be terminated by Ciba-Geigy,
with or without cause, at any time upon * days prior
written notice thereof to Tanox. During such period, pending the effectiveness
of such termination notice, Ciba-Geigy agrees to withhold public disclosure of
such termination until it has provided the reasons for such termination to
Tanox. Any payments according to Paragraph 9.1 of this Agreement shall, however,
not become payable by Ciba-Geigy to Tanox during such * days' notice period.
(ii) Subsequent to submission of a registration package requesting
approval for commercial sales of the Product(s) in the first Major Country, if
Ciba-Geigy reasonably determines, in good faith, that there are unanticipated
limitations on the market opportunity represented by the Product(s) because of
restrictive labeling requirements, side effects, absence of medical needs,
conditions which in Ciba-Geigy's reasonable judgement make it commercially
unreasonable to launch the Product(s), or similar problems, then this Agreement
and the licenses granted hereunder, may be terminated by Ciba-Geigy upon one
hundred and twenty (120) days' prior written notice thereof to Tanox. During
such period, pending the effectiveness of such termination notice, Ciba-Geigy
agrees to withhold public disclosure of such termination until it has provided
the reasons for such termination to Tanox. Any payments according to paragraph
9.1 of this Agreement, shall, however, not become payable by Ciba-Geigy to Tanox
during such * days' notice period.
Development and Licensing Agreement - Page 21.
<PAGE>
B. Either party may terminate this Agreement in the event of a material
breach by the other, provided, that the breaching party is given written notice
of such claimed breach and a reasonable time, not to exceed sixy (60) days, in
which to cure such breach or submit same to arbitration hereunder. Such period
to cure may be extended for up to one hundred twenty (120) days, upon written
request, if such additional time is reasonably necessary to effect such cure;
provided, that such breaching party is using its reasonable efforts to
diligently pursue such cure. If Tanox is the breaching party and fails to cure
its breach within such period allowed for cure, then Ciba-Geigy, at its election
in lieu of termination of this Agreement under Paragraph 12.2.A. above, shall be
entitled to setoff against the royalty payments due Tanox, without effect of the
limitation on aggregate reduction under Paragraph 9.3, the amount of damages
agreed or determined by arbitration to have resulted from such breach.
12.3 A. If this Agreement is terminated by Tanox pursuant to Paragraph
12.2.B. or by Ciba-Geigy pursuant to Paragraph 12.2.A., then Ciba-Geigy and its
Affiliate(s) and sublicensees, as applicable, shall return to Tanox all
documented or written Know-How provided by Tanox under this Agreement and Ciba-
Geigy, and its Affiliate(s) and sublicensees, shall have no further right or
license to Tanox's Know-How and Patent Rights. Upon such termination (other than
a termination by Ciba-Geigy pursuant to 12.2.B), Tanox shall retain and be
granted a non-exclusive, world-wide license to Ciba-Geigy's Patent Rights and
Know-How for the manufacture, use, and sale of the Product(s), with the right to
sublicense. If Ciba-Geigy terminates this Agreement in good faith under
Paragraph 12.2.A.(i) because adverse results obtained in the development
activities for the Product(s) make such termination reasonable under the
circumstances and, if Tanox or any of its licensees intends to use Ciba-Geigy's
Patent Rights or Know-How for the manufacture, use and/or sale of the
Product(s), the studies conducted by Ciba-Geigy and its Affiliates and
sublicensees relating to Product(s) may only be used if Tanox shall agree to
compensate Ciba-Geigy for such use in an aggregate amount equal to Ciba-Geigy's
payments to Tanox under Article 9.1, events 1-10 of this Agreement. If
Ciba-Geigy terminates this Agreement under Paragraph 12.2.A(i) for any other
reason and the foregoing use by Tanox or its licensees occurs, then Tanox shall
compensate Ciba-Geigy for such use in an aggregate amount equal to Ciba-Geigy's
payments to Tanox under 9.1, events 3-10, of this Agreement. Such compensation
shall be paid from Tanox's own Product(s) sales and/or from other payments made
by Third Parties for the rights under this Agreement and shall be paid in
installments equal to 3.3% of Tanox's Product(s) sales and/or one-third of such
other payments until Ciba-Geigy has obtained full recovery of the amounts agreed
above.
If Ciba-Geigy terminates this Agreement under Paragraph 12.2.A.(ii), then:
(i) Ciba-Geigy and its Affiliate(s) and sublicensees, as applicable, shall
return to Tanox all documented or written Know-How provided by Tanox under this
Agreement and Ciba-Geigy, and its Affiliate(s) and sublicensees, shall have no
further right or license to Tanox's Know-How and Patent Rights; (ii) Tanox shall
retain and be granted a non-exclusive, worldwide license to Ciba-Geigy's Patent
Rights and Know-How for the manufacture, use and sale of the Product(s), with
the right to sublicense; and (iii) Tanox may use the studies conducted by
Ciba-Geigy and its Affiliates and sublicensees relating to Product(s) without
paying additional compensation to Ciba-Geigy. In addition, Ciba-
Development and Licensing Agreement - Page 22.
<PAGE>
Geigy will provide Tanox with such additional reasonable assistance in
connection with transfer of development activities, product registrations and
applications, regulatory approvals, and other matters necessary to Tanox's
assumption of Ciba-Geigy's responsibilities under this Agreement as the parties
may mutually agree is appropriate.
B. Termination of this Agreement for any reason shall be without prejudice
to Tanox's right to receive all royalties accrued and unpaid on the effective
date of termination and shall not relieve either party of any liability from any
obligations which have accrued hereunder prior to such termination.
C. The confidentially obligations set forth in Paragraph 6 shall survive
the termination or expiration of this Agreement for the maximum period permitted
under Paragraph 6.
13. FORCE MAJEURE. Neither party shall be liable to the other for failure
or delay in the performance of any of its obligations under this Agreement for
the time and to the extent such failure or delay is caused by riots, civil
commotions, wars, hostilities between nations, embargoes, acts of God, storms,
fires, accidents, labor disputes or strikes, sabotage, explosions or other
similar or different contingencies, in each case, beyond the reasonable control
of the respective parties. If the performance of any obligation under this
Agreement is delayed owing to a force majeure for any continuous period of more
than six (6) months, the parties hereto shall consult with respect to an
equitable solution, including the possible termination of this Agreement.
14. NON-DISCLOSURE. The existence and the terms of this Agreement shall
not be disclosed by Tanox or Ciba-Geigy to any Third Party or be published
unless both parties expressly agree otherwise in writing. However, this
restriction shall not apply to disclosure of information set forth in the form
of an agreed press release, which will be prepared in mutually agreeable format
and substance following the closing of this Agreement, and to announcements
required by law or regulation except that in such event the parties shall
coordinate to the extent possible with respect to the wording of any such
announcement. Also, this restriction shall not apply to disclosure of this
Agreement to certain private Third Parties such as the shareholders of Tanox,
investment bankers and other financial consultants, and prospective investors in
Tanox or its technology under development, if such disclosure is made under
confidentiality obligations extending for at least three (3) years and otherwise
similar in substance to the provisions of Paragraph 6. Except for disclosure
pursuant to the press release to be mutually agreed following closing, Tanox
expressly agrees that subsequent press releases or other disclosure for press
publication will be subject to the obligations of non-disclosure under this
paragraph, unless such disclosure includes, in substance, only the information
set forth in such agreed press release.
15. NOTICES. All notices or communications sent or delivered hereunder by
one party to the other party shall be in writing and shall be deemed duly given
when delivered to the other party at the address set forth below or when sent by
electronic facsimile transmission (Fax), with receipt evidenced by Fax
transmission acknowledgement, to the Fax number set forth below. A party's
address or Fax number may be changed
Development and Licensing Agreement - Page 23.
<PAGE>
upon notice of such change given to the other party as provided herein. Notice
to the parties shall be delivered to their respective addresses or Fax numbers,
as follows:
If to Tanox: Tanox Biosystems, Inc.
Attn: Nancy T. Chang, President
10301 Stella Link
Houston, Texas 77025
U.S.A.
FAX: (713) 664-8914
If to Ciba-Geigy: Ciba-Geigy Limited
Pharma Licensing
CH-4002 Basle
Switzerland
FAX: 061-6963887
16. ARBITRATION AND JURISDICTION. The parties agree to attempt to settle
any dispute, controversy or difference arising out of or relating to this
Agreement, or breach thereof, by friendly discussions, including concluding any
subsequent agreements required or contemplated by this Agreement. If and when
any such dispute, controversy, or difference is not settled by such means, then
any such dispute, controversy, or difference shall be subject to arbitration,
with three (3) arbitrators (one each selected by the parties and a neutral
arbitrator appointed by *) in accordance with the rules of the *. The parties
acknowledge that the arbitrators, if required to resolve any difference or
dispute of the parties with respect to the terms of any such subsequent
agreements should be guided by the purpose and intent of the parties reflected
in this Agreement and by general industry practices among companies of equal
bargaining power. The parties agree to be bound by the award and/or decision of
such arbitration and such award and/or decision may be enforced by any court of
competent jurisdiction. The place of arbitration shall be a mutually agreeable
site. This Agreement shall be construed in all respects and governed by
applicable laws *.
17. RELATIONSHIP OF PARTIES. Both parties are independent contractors
under this Agreement. Nothing contained in this Agreement is intended nor is to
be construed so as to constitute Tanox or Ciba-Geigy as partners or joint
venturers with respect to this Agreement. Neither party shall have any express
or implied right or authority to assume or create any obligations on behalf of
or in the name of the other party or to bind the other party to any other
contract, agreement, or undertaking with any Third Party.
18. ASSIGNMENT. The rights and obligations of the parties hereunder may
be assigned to Affiliates, but shall otherwise not be transferred or assigned by
either party, except as otherwise permitted in compliance with the requirements
of this Agreement, without the prior written consent of the other party. This
Agreement shall be binding upon and inure to the benefit of any such permitted
assigns or successors.
Development and Licensing Agreement - Page 24.
<PAGE>
19. SEVERABILITY. If any part of this Agreement shall be held
unenforceable, the remainder of the Agreement shall nevertheless remain in full
force and effect.
20. ENTIRE AGREEMENT AND AMENDMENT. As of the date hereof, this Agreement
constitutes the entire understanding between the parties with respect to the
subject matter hereof and supersedes any previous understandings or agreement
between the parties. No modification or amendment of this Agreement shall be
valid or binding upon the parties unless made in writing and duly executed on
behalf of both of the parties. The parties also acknowledge execution of that
certain Stock Purchase Agreement of even date herewith and those additional
agreements to be entered into hereafter which are referenced herein.
21. WAIVER. No failure or delay by any party to insist upon the
performance of any term or condition of this Agreement, or to exercise any
right, power, or remedy hereunder consequent upon a breach hereof, shall
constitute a waiver of any such term, condition, right, power, or remedy, or of
any such breach, or preclude such party from exercising any such right, power,
or remedy at any later time or times.
22. AGREEMENT TO PERFORM NECESSARY ACTS. Each party agrees to perform any
further acts and execute and deliver any and all further documents, agreements,
and/or instruments which may be reasonably necessary or desirable to carry out
or effect the provisions of this Agreement.
23. APPLICABLE LAWS. The parties hereby agree to comply with all laws,
rules, regulations, ordinances, and other governmental requirements in
connection with the performance of their respective rights, responsibilities,
and obligations hereunder, including, without limitation, laws governing export,
import, or other shipment of the Product(s), regulating approvals and
registrations of the Product(s), and requiring identification of Patent Rights
on labels and containers for the Product(s).
Development and Licensing Agreement - Page 25.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed on the day and year
first above written.
TANOX BIOSYSTEMS, INC.
By: Nancy T. Chang,
Nancy T. Chang, President
CIBA-GEIGY LIMITED
By: H.F. Mohr
Name: H. F. Mohr
Title: Head, Pharma Licensing
By: H. Gut
Name: Herbert Gut
Title: Counsel Pharma Div.
Development and Licensing Agreement - Page 26.
<PAGE>
ANNEX 1
PATENT RIGHTS IN FIELD
TANOX PENDING PATENT APPLICATIONS
<TABLE>
<S> <C> <C> <C> <C>
TNX37-12 Chang ET AL. High affinity Anti-Human IgE- 12/31/87 S/N 140,036
U.S. Monoclonal Antibody Which Bind
To Igge-Bearing B Cells And Not
Basophils
TNX87-12A Change ET AL. High affinity Anti-Human IgE- 7/29/88 S/N 226,421
U.S. Monoclonal Antibody Which Binds
To IgE-Bearing B Cells And Not
Basophils
TNX87-12AA Chang ET AL. High affinity Anti-Human IgE- 12/28/88 S/N 291,068
U.S. Monoclonal Antibody Which Binds
To IgE-Bearing B Cells And Not
Basophils
TNX87-12AAA Chang IgE-Specific Antibodies That Do 3/6/89 S/N 320,294
Not Bind IgE on B Lymphocytes
and Basophils
TNX87-12AAB Chang ET AL. High Affinity Anti-IgE Mono- 5/26/89 S/N 357,483
U.S. clonal Antibody Which Binds
To IgE-Bearing B Cells And Not
Basophils
TNX88-03 Chang Antigenic Epitopes Of IgE 8/5/88 S/N 229,178
U.S. Present On B Cell But Not
Basophil Surface
TNX88-03A Chang Antigenic Epitopes Of IgE 11/16/88 S/N 272,243
U.S. Present On B Cell But Not
Basophil Surface
TNX-03AA Chang Antigenic Epitopes Present 6/21/89 S/N 369,625
U.S. On Membrane-Bound But Not
Secreted IgE
TNX87-12AA Antigenic Epitopes of Immunoglobulin 1/3/89 S/N 587,431-9
Canada E Present On B Cell
But Not Basophil Surface
PCT (3) Unique Antigenic Epitopes On 12/29/88 PCT/US88/04706
IgE-Bearing B Lymphocytes
CIBA-GEIGY PENDING PATENT APPLICATIONS
Great Britain Heusser Monoclonal Antibodies Specific for 5/4/89 4-17570
an Immunoglobulin Isotype
</TABLE>
<PAGE>
ANNEX 2
COOPERATIVE RESEARCH ACTIVITIES
UNDER DIRECTION/SUPERVISION OF
PROJECT STEERING COMMITTEE/WORKING GROUP
<TABLE>
<CAPTION>
RESEARCH ACTIVITIES MAJOR PARTICIPATION FUNDING CODE
- ------------------------------------- --------------------- -----------------
<S> <C> <C>
(SEE SECTION 4.1)
Continuation of hybridoma research
for new mAbs T/C-G a
mAb characteristics and selection T/C-G a
IN VITRO studies addressing
therapeutic mechanism and
efficiency T/C-G a
Animal studies addressing therapeutic
mechanism and efficacy C-G c
Development of chimeric
antibody-producing cell lines T/CG a
Chimeric mAb characterization T/C-G a
</TABLE>
Tanox will be obligated to perform the above research activities indicated for
up to two other antibodies which the parties may mutually agree to pursue and,
specifically, is responsible for completion of such development for Tanox's
monoclonal antibody (mAb) 11-4-70 (the above mentioned other antibodies will be
selected by mutual agreement of Tanox and Ciba-Geigy for initial clinical
development).
If Ciba-Geigy reasonably believes that other approaches such as Fab or hybrid
derivatives or antibody conjugates should be pursued, Tanox and Ciba-Geigy can
establish a mutually acceptable product development plan, subject to
reimbursement of Tanox costs for its activities under the plan.
<PAGE>
ANNEX 3
COOPERATIVE CLINICAL DEVELOPMENT ACTIVITIES
UNDER DIRECTION/SUPERVISION OF
PROJECT STEERING COMMITTEE/WORKING GROUP
1. Tanox warrants that Tanox's *, to the extent tested:
- reacts specifically with *, not other serum substances
(including specifically *).
- reacts with *, not other cell types.
- does not induce *.
- does not bind to *.
- does not bind to *
- has a high *
Further, Tanox has provided Ciba-Geigy prior to the date of this Agreement
with approximately 5 mg of the purified murine mAb 11 -- 70 and will
provide Ciba-Geigy with an additional 7 mg of such mAb (+ or - 90% pure)
upon the closing of this Agreement, if requested, so that Ciba-Geigy can
perform additional confirmatory testing of the above.
2. Subject to confirmation of the above characteristics by Ciba-Geigy, the
parties agree that Tanox's mAb 11 -- 70 is a promising candidate and
warrants initiation of clinical development with the comparable chimeric
mAb 11 -- 70 as soon as such antibody has been developed and produced for
initial clinical trials provided that the additional studies required for
an IND confirm such assessment. Therefore, the parties agreed that the
necessary studies outlined below will be completed and phase 1 trials in
the U.S., Europe, or another country will be undertaken with such antibody
(or such other antibody as Tanox and Ciba-Geigy may reasonably agree to
substitute) as soon as sufficient quantities of the antibody have been
produced by Tanox in accordance with GMP and GCP (as provided in Annex 4)
to initiate the studies.
<TABLE>
<CAPTION>
FINANCIAL
PRODUCT DEVELOPMENT ACTIVITY RESPONSIBILITY RESPONSIBILITY
------------------------------------- ------------------------ ---------------
<S> <C> <C>
(SEE SECTION
4.1)
Safety Pharmacology C-G c
Toxicological Studies
(Preclinical) C-G c
(Clinical) C-G c or a*
Galenical Formulations
(Clinical) C-G c or a*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL
PRODUCT DEVELOPMENT ACTIVITY RESPONSIBILITY RESPONSIBILITY
------------------------------------- ------------------------ ---------------
<S> <C> <C>
(SEE SECTION
4.1)
IND Application -- Europe, Japan and C-G c or a**
other countries
IND Application -- U.S. C-G e
Clinical Development -- Europe, C-G c or a***
Japan and other countries
Clinical Development -- U.S. C-G a
</TABLE>
------------
a* -- If performed in U.S.
a** -- For countries where Tanox has Co-Marketing rights
a*** -- For local clinical trials in countries where Tanox has
Co-Marketing rights.
3. For clinical development activities outside the U.S., the Clinical
Development Group will serve as a conduit by which Tanox will be able to
review and stay informed with respect to progress and results of such
activities. For clinical development within the U.S., however, it will be
the responsibility of the Clinical Development Group, with the supporting
participation of the PDP Group and its activities, to actively direct and
supervise all such clinical development of the Product(s) and Tanox shall
be a participant in such activities and decisions relating thereto. If any
difference of opinion should exist with respect to such decisions,
Ciba-Geigy shall retain final responsibility for such decisions, after
considering in good faith Tanox's input, which shall be provided in such
timely manner so as not to impede the progress of the program.
4. Ciba-Geigy shall maintain a record of its costs for clinical development
activities in the U.S. according to its standard accounting procedures,
which shall reasonably and fairly establish such costs. Tanox shall
contribute to said costs * provided, that Tanox's obligation for such
costs will be paid solely out of credits against royalties and subject to
the annual limitations contained in Paragraph 9.2.C. The measurement year
for purposes of determining Tanox's contribution will be the first full
calendar year following product introduction in the United States. To the
extent Tanox has incurred any costs in connection with its activities
hereunder for U.S. IND and clinical development, such costs will be
included in the total U.S. IND and clinical development costs and Tanox
shall be entitled to a credit against its required contribution hereunder
for the total amount of its costs.
5. If Tanox desires to pursue development of any Products(s) within the
Field, in addition to Product(s) already being developed hereunder, which
Ciba-Geigy believes is not sufficiently superior to justify a simultaneous
clinical development program, then Tanox itself, without giving rights to
any Third Party, will have the right to pursue development of such
Product(s) at its sole expense; subject, however, to the right of first
refusal of Ciba-Geigy to license the Product(s) as provided under
Paragraph 11 of this Agreement.
<PAGE>
ANNEX 4
COOPERATIVE PROCESS DEVELOPMENT AND PRODUCTION ACTIVITIES
UNDER DIRECTION/SUPERVISION OF
PROJECT STEERING COMMITTEE/WORKING GROUP
1. The PDP Group and Clinical Development Group will initially work closely
together to establish specifications for the Product(s) and to assure the
production of sufficient Product(s) to permit the parties to initiate
Phase I clinical trials as soon as possible. Throughout the continuation
of clinical trials, Process Development and Production Activities will be
coordinated with Clinical Development Activities to assure completion of
regulatory approvals and registrations in a commercially reasonable manner
as required under the Agreement. Ciba-Geigy and Tanox shall share such
activities. Tanox's in-house costs and necessary Third Party costs
incurred by Tanox and agreed upon by both parties shall be reimbursed by
Ciba-Geigy in accordance with the reimbursement guidelines set forth in
Annex 5.
2. Process development and production activities shall include the following:
A. Adaption of production cell lines, including cloning, screening and
selecting with procedures designed to identify stable and high
producing cell lines.
B. Scale-up of production cell lines, including adaption of cell lines
to and optimization of production medium and analysis and selection
of optimal cell culture production method (scale-up will occur in
reasonable stages which will permit initial production of Product(s)
for the start of clinical trials as soon as possible, with
continuing scale-up activities as necessary for subsequent
production of Product(s) in commercial quantities as contemplated by
this Agreement).
C. Characterization and quality assurance, maintenance and improvement
of the production cell lines, including Third Party costs necessary
to testing and standardization of the production cell lines.
D. Development of purification processes and Product(s) specific
analytical techniques necessary for characterization and required
regulatory and QA/QC testing of Product(s), including final products
for clinical trial production and for subsequent production of
Product(s) in commercial quantities as contemplated by this
Agreement.
E. Development and standardization of raw material and final product
manufacturing procedures, including product formulation, vialing,
labeling and packaging.
<PAGE>
3. Tanox warrants that it will produce Product(s) for Ciba-Geigy in
accordance with all applicable U.S. laws, including, but not limited to,
U.S. guidelines for Good Manufacturing Practices (GMP) and Good Clinical
Practices (GCP) and in accordance with all applicable laws in countries
where Ciba-Geigy wishes to use (a) Product(s) produced by Tanox, provided
such laws place no undue burden on Tanox, and within specifications to be
mutually agreed to fulfill regulatory requirements for Phase I and Phase
II clinical trials in the U.S., Europe, Japan, and such other countries as
separate clinical trials may be reasonably determined to be necessary. The
parties anticipate that Phase I clinical trials shall be initiated first
in either the U.S. or a Major Country in Europe and that Phase I clinical
trials will be initiated in any other Major Country in which they are
determined to be necessary as soon as reasonably possible.
4. The PDP Group, as provided by Paragraph 3.2, shall coordinate production
of clinical trials material for Phase III studies in a manner that the
parties mutually agree will best permit obtaining necessary regulatory
approvals and Product(s) registrations.
5. The PDP Group will be responsible for coordinating process development as
provided in Paragraph 1 above, together with considering any technology
acquisition and coordinating the establishment of necessary manufacturing
facilities, in the manner reasonably designed to result in the
uninterrupted continuation of clinical trials to conclusion and to permit
the establishment of reasonable levels of Product(s) inventory by such
time as the first approval to sell Product(s) commercially is obtained.
<PAGE>
ANNEX 5
REIMBURSEMENT GUIDELINES
Reimbursement of Tanox activities, as applicable, shall be made in accordance
with the following guidelines and procedures:
1. The total reimbursable cost of the Tanox activities subject to
reimbursement will include the following categories of charges, as
applicable: direct personnel and travel costs related to the activities
except for IND filing and for clinical development in the U.S.A. through
to NDA approval, overhead charges that are allocated to the production
project according to accounting standards and practices generally
acceptable within the industry, supplies and materials necessary for
applicable research, production, testing, and regulatory requirements
(including establishment of master and working cell banks), dedicated
equipment costs (if desired, this equipment can be shipped to Ciba-Geigy,
at its expense, upon completion of Tanox's production responsibilities),
direct third party costs for storage, testing, and vialing and
miscellaneous insured shipping costs. No General & Administrative charges
will be included.
2. Under its procedures for reimbursement, Tanox will send Ciba-Geigy
semi-annual budgets, on a calendar year basis, in sufficient detail to
reasonably identify general categories of costs. The activities and
estimated budget for the first 6-month period (beginning for the period
from the date of this Agreement through December, 1990) will be submitted
for Ciba-Geigy's review and approval. The activities and budget estimates
for the activities suggested for the second 6-month period are for general
information only since schedules and activities may change based on
project status and progress.
3. Upon approval of the estimated budget by Ciba-Geigy for the next 6-month
period, which Ciba-Geigy will complete as soon as possible (but in any
event within thirty [30] days of receipt thereof), Tanox will submit an
invoice, or other appropriate request for payment, for 80% of the
estimated budget. Ciba-Geigy will pay this invoice in accordance with its
normal procedures for 30-day payment obligations. Within 30 days (this
would be December 1, 1990 for the next following budget) of the beginning
of next 6-month budget period, Tanox will repeat the above budget approval
procedures.
4. Tanox also will include in each succeeding invoice an adjustment
calculation for actual total costs incurred in the preceding six (6) month
period, together with any other supporting documentation reasonably
requested. The amount computed in this adjustment calculation will be
added to (or possibly "deducted from" if excess payment was made) the
amount to be invoiced for the next budget period.
5. The above procedures will be repeated as long as Tanox reimbursable
activities are continued.
EXHIBIT 10.11
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
CHIRON-PANGENETICS RESEARCH AND DEVELOPMENT
LICENSE AND OPTIONS FOR COMMERCIAL LICENSE
THIS AGREEMENT, by and between PanGenetics B.V. ("PanGenetics B.V.") a company
organized and existing under the laws of the Netherlands and having its
principal place of business at E. van Calcarstraat 30, 1963 DG Heemskerk, the
Netherlands, and Panorama Research Inc. ("Panorama"), a company organized and
existing under the laws of California, and having its principal place of
business at 2462 Wyandotte Street, Mountain View, California 94043 (collectively
PanGenetics B.V. and Panorama shall be deemed "PanGenetics"), Mark de Boer
("de Boer"), and Chiron Corporation ("Chiron"), a Delaware corporation
having its principal place of business at 4560 Horton Street, Emeryville,
California 94608, is effective upon the last signature date (the "Effective
Date").
BACKGROUND
WHEREAS, certain inventions relating to marine monoclonal antibodies against the
human antigen known as CD40 ("Anti CD40 Mabs") have been made by Chiron, and
by de Boer, subject to the provisions of a material transfer agreement between
Chiron's predecessor Cetus and de Boer dated December 16, 1991, (the "1991
MTA"), a consulting agreement between Chiron and de Boer dated January 1, 1993,
(the "1993 Consulting Agreement"), a consulting agreement between Chiron and
de Boer dated January 1, 1994 (the "1994 Consulting Agreement"), a material
transfer agreement between Chiron and Panorama dated November 9, 1994 (the
"1994 MTA") and their subsequent amendments.
WHEREAS, PanGenetics, Chiron and de Boer (the "Parties") now wish to provide
for the licensing of rights relating to such inventions and the further
development of anti-CD40 antibodies for human therapeutic uses;
AGREEMENT
NOW, THEREFORE, PanGenetics, Chiron and de Boer agree as follows:
1 DEFINITIONS
As used in this Agreement:
1.1 "AFFILIATE" with respect to any person, means any company, entity,
joint venture or similar business arrangement which is controlled by,
controlling or under common control with such person, and shall include without
limitation any company fifty percent or more of whose voting stock or
participating profit interest is owned or controlled, directly or indirectly, by
such person, and any company which owns or controls, directly or indirectly,
fifty percent or more of such person. Without limiting the generality of the
foregoing, the Affiliates of Chiron expressly exclude Ciba-Geigy Limited, a
Switzerland corporation, or any wholly owned subsidiaries of Ciba-Geigy Limited
("Ciba"), unless and until such time as Ciba-Geigy and Chiron may mutually
agree upon the terms and conditions upon which Ciba may be deemed an Affiliate
of Chiron for the purposes of this Agreement.
1.2 "ANTI-CD40 MABS" means monoclonal antibodies against human CD40
1
<PAGE>
produced by the hybridomas 5D12, 3A8 and 3C6, or any monoclonal antibody derived
therefrom, including humanized anti-CD40 Mabs, and/or human anti-CD40 Mabs, and
fragments thereof capable of binding the Human CD40 Molecule.
1.3 "CHIRON TECHNOLOGY" means all information, developments,
discoveries, inventions, know-how, products, substances, processes and
methodologies, and other proprietary information or technology developed or
otherwise acquired by Chiron relating to the Field as of the Effective Date,
including, but not limited to, the hybridoma cell lines described in Section
1.2, the Anti-CD40 Mabs produced therefrom, and the use of said Anti-CD-40 Mabs.
1.4 "CHIRON PATENTS" means any U.S. patents or patent applications,
including any continuations, renewals, extensions or re-issues or divisions
thereof, relating to, or incorporating the Chiron Technology, together with any
foreign counterpart thereof and any divisional, continuation,
continuation-in-part and any reissue or extension thereof, to the extent they
claim or incorporate the Chiron Technology, including, but not limited to, U.S.
patent application USSN 08/070,158, and those patent applications filed in the
countries designated by PCT filing WO 94/01547 and are listed on the PCT Patent
Application Schedule attached as Exhibit 1, and any patentable improvements
invented by Chiron or relating to the lumanization of Anti-CD40 Mabs and
fragments thereof capable of binding the Human CD40 Molecule.
1.5 "CHIRON TERRITORIES" shall mean all countries of the world, except
Europe and Japan.
1.6 "DE BOER RIGHTS" shall mean de Boer's interest in inventions within
the Field (i) which are governed by the 1991 MTA, attached as Exhibit 3 to this
Agreement, and its subsequent amendments; and (ii) without limiting the
foregoing, inventions within the Field created by de Boer during the course of
this agreement. With respect to all de Boer inventions within the Field which
are governed by the terms and conditions of the 1993 Consulting Agreement, the
1994 Consulting Agreement, (collectively the "Consulting Agreements") and
their subsequent amendments, de Boer has assigned or will assign all right title
and interest in such inventions to Chiron in accordance with the terms of said
Consulting Agreements. de Boer rights arising from inventions within the Field
made by de Boer after the conclusion of the Consulting Agreements shall be
governed by the terms and conditions of this Agreement, including, without
limitation, the provisions of Article 3, relating to de Boer's assignment of de
Boer rights to PanGenetics, and Pan Genetics' obligations to assign to Chiron
patentable improvements relating to the humanization of Anti-CD40 Mabs and
fragments thereof capable of binding the Human CD40 Molecule for inclusion
within the Chiron Patents.
1.7 "FIELD" means the use of Anti-CD40 Mabs or products based on or
derived from the use of Anti-CD40 Mabs in human therapeutic applications wherein
the Mab mediates a therapeutic effect by binding to the Human CD40 Molecule. The
Field shall not include the use of gene therapy, except to the extent
PanGenetics is permitted under the terms and conditions of this Agreement,
including, without limitation, the terms and conditions set forth in Article 7
to undertake activities relating to Second Generation Products which use gene
therapy solely for the endogenous local delivery and synthesis of Anti-CD40
Mabs. The following commercial applications are specifically excluded from the
Field: (i)
2
<PAGE>
vaccines; (ii) diagnostics; (iii) gene therapy, anti-gene therapy, including,
without limitation, the use of antisense or ribozyme molecules, except as
provided in Article 7 and (iv) peptidomimetic or other synthetic,
small-molecular weight, non-peptide molecules. Without limiting the foregoing,
PanGenetics may use Anti-CD40 screening assays, provided that such assays are
used solely for non-commercial, internal research purposes.
1.8 "HUMAN CD40 MOLECULE" means the type I transmembrane protein encoded
by the CD40 gene and known to be expressed on a number of cells including,
without limitation, B cells, dendritic cells, monocytes and macrophages.
1.9 "JOINT TECHNOLOGY" shall mean Technology and inventions within the
Field which are invented jointly by employees of Panenetics (including persons
obligated to assign inventions to PanGenetics) and employees of Chiron
(including persons obligated to assign inventions to Chiron), whether or not
such inventions are also owned in conjunction with third parties pursuant to
this Agreement.
1.10 "JOINT TECHNOLOGY PATENTS" shall mean U.S. patents or patent
applications claiming or incorporating Joint Technology, together with any
foreign counterpart thereof and any divisional, continuation,
continuation-in-part and any reissue or extension thereof, to the extent they
claim or incorporate Joint Technology.
1.11 "LICENSED PRODUCT(S)" means any product, the manufacture, use or
sale of which, but for the license granted hereunder, would infringe any valid
and enforceable claim of any Chiron Patents or PanGenetics Patents in the
country of such manufacture, use or sale, or product, which relates to or
requires the use of Chiron Technology or Panorama Technology. Licensed Products
include, but are not limited to, any human therapeutic product(s), or one under
development, which is based directly or indirectly on an Anti CD40 Mab or
products based on or derived from the use of Anti-CD40 Mabs. The following
commercial applications are specifically excluded from the Field: (i) vaccines;
(ii) diagnostics; (iii) gene therapy, anti-gene therapy, including, without
limitation, the use of antisense or ribozyme molecules, except as provided with
respect to Second Generation Products as provided in Article 7 and (iv)
peptidomimetic or other synthetic, small-molecular weight, non-peptide
molecules.
1.12 "NET SALES" shall mean the amount billed or invoices for each unit
of Licensed Products sold less:
(i) Customary trade, quantity or cash discounts;
(ii) Amounts repaid or credited by reason of rejection or return; and/or
(iii) To the extent separately stated on purchase orders, invoices or
other documents of sale, taxes levied on and/or other governmental
charges made as to production, or transportation or insurance
charges.
(iv) sales and value-added taxes separately stated on invoices. Licensed
Products shall be considered sold when shipped.
3
<PAGE>
In the event that Licensed Products are sold in combination with another
product or active component, (a "Combination Product") for a single price, Net
Sales from sales of Combination Products for purposes of calculating royalties
due or allocating profits under this Agreement shall be calculated by
multiplying the Net Sales of that Combination Product by the fraction A/(A+B),
where A is the gross selling price of the Licensed Product sold separately in
the country of sale and B is the gross selling price of the other product(s) or
components sold separately in the country of sale. In the event that no such
separate sales are made, Net Sales, for purposes of determining royalty payments
on such Combination Products, shall be a reasonable apportionment of the gross
amount invoiced therefor based upon the relative contribution of the Licensed
Products to the price of the Combination Product. Such apportionment shall be
negotiated in good faith between the parties and such apportionment shall be
established prior to the time that a party hereto shall have the right to sell
such Combination Products.
1.13 "PANGENETICS TECHNOLOGY" shall mean all information, developments,
discoveries, inventions, know-how, products, substances, processes and
methodologies, and other proprietary information or technology developed or
otherwise acquired by PanGenetics relating to the development of Licensed
Products within the Field, including, but not limited to, methods for preparing
or using such materials as well as methodologies for testing their interaction
in biological systems, clinical and pre-clinical data and submissions,
discoveries and trade secrets, whether patentable or unpatentable, and other
proprietary information or technology developed by PanGenetics, or licensed to
PanGenetics with a right to sublicense, or otherwise acquired by PanGenetics
within the Field, prior to or after the Effective Date of this Agreement.
1.14 PANGENETICS PATENTS" shall mean U.S. patents or patents issuing from
patent applications claiming or incorporating PanGenetics Technology, together
with any foreign counterpart thereof and any divisional, continuation,
continuation-in-part and any reissue or extension thereof, to the extent they
claim or incorporate PanGenetics Technology, as set forth in the PanGenetics'
Patent Schedule, attached as Exhibit 2 to this Agreement, and as may be amended
from time to time. In the event that PanGenetics Patents include any patentable
improvements relating to the humanization of Anti-CD40 Mabs and fragments
thereof capable of binding the Human CD40 Molecule, or any other improvements to
Chiron Patents, the provisions of Article 1.4 and Section 3.9 shall apply.
1.15 "PANGENETICS TERRITORIES" shall mean Europe and Japan.
1.16 "SECOND GENERATION PRODUCTS" shall mean products which involve the
use of gene therapy solely for the endogenous local delivery and synthesis of
Anti-CD40 Mabs. Second Generation Products shall be governed by the provisions
of Article 7 of this Agreement, and shall not be governed by the provisions of
the Commercial License contemplated in Article 6. This Agreement grants
PanGenetics no license, express or implied, to create Second Generation
Products.
2. OWNERSHIP
PanGenetics hereby acknowledges and confirms that Chiron is the owner of
the Chiron Technology and the Chiron Patents. PanGenetics hereby agrees to
assign to Chiron all right, title and interest PanGenetics might acquire,
invent, develop or claim in Chiron
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improvements which fell within Claims Technology or Chiron Patents, or
improvements thereto, subject to the license rights granted to PanGenetics under
this Agreement. PanGenetics shall, without additional consideration from Chiron,
execute (or, if necessary, PanGenetics shall cause any of its employees to
execute) any assignment or other documentation reasonably required to record or
confirm such ownership by Chiron.
3. RESEARCH AND DEVELOPMENT LICENSE
The Parties commit to the following:
3.1 RESEARCH AND DEVELOPMENT LICENSE. Subject to the terms hereof, Chiron
hereby grants PanGenetics an exclusive, (except as to Chiron) research and
development license (the "Research and Development License") under the Chiron
Patents and Chiron Technology, solely to carry on research and development
activities worldwide with respect to the Licensed Products. This Research and
Development License grants PanGenetics no rights to make, use or sell Licensed
Products for commercial purposes. The Research & Development License is subject
to the provisions of Section 3.6 relating to due diligence. As provided in
Section 3.6, upon the failure of PanGenetics to fulfill its due diligence
obligations, Chiron shall have the right, but not the obligation, to terminate
the Research and Development License granted pursuant to this Section 3.1. In
the Event of such termination, Chiron shall retain all rights under the Chiron
Technology and Chiron Patients, and shall be granted rights under PanGenetics'
Patents and Technology pursuant to Section 5.2 of this Agreement.
3.2 EVALUATION OF PATENT RIGHTS. Chiron shall undertake commercially
reasonable efforts to prosecute and maintain all United States and foreign
patent applications and patents defining Chiron's rights in the Chiron
Technology and Chiron Patents. A report from an outside patent counsel assessing
the Parties' freedom of operation to develop, use, manufacture or sell Licensed
Products has been prepared and received by PanGenetics.
3.3 DE BOER PANGENETICS COUNSELING AGREEMENT. Subject to the rights and
obligations of Chiron and de Boer under the Consulting Agreements and their
subsequent amendments, PanGenetics and de Boer shall enter into a separate
agreement, (the "de Boer PanGenetics Consulting Agreement") to be effective on
the Effective Date, pursuant to which de Boer shall consult and collaborate with
PanGenetics, at no expense to Chiron, on research related to the Chiron
Technology, and the development of Licensed Product. The de Boer PanGenetics
Consulting Agreement may make provisions for coordinating the Anti CD40 Mab
related research activities of de Boer and PanGenetics with the anti CD40 Mab
related research activities of *. Any inventions made by de Boer within the
Field which relate to or result from collaborative activities, including,
without limitation, collaborative activities with *, shall be subject to terms
and conditions of this Agreement, and if applicable, the terms and conditions of
the 1991 MTA and Consulting Agreements. PanGenetics and de Boer represent and
warrant that any and all collaborative activities undertaken by PanGenetics and
de Boer shall comply in all respects with the terms and conditions of this
Agreement, including, without limitation, the provisions of Section 3.4.
3.4 EMPLOYEE OBLIGATIONS. PanGenetics and de Boer represent and warrant
that all
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employees, representatives, agents or consultants who will be involved in
activities relating to this Agreement shall be bound by an obligation to assign
all inventions to PanGenetics and to cooperate with Chiron and/or PanGenetics in
connection with the patenting of any such inventions. Neither de Boer nor Pan
Genetics shall permit persons not bound by such obligations to work on the
Research.
3.5 RESEARCH & DEVELOPMENT PLAN. PanGenetics will product and submit to
Chiron for Chiron's review and approval a product development and business plan
(the "Research and Development Plan") which outlines the research and
development activities necessary to bring a Licensed Product to market. At a
minimum, PanGenetics' Research and Development Plan shall provide milestones
from early research activities though Phase III Clinical trials and evaluation,
which will permit Chiron to measure PanGenetics' diligence in complying with its
research and development obligations. The Research and Development Plan shall be
incorporated into this Agreement, and are attached as Exhibit 6.
3.6 DUE DILIGENCE. PanGenetics shall exercise its best efforts and due
diligence in developing and bringing to market a Licensed Product. Within four
(4) years after the Effective Date of this Agreement, PanGenetics shall enter
into clinical trials directed toward evaluating candidates for a Licensed
Product for commercial use. PanGenetics shall be solely responsible for
acquiring, and, if applicable, maintaining, any third party patents relating to
humanized Mabs and/or human Mabs and processes for making humanized Mabs and/or
human Mabs required by PanGenetics for the development and commercialization of
a Licensed Product. If, on the date occurring at the end of five (5) years from
the Effective Date, PanGenetics has not filed an IND or equivalent submission
related to Licensed Products with either the Japanese Koseisho, or a
corresponding regulatory agency in the United Kingdom, Germany, France or other
major market country in the European Community, Chiron shall have the right to
determine whether PanGenetics has made diligent efforts to produce Licensed
Products. In the event that Chiron reasonably determines that PanGenetics has
not satisfied the criteria set forth above, and has not exercised the requisite
diligence in developing Licensed Products, PanGenetics's license grant shall
continue, but PanGenetics shall pay to Chiron an annual maintenance fee of * to
preserve its rights under this Agreement. If, on the date occurring at the end
of eight (8) years from the Effective Date, PanGenetics has not released a
Licensed Product in any major market, and PanGenetics cannot demonstrate
commercially reasonable diligence in developing Licensed Products, Chiron shall
have the right to terminate this Agreement, and all license grants made to
PanGenetics hereunder shall revert back to Chiron. Once initiated, PanGenetics'
obligation to pay the * annual maintenance fee shall continue until PanGenetics
pays to Chiron the registration payment referenced in Section 6.6 of this
Agreement. PanGenetics' rights to undertake research and development activities
shall be subject to Chiron's First Refusal Rights as referenced in the
provisions of Section 6.12 of this Agreement.
3.7 PANGENETICS IMPROVEMENTS. Upon Chiron's request, as promptly as
reasonably practicable, PanGenetics shall supply Chiron with reasonable
quantities of improvements to Chiron Technology, including Anti-CD40 Mabs,
developed by PanGenetics, for Chiron's use. Further, in the event PanGenetics
develops any improvements relating to the humanization of Anti-CD40 Mabs and
fragments thereof capable of binding the Human CD40 Molecule, or any other
improvements to Chiron Patents, (the "PanGenetics Improvements") PanGenetics
shall assign to Chiron all right title and interest in such
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PanGenetics Improvements, including, without limitation, the right to file,
prosecute and maintain patients related to the PanGenetics Improvements. Chiron
shall grant back to PanGenetics licenses to such Pangenetics Improvements (the
"PanGenetics Improvement Grant-Back License"). During the term of the Research
and Development License, the PanGenetics Improvement Grant Back License(s) shall
be worldwide, co-exclusive and royalty free. Once the parties have concluded the
terms of the Commercialization License, the PanGenetics Improvement Grant-Back
Licenses shall be worldwide, co-exclusive and royalty free.
3.8 ASSIGNMENT OF DE BOER RIGHTS TO CHIRON. de Boer grants Chiron all
right, title and interest in the de Boer Rights existing as of the Effective
date. Further, de Boer and PanGenetics agree to undertake all measures necessary
to perfect Chiron's interest in all present and future de Boer Rights,
including, without limitation, the execution of assignments to convey all de
Boer Rights existing as of the Effective Date of this Agreement.
3.9 ASSIGNMENT OF DE BOER RIGHTS TO PANGENETICS AND CHIRON. deBoer Rights
arising from inventions within the Field made by de Boer after the conclusion of
the Consulting Agreements shall be governed by the terms and conditions of this
Agreement. de Boer and PanGenetics agree that de Boer shall assign all such de
Boer Rights to PanGenetics. de Boer and PanGenetics shall assign to Chiron all
patentable improvements relating to the humanization of Anti-CD40 Mabs and
fragments thereof capable of binding the Human CD40 Molecule for inclusion
within the Chiron Patent. PanGenetics and de Boer agree, represent and warrant
that the CD40 License & Collaboration Agreement between de Boer and Panorama,
dated October 1, 1994, and attached as Exhibit 7, is null, void, and of no
further effect. PanGenetics and de Boer further agree, represent and warrant
that they have undertaken or will undertake all measures necessary to render
such agreement null, void and of no legal effect.
3.10 PROGRESS MEETINGS During the term of the Research and Development
License, Chiron and PanGenetics shall meet at least annually to discuss research
and development progress and potential clinical indications and applications for
Licensed Products.
3.11 Except as set forth herein, PanGenetics shall have the sole
responsibility for, and shall bear the cost of, the research and development of
each Licensed Product. Chiron's sole responsibility shall be the prosecution and
maintenance of Chiron Patents, as provided herein. Prior to PanGenetics exercise
of its option rights as set forth in Article 4. Chiron shall pay for the
prosecution and maintenance of Chiron Patents in the United States all countries
listed in the PCT Patent Applications Schedule attached as Exhibit 1, to this
Agreement. After PanGenetics' exercise of its option rights as set forth in
Article 4, Chiron will pay for the prosecution and maintenance of Chiron Patents
in the Chiron Territories, and PanGenetics will reimburse Chiron for the cost of
filing, prosecution and maintenance of Chiron patents in the PanGenetics
Territories.
4. OPTION TO OBTAIN COMMERCIAL LICENSE
4.1 OPTION TO COMMERCIAL LICENSE. Subject to completion of the
obligations of Chiron, PanGenetics and deBoer set forth in Article 3 of this
Agreement, Chiron hereby grants PanGenetics, and Pangenetics hereby grants
Chiron, an option to obtain a commercial
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license (the "Commercial License"), subject to the provisions of Article 6. The
Commercial License shall grant Chiron and Pan Genetics all rights and licenses
necessary to make, use, have made and sell, market and otherwise commercialize
Licensed Product as provided in Article 6, including, without limitation,
licenses under the Chiron Technology, Chiron Patents, PanGenetics Technology,
PanGenetics Patents, any regulatory submissions and licenses. The Commercial
License shall be upon terms and conditions substantially similar to those set
forth below in Article 5 of this Agreement, and any additional terms of
conditions mutually acceptable to both parties and negotiated in good faith by
the parties. Such option shall be exercisable within six (6) months after the
injection of at least three patients with Licensed Product in a Phase I/II
clinical trial as referenced in the PanGenetics' Research and Development Plan
set forth in Exhibit 6.
5. TERM AND TERMINATION OF RESEARCH AND DEVELOPMENT LICENSE AND OPTION RIGHTS
5.1 TERM. This Research and Development License and Option Agreement
shall survive until:
5.1.1 the expiration of the options granted in Article 4 of this
Agreement;
5.1.2 the parties conclude the terms of the Commercial License in
accordance with Article 6 of this Agreement;
5.1.3 termination as provided below in Section 5.2.
5.2 TERMINATION. All licenses granted hereunder from one party to the
other may be terminated by written notice to the licensee party in the event
that the licensee breaches a provision of this Agreement and has failed to cure
or demonstrate the nonexistence of the breach within ninety (90) days of receipt
of a written notice and demand to cure such breach. Without limiting the
foregoing, if PanGenetics fails to perform its due diligence obligations
pursuant to Section 3.6, Chiron shall have the right, but not the obligation, to
terminate the Research and Development License or Option Right granted to
PanGenetics pursuant to this Agreement. In the event of such termination, the
following shall occur:
5.2.1 Chiron shall retain all rights under the Chiron Patents;
5.2.2 PanGenetics shall grant Chiron all licenses necessary to permit
Chiron to commercialize Licensed product, including, without limitation,
licenses to Pan Genetics Patents, PanGenetics Technology, regulatory
submissions and regulatory submissions and regulatory licenses. Such
licenses shall be worldwide and royalty free. Without limiting the
foregoing, in the event that PanGenetics obtains third party patents,
including, without limitation, any third party patents relating to
humanized Mabs and/or human Mabs and processes for making humanized Mabs
and/or human Mabs, PanGenetics shall (i) undertake commercially reasonable
efforts to secure the right to sublicense such patents, and (ii) shall
sublicense to Chiron Pangenetics' rights in such third party patents. With
respect to such licenses to third party patents, in the event that Chiron
wishes to exercise its right to obtain such sublicense, Chiron shall assume
PanGenetics' obligations with respect to earned royalties, but shall not
pay any milestone or other upfront fees.
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6. COMMERCIAL LICENSE AGREEMENT
6.1 TERMS. Upon the exercise of the option provided in Article 4 of this
Agreement, the Parties hereto shall enter into a commercial license agreement
(the "Commercial License") upon the terms and conditions set forth in this
Article 6.
6.2 CHIRON LICENSE GRANTS TO PANGENETICS. Chiron shall grant to
PanGenetics an exclusive Commercial License, with the right to sublicense
marketing rights only, to all rights and licenses necessary to make, have made,
use, sell market and otherwise commercialized Licensed Product(s) in the
PanGenetics' Territories, including, without limitation, licenses under the
Chiron Patents, Chiron Technology, and any regulatory submissions and approvals.
6.3 PANGENETICS LICENSE GRANTS TO CHIRON/EXCLUSIVITY AND
TERRITORIES. PanGenetics shall grant to Chiron an exclusive Commercial License,
to all rights and licenses necessary to make, have made, use, sell market and
otherwise commercialize Licensed Product(s) in the Chiron Territories, including
with the right to sublicense marketing rights, including, without limitation,
licenses under PanGenetics' Technology, PanGenetics Patents, and all regulatory
submissions and approvals.
6.4 MANUFACTURING RIGHTS. Chiron will have the right of negotiation to
manufacture the product for commercial sale world-wide. If the parties cannot
agree upon mutually acceptable terms for such manufacturing rights, each party
shall have the right to manufacture licensing products for commercial sale
within their respective territories.
6.5 MARKETING ARRANGEMENTS. Prior to the marketing of Licensed Product,
the parties shall agree on terms for the promotion and sale of Licensed Product.
The marketing provisions shall include appropriate termination and diligence
terms. In territories where the parties agree to co-promote or co-market
Licensed Product, the parties shall negotiate in good faith appropriate
compensation provisions that reflect the parties' relative contributions with
regard to the commercial sale of the Licensed Product. These negotiations shall
be subject to a time limit and the objective of the arrangements shall be to
maximize the economic return to both parties.
6.6 REGISTRATION PAYMENT. Within ninety (90) days after successful
registration of a Licensed Product by PanGenetics in either Japan, the United
Kingdom, France, or Germany, PanGenetics shall pay to Chiron * (the
"Registration Payment").
6.7 ROYALTIES. Following the first Commercial Sale of a Licensed Product by
PanGenetics or Chiron pursuant to the Commercialization Agreement and licenses
granted therein, the party making such sale (the "Paying Party") shall submit to
the other party (the "Payee") within sixty (60) days of the end of every
calendar quarter a quarterly report setting out Net Sales of each Licensed
Product by country, royalty credits accumulated or taken, and sublicense
receipts, if any. The Paying Party shall, at the same time such report is
submitted, pay the Payee an earned royalty (the "Earned Royalty") in the amount
of * of Net Sales by the Paying Party or its affiliates of sublicensees, and *
of any up-front or milestone fees or other similar value received from
sublicensees.
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6.8 MANNER OF PAYMENT. All payments hereunder shall be made by bank
transfer to the bank account designated by the party to receive such payments.
Where required to do so by applicable law or treaty, the Paying Party shall
withhold taxes required to be paid to a taxing authority on account of such
income to the Payee, and the Paying Party shall furnish the Payee with
satisfactory evidence of such withholding and payment in order to permit the
Payee to obtain a tax credit or other relief as may be available under the
applicable law or treaty. If any sum due hereunder is not paid in full on the
due date, interest at the average prime rate for the month preceding payment of
the unpaid balance (as published from time to time by the THE WALL STREET
JOURNAL shall accrue and be payable on any unpaid balance from the date such
payment became due until the date paid.
6.9 RECORDS OF ROYALTY OBLIGATIONS. The Paying Party will keep and
maintain proper books and records as are required accurately to determine
royalties payable to the Payee for three (3) years following the date on which
such royalties were paid or reported. The Payee shall have the right, at its own
expense, to have such books and records examined by independent certified public
accountants acceptable to the Paying Party at reasonable times solely for the
purpose of verifying the accuracy of royalties paid or reported by the Paying
Party. The Payee shall bear the cost of any such inspection; provided, that in
the event the inspection discloses that any payments made to the Payee hereunder
for any accounting period were deficient by more than ten percent, the Paying
Party shall promptly reimburse the Payee for the cost of such independent audit
and shall pay to Payee the amount of such deficiency together with interest
thereon at the rate specified in Section 6.8 above.
6.10 TERM AND TERMINATION OF COMMERCIAL LICENSE AGREEMENT. Upon the later
of the expiration of the last to expire of the patent rights included in the
Chiron Parents, PanGenetics Patents, or Joint Technology Patents (if any), or
ten (10) years after the first commercial sale of Licensed Product, the
provisions of the Commercial License shall be of no further force and effect,
except for provisions of the Commercial License which impose obligations that
continue beyond the expiration of the agreement, including, without limitation,
provisions relating to confidentiality and indemnity. Prior to the expiration of
the last to expire of the Chiron Patents, PanGenetics Patents, or Joint
Technology Patents, neither party shall have the right to terminate the
Commercial License, except as follows:
6.10.1 Upon mutual written agreement of the parties; or
6.10.2 If a party materially breaches a material provision of the
Commercial License and has failed to cure or demonstrate the nonexistence
of the breach within ninety (90) days of receipt of a written notice and
demand to cure such breach; or
6.10.3 In the event that one of the parties becomes insolvent or
files for bankruptcy protection or fails generally to pay its debts as they
become due, makes an assignment of substantially all of its assets for the
benefit of creditors or applies for or consents to the appointment of a
custodian, trustee or receiver for such party or the majority of its
property, or if any other proceeding for relief under any bankruptcy law or
similar law for the relief of debtors is instituted by or against such
party and, if instituted against such party, is consented to or not
dismissed within ninety (90) days after such institution.
6.11 LIMITATION OF LICENSE. This license does not extend to any rights or
products other than those referred to herein.
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6.12 CHIRON'S FIRST REFUSAL RIGHTS.
6.12.1 GRANT OF RIGHT OF FIRST REFUSAL. PanGenetics grants Chiron a
right-of-first-refusal to obtain rights related to PanGenetics inventions;
provide funding for research or development activities; provide research or
development services; manufacture licensed product for commercial sale; and
market licensed product, within the Field of this Agreement in any country
(the "First Refusal Rights.")
6.12.2 NOTIFICATION TO CHIRON. PanGenetics shall promptly send to
Chiron, at the address specified herein, a reasonably detailed written
notification of any event which would give rise to the Chiron First Refusal
Rights referenced above. Chiron shall respond to PanGenetics within sixty
(60) days of its receipt of such notification of its interest in exercising
its First Refusal Rights.
6.12.3 NEGOTIATION OF TERMS. For a period of up to ninety (90) days
after PanGenetics receives notice of Chiron's intention to exercise its
First Refusal Rights, the parties shall negotiate in good faith a
reasonable agreement mutually acceptable to both parties.
6.12.4 COMMERCIALIZATION BY PANGENETICS. In the event that Chiron
fails to respond within sixty (60) days, or affirmatively indicates that it
is not interested in exercising its First Refusal Rights with respect to
the opportunity presented by PanGenetics, or the parties fail to reach a
definitive terms of agreement pursuant to Section 6.12.3, PanGenetics shall
be free to pursue other arrangements regarding the opportunity, either
independently or with one or more third parties, provided that PanGenetics
shall not offer to extend rights related to the opportunity to a third
party on terms more favorable than those previously offered to Chiron with
respect to such opportunity without first offering such more favorable
terms to Chiron.
7. SECOND GENERATION PRODUCTS
With respect to the development of any Second Generation Product, Chiron
and PanGenetics agree as follows:
7.1 NO LICENSE GRANTED FOR SECOND GENERATION PRODUCT. Nothing in this
Agreement shall be construed to grant to PanGenetics an express or implied
license under the Chiron Patents or Chiron Technology to undertake activities
related to the research, development, or marketing of a Second Generation
Product.
7.2 NOTICE. Each party agrees to keep the other party reasonably informed
of its activities which relate to the development of a Second Generation
Product. In the event that either party undertakes activities relating to the
research or development a Second Generation Product, each party shall notify the
other of such activities. Such notification and disclosure shall be subject to
the confidentiality obligations set forth in Article 9.
7.3 PANGENETICS' DEVELOPMENT OF SECOND GENERATION PRODUCT. With respect
to activities related to the development of a Second Generation Product that may
be undertaken by PanGenetics, the following shall apply:
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7.3.1 PanGenetics shall not undertake the internal commercial
development of any Second Generation Product without first obtained
Chiron's prior written approval;
7.3.2 PanGenetics shall not undertake any activities related to the
research or development of a Second Generation Product with any third party
without having obtained Chiron's prior written consent.
7.4 CHIRON'S DEVELOPMENT OF SECOND GENERATION PRODUCT. In the event that
Chiron undertakes activities related to the development of a Second Generation
Product, the following shall apply:
7.4.1 Chiron shall notify PanGenetics of its activities which relate
to Second Generation Product, as provided in Section 7.2.
7.4.2 PanGenetics may, at its discretion, present Chiron with
proposals regarding PanGenetics' participation in the Second Generation
Product research and development being undertaken by Chiron.
7.4.3 Chiron may, at its discretion, evaluate the PanGenetics
proposals referenced in Section 7.4.2, and may, at its discretion, invite
PanGenetics to enter into negotiations regarding the collaboration of
Chiron and PanGenetics in Second Generation Product related activities.
Neither party shall be obligated to collaborate with the other with respect
to such activities except upon terms and conditions mutually acceptable to
both parties.
7.4.4 In the event that (i) Chiron brings a Second Generation Product
to market in Europe or Japan, and (ii) Chiron and PanGenetics have not
entered into a definitive collaboration arrangement pursuant to Section
7.4.3 which provides additional compensation to PanGenetics in exchange for
value contributed by PanGenetics to the development of said Second
Generation Product, Chiron shall pay PanGenetics an earned royalty of * of
net sales of such Chiron Second Generation Product.
8. PATENT PROSECUTION, MAINTENANCE AND ENFORCEMENT
8.1 Chiron shall have the right and obligation to prepare, file and
maintain the Chiron Patents in the United States and the countries listed in the
PCT Patent Applications Schedule, and, if applicable, in such other countries as
Chiron may elect. Chiron shall use reasonable efforts to prosecute and maintain
the Chiron Patents. PanGenetics shall, at its cost and expense, cooperate fully
in such effort, including providing documentary support from de Boer if
necessary. Chiron shall keep PanGenetics informed as to the status of such
patent applications and provide to PanGenetics, upon PanGenetics' written
request, all relevant information relating to such applications.
8.2 PanGenetics shall, at its cost and expense, prepare, file and maintain
patent application(s) claiming the PanGenetics Technology in the United States
and all of the countries listed in the PCT Patent Application Schedule attached
as Exhibit 2, and such other countries as the parties mutually agree.
PanGenetics shall use diligent efforts toward the prosecution and maintenance of
the PanGenetics Patents. Chiron shall undertake reasonable cooperation in such
effort. In the event that PanGenetics files, prepares or otherwise
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prosecute patents relating to any patentable improvements relating to the
humanization of Anti-CD40 Mabs and fragments thereof capable of binding the
Human CD40 Molecule, or files, prepares or otherwise prosecutes any other
improvements related to subject matter claimed by the Chiron Patents,
PanGenetics shall grant to Chiron an option to obtain a license to the de Boer
Rights, which license shall be of such scope and upon such terms and conditions
as the parties may mutually agree.
8.3 Each party shall promptly notify the other if any legal proceedings
are commenced or threatened against either party or any purchaser of the
Licensed Products sold by either party on the ground that the manufacture,
possession, use, or sale of the Licensed Products is an infringement of a third
party's patent or other intellectual property rights. Each party shall, at its
own expense, conduct all suits brought against it as a result of the exercise of
the rights granted hereunder, and the other party shall, at the request and
expense of the party conducting such suit, give all reasonable assistance in any
such proceedings.
8.4 The preparation, filing and prosecution of patent application(s)
relating to any Joint Technology, if any, and the maintenance and prosecution of
any patent(s) resulting therefrom, shall be performed by counsel mutually
acceptable to the parties (which may be inside counsel for either party) and
costs for such preparation, filing, prosecution and maintenance shall be borne
equally by the parties. Decisions to abandon patents or patent applications
shall be taken jointly. The party conducting such activities shall keep the
other party reasonably informed and provide the other party with copies of
substantive actions from the US, European and Japanese Patent Offices, and (to
the extent feasible) provide the other party with copies of draft responses
thereto sufficiently in advance of filing to allow reasonable period for review
and comment. Filing of priority patent applications is to be undertaken without
delay introduced through consultation with the other party; nonetheless the
other party should be informed thereof as quickly as possible so that comments
from the other party can be considered in time for subsequent updated priority
applications. Each party agrees that it will not bring a claim for any act,
omission, fault or neglect against either the other party or its inside patent
attorney relating to that party's handling of the preparation, filing and
prosecution of any Joint Technology patent application or the maintenance and
prosecution of any patent(s) resulting therefrom.
9. CONFIDENTIALITY
9.1 CONFIDENTIALITY. Chiron and PanGenetics agree that, during the term
of this Agreement and for a period of five (5) years following the expiration or
termination of this Agreement, each of them shall maintain in confidence and not
disclose by any means any Confidential Information (as hereinafter defined)
received from the other party and to use such Confidential Information only in
furtherance of this Agreement. "Confidential Information" means any
confidential and proprietary information which is provided by one party to the
other party in writing or, if initially disclosed in non-tangible form,
summarized in writing within thirty (30) days after disclosure in non-tangible
form. The confidentiality and nondisclosure obligations shall not apply to the
extent that such disclosure is necessary for the prosecution and enforcement of
patents pursuant to this Agreement, or to comply with judicial decrees or
government actions or regulations; provided that the disclosing party shall use
all reasonable efforts to obtain confidential treatment of such disclosure to
the maximum extent permitted by law. In addition, such obligation of
confidentiality and limitation of use shall not apply to Confidential
Information that the receiving party can demonstrate:
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9.1.1 is known to the receiving party or is independently
developed, discovered or arrived at by the receiving party,
in each case to the extent evidenced by written records; or
9.1.2 was disclosed not subject to a confidentiality or similar
agreement to the receiving party by a third party that has
the right to make such disclosure; or
9.1.3 becomes patented, published or otherwise part of the public
domain through no fault of the receiving party; or
9.1.4 is required to be disclosed subject to a confidentiality
agreement or similar arrangement by order or regulation of
the FDA or similar authority in other countries of other
governmental or non-governmental authorities to facilitate
the issuance of marketing or safety approvals for products
licensed to either party or by order of a court of competent
jurisdiction; or
9.1.5 to the extent that it is provided to third parties under
appropriate terms and conditions, including confidentiality
and use provisions equivalent to those in this Agreement,
for subcontracting or consulting activities necessary for
conducting research and development.
Each party agrees to take all reasonable steps to protect the Confidential
Information of the other party in the same manner it ensures protection of its
own confidential or proprietary information.
10. MISCELLANEOUS
10.1 PROVISIONS CONTRARY TO LAW. In performing this Agreement, the
parties shall comply with all applicable laws. Nothing in this Agreement shall
be construed so as to require the violation of any applicable law, and wherever
there is any conflict between any provision of this Agreement and any applicable
law the law shall prevail, but in such event the affected provision of this
Agreement shall be affected only to the extent necessary to bring it within the
applicable law, provided that the resulting provisions are consistent with the
spirit and intent of the Agreement as originally entered into.
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10.2 NOTICES. Any notices required or permitted to be given by this
Agreement shall be given by postpaid, first class, registered or certified mail
addressed as set forth below unless changed by notice so given:
For Chiron: For PanGenetics: For Panorama:
Rajen Dalal James W. Larrick James W. Larrick
Vice President President President
Business Development PanGenetics B.V. Panorama Research Inc.
and Corporate Planning E. van Calcarstraat 30 2462 Wyandotte Street
Chiron Corporation 1963 DG Heeniskerk Mountain View,
4560 Horton Street The Netherlands California 94043
Emeryville, California 94608
U.S.A.
With a copy to:
General Counsel
Chiron Corporation
4560 Horton Street
Emeryville, California 94608
U.S.A.
10.3 USE OF NAMES. Neither party shall use the name of the other in any
promotional materials or advertising without the prior written consent of the
other.
10.4 ASSIGNMENTS. No license granted under this Agreement may be assigned
by the licensee except with the prior written consent of the licensor. The
licensor may assign its rights and obligations under such license upon
reasonable notice to the licensee.
10.5 WAIVERS AND MODIFICATIONS. The failure of any party to insist on the
performance of any obligation hereunder shall not act as a waiver of such
obligation. No waiver, modification, release or amendment of any obligation
under this Agreement shall be valid or effective unless in writing and signed by
both parties hereto.
10.6 SUCCESSORS IN INTEREST. This Agreement shall inure to the benefit of
and be binding on the parties' permitted assigns, successors in interest, and
subsidiaries.
10.7 NO WARRANTY. The licenses granted hereunder are provided WITHOUT
WARRANTY OF MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE OF ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. THE LICENSOR AS TO EACH LICENSE MAKES NO WARRANTY
THAT THE LICENSEE'S ACTIVITIES UNDER SAID LICENSES NOT NOT INFRINGE ANY PATENT
OR OTHER PROPRIETARY RIGHT OF A THIRD PARTY. The licensor will not be liable for
such infringement, or an allegation thereof, nor shall same be an excuse for
nonperformance of the licensee's obligations hereunder.
15
<PAGE>
10.8 MUTUAL INDEMNITIES. PanGenetics (and its Affiliates) shall
indemnify, defend, and hold harmless Chiron and its affiliates and their
officers and directors for any claim, demand, or injury arising out of the
actions of PanGenetics or its affiliates or sublicensees arising from or
relating to this Agreement; provided however that such indemnity shall not
extend to damages arising directly from any breach or willful or negligent act
of Chiron. Chiron shall indemnify, defend, and hold harmless PanGenetics and its
affiliates and their officers and directors for any claim, demand, or injury
arising out of the actions of Chiron or its affiliates or sublicensees arising
from or related to this Agreement; provided however that such indemnity shall
not extend to damages arising directly from any breach or willful or negligent
act of PanGenetics. The provisions of this Section shall survive expiration or
termination of this Agreement.
10.9 INSURANCE. PanGenetics shall at all times comply, through insurance or
self-insurance, with all statutory workers' compensation and employers'
liability requirements covering any and all employees with respect to activities
performed under this Agreement. In addition to the foregoing, PanGenetics shall
obtain and maintain, immediately prior to the first human clinical trial of a
Licensed Product, Comprehensive General Liability Insurance, including Products
Liability Insurance, with reputable and financially secure insurance carrier(s)
to cover the activities of PanGenetics and its sublicensee(s). Such insurance
shall provide minimum limits of liability of * per incident and shall name
Chiron as an additional insured party. Such insurance shall be written to cover
claims incurred, discovered, manifested, or made during or within five (5) years
after (a) the expiration of this Agreement, or (b) complete cessation of sales
of all Licensed Products, whichever is longer.
10.10 CHOICE OF LAW AND JURISDICTION. This Agreement is subject to and
shall be construed and enforced in accordance with the laws of the U.S.A. and
California. Chiron and PanGenetics shall attempt to settle any dispute or
controversy arising out of, or in connection with this Agreement without
resorting to litigation. If such attempts should fail, then the parties hereby
submit to arbitration in accordance with the rules then prevailing of the
American Arbitration Association ("AAA"), by one more arbitrator(s) appointed
in accordance with said rules as applicable at such time. The arbitration shall
be conducted in English and so shall be final, binding and enforceable.
10.11 ENTIRE AGREEMENT. Except as otherwise provided herein, this
Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof, and all prior or contemporaneous
agreements, whether written or oral, or proposals or understandings concerning
the subject matter hereof are superseded hereby. This Agreement may be amended
only in a writing executed by both parties.
16
<PAGE>
IN WITNESS WHEREOF, the parties have caused this agreement to be executed
as of the date first-above written.
CHIRON CORPORATION PAGENETICS, B.V.
By: /s/ LEWIS T. WILLIAMS By: /s/ JAMES W. LARRICK
Name: Lewis T. Williams Name: James W. Larrick
Title: Senior Vice President Title: Director
Date: September 25, 1995 Date: September 12, 1995
PANGENETICS B.V. PANORAMA RESEARCH INC.
By: /s/ MARK DE BOER By: /s/ JAMES W. LARRICK
Name: Mark de Boer Name: James W. Larrick
Title: Managing Director Title President
Date: September 17, 1995 Date: September 12, 1995
MARK DE BOER
By: /s/ MARK DE BOER
Name: Mark de Boer
Date: September 7, 1995
17
<PAGE>
EXHIBIT 1
WORLD INTELLECTUAL PROPERTY ORGANIZATION
PCT INTERNATIONAL BUREAU
INTERNATIONAL APPLICATION PUBLISHED UNDER
THE PATENT COOPERATION TREATY (PCT)
(51)INTERNATIONAL PATENT (11) INTERNATIONAL PUBLICATION NUMBER:
CLASSIFICATION(5): WO 94/01547
C12N 15/06, C12P 21/08 A2
C07K 15/00, C12N 15/86 (43) INTERNATIONAL PUBLICATION DATE:
A61K 39/395 20 JANUARY 1994 (20.01.94)
<TABLE>
<S> <C>
(21) INTERNATIONAL APPLICATION (81) DESIGNATED STATES: CA, JP, European patent (AT,
NUMBER: PCT/US93/06432 BE, CH, DE, DK, ES, FR, GB, GR, IE, IT, LU, MC,
NL, PT, SE).
(22) INTERNATIONAL FILING DATE:
8 July 1993 908.07.93)
(30) PRIORITY DATA: PUBLISHED
07/910,222 9 July 1992 WITHOUT INTERNATIONAL SEARCH REPORT AND TO BE
(09.07.92) US REPUBLISHED UPON RECEIPT OF THAT REPORT.
(71) APPLICANT: CETUS ONCOLOGY
CORPORATION [US / US]; 4560
Horton Street, Emeryville, CA
94608-2916 (US).
(72) INVENTORS: DE BOER, Mark; James
Stewartstraat 50, NL-132 JG
Almere (NL). CONROY, Leah, B.;
515 Beaumont Boulevard,
Pacifica, CA 94044 (US).
(74) AGENTS: McGARRIGLE, Philip, L.,
Jr. et al.; Chiron Corpora-
tion, 4560 Horton Street -
R440, Emeryville, CA 94608-2916
(US)
</TABLE>
(54) TITLE: A METHOD FOR GENERATION OF ANTIBODIES TO CELL SURFACE MOLECULES
(57) ABSTRACT
The present invention relates to a method of generating antibodies directed
against cell surface antigens and its uses recombinant insect cells as
immunogens. The insect cells have been transfected with coding regions for a
molecule containing a cell surface antigen and these antigens are expressed on
the surface of the insect cells. Host animals are immunized with these
transfected insect cells to generate antibodies directed against the cell
surface antigen. Antibody-producing cells from the host animal are used to
generate monoclonal antibody-producing hybridoma cells. Sera and hybridoma
supernatants can be tested for the presence of antibodies against the surface
antigen, using the transfected cells in a screening assay. Specific antibodies
that have been generated by the present method are anti-B7 and anti-CD40
antibodies and they can be used to prevent or treat an antibody-mediated or
immune system disease in a patient. The anti-B7 antibodies can be used to cause
T cell anerty, treat allograft transplant rejection, treat graft versus host
disease, and prevent or treat rheumatoid arthritis. An immunosuppressive agent
may be co-administered with the antibody. The anti-CD40 antibodies which bind to
the CD40 antigen can be used to prevent the growth or differentiation of the B
cell. Monoclonal antibodies useful in these methods, and epitopes immunoreactive
with such monoclonal antibodies are also presented.
<PAGE>
FOR THE PURPOSES OF INFORMATION ONLY
Codes used to identify States party to the PCT on the front pages of
pamphlets publishing international applications under the PCT.
<TABLE>
<S> <C> <C> <C> <C> <C>
AT Austria FR France MR Mauritania
AU Australia GA Gabon MW Malawi
BB Barbados GB United Kingdom NE Niger
BE Belgium GN Guinea NL Netherlands
BF Burkina Faso GR Greece NO Norway
BG Bulgaria HU Hungary NZ New Zealand
BJ Benin IE Ireland PL Poland
BR Brazil IT Italy PT Portugal
BY Belarus JP Japan RO Romania
CA Canada KP Democratic People's RU Russian Federation
CF Central African Republic Republic SD Sudan
CG Congo of Korea SE Sweden
CH Switzerland KR Republic of Korea SI Slovenia
CI Cote d'Ivoire KZ Kazakhstan SK Slovak Republic
CM Cameroon LI Liechtenstein SN Senegal
CN China LK Sri Lanka TD Chad
CS Czechoslovakia LU Luxembourg TG Togo
CZ Czech Republic LV Latvia UA Ukraine
DE Germany MC Monaco US United States of America
DK Denmark MG Madagascar UZ Uzbekistan
ES Spain ML Mali VN Viet Nam
FI Finland MN Mongolia
</TABLE>
<PAGE>
EXHIBIT 2
PanGenetics' Patent Schedule
<PAGE>
EXHIBIT 3
MATERIALS TRANSFER AGREEMENT
THIS AGREEMENT is made as of December 16, 1991, by and among Mark de Boer, Ph.D.
("Dr. de Boer") and Cetus Corporation ("Cetus").
A. During the course of his relationship with Cetus, Dr. de Boer has been
engaged in research in the area of T cell activation (the "Research").
B. Dr. de Boer wishes to continue certain aspects of the Research, and
Cetus desires to receive the benefits of the Research as set forth herein.
C. Therefore, Cetus is willing to provide Dr. de Boer with mouse
monoclonal antibody B7-24H4G12 and the related reagents/derivatives listed on
Attachment 1 hereto (which, together with any cell line, genetic material,
chemical or other substance derived by Dr. de Boer therefrom, constitute the
"Cetus Substances"); and confidential information, know-how, and data related
to the Cetus Substances (the "Cetus Confidential Information" which, together
with the Cetus Substances constitute the "Cetus Properties"). Cetus is willing
to allow Dr. de Boer to take the Cetus Properties with him under the terms of
this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. SCOPE OF USE The Cetus Properties are provided to Dr. Boer only for his use
in the Research. Dr. de Boer agrees to maintain in confidence and not to
distribute, disclose, or release the Cetus Properties to any person other than
laboratory personnel directly under Dr. de Boer's supervision and will ensure
that no one may copy, send, or take the Cetus Properties to any other location,
or use the Cetus Properties in research which is subject to a licensing or
consulting obligation to a third party (other than the U.S. Government), unless
written permission is obtained from an authorized representative of Cetus. Dr.
de Boer promises that the Cetus Properties will be used only in laboratory
animals or in IN VITRO experiments and will not be used in human beings.
2. FREEDOM TO PUBLISH Dr. de Boer is free to present or publish the fundings of
the Research in a scientific publication, or public noncommercial conference, or
similar forum, provided that: (a) no Cetus Confidential Information is revealed
thereby; and (b) at lease 30 days prior to submission thereof to a publisher or
any third party, Dr. de Boer shall have delivered copies of the proposed
presentation or publication to Cetus for review. Cetus may, within 30 days of
such delivery, object to the publication or presentation because there would be
a disclosure of Cetus Confidential Information or because there is patentable
subject matter, in which Cetus has an interest under paragraph 4, which needs
protection. Upon Cetus' request, Dr. de Boer shall, for up to 60 days from
initial delivery to Cetus, delay disclosing such patentable subject matter in
order to permit the filing of patent applications thereon. The parties shall, in
any publication, acknowledge the contributions and publication of the other as
scientifically appropriate.
3. DISCLOSURES Dr. de Boer will promptly provide a full written "Disclosure"
to Cetus of any invention, improvement, or discovery made in the Research using
the Cetus Properties (an "Invention"). Cetus shall be free to use such
findings for any purpose. Except as expressly set
LMTA (5/91) PAGE 1 AGT 7655
<PAGE>
forth in this Agreement, neither party shall obtain rights in or a license to
any patent, copyright, trademark or other intellectual property right of the
other.
4. TITLE AND INVENTIONS All right, title, and interest in the Cetus Properties
shall belong to Cetus. Cetus shall be free, in its sole discretion, to
distribute the Cetus Properties to others and to use them for its own purposes.
In consideration of access to the Cetus Properties, Dr. de Boer hereby grants
Cetus and its affiliates an option to a non-exclusive royalty-free worldwide
license, and grants a further option to an exclusive license bearing a
reasonable royalty for such territories as Cetus may request, in any patent
issuing on an Invention. Cetus may exercise its option within one year of its
receipt of the written Disclosure described herein. A "reasonable royalty"
shall take into account the relative contributions of the parties to the
pertinent product and industry standards and shall be arbitrated by the American
Arbitration Association if the parties cannot in good faith agree on it.
5. CONTACT WITH COLLABORATORS Dr. de Boer may communicate and cooperate
regarding the Research with Cetus' collaborators who are rightfully possessing
and using the Cetus Properties, set forth in Attachment 2. To the extent, if
any, that an Invention arises from such collaboration, the rights in it shall be
governed by the respective agreements with Cetus. Dr. de Boer shall not initiate
new collaborations except through Cetus.
6. NO WARRANTY The Cetus Properties are investigational and experimental in
nature and are provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. CETUS MAKES NO
REPRESENTATION OR WARRANTY THAT THE USE OF THE CETUS PROPERTIES WILL NOT
INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT. To the extent permitted by law,
Dr. de Boer will hold Cetus harmless from any claims or liability arising from
the use, handling or storage of the Cetus Substances.
7. COMPLIANCE WITH LAW Dr. de Boer shall use the Cetus Properties in
compliance with all applicable laws and regulations including, where applicable,
those relating to the treatment of laboratory animals and current NIH
guidelines.
8. TERMS This Agreement is the entire agreement between Cetus and Dr. de Boer
relating to the Cetus Properties, and may not be modified, assigned or
transferred without the written consent of an authorized representative of
Cetus. This Agreement shall be governed by the law of California.
IN WITNESS WHEREOF, the Cetus and Dr. de Boer have executed this Agreement
as of the day and year first above written.
CETUS CORPORATION MARK DE BOER, PH.D.
By: /s/ JAMES H. MEADE /s/ MARK DE BOER, PH.D.
James H. Meade, Ph.D. Signature
Senior Director
Scientific Administration
LMTA (5/91) PAGE 2 AGT 7655
<PAGE>
EXHIBIT 3
ATTACHMENT 1
cDNA for soluble B
cDNA for full length B7
cDNA for ICAM-1
cDNA for ICAM-2
cDNA for LFA-3
cDNA for CD5G
cDNA for ELAM
cDNA for VCAM
recombinant baculovirus for soluble B7
recombinant baculovirus for full length B7
hybridoma cell line B7-24
3T6 cells expressing B7
3T6 cells expressing ICAM-1
Four PUC vectors with cloned VH and VL of B7-24
LMTA (5/91) PAGE 3 AGT 7655
<PAGE>
EXHIBIT 3
ATTACHMENT 2
Agt. No. Collaborator Name Institution
- ---------- ----------------- ----------------------------------
* * *
LMTA (5/91) PAGE 4 AGT 7655
<PAGE>
EXHIBIT 3
C H I R O N
July 24, 1992
Mark de Boer, Ph.D
Innogenetics
Industriepark 7-box 4
B-9052 Zwijnaarde
BELGIUM
RE: Letter Amendment #1 to Materials Transfer Agreement #7655
Dear Dr. de Boer:
Incorporating the terms and conditions of the Materials Transfer Agreement dated
December 16, 1991 by and among Cetus Corporation and you, we would like to add
murine B7 PCR primers GM546 through GM549 and murine library ML1019B to the
materials provided to you by Cetus. Accordingly, murine B7 PCR primers GM546
through GM549 and murine library ML1019B have been added to Attachment 1 of the
Agreement. The revised Attachment 1 is attached hereto.
If you agree to this amendment, please sign both originals of this letter and
return one original to Ms. Gaye Engler, Contracts Administrator, Legal
Department. The second original is provided for you records.
This Amendment #1, together with the Materials Transfer Agreement dated December
16, 1991, constitutes the entire agreement between the parties hereto regarding
the subject matter thereof and supersedes any prior or contemporaneous
agreement, understanding or negotiations.
If you have any questions, please feel free to contact Ms. Engler at
(510)601-2916.
Sincerely, Agreed to and Accepted by:
CHIRON CORPORATION MARK DE BOER, PH.D.
By: /s/ PABLO D. T. VALENZUELA /s/ MARK DE BOER
Pablo D. T. Valenzuela, Ph.D. Signature
Senior Vice President
Biological Research &
Development
La-Amd. (Rev. 9/90) Agt. 7655, Amd. 1
Chriron Corporation o 4560 Horton Street o Emeryville, CA o 94608-2916
o 510-655-8730
Law Department o General Fax: 510-654-5360 o Intellectual Property Fax:
510-655-3542
<PAGE>
EXHIBIT 3
ATTACHMENT 1
cDNA for soluble B7
cDNA for full length B7
cDNA for ICAM-1
cDNA for ICAM-2
cDNA for LFA-3
cDNA for CD5G
cDNA for ELAM
cDNA for VCAM
ML1019B murine library
Murine B7 PCR primers GM 546 through GM 549
recombinant baculovirus for soluble B7
recombinant baculovirus for full length B7
hybridoma cell line B7-24
3T6 cells expressing B7
3T6 cells expressing ICAM-1
Four PUC vectors with cloned VH and VL of B7-24
LMTA (5/91) PAGE 3 AGT 7655
<PAGE>
EXHIBIT 3
AMENDMENT #2 TO
MATERIALS TRANSFER AGREEMENT
BETWEEN
CHIRON CORPORATION AND DR. MARK DE BOER
Incorporating the terms and conditions of the Materials Transfer Agreement dated
December 16, 1991 and the Letter Amendment #1 dated July 24, 1992 by and between
Chiron Corporation and Dr. Mark de Boer, the Agreement is herein amended,
effective December 17, 1991, by adding anti-CD40 to Attachment 1 of the
Agreement. The revised Attachment 1 is attached hereto.
This Amendment #2, together with the Materials Transfer Agreement dated December
16, 1991 and the Letter Amendment #1 dated July 24, 1992, constitutes the entire
agreement between the parties hereto regarding the subject matter thereof and
supersedes any prior or contemporaneous agreement, understanding or
negotiations.
Agreed to and Accepted by:
CHIRON CORPORATION MARK DE BOER, PH.D.
By: /s/ NIEK J. ROOSDORP /s/ MARK DE BOER
Niek J. Roosdorp, Ph.D. Signature
Vice President
Business Development
<PAGE>
EXHIBIT 3
ATTACHMENT 1
cDNA for soluble B7
cDNA for full length B7
cDNA for ICAM-1
cDNA for ICAM-2
cDNA for LFA-3
cDNA for CD5G
cDNA for ELAM
cDNA for VCAM
ML1019B murine library
Murine B7 PCR primers GM546 through GM549
recombinant baculovirus for soluble B7
recombinant baculovirus for full length B7
hybridoma cell line B7-24
3T6 cells expressing B7
3T6 cells expressing ICAM-1
four PUC vectors with cloned VH and VL of B7-24
anti-CD40
<PAGE>
EXHIBIT 4
CONSULTING AGREEMENT
THIS AGREEMENT is effective as of January 1, 1993 by and between Chiron
Corporation ("Chiron"), and Dr. Mark de Boer ("Consultant").
1. CONSULTANCY. Chiron hereby retains Consultant, and Consultant hereby
accepts such retention, commencing as of the date of this Agreement and
continuing for one (1) year thereafter.
2. SERVICES. Consultant shall serve as a consultant to Chiron and its
subsidiaries and affiliates in the area to anti-CD40 (the "Field").
3. COMPENSATION. In consideration of Consultant's provision of consulting
services to Chiron, Chiron will pay Consultant a quarterly fee of *. In
addition, Chiron will reimburse Consultant for reasonable expenses approved in
advance by Chiron.
4. OUTSIDE EMPLOYMENT. (a) During the term of this Agreement Consultant
may be engaged by one or more other "Institutions(s)." Consultant represents
that he is not and shall not become a party to any agreement which conflicts
with the duties hereunder. Consultant shall use best effects to segregate work
done under this Agreement from work at an Institution, or done with Government
funding, so as to minimize any questions of disclosure or ownership of rights
under any Inventions or Confidential Information. Chiron may terminate this
Agreement if in its sole opinion the performance of such work will conflict with
its interests.
(b) Consultant shall not disclose to Chiron any inventions, trade secrets,
or other information of third parties that Consultant does not have the right to
disclose and that Chiron is not free to use without liability.
5. INVENTIONS. (a) "Invention" shall mean and refer to any composition
of matter, device, process, treatment, or improvement thereof discovered,
created, made, conceived, or reduced to practice ("Invented") by Consultant,
whether patentable or not, during the term of this Agreement and which: (i) was
Invented with the equipment, supplies, facilities, or Confidential Information
of Chiron or those acting on its behalf, or (ii) was Invented by Consultant
while performing services for Chiron, or (iii) resulted from any work performed
by Consultant for Chiron under this Agreement.
(b) Chiron shall own all right, title and interest in any Invention.
Consultant shall promptly, and without royalty but at Chiron's expense: (i)
disclose to Chiron all information with respect to any Inventions, (ii) execute
all applications, assignments, and other instruments and do such other acts that
Chiron may deem necessary to obtain and maintain patents, copyrights, and
similar rights anywhere in the world, and (iii) provide Chiron evidence needed
in any legal proceedings regarding the Invention.
6. CONFIDENTIALITY. (a) During the term of this Agreement and any
subsequent extensions, and for a period of one (1) year thereafter, Consultant
will not disclose without prior written consent of Chiron, any Chiron
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean all data, technical information, commercial and
research strategies, trade secrets, and know-how disclosed by Chiron to
Consultant, directly or indirectly, whether in writing or orally except for such
information and know-how that (i) can be shown by contemporaneous documentation
to have been in Consultant's possession prior to disclosure by Chiron; (ii) at
the time of disclosure hereunder is, or thereafter becomes, through no fault of
Consultant, part of the public domain; or (iii) is furnished to Consultant by a
third party after the time of disclosure hereunder without the breach of any
duty to Chiron.
(b) Consultant shall not use any Confidential Information except for the
purposes of this Agreement unless Chiron shall otherwise agree in writing.
Consultant may disclose Confidential Information only to employees or agents who
have a need to know the Confidential Information for the purposes of this
Agreement and who are bound in writing to maintain the secrecy of the
Confidential Information and assign to Chiron any Inventions which they may
make.
(c) Consultant shall keep separate and segregated from other work all
documents, records, notebooks, correspondence, deposits of microorganisms, cells
or parts thereof, cell lines, part and progeny thereof, and
Page 1 f:\wpgen\done\agt 11092
<PAGE>
all products made thereby, arising from the work under this Agreement. All
right, title, and interest therein shall belong to Chiron, and upon expiration
or termination of this Agreement, all such documents and material, including
copies thereof, whether prepared by Consultant or others, will be delivered to
Chiron.
(d) Consultant may lecture upon, disseminate, and publish under
Consultant's own name scientific papers arising from the work done in the course
of performance of services for Chiron hereunder, but only upon the prior written
approval of Chiron. Chiron will not unreasonably withhold its approval provided
Confidential Information will not be disclosed thereby. Appropriate credit will
be given to Chiron in any publication.
7. NOTICE. ANY NOTICE TO CHIRON SHALL BE ADDRESSED AS FOLLOWS OR AS SHALL
BE SPECIFIED BY A PARTY IN WRITING:
If to Chiron: If Consultant:
Chiron Corporation Mark de Boer, Ph.D.
4560 Horton Street Meersenier Straat 13B
Emeryville, California 94608 Ghent B9000
Attention: Contracts Administrator BELGIUM
Legal Department
8. SURVIVAL AND TERMINATION. The terms and obligations of paragraph 5 and
6 shall survive termination of this Agreement for any reason whatsoever. If
Consultant breaches any of term of this Agreement Chiron may, in addition to any
other remedy, terminate Consultant's services by notice to Consultant by letter,
facsimile, telephone call, in person, or other reasonable means by any officer
or agent of Chiron.
9. ENTIRE AGREEMENT. This Agreement is the entire agreement of the
parties relating to the subject matter hereof, and supersedes all prior and
contemporaneous negotiations, correspondence, understandings, and agreements of
the parties relating to the subject matter hereof. It may be amended only by an
agreement in writing, signed by both parties.
10. NOT AN EMPLOYEE. Consultant is an independent contractor and is not
an employee or agent of Chiron. Consultant shall be entitled to no benefits or
compensation from Chiron except as set forth in this Agreement and shall in no
event be entitled to any fringe benefits payable to employees of Chiron.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Agreed to and Accepted by:
CHIRON CORPORATION MARK DE BOER, PH.D.
By: /s/ NIEK J. ROOSDORP /s/ MARK DE BOER
Niek J. Roosdorp Signature
Vice President
Business Development
Page 2 f:\wpgen\done\agt 11092
<PAGE>
EXHIBIT 4
AMENDMENT #1 TO THE CONSULTING AGREEMENT
MADE BETWEEN
CHIRON CORPORATION
AND
DR. MARK DE BOER
Incorporating the terms and conditions of the Consulting Agreement dated January
1, 1993 made by and between Chiron Corporation and Dr. Mark de Boer, Section 1
and 2 of the Agreement is herein amended, effective January 1, 1994, to read as
follows:
"1. CONSULTANCY. Chiron hereby retains Consultant, and Consultant hereby
accepts such retention, commencing as of the date of this Agreement and
continuing for two (2) years thereafter."
"2. SERVICES. Consultant shall serve as a consultant to Chiron and its
subsidiaries and affiliates in the area of anti-CD40 and *.
This Amendment #1, together with the Consulting Agreement dated January 1, 1993,
constitutes the entire agreement between the parties hereto regarding the
subject matter thereof and supersedes any prior or contemporaneous agreement,
understanding or negotiations.
CHIRON CORPORATION MARK DE BOER, PH.D.
By: /s/ PATRICIA A. OLSON, PH.D. /s/ MARK DE BOER
Patricia A. Olson, Ph.D. Signature
Director, Research Operations
f:\wpgen\done\footer.amd\agt 11092.1
<PAGE>
EXHIBIT 5
MATERIALS TRANSFER AGREEMENT
Chiron Corporation ("Chiron") and Panorama Research, Inc. ("Institution"),
agree effective as of November 9, 1994 as follows:
1. RESEARCH.
a. Chiron is furnishing the following Chiron properties (the "Chiron
Properties"): (i) baculovirus strains AcCD40B and AcCD40C, containing gene
sequences for the extracellular domain (ECD) of human CD40 with, respectively,
the "KT3" or "gluglu" peptide tag expressed at the C terminus of the ECD;
(ii) SF9 insect cells; and (iii) KT3 and E5 monoclonal antibodies, which
respectively bind the KT3 or gluglu peptides tags.
b. These Chiron Properties are provided only for use in the following
non-commercial research activities (the "Research"): (i) AcCD40B and AcCD40C
may be used to produce soluble human CD40 ECD for use in screening and
characterizing humanized versions of anti-CD40 monoclonal antibodies; (ii) the
SF9 insect cell may be used to produce CD40 ECD; and (iii) KT3 or E5 monoclonal
anti-tag antibodies may be used for affinity purification.
2. PROPERTIES. The "Chiron Properties" are:
a. "Chiron Substances," including the materials provided by Chiron and
any part or portion of them, even if combined with other substances; if Chiron's
contributed materials have genetic material (such as a cell line, probe or
plasmid) then the Chiron Substances also include any progency, mutant, hybrid,
nucleic acid, or other material containing any portion of genetic material from
the Chiron Substances and any copy, complement, or transcription or expression
product of them; and
b. "Chiron Information," which includes Chiron's confidential
information, know-how, and data related to the Chiron Substances. Chiron
Information does not include information which: is shown by written records to
have been in Institution's possession before receipt from Chiron; is or becomes,
through no fault of Institution, part of the public domain; or is received from
a third party without breach of a duty to Chiron.
3. CONFIDENTIALITY. Institution shall maintain in confidence and not disclose
the Chiron Information to any third party without the written permission of an
authorized representative of Chiron.
4. USE. The Chiron Properties shall belong solely to Chiron and may only be
used by personnel of Institution under the terms hereof. The Chiron Properties
may not be taken to another location or used in research which is subject to a
licensing or consulting obligation to a third party (other than the U.S.
Government) unless Chiron has first consented in writing. The Chiron Properties
shall not be used in human beings, and shall be used in compliance with all
applicable laws and regulations including, where applicable, those relating to
the treatment of laboratory animals and current NIH guidelines. Upon Chiron's
request, Institutions shall stop using the Chiron Properties and shall, at
Chiron's election promptly return or destroy the Chiron Properties in their
possession, including all copies.
Chiron LMTA (6/94)
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<PAGE>
5. PUBLICATION. The Institution shall periodically report to Chiron the
results of the Research involving the Chiron Properties for Chiron's internal
use. Institution may also present or publish the findings of the Research in a
scientific publication, conference or similar not-for-profit forum, provided
that: (a) no Chiron Information is revealed thereby; and (b) at least 45 days
prior to submission to a publisher or presentation to any third party,
Institution delivers copies of the proposed presentation or publication to
Chiron for review. At Chiron's request, Institution will, for a reasonable
period up to 90 days from initial delivery to Chiron, delay revealing any
patentable subject matter in the disclosure in order to permit the filing of
patent applications. In any publication, the parties will consider joint
authorship and acknowledge the contributions and publications of the other as
scientifically appropriate.
6. INVENTIONS. If an invention results from the use of the Chiron Properties,
Chiron shall have a non-exclusive royalty-free license to use such invention for
internal research purposes. Chiron shall also have an option to a license
bearing a reasonable royalty for such territories and scope of exclusivity as
Chiron may request in any patents or patent applications relating to such
inventions, the terms of which license will be negotiated in good faith and will
be arbitrated if the parties cannot agree. The option will be exercisable no
later than six months after Chiron's receipt of Institution's written request
that Chiron exercise or waive its rights with respect to a particular patent
application. Chiron may, at its election and expense, pursue and obtain patent
protection in consultation with Institution for any invention as to which Chiron
is a joint assignee or as to which Chiron has a right to an exclusive license
hereunder.
7. RISKS. The Chiron Properties are experimental in nature and are provided
WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY
OTHER WARRANTY OF NONINFRINGEMENT OR TITLE, EXPRESS OR IMPLIED. To the extent
permitted by law, Institution will indemnify and hold Chiron harmless from any
claims or liability arising from the use, handling or storage of the Chiron
Properties by Institution. Chiron will indemnify and hold Institution harmless
arising from any claim arising from Chiron's use of the findings of the
Research.
8. TERMS. Except as expressly set forth, nothing in this Agreement grants
either party rights or a license to any patent, copyright, trademark or other
intellectual property rights of the other. This Agreement is governed by the
laws of the State of California, is the entire agreement of the parties relating
to the Chiron Properties, and may not be modified, assigned or transferred
without the written consent of an authorized representative of Chiron.
<TABLE>
<S> <C>
CHIRON CORPORATION PANORAMA RESEARCH, INC.
By: /s/ LEWIS T. WILLIAMS By: /s/ J.W. WARRICK
Lewis T. Williams, M.D., Signature of Authorized Representative
Ph.D. Name: James W. Warrick
Senior Vice President Title: President
Research & Development
President, Chiron
Technologies
</TABLE>
Chiron LMTA (6/94)
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EXHIBIT 6
PANGENETICS B.V. ***CONFIDENTIAL*** JULY 1995
PANGENETICS RESEARCH AND DEVELOPMENT PLAN
TITLE: HUMANIZED MONOCLONAL ANTIBODIES TO CD40 FOR THE TREATMENT OF AUTOIMMUNE
DISEASES
PROJECT CODE: A1-01
*
1
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*
2
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*
3
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*
4
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*
5
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*
6
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*
7
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*
8
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*
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EXHIBIT 7
C40 LICENSE\COLLABORATION AGREEMENT
DATE: October 1, 1994
PARTIES: 1. Mark Deboer Phd, "Deboer";
E. van Calcarstraat 30; 1963 DG
Heemskark; The Netherlands; T: 31
2510 41356; F: 31 2510 50719.
2. Panorama Research Inc., "PRI";
2462 Wyandotte St.; Mountain View, CA
94043; T: 415-694-4996; F:
415-694-7717.
DEBOER AGREES:
1. To grant PRI a license to all of the rights of Dr. Mark Deboer in the Chiron
CD40 technology.
PRI AGREES:
1. To cooperate with Dr. Mark Deboer who will be responsible for the execution
of the project plan and oversee the work of Dr. Lucien Aarden.
2. To share ownership of the project with Dr. Mark Deboer on a 50:50 basis.
AGREED:
/s/ MARK DeBOER PhD 10-1-94
Mark DeBoer PhD DATE
/s/ JAMES W. LARRICK MD PhD 10-1-94
James W. Larrick MD PhD DATE
CEO and President
Panorama Research Inc.
EXHIBIT 10.13
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
LICENSE AGREEMENT
This License Agreement (hereinafter "Agreement") is made and entered into as
of the 1st day of June (the "Effective Date") between Biogen, Inc., a
Massachusetts corporation having a principal place of business at 14 Cambridge
Center, Cambridge MA, 02142 ("Biogen") and Tanox Biosystems, Inc., a Texas
corporation, having a principal place of business at 10301 Stella Link, Houston,
TX 77025 ("Tanox").
NOW THEREFORE, the parties hereby agree as follows:
BACKGROUND
Biogen owns certain patent rights identified in Appendix A hereto, relating
to ANTI-CD4 MONOCLONAL ANTIBODIES.
Biogen has additional rights to technical data and information pertaining to
anti-CD4 monoclonal antibodies.
Tanox wishes to be licensed under certain of the TECHNOLOGY (as defined
below) and patent rights and Biogen is willing to grant Tanox such a license,
for the consideration and under the terms set forth in this Agreement.
1. DEFINITIONS
1.1 "AFFILIATE", as applied to either party, shall mean any corporation,
firm, partnership or other entity which directly or indirectly owns, is
owned by, or is under common control with, a party to the Agreement to
the extent of at least fifty percent (50%) of the equity or other
ownership interests (or such lesser percentage which is the maximum
allowed to be owned by a foreign corporation in a particular
jurisdiction) having the power to vote on, or direct the affairs of, the
entity.
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1.2 "DISTRIBUTOR(S)" shall mean a person or entity in a country who buys
LICENSED PRODUCT from Tanox or its AFFILIATES or SUBLICENSEES and who,
under an implied license, sells such LICENSED PRODUCT in that country.
1.3 "FIELD" shall mean the manufacture, use, importation, offer for sale or
sale of LICENSED PRODUCT for human use only, including therapeutic,
prophylactic and diagnostic use.
1.4 "FIRST COMMERCIAL SALE" shall mean in each country of the TERRITORY, the
first sale of a LICENSED PRODUCT by Tanox or any of its AFFILIATES,
DISTRIBUTOR(S) or its SUBLICENSEES to a third party in connection with
the nationwide introduction of LICENSED PRODUCT by Tanox or any of its
AFFILIATES, DISTRIBUTOR(S) or its SUBLICENSEES following marketing and/or
pricing approval by the appropriate governmental agency for the country
in which the sale is made. When governmental approval is not required or
when sales can be made through named patient sales (also including
"compassionate use sales", "treatment INDs" or their equivalents) prior
to governmental approval, such FIRST COMMERCIAL SALE in that country
shall be the first sale in connection with the nationwide introduction of
LICENSED PRODUCT.
1.5 "IND" shall mean an Investigational New Drug Application filed with the
U.S. Food and Drug Administration ("FDA") or an equivalent filing in the
TERRITORY.
1.6 "LICENSED PRODUCT(S)" shall mean any composition(s) (i) the manufacture,
use, importation, offer for sale, or sale of which, but for this license,
infringes a VALID CLAIM of one or more PATENTS or (ii) which embodies any
of the TECHNOLOGY.
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1.7 "MAA" shall mean an application for regulatory approval to sell LICENSED
PRODUCT in the European Union and is similar in purpose to an NDA in the
United States.
1.8 "NDA" shall mean a New Drug Application or Biologic License Application
("BLA") or equivalent filed for LICENSED PRODUCT with the U.S. Food and
Drug Administration ("FDA").
1.9 "NET SALES" shall mean the total gross invoice amount actually received
by Tanox on the sale of LICENSED PRODUCT in the TERRITORY by Tanox and
its AFFILIATES, SUBLICENSEES and DISTRIBUTOR(S) to third parties less the
following items, as determined from the books and records of Tanox or its
AFFILIATES, SUBLICENSEES or DISTRIBUTOR(S): (i) insurance and transport
charges actually invoiced; (ii) amounts repaid or credited for rejection
or return of LICENSED PRODUCT; (iii) sales or other excise taxes or other
governmental charges levied on the invoiced amount and actually paid by
the seller; (iv) custom duties and charges actually paid by the seller;
(v) normal and customary trade and quantity discounts actually allowed
and actually taken which relate to LICENSED PRODUCT.
Sales of LICENSED PRODUCT between or among Tanox, its AFFILIATES,
DISTRIBUTOR(S) or the SUBLICENSEES shall be excluded from the computation of NET
SALES. Notwithstanding the previous sentence, the resale of the LICENSED PRODUCT
by the AFFILIATE, DISTRIBUTOR(S) or SUBLICENSEES to a third party who is not an
AFFILIATE, DISTRIBUTOR(S) or SUBLICENSEES of Tanox, shall be included in the
definition of NET SALES for the purposes of this Agreement.
In the event that Tanox, its AFFILIATES, DISTRIBUTOR(S) or its
SUBLICENSEES receives in any transaction included within the definition of NET
SALES, any non-cash compensation or lower prices on other products in exchange
for any LICENSED PRODUCT, or sells LICENSED PRODUCT in other than an arms length
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transaction, then the gross amount invoiced in such transaction shall be deemed
to be the gross amount that would have been paid had there been such a sale at
the average sale price of such LICENSED PRODUCT during the applicable royalty
reporting period in the country in which such disposition took place. The
preceding sentence shall not apply to the distribution at no cost of LICENSED
PRODUCT to physicians, hospitals or clinics for promotional purposes or academic
investigators for research and clinical trial purposes, which are not included
in the definition of NET SALES.
In the event that LICENSED PRODUCT is sold in combination with one or more
other active ingredients, including one or more other antibodies having a
therapeutic effect (such antibody(ies) defined as an "Antibody Active
Ingredient"), the NET SALES on the combination product shall be calculated by
multiplying actual NET SALES of the combination product by the fraction obtained
after dividing A by the sum of A+B, in which "A" is the average selling price of
LICENSED PRODUCT sold separately by the same party during the same accounting
period in the country in which the sale of the combination product was made and
"B" is the average selling price of the other active ingredient(s) sold
separately by the same party during the same accounting period in the country in
which the sale of the combination product was made.
If, however, no separate sales of LICENSED PRODUCT or Antibody Active
Ingredient(s) or other active ingredients are made then:
A. If the combination product includes one or more Antibody Active
Ingredients (the combination product defined for the purpose of this sentence as
a "TRUE ANTIBODY COMBINATION PRODUCT"), the NET SALES of such TRUE ANTIBODY
COMBINATION PRODUCT shall be reduced by 50%; or
B. If the combination product includes one or more active ingredients that
are not Antibody Active Ingredients, the parties shall negotiate in good faith a
mutually agreeable formula for determining appropriate reduction in NET SALES
with the goal of equitably determining the appropriate percentage value
represented by the components.
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The parties agree that in no event shall NET SALES of LICENSED PRODUCT or
any combination product of this Article 1.9 be reduced to less than fifty
percent (50%) of actual NET SALES of such LICENSED PRODUCT or combination
product by reason of any adjustment set forth in this Article 1.9.
The parties further agree that if Tanox becomes (a) an AFFILIATE of; or
(b) merged with; or (c) acquired by: or (d) an acquirer of, a third party having
a market capitalization equal to, or greater than ten billion dollars ($10B) at
the time of such AFFILIATE formation or merger or acquisition, then NET SALES as
defined in the first sentence of this Article shall be redefined to mean the
total gross invoice amount (not dependent on whether the invoices were actually
paid) on the sale of LICENSED PRODUCT in the TERRITORY by Tanox and its
AFFILIATES, SUBLICENSEES and DISTRIBUTOR(S) to third parties, less the items
recited in the first sentence of this Article. All other provisions of the
definition of NET SALES shall remain unaffected by such AFFILIATE formation,
merger or acquisition.
1.10 "PATENTS" shall mean: (a) the patent applications and patents listed in
Appendix A to this Agreement, any extensions, supplemental protection
certificates, reissues, renewals, re-examinations, divisionals,
continuations or continuations-in-part thereof, any foreign counterparts
thereof, any patent issuing from any of the foregoing, which Biogen
presently or hereafter owns and (b) such other patent applications and
patents which Biogen presently or hereafter owns or controls that is
required for the manufacture, use or sale of LICENSED PRODUCT.
1.11 "PROTEIN DESIGN LABS PATENTS" shall mean the patents and patent
applications listed in Appendix B hereto.
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1.12 "ROYALTY QUARTER" shall mean the three (3) months ending on the last day
of March, June, September and December of each year.
1.13 "SUBLICENSEES" shall mean a third party (but not an AFFILIATE of Tanox)
licensed by Tanox to make, use, import, offer for sale and sell LICENSED
PRODUCT.
1.14 "TECHNOLOGY" shall mean any data, know-how, or other information, or any
material, reagent or other substance relating to LICENSED PRODUCT or to
anti-CD4 monoclonal antibodies which may be useful in the discovery,
research, development, manufacture, use or sale of LICENSED PRODUCT or to
anti-CD4 monoclonal antibodies and which is known to, and/or in the
possession of, Biogen on the Effective Date and to which Biogen has a
transferable right.
1.15 "TERRITORY" shall mean the entire world.
1.16 "VALID CLAIM" shall mean (i) any claim(s) in an issued, unexpired patent
which has not been held unenforceable, unpatentable, or invalid by a
court or other governmental agency of competent jurisdiction, in a
decision that is unappealable or unappealed, within the time allowed for
appeal, and which has not been abandoned or admitted to be invalid or
unenforceable through reissue or disclaimer or (ii) a claim of a pending
patent application which is pending as of the Effective Date and for
which examination has been requested or, in the case of Japan and Canada,
will be timely requested, and which claim shall not have been canceled,
withdrawn, abandoned or rejected by an administrative agency from which
no appeal can be taken. If in the TERRITORY there should be two or more
such decisions conflicting with respect to the validity of the same
claims, the decision of the higher or highest tribunal shall thereafter
control. However, should the tribunals be of equal rank, then the
decision or decisions upholding the claim shall prevail
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when the conflicting decisions are equal in number, and the majority of
decisions shall prevail when conflicting decisions are unequal in number.
2. LICENSES AND TECHNOLOGY TRANSFER
2.1 Biogen hereby grants Tanox a TERRITORY-wide, exclusive, royalty-bearing
license under the TECHNOLOGY and PATENTS to make, have made, import, use,
offer for sale, and sell LICENSED PRODUCT for use in the FIELD. As soon
as reasonably possible following execution of this Agreement, Biogen will
transfer all TECHNOLOGY listed on Appendix C that is in its control or
possession to Tanox, and shall cooperate with Tanox in its initial use of
the TECHNOLOGY to develop a LICENSED PRODUCT by making Biogen personnel
with knowledge of the TECHNOLOGY available for initial meetings at Biogen
as agreed, not to exceed two working days, and subsequent telephone
conference(s) with Tanox during Biogen's normal business hours under the
following conditions:
(a) Biogen personnel are given at least reasonable advance notice of such
conference(s);
(b) Tanox shall direct all telephone calls to a Technology Liaison who
will direct Tanox's attention to the appropriate person responsible for a
particular TECHNOLOGY. Biogen shall provide Tanox with all available
TECHNOLOGY within 3 months from the Effective Date of this Agreement;
(c) Telephone conferences shall not exceed 5 hours per month for the
first three months,
(d) Any time spent by Biogen personnel on retrieval of information
requested shall, except for information previously requested and not
provided, be limited to the three month period after the Effective Date
and shall be reasonably based upon pre-existing commitments and the time
required to complete the tasks requested by Tanox; and
(e) Telephone conferences subsequent to the time period of subpart (b)
(other than for pursuing information or TECHNOLOGY previously requested
but not provided) shall not exceed 1 hour per month.
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2.2 The term "exclusive" in Article 2.1 shall mean that Biogen cannot grant
further licenses hereunder for LICENSED PRODUCT in the TERRITORY in the
FIELD, subject only to:
*
(b) Biogen's reserved right to use the TECHNOLOGY and PATENTS for internal
research and educational purposes.
2.3 The license granted to Tanox hereunder shall include the right to grant a
sublicense to one SUBLICENSEE in each country. A copy of the sublicense
shall be provided to Biogen. Tanox shall ensure that its AFFILIATE(S) and
SUBLICENSEES to whom Tanox has extended or sublicensed its rights under
this Article 2, shall comply with all of the terms of this Agreement to
which Tanox is bound.
Any sublicense granted by Tanox under this Agreement shall be subject and
subordinate to the terms and conditions of this Agreement except that:
(a) the sublicense terms and conditions shall reflect that the
SUBLICENSEES shall not have the right to further sublicense;
(b)the sublicense shall include a requirement that the SUBLICENSEES use
the same efforts to bring the subject matter of the sublicense into commercial
use as those efforts of Tanox under Article 9.1 of this Agreement; and
(c) the sublicense shall expressly provide for the transfer of all
obligations, including the payment of royalties specified in the sublicense, to
Biogen or its designee, in the event that the present Agreement is terminated.
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2.4 Except as expressly provided herein, nothing in this Agreement shall be
deemed to grant either party any rights or license to any patent, patent
application, technology, know-how or invention of the other party.
3. PAYMENTS AND REPORTING
In consideration of the license rights granted to Tanox under this Agreement,
Tanox shall make the following payments to Biogen:
3.1 *
3.2 Tanox shall pay Biogen a royalty on NET SALES of LICENSED PRODUCT sold by
Tanox, its AFFILIATES, SUBLICENSEES and DISTRIBUTOR(S) in the TERRITORY
at the following rates:
PORTION OF
ANNUAL NET SALES ROYALTY RATE OFFSET (ARTICLE 3.3)
---------------- ------------ --------------------
* * *
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3.3 If Tanox licenses PROTEIN DESIGN LABS PATENT(S) to make, have made, use,
sell, offer for sale, or import LICENSED PRODUCT, then so long as a VALID
CLAIM of a PROTEIN DESIGN LABS PATENT encompasses the LICENSED PRODUCT in
the United States, the royalty otherwise payable to Biogen under Article
3.2 on sales in the respective countries in which there are such VALID
CLAIMS shall be reduced by the amounts set forth in the above Table of
Article 3.2 under the heading "Offset" determined by reference to the
amount of annual NET SALES in such countries.
3.4 As further consideration of the rights granted to Tanox under this
Agreement, Tanox shall make the following nonrefundable, noncreditable
payments to Biogen upon the first achievement of each of the following
milestones.
MILESTONE PAYMENT
--------- -------
Upon filing an IND or equivalent
filing for first LICENSED PRODUCT *
Commencement of Phase III Clinical
Trial (or equivalent pivotal trial)
of first LICENSED PRODUCT *
Filing BLA/MAA or equivalent filing
for first LICENSED PRODUCT *
Regulatory approval anywhere
in the TERRITORY of first LICENSED
PRODUCT *
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3.5 If, after executing this Agreement, Tanox becomes (a) an AFFILIATE of; or
(b) merged with; or (c) acquired by: or (d) an acquirer of, a third party
having an equal or greater number of employees than Biogen at the time of
such AFFILIATE formation or merger or acquisition, then Tanox shall be
obligated to make additional milestone payments in addition to those
recited above in Article 3.4. Following such a merger or acquisition, the
additional nonrefundable, noncreditable retroactive milestones are due
thirty (30) days after the later of: (i) being triggered by the events
described in the Table below or (ii) the date of the acquisition, or
merger transaction and are as follows:
MILESTONE PAYMENT
--------- -------
Commencement of Phase II
Clinical Trial of first LICENSED PRODUCT *
Commencement of Phase III
Clinical Trial (or equivalent pivotal trial)
of first LICENSED PRODUCT *
Regulatory approval by FDA of first LICENSED PRODUCT *
Regulatory approval by EMEA of first LICENSED PRODUCT *
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3.6 All royalties accrued pursuant to this Article 3 shall be paid to Biogen
on a quarterly basis within forty five (45) days after the end of each
calendar quarter with respect to NET SALES on sales of LICENSED PRODUCT
made in such quarter.
3.7 Together with each royalty payment due under this Article 3, Tanox shall
provide Biogen with a signed written statement certifying, separately for
each type of LICENSED PRODUCT, the following information: (i) gross sales
by Tanox, its AFFILIATES, SUBLICENSEES, and DISTRIBUTOR(S), by country;
(ii) NET SALES separately by country and in total; (iii) quantity sold by
Tanox, its AFFILIATES, SUBLICENSEES, and DISTRIBUTOR(S); and (iv) average
sales price in each country. Tanox shall maintain, and shall use
reasonable efforts to ensure that its AFFILIATES, SUBLICENSEE and
DISTRIBUTOR(S) maintain, appropriate books of account and records of all
sales of LICENSED PRODUCT in any calendar year for a period of three (3)
full years after such calendar year. At Biogen's request, Tanox shall
make such books of account and records available for inspection during
normal business hours by independent public accountants appointed by
Biogen for the purpose of verification of the amounts paid to Biogen
under this Agreement. Biogen shall not conduct more than one audit in any
calendar year.
The cost of such audit shall be borne by BIOGEN unless it is established by
the audit that there has been an error which has caused Tanox to underpay by ten
percent (10%) or more for the period under audit, in which case the cost of such
audit shall be borne by Tanox. Tanox shall pay to Biogen any underpaid
compensation that is confirmed by the audit promptly and with interest at a rate
not to exceed the interest rate defined in Article 3.9 hereunder.
3.8 The amounts computed or specified under this Article 3 as due to Biogen
are the actual amounts to be received by BIOGEN and shall not be reduced
in any way, including but
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not limited to, withholding taxes and reduction by any liabilities
incurred by Tanox or its SUBLICENSEES or DISTRIBUTOR(S) on Tanox's behalf
(but not on Biogen's behalf) upon remittance to BIOGEN of the payments
due hereunder, provided, however, that if required, Tanox shall be
allowed to withhold taxes incurred by Biogen.
3.9 All payments made to either party hereunder shall be paid in U.S.
Dollars. Monetary conversion from the currency of a foreign country into
U.S. currency shall be made at the exchange rate in force on the last
business day of the quarter in which the payment obligations were
incurred as reported in The Wall Street Journal, or on such other basis
as mutually agreed upon by both parties. Any amounts due under this
Agreement that are not paid when due shall bear interest at the lesser of
(i) *.
3.10 The obligation to pay royalties shall continue on a country-by-country
basis from the date of first sale of LICENSED PRODUCT in that country
until the later of (i) twelve (12) years from the date of FIRST
COMMERCIAL SALE of such LICENSED PRODUCT in that country or (ii) the date
on which the manufacture, use, sale, offer for sale or import of LICENSED
PRODUCT is no longer covered by a VALID CLAIM of any PATENT in such
country or in the country of manufacture.
4. *
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5. PATENT PROSECUTION AND LITIGATION
5.1 Biogen shall be solely responsible for prosecution and maintenance of the
PATENTS. Tanox shall bear the cost of all matters relating to the
maintenance and prosecution of the PATENTS, such costs to be creditable
against any payments due Biogen. Biogen shall promptly notify Tanox of
all information received by Biogen relating to the prosecution and
maintenance of PATENTS, including, without limitation, any lapse,
revocation, surrender, invalidation or abandonment of any of the PATENTS.
Biogen may, in its sole discretion, decide to refrain from, or cease to
prosecute, or maintain any of the PATENTS. In such an event, Biogen shall notify
Tanox promptly and in sufficient time to permit Tanox at its sole discretion to
continue such prosecution or maintenance at Tanox's expense. If Tanox elects to
continue such prosecution or maintenance, Biogen shall execute such documents
and perform such acts at Biogen's expense as may be reasonably necessary for
Tanox to so continue such prosecution or maintenance.
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5.2 In the event either party or its AFFILIATES, DISTRIBUTORS (or Tanox's
SUBLICENSEES) becomes aware of any actual or probable infringement of a
PATENT claim licensed to Tanox under this Agreement, it shall notify the
other party in writing of the details to the extent known of such
infringement. Tanox, in its sole discretion and at its sole expense, may
take action against any alleged infringer but would be required to take
such action in the name of Biogen, if legally permissible, and if Biogen
consents thereto. In determining whether to bring an action to enforce
any such PATENT, Tanox shall act in a commercially reasonable manner,
giving due consideration to the threat represented by the infringement
and the potential risk to the PATENT involved. In the event Tanox
declines within six (6) months of notification of such infringement to
either (i) cause infringement to cease such as, for example, by
settlement, or (ii) initiate legal proceedings against the infringer.
Biogen may, but is not obligated to (upon notice to Tanox) initiate legal
proceedings against the infringer, at Biogen's expense and in its own
name. Biogen, under the circumstances of the previous sentence, is not
obligated to initiate proceedings against more than one infringer at a
time.
5.3 In the event either Tanox or Biogen shall initiate or carry out legal
proceedings to enforce any of the PATENTS licensed under this Agreement
against an alleged infringer, the party not initiating or carrying out
such proceedings shall fully cooperate with, and supply all reasonable
assistance requested by, the other party. Except as described hereunder,
any party that institutes any suit to protect or enforce any such PATENTS
shall have control of that suit and shall bear the reasonable expenses
incurred by the non-initiating party in providing such assistance and
cooperation as is requested pursuant to this Article.
5.4 Any recovery obtained by Tanox as the result of legal proceedings
initiated and paid for by Tanox to enforce any of the PATENTS licensed
under this Agreement against an
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alleged infringer, whether obtained by settlement or otherwise, shall
(after reimbursement of all otherwise unreimbursed legal fees and
expenses incurred by either Tanox or Biogen) be paid 100% to Tanox, and
such recovery obtained by Tanox shall be treated as NET SALES so that
Tanox shall pay a royalty to Biogen commensurate with the recovery as
specified under Article 3.2. Any recovery obtained by Biogen as the
result of legal proceedings initiated and paid for by Biogen to enforce
such PATENTS against an alleged infringer, whether obtained by settlement
or otherwise, shall (after reimbursement of all otherwise unreimbursed
legal fees and expenses incurred by either Biogen or Tanox) be paid 100%
to Biogen.
6. INDEMNIFICATION
6.1 Tanox and its AFFILIATES and its SUBLICENSEES assume all risk of damage
or injury to persons or property arising out of the clinical testing,
manufacture, use, marketing, promotion, distribution, or sale of LICENSED
PRODUCT(S). Tanox shall hold harmless and indemnify Biogen, its officers,
directors, agents, shareholders and employees (the "Biogen Indemnitees")
from and against any and all liabilities, damages, losses, costs and
expense incurred or imposed upon Biogen Indemnitees or any one of them in
connection with any claims, suits, actions, demands, proceedings, causes
of action or judgments resulting from arising out of: (i) the
development, design, preclinical or clinical testing, manufacture, use,
marketing, promotion, distribution or sale of the LICENSED PRODUCT(S) by
Tanox or any of its AFFILIATES, SUBLICENSEES or DISTRIBUTOR(S) or any of
their respective agents or employees; (ii) any other activities carried
out by Tanox or any of its AFFILIATES, SUBLICENSEES or DISTRIBUTOR(S) or
any of their respective agents or employees, including failure to comply
with applicable law.
Biogen shall give prompt notice to Tanox of any claim that may be subject to
indemnification upon Biogen's receipt of notice to such claim, and Tanox shall
16
<PAGE>
assume the defense thereof, including the employment of counsel reasonably
satisfactory to Biogen, provided, however, that Tanox shall act reasonably and
in good faith with respect to all matters related to settlement or disposition
of any claim as the settlement or disposition thereof relates to Biogen, and
further provided that Tanox shall not settle or otherwise dispose of any claim
without prior written notice to Biogen. Biogen shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses in this situation shall be Biogen's.
6.2 Following the FIRST COMMERCIAL SALE, Tanox shall purchase and maintain in
effect, and require its AFFILIATES and SUBLICENSES to purchase and
maintain in effect, a policy of product liability insurance in the amount
of at least * covering all claims with respect to any LICENSED PRODUCT
used, made, sold, imported, licensed or otherwise distributed by Tanox or
any of its AFFILIATES, DISTRIBUTOR(S) or SUBLICENSES within the term of
this Agreement. Each policy obtained under this Article shall specify
Biogen as an additional insured and Tanox shall furnish to Biogen upon
Biogen's request, a certificate evidencing such insurance.
7. REPRESENTATIONS, WARRANTIES AND LIABILITY
7.1 BIOGEN warrants that it owns title to the PATENTS listed in Appendix A
and the TECHNOLOGY and has the right to enter into this Agreement. BIOGEN
MAKES NO REPRESENTATION OR WARRANTY AS TO THE VALIDITY OF THE PATENTS.
7.2 BIOGEN MAKES NO REPRESENTATION OR WARRANTY THAT THE MANUFACTURE, USE,
IMPORTATION OR SALE OF LICENSED PRODUCTS BY TANOX OR ITS SUBLICENSEES OR
THEIR CUSTOMERS WILL NOT CONSTITUTE AN INFRINGEMENT OF THE INTELLECTUAL
PROPERTY RIGHTS OF OTHERS.
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<PAGE>
7.3 BIOGEN MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANT ABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND
ASSUMES NO RESPONSIBILITY WHATEVER WITH RESPECT TO DESIGN, DEVELOPMENT,
MANUFACTURE, USE, SALE, IMPORTATION OR OTHER DISPOSITION OF LICENSED
PRODUCT BY TANOX OR ITS AFFILIATES, SUBLICENSEES OR DISTRIBUTOR(S) TO
THEIR RESPECTIVE CUSTOMERS.
7.4 The entire risk as to performance of LICENSED PRODUCTS is assumed by
Tanox and its AFFILIATES, DISTRIBUTOR(S) and SUBLICENSEES. Except as set
forth under Article 6, in no event shall either party be responsible or
liable to the other, its AFFILIATES or DISTRIBUTOR(S) (or Tanox's
SUBLICENSEES), end users (or any other individual or entity regardless of
legal theory), for any DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OR LOST REVENUES OR PROFITS arising out of this
Agreement. The provisions of this Article 7.4 shall apply even though a
party may have been advised of the possibility of such damage.
7.5 Tanox covenants and agrees that in conducting activities contemplated
under this Agreement, it shall comply with all applicable laws and
regulations including those related to the manufacture, use, labeling,
importation and marketing of LICENSED PRODUCT.
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7.6 Tanox shall make no statements, representations or warranties or accept
any liabilities or responsibilities to, or with regard to any person or
entity, which are inconsistent with any disclaimer or provisions of this
Article 7 and Tanox shall take reasonable steps to ensure that its
AFFILIATES and its SUBLICENSEES do not do so.
7.7 Tanox and Biogen agree that, except for the obligations contained within
this Agreement, there are no other express and/or implied obligations on
either party that can be created by the activities contemplated
hereunder.
8. CONFIDENTIALITY
8.1 During the term of this Agreement, and for a period of seven (7) years
after termination, Biogen and Tanox shall treat all confidential
information (including confidential TECHNOLOGY) received from the other
hereunder as the exclusive property of the disclosing party and each
party agrees not to use or disclose to any third party any such
information, except as permitted hereunder, without first obtaining the
disclosing party's written consent. Each party further agrees to take all
practicable steps to ensure that any such information shall not be used
by its directors, officers, employees, or agents and that it shall be
kept fully private and confidential by them.
8.2 The above provision of confidentiality shall not apply to that part of
such information which a receiving party is clearly able to demonstrate:
(a) was fully in its possession prior to receipt from the other; or
(b) was in the public domain at the time of receipt from the other; or
(c) became part of the public domain through no fault of the party
receiving such information, its director, officers or employees;
(d) was lawfully received without obligations of confidentiality or non-use
from some third party having a right of further disclosure; or
(e) other than information submitted pursuant to obtaining regulatory
approval for LICENSED PRODUCT, is required to be disclosed by law or
applicable government or European Community regulations; provided,
however, that the disclosing party is given prior written notice of
such required disclosure and afforded an opportunity to participate in
drafting a protective order or otherwise limiting the disclosure to the
extent possible.
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9. COMMERCIALIZATION
9.1 Tanox undertakes to use reasonable commercial efforts to diligently
develop and market LICENSED PRODUCT in the major market countries for the
LICENSED PRODUCT in the TERRITORY and, with Biogen's reasonable
assistance, to diligently obtain regulatory approval for LICENSED PRODUCT
in the major market countries for the LICENSED PRODUCT in the TERRITORY.
Tanox shall provide Biogen with summaries of such efforts, including the
clinical development status of LICENSED PRODUCTS in the FIELD, before
January 1 of each calendar year and shall provide Biogen with notice of
the date Tanox and/or its SUBLICENSEES makes the FIRST COMMERCIAL SALE of
LICENSED PRODUCT. For the purposes of this Article 9.1, "reasonable
commercial efforts" means the usual practice followed by a
biopharmaceutical company in pursuing commercialization of its products.
9.2 Tanox shall take reasonable steps to ensure the compliance of its
SUBLICENSEES with all applicable laws and regulations, including, without
limitation any labeling requirements relating to the sale of LICENSED
PRODUCT by the SUBLICENSEES.
10. PUBLICITY
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10.1 Neither Tanox nor its AFFILIATES nor its SUBLICENSEES shall make any use
of the name of Biogen in connection with the exercise of its rights
hereunder (including in any advertising, promotional or sales
literature), without the prior written consent of Biogen, except as
required by law or regulation. Upon request, Tanox or its AFFILIATES or
its SUBLICENSEES shall ensure that LICENSED PRODUCT will be labeled "sold
under license" from Biogen.
10.2 Any initial announcements or similar publicity with respect to this
Agreement shall be at such time and in such manner and such form as
Biogen and Tanox shall mutually agree. Thereafter, either party may
subsequently publicize the terms and subject matter of this Agreement in
its sole discretion as long as the content of subsequent disclosures is
consistent with the approved form. To the extent that any such
publication or the terms and subject matter of this Agreement is
inconsistent with the agreed announcement AND/or includes additional
disclosure relating thereto, the party submitting any such subsequent
announcement or similar publicity shall first send it to the other party
for review. The other party agrees to review and return such announcement
or similar publicity to the sending party within 24 hours of receipt.
11. PATENT EXTENSIONS
11.1 Subject to the applicable governmental laws and regulations in the
TERRITORY regarding extension of patent terms, Tanox and its SUBLICENSEES
shall cooperate fully with Biogen in providing Biogen, at Biogen's
request, all facts and documentation which may assist Biogen in its
procurement of term extension for the PATENTS. Biogen shall be
responsible for, and shall bear the expense, of obtaining such patent
term extension as to patent rights encompassing LICENSED PRODUCT.
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11.2 Upon termination of this Agreement by Biogen pursuant to Article 12.2,
information related to government approvals for LICENSED PRODUCT and
safety, efficacy, and toxicity studies of the LICENSED PRODUCT (provided
that the above is accessible to Tanox and/or its SUBLICENSEES in the
TERRITORY) shall be shared by Tanox and/or its SUBLICENSEES with Biogen
and such information may be transmitted to a governmental agency for use
by Biogen if necessary.
12. TERM AND TERMINATION
12.1 This Agreement shall commence on the Effective Date and shall continue
until Tanox's obligation to pay royalties pursuant to Article 3
terminates.
12.2 If the parties agree that this Agreement has been breached as to a
material covenant, undertaking, representation or obligation and that the
allegedly breaching party has not pursued steps to correct or cure such
breach within sixty (60) days of notification from the other party, or if
a court of competent jurisdiction so determines in a decision that is
unappealable or unappealed within the time allowed for appeal, or if the
decision is affirmed on appeal, by the highest court with jurisdiction,
then the non-breaching party shall have the right, by notice in writing,
to terminate this Agreement. A party shall also have the right to
terminate this Agreement in the event that the other party shall enter
into any arrangement or composition with its creditors, or enter or be
put into voluntary or compulsory liquidation or bankruptcy (except for
the purpose of any reorganization reasonably acceptable to the other
party), or have its business enjoined into receivership by executive or
judicial authorities.
12.3 Tanox shall have the right to terminate this Agreement on thirty (30)
days written notice to Biogen, provided that Tanox supplies to Biogen
within 180 days of termination hereunder, and sooner if feasible, all
preclinical, clinical and other data reasonably related to Biogen's
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relicensing of the LICENSED PRODUCT as well as a royalty-free,
nonexclusive license to any Tanox-owned patents necessary to make, use,
or sell the LICENSED PRODUCT. Any termination under this Article 12 shall
be without prejudice to the rights of either party against the other then
accruing or otherwise accrued under the Agreement.
12.4 Expiration of this Agreement pursuant to Article 12.1 shall result in the
exclusive license to Tanox under Article 2.1 being converted to a
non-exclusive and cost and royalty-free license. Both expiration of the
Agreement under Article 12.1 and termination of this Agreement by either
party pursuant to Articles 12.2 and 12.3 shall terminate all outstanding
obligations and liabilities between Biogen and Tanox arising from this
Agreement except:
(a) obligations to pay royalties and other sums accruing hereunder up to
the day of such termination or expiration;
(b) obligations for record keeping and accounting reports for so long as
LICENSED PRODUCT is sold pursuant to this Agreement up to the date
of termination or expiration. Tanox shall render a final report
along with any royalty payment at such time after termination or
expiration of this Agreement;
(c) Biogen's right to inspect books and records up to the date of
termination or expiration as in Article 3.7;
(d) obligations of defense and indemnity under Article 6;
(e) any cause of action or claim of Tanox or Biogen accrued as of the
date of termination or expiration because of any breach or default
by the other party hereunder;
(f) the confidentiality provisions of Article 8;
(g) the disclosure obligations of Article 11.2, as applicable.
(h) all other terms, provisions, representations, rights and obligations
contained in this Agreement that by their sense and context are
intended to survive until performance thereof by either or both
parties; and
(i) the right to complete the manufacture and sale of LICENSED PRODUCTS
which qualify as "work in progress" under generally accepted cost
accounting standards or which are in stock at the date of
termination, and the obligation to pay royalties on NET SALES of
such LICENSED PRODUCTS.
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13. NOTICES
13.1 Any notice required or permitted to be given hereunder shall be sent in
writing by registered or certified airmail, postage prepaid, return
receipt requested, or by telecopier, air courier or hand delivery,
addressed to the party to whom it is to be given as follows:
If to BIOGEN: Biogen, Inc.
14 Cambridge Center
Cambridge, MA 02142
Telephone (617) 679-2000; Fax (617) 679-2838
Attention: Vice President-General Counsel
If to TANOX:
Tanox Biosystems, Inc.
10301 Stella Link
Houston, TX 77025
Telephone: (713) 664-2288; Fax: (713) 664-8914
Attention: Nancy T. Chang, Ph.D., President
and CEO
or to such other address or addresses as may from time to time be given in
writing by either party to the other pursuant to the terms hereof.
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<PAGE>
13.2 Any notice sent pursuant to this Article shall be deemed delivered within
five (5) days if sent by registered or certified airmail and within
twenty-four (24) hours if sent by telecopier, air courier or hand
delivery.
14. EXPORT LAWS AND REGULATIONS OF THE UNITED STATES
The Export regulations of the United States Department of Commerce
prohibit the exportation from the United States of certain types of technical
data and commodities unless the exporter (i.e., Tanox, AFFILIATES,
DISTRIBUTOR(S) or the SUBLICENSEES) has received the required license. In
addition, the exporter may be required to obtain certain written assurances
regarding re-export from the foreign importer for certain types of technical
data and commodities. Tanox agrees to comply with (and shall take reasonable
steps to ensure the compliance of its AFFILIATES, DISTRIBUTOR(S) and its
SUBLICENSEES with) the Export Administration Regulations of the United States
Department of Commerce.
15. MISCELLANEOUS
15.1 ENTIRE AGREEMENT:
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter between the parties with respect to the
subject matter hereof, and supersedes and replaces all prior agreements,
understandings, writings and discussions between parties relating to said
subject matter.
15.2 AMENDMENTS: WAIVERS:
This Agreement may be amended and any of its terms or conditions may be
waived only by a written instrument executed by both parties, or, in the case of
a waiver, by the party waiving compliance. The failure of either party at any
time to require performance of any provision hereof shall in no manner affect
its rights a later time to enforce the same. No waiver by either party of any
condition or term in any instance shall be construed as a further or continuing
waiver of such condition or term or of another condition or term.
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15.3 NO AGENCY:
The relationship between Tanox and Biogen is that of independent
contractor. Nothing herein shall be deemed to constitute Tanox, on the one hand,
or Biogen, on the other hand, as the agent or representative of the other, or as
master and servant, employer and employee, joint venturers or partners for any
purpose.
15.4 ASSIGNMENT:
This Agreement shall not be assigned by Tanox without the prior written
consent of Biogen, except to an AFFILIATE or a successor Tanox's entire
business. This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
15.5 LAW OF THE CONTRACT:
This Agreement shall be governed by and construed and interpreted in
accordance with the law of the Commonwealth of Massachusetts.
15.6 SEVERABILITY:
In the event one or more provisions of this Agreement should for any
reason be held by any court or authority having applicable jurisdiction to be
invalid, illegal or unenforceable, such provision(s) shall either be reformed to
comply with applicable law or stricken if not so conformable, so as not to
affect the validity or enforceability of the remainder of this Agreement.
26
<PAGE>
15.7 AGREEMENT TO PERFORM NECESSARY ACTS:
Each party agrees to perform further acts and execute and deliver any and
all further documents, agreements, and/or instruments which may be reasonable to
carry out or effect the provisions of this Agreement.
15.8 COUNTERPARTS:
This Agreement may be executed in counterparts, and each such counterpart
shall be deemed an original for all purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers on the date and year first above
written.
BIOGEN, INC. TANOX BIOSYSTEMS, INC.
By: /s/ MICHAEL J. ASTRUE By: /s/ NANCY T. CHANG, Ph.D.
Name: Michael J. Astrue Name: Nancy T. Chang, Ph.D.
Title: Vice President-General Counsel Title: President and CEO
Date: June 18, 1998 Date: June 23, 1998
27
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
<S> <C>
COUNTRY NUMBER FILED ISSUED # EXPIRES BIOGEN NO.
Australia * 11/27/91 662891 11/27/011 *
Canada * 11/27/91 -- -- *
EPO* 92903295.1 11/27/91 512112 11/27/011 *
Japan * 11/27/91 -- -- *
United 07/916,098 11/27/91 -- *
States to issue
Q2 1998
</TABLE>
*Austria, Belgium, Switzerland, Germany, Denmark, Spain, France, Great
Britain, Greece, Italy, Liechtenstein, Luxembourg, Netherlands, Sweden
28
<PAGE>
APPENDIX B
The following are patents and patent applications defined as PROTEIN DESIGN
LABS PATENTS and shall expressly include any United States continuations,
continuations-in-part or divisions thereof or any substitute applications
therefor; or foreign counterparts thereof, any patents issued with respect to
such patent applications, any reexaminations, reissues, extensions or patent
term extensions of any such patents.
1. United States Patent Numbers 5,585,089, 5,693,761, 5,693,762, and U.S.
patent divisional application numbers 08/477,728, 08/474,040 and 08/487,200 of
issued United States Patent No. 5,530,101.
2. European Patent 0451216
3. Japanese Patent application No. 4-503758
29
<PAGE>
APPENDIX C
TECHNOLOGY TO BE PROVIDED BY BIOGEN
*
30
<PAGE>
*
31
<PAGE>
FAX TRANSMISSION
To: Dr. Linda Burkly
Biogen, Inc.
Date: December 11, 1996
From: Keith A. Reimann
Division of Viral Pathogenesis
Department of Medicine
Beth Israel Hospital - RE-113
330 Brookline Avenue
Boston, MA 02215
Phone- 617-667-4583
Fax 617-667-8210
E-mail [email protected]
Re: Hu5A8 IN VIVO summary
*
<PAGE>
*
EXHIBIT 10.14
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
CONFIDENTIAL
TANOX BIOSYSTEMS, INC.
OUTLINE OF TERMS FOR SETTLEMENT OF THE LITIGATIONS
AMONG GENENTECH INC., GENENTECH INTERNATIONAL LIMITED
TANOX BIOSYSTEMS, INC.
AND CIBA-GEIGY LIMITED
RELATING TO ANTI-IgE INHIBITING MONOCLONAL ANTIBODIES
In 1993 Tanox sued Genentech * in the context of anti-IgE-antibody projects
to which both companies are committed. Genentech then sued Tanox and, later
on Ciba for infringement of Genentech's * patent by their anti-IgE and
anti-HIV monoclonal antibody projects. Ciba and Tanox filed a counterclaim
for invalidation of said patent. Tanox has further filed certain patent
applications on which some patent rights have already been granted which
may extend to Genentech's anti-IgE substance, although Genentech does not
agree that they do. Now the parties are willing to settle a11 their pending
litigations including potential future disputes regarding anti-IgE
antibodies on the basis of the following principles:
1. MERGER OF ANTI-IgE PROJECTS
The anti-IgE-antibody projects of Genentech on the one side and Ciba/Tanox
on the other side shall be merged, but Genentech and Ciba/Tanox will
continue to take their respective anti-IgE antibodies through Phase II
clinical trials currently in progress or planned to be performed during
1996. Based upon the results of these trials and other relevant
considerations Genentech, Tanox and Ciba shall jointly discuss and decide
by June 1, 1997 at the latest which of the anti-IgE antibodies shall be
taken up in Phase III trials, be developed for additional indications (if
any), be submitted for marketing authorization and be commercialized as a
pharmaceutical product ("anti-IgE Product"). The final Agreement(s) as
referred to in Section 8.2 shall provide for procedures in case of a
disagreement between the parties. All development activities shall be
supervised by a Steering Committee on which each party is represented. The
merging of each party's anti-IgE-antibody projects and the development and
commercialization thereof according to this Outline of Terms shall extend
to all IgE inhibiting antibodies (including fractions or derivatives
thereof) which have been identified and synthesized by either party hereto
*.
<PAGE>
-2 -
2. SHARING OF DEVELOPMENT COST
All development activities for the anti-IgE Project/Product including such
things as the manufacture of the clinical material, the conduct of clinical
trials, the development of the process to make anti-IgE antibodies and
required supporting activities/services and fees which are necessary for
obtaining the NDA in the USA and the marketing authorization(s) in Europe
shall be pooled between Genentech and Ciba. This cost pooling shall
commence as of the date on which the selection of the anti-IgE Product for
further development has been made (the "Selection Date").
These pooled costs shall be allocated to the US development cost account on
the one side and the Europe development cost account on the other side on a
pro rata basis to be agreed upon according to the prospective sales
potential for the anti-IgE Product in each of the two territories.
The development cost allocated to the US shall be shared between Ciba and
Genentech in the ratio of *, whereas the development cost for Europe
-- subject to Section 11 hereafter shall be borne as to * by Ciba and as
to * by Genentech.
Any additional development cost required for the commercialization of the
anti-IgE Product in territories outside the US and Europe shall be borne
exclusively by Ciba/Tanox according to the Development and Licensing
Agreement between Tanox and Ciba dated May 11, 1990, and the amendment
thereto relating to the territories of Taiwan, Korea, Singapore, China and
Hong Kong (the "D&L Agreement"), subject to additional cost obligations for
Japan which may arise according to Section 11 hereafter.
3. COMMERCIALIZATION
3.1 The anti-IgE Product shall be commercialized in the US under one brand
under a co-promotion scheme by Ciba and Genentech to be further elaborated
and agreed upon. In lieu of Tanox's right under the D&L Agreement to
participate in such co-promotion in the US, Tanox will be entitled to the
payments set forth in Section 5.1 hereafter.
All the cost for the manufacturing/purchase of anti-IgE Product and all the
cost for its marketing and sale in the US including all supporting and
auxiliary activities and royalties to third parties (if any) shall be
shared between Ciba and Genentech on a * basis.
<PAGE>
-3-
All the net profIts from the commercialization of the anti-IgE Product in
the US shall be shared between Ciba and Genentech on a * basis.
3.2 The anti-IgE Product shall be commercialized in Europe exclusively by Ciba,
subject to Section 11 hereafter.
All the cost for the manufacturing/purchase of the anti-IgE Product and
all the cost for its marketing and sale including all supporting activities
and royalties to Tanox on the one hand and third parties (if any) and all
the net profits from the commercialization of the anti-IgE Product in
Europe shall be shared between Ciba and Genentech on the basis of *
(Ciba): * (Genentech).
3.3 In all countries in the world other than US and Europe, Ciba shall have
exclusive rights for the commercialization of the anti-IgE Product, subject
to certain rights which Tanox has in Taiwan, Korea, Singapore, China and
Hong Kong according to a separate agreement and the rights for Japan as set
out in Section 11 hereafter. No specific compensation shall be due to
Genentech by Ciba for these rights.
4. MANUFACTURE
Ciba and Genentech together with Tanox (to the extent they are exercising
their rights of co-manufacturing) shall share in the responsibility for
assuring adequate product supply necessary for commercialization of the
anti-IgE Product. Genentech shall, on request of Ciba, manufacture the
jointly selected anti-IgE Product up to a quantity of * of the anti-IgE
antibody per year and shall sell the anti-IgE Product to the appropriate
selling organizations in the US, Europe and the rest of the world at a
price equal to the full manufacturing cost as defined in the Appendix
hereto, plus an uplift of *. The parties also shall consider and, as
appropriate, reach agreement on plans to assure adequate product supply in
the event such * quantity is insufficient to meet projections for product
requirements reasonably established by mutual agreement of the parties. The
parties acknowledge that such manufacturing by Genentech and any
manufacturing by Ciba shall be subject to Tanox's co-manufacturing rights
under the D&L Agreement and the terms of a manufacturing and supply
agreement to be negotiated between Tanox and the purchasing party in the
manner contemplated by the D&L Agreement. Tanox agrees to waive its rights
to compensation for relinquishing its rights under the D&L Agreement to
manufacture * of such * which may be manufactured by Genentech, but Tanox
does not waive its right prospectively to exercise its co-manufacturing
rights. If Genentech terminates its cooperation hereunder, it shall
continue to be bound by the above supply obligation for a reasonable period
of time to establish an alternative
<PAGE>
-4-
supply source for the anti-IgE Product, such period to be mutually agreed
upon in the Definitive Agreement.
The manufacturing price paid to Genentech shall constitute a cost element
in the calculation of the cost/net profit to be shared according to Sec.
3.1 paragraphs 2 and 3 and Sec. 3.2 paragraph 2.
In the event that there should not be enough anti-IgE Products available
to meet the requirements of the different markets the available quantities
shall be allocated pro rata to the respective potential in these markets.
5. ROYALTIES AND MILESTONE PAYMENTS TO TANOX
5.1 Tanox is entitled to a royalty on the net sales of the anti-IgE product in
the USA, as set out in the D&L Agreement, which amounts to * of such US
net sales (or * if there is no valid Tanox patent), plus (i) * on *
of such US net sales, payable by Genentech, and (ii) * of Ciba's net
profits from the commercialization of the anti-IgE Product in the US,
payable by Ciba.
5.2 For the sales of the anti-IgE Product in Europe and the rest of the world,
Tanox shall be paid the royalties specified in the D&L Agreement.
5.3 The milestone payments payable to Tanox specified in the D&L Agreement
shall become due regardless of whether the anti-IgE Product selected
originates from Tanox or Genentech and, except for payments due for NDA/PLA
submission and approval in Japan, shall be included in the cost to be
shared according to Section 2 above.
5.4 Payments made to Tanox in connection with development activities undertaken
by Tanox for the anti-IgE Project/Product after the Selection Date shall be
included in the cost to be shared according to Section 2 above. The parties
acknowledge and agree that for 1996 the already approved Tanox budget will
continue. For 1997 the Tanox budget will be similar to that of 1996, unless
Genentech, Tanox and Ciba conclude that activities at Tanox for 1997 would
result in a significant reduction of Tanox's 1997 budget. In such event
Ciba, Genentech and Tanox will negotiate in good faith an appropriate
payment in addition to such reduced budget covering Tanox's reasonable cost
for phase-out of its activities. Such payment, however, shall not exceed
* of the budget calculated for the last full 12 months prior to the
Selection Date. For subsequent years thereafter, development activities
which should be undertaken by Tanox so as to maintain its active
involvement will be agreed by Ciba, Genentech and Tanox and a Tanox budget
will be submitted for approval in accordance with current procedures.
<PAGE>
-5-
6. LICENSES
Each party hereto shall grant to the other party any and all licenses
and/or sublicenses (to the extent possible and subject to payment of the
appropriate royalty or other payment amount due to third parties, such
payment to be borne or shared by the parties as otherwise provided herein,
or if not provided herein, then only if the party sublicensed pays such
royalty or amount) under their respective present and future patent rights,
other intellectual property rights, licenses, know-how, technology, cell
lines, materials, etc. they own and/or control to the extent they are
required for or are to be used by the parties as jointly agreed for the
development, manufacture, use and sale of the anti-IgE Product. No other
compensations for these licenses shall be due than those set out in this
outline.
Each party hereto represents that it does not have knowledge of any such
rights that it currently owns and to which it currently has a license which
cannot be made accessible to the other parties hereto.
To the extent any such rights of a party are not licensable or
sublicensable such party shall take reasonable actions to permit the
commercialization of the anti-IgE Product on a reasonable basis in the
light of the restrictions to which it is subject.
7. SETTLEMENT
7.1 The parties hereto shall dismiss all claims filed in the lawsuits against
each Genentech and F. Hoffmann-La Roche Ltd. and its three affiliates
concerned on the one side and Ciba and Tanox on the other side pending and
consolidated with the US District Court for the Southern District of Texas,
Houston Division (the "Litigation").
7.2 Except as may be otherwise agreed between some of the parties hereto, each
party shall bear all cost and expenditure incurred by it under or in
connection with the above lawsuits.
8. CONDITIONS PRECEDENT
8.1 The parties are aware that the envisaged terms of settlement set out herein
might need clearance by the relevant authorities and agree to cooperate via
their internal and external experts in this respect.
<PAGE>
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8.2 The parties shall negotiate in good faith and enter into (a) detailed
agreement(s) (the "Detailed Agreement") implementing and completing the
terms outlined herein within 6 months from the execution of this Outline.
9. PUBLICATIONS
Unless otherwise agreed in advance in writing among all parties hereto,
none of the parties hereto shall directly or indirectly make any public
statement, press release or give any information to the public about this
Outline of Terms and the Detailed Agreement to be entered into pursuant
hereto. However, this restriction shall not apply to disclosure of
information which the parties acknowledge will be set forth in press
release with agreed upon text and release date and time, to be prepared
following execution of the Outline of Terms, and to statements,
information, or announcements required by law, regulation or administrative
action to be disclosed including disclosure to (prospective) investors in
the securities of a party. In such event, the parties shall promptly
coordinate to the extent possible, the wording of any such disclosures.
This restriction on publication shall not be applicable to disclosures made
to third parties who are subject to non-disclosure or confidentiality
obligations.
10. CONFIDENTIALITY
10.1 Any information and data disclosed by a party to another party hereto (the
"Receiving Party" in the context of the selection, development and
commercialization of the anti-IgE Product shall be kept strictly
confidential by the Receiving Party, shall not be disclosed to any third
party by the Receiving Party and shall not be used by the Receiving Party
for any purpose other than those contemplated under this Outline of Terms,
the D&L Agreement and the Detailed Agreement.
10.2 The obligations set out in Section 10.1 above shall not apply to
information and data of which the receiving party can show that it:
(i) is or has become generally available to the public otherwise than
through violation of the obligation set out in Section 10.1 above;
(ii) has been received from a third party who did not acquire it directly
or indirectly from the disclosing party.
Notwithstanding the above, the parties may disclose such information (a) to
the extent as required to be disclosed to comply with applicable laws, to
defend or
<PAGE>
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prosecute litigation or to comply with governmental regulations including
disclosure to {prospective) investors in the securities of a party,
provided that the receiving party provides prior written notice of such
disclosure to the disclosing party and takes reasonable and lawful actions
to avoid and/or minimize the degree of such disclosure, and (b) to their
legal representatives, to affiliates and their legal representatives, and
to consultants to the extent such disclosure is intended to further the
purposes contemplated under this Outline of Terms, the D&L Agreement, and
the Detailed Agreement, provided such legal representatives, affiliates and
consultants are covered by obligations of confidentiality with respect to
such information no less stringent than those set forth herein, and to
further (c) in connection with publications, lectures, seminars or other
presentations with respect to which all parties hereto have agreed in
advance in writing.
11. RIGHTS RESERVED TO ROCHE
11.1 The parties acknowledge that Genentech is a party to certain agreements
with F. Hoffman-La Roche Ltd. and certain of its affiliates (collectively,
"Roche") under which Roche has certain rights to products being developed
by Genentech ("G/R Agreements"). In the event Roche exercises its rights
under the G/R Agreements, Genentech and Roche have requested that certain
rights to participate in the commercialization of the anti-IgE Product be
reserved to Roche. Subject to receipt by Ciba and Tanox of a joint
notification by Roche and Genentech of Roche's exercise of rights under the
G/R Agreements and to its joinder in this Outiine of Terms and the Detailed
Agreement implementing and completing the terms outlined herein, the
parties agree to reserve for Roche's benefit certain rights to participate
in commercialization of the anti-IgE Product in Europe and Japan as set
forth in this Section 11.
11.2 For Europe and Japan, Roche shall have an option to participate in the
commercialization of the anti-IgE Product according to the following terms:
Roche's option, which shall be established and may be exercised on a
country-by-country basis, will be subject to the anti-IgE Product having a
significant "general practitioner potential" ("GP potential") in each
country. The GP potential of the anti-IgE Product is characterized in
particular by the following (cumulative) criteria: (i) clinical activity in
patients with mild to moderate allergic asthma and/or allergic rhinitis is
demonstrated; (ii) a patient friendly formulation (e.g. inhalation device
or pen for autoinjection); {iii) safety profile of the Product and its
application is adequate for self-administration; (iv) dose level and cost
for the galenical formulation and/or a device, such as to permit pricing
accepted for reimbursement by social security schemes in the respective
country with a sufficient gross margin to support the business case for
co-promotion.
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The envisaged commercialization scheme in Europe would be a co-promotion by
Roche of the anti-IgE Product sold by Ciba wherever legally possible and,
in those countries in Europe where no co-promotion is possible, each of
Ciba and Roche may market and sell the anti-IgE Product under different
trademarks on its own. The commercial terms and conditions e.g. modus of
exercising of the option (until submission of marketing authorization to
the competent authorities at the latest), time and manner in which
reimbursement/sharing of development costs will occur, and manner in which
co-promotion sales will be attributed to each party, etc., will be part of
the detailed agreement(s) referenced in Section 8.2. It is understood,
however, that each Ciba and Roche should be able to make bookings of sales
in the same order of magnitude.
11.3 For each country in Europe in which Roche exercises its option, Ciba agrees
to share profits on a * basis under a co-promotion scheme, subject also
to a * sharing of all development and commercialization costs as
provided in Sections 2 and 3 above, in lieu of the * cost and profit
sharing for Europe otherwise provided in such Sections 2 and 3. For any
country in Europe in which Roche chooses not to exercise its option, the
cost and profit sharing ratios will continue to be * between Ciba and
Genentech, as set out in Section 3.2 paragraph 2 above. In case of a
co-marketing in a country Ciba and Roche shall negotiate in good faith the
terms and conditions of such co-marketing in that country on the basis of a
* sharing of the pertaining development cost, but, with respect to that
country no sharing of marketing cost nor profit sharing neither between the
co-marketing parties nor according to sections 2 and 3 above shall apply.
If Roche exercises its option hereunder only for a limited number but not
for all countries in Europe, then the costs to be shared in each country in
which Roche exercises its option(s) will be based on a allocation of all
development and commercialization costs attributable to Europe on a pro
rata basis to each such country in a manner to be agreed upon according to
the prospective sales potential for the anti-IgE Product in each of the
countries in Europe. Profits for each such country will be based on total
sales revenues for the anti-IgE Product in each such country.
11.4 At the time Roche exercises its option for any country in Europe, Roche and
Genentech shall notify Ciba of their agreement regarding which of them will
be responsible for the costs to be shared or whether each will share a
portion thereof and regarding the manner in which they will participate in
the profits to be shared. Such notice will be accompanied by payment of an
amount sufficient to reduce Ciba's share in those costs already shared on a
* basis to *.
11.5 In Japan, subject to Roche's participation in co-development of the
anti-IgE Product for Japan, Roche shall have an option to market and sell
the approved anti-IgE Product on its own under a different trademark. To
maintain its rights for Japan hereunder, Roche shall have twelve (12)
months from the date of execution of this Outline of Terms in which to
notify Ciba and Tanox of its
<PAGE>
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election to participate in the development of the anti-IgE Product for
Japan. At such time as Roche notifies Ciba of such election, Roche shall be
obligated to reimburse Ciba for * of all development costs incurred by
Ciba for development in Japan since the Selection Date and Roche shall be
entitled immediately to participate with Ciba/Tanox in the development
activities in Japan on the basis of a * sharing of development cost
including the milestone payments to Tanox due on filing and grant of
NDA/PLA in Japan, as specified in the D&L Agreement. In the event that it
should become evident that "the anti-IgE Product has no GP Potential in
Japan, contrary to prior expectations, Ciba and/or Roche may chose to
terminated the joint development in Japan, and Ciba shall retain all
further rights to development and commercialization of the anti-IgE Product
in Japan against reimbursement of Roche's development cost including
milestone payment, if any incurred.
11.6 The parties acknowledge that the detailed agreement(s) contemplated under
Section 8.2 will contain provisions which complete and implement the terms
outlined in this Section 11. The parties agree that Roche may participate
in negotiations relating to such provisions whether or not Roche has
exercised its rights under the G/R Agreements so that Roche will have the
opportunity to participate in establishing the detailed terms governing the
rights reserved to Roche hereunder.
12. EARLY TERMINATION
Genentech may terminate the cooperation hereunder at any time during the
development of the Anti-IgE Product by giving 120 days prior notice to Ciba
and Tanox and paying all amounts due hereunder up to such termination date.
If Genentech terminates its cooperation hereunder, Roche shall have the
option exercisable for a period of 30 days after Genentech's termination,
to assume all of Genentech's rights and obligations hereunder. If Roche
does not exercise such option, all of Genentech's rights under this
cooperation, except for rights with respect to which Roche has exercised
its options under Section 11, shall revert to Ciba, which shall be entitled
to continue the development and to commercialize the Anti-IgE Product on
its own or with Roche, as the case may be, without further compensation to
Genentech, and which shall assume Genentech's obligations hereunder.
Ciba may terminate the cooperation hereunder at any time during the
development of the Anti-IgE Product by giving 120 days prior notice to
Genentech and Tanox and paying all amounts due hereunder up to such
termination date. Such notice also shall act as notice to Tanox of Ciba's
termination of the D&L Agreement In such event, subject to the rights of
the parties hereunder, the termination
<PAGE>
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provisions of the D&L Agreement shall govern such termination. Genentech
and, as applicable, Roche shall be entitled to continue development in the
U.S., Europe and Japan, as the case may be, in Ciba's stead, subject to
assuming Ciba's obligations hereunder, and to reimbursing Tanox for any
compensation which may be payable by Tanox to Ciba as a result of such
termination. Tanox shall have and retain exclusive rights for the
commercialization of the Anti-IgE Product in all other countries in the
world.
13. BINDING NATURE
The contents of this Outline of Terms represent the bona fide intent of the
parties. The parties hereto shall use all reasonable effort to complete the
final agreement(s) as referred to in Section 8.2 above as soon as
reasonably practicable. It is understood, however, that unless and until
the said formal agreement(s) is/are completed and entered into the parties
(including their legal successors) shall be legally bound by and shall
operate under the terms reflected in the present Outline of Terms, which
shall be governed by the laws of the State of New York without regard to
conflict of law principles.
TANOX BIOSYSTEMS INC.: Date: July 8, 1996
By: /s/ David Anderson
David Anderson
Executive Vice President
GENENTECH INC.: Date: July 8, 1996
/s/ ILLEGIBLE
GENENTECH INTERNATIONAL LIMITED: Date: July 8, 1996
/s/ ILLEGIBLE
CIBA-GEIGY LIMITED: Date: July 6, 1996
Dr. Herbert Gut Dr. H. F. Mohr
Senior Division Counsel Head of
Pharma Licensing
<PAGE>
APPENDIX TO OUTLINE OF TERMS
DEFINITION OF FULLY BURDENED MANUFACTURING COST
Genentech's Fully Burdened Manufacturing Cost shall mean:
(a) the actual direct cost associated with the manufacture of the Anti-IgE
Product. i.e. direct material cost, direct labor cost, direct equipment
cost, direct facility expense, direct quality control expense, direct
energy cost, direct environmental expense, provided, however, that such
actual direct cost shall not include cost associated with idle plant
capacity, plus
(b) an allocation of Genentech's overhead cost associated with such
manufacture, up to a maximum of fifty percent of the actual price cost,
which allocation for manufacturing overhead shall be made in accordance
with U.S. Generally accepted cost accounting principles consistently
applied by Genentech across all similar pharmaceutical manufacture
operations, plus
(c) Genentech's allocable intellectual property acquisition, licensing and
royalty cost paid to third parties (except Tanox) upon the sale of Anti-IgE
Products to third parties, plus
(d) any other costs borne by Genentech for transport, customs clearance and
storage of Anti-IgE Product, to the extent necessary (i.e. freight, duty,
insurance and warehousing).
EXHIBIT 10.15
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
CONFIDENTIAL
TANOX BIOSYSTEMS, INC.
SUPPLEMENTAL AGREEMENT
Tanox and Ciba currently are engaged in settling certain litigation with
Genentech and Roche. In connection with the settlement of such litigation,
Tanox, Ciba and Genentech (and possibly certain Roche entities) have entered
Into an agreement (the "Multiparty Transaction" under which Genentech merges its
anti-IgE antibody project with the anti-IgE antibody project of Tanox/Ciba which
is being pursued under a Development and License Agreement between Tanox and
Ciba dated May 11, 1990 (the "D&L Agreement").
Tanox and Ciba also are party to a Loan Agreement dated effective December 13,
1994, pursuant to which Ciba has agreed to loan * for the construction,
validation, and start-up of a mammalian cell culture pilot manufacturing
facility located in Houston, Texas (the "Pilot Plant").
To further facilitate the cooperation between them in connection with the
Multiparty Transaction and the development of the respective anti-IgE antibody
product ("Anti-IgE Product") project, Tanox and Ciba intend to enter into an
agreement which modifies and amends their agreements to the extent of the
provisions set forth below.
1.0 DEVELOPMENT IN CERTAIN FAR EAST COUNTRIES
1.1 MERGER OF RIGHTS IN EA COUNTRIES. Pursuant to the D & L Agreement,
Tanox has retained certain commercialization rights for the Anti-IgE
Product in the territories of Taiwan, Hong Kong, Singapore, China and Korea
(the "EA Countries"). Ciba also has certain commercialization rights for
Anti-IgE Product in such EA Countries. As part of this Addendum to the D &
L Agreement, Tanox and Ciba agree to merge their rights in the EA Countries
into a combined development and commercialization program for the Anti-IgE
Product, *.
1.2 TANOX DEVELOPMENT COMPANY. The parties acknowledge that all or a
portion of Tanox's rights and responsibilities for development and
commercialization of the Anti-IgE Product in the EA Countries may be
undertaken by (a) company(ies) formed by Tanox for such purpose ("EA
Company"), which may be financed in part by third parties as shareholders
and in which Tanox shall have the control, i.a. by having a majority of the
voting rights as shareholder.
1.3 DEVELOPMENT AND COMMERCIALIZATION ACTIVITIES. The parties shall
cooperate fully in connection with the development and commercialization of
the Anti-IgE Product. Tanox shall assume primary responsibility in
coordination with the Steering Committee (as defined in the D & L
Agreement) for pursuing any additional
<PAGE>
Supplemental Agreement
June 10, 1996
Page 2
development activities in the EA Countries which may be necessary or
beneficial in connection with obtaining product registration and marketing
approval in such countries. Ciba shall have the right to market and sell
the Anti-IgE Product following marketing approval. Tanox shall have the
right to supply product to the EA Countries at cost from its pilot facility
in Houston, Texas, and/or from a facility owned and operated by the EA
Company. To the extent Tanox is unable to supply all the product which may
be required for the EA Countries, such product also may be purchased from
Genentech or supplied by Ciba, as applicable.
1.4 COST AND PROFIT SHARING. *
2.0 REIMBURSEMENT OF CIBA'S PATENT LITIGATION COSTS
2.1 REIMBURSABLE COSTS. Tanox agrees that it will reimburse Ciba in the
manner agreed below for * of its ex-pocket expenditures for
attorneys' fees and expenses, document discovery, and compensation for
expert's opinions which are directly related to Ciba's defense of
Genentech's patent claims against it for infringement of the U.S. "Cabilly"
patent and/or Ciba's counterclaims against Genentech for invalidation of
such patent. Ciba agrees that reimbursable ex-pocket expenditures shall not
include any expenditures which have been incurred by Ciba following
February 15, 1996, and shall not include any expenditures relating to
representation of Ciba's interests outside the scope of the patent claims
and counterclaims as defined above, including, without limitation, any
attorneys' fees incurred in connection with representation of Ciba in the
multiparty settlement discussions or bilateral discussions between Tanox
and Ciba.
2.2 DOCUMENTATION. Promptly following execution of the agreement
contemplated hereby, Ciba agrees to submit copies to Tanox of appropriate
invoices or other documentation for such ex-pocket expenditures to be
claimed for reimbursement hereunder so that Tanox can confirm that all such
charges are
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Supplemental Agreement
June 10, 1996
Page 3
properly within the scope of the ex-pocket expenditures agreed to be
reimbursable hereunder.
2.3 REIMBURSEMENT BY OFFSET. All amounts due Ciba hereunder shall be paid
solely by Ciba's offset of such amounts against royalties payable to Tanox
by Ciba under the D & L Agreement or which are attributable to Ciba based
on its profit sharing ratios under the Multiparty Transaction.
3.0 LOAN REPAYMENT OBLIGATION
3.1 EFFECTIVENESS OF PROVISIONS. If the Multiparty Transaction is
concluded, then as of such date, repayment of that certain * loan ("Loan")
from Ciba to Tanox for construction, validation and start-up of the Pilot
Plant shall be governed by the provisions of this Paragraph 3.
3.2 UTILIZATION OF FACILITY. The parties agree that (i) if Genentech's
anti-IgE antibody is selected for development as of the Selection Date, as
defined in the Outline of Terms entered into in connection with the
Multiparty Transaction or (ii) if the parties to the Outline of Terms
otherwise determine that activities currently contemplated for the Pilot
Plant should be shifted to Genentech in whole or in part in connection with
its agreement, on Ciba's request, to undertake commercial production of up
to * of Anti-IgE Product, then Tanox shall have 120 days from receipt of
written notice of the occurrence of either such event to notify Ciba of its
intent to pursue one of the following alternatives:
(a) Tanox may notify Ciba that it has decided to shut down the Pilot Plant
and terminate production activities effective as of a date mutually
agreeable to the parties ("Shut-down Date"), subject to reactivation,
as Tanox may wish, within * from the Shut-down Date (however, Tanox
can continue to perform routine maintenance activities at its cost
beneficial to reactivation of the facility); or
(b) Tanox may notify Ciba that it has decided to continue operation of the
Pilot Plant at its own commercial and technical responsibility, in
which case such decision shall become effective immediately on Ciba's
receipt of such notice ("Continuation Date")
3.3 SHUT-DOWN ALTERNATIVE. If Tanox has notified Ciba that it has decided
to shut down the Pilot Plant, subject to reactivation as provided
hereinafter, then at the expiration * from the Shut-down Date or on
satisfaction of Tanox's obligations to Ciba following the Disposal
Date, as hereinafter defined, whichever is the first to occur, Ciba
shall forgive, without further
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Supplemental Agreement
June 10, 1996
Page 4
action on its part, the principal balance and accrued interest
remaining outstanding on the Loan at such time. Thereafter, Tanox
shall have no further obligations under the Loan. During such
five-year period, if Tanox should sell or otherwise dispose of the
Pilot Plant (the "Disposal Date", then Tanox shall be obligated to pay
to Ciba, in reduction of the outstanding principal and any unforgiven
interest, the proceeds from such disposal net of all reasonable costs
accrued during such period in connection with the maintenance of the
shut-down Pilot Plant. Tanox shall pay such net proceeds to Ciba
within 90 days following the Disposal Date. During such five-year
period, if Tanox should decide to reactivate the Pilot Plant for
production activities, then the provisions of Paragraph 3.4 below
shall immediately become effective.
3.4 CONTINUATION ALTERNATIVE. If Tanox has notified Ciba that it has
decided to continue operation of (or reactivate, as the case may be)
the Pilot Plant, then Tanox will be obligated at the end of each
calendar year, beginning as of the first year end following the
Continuation Date (or date of reactivation), to account for the
operations of the Pilot Plant and determine Net Cash Flow available
from operations as defined in Paragraph 3.5 below. On or before March
31 of the succeeding year, Tanox will be obligated to *.
3.5 ACCOUNTING FOR THE PILOT PLANT. At the end of each calendar year
during which Pilot Plant operations are continued or reactivated, the
Pilot Plant's Net Cash Flow will be computed and any payments required
under Paragraph 3.4 above will be made on or before March 31 of the
succeeding year. Net Cash Flow for purposes of this agreement will be
the Pilot Plant's "net cash provided from operating activities" (as
illustrated in SFAS No.95), *
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Supplemental Agreement
June 10, 1996
Page 5
*. Allocable costs to the Pilot Plant shall be apportioned in a manner
consistent with GAAP and Tanox's normal practices, which have been
reviewed in connection with the preparation of Tanox's annual audited
financial statements.
3.6 INTEREST EXPENSE. As set out in the Loan Agreement, interest shall
begin as of the Commencement Date (as defined in the Loan Agreement)
for the Pilot Plant. If the Pilot Plant is shut down, then at the end
of each calendar year in which the Pilot Plant remains shut down
(provided no disposal has occurred), *.
The contents of this supplemental agreement represent the bona fide intent of
the parties who shall negotiate and enter into a more detailed agreement in
line with the provisions set forth above.
Ciba-Geigy Limited Tanox Biosystems, Inc.
By: H. F. MOHR By: DAVID ANDERSON
Name: Dr. H. F. Mohr Name: David Anderson
Title: Head Pharma Licensing Title: Executive Vice President
Date: Date: July 8, 1996
By: HERBERT GUT
Name: Dr. Herbert Gut
TItle: Senior Division Counsel
Date: July 6, 1996
EXHIBIT 10.16
SETTLEMENT AND CROSS-LICENSING AGREEMENT
This Settlement and Cross-Licensing Agreement ("Agreement") is entered into
effective as of July 8, 1996 ("Effective Date") between Tanox Biosystems, Inc.,
a Texas corporation, with its principal offices at 10301 Stella Link, Houston,
Texas 77025 ("Tanox") and Genentech, Inc., a Delaware corporation, with its
principal offices at 460 Point San Bruno Boulevard, South San Francisco,
California 94080-4990 and Genentech International Limited, a Bermuda
corporation, with its principal offices at Reid House, 31 Church Street,
Hamilton HM 12 Bermuda (the term "Genentech" as used herein shall mean
Genentech, Inc., and/or Genentech International Limited, as appropriate).
Tanox and Genentech, Inc. are parties to a lawsuit, Civil Action No.
H-94-0189, in the United States District Court for the Southern District of
Texas, Houston Division, styled TANOX BIOSYSTEMS, INC. V. GENENTECH, INC. ET AL.
resulting from the consolidation of Civil Action No. H-94-0239, styled TANOX
BIOSYSTEMS, INC. V. GENENTECH, INC., ET AL. with Civil Action No. H-94-0189,
styled GENENTECH, INC. V. TANOX BIOSYSTEMS, INC. (the "Lawsuit"), which they
desire to settle.
Tanox and Genentech, together with Ciba-Geigy, Ltd. ("Ciba"), have also
reached an agreement in principle under which Genentech and Tanox and Ciba would
merge their respective anti-IgE antibody projects and such agreement has been
memorialized in an Outline of Terms (a copy of which is attached hereto as
Exhibit 1), which Tanox, Genentech and Ciba are executing to be effective
simultaneously with this Agreement and which provides for the development and
commercialization of one or more anti-IgE products (the "Multiparty
Transaction").
In addition to their execution of the Outline of Terms, Tanox and Genentech
wish to enter into this agreement to: (i) release and indemnify each other from
and settle all claims which each may have against the other in connection with
the Lawsuit; (ii) license certain patent rights which each of the Parties has
and desires to obtain from the other; and (iii) reflect all other agreements
between the Parties relating to the settlement of the Lawsuit, the Multiparty
Transaction, and the licensing of such patents by each Party to the other.
1
<PAGE>
Therefore, Tanox and Genentech agree as follows:
1.0 DEFINITIONS. In addition to the words otherwise used as defined terms
throughout this Agreement, the words set forth below will have the meanings
indicated when used in this Agreement.
1.1"AFFILIATE" shall mean (i) an organization fifty (50%) percent or more
of the voting stock of which is owned and/or controlled directly or indirectly
by a Party; (ii) an organization which directly or indirectly owns and/or
controls fifty percent (50%) or more of the voting stock of a Party; (iii) an
organization which is directly or indirectly under common control of a Party
through common share holdings; or (iv) an organization as to which a Party can
demonstrate that the operation and management of such organization is under the
control, directly or indirectly, of the Party.
1.2"AGGREGATE ANNUAL NET SALES" shall mean the aggregate of Net Sales
each calendar year for all Genentech Licensed Products.
1.3"ALL CLAIMS" shall mean all existing and future claims, demands, and
causes of action, known or unknown, pending or threatened, for all existing and
future damages and remedies (i) that arise out of or are in any way related to
the Incident and (ii) that were brought, could have been brought, or were sought
to be brought in the Lawsuit. Under this definition, "All Claims" includes but
is not limited to all claims, demands, lawsuits, debts, accounts, covenants,
liens, encumbrances, agreements, actions, counterclaims, cross-actions,
liabilities, obligations, losses, attorney's fees, costs, expenses, remedies,
and causes of action of any nature, whether in contract or in tort, or based
upon fraud or misrepresentation, breach of duty or common law, or arising under
2
<PAGE>
or by virtue of any judicial decision, federal, state or foreign statute or
regulation, for past, present, and future damages, property or economic damage,
and for all other losses and damages of any kind, including BUT NOT LIMITED TO
the following: all actual damages; all exemplary and punitive damages; all
penalties of any kind, including WITHOUT LIMITATION any tax liabilities or
penalties; lost profits or goodwill; consequential damages; damages ensuing from
loss of credit; damages ensuing from breach of the covenant or duty of good
faith and fair dealing; damages ensuing from breach of any federal, state, or
foreign antitrust law; damages ensuing from breaches of confidential and
fiduciary duties; damages ensuing from breach of contract; damages ensuing from
actual or constructive fraud; and prejudgment and postjudgment interest, costs,
and attorney's fees.
1.4"ANTI-IQE ANTIBODY(IES)" shall mean an antibody directed against the
immunoglobulin IgE as an antigen, fragments or conjugates of such antibodies,
and other constructs comprising antibodies which are derived from or contain any
of the above-specified components.
1.5"COMBINATION PRODUCT" shall mean any pharmaceutical formulation or
method or system for use in humans which contains (i) an Anti-IgE Antibody and
(ii) at least one other ingredient or substance which is also Therapeutically
Active or a device that enhances application and use of an Anti-IgE Antibody and
is sold as part of a product or system that contains an Anti-IgE Antibody.
"THERAPEUTICALLY ACTIVE" shall mean biologically active but shall not include
diluent, vehicles or specific adjuvants or any other ingredient or substance
which does not have any, or has only incidental, therapeutic properties when
present alone and is included to aid or enhance the activity of an Anti-IgE
Antibody.
1.6"CONSIDERATION" shall mean the value or benefit to each of the
Parties, respectively, of the licenses, royalties, payments and agreements
contained herein and in the Outline of Terms and all other mutual promises,
covenants, agreements, releases, and representations set forth in this
Agreement.
3
<PAGE>
1.7"CROSS-LICENSE PROVISIONS" shall mean those provisions of this
Agreement set forth in Sections 4.0, 5.0, 6.0 and 7.0.
1.8"FIRST COMMERCIAL SALE" shall mean the date of the first commercial
sale to an independent third party by a Party or its sublicensee of a Licensed
Product in a country following appropriate regulatory approval to sell such
Licensed Product in such country.
1.9"GENENTECH LICENSED PRODUCT" shall mean any pharmaceutical formulation
or product or method or system which contains an Anti-IgE Antibody (excluding
any Anti-IgE Antibody identified and synthesized by Tanox and/or Ciba) and which
is made, used or sold by Genentech or a sublicensee of Genentech hereunder and
which is not a product made, used or sold by Genentech or a sublicensee of
Genentech under the Outline of Terms or Definitive Agreement.
1.10 "GENENTECH NET SALES" shall mean the gross invoiced sales price
charged by Genentech or its sublicensees hereunder for Genentech Licensed
Products in arm's length sales to third parties (excluding sales for clinical
trial purposes), after deduction of the following items, to the extent that such
items were incurred during such calendar quarter with respect to sales of
Genentech Licensed Products hereunder regardless of the calendar quarter in
which such sales were made, are included in the price charged, and do not exceed
reasonable and customary amounts in the market in which such sale occurred:
(i) trade and quantity discounts or rebates;
(ii) credits or allowances given or made for rejection or return of and for
uncollectible amounts on previously sold Genentech Licensed Products or
for retroactive price reductions to distributors holding existing
product inventories to conform to reductions in the price charged for
new purchases of product;
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(iii) any tax or government charge (other than an income tax) levied on the
sale, transportation or delivery of a Genentech Licensed Product and
borne by the seller thereof; and
(iv) any charges for freight or insurance in a CIF (cost, insurance,
freight) sale.
1.11 "GENENTECH PATENTS" shall mean those patents owned in whole or in
part now or in the future by Genentech and those patents to which Genentech has
a license as of the Effective Date or in the future acquires a license and under
which Genentech is free to grant a sublicense to Tanox for a Tanox Licensed
Product, and which contain a Valid Claim covering the manufacture, use or sale
of an Anti-IgE Antibody or a Tanox Licensed Product; provided, however, with
respect to patents to which Genentech is a licensee, Tanox provides notice to
Genentech that it wishes to receive a sublicense and agrees to pay Genentech
such royalties, fees or similar payments that Genentech is obligated to make to
its licensor for the grant of the license or for the manufacture, use or sale of
a Tanox Licensed Product by Tanox or its sublicensee, adjusted as appropriate
for the scope of the sublicense granted.
1.12 "GENENTECH TERRITORY" shall mean every country in the world and the
territories and possessions of each such country, other than South Korea, North
Korea, People's Republic of China, Taiwan, Singapore and Hong Kong.
1.13 "INCIDENT" shall mean the negotiations, beginning in 1989 and ending
in December 1993, between Tanox and Genentech with regard to a potential
collaboration in the identification and development of anti-immunoglobulin E
("anti-IgE") monoclonal antibodies and anti-IgE therapy; the agreements entered
into pursuant to those negotiations, as well as any supplements or amendments to
those agreements ("the
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Collaboration Agreements"), including but not limited to a Confidentiality
Agreement dated (by Tanox) March 29, 1989 and a Biological Material Transfer and
Confidentiality Agreement dated (by Tanox) July 27, 1989; negotiations
concerning the construction and meaning of the Collaboration Agreements; the
performance of the Collaboration Agreements; any interference in the performance
of the Collaboration Agreements; any statements regarding the performance of the
Collaboration Agreements; any acts or events prior to or subsequent to the
negotiation or execution of the Collaboration Agreements that form the basis of
any cause of action alleged in or that could have been alleged in the Lawsuit;
any other matters arising out of the Collaboration Agreements; the use
heretofore by Genentech of information provided by Tanox to Genentech or to any
of Genentech's employees or agents pursuant to the Collaboration Agreements (or
otherwise during the time period of such negotiations 1989 to December 1993);
the solicitation and obtaining of licensing rights heretofore from third parties
in the area of monoclonal antibody research and technology; the research,
development and commercialization of anti-IgE monoclonal antibodies and/or
anti-IgE therapy heretofore; any infringement heretofore of patents rights held
at any time by the Parties to this Agreement regarding recombinant
immunoglobulin preparations and monoclonal antibody identification and
development; and any statements or representations heretofore made by either
Party regarding research, development, and commercialization of anti-IgE
monoclonal antibodies and/or anti-IgE therapy.
1.14 "LICENSED PRODUCT" shall mean either a Genentech Licensed Product or
Tanox Licensed Product, as appropriate.
1.15 "NET SALES" shall mean either Tanox Net Sales or Genentech Net
Sales, as appropriate.
1.16 "OUTLINE OF TERMS" shall mean the agreement between Tanox, Genentech
and Ciba attached hereto as Exhibit 1 which sets forth the basic terms agreed by
such parties with respect to the joint development and commercialization of
Anti-IgE Antibodies and which is intended to be superseded by a definitive
agreement(s) as contemplated by Section 8.2 of the Outline of Terms, which
agreement(s) is referred to as the ("Definitive Agreement").
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1.17 "PARTY" shall mean, when used in the singular, either Tanox or
Genentech, as appropriate, and "PARTIES" shall mean Tanox and Genentech.
1.18 "PERSON" OR "PERSONS" shall include any natural person, as well as
any entity such as a corporation, partnership, proprietorship, or business
association.
1.19 "PIVOTAL CLINICAL TRIAL" shall mean a controlled study in humans of
the efficacy and safety of a Genentech Licensed Product which is prospectively
designed to demonstrate statistically whether that Genentech Licensed Product is
effective for use in a particular indication and is intended to be sufficient,
if successful, (together with other necessary clinical trials) to obtain
approval from the U.S. Food and Drug Administration to sell that Genentech
Licensed Product in the United States. A Pivotal Clinical Trial could include a
Phase II clinical trial appropriately designed to be within this definition
(sometimes referred to as a Phase II/III trial) and would include a Phase III
clinical trial (as such terms are used generally in connection with
identification of clinical trial protocols).
1.20 "PRODUCT LICENSE APPLICATION" shall mean an application, filed with
the U.S. Food and Drug Administration and accepted by that agency for filing,
for the purpose of seeking approval to sell a Genentech Licensed Product in the
United States.
1.21 "TANOX LICENSED PRODUCT" shall mean any pharmaceutical formulation
or product or method or system (i) which contains an Anti-IgE Antibody
identified and synthesized by Tanox and/or Ciba, or (ii) other IgE inhibiting
antibodies within Tanox's MIGIS(R) program, and which, but for the licenses
granted hereunder, would infringe a Valid Claim of a Genentech Patent in the
country in which such formulation, product, method or system is made, used or
sold by Tanox or a sublicensee of Tanox.
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1.22 "TANOX NET SALES" shall mean the gross invoiced sales price charged
by Tanox or its sublicensees hereunder for Tanox Licensed Products in arm's
length sales to third parties (excluding sales for clinical trial purposes),
after deduction of the following items, to the extent that such items were
incurred during such calendar quarter with respect to sales of Tanox Licensed
Products hereunder regardless of the calendar quarter in which such sales were
made, are included in the price charged, and do not exceed reasonable and
customary amounts in the market in which such sale occurred:
(i) trade and quantity discounts or rebates;
(ii) credits or allowances given or made for rejection or return of and for
uncollectible amounts on previously sold Tanox Licensed Products or for
retroactive price reductions to distributors holding existing product
inventories to conform to reductions in the price charged for new
purchases of product;
(iii) any tax or government charge (other than an income tax) levied on the
sale, transportation or delivery of a Tanox Licensed Product and borne
by the seller thereof; and
(iv) any charges for freight or insurance in a CIF (cost, insurance,
freight) sale.
1.23 "TANOX PATENTS" shall mean those patents owned in whole or in part
now or in the future by Tanox and those patents to which Tanox has a license as
of the Effective Date or in the future acquires a license and under which Tanox
is free to grant a sublicense to Genentech for a Genentech Licensed Product, and
which contain a Valid Claim covering the manufacture, use or sale of an Anti-IgE
Antibody or a Genentech Licensed Product; provided, however, with respect to
patents to which Tanox is a licensee, Genentech provides notice to Tanox that it
wishes to receive a sublicense and agrees to pay Tanox such royalties, fees or
similar payments that Tanox is obligated to make to its licensor for the grant
of the license or for the manufacture, use or sale of a Genentech Licensed
Product by Genentech or its sublicensee, adjusted as appropriate for the scope
of the sublicense granted.
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1.24 "VALID CLAIM" shall mean a subsisting claim of an issued and
unexpired patent that has not been held invalid, unpatentable or unenforceable
by a decision of a governmental body or count of competent jurisdiction, that is
unappealable or unappealed within the time allowed for appeal, and that has not
been rendered unenforceable through disclaimer.
2.0 MUTUAL RELEASE, INDEMNIFICATION AND SETTLEMENT AGREEMENT
2.1 DISMISSAL OF LAWSUIT. Tanox and Genentech agree as follows:
(i) Tanox and Genentech will each file motions to dismiss their
respective claims in the Lawsuit against each other, with
prejudice; and
(ii) each of the Parties shall bear its own costs of court
incurred.
2.2 RELEASE OF GENENTECH. For the Consideration, including the
agreements set forth in this Section 2, Tanox hereby RELEASES, ACQUITS, and
FOREVER DISCHARGES Genentech and (i) all of its present or former agents,
employees, officers, directors, shareholders, partners, joint venturers, and
attorneys; (ii) all companies, partnerships, joint ventures, or firms affiliated
with or subsidiary to, Genentech; (iii) its predecessors, successors, and
assigns; (iv) all other persons, partners, joint venturers, firms, partnerships,
joint ventures, and corporations for whose conduct Genentech may be liable; and
(v) all of its insurers from All Claims that have accrued or that may ever
accrue to Tanox or any person or persons now or hereafter claiming by, through,
or under Tanox.
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2.3 RELEASE OF TANOX. For the Consideration, including the agreements
set forth in this Section 2, Genentech RELEASES, ACQUITS, and FOREVER DISCHARGES
Tanox and (i) all of its present or former agents, employees, officers,
directors, shareholders, partners, joint venturers, and attorneys; (ii) all
companies, partnerships, joint ventures, or firms affiliated with or subsidiary
to Tanox; (iii) its predecessors, successors, and assigns; (iv) all other
persons, partners, joint venturers, firms, partnerships, joint ventures, and
corporations for whose conduct Tanox may be liable; and (v) all of its insurers
from All Claims that have accrued or that may ever accrue to Genentech or any
person or persons now or hereafter claiming by, through, or under Genentech.
2.4 NO ADMISSION OF LIABILITY. The payment of any of the
Consideration is not an admission of liability and may not be so construed.
Genentech vigorously denies the position taken by Tanox in the Lawsuit and Tanox
acknowledges the highly disputed nature of its claims in the Lawsuit. Tanox
vigorously denies the position taken by Genentech in the Lawsuit, and Genentech
acknowledges the highly disputed nature of its claims in the Lawsuit. Each Party
acknowledges that this agreement is made as a compromise to avoid further
expense and to terminate for all time the controversies which were asserted,
could have been asserted, or were sought to be asserted in the Lawsuit.
2.5 INDEMNIFICATION BY TANOX. Tanox agrees to INDEMNIFY and to DEFEND
and to HOLD HARMLESS Genentech and (i) all of its present or former agents,
employees, officers, directors, shareholders, partners, joint venturers, and
attorneys; (ii) all companies, partnerships, joint ventures, or firms affiliated
with or subsidiary to, Genentech; (iii) its predecessors, successors, and
assigns; (iv) all other persons, partners, joint venturers, firms, partnerships,
joint ventures, and corporations for whose conduct Genentech may be liable; and
(v) all of its insurers from All Claims, together with all costs, expenses, and
legal fees, that may be asserted against Genentech by any person, entity, firm,
or corporation claiming by, through, or under Tanox, that arise out of the
incident and/or the Lawsuit.
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2.6 INDEMNIFICATION BY GENENTECH. Genentech agrees to INDEMNIFY and
to DEFEND and to HOLD HARMLESS Tanox and (i) all of its present or former
agents, employee, officers, directors, shareholders, partners, joint venturers,
and attorneys; (ii) all companies, partnerships, joint ventures, or firms
affiliated with or subsidiary to Tanox; (iii) its predecessors, successors, and
assigns; (iv) all other persons, partners, joint venturers, firms, partnerships
joint ventures, and corporations for whose conduct Tanox may be liable; and (v)
all of its insurers from All Claims, together with all costs, expenses, and
legal fees, that may be asserted against Tanox by any person, entity, firm, or
corporation claiming by, through, or under Genentech, that arise out of the
Incident and/or the Lawsuit.
2.7 WITHDRAWAL OF OPPOSITION. Genentech agrees that, simultaneously
with the filing of motions of dismissal under Section 2.1 above, it will file
all documents necessary to withdraw its pending opposition in the European
Patent Office to Tanox's patent No. EP-B-407392 relating to Anti-IgE Antibodies.
2.8 EXEMPTION FROM PROTECTIVE ORDER. Notwithstanding the terms of the
protective order agreed in connection with the Lawsuit, the Parties agree that,
except for any persons reasonably excluded by notice from a Party to the other
prior to the execution of this Agreement, the employees, experts and consultants
of a Party having access to information during the course of the Lawsuit will
not be prohibited from participating in ongoing development and
commercialization activities associated with the Anti-IgE Antibody projects of
such Party and/or development and commercialization activities of the Parties
pursuant to the Outline of Terms or Definitive Agreement.
2.9 REPRESENTATIONS OF TANOX. Tanox makes the representations and
warranties to Genentech set forth in Exhibit 2.
2.10 REPRESENTATIONS OF GENENTECH. Genentech makes the
representations and warranties to Tanox set forth in Exhibit 3.
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3.0 EFFECTIVENESS OF CROSS-LICENSE PROVISIONS.
3.1 OUTLINE OF TERMS. Simultaneously with the execution of this
Agreement, the Parties are executing the Outline of Terms. The Outline of Terms
and Definitive Agreement, together with that certain Development and Licensing
agreement dated May 11, 1990, between Tanox and Ciba (the "D & L Agreement"),
shall among them govern the development and commercialization of one or more
Anti-IgE Antibodies which have been identified and synthesized by Tanox, Ciba,
or Genentech before July 1, 1996. The Parties also acknowledge that, contingent
on the occurrence of certain events as set forth in Paragraphs 3.2 through 3.5
below, the Cross-License Provisions shall become effective in lieu of or in
addition to the Outline of Terms and Definitive Agreement. Notwithstanding any
representations and warranties in this Agreement to the contrary, the Parties
acknowledge that in the event of a conflict between this Agreement and the
Outline of Terms and Definitive Agreement, the Outline of Terms and Definitive
Agreement shall prevail * Each Party
agrees that it shall be solely responsible for any claims, damages (including
costs, expenses, and legal fees), or other liabilities of any nature asserted
against it by Ciba or any third party arising out of or in any way resulting
from the grant by Tanox to Genentech of rights hereunder to the Tanox Patents.
Further, Genentech acknowledges that the Outline of Terms does not limit or
prohibit in any way the exercise by Tanox of its rights under the D & L
Agreement with respect to Tanox Licensed Products, except as expressly stated in
the Outline of Terms or Definitive Agreement. Tanox acknowledges that the
Outline of Terms will not extend its independent rights of parallel product
development under the D & L Agreement to Anti-IgE Antibodies identified and
synthesized by Genentech.
3.2 THIRD PARTY ACTIONS. If the Multiparty Transaction requires
approval from any regulatory or governmental authority or agency in the United
States, the European Union or its member countries, any other country in Europe,
or in Japan, or if
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any governmental authority brings any action, formal or informal, against one or
more of the Parties to the Outline of Terms or Definitive Agreement in an effort
to enjoin, preclude, or prevent the Multiparty Transaction in whole or in part
("Government Action"), then the Parties shall meet and consider, in good faith,
how they should lawfully proceed in response to such event. If the Parties have
been unsuccessful either (i) after exhausting all reasonable possibilities which
do not jeopardize the timely commercialization of a Licensed Product or (ii) by
August 1, 1997, whichever is the last to occur, in obtaining any such approval
in any country where such approval is required, or in resolving the Government
Action, as the case may be, then upon notice by one Party to the other, the
Cross-License Provisions shall immediately become effective within any country
or countries in which any such approval has not been or cannot be obtained or
where any Government Action is being pursued.
3.3 TERMINATION OF MULTIPARTY TRANSACTION. If the Outline of
Terms (or the Definitive Agreement if in effect), is terminated at any time,
then upon notice by either Party to the other the Cross-License Provisions shall
immediately become effective.
3.4 ADDITIONAL PRODUCTS. If either Party should at any time
require a license of the type provided by the other Party under the
Cross-License Provisions for a Licensed Product that such Party may lawfully
develop notwithstanding the Multiparty Transaction, then such Party requiring
the license shall provide notice to the other of such requirement and,
immediately upon such notice, the Cross-License Provisions shall become
effective with respect to such Licensed Product.
3.5 MUTUAL AGREEMENT. At any time after the execution of this
Agreement, if the Parties jointly agree in writing that the Cross-License
Provisions should be implemented, then the Cross-License Provisions shall become
effective as provided in such agreement.
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3.6 CROSS-LICENSE DATE. The Cross-License Provisions shall become
effective immediately upon the date the notice required under Sections 3.2, 3.3,
and 3.4, respectively is given in accordance with Section 13.4 ("Cross-License
Date") and shall be effective for the purpose or purposes specified in any such
notice and to the extent set forth in this Agreement.
4.0 LICENSES TO GENENTECH UNDER TANOX PATENTS.
4.1 GRANT OF LICENSE. Effective commencing upon the Cross-License
Date, Tanox grants to Genentech under all Tanox Patents, on a country-by-country
basis in the Genentech Territory, an exclusive, sublicenseable license to the
extent necessary to make, have made, use, sell, have sold and import Genentech
Licensed Products for the treatment, prophylaxis or diagnosis of any disease or
condition in humans; provided, however, that with respect to Genentech Licensed
Products containing an Anti-IgE Antibody identified and synthesized before *,
and/or Tanox Patents issued before *, the foregoing
limitation "to the extent necessary" shall not be applicable.
4.2 ROYALTIES. For the Consideration, including the licenses
granted herein, Genentech shall pay Tanox, on a country-by-country basis, the
following royalties on Net Sales of Genentech Licensed Products by Genentech and
its sublicensees:
(a) for sales in the United States:
(i) a royalty of * of Net Sales of Genentech Licensed Products
covered in the United States by a Valid Claim of a Tanox Patent;
or
(ii) a royalty of * of Net Sales of Genentech Licensed Products
not covered in the United States by a Valid Claim of a Tanox
Patent; and
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(b) for sales in each country in the Genentech Territory by Genentech and
its sublicensees, other than the United States, in which a Genentech
Licensed Product is covered in that country by a Valid Claim of a Tanox
Patent:
(i) a royalty of * of Net Sales of all such Genentech Licensed
Products if the Aggregate Annual Net Sales for all such
countries are * or less; and
(ii) a royalty of * of Net Sales of all such Genentech Licensed
Products if the Aggregate Annual Net Sales for all such
countries are between * and *; and
(iii) a royalty of * of Net Sales of all such Genentech Licensed
Products if the Aggregate Annual Net Sales for all such
countries are greater than *; and
(c) in each country in the Genentech Territory, other than the United
States, where there is no Valid Claim of a Tanox Patent covering a
Genentech Licensed Product, a royalty of * of Net Sales of all such
Genentech Licensed Products.
The foregoing royalties shall be payable in each country until the latter
of (i) a period of * years from First Commercial Sale of a Genentech
Licensed Product in such country or (ii) the expiration of all Valid Claims of
Tanox Patent(s) in such country which a Genentech Licensed Product sold in such
country would infringe but for the licenses granted herein. At such time as
royalties are no longer payable hereunder in a country, the license granted to
Genentech with respect to such country in Section 4.1 shall thereafter be fully
paid up and royalty-free in perpetuity.
Genentech shall be entitled to deduct from the royalties payable with
respect to any country hereunder, * of the aggregate royalties required to be
paid to a third party(s)
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under license(s) entered into after the Effective Date where such royalties are
paid for the manufacture, use or sale of an Anti-IgE Antibody as part of a
Genentech Licensed Product in such country to avoid infringing a Valid Claim of
such third party's patents; provided, that such deduction in any calendar year
shall in no event exceed * of the royalties otherwise payable to
Tanox in such country for that calendar year, except the United States, and, in
the United States, such deduction shall in no event exceed * of
Genentech's Net Sales in a calendar year if a Valid Claim of a Tanox Patent
covers the Genentech Licensed Products in the United States or *
of Genentech's Net Sales in a calendar year if no Valid Claim of a Tanox Patent
covers the Genentech Licensed Products in the United States. For purposes of
computing the deduction permitted hereunder, the percentage royalty payable to
any such third party with respect to which such deduction is permitted shall not
exceed the usual percentage royalty charged by such third party to others or the
royalty charged to Ciba, whichever may be less.
4.3 TANOX EXCLUSIVE TERRITORIES. Genentech agrees that it will not
manufacture or sell a Genentech Licensed Product or provide a Genentech Licensed
Product for sale or knowingly contribute to or assist in the manufacture or sale
of a Genentech Licensed Product in any country outside the Genentech Territory.
5.0 LICENSES TO TANOX.
5.1 GRANT OF LICENSE. As additional consideration for the granting of
the licenses under Section 4.0 by Tanox, effective commencing upon the
Cross-License Date, Genentech grants to Tanox under all Genentech Patents a
nonexclusive, worldwide, sublicensable license to the extent necessary to make,
have made, use, sell, have sold and import Tanox Licensed Products for the
treatment, prophylaxis or diagnosis of any disease or condition in humans and
animals; provided, however, that with respect to Tanox Licensed Products
containing an Anti-IgE Antibody identified and synthesized before *,
and/or Genentech Patents issued before *, the foregoing limitation
"to the extent necessary" shall not be applicable.
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5.2 ROYALTIES. Tanox will pay Genentech such royalties or other
license-related payments as Genentech is obligated to pay to any third party by
virtue of the manufacture, use or sale hereunder of any Tanox Licensed Product
by Tanox or any sublicensee of Tanox in any country pursuant to Section 5.1
above (excluding any royalties due from Ciba to Genentech or any such third
parties under the Outline of Terms or Definitive Agreement); provided, however,
that such royalties or other license-related payments shall be the only payments
required and shall be comprised of, to the extent applicable, (i) * of Net Sales
for Tanox Licensed Products manufactured by or for Tanox and sold or otherwise
transferred by Tanox under a sublicense pursuant to the * Agreement effective as
of * and Genentech, Inc. (for the purposes of this Agreement, Tanox and
Genentech agree that the royalties that Tanox would otherwise pay to Genentech
for a sublicense under * Agreement, but for the provisions of this Section 5.2,
is *; (ii) * of Net Sales under * Patents as those terms are used in the
agreement effective as of * between Genentech, Inc. and *; and (iii) * of Net
Sales under * Patents as those terms are used in the Agreement effective as of *
between Genentech, Inc. and *. To the best of Genentech's knowledge, there are
no other royalty obligations under licenses granted to Genentech existing as the
Effective Date hereof with respect to chimeric or humanized monoclonal Anti-IgE
Antibodies produced in mammalian cell systems which Tanox would be obligated to
pay pursuant to this Section 5.2. and Genentech warrants that it has not
assigned any patent applications it may have pending relating to Anti-IgE
Antibodies to any third party.
6.0 ACCESS TO LICENSES.
6.1 MUTUAL REPRESENTATIONS. Tanox represents to Genentech that it does
not have knowledge of any restrictions existing as of the Effective Date which
would prevent it from granting licenses to the Tanox Patents as provided under
this agreement. Genentech represents to Tanox that it does not have knowledge of
any restrictions existing
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as of the Effective Date which would prevent it from granting licenses to the
Genentech Patents as provided under this agreement. If any Patents of a Party
which would otherwise be included within the licenses granted herein now or in
the future are not licensable or sublicensable under the respective
Cross-License Provisions of this Agreement because of contractual restrictions
to which such Patents are subject, then such Party shall take reasonable actions
in an effort to permit the other Party to secure the benefits of such rights for
the purposes intended herein in light of the restrictions to which it is
subject, including, without limitation, the agreement of each Party not to sue
the other Party for infringement of any such Patents.
6.2 THIRD PARTY LICENSES. If either Party obtains exclusive access for
the allergy field to a patent owned and/or controlled by a third party which is
necessary to make have made, use or sell a Licensed Product, then such Party
will either (i) permit the other Party to obtain co-exclusive rights to such
patent for such field, if possible, or (ii) acquire a license to such patent for
such field free of any restrictions which would limit such Party's right to
sublicense to the other Party as required under this Agreement, including
preservation of such other Party's sublicense rights hereunder.
7.0 ROYALTY PAYMENTS.
7.1 PAYMENT DATES. Royalties payable hereunder shall be paid within 100
days of the end of each calendar quarter for Net Sales for that calendar quarter
(with respect to all uses of "calendar quarter" in this Agreement, the first
calendar quarter in each year ends on March 31, with succeeding calendar
quarters ending each 3 months thereafter). Such payment shall be accompanied by
a statement showing the amount of each Licensed Product sold in each country,
the Net Sales of each Licensed Product in that country's currency in each
country in which Net Sales occurred, the royalties payable in local currency,
the applicable exchange rate as set forth in Section 7.3 below for that
currency, and the royalties payable in U.S. Dollars.
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7.2 RECORDS AND ACCOUNTING. A Party shall keep and require its
sublicensees to keep complete and accurate records of the latest three (3)
calendar years of Net Sales with respect to which a royalty is payable under
this Agreement. The Party receiving royalties shall have the right at its own
expense to have an independent, certified or chartered public accountant,
reasonably acceptable to the Party paying royalties, review the paying Party's
records upon reasonable notice and during reasonable business hours for the
purpose of verifying the payments provided for in this Agreement. This right may
not be exercised more than once for any calendar year with respect to the
records of the paying Party and each of its sublicensees. Should such review
lead to the discovery of an under reporting of royalties due hereunder of
greater than two percent (2%), the Party under reporting such royalties, in
addition to promptly paying the unpaid royalties, shall pay the full cost and
expense of such review, plus interest on such unpaid royalties at the rate of
10% per annum from the date any such under reporting occurred to the day paid.
7.3 CURRENCY OF PAYMENTS. All payments under this Agreement shall be
made in United States Dollars by wire transfer (or such other reasonable means
as the receiving Party may direct) to such bank account as the receiving Party
may designate from time to time. If a wire transfer is to be made, the remitting
Party shall provide notice at least five (5) days prior to the date of transfer
of the amount of payment and the date it is to be received. Such notice should
be given to the Treasurer of the receiving Party at the address set forth at the
beginning of this Agreement or such other address as the receiving Party may
subsequently direct. Any payments due hereunder on sales outside of the United
States shall first be calculated in the currency in which sales took place and
then converted to United States Dollars at the average of the average spot rate
published in the Wall Street Journal for the last business day of each of the
three (3) months of the calendar quarter for which royalties are payable.
If by law, regulation or fiscal policy of a particular country, remittance
of royalties in United States Dollars is restricted or forbidden, notice thereof
will be promptly given to the receiving Party, and payment of the royalty shall
be made by the deposit thereof in local
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currency to the credit of the receiving Party in a recognized banking
institution designated by the receiving Party. When in any country the law or
regulations prohibit both the transmittal and deposit of royalties on sales in
such a country, royalty payments shall be suspended for as long as such a
prohibition is in effect and as soon as such prohibition ceases to be in effect,
all royalties which the paying Party would have been under obligation to
transmit or deposit but for the prohibition, shall forthwith be deposited or
transmitted promptly to the extent allowable. If a Party is required to pay or
withhold any income tax or other tax with respect to royalty payments, such
Party shall first (i) furnish the receiving Party, in writing, with the
satisfactory evidence that such payment or withholding is required, (ii) provide
reasonable assistance in claiming any exemption from any such deduction which
may be available, and (iii) provide satisfactory documentation to confirm the
payment of the tax.
7.4 COMBINATION PRODUCT NET SALES. In determining the Net Sales of
Combination Products, Net Sales shall first be calculated in accordance with the
definition of Net Sales and then multiplied by the percentage value of the
Licensed Product contained in the Combination Product, such percentage value
being the quotient obtained by dividing the current market price of the Licensed
Product by the sum of the separate current market prices of the Licensed Product
and the other ingredients which are Therapeutically Active or the device
contained in the Combination Product. The current market price of each
Therapeutically Active ingredient or the device and of the Licensed Product
shall be for a quantity comparable to that contained in the Combination Product
and of the same class, purity and potency. When no current market price is
available for a Therapeutically Active ingredient or device or a Licensed
Product in a Combination Product, the Party with the Combination Product shall
calculate a commercially reasonable hypothetical market price for such
ingredient or device or Licensed Product, allocating the same proportions of
costs, overhead and profit as are then allocated to all similar substances then
being made and marketed by that Party marketing the Combination Product and
having an ascertainable market price. The current market price shall be
determined with respect to the Licensed Product and other Therapeutically Active
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ingredients or devices in the country in which such sales of Combination
Products occur to the extent practicable. In the event of any dispute regarding
determination of Net Sales for a Combination Product, the Party with such
Combination Product shall pay royalties in accordance with the definition of Net
Sales notwithstanding this Section 7.4 or on such other agreed basis until such
dispute is resolved. Upon resolution of any such dispute, any excess royalties
which may have been paid shall be promptly reimbursed, plus interest on any such
excess royalties at the rate of * per annum from the date any such excess
royalties were paid to the date of reimbursement.
8.0 PAYMENTS TO TANOX. For the Consideration, including settlement of
the Lawsuit, execution of the Outline of Terms, and grant of the licenses by
Tanox herein, Genentech shall pay Tanox the * payment due on execution
of this Agreement and dismissal of the Lawsuit within five (5) days of the
occurrence of such event and the remaining sums set forth on Exhibit 4 hereto
within thirty (30) days of the date upon which each remaining event described on
Exhibit 4 occurs with respect to any Genentech Licensed Product that has been
covered by the claims of a Tanox Patent and/or any anti-IgE Product (as that
term is used in the Outline of Terms) that is subject to the Outline of Terms of
Definitive Agreement. The obligations hereunder are acknowledged to be in
addition to any other obligations of Genentech to Tanox under the Outline of
Terms or Definitive Agreement. With respect to the amounts payable hereunder,
Genentech shall receive a credit of * which shall be applied against
royalties due Tanox hereunder or under the Outline of Terms and Definitive
Agreement at such time as the total annual net sales of Genentech Licensed
Products that have been covered by the claims of a Tanox Patent and anti-IgE
Products sold under the Outline of Terms and Definitive Agreement exceed
*.
9.0 ADDITIONAL LICENSES. In addition to and without limitation of the
license granted to Tanox under Section 5.0, Genentech agrees to grant certain
additional licenses to Tanox as provided herein. Subject to all of Genentech's
existing licenses and existing agreements that restrict Genentech's ability to
grant licenses and subject to the additional
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restrictions set forth below, Genentech agrees to grant to Tanox, *,
except that such products
shall not include those (i) that are the subject of a prior exclusive license by
Genentech to a third party; (ii) that are the subject of an active research or
development program of Genentech or its Affiliates; or (iii) that compete with,
or will compete with, a then current product of Genentech or its Affiliates or a
product in an active research and/or development program of Genentech or its
Affiliates; *. Tanox agrees that to the extent Genentech would deprive
itself of its right to practice the patents thereby, Genentech shall not be
required pursuant hereto to grant sublicense rights to Tanox under those patents
known as the * which are the subject of co-exclusive rights between Genentech
and * with respect to such patents. Except for those patents and
patent applications listed on Exhibit 7, Genentech represents and warrants that
it has no existing patents or patent applications and, except for licenses from
*, is not a licensee of any patents with
claims which cover the * and
agrees that Tanox may rely on this representation and warranty in pursuing the
development and commercialization of such molecules. Notwithstanding the
foregoing restrictions, but expressly subject to certain agreements between
Genentech and *
covering rights to Genentech's patents, Genentech also represents and warrants
that it will grant a *
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*. To the extent that Genentech is a licensee of patents which
are necessary to make, use or sell any Tanox molecule *.
Any license granted to Tanox
pursuant hereto for the patents set forth on Exhibit 5 shall be at a royalty
rate and on other terms to be mutually agreed upon *. If any patents
subject to license or sublicense hereunder have no *,
the Parties agree to negotiate in good faith the royalty rate and terms
on which any such license or sublicense will be granted. Subject to the
limitations set forth above, Tanox may exercise its right to such a license or
sublicense, without threat of suit or penalty from Genentech, with respect to a
product subject to this Section 9.0 * and the
Parties shall then negotiate and execute a license agreement for that product
and the patents subject to this Section 9.0. If Tanox should ever have under
development a product which could be subject to the restrictions on receiving a
license set forth herein, then Genentech or Tanox should notify the other of
such possibility prior to taking any other actions. If the Parties are unable to
resolve the issues prior to the time Tanox files for approval to market such
product in any country, which resolution could include a collaboration or
cross-licensing opportunity or Tanox's express agreement not to manufacture or
market for commercial sale (as such term is used in connection with the
definition of * in a country in which a Valid Claim of
any Genentech patent covering such product may exist, then Genentech shall be
entitled to pursue such legal or other actions as Genentech may determine, in
its sole discretion, to be appropriate under the circumstances.
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10.0 TANOX MANUFACTURING FACILITY. With respect to Tanox's pilot
manufacturing facility in Houston, Texas, if subsequent to the Selection Date,
as defined in the Outline of Terms, such facility is not utilized by Tanox or
Ciba for the manufacture of Anti-IgE Antibodies, Genentech agrees to discuss, in
good faith, a potential arrangement with Tanox for the manufacture of clinical
research material for Genentech in the circumstance where Genentech does not
have sufficient capacity at that time to manufacture its own clinical research
material needs.
11.0 CONFIDENTIALITY. In connection with preparation and during the
term of this Agreement, one Party may disclose to the other or receive from the
other written information relating to the subject matter of this Agreement which
information, if so identified in writing either pursuant to this Section 11.0 or
otherwise upon disclosure, shall be considered to be the disclosing Party's
Confidential Information. Each Party agrees that it will take the same steps to
protect the confidentiality of the other Party's Confidential Information as it
takes to protect its own proprietary and confidential information. Each Party
shall protect and keep confidential and shall not use, publish or otherwise
disclose to any third party, except as permitted by this Agreement (or the
Outline of Terms or Definitive Agreement) or with the other Party's written
consent, the other Party's Confidential Information for a period of five (5)
years from the date of termination of the Cross-Licensing Provisions or for 10
years, whichever is longer. For the purposes of this Agreement, Confidential
Information shall not include such information that (i) was lawfully known to
the receiving Party at the time of disclosure; (ii) was generally available to
the public or was otherwise part of the public domain at the time of disclosure
or became generally available to the public or otherwise part of the public
domain after disclosure other than through any act or omission of the receiving
Party in breach of this Agreement; (iii) became known to the receiving Party
after disclosure from a source that had a lawful right to disclose such
information to others; or (iv) is required to be disclosed by the receiving
Party to comply with applicable laws, to defend or prosecute litigation or to
comply with governmental regulations, provided that the receiving Party provides
prior written notice of such disclosure to the other Party and takes reasonable
and lawful actions to avoid and/or minimize the degree of such disclosure.
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Notwithstanding the above, the Parties may disclose Confidential
Information to their legal representatives, to Affiliates and their legal
representatives, and to consultants (to the extent such disclosure is intended
to further the purposes contemplated under this Agreement) and provided such
legal representatives, Affiliates and consultants have agreed in writing to be
bound to protect the confidentiality of such information in a manner at least as
restrictive as that generally set forth herein.
12.0 TERM: DEFAULT; SURVIVAL.
12.1 TERM. Except as otherwise set forth herein, the
Cross-Licensing Provisions and Sections 9.0 and 10.0 of this Agreement shall
terminate at such time following the First Commercial Sale as royalties are no
longer owed by either Party hereunder in any country in the world.
12.2 TERMINATION. (a) Subject to the simultaneous or prior
termination of its participation in the Outline of Terms and Definitive
Agreement, and all other development and commercialization activities relating
to Anti-IgE Antibodies and Genentech Licensed Products which are subject to this
Agreement and have been covered at any time by a claim of a Tanox Patent,
Genentech may terminate the provisions of Section 4.0, Section 8.0 and Section
9.0 of this Agreement upon thirty days prior written notice to Tanox (but for
Section 9.0, such termination shall be effective only with respect to products
which are not already under development at the time of such termination). Upon
such termination, Roche shall have the option, exercisable for a period of 90
days after Genentech's termination, to assume all of Genentech's rights and
obligations with respect to Anti-IgE Antibodies and Genentech Licensed Products
hereunder. If Roche does not exercise this option by the end of the 90 day
option period, any licenses granted to Genentech by Tanox under Section 4.0 will
immediately terminate, and Genentech shall
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grant Tanox a royalty-free, non-exclusive license under Genentech's Patents,
know how and other technology to make, have made, use, sell, have sold or import
Anti-IgE Antibodies and Genentech Licensed Products existing as of the date of
such termination and which have been covered at any time by a claim of a Tanox
Patent.
In addition, if Genentech terminates this Agreement pursuant to the
foregoing paragraph and Roche does not exercise its option to assume Genentech's
rights and obligations hereunder, Tanox shall have the option for a period of
120 days following the date of termination to acquire from Genentech on mutually
agreeable and commercial reasonably terms Genentech's. Anti-IgE Antibodies and
Genentech Licensed Products existing as of the date of such termination and
which have been covered at any time by a claim of a Tanox Patent, as well as
cell lines producing such materials or substances used in the development and
commercialization of such Antibodies or Products, including data and development
information relating thereto. If Tanox fails to exercise its option and
Genentech thereafter desires to license or sell such Antibodies or Products to a
third party, Genentech shall not license or sell such Antibodies or Products on
terms that are in the aggregate more favorable to such third party than those
terms that Genentech offered to Tanox unless Genentech first offers such
Antibodies or Products to Tanox on such more favorable terms.
Genentech represents and warrants that it does not presently intend to
terminate this Agreement pursuant to this Section 12.2(a) and is not presently
aware of any existing development activities within Genentech or elsewhere which
would give rise to an Anti-IgE Antibody or Genentech Licensed Product which
Genentech would consider developing following a termination pursuant to this
Section 12.2 (a).
(b) Tanox may terminate the provisions of Section 5.0 of this
Agreement upon thirty days prior written notice to Genentech. Upon any such
termination, any licenses granted to Tanox by Genentech thereunder will
immediately terminate.
12.3 DEFAULT. Failure by either Party (the "defaulting Party") to
comply with any of the material obligations contained in this Agreement shall
entitle the other Party (the nondefaulting Party") to give the defaulting Party
notice specifying the nature of the default and requiring it to cure such
default. If such default is not cured within the sixty (60) day period after the
receipt of such notice, the nondefaulting Party shall be entitled, except as
otherwise specifically provided in this Agreement (including, without
limitation, Tanox's right to receive payments under Section 8.0 so long as the
Outline of Terms or Definitive Agreement continue in effect) and subject to any
arbitration award under Section 13.12 (b), to terminate all or any part of this
Agreement or the licenses granted herein and without prejudice to any other
rights conferred on it by this Agreement.
12.4 SURVIVAL OF PROVISIONS. Except to the extent termination is
expressly permitted herein, the agreements and obligations of the Parties shall
survive to the extent and/or for the purposes provided herein.
13.0 GENERAL PROVISIONS.
13.1 ADEQUACY OF CONSIDERATION. By signing this Agreement, each Party
to this Agreement acknowledges the receipt by such Party and the sufficiency to
such Party of the Consideration.
13.2 *
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13.3 GUARANTY. Genentech, Inc. absolutely and unconditionally
guarantees the prompt and punctual payment and performance when due of the
obligations of Genentech International Limited to Tanox under this Agreement.
This is a continuing guaranty applicable to and guaranteeing any and all
obligations and liabilities of every kind and character of Genentech
International Limited to Tanox and Genentech, Inc. waives any right to require
that any action be brought against Genentech International Limited or any other
person or entity. Genentech, Inc. also expressly waives all rights to which it
may be entitled by virtue of Chapter 34 of the Texas Business and Commerce Code.
13.4 NOTICES. All notices which may be required pursuant to this
Agreement (i) shall be in writing, (ii) shall be addressed, in the case of
Genentech (except as otherwise specified herein), to the Corporate Secretary at
the address set forth at the beginning of this Agreement, and in the case of
Tanox to the President at the address set forth at the beginning of this
Agreement, (or to such other person or address as either Party may so designate
from time to time), (iii) shall be mailed, postage-prepaid, by registered mail
or certified mail, return receipt requested, or transmitted by courier for hand
delivery or sent by express courier service, and (iv) shall be deemed to have
been given on the date of receipt if sent by mail or on the date of delivery if
transmitted by courier or express courier service.
13.5 ENTIRE AGREEMENT. This Agreement, the Outline of Terms, and the
Definitive Agreement to be concluded hereafter are the entire agreements between
the Parties regarding the subject matter hereof, and there are no prior written
or oral promises or representations not incorporated herein or therein. No
amendment or modification of the terms of this Agreement shall be binding on
either Party unless reduced to writing and signed by an authorized officer of
the Party to be bound.
13.6 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their respective successors and permitted
assigns. This Agreement shall not be assignable by either Party without the
other's prior written consent, except that this Agreement (with the exception of
Section 9.0 which shall not be assignable without Genentech's prior written
consent, which will not be unreasonably withheld) may be assigned in whole or in
part to an Affiliate or a successor to all or substantially all of a Party's
business by merger, sale of assets, sale of stock or otherwise.
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13.7 WAIVER. The waiver by a Party hereto of any breach of or default
under any of the provisions of this Agreement or the failure of a Party to
enforce any of the provisions of this Agreement or to exercise any right
thereunder shall not be construed as a waiver of any other breach or default or
as a waiver of any such rights or provisions hereunder.
13.8 SEVERABILITY. If any part of this Agreement shall be invalid or
unenforceable under applicable law, such part shall be ineffective only to the
extent of such invalidity or unenforceability, without in any way affecting the
remaining parts of this Agreement. In addition, the part that is ineffective
shall be reformed in such a manner as to as nearly approximate the intent of the
Parties as possible.
13.9 PUBLICITY. The Parties acknowledge that certain information
contained in this Agreement will be set forth in a press release with agreed
upon text and release date and time following the execution of this Agreement.
Except for the information in that disclosure, neither Genentech nor Tanox shall
issue any public statement concerning this Agreement or the transactions
contemplated by this Agreement without the other Party's reasonable prior
written consent; provided, however, that either Party may disclose the
transaction or the terms hereof or thereof from time to time without the other
Party's consent (i) if such consent has been requested and not received and such
information is set forth in disclosures to investors and prospective investors
in the securities of a Party in compliance with laws, rules and regulations
covering any such transactions or such Party has a written opinion from outside
counsel that it is otherwise required by law to disclose the transaction or the
terms thereof, or (ii) to the extent that similar disclosure has been previously
approved by the Parties pursuant to this Section 13.9. The foregoing
notwithstanding, Tanox may disclose the terms of this Agreement to its existing
shareholders, investment bankers and other financial consultants, and
prospective investors in Tanox, provided that any such recipient of such
information must agree in writing prior to disclosure to be bound to protect the
confidentiality of that information for a period of at least three (3) years and
in a manner at least as restrictive as that generally set forth in Section 11.0
above.
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13.10 NO PARTNERSHIP. Nothing in this Agreement is intended or shall be
deemed to constitute a partnership, agency, employer-employee or joint venture
relationship between the Parties. No Party shall incur any debts or make any
commitments for the other.
13.11 SURVIVAL OF REPRESENTATIONS. All agreements and representations
made by the parties in this Agreement shall survive the execution and delivery
of this Agreement, the payment and receipt of Consideration, and the execution
and delivery of any other instrument, or the taking of any other actions
required or provided for in this Agreement.
13.12 DISPUTE RESOLUTION. Any dispute, controversy or claim arising out
of or relating to the validity, enforceability or performance of this Agreement,
including disputes relating to alleged breach or termination of this Agreement
but excluding any determination as to the validity of the Parties' patents
(hereinafter, the "Dispute"), shall be settled in accordance with the provisions
of this Section 13.12, and no Party can initiate any litigation in connection
with a Dispute except to enforce an arbitration award under Section 13.12 (b).
If a Party intends to begin mediation or arbitration to resolve a Dispute, such
Party shall provide written notice to the other Party informing such other Party
of such intention and the issues to be resolved. From the date of such request
and until such time as any matter has been finally settled by mediation or
arbitration, the running of the time periods contained in Section 12.3 in which
a Party must cure a breach of this Agreement shall be suspended as to the
subject matter of the Dispute.
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(a) MEDIATION. The Parties have entered into the Agreement in good
faith and in the belief that it is mutually advantageous to them. It is with
that same spirit of cooperation that they pledge to attempt to resolve any
dispute amicably and without the necessity of litigation. Accordingly, they
agree that if any Dispute should arise, prior to the commencement of any legal
action, they will first seek to mediate their Dispute by mediation, with a
mediator mutually agreeable between the Parties. If the Parties are unable to
agree upon a mediator within ten (10) days of the date a Party has requested
mediation, either one of them may thereafter request JAMS/ENDISPUTE to designate
a mediator to preside over the mediation proceeding. The Parties agree to sign a
document agreeing that the mediation and mediator will be governed by the
provisions of Chapter 154 of the Texas Civil Practice and Remedies Code and such
other rules as the mediator prescribes. The Parties commit to participate in the
proceedings in good faith with the intention of resolving the Dispute, if at all
possible. The fees and expenses of the mediator will be shared equally by the
Parties. The mediator is disqualified as a witness, consultant, expert or
counsel for any Party with respect to the Dispute and any related matters.
(b) BINDING ARBITRATION. If the Dispute has not been resolved by
mediation within sixty days after the request for mediation is made, then upon
the request of either party, the Dispute will be settled by binding arbitration
as provided in this Section 13.12 (b).
(1) The arbitration shall be administered by the American
Arbitration Association ("AAA"), pursuant to its then current Commercial
Arbitration Rules, except as otherwise provided in this Section 13.12 (b). The
arbitration shall be conducted by a panel of three arbitrators ("the Panel").
The Panel shall be selected from a pool of arbitrators to be presented to the
Parties by AAA.
(2) If a Party can demonstrate to the Panel that the complexity of
the issues or other reasons warrant the extension of one or more of the time
tables in the AAA rules, the Panel may extend such time tables, but in no event
shall the time tables be extended so that the proceeding extends more than 1
year from its beginning to the award.
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(3) The Parties (i) acknowledge that the issues that may arise in a
Dispute may involve a number of complex matters and (ii) confirm their intention
that each Party will have the opportunity to conduct complete discovery with
respect to all material issues involved in the Dispute in accordance with the
rules of the Federal Rules of Civil Procedure.
(4) The Panel shall, in rendering its decision, apply the
substantive law of the state in which the proceeding takes place, without regard
to its conflict of laws provisions, except that the interpretation of and
enforcement of this Section 13.12 (b) shall be governed by the Federal
Arbitration Act. The Panel shall apply the Federal Rules of Evidence to the
hearing. The proceeding shall take place in San Francisco, California if
arbitration is initiated by Tanox and in Houston, Texas if arbitration is
initiated by Genentech. The fees of the Panel and AAA shall be paid in the
manner designated by the Panel under Section 13.12 (b) (6) below.
(5) The Panel is empowered to award any remedy allowed by law,
including money damages, prejudgment interest and attorney's fees, and to grant
final, complete, interim, or interiocutory relief, including injunctive relief,
but excluding punitive damages and multiple damages. The Parties shall be deemed
to have waived any right to such punitive damages or multiple damages.
(6) Unless the Panel directs otherwise pursuant to Section 13.12 (b)
(5) above, each Party shall bear its own legal fees. The Panel shall assess
costs, fees and expenses of the AAA and the Panel to the Parties in the manner
the Panel deems appropriate under the circumstances.
(7) The arbitration proceeding shall be confidential and the Panel
shall issue appropriate protective orders to safeguard each Party's Confidential
Information. Except as required by law, no Party shall make (or instruct the
Panel to make) any public announcement with respect to the proceedings or
decision of the Panel without prior written consent of each other Party. The
existence of any Dispute submitted to arbitration, and the award, shall be kept
in confidence by the Parties and the Panel, except as required in connection
with the enforcement of such award or as otherwise required by applicable law.
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(c) ENFORCEMENT. For purposes of this Section 13.12, the Parties agree
to accept the jurisdiction of the federal counts located in the Southern
District of Texas with respect to arbitration proceedings initiated by Genentech
and with the Northern District of California with respect to arbitration
proceedings initiated by Tanox for the purposes of enforcing awards entered
pursuant to Section 13.12 (b) and for enforcing the agreements reflected in this
Section 13.12.
13.13 AGREEMENT TO PERFORM NECESSARY ACTS. Each Party agrees to perform
any further acts and execute and deliver any and all further documents,
agreements, and/or instruments which may be reasonably necessary or desirable to
carry out or effect the provisions of this Agreement.
13.14 COUNTERPARTS. This Agreement may be executed in counterparts, and
each such counterpart shall be deemed an original for all purposes.
GENENTECH, INC. TANOX BIOSYSTEMS, INC.
By: By: David Anderson
Title: CEO & President Title: Executive Vice President
GENENTECH INTERNATIONAL LIMITED
By: PETER MARTIN
Title: Director
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EXHIBIT 1
OUTLINE OF TERMS FOR SETTLEMENT OF THE LITIGATIONS
AMONG GENENTECH INC., GENENTECH INTERNATIONAL LIMITED,
TANOX BIOSYSTEMS, INC.
AND CIBA-GEIGY LIMITED
RELATING TO ANTI-IGE
INHIBITING MONOCLONAL ANTIBODIES
In 1993 Tanox sued Genentech * in the context of anti-IgE-antibody projects to
which both companies are committed. Genentech then sued Tanox and, later on Ciba
for infringement of Genentech's * patent by their anti-IgE and anti-HIV
monoclonal antibody projects. Ciba and Tanox filed a counterclaim for
invalidation of said patent. Tanox has further filed certain patent applications
on which some patent rights have already been granted which may extend to
Genentech's anti-IgE substance, although Genentech does not agree that they do.
Now the parties are willing to settle all their pending litigations including
potential future disputes regarding anti-IgE antibodies on the basis of the
following principles:
1. MERGER OF ANTI-IGE PROJECTS
The anti-IgE-antibody projects of Genentech on the one side and Ciba/Tanox on
the other side shall be merged, but Genentech and Ciba/Tanox will continue to
take their respective anti-IgE antibodies through Phase II clinical trials
currently in progress or planned to be performed during 1996. Based upon the
results of these trials and other relevant considerations Genentech, Tanox and
Ciba shall jointly discuss and decide by June 1, 1997 at the latest which of the
anti-IgE antibodies shall be taken up in Phase III trials, be developed for
additional indications (if any), be submitted for marketing authorization and be
commercialized as a pharmaceutical product ("anti-IgE Product"). The final
Agreement(s) as referred to in Section 8.2 shall provide for procedures in case
of a disagreement between the parties. All development activities shall be
supervised by a Steering Committee on which each party is represented. The
merging of each party's anti-IgE-antibody projects and the development and
commercialization thereof according to this Outline of Terms shall extend to all
IgE inhibiting antibodies (including fractions or derivatives thereof) which
have been identified and synthesized by either party hereto *
<PAGE>
2. SHARING OF DEVELOPMENT COST
All development activities for the anti-IgE Project/Product including such
things as the manufacture of the clinical material, the conduct of clinical
trials, the development of the process to make anti-IgE antibodies and required
supporting activities/services and fees which are necessary for obtaining the
NDA in the USA and the marketing authorization(s) in Europe shall be pooled
between Genentech and Ciba. This cost pooling shall commence as of the date on
which the selection of the anti-IgE Product for further development has been
made (the "Selection Date").
These pooled costs shall be allocated to the US development cost account on
the one side and the Europe development cost account on the other side on a pro
rata basis to be agreed upon according to the prospective sales potential for
the anti-IgE Product in each of the two territories.
The development cost allocated to the US shall be shared between Ciba and
Genentech in the ratio of *, whereas the development cost for Europe -subject to
Section 11 hereafter- shall be borne as to * by Ciba and as to * by Genentech.
Any additional development cost required for the commercialization of the
anti-IgE Product in territories outside the US and Europe shall be borne
exclusively by Ciba/Tanox according to the Development and Licensing Agreement
between Tanox and Ciba dated May 11, 1990, and the amendment thereto relating to
the territories of Taiwan, Korea, Singapore, China and Hong Kong (the "D&L
Agreement"), subject to additional cost obligations for Japan which may arise
according to Section 11 hereafter.
3. COMMERCIALIZATION
3.1 The anti-IgE Product shall be commercialized in the US under one brand
under a co-promotion scheme by Ciba and Genentech to be further elaborated and
agreed upon. In lieu of Tanox's right under the D&L Agreement to participate in
such co-promotion in the US, Tanox will be entitled to the payments set forth in
Section 5.1 hereafter.
All the cost for the manufacturing/purchase of anti-IgE Product and all the
cost for its marketing and sale in the US including all supporting and auxiliary
activities and royalties to third parties (if any) shall be shared between Ciba
and Genentech on a * basis.
<PAGE>
All the net profits from the commercialization of the anti-IgE Product in the
US shall be shared between Ciba and Genentech on a * basis.
3.2 The anti-IgE Product shall be commercialized in Europe exclusively by
Ciba, subject to Section 11 hereafter. All the cost for the
manufacturing/purchase of the anti-IgE Product and all the cost for its
marketing and sale including all supporting activities and royalties to Tanox on
the one hand and third parties (if any) and all the net profits from the
commercialization of the anti-IgE Product in Europe shall be shared between Ciba
and Genentech on the basis of * (Ciba): * (Genentech).
3.3 In all countries in the world other than US and Europe, Ciba shall have
exclusive rights for the commercialization of the anti-IgE Product, subject to
certain rights which Tanox has in Taiwan, Korea, Singapore, China and Hong Kong
according to a separate agreement and the rights for Japan as set out in Section
11 hereafter. No specific compensation shall be due to Genentech by Ciba for
these rights.
4. MANUFACTURE
Ciba and Genentech together with Tanox (to the extent they are exercising
their rights of co-manufacturing) shall share in the responsibility for assuring
adequate product supply necessary for commercialization of the anti-IgE Product.
Genentech shall, on request of Ciba, manufacture the jointly selected anti-IgE
Product up to a quantity of * of the anti-IgE antibody per year and shall sell
the anti-IgE Product to the appropriate selling organizations in the US, Europe
and the rest of the world at a price equal to the full manufacturing cost as
defined in the Appendix hereto, plus an uplift of *. The parties also shall
consider and, as appropriate, reach agreement on plans to assure adequate
product supply in the event such * quantity is insufficient to meet projections
for product requirements reasonably established by mutual agreement of the
parties. The parties acknowledge that such manufacturing by Genentech and any
manufacturing by Ciba shall be subject to Tanox's co-manufacturing rights under
the D&L Agreement and the terms of a manufacturing and supply agreement to be
negotiated between Tanox and the purchasing party in the manner contemplated by
the D&L Agreement. Tanox agrees to waive its rights to compensation for
relinquishing its rights under the D&L Agreement to manufacture * of such *
which may be manufactured by Genentech, but Tanox does not waive its right
prospectively to exercise its co-manufacturing rights. If Genentech terminates
its cooperation hereunder, it shall continue to be bound by the above supply
obligation for a reasonable period of time to establish an alternative supply
source for the anti-IgE Product, such period to be mutually agreed upon in the
Definitive Agreement.
<PAGE>
The manufacturing price paid to Genentech shall constitute a cost element in
the calculation of the cost/net profit to be shared according to Sec. 3.1
paragraphs 2 and 3 and Sec. 3.2 paragraph 2.
In the event that there should not be enough anti-IgE Products available to
meet the requirements of the different markets the available quantities shall be
allocated pro rata to the respective potential in these markets.
5. ROYALTIES AND MILESTONE PAYMENTS TO TANOX
5.1 Tanox is entitled to a royalty on the net sales of the anti-IgE Product
in the USA, as set out in the D&L Agreement, which amounts to * of such US net
sales (or * if there is no valid Tanox patent), plus (i) * on * of such US net
sales, payable by Genentech, and (ii) * of Ciba's net profits from the
commercialization of the anti-IgE Product in the US, payable by Ciba.
5.2 For the sales of the anti-IgE Product in Europe and the rest of the
world, Tanox shall be paid the royalties specified in the D&L Agreement.
5.3 The milestone payments payable to Tanox specified in the D&L Agreement
shall become due regardless of whether the anti-IgE Product selected originates
from Tanox or Genentech and, except for payments due for NDA/PLA submission and
approval in Japan, shall be included in the cost to be shared according to
Section 2 above.
5.4 Payments made to Tanox in connection with development activities
undertaken by Tanox for the anti-IgE Project/Product after the Selection Date
shall be included in the cost to be shared according to Section 2 above. The
parties acknowledge and agree that for 1996 the already approved Tanox budget
will continue. For 1997 the Tanox budget will be similar to that of 1996, unless
Genentech, Tanox and Ciba conclude that activities at Tanox for 1997 would
result in a significant reduction of Tanox's 1997 budget. In such event Ciba,
Genentech and Tanox will negotiate in good faith an appropriate payment in
addition to such reduced budget covering Tanox's reasonable cost for phaseout of
its activities. Such payment, however, shall not exceed * of the budget
calculated for the last full 12 months prior to the Selection Date. For
subsequent years thereafter, development activities which should be undertaken
by Tanox so as to maintain its active involvement will be agreed by Ciba,
Genentech and Tanox and a Tanox budget will be submitted for approval in
accordance with current procedures.
<PAGE>
6. LICENSES
Each party hereto shall grant to the other party any and all licenses and/or
sublicenses (to the extent possible and subject to payment of the appropriate
royalty or other payment amount due to third parties, such payment to be borne
or shared by the parties as otherwise provided herein, or if not provided
herein, then only if the party sublicensed pays such royalty or amount) under
their respective present and future patent rights, other intellectual property
rights, licenses, know-how, technology, cell lines, materials, etc. they own
and/or control to the extent they are required for or are to be used by the
parties as jointly agreed for the development, manufacture, use and sale of the
anti-IgE Product. No other compensations for these licenses shall be due than
those set out in this outline.
Each party hereto represents that it does not have knowledge of any such
rights that it currently owns and to which it currently has a license which
cannot be made accessible to the other parties hereto.
To the extent any such rights of a party are not licensable or sublicensable
such party shall take reasonable actions to permit the commercialization of the
anti-IgE Product on a reasonable basis in the light of the restrictions to which
it is subject.
7. SETTLEMENT
7.1 The parties hereto shall dismiss all claims filed in the lawsuits against
each Genentech and F. Hoffmann-La Roche Ltd. and its three affiliates concerned
on the one side and Ciba and Tanox on the other side pending and consolidated
with the US District Court for the Southern District of Texas, Houston Division
(the "Litigation").
7.2 Except as may be otherwise agreed between some of the parties hereto,
each party shall bear all cost and expenditure incurred by it under or in
connection with the above lawsuits.
8. CONDITIONS PRECEDENT
8.1 The parties are aware that the envisaged terms of settlement set out
herein might need clearance by the relevant authorities and agree to cooperate
via their internal and external experts in this respect.
<PAGE>
8.2 The parties shall negotiate in good faith and enter into (a) detailed
agreement(s) (the "Detailed Agreement") implementing and completing the terms
outlined herein within 6 months from the execution of this Outline.
9. PUBLICATIONS
Unless otherwise agreed in advance in writing among all parties hereto, none
of the parties hereto shall directly or indirectly make any public statement,
press release or give any information to the public about this Outline of Terms
and the Detailed Agreement to be entered into pursuant hereto. However, this
restriction shall not apply to disclosure of information which the parties
acknowledge will be set forth in press release with agreed upon text and release
date and time, to be prepared following execution of the Outline of Terms, and
to statements, information, or announcements required by law, regulation or
administrative action to be disclosed including disclosure to (prospective)
investors in the securities of a party. In such event, the parties shall
promptly coordinate to the extent possible, the wording of any such disclosures.
This restriction on publication shall not be applicable to disclosures made to
third parties who are subject to non-disclosure or confidentiality obligations.
10. CONFIDENTIALITY
10.1 Any information and data disclosed by a party to another party hereto
(the "Receiving Party") in the context of the selection, development and
commercialization of the anti-IgE Product shall be kept strictly confidential by
the Receiving Party, shall not be disclosed to any third party by the Receiving
Party and shall not be used by the Receiving Party for any purpose other than
those contemplated under this Outline of Terms, the D&L Agreement and the
Detailed Agreement.
10.2 The obligations set out in Section 10.1 above shall not apply to
information and data of which the receiving party can show that it:
(i) is or has become generally available to the public otherwise than
through violation of the obligation set out in Section 10.1 above;
(ii) has been received from a third party who did not acquire it
directly or indirectly from the disclosing party.
Notwithstanding the above, the parties may disclose such information (a) to
the extent as required to be disclosed to comply with applicable laws, to defend
<PAGE>
or prosecute litigation or to comply with governmental regulations including
disclosure to (prospective) investors in the securities of a party, provided
that the receiving party provides prior written notice of such disclosure to the
disclosing party and takes reasonable and lawful actions to avoid and/or
minimize the degree of such disclosure, and (b) to their legal representatives,
to affiliates and their legal representatives, and to consultants to the extent
such disclosure is intended to further the purposes contemplated under this
Outline of Terms, the D&L Agreement, and the Detailed Agreement, provided such
legal representatives, affiliates and consultants are covered by obligations of
confidentiality with respect to such information no less stringent than those
set forth herein, and further (c) in connection with publications, lectures,
seminars or other presentations with respect to which all parties hereto have
agreed in advance in writing.
11. RIGHTS RESERVED TO ROCHE
11.1 The parties acknowledge that Genentech is a party to certain agreements
with F. Hoffman-La Roche Ltd. and certain of its affiliates (collectively,
"Roche") under which Roche has certain rights to products being developed by
Genentech (the "G/R Agreements"). In the event Roche exercises its rights under
the G/R Agreements, Genentech and Roche have requested that certain rights to
participate in the commercialization of the anti-IgE Product be reserved to
Roche. Subject to receipt by Ciba and Tanox of a joint notification by Roche and
Genentech of Roche's exercise of rights under the G/R Agreements and to its
joinder in this Outline of Terms and the Detailed Agreement implementing and
completing the terms outlined herein, the parties agree to reserve for Roche's
benefit certain rights to participate in commercialization of the anti-IgE
Product in Europe and Japan as set forth in this Section 11.
11.2 For Europe and Japan, Roche shall have an option to participate in the
commercialization of the anti-IgE Product according to the following terms:
Roche's option, which shall be established and may be exercised on a
country-by-country basis, will be subject to the anti-IgE Product having a
significant "general practitioner potential" ("GP potential") in each country.
The GP potential of the anti-IgE Product is characterized in particular by the
following (cumulative) criteria: (i) clinical activity in patients with mild to
moderate allergic asthma and/or allergic rhinitis is demonstrated; (ii) a
patient friendly formulation (e.g. inhalation device or pen for autoinjection);
(iii) safety profile of the Product and its application is adequate for
self-administration; (iv) dose level and cost for the galenical formulation
and/or a device, such as to permit pricing accepted for reimbursement by social
security schemes in the respective country with a sufficient gross margin to
support the business case for co-promotion.
<PAGE>
The envisaged commercialization scheme in Europe would be a co-promotion by
Roche of the anti-IgE Product sold by Ciba wherever legally possible and, in
those countries in Europe where no co-promotion is possible, each of Ciba and
Roche may market and sell the anti-IgE Product under different trademarks on its
own. The commercial terms and conditions e.g. modus of exercising of the option
(until submission of marketing authorization to the competent authorities at the
latest), time and manner in which reimbursement/sharing of development costs
will occur, and manner in which co-promotion sales will be attributed to each
party, etc., will be part of the detailed agreement(s) referenced in Section
8.2. It is understood, however, that each Ciba and Roche should be able to make
bookings of sales in the same order of magnitude.
11.3 For each country in Europe in which Roche exercises its option, Ciba
agrees to share profits on a * basis under a co-promotion scheme, subject also
to a * sharing of all development and commercialization costs as provided in
Sections 2 and 3 above, in lieu of the * cost and profit sharing for Europe
otherwise provided in such Sections 2 and 3. For any country in Europe in which
Roche chooses not to exercise its option, the cost and profit sharing ratios
will continue to be * between Ciba and Genentech, as set out in Section 3.2
paragraph 2 above. In case of a co-marketing in a country Ciba and Roche shall
negotiate in good faith the terms and conditions of such co-marketing in that
country on the basis of a * sharing of the pertaining development cost, but,
with respect to that country no sharing of marketing cost nor profit sharing
neither between the co-marketing parties nor according to sections 2 and 3 above
shall apply. If Roche exercises its option hereunder only for a limited number
but not for all countries in Europe, then the costs to be shared in each country
in which Roche exercises its option(s) will be based on a allocation of all
development and commercialization costs attributable to Europe on a pro rata
basis to each such country in a manner to be agreed upon according to the
prospective sales potential for the anti-IgE Product in each of the countries in
Europe. Profits for each such country will be based on total sales revenues for
the anti-IgE Product in each such country.
11.4 At the time Roche exercises its option for any country in Europe, Roche
and Genentech shall notify Ciba of their agreement regarding which of them will
be responsible for the costs to be shared or whether each will share a portion
thereof and regarding the manner in which they will participate in the profits
to be shared. Such notice will be accompanied by payment of an amount sufficient
to reduce Ciba's share in those costs already shared on a * basis to *.
11.5 In Japan, subject to Roche's participation in co-development of the
anti-IgE Product for Japan, Roche shall have an option to market and sell the
approved anti-IgE Product on its own under a different trademark. To maintain
its rights for Japan hereunder, Roche shall have twelve (12) months from the
date of execution of this Outline of Terms in which to notify Ciba and Tanox of
its
<PAGE>
election to participate in the development of the anti-IgE Product for
Japan. At such time as Roche notifies Ciba of such election, Roche shall be
obligated to reimburse Ciba for * of all development costs incurred by Ciba for
development in Japan since the Selection Date and Roche shall be entitled
immediately to participate with Ciba/Tanox in the development activities in
Japan on the basis of a * sharing of development cost including the milestone
payments to Tanox due on filing and grant of NDA/PLA in Japan, as specified in
the D&L Agreement. In the event that it should become evident that the anti-IgE
Product has no GP Potential in Japan, contrary to prior expectations, Ciba
and/or Roche may chose to terminate the joint development in Japan, and Ciba
shall retain all further rights to development and commercialization of the
anti-IgE Product in Japan against reimbursement of Roche's development cost
including mile-stone payment, if any incurred.
11.6 The parties acknowledge that the detailed agreement(s) contemplated
under Section 8.2 will contain provisions which complete and implement the terms
outlined in this Section 11. The parties agree that Roche may participate in
negotiations relating to such provisions whether or not Roche has exercised its
rights under the G/R Agreements so that Roche will have the opportunity to
participate in establishing the detailed terms governing the rights reserved to
Roche hereunder.
12. EARLY TERMINATION
Genentech may terminate the cooperation hereunder at any time during the
development of the Anti-IgE Product by giving 120 days prior notice to Ciba
and Tanox and paying all amounts due hereunder up to such termination date.
If Genentech terminated its cooperation hereunder, Roche shall have the
option exerciseable for a period of 30 days after Genentech's termination,
to assume all of Genentech's rights and obligations hereunder. If Roche
does not exercise such option, all of Genentech's rights under this
cooperation, except for rights with respect to which Roche has exercised
its options under Section 11, shall revert to Ciba, which shall be entitled
to continue the development and to commercialize the Anti-IgE Product on
its own or with Roche, as the case may be, without further compensation to
Genentech, an which shall assume Genentech's obligations hereunder.
Ciba may terminate the cooperation hereunder at any time during the
development of the Anti-IgE Product by giving 120 days prior notice to
Genentech and Tanox and paying all amounts due hereunder up to such
termination date. Such notice also shall act as notice to Tanox of Ciba's
termination of the D&L Agreement. In such even, subject to the right of the
parties hereunder, the termination
<PAGE>
provisions of the D&L Agreement shall govern such termination. Genentech
and, as applicable, Roche shall be entitled to continue development in the
U.S., Europe, and Japan, as the case may be, in Ciba's stead, subject to
assuming Ciba's obligations hereunder, and to reimbursing Tanox for any
compensation which may be payable by Tanox to Ciba as a result of such
termination. Tanox shall have and retain exclusive rights for the
commercialization of the Anti-IgE Product in all other countries in the
world.
13. BINDING NATURE
The contents of this Ouline of Terms represent the bona fide intent of the
parties. The parties hereto shall use all reasonable effort to complete the
final agreement(s) as referred to in Section 8.2 above as soon as
reasonably practicable. It is understood, however, that unless and until
the said formal agreement(s) is/are completed and entered into the parties
(including their legal successors) shall be legally bound by and shall
operate under the terms reflected in the present Outline of Terms, which
shall be governed by the laws of the State of New York without regard to
conflict of law principles.
Tanox Biosystems Inc.: Date____________________
Genentech Inc.: Date____________________
Genentech International Limited: Date____________________
Ciba-Geigy Limited: Date____________________
<PAGE
> APPENDIX TO OUTLINE OF TERMS
DEFINITION OF FULLY BURDENED MANUFACTURING COST
Genentech's Fully Burdened Manufacturing Cost shall mean:
(a) the actual direct cost associated with the manufacture of the Anti-IgE
Product, i.e. direct material cost, direct labor cost, direct equipment
cost, direct facility expense, direct quality control expense, direct
energy cost, direct environmental expense, provided, however, that such
actual direct cost shall not include cost associated with idle plant
capacity, plus
(b) an allocation of Genentech's overhead cost associated with such
manufacture, up to a maximum of fifty percent of the actual price cost,
which allocation for manufacturing overhead shall be made in accordance
with U.S. Generally accepted cost accounting principles consistently
applied by Genentech across all similar pharmaceutical manufacture
operations, plus
(c) Genentech's allocable intellectual property acquisition, licensing and
royalty cost paid to third parties (except Tanox) upon the sale of Anti-IgE
Products to third parties, plus
(d) any other costs borne by Genentech for transport, customs clearance and
storage of Anti-IgE Product, to the extent necessary (i.e. freight, duty,
insurance and warehousing).
<PAGE>
EXHIBIT 2
REPRESENTATIONS AND WARRANTIES BY TANOX
(a) Before executing this Agreement, Tanox became fully informed of the terms,
contents, conditions, and effect of this Agreement.
(b) Tanox is a corporation duly organized, existing, and in good standing under
the laws of the State of Texas.
(c) Tanox possesses all requisite power and authority to enter into and perform
this Agreement and to carry out the transactions contemplated herein.
(d) Tanox has taken all necessary corporate and legal action to authorize the
execution, delivery, and performance of this Agreement.
(e) No consent or authorization of, filing with or any other act by or in
respect of any other person (including any shareholder or creditor) or
court is required in connection with the settlement of All Claims as set
forth in this Agreement or with the execution, delivery, or performance by
Tanox or the validity or enforceability as to Tanox of this Agreement.
(f) This Agreement has been duly executed and delivered by Tanox and
constitutes a legal, valid and binding obligation of Tanox enforceable
against Tanox in accordance with its terms.
(g) No promise or representation of any kind has been made to Tanox or by
anyone acting for Tanox, except as is expressly stated in this Agreement.
(h) Except for certain claims or portions thereof which may have been assigned
to its attorneys, Tanox is the lawful owner of All Claims asserted by Tanox
in the Lawsuit and has not assigned, pledged, or in any other manner sold
or transferred any right, title, interest, or claim that arises out of or
is the subject of the Incident and/or the Lawsuit.
(i) In entering this Agreement, Tanox has had the benefit of the advice of
lawyers of its own choosing; and Tanox enters this Agreement freely, by
Tanox's own choice, and judgment, and without duress or other influence.
(j) Tanox understands that this Agreement is a full, final, and complete
release of the other Party to this Agreement and that the Consideration
includes the ONLY benefits Tanox shall ever receive from such Party as a
result of the Incident and the Lawsuit.
(k) Tanox recognizes that the recitations contained in this Agreement are
contractual and not a mere recital.
<PAGE>
EXHIBIT 3
REPRESENTATIONS AND WARRANTIES BY GENENTECH
(a) Before executing this Agreement, Genentech became fully informed of the
terms, contents, conditions, and effect of this Agreement.
(b) Each of Genentech, Inc. and Genentech International Limited is a
corporation duly organized, existing, and in good standing under the laws
of the respective state, country, or jurisdiction under which they each
have been organized.
(c) Genentech possesses all requisite power and authority to enter into and
perform this Agreement and to carry out the transactions contemplated
herein.
(d) Genentech has taken all necessary corporate and legal action to authorize
the execution, delivery, and performance of this Agreement.
(e) No consent or authorization of, filing with or any other act by or in
respect of any other person (including any shareholder or creditor) or
court is required in connection with the settlement of All Claims as set
forth in this Agreement or with the execution, delivery, or performance by
Genentech or the validity or enforceability as to Genentech of this
Agreement.
(f) This Agreement has been duly executed and delivered by Genentech and
constitutes a legal, valid and binding obligation of Genentech enforceable
against Genentech in accordance with its terms; provided, that this
representation is not intended to apply to Section 2.7 of the Agreement.
(g) No promise or representation of any kind has been made to Genentech or by
anyone acting for Genentech, except as is expressly stated in this
Agreement.
(h) Genentech is the lawful owner of All Claims asserted by Genentech in the
Lawsuit and has not assigned, pledged, or in any other manner sold or
transferred any right, title, interest, or claim that arises out of or is
the subject of the incident and/or the Lawsuit.
(i) In entering this Agreement, Genentech has had the benefit of the advice of
lawyers of its own choosing; and Genentech enters this Agreement freely, by
Genentech's own choice, and judgment, and without duress or other
influence.
(j) Genentech understands that this Agreement is a full, final, and complete
release of the other Party to this Agreement and that the Consideration
includes the ONLY benefits Genentech shall ever receive from such Party as
a result of the incident and the Lawsuit.
(k) Genentech recognizes that the recitations contained in this Agreement are
contractual and not a mere recital.
<PAGE>
EXHIBIT 4
PAYMENT AMOUNTS
EVENT PAYMENT AMOUNT
------------- ----------------
(a) Execution of this Agreement and dismissal of all claims in *
the Lawsuit as described in Paragraph 2.1 of this Agreement.
(b) Initiation of the first Pivotal Clinical Trial *
(c) Filing of the first Product License Application (or *
equivalent in the U.S.)
(d) First approval by the Food and Drug Administration of a *
Product License Application (or equivalent in the U.S.)
(e) At such time as total annual net sales of all Genentech *
Licensed Products and Anti-IgE Antibody products sold
under the Outline of Terms and Definitive Agreement
first exceed *
If the total payment set forth above has been made by Genentech under this
Agreement for an event described above, no additional payment shall be due under
this Agreement for any subsequent occurrence that is covered by the language
describing that event.
<PAGE>
EXHIBIT 5
SECTION 9.0 PATENTS
U. S. Patent Nos. 4,356,270
4,366,246
4,425,437
4,431,739
4,571,421
4,704,362
5,221,619
5,420,020
and any and all patents maturing from applications that are divisionals,
continuations or continuations-in-part of the parent applications of any of the
foregoing; foreign counterparts, if any, of the foregoing; and any and all
reissues or extensions of any of the foregoing.
U. S. Patent No. 4,816,567 and the claims relating to chimeric antibodies
found in patents or patent applications arising from divisionals, continuations
or continuations-in-part of any application from which U.S. Patent No. 4,816,567
claims priority (excluding U.S.S.N. 07/205,419 and foreign counterparts thereof)
as well as the foreign counterparts of the foregoing and any and all reissues,
reexaminations or extensions of the foregoing; and
any patent issuing based on U.S.S.N. 07/205,419 (a continuation of the
application maturing into U. S. Patent No. 4,816,567) relating to the
coexpression of immunoglobulin chains in recombinant host cells, as well as the
divisionals, continuations or continuations-in-part of such application as well
as foreign counterparts, if any, of the foregoing; and any and all reissues,
reexaminations or extensions of the foregoing.
<PAGE>
EXHIBIT 6
TANOX PRODUCT OPPORTUNITIES
o Allergen-specific human IgA antibodies for mucosal administration.
o Anti-HIV-1 neutralizing antibodies.
o MIGIS-mIgA antibodies (against a portion of membrane IgA).
o MIGIS-mIgG antibodies (against a portion of membrane IgG). o MIGIS-mIgM
antibodies (against a portion of membrane IgM).
o Anti-Rh antibodies.
o Antibodies against adipocytes.
o Anti-tissue factor antibodies.
o Anti-complement pathway antibodies.
o Anti-Epstein Barr virus antibodies.
o Anti-mb-1 antibodies.
o Anti-drug resistant bacteria MAbs
o Therapeutic immunogen for treating human IgE-mediated diseases. o Novel
anti-HIV binding protein and related products. o PLATAR (Polyvalent
ligand against T-cell antigen receptors): Polyvalent binding
fragments of T-cell receptors, including anti-CD3).
<PAGE>
EXHIBIT 7
Foreign patents and applications based on U.S. Serial No. 07/110,255 entitled
METHOD AND THERAPEUTIC COMPOSITIONS FOR THE TREATMENT OF BLEEDING DISORDERS
filed October 20, 1987, which is a continuation-in-part of U.S. Serial No.
06/926,977
and
U.S. and foreign patents and applications based on U.S. Serial No. 07/237,585
entitled METHOD AND THERAPEUTIC COMPOSITIONS FOR THE TREATMENT OF MYOCARDIAL
INFARCTION filed August 25, 1988, which is a continuation-in-part of U.S. Serial
No. 07/209,665 filed June 21, 1988, which is a continuation-in-part of U.S.
Serial No. 110,2565 filed October 20, 1987, which is a continuation-in-part of
U.S. Serial No. 06/926,977 filed Nov. 4, 1986.
EXHIBIT 10.17
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
CONFIDENTIAL
TANOX BIOSYSTEMS INC.
Settlement and Participation Agreement
This Settlement and Participation Agreement ("Agreement") is entered into
effective as of July 8, 1996 ("Effective Date") between Tanox Biosystems, Inc.,
a Texas corporation, with its principal offices at 10301 Stella Link, Houston,
Texas 77025 ("Tanox") and F. Hoffmann-La Roche Ltd. with its principal offices
at CH-4070, Basal, Switzerland ("Roche"), Hoffmann-La Roche, Inc., Roche Holding
Ltd. and Roche Holdings, Inc., (collectively with Roche, the "Roche Entities").
Tanox and the Roche Entities are parties to a lawsuit, Civil Action No.
H-94-0189, in the United States District Court for the Southern District of
Texas, Houston Division, styled TANOX BIOSYSTEMS. INC. V. GENENTECH. INC. ET
AL., resulting from the consolidation of Civil Action No. H-94-0239, styled
TANOX BIOSYSTEMS. INC. V. GENENTECH. INC., ET. AL. with Civil Action No.
H-94-0189, styled GENENTECH., INC. V. TANOX BIOSYSTEMS. INC. (the "Lawsuit"),
which they desire to settle.
Tanox, Genentech, Inc. ("Genentech") and Ciba-Geigy Ltd. ("Ciba"), together
with the participation of Roche, also have reached an agreement in principle
under which Genentech and Tanox and Ciba would merge their respective anti-IgE
antibody projects. Such agreement has been memorialized in an Outline of Terms
which Tanox, Genentech, and Ciba are executing on the Effective Date and which
provides for the development and commercialization of one or more anti-IgE
products with the participation of Roche, should it exercise certain options
provided therein {the "Multiparty Transaction").
Discussions relating to the Multiparty Transaction and settlement of the
Lawsuit also have culminated in an agreement between Tanox and Genentech
entitled Settlement and Cross-Licensing Agreement which has been executed prior
to or simultaneously with the Effective Date {the "Genentech Agreement") and in
certain additional agreements between Tanox and Roche relating to such
collaboration and to certain licensing relationships based on the Parties desire
to avoid the possibility of future disputes.
1
<PAGE>
Therefore, Tanox and Roche agree as follows:
1.0 DEFINITIONS. In addition 10 the words otherwise used as defined 1em1s
throughout this Agreement, the words set forth below will have the meanings
indicated when used in this Agreement.
1.1 "AFFILIATE" shall mean (i) an organization fifty (50%) percent or more
of the voting stock of which is owned and/or controlled directly or indirectly
by either Party; (ii) an organization which directly or indirectly owns and/or
controls fifty percent (50%) or more of the Voting stock of either Party; (iii)
an organization which is directly or indirectly under common control of either
Party through common share holdings; or (iv) an organization as to which either
Party can demonstrate that the operation and management of such organization is
under the control, directly or indirectly, of the Party.
1.2 "ALL CLAIMS" shall mean all existing and future claims, demands, and
causes of action, known or unknown pending or threatened, for all existing and
future damages and remedies (i) that arise out of or are in any way related to
the Incident and (ii) that were brought, could have been brought, or were sought
to be brought in the Lawsuit. Under this definition, "All Claims" includes but
is not limited to all claims, demands, lawsuits, debts, accounts, covenants,
liens, encumbrances, agreements, actions, counterclaims, cross-actions,
liabilities, obligations, losses, attorney's fees, costs, expenses, remedies,
and causes of action of any nature, whether in contract or in tort, or based
upon fraud or misrepresentation, breach of duty or common law, or arising under
or by virtue of any judicial decision, or federal, state or foreign statute or
regulation, for past present and future damages, property or economic damage,
and for all other losses and damages of any kind, including BUT NOT LIMITED TO
the following: all actual damages; all exemplary and punitive damages; all
penalties of any kind, including WITHOUT LIMITATION any tax liabilities or
penalties; lost profits or goodwill; consequential damages; damages ensuing from
loss of credit; damages ensuing from breach of the covenant or
2
<PAGE>
duty of good faith and fair dealing; damages ensuing from breach of any
federal, state or foreign antitrust law; damages ensuing from breaches of
confidential and fiduciary duties; damages ensuing from breach of contract;
damages ensuing from actual or constructive fraud; and prejudgment and post
judgment interest, costs and attorney's fees.
1.3 "ANTI-IgE ANTIBODY(IES)" shall mean an antibody directed against the
immunoglobulin IgE as an antigen, fragments or conjugates of such antibodies,
and other constructs comprising antibodies which are derived from or contain any
of the above-specified components. ANTI-IgE ANTIBODY PRODUCT(S) means any
pharmaceutical formulation, product, method or system which contains an Anti-IgE
Antibody.
1.4 "CONSIDERATION" shall mean the value or benefit to each of the Parties,
respectively, of-the licenses, royalties, payments and agreements contained
herein, in the Genentech Agreement and in the Outline of Terms and all other
mutual promises, covenants, agreements, releases, and representations set forth
in this Agreement.
1.5 "INCIDENT" shall mean the negotiations, beginning in 1989 and ending in
December 1993, between Tanox and Genentech with regard to a potential
collaboration in the identification and development of anti-immunoglobulin E
("anti-IgE") monoclonal antibodies and anti-IgE therapy; the agreements entered
into pursuant to those negotiations, as well as any supplements or amendments to
those agreements ("the Collaboration Agreements"), including but not limited to
a Confidentiality Agreement dated (by Tanox) March 29, 1989 and a Biological
Material Transfer and Confidentiality Agreement dated (by Tanox) July 27, 1989;
negotiations concerning the construction and meaning of the Collaboration
Agreements; the performance of the Collaboration Agreements; any interference in
the performance of the Collaboration Agreements; any statements regarding the
performance of the Collaboration Agreements; any acts or events prior to or
subsequent to the negotiation or execution of the Collaboration Agreements that
form the basis of any cause of action alleged in or that could have been alleged
in the Lawsuit; any other matters arising out of the Collaboration Agreements;
the use by
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Genentech of information provided by Tanox to Genentech pursuant to the
Collaboration Agreements or otherwise during such negotiations; the solicitation
and obtaining of licensing rights heretofore from third parties in the area of
monoclonal antibody research and technology; the research, development and
commercialization of anti-IgE monoclonal antibodies and/or anti-IgE therapy
heretofore; any infringement heretofore of patents rights held at any time by
the Parties to this Agreement regarding recombinant immunoglobulin preparations
and monoclonal antibody identification and development; and any statements or
representations heretofore made by either Party regarding research, development
and commercialization of anti-IgE monoclonal antibodies and/or anti-igE therapy.
1.6 "OUTLINE OF TERMS" shall mean the agreement between Tanox, Genentech
and Ciba which sets forth the basic terms agreed by such parties with respect to
the joint development and commercialization of Anti-IgE Antibodies, with the
participation of Roche to the extent it exercises its options thereunder, and
which is intended to be followed and superseded by a definitive agreement(s) as
contemplated by Section 8.2 of the Outline of Terms [which agreement(s) is
referred to as the ("Definitive Agreement")].
1.7 "PARTY" shall mean, when used in the singular, either Tanox or the
Roche Entities, as appropriate, and "Parties" shall mean Tanox and the Roche
Entities.
1.8 "PERSON" OR "PERSONS" shall include any natural person, as well as any
entity such as a corporation, partnership, proprietorship, or business
association.
1.9 "ROCHE ENTITIES" shall mean, jointly and severally, each and all of the
following companies and their Affiliates (excluding Genentech): F. Hoffmann-La
Roche Ltd. Hoffmann-LaRoche, Inc., Roche Holding Ltd., and Roche Holdings, Inc.
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2.0 MUTUAL RELEASE, INDEMNIFICATION AND SETTLEMENT AGREEMENT
2.1 DISMISSAL OF LAWSUIT. Tanox and the Roche Entities agree as follows:
(i) Tanox will file a motion to dismiss its claims in the Lawsuit
against the Roche Entities with prejudice; and
(ii) each of the parties shall bear its own costs of court incurred.
2.2 RELEASE OF ROCHE ENTITIES. For the Consideration, including the
agreements set forth in this Section 2, Tanox hereby RELEASES, ACQUITS, and
FOREVER DISCHARGES the Roche Entities and (I) all of their present or former
agents, employees, officers, directors, shareholders, partners, joint venturers,
and attorneys; (ii) all companies partnerships, joint ventures, or firms
affiliated with or subsidiary to, the Roche Entities; (iii) their predecessors,
successors, and assigns; (iv) all other persons, partners, joint venturers,
firms, partnerships, joint ventures, and corporations for whose conduct the
Roche Entities may be liable; and (v) all of their insurers from All Claims that
have accrued or that may ever accrue to Tanox or any person or persons now or
hereafter claiming by, through, or under Tanox.
2.3 RELEASE OF TANOX. For the Consideration including the agreements set
forth in this Section 2, the Roche Entities RELEASE, ACQUIT, and FOREVER
DISCHARGE Tanox and (i) all of its present or former agents, employees,
officers, directors, shareholders, partners, joint venturers, and attorneys;
(ii) all companies, partnerships, joint ventures, or firms affiliated with or
subsidiary to Tanox; (iii) its predecessors, successors, and assigns; (iv) all
other persons, partners, joint venturers, firms, partnerships, joint ventures,
and corporations for whose conduct Tanox may be liable; and (v) all of its
insurers from All Claims that have accrued or that may ever accrue to the Roche
Entities or any person or persons now or hereafter claiming by, through, or
under the Roche Entities.
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2.4 NO ADMISSION OF LIABILITY. Agreement to the Consideration is not an
admission of liability and may not be so construed. The Roche Entities
vigorously deny the position taken by Tanox in the Lawsuit and Tanox
acknowledges the highly disputed nature of its claims in the Lawsuit. Tanox
vigorously denies the position taken by the Roche Entities in the Lawsuit, and
the Roche Entities acknowledges the highly disputed nature of their defenses in
the Lawsuit. Each party acknowledges that this Agreement is made as a
compromise to avoid further expense and to terminate for all time the
controversies which were asserted, could have been asserted, or were sought to
be asserted in the Lawsuit.
2.5 INDEMNIFICATION BY TANOX. Tanox agrees to INDEMNIFY and to DEFEND and
to HOLD HARMLESS the Roche Entities and (i) all of their present or former
agents, employees, officers, directors, shareholders, partners, joint venturers,
and attorneys; (ii) all companies, partnerships, joint ventures, or firms
affiliated with or subsidiary to, the Roche Entities; (iii) their predecessors,
successors, and assigns; (iv) all other persons, partners, joint venturers,
firms, partnerships, joint ventures, and corporations for whose conduct the
Roche Entities may be liable; and (v) all of their insurers from All Claims,
together with all costs, expenses, and legal fees, that may be asserted against
the Roche Entities by any person, entity, firm, or corporation claiming by,
through, or under Tanox, that arise out of the Incident and/or the Lawsuit.
2.6 INDEMNIFICATION BY THE ROCHE ENTITIES. The Roche Entities agree to
INDEMNIFY and to DEFEND and to HOLD HARMLESS Tanox and (i) all of its present or
former agents, employee, officers, directors, shareholders, partners, joint
venturers, and attorneys; (ii) all companies, partnerships, joint ventures, or
firms affiliated with or subsidiary to Tanox; (iii) its predecessors,
successors, and assigns; (iv) all other persons, partners, joint venturers,
firms, partnerships joint ventures, and corporations for whose conduct Tanox may
be liable; and (v) all of its insurers from All Claims, together with all costs,
expenses, and legal fees, that may be asserted against Tanox by any person,
entity,
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firm, or corporation claiming by, through, or under the Roche Entities that
arise out of the Incident and/or the Lawsuit
2.7 NO OPPOSITION. The Roche Entities represent and warrant that they have
not filed any opposition in the European Patent Office to Tanox's patent No.
EP-B-407392 relating to Anti-IgE Antibodies or taken any other actions to
re oppose, request the examination of, or otherwise challenge the validity or
enforceability, directly or indirectly, of any Tanox patents covering Anti-IgE
Antibodies.
2.8 ANTI-IgE ANTIBODY PATENTS. The Roche Entities represent and warrant to
Tanox that they do not have knowledge of any patents owned in whole or in part
and/or controlled by them which would prevent Tanox from being able to make, use
and sell Anti-IgE Antibodies. If Roche has exercised its option set forth in the
Outline of Terms (or Definitive Agreement) in a particular country or has
received a sublicense or assumed Genentech's rights and obligations under the
Genentech Agreement, then to the extent the Roche Entities should ever own in
whole or in part and/or control any such patents the Roche Entities agree to
grant to Tanox under all such patents a royalty-free, non-exclusive,
sublicensable license to make, have made, use, sell, have sold and import
Anti-IgE Antibodies for the treatment, prophylaxis or diagnosis of any disease
or condition in humans and animals in the country or territory with respect to
which Roche has exercised its options under the Outline of Terms (or Definitive
Agreement) or has received a sublicense or assumed Genentech's rights and
obligations under the Genentech Agreement.
2.9 EXEMPTION FROM PROTECTIVE ORDER. Notwithstanding the terms of the
protective order agreed in connection with the Lawsuit, the Parties agree that
the employees, experts and consultants of a Party having access to information
during the course of the Lawsuit will not be prohibited from participating in
on-going development and commercialization activities associated with the
Anti-IgE Antibody projects of such Party
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and/or development and commercialization activities of the Parties pursuant to
the Outline of Terms or Definitive Agreement.
2.10 REPRESENTATIONS OF TANOX. Tanox makes the representations and
warranties set forth in Exhibit 1 to the Roche Entities.
2.11 REPRESENTATIONS OF ROCHE. The Roche Entities make the representations
and warranties set forth in Exhibit 2 to Tanox.
3.0 BENEFICIARY OF AGREEMENTS. On the Effective Date, Tanox, Ciba and
Genentech have executed the Outline of Terms. The Outline of Terms and
Definitive Agreement, together with that certain Development and Licensing
Agreement dated May 11, 1990, between Tanox and Ciba (the "D & L Agreement"),
shall among them govern the development and commercialization of one or more
anti-IgE Products (as such term is used in the Outline of Terms) which have been
identified and synthesized by Tanox, Ciba, or Genentech before *. Additionally,
on the Effective Date, Tanox and Genentech have executed the Genentech Agreement
which, among other things, grants certain additional license rights to such
parties which may be effective in addition to or in lieu of rights under the
Outline of Terms and Definitive Agreement. The Parties acknowledge that under
such agreements, including the Genentech Agreement, and subject to certain
agreements between Roche and Genentech, Roche will have certain rights to
participate in the development and commercialization of Anti-IgE Antibody
products.
4.0 LICENSES FOR ANTI-IgE ANTIBODY PATENTS. If (i) Roche has exercised its
options set forth in the Outline of Terms (or Definitive Agreement) in a country
or has received a sublicense or assumed Genentech's rights and obligations under
the Genentech Agreement in a particular country and (ii) the Roche Entities
should ever desire to obtain exclusive access to a patent owned and/or
controlled by a third party which covers Anti-IgE Antibodies in such country in
any manner, then the Roche Entities will acquire rights to
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such patent in a manner which reserves for Tanox the opportunity to obtain
co-exclusive rights to such patent for Anti-IgE Antibodies in such country.
5.0 ADDITIONAL LICENSES. Subject to all of the existing licenses and
existing agreements that restrict the ability of 1he Roche Entities to grant
licenses and subject to the additional restrictions set forth below, "the Roche
Entities agree to grant to Tanox, * except that such products shall not include
those (i) that are the subject of a prior exclusive license by the Roche
Entities to a third party; (ii) that are the subject of an active research or
development program of the Roche Entities; or (iii) that compete with, or will
compete with, a then current product of the Roche Entities or a product in an
active research and/or development program of the Roche Entities; * The Roche
Entities also agree to negotiate in good faith with Tanox on the availability *
The Parties agree to negotiate in good faith the royalty rate and terms on which
any license will be granted. Subject to the limitations set forth above, Tanox
may exercise its right to such a license, without threat of suit or penalty from
the Roche Entities, with respect to a product * If Tanox should ever have under
development a product which could be subject to the restrictions on receiving a
license set forth herein, then the Roche Entities or Tanox should notify the
other of such possibility prior to taking any other actions. If the Parties are
unable to resolve the issues prior to the time the
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activities of Tanox would constitute an infringement of a patent owned and/or
controlled by the Roche Entities pursuant to applicable laws, which resolution
could include a collaboration or cross-licensing opportunity or Tanox's express
agreement not to manufacture, develop or market in such country in which a valid
claim of any patent of the Roche Entities covering such product may exist, then
the Roche Entities shall be entitled to pursue such legal or other actions as
they may determine, in their sole discretion, to be appropriate under the
circumstances.
6.0 CONFIDENTIALITY. In connection with preparation and during the term of
this Agreement, one Party may disclose to the other or receive written
information from the other relating to the subject matter of this Agreement
which information, if so identified in writing either pursuant to this Section
6.0 or otherwise upon disclosure, shall be considered to be the disclosing
Party's Confidential Information. Each Party agrees that it will take the same
steps to protect the confidentiality of the other Party's Confidential
Information as it takes to protect its own proprietary and Confidential
Information. Each Party shall protect and keep confidential and shall not use,
publish or otherwise disclose to any third party, except as permitted by this
Agreement or with the other Party's written consent, the other Party's
Confidential Information for a period of ten (10) years from the date of
disclosure, respectively, of any such Confidential Information. For the purposes
of this Agreement, Confidential Information shall not include such information
that (i) was lawfully known to the receiving Party at the time of disclosure;
(ii) was generally available to the public or was otherwise part of the public
domain at the time of disclosure or became generally available to the public or
otherwise part of the public domain after disclosure other than through any act
or omission of the receiving Party in breach of this Agreement; (iii) became
known to the receiving Party after disclosure from a source that had a lawful
right to disclose such information to others; or (iv) is required to be
disclosed by the receiving Party to comply with applicable laws, to defend or
prosecute litigation or to comply with governmental regulations, provided that
the receiving Party provides prior written notice of such disclosure to the
other Party and takes reasonable and lawful actions to avoid and/or minimize the
degree of such disclosure.
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Notwithstanding the above, the Parties may disclose Confidential information to
their legal representatives, to Affiliates and their legal representatives, and
to consultants (to the extent such disclosure is intended to further the
purposes contemplated under this Agreement) and provided such legal
representatives, Affiliates and consultants have agreed in writing to be bound
to protect the confidentiality of such information in a manner at least as
restrictive as that generally set forth herein.
7.0 TERM; DEFAULT; SURVIVAL.
7.1 TERM. Except as otherwise set forth herein, this Agreement shall
terminate at such time following the first commercial sale of an Anti-IgE
Antibody product as royalties are no longer owed to Tanox by or as a result of
sales for the benefit of the Roche Entities or any Affiliate, excluding
Genentech or sales by or for the benefit of Genentech. Notwithstanding the
foregoing, this Agreement shall terminate upon the prior occurrence of the
expiration unexercised of any option rights which the Roche Entities may have
under the Outline of Terms or Definitive Agreement and the expiration
unexercised of any rights which the Roche Entities may have to receive a
sublicense or to assume Genentech's rights and obligations under the Genentech
Agreement.
7.2 DEFAULT. Failure by either Party (the "defaulting Party") to comply
with any of the material obligations contained in this Agreement shall entitle
the other Party (the "nondefaulting Party") to give the defaulting Party notice
specifying the nature of the default and requiring it to cure such default. If
such default is not cured within the sixty (60) day period after the receipt of
such notice, the nondefaulting Party shall be entitled, except as otherwise
specifically provided in this Agreement and without prejudice to any of its
other rights conferred on it by this Agreement, to terminate all or part of this
Agreement.
7.3 SURVIVAL OF PROVISIONS. The obligations of the Parties under Sections
2.0 and 6.0 shall survive any termination of this Agreement, except to the
extent limited therein.
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8.0 GENERAL PROVISIONS.
8.1 ADEQUACY OF CONSIDERATION. By signing this Agreement, each Party to
this Agreement acknowledges the receipt by such Party and the sufficiency to
such party of the Consideration.
8.2 NOTICES. All notices which may be required pursuant to this Agreement
(i) shal1 be in writing, (ii) shal1 be addressed, in the case of the Roche
Entities (except as otherwise specified herein), to Corporate Law, F.
Hoffmann-La Roche Ltd. at the address set forth at the beginning of this
Agreement and to Corporate Secretary, Hoffmann-La Roche, Inc., 340 Kingsland St,
Nutley, N.J. 07110, and in the case of Tanox to the President at the address set
forth at the beginning of this Agreement, (or to such other person or address as
either Party may so designate from time to time), (iii) shall be mailed,
postage-prepaid, by registered mail or certified mail, return receipt
requested, or transmitted by courier for hand delivery or sent by express
courier service, and (iv) shall be deemed to have been given on the date of
receipt if sent by mail or on the date of delivery if transmitted by courier or
express courier service.
8.3 ENTIRE AGREEMENT. This Agreement is the entire agreement between the
Parties regarding the subject matter hereof, and there are no prior written or
oral promises or representations not incorporated herein. No amendment or
modification of the terms of this Agreement shall be binding on either Party
unless reduced to writing and signed by an authorized officer of the Party to be
bound.
8.4 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Parties hereto, Affiliates, and their respective successors and
permitted assigns. This Agreement shall not be assignable by either Party
without the other's prior written consent, except that this Agreement may be
assigned in whole or in part to an Affiliate or a successor to all or
substantially all of a Party's business by merger, sale of assets, sale of stock
or otherwise.
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8.5 WAIVER. The waiver by a Party hereto of any breach of or default under
any of the provisions of this Agreement or the failure of a Party to enforce any
of the provisions of this Agreement or to exercise any right thereunder shall
not be construed as a waiver of any other breach or default or as a waiver of
any such rights or provisions hereunder.
8.6 SEVERABILITY. If any part of this Agreement shall be invalid or
unenforceab1e under applicable law, such part shall be ineffective only to the
extent of such invalidity or unenforceability, without in any way affecting the
remaining parts of this Agreement. In addition, the part that is ineffective
shall be reformed in such a manner as to as nearly approximate the intent of
the Parties as possible.
8.7 PUBLICITY. Except for disclosure that settlement of the Lawsuit has
occurred, neither the Roche Entities nor Tanox shall issue any public statement
concerning this Agreement without the other Party's reasonable prior written
consent; provided, however, that either Party may disclose the transaction or
the terms hereof or thereof from time to time without the other Party's consent
(i) if such consent has been requested and not received and such information is
set forth in disclosures to investors and prospective investors in the
securities of a Party pursuant to laws, rules and regulations covering any such
transactions or such Party has a written opinion from outside counsel that it is
otherwise required by law to disclose the transaction or the terms thereof, or
(ii) to the extent that similar disclosure has been previously approved by the
Parties pursuant to this Section 8.7. The foregoing notwithstanding, Tanox may
disclose the terms of this Agreement to its shareholders, investment bankers and
other financial consultants, and prospective investors in Tanox, provided that
the recipients of such information agree to be bound to protect the
confidentiality of that information for a period of at least three (3) years and
in a manner otherwise at least as restrictive as that generally set forth in
Section 6.0 above.
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8.8 NO PARTNERSHIP. Nothing in this Agreement is intended or shall be
deemed to constitute a partnership, agency, employer-employee or joint venture
relationship between the Parties. No party shall incur any debts or make any
commitments for the other.
8.9 SURVIVAL OF REPRESENTATIONS. All agreements and representations made by
the parties in this Agreement shall survive the execution and delivery of this
Agreement, the receipt of the Consideration, and the execution and delivery of
any other instrument, or the taking of any other actions required or provided
for in this Agreement.
8.10 DISPUTE RESOLUTION. The laws of the State of New York shall govern the
construction and interpretation of this Agreement, and any action to enforce
this agreement or resolve any disputes shall be by binding arbitration conducted
pursuant to the then current American Arbitration Association ("AAA") Commercial
Arbitration rules in New York City, New York, such arbitration to be conducted
by a panel of three arbitrators selected from a pool of arbitrators to be
presented to the Parties by AAA.
8.11 AGREEMENT TO PERFORM NECESSARY ACTS. Each Party agrees to perform any
further acts and execute and deliver any and all further documents, agreements,
and/or instruments which may be reasonably necessary or desirable to carry out
or effect the provisions of this Agreement.
8.12 COUNTERPARTS. This Agreement may be executed in counterparts, and each
such counterpart shall be deemed an original for all purposes.
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F. Hoffman-La Roche Ltd Roche Holding Ltd
By: ILLEGIBLE By: ILLEGIBLE
Title: Authorized Signatory Title: Director
By: ILLEGIBLE By: ILLEGIBLE
Title: Director Title: Director
Hoffman-La Roche Inc. Roche Holdings, Inc
By: ILLEGIBLE By: ILLEGIBLE
Title: V.P. Title: Secretary
Tanox Biosystems, Inc.
By: David Anderson
Title: Executive Vice President
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EXHIBIT 1
Representations and Warranties by Tanox
(a) Before executing this Agreement, Tanox became fu11y informed of the terms
contents, conditions, and effect of this Agreement.
(b) Tanox is a corporation duly organized, existing, and in good standing under
the laws of the State of Texas.
(c) Tanox possesses all requisite power and authority to enter into and perform
this Agreement and to carry out the transactions contemplated herein.
(d) Tanox has taken a1l necessary corporate and legal addition to authorize the
execution, delivery, and performance of this Agreement.
(e) No consent or authorization of, filing with or any other act by or in
respect of any other person (including any shareholder or creditor) or
court is required in connection with the settlement of All Claims as set
forth in this Agreement or with the execution, delivery, or performance by
Tanox or the validity or enforceability as to Tanox of this Agreement.
(f) This Agreement has been duly executed and delivered by Tanox and
constitutes a legal, valid and binding obligation of Tanox enforceable
against Tanox in accordance with its terms.
(g) No promise or representation of any kind has been made to Tanox or by
anyone acting for Tanox, except as is expressly stated in this Agreement.
(h) Except for certain claims or portions thereof which may have been assigned
to its attorneys, Tanox is the lawful owner of All Claims asserted by Tanox
in the Lawsuit and has not assigned, pledged, or in any other manner sold
or transferred any right, title, interest, or claim that arises out of or
is the subject of the Incident and/or the Lawsuit.
(i) In entering this Agreement, Tanox has had the benefit of the advice of
lawyers of its own choosing; and Tanox enters this Agreement freely, by
Tanox's own choice and judgment, and without duress or other influence.
(j) Tanox understands that this Agreement is a full, final, and complete
release of the other Party to this Agreement and that the Consideration
includes the ONLY benefits Tanox shall ever receive from such Party as a
result of the Incident and the Lawsuit.
(k) Tanox recognizes that the recitations contained in this Agreement are
contractual and not a mere recital.
<PAGE>
EXHIBIT 2
Representations and Warranties by The Roche Entities
(a) Before executing this Agreement, the Roche Entities became fully informed
of the terms, contents, conditions, and effect of this Agreement.
(b) The Roche Entities are corporations duly organized, existing, and in good
standing under the laws of the respective states, cantons, and countries
under which they have been organized.
(c) The Roche Entities possess all requisite power and authority to enter into
and perform this Agreement and to carry out the transactions contemplated
herein.
(d) The Roche Entities have taken all necessary corporate and legal action to
authorize the execution, delivery, and performance of this Agreement.
(e) No consent or authorization of, filing with or any other act by or in
respect of any other person (including any shareholder or creditor) or
court is required in connection with the settlement of All Claims as set
forth in this Agreement or with the execution, delivery, or performance by
the Roche Entities or the validity or enforceability as to the Roche
Entities of this Agreement.
(f) This Agreement has been duly executed and delivered by the Roche Entities
and constitutes a legal, valid and binding obligation of the Roche Entities
enforceable against the Roche Entities in accordance with its terms.
(g) No promise or representation of any kind has been made to the Roche
Entities or by anyone acting for the Roche Entities, except as is expressly
stated in this Agreement.
(h) In entering this Agreement, the Roche Entities have had the benefit of the
advice of lawyers of its own choosing; and the Roche Entities enter this
Agreement freely, by their own choice and judgment, and without duress or
other influence.
(i) The Roche Entities understand that this Agreement is a full, final, and
complete release of the other Party to this Agreement and that the
Consideration includes the ONLY benefits the Roche Entities shall ever
receive from such Party as a result of the Incident and the Lawsuit.
(j) The Roche Entities recognize that the recitations contained in this
Agreement are contractual and not a mere recital.
EXHIBIT 10.18
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
PATENT LICENSE AGREEMENT
Between
PROTEIN DESIGN LABS, INC.
and
TANOX BIOSYSTEMS, INC.
This Agreement ("Agreement"). effective as of June 30, 1998 ("Effective
Date"). is made by and between PROTEIN DESIGN LABS, INC.. a Delaware corporation
having offices at 2375 Garcia Avenue, Mountain View, CA 94043, USA (hereinafter
"PDL") and TANOX BIOSYSTEMS, INC., a Texas corporation having offices at 10301
Stella Link, Houston, TX 77025 (hereinafter "TANOX").
RECITALS
A. TANOX intends to initially pursue development of humanized antibodies
against *
B. TANOX desires to license certain patents owned or controlled by PDL
related to humanized antibodies directed against *; and
C. PDL is willing to license to TANOX such rights under the terms and
conditions of this Agreement.
AGREEMENT
NOW THEREFORE. in consideration of the mutual covenants herein contained and
intending to be legally bound, the parties agree as follows:
1. DEFINITIONS
All references to Exhibits, Articles and Sections shall be references to
Exhibits, Articles and Sections of this Agreement. In addition, except as
otherwise expressly provided herein, the following terms in this Agreement shall
have the following meanings:
1.01 "AFFILIATE" means, with respect to a party hereto, any corporate or
other entity which, directly or indirectly, controls, is controlled by, or is
under common control with such party where "control" means the ownership of not
less than 50% of the voting shares of a corporation, or decision-making
authority as to an unincorporated entity .
1.02 "COMBINATION PRODUCT(S)" shall mean any product containing both a
pharmaceutically active agent or ingredient which constitutes a Licensed Product
and one or more other pharmaceutically active agents or ingredients which do not
constitute Licensed Products.
1.03 "LICENSED PRODUCT(S)" shall mean therapeutic products of TANOX or
TANOX'S sublicensees that include an Antibody developed by or for TANOX, jointly
or otherwise, binding to
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* whose development, manufacture, use or sale
would, but for a license under this Agreement, infringe a Valid Claim.
"Antibody" as used in the preceding sentence shall include, without limitation,
monospecific and bispecific antibodies; less than full-length antibody forms
such as Fv, Fab. and F(ab')2; single-chain antibodies; and antibody conjugates
bound to a toxin, label or other moiety. *
1.04 "NET SALES" shall mean the aggregate gross revenues, whether in cash
or in kind, derived by or payable from or on account of the sale of Licensed
Products. less actual amounts incurred for (a) credits or allowances, if any,
actually granted on account of price adjustments, recalls, Rejection or return
of items previously sold, (b) excise and sales taxes, duties or other taxes
imposed on and paid with respect to such sales (excluding income or franchise
taxes of any kind) and (c) outer packing, freight and freight insurance costs.
All amounts deducted under this Section 1.04 shall be properly documented and
specified in any summary report provided to PDL under Section 3.07. If TANOX or
any of its Affiliates or sublicensees receive non-cash consideration for any
Licensed Product sold or otherwise transferred to an independent third party not
an Affiliate of the seller or transferor, the fair market value of such non-cash
consideration on the date of such transfer as known to TANOX, or as reasonably
estimated by TANOX if unknown; shall be included in the definition of Net Sales.
1.06 "PDL PATENT RIGHTS" means the patent applications or patents (as well
as any foreign counterparts thereto) identified on EXHIBIT A, including any
additions, continuations, continuations-in-part or divisions thereof or any
substitute applications therefor; any patents issued with respect to such patent
applications, any reissues, extensions or patent term extensions of any such
patent, and any confirmation patents or registration patents or patents of
addition based on any such patents.
1.07 *
1.08 "VALID CLAIM" means (a) any claim in any issued patent included in the
PDL Patent Rights which would be infringed but for the license granted under
Section 2.01 and which claim has not been disclaimed or held unenforceable or
invalid by a governmental agency or court of competent jurisdiction by a
decision beyond right of review and (b) any pending claims under PDL Patent
Rights which, if granted, would be infringed but for the license granted under
Section 2.01 and which pending claim would be a Valid Claim if the pending claim
were treated as granted, provided that examination has been timely requested for
such pending claims and they are otherwise being diligently prosecuted in an
effort to have them allowed and granted in an issued patent.
2. LICENSE
2.01 LICENSE GRANT. Subject to the terms and conditions of this Agreement,
PDL hereby grants and TANOX hereby accepts a worldwide nonexclusive license
under the PDL Patent Rights, including the right to grant sublicenses in
accordance with Section 2.05 to make, import, have made, use or sell Licensed
Products.
2.02 *
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2.03 *
2.04 *
2.05 MOST FAVORED LICENSEE FOR IGE ANTIBODY ROYALTY RATE. * PDL agrees not
to grant a license under the Queen Patent (as defined in Exhibit A) to a third
party, other than a PDL Affiliate, for use of an antibody binding to the * with
a royalty rate less than * of net sales of licensed products incorporating such
antibody unless TANOX is provided the same royalty rate as such third party.
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PDL shall promptly notify TANOX in the event that PDL proposes to grant such a
license under the Queen Patent to a third company with a royalty rate less than
* . Notwithstanding the foregoing, no reduction in royalties shall apply in the
following cases: (a) the third COMPANY PARTY pays consideration to PDL for at
least three (3) licenses under the Queen Patents that results in a reduced
royalty rate as part of a transaction with PDL; or (b) the licenses granted
under the Queen Patents by PDL are to a joint venture or as part of a similar
collaborative arrangement in which a part of contribution to the venture or
arrangement is a license from PDL under the Queen Patents. The parties agree to
execute such documents as may be reasonably necessary to carry out the purposes
of this Section 2.05.
2.06 LIMITATION ON SUBLICENSES; NOTIFICATION. TANOX shall have the right to
grant sublicenses of its rights with respect to the Licensed Product under
Section 2.01 only in connection with the assignment or license by TANOX of a
Licensed Product to a third party. Notwithstanding the assignment or grant of a
sublicense by TANOX hereunder, TANOX shall remain obligated to pay all royalties
due to PDL with respect to the sale of Licensed Products by its assignee or
sublicensee. In addition, the grant of any sublicenses under Section 2.01 shall
be on terms and conditions which are subject to and subordinate to the terms of
this Agreement and TANOX shall remain fully responsible to PDL for the
performance of any and all such terms by its sublicensees. Promptly following
execution of any sublicense hereunder, but in any event not less than ten (10)
days thereafter, TANOX shall notify PDL of the identity of the sublicensee and
the scope of the sublicense.
2.07 NO OTHER LICENSE RIGHTS. TANOX expressly acknowledges and agrees that,
except for the license expressly granted under Section 2.01, no rights to any
other PDL patents, patent applications, know-how or licenses are included in
this Agreement and that any royalties or payments that may be due to third
parties in order for TANOX to make, have made, use or sell Licensed Products
shall be the sole responsibility of TANOX.
3. PAYMENTS; ROYALTIES, REPORTS
3.01 PAYMENTS. In consideration for the license granted by PDL under
Article 2 of this Agreement TANOX sha11 pay to PDL a nonrefundable signing and
licensing fee within fifteen (15) days of the Effective Date in the sum of *
3.02 ROYALTIES TO PDL. Subject to reduction for any offset as provided in
Section 3.05, or withholding under Section 3.09(b), and in further consideration
of the rights and licenses granted under Article 2, TANOX shall pay to PDL a
royalty of * of the Net Sales of all Licensed Products sold by TANOX or its
Affiliates or sublicensees in each country until the last date on which there is
a Valid Claim that, but for a license granted to TANOX under this Agreement,
would be infringed by the making, using, having made or sale of that Licensed
Product in such country or by the manufacture of Licensed Product in the country
of manufacture.
3.03 SALES AMONG AFFILIATES. Sales between and among TANOX and its
Affiliates of Licensed Products which are subsequently resold or to be resold by
such Affiliates shall not be subject to royalty, but in such cases royalties
shall accrue and be calculated on the sale of such Licensed Products to a
non-Affiliate.
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3.04 COMBINATION PRODUCTS. Net Sales in a particular country, in the case
of Combination Products for which the pharmaceutically active agent or
ingredient constituting a Licensed Product and each of the other
pharmaceutically active agents or ingredients not constituting Licensed Products
have established market prices in that country in the Territory when sold
separately, shall be determined by multiplying the Net Sales for each such
Combination Product by a fraction, the numerator of which shall be the
established market price for the Licensed Product(s) contained in the
Combination Product and the denominator of which shall be the sum of the
established market prices for the Licensed Product(s) plus the established
market prices for the other pharmaceutically active agents or ingredients
contained in the Combination Product. When such separate market prices are not
established in that country, then the parties shall negotiate in good faith to
determine a fair and equitable method of ca1cu1ating Net Sales in that country
for the Combination Product in question.
3.05 ANNUAL MAINTENANCE FEE. In further consideration of the licenses
granted under Article 2, following the third (3rd) anniversary of the Effective
Date and not later than each anniversary thereafter within thirty (30) days
after receipt of an invoice from PDL, TANOX shall pay PDL a nonrefundable annual
maintenance fee in the amount of *. An amount of * of the annual maintenance fee
paid by TANOX hereunder shall be creditable against royalties payable to PDL
pursuant to Section 3.02 beginning in the year in which a Biologics License
Application ("BLA") or foreign equivalent thereof is filed with the U.S. Food
and Drug Administration (or any successor thereto, or a foreign counterpart
agency), with respect to a Licensed Product; provided that in no event shall any
portion of the annual maintenance fees paid prior to the year in which a BLA is
filed with respect to the Licensed Product be creditable against royalties
hereunder.
3.06 CURRENCY CONVERSION. All amounts payable to PDL under this Agreement
shall be payable in U.S. Dollars by wire transfer to a bank account designated
by PDL. In the case of royalties on Net Sales, all amounts payable shall first
be calculated in the currency of sale and then converted into U.S. Dollars using
the average of the daily exchange rates for such currency quoted by Citibank,
N.A. for each of the last fifteen (15) banking days of each calendar quarter.
3.07 ROYALTY REPORTS.
(a) CURRENT REPORTS. TANOX agrees to make written reports and royalty
payments to PDL within sixty (60) days after the close of each calendar quarter
during the term of this Agreement, beginning with the calendar quarter in which
the date of first sale following regulatory approval occurs. These reports shall
show for the calendar quarter in question Net Sales by TANOX, its Affiliates and
sublicensees of the Licensed Products in the Territory on a country-by-country
basis, details of the quantities of Licensed Products sold in each country and
the country of manufacture, if different, applicable offsets, withholding taxes
and the net royalty due to PDL thereon pursuant to Article 3. No later than at
the time of the making of each such report, TANOX shall make any payment due to
PDL of royalties for the period covered by such report.
(b) TERMINATION REPORT. For each Licensed Product, TANOX also agrees to
make a written report to PDL within ninety (90) days after the date on which
TANOX, its Affiliates or sublicensees last sell that Licensed Product stating in
such report the same information required by quarterly reports for all such
Licensed Products made, sold or otherwise disposed of which were not previously
reported to PDL.
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3.08 INSPECTION. TANOX agrees to keep clear, accurate and complete records
for a period of at least three (3) years after each reporting period in which
Net Sales occur showing the manufacturing, sales and other disposition of
Licensed Products in the Territory in sufficient detail to enable the royalties
payable hereunder to be determined. TANOX further agrees to permit its books and
records to be examined by an independent accounting firm selected by PDL and
reasonably satisfactory to TANOX, from time-to-time but not more than once a
year. Such examination is to be made at the expense of PDL, except in the event
that the results of the audit reveal that TANOX underpaid PDL by six percent
(6%) or more, then the audit fees shall be paid by TANOX. Any such discrepancies
will be promptly corrected by a payment or refund, as appropriate.
3.09 WITHHOLDING.
(a) PAYMENTS. All amounts payable under Sections 3.01 and 3.05 shall
represent the actual proceeds to be received by PDL, net of any withholding or
other taxes or levies that may be applicable to such payments. PDL agrees to
reasonably cooperate with TANOX in obtaining a refund of any withholding taxes
or levies paid by TANOX, if any, with respect to any payments to PDL hereunder.
In the event that PDL is successful in obtaining any refund of tax withholding
amounts paid by TANOX under this Agreement. PDL agrees to promptly remit such
refund amount to TANOX.
(b) ROYALTY PAYMENTS. TANOX may withhold from royalties due to PDL amounts
for payment of any withholding tax that TANOX has actually paid to any taxing
authority with respect to the royalty payments due to PDL hereunder, provided
that such amounts are properly documented and specified in any summary report to
PDL hereunder. TANOX agrees to reasonably cooperate with PDL in obtaining a
foreign tax credit in the U .S. with respect to royalties due to PDL on the sale
or manufacture of Licensed Products at the sole expense of PDL.
4. PATENT PROSECUTION AND MAINTENANCE
4.01 PROSECUTION. PDL hereby agrees that, at its own expense it will use
commercially reasonable efforts to:
(a) prosecute any patent applications comprising the PDL Patent Rights and
to secure the most extensive protection reasonably obtainable under the PDL
Patent Rights; and
(b) maintain the claims under the POL Patent Rights as valid and
enforceable claims for the full term thereof.
4.02 UPDATES. Upon the written request of TANOX (which request shall not be
made more than once per calendar year), PDL agrees to provide a written update
of the information relating to the PDL Patent Rights as set forth on EXHIBIT A.
4.03 DEFENSE OF PDL PATENT RIGHTS. With respect to the PDL Patent Rights
licensed under this Agreement, PDL at its sole cost and expense agrees to take
all steps and proceedings and to undertake such other acts as PDL may, in its
sole discretion, deem necessary or advisable to restrain any infringement or
improper or unlawful use of the PDL Patent Rights and to recover any actual or
punitive compensation therefor. TANOX shall provide reasonable assistance to PDL
and permit PDL to have the sole right to take such steps, conduct any such
proceedings or undertake any such actions to restrain any infringement or
improper or unlawful use of the PDL Patent Rights, whether
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or not TANOX is a party to such steps, proceedings or actions, all of which
shall be at PDL's expense. Any monies recovered from alleged infringers shall be
retained by PDL.
5. REPRESENTATIONS AND WARRANTIES; IDEMNIFICATION
5.01 VALID AGREEMENT. Each party represents and warrants to the other that
it knows of no legal reason to prevent it from entering into this Agreement and
that the signatory hereto is duly authorized to execute and deliver this
Agreement.
5.02 NO WARRANTY OF VA1IDITY, NON-INFRINGEMENT. Nothing in this Agreement
shall be construed as (a) a warranty or representation by PDL as to the validity
or scope of any PDL Patent Rights; or (b) a warranty or representation that any
Licensed Product made, used, sold or otherwise disposed of under the license
granted in this Agreement is or will be free from infringement of patents,
copyrights, trademarks, trade secrets or other rights of third parties.
5.03 NO OTHER WARRANTIES. EXCEPT AS SPECIFICALLY SET FORM IN ARTICLE 5, PDL
MAKES NO REPRESENTATIONS OR WARRAN11ES OF ANY KIND, EITHER EXPRESS OR, IMPLIED,
WITH RESPECT TO ANY CELL LINES, ANTIBODIES OR LICENSED PRODUCTS DEVELOPED BY
TANOX UNDER THE LICENSE SET FORTH IN THIS AGREEMENT AND PDL FURTHER MAKES NO
EXPRESS OR IMPLIED WARRANTIES OF MERCHANT ABILITY OR FITNESS FORA PARTICULAR
PURPOSE, OR THAT THE USE OF ANY CELL LINES, ANTIBODIES, LICENSED PRODUCTS OR
OTHER MATERIALS DEVELOPED BY TANOX UNDER THE LICENSE SET FORTH IN THIS AGREEMENT
WILL NOT INFRINGE ANY THIRD PARTY RIGHTS.
5.04 INDEMNIFICATION. TANOX shall at all times, during the term of this
Agreement and thereafter, indemnify and hold harmless PDL and its Affiliates,
sublicensees, directors, officers, agents and employees from any claim,
proceeding, loss, expense, and liability of any kind whatsoever (including but
not limited to those resulting from death, personal injury, illness or property
damage and including legal expenses and reasonable attorneys' fees) arising out
of or resulting from (a) any claim of patent infringement (direct or
contributory) or inducing patent infringement with respect to the activities of
TANOX and (b) the development, manufacture, holding, use, testing,
advertisement, sale or other disposition by TANOX, its Affiliates or
sublicensees, or any distributor, customer or representative of TANOX or anyone
in privity therewith, of any Licensed Product.
6. CONFIDENTIALITY
6.01 PRIOR AGREEMENTS. This Agreement supersedes that certain Confidential
Disclosure Agreement entered into between PDL and TANOX of June 10, 1996;
provided, however, that with respect to all Confidential Information disclosed
thereunder and/or within the definition of "Confidential Information" in that
Confidential Disclosure Agreement, such Confidential Information shall be
subject to the terms and conditions of Section 6.02.
6.02 CONFIDENTIALITY. PDL and TANOX acknowledge that in the course of
negotiations of this Agreement or other discussions between the parties of
prospective agreements or business relationships and/or in furtherance of the
interests of the parties hereunder that it ("Recipient") has received and/or may
receive confidential information of the other party ("Provider"). "Confidential
Information" means any and all data and information which (a) has been reduced
to tangible form and marked clearly and conspicuously with a legend identifying
its confidential or proprietary nature;
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or (b) with respect to any oral presentation or communication, is or was
designated as confidential immediately before, during, or within a reasonable
time after the oral presentation or communication and such designation is
subsequently confirmed in writing; (c) is or was otherwise characterized by
Provider as confidential information; or (d) is subject to the terms and
conditions of this Section 6.02 as provided in Section 6.01 above.
Each party shall keep and protect as confidential, and shall not use for any
purpose (other than TANOX's use for the development and commercial exploitation
of Licensed Products or either party's use for specific purposes otherwise
contemplated by a business relationship entered between them), during the term
of this Agreement and for five (5) years after termination hereof, all
Confidential Information heretofore and hereafter supplied by the other,
provided however, that the foregoing obligation of confidentiality shall not
apply to the extent that any Confidential Information (a) is already known to
the Recipient at the time of disclosure, as evidenced by written record, or is
developed by Recipient thereafter in the course of work entirely independent of
any disclosure by the other party; (b) is publicly known prior to or becomes
publicly known after disclosure other than through acts or omissions of the
Recipient; (c) is disclosed in good faith to Recipient by a third party who is
not under obligations of non-disclosure to the Provider; or (d) is required to
be disclosed pursuant to an order of a court of law or governmental
agency; provided that the disclosing party shall advise the other party promptly
of any such disclosure requirement in order to permit such other party to
undertake efforts to restrict or limit the required disclosure including by
cooperating in drafting a protective order.
7. TERM AND TERMINATION
7.01 TERM. Unless earlier terminated as provided in this Article 7, this
Agreement sha1l come into force on the Effective Date and shall continue until
the expiration of the last obligation of TANOX to pay royalties to PDL in
accordance with Article 3 above. Thereafter, with the exception of the surviving
clauses specified in Section 7.04, this Agreement shall terminate and all
licenses or sublicenses granted hereunder shall become fully paid-up,
irrevocable licenses.
7.02 TERMINATION.
(a) This Agreement may be terminated with respect to a license in any
country or in its entirety on sixty (60) days prior written notice by TANOX.
(b) If either party shall at any time default in the payment of any
royalty, or the making of any report hereunder, or shall commit any material
breach of any covenant or agreement herein contained or shall make any false
report, and shall fail to have initiated and actively pursued remedy of any such
default or breach within sixty (60) days after receipt of written notice thereof
by the other party, that other party may, at its option, cancel this Agreement
and revoke any rights and licenses herein granted and directly affected by the
default or breach by notice in writing to such effect, but such act shall not
prejudice the right of the party giving notice to recover any royalty or other
sums due at the time of such cancellation, it being understood, however, that if
within sixty (60) days after receipt of any such notice the receiving party
shall have initiated and actively pursued remedy of its default, then the rights
and licenses herein granted shall remain in force as if no breach or default had
occurred on the part of the receiving party, unless such breach or default is
not in fact remedied within a reasonable period of time.
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(c) This Agreement may be terminated by either party upon the occurrence of
any of the following which is not stayed or vacated within ninety (90) days of
such occurrence: (i) petition in bankruptcy filed by or against the other party;
(ii) adjudication of the other party as bankrupt or insolvent; (iii) appointment
of a liquidator, receiver or trustee for all or a substantial part of the other
party's property; or (iv) an assignment for the benefit of creditors of the
other party.
(d) To the extent pennitted under, applicable law, the license granted
under this Agreement may be terminated as to any country by PDL upon thirty (30)
days prior written notice in the event that TANOX challenges the Queen Patent in
that country.
7.03 NO WAIVER. The right of either party to terminate this Agreement as
provided herein shall not be affected in any way by its waiver of, or failure to
take action with respect to, any previous failure to perform hereunder.
7.04 SURVIVAL.
(a) Termination for any reason hereunder shall not affect any accrued
rights or obligations of the parties arising in any manner under this Agreement
as of the date of termination. In any event, the confidentiality and indemnity
obligations and any accrued payment and reporting obligations under Articles 3,
5 and 6 shall survive any termination of this Agreement
(b) Upon termination of this Agreement for any reason, PDL hereby grants
TANOX a license to sell within three (3) months of such termination any Licensed
Products in TANOX's or TANOX's sublicensee's inventory on the date of such
termination, which have not previously been sold ("Inventory"); provided,
however, that TANOX shall pay the royalties due on such Inventory, provide
related reports and allow a final audit in the amounts and manner provided for
in Section 3.08.
8. MISCELLANEOUS
8.01 ASSIGNMENT. This Agreement may not be assigned by either party without
the prior written consent of the other, except to Affiliates upon prior written
notice to the other party, and except that either party may assign this
Agreement to a party which acquires all or substantially all of its business,
whether by merger, sale of assets or otherwise.
8.02 ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties hereto with respect to the within subject matter and
supersedes all previous Agreements (except as provided in Section 6.01), whether
written or oral. This Agreement shall not be changed or modified orally, but
only by an instrument in writing signed by both parties.
8.03 SEVERABILITY. If any provision of this Agreement is declared invalid
by a court of last resort or by any court, the decision of which appeal is not
taken within the time provided by law, then and in such event, this Agreement
will be deemed to have been terminated only as to the portion thereof which
relates to the provision invalidated by that decision and only in the relevant
jurisdiction, but this Agreement, in all other respects and all other
jurisdictions, will remain in force; provided, however, that if the provision so
invalidated is essential to the Agreement as a whole, then the parties shall
negotiate in good faith to amend the terms hereof as nearly as practical to
carry out the original interest of the parties, and, failing such amendment,
either party may submit the matter to a court of competent jurisdiction for
resolution.
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8.04 NOTICES. Any notice or report required or permitted to be given under
this Agreement shall be in writing and shall be sent by expedited delivery or
telecopied and confirmed by mailing, as follows and shall be considered
received three (3) days after such delivery:
If to PDL: Protein Design Labs. Inc.
2375 Garcia Avenue
Mt. View, California 94043 USA
Attention: Chief Executive Officer
Copy to: Protein Design Labs, Inc.
2375 Garcia Avenue
Mt View, California 94043 USA
Attention: General Counsel
If to TANOX: Tanox Biosystems, Inc.
10301 Stella Link
Houston, TX 77025 USA
Attention: Nancy T. Chang,
President and CEO
Copy to: Tanox Biosystems, Inc.
10301 Stella Link
Houston, TX 77025 USA
Attention: Head of Legal Affairs
8.05 CHOICE OF LAW. The validity, performance. construction, and effect of
this Agreement shall be governed by the laws of the State of California which
are applicable to contracts between California residents to be performed wholly
within California.
8.06 WAIVER. None of the terms, covenants and conditions of this Agreement
can be waived except by the written consent of the party waiving compliance.
8.07 FORCE MAJEURE. Neither party shall be responsible to the other for
failure or delay in performing any of its obligations under this Agreement or
for other non-performance hereof provided that such delay or non-performance is
occasioned by a cause beyond the reasonable control and without fault or
negligence of such party, including, but not limited to war, terrorism,
earthquake, fire, flood, explosion, discontinuity in the supply of power, court
order or governmental interference, act of God, strike or other labor trouble
and provided that such party will inform the other party as soon as is
reasonably practicable and that it will entirely perform its obligations within
a reasonable time after the relevant cause has ceased its effect.
8.08 PUBLICITY. PDL will issue a press release concerning the parties'
entry into this Agreement and the amount of signing and licensing fees paid
hereunder, with the content of such release to be approved in advance by TANOX,
which approval shall not be unreasonably withheld. Except as required by law or
regulation, neither party shall publicly disclose the other terms and conditions
of this Agreement unless expressly authorized to do so by the other party, which
authorization shall not be unreasonably withheld, and both parties agree that
PDL shall not disclose the antigens which are the subject of this Agreement, or
TANOX's selection of any Substitute Antigen, without TANOX's
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prior written consent; provided, however, that the parties may disclose such
terms and conditions to their respective investors, prospective investors,
advisors, and consultants under a written confidentiality agreement protecting
the confidentiality of the terms hereof as provided under Article 6, and to
their accountants and attorneys provided that such accountants and attorneys
agree to maintain the confidentiality of the terms hereof as provided under
Article 6, and TANOX may disclose such terms and conditions as deemed required
in connection with any public stock offering it elects to make. In the event
that disclosure shall be agreed upon then the parties will work together to
develop a mutually acceptable disclosure.
8.09 HEADINGS. The captions used herein are inserted for convenience of
reference only and shall not be construed to create obligations, benefits, or
limitations.
8.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and such
counterparts together shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
PDL: TANOX:
PROTEIN DESIGN LABS, INC. TANOX BIOSYSTEMS, INC.
By: /s/ JON S. SAXE By: /s/ NANCY T. CHANG
Jon S. Saxe Nancy T. Chang
President President and CEO
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EXHIBIT A
PDL PATENT RIGHTS
The following are patents and patent applications (the "Queen Patents") as of
the Effective Date filed in certain countries in the world and licensed under
the Agreement. The Queen Patents shall expressly include any foreign
counterparts thereto flied by PDL before or during the tenm of this Agreement.
1. European Patent number 0451216. Queen, "Humanized Immunoglobulins and Their
Production and Use".
2. U.S. patent divisional applications numbers 08/487,200, 08/477,728,
08/474,040 of issued U.S. patent number 5,530,101, Queen, "Improved Humanized
Immunoglobulins".
3. Japan patent application number 4-503758, Queen, et al. "Improved Humanized
Immunoglobulins".
4. U.S. Patent No. 5,693,761, Queen, et al. "Polynucleotides Encoding Improved
Humanized Immunoglobulins." issued December 2, 1997.
5. U.S. Patent No. 5,693,762, Queen, et. a1. "Humanized Immunoglobulins,"
issued December 2, 1997.
12
EXHIBIT 10.19
CERTAIN INFORMATION IN THIS EXHIBIT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. IN ACCORDANCE WITH RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF SUCH OMITTED INFORMATION HAS
BEEN INDICATED WITH AN ASTERISK(*).
[PROTEIN DESIGN LABS, INC. LETTERHEAD]
June 28, 1999
VIA FACSIMILE: 713-664-8914
Mr. Eric P. Mirabel
Vice President of Inte11ectual Property
Tanox Inc.
10301 Stella Link
Houston, Texas 77025-5497
Re: AMENDMENT TO PATENT LICENSE AGREEMENT
Dear Eric:
This letter amendment ("Amendment") sets forth our agreement to amend certain
provisions of the Patent License Agreement dated June 30, 1998 ("Agreement")
between Protein Design Labs, Inc. ("PDL") and Tanox Inc. ("Tanox"). Except as
expressly set forth herein, capitalized terms shall have the meaning and section
references shall refer to those set forth in the Agreement.
*
<PAGE>
Mr. Eric P. Mirabel
June 28, 1999
Page 2
2. PAYMENT TO PDL. *
3. ADDITIONAL LICENSES. Through *, Tanox may request that PDL grant a
nonexclusive worldwide license under the PDL Patent Rights for up to two
(2) additional antibodies under development by Tanox as of the date hereof.
The licenses shall be granted under PDL's then current financial terms for
each license agreement, provided that such financial terms shall in no
event exceed the following amounts:
(a) Nonrefundable, noncreditable signing and licensing fee of One:
Million Seven Hundred Thousand Dollars ($1,700,000);
(b) Royalties of Three and One Quarter Percent (3.25%) to Three and
Three Quarters Percent (3.75%), depending on the patents Tanox elects
to include under the PDL Patent Rights; and
(c) Annual maintenance fee of One Hundred Fifty Thousand Dollars
($150,000) payable on the second (2nd) anniversary of the effective
date of the license agreement, subject to credit as provided in
Section 3.05.
Subject to the foregoing, the form of license agreement for each of
the two (2) additional antibodies shall be substantially similar to that of
the Agreement, provided that Sections 2.02, 2.03, 2.04 and 2.05 shall not
be included as part of such agreements.
4. LIMITATION. PDL shall have the right to deny Tanox a license
pursuant to Section 3 of this Amendment for any antibody directed against
an antigen (a) which is targeted by a product being developed (i.e., in
which such product is reasonably contemplated to begin a clinical trial
within twenty-four (24) months or for which a regulatory submission has
been filed) or marketed by PDL on its own behalf or in
<PAGE>
Mr. Eric P. Mirabel
June 28, 1999
Page 3
cooperation with a corporate partner, or (b) as to which PDL has granted or
is in good faith negotiations to grant an exclusive license to a third
party under PDL Patent Rights.
5. TERMINATION OF AMENDMENT. This Amendment sets forth the entire
agreement between the parties with respect to the subject matter hereof.
Except as expressly provided herein, the Agreement shall remain in full
force and effect. In any event, this Agreement shall terminate and be of no
force and effect as of March 1, 2000.
If the foregoing sets forth your understanding of the Amendment, please have a
duly authorized officer of Tanox countersign where noted below.
Sincerely,
/s/ GLEN Y. SATO
Glen Y. Sato
Vice President, Legal
and General Counsel
Acknowledged and agreed by its duly authorized officer.
Tanox, Inc.
By /s/ ILLEGIBLE
Title Sr. VP. Operations
EXHIBIIT 10.22
G-CSF RECEPTOR NON-EXCLUSIVE LICENSE AGREEMENT
THIS G-CSF RECEPTOR NON-EXCLUSIVE LICENSE AGREEMENT is entered into and
made effective this 11th day of January, 2000, by and between IMMUNEX
CORPORATION, a corporation of the state of Washington, having its principle
place of business as 51 University Street, Seattle, Washington 98101
(hereinafter referred to as "Immunex"), and TANOX, INC., a corporation of the
State of Texas, and having a place of business at 10301 Stella Link, Houston,
Texas 77025.
BACKGROUND
WHEREAS, Immunex is a biopharmaceutical company engaged in the
research, development, marketing and sale of therapeutics for treating
human disease. Immunex owns proprietary and confidential information and
intellectual property relating to G-CSF Receptor ("G-CSF Receptor
Technology"). Immunex is the sole owner of and has full right to the
Licensed Patent Rights (as defined below):
WHEREAS, Licensee (as defined herein) wishes to obtain *
WHEREAS, the use of G-CSF Receptor Technology is valuable to Licensee
in the discovery, research and development of Developed Products;
therefore, Licensee is willing to compensate Immunex for such use by paying
Immunex *
AGREEMENT
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, and for good and other valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Immunex and Licensee,
intending to be legally bound hereby, do hereby agree as follows:
<PAGE>
1. DEFINITIONS
1.1 "AFFILIATE" shall mean any corporation, company, partnership, joint
venture, firm or other entity which directly or indirectly owns, is owned by or
is under common ownership with a Party (as defined below) where "owns" or
"ownership" means possession of at least fifty percent (50%) of the equity (or
such lesser percentage which is the maximum allowed to be owned by a foreign
corporation in a particular jurisdiction or such lesser percentage provided the
operational control is held by the Party) having the power to vote on or direct
the affairs of the entity and any person, firm, partnership, corporation or
other entity actually controlled by, controlling or under common control with a
Party.
1.2 "CALENDAR QUARTER" shall mean each three (3) month period commencing
January 1, April 1, July 1 and October 1 of each year during the Term (as
defined in Section 5.1) of this Agreement.
1.3 "DEVELOPED PRODUCT" *
1.4 "EFFECTIVE DATE" shall mean the date this Agreement is effective,
which shall be the date first indicated above.
1.5 "FIELD" *
1.6 "FORCE MAJEURE" shall mean any act of God or the public enemy, any
accident, explosion, fire, storm, earthquake, flood, drought, peril of the sea,
riot, embargo, war or foreign, federal, state or municipal order issued by a
court or other authorized official, seizure, requisition or allocation, any
failure or delay of transportation, shortage of or inability to obtain supplies,
equipment, fuel or labor or any other circumstance or event beyond the
reasonable control and without the fault or negligence of the Party relying upon
such circumstance or event.
1.7 "LICENSED PATENT RIGHTS" *
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1.8 "LICENSEE" shall mean Tanox, Inc. and/or its Affiliates, as
applicable.
1.9 "NET SALES" *
1.10 "PARTY" shall mean either Immunex or Licensee, as applicable. The
term "PARTIES" shall mean both Immunex and Licensee.
1.11 "PHASE III" shall mean, with respect to a Developed Product, the
period of product development commencing with enrollment of the first patient in
a placebo-controlled or otherwise appropriately controlled clinical trial that
is intended to demonstrate efficacy for registration of such Developed Product
and ending upon filing of an NDA, BLA, or foreign equivalent seeking Regulatory
Approval, where the clinical trial is sponsored by a Party or its sublicensees.
1.12 "REGULATORY AGENCY" shall mean the United States Food and Drug
Administration ("FDA") or any successor agency vested with administrative and
regulatory authority to approve testing and marketing of human pharmaceutical or
biological therapeutic products in the United States and/or any regulatory body
with similar regulatory authority in any other part of the world where any Party
to
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this Agreement elects to file an NDA, BLA or foreign equivalent seeking
Regulatory Approval.
1.13 "REGULATORY APPROVAL" shall mean the receipt by a Party of the
authorization by an appropriate Regulatory Agency to market and sell Developed
Product in a country, including to the extent required, any governmental pricing
approval for such Developed Product in such country.
1.14 "THIRD PARTY" shall mean any individual, partnership, corporation,
firm, association, unincorporated organization, joint venture, trust or other
entity that is neither a Party nor an Affiliate.
1.15 *
2. LICENSE GRANT
2.1 *
3. PAYMENTS AND REPORTS
3.1 LICENSE EXECUTION FEE. * after the Effective Date, Licensee shall pay
to Immunex *
3.2 LICENSE MAINTENANCE FEE. In consideration of maintaining the license
granted to it pursuant to this Agreement. Licensee shall pay to Immunex *
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3.3 MILESTONE FEES. For each Developed Product, Licensee, or its
Affiliate, shall pay Immunex the following fees upon occurrence of the following
milestone events:
*
3.4 ROYALTIES. Licensee shall pay Immunex a royalty of * in respect of the
annual Net Sales of all Developed Products * following the last day of each
Calendar Quarter following * Such royalties shall not be returnable in any
event. *
3.5 ROYALTY REPORTS AND TERM. *
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3.6 CURRENCY CONVERSION. Royalty and milestone payments by Licensee shall
be made to Immunex in U.S. Dollars. For converting any royalty payments on Net
Sales made in a currency other than U.S. Dollars, Net Sales shall first be
determined in the currency of the country in which they are earned and shall be
converted each Calendar Quarter into an account in U.S. Dollars at the average
of the bid and ask prices reported in the WALL STREET JOURNAL as of the close of
the last business day of such Calendar Quarter in which such royalty is due. If
the last day of such Calendar Quarter is not a business day, then the closest
preceding business day shall be used for such calculation. All such converted
Net Sales shall be consolidated with U.S. Net Sales for each Calendar Quarter
and the applicable royalty payable determined therefrom. If by law, regulation
or fiscal policy of a particular country, remittance of royalties in U.S.
Dollars is restricted or forbidden, notice thereof will be promptly given to
Immunex, and payment of the royalty shall be made by the deposit thereof in
local currency to the credit of Immunex in a recognized banking institution
designated by Licensee. When in any country a law or regulation prohibits both
the transmittal and deposit of royalties on sales in such a country, royalty
payments shall be suspended for as long as such prohibition is in effect and as
soon as such prohibition ceases to be in effect, all royalties that Licensee
would have been under obligation to transmit or deposit but for the prohibition,
shall forthwith be deposited or transmitted promptly to the extent allowable.
The actual currency conversion calculations by Licensee for any country for a
particular Calendar Quarter shall be included in the royalty report provided to
Immunex for such Calendar Quarter under Section 3.5 above.
3.7 WITHHOLDING TAXES. All royalty amounts required to be paid to Immunex
pursuant to this Agreement may be paid with deduction for withholding for or on
account of any taxes (other than taxes imposed on or measured by net income) or
similar governmental charge imposed by a jurisdiction other than the United
States ("Withholding Taxes"). At Immunex's request, Licensee shall provide
Immunex a certificate evidencing payment of any Withholding Taxes hereunder and
shall reasonably assist Immunex to obtain the benefit of any applicable tax
treaty, at Immunex's sole cost for providing such reasonable assistance.
4. RECORDS
4.1 LICENSEE'S RECORDS. Licensee shall keep and maintain, and shall
require each Affiliate to keep and maintain, in accordance with generally
acceptable accounting principles, adequate records in sufficient detail to
enable the payments due under Sections 3.3 and 3.4 to be determined. Nothing
herein shall require Licensee or any Affiliate to retain such records longer
than three (3) years after the payments to which they relate are paid.
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4.2 AUDITS. At Immunex's request and expense. Licensee shall permit such
records under Section 4.1 to be inspected at any time during regular business
hours, but not more than once in any calendar year, by an independent public
accountant, appointed by Immunex for this purpose and reasonably acceptable to
Licensee, who shall report to Immunex only the amount of the royalties due
hereunder. If such independent public accountant reasonably determines that such
royalties, after adjustments in accordance with generally acceptable accounting
principles, have been understated by Licensee, for any calendar year. Licensee
shall pay the amount due for all royalties not properly reported. If it is
determined that Licensee has understated such royalties by an amount equal to or
greater than * Licensee shall pay all reasonable fees and costs
incurred by such independent public accountant in the course of making such
determination.
5. TERM AND TERMINATION
5.1 TERM. *
5.2 IMMUNEX'S RIGHT TO TERMINATE. Immunex shall have the right to
terminate this Agreement, including the licenses granted herein, in the event
that any material term or condition of this Agreement is breached by Licensee or
an Affiliate, and such breach is unremedied for a period of * after Licensee's
receipt of Immunex's written notice thereof. If such breach is corrected within
the * period, this Agreement and the rights granted shall continue in force.
5.3 LICENSEE'S RIGHT TO TERMINATE. In the event that Licensee determines
that it will no longer carry out or continue drug discovery, research,
development of manufacturing using Licensed Patent Rights or continue
development or sale of Developed Products. Licensee shall notify Immunex in
writing, and this Agreement shall be terminated as of the date Immunex receives
such notice from Licensee.
5.4 CONTINUING OBLIGATIONS. Termination of this Agreement shall not
relieve License of any obligations to make payment of any sum due prior to
termination
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under Article 3, or to keep records and provide written reports with
respect thereto, and to permit inspection thereof in accordance with Section 4.2
6. WARRANTIES
6.1 WARRANTIES AND REPRESENTATIONS OF IMMUNEX. Immunex warrants to
Licensee that:
6.1.1 Immunex is a corporation duly organized, validly existing and
in good standing under the laws of the State of Washington and has all
necessary corporate power to enter into and perform its obligations under
this Agreement.
6.1.2 the execution, delivery and performance of this Agreement by
Immunex have been duly authorized and approved by all necessary corporate
action, and this Agreement is binding, upon and enforceable against Immunex
in accordance with its terms (subject to bankruptcy and similar laws
affecting the rights of creditors generally);
*
6.2 WARRANTIES AND REPRESENTATION OF LICENSEE. Licensee represents and
warrants to Immunex that:
6.2.1 Licensee is a corporation duly organized, validly existing, and
in good standing, under the laws of the State of Texas and has all
necessary corporate power to enter into and perform their obligations under
this Agreement;
6.2.2 the execution, delivery and performance of this Agreement by
Licensee, have been duly authorized and approved by all necessary corporate
action, and this Agreement is binding, upon and enforceable against
Licensee, in accordance with its terms (subject to bankruptcy and similar
laws affecting rights of creditors generally); and
6.2.3 during the Term of this Agreement, Licensee shall not practice
the Licensed Patent Rights other than as specifically authorized in this
Agreement.
6.3 LIMITATION OF LIABILITY. Immunex has no control over the manner in
which the Licensee intends to use the Developed Products or Licensed Patent
Rights. Immunex shall not be liable to Licensee for any losses, damages, costs
or
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expenses of any nature incurred or suffered by Licensee or by a Third Party,
arising, out of any dispute or other claims or proceedings made by or brought
against Licensee, (including, without limitation, product liability claims and
claims by a Third Party alleging infringement of its intellectual property
rights by the use or sale of any Developed Product), nor shall Immunex be
responsible in any way for dealing with any such dispute, claim or proceedings,
except to the extent that any such dispute, claim or proceeding arises from (a)
a breach by Immunex of any warranty set forth in Section 6.1 hereof, or (b) the
gross negligence or willful misconduct by Immunex, its employees, agents or
directors. EXCEPT AS SET FORTH IN SECTION 6.1 OR 6.2 HEREOF, NEITHER PARTY MAKES
ANY PRODUCT WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IMMUNEX SHALL NOT BE LIABLE
TO LICENSEE FOR ANY USE OF LICENSED PATENT RIGHTS BY LICENSEE OR FOR ANY LOSS,
CLAIM, DAMAGE, OR LIABILITY, OF ANY KIND OR NATURE, WHICH MAY ARISE FROM OR IN
CONNECTION WITH THIS AGREEMENT. NEITHER PARTY TO THIS AGREEMENT SHALL BE
ENTITLED TO RECOVER FROM THE OTHER ANY SPECIAL INCIDENTAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES. IN ADDITION, THE PARTIES MAKE NO REPRESENTATIONS AND EXTEND NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, AND PARTICULARLY THAT
PRODUCTS WILL BE DEVELOPED HEREUNDER, WILL HAVE COMMERCIAL UTILITY OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. FURTHERMORE, IMMUNEX MAKES
NO WARRANTY EITHER EXPRESS OR IMPLIED THAT THE COMMERCIALIZATION OF DEVELOPED
PRODUCTS USING THE LICENSED PATENT RIGHTS WILL NOT INFRINGE ANY OTHER
INTELLECTUAL PROPERTY OF A THIRD PARTY.
6.4 NO CONFLICT. Each Party represents and warrants that, notwithstanding
anything to the contrary in this Agreement, the execution and delivery of this
Agreement and the performance of its obligations hereunder (a) do not conflict
with or violate any requirements of applicable laws or regulations and (b) do
not and shall not conflict with, violate or breach or constitute a default or
constitute a default or require any consent under, any contractual obligation.
7. INDEMNIFICATION
7.1 Licensee shall indemnify and hold harmless each of Immunex, its
successors and assigns, and the officers, employees, agents and counsel thereof
(the "Immunex Indemnities") from and against any and all claims of whatever
kind or nature, including, without limitation, any claim or liability based upon
any theory of negligence, warranty, strict liability, violation of government
regulation or infringement of patent or other proprietary rights, arising from
or occurring as a
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result of (a) the use of Licensed Patent Rights and Developed Products by
Licensee or any agent of Licensee, or (b) any breach of this Agreement by
Licensee, provided:
7.1.1 Licensee shall not be obligated under this Section to the
extent that such claim or liability was the result of the breach of any
warranty of Immunex set forth in Section 6.1 hereof, or gross negligence or
willful misconduct of any employee or agent of Immunex;
7.1.2 Licensee shall have no obligation under this Article unless
Immunex (a) gives Licensee at least thirty (30) days written notice of any
claim or liability for which it seeks to be indemnified under this
Agreement, (b) Licensee is granted full authority and control over the
defense, including settlement, of such claim or liability, and (c) Immunex
cooperates fully with Licensee and its agents in defense of the claim or
liability; and
7.1.3 Immunex shall have the right, at its own expense, to have its
own counsel participate in the defense of any such claim or liability
referred to in this Article, provided, however, that Licensee shall have
full authority and control to handle any such claim or liability, including
any settlement or other disposition thereof, for which Immunex seeks
indemnification under this Article and such counsel shall cooperate with
Licensee.
8. MISCELLANEOUS
8.1 NOTICES. All notices, reports, and other communications to Immunex or
Licensee shall be in writing (including electronic facsimile transmissions),
shall refer specifically to this Agreement and shall be sent by electronic
facsimile transmission or by registered mail or certified mail, return receipt
requested, postage prepaid, by express courier services providing evidence of
delivery, in each case to the respective address specified below (or to such
address as may be specified in writing to the other Party);
If addressed to Licensee:
Tanox, Inc.
10301 Stella Link
Houston, Texas 77025
Attention: Nancy T. Chang, President
Fax: (713) 664-8914
with a copy to:
Head of Legal Affairs
Fax: (713) 664-8914
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and if to Immunex shall be sent to:
Immunex Corporation
51 University Street
Seattle, Washington 98101
Attn: General Counsel
Fax: (206) 233-0644
8.2 FORCE MAJEURE. Immunex and Licensee shall each be excused for any
failure or delay in performing any of its respective obligations under this
Agreement if such failure or delay is caused by Force Majeure. The Party
affected by the Force Majeure shall use all reasonable efforts to correct the
Force Majeure as quickly as possible and to give the other Party prompt written
notice when it is again fully able to perform its obligations hereunder.
8.3 ASSIGNABILITY. Neither this Agreement nor the rights herein granted
may be assigned by either Party to any Third Party without the written consent
of the other, which consent shall not be unreasonably withheld; provided,
however, that either Party may assign this Agreement to any Affiliate, or to any
corporation with which it may merge or consolidate or to which it may transfer
all or substantially all of its assets to which this Agreement relates, without
obtaining the consent of the other Party.
8.4 AMENDMENTS. No terms or provisions of this Agreement shall be varied
or modified by any prior or subsequent statement, conduct or act of either of
the Parties, whether oral or written, except that the Parties may amend this
Agreement by written instruments specifically referring to and executed in the
same manner as this Agreement.
8.5 SEVERABILITY. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible and (b)
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, Immunex and Licensee hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect. In the event that the terms and conditions of this
Agreement are materially altered as a result of this Section, the parties will
renegotiate the terms and conditions of this Agreement to resolve any
inequities.
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8.6 HEADINGS. Headings used herein are for convenience only and shall not
in any way affect the construction of, or be taken into consideration
interpreting this Agreement.
8.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of such
counterparts taken together shall constitute one and the same instrument.
8.8 ENTIRE AGREEMENT. This Agreement, on and as of the Effective Date
hereof, constitutes the entire agreement between the parties relating to the
subject matter hereof and supersedes all previous or contemporaneous writings
and understanding, whether written or oral.
8.9 BANKRUPTCY. Notwithstanding the bankruptcy of Immunex, or the
impairment of performance by Immunex of its obligations under this Agreement as
a result of bankruptcy or insolvency of Immunex, Licensee shall be entitled to
retain the licenses granted herein, subject to Immunex's rights to terminate
this Agreement for reasons other than bankruptcy or insolvency as expressly
provided in this Agreement, and subject to performance by Licensee of its
preexisting obligations under this Agreement.
All rights and licenses granted under or pursuant to this Agreement by Immunex
to Licensee, are, and shall otherwise be deemed to be, for purposes of Section
365(n) of the U.S. Bankruptcy Code, licenses of rights to "intellectual
property" as defined under Section 101(52) of the U.S. Bankruptcy Code. The
parties agree that Licensee, as a license of such rights under this Agreement,
shall retain and may fully exercise all of its rights and elections under the
U.S. Bankruptcy Code, subject to performance by Licensee of its preexisting
obligations under this Agreement. The parties further agree that, in the event
of the commencement of a bankruptcy proceeding by or against Immunex under the
U.S. Bankruptcy Code, Licensee shall be entitled to a complete duplicate of (or
complete access to, as appropriate) any such intellectual property and all
embodiments of such intellectual property, and same, if not already in its
possession, shall be promptly delivered to Licensee (a) upon any such
commencement of a bankruptcy proceeding upon written request therefor by
Licensee, unless Immunex elects to continue to perform all of its obligations
under this Agreement, or (b) if not delivered under (a) above, upon the
rejection of this Agreement by or on behalf of Immunex upon written request
therefor by Licensee, provided, however, that upon Immunex's (or its
successor's) written notification to Licensee that it is again willing and able
to perform all of its obligations under this Agreement. Licensee shall promptly
return all such tangible materials to Immunex, but only to the extent that
Licensee does not require continued access to such materials to enable Licensee
to perform its obligations under this Agreement.
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8.10 RELATIONSHIP. The relationship of employer and employee shall not
exist between Immunex and Licensee under this Agreement. This Agreement shall
not be deemed to establish a joint venture or partnership between Licensee and
Immunex. Nothing contained in this Agreement shall be construed, by implication
or otherwise, as an obligation incurred by Licensee to enter into any further
agreement with Immunex.
8.11 APPLICABLE LAW. This Agreement is acknowledged to have been made in
and shall be construed in accordance with the laws of the state of Washington
without reference to any rules govening conflicts of laws.
[This space is intentionally left blank.]
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8.12 PRESS RELEASE. *
IN WITNESS WHEREOF, the parties have executed the Agreement and have entered the
effective date of the first page hereof.
IMMUNEX CORPORATION TANOX, INC.
By: /s/BARRY G. PEA By: /s/NANCY T. CHANG
Name: Barry G. Pea Name: Nancy T. Chang
Vice President and Title: President and CEO
Title: Deputy General Counsel
Date: 1-12-00 Date: 1/11/00
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Houston, Texas
February 8, 2000
